UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
Or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
(Exact name of registrant as specified in its charter)
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices and zip code)
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The Stock Market LLC | ||||
| The Stock Market LLC |
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Smaller Reporting Company |
Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No
The number of shares outstanding of the registrant’s common stock as of May 5, 2025 was .
Table of Contents
| 2 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Fundamental Global Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
March 31, 2025 | December 31, | |||||||
| (unaudited) | 2024 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable (net of credit allowances of $ | ||||||||
| Inventories, net | ||||||||
| Equity holdings, at fair value (cost basis of $ | ||||||||
| Other equity holdings and other holdings | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Finance lease right-of-use assets | ||||||||
| Assets of discontinued operations | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Deferred revenue and customer deposits | ||||||||
| Operating lease liabilities | ||||||||
| Finance lease liabilities | ||||||||
| Short-term debt | ||||||||
| Long-term debt, net of debt issuance costs | ||||||||
| Deferred income taxes | ||||||||
| Liabilities of discontinued operations | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Series A Preferred Shares, $ par and liquidation value, shares authorized; shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
Fundamental Global Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue: | ||||||||
| Net loss on equity holdings and other holdings | $ | ( | ) | $ | ( | ) | ||
| Net product sales | ||||||||
| Net services revenue | ||||||||
| Total revenue | ||||||||
| Expenses: | ||||||||
| Costs of products | ||||||||
| Costs of services | ||||||||
| Selling expense | ||||||||
| General and administrative expenses | ||||||||
| Loss on impairment and disposal of assets | ||||||||
| Total expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Foreign currency transaction gain | ||||||||
| Bargain purchase on acquisition and other income, net | ||||||||
| Total other (expense) income, net | ( | ) | ||||||
| Loss from continuing operations before income taxes | ( | ) | ( | ) | ||||
| Income tax benefit | ||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Net (loss) income from discontinued operations (Note 4) | ( | ) | ||||||
| Net loss | ( | ) | ( | ) | ||||
| Net loss attributable to non-controlling interest | ( | ) | ||||||
| Dividends declared on Series A Preferred Shares | ( | ) | ( | ) | ||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per common share: | ||||||||
| Continuing operations | $ | ) | $ | ) | ||||
| Discontinued operations | ) | |||||||
| Total | $ | ) | $ | ) | ||||
| Weighted average common shares outstanding: | ||||||||
| Basic and diluted | ||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
Fundamental Global Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustment to postretirement benefit obligation | ( | ) | ||||||
| Unrealized currency translation loss of equity method holdings | ( | ) | ||||||
| Currency translation adjustment: | ||||||||
| Unrealized net change arising during period | ( | ) | ||||||
| Total other comprehensive loss | ( | ) | ( | ) | ||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
See accompanying notes to condensed consolidated financial statements.
| 5 |
Fundamental Global Inc.
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)
(in thousands)
| Preferred Stock | Common Stock | Additional | Accumulated Other | Total | ||||||||||||||||||||||||||||
| Shares Outstanding | Amount | Shares Outstanding | Amount | Paid-In Capital | Accumlated Deficit | Comprehensive Loss | Stockholders’ Equity | |||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Vesting of restricted stock | - | |||||||||||||||||||||||||||||||
| Dividends on Series A Preferred Shares ($ per share) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net other comprehensive income | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Retained Earnings | Accumulated Other | Total Fundamental Global | Non- | Total | |||||||||||||||||||||||||||||||||||||
| Shares Outstanding | Amount | Shares Outstanding | Amount | Paid-In Capital | (Accumulated Deficit) | Treasury Stock | Comprehensive Loss | Stockholders’ Equity | controlling Interest | Stockholders’ Equity | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
| Retirement of treasury stock | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Exchange of FGH common stock | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| FGF preferred and common stock outstanding at merger date | ||||||||||||||||||||||||||||||||||||||||||||
| Retirement of FGF common stock held by FGH prior to merger | - | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with merger | - | |||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interest allocation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Dividends on Series A Preferred Shares ($ per share) | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Net other comprehensive loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
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Fundamental Global Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(in thousands)
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Net unrealized holding loss on equity holdings | ||||||||
| Loss from equity method holdings | ||||||||
| Adjustment to gain acquisition of ICS assets | ( | ) | ||||||
| Net realized gain on sale of equity holdings | ( | ) | ( | ) | ||||
| Provision for doubtful accounts | ||||||||
| (Benefit from) provision for obsolete inventory | ( | ) | ||||||
| Provision for warranty | ||||||||
| Depreciation and amortization | ||||||||
| Amortization and accretion of operating leases | ||||||||
| Impairment of property and equipment | ||||||||
| Gain on merger of FGF and FGH (Note 4) | ( | ) | ||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Stock compensation expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Other assets | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Current income taxes | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Deferred revenue and customer deposits | ||||||||
| Operating lease obligations | ( | ) | ( | ) | ||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities from discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Proceeds from sales of equity securities | ||||||||
| Purchases of equity securities | ( | ) | ||||||
| Cash acquired in Merger of FGF and FGH | ||||||||
| Net cash provided by investing activities from continuing operations | ||||||||
| Net cash used in investing activities from discontinued operations | ( | ) | ||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Payment of dividends on preferred shares | ( | ) | ( | ) | ||||
| Principal payments on short-term debt | ( | ) | ( | ) | ||||
| Principal payments on long-term debt | ( | ) | ( | ) | ||||
| Payments on finance lease obligations | ( | ) | ( | ) | ||||
| Net cash used in financing activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by financing activities from discontinued operations | ||||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents from continuing operations | ( | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents from discontinued operations | ( | ) | ||||||
| Net (decrease) increase in cash and cash equivalents from continuing operations | ( | ) | ||||||
| Net (decrease) increase in cash and cash equivalents from discontinued operations | ( | ) | ||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 7 |
Fundamental Global Inc.
Notes to Condensed Consolidated Financial Statements
Note 1. Nature of Business
Fundamental Global Inc. (“FG”, “FGF”, the “Company”, “we”, or “us”) is a holding company that focuses on allocating capital to our business operations including our managed services and merchant banking business and related real estate and equity holdings.
On February 29, 2024, FGF and FG Group Holdings, Inc. (“FGH”) closed a plan of merger to combine the companies in an all-stock transaction (the “Merger”). In connection with the Merger, FGH common stockholders received one share of FGF common stock for each share of common stock of FGH held by such stockholder. Upon completion of the Merger, the combined company was renamed to Fundamental Global Inc., and the common stock and Series A cumulative preferred stock of the combined company continued to trade on the Nasdaq Stock Market LLC (the “Nasdaq”) under the tickers “FGF” and “FGFPP,” respectively.
On May 3, 2024, Strong Global Entertainment, Inc. (“Strong Global Entertainment” or “SGE”) entered into an acquisition agreement (the “Acquisition Agreement”) with FG Acquisition Corp. (“FGAC”), a special purpose acquisition company (“SPAC”), Strong/MDI Screen Systems, Inc. (“Strong/MDI”), FGAC Investors LLC, and CG Investments VII Inc. The transaction closed on September 25, 2024. As part of the closing, FGAC was renamed Saltire Holdings, Ltd (“Saltire”), and Saltire acquired all of the outstanding shares of one of the Company’s indirect wholly-owned subsidiaries, Strong/MDI. As a result of the acquisition, Strong/MDI became a wholly-owned subsidiary of Saltire.
