S-1: Fusemachines Files S-1 Post-SPAC Merger, Faces Going Concern Doubt

Fusemachines Inc. has filed an S-1 registration statement for the issuance and resale of common stock and warrants following its business combination, while auditors express substantial doubt about its ability to continue as a going concern.

Summary

• Fusemachines Inc. (formerly CSLM Holdings Inc.) completed a business combination with Old Fusemachines Inc. (renamed Fusemachines USA, Inc.) on October 22, 2025, becoming a publicly traded company on Nasdaq under the symbol FUSE.
• The S-1 filing registers up to 9,487,500 shares of common stock issuable upon public warrant exercise and up to 22,899,199 shares for resale by selling stockholders, including 3,971,250 shares from private placement warrants.
• The company is a provider of AI solutions and AI education services, with a global talent pool from underserved communities.
• For the nine months ended September 30, 2025, Fusemachines reported a net loss of $5.21 million, an improvement from $11.93 million for the same period in 2024.
• Revenue for the nine months ended September 30, 2025, decreased to $5.78 million from $6.64 million in 2024, primarily due to a reduction in the scope of existing AI Solutions projects.
• For the year ended December 31, 2024, the company reported a net loss of $15.38 million, significantly higher than the $6.76 million net loss in 2023.
• Revenue for the year ended December 31, 2024, increased by $1.4 million to $8.8 million, driven by new contracts with both new and existing customers.
• As of September 30, 2025, the company had cash of $0.11 million and a net working capital deficit of $27.36 million, raising substantial doubt about its ability to continue as a going concern.
• The business combination resulted in approximately $9.4 million in net proceeds to Fusemachines Inc. on the closing date.
• The company has identified material weaknesses in its internal control over financial reporting, including insufficient accounting personnel and ineffective revenue cycle processes.
• Sameer Maskey, CEO, beneficially owns approximately 20.36% of the combined voting power.
• The company's common stock and public warrants are listed on The Nasdaq Global Market under the symbols FUSE and FUSEW, respectively, with the common stock closing at $2.03 per share on December 18, 2025.

Sentiment

Score: 2

Explanation: The company faces significant financial challenges, including recurring losses, a substantial working capital deficit, and an explicit 'going concern' warning from auditors. While the SPAC merger provided some capital and there are positive aspects in operational improvements and market positioning, the overall financial health and the auditors' warning indicate a very high level of risk and uncertainty.

Positives

• Net loss for the nine months ended September 30, 2025, improved to $5.21 million from $11.93 million in the prior year period, a 56% reduction.
• Total other expense, net, decreased by 63% to $1.95 million for the nine months ended September 30, 2025, from $5.21 million in the prior year, largely due to a gain on change in fair value of convertible notes and warrant liability.
• Operating expenses decreased by 36% to $6.55 million for the nine months ended September 30, 2025, compared to $10.28 million in the prior year, driven by lower selling and marketing, general and administrative, and research and development expenses.
• The company received approximately $9.4 million in net proceeds from the business combination, which will help fund operations.
• Revenue for the year ended December 31, 2024, increased by 18% to $8.81 million from $7.44 million in 2023, driven by new customer contracts.
• Gross profit increased by $0.6 million to $4.8 million for the year ended December 31, 2024, compared to $4.2 million in 2023, due to higher sales.
• The company has a diversified customer base across consumer brands, online consignment/resale platforms, healthcare technology, medical equipment, global media, SAAS technology, and cybersecurity.
• Fusemachines has a strong focus on AI education and talent development through its AI Fellowship Program, with over 700 certified fellows in the US, Nepal, and Dominican Republic.

Negatives

• The company has incurred recurring net losses, with a net loss of $5.21 million for the nine months ended September 30, 2025, and $15.38 million for the year ended December 31, 2024.
• As of September 30, 2025, the company had only $0.11 million in cash and a net working capital deficit of $27.36 million.
• The independent registered public accounting firm's report for the year ended December 31, 2024, contains an explanatory paragraph expressing substantial doubt about the company's ability to continue as a going concern.
• Revenue for the nine months ended September 30, 2025, decreased by 13% to $5.78 million compared to $6.64 million in the prior year, mainly due to reduced project scope and resources for existing contracts.
• General and administrative expenses remain high at $5.13 million for the nine months ended September 30, 2025, despite a decrease from the prior year, and were $10.33 million for the year ended December 31, 2024.
• The company has significant fixed costs related to lease facilities and expects increased costs as a public company.
• The company has identified material weaknesses and significant deficiencies in its internal control over financial reporting, which could adversely affect financial reporting accuracy and investor confidence.
• The company filed its Quarterly Report on Form 10-Q for the period ended September 30, 2025, later than required, indicating vulnerabilities in reporting processes.
• The public warrants are currently out-of-the-money, with an exercise price of $11.50 per share compared to a market price of $2.03 per share on December 18, 2025, meaning the company does not expect to receive cash proceeds from their exercise.
• The company has substantial outstanding convertible notes and related party loans, totaling $18.35 million as of September 30, 2025.

