Fusemachines Inc 10-Q for FY2026 Q2
Fusemachines Inc. (FUSE)
About this 10-Q
Fusemachines Inc filed this 10-Q on August 7, 2026, covering the quarter ended June 30, 2026 (FY2026 Q2).
Headline figures
Quarter ended June 30, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.79M
- down 11.8% from $2.03M a year earlier
- Net loss
- $2.85M
- compared with a net loss of $3.79M a year earlier
- Diluted EPS
- -$0.10
- compared with -$0.52 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from to
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices and zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Stock Market LLC | ||||
| Stock Market LLC |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was
required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of August 6, 2026, the registrant had shares of voting common stock outstanding.
Fusemachines Inc.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2026
TABLE OF CONTENTS
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are based on our management’s current beliefs and assumptions and on information currently available to our management, and are contained principally in the sections entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “best in class,” “could,” “seeks,” “estimates,” “expects,” “first-in-class,” “focused,” “goal,” “intends,” “may,” “objective,” “opportunity,” “pipeline,” “plans,” “potential,” “predicts,” “projects,” “pursuing,” “should,” “target,” “treatment option,” “will,” “would,” “might,” “can,” “continue” or similar expressions and the negatives of those terms.
These forward-looking statements include, among other things, statements about:
| ● | our ability to effectively operate our business segments; | |
| ● | our ability to manage our research, development, expansion, growth and operating expenses; | |
| ● | our ability to evaluate and measure our business, prospects and performance metrics; | |
| ● | our ability to compete, directly and indirectly, and succeed in a highly competitive and evolving industry; | |
| ● | our ability to respond and adapt to changes in technology and customer behavior; | |
| ● | our ability to protect our intellectual property and to develop, maintain and enhance a strong brand; and | |
| ● | other factors (including the risks contained in the section of this Quarterly Report on Form 10-Q entitled “Risk Factors”) relating to our industry, our operations and results of operations. |
Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Fusemachines Inc. and Subsidiaries
Condensed Consolidated Interim Balance Sheets
(all amounts in USD, in thousands, except number of shares and per share data)
June 30, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | ||||||||
| Accounts receivable, net | ||||||||
| Unbilled revenue | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Deferred tax assets | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other assets | ||||||||
| Total assets | ||||||||
| Liabilities and stockholders’ deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Related party loan payable | ||||||||
| Operating lease liability, current | ||||||||
| Forward purchase derivative liability | ||||||||
| Short term debt | ||||||||
| Total current liabilities | ||||||||
| Accounts payable non-current | ||||||||
| Warrant liability | ||||||||
| Cumulative mandatorily redeemable common and preferred stock liability | ||||||||
| Operating lease liability | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholder’s deficit: | ||||||||
| Convertible preferred stock ($ par value, shares authorized as of June 30, 2026 and December 31, 2025, respectively; shares issued as of June 30, 2026 and December 31, 2025, respectively ; shares outstanding as of June 30, 2026 and December 31, 2025) | ||||||||
| Common stock ($ par value, shares authorized as of June 30,2026 and December 31, 2025; shares and shares issued and outstanding as of June 30,2026 and December 31, 2025 respectively) | ||||||||
| Additional paid in capital | ||||||||
| Share subscription receivable | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | ||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
| 1 |
Fusemachines Inc. and Subsidiaries
Unaudited Condensed Consolidated Interim Statements of Operations and Comprehensive Loss
(all amounts in USD, in thousands, except number of shares and per share data)
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Three Month ended, June 30 | Six Month ended, June 30 | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Revenue | ||||||||||||||||
| Cost of revenue | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross Profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income: | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on extinguishment of convertible notes payable | ( | ) | ||||||||||||||
| Gain on extinguishment of payable | ||||||||||||||||
| Gain/(loss) on change in fair value of convertible notes and warrant liability | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain/(loss) on change in fair value of forward purchase derivative liability | ||||||||||||||||
| Other (expense) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other (expense)/income, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income tax | ( | ) | ||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deemed dividend related to Shortfall Warrants modification | ( | ) | ||||||||||||||
| Net loss attributable to common stockholders (i) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Weighted-average common shares outstanding - basic and diluted (ii) | ||||||||||||||||
| Net loss per common share - basic and diluted (i/ii) | ) | ) | ) | ) | ||||||||||||
| Comprehensive income (loss) | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in foreign currency translation adjustment | ||||||||||||||||
| Total comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
| 2 |
Fusemachines Inc. and Subsidiaries
Unaudited Condensed Consolidated Interim Statements of Stockholder’ Deficit
(all amounts in USD, in thousands, except number of shares and per share data)
| Three months ended June 30, 2026 | Shares | Amount* | Shares | Amount* | Additional paid-in capital Amount | Shares | Amount* | Share Subscription Receivable Amount | Accumulated deficit Amount | other comprehensive Income Amount | Total stockholders’ deficit Amount | |||||||||||||||||||||||||||||||||
Convertible preferred stock* | Common stock * | Treasury stock* |
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2026 | Shares | Amount | Shares | Amount | Additional paid-in capital Amount | Shares | Amount | Share Subscription Receivable Amount | Accumulated deficit Amount | other comprehensive Income Amount | Total stockholders’ deficit Amount | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2026 | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock option | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon cashless exercise of stock option | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2026 (unaudited) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
Convertible preferred stock* | Common stock * | Treasury stock* |
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2025 | Shares | Amount | Shares | Amount | Additional paid-in capital Amount | Shares | Amount | Share Subscription Receivable Amount | Accumulated deficit Amount | other comprehensive Income Amount | Total stockholders’ deficit Amount | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2025 (unaudited) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| 3 |
Fusemachines Inc. and Subsidiaries
Unaudited Condensed Consolidated Interim Statements of Stockholder’ Deficit
(all amounts in USD, in thousands, except number of shares and per share data)
| Six months ended June 30, 2026 | Shares | Amount* | Shares | Amount* | Additional paid-in capital Amount | Shares | Amount* | Share Subscription Receivable Amount | Accumulated deficit Amount | other comprehensive Income Amount | Total stockholders’ deficit Amount | |||||||||||||||||||||||||||||||||
Convertible preferred stock* | Common stock * | Treasury stock* |
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Six months ended June 30, 2026 | Shares | Amount | Shares | Amount | Additional paid-in capital Amount | Shares | Amount | Share Subscription Receivable Amount | Accumulated deficit Amount | other comprehensive Income Amount | Total stockholders’ deficit Amount | |||||||||||||||||||||||||||||||||
| Balance at December 31, 2025 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon cashless exercise of stock option | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Shares withheld related to cashless exercise | - | ( | ) | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Deemed dividend related to Shortfall Warrants modification ( refer note 15 ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock option | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2026 (unaudited) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
Convertible preferred stock* | Common stock * | Treasury stock* |
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Six months ended June 30, 2025 | Shares | Amount | Shares | Amount | Additional paid-in capital Amount | Shares | Amount | Share Subscription Receivable Amount | Accumulated deficit Amount | other comprehensive Income Amount | Total stockholders’ deficit Amount | |||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Retroactive application of recapitalization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Loss for extinguishment of convertible notes payable | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of shares upon repayment of 2023 Promissory Notes | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2025 (unaudited) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| * | |
| * |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
| 4 |
Fusemachines Inc. and Subsidiaries
Unaudited Condensed Consolidated Interim Statements of Cash Flows
(all amounts in USD, in thousands)
| 2026 | 2025 | |||||||
| Six months ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Cash flows from operating activities | ||||||||
| Net Loss | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation of property and equipment | ||||||||
| Amortization of intangible assets | ||||||||
| Provision for credit losses | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Amortization of right-of-use assets | ||||||||
| Changes in fair value of convertible notes at fair value and warrant liability | ( | ) | ||||||
| Change in fair value of forward purchase derivative liability | ( | ) | ||||||
| Accretion of cumulative mandatorily redeemable common and preferred stock liability | ||||||||
| Loss on extinguishment of convertible notes payable | ||||||||
| Gain on extinguishment of payable | ( | ) | ||||||
| Unrealized foreign exchange gain/(loss) | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, current, net | ||||||||
| Unbilled revenue | ( | ) | ||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts receivable, net | ||||||||
| Other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Costs capitalized for internally developed software | ( | ) | ( | ) | ||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from convertible notes payable | ||||||||
| Payment of premium financing obligation | ( | ) | ||||||
| Proceeds from premium financing obligation | ||||||||
| Net cash (used in) / provided by financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of the period | ||||||||
| Cash and cash equivalents at end of the period | ||||||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid for income taxes | ||||||||
| Interest paid on the short-term debt (premium financing) | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Deemed dividend related to shortfall warrant modification | ||||||||
| Unpaid deferred transaction costs as of the end of the period | ||||||||
| Waiver of deferred transaction costs as of the end of the period | ||||||||
| Issuance of shares vested upon repayment and forgiveness of 2023 Promissory Notes | ||||||||
| (Loss)/Gain on extinguishment of debt | ( | ) | ||||||
| Common Stock issued upon cashless exercise of stock options | ||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
| 5 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Note 1. Organization
Fusemachines Inc. (“Company” or “Pubco”) provide enterprise artificial intelligence solutions and services across North America, Latin America, Asia and Europe. The Company was originally incorporated on April 13, 2021, under the name CSLM Acquisition, Corp. (“CSLM”), as a Cayman Islands exempted Company, a special purpose acquisition company (“SPAC”) formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. Upon consummation of the Business Combination, Fusemachines USA, Inc. (“Legacy Fusemachines”) became the surviving corporation and a wholly-owned subsidiary of the Company. The Company operated through the following legal entities and branch:
| ● | Fusemachines USA, Inc (Wholly Owned Subsidiary) | |
| ● | Fusemachines Nepal Inc. (Wholly Owned Holding Company) | |
| ● | Fusemachines Nepal Private Ltd. (Majority Owned Subsidiary) | |
| ● | Fusemachines Canada Inc (Wholly Owned Subsidiary) | |
| ● | Fusemachines India Inc. (Dormant Holding Company) | |
| ● | Fusemachine Inc. Dominican Republic (Wholly Owned Branch) |
Business Oxygen Private Limited (“BO2”), a Company domiciled in Nepal holds certain redeemable common and preferred stock of Fusemachines Nepal Private Ltd.
Merger Agreement and Business Combination
In January 2024, the Company entered into an Agreement and Plan of Merger (as amended in August 2024 and February 2025, the “Business Combination Agreement”) with CSLM Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of CSLM (“Merger Sub”), and Fusemachines USA, Inc. (formerly Fusemachines Inc.) (“Legacy Fusemachines”). On October 22, 2025, the Company consummated the business combination whereby (a) CSLM merged with and into CSLM Holdings, Inc., a Delaware corporation and wholly owned subsidiary of CSLM at which time the separate existence of CSLM ceased and CSLM Holdings became the surviving corporation (“Pubco”) in accordance with the Delaware General Corporation Law (“DGCL”), the Cayman Islands Companies Act (As Revised) (the “Companies Act”), the Certificate of Merger, (the “Certificate of Merger”), and the amended and restated memorandum and articles of association of CSLM (the “Domestication”); (b) the merger (the “Merger”) of Merger Sub with and into Legacy Fusemachines, pursuant to which, at the closing of the transactions contemplated by the Business Combination Agreement (the “Closing”), the separate corporate existence of Merger Sub ceased and Legacy Fusemachines became the surviving corporation and a wholly-owned subsidiary of Pubco, pursuant to the terms of the Business Combination Agreement and in accordance with the laws of the State of Delaware, as more fully described elsewhere in the Proxy Statement/Prospectus; and (c) the other transactions contemplated by the Business Combination Agreement and documents related thereto (such transactions, together with the Domestication and the Merger, the “Business Combination”). In connection with the Business Combination, Pubco was renamed “Fusemachines Inc.” (the “Company”) and Fusemachines Inc. was renamed “Fusemachines USA, Inc.” (“Legacy Fusemachines”).
The common stock of the Company began trading on The Nasdaq Stock Market (Nasdaq Global Market) under the symbol “FUSE”, and the warrants trade under the symbol “FUSEW”, beginning on October 23, 2025. The Merger between CSLM and Legacy Fusemachines was accounted for as a reverse recapitalization. See Note 13 - Reverse Capitalization for more information.
Throughout the notes to the unaudited condensed consolidated interim financial statements, unless otherwise noted or the context otherwise requires, the term “Company” refers to Legacy Fusemachines Inc. and its subsidiaries prior to the consummation of the Business Combination, and to Fusemachines Inc. (the publicly traded parent company) and its subsidiaries after the consummation of the Business Combination.
| 6 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Note 2. Summary of Significant Accounting Policies
There have been no significant changes to the accounting policies during the three and six months period ended June 30, 2026, as compared to the significant accounting policies described in Note 2 of the Notes to Consolidated Financial Statements in the Company’s audited consolidated financial statements for the year ended December 31, 2025.
Basis of Presentation and Principles of Consolidation
The Company prepares its unaudited condensed consolidated interim financial statements in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP” or “GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding financial reporting. The unaudited condensed consolidated interim financial statements include the financial statements of Fusemachines Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated. These unaudited condensed consolidated interim financial statements are presented in United States Dollars (“USD” or $), which is the functional currency of the Parent Company.
Unaudited Interim Financial Information
In the opinion of the Company, the accompanying unaudited condensed consolidated interim financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of its financial position and its results of operations, changes in stockholders’ deficit and cash flows. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The consolidated balance sheet at December 31, 2025, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The accompanying unaudited condensed consolidated interim financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended December 31, 2025, which provides a more complete discussion of the Company’s accounting policies and certain other information. The interim results for the three and six months ended June 30, 2026, are not necessarily indicative of the results to be expected for the year ending December 31, 2026, or for any future periods.
Use of Estimates
The preparation of unaudited condensed consolidated interim financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of unaudited condensed consolidated interim financial statements, as well as revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to the valuation of operating lease right-of-use assets, convertible notes, cumulative mandatorily redeemable common and preferred stock liability, common stock warrants, common and convertible preferred stock, current expected credit losses (“CECL”), stock-based compensation, useful lives of property and equipment and intangible assets, impairment of long-lived assets, capitalization of software development costs, forward purchase derivative liability and income taxes.
The Company bases its estimates and judgments on historical experience, knowledge of current conditions and its beliefs of what could occur in the future, given available information. Actual results could differ from those estimates, and such differences may be material to the unaudited condensed consolidated interim financial statements. Changes in facts and circumstances may cause the Company to revise its estimates.
Segment reporting
Under Topic 280, an operating segment is defined as a component of a public entity that engages in business activities from which it may recognize revenues and incur expenses, has operating results that are regularly reviewed by the CODM to make decisions about resources to be allocated to the segment and assess its performance, and has discrete financial information available.
The
company operates as
The CODM considers the Company’s net income/(loss), expenses and the components of total assets to assess the segment’s performance and make resource allocation decisions for the Company’s single segment which is consistent with that presented within these financial statements.
As the Company’s operations are comprised of a single reporting segment, the Company’s segment assets are reflected on the accompanying unaudited condensed consolidated interim balance sheet as “total assets” and its significant segment expenses and net loss are listed on the accompanying unaudited condensed consolidated interim statements of operations and comprehensive loss.
| 7 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment and finite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company uses the straight-line method of depreciation and amortization. When the carrying value of an asset is more than the sum of the undiscounted expected future cash flows, an impairment is recognized. An impairment loss is measured as the excess of the asset’s carrying amount over its fair value. Intangible assets that have finite useful lives are amortized over their estimated useful lives on a straight-line basis. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in the observable market value of an asset, among others.
The Company holds long-lived assets in two countries, Nepal and the United States. The table below presents the breakdown of the Company’s long-lived assets, based on geographic region (in thousands).
Schedule of Long-lived Assets, Based on Geographic Region
| June 30, | December 31, | |||||||
| Long lived assets as of | ||||||||
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Nepal | ||||||||
| United States | ||||||||
| Total long-lived assets | ||||||||
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, the Company recognizes revenue when (or as) customers obtain control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation. The Company applies the provisions of ASC 606 to an arrangement when a substantive contract exists and collectability is probable.
The Company derives the majority of its revenue from AI Solutions (Products and Services) that largely represents professional services the company provides to its customers to help them achieve any AI-related goals within their organization. Standard contractual arrangements are governed by Master Services Agreements (“MSAs”), which set out general terms including payment, termination rights, and intellectual property ownership. Detailed scope, pricing, and performance obligations are defined in Statements of Work (“SOWs”), which are executed for each engagement or project phase. The Company’s contracts for AI Services have different terms based on the scope and complexity of engagements; pricing for the majority of contracts are invoiced monthly on a time-and-materials basis. The Company notes that its contracts meet the requirements for over-time revenue recognition, as the customer is simultaneously receiving the benefits and able to consume the benefits of the services being provided. For professional services that are distinct and billed on a time-and-materials basis, revenue is generally recognized as the services are provided, which is reflective of the transfer of the services to the customer. The Company elected the “right to invoice” practical expedient based on the Company’s right to invoice a customer at an amount that approximates the value to the customer and the performance completed to date.
For fixed-fee arrangements that include distinct, milestone-based deliverables (for example, discrete design, architecture, or platform-development phases), where either of the criterion laid down in ASC 606-10-25-27(a), (b) or (c) are met, the Company recognizes revenue over time under a percentage-of-completion (“POC”) method, rather than the right-to-invoice practical expedient. Further the progress toward completion of these arrangements is measured using the output method i.e. based on the deliverables completed and accepted by the customer relative to total contractual deliverables for that performance obligation.
