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

Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition 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").

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, July, August and September 2026, the Company granted RSUs under the 2025 Plan. RSUs are measured at fair value on the grant date and have no purchase price for the recipient. See "Results of Operations" for RSU expense recognized during the three and nine months ended September 30, 2026

Forward Purchase Agreement

The Company entered into an amendment on February 3, 2026 to the Prepaid Forward Purchase Agreement originally entered into on July 31, 2025 (the "Forward Purchase Agreement" or "FPA") with Meteora Capital Partners, LP, Meteora Select Trading Opportunities Master, LP and Meteora Strategic Capital, LLC (collectively, the "Meteora Parties"). 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). On August 2, 2026, the Company and the Meteora Parties entered into a Second Forward Purchase Agreement Confirmation Amendment, which deleted the Reset Price Floors in their entirety. As a result, the Termination Price now resets on the first scheduled trading day of each calendar week to the lower of $12.00 and the prior week's VWAP, with no floor. Following early terminations effective as of August 4, 2026 (793,566 Terminated Shares) and September 28, 2026 (38,564 Terminated Shares), in each case in connection with sales of such shares by the Meteora Parties, the number of shares of Common Stock under the FPA was reduced from 891,930 to 59,800. The effect of the February 3, 2026 amendment and the August 2, 2026 amendment is reflected in the 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 to the Meteora Parties on October 22, 2025 in connection with the Business Combination (the "Shortfall Warrants"). 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 Common Stock, subject to customary adjustments as set forth in the warrant agreement. The Shortfall Warrants are exercisable for up to 2,108,070 shares of Common Stock. 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. On August 2, 2026, the Company and the Meteora Parties entered into a Second Common Stock Purchase Warrant Amendment, pursuant to which the exercise price of the Shortfall Warrants was amended to equal the greater of (i) the Termination Price, as reset from time to time under the FPA, and (ii) $0.85 per share, subject to adjustment.

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 September 30, 2026.

On August 3, 2026, the Civil Court of the City of New York, Small Claims Part, issued a notice of claim against the Company in an action brought by Gary S. Kreissman of Group PRM relating to allegedly unpaid consulting fees. The claim sought approximately $9.6 thousand, including interest, plus court costs. Group PRM was issued shares of Common Stock pursuant to the Vendor SPA in consideration for its unpaid consulting fees, and the Company expects to settle the action brought by Mr. Kreissman following the registration of the Vendor Shares.

Departure of Chief Financial Officer

On August 31, 2026, Christine Chambers, Chief Financial Officer of the Company, departed the Company to pursue other opportunities. Ms. Chambers indicated to the Company that her separation was not a result of any disagreement with the Company, the Company's board of directors, or the Company's management on any matter relating to the Company's operations, policies, or practices.

Appointment of Consulting Chief Financial Officer

The Board of Directors appointed David R. Wells as the Company's Consulting Chief Financial Officer, Principal Financial Officer, and Principal Accounting Officer effective as of August 30, 2026. In connection with Mr. Wells's appointment, the Company entered into a Services Agreement, dated as of August 30, 2026, with Atlas Bookkeeping, LLC ("Atlas"), pursuant to which Atlas will provide chief financial officer services to the Company, with Mr. Wells serving as the individual designated by Atlas to perform such services. Pursuant to the Services Agreement, the Company will pay Atlas a monthly advisory fee of $14,500 for CFO advisory services. In addition, the Company paid Atlas a one-time retainer of $10,000 upon execution of the Services Agreement. Additionally, the Company will issue to Mr. Wells (or such other designee of Atlas) monthly grants of 10,000 restricted stock units under the Company's 2025 Omnibus Equity Incentive Plan, with each such grant fully vesting on the date of grant. Mr. Wells will serve as Consulting Chief Financial Officer until the termination of the Services Agreement or his earlier replacement, resignation, or removal. Ms. Christine Chambers, the Company's former Chief Financial Officer, separated from the Company in August 2026.