On May 30, 2024, the Company and Strong Global Entertainment,
an operating company in which we held approximately
Business Segments
We currently have
Merchant Banking
We manage our merchant banking and asset management activities through FG Management Solutions LLC (“FGMS”), formerly known as FG SPAC Solutions, LLC. Merchant banking services include various strategic, administrative, and regulatory support services to newly formed SPACs (our “SPAC Platform”). Additionally, the Company co-founded a partnership, FG Merchant Partners, LP (“FGMP”), formerly known as FG SPAC Partners, LP, to participate as a co-sponsor for newly formed SPACs and other merchant banking clients.
Our merchant banking group provides advisory services, facilitates capital formation and allocates capital to equity holdings. In our SPAC Platform, this also includes launching, sponsoring and providing strategic, administrative, and regulatory support services to newly formed SPACs. Our merchant banking division has facilitated the launch of several new companies, including FG Communities, Inc. (“FGC”), a self-managed real estate company focused on a growing portfolio of manufactured housing communities that are owned and operated by FGC, and Saltire, a Canadian public company that allocates capital to equity, debt and/or hybrid securities of high-quality private companies, among others.
| 8 |
Managed Services
Our wholly-owned subsidiary and managed services business, Strong Technical Services. Inc. (“STS”), is a leader in the entertainment industry providing mission critical products and services to cinema exhibitors and entertainment venues for over 90 years. STS provides comprehensive managed service offerings including remote network operating center support, on-site field service, content delivery, installation and other services designed to support cinema and entertainment operators.
Other
The Company owned and operated its Digital Ignition
technology incubator and co-working facility in Alpharetta, Georgia. During the first quarter of 2024, the Company’s board authorized
the sale of Digital Ignition and, on April 16, 2024, the Company completed the sale of the Digital Ignition building and wholly owned subsidiary
for proceeds of $
Discontinued Operations
The Company operates a reinsurance business, which
has been classified as assets held for sale as of December 31, 2024. The Company entered into an agreement for the sale of a portion of
its reinsurance business for $
The Company previously operated Strong Studios, Inc. (“Strong Studios”) and Strong/MDI. Those business units were sold in 2024 and are no longer part of the Company’s consolidated operations in 2025.
These discontinued business units are more fully described in Note 4.
Note 2. Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements include the accounts of the Company and all majority-owned and controlled domestic and foreign subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Unless the context indicates otherwise, references to the “Company” include the Company and its majority-owned and controlled domestic and foreign subsidiaries.
The condensed consolidated financial statements included in this report are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America (also referred to as “GAAP”) for annual reporting purposes or those made in the Company’s Annual Report on Form 10-K. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
As a result of the reverse merger of FGF and FGH, the condensed consolidated financial statements for the periods prior to the merger represent the results of FGH, as the accounting acquirer. For periods subsequent to the merger, the condensed consolidated financial statements represent the combined results of FGH and FGF. See Note 3 for additional information regarding the Merger of FGF and FGH and the resulting accounting for the reverse acquisition.
In addition, the current and historical financial results of Strong Studios and Strong/MDI are presented as discontinued operations and are excluded from results from continuing operations in the accompanying condensed consolidated financial statements.
| 9 |
The condensed consolidated balance sheet as of December 31, 2024, was derived from the Company’s audited consolidated balance sheet as of that date. All other condensed consolidated financial statements contained herein are unaudited and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary to present a fair statement of the financial position and the results of operations and cash flows for the respective interim periods. Certain prior period balances have been reclassified to conform to current period presentation. The results for interim periods are not necessarily indicative of trends or results expected for a full year.
Unless otherwise indicated, all references to “dollars” and “$” in this Form 10-Q are to, and amounts are presented in, U.S. dollars.
Use of Management Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and changes in facts and circumstances may alter such estimates and affect results of operations and financial position in future periods. Estimates and their underlying assumptions are reviewed on an ongoing basis. Changes in estimates are recorded in the accounting period in which they are determined.
Our business and the businesses of our equity holdings are subject to general political and economic risks, including the adverse impact of changes to international trade and tariff policies, which we are closely monitoring. The uncertainty as to the extent and duration of additional tariffs that have or may be imposed could impact estimates we have made, including those for credit losses and valuation of our equity securities and other holdings.
Consolidation Policies
The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.
The condensed consolidated financial statements include the accounts of the Company and entities in which it is required to consolidate under either the Variable Interest Entity (“VIE”) or Voting Interest Entity (“VOE”) models. Both models require the reporting entity to identify whether it has a controlling financial interest in a legal entity and is therefore required to consolidate the legal entity. Under the VOE model, a reporting entity with ownership of a majority of the voting interest of a legal entity is generally considered to have a controlling financial interest. The VIE model was established for situations in which control may be demonstrated other than by the possession of voting rights in a legal entity and instead focuses on the power to direct the activities that most significantly impact the legal entity’s economic performance, as well as the rights to receive benefits and obligations to absorb losses that could potentially be significant to the legal entity.
The determination of whether a legal entity is consolidated under either model is reassessed where there is a substantive change in the governing documents or contractual arrangements of the entity, to the capital structure of the entity or in the activities of the entity. Management continuously reassesses whether it should consolidate under either model.
The Company’s risk of loss associated with its
non-consolidated VIEs is limited. As of March 31, 2025, the carrying value and maximum loss exposure of the Company’s non-consolidated
VIEs was $
See Note 5 for further information regarding the Company’s holdings.
Holdings in Equity Securities and Other Holdings
Other holdings consist, in part, of equity holdings
made in privately held companies accounted for under the equity method. We utilize the equity method to account for holdings when we possess
the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability
to exercise significant influence is presumed when the holder possesses more than
| 10 |
In applying the equity method, we record the holding at cost and subsequently increase or decrease the carrying amount of the holding by our proportionate share of the net earnings or losses and other comprehensive income of the investee. We record dividends or other equity distributions as reductions in the carrying value of the holding. Should net losses of the investee reduce the carrying amount of the holding to zero, additional net losses may be recorded if other holdings in the investee are at-risk, even if we have not committed to provide financial support to the investee. Such additional equity method losses, if any, are based upon the change in our claim on the investee’s book value.
When we receive distributions from our equity method holdings, we utilize the cumulative earnings approach. When classifying the related cash flows under this approach, the Company compares the cumulative distributions received, less distributions received in prior periods, with the Company’s cumulative equity in earnings. Cumulative distributions that do not exceed cumulative equity in earnings represent returns on holdings and are classified as cash inflows from operating activities. Cumulative distributions in excess of cumulative equity in earnings represent returns on holdings and are classified as cash inflows from investing activities.
In addition to holdings accounted for under the equity method of accounting, other holdings also consist of equity we have purchased in a limited partnership, a limited liability company, and a corporation for which there does not exist a readily determinable fair value. The Company accounts for these holdings at their cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar holdings by the same issuer. When the Company observes an orderly transaction of an investee’s identical or similar equity securities, the Company adjusts the carrying value based on the observable price as of the transaction date. Once the Company records such an adjustment, the holding is considered an asset measured at fair value on a nonrecurring basis. Any profit distributions the Company receives on these holdings are included in net holdings income.