The Company also provides AI Education Services which represents a customized curriculum of educational services provided to train the customer’s C-suite on AI for Business. The Company provides AI Education Services over time as the course proceeds and the students retain knowledge over time. Thus, the customer receives and consumes benefits as the Company performs the AI Education Services, and revenue is recognized overtime.
Company’s AI Solutions includes product revenues primarily comprising of software license fees from sales of term-based license contracts, under which we grant customers the license right to use the software for a specified period (i.e. when the customer can access, use, and benefit from the software license). Term software licenses are satisfied at a point in time and associated revenue is recognized upon the later of 1) delivery of the software, or 2) the beginning of the period in which the customer has received the license right to use the software. For customer contracts that include software license fees, implementation and/or other consulting services, the portion of the transaction price allocated to software licenses is generally recognized when delivered. Implementation, customization, or model tuning services if applicable, when included, are evaluated as separate performance obligations when they are distinct from the software and not highly interdependent. These services are generally satisfied over time as the work progresses. During the period ended June 30, 2026 and June 30, 2025 the product revenues were insignificant.
For most contracts, the Company uses a Master Service Agreements (“MSA”) to govern the overall relevant terms and conditions of the business agreement, and a Statement of Work (“SOW”) to specify the services delivered and the associated prices. Performance obligations specific to each individual contract are defined within the terms of each SOW. Each performance obligation is identified based on the services that will be transferred to our customer that are both capable of being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which the Company will be entitled and expect to receive in exchange for transferring services to the customer.
| 8 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Consideration for some contracts may include variable consideration including volume discounts and rebates. If the consideration promised includes a variable amount, the Company only includes estimated amounts of consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. These estimates require management judgments and estimates. The determination of whether to constrain consideration in the transaction is based on historical, current, and forecasted information that is reasonably available to the Company, taking into consideration the type of customer, the transaction, and specific facts and circumstances of each arrangement. The Company uses judgement to determine if collectability of consideration is uncertain, and accordingly, revenue recognition is deferred until the uncertainty is resolved and cash is collected.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days of the invoice date. In certain arrangements, the Company will receive payment from a customer either before or after the performance obligation to which the invoice relates has been satisfied. As a practical expedient, the Company does not account for significant financing components if the period between when it transfers the promised good or service to the customer and when the customer pays for the product or service will be one year or less.
For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on its relative standalone selling price. The stand-alone selling prices are determined based on the prices at which the Company separately sells these products. For items that are not sold separately, the Company estimates the stand-alone selling prices using other observable inputs. As Fusemachines Inc. is the sole reportable segment, all revenues are attributed to the sole segment.
Contract Balances
Differences in timing between revenue recognition and cash collection result in contract assets and contract liabilities. The Company classifies these assets as unbilled revenue; the liabilities are classified as deferred revenue.
Deferred revenue represents the amounts billed or cash payments received in advance of revenue recognition at the end of the reporting period. These amounts are recorded in deferred revenue until revenue is recognized through delivery of service or upon meeting the performance obligation. The Company’s deferred revenue represents contract liabilities. Generally, when billing occurs subsequent to revenue recognition, the Company reports unbilled revenue on the unaudited condensed consolidated interim balance sheets.
Stock-Based Compensation
Stock-based compensation expense attributable to equity awards granted to employees and non-employees is measured at the grant date based on the fair value of the award. For employee awards, the expense is recognized on a straight-line basis over the requisite service period for awards that actually vest, which is generally the period from the grant date to the end of the vesting period. For non-employee awards, the expense for awards that actually vest is recognized based on when the goods or services are provided.
The Company records stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). This standard requires all equity-based payments to employees and non-employees, including grants of employee stock options and restricted stock awards, to be recognized in the unaudited condensed consolidated interim statements of operations and comprehensive loss based on the grant date fair value of the award. The stock-based compensation expense is recognized on a straight-line basis over the requisite service period of the award, which is generally the period from the accounting grant date to the end of the vesting period. The Company elected to account for forfeitures of awards as they occur.
Since the adoption of ASU 2018-07, Improvements to Nonemployee Stock-Based Payment Accounting, the measurement date for non-employee awards is the date of grant, and stock-based compensation costs are recognized in the same period and in the same manner as if the entity had paid cash for the goods or services. Stock-based compensation expense is classified as general and administrative, cost of revenue, selling and marketing and research and development expenses in the unaudited condensed consolidated interim statements of operations and comprehensive loss.
The Company estimates the fair value of stock option awards granted using the Black Scholes Merton option pricing formula (the “Black-Scholes Model”). This model requires various significant judgmental assumptions in order to derive a final fair value determination for each type of award, including the expected term, expected volatility, expected dividend yield, risk-free interest rate and fair value of the Company’s stock on the date of grant. The expected option term for options granted is calculated using the “simplified method”. This election was made based on the lack of sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The simplified method defines the expected term as the average of the contractual term and the vesting period. Estimated volatility is based on similar entities whose stock prices are publicly traded. The Company uses the historical volatilities of similar entities due to the lack of sufficient historical data for the Company’s common stock price. The Company estimates volatility based upon the observed historical volatilities of comparable companies over a lookback period commensurate with the estimated holding period, adjusted for relative leverage using the Black-Scholes-Merton formula. Dividend yields are based on the Company’s history and expected future actions. The Company has not declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero. The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award was granted with a maturity equal to the expected term of the stock option award. All grants of stock options generally have an exercise price equal to or greater than the fair market value of the Company’s common stock on the date of grant.
The fair value of the shares of common stock underlying the stock options has historically been determined by the Company’s Board of directors as there was no public market for the underlying common stock prior to October 22, 2025. In estimating the fair value of its stock, the Company uses a third-party valuation specialist and considers factors it believes are material to the valuation process, including but not limited to, the price at which recent equity was issued by the Company to independent third parties or transacted between third parties, any indications of value from offers to acquire the Company, actual and projected financial results, risks, prospects, economic and market conditions, and estimates of weighted average cost of capital. The Company believes the combination of these factors provides an appropriate estimate of the expected fair value of the Company and reflects the best estimate of the fair value of the Company’s common stock at each grant date.
Advertising Cost
Advertising
costs are expensed as incurred. Advertising costs for the period three months ended June 30, 2026 and 2025 were $
| 9 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Commitments and Contingencies
The Company may at times be involved in litigation in the ordinary course of business. The Company will, from time to time, when appropriate in management’s estimation, record adequate reserves in the Company’s unaudited condensed consolidated interim financial statements for pending litigation. Currently there are no pending or threatened litigation matters that management believes require accrual or disclosure in addition to those presented in the Note on Litigation (refer Note 11 – Commitment and Contingencies).
Risks and Uncertainties
As a result of its global operations, the Company may be subject to certain inherent risks.
Concentration of Credit - Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents, and accounts receivable. The Company maintains cash and cash equivalents with financial institutions. The Company believes its credit policies reflect normal industry terms and business risk and there is no expectation of non-performance by the counterparties. Accounts receivables are generally dispersed across many customers operating in different industries; therefore, concentration of credit risk is limited. If any of the Company’s customers enter bankruptcy protection or otherwise take steps to alleviate their financial distress, the Company’s credit losses and write-offs of receivables could increase, which would negatively impact its results of operations.
Significant
Customers and Suppliers — The concentration of credit risk with respect to accounts receivable is primarily limited to certain
customers to which the Company makes substantial sales. To minimize credit risk related to accounts receivable, the Company maintains
allowances for potential credit losses based on historical loss patterns as well as future expectations. As of June 30, 2026 and December
31, 2025 the Company had three customers whose accounts receivable balance accounted for at least 10% of the Company’s consolidated
accounts receivables, respectively. These customers accounted for approximately
The
Company pays its suppliers on normal commercial terms and does not believe that there is any significant supply risk from its suppliers.
As of June 30, 2026 and December 31, 2025, the Company had one and two suppliers respectively whose account payable accounted for at
least 10% of the Company’s consolidated account payables, respectively. These suppliers accounted for approximately
Foreign currency risk - The Company’s global operations are conducted predominantly in U.S. dollars. While revenue is generated in U.S. dollars, the Company incurs expenses in other currencies, principally, Nepalese rupees and Canadian dollars. The Company’s international operations expose it to risk of adverse fluctuations in foreign currency exchange rates through the remeasurement of foreign currency denominated assets and liabilities (both third-party and intercompany) and translation of earnings and cash flows into U.S. dollars.
Interest rate risk - The Company is exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from variable rates related to cash, short-term investments, and the Company’s borrowings. The Company does not believe it is exposed to material direct risks associated with changes in interest rates related to these deposits, investments and borrowings.
Geopolitical risks - As a result of its global operations, the Company is exposed to geopolitical risks, including ongoing and potential wars, terrorism, sanctions and trade disputes. These developments may disrupt supply chains and data flows, restrict access to critical technology and infrastructure (including AI-enabling hardware and cloud services), and increase cybersecurity and compliance risks. As a result of its global operations, the Company may be subject to certain inherent risks.
| 10 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Going Concern
The Company’s unaudited condensed consolidated interim financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity include funds generated from operations, levels of accounts receivable and accounts payable, and capital expenditure requirements.
As
of June 30, 2026, the Company had cash of approximately $
The continuation of the Company as a going concern is dependent upon the continued financial support from its stockholders and debt holders. Specifically, continuation is contingent on the Company’s ability to obtain necessary equity to continue operations, and ultimately the Company’s ability to generate profit from sales and positive operating cash flows, which is not assured.
As of the date on which these unaudited condensed consolidated interim financial statements were available to be issued, we believe that our existing cash on hand and other potential equity or debt financing arrangements, may not, on their own, be sufficient to meet the Company’s working capital and capital expenditure requirements for at least the next twelve months. Management currently expects that the Company will be able to access additional sources of capital, including through issuances of equity securities and/or additional borrowings, as and when required to fund the Company’s operating and investing activities over the next year; however, there can be no assurance that such financing will be available on acceptable terms or at all. Accordingly, the Company’s ability to continue as a going concern remains dependent on the successful execution of these financing plans. These unaudited condensed consolidated interim financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts or to the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company applies the two-class method to compute basic and diluted net loss per share attributable to common shareholders, when shares meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income (loss) available to common shareholders for the period to be allocated between common and participating securities based upon their respective rights to share in the earnings as if all income (loss) for the period had been distributed. The Company reported a net loss attributable to common shareholders for the three and six month period ended June 30, 2026 and 2025.
Basic net loss per share is computed by dividing the net loss attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the year. Diluted net loss per share is computed by dividing the net loss attributable to common shareholders by the weighted average number of shares outstanding, plus the impact of potential common shares, if dilutive, resulting from the potential exercise of warrants or options, and the potential conversion of preferred stock or convertible notes, into common stock, under the if-converted method. Due to the net losses for the three and six-month period ended June 30, 2026 and 2025, basic and dilutive net loss per share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.
Forward purchase derivative liability
The Company evaluates its Forward Purchase Agreement (“FPA”) with the Meteora Parties under ASC 815, Derivatives and Hedging, to determine whether the arrangement meets the definition of a derivative and qualifies for any scope exception, including the own-equity exception under ASC 815-40. As the FPA has an underlying (the Company’s common stock), a notional, little or no initial net investment, and net-settlement provisions, and is not designated as a hedge, it is recorded as a free-standing derivative liability, with an offsetting contra-equity share subscription receivable recorded for the unrecognized portion of the escrowed Prepayment Amount. The derivative liability is remeasured to fair value at each reporting date using a Monte Carlo simulation model (Level 3), with changes in fair value recognized in the condensed consolidated statements of operations and comprehensive loss. The derivative liability is classified as current given the Company’s ability to settle the instrument, in whole or in part, within twelve months.
Emerging Growth Company (EGC)
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, 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 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 a 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 standard. This may make comparison of the Company’s unaudited condensed consolidated interim financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
| 11 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In July 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets The ASU provides an optional practical expedient for estimating future credit losses based on current conditions as of the balance sheet date and assuming those conditions do not change over the remaining life of the accounts receivable. This standard is effective January 1, 2026. The Company did not elect the optional practical expedient provided by this standard. The adoption did not have a material impact on the unaudited condensed consolidated interim financial statements.
New Accounting Pronouncements Not Yet Adopted
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board. Management periodically reviews newly issued accounting standards to determine their potential impact on the Company’s unaudited condensed consolidated interim financial statements and related disclosures.
In March 2024, the SEC issued its final climate disclosure rules (Rule 1), which require the disclosure of climate-related information in annual reports and registration statements, beginning with annual reports for the period ending December 31, 2025. The rules require disclosure in the audited consolidated financial statements of certain effects of severe weather events and other natural conditions above certain financial thresholds, as well as amounts related to carbon offsets and renewable energy credits or certificates, if material. We are currently evaluating the impact of the new rules and continue to monitor the status of the related legal challenges.
ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures. In November 2024, the FASB issued this ASU that requires more detailed disclosure about certain costs and expenses presented in the income statement, including inventory purchases, employee compensation, selling expense and depreciation expense. The new guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The guidance does not affect recognition or measurement in our unaudited condensed consolidated interim financial statements.
ASU 2024-04 Debt - Debt with Conversion and Other Options - Induced Conversions of Convertible Debt Instruments. In November 2024, the FASB issued this ASU which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as induced conversions or extinguishments. The amendments in this update are effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in Update 2020-06. We are currently evaluating the impact this guidance will have on our unaudited condensed consolidated interim financial statements.
In May 2025, the FASB issued Accounting Standards Update No. 2025-04, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts With Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer (“ASU 2025-04”). ASU 2025-04 revises the definition of a performance condition, eliminates the forfeiture policy election for service conditions, and clarifies that the variable consideration constraint in Topic 606 does not apply to share-based consideration payable to customers. The new guidance requires entities to consistently account for share-based awards granted to customers by clarifying the treatment of vesting conditions and ensuring alignment with Topic 606 and Topic 718. ASU 2025-04 is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new accounting guidance on its unaudited condensed consolidated interim financial statements and related disclosures.
In September 2025, the FASB issued ASU 2025-06- Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (ASU 2025-06), which is intended to simplify the capitalization guidance for internal-use software by removing references to project stages and clarifying when the capitalizing of eligible costs is required. ASU 2025-06 is effective for annual periods beginning after December 15, 2027, and interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its disclosures.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which clarifies the guidance in Topic 270 to improve the consistency of interim financial reporting. The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have had a material impact on the entity. ASU 2025-11 is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2025-11.
The Company does not believe any other new accounting pronouncements issued by the FASB that have not become effective will have a material impact on its unaudited condensed consolidated interim financial statements.
| 12 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Note 3. Fair Value Measurements
The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
Level 1 - Quoted prices for identical assets or liabilities in active markets.
Level 2 - Inputs other than quoted prices within Level 1 that are observable either directly or indirectly, including quoted prices in markets that are not active, quoted prices in active markets for similar assets or liabilities, and observable inputs other than quoted prices such as interest rates or yield curves.
Level 3 - Unobservable inputs reflecting management’s view about the assumptions that market participants would use in pricing the asset or liability.
Assets and liabilities measured at fair value are classified in their entirety 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 management to make judgments and consider factors specific to the asset or liability.
The carrying values of the Company’s accounts receivable, unbilled revenue, prepaid expenses and other current assets, other assets, accounts payable, transaction costs, accrued expenses and other current liabilities and cumulative mandatorily redeemable common and preferred stock liability approximate their fair values based on the instrument’s relative short-term nature.
As
of June 30, 2026, the Company does not have any outstanding convertible notes payable or related party loan payable, as these instruments
were either converted or settled during the year ended December 31, 2025 other than related party note payable related to Dolma Impact
Fund I (“Dolma”) amounting $
Financial Instruments Recorded at Fair Value
The following tables present the Company’s fair value hierarchy for its financial liabilities that are measured at fair value on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value (in thousands):
Schedule of Financial Instruments Recorded at Fair Value on a Recurring Basis
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Fair Value Measurements at June 30, 2026 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liability | ||||||||||||||||
| Forward Purchase derivative liability | ||||||||||||||||
| Liabilities | $ | $ | $ | $ | ||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Fair Value Measurements at December 31, 2025 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant Liability | ||||||||||||||||
| Forward purchase Derivative liability | ||||||||||||||||
| Liabilities | $ | $ | $ | $ | ||||||||||||
Warrant Liabilities
The following table shows the change in the fair value of the warrant liability (in thousands):
Schedule of Change in Fair Value of Warrant Liability
| Amount | ||||
| Balance as of December 31, 2024 | $ | |||
| Change in fair value of warrant liabilities | $ | |||
Balance as of March 31, 2025 | $ | |||
| Change in fair value of warrant liabilities | ( | ) | ||
| Balance as of June 30, 2025 | $ | |||
| Amount | ||||
| Balance as of December 31, 2025 | $ | |||
| Change in fair value of warrant liabilities | $ | ( | ) | |
| Balance as of March 31, 2026 | $ | |||
| Warrant liability, beginning balance | $ | |||
| Change in fair value of warrant liabilities | ||||
| Balance as of June 30, 2026 | $ | |||
| Warrant liability, ending balance | $ | |||
Forward Purchase Derivative Liability
The
forward purchase derivative liability was recognized at Closing on October 22, 2025. The fair value as of June 30, 2026 was $
Schedule of Reconciliation of the Forward Purchase Derivative Liability
| Amount | ||||
| Balance as of December 31, 2025 | ||||
| Change in fair value of forward purchase derivative liabilities | ( | ) | ||
Balance as of March 31, 2026 | ||||
| Change in fair value of forward purchase derivative liabilities | ( | ) | ||
| Balance as of June 30, 2026 | ||||
The
fair value of the forward purchase derivative liability was estimated using a Monte Carlo simulation approach. The key assumptions used
in valuation as of June 30, 2026: a risk-free rate of
| 13 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Convertible notes payable
The following table shows the change in the fair value of the Convertible Notes measured at Fair Value (in thousands):
Schedule of Change in Fair Value of the Convertible Notes at Fair Value
Related party Convertible Note payable at fair value | January 2024 Convertible Notes | Total | ||||||||||
| Balance as of December 31, 2024 | $ | $ | $ | |||||||||
| Change in fair value of related party convertible note, convertible notes at fair value | ( | ) | ( | ) | ( | ) | ||||||
| Balance as of March 31, 2025 | $ | $ | $ | |||||||||
| Change in fair value of related party convertible note, convertible notes at fair value | ||||||||||||
| Balance as of June 30, 2025 | $ | $ | $ | |||||||||
| Balance as of December 31, 2025 | $ | $ | $ | |||||||||
| Change in fair value of related party convertible note, convertible notes at fair value | ||||||||||||
| Balance as of March 31, 2026 | ||||||||||||
| Convertible notes at fair value, beginning balance | ||||||||||||
| Change in fair value of related party convertible note, convertible notes at fair value | ||||||||||||
| Balance as of June 30, 2026 | $ | $ | $ | |||||||||
| Convertible notes at fair value, ending balance | $ | $ | $ | |||||||||
Common Stock Warrant Liability
The Company estimates the fair value of the common stock warrant liability (refer to “Note 5 – Debt “) using an option pricing model and assumptions that are based on the individual characteristics of the warrants on the valuation date, as well as assumptions for fair value of the underlying common stock expected volatility, expected life, dividends, and risk-free interest rate.
