Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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 16, 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 nine months ended September 30, 2026, we remain in the early stages of commercialization. Our activities during the nine months ended September 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.

Going Concern

The Company's consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of September 30, 2026, the Company has an accumulated deficit of approximately $10.8 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 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.

Recent Developments

On July 17, 2026, 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.

On August 10, 2026, the Company entered into a Consulting Services Agreement with JRMS Consulting LLC, a Texas limited liability company ("JRMS"), of which John Gerdin is the Manager and through whom JRMS provides services, pursuant to which JRMS will provide board governance, strategic advisory, corporate finance, business development and capital markets advisory services to the Company. JRMS is not entitled to any commission, success fee or other compensation based upon the amount or completion of any financing or securities transaction. As compensation, JRMS will receive a cash retainer of $2,000 per month for board service and related governance responsibilities, and a contingent right to purchase, at $0.001 per share, a number of shares of the Company's common stock equal to $240,000 divided by the closing price on the first trading day following the date on which the right vests (the "Vesting Date"). The right vests only if the Company completes a reverse or forward stock split, recapitalization, reclassification, exchange of equity securities or other transaction that materially alters its outstanding capitalization or per-share trading price, and JRMS remains continuously engaged through the completion of such transaction; otherwise, the right is forfeited. If the lowest closing price during the ten trading days preceding the first anniversary of the Vesting Date is less than the initial valuation price, the Company will issue additional shares so that the aggregate value of all shares issued, measured at that lower price, equals $240,000, with no reduction if the trading price increases. As a result, the number of shares ultimately issuable is not currently determinable, and a decline in the trading price of the Company's common stock would increase the number of shares issuable and the resulting dilution to existing stockholders.

On August 11, 2026, the Board of Directors (the "Board") appointed Mr. Gerdin as a member of the Board, effective as of that date.

On September 30, 2026, the Company entered into exchange agreements (each, an "Exchange Agreement") with twelve of its officers, directors, consultants and advisors (each, a "Holder"), each of whom held a contractual right to $240,000 of stock-based compensation payable in shares of the Company's common stock (the "Existing Compensation Right"). Under each Exchange Agreement, the Holder agreed to exchange its Existing Compensation Right for up to 24,000 shares of the Company's newly designated Series C Convertible Preferred Stock, par value $0.001 per share (the "Series C Preferred Stock"), and the Company may issue up to 288,000 shares of Series C Preferred Stock in the aggregate. In connection with the Exchange Agreements, on October 2, 2026, the Company filed the Certificate of Designation of Series C Convertible Preferred Stock (the "Certificate of Designation") with the Secretary of State of the State of Texas, designating 500,000 of the Company's 100,000,000 authorized shares of preferred stock, par value $0.001 per share, as Series C Preferred Stock. The Certificate of Designation became effective upon filing. Each share of Series C Preferred Stock is convertible at the holder's option into one share of common stock, subject to customary adjustments, beginning in the first full calendar quarter after the later of (i) the date the holder's underlying compensation fully vests and (ii) the earlier of the 20th trading day after the common stock begins trading on a national securities exchange and nine months after the original issue date. Thereafter, a holder may convert up to 30% of its original entitlement in each of the first three calendar quarters and the balance in the fourth quarter, and unused quarterly allowances do not carry forward. The Series C Preferred Stock votes with the common stock as a single class on an as-converted basis, subject to a 4.99% voting limitation, and ranks senior to the common stock with respect to dividends and liquidation, with holders entitled in a liquidation to the amount they would have received upon conversion. Until the earlier of the listing of the common stock on a national securities exchange and nine months after the original issue date, the Company may, at its option, repurchase all or any portion of the Series C Preferred Stock for cash at $12.50 per share (125% of face value). Holders have no right to require redemption, and the Series C Preferred Stock is not subject to mandatory redemption or cash settlement. The foregoing descriptions of the Exchange Agreements and the Certificate of Designation do not purport to be complete and are qualified in their entirety by reference to the form of Exchange Agreement and the Certificate of Designation, which are filed as Exhibits 10.1 and 3.1, respectively, to the Company's Current Report on Form 8-K filed with the SEC on October 6, 2026, and incorporated herein by reference.

Results of Operations

Three Months Ended September 30, 2026

The following table sets forth the unaudited results of our operations for the three months ended September 30:

We did not generate revenue during the three months ended September 30, 2026.

The following table sets forth the operating expenses for the three months ended September 30:

The following table sets forth the stock-based compensation expense included in the above operating expenses for the three months ended September 30:

Consulting fees totaling $783,692 consist of advisory services agreements entered into for key management positions, third-party advisors and directors and which are primarily stock compensation based. Professional fees totaling $195,326 are comprised primarily of legal and accounting fees reflecting costs associated with additional public company filings. Corporate communications and marketing costs reflect activity related to investor relations, product awareness and trade shows. Research and development costs totaling $112,195 relate to engineering efforts towards development of the Company's prototypes. Included in other operating expenses totaling $100,893 are travel and entertainment expenses totaling $48,112, IT expenses totaling $22,514 and office and related costs totaling $15,653.

Nine Months Ended September 30, 2026

The following table sets forth the unaudited results of our operations for the nine months ended September 30:

As a result of the reverse recapitalization, results of operations for the nine months ended September 30, 2026 include the results of Kepler for the full period and the results of AMFN from February 27, 2026.

Our sales totaled $58,000 for the nine months ended September 30, 2026, 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 nine months ended September 30:

The following table sets forth the stock-based compensation expense included in the above operating expenses for the nine months ended September 30:

Consulting fees totaling $1,379,925 consist of advisory services agreements entered into for key management positions, third-party advisors and directors and which are primarily stock compensation based. Professional fees totaling $438,908 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 $159,589 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 $111,206 related to stock-based compensation agreements with various third-party providers. Research and development costs totaling $243,538 relate to acceleration of engineering efforts towards development of the Company's prototypes and include $155,835 related to a stock-based compensation agreement. Included in other operating expenses totaling $231,486 are travel and entertainment expenses totaling $102,820, public company expenses totaling $51,740, IT expenses totaling $42,035 and office and related costs totaling $15,852.

Liquidity and Capital Resources

During the nine months ended September 30, 2026, our cash and cash equivalents increased by $70,633 reflecting cash used in operating activities of $1,256,872 and cash used in investing activities of $223,495, offset by cash provided from financing activities of $1,551,000. At September 30, 2026, the Company had a working capital deficit of $1,325,931 and cash on hand of $70,633.

Operating Activities

Cash flows used in operating activities totaled $1,256,872 for the nine months ended September 30, 2026. Cash flows used in operating activities primarily reflect the net loss of $2,800,078 partially offset by stock-based compensation of $1,407,414 and an increase in accounts payable and accrued expenses of $136,265.

Investing Activities

Cash flows used in investing activities of $223,495 reflect capitalized property and equipment of $44,169 and costs of $181,992 associated with the filing of new patents and website development, partially offset by cash of $2,666 acquired in connection with the reverse recapitalization.

Financing Activities

Cash flows provided by financing activities resulted from prepaid warrant funding totaling $1,071,000 and the sale of equity units totaling $480,000. 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.

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.

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.