FUSE 10-K & 10-Q changes, risk factors and insider trading

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 listlisting 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 arewere 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 Listing Rule 5810(c)(3)(D), we have 180 calendar days, or until JulyJanuary 14,20, 2026,2027, to regain compliance with the MVPHS requirement. If at any any time before JulyJanuary 14,20, 2026,2027, our MVPHS closes at or above $15,000,000 for a minimum of 10 consecutive business days, Nasdaq will provide 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.

In January 2026, 1,217,210 awards had been granted as Restricted stock units under the 2025 Plan asin ofprevious periodquarter ended March 31, 2026, whose whose impact has been considered on the Company’s unaudited condensed consolidated interim financial statements as of that date. Restricted 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.

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 at the timeas of filingJune of30, form 10-Q (Quarterly Report).2026.

For the three months ended MarchJune 31,30, 2026, and MarchJune 31,30, 2025, we generated revenues of $1.88$1.79 million and $1.95$2.03 million and reported a net loss of $0.87$2.85 million and $0.25$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 $2.22$3.51 million for the threesix months ended March 31,June 30, 2026, and $0.23$0.15 million for the threesix months ended MarchJune 31,30, 2025. As noted in our unaudited condensed consolidated interim financial statements, we had an accumulated deficit of $36.10$38.95 million as of MarchJune 31, 30, 2026 and $35.15 million as of December 31, 2025.

● Adequate Capital Raise: As of March 31, 2026, we had limited financial resources However, onOn April 17, 2026, subsequent to the balance sheet date of March 31, 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 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.

● 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 MarchJune 31,30, 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.

Three months ended MarchJune 31,30, 2026, compared to Three Months Ended MarchJune 31,30, 2025

Revenue for the three months ended MarchJune 31,30, 2026, reduced to $1.88$ 1.79 million as compared to $1.95$ 2.03 million for the three months ended MarchJune 30, 31, 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 $0.07$0.24 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 $0.07$0.003 million, to $0.93$0.83 million for the three months ended MarchJune 31,30, 2026, compared to $0.86$0.83 million for the three months ended MarchJune 31,30, 2025. The increase was primarily driven by annual salary increments.

Gross profit decreased by $0.14$0.24 millionmillion, to $0.95$0.96 million for the three months ended MarchJune 31,30, 2026, compared to $1.09$1.21 million for the three months ended MarchJune 31,30, 2025,2025. asGross aprofit resultdecreased ofby lower$0.39 salesmillion, andto higher$1.91 costmillion offor revenue.the six months ended June 30, 2026, compared to $2.30 million for the six months ended June 30, 2025.

Selling and marketing expenses increased by $0.10$0.05 million, from $0.31$0.33 million for the three months ended MarchJune 31,30, 2025, to $0.41$0.38 million for the three months ended MarchJune 31,30, 2026. The increase was primarily attributable to higher consulting fees.fees and advertising expenses.

General and administrative expenses increased by $1.34$1.41 million, from $1.93$1.57 million for the three months ended MarchJune 31,30, 2025, to $3.27$2.98 million million for the three months ended MarchJune 31,30, 2026. The increase was primarily driven by a rise in stock-based compensation expense of $0.35 $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 $0.37$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.

Research and development expenses for the three months ended MarchJune 31,30, 2026, increased by $0.13 million to $0.30$0.29 million as compared to $0.16 $0.17 million for the three months ended MarchJune 31,30, 2025. The increase was primarily due to increase in payroll expenses.

Interest expense decreased by $0.02$0.03 million to $0.05$0.11 million for the six months ended June 30, 2026, from $0.14 million for the threesix months ended MarchJune 31, 2026, from $0.07 million for the three months ended March 31,30, 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 consummation of the Business Combination on October 22, 2025, substantially all Fusemachines convertible notes that were issued and outstanding immediately immediately prior to the Closing were converted into shares of Legacy Fusemachines common stock in accordance with the respective convertible note note agreements. As a result of the conversions and exchanges, no convertible notes or related-party notes payable remained outstanding as as of MarchJune 31,30, 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 monthmonths ended MarchJune 31,30, 2026 and 2025 was Nil. Loss on extinguishment of debt for the six months ended June 30, 2026 was Nil,Nil as compared to $0.39 million for the threesix months ended MarchJune 31, 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 MarchJune 31,30, 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 $0.50$0.51 million, with no corresponding amount recorded in the threesix months ended MarchJune 31,30, 2025. The gain arose in connection with the Settlement Agreement and General Release (the “Settlement Agreement”) entered into effective March 13, 2026.

Gain on change in fair value for the three months ended MarchJune 31,30, 2026 was 1.65$0.01 million as compared to $1.52loss of $2.86 million for the three months ended MarchJune 31,30, 2025. Out of the aforementioned gain for the three months ended MarchJune 31,30, 2026, gain of $1.59$0.02 million related to fair value value of forward purchase derivative liability and remaining gainloss in fair value of $0.06$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 $0.95,$1.05, elevated equity volatility of 62.0%,65.0%, and the remaining contractual term of approximately 7.417.16 years. These factors increased the probability-weighted value of the potential share settlement under the arrangement. In addition, gain of approximately $1.59$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 $1.31,$1.06, elevated equity volatility of 62.5%,65%, and the remaining contractual contractual term of approximately 2.562.32 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%.

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 MarchJune 31,30, 2026.

For the quarter ended MarchJune 31,30, 2025, Gainloss in fair value of $1.52$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 MarchJune 31,30, 2025.