See Note 5 for additional information regarding the Company’s holdings.
Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term, highly liquid financial instruments with original maturities of 90 days or less.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes, whereby deferred income tax assets and liabilities are recognized for (i) the differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and (ii) loss and tax credit carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not and a valuation allowance is established for any portion of a deferred tax asset that management believes will not be realized. Current federal income taxes are charged or credited to operations based upon amounts estimated to be payable or recoverable as a result of taxable operations for the current year. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense (benefit).
Concentration of Credit Risk
Financial instruments which potentially expose
the Company to concentrations of credit risk include holdings in equity securities and other holdings, cash, accounts receivable and
deposits with reinsured companies. The Company maintains its cash with a major U.S. domestic banking institution which is insured by
the Federal Deposit Insurance Corporation (“FDIC”) for up to $
| 11 |
The Company’s top ten customers accounted for
approximately
Revenue Recognition for Products and Services
The Company accounts for revenue using the following steps:
| ● | Identify the contract, or contracts, with a customer; | |
| ● | Identify the performance obligations in the contract; | |
| ● | Determine the transaction price; | |
| ● | Allocate the transaction price to the identified performance obligations; and | |
| ● | Recognize revenue when, or as, the Company satisfies the performance obligations. |
The Company combines contracts with the same customer into a single contract for accounting purposes when the contracts are entered into at or near the same time and the contracts are negotiated as a single commercial package, consideration in one contract depends on the other contract, or the services are considered a single performance obligation. If an arrangement involves multiple performance obligations, the items are analyzed to determine the separate units of accounting, whether the items have value on a standalone basis and whether there is objective and reliable evidence of their standalone selling price. The total contract transaction price is allocated to the identified performance obligations based upon the relative standalone selling prices of the performance obligations. The standalone selling price is based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost plus margin approach. Management estimates the amount of total contract consideration the Company expects to receive for variable arrangements by determining the most likely amount we expect to earn from the arrangement based on the expected quantities of services the Company expects to provide and the contractual pricing based on those quantities. The Company only includes some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is subsequently resolved. Management considers the sensitivity of the estimate, the Company’s relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement.
As discussed in more detail below, revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company typically does not have any material extended payment terms, as payment is due at or shortly after the time of the sale. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.
The Company recognizes contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced to the clients. Unbilled receivables are recorded as accounts receivable when we have an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when we invoice clients, or receive cash, in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when we have satisfied the related performance obligation.
| 12 |
The Company defers costs to acquire contracts, including commissions, incentives and payroll taxes, if they are incremental and recoverable costs of obtaining a customer contract with a term exceeding one year. Deferred contract costs are reported within other assets and amortized to selling expense over the contract term, which generally ranges from one to five years. The Company has elected to recognize the incremental costs of obtaining a contract with a term of less than one year as a selling expense when incurred. The Company did not have any deferred contract costs as of March 31, 2025 or December 31, 2024.
Current Expected Credit Loss
Trade accounts receivable are recorded at the invoiced
amount and do not bear interest. In the first quarter of 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13,
as amended, Financial Instruments – Credit Losses (“ASU 2016-13”), which requires an entity to estimate its lifetime
“expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents
the net amount expected to be collected on the financial asset. The Company determines the allowance for credit losses based on several
factors, including overall customer credit quality, historical write-off experience and a specific analysis that projects the ultimate
collectability of the account. As such, these factors may change over time causing the allowance level and bad debt expense to be adjusted
accordingly. The Company updates the model each quarter and adjusts the balance accordingly. The accounts receivable balances on the condensed
consolidated balance sheets are net of an allowance for expected credit losses of $
In the first quarter of 2023, the Company allocated
$
The Company has accounted for stock-based compensation under the provisions of ASC Topic 718 – Stock Compensation, which requires the use of the fair-value based method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model using assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate along with multiple Monte Carlo simulations to determine a derived service period as the options vest based upon meeting certain performance conditions. The fair value of each stock option award is recorded as compensation expense on a straight-line basis over the requisite service period, which is generally the period in which the stock options vest, with a corresponding increase to additional paid-in capital.
The Company has also issued restricted stock units (“RSUs”) to certain of its employees and directors which have been accounted for as equity-based awards since, upon vesting, they are required to be settled in the Company’s common shares. We have used the fair value of the Company’s common stock on the date the RSUs were issued to estimate the grant date fair value of those RSUs which vest solely based upon the passage of time. The fair value of each RSU is recorded as compensation expense over the requisite service period, which is generally the expected period over which the awards will vest.
Based upon the Company’s historical forfeiture rates relating to stock options and RSUs, the Company has not made any adjustment to stock compensation expense for expected forfeitures as of March 31, 2025.
Fair Value of Financial Instruments
The carrying values of certain financial instruments, including cash, accounts receivable, short-term holdings, deposits held, accounts payable, other accrued expenses, and short-term debt, approximate fair value due to their short-term nature. The Company measures the fair value of financial instruments in accordance with GAAP which defines fair value as the exchange price that would be received for an asset (or paid to transfer a liability) in the principal or most advantageous market for the asset (or liability) in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s short-term debt is recorded at historical cost. See Note 5 for further information on the fair value of the Company’s financial instruments.
| 13 |
Leases
The Company and its subsidiaries lease warehouse and office facilities and equipment under operating and finance leases expiring through 2027. Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.
Right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. Certain of the leases contain extension options; however, the Company has not included such options as part of its right-of-use assets and lease liabilities because it does not expect to extend the leases. The Company measures and records a right-of-use asset and lease liability based on the discount rate implicit in the lease, if known. In cases where the discount rate implicit in the lease is not known, the Company measures the right-of-use assets and lease liabilities using a discount rate equal to the Company’s estimated incremental borrowing rate for loans with similar collateral and duration.
The Company elected to not apply the recognition requirements of ASC Topic 842, “Leases,” to leases of all classes of underlying assets that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. Instead, lease payments for such short-term leases are recognized in operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.
The Company elected, as a lessee, for all classes of underlying assets, to not separate nonlease components from lease components and instead to account for each separate lease component and the nonlease components associated with that lease component as a single lease component.
Basic earnings (loss) per common share is computed using the weighted average number of shares outstanding during the respective period.
Diluted earnings (loss) per common share assumes conversion of all potentially dilutive outstanding stock options, restricted stock units, warrants or other convertible financial instruments. Potential common shares outstanding are excluded from the calculation of diluted earnings (loss) per share if their effect is anti-dilutive.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which adds required disclosures of significant expenses for each reportable segment, as well as certain other disclosures to help investors understand how the chief operating decision maker (“CODM”) evaluates segment expenses and operating results. The new standard also allows disclosure of multiple measures of segment profitability, if those measures are used to allocate resources and assess performance. The amendments are effective for public companies for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The adoption of this accounting standard update did not have a material impact on our condensed consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. ASU 2023-09 is effective on a prospective basis for annual periods beginning after December 15, 2024, with early adoption permitted. ASU 2023-09 will not impact amounts recorded in the Company’s financial statements but, instead, will require more detailed disclosures in the notes to the financial statements. The Company plans to provide the updated disclosures required by ASU 2023-09 in the periods in which they are effective.