The
warrant liability is classified as Level 3 as there were no quotable prices for identical assets or quoted prices for similar. The warrant
liabilities are measured using a Black-Scholes Model. The fair value of the warrant liability as of June 30, 2026 was determined using
the following assumptions: a dividend yield of
Related Party Convertible Note payable at Fair Value and Convertible Notes at Fair Value
The Company accounts for certain short-term debt (also refer to “Note 5 - Debt “) under the fair value option. At the issuance date of the Convertible Notes at Fair Value, the Company determined that the fair value approximated the principal amount.
In
connection with the consummation of the business combination on October 22, 2025, which was accounted for as a reverse
recapitalization, each convertible note of Legacy Fusemachines Inc. , including both related party and other convertible notes, that
was issued and outstanding immediately prior to the closing was converted into an aggregate of
shares of Legacy Fusemachines Inc. common stock in accordance with the respective convertible note agreements. Immediately following
such conversion, all such shares of Legacy Fusemachines common stock were exchanged for shares of Fusemachines Inc. common stock
based on the Exchange Ratio specified in the Merger Agreement. As a result of the foregoing,
The Company has certain non-financial assets that are measured at fair value on a non-recurring basis when there is an indicator of impairment, and they are recorded at fair value only when an impairment is recognized. These assets include property and equipment and amortizable intangible assets.
| 14 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Note 4. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
Schedule of Accrued Expenses and Other Current Liabilities
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Wages payable | $ | $ | ||||||
| Interest payable | ||||||||
| Legal expenses | ||||||||
| Accrued expenses | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
Note 5. Debt
Debt consists of the following (in thousands):
Loans Payable
| June 30, 2026 | December 31, 2025 | |||||||||||||||||||||||
| Current | Noncurrent | Total | Current | Noncurrent | Total | |||||||||||||||||||
| Related party loan payable | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
For a full description of the terms, conversion features, and amendment history of each convertible note, refer to Note 10 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
Impact of Reverse Recapitalization on Convertible Notes
In the prior fiscal year, on October 22, 2025, the Company consummated a Business Combination (accounted for as a reverse recapitalization). In connection with that transaction, each Legacy Fusemachines convertible note that was issued and outstanding immediately prior to closing — including both related-party and non-related-party convertible notes (comprising the 2019 and 2021 Convertible Notes, the January 2024 Convertible Notes, and the April 2024, June 2024, September 2024, and February 2025 Convertible Notes) — were converted into an aggregate of shares of Legacy Fusemachines common stock in accordance with the respective convertible note agreements.
In accordance with ASC 470-20, Debt with Conversion and Other Options, convertible notes exchanged for equity pursuant to their original contractual terms are accounted for by reclassifying the carrying amount of the convertible debt to equity, with no gain or loss recognized in earnings.
Immediately following such conversions, all shares of Legacy Fusemachines common stock issued upon conversion were exchanged for shares of Fusemachines Inc. common stock based on the exchange ratio specified in the Business Combination Agreement.
As
a result, no convertible notes or related-party notes payable remained outstanding as of June 30, 2026, other than the related party
loan payable to Dolma of $
Warrant Issuance Upon Conversion at Reverse Recapitalization
Upon
conversion of the April 2024, June 2024, and September 2024 Convertible Notes in connection with the Business Combination on October
22, 2025, warrants to purchase
Common Stock Warrant Liability
In connection with the 2023 Notes Agreement, the Company issued common stock warrants (the “Common Stock Warrants”) to purchase up to shares of the Company’s common stock at an exercise price of $ per share, with a contractual term of years. These warrants are liability-classified under ASC 480-10 and continue to be remeasured at fair value each reporting period.
As
of June 30, 2026 and December 31, 2025, the fair value and carrying amount of the Common Stock Warrant Liability was $
Related Party Loan Payable
The
$
In connection with the Business Combination on October 22, 2025, the Company separately settled the outstanding principal and accrued interest under the 2024 Related Party Promissory Notes with Mr. Sameer Maskey, CEO, in cash; accordingly, no balance remains outstanding under those notes as of June 30, 2026.
| 15 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Note 6. Stockholder’s Deficit
Common Stock
In connection with the Restated Certificate, the number of shares of Fusemachines Inc. common stock that the Company is authorized to issue is shares as of June 30, 2026 and December 31, 2025 respectively.
Schedule of Reserved Shares of Common Stock for Future Issuance
As of June 30, 2026 | As of December 31, 2025 | |||||||
| Common stock warrants | ||||||||
| Stock options | ||||||||
| SPAC public and private placement warrants (Refer note 16) | ||||||||
| Equity share warrant (Refer note 15) | ||||||||
| Issuance of warrants pursuant to conversion of convertible note (refer note 5) | ||||||||
| Restricted stock units (RSU) (Refer note 8) | ||||||||
| Reserved shares of common stock for future issuance | ||||||||
Convertible Preferred Stock
In connection with the Restated Certificate, the number of shares of Convertible Preferred Stock that the Company is authorized to issue is as at June 30, 2026.
Warrants
As
of June 30, 2026 and December 31, 2025 the Company had Common Stock Warrants outstanding to purchase up to shares of the Company’s
common stock at an exercise price of $
Note 7. Revenue
Under ASC 606, revenue is recognized throughout the life of the executed agreement. The Company measures revenue based on consideration specified in a contract with a customer. Furthermore, the majority of the Company’s revenues are recognized over time as services are performed. The Company recognizes revenue when a performance obligation is satisfied by transferring control of the product or service to the customer.
The Company provides services to customers worldwide, with the majority of revenues being derived from contracts with customers located within the United States. The table below presents the breakdown of the Company’s revenues, based on the customer’s location (in thousands).
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Customer locations | ||||||||||||||||
| United States | ||||||||||||||||
| Rest of the world | ||||||||||||||||
| Total revenue | ||||||||||||||||
The table below presents the breakdown of the Company’s revenues, based on the customer’s service type (in thousands).
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Service type | ||||||||||||||||
| AI Solutions (Products and Services) * | ||||||||||||||||
| AI Education service | ||||||||||||||||
| Total revenue | ||||||||||||||||
| * |
| 16 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Deferred Revenue
During the three months and six months ended June 30, 2026, the Company
recognized revenue of from the deferred revenue balance as of March 31, 2026 and December 31, 2025 respectively. During the three
months and six months ended June 30, 2025, the Company recognized revenue of and $
Contract Costs
The
Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets
that the Company otherwise would have recognized is one year or less. Management expects that commission fees paid to sales representatives
as a result of obtaining service contracts and contract renewals, are recoverable and therefore the Company’s unaudited condensed
consolidated interim balance sheets included capitalized balances in the amount of $
Transaction price allocated to remaining performance obligations
The Company elected to apply the practical expedient for the right to invoice and does not disclose performance obligations that have original expected durations of one year or less.
The opening and closing balances of contract assets, deferred revenue and unbilled revenue are as follows (in thousands):
Schedule of Contract Assets, Deferred Revenue and Unbilled Revenue
Contract Assets | Deferred revenue | Unbilled Revenue | ||||||||||
| Ending balance as of December 31, 2024 | ||||||||||||
| Increase/(decrease), net | ( | ) | ( | ) | ( | ) | ||||||
| Ending balance as of December 31, 2025 | ||||||||||||
| Increase/(decrease), net | ( | ) | ||||||||||
| Ending balance as of June 30, 2026 | ||||||||||||
In February 2023, the Company’s board of directors and stockholders adopted the 2023 Equity Incentive Plan (the “2023 Plan”), which provides for the grant of incentive stock options, restricted stock awards and restricted stock units (“RSUs”) to eligible employees, directors and consultants of the Company. shares of Common Stock were authorized for issuance under the 2023 Plan.
The 2023 Plan was amended and approved by the stockholders of the Company in December 2023 to increase the number of shares of the Company’s Common Stock reserved for issuance under the Fusemachines Inc. 2023 Amended and Restated Equity Plan (the “2023 Equity Incentive Plan”) by to shares of common stock.
In connection with the Business Combination, which was accounted for as a reverse recapitalization, the number of shares under the 2023 Equity Incentive Plan was adjusted to reflect the exchange ratio established in the business combination agreement. Accordingly, all share and per share amounts under the plan have been retrospectively adjusted to reflect the conversion of Legacy Fusemachines equity into the Company’s common stock.
Adoption of 2025 Omnibus Equity Incentive Plan
On October 22, 2025, the Board of Directors of the Company approved the 2025 Omnibus Equity Incentive Plan (the “2025 Plan”). The 2025 Plan provides for the grant of equity-based awards to employees, directors, officers, and other eligible service providers of the Company and its subsidiaries.
In connection with the adoption of the Company’s 2025 Omnibus Equity Incentive Plan (the “2025 Plan”), an aggregate of shares of the Company’s common stock were initially reserved for issuance pursuant to awards granted under the 2025 Plan. During the six months ended June 30, 2026, the Company’s stockholders approved an amendment to the 2025 Plan, increasing the number of shares authorized for issuance under the 2025 Plan by shares, resulting in an aggregate of shares reserved for issuance. The types of awards that may be granted under the 2025 Plan include, but are not limited to, stock options, restricted stock, restricted stock units, stock appreciation rights, performance-based awards, and other stock-based awards, as determined by the Board of Directors or a committee thereof.
As of June 30, 2026, shares of Common Stock were available for future grant under the 2023 Plan, as the 2023 Plan was replaced in its entirety by the 2025 Plan which was adopted in connection with the Business Combination.
| 17 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Schedule of Stock-based Compensation Expense
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| General and administrative | $ | $ | ||||||||||||||
| Cost of revenue | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | ||||||||||||||
Stock Options
The
Company’s stock options outstanding consist primarily of time-based options to purchase common stock, the majority of which vest
over a two-to-four-
year period
and have a
Schedule of Stock Option Activity for Options with Service-based Vesting
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (In thousands) | |||||||||||||
| Outstanding balance as of December 31, 2025 | $ | |||||||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | ( | ) | - | - | ||||||||||||
| Forfeited | ( | ) | - | - | ||||||||||||
| Cashless exercise (1) | ( | ) | - | - | ||||||||||||
| Expired | ( | ) | - | - | ||||||||||||
| Outstanding balance as of June 30, 2026 | $ | |||||||||||||||
| Options vested and exercisable as of June 30, 2026 | ||||||||||||||||
| (1) |
During the three-month period ended June 30, 2026, and June 30, 2025, the Company recorded stock-based compensation expense of $ thousand and $ thousand, respectively, whereas for the six-month ended June 30, 2026 and June 30, 2025 the Company recorded stock-based compensation expense of $ thousand and $ thousand respectively. As of June 30, 2026, total stock-based compensation expense not yet recognized related to unvested stock options was $ thousand, which is expected to be recognized over a weighted-average period of years. The total intrinsic value of options exercised was $ thousand and $ thousand during the six-month ended June 30, 2026 and year ended December 31, 2025, respectively.
There were no stock options granted during the period ended June 30, 2026, and June 30, 2025. Accordingly, the weighted average grant-date fair value per share of stock options granted during the three and six month period June 30, 2026 and June 30, 2025 is .
Cashless Exercise of Stock Options
In February 2026, one of the Fusemachines employees exercised options to purchase Fusemachines Inc. Common Stock. The exercise prices for the options were paid on a cashless basis via net share settlement resulting in the net share issuance of shares of Fusemachines Inc. Common Stock. The transaction has been accounted under the guidance of ASC 718 - Stock Compensation. The cashless exercise mechanism does not change the substantive terms or fair-value-based measure of the awards and therefore does not constitute a modification under ASC 718.
Exercise
of Stock Options Through Settlement of Accrued Compensation Liability – In April 2026, a former Fusemachines employee (Raman Parthasarathy)
exercised options to purchase Fusemachines Inc. Common Stock. The exercise price of $
Restricted stock unit (RSU)
The Board of Directors has granted restricted stock awards under the Plans. In January 2026 awards had been granted as restricted stock units under the 2025 Plan as of period ended June 30, 2026, whose impact has been considered on the Company’s unaudited condensed consolidated interim financial statements as of that date. Restricted stock units are valued on the date of grant and have no purchase price for the recipient. Restricted stock units typically vest over period ranging from one to four years corresponding to anniversaries of the grant date.
| 18 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Schedule of Restricted Stock Units Expense
| Three
months ended June 30, | Six
months ended June 30, | |||||||
| 2026 | 2026 | |||||||
| General and administrative | ||||||||
| Cost of revenue | ||||||||
| Selling and marketing | ||||||||
| Research and development | ||||||||
| Total restricted stock units expense | ||||||||
The following is a summary of service based RSU activity for the six-month period ended June 30, 2026:
Schedule of Restricted Stock Units Activity
| Number of RSU shares | Weighted Average Grant Date Fair Value | |||||||
| Opening | ||||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Nonvested balance, June 30, 2026 | ||||||||
The Company estimated the fair market value of these restricted stock units based on the closing market price on the date of the grant. As of June 30, 2026, there was $ thousand of total unrecognized compensation costs related to all remaining non-vested restricted stock units, which is expected to be recognized over a weighted-average period of years. There were no restricted stock units vested during the period ended June 30, 2026. Accordingly, the fair value of restricted stock units vested during the three and six month period June 30, 2026 is
Schedule of Nonvested Restricted Stock Vests
| Year Ended | No. of shares | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
Schedule of Basic and Diluted Net Loss Per Share
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Three months Ended June 30, | Six months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss per share attributable to common stockholders | $ | ( | ) | $ | ( | ) | ( | ) | ( | ) | ||||||
| Denominator: | ||||||||||||||||
| Weighted-average common shares outstanding - basic and diluted | ||||||||||||||||
| Net loss per share attributable to Fusemachines Inc. common stockholders - basic and diluted | ) | ) | ) | ) | ||||||||||||
Schedule of Outstanding Shares of Potentially Dilutive Securities
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Common Stock Warrants | ||||||||
| Stock options (1) | ||||||||
| SPAC public and private placement warrants (2) (refer note 16) | ||||||||
| Equity Share warrant (Refer note 15) | ||||||||
| Issuance of warrants pursuant to conversion of convertible note (refer note 5) | ||||||||
| Restricted stock units (RSU) (Refer note 8) | ||||||||
| Antidilutive securities excluded from computation of earnings per share, amount | ||||||||
| (1) |
| (2) |
The
Company has also entered into a contingent obligation to issue shares of its common stock to a certain vendor in connection with
an outstanding accounts payable balance as part of a settlement agreement (refer to “Note 11 - Commitment and Contingencies”).
The issuance of common stock is contingent upon the completion the Merger (refer to “Note 1 - Organization”). Further during
the year ended December 31, 2025, upon the closing of the business combination, the Company settled its obligation under the Second Agreement
through the issuance of shares of Fusemachines, Inc. common stock, reflecting the application of the
| 19 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Note 10. Income Taxes
For
the three months ended June 30,2026, and June 30,2025, the Company recorded income tax expense respectively, whereas for six month
ended June 30,2026, and June 30,2025 the Company recorded income tax expense of $
The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets, which primarily consist of net operating loss carryforwards. The Company has considered its history of cumulative net losses, estimated future taxable income and prudent and feasible tax planning strategies and has concluded that it is more likely than not that the Company will not realize the benefits of its deferred tax assets. As a result, as of June 30, 2026 and December 31,2025, the Company has maintained a full valuation allowance against its net deferred tax assets.
Note 11. Commitment and Contingencies
Consulting Agreement
In
December 2020, the Company entered into a consulting agreement with a certain vendor, whereby they agreed to help develop and implement
sales strategies for the Company for $
In
August 2024, the Company entered into a second agreement (the “Second Agreement”) with the same vendor mentioned above whereby
the Company and vendor acknowledged an outstanding accounts payable balance of $
The Company evaluated the feature in the Second Agreement whereby the closing of the Merger triggers the obligation to issue shares of the Company’s common stock (the “Conversion Feature”) to determine whether the feature should be considered a freestanding financial instrument (as defined in ASC 480-10-20) or whether it should be considered embedded. The Company determined that the Conversion Feature should be considered embedded because it did not meet the definition of a freestanding financial instrument because it was neither i) entered into separately and apart from any of the entity’s other financial instruments, nor was it ii) separately exercisable.