Nasdaq Listing Notices

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.

On July 24, 2026, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market ("Nasdaq") indicating that the Company was not in compliance with the minimum Market Value of Publicly Held Shares ("MVPHS") requirement of $15,000,000 for continued listing on The Nasdaq Global Market, as set forth in Nasdaq Listing Rule 5450(b)(2)(C). In accordance with Nasdaq Listing Rule 5810(c)(3)(D), the Company has 180 calendar days, or until January 20, 2027, to regain compliance with the MVPHS requirement.

On September 18, 2026, the Company received an additional notification letter from Nasdaq notifying the Company that, because the closing bid price for the Company's common stock had been below $1.00 per share for at least 30 consecutive business days, the Company was not in compliance with the minimum bid price requirement for continued listing on The Nasdaq Global Market, as set forth in Nasdaq Listing Rule 5450(a)(1) (the "Minimum Bid Price Requirement"). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days from September 18, 2026, or until March 17, 2027, to regain compliance with the Minimum Bid Price Requirement. If at any time before March 17, 2027, the closing bid price of the Company's common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that the Company has regained compliance. The notification has no immediate effect on the listing or trading of the Company's securities on The Nasdaq Global Market. The Company intends to actively monitor the bid price for its common stock and evaluate available options to regain compliance within the compliance period.

On September 24, 2026, Nasdaq notified the Company that, based upon the Company's continued non-compliance with the MVLS requirement as of September 23, 2026, the Company's securities were subject to delisting from Nasdaq unless the Company requests a hearing before the Nasdaq Hearings Panel (the "Panel"). On October 1, 2026, the Company had requested a hearing before the Panel, which request will stay any further suspension or delisting action by Nasdaq at least until a hearing is held and any extension that the Panel may grant to the Company following the hearing has expired. Nasdaq granted our request for a hearing, which is scheduled for November 3, 2026. There can be no assurance that the Panel will grant the Company's request for continued listing. Although the Company is considering all available options to regain compliance with the MVLS Requirement, there can be no assurance that the Company will be able to do so.

August 2026 Meteora Warrant and Convertible Note Issuance (August 2026 Convertible Notes)

On August 2, 2026, the Company entered into Securities Purchase Agreements with affiliates of Meteora Capital Partners, LP, Boothbay Absolute Return Strategies, LP, Boothbay Diversified Alpha Master Fund LP, and Cinctive Global Master Fund Ltd. (collectively, the "August 2026 Purchasers"), pursuant to which the Company issued (i) 18% Original Issue Discount Senior Unsecured Convertible Promissory Notes due February 12, 2027 in the aggregate original principal amount of $2,500,000, for an aggregate purchase price of $2,050,000, reflecting an 18% original issue discount, and (ii) Common Stock Purchase Warrants to purchase up to an aggregate of 2,050,000 shares of our common stock at a fixed exercise price of $4.20 per share. The Notes are convertible into shares of our common stock at a fixed conversion price of $4.20 per share, with no ratchets, resets, or variable pricing. The warrants are exercisable at any time from the date of issuance until the fifth anniversary thereof and are exercisable solely for cash.

August 2026 Qintess Strategic Share Issuance Agreement and Master License and Services Agreement

