Note 15. Forward Purchase Agreement

On July 31, 2025, CSLM Acquisition Corp. (the “Counterparty”) prior to the closing of the Business Combination, and Fusemachines Inc. entered into an over the counter (OTC) equity prepaid forward confirmation (the “Forward Purchase Agreement” or “FPA”) with Meteora Capital Partners, LP, Meteora Select Trading Opportunities Master, LP and Meteora Strategic Capital, LLC (collectively, the “Sellers”).

Upon the consummation of the Merger on October 22, 2025, the Sellers delivered a Pricing Date Notice (as defined in the Forward Purchase Agreement). Based on this notice, the applicable Prepayment Amount (as defined in the Forward Purchase Agreement) became determinable and was subsequently funded by the Counterparty from the Trust Account (as defined in the Forward Purchase Agreement) in accordance with the Forward Purchase Agreement.

The Forward Purchase Agreement includes escrow arrangements pursuant to which the Prepayment Amount funded from the CSLM trust account is held in escrow for the benefit of the sellers until settlement or release in accordance with the terms of the Forward Purchase Agreement. The Company does not have unconditional access to the funds held in escrow, and such funds are not available to satisfy the claims of the Company’s creditors.  

The Forward Purchase Agreement contains features that meet the definition of a derivative under ASC 815, including an underlying based on the Company’s Class A common stock, a notional amount, payment provisions, and provisions that require or permit net cash settlement. Accordingly, at the Closing, the Company recognized a derivative liability measured at fair value, representing the portion of the escrowed Prepayment Amount that may be payable to the Forward Counterparty based on conditions existing as of the Closing Date.

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

The share subscription receivable and the derivative liability, when considered together, represent management’s estimate of the portion of the escrowed funds that the Company expects to ultimately retain. Subsequent changes in the fair value of the derivative liability associated with the Forward Purchase Agreement are recognized in earnings at each reporting date.

Upon early termination of the Forward Purchase Agreement in respect of any shares (see “Early termination of the Forward Purchase Agreement” below), the Company records the receipt of funds as an increase to cash and a decrease to the share subscription receivable previously recorded as contra-equity and derecognizes the derivative liability attributable to the terminated shares against the share subscription receivable.

The Company incurred no transaction costs that were directly related to issuance of the Forward Purchase Agreement.

The Company entered into an amendment on February 3, 2026 to the Prepaid Forward Purchase Agreement (the “Amendment”) originally entered into on July 31, 2025 with Sellers. 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). The effect of amendment has been taken in change in fair value of forward purchase derivative liabilities (refer to Note 3 - Fair Value Measurements ).

On August 2, 2026, the Company entered into a second amendment (the “Second FPA Amendment”) to the Prepaid Forward Purchase Agreement originally entered into on July 31, 2025 with Sellers. The Second FPA Amendment resets the Termination Price on the first scheduled trading day of each calendar week 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., with no floor applicable to any tranche. All other terms and conditions of the FPA remain unchanged. The effect of the amendment has been reflected in the change in fair value of the forward purchase derivative liability (refer to Note 3 Fair Value Measurements).

Early termination of the Forward Purchase Agreement

During the three months ended September 30, 2026, the Sellers terminated the Forward Purchase Agreement early in respect of a portion of the shares on two occasions, August 4, 2026 (“Termination 1”) and September 28, 2026 (“Termination 2”). On each termination, the Sellers paid the Company an amount equal to the number of terminated shares multiplied by the Termination Price applicable on the termination date (the “Early Termination Amount”). The Company received total Early Termination Amounts of $ 679 thousand in respect of 832,130 shares. As required by the SPAs, 33% of the Early Termination Amounts ($ 224 thousand) was applied as a mandatory prepayment of the Notes (refer to Note 6 Debt), and the balance of $ 455 thousand was retained by the Company.

The cash received reduced the share subscription receivable. Further, the derivative liability to the extent of early termination of shares was reversed and adjusted against shares subscription receivables amounting to $ 9,588 thousands.

The following table summarizes the shares terminated (in thousands, except share and per share data):

 Schedule of Shares Terminated

The following table presents the movement in the share subscription receivable (presented as contra-equity) as at September 30, 2026 (in thousands):

Schedule of Subscription Receivable 

The share subscription receivable of $ 738 thousand at September 30, 2026 relates to the 59,800 shares (approximately 6.7% of the original 891,930 shares) that remain outstanding under the Forward Purchase Agreement. The forward purchase derivative liability of $ 708 thousand at September 30, 2026 relates to those remaining shares (refer to note 3 Fair Value Measurements).

As of September 30, 2026 and December 31, 2025, the value of the Forward purchase derivative liability is $ 708 thousand and $ 9,692 thousand respectively. The liability is presented as Current Liability in the unaudited condensed consolidated interim balance sheets. Further the derivative liability is measured at fair value on a recurring basis using Level 3 inputs, refer to Note 3 – Fair Value Measurements for further information on the valuation techniques and significant unobservable inputs used in determining the fair value of this instrument.

Further, the derivative liability has been classified as current as the Company does not have an unconditional right to defer settlement beyond twelve months. The Forward Purchase Agreement includes provisions for early termination upon sale of shares by the Sellers, which can result in cash settlement within the next twelve months, as well as periodic settlement features, thereby requiring current classification

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