Note 2 – Summary of Significant Accounting Policies

Basis of presentation and consolidation – The accompanying unaudited interim condensed consolidated financial statements have been prepared on an accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes of Private Blue Laser Fusion as of and for the year ended December 31, 2025, which were included as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 9, 2026. The condensed consolidated balance sheet as of December 31, 2025, included herein, was derived from the audited consolidated financial statements of Private Blue Laser Fusion as of that date, but does not include all of the information and disclosures required by U.S. GAAP for complete financial statements.

These unaudited interim condensed consolidated financial statements, in the opinion of management, reflect all adjustments necessary to present fairly the Company’s financial position as of September 30, 2026 and the Company’s results of operations and comprehensive loss for the three and nine months ended September 30, 2026 and 2025, and its convertible preferred stock and stockholders’ equity activities and cash flows for the nine months ended September 30, 2026 and 2025. The results for the three and nine months ended September 30, 2026 are not necessarily indicative of the results to be expected for the year ending December 31, 2026 or for any interim period or for any other future year.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Blue Laser Subsidiary, Inc. and Blue Laser Fusion GK. All intercompany transactions and balances have been eliminated upon consolidation. These unaudited condensed consolidated financial statements are presented in U.S. dollars.

Use of estimates – The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Certain risks and uncertainties – The Company is subject to a number of risks similar to other companies in a comparable stage of development, including the need for successful commercialization and demand for the Company’s future products and services; reliance on key personnel; competition from other companies with greater financial, technical, and research and development resources; and the risks relating to the ability to secure adequate financing.

 

Fair value of financial instruments – Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. ASC 820, Fair Value Measurement and Disclosures, establishes a hierarchy whereby inputs to valuation techniques used in measuring fair value are prioritized, or the fair value hierarchy. There are three levels to the fair value hierarchy based on reliability of inputs, as follows:

 

 

 

The Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them for each reporting period, utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The determination requires significant judgments to be made by the Company. The Company’s money market account is classified within Level 1 of the fair value hierarchy as it is valued based on quoted prices in active markets. There were no transfers between levels during the three and nine months ended September 30, 2026 and 2025.

The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of September 30, 2026 and December 31, 2025 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine the fair value (in thousands):

 

Cash equivalents consist of money market funds, which were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy.

Concentrations of credit risk – Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents with financial institutions, the balances of which may exceed federally insured limits. If any of the financial institutions with whom the Company does business were to be placed into receivership, the Company may be unable to access the funds it has on deposit with such institutions. If the Company is unable to access its cash and cash equivalents as needed, the Company’s financial position and ability to operate its business could be adversely affected.

 

The Company had $3.0 million and $0.8 million in deposits in excess of the Federal Deposit Insurance Corporation (“FDIC”) limits at September 30, 2026 and December 31, 2025, respectively. At September 30, 2026 and December 31, 2025, the Company also held $29.7 million and $15.4 million, respectively, in money market funds classified as cash and cash equivalents that were not FDIC insured. 

In addition, the Company’s Japanese subsidiary, Blue Laser Fusion GK, maintains cash deposits with a financial institution in Japan. deposits are insured by the Deposit Insurance Corporation of Japan (“DICJ”) up to ¥10 million (approximately $64 thousand) of principal, plus accrued interest, per depositor per financial institution; foreign currency deposits are not insured by the DICJ. As of September 30, 2026 and December 31, 2025, Blue Laser Fusion GK held cash deposits of approximately $0.1 million at each date, of which approximately $0.03 million and $0.04 million, respectively, exceeded the DICJ insurance limit. The Company has not experienced any losses on these deposits and believes it is not exposed to significant credit risk due to the financial position of the financial institution in which they are held.

Revenue Recognition – The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. Under ASC 606, the Company applies the following five-step model to determine when and how revenue is recognized:

 

 

 

 

 

When an arrangement includes multiple promised goods or services, the Company evaluates whether each promised good or service is distinct. Promised goods or services that are not distinct are combined into a single performance obligation.

The Company derives revenue from the licensing of its proprietary software. In October 2025, the Company entered into a software license agreement (the “2025 Agreement”). Under the 2025 Agreement, the Company granted a limited, non-exclusive, non-transferable license to use its radiation-hydrodynamics simulation software for a six-month term commencing October 1, 2025 and terminating March 31, 2026, in exchange for a fixed, non-refundable monthly fee denominated in Japanese yen. The Company determined that the software license represents functional intellectual property and recognized the transaction price at a point in time upon delivery of the software to the customer. No revenue was recognized under the 2025 Agreement during the three and nine months ended September 30, 2025, as the agreement was not entered into until October 2025. The full transaction price was recognized upon delivery in October 2025. The 2025 Agreement expired in accordance with its terms on March 31, 2026.