After determining that the Conversion Feature should be considered embedded, the Company determined that it did not require bifurcation as an embedded derivative under ASC 815-15 because it did not meet the net settlement criterion to be considered a derivative.
Subsequent
to determining that derivative bifurcation for the Conversion Feature was not required, the Company evaluated its obligations to the
vendor under the Second Agreement to determine whether the Second Agreement should be accounted for as an extinguishment (in accordance
with ASC 470-50) of the Company’s initial obligations (those obligations prior to the Second Agreement under the initial consulting
agreement) and an immediate recognition of the new obligations specified in the Second Agreement. The Company determined that the Second
Agreement should be accounted for as an extinguishment because the Conversion Feature represented the addition of a substantive conversion
option, as that term is used in ASC 470-50-50-10 (and as it is defined in ASC 470-20-40-7). As the Company determined that the Second
Agreement should be accounted for as an extinguishment, it calculated a loss on extinguishment (in accordance with ASC 470-50-40-4) equal
to the reacquisition price of the new obligations under the Second Agreement less the net carrying amount of the initial obligation under
the initial consulting agreement. The reacquisition price was equal to the fair value of the new obligations on the effective date of
the Second Agreement, which was determined to be $
The fair value of the new obligations used to determine the loss on extinguishment was determined using a probability-weighted expected return method/scenario-based method. The significant inputs to the valuation method were an estimate of the probability of the Merger closing, an estimate of the date the Merger will close, an estimate of the fair value of the Fusemachines shares (estimate based on an income approach and market approach in accordance with Internal Revenue Service Ruling 59-60 for compliance with Internal Revenue Code Section 409A) to be issued upon the closing of the Merger, and an estimated discount rate. As the method for estimating the fair value of the new obligations used significant unobservable inputs, it was determined to represent a Level 3 fair value measurement.
Upon
the closing of the business combination, the Company settled its obligation under the Second Agreement through the issuance of
shares of Fusemachines, Inc. common stock, reflecting the application of the
Legal counsel fee arrangement
In
connection with the Business Combination, the Company incurred legal fees payable to its external legal counsel, totalling $
| 20 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Professional service arrangements
In
December 2025, the Company entered into a Payment Plan Agreement with a service provider to settle outstanding obligations of $
The
Company made an initial payment of $
As
of June 30, 2026, the Company had defaulted on two installments due on May 1 and June 1, 2026, aggregating $
Guarantees and Indemnifications
In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or has been required to defend any action related to its indemnification obligations. As of June 30, 2026 and December 31, 2025, the Company does not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities.
Litigation
Legacy
Fusemachines received a legal notice dated March 27,2025, requiring payment of $
Settlement of a former service provider obligation
During the six months ended
June 30, 2026, the Company and a former service provider agreed to a deferred payment arrangement with respect to an outstanding vendor
payable of $
During
the six months ended June 30,2026, the Company reached a settlement agreement with a former service provider resolving an
outstanding payable obligation. Under the terms of the settlement, the Company agreed to pay $
| 21 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Note 12. Related Parties
BO2 Purchase Agreement
In
July 2021, Fusemachines Nepal Private Limited entered into the BO2 Purchase Agreement with a related party, BO2, and Mr. Maskey. According
to the terms of the BO2 Purchase Agreement, BO2 agreed to invest up to $
January 2024 Related Party Pledge Agreement
In
January 2024, Mr. Maskey entered into a pledge agreement (the “January 2024 Related Party Pledge Agreement”) with Consilium
Extended Opportunities Fund, LP (“Consilium”). As per the terms of the January 2024 Related Party Pledge Agreement, Mr. Maskey
agreed to assign a security interest to Consilium of
Restricted stock units (RSU)
The Board of Directors has granted restricted stock units (“RSUs”) under the Company’s 2025 Plan. During January 2026, the Company granted awards under the Plan, the impact of which has been reflected in the Company’s unaudited condensed consolidated interim financial statements for the period ended June 30, 2026.
Restricted stock units are measured at fair value on the grant date and have no purchase price for the recipient. These awards typically vest over periods ranging from one to four years, based on anniversaries of the grant date.
Out of the total units granted, RSUs were granted to related parties, including key management personnel (“KMP”), members of the Board of Directors, and other executive employees. These RSUs vest over a period ranging from one to four years in accordance with the terms of the respective grant agreements.
The units to related parties have been accounted for in accordance with ASC 718 and disclosed as related party transactions pursuant to ASC 850.
| 22 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Note 13. Reverse Capitalization
Upon consummation of the transaction on October 22, 2025, Fusemachines Inc. (the “Company”) was determined to be the accounting acquirer, and the transaction was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Accordingly, the historical financial statements of Legacy Fusemachines became the historical financial statements of the registrant.
Accordingly, the following disclosure on “Reverse Recapitalization” is presented to summarize the common stock issued at Closing, the application of the exchange ratio, and the resulting additional paid-in-capital recognized in connection with the recapitalization.
The overall voting interest on closing date is summarized below:
Schedule of Overall Voting Interest on Closing Date
| Particulars | Shares | %Ownership | ||||||
| Shares held by Fusemachines Inc. Stockholders | % | |||||||
| Shares held by CSLM public stockholders, Sponsor, and related parties of Sponsor | % | |||||||
| Shares held by unrelated third parties | % | |||||||
| Total | % | |||||||
On
October 22, 2025, all holders of issued and outstanding Legacy Fusemachines common stock received shares of Fusemachines Inc
common stock at a par value $ per share after giving effect to the exchange ratio of
(a) shares of Legacy Fusemachines convertible preferred stock were converted into shares of Legacy Fusemachines common stock in accordance with the applicable conversion terms. Subsequently, in connection with the Business Combination, all such shares of Legacy Fusemachines common stock were exchanged for shares of common stock of Fusemachines Inc. (the “Company” or “PubCo”) based on the exchange ratio specified in the Business Combination Agreement. After giving effect to the exchange ratio, an aggregate of shares of the Company’s common stock were issued.
(b) The surrender and exchange of all issued and outstanding shares of Legacy Fusemachines common stock (including shares issued upon conversion of preferred stock) into shares of Fusemachines Inc. common stock as adjusted by the Exchange Ratio;
(c) The other related events that occurred in connection with the Closing are summarized below:
| ● | Upon the closing date, there
is settlement of sponsor convertible note amounting to $ |
| ● | Public shareholders of CSLM received an aggregate of shares of Fusemachines Inc. common stock. |
| ● | All public rights were converted into shares of Fusemachines Inc. common stock. |
| ● | Issuance of shares of Fusemachines Inc common stock upon conversion of non-redeemable CSLM Class A & Class B Ordinary Shares. |
| ● | Fusemachines Inc. received
funds from a convertible note with an affiliate of the Sponsor in the principal amount of $ |
| ● | Approximately $ |
| ● | Repayment of approximately
$ |
| ● | Each Convertible note of
Legacy Fusemachines (including both related party and other convertible notes) outstanding immediately prior to the Closing was converted
into shares of Legacy Fusemachines common stock of shares in accordance with the applicable convertible note agreement and
immediately thereafter exchanged into shares of Fusemachines Inc. common stock in accordance with the Conversion Ratio specified
in the Business Combination Agreement accordingly as a result of the conversions and exchanges, no convertible notes or related-party
notes payable remained outstanding as of December 31, 2025, other than related party note payable related to Dolma amounting $ |
| ● | Upon the closing of the business
combination, the Company settled its obligation under the Second Agreement through the issuance of shares of Fusemachines, Inc.
common stock, reflecting the application of the |
| ● | Upon the conversion of the
April 2024, June 2024 and September 2024 Convertible Note to common stock, the Company shall issue the holder a warrant to purchase
|
| ● | The assumption of the public and private warrants, as described in Note 16 “Public and private warrants”. |
| ● | The Company’s amended and restated certificate of incorporation and amended and restated bylaws were adopted. |
| ● | The Company adopted 2025 the equity incentive plan. |
| 23 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Schedule of Reverse Recapitalization
| Particulars | Shares | |||
| Partial conversion of the 3rd Amended and Restated Promissory Note into Fusemachines Pubco Common Stock on the closing date | ||||
| CSLM Class A ordinary Shares not redeemed for cash and converted into Fusemachines Inc. common stock | ||||
| Automatic exercise of the rights related to 18,975,000 units issued in CSLM’s Initial Public Offering | ||||
| Shares issued in connection with the PIPE Financing | ||||
| Conversion of non-redeemable CSLM Class A & Class B Ordinary Shares into Fusemachines Inc. common stock | ||||
| Share issued to Consilium Frontier Equity Fund, LP | ||||
| Total shares of Fusemachines Inc. common stock issued to CSLM security holders | ||||
| Conversion of Legacy Fusemachines convertible notes (as adjusted by the exchange ratio) | ||||
| Conversion of Legacy Fusemachines Convertible Preferred Stock into common stock in connection with the reverse recapitalization (as adjusted by the exchange ratio) | ||||
| Shares issued to Legacy Fusemachines stockholders (as adjusted by the exchange ratio) | ||||
| Total shares of Fusemachines Inc. common stock outstanding immediately after the merger | ||||
Below table presents the Fund flow reconciliation (in thousands):
Schedule of Fund Flow Reconciliation
| Particulars | (Amount In Thousands) | |||
| Trust balance as of Closing date | ||||
| Proceeds from CSLM loan | ||||
| PIPE Proceeds | ||||
| Transfer of cash & cash equivalent of CSLM | ||||
| Total Available Cash (A) | ||||
| CSLM transaction costs | ( | ) | ||
| Payment of Director & Officer insurance premium | ( | ) | ||
| Prepayment under Forward Purchase Agreement | ( | ) | ||
| Settlement of sponsor convertible note of CSLM | ( | ) | ||
| Total Payments as of the closing date (B) | ( | ) | ||
| Funds going to Fusemachines Inc. (classified under financing activities under Consolidated Statements of Cash Flows) (A+B) | ||||
| Operating assets assumed | ||||
| Operating liabilities assumed | ( | ) | ||
| Initial fair value of forward purchase derivative liability | ( | ) | ||
| Issuance of share subscription receivable | ||||
| Initial fair value of equity classified warrant | ( | ) | ||
| Legacy Fusemachines transaction cost | ( | ) | ||
| Others | ||||
| Net equity impact of reverse recapitalization | ||||
The reverse recapitalization accounting treatment was primarily determined based on the fact that the stockholders of Legacy Fusemachines held a relative majority of the voting power of Fusemachines and had the ability to nominate a majority of the members of the Board of Directors. In addition, the senior management of Legacy Fusemachines becomes the senior management of Fusemachines, and the strategy and operations of Legacy Fusemachines prior to the merger represent the ongoing operations of the combined Company.
Accordingly, for accounting purposes, the financial statements of Fusemachines represent a continuation of the financial statements of Legacy Fusemachines, with the Merger being treated as the equivalent of Legacy Fusemachines issuing shares for the net assets of CSLM, accompanied by a recapitalization. The net assets of CSLM were recognized at their historical carrying amounts as of the Closing date, and no goodwill or other intangible assets were recorded. Operations prior to the Merger are presented as those of Legacy Fusemachines and the accumulated deficit of Legacy Fusemachines has been carried forward after Closing.
Fusemachines
Inc. incurred transaction costs of $
All periods presented prior to the Merger have been retrospectively adjusted to reflect the Exchange Ratio for the equivalent number of shares of Fusemachines Inc. common stock outstanding immediately after the Closing in order to effect the reverse recapitalization.
| 24 |
Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Note 14. Forward Purchase Agreement
On July 31, 2025, CSLM Acquisition Corp. (the “Counterparty”) prior to the closing of the Business Combination, and Fusemachines Inc. entered into an over the counter (OTC) equity prepaid forward confirmation (the “Forward Purchase Agreement” or “FPA”) with Meteora Capital Partners, LP, Meteora Select Trading Opportunities Master, LP and Meteora Strategic Capital, LLC (collectively, the “Sellers”).
Upon the consummation of the Merger on October 22, 2025, the Sellers (Meteora) delivered a Pricing Date Notice (as defined in the Forward Purchase Agreement). Based on this notice, the applicable Prepayment Amount (as defined in the Forward Purchase Agreement) became determinable and was subsequently funded by the Counterparty from the Trust Account (as defined in the Forward Purchase Agreement) in accordance with the Forward Purchase Agreement.
The Forward Purchase Agreement includes escrow arrangements pursuant to which the Prepayment Amount funded from the CSLM trust account is held in escrow for the benefit of the Meteora Parties until settlement or release in accordance with the terms of the Forward Purchase Agreement. The Company does not have unconditional access to the funds held in escrow, and such funds are not available to satisfy the claims of the Company’s creditors. Accordingly, during the year ended December 31, 2025 the Company recorded the Prepayment Amount amounting $ thousand as a contra-equity share subscription receivable, presented as a reduction of stockholders’ deficit (APIC), as the escrowed funds represent conditional consideration receivable from shareholders that is subject to future settlement under the Forward Purchase Agreement
The Forward Purchase Agreement contains features that meet the definition of a derivative under ASC 815, including an underlying based on the Company’s Class A common stock, a notional amount, payment provisions, and provisions that require or permit net cash settlement. Accordingly, at the Closing, the Company recognized a derivative liability measured at fair value, representing the portion of the escrowed Prepayment Amount that may be payable to the Forward Counterparty based on conditions existing as of the Closing Date.
The share subscription receivable and the derivative liability, when considered together, represent management’s estimate of the portion of the escrowed funds that the Company expects to ultimately retain. Subsequent changes in the fair value of the derivative liability associated with the Forward Purchase Agreement are recognized in earnings at each reporting date.
Upon receipt of consideration related to the sale of any shares sold by Meteora, the Company will record the receipt of funds as an increase to cash and a decrease to the share subscription receivable previously recorded as contra-equity.
The Company incurred no transaction costs that were directly related to issuance of the Forward Purchase Agreement.
The
Company entered into an amendment on February 3, 2026, to the Prepaid Forward Purchase Agreement (the “Amendment”) originally
entered into on July 31, 2025 with Meteora Capital Partners and affiliates.
As
of June 30, 2026 and December 31, 2025, the value of the Forward purchase derivative liability is $
Further, the derivative liability has been classified as current as the Company does not have an unconditional right to defer settlement beyond twelve months. The Forward Purchase Agreement includes provisions for early termination upon sale of shares by the Sellers, which can result in cash settlement within the next twelve months, as well as periodic settlement features, thereby requiring current classification
Note 15. Shortfall warrant
In connection with the execution of the Forward Purchase Agreement the Company agreed to issue “Shortfall Warrants” to the Sellers (Meteora) for shares not elected under the Forward Purchase Agreement, representing the difference between the maximum number of shares subject to the FPA and the number of shares ultimately elected by the Forward Counterparty.
The
warrants grant the holders the right to purchase a fixed number of shares (
The Company evaluated the Shortfall Warrants in accordance with ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging, including the guidance in ASC 815-40 related to contracts indexed to, and potentially settled in, an entity’s own equity.
In making this assessment, the Company considered, among other factors:
| ● | whether the Shortfall Warrants are freestanding financial instruments, | |
| ● | whether the warrants are indexed to the Company’s own stock, | |
| ● | whether settlement is required to be in shares rather than cash, and | |
| ● | whether any provisions could require net cash settlement under circumstances outside the Company’s control. |
Accordingly,
in connection with the reverse recapitalization, the Company recognized the Shortfall Warrants at their initial fair value of $
Based on this assessment, the Company concluded that the Shortfall Warrants meet all of the criteria for equity classification under ASC 815-40. Accordingly, the Shortfall Warrants are classified as equity and are not subject to subsequent remeasurement.
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Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
On
February 3, 2026, the Company entered into an amendment to the Common Stock Purchase Warrant (the “Warrant Amendment”) originally
issued on October 22, 2025, in connection with the Business Combination with Meteora Capital Partners, LP, Meteora Select Trading Opportunities
Master, LP and Meteora Strategic Capital, LLC (collectively, the “Holder”). Pursuant to the Warrant Amendment, the exercise
price of the warrant was reduced from $
Note 16. Public and Private Warrants
As
of June 30, 2026 and December 31, 2025, there were
The Company evaluated the terms of the Public and Private Warrants under the relevant U.S. GAAP guidance for freestanding financial instruments and derivative accounting and concluded that both the Public Warrants and the Private Warrants meet the criteria for equity classification. In connection with the reverse recapitalization transaction, the Public Warrants and Private Warrants that were outstanding immediately prior to the transaction were initially recorded through the reverse recapitalization and are presented within stockholders’ deficit on the consolidated balance sheet as part of additional paid-in capital (rather than as a separate warrant liability line item). Because the Public Warrants and Private Warrants are classified in equity, there is no subsequent remeasurement required after initial recognition and changes in the fair value of the Company’s common stock do not give rise to gains or losses in the statement of operations related to these warrants.
Note 17. Subsequent Events
| ● | On July 7, 2026, |
| ● | On July 24, 2026, |
| ● | On
August 2, 2026, |
| ● | The
Company also entered into (i) a |
| ● | Other than as described above, the Company has evaluated subsequent events through the date of issuance of these unaudited condensed consolidated interim financial statements and determined that there have been no other events that have occurred that would require adjustments to disclosures in the unaudited condensed consolidated interim financial statements. |
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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition should be read together in conjunction with the unaudited condensed consolidated interim financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to the unaudited condensed consolidated interim financial information, the following discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Capitalized and defined terms used in this section shall have the meanings ascribed to them herein. Capitalized terms not defined in this section shall have the meanings ascribed to them elsewhere in this quarterly report.