The Company entered into a Strategic Share Issuance Agreement dated August 11, 2026 (the "Share Issuance Agreement") with Qintess Holding e Participações Ltda., a Brazilian limited liability company ("Qintess"). Concurrently, the Company entered into a Master License and Services Agreement (the "MSA") with Qintess, pursuant to which Qintess has agreed to purchase a minimum of $6,500,000 of the Company's products and services (the "Committed Services Spend") over a three-year term. In connection with the MSA and subject to the achievement of the Committed Services Spend, under the Share Issuance Agreement the Company agreed to issue to Qintess up to an aggregate of 1,250,000 shares of Common Stock in three tranches: (i) 750,000 shares within 10 business days of the effective date of the Share Issuance Agreement; (ii) 250,000 shares on the second anniversary of the effective date, subject to Qintess having purchased at least $4,500,000 of the Committed Services Spend; and (iii) 250,000 shares on the third anniversary of the effective date, subject to Qintess having purchased at least $6,500,000 of the Committed Services Spend. Each issuance is subject to Qintess not being in material breach of its obligations under the Share Issuance Agreement or the MSA. The Company and Qintess agree to enter into a Registration Rights Agreement requiring the Company to file a resale registration statement on Form S-1, or other appropriate form, within 60 days of closing covering the resale of such shares.

September 2026 Vendor Share Issuance

On September 10, 2026, the Company entered into a Securities Purchase Agreement with certain vendors and service providers of the Company, pursuant to which the Company agreed to issue and sell to the purchasers an aggregate of up to 2,138,935 shares of Common Stock in satisfaction of an aggregate of approximately $1.30 million in accrued and unpaid fees and other amounts owed by the Company to such purchasers. The per share purchase price for the shares was $0.6103, calculated as the volume-weighted average price of the common stock on The Nasdaq Global Market for the five consecutive trading days ending on and including the trading day immediately preceding the closing date. No cash consideration was received by the Company; the sole consideration for the shares was the satisfaction and cancellation of the accrued fees. The shares were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder.

Financial Performance

For the three months ended September 30, 2026, and September 30, 2025, we generated revenues of $1.85 million and $1.79 million and reported a net loss of $4.62 million and $1.17 million, respectively. The reported net loss for the third quarter of 2026 included a $2.21 million noncash charge resulting from the change in fair value of the forward purchase derivative liability, which contributed significantly to the reported net loss. For the nine months ended September 30, 2026, and September 30, 2025, we generated revenues of $5.52 million and $5.78 million and reported a net loss of $8.34 million and $5.21 million, respectively. Net cash used in operating activities was $4.81 million for the nine months ended September 30, 2026, and $0.49 million for the nine months ended September 30, 2025. As noted in our unaudited condensed consolidated interim financial statements, we had an accumulated deficit of $43.57 million as of September 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.

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.

● 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 6 - 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. From this previous group of convertible promissory notes, no convertible promissory notes remained outstanding as of September 30, 2026 other than related party note payable related to Dolma Impact Fund I ("Dolma") amounting to $300 thousand. In August 2026, we issued convertible notes with an aggregate principal amount of $2,500 thousand and an 18% original issue discount, maturing February 12, 2027. Amortization of the original issue discount will increase interest expense through maturity.

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 Rule 12b-2 under the Securities Exchange Act of 1934. Even after we are no longer an emerging growth company, we may continue to be a smaller reporting company and take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that we no longer qualify as a smaller reporting company. We will qualify as a smaller reporting company for so long as either (i) the market value of our common stock held by non-affiliates is less than $250 million, measured on the last business day of our most recently completed second fiscal quarter, or (ii) our annual revenues are less than $100 million during our most recently completed fiscal year and the market value of our common stock held by non-affiliates is less than $700 million, measured on the last business day of our most recently completed 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 registration statement. We have derived this data from our unaudited condensed consolidated interim financial statements included elsewhere in this registration statement.

Three months ended September 30, 2026, compared to Three Months Ended September 30, 2025