In November 2024, the FASB issued ASU 2024-03, Disaggregation of income Statement Expenses (“ASU 2024-03”). ASU 2024-03 requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions. ASU 2024-03 also requires disclosure of the total amount of selling expenses along with the definition of selling expenses. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Adoption of ASU 2024-03 can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of ASU 2024-03 or retrospectively to any or all prior periods presented in the consolidated financial statements. While early adoption is permitted, the Company does not plan to adopt ASU 2024-03 early. ASU 2024-03 will likely result in additional disclosures being included in the Company’s financial statements once adopted. The Company is currently evaluating the provisions of ASU 2024-03.
| 14 |
Note 3. Merger of FGF and FGH
On February 29, 2024, FGF and FGH completed a merger transaction pursuant to which FGH common stockholders received one share of FGF common stock for each share of common stock of FGH held by such stockholder.
The merger involved a change of control between two businesses and was accounted for as a reverse acquisition in accordance with ASC 805 Business Combinations (“ASC 805”). A reverse acquisition occurs when the entity that issues securities (the legal acquirer) is identified as the acquiree for accounting purposes and the entity whose equity interests are acquired (the legal acquiree) is identified as the acquirer for accounting purposes. FGH was determined to be the accounting acquirer.
Per ASC 805, the acquirer measures the identifiable
assets acquired and the liabilities assumed at their acquisition-date fair values. Management completed its preliminary assessment of
the fair value of identifiable tangible and intangible assets acquired, as well as the liabilities assumed during the quarter ended March
31, 2024 and determined the fair value of the FGF assets and liabilities as of February 29, 2024 was approximately $
In a reverse acquisition, generally the legal acquirer
(accounting acquiree) issues consideration in the transaction. As such, the fair value of the consideration transferred is determined
based on the number of equity interests the accounting acquirer (legal acquiree) would have had to issue to the owners of the legal acquirer
(accounting acquiree) in order to provide the same ratio of ownership of equity interests in the combined entity as a result of the reverse
acquisition. Management determined total consideration was $
During the fourth quarter of 2024, management finalized
the fair value of the FGF assets and liabilities as of February 29, 2024 and determined the fair value was approximately $
The table below represents the pro forma consolidated income statement as if FGF had been included in the condensed consolidated results of the Company for the three months ended March 31, 2024. The revenue amount below excludes revenue generated by our discontinued operations.
| (in thousands) | ||||
| Revenue | $ | |||
| Net loss from continuing operations | $ | ( | ) | |
Note 4. Discontinued Operations
Strong/MDI
On May 3, 2024, Strong Global Entertainment entered
into the Acquisition Agreement with FGAC, Strong/MDI, FGAC Investors LLC, and CG Investments VII Inc. On September 25, 2024, Strong Global
Entertainment completed the transaction. As part of the closing, FGAC was renamed Saltire. Pursuant to the Acquisition Agreement, Strong
Global Entertainment received the equivalent of approximately $
| 15 |
Management evaluated the classification of Strong/MDI as a discontinued operation and determined Strong/MDI is a component of an entity and represented a discontinued operation. Accordingly, Strong/MDI has been included as part of discontinued operations for the three months ended March 31, 2024.
Reinsurance
The Company’s wholly owned reinsurance subsidiary, FG Reinsurance Ltd (“FGRe”), a Cayman Islands limited liability company, provides specialty property and casualty reinsurance. FGRe has been granted a Class B (iii) insurer license in accordance with the terms of The Insurance Act (as revised) of the Cayman Islands and underlying regulations thereto and is subject to regulation by the Cayman Islands Monetary Authority (the “Authority”). The terms of the license require advance approval from the Authority should FGRe wish to enter into any reinsurance agreements which are not fully collateralized.
During the fourth quarter of 2024, the Board approved a plan to evaluate the potential sale of the Company’s reinsurance business. As a result, management evaluated the classification of its reinsurance business as a discontinued operation as of December 31, 2024 and determined the reinsurance business is a component of an entity and represented a discontinued operation. Accordingly, the reinsurance business has been included as part of discontinued operations for all periods presented.
On March 14, 2025, the Company entered into an
agreement for the sale of the entire issued share capital of FG RE Corporate Member Limited and for the planned commutation of its
Lloyds of London reinsurance treaties UHA 251 22, B1868HT2300259, and B1868HT2400259. The Company expects the transaction to close
during the second quarter of 2025, at which time the Company will receive consideration of $
In April 2025, the Company entered into a non-binding letter of intent to sell the remaining reinsurance contracts. The Company and the buyer are negotiating definitive agreements related to the sale, which is expected to close in the second half of 2025.
During the fourth quarter of 2024, the Company recorded
an impairment charge of approximately $
Strong Studios
In March 2022, Strong Studios acquired, from Landmark Studio Group LLC (“Landmark”), the rights to original feature films and television series, and was assigned third party rights to content for global multiplatform distribution.
In September 2023, the Company acquired all of the outstanding capital stock of Unbounded Media Corporation (“Unbounded”), an independent media and creative production company.
As of December 31, 2023, the board of directors of Strong Global Entertainment approved the Company’s plan to exit its content business, including Strong Studios and Unbounded and authorized management to proceed with such plan. As a result, management evaluated the classification of Strong Studios as a discontinued operation as of December 31, 2023 and determined Strong Studios is a component of an entity and represented a discontinued operation. Accordingly, Strong Studios has been included as part of discontinued operations for all periods presented.