Other incomeloss for the three months ended MarchJune 31,30, 2026, was $75$125 thousand, compared to other incomeloss of $4$1 thousand for the three months ended June March 31,30, 2025, representing other incomeloss primarily related to foreign exchange.

Provision for income tax is $4Nil thousand for the three months ended MarchJune 31,30, 2026 and Nil for the three months ended MarchJune 31,30, 2025.

Net loss – Net loss for the three months ended MarchJune 31,30, 2026 was $0.87$2.85 million, compared to a net loss of $0.25$3.79 million for three months ended MarchJune 31,30, 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.

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.

The reconciliation of our net loss to EBITDA and Adjusted EBITDA for the three months ended MarchJune 31,30, 2026, and MarchJune 31,30, 2025, isas well as for six months ended June 30, 2026, and June 30, 2025, are as follows:

Liquidity and Capital Resources as of MarchJune 31,30, 2026

We formally evaluated our liquidity and cash position most recently in 2026 when preparing our 2026 unaudited condensed consolidated interim financial statements. As of MarchJune 31,30, 2026, we had cash of approximately $1.77$0.37 million and a net working capital deficit of approximately $14.39$16.75 million. As of that date, we also had an accumulated deficit of approximately $36.10$38.95 million and a net loss of $0.87$3.72 million for the threesix months ended MarchJune 31,30, 2026.

As of DecemberJune 31,30, 2025, we had cash of approximately $4.22$0.47 million and a net working capital deficit of approximately $13.80 million. As of of DecemberJune 31,30, 2025, we had an accumulated deficit of $35.15$38.26 million and a net loss of $0.93$4.04 million for the yearsix months ended DecemberJune 31,30, 2025.

SubsequentOn to March 31, 2026, 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.

Net cash used in operating activities for the threesix months ended MarchJune 31,30, 2026 increased by $2.00$3.36 million to $2.22$3.51 million, compared to $0.15 $0.23 million in the same period in 2025. This increase was primarily driven by an increase in Selling and marketing expenses, General and 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 $0.32$1.32 million from $0.92$1.8 million in the prior year. The $2.22$3.51 million net cash used in operating activities in 2026 was primarily related to (i) a net loss of $0.87$3.72 million, offset by; (ii) depreciation and amortization of $0.05$0.12 million; (iii) provision for credit losses of ($0.04) million; (iv) stock-based compensation and restricted stock unit compensation of $0.41$0.88 million; (v) amortization of right-of-use assets of $0.02$0.04 million; (vi) Changes in fair value of common stock warrant liability and forward purchase derivative liability at fair value of ($1.65$1.61) million (vii) Accretion of cumulative mandatorily redeemable common and preferred stock liability of $0.03$0.06 million; (viii) Gain on extinguishment of payable of ($0.50$0.51) million (ix) Working capital changes of $0.32$1.3 million.

Net cash used in operating activities during the threesix months ended MarchJune 31,30, 2025 was $0.23$0.15 million. The $0.23$0.15 million net cash used in operating operating activities in 2025 was primarily related to (i) a net loss of $0.25$4.04 million, offset by; (ii) depreciation and amortization of $0.06 $0.09 million; (iii) provision for credit losses of $0.08$0.06 million; (iv) stock-based compensation of $0.07$0.12 million; (v) amortization of right-of-use assets of $0.02$0.04 million; (vi) changes in fair value of convertible notes and common stock warrant liability ($1.52$1.34) million; (vii) Accretion of cumulative mandatorily redeemable common and preferred stock liability of $0.02$0.05 million; (viii) Loss on extinguishment of convertible note payable of $0.39 million and (ix) Working capital changes of $0.92$1.8 million.

Net cash used in investing activities during the threesix months ended MarchJune 31,30, 2026, was $(0.060.12) million compared to ($0.02$0.06) million during the the threesix months ended MarchJune 31,30, 2025. The $0.06$0.12 million net cash used in investing activities in 2026 consisted of $0.04$0.09 million in costs capitalized for internally developed software and $0.02$0.03 million in purchases of property and equipment.

Net cash used in investing activities for the threesix months ended MarchJune 31,30, 2025 was $(0.020.06) million and consisted of purchases of property and and equipment of $0.001$0.006 million, costs capitalized for internally developed software of $0.02$0.05 million.

Net cash used in financing activities was $(0.170.22) million in the threesix months ended MarchJune 31,30, 2026, compared to $0.18 million in MarchJune 30, 2025, representing a decrease of $0.35$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 $0.20$0.28 million.

Net cash provided by financing activities was $0.18 million in the threesix months ended MarchJune 31,30, 2025. The $0.18 million net cash provided by by financing activities in 2025 consisted of Proceeds from convertible notes payable of $0.18 million.

Our contractual cash obligations as of MarchJune 31,30, 2026, are summarized in the table below:

(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 MarchJune 31,30, 2026, other than related party note payable related to Dolma amounting to $300 thousand.

The Company derives the majority of its revenue from AI Solutions (Products and Services) that largely represents the professional services the Fusemachinescompany 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.

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 over time.overtime.

Company’s AI Solutions includes product revenues primarily comprising of software license fees from sales of term-based license contracts, under which 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 MarchJune 31,30, 2026, 2026 and MarchJune 30, 31, 2025,2025 the product revenues were insignificant.

For most contracts, the Company uses a Master ServicesService 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 customerscustomer 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.