| Reverse Capitalization |
Note
14. Reverse Capitalization
Upon
consummation of the transaction on October 22, 2025, Fusemachines Inc. (the “Company”) was determined to be the accounting
acquirer, and the transaction was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Accordingly, the historical
financial statements of Legacy Fusemachines became the historical financial statements of the registrant.
Accordingly,
the following disclosure on “Reverse Recapitalization” is presented to summarize the common stock issued at Closing, the
application of the exchange ratio, and the resulting additional paid-in-capital recognized in connection with the recapitalization.
The
overall voting interest on closing date is summarized below:
Schedule of Overall Voting Interest on Closing Date
| Particulars | |
Shares | | |
%Ownership | |
| Shares held by
Fusemachines Inc. Stockholders | |
| 14,864,110 | | |
| 52 | % |
| Shares held by CSLM public
stockholders, Sponsor, and related parties of Sponsor | |
| 12,654,921 | | |
| 45 | % |
| Shares held by unrelated third
parties | |
| 831,000 | | |
| 3 | % |
| Total | |
| 28,350,031 | | |
| 100 | % |
On
October 22, 2025, all holders of 29,199,809 issued and outstanding Legacy Fusemachines common stock received shares of Fusemachines Inc
common stock at a par value $0.0001 per share after giving effect to the exchange ratio of 0.6580 (the “Conversion Ratio”)
resulting in 19,214,201 shares of Fusemachines Inc. common stock issued and outstanding as of the Closing. The issuance reflects the
following events contemplated by the Business Combination Agreement:
(a)
9,043,234 shares of Legacy Fusemachines convertible preferred stock were converted into shares of Legacy Fusemachines common stock in
accordance with the applicable conversion terms. Subsequently, in connection with the Business Combination, all such shares of Legacy
Fusemachines common stock were exchanged for shares of common stock of Fusemachines Inc. (the “Company” or “PubCo”)
based on the exchange ratio specified in the Business Combination Agreement. After giving effect to the exchange ratio, an aggregate
of 5,950,673 shares of the Company’s common stock were issued.
(b)
The surrender and exchange of all 29,199,809 issued and outstanding shares of Legacy Fusemachines common stock (including shares issued
upon conversion of preferred stock) into 19,214,201 shares of Fusemachines Inc. common stock as adjusted by the Exchange Ratio;
(c)
The other related events that occurred in connection with the Closing are summarized below:
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● |
Upon
the closing date, there is settlement of sponsor convertible note amounting to $ 3,978 thousand which was effected through a combination
of $2,343 thousand in cash and balance through issuance of 408,639 common stock of Fusemachines Inc. |
| |
● |
Public
shareholders of CSLM received an aggregate of 901,955 shares of Fusemachines Inc. common stock. |
| |
● |
All
public rights were converted into 1,897,486 shares of Fusemachines Inc. common stock. |
| |
● |
Issuance
of 4,743,750 shares of Fusemachines Inc common stock upon conversion of non-redeemable CSLM Class A & Class B Ordinary Shares. |
| |
● |
Fusemachines
Inc. received funds from a convertible note with an affiliate of the Sponsor in the principal amount of $2,193 thousand. On the Closing
Date, the note was converted into a share of Fusemachines Inc. common stock pursuant to the conversion terms of the convertible note
agreement. |
| |
● |
Approximately
$11,005 thousand prepayment made by CSLM to the Meteora Parties pursuant to the Forward Purchase Agreement funded from the Trust
Account. |
| |
● |
Repayment
of approximately $745 thousand (principal and accrued interest) on promissory notes issued to the Chief Executive Officer. |
| |
● |
Each
Convertible note of Legacy Fusemachines (including both related party and other convertible notes) outstanding immediately prior
to the Closing was converted into shares of Legacy Fusemachines common stock of 8,048,770 shares in accordance with the applicable
convertible note agreement and immediately thereafter exchanged into 5,296,271 shares of Fusemachines Inc. common stock in accordance
with the Conversion Ratio specified in the Business Combination Agreement accordingly as a result of the conversions and exchanges,
no convertible notes or related-party notes payable remained outstanding as of December 31, 2025, other than related party note payable
related to Dolma amounting $300 thousand. |
| |
● |
Upon
the closing of the business combination, the Company settled its obligation under the Second Agreement through the issuance of 29,610
shares of Fusemachines, Inc. common stock, reflecting the application of the 0.6580 conversion ratio to the 45,000 shares of the
Company’s common stock, and a partial cash payment of approximately $110 thousand. Further during the nine months ended September
30, 2026 the Company made the cash payment of approximately $60 thousand. The remaining $48 thousand obligation is still outstanding
and is reflected in accounts payable as of September 30, 2026 in unaudited condensed consolidated interim balance sheet. (refer Note
