FUSE

Fusemachines Inc. (FUSE) - Q2 2026 10-Q Summary

Business Context and Reporting Period

This Quarterly Report on Form 10-Q covers the period ended June 30, 2026. Fusemachines Inc. is an emerging growth company and smaller reporting company providing enterprise artificial intelligence solutions and services. The company operates as a single segment focused on data engineering, AI consulting, and technical services. Following a reverse recapitalization business combination consummated in October 2025, the company trades on Nasdaq under the symbol "FUSE."

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Revenue decreased 12% QoQ and 8% YoY, driven by a net decrease in total clients and lower revenue from both AI Solutions and AI Education services.
• Operating Expense Surge: Total operating expenses increased 78% QoQ and 71% YoY. General and Administrative (G&A) expenses rose 90% QoQ, primarily due to $0.40 million in Restricted Stock Unit (RSU) expenses not present in the prior year, alongside increased professional service fees.
• Non-GAAP Adjustments: The net loss improved compared to the prior year period due to a $1.61 million gain on the change in fair value of the Forward Purchase derivative liability and a $0.51 million gain on the extinguishment of payables, offsetting higher operating costs.
• Debt Conversion: Following the October 2025 business combination, substantially all convertible notes were converted to equity. As of June 30, 2026, only a $0.30 million related party loan remains outstanding.

Guidance, Outlook, Risks, and Contingencies

• Going Concern: The filing explicitly states that the company's ability to continue as a going concern is dependent on obtaining necessary equity financing. With cash of only $0.37 million and a net working capital deficit of $16.75 million, management believes existing resources may not be sufficient for the next 12 months without additional capital.
• Financing Activities:
  • Roth Principal Investments: Entered into an agreement on April 17, 2026, allowing the sale of up to $20 million of common stock. No proceeds have been received as of the filing date.
  • August 2026 Financing: Subsequent to the period end (August 2, 2026), the company raised $2.05 million via 18% OID convertible notes and warrants.
• Nasdaq Compliance: The company received a new notification on July 24, 2026, regarding non-compliance with the Minimum Market Value of Publicly Held Shares (MVPHS) requirement of $15 million. The company has 180 days (until January 20, 2027) to regain compliance.
• Internal Controls: Management concluded that disclosure controls and procedures were not effective as of June 30, 2026, citing material weaknesses including lack of formal processes for significant transactions and insufficient trained accounting staff.
• Derivative Liabilities: The company holds a significant Forward Purchase derivative liability of $8.08 million, which is subject to fair value adjustments based on stock price volatility and VWAP.

Investor Verification Checklist

• Cash Runway: Verify the timeline and certainty of the $20 million Roth Principal Investments facility and the effectiveness of the August 2026 note issuance to fund operations.
• Nasdaq Listing Status: Monitor the company's progress in regaining MVPHS compliance by January 2027 to avoid delisting risks.
• Expense Trajectory: Assess the sustainability of the 78% increase in operating expenses, specifically the impact of new RSU grants on future profitability.
• Derivative Volatility: Review the terms of the Forward Purchase Agreement and Shortfall Warrants, as recent amendments (floating exercise prices) could increase dilution and volatility in earnings.
• Internal Control Remediation: Track the implementation of remediation plans for identified material weaknesses in internal controls over financial reporting.