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this quarterly report on Form 10-Q.
Company Overview
We are a leading provider of agentic AI solutions, offering innovative AI products and services to businesses. With over a decade of experience, we help enterprises seamlessly integrate AI into their operations, enhancing efficiency, reducing costs, and driving innovation. Our products and services are uniquely supported by a global talent pool, primarily sourced from underserved communities, allowing us to deliver high- quality AI solutions at scale while fulfilling our mission of democratizing AI.
Our clients have successfully utilized our AI solutions to solve critical business challenges such as improving sales forecasting accuracy and eliminating manual data entry errors. Our commitment to delivering measurable business value has enabled us to build enduring partnerships with these organizations, positioning Fusemachines as a trusted partner in their AI-driven transformation journeys.
In addition to our agentic AI solutions, we are deeply invested in education and talent development. Our AI training programs, particularly our flagship AI Fellowship Program, are designed to upskill students and professionals, providing them with hands-on experience in real-world AI applications. To date, we have certified hundreds of AI Fellows across the United States, Nepal, and the Dominican Republic. These programs not only empower individuals but also contribute to the global AI talent pool, which is critical given the current shortage of AI professionals.
We were originally incorporated under the name CSLM Acquisition Corp. (“CSLM”), as a Cayman Islands exempted Company, as a special purpose acquisition company (“SPAC”) formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities.
In January 2024, the Company entered into an Agreement and Plan of Merger (as amended in August 2024 and February 2025, the “Business Combination Agreement”) with CSLM Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of CSLM (“Merger Sub”), and Fusemachines USA, Inc. (formerly Fusemachines Inc.) (“Legacy Fusemachines”). On October 22, 2025, the Company consummated the business combination whereby (a) CSLM merged with and into CSLM Holdings, Inc., a Delaware corporation and wholly owned subsidiary of CSLM at which time the separate existence of CSLM ceased and CSLM Holdings became the surviving corporation (“Pubco”) in accordance with the Delaware General Corporation Law (“DGCL”), the Cayman Islands Companies Act (As Revised) (the “Companies Act”), the Certificate of Merger, (the “Certificate of Merger”), and the amended and restated memorandum and articles of association of CSLM (the “Domestication”); (b) the merger (the “Merger”) of Merger Sub with and into Legacy Fusemachines, pursuant to which, at the closing of the transactions contemplated by the Business Combination Agreement (the “Closing”), the separate corporate existence of Merger Sub ceased and Legacy Fusemachines became the surviving corporation and a wholly-owned subsidiary of Pubco, pursuant to the terms of the Business Combination Agreement and in accordance with the laws of the State of Delaware, as more fully described elsewhere in the Proxy Statement/Prospectus; and (c) the other transactions contemplated by the Business Combination Agreement and documents related thereto (such transactions, together with the Domestication and the Merger, the “Business Combination”). In connection with the Business Combination, Pubco was renamed “Fusemachines Inc.” (the “Company”) and Fusemachines Inc. was renamed “Fusemachines USA, Inc.” (“Legacy Fusemachines”).
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The common stock of the Company began trading on The Nasdaq Stock Market (Nasdaq Global Market) under the symbol “FUSE”, and the warrants trade under the symbol “FUSEW”, beginning on October 23, 2025.
Recent Developments
Restricted stock units (RSUs)
In January 2026, 1,217,210 awards had been granted as Restricted stock units under the 2025 Plan in previous quarter ended March 31, 2026, whose impact has been considered on the Company’s unaudited condensed consolidated interim financial statements as of that date. Restricted stock units are valued on the date of grant and have no purchase price for the recipient. Restricted stock units typically vest over period ranging from one to four years corresponding to anniversaries of the grant date.
Forward Purchase Agreement
The Company entered into an amendment on February 3, 2026 to the Prepaid Forward Purchase Agreement (the “Amendment”) originally entered into on July 31, 2025 with Meteora Capital Partners and affiliates. The Amendment replaces the agreement’s previously fixed Termination Price of $12.00 per share with a weekly-reset Termination Price equal to the lower of (a) $12.00 and (b) the volume-weighted average price (VWAP) of the Shares for the immediately preceding week (as reported by Bloomberg L.P.), subject to Reset Price Floors applied on a tranche basis (50% of the Shares: $2.50 floor; 50% of the Shares: $5.00 floor). The effect of amendment has been taken in change in fair value of forward purchase derivative liabilities (refer to Note 3 - Fair value measurements of unaudited condensed consolidated interim financial statement).
Shortfall Warrant
On February 3, 2026, the Company entered into an amendment to the Common Stock Purchase Warrant (the “Warrant Amendment”) originally issued on October 22, 2025 in connection with the Business Combination with Meteora Capital Partners, LP, Meteora Select Trading Opportunities Master, LP and Meteora Strategic Capital, LLC (collectively, the “Holder”). Pursuant to the Warrant Amendment, the exercise price of the warrant was reduced from $12.00 to $10.00 per share of the Company’s Class A common stock, subject to customary adjustments as set forth in the warrant agreement. All other terms and conditions of the warrant, including the number of shares issuable upon exercise (2,108,070 shares), remain unchanged and continue in full force and effect. As a result of the reduction in exercise price, the Company recognized a deemed dividend equal to the incremental fair value of the Shortfall Warrants resulting from the Warrant Amendment, measured as of February 3, 2026. The deemed dividend amounting to $84.1 thousand has been recorded as a charge to accumulated deficit with a corresponding credit to additional paid-in capital and, while it does not affect net loss, is deducted from net income (loss) attributable to common stockholders for purposes of computing net loss per share.
Litigation
On April 10, 2026, the Company and a vendor under a Work Labor & Services agreement entered into a settlement agreement pursuant to which the Company agreed to pay a total of $32.9 thousand, including the $7.5 thousand previously paid in escrow account, in full and final settlement of all claims. The Company paid the agreed remaining amount to the vendor and subsequently on April 17, 2026, the vendor filed a Satisfaction of Judgment with the Kings County Clerk, confirming full satisfaction and extinguishment of the judgment. Accordingly, the Company has no remaining exposure related to this matter as of June 30, 2026.
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Financial Performance
For the three months ended June 30, 2026, and June 30, 2025, we generated revenues of $1.79 million and $2.03 million and reported a net loss of $2.85 million and $3.79 million, respectively. For the six months ended June 30, 2026, and June 30, 2025, we generated revenues of $3.67 million and $3.99 million and reported a net loss of $3.72 million and $4.04 million, respectively. Net cash used in operating activities was $3.51 million for the six months ended June 30, 2026, and $0.15 million for the six months ended June 30, 2025. As noted in our unaudited condensed consolidated interim financial statements, we had an accumulated deficit of $38.95 million as of June 30, 2026 and $35.15 million as of December 31, 2025.
Key Factors and Trends Affecting Results of Operations
We believe the following factors and trends may cause previously reported financial information not to be necessarily indicative of future operating results or future financial conditions:
● Market Competition: The AI industry is highly competitive and is changing rapidly with numerous players vying for market share. We attempt to mitigate this risk by continuously innovating and differentiating our offerings, as we have been delivering AI solutions for well over a decade and have deep institutional capabilities to stand apart in terms of our ability to provide value to our customers and scale. Nevertheless, increasing competition could result in loss of business or pressure on margins for Fusemachines.
● Technological Changes: Rapid technological advancements in AI can impact our offering, dilute our value proposition and require us to pivot in different directions. However, given our broad spectrum of AI solutions, coupled with our ability to produce AI talent, our deep investment in research and development, and a culture of continuous learning, we have been able to navigate these changes effectively.
● Adequate Capital Raise: On April 17, 2026, Fusemachines Inc. entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) and a related Registration Rights Agreement with Roth Principal Investments, LLC (“Roth Principal Investments”), an affiliate of Roth Capital Partners, LLC. Pursuant to the Purchase Agreement, the Company has the right, but not the obligation, to sell to Roth Principal Investments up to $20,000,000 in aggregate gross proceeds of shares of common stock (par value $0.0001 per share) from time to time over a 36-month commitment period, at the Company’s sole discretion. Although we entered into the Purchase Agreement during 2026, we expect that additional capital will be required to fund operations, support product development, expand selling and marketing activities, and meet our working capital requirements. As of the date these unaudited condensed consolidated interim financial statements along with Management Discussion and Analysis were available to be issued, the S-1 is not yet effective, and there can be no assurance as to the timing or ultimate effectiveness thereof.
We may seek to raise additional funds through equity offerings, debt financings, strategic investments, or other capital sources. However, there can be no assurance that sufficient funding will be available to us to fund our operating expenses and to further develop our business. Unless we achieve substantial profitability, we anticipate that we will likely need to raise additional capital to fund our operations while we implement and execute our business plan.
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● Ability to manage costs and expenses while achieving revenue growth: Our results of operations may fluctuate, in part, because of the intensive nature of our sales efforts and the length and unpredictability of our sales cycle. As part of our sales efforts, we invest considerable time and expense evaluating the specific organizational needs of our potential customers and educating these potential customers about the technical capabilities and value of our platforms and services. As part of our sales efforts, we also provide our platforms to potential customers at no or low cost initially to them for evaluation purposes through short-term pilot deployments of our platforms, and there is no guarantee that we will be able to convert customers from these short-term pilot deployments to full revenue generating contracts.
● Finance costs: Historically, the Company issued certain convertible promissory notes to finance its operations, as further described in “Note 5 – Long-Term Debt” to the unaudited condensed consolidated interim financial statements. These instruments bore interest and were subject to automatic conversion. In connection with the consummation of the Business Combination during 2025, the outstanding principal and accrued interest under these convertible notes were converted into equity securities in accordance with their contractual terms. As a result, no convertible promissory notes remained outstanding as of June 30, 2026 other than related party note payable related to Dolma Impact Fund I (“Dolma”) amounting to $300 thousand. Following the conversion, the Company no longer incurs interest expense related to these instruments, which has reduced ongoing finance costs compared to prior periods.
Emerging Growth Company and Smaller Reporting Company Status
Section 102(b)(1) of the Jumpstart Our Business Startups Act (“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, as amended) 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. While the Company is considered to be an emerging growth company, 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 standard.
We are also a “smaller reporting company” as defined in the Securities Exchange Act of 1934. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is $250 million or more measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is $700 million or more measured on the last business day of our second fiscal quarter.
Segment Reporting
We operate as one operating segment with a focus on data engineering, artificial intelligence consulting, and technical services. Our Chief Executive Officer (“CEO”), as our chief operating decision maker, manages and allocates resources to the operations of the Company on a consolidated basis. This enables our CEO to assess the overall level of available resources and determine how best to deploy these resources across service lines in line with our long-term company-wide strategic goals.
Results of Operations
The period-to-period comparisons of results of operations have been prepared using the historical periods included in our unaudited condensed consolidated interim financial statements. The following discussion should be read in conjunction with the unaudited condensed consolidated interim financial statements and related notes included elsewhere in this quarterly report. We have derived this data from our unaudited condensed consolidated interim financial statements included elsewhere in this quarterly report.
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Three months ended June 30, 2026, compared to Three Months Ended June 30, 2025
| Three months ended June 30, | ||||||||||||||||
| (In thousands) | 2026 | 2025 | $ Variance | % Variance | ||||||||||||
| Revenue | $ | 1,794 | $ | 2,034 | $ | (240 | ) | (12 | )% | |||||||
| Cost of revenue (1) | $ | (831 | ) | $ | (828 | ) | $ | (3 | ) | 0 | % | |||||
| Gross profit | $ | 963 | $ | 1,206 | $ | (243 | ) | (20 | )% | |||||||
| $ | $ | |||||||||||||||
| Operating expenses: | $ | $ | ||||||||||||||
| Selling and marketing (1) | $ | 383 | $ | 333 | $ | 50 | 15 | % | ||||||||
| General and administrative (1) | $ | 2,978 | $ | 1,566 | $ | 1,412 | 90 | % | ||||||||
| Research and development (1) | $ | 292 | $ | 159 | $ | 133 | 84 | % | ||||||||
| Total operating expenses | $ | 3,653 | $ | 2,058 | $ | 1,595 | 78 | % | ||||||||
| Loss from operations | $ | (2,690 | ) | $ | (852 | ) | $ | (1,838 | ) | 216 | % | |||||
| Interest expense | $ | (52 | ) | $ | (73 | ) | $ | 21 | (29 | )% | ||||||
| Loss on extinguishment of convertible notes payable | $ | 0 | $ | 0 | $ | 0 | ||||||||||
| Gain on extinguishment of payable | $ | 8 | $ | 0 | $ | 8 | 100 | % | ||||||||
| Gain on change in fair value of convertible notes, and warrant liability | $ | (10 | ) | $ | (2,860 | ) | $ | 2,850 | (100 | )% | ||||||
| Gain on change in fair value of forward purchase derivative liability | $ | 20 | $ | 0 | $ | 20 | 100 | % | ||||||||
| Other (expense) income | $ | (125 | ) | $ | (1 | ) | $ | (124 | ) | 12,400 | % | |||||
| Total other expenses, net | $ | (159 | ) | $ | (2,934 | ) | $ | 2,775 | (95 | )% | ||||||
| Loss before income taxes | $ | (2,849 | ) | $ | (3,786 | ) | $ | 937 | (25 | )% | ||||||
| Provision for income tax | $ | 0 | $ | 0 | $ | 0 | ||||||||||
| Net loss | $ | (2,849 | ) | $ | (3,786 | ) | $ | 937 | (25 | )% | ||||||
| Deemed dividend related to Shortfall Warrants modification | $ | 0 | $ | 0 | $ | - | ||||||||||
| Net loss attributable to common stakeholders (i) | $ | (2,849 | ) | $ | (3,786 | ) | $ | 937 | ||||||||
| Weighted-average common shares outstanding - basic and diluted (ii) | 28,965,344 | 7,270,964 | ||||||||||||||
| Net loss per common share - basic and diluted (i)/(ii) | $ | (0.10 | ) | $ | (0.52 | ) | ||||||||||
| Comprehensive income (loss): | ||||||||||||||||
| Net Loss | $ | (2,849 | ) | $ | (3,786 | ) | $ | 937 | (25 | )% | ||||||
| Change in foreign currency translation adjustment | $ | 0 | 0 | $ | 0 | |||||||||||
| Total comprehensive loss | $ | (2,849 | ) | $ | (3,786 | ) | $ | 937 | (25 | )% | ||||||
(1) (a) Includes stock-based compensation expense as follows:
| Three months ended June 30, | ||||||||||||
| 2026 | 2025 | $ Variance | ||||||||||
| General and administrative | $ | 37 | $ | 40 | $ | 3 | ||||||
| Cost of revenue | $ | 5 | $ | 4 | $ | (1) | ||||||
| Selling and marketing | $ | 4 | $ | 8 | $ | 4 | ||||||
| Research and development | $ | 6 | $ | 1 | $ | (5) | ||||||
| Total stock-based compensation expense | $ | 52 | $ | 53 | $ | 1 | ||||||
(b) Includes restricted stock unit expense as follows:
| Three months ended June 30, | ||||||||||||
| 2026 | 2025 | $ Variance | ||||||||||
| General and administrative | $ | 399 | $ | - | $ | (399) | ||||||
| Cost of revenue | $ | 6 | $ | - | $ | (6) | ||||||
| Selling and marketing | $ | 7 | $ | - | $ | (7) | ||||||
| Research and development | $ | 8 | $ | - | $ | (8) | ||||||
| Total restricted stock unit expense | $ | 420 | $ | - | $ | (420) | ||||||
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Six months ended June 30, 2026, compared to Six Months Ended June 30, 2025
| Six months ended June 30, | ||||||||||||||||
| (In thousands) | 2026 | 2025 | $ Variance | % Variance | ||||||||||||
| Revenue | $ | 3,673 | $ | 3,987 | $ | (314 | ) | (8 | )% | |||||||
| Cost of revenue (1) | $ | (1,762 | ) | $ | (1,692 | ) | $ | (70 | ) | 4 | % | |||||
| Gross profit | $ | 1,911 | $ | 2,295 | $ | (384 | ) | (17 | )% | |||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing (1) | $ | 795 | $ | 641 | $ | 154 | 24 | % | ||||||||
| General and administrative (1) | $ | 6,251 | $ | 3,499 | $ | 2,752 | 79 | % | ||||||||
| Research and development (1) | $ | 590 | $ | 324 | $ | 266 | 82 | % | ||||||||
| Total operating expenses | $ | 7,636 | $ | 4,464 | $ | 3,172 | 71 | % | ||||||||
| Loss from operations | $ | (5,725 | ) | $ | (2,169 | ) | $ | (3,556 | ) | 164 | % | |||||
| Other (expense) income: | ||||||||||||||||
| Interest expense | $ | (106 | ) | $ | (139 | ) | $ | 33 | (24 | )% | ||||||
| Loss on extinguishment of convertible notes payable | $ | 0 | $ | (391 | ) | $ | 391 | (100 | )% | |||||||
| Gain on extinguishment of payable | $ | 507 | $ | 0 | $ | 507 | 100 | % | ||||||||
| Gain on change in fair value of convertible notes, and warrant liability | 49 | (1,344 | ) | 1,393 | (104 | )% | ||||||||||
| Gain on change in fair value of Forward Purchase derivative liability | $ | 1,608 | $ | 0 | $ | 1,608 | 100 | % | ||||||||
| Other (expense) income | $ | (50 | ) | $ | 4 | $ | (54 | ) | (1,350 | )% | ||||||
| Total other (expense)/income, net | $ | 2,008 | $ | (1,870 | ) | $ | 3,878 | (207 | )% | |||||||
| Loss before income taxes | $ | (3,717 | ) | $ | (4,039 | ) | $ | 322 | (8 | )% | ||||||
| Provision for income tax | $ | (4 | ) | $ | 0 | $ | (4 | ) | ||||||||
| Net loss | $ | (3,721 | ) | $ | (4,039 | ) | $ | 318 | (8 | )% | ||||||
| Deemed dividend related to Shortfall Warrants modification | $ | (84 | ) | $ | 0 | $ | (84 | ) | 100 | % | ||||||
| Net loss attributable to common stakeholders (i) | $ | (3,805 | ) | $ | (4,039 | ) | $ | 234 | (6 | )% | ||||||
| Weighted-average common shares outstanding - basic and diluted (ii) | 28,952,133 | 7,270,964 | ||||||||||||||
| Net loss per common share - basic and diluted (i)/(ii) | $ | (0.13 | ) | $ | (0.56 | ) | ||||||||||
| Comprehensive income (loss): | ||||||||||||||||
| Net Loss | $ | (3,721 | ) | $ | (4,039 | ) | $ | 318 | (8 | )% | ||||||
| Change in foreign currency translation adjustment | $ | 9 | $ | 0 | $ | 9 | 100 | % | ||||||||
| Total comprehensive loss | $ | (3,712 | ) | $ | (4,039 | ) | $ | 327 | (8 | )% | ||||||
(1) (a) Includes stock-based compensation expense as follows:
| Six months ended June 30, | ||||||||||||
| 2026 | 2025 | $ Variance | ||||||||||
| General and administrative | $ | 74 | $ | 78 | $ | 4 | ||||||
| Cost of revenue | $ | 10 | $ | 10 | $ | 0 | ||||||
| Selling and marketing | $ | 7 | $ | 19 | $ | 12 | ||||||
| Research and development | $ | 16 | $ | 11 | $ | (5) | ||||||
| Total stock-based compensation expense | $ | 107 | $ | 118 | $ | 11 | ||||||
(b) Includes restricted stock unit expense as follows:
| Six months ended June 30, | ||||||||||||
| 2026 | 2025 | $ Variance | ||||||||||
| General and administrative | $ | 741 | $ | - | $ | (741) | ||||||
| Cost of revenue | $ | 8 | $ | - | $ | (8) | ||||||
| Selling and marketing | $ | 10 | $ | - | $ | (10) | ||||||
| Research and development | $ | 12 | $ | - | $ | (12) | ||||||
| Total restricted stock unit expense | $ | 771 | $ | - | $ | (771) | ||||||
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For Revenue recognition policy refer note details under “Critical accounting policies and estimates” section.