The assets and liabilities included as part of discontinued operations as of March 31, 2025 and December 31, 2024 related to the Company’s reinsurance business. The major classes of assets and liabilities are as follows (in thousands):
March 31, 2025 | December 31, 2024 | |||||||
| Reinsurance balance receivable | $ | $ | ||||||
| Funds deposited with reinsured companies | ||||||||
| Total assets of discontinued operations | $ | $ | ||||||
| Loss and loss adjustment expense reserves | $ | $ | ||||||
| Present value of future profits | ||||||||
| Total liabilities of discontinued operations | $ | $ | ||||||
| 16 |
The loss from discontinued operations during the three months ended March 31, 2025 related to the Company’s reinsurance business. The major line items constituting the net income (loss) from discontinued operations during the three months ended March 31, 2024 are as follows (in thousands):
| Three Months Ended March 31, 2024 | ||||||||||||||||
| Strong/MDI | Reinsurance | Strong Studios | Total | |||||||||||||
| Net product and services revenue | $ | $ | $ | $ | ||||||||||||
| Net premiums earned | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of products and services revenues | ||||||||||||||||
| Net losses and loss adjustment expenses | ||||||||||||||||
| Amortization of deferred policy acquisition costs | ||||||||||||||||
| Selling and administrative expenses | ( | ) | ||||||||||||||
| Total expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ||||||||||||||
| Other income (expense) | ( | ) | ( | ) | ||||||||||||
| Income (loss) from discontinued operations before taxes | ( | ) | ||||||||||||||
| Income tax expense | ( | ) | ( | ) | ||||||||||||
| Net income (loss) from discontinued operations | $ | $ | $ | ( | ) | $ | ||||||||||
Note 5. Equity Holdings and Fair Value Disclosures
The Company held approximately $
| As of March 31, 2025 | ||||||||||||||||||||||||||||||||||||
| Equity Method | ||||||||||||||||||||||||||||||||||||
| Fair Value Method | Cost Method | FG Merchant Partners, LLC | FGAC Investors LLC | FG Merger Investors LLC | Aldel Investors II LLC | Strong Global Entertainment | GreenFirst Forest Products Holdings LLC | Total | ||||||||||||||||||||||||||||
| Holdings in publicly traded companies: | ||||||||||||||||||||||||||||||||||||
| GreenFirst Forest Products common shares | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Saltire common and preferred shares and warrants | ||||||||||||||||||||||||||||||||||||
| iCoreConnect common shares and warrants | ||||||||||||||||||||||||||||||||||||
| Oppfi warrants | ||||||||||||||||||||||||||||||||||||
| Aldel II founder shares and warrants | ||||||||||||||||||||||||||||||||||||
| FG Merger II founder shares | ||||||||||||||||||||||||||||||||||||
| Holdings in privately held companies: | ||||||||||||||||||||||||||||||||||||
| FG Communities common and preferred shares | ||||||||||||||||||||||||||||||||||||
| Firefly preferred shares | ||||||||||||||||||||||||||||||||||||
| Craveworthy common shares and note | ||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| 17 |
| As of December 31, 2024 | ||||||||||||||||||||||||||||||||||||
| Equity Method | ||||||||||||||||||||||||||||||||||||
| Fair Value Method | Cost Method | FG Merchant Partners, LLC | FGAC Investors LLC | FG Merger Investors LLC | Aldel Investors II LLC | Strong Global Entertainment | GreenFirst Forest Products Holdings LLC | Total | ||||||||||||||||||||||||||||
| Holdings in publicly traded companies: | ||||||||||||||||||||||||||||||||||||
| GreenFirst Forest Products common shares | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Saltire common and preferred shares and warrants | ||||||||||||||||||||||||||||||||||||
| iCoreConnect common shares and warrants | ||||||||||||||||||||||||||||||||||||
| Oppfi warrants | ||||||||||||||||||||||||||||||||||||
| Aldel II founder shares and warrants | ||||||||||||||||||||||||||||||||||||
| Holdings in privately held companies: | ||||||||||||||||||||||||||||||||||||
| FG Communities common and preferred shares | ||||||||||||||||||||||||||||||||||||
| Firefly preferred shares | ||||||||||||||||||||||||||||||||||||
| Craveworthy common shares and note | ||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Fair Value Method Holdings
The carrying value of fair value method holdings is determined based on the security’s trading price multiplied by the number of shares held. The following table summarizes the Company’s fair value method holdings as of March 31, 2025 and December 31, 2024 (in thousands):
| As of March 31, 2025 | Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Carrying Amount | ||||||||||||
| GreenFirst common stock | $ | $ | $ | ( | ) | $ | ||||||||||
| FG Merger II founder shares | ||||||||||||||||
| iCoreConnect common shares | ||||||||||||||||
| OppFi common stock and warrants | ||||||||||||||||
| Total fair value method holdings | $ | $ | $ | ( | ) | $ | ||||||||||
| As of December 31, 2024 | Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Carrying Amount | ||||||||||||
| GreenFirst common stock | $ | $ | $ | ( | ) | $ | ||||||||||
| iCoreConnect common shares | ||||||||||||||||
| OppFi common stock and warrants | ||||||||||||||||
| Total fair value method holdings | $ | $ | $ | ( | ) | $ | ||||||||||
GreenFirst Forest Products Inc. (“GreenFirst”)
is a publicly-traded Canadian company focused on environmentally sustainable forest management and lumber production. The Company holds
shares of GreenFirst directly that are accounted for at fair value of $
FG Merger II Corp. (“FG Merger II”) is a blank check company incorporated in September 2023 and completed
its initial public offering in January 2025. FG Merger II was formed for the purpose of merger, share exchange, asset acquisition, stock
purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. The Company
holds shares of FG Merger II directly that are accounted for at fair value of $
iCoreConnect Inc. (“iCoreConnect”)
is a cloud-based software and technology company focused on increasing workflow productivity and customer profitability through its enterprise
platform of applications and services. The Company holds shares of iCoreConnect directly that are accounted for at fair value of $
OppFi Inc. (“OppFi”) is a publicly-traded tech-enabled, mission-driven specialty finance platform that broadens the reach of community banks to extend credit access to everyday Americans. The Company accounts for its common shares and warrants of OppFi using the fair value method based on observable quoted market prices.
Equity Method Holdings
On January 4, 2021, FGMP was formed as a Delaware
limited partnership to co-sponsor newly formed SPACs with their founders or partners, as well as other merchant banking interests. The
Company is the sole managing member of the general partner of FGMP and holds a limited partner interest of approximately
| 18 |
For the three months ended March 31, 2025, the Company
recorded an equity method loss from FGMP of approximately $
The Company holds direct limited liability company interests in FGAC Investors LLC, which holds equity interests in (i) FG Acquisition Corp., (ii) FG Merger Investors LLC, which maintains holdings in iCoreConnect, and (iii) GreenFirst Forest Products Holdings, LLC, which holds equity securities in GreenFirst. Management determined that it has the ability to exercise significant influence over FGAC Investors LLC, FG Merger Investors LLC and GreenFirst Forest Products Holdings, LLC, and accounts for each of these holdings under the equity method of accounting.
For the three months ended March 31, 2025, the Company
recorded an equity method loss on FG Merger Investors LLC of approximately $
As of March 31, 2025, the Company held
approximately
The summarized financial information presented below reflects the aggregated underlying financial information for our holdings accounted for under the equity method (in thousands):
As of March 31, 2025 | ||||
| Cash and cash equivalents | $ | |||
| Other current assets | ||||
| Equity holdings | ||||
| Other long-term assets | ||||
| Total assets | $ | |||
| Current liabilities | $ | |||
| Long-term liabilities | ||||
| Total liabilities | $ | |||
Three Months Ended March 31, 2025 | ||||
| Net equity and other holdings income | $ | |||
| Other revenue | ||||
| Net loss | ( | ) | ||
Certain holdings owned by our equity method investees are valued using Monte-Carlo simulation and option pricing models. Inherent in Monte-Carlo simulation and option pricing models are assumptions related to expected volatility and discount for lack of marketability of the underlying holding. Our investees estimate the volatility of these holdings based on the historical performance of various broad market indices blended with various peer companies which they consider as having similar characteristics to the underlying holding, as well as consideration of price and volatility of relevant publicly traded securities such as SPAC warrants. Our investees also consider the probability of a successful merger when valuing equity for SPACs that have not yet closed. Actual results from those holdings over time could vary significantly from estimates using Monte-Carlo simulation and option pricing models.
| 19 |
Cost Method Holdings without Readily Determinable Fair Value
In addition to our equity method and fair value method holdings, other holdings which do not have a readily determinable fair value are accounted for at their cost, subject to any adjustment from time to time due to impairment or observable price changes in orderly transactions. When the Company observes an orderly transaction of an investee’s identical or similar equity securities, the Company adjusts the carrying value based on the observable price as of the transaction date. Any profit distributions the Company receives on these holdings are included in net holdings income. Management is not aware of any issuances of identical or similar equities during the three months ended March 31, 2025. As a result, the carrying value of holdings without readily determinable fair value did not change during the three months ended March 31, 2025.