		Three months ended September 30,
(In thousands)			2026				2025				$ Variance				% Variance
Revenue		$	1,845			$	1,792			$	53				3	%
Cost of revenue (1)		$	(864	)		$	(796	)		$	(68	)			9	%
Gross profit		$	981			$	996			$	(15	)			(2	)%
Operating expenses:
Selling and marketing (1)		$	356			$	293			$	63				22	%
General and administrative (1)		$	2,653			$	1,632			$	1,021				63	%
Research and development (1)		$	286			$	165			$	121				73	%
Total operating expenses		$	3,295			$	2,090			$	1,205				58	%
Loss from operations		$	(2,314	)		$	(1,094	)		$	(1,220	)			112	%
Interest expense		$	(353	)		$	(74	)		$	(279	)			(377	)%
Loss on extinguishment of convertible notes payable		$	0			$	0			$	0
Gain on extinguishment of payable		$	105			$	0			$	105				100	%
Gain/ (Loss) on change in fair value of convertible notes, and warrant liability		$	42			$	(61	)		$	103				(169	)%
Loss on change in fair value of forward purchase derivative liability		$	(2,212	)		$	0			$	(2,212	)			100	%
Other (expense) income		$	109			$	55			$	54				98	%
Total other expenses, net		$	(2,309	)		$	(80	)		$	(2,229	)			2,786	%
Loss before income taxes		$	(4,623	)		$	(1,174	)		$	(3,449	)			294	%
Provision for income tax		$	0			$	0			$	0
Net loss		$	(4,623	)		$	(1,174	)		$	(3,449	)			294	%
Deemed dividend related to Shortfall Warrants modification		$	0			$	0			$	-					%
Net loss attributable to common stakeholders (i)		$	(4,623	)		$	(1,174	)		$	(3,449	)
Weighted-average common shares outstanding - basic and diluted (ii)		$	30,586,609			$	7,672,654			$	22,913,955				299	%
Net loss per common share - basic and diluted (i)/(ii)		$	(0.15	)		$	(0.15	)
Comprehensive income (loss):
Net Loss		$	(4,623	)		$	(1,174	)		$	(3,449	)			294	%
Change in foreign currency translation adjustment		$	2			$	8			$	(6	)
Total comprehensive loss		$	(4,621	)		$	(1,166	)		$	(3,455	)			296	%

(1) (a) Includes stock-based compensation expense as follows:

		Three months ended September 30,
		2026				2025				$ Variance
General and administrative		$	30			$	39			$	9
Cost of revenue		$	4			$	6			$	2
Selling and marketing		$	6			$	9			$	3
Research and development		$	4			$	4			$	0
Total stock-based compensation expense		$	44			$	58			$	14

(b) Includes restricted stock unit expense as follows:

		Three months ended September 30,
		2026				2025				$ Variance
General and administrative		$	362			$	-			$	(362	)
Cost of revenue		$	8			$	-			$	(8	)
Selling and marketing		$	9			$	-			$	(9	)
Research and development		$	8			$	-			$	(8	)
Total restricted stock unit expense		$	387			$	-			$	(387	)

Nine months ended September 30, 2026, compared to Nine Months Ended September 30, 2025

		Nine months ended September 30,
(In thousands)		2026				2025				$ Variance				% Variance
Revenue		$	5,518			$	5,779			$	(261	)			(5	)%
Cost of revenue (1)		$	(2,626	)		$	(2,488	)		$	(138	)			6	%
Gross profit		$	2,892			$	3,291			$	(399	)			(11	)%
Operating expenses:
Selling and marketing (1)		$	1,151			$	934			$	217				23	%
General and administrative (1)		$	8,904			$	5,131			$	3,773				74	%
Research and development (1)		$	876			$	489			$	387				79	%
Total operating expenses		$	10,931			$	6,554			$	4,377				67	%
Loss from operations		$	(8,039	)		$	(3,263	)		$	(4,776	)			146	%
Other (expense) income:
Interest expense		$	(459	)		$	(213	)		$	(246	)			115	%
Loss on extinguishment of convertible notes payable		$	0			$	(391	)		$	391				(100	)%
Gain on extinguishment of payable		$	612			$	0			$	612				100	%
Gain/(loss) on change in fair value of convertible notes and warrant liability			91				(1,405	)			1,496				(106	)%
Loss on change in fair value of Forward Purchase derivative liability		$	(604	)		$	0			$	(604	)			(100	)%
Other (expense) income		$	59			$	59			$	0				0	%
Total other (expense)/income, net		$	(301	)		$	(1,950	)		$	1,649				(85	)%
Loss before income taxes		$	(8,340	)		$	(5,213	)		$	(3,127	)			60	%
Provision for income tax		$	(4	)		$	0			$	(4	)
Net loss		$	(8,344	)		$	(5,213	)		$	(3,131	)			60	%
Deemed dividend related to Shortfall Warrants modification		$	(84	)		$	0			$	(84	)
Net loss attributable to common stakeholders (i)		$	(8,428	)		$	(5,213	)		$	(3,215	)			62	%
Weighted-average common shares outstanding - basic and diluted (ii)		$	29,502,942			$	7,406,332				22,096,610				298	%
Net loss per common share - basic and diluted (i)/(ii)		$	(0.29	)		$	(0.70	)
Comprehensive income (loss):
Net Loss		$	(8,344	)		$	(5,213	)		$	(3,131	)			60	%
Change in foreign currency translation adjustment		$	11			$	8			$	3
Total comprehensive loss		$	(8,333	)		$	(5,205	)		$	(3,128	)			60	%