12 - Commitment and Contingencies ). |
| |
● |
Upon
the conversion of the April 2024, June 2024 and September 2024 Convertible Note to common stock, the Company shall issue the holder
a warrant to purchase 7,500 shares of common stock of CSLM with a per share exercise price of $11.50. The warrants issuable upon
conversion of the April 2024, June 2024 and September 2024 Convertible Notes are classified as equity instruments. |
| |
● |
The
assumption of the public and private warrants, as described in Note 17 “Public and private warrants”. |
| |
● |
The
Company’s amended and restated certificate of incorporation and amended and restated bylaws were adopted. |
| |
● |
The
Company adopted 2025 the equity incentive plan. |
Schedule of Reverse Recapitalization
| Particulars | |
Shares | |
| Partial conversion
of the 3rd Amended and Restated Promissory Note into Fusemachines Pubco Common Stock on the closing date | |
| 408,639 | |
| CSLM Class A ordinary Shares
not redeemed for cash and converted into Fusemachines Inc. common stock | |
| 901,955 | |
| Automatic exercise of the
rights related to 18,975,000 units issued in CSLM’s Initial Public Offering | |
| 1,897,486 | |
| Shares issued in connection
with the PIPE Financing | |
| 1,184,000 | |
| Conversion of non-redeemable
CSLM Class A & Class B Ordinary Shares into Fusemachines Inc. common stock | |
| 4,743,749 | |
| Share
issued to Consilium Frontier Equity Fund, LP | |
| 3,320,241 | |
| Total
shares of Fusemachines Inc. common stock issued to CSLM security holders | |
| 12,456,070 | |
| Conversion of Legacy Fusemachines
convertible notes (as adjusted by the exchange ratio) | |
| 1,976,050 | |
| Conversion of Legacy Fusemachines
Convertible Preferred Stock into common stock in connection with the reverse recapitalization (as adjusted by the exchange ratio) | |
| 5,950,673 | |
| Shares
issued to Legacy Fusemachines stockholders (as adjusted by the exchange ratio) | |
| 7,967,237 | |
| Total
shares of Fusemachines Inc. common stock outstanding immediately after the merger | |
| 28,350,030 | |
Fusemachines
Inc. and Subsidiaries Notes to the Condensed Consolidated Interim Financial Statements
Below
table presents the Fund flow reconciliation (in thousands):
Schedule of Fund Flow Reconciliation
| Particulars | |
(Amount
In Thousands) | |
| Trust balance
as of Closing date | |
| 11,118 | |
| Proceeds from CSLM loan | |
| 2,193 | |
| PIPE Proceeds | |
| 11,840 | |
| Transfer
of cash & cash equivalent of CSLM | |
| 9 | |
| Total
Available Cash (A) | |
| 25,160 | |
| CSLM transaction costs | |
| (2,249 | ) |
| Payment of Director &
Officer insurance premium | |
| (131 | ) |
| Prepayment under Forward Purchase
Agreement | |
| (11,005 | ) |
| Settlement
of sponsor convertible note of CSLM | |
| (2,343 | ) |
| Total
Payments as of the closing date (B) | |
| (15,728 | ) |
| Funds going
to Fusemachines Inc. (classified under financing activities under Consolidated Statements of Cash Flows) (A+B) | |
| 9,432 | |
| Operating assets assumed | |
| 531 | |
| Operating liabilities assumed | |
| (1,100 | ) |
| Initial fair value of forward
purchase derivative liability | |
| (8,616 | ) |
| Issuance of share subscription receivable | |
| 11,005 | |
| Initial fair value of equity
classified warrant | |
| (1,009 | ) |
| Legacy Fusemachines transaction
cost | |
| (1,873 | ) |
| Others | |
| 137 | |
| Net
equity impact of reverse recapitalization | |
| 8,507 | |
The
reverse recapitalization accounting treatment was primarily determined based on the fact that the stockholders of Legacy Fusemachines
held a relative majority of the voting power of Fusemachines and had the ability to nominate a majority of the members of the Board of
Directors. In addition, the senior management of Legacy Fusemachines becomes the senior management of Fusemachines, and the strategy
and operations of Legacy Fusemachines prior to the merger represent the ongoing operations of the combined Company.
Accordingly,
for accounting purposes, the financial statements of Fusemachines represent a continuation of the financial statements of Legacy Fusemachines,
with the Merger being treated as the equivalent of Legacy Fusemachines issuing shares for the net assets of CSLM, accompanied by a recapitalization.
The net assets of CSLM were recognized at their historical carrying amounts as of the Closing date, and no goodwill or other intangible
assets were recorded. Operations prior to the Merger are presented as those of Legacy Fusemachines and the accumulated deficit of Legacy
Fusemachines has been carried forward after Closing.
Fusemachines
Inc. incurred transaction costs of $1,873 thousands, consisting of deferred transaction cost, banking fees, legal fees, and other professional
fees, which has been recorded as a reduction to additional paid-in capital as a direct and incremental cost of the reverse recapitalization.
All
periods presented prior to the Merger have been retrospectively adjusted to reflect the Exchange Ratio for the equivalent number of shares
of Fusemachines Inc. common stock outstanding immediately after the Closing in order to effect the reverse recapitalization.
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