The Company’s other holdings include a convertible promissory note and a senior unsecured promissory note.
On September 29, 2023, the Company invested
$
On March 16, 2023, the Company invested $
Impairment
For equity securities without readily determinable fair values, impairment is determined via a qualitative assessment which considers indicators to evaluate whether the holding is impaired. Some of these indicators include a significant deterioration in the earnings performance or asset quality of the investee, a significant adverse change in regulatory, economic or general market conditions in which the investee operates, or doubt over an investee’s ability to continue as a going concern. If the holding is deemed to be impaired after conducting this analysis, management would estimate the fair value of the holding to determine the amount of impairment loss.
For equity method holdings, evidence of a loss in value might include a series of operating losses of an investee, the absence of an ability to recover the carrying amount of the holding, or a deterioration in the value of the investee’s underlying assets. If these, or other indicators, lead to the conclusion that there is a decrease in the value of the holding that is other than temporary, the Company would recognize that decrease in value even though the decrease may be in excess of what would otherwise be recognized under the equity method of accounting.
The risks and uncertainties inherent in the assessment methodology used to determine impairment include, but may not be limited to, the following:
| ● | the opinions of professional appraisers could be incorrect; | |
| ● | the past operating performance and cash flows generated from the investee’s operations may not reflect their future performance; and | |
| ● | the estimated fair values for holdings for which observable market prices are not available are inherently imprecise. |
| 20 |
The Company did not record an impairment on its holdings during the three months ended March 31, 2025.
Net holdings loss for the three months ended March 31, 2025 and 2024 are as follows (in thousands):
Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |||||||
| Realized gain on common stock holdings | $ | $ | ||||||
| Unrealized change in value on common stock holdings | ( | ) | ( | ) | ||||
| Loss on equity method holdings | ( | ) | ( | ) | ||||
| Other | ||||||||
| Net holdings loss | $ | ( | ) | $ | ( | ) | ||
Fair Value Measurements
The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. The FASB has issued guidance that defines fair value as the exchange price that would be received for an asset (or paid to transfer a liability) in the principal or most advantageous market in an orderly transaction between market participants. This guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance categorizes assets and liabilities at fair value into one of three different levels depending on the observation of the inputs employed in the measurements, as follows:
| ● | Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets providing the most reliable measurement of fair value since it is directly observable. | |
| ● | Level 2 – inputs to the valuation methodology which include quoted prices for similar assets or liabilities in active markets. These inputs are observable, either directly or indirectly, for substantially the full-term of the financial instrument. | |
| ● | Level 3 – inputs to the valuation methodology which are unobservable and significant to the measurement of fair value. |
The availability of valuation techniques and observable inputs can vary from holding to holding and are affected by a variety of factors, including the type of holding, whether the holding is new and not yet established in the marketplace, the liquidity of markets and other characteristics specific to the individual holding. In some cases, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the hierarchy based on the lowest level input that is significant to the fair value measurement. When determining fair value, the Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
Financial instruments measured, on a recurring basis, at fair value as of March 31, 2025 and December 31, 2024 in accordance with the guidance promulgated by the FASB are as follows (in thousands):
| As of March 31, 2025 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Oppfi warrants | $ | $ | $ | $ | ||||||||||||
| FG Merger II founder shares | ||||||||||||||||
| iCoreConnect common shares and warrants | ||||||||||||||||
| GreenFirst common stock | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| As of December 31, 2024 | ||||||||||||||||
| Oppfi warrants | $ | $ | $ | $ | ||||||||||||
| iCoreConnect common shares and warrants | ||||||||||||||||
| GreenFirst common stock | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 21 |
The following table provides a rollforward of nonrecurring Level 3 fair value measurements for the three months ended March 31, 2025 (in thousands):
| Assets: | ||||
| Convertible notes | ||||
| Balance, December 31, 2024 | $ | |||
| Increase in fair value of convertible note | ||||
| Repayments | ||||
| Balance, March 31, 2025 | $ |
Note 6. Inventories
Inventories consisted of the following (in thousands):
March 31, 2025 | December 31, 2024 | |||||||
| Raw materials and components | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods, net of reserve | ||||||||
| $ | $ | |||||||
The inventory balances are net of reserves of
approximately $
| Inventory reserve balance at December 31, 2024 | $ | |||
| Inventory write-offs during 2025 | ||||
| Benefit from inventory reserve during 2025 | ( | ) | ||
| Inventory reserve balance at March 31, 2025 | $ |
Note 7. Property, Plant and Equipment
Property, plant and equipment include the following (in thousands):
March 31, 2025 | December 31, 2024 | |||||||
| Land | $ | | $ | | ||||
| Buildings and improvements | ||||||||
| Machinery and other equipment | ||||||||
| Office furniture and fixtures | ||||||||
| Construction in progress | ||||||||
| Total property, plant and equipment, cost | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
| 22 |
Depreciation expense approximated $
Note 8. Income Taxes
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. The Company considers the scheduled reversal of taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment. A cumulative loss in a particular tax jurisdiction in recent years is a significant piece of evidence with respect to the realizability that is difficult to overcome. Based on the available objective evidence, including recent updates to the taxing jurisdictions generating income, the Company concluded that a valuation allowance should be recorded against all of the Company’s U.S. tax jurisdiction deferred tax assets as of March 31, 2025 and December 31, 2024.
The Tax Cuts and Jobs Act provides for
a territorial tax system, which began in 2018, and includes the global intangible low-taxed income (“GILTI”) provision. The
GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return
on the foreign subsidiary’s tangible assets. The GILTI provisions also allow for a high-tax exclusion if the effective tax rate
of the tested income is greater than
The Tax Code requires U.S. shareholders to include its share of its Controlled Foreign Corporation’s (“CFC”) income from dividends, interest, rents, and various other types of income, called Subpart F Income. During the three months ended March 31, 2025, the Company incurred interest income from its foreign CFCs and is utilizing the high-tax exclusion for purposes of the provision for the three months ended March 31, 2025.
Changes in tax laws may affect recorded deferred tax assets and liabilities and our effective tax rate in the future. The Company is subject to possible examinations not yet initiated for Federal purposes for the fiscal years 2020 through 2022. The Company is also subject to possible examinations for state and local purposes. In most cases, these examinations in the state and local jurisdictions remain open based on the particular jurisdiction’s statute of limitations.
On December 15, 2021, our shareholders approved the FG Financial Group, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). The purpose of the 2021 Plan is to attract and retain directors, consultants, officers and other key employees of the Company and its subsidiaries and to provide to such persons incentives and rewards for superior performance. The 2021 Plan is administered by the Compensation and Management Resources Committee of the Board and has a term of ten years. The 2021 Plan awards may be in the form of stock options (which may be incentive stock options or nonqualified stock options), stock appreciation rights (“SARs”), restricted shares, RSUs, and other share-based awards. As of March 31, 2025, there were approximately shares remaining available for future issuance.