We provide services to customers worldwide, with the majority of revenues being derived from contracts with customers located within the United States. The table below presents the breakdown of our revenues, based on the customer’s location (in thousands).
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Customer Locations | ||||||||||||||||
| United States | $ | 1,701 | $ | 1,842 | $ | 3,525 | $ | 3,723 | ||||||||
| Rest of the world | $ | 93 | $ | 192 | $ | 148 | $ | 264 | ||||||||
| Total revenue | $ | 1,794 | $ | 2,034 | $ | 3,673 | $ | 3,987 | ||||||||
The table below presents the breakdown of our revenues, based on the type of services (in thousands).
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Service type | ||||||||||||||||
| AI Solutions (Product and Services) * | $ | 1,784 | $ | 1,913 | $ | 3656 | $ | 3,866 | ||||||||
| AI Education Services | $ | 10 | $ | 121 | $ | 17 | $ | 121 | ||||||||
| Total revenue | $ | 1,794 | $ | 2,034 | $ | 3,673 | $ | 3,987 | ||||||||
*AI Solutions (Products and Services) includes both software product revenues and related services. Product revenue represents an insignificant portion of total revenue for the periods presented and, accordingly, has not been separately disclosed.
Revenue for the three months ended June 30, 2026, reduced to $ 1.79 million as compared to $ 2.03 million for the three months ended June 30, 2025, primarily due to lower revenue from AI Solutions (Products and Services) of $0.13 million and AI Education Service of $0.11 million. Overall revenue decreased by $0.24 million during the period. The decrease is attributable to net decrease in total clients for the period.
Revenue for the six months ended June 30, 2026, reduced to $ 3.67 million as compared to $ 3.99 million for the six months ended June 30, 2025, primarily due to lower revenue from AI Solutions (Products and Services) of $0.21 million and AI Education Service of $0.10 million. Overall revenue decreased by $0.31 million during the period. The decrease is attributable to net decrease in total clients for the period.
Cost of revenue – Cost of revenue primarily consists of consulting and payroll expenses that are assigned to building AI solutions. Cost of revenue increased by $0.003 million, to $0.83 million for the three months ended June 30, 2026, compared to $0.83 million for the three months ended June 30, 2025. The increase was primarily driven by annual salary increments.
Cost of revenue increased by $0.07 million, to $1.76 million for the six months ended June 30, 2026, compared to $1.69 million for the six months ended June 30, 2025. The increase was primarily driven by annual salary increments.
Gross profit – Gross profit is calculated as revenue less total cost of revenue. Our gross profit in future periods will depend on a variety of factors, including market conditions that may impact our pricing, sales mix changes among our service agreements, and product mix changes between established services and new services.
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Gross profit decreased by $0.24 million, to $0.96 million for the three months ended June 30, 2026, compared to $1.21 million for the three months ended June 30, 2025. Gross profit decreased by $0.39 million, to $1.91 million for the six months ended June 30, 2026, compared to $2.30 million for the six months ended June 30, 2025.
Selling and marketing expenses – Selling and marketing expenses represent spending associated with promoting and selling of our services. These expenses comprise of personnel costs, travel and accommodation expenses, as well as advertising and consulting costs related to such activities.
Selling and marketing expenses increased by $0.05 million, from $0.33 million for the three months ended June 30, 2025, to $0.38 million for the three months ended June 30, 2026. The increase was primarily attributable to higher consulting fees and advertising expenses.
Selling and marketing expenses increased by $0.15 million, from $0.64 million for the six months ended June 30, 2025, to $0.79 million for the six months ended June 30, 2026. The increase was primarily attributable to higher consulting fees and advertising expenses.
General and administrative expenses – General and administrative expenses consist of expenses associated with general and administrative functions of the business such as the costs of salaries, IT infrastructure, bad debt, travel, legal and accounting services, insurance, rent, software and tools, meals, other professional services activities, and certain non-income taxes.
General and administrative expenses increased by $1.41 million, from $1.57 million for the three months ended June 30, 2025, to $2.98 million for the three months ended June 30, 2026. The increase was primarily driven by a rise in stock-based compensation expense of $0.40 million attributable to the issuance of restricted stock units (“RSUs”) during the current period, which did not exist in the prior year quarter. Further, the Professional services costs increased by $0.47 million, driven by an increment in audit and consulting fees. In 2025, $0.15 million of the professional service cost was capitalized as IPO transaction cost in 2025 whereas it is NIL in 2026. In addition, other general expenses, payroll increased by $0.26 million due to annual salary increments, insurance policy by $0.11 million, other operating expenses by $0.10 million and BOD’s compensation by $0.07 million.
General and administrative expenses increased by $2.75 million, from $3.5 million for the six months ended June 30, 2025, to $6.25 million for the six months ended June 30, 2026. The increase was primarily driven by a rise in stock-based compensation expense of $0.74 million attributable to the issuance of restricted stock units (“RSUs”) during the current period, which did not exist in the prior year quarter. Further, the Professional services costs increased by $0.97 million, driven by an increment in audit and consulting fees. In 2025, $0.14 million of the professional service cost was capitalized as IPO transaction cost whereas as it is NIL in 2026. In addition, other general expenses, payroll increased by $0.55 million due to annual salary increments, insurance policy by $0.21 million, other operating expenses by $0.15 million and BOD’s compensation by $0.13 million.
Research and development expenses – Research and development expenses include costs associated with software product development, testing, quality assurance, documentation, enhancements and upgrades for existing customers under maintenance.
Research and development expenses for the three months ended June 30, 2026, increased by $0.13 million to $0.29 million as compared to $0.16 million for the three months ended June 30, 2025. The increase was primarily due to increase in payroll expenses.
Research and development expenses for the six months ended June 30, 2026, increased by $0.27 million to $0.59 million as compared to $0.32 million for the six months ended June 30, 2025. The increase was primarily due to increase in payroll expenses.
Interest expense – Interest expense represents interest payable on our borrowings, as well as debt financing and equity issuance costs that are amortized to interest expense.
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Interest expense decreased by $0.02 million to $0.05 million for the three months ended June 30, 2026, from $0.07 million for the three months ended June 30, 2025.
Interest expense decreased by $0.03 million to $0.11 million for the six months ended June 30, 2026, from $0.14 million for the six months ended June 30, 2025. The decrease for both three months ended and six months ended June 30, 2026 was primarily due to a lower outstanding balance of promissory notes, as pursuant of the consummation of the Business Combination on October 22, 2025, substantially all Fusemachines convertible notes that were issued and outstanding immediately prior to the Closing were converted into shares of Legacy Fusemachines common stock in accordance with the respective convertible note agreements. As a result of the conversions and exchanges, no convertible notes or related-party notes payable remained outstanding as of June 30, 2026 other than related party note payable related to Dolma amounting to $300 thousand.
Loss on extinguishment of debt – Loss on extinguishment of debt for the three months ended June 30, 2026 and 2025 was Nil. Loss on extinguishment of debt for the six months ended June 30, 2026 was Nil as compared to $0.39 million for the six months ended June 30, 2025, represents $0.1 million related to April 2024 Convertible Note, $0.1 million related to June 2024 Convertible Note and $0.2 million related to September 2024 Convertible Notes. Loss on extinguishment of debt are related to modification of the aforementioned loans on account of change in conversion price from $4.94 to $3.15 was accounted for under the substantial premium model in accordance with ASC 470, Debt where the excess above the fair value of these notes was recorded as loss on extinguishment of debt.
Gain on extinguishment of payable - During the three months ended June 30, 2026 , gain on extinguishment of payable of $0.01 million and three months ended June 30, 2025 gain on extinguishment of payable was NIL. During the six months ended June 30, 2026, the Company recognized a gain on extinguishment of payable of $0.51 million, with no corresponding amount recorded in the six months ended June 30, 2025.
The difference between the carrying value of the original obligation recorded on the Company’s books and the agreed settlement amount was recognized as a gain on extinguishment of payable in the current quarter in accordance with applicable accounting guidance.
Gain/(Loss) on change in fair value – Gain/(Loss) on change in Fair value represents the changes in fair value related to our convertible notes, warrant liability and forward purchase derivative liability.
Gain on change in fair value for the three months ended June 30, 2026 was $0.01 million as compared to loss of $2.86 million for the three months ended June 30, 2025. Out of the aforementioned gain for the three months ended June 30, 2026, gain of $0.02 million related to fair value of forward purchase derivative liability and remaining loss in fair value of $0.01 million related to common stock warrant liability. This gain in fair value of common stock warrant liability was primarily driven by changes in key valuation inputs, including the Company’s relatively low share price of $1.05, elevated equity volatility of 65.0%, and the remaining contractual term of approximately 7.16 years. These factors increased the probability-weighted value of the potential share settlement under the arrangement. In addition, gain of approximately $0.02 million in the fair value of forward purchase derivative liability is driven by changes in key valuation inputs, including the Company’s relatively Volume weighted average price (VWAP) of $1.06, elevated equity volatility of 65%, and the remaining contractual term of approximately 2.32 years. These factors increased the probability-weighted value of the potential share settlement under the arrangement. Further impacted by adjustments for counterparty credit risk of 6.6%.
Gain on change in fair value for the six months ended June 30, 2026 was 1.66 million as compared to loss of $1.34 million for the six months ended June 30, 2025. Out of the aforementioned gain for the six months ended June 30, 2026, gain of $1.61 million related to fair value of forward purchase derivative liability and remaining gain in fair value of $0.05 million related to common stock warrant liability.
In connection with the consummation of the Business Combination on October 22, 2025, substantially all outstanding convertible notes were either converted into equity or repaid during the year ended December 31, 2025. Accordingly, no fair value changes were recognized during the three months ended June 30, 2026.
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Upon conversion, the carrying amount of the convertible debt is reclassified to equity, and no gain or loss is recognized in earnings, as the conversion is executed in accordance with the original terms of the instruments The Company’s management performed a quantitative assessment of Gain/(Loss) on change in fair value for prior period, and in doing so, considered an independent fair valuation report obtained by management.
For the quarter ended June 30, 2025, loss in fair value of $2.86 million which primarily represents related to change in fair value of convertible notes. We qualified for and elected to account for the convertible notes under the fair value option and, in doing so, bypassed the analysis of potential embedded derivative features. As a result, the convertible notes were recorded at fair value upon issuance and recorded as gain and loss on change in fair value in the unaudited condensed consolidated interim statements of operations and comprehensive loss, for the three months ended June 30, 2025.
Other (expense) income – Other (expense) income consists of our proportional share of earnings and losses related to foreign exchange, and other miscellaneous expenses and income.
Other loss for the three months ended June 30, 2026, was $125 thousand, compared to other loss of $1 thousand for the three months ended June 30, 2025, representing other loss primarily related to foreign exchange.
Other loss for the six months ended June 30, 2026, was $50 thousand, compared to other income of $4 thousand for the six months ended June 30, 2025, representing other loss primarily related to foreign exchange.
Provision for income tax – Provision for income tax is accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our unaudited condensed consolidated interim financial statements or tax returns. In addition, deferred tax assets are recorded for all future benefits including, but not limited to, net operating losses, research and development credit carryforwards, and basis differences with certain assets and liabilities.
Provision for income tax is Nil thousand for the three months ended June 30, 2026 and Nil for the three months ended June 30, 2025.
Provision for income tax is $4 thousand for the six months ended June 30, 2026 and Nil for the six months ended June 30, 2025.
Net loss – Net loss for the three months ended June 30, 2026 was $2.85 million, compared to a net loss of $3.79 million for three months ended June 30, 2025. The change was the result of increase in selling and marketing expenses, general and administrative, research and development in the current period. These unfavorable items were partially offset by a gain on extinguishment of payable, lower interest expense, combined with a gain on the change in fair value of the forward purchase derivative liability and the absence of a loss on extinguishment of convertible notes payable that was recorded in the prior year period.
Net loss for the six months ended June 30, 2026 was $3.72 million, compared to a net loss of $4.04 million for six months ended June 30, 2025. The change was the result of increase in selling and marketing expenses, general and administrative, research and development in the current period. These unfavorable items were partially offset by a gain on extinguishment of payable, lower interest expense, combined with a gain on the change in fair value of the forward purchase derivative liability and the absence of a loss on extinguishment of convertible notes payable that was recorded in the prior year period.
Non-GAAP Financial Measures
Our unaudited condensed consolidated interim financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). We report certain key financial measures that are not required by, or presented in accordance with GAAP, and these non-GAAP financial measures should not be considered as an alternative to the information prepared in accordance with GAAP. In addition, the Company’s management reviews performance by focusing on several key performance indicators not prepared in conformity with GAAP. We believe these non-GAAP financial measures provide a useful measure of our operating results, a meaningful comparison with historical results and with the results of other companies, and insight into our ongoing operating performance. Further, we utilize these measures, in addition to GAAP measures, when evaluating and comparing our operating performance against internal financial forecasts and budgets.
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However, there are several limitations related to the use of non-GAAP financial measures because it excludes significant expenses or credits that are required by GAAP to be included in our financial statements. In addition, other companies may calculate non-GAAP measures differently or may use other measures to calculate their financial performance. Therefore, non-GAAP measures may not be directly comparable to similarly titled measures of other companies.
The Company defines adjusted earnings before interest, tax, depreciation and amortization (“EBITDA”) as net loss before interest expense, income tax expense (benefit), depreciation and amortization, as adjusted to exclude stock-based compensation, fair value changes and gain or loss on extinguishment of debt and payable.
Non-GAAP Reconciliations
We use the non-GAAP measures EBITDA and adjusted EBITDA to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions. Also, we exclude depreciation and amortization, stock-based compensation and fair value changes, which are non-cash expenses, from these non-GAAP financial measures because we believe that excluding these items provides meaningful supplemental information regarding operational performance and provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team.
Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Further, these metrics have certain limitations, as they do not include the impact of certain expenses that are reflected in our unaudited condensed consolidated interim statements of operations and comprehensive loss. Thus, our non-GAAP EBITDA and adjusted EBITDA should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.
We compensate for these limitations by providing reconciliations of these non-GAAP measures to the most comparable GAAP measures. We encourage investors and others to review our business, results of operations, and financial information in its entirety, not to rely on any single financial measure, and to view these non-GAAP measures in conjunction with the most directly comparable GAAP financial measures.