Risks

• The market for enterprise AI services and products is relatively new and may experience limited growth or decline, impacting business.
• Failure to effectively manage growth could adversely affect business, results of operations, and financial condition.
• Sales efforts involve considerable time and expense, with long and unpredictable sales cycles, potentially impacting results.
• Results of operations depend on sales to commercial enterprise organizations, whose purchasing decisions may be influenced by factors unrelated to platform features.
• A limited number of customers account for a substantial portion of revenue; loss or reduction in business from these customers could significantly impact revenue.
• Failure to successfully develop and deploy new technologies to address customer needs could harm business and results.
• The ability to sell products and satisfy customers is dependent on service quality; failure to offer high-quality services could have a material adverse effect.
• Inability to maintain and enhance brand and reputation could harm relationships with customers, partners, and employees.
• Issues raised by the use of AI (including machine learning) in platforms may result in reputational harm or liability.
• Real or perceived errors, failures, defects, or bugs in products or platforms could adversely affect results and growth prospects.
• The company has not been profitable in the past and may not achieve or maintain profitability in the future.
• Substantial additional funding is required, which may not be available on acceptable terms, potentially leading to delays or cessation of operations.
• The independent registered public accounting firm's report expresses substantial doubt about the company's ability to continue as a going concern.
• Existing indebtedness could adversely affect business and growth prospects.
• Intense competition and rapid technological change within the industry pose significant challenges.
• Proprietary products and services may not operate properly, damaging reputation or leading to claims.
• Scarcity or unavailability of critical components could delay product delivery and service provision.
• Security breaches or failures in security measures could lead to perceived insecurity, reduced attractiveness of services, and significant liabilities.
• Dependence on key information systems and third-party service providers makes the company vulnerable to disruptions.
• Cyber-attacks and security vulnerabilities could lead to reduced revenue, increased costs, liability claims, or harm to competitive position.
• Inability to adequately protect or enforce intellectual property rights or prevent unauthorized copying/reverse engineering.
• Reliance on unpatented proprietary information, trade secrets, processes, know-how, and open-source software creates risks.
• Algorithms embedded in AI solutions and AI datasets may suffer from lack of transparency, bias, and risks of inadvertent disclosure.
• Claims by others of intellectual property infringement could force significant costs or business revisions.
• Dependence on the management team and other key employees; loss or inability to attract skilled employees could adversely affect business.
• Subject to evolving laws and regulations that could impose substantial costs, legal prohibitions, or unfavorable changes.
• Management team has limited experience managing a public company, potentially diverting attention from day-to-day business.
• Material adverse developments in domestic and global economic conditions or other world events could adversely affect revenue and results.
• Heavy dependence on international operations, particularly in Nepal, makes the company vulnerable to disruptions there.
• Significant fixed costs related to lease facilities could negatively affect operating results if revenue does not grow proportionately.
• Inability to renew leases on commercially acceptable terms or at all may adversely affect operations.
• Catastrophic events could materially adversely affect business, results of operations, and/or financial condition.
• Failure to remediate material weaknesses in internal control over financial reporting could adversely affect financial reporting and investor confidence.
• Failure to timely file periodic reports in the future could adversely affect compliance, access to capital, and market price.
• Changes in accounting principles or their application could result in unfavorable charges or effects.
• Incorrect judgments or estimates relating to critical accounting policies could lead to results below expectations, causing stock price decline.
• Results of operations could be affected by currency fluctuations.
• Limited insurance may not cover third-party claims or claims against officers and directors.
• Potential for additional tax liabilities.
• Ongoing and escalating political volatility in Nepal may adversely affect business.
• The price of common stock may be volatile.
• Executive officers and directors exercise significant control, limiting influence of other stockholders and potentially delaying/preventing change in control.
• Requirements of being a public company may strain resources and distract management, incurring substantial costs.
• Sales of a substantial amount of common stock in the public market, especially by insiders, or the perception of such sales, could cause stock price to decline.
• A decline in common stock price could affect ability to raise working capital and impact operations.
• No intention to pay cash dividends in the foreseeable future; return on investment depends on stock price increases.
• Public warrant holders may experience immediate dilution from future common stock issuances.
• Future exercise of registration rights may adversely affect the market price of common stock.
• The company may redeem unexpired public warrants prior to exercise at a disadvantageous time, making them worthless.
• Public warrant holders may only be able to exercise on a cashless basis under certain circumstances, receiving fewer shares.
• The Warrant Agreement designates New York courts as the exclusive forum for certain actions, potentially limiting warrant holders' ability to obtain a favorable judicial forum.
• As an emerging growth company and smaller reporting company, reduced reporting requirements could make common stock less attractive to investors.
• May be subject to the Excise Tax included in the Inflation Reduction Act of 2022 in connection with redemptions of public shares.
• Delaware law and organizational documents contain anti-takeover provisions that limit stockholder actions and could delay/discourage takeover attempts.
• Exclusive forum provisions in the Certificate of Incorporation may discourage lawsuits against directors and officers.
• Business, financial condition, and results of operations may fluctuate quarterly and annually, potentially leading to stock price decline if expectations are not met.

