10-Q: Fusemachines Completes SPAC Merger, Faces Significant Losses

Fusemachines Inc. successfully completed its business combination with CSLM Acquisition Corp. on October 22, 2025, despite CSLM reporting a substantial net loss and working capital deficit for the nine months ended September 30, 2025.

Summary

• CSLM Acquisition Corp. (now Fusemachines Inc.) consummated its business combination with Old Fusemachines on October 22, 2025.
• For the nine months ended September 30, 2025, CSLM reported a net loss of $22,105,674, a significant increase from a net income of $437,633 in the same period of 2024.
• The net loss was primarily driven by a $17,573,073 financing expense, a $1,269,000 loss on the change in fair value of the forward purchase agreement liability, and a $1,822,844 loss on extinguishment of debt.
• Cash decreased from $83,227 at December 31, 2024, to $9,284 at September 30, 2025.
• The company's working capital deficit significantly widened to $37,206,142 as of September 30, 2025, from $4,056,679 at December 31, 2024.
• Shareholder redemptions continued, with 371,545 Class A shares redeemed for $4,492,794 in July 2025, and another 99,187 shares for $1,222,631 in late July 2025, prior to the business combination.
• The deferred underwriting fee of $6,641,250 was waived in exchange for the Sponsor transferring 426,000 Class A ordinary shares to the underwriter upon the business combination's closing.

Sentiment

Score: 3

Explanation: While the business combination was ultimately consummated, the SPAC entity (CSLM) reported significant net losses, a substantial increase in working capital deficit, and faced "substantial doubt about its ability to continue as a going concern" prior to the merger. The financial performance of the SPAC itself was very poor, offset only by the completion of its primary objective.

Positives

• Successful consummation of the business combination with Fusemachines Inc. on October 22, 2025, achieving the primary objective of the SPAC.
• The deferred underwriting fee of $6,641,250 was waived, reducing a significant liability for the combined entity.
• The Sponsor Affiliate provided $2,160,000 in financing to Fusemachines via a convertible note, supporting the target company prior to the merger.

Negatives

• Reported a substantial net loss of $19,839,905 for the three months ended September 30, 2025, compared to a net loss of $132,909 for the same period in 2024.
• Incurred a net loss of $22,105,674 for the nine months ended September 30, 2025, a significant deterioration from a net income of $437,633 in the prior year period.
• Experienced a substantial financing expense of $17,573,073 and a $1,269,000 loss on the change in fair value of the forward purchase agreement liability.
• Cash balance significantly declined to $9,284 as of September 30, 2025, from $83,227 at December 31, 2024.
• The working capital deficit dramatically increased to $37,206,142 at September 30, 2025, from $4,056,679 at December 31, 2024.
• Continued shareholder redemptions reduced the cash available in the Trust Account, with 371,545 Class A shares redeemed for $4,492,794 and 99,187 shares for $1,222,631 in Q3 2025.
• The company faces substantial doubt about its ability to continue as a going concern due to its liquidity position and significant costs incurred.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to low cash balance ($9,284 as of September 30, 2025) and a significant working capital deficit ($37,206,142).
• Results of operations and the ability to complete a business combination may be adversely affected by economic uncertainty and volatility in financial markets.
• Potential impacts from downturns in financial markets, general economic conditions, inflation, increases in interest rates, adverse developments in the financial services industry, and geopolitical instability (e.g., military conflicts in Ukraine and the Middle East).
• No assurance that plans to raise capital or consummate a business combination will be successful or successful within the Combination Period.
• The company is an early-stage and emerging growth company, subject to associated risks.

Future Outlook

The company intends to use the funds from the Trust Account (less deferred underwriting fees and taxes) to complete its initial business combination. Any remaining proceeds will be used as working capital for the target business, other acquisitions, and growth strategies. Funds outside the Trust Account are for identifying and evaluating target businesses, due diligence, and transaction completion. Related party loans may be used to finance working capital deficiencies or transaction costs.

Management Comments

• Management plans to address this uncertainty [going concern] through related party loans from the Sponsor, an affiliate of the Sponsor, or certain of the Company's officers and directors or their affiliates (Working Capital Loans) and effecting a Business Combination.
• Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective.

Industry Context

This filing details the final stages of a Special Purpose Acquisition Company (SPAC) completing its de-SPAC transaction with Fusemachines Inc., an artificial intelligence company. The significant redemptions and extensions highlight the challenging SPAC market conditions experienced over the past few years, where many SPACs faced difficulties in securing sufficient capital and completing mergers. The successful consummation of the business combination, despite these hurdles and substantial losses incurred by the SPAC entity, indicates a successful transition for Fusemachines into a publicly traded entity, albeit with a smaller trust size than initially anticipated.