The reconciliation of our net loss to EBITDA and Adjusted EBITDA for the three months ended June 30, 2026, and June 30, 2025, as well as for six months ended June 30, 2026, and June 30, 2025, are as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (In thousands) | 2026 | 2025 | 2026 | 2025 | ||||||||||||
| Net loss | $ | (2,849 | ) | $ | (3,786 | ) | $ | (3,721 | ) | $ | (4,039 | ) | ||||
| Interest expense | $ | 52 | $ | 73 | $ | 106 | $ | 139 | ||||||||
| Provision for tax | $ | 0 | $ | 0 | $ | 4 | $ | 0 | ||||||||
| Depreciation and amortization | $ | 61 | $ | 47 | $ | 117 | $ | 92 | ||||||||
| EBITDA | $ | (2,736 | ) | $ | (3,666 | ) | $ | (3,494 | ) | $ | (3,808 | ) | ||||
| Stock-based compensation | $ | 52 | $ | 53 | $ | 107 | $ | 118 | ||||||||
| Restricted stock unit expense | $ | 420 | $ | - | $ | 771 | $ | 0 | ||||||||
| Fair value adjustments (1) | $ | (10 | ) | $ | 2,860 | $ | (1,657 | ) | $ | 1,344 | ||||||
| Extinguishment of payable | $ | (8 | ) | $ | 0 | $ | (507 | ) | $ | 0 | ||||||
| Extinguishment of debt | $ | - | $ | - | $ | - | $ | 391 | ||||||||
| Adjusted EBITDA | $ | (2,282 | ) | $ | (753 | ) | $ | (4,780 | ) | $ | (1,955 | ) | ||||
(1) Represents change in fair value of convertible notes, warrant liability and forward purchase derivative liability.
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Liquidity and Capital Resources as of June 30, 2026
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditure.
We formally evaluated our liquidity and cash position most recently in 2026 when preparing our 2026 unaudited condensed consolidated interim financial statements. As of June 30, 2026, we had cash of approximately $0.37 million and a net working capital deficit of approximately $16.75 million. As of that date, we also had an accumulated deficit of approximately $38.95 million and a net loss of $3.72 million for the six months ended June 30, 2026.
As of June 30, 2025, we had cash of approximately $0.47 million and a net working capital deficit of approximately $13.80 million. As of June 30, 2025, we had an accumulated deficit of $38.26 million and a net loss of $4.04 million for the six months ended June 30, 2025.
The continuation of the Company as a going concern is dependent upon the continued financial support from its stockholders and debt holders. Specifically, continuation is contingent on the Company’s ability to obtain necessary equity to continue operations, and ultimately the Company’s ability to generate profit from sales and positive operating cash flows, which is not assured.
On April 17, 2026, the Company entered into a Common Stock Purchase Agreement with Roth Principal Investments, LLC providing for up to $20,000,000 in additional equity financing (the Committed Equity Facility (CEF)). While the CEF improves the Company’s access to capital, no proceeds have been received as of the date of issuance and draws remain at the Company’s sole discretion. As of the date these unaudited condensed consolidated interim financial statements were available to be issued, the S-1 has not yet been declared effective, and there can be no assurance as to the timing or ultimate effectiveness thereof.
As of the date on which these unaudited condensed consolidated interim financial statements were available to be issued, we believe that our existing cash on hand, together with the potential availability of additional capital under the Purchase Agreement and other potential equity or debt financing arrangements, may not, on their own, be sufficient to meet the Company’s working capital and capital expenditure requirements for at least the next twelve months. Management currently expects that the Company will be able to access additional sources of capital, including through issuances of equity securities (such as under the Purchase Agreement) and/or additional borrowings, as and when required to fund the Company’s operating and investing activities over the next year; however, there can be no assurance that such financing will be available on acceptable terms or at all. Accordingly, the Company’s ability to continue as a going concern remains dependent on the successful execution of these financing plans. These unaudited condensed consolidated interim financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts or to the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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Cash flows
Quarterly Cash Flows
The following table summarizes our cash flows for the periods presented
| Six months ended June 30, | ||||||||
| (In thousands) | 2026 | 2025 | ||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (3,511 | ) | $ | (149 | ) | ||
| Investing activities | $ | (115 | ) | $ | (60 | ) | ||
| Financing activities | $ | (223 | ) | $ | 180 | |||
| Effect of exchange rate changes on cash | $ | (4 | ) | $ | - | |||
| Net increase (decrease) in cash | $ | (3,853 | ) | $ | (29 | ) | ||
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2026 increased by $3.36 million to $3.51 million, compared to $0.15 million in the same period in 2025. This increase was primarily driven by an increase in Selling and marketing expenses, General and administrative, Research and development, Gain on extinguishment of payable and decrease in Interest expense, Gain/loss on change in fair value. Further, changes in working capital decreased to $1.32 million from $1.8 million in the prior year. The $3.51 million net cash used in operating activities in 2026 was primarily related to (i) a net loss of $3.72 million, offset by; (ii) depreciation and amortization of $0.12 million; (iii) provision for credit losses of ($0.04) million; (iv) stock-based compensation and restricted stock unit compensation of $0.88 million; (v) amortization of right-of-use assets of $0.04 million; (vi) Changes in fair value of common stock warrant liability and forward purchase derivative liability at fair value of ($1.61) million (vii) Accretion of cumulative mandatorily redeemable common and preferred stock liability of $0.06 million; (viii) Gain on extinguishment of payable of ($0.51) million (ix) Working capital changes of $1.3 million.
Net cash used in operating activities during the six months ended June 30, 2025 was $0.15 million. The $0.15 million net cash used in operating activities in 2025 was primarily related to (i) a net loss of $4.04 million, offset by; (ii) depreciation and amortization of $0.09 million; (iii) provision for credit losses of $0.06 million; (iv) stock-based compensation of $0.12 million; (v) amortization of right-of-use assets of $0.04 million; (vi) changes in fair value of convertible notes and common stock warrant liability ($1.34) million; (vii) Accretion of cumulative mandatorily redeemable common and preferred stock liability of $0.05 million; (viii) Loss on extinguishment of convertible note payable of $0.39 million and (ix) Working capital changes of $1.8 million.
Investing Activities
Net cash used in investing activities during the six months ended June 30, 2026, was $(0.12) million compared to ($0.06) million during the six months ended June 30, 2025. The $0.12 million net cash used in investing activities in 2026 consisted of $0.09 million in costs capitalized for internally developed software and $0.03 million in purchases of property and equipment.
Net cash used in investing activities for the six months ended June 30, 2025 was $(0.06) million and consisted of purchases of property and equipment of $0.006 million, costs capitalized for internally developed software of $0.05 million.
Financing Activities
Net cash used in financing activities was $(0.22) million in the six months ended June 30, 2026, compared to $0.18 million in June 30, 2025, representing a decrease of $0.40 million over the respective periods. The decrease in cash flow from financing activities was primarily due to payments of director and officer insurance liability of $0.28 million.
Net cash provided by financing activities was $0.18 million in the six months ended June 30, 2025. The $0.18 million net cash provided by financing activities in 2025 consisted of Proceeds from convertible notes payable of $0.18 million.
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Contractual Obligations and Commitments
Our contractual cash obligations as of June 30, 2026, are summarized in the table below:
| (in thousands) | 2026 | 2027 | 2028 | 2029 | 2030 | Thereafter | Total | |||||||||||||||||||||
| Debt (1) | $ | 300 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 300 | ||||||||||||||
| Interest | $ | 40 | $ | 5 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 45 | ||||||||||||||
| Mandatorily redeemable preferred and ordinary stock | $ | 0 | $ | 1,486 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 1,486 | ||||||||||||||
| Operating lease | $ | 76 | $ | 159 | $ | 167 | $ | 175 | $ | 184 | $ | 225 | $ | 986 | ||||||||||||||
| Legal counsel fee arrangement | $ | 625 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 625 | ||||||||||||||
| Professional service arrangement | $ | 1,834 | $ | 199 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2033 | ||||||||||||||
| Total | $ | 2,875 | $ | 1,849 | $ | 167 | $ | 175 | $ | 184 | $ | 225 | $ | 5475 | ||||||||||||||
(1) As discussed in Note 5, Long-Term Debt, pursuant to business combination substantially all convertible debt and related party debt has been settled either in cash or equity as per the terms of respective debt agreements. Accordingly, no convertible notes or related party notes payable remained outstanding as of June 30, 2026, other than related party note payable related to Dolma amounting to $300 thousand.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
Related Party Transactions
Refer to Note 12, “Related Parties” of the unaudited condensed consolidated interim financial statements contained elsewhere in this quarterly report, for disclosure of our related party transactions.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated interim financial statements have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated interim financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results could differ materially from those estimates due to risks and uncertainties, including uncertainty in the current economic environment. To the extent that there are material differences between these estimates and our actual results, our future consolidated financial statements will be affected.
The critical accounting estimates, assumptions, and judgments that have the most significant impact on our unaudited condensed consolidated interim financial statements are described below. For further information on significant accounting policies, see “Note 2, Summary of Significant Accounting Policies” of our unaudited condensed consolidated interim financial statements included herein.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, the Company recognizes revenue when (or as) customers obtain control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation. The Company applies the provisions of ASC 606 to an arrangement when a substantive contract exists and collectability is probable.
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The Company derives the majority of its revenue from AI Solutions (Products and Services) that largely represents professional services the company provides to its customers to help them achieve any AI-related goals within their organization. Standard contractual arrangements are governed by Master Services Agreements (“MSAs”), which set out general terms including payment, termination rights, and intellectual property ownership. Detailed scope, pricing, and performance obligations are defined in Statements of Work (“SOWs”), which are executed for each engagement or project phase. The Company’s contracts for AI Services have different terms based on the scope and complexity of engagements; pricing for the majority of contracts are invoiced monthly on a time-and-materials basis. The Company notes that its contracts meet the requirements for over-time revenue recognition, as the customer is simultaneously receiving the benefits and able to consume the benefits of the services being provided. For professional services that are distinct and billed on a time-and-materials basis, revenue is generally recognized as the services are provided, which is reflective of the transfer of the services to the customer. The Company elected the “right to invoice” practical expedient based on the Company’s right to invoice a customer at an amount that approximates the value to the customer and the performance completed to date.
For fixed-fee arrangements that include distinct, milestone-based deliverables (for example, discrete design, architecture, or platform-development phases), where either of the criterion laid down in ASC 606-10-25-27(a), (b) or (c) are met, the Company recognizes revenue over time under a percentage-of-completion (“POC”) method, rather than the right-to-invoice practical expedient. Further the progress toward completion of these arrangements is measured using the output method i.e. based on the deliverables completed and accepted by the customer relative to total contractual deliverables for that performance obligation.
The Company also provides AI Education Services which represents a customized curriculum of educational services provided to train the customer’s C-suite on AI for Business. The Company provides AI Education Services over time as the course proceeds and the students retain knowledge over time. Thus, the customer receives and consumes benefits as the Company performs the AI Education Services, and revenue is recognized overtime.
Company’s AI Solutions includes product revenues primarily comprising of software license fees from sales of term-based license contracts, under which we grant customers the license right to use the software for a specified period (i.e. when the customer can access, use, and benefit from the software license). Term software licenses are satisfied at a point in time and associated revenue is recognized upon the later of 1) delivery of the software, or 2) the beginning of the period in which the customer has received the license right to use the software. For customer contracts that include software license fees, implementation and/or other consulting services, the portion of the transaction price allocated to software licenses is generally recognized when delivered. Implementation, customization, or model tuning services if applicable, when included, are evaluated as separate performance obligations when they are distinct from the software and not highly interdependent. These services are generally satisfied over time as the work progresses. During the three and six months ended June 30, 2026 and June 30, 2025 the product revenues were insignificant.
For most contracts, the Company uses a Master Service Agreements (“MSA”) to govern the overall relevant terms and conditions of the business agreement, and a Statement of Work (“SOW”) to specify the services delivered and the associated prices. Performance obligations specific to each individual contract are defined within the terms of each SOW. Each performance obligation is identified based on the services that will be transferred to our customer that are both capable of being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which the Company will be entitled and expect to receive in exchange for transferring services to the customer.
Consideration for some contracts may include variable consideration including volume discounts and rebates. If the consideration promised includes a variable amount, the Company only includes estimated amounts of consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. These estimates require management judgments and estimates. The determination of whether to constrain consideration in the transaction is based on historical, current, and forecasted information that is reasonably available to the Company, taking into consideration the type of customer, the transaction, and specific facts and circumstances of each arrangement. The Company uses judgement to determine if collectability of consideration is uncertain, and accordingly, revenue recognition is deferred until the uncertainty is resolved and cash is collected.
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Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days of the invoice date. In certain arrangements, the Company will receive payment from a customer either before or after the performance obligation to which the invoice relates has been satisfied. As a practical expedient, the Company does not account for significant financing components if the period between when it transfers the promised good or service to the customer and when the customer pays for the product or service will be one year or less.
For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on its relative standalone selling price. The stand-alone selling prices are determined based on the prices at which the Company separately sells these products. For items that are not sold separately, the Company estimates the stand-alone selling prices using other observable inputs. As Fusemachines Inc. is the sole reportable segment, all revenues are attributed to the sole segment.
Income Taxes
The provision for income taxes includes federal, state, local and foreign taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the consolidated financial statements carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be reversed. Changes to enacted tax rates would result in either increases or decreases in the provision for income taxes in the period of changes.
The realizability of deferred tax assets is primarily dependent on future earnings. The Company evaluates the realizability of deferred tax assets and recognizes a valuation allowance when it is more likely than not that all, or a portion of, deferred tax assets will not be realized. A reduction in estimated forecasted results may require that we record valuation allowances against deferred tax assets. Once a valuation allowance has been established, it will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets will be realized. A pattern of sustained profitability will generally be considered as sufficient positive evidence to reverse a valuation allowance. If the allowance is reversed in a future period, the income tax provision will be correspondingly reduced. Accordingly, the increase and decrease of valuation allowances could have a significant negative or positive impact on future earnings.
The United States subjects’ corporations to taxes on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The Company elected to provide for the tax expense related to GILTI in the year the tax is incurred.
Stock-Based Compensation
Stock-based compensation expense attributable to equity awards granted to employees and non-employees is measured at the grant date based on the fair value of the award. For employee awards, the expense is recognized on a straight-line basis over the requisite service period for awards that vest, which is generally the period from the grant date to the end of the vesting period. For non-employee awards, the expense for awards that vest is recognized based on when the goods or services are provided.
The Company records stock-based compensation including the restricted stock units, in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). This standard requires all equity-based payments to employees and non-employees, including grants of employee stock options and restricted stock units, to be recognized in the unaudited condensed consolidated interim statements of operations and comprehensive loss based on the grant date fair value of the award. The stock-based compensation expense is recognized on a straight-line basis over the requisite service period of the award, which is generally the period from the accounting grant date to the end of the vesting period. The Company elected to account for forfeitures of awards as they occur.
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Since the adoption of ASU 2018-07, Improvements to Nonemployee Stock-Based Payment Accounting, the measurement date for non-employee awards is the date of grant, and stock-based compensation costs are recognized in the same period and in the same manner as if the entity had paid cash for the goods or services. Stock-based compensation expense is classified as general and administrative, cost of revenue, selling and marketing and research and development expenses in the unaudited condensed consolidated interim statements of operations and comprehensive loss.
The Company estimates the fair value of stock option awards granted using the Black Scholes Merton option pricing formula (the “Black-Scholes Model”). This model requires various significant judgmental assumptions in order to derive a final fair value determination for each type of award, including the expected term, expected volatility, expected dividend yield, risk-free interest rate and fair value of the Company’s stock on the date of grant. The expected option term for options granted is calculated using the “simplified method”. This election was made based on the lack of sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The simplified method defines the expected term as the average of the contractual term and the vesting period. Estimated volatility is based on similar entities whose stock prices are publicly traded. The Company uses the historical volatilities of similar entities due to the lack of sufficient historical data for the Company’s common stock price. The Company estimates volatility based upon the observed historical volatilities of comparable companies over a lookback period commensurate with the estimated holding period, adjusted for relative leverage using the Black-Scholes-Merton formula. Dividend yields are based on the Company’s history and expected future actions. The Company has not declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero. The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award was granted with a maturity equal to the expected term of the stock option award. All grants of stock options generally have an exercise price equal to or greater than the fair market value of the Company’s common stock on the date of grant.
The fair value of the shares of common stock underlying the stock options has historically been determined by the Company’s Board of directors as there was no public market for the underlying common stock prior to October 22, 2025. In estimating the fair value of its stock, the Company uses a third-party valuation specialist and considers factors it believes are material to the valuation process, including but not limited to, the price at which recent equity was issued by the Company to independent third parties or transacted between third parties, any indications of value from offers to acquire the Company, actual and projected financial results, risks, prospects, economic and market conditions, and estimates of weighted average cost of capital. The Company believes the combination of these factors provides an appropriate estimate of the expected fair value of the Company and reflects the best estimate of the fair value of the Company’s common stock at each grant date.
Recent Accounting Pronouncements
For further information on recent accounting pronouncements, see “Note 2, Summary of Significant Accounting Policies” of our unaudited condensed consolidated interim financial statements included herein
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures although partially mitigated were not yet tested and therefore not yet effective as of the end of the period covered by this Quarterly Report.
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Management’s Report on Internal Control over Financial Reporting
Management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a- 15(f) and 15d-15(f) under the Exchange Act and based upon the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO framework”). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. GAAP.
An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud. Effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.
Our Chief Executive Officer and Chief Financial Officer, understand the need to conduct an updated evaluation of the effectiveness of our internal control over financial reporting based on the COSO framework. Based on a prior evaluation under these criteria, management determined that our internal controls over financial reporting were not effective as of December 31, 2025. Some remediation efforts were completed as of June 30, 2026.