Future Outlook

The company anticipates needing to raise additional capital to fund operations and implement its business plan, as current cash and investments are believed to be inadequate for the next twelve months. Management is evaluating initiatives to streamline operations through headcount and consultant cost reductions, and continued vendor negotiations for more favorable terms. The business plan projects a measured growth trajectory supported by new client acquisitions and expansion of existing customer relationships. The company expects sales and marketing expenses to increase in absolute dollars with additional hiring and investment in brand awareness. Research and development expenses are also expected to increase as new products are developed and existing services are enhanced.

Management Comments

• Management believes that the cash on hand, and additional investments available through issuance of new Common Stock, will be inadequate to satisfy the Company's working capital and capital expenditure requirements for at least the next twelve months.
• Management is evaluating initiatives to streamline operations through reductions in headcount and consultant costs, and continued negotiations with vendors to achieve more favorable terms.
• The company's business plan anticipates a measured growth trajectory supported by new client acquisitions and expansion of existing customer relationships.

Industry Context

Fusemachines operates in the rapidly evolving and highly competitive AI and digital transformation landscape. The global AI market is projected for substantial growth, with worldwide spending on digital transformation expected to reach $3.4 trillion by 2026 and the AI market itself nearing $1.4 trillion by 2029. However, this growth is challenged by a significant global shortage of AI talent, with 63% of businesses citing AI and machine learning as their biggest skills gap. Fusemachines aims to capitalize on this by offering specialized AI solutions and talent development programs like its AI Fellowship, which trains professionals from underserved communities. The company faces competition from corporate IT organizations, commercial software providers, open-source platforms, public cloud providers, and system integrators. Its strategy emphasizes vertical and problem-specific solutions, comprehensive AI transformation support, transparent pricing, and data security options to differentiate itself.

Comparison to Industry Standards

• The company's focus on democratizing AI by sourcing talent from underserved communities (e.g., Nepal, Dominican Republic) is a distinctive approach compared to many industry players who primarily recruit from established tech hubs.
• The AI Fellowship Program, a 6-month online course designed by global AI and tech experts, aims to upskill AI professionals and provide real-world applications, addressing the industry's talent shortage.
• The company's AI Studio and AI Engines (Xtract AI Engine, Answer Gen Engine, Predictive Fraud Detection AI Engine) offer specialized, problem-specific solutions, which contrasts with more generalized AI platforms offered by larger tech companies like Google Cloud AI, AWS AI/ML, or Microsoft Azure AI.
• The ability to deploy AI Studio and AI Engines on-premise within client security infrastructure provides a higher level of data security and control, which is a competitive advantage for enterprises with strict data governance requirements, differentiating it from purely cloud-based SaaS offerings.
• The company's customer success program, including bi-weekly performance checks and quarterly executive-level reviews, indicates a strong commitment to client satisfaction, which is crucial in a service-oriented AI industry where client trust and long-term partnerships are key.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently a party to any material legal proceedings that would have a major adverse effect on its business, financial condition, or results of operations.
• Fusemachines Inc. received a legal notice dated March 27, 2025, requiring payment of $76,300 to a vendor, of which management believes $41,300 is payable and has been recognized, with the remaining portion contested.