(1) (a) Includes stock-based compensation expense as follows:

		Nine months ended September 30,
		2026				2025				$ Variance
General and administrative		$	105			$	117			$	12
Cost of revenue		$	14			$	16			$	2
Selling and marketing		$	21			$	28			$	7
Research and development		$	11			$	15			$	4
Total stock-based compensation expense		$	151			$	176			$	25

(b) Includes restricted stock unit expense as follows:

		Nine months ended September 30,
		2026				2025				$ Variance
General and administrative		$	1,103			$	-			$	(1,103	)
Cost of revenue		$	16			$	-			$	(16	)
Selling and marketing		$	18			$	-			$	(18	)
Research and development		$	21			$	-			$	(21	)
Total restricted stock unit expense		$	1,158			$	-			$	(1,158	)

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 September 30,								Nine months ended September 30,
		2026				2025				2026				2025
Customer Locations
United States		$	1,700			$	1,741			$	5,225			$	5,464
Rest of the world		$	145			$	51			$	293			$	315
Total revenue		$	1,845			$	1,792			$	5,518			$	5,779

The table below presents the breakdown of our revenues, based on the type of services (in thousands).

		Three months ended September 30,								Nine months ended September 30,
		2026				2025				2026				2025
Service type
AI Solutions (Product and Services) *		$	1825			$	1,790			$	5,481			$	5,656
AI Education Services		$	20			$	2			$	37			$	123
Total revenue		$	1,845			$	1,792			$	5,518			$	5,779

*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 September 30, 2026, increased by $0.06 million to $ 1.85 million as compared to $ 1.79 million for the three months ended September 30, 2025. Revenue for the nine months ended September 30, 2026, reduced by $0.27 million to $ 5.51 million as compared to $ 5.78 million for the nine months ended September 30, 2025

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 $0.06 million, to $0.86 million for the three months ended September 30, 2026, compared to $0.80 million for the three months ended September 30, 2025. The increase was primarily driven by annual salary increments.

Cost of revenue increased by $0.14 million, to $2.63 million for the nine months ended September 30, 2026, compared to $2.49 million for the nine months ended September 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.

Gross profit decreased by $0.02 million, to $0.98 million for the three months ended September 30, 2026, compared to $1 million for the three months ended September 30, 2025. The decrease is driven by an increase in cost of revenue which is partly offset by higher revenue. Gross profit decreased by $0.40 million, to $2.89 million for the nine months ended September 30, 2026, compared to $3.29 million for the nine months ended September 30, 2025, as a result of lower sales and higher cost of revenue.

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 $0.07 million, from $0.29 million for the three months ended September 30, 2025, to $0.36 million for the three months ended September 30, 2026. The increase was primarily attributable to higher consulting fees and advertising expenses.

Selling and marketing expenses increased by $0.22 million, from $0.93 million for the nine months ended September 30, 2025, to $1.15 million for the nine months ended September 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 $1.02 million, from $1.63 million for the three months ended September 30, 2025, to $2.65 million for the three months ended September 30, 2026. The increase was primarily attributable to a rise in stock-based compensation expense of $0.39 million related to the issuance of restricted stock units ("RSUs") during the current period, which did not exist in the same period of previous year. Further, the Professional service costs increased to $0.64 million reflecting higher audit and consulting fees. In addition, other general expenses, payroll expenses increased to $0.93 million due to annual salary increments, insurance policy to $0.15 million, BOD's compensation to $0.07 million and other general & administrative to $0.47 million.

General and administrative expenses increased by $3.78 million, from $5.13 million for the nine months ended September 30, 2025, to $8.91 million for the nine months ended September 30, 2026. The increase was primarily attributable to a rise in stock-based compensation expense of $1.21 million related to the issuance of restricted stock units ("RSUs") during the current period, which did not exist in the same period of previous year. Further, the Professional service costs increased to $2.68 million reflecting higher audit and consulting fees. In addition, other general expenses, payroll expenses increased to $2.96 million due to annual salary increments, insurance policy to $0.43 million, BOD's compensation to $0.20 million and other general & administrative to $1.43 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 September 30, 2026, increased by $0.12 million to 0.29 million as compared to 0.17 million for the three months ended September 30, 2025. The increase was primarily due to increase in payroll expenses.

Research and development expenses for the nine months ended September 30, 2026, increased by $0.39 million to $0.88 million as compared to $0.49 million for the nine months ended September 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.

Interest expense increased by $0.28 million to $0.35 million for the three months ended September 30, 2026, from $0.07 million for the three months ended September 30, 2025. The increase was due to the interest on the convertible notes issued in August 2026.

Interest expense increased by $0.25 million to $0.46 million for the nine months ended September 30, 2026, from $0.21 million for the nine months ended September 30, 2025. The increase was due to the interest on the convertible notes issued in August 2026.

Loss on extinguishment of debt - Loss on extinguishment of debt for the three months ended September 30, 2026 and 2025 was Nil. Loss on extinguishment of debt for the nine months ended September 30, 2026 was Nil as compared to $0.39 million for the nine months ended September 30, 2025.

Gain on extinguishment of payable - During the three months ended September 30, 2026 and 2025, gain on extinguishment of payable was $0.1 million and NIL respectively. During the nine months ended September 30, 2026, the Company recognized a gain on extinguishment of payable of $0.61 million, with no corresponding amount recorded in the nine months ended September 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 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.

Loss on change in fair value for the three months ended September 30, 2026 was 2.17 million as compared to loss of $0.06 million for the three months ended September 30, 2025. Out of the aforementioned loss for the three months ended September 30, 2026, loss of $2.21 million related to fair value of forward purchase derivative liability whereas there was a gain in fair value of $0.04 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 $0.52, elevated equity volatility of 65.0%, and the remaining contractual term of approximately 6.9 years. These factors increased the probability-weighted value of the potential share settlement under the arrangement. In addition, loss of approximately $2.21 million in the fair value of forward purchase derivative liability is driven by changes in key valuation inputs, including the Company's low share price of $0.52, elevated equity volatility of 65%, early termination of 832,130 underlying shares and the remaining contractual term of approximately 2.06 years. These factors increased the probability-weighted value of the potential share settlement under the arrangement.

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 Income for the three months ended September 30, 2026, was $109 thousand, compared to other income of $55 thousand for the three months ended September 30, 2025, primarily related to foreign exchange gain.

Other Income for the nine months ended September 30, 2026, was $59 thousand, compared to other income of $59 thousand for the nine months ended September 30, 2025, primarily related to foreign exchange gain.

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 for the three months ended September 30, 2026 and Nil for the three months ended September 30, 2025.

Provision for income tax is $4 thousand for the nine months ended September 30, 2026 and Nil for the nine months ended September 30, 2025.

Net loss - Net loss for the three months ended September 30, 2026 was $4,623 thousand, compared to a net loss of $1,174 thousand for three months ended September 30, 2025, an increase of $3,449 thousand. The increase was primarily driven by $2,212 thousand loss on the change in fair value of the forward purchase derivative liability, a $1,205 thousand increase in operating expenses, principally general and administrative expenses, and a $279 thousand increase in interest expense related to the August 2026 Convertible Notes. These were partially offset by a $103 thousand favorable change in the fair value of warrant liability and a $54 thousand increase in other income.

Net loss for the nine months ended September 30, 2026 was $8,344 thousand, compared to $5,213 thousand for the nine months ended September 30, 2025, an increase of $3,131 thousand. The increase was primarily driven by a $4,377 thousand increase in operating expenses, principally general and administrative expenses, a $604 thousand loss on the change in fair value of the forward purchase derivative liability and a $246 thousand increase in interest expense. These were partially offset by a $1,496 thousand favorable change in the fair value of convertible notes and warrant liability, a $612 thousand gain on extinguishment of payable, and the absence of the $391 thousand loss on extinguishment of convertible notes payable recognized 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.

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 September 30, 2026, and September 30, 2025, as well as for nine months ended September 30, 2026, and September 30, 2025, are as follows:

		Three months ended September 30,								Nine months ended September 30,
(In thousands)		2026				2025				2026				2025
Net loss		$	(4,623	)		$	(1,174	)		$	(8,344	)		$	(5,213	)
Interest expense		$	353			$	74			$	459			$	213
Provision for tax		$	0			$	0			$	4			$	0
Depreciation and amortization		$	60			$	53			$	177			$	139
EBITDA		$	(4,210	)		$	(1,047	)		$	(7,704	)		$	(4,861	)
Stock-based compensation		$	44			$	58			$	151			$	176
Restricted stock unit expense		$	387			$	-			$	1,158			$	0
Fair value adjustments (1)		$	2170			$	61			$	513			$	1,405
Extinguishment of payable		$	(105	)		$	0			$	(612	)		$	0
Extinguishment of debt		$	-			$	-			$	-			$	391
Severance expense		$	327				-			$	327
Adjusted EBITDA		$	(1,387	)		$	(928	)		$	(6,167	)		$	(2,889	)

(1) Represents change in fair value of convertible notes, warrant liability and forward purchase derivative liability.

Liquidity and Capital Resources as of September 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 September 30, 2026, we had cash of approximately $1.45 million and a net working capital deficit of approximately $9.05 million. As of that date, we also had an accumulated deficit of approximately $43.57 million and a net loss of $8.34 million for the nine months ended September 30, 2026.

As of December 31, 2025, we had cash of approximately $4.22 million and a net working capital deficit of approximately $13.80 million. As of December 31, 2025, we had an accumulated deficit of $35.15 million and a net loss of $0.93 million for the year ended December 31, 2025.

The August 2026 Convertible Notes mature in February 2027 for aggregate principal amount of $2.5 million. Because the $4.20 conversion price of these notes substantially exceeds the trading price of our common stock as of the date of filing of this report, we expect to be required to repay these notes in cash at maturity unless they are refinanced or restructured, and there can be no assurance that we will be able to do so.

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.