Comparison to Industry Standards

• The high redemption rates (e.g., 14,202,813 shares in July 2023, 3,399,500 in August 2024, 371,545 in July 2025, and 99,187 in July 2025) are consistent with the broader trend of elevated redemptions seen across the SPAC market in 2023-2025, where many public shareholders opted to redeem their shares rather than participate in the business combination.
• The need for multiple extensions and related party financing (promissory notes, working capital loans) is also common for SPACs struggling to meet their initial business combination deadlines and maintain sufficient liquidity, reflecting a challenging environment compared to the SPAC boom of 2020-2021.
• The waiver of deferred underwriting fees in exchange for shares is a common mechanism used by SPACs to reduce cash outflows at closing, aligning the underwriter's interests with the long-term performance of the combined entity, similar to deals involving other SPACs like Gores Holdings or Churchill Capital.
• The PIPE investment amount of $8,840,000, while contributing to the transaction, is relatively modest compared to larger SPAC deals, indicating a more challenging capital-raising environment or a smaller target valuation.

Corporate Governance

Related Party Transactions

• The Sponsor purchased 4,743,750 Founder Shares for $25,000.
• The Sponsor purchased 7,942,500 Private Placement Warrants for $1.00 per warrant, generating $7,942,500.
• The company pays the Sponsor $10,000 per month for administrative services, but the Sponsor has waived all payments, recorded as capital contributions.
• The Sponsor issued an unsecured promissory note to the company for up to $300,000 in July 2021.
• The Sponsor issued an unsecured promissory note (WC Promissory Note) for up to $1,500,000 in February 2023, later amended to $2,000,000, then to $3,000,000 (3rd A&R WC Promissory Note) with a conversion feature, and finally to $4,000,000.
• As of September 30, 2025, the company had borrowed $3,665,000 from the Sponsor under the promissory note, with $242,207 in accrued interest.
• An affiliate of the Sponsor provided $2,160,000 in financing to Fusemachines via a convertible note.
• The Sponsor will transfer 426,000 Class A ordinary shares to the underwriter upon the closing of the business combination in exchange for the waiver of the $6,641,250 deferred underwriting fee.
• The Sponsor entered into financial services and consulting services agreements with service providers, where compensation is contingent on the business combination.

Stakeholder Impact

• Shareholders (Public): Experienced significant redemptions at varying prices ($10.53, $11.35, $12.10, $12.33 per share), indicating a fluctuating market value and a preference for cash redemption over participation in the combined entity for many. Those who remained received shares in New Fusemachines.
• Shareholders (Sponsor/Private Placement): The Sponsor's Class B shares converted to Class A, and private placement investors received shares in New Fusemachines. The Sponsor also provided significant financing and waived fees, indicating continued commitment.
• Underwriters: Waived a substantial deferred fee in exchange for shares, aligning their interests with the post-merger company's performance.
• Fusemachines Inc. (Target Company): Successfully became a publicly traded entity, gaining access to public markets and capital, but also inheriting the SPAC's financial structure and potentially a smaller cash infusion than initially hoped due to redemptions.
• Creditors (Sponsor): Provided significant working capital loans and promissory notes, indicating a critical role in the SPAC's liquidity and the eventual merger.

Next Steps

• The combined entity, Fusemachines Inc., will operate as a publicly traded company.
• The company will use remaining Trust Account funds for working capital, acquisitions, and growth strategies of the target business.
• The company will bear expenses for registering securities for resale for holders of Founder Shares, Private Placement Warrants, and warrants from Working Capital Loans.
• The company will use commercially reasonable efforts to file a registration statement for Class A ordinary shares underlying public warrants within 20 business days after the business combination closing and cause it to become effective within 60 business days.

Key Dates

Recommendation

The successful consummation of the business combination with Fusemachines Inc. removes the significant uncertainty surrounding the SPAC's future. However, the SPAC entity (CSLM) incurred substantial losses and faced severe liquidity challenges prior to the merger, as evidenced by the significant working capital deficit and going concern warning. While Fusemachines Inc. is now a public entity, the financial health of the predecessor SPAC and the high redemption rates suggest a cautious approach. Investors should now evaluate the fundamentals and future prospects of the newly public Fusemachines Inc. as an AI company, rather than the SPAC's historical performance. A 'hold' recommendation is appropriate until more detailed financial performance of the combined entity is available and its strategic execution can be assessed.

Keywords

Fusemachines Inc., CSLM Acquisition Corp., SPAC, Business Combination, Merger, 10-Q, Financial Results, Net Loss, Working Capital Deficit, Shareholder Redemptions, Trust Account, Promissory Note, Forward Purchase Agreement, PIPE Financing, Artificial Intelligence, AI