Related Party Transactions

• Sameer Maskey, CEO, beneficially owns approximately 20.36% of the combined voting power.
• Consilium Entities (managed by Charles Cassel and Jonathan Binder) hold 11,356,530 shares of Common Stock, representing 36.48% of voting stock.
• Dolma Impact Fund (founded by Tim Gocher, a director) holds 1,870,639 shares of Common Stock and 806,654 shares issuable upon conversion of outstanding convertible notes.
• In October 2019 and September 2021, the company entered into convertible promissory note agreements (Related Party Convertible Notes Payable) with a lender who is a principal owner, totaling $7.53 million as of September 30, 2025.
• In January 2021, Fusemachines Nepal Private Limited entered into an investment agreement with Gyanu Maskey (CEO's immediate family member), which was completed in February 2023.
• In July 2021, Fusemachines Nepal Private Limited entered into the BO2 Purchase Agreement with BO2 and Mr. Maskey, involving an investment of $964,200 and an initial arrangement fee of $13,700.
• In January 2024, the company repurchased 667,000 shares of common stock from Mr. Maskey for $2.9 million, with $902,700 applied to repay his 2023 Promissory Note.
• In January 2024, Mr. Maskey entered into a pledge agreement with Consilium Extended Opportunities Fund, LP, assigning a security interest of 3,600,000 shares of common stock to secure the company's obligations under the January 2024 Convertible Notes.
• During 2024, the company entered into seven separate promissory notes with Mr. Maskey for an aggregate principal amount of $700,000 (2024 Related Party Promissory Notes), which were repaid in cash upon the closing of the merger.
• The Sponsor (CSLM Acquisition Sponsor I, LLC) purchased 4,743,750 Founder Shares for $25,000 in July 2021 and 7,942,500 Private Placement Warrants for $7,942,500 in January 2022.
• CSLM entered into an administrative services agreement to pay the Sponsor $10,000 per month for office space and support services, which the Sponsor waived, resulting in capital contributions.
• CSLM issued promissory notes to the Sponsor for working capital needs, totaling $3.67 million as of September 30, 2025, with accrued interest of $242,207.

Stakeholder Impact

• Shareholders face significant risk due to the company's 'going concern' warning, recurring losses, and substantial working capital deficit, which could lead to further dilution or loss of investment.
• Public warrant holders are unlikely to exercise their warrants for cash as the market price ($2.03) is significantly below the exercise price ($11.50), potentially rendering their warrants worthless.
• Employees and consultants holding equity awards under incentive plans may experience dilution from future issuances of common stock.
• Customers may benefit from the company's continued innovation in AI solutions and talent development, but could face risks if the company's financial instability impacts service delivery or product development.
• Creditors, particularly holders of convertible notes and related party loans, face uncertainty regarding repayment given the company's financial condition, although some notes converted to equity post-merger.
• The global workforce, particularly in Nepal, is critical to the company's operations, and any operational streamlining or financial distress could impact employment.

Next Steps

• Management plans to raise additional capital through equity or debt financing to fund operations and investing activities over the next year.
• Management is evaluating initiatives to streamline operations through reductions in headcount and consultant costs.
• Management is continuing negotiations with vendors to achieve more favorable terms.
• The company anticipates a measured growth trajectory supported by new client acquisitions and expansion of existing customer relationships.
• The company expects to continue to develop new products and enhance existing services and technologies, leading to increased research and development expenses.
• The company will continue efforts to remediate identified material weaknesses in internal control over financial reporting.
• The company will continue to comply with public company reporting requirements, including timely filing of periodic reports.

Key Dates

Recommendation

The filing presents a highly concerning financial picture for Fusemachines Inc. The explicit 'going concern' warning from independent auditors, coupled with a minimal cash balance ($0.11 million) and a substantial working capital deficit ($27.36 million) as of September 30, 2025, indicates severe liquidity issues and a high risk of business failure. While the SPAC merger provided some capital, the company continues to incur significant net losses and has a history of negative operating cash flows. The substantial amount of out-of-the-money public warrants means the company cannot rely on these for future cash infusion. The identified material weaknesses in internal controls and delayed financial reporting further erode confidence. Despite some revenue growth in 2024, the decline in revenue for the first nine months of 2025 suggests ongoing operational challenges. Given these critical financial vulnerabilities and the high uncertainty surrounding its ability to sustain operations, a seasoned investor or institution would strongly recommend selling the stock to mitigate significant downside risk.

Keywords

Artificial Intelligence, AI Solutions, Machine Learning, Enterprise AI, AI Education, SPAC Merger, SEC Filing, S-1 Registration, Public Warrants, Convertible Notes, Financial Technology, Healthcare AI, Media AI, Cybersecurity AI, Nepal Operations, Going Concern