In addition, on March 24, 2023,
Total stock-based compensation expense for the quarters ended March 31, 2025 and March 31, 2024 was approximately $ million and $ million, respectively. As of March 31, 2025, total unrecognized stock compensation expense of approximately $ million remained, which will be recognized through December 2028. Stock compensation expense has been reflected in the Company’s financial statements as part of general and administrative expense.
| 23 |
Restricted Stock Units
| Restricted Stock Units | Number of Units | Weighted Average Grant | ||||||
| Non-vested units, December 31, 2024 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Non-vested units, March 31, 2025 | $ | |||||||
Stock Options
| Common Stock Options | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (yrs) | Weighted Average Grant Date Fair Value | Aggregate Intrinsic Value | |||||||||||||||
| Outstanding, December 31, 2024 | $ | $ | $ | |||||||||||||||||
| Granted | – | |||||||||||||||||||
| Exercised | – | |||||||||||||||||||
Expired | ( | ) | – | |||||||||||||||||
| Forfeited | ( | ) | – | |||||||||||||||||
| Outstanding, March 31, 2025 | $ | $ | $ | |||||||||||||||||
| Exercisable, March 31, 2025 | $ | $ | $ | |||||||||||||||||
The table above includes activity for stock options for FGH, FGF and Strong Global Entertainment.
Note 10. Related Party Transactions
Related party transactions are carried out in the normal course of operations and are measured in part by the amount of consideration paid or received, as established and agreed by the parties. Except where disclosed elsewhere in these consolidated financial statements, the following is a summary of related party transactions.
FG Special Situations Fund
The Company participated as a limited partner in the FG Special Situations Fund (the “Fund”). The general partner of the Fund, and the investment advisor of the Fund, was ultimately controlled by Mr. Cerminara, the Chief Executive Officer and Chairman of the Company’s Board. Portions of the Company’s investment into the Fund were used to sponsor the launch of SPACs affiliated with certain of our officers and directors.
The Fund began the process of winding down in the first quarter of 2023 and completed the process in the second quarter of 2023. As a result of the winddown, the Company now holds direct limited liability company interests in FGAC Investors LLC, FG Merger Investors LLC, and GreenFirst Forest Products Holdings, LLC. Mr. Cerminara and Mr. Swets, the head of the Company’s merchant banking business, serve as managers of FGAC Investors LLC and FG Merger Investors LLC, while Mr. Cerminara ultimately controls GreenFirst Forest Products Holdings, LLC.
FG Merchant Partners
FGMP was formed to co-sponsor newly formed SPACs and other merchant banking clients with their founders or partners. Certain of our directors and officers also hold limited partner interests in FGMP. Mr. Swets holds a limited partner interest through Itasca Financial LLC, an advisory and investment firm for which Mr. Swets is managing member. Mr. Cerminara also holds a limited partner interest through Fundamental Global, LLC (“FG LLC”), a holding company for which Mr. Cerminara is the manager and one of the members.
| 24 |
FGMP has invested in the founder shares and warrants of Aldel Financial Inc., FG Merger Corp, FG Acquisition Corp, Aldel Financial II Inc., FGC and Craveworthy. Certain of our directors and officers are affiliated with these entities.
FG Communities
In October 2022, the Company directly invested $
Craveworthy
On March 16, 2023, the Company invested $
Saltire
In the ordinary course of business, STS purchases
certain of the products it sells its customers from Strong/MDI, which is a wholly owned subsidiary of Saltire. The Company’s consolidated
balance sheet as of March 31, 2025 includes a $
Shared Services Agreement
On March 31, 2020, the Company entered into a Shared Services Agreement (the “Shared Services Agreement”) with Fundamental Global Management, LLC (“FGM”), an affiliate of FG LLC, pursuant to which FGM provides the Company with certain services related to the day-to-day management of the Company, including assisting with regulatory compliance, evaluating the Company’s financial and operational performance, providing a management team to supplement the executive officers of the Company, and such other services consistent with those customarily performed by executive officers and employees of a public company. In exchange for these services, the Company pays FGM a fee of $ per quarter (the “Shared Services Fee”), plus reimbursement of expenses incurred by FGM in connection with the performance of the services, subject to certain limitations approved by the Board or Compensation and Management Resources Committee from time to time.
The Shared Services Agreement has an initial term of three years, and thereafter renews automatically for successive one-year terms unless terminated in accordance with its terms. The Shared Services Agreement may be terminated by FGM or by the Company, by a vote of the Company’s independent directors, at the end of the initial or automatic renewal term upon 120 days’ notice, subject to payment by the Company of certain costs incurred by FGM to wind down the provision of services and, in the case of a termination by the Company without cause, payment of a termination fee equal to the Shared Services Fee paid for the two quarters preceding termination. In the third quarter of 2022, the Shared Services Agreement was amended to eliminate termination fees and to increase the termination notice from 120 days to 365 days.
The Company paid $ million to FGM under the Shared Services Agreement for each of the three months ended March 31, 2025 and 2024, respectively. This amount is included in General and administrative expenses on the consolidated statement of operations.
| 25 |
Net earnings per share is computed by dividing net income by the weighted average number of common shares and common share equivalents outstanding during the periods presented. In calculating diluted earnings per share, those potential common shares that are found to be anti-dilutive are excluded from the calculation. The table below provides a summary of the numerators and denominators used in determining basic and diluted earnings per share for the three months ended March 31, 2025 and 2024 (in thousands, except per share amounts).
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Basic and diluted: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Net loss attributable to non-controlling interest | ||||||||
| Dividends declared on Series A Preferred Shares | ( | ) | ( | ) | ||||
| Loss attributable to Fundamental Global common shareholders from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding | ||||||||
| Loss per common share from continuing operations | $ | ) | $ | ) | ||||
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| Options to purchase common stock | ||||||||
| Restricted stock units | ||||||||
Note 12. Debt
The Company’s short-term and long-term debt consist of the following (in thousands):
| March 31, 2025 | December 31, 2024 | |||||||
| Short-term debt: | ||||||||
| 20-year installment loan | $ | $ | ||||||
| Revolving credit facility | ||||||||
| Insurance debt | ||||||||
| Total short-term debt | ||||||||
| Less: deferred debt issuance costs, net | ( | ) | ( | ) | ||||
| Total short-term debt, net of issuance costs | $ | $ | ||||||
| Long-term debt: | ||||||||
| Tenant improvement loan | $ | $ | ||||||
| ICS promissory note | ||||||||
| Total long-term debt, net of issuance costs | $ | $ | ||||||
| 26 |
Installment Loan and Revolving Credit Facility
In January 2023, Strong/MDI and
Canadian Imperial Bank of Commerce (“CIBC”) entered into a demand credit agreement (the “2023 Credit
Agreement”), which amended and restated the prior credit agreement entered into in 2021. The 2023 Credit Agreement consists of a revolving line of
credit for up to CAD$
Tenant Improvement Loan
During the fourth quarter of 2021,
the Company entered into a lease for a combined office and warehouse in Omaha, Nebraska. The Company incurred total costs of
approximately $
ICS Promissory Note
STS issued a $
Insurance Note
The Company maintains certain
commercial insurance policies, including management liability and other policies customarily held by publicly traded companies. The Company
elected to finance a portion of the annual premium, which will be repaid in monthly installments through April 2025. The finance agreement
bears fixed interest of approximately
Contractual Principal Payments
Contractual required principal payments on the Company’s long-term debt at March 31, 2025 are as follows (in thousands):
Tenant Improvement Loan | ICS Promissory Note | Total | ||||||||||
| Remainder of 2025 | $ | $ | $ | |||||||||
| 2026 | ||||||||||||
| 2027 | ||||||||||||
| Total | $ | $ | $ | |||||||||
| 27 |
Note 13. Commitments and Contingencies
Legal Proceedings:
The Company is involved, from time to time, in certain legal disputes in the ordinary course of business. No such disputes, individually or in the aggregate, are expected to have a material effect on the Company’s business or financial condition.