Remediation of Material Weakness in Internal Controls
In connection with the preparation and audit of our consolidated financial statements as of and for the years ended December 31, 2025 and 2024, material weaknesses were identified in its internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis. The following material weaknesses were identified:
| ● | Incomplete implementation of internal control framework (e.g., COSO 13) to establish an effective control environment, risk assessment, control activities, communication, and monitoring processes. | |
| ● | Lack of formal process for Board review or approval of significant CEO-initiated transactions. | |
| ● | Lack of formal process for independent review of significant accounting estimates by qualified personnel at each reporting date. | |
| ● | Lack of sufficient trained accounting staff with US GAAP expertise. | |
| ● | Inadequate segregation of duties and lack of review of accounting entries. | |
| ● | Absence of a robust monthly and annual close process. | |
| ● | Lack of centralized contract repository or checklist for key contract terms and accounting implications. | |
| ● | Lack of adequate IT controls. |
Management has initiated or is in the process of implementing the following remediation measures to address the identified material weaknesses. These remediation efforts were not yet tested and therefore not yet effective as of the end of the period covered by this quarterly report.
| ● | the reconciliation processes including balance sheet account reconciliations, and a review of chart of accounts and mapping of expense accounts as of December 31, 2025; | |
| ● | establishing a central repository of signed contracts with periodic management review for completeness and assessment of accounting implications; | |
| ● | establishing a quarterly management oversight and review mechanism for identifying significant unusual/non-recurring transactions, critical accounting and complex financial instruments and evaluating related accounting implications; | |
| ● | Maintaining a vendor master list and strengthening documentation, with proper segregation by vendor type to ensure accurate classification of expenses (Cost of Services, G&A, R&D, Sales & Marketing) including software, hardware, and IT consultants; | |
| ● | Strengthen its monthly payroll reconciliation process to ensure accuracy with the general ledger and trial balance, especially for North American entities; | |
| ● | Strengthen the monthly accrual process for services received by maintaining a schedule of accrued expenses to ensure proper expense cut-off and accurate financial statement presentation; | |
| ● | Perform monthly reconciliations and adjustments for loan balances, fixed assets, accounts payable, and related party transactions to ensure accurate financial statements for management decisions, tax planning, and statutory compliance; | |
| ● | Strengthen fixed asset tagging and serial numbering to maintain an accurate fixed asset schedule and enable timely reconciliation with the trial balance; | |
| ● | Strengthen documentation of inter-company transactions and perform transfer pricing studies for Nepal and Canadian subsidiaries; and | |
| ● | Adopt and implement the COSO 13 Framework (or equivalent) to establish an effective control environment, perform risk assessments, implement controls, and monitor internal control over financial reporting. |
The material weaknesses will not be considered remediated until the applicable controls operate effectively for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control Over Financial Reporting
Other than the changes associated with the material weaknesses and remediation actions noted above, there have been no changes to our internal control over financial reporting that occurred during the quarter ended June 30, 2026.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us or any of our officers or directors in their corporate capacity.
Item 1A. Risk Factors
Our business is subject to various risks, including those described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the SEC on March 27, 2026, which we strongly encourage you to review (the “2025 Annual Report”). Other than as set forth below, there have been no material changes from the risk factors described in our 2025 Annual Report.
Risks Related to the Offering with Roth Principal Investments
The issuance and sale of our Common Stock to Roth Principal Investments may cause dilution to our other stockholders and the sale of the shares of Common Stock acquired by Roth Principal Investments, or the perception that such sales may occur, could cause the price of our Common Stock to fall.
On April 17, 2026, we entered into the Purchase Agreement with Roth Principal Investments, pursuant to which Roth Principal Investments has committed to purchase up to $20.0 million of shares of Common Stock (“Purchase Shares”), upon the terms and subject to the conditions set forth in the Purchase Agreement. The shares of our Common Stock that may be issued under the Purchase Agreement may be sold by us to Roth Principal Investments at our discretion from time to time over a 36-month period following the effective date of the registration statement of which this prospectus forms a part, subject to certain conditions. The purchase price for the shares that we may sell to Roth Principal Investments under the Purchase Agreement will fluctuate based on the market price of our Common Stock. Depending on demand and market liquidity at the time, sales of such shares by Roth Principal Investments may cause the trading price of our Common Stock to fall.
We generally have the right to control the timing and amount of any future sales of our shares to Roth Principal Investments. Any sales of our Common Stock to Roth Principal Investments will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Roth Principal Investments all, some or none of the shares of our Common Stock that may be available for us to sell pursuant to the Purchase Agreement. If and when we sell shares to Roth Principal Investments, Roth Principal Investments may then resell all, some or none of those shares at any time or from time to time in its discretion. Therefore, our sales to Roth Principal Investments could result in substantial dilution to the interests of other holders of our Common Stock. Additionally, the sale of a substantial number of shares of our Common Stock to Roth Principal Investments, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
It is not possible to predict the actual number of shares we will sell under the Purchase Agreement to Roth Principal Investments, or the actual gross proceeds resulting from those sales.
On April 17, 2026, we entered into the Purchase Agreement with Roth Principal Investments, pursuant to which Roth Principal Investments has committed to purchase up to $20,000,000 of shares of our Common Stock, subject to certain limitations and conditions set forth in the Purchase Agreement. The shares of our Common Stock that may be issued under the Purchase Agreement may be sold by us to Roth Principal Investments at our discretion from time to time during the Commitment Period.
We generally have the right to control the timing and amount of any sales of our shares of Common Stock to Roth Principal Investments under the Purchase Agreement. Sales of our Common Stock, if any, to Roth Principal Investments under the Purchase Agreement will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Roth Principal Investments all, some or none of the shares of our Common Stock that may be available for us to sell to Roth Principal Investments pursuant to the Purchase Agreement.
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Because the per share purchase price that Roth Principal Investments will pay for Purchase Shares in any market open purchase (“Market Open Purchase”) or intraday purchase (“Intraday Purchase”) that we may elect to effect pursuant to the Purchase Agreement will be determined by reference to the VWAP during the applicable market open purchase valuation period or intraday purchase valuation period, respectively, on the applicable purchase date (“Purchase Date”) for such Market Open Purchase or Intraday Purchase (as the case may be), as of the date of this prospectus, it is not possible for us to predict the number of shares of Common Stock that we will sell to Roth Principal Investments as Purchase Shares under the Purchase Agreement, the purchase price per share that Roth Principal Investments will pay for Purchase Shares purchased from us under the Purchase Agreement, or the aggregate gross proceeds that we will receive from those purchases by Roth Principal Investments under the Purchase Agreement.
Although the Purchase Agreement provides that we may sell up to $20,000,000 of our Common Stock to Roth Principal Investments, only 11,363,636 Purchase Shares are being registered under the Securities Act for resale by Roth Principal Investments. At an assumed purchase price per share of $1.76, representing the closing sale price of our Common Stock on Nasdaq immediately prior to the execution of the Purchase Agreement, the number of Purchase Shares that are being registered under the registration statement that includes this prospectus would be sufficient to enable us to receive the full $20,000,000 in aggregate gross proceeds from the sale of such Purchase Shares to Roth Principal Investments under the Purchase Agreement. However, depending on the market prices of our Common Stock on the Purchase Dates on which we elect to sell such Purchase Shares to Roth Principal Investments under the Purchase Agreement, we may need to register under the Securities Act additional shares of our Common Stock for resale by Roth Principal Investments in order for us to receive aggregate proceeds equal to Roth Principal Investments’ $20,000,000 maximum aggregate purchase commitment available to us under the Purchase Agreement.
Moreover, to the extent that the Exchange Cap remains applicable to issuances and sales of our common stock under the Purchase Agreement, if we elect to issue and sell to Roth Principal Investments more shares of Common Stock than the exchange cap (or 5,750,000 shares of Common Stock) (the “Exchange Cap”) under the Purchase Agreement, which we have the right, but not the obligation, to do, we must first obtain stockholder approval to issue shares of Common Stock in excess of the Exchange Cap under the Purchase Agreement in accordance with applicable Nasdaq rules. Any issuance and sale by us under the Purchase Agreement of a substantial amount of shares of Common Stock being registered for resale by Roth Principal Investments under the registration statement that includes this prospectus could cause additional substantial dilution to our stockholders. The number of shares of Common Stock ultimately offered for resale by Roth Principal Investments through this prospectus is dependent upon the number of shares of Common Stock, if any, we elect to sell to Roth Principal Investments under the Purchase Agreement from and after the commencement date.
Investors who buy shares at different times will likely pay different prices.
Pursuant to the Purchase Agreement, we will have discretion, subject to market demand, to vary the timing, prices, and numbers of shares sold to Roth Principal Investments. If and when we do elect to sell shares of our Common Stock to Roth Principal Investments pursuant to the Purchase Agreement, after Roth Principal Investments has acquired such shares, Roth Principal Investments may resell all, some or none of such shares at any time or from time to time in its discretion and at different prices. As a result, investors who purchase shares from Roth Principal Investments in this offering at different times will likely pay different prices for those shares, and so may experience different levels of dilution, and in some cases substantial dilution, and different outcomes in their investment results. Investors may experience a decline in the value of the shares they purchase from Roth Principal Investments in this offering as a result of future sales made by us to Roth Principal Investments at prices lower than the prices such investors paid for their shares in this offering. In addition, if we sell a substantial number of shares to Roth Principal Investments under the Purchase Agreement, or if investors expect that we will do so, the actual sales of shares or the mere existence of our arrangement with Roth Principal Investments may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales.
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Our management team will have broad discretion over the use of the net proceeds from our sale of shares of Common Stock to Roth Principal Investments, if any, and you may not agree with how we use the proceeds and the proceeds may not be invested successfully.
Our management team will have broad discretion as to the use of the net proceeds from our sale of shares of Common Stock to Roth Principal Investments, if any, and we could use such proceeds for purposes other than those contemplated at the time of commencement of this offering. Accordingly, you will be relying on the judgment of our management team with regard to the use of those net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that, pending their use, we may invest those net proceeds in a way that does not yield a favorable, or any, return for us. The failure of our management team to use such funds effectively could have a material adverse effect on our business, financial condition, operating results and cash flows.
Roth Principal Investments will pay less than the then-prevailing market price for our shares of Common Stock, which could cause the price of our Common Stock to decline.
The purchase price of our Common Stock to be sold to Roth Principal Investments under the Purchase Agreement is derived from the market price of our Common Stock on Nasdaq. Common stock to be sold to Roth Principal Investments pursuant to the Purchase Agreement will be purchased at a discounted price. The actual amount of proceeds we receive pursuant to each purchase notice (each, the “Purchase Amount”) is determined by multiplying the Purchase Amount requested by the applicable purchase price.
Roth Principal Investments may sell the shares it receives immediately after receipt of such shares, and/or may sell such shares short prior to the purchase of such shares, which may be prior to final determination of the purchase price for such shares and could cause the price of our Common Stock to decrease. If the price of our Common Stock declines, then Roth Principal Investments may pay a lower purchase price for such shares.
We may require additional financing to sustain our operations, without which we may not be able to continue operations, and the terms of subsequent financings may adversely impact our stockholders.
The extent we rely on Roth Principal Investments as a source of funding will depend on a number of factors, including the prevailing market price of our Common Stock and the extent to which we are able to secure working and other capital from other sources. If obtaining sufficient funding from Roth Principal Investments were to prove unavailable or prohibitively dilutive, we will need to secure another source of funding in order to satisfy our working and other capital needs. Even if we were to sell to Roth Principal Investments all of the shares of Common Stock available for sale to Roth Principal Investments under the Purchase Agreement, we may still need additional capital to fully implement our business, operating and development plans. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences may be a material adverse effect on our business, operating results, financial condition and prospects. Depending on the type and the terms of any financing we pursue, stockholders’ rights and the value of their investment in our Common Stock could be reduced. A financing could involve one or more types of securities including Common Stock, convertible debt or warrants to acquire Common Stock. These securities could be issued at or below the then prevailing market price for our Common Stock. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect on our business, operating results, financial condition and prospects.
Risks Related to the August 2026 Note and Warrant Financing with Meteora
The issuance of shares upon conversion of the Notes and exercise of the Warrants will dilute our stockholders, and our obligation to register the resale of those shares, or our failure to meet the applicable filing and effectiveness deadlines, could adversely affect the trading price of our Common Stock and result in an event of default under the Notes.
On August 2, 2026, we entered into separate Securities Purchase Agreements with certain accredited and institutional investors (collectively, the “Purchasers”), pursuant to which we issued 18% original issue discount senior unsecured convertible promissory notes due February 12, 2027 (the “Notes”) in an aggregate original principal amount of $2,500,000, for an aggregate purchase price of $2,050,000, together with common stock purchase warrants (the “Warrants”) to purchase up to an aggregate of 2,050,000 shares of our Common Stock. The Notes are convertible at the option of the holders at a fixed conversion price of $4.20 per share, which would result in the issuance of up to approximately 595,238 shares of Common Stock if converted in full, and the Warrants are exercisable at a fixed exercise price of $4.20 per share. The issuance of shares upon conversion of the Notes and exercise of the Warrants will dilute the ownership interests of our existing stockholders, and any sales of those shares in the public market, or the perception that such sales may occur, could adversely affect the market price of our Common Stock. We are obligated to file a resale registration statement with the SEC covering the resale of the shares issuable upon conversion of the Notes and exercise of the Warrants within 30 days of the closing of this financing, and to use our best efforts to cause it to be declared effective within 60 days of closing (or 120 days if the SEC reviews and comments on the registration statement). Our failure to meet these filing or effectiveness deadlines would constitute an event of default under the Notes, which could permit the holders to accelerate the Notes and require immediate repayment, and would have a material adverse effect on our liquidity and financial condition.
Amendments to our existing Forward Purchase Agreement and Shortfall Warrants with Meteora, entered into concurrently with the Notes and Warrants, could increase the dilutive impact and volatility of those instruments.
Concurrently with the issuance of the Notes and Warrants, we entered into a Second Forward Purchase Agreement Confirmation Amendment and a Second Common Stock Purchase Warrant Amendment with certain of the Meteora entities. The Second Forward Purchase Agreement Confirmation Amendment resets the Termination Price under our existing Forward Purchase Agreement weekly to the lower of $12.00 per share or the prior week’s volume-weighted average price of our Common Stock, without the minimum price floors that applied under the prior amendment to that agreement. The Second Common Stock Purchase Warrant Amendment replaces the fixed $10.00 per share exercise price of our outstanding Shortfall Warrants, which are exercisable for up to 2,108,070 shares of Common Stock, with a floating exercise price equal to the greater of the Termination Price under the Forward Purchase Agreement (as so amended) or $0.85 per share. As a result of these amendments, the exercise price of the Shortfall Warrants could decline if the trading price of our Common Stock declines, which could result in increased dilution to our stockholders and increased volatility in the fair value of our forward purchase derivative liability and warrant liabilities. We are currently evaluating the accounting and financial reporting implications of these amendments.
Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in its securities and subject us to additional trading restrictions.
Currently, our common stock and public warrants are listed on the Nasdaq Global Market under the symbols “FUSE” and “FUSEW.” In order to continue the listing of these securities on the Nasdaq Global Market, we are required to maintain certain financial, distribution and stock price levels. On January 15, 2026, we received a notification letter from the staff of the Listing Qualifications Department of The Nasdaq Stock Market (the “Nasdaq Staff”) indicating that we were not in compliance with the continued listing requirement to maintain a minimum Market Value of Publicly Held Shares (“MVPHS”) of $15,000,000 for the Nasdaq Global Market, as set forth in Nasdaq Listing Rule 5450(b)(2)(C). On July 7, 2026, Nasdaq notified us that we had regained compliance with this requirement, closing out that matter. However, on July 24, 2026, we received a new notification letter from the Nasdaq Staff indicating that we are not in compliance with the MVPHS requirement, based on our MVPHS having been below $15,000,000 for the 30 consecutive business days from June 10, 2026 through July 23, 2026. In accordance with Nasdaq Listing Rule 5810(c)(3)(D), we have 180 calendar days, or until January 20, 2027, to regain compliance with the MVPHS requirement. If at any time before January 20, 2027, our MVPHS closes at or above $15,000,000 for a minimum of 10 consecutive business days, Nasdaq will provide written confirmation that we have regained compliance. Further, on March 27, 2026, we received a deficiency notice from the Nasdaq Staff notifying us that for the last 30 consecutive business days our securities had not maintained the minimum Market Value of Listed Securities (“MVLS”) of $50,000,000 required by the continued listing requirements of Nasdaq Listing Rule 5450(b)(2)(A). In accordance with Nasdaq Listing Rule 5810(c)(3)(C), we have 180 calendar days, or until September 23, 2026, to regain compliance with the MVLS requirement. If at any time before September 23, 2026, our MVLS closes at or above $50,000,000 for a minimum of 10 consecutive business days, Nasdaq will provide written confirmation that we have regained compliance.
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If Nasdaq delists our securities from trading on its exchange and we are not able to list its securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
| ● | a limited availability of market quotations for our securities; | |
| ● | reduced liquidity for our securities; | |
| ● | a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; | |
| ● | a limited amount of news and analyst coverage; and | |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Since our common stock and public warrants are listed on the Nasdaq Global Market, they are covered securities. However, if our securities were no longer listed on the Nasdaq Global Market, they would not be covered securities and we would be subject to regulation in each state in which we offer our securities.
Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During
the three months ended June 30, 2026, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Exchange
Act)
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Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith |
| ** | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| FUSEMACHINES INC. | ||
| Date: August 7, 2026 | By: | /s/ Christine Chambers |
| Christine Chambers | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sameer Maskey, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Fusemachines Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Omitted; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | Omitted. |
| Date: August 7, 2026 | By: | /s/ Sameer Maskey |
| Sameer Maskey | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Christine Chambers, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Fusemachines Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Omitted; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | Omitted. |
| Date: August 7, 2026 | By: | /s/ Christine Chambers |
| Christine Chambers | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Fusemachines Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2026 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 7, 2026 | By: | /s/ Sameer Maskey |
| Sameer Maskey | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Fusemachines Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2026 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 7, 2026 | By: | /s/ Christine Chambers |
| Christine Chambers | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |