Note 9. Stock-based Compensation

In February 2023, the Company’s board of directors and stockholders adopted the 2023 Equity Incentive Plan (the “2023 Plan”), which provides for the grant of incentive stock options, restricted stock awards and restricted stock units (“RSUs”) to eligible employees, directors and consultants of the Company. 3,258,230 shares of Common Stock were authorized for issuance under the 2023 Plan.

The 2023 Plan was amended and approved by the stockholders of the Company in December 2023 to increase the number of shares of the Company’s Common Stock reserved for issuance under the Fusemachines Inc. 2023 Amended and Restated Equity Plan (the “2023 Equity Incentive Plan”) by 391,525 to 3,649,755 shares of common stock.

In connection with the Business Combination, which was accounted for as a reverse recapitalization, the number of shares under the 2023 Equity Incentive Plan was adjusted to reflect the exchange ratio established in the business combination agreement. Accordingly, all share and per share amounts under the plan have been retrospectively adjusted to reflect the conversion of Legacy Fusemachines equity into the Company’s common stock.

Adoption of 2025 Omnibus Equity Incentive Plan

On October 22, 2025, the Board of Directors of the Company approved the 2025 Omnibus Equity Incentive Plan (the “2025 Plan”). The 2025 Plan provides for the grant of equity-based awards to employees, directors, officers, and other eligible service providers of the Company and its subsidiaries.

In connection with the adoption of the Company’s 2025 Omnibus Equity Incentive Plan (the “2025 Plan”), an aggregate of 1,500,000 shares of the Company’s common stock were initially reserved for issuance pursuant to awards granted under the 2025 Plan. During the nine months ended September 30,2026, the Company’s stockholders approved an amendment to the 2025 Plan, increasing the number of shares authorized for issuance under the 2025 Plan by 2,000,000 shares, resulting in an aggregate of 3,500,000 shares reserved for issuance. The types of awards that may be granted under the 2025 Plan include, but are not limited to, stock options, restricted stock, restricted stock units, stock appreciation rights, performance-based awards, and other stock-based awards, as determined by the Board of Directors or a committee thereof.

As of September 30, 2026, no shares of Common Stock were available for future grant under the 2023 Plan, as the 2023 Plan was replaced in its entirety by the 2025 Plan which was adopted in connection with the Business Combination.

The stock-based compensation expense during the three and nine month ended September 30, 2026 and September 30, 2025 are reported in the following unaudited condensed consolidated interim financial statement line items (in thousands):

 Schedule of Stock-based Compensation Expense

Stock Options

The Company’s stock options outstanding consist primarily of time-based options to purchase common stock, the majority of which vest over a 2two-to-four- 4year period and have a 10ten-year contractual term. These awards are subject to the risk of forfeiture until vested by virtue of continued employment or service to the Company.

The following table summarizes the stock option activity for options with service-based vesting conditions during the nine months ended September 30, 2026 :

 Schedule of Stock Option Activity for Options with Service-based Vesting

Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements

During the three month period ended September 30, 2026 and September 30, 2025, the Company recorded stock-based compensation expense of $ 44 thousand and $ 58 thousand, respectively, whereas for the nine month ended September 30, 2026 and September 30, 2025 the Company recorded stock-based compensation expense of $ 151 thousand and $ 176 thousand respectively. As of September 30, 2026, total stock-based compensation expense not yet recognized related to unvested stock options was $234.8 thousand, which is expected to be recognized over a weighted-average period of 1.16 years. The total intrinsic value of options exercised was $ 17.1 thousand and $6,036.4 thousand during the nine month ended September 30, 2026 and year ended December 31, 2025, respectively.

There were no stock options granted during the period ended September 30, 2026 and September 30, 2025. Accordingly, the weighted average grant-date fair value per share of stock options granted during the three and nine month period September 30,2026 and September 30, 2025 is Nil.

Cashless Exercise of Stock Options

In February 2026, one of the Fusemachines employees exercised 1,715 options to purchase Fusemachines Inc. Common Stock. The exercise prices for the 1,715 options were paid on a cashless basis via net share settlement resulting in the net share issuance of 974 shares of Fusemachines Inc. Common Stock. The transaction has been accounted under the guidance of ASC 718 - Stock Compensation. The cashless exercise mechanism does not change the substantive terms or fair-value-based measure of the awards and therefore does not constitute a modification under ASC 718.

Exercise of Stock Options Through Settlement of Accrued Compensation Liability – In April 2026, a former Fusemachines employee (Raman Parthasarathy) exercised 19,741 options to purchase Fusemachines Inc. Common Stock. The exercise price of $38,402.16 (at $1.9453 per share) was satisfied on a cashless basis through the offset of an existing accrued wages payable balance owed to the former employee, resulting in the issuance of 19,741 shares of Fusemachines Inc. Common Stock. The transaction has been accounted for under the guidance of ASC 718 – Stock Compensation and ASC 405-20 – Extinguishments of Liabilities. The settlement mechanism does not alter the substantive terms or the fair-value-based measure of the award and therefore does not constitute a modification under ASC 718. Consistent with ASC 405-20, the corresponding accrued wages payable of $38,402.16 has been derecognized, as the Company was legally released from that obligation through mutual written agreement with the former employee. As no cash was received, this exercise is excluded from financing activities and is instead presented as a supplemental non-cash financing activity in the Statement of Cash Flows, representing the issuance of common stock in settlement of accrued wages payable.

Restricted stock unit (RSU)

The Board of Directors has granted restricted stock awards under the Plans. In January 2026, 1,217,210 awards had been granted as restricted stock units under the 2025 Plan as of period ended September 30, 2026, whose impact has been considered on the Company’s unaudited condensed consolidated interim financial statements as of that date. Restricted stock units are valued on the date of grant and have no purchase price for the recipient. Restricted stock units typically vest over period ranging from one to four years corresponding to anniversaries of the grant date.

During the quarter ended September 30, 2026, the Company granted additional RSUs to employees, including RSUs granted to employees in settlement of their severance pay. These new grants are in addition to the awards granted in January 2026.

The restricted stock units expense during the three and nine month ended September 30, 2026 are reported in the following unaudited condensed consolidated interim financial statement line items (in thousands) as follows:

 Schedule of Restricted Stock Units Expense

The following is a summary of service based RSU activity for the nine month period ended September 30, 2026 :

 Schedule of Restricted Stock Units Activity

The Company estimated the fair market value of these restricted stock units based on the closing market price on the date of the grant. As of September 30, 2026 , there was $586.6 thousand of total unrecognized compensation costs related to all remaining non-vested restricted stock units, which is expected to be recognized over a weighted-average period of 0.65 years.  

Fusemachines Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements

The nonvested balance of restricted stock vests as follows:

 Schedule of Nonvested Restricted Stock Vests

Note :-

Of the total RSUs granted, 1,217,210 were granted in January 2026 and the balance of 1,113,591 were granted during the quarter ended September 30, 2026. Of the new grants,904,560 RSUs were granted to employees in settlement of severance and wages payable and vested immediately on the grant date. Consistent with ASC 405-20, the corresponding vendor and wages payable has been derecognized, as the Company was legally released from that obligation through mutual written agreement with the vendor and former employee. As no cash was received, this exercise is excluded from financing activities and is instead presented as a supplemental non-cash financing activity in the Statement of Cash Flows, representing the issuance of common stock in settlement of vendor and wages payable. The remaining 209,031 RSUs were granted to employees under the normal scheme and vest over their respective vesting periods.