On March 19, 2026, the Company entered into a new Software License and Service Agreement (the “2026 Agreement”), pursuant to which the Company granted a limited, non-exclusive, non-transferable license to use its radiation-hydrodynamics simulation software, together with installation, operation, integration and support services, for a twelve-month term commencing April 1, 2026 and terminating March 31, 2027, in exchange for a fixed, non-refundable monthly fee of approximately $10 thousand (¥1.5 million). Total fixed consideration under the 2026 Agreement is approximately $114 thousand (¥18.0 million), payable in equal monthly installments over the term. The 2026 Agreement was entered into upon the expiration of the 2025 Agreement. The Company determined that the software license and the related integration and support services are not distinct within the context of the contract, because the services significantly integrate customer-developed functionality into the licensed software; accordingly, the Company accounts for the arrangement as a single combined performance obligation. Because the customer

 

simultaneously receives and consumes the benefits of the combined software and support services as the Company performs, the performance obligation is satisfied over time, and the Company recognizes the transaction price straight-line over the twelve-month term. The Company recognized $28 thousand and $57 thousand of revenue under the 2026 Agreement during the three and nine months ended September 30, 2026, respectively, representing ratable recognition for the three months ended September 30, 2026 and for the period from commencement on April 1, 2026 through September 30, 2026, respectively.

Deferred transaction costs - Legal, accounting and other direct costs incurred in connection with the Merger and the Offering were capitalized as deferred transaction costs within prepaid expenses and other current assets until the Closing. The balance of deferred transaction costs was $0.7 million as of June 30, 2026. Upon the closing of the Offering in September 2026, that balance was reclassified to additional paid-in capital as a reduction of the proceeds of the Offering (see Note 3). As a result, no deferred transaction costs remained capitalized as of September 30, 2026, and none had been capitalized as of December 31, 2025.

Net loss per share – Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of Common Stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potentially dilutive securities using the treasury stock method; because the Company reported a net loss in all periods presented, diluted net loss per share equals basic net loss per share.

For periods prior to the Merger, the weighted-average number of shares outstanding has been computed on the basis of the weighted-average number of shares of Private Blue Laser Fusion common stock outstanding multiplied by the Exchange Ratio (see Note 1). The Series Seed-1 and Series Seed-2 Convertible Preferred Stock is excluded from the weighted-average shares outstanding for periods prior to the Preferred Conversion on September 4, 2026 and is included in the potentially dilutive securities below on an as-converted basis. From the Closing Date, the actual number of shares of Common Stock outstanding is used.

The following potentially dilutive securities, presented on a recast basis, were excluded from the computation of diluted net loss per share because their effect would have been anti-dilutive:

 

Recently issued accounting pronouncements not yet adopted – In November 2024, the FASB issued ASU No. 2024-03 (“ASU 2024-03”), Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40). This ASU requires public business entities to disclose disaggregated information about certain income statement expense captions in a tabular format in the notes to the unaudited condensed consolidated financial statements, including categories such as employee compensation, depreciation, and intangible asset amortization. In January 2025, the FASB issued ASU No. 2025-01, which amended the effective date of ASU 2024-03. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2024-03 on its unaudited condensed consolidated financial statements and related disclosures.

 

In May 2025, the FASB issued ASU (“ASU . This ASU requires an entity to consider the factors in ASC through in determining the accounting acquirer in a transaction effected primarily by exchanging equity interests in which the legal acquiree is a variable interest entity that meets the definition of a business, rather than defaulting to the primary beneficiary of that entity. ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, and is applied prospectively to acquisition transactions occurring on or after the date of adoption. Early adoption is permitted. The Company is currently evaluating the impact of ASU on its unaudited condensed consolidated financial statements and related disclosures.

Segment Reporting -The Company operates and manages its business on a consolidated basis as one operating and reportable segment, the research and development of its laser fusion energy technology, and its Chief Executive Officer, who is the chief operating decision maker (“CODM”), uses consolidated net loss, as reported in the condensed consolidated statements of operations and comprehensive loss, to monitor budgeted versus actual results, evaluate cash runway through forecast models, and allocate resources, with segment assets reported as total assets on the balance sheets. Significant segment expenses regularly provided to the CODM consist of research and development expenses and general and administrative expenses.

Emerging Growth Company - Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934 (the “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when an accounting standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised accounting standards.

Foreign Currency and Currency Translation—The functional currency of the Company is the U.S. dollar. The functional currency of the Company’s Japanese subsidiary, Blue Laser Fusion GK, is the Japanese yen. Assets and liabilities of Blue Laser Fusion GK are translated into U.S. dollars using the exchange rate in effect as of the balance sheet date, and revenues and expenses are translated using the weighted-average exchange rate for the reporting period. The resulting translation adjustments are reported as a component of other comprehensive loss and are accumulated as a separate component of stockholders’ equity. Foreign currency transaction gains and losses arising from transactions and balances denominated in currencies other than an entity’s functional currency are recorded within other income (expense) in the condensed consolidated statements of operations and comprehensive loss. Foreign currency transaction gains and losses were not material for the three and nine months ended September 30, 2026 and 2025.

The Company’s operations in Japan are subject to risks inherent in operating under a different legal system and political and economic environment, including changes in tax laws and regulations, possible limitations on foreign investment and the repatriation of earnings, and government-imposed foreign exchange controls or restrictions on currency exchange.