Cash flows

Quarterly Cash Flows

The following table summarizes our cash flows for the periods presented

		Nine months ended September 30,
(In thousands)		2026				2025
Net cash provided by (used in):
Operating activities		$	(4,807	)		$	(488	)
Investing activities		$	(184	)		$	(80	)
Financing activities		$	2227			$	175
Effect of exchange rate changes on cash		$	(4	)		$	(1	)
Net increase (decrease) in cash		$	(2,767	)		$	(394	)

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2026 increased by $4.32 million to $4.81 million, compared to $0.49 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, Interest expense, Gain on extinguishment of payable and decrease in Gross profit, Gain/loss on change in fair value and Loss on extinguishment of convertible notes payable. Further, changes in working capital decreased to $1.54 million from $2.44 million in the prior year. The $4.81 million net cash used in operating activities in 2026 was primarily related to (i) a net loss of $8.34 million, offset by; (ii) depreciation and amortization of $0.20 million; (iii) stock-based compensation of $1.31 million; (iv) amortization of right-of-use assets of $0.22 million; (v) unwinding of convertible note discount of $0.29 million; (vi) Changes in fair value of convertible notes, warrant liability and forward purchase derivative liability of $0.51 million; (vii) Accretion of cumulative mandatorily redeemable common and preferred stock liability of $0.08 million; (viii) Gain on extinguishment of payable of ($0.61) million and (ix) Working capital changes of $1.54 million.

Net cash used in operating activities during the nine months ended September 30, 2025 was $0.49 million. The $0.49 million net cash used in operating activities in 2025 was primarily related to (i) a net loss of $5.21 million, offset by; (ii) depreciation and amortization of $0.14 million; (iii) provision for credit losses of $0.05 million; (iv) stock-based compensation of $0.18 million; (v) amortization of right-of-use assets of $0.07 million; (vi) changes in fair value of convertible notes and warrant liability of $1.41 million; (vii) Accretion of cumulative mandatorily redeemable common and preferred stock liability of $0.07 million; (viii) Loss on extinguishment of convertible notes payable of $0.39 million; (ix) unrealized foreign exchange gain of ($0.01) million and (x) Working capital changes of $2.44 million.

Investing Activities

Net cash used in investing activities was $0.18 million for the nine months ended September 30, 2026, compared with $0.08 million for the nine months ended September 30, 2025. In 2026, this consisted of $ 0.16 million of costs capitalized for internally developed software and $0.03 million of purchases of property and equipment, compared with $0.07 million and $0.01 million, respectively, in 2025. The $ 0.10 million increase in net cash used was driven by an $ 0.09 million increase in capitalized internally developed software costs and a $0.01 million increase in property and equipment purchases.

Net cash used in investing activities for the nine months ended September 30, 2025 was $0.08 million and consisted of purchases of property and equipment of $0.01 million, costs capitalized for internally developed software of $0.07 million.

Financing Activities

Net cash provided by financing activities was $2.23 million in the nine months ended September 30, 2026, compared to $0.18 million on September 30, 2025, representing an increase of $2.05 million over the respective periods. The 2.23 million net cash provided by financing activities on September 30, 2026 consisted of Proceeds from convertible loan 1.83 million, settlement proceeds received from forward contract 0.68 million, and payment of director and officer insurance liability 0.28 million. Net cash provided by financing activities was $0.18 million in the nine months ended September 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.

Contractual Obligations and Commitments: Our contractual cash obligations as of September 30, 2026, are summarized in the table below:

(in thousands)		2026 (remaining)				2027				2028				2029				2030				Thereafter				Total
Debt		$	300			$	0			$	0			$	0			$	0			$	0			$	300
Convertible Notes		$	0			$	2,276			$	0			$	0			$	0			$	0			$	2,276
Interest		$	18			$	5			$	0			$	0			$	0			$	0			$	23
Mandatorily redeemable preferred and ordinary stock		$	0			$	1,464			$	0			$	0			$	0			$	0			$	1,464
Operating lease		$	24			$	94			$	137			$	137			$	151			$	178			$	721
Professional service arrangement		$	1,832			$	199			$	0			$	0			$	0			$	0			$	2,031
Total		$	2,174				4,038				137				137				151				178				6,815

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 13, "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.

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 nine-months period ended September 30, 2026, and September 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.

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.

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