One of the Company’s subsidiaries is named as a defendant in personal injury lawsuits based on alleged exposure to asbestos-containing materials. A majority of the cases involve product liability claims based principally on allegations of past distribution of commercial lighting products containing wiring that may have contained asbestos. Each case names dozens of corporate defendants in addition us. In our experience, a large percentage of these types of claims have never been substantiated and have been dismissed by the courts. The Company has not suffered any adverse verdict in a trial court proceeding related to asbestos claims and intends to continue to defend these lawsuits.
On July 16, 2024, one of the Company’s subsidiaries received notice that it was named as a defendant, along with over 500 other companies, in a civil action filed for cost recovery and contributions related to the release and/or threatened release of hazardous substances from a facility known as the BKK Class 1 Landfill in Los Angeles County California from periods prior to 1987. The action alleges that FG Group LLC is a successor to Pichel Industries, Inc. (“Pichel Industries”) and that Pichel Industries contributed waste to the landfill. Management is in the early stages of evaluating the claim and determining the Company’s response.
One of the Company’s subsidiaries is named as a guarantor of the obligations of an entity that was previously sold. The Company has been notified that the primary obligor did not meet the obligations for which it is liable, and the third party has requested that the obligations be satisfied on behalf of the buyer under the guaranty. Management is evaluating any potential obligation and determining the Company’s response.
As of March 31, 2025, the Company has a loss contingency
reserve of approximately $
Note 14. Leases
The following tables present the Company’s lease costs and other lease information (dollars in thousands):
| Three Months Ended | ||||||||
| Lease cost | March 31, 2025 | March 31, 2024 | ||||||
| Finance lease cost: | ||||||||
| Amortization of right-of-use assets | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Operating lease cost | ||||||||
| Net lease cost | $ | $ | ||||||
| Three Months Ended | ||||||||
| Other information | March 31, 2025 | March 31, 2024 | ||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from finance leases | $ | $ | ||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Financing cash flows from finance leases | $ | $ | ||||||
| 28 |
| As of March 31, 2025 | ||||
| Weighted-average remaining lease term - finance leases (years) | ||||
| Weighted-average remaining lease term - operating leases (years) | ||||
| Weighted-average discount rate - finance leases | % | |||
| Weighted-average discount rate - operating leases | % | |||
The following table presents a maturity analysis of the Company’s operating and finance lease liabilities as of March 31, 2025 (in thousands):
| Operating Leases | Finance Leases | |||||||
| Remainder of 2025 | $ | $ | ||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Total lease payments | ||||||||
| Less: Amount representing interest | ( | ) | ( | ) | ||||
| Lease obligations | $ | $ | ||||||
Note 15. Segment Reporting
The Company has
The following tables present the financial information for each segment that is specifically identifiable or based on allocations using internal methodology for the three months ended March 31, 2025 and 2024 (in thousands).
| Three Months Ended March 31, 2025 | ||||||||||||||||
| Merchant Banking | Managed Services | Other | Total | |||||||||||||
| Net loss on equity holdings and other holdings | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Product sales | ||||||||||||||||
| Services revenue | ||||||||||||||||
| Total revenue | ( | ) | ||||||||||||||
| Direct costs of products and services | ||||||||||||||||
| Indirect employee related expenses | ||||||||||||||||
| Travel, meals and automobile expenses | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Other operating expenses | ||||||||||||||||
| Interest expense, net | ||||||||||||||||
| Segment (loss) income before taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Corporate and other non-segment operating expenses | ||||||||||||||||
| Corporate depreciation and amortization | ||||||||||||||||
| Interest income, net | ( | ) | ||||||||||||||
| Loss from continuing operations before taxes | $ | ( | ) | |||||||||||||
| 29 |
| Three Months Ended March 31, 2024 | ||||||||||||||||
| Merchant Banking | Managed Services | Other | Total | |||||||||||||
| Net loss on equity holdings and other holdings | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Product sales | ||||||||||||||||
| Services revenue | ||||||||||||||||
| Total revenue | ( | ) | ||||||||||||||
| Direct costs of products and services | ||||||||||||||||
| Indirect employee related expenses | ||||||||||||||||
| Travel, meals and automobile expenses | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Other operating expenses | ||||||||||||||||
| Interest expense, net | ||||||||||||||||
| Gain on purchase of ICS, net of acquisition costs | ( | ) | ( | ) | ||||||||||||
| Loss on impairment and disposal of assets | ||||||||||||||||
| Segment (loss) income before taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Corporate and other non-segment operating expenses | ||||||||||||||||
| Corporate depreciation and amortization | ||||||||||||||||
| Gain on merger of FGF and FGH | ( | ) | ||||||||||||||
| Other | ||||||||||||||||
| Loss from continuing operations before taxes | $ | ( | ) | |||||||||||||
The following table presents the Company’s specifically identifiable assets for each of the Company’s segments as of March 31, 2025 and December 31, 2024 (in thousands):
| March 31, 2025 | ||||||||||||||||
| Merchant Banking | Managed Services | Other | Total | |||||||||||||
| Segment assets | $ | $ | $ | $ | ||||||||||||
| December 31, 2024 | ||||||||||||||||
| Merchant Banking | Managed Services | Other | Total | |||||||||||||
| Segment assets | $ | $ | $ | $ | ||||||||||||
The “other” segment assets includes $
The following tables disaggregate the Company’s product sales and services revenue by major source for the three months ended March 31, 2025 and 2024 (in thousands):
| Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||||
| Managed Services | Merchant Banking | Other | Total | Managed Services | Merchant Banking | Other | Total | |||||||||||||||||||||||||
| Screen system sales | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Digital equipment sales | ||||||||||||||||||||||||||||||||
| Extended warranty sales | ||||||||||||||||||||||||||||||||
| Other product sales | ||||||||||||||||||||||||||||||||
| Total product sales | ||||||||||||||||||||||||||||||||
| Field maintenance and monitoring services | ||||||||||||||||||||||||||||||||
| Installation services | ||||||||||||||||||||||||||||||||
| Other service revenues | ||||||||||||||||||||||||||||||||
| Total service revenues | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| 30 |
The following tables disaggregate the Company’s revenue by the timing of transfer of goods or services to the customer for the three months ended March 31, 2025 and 2024 (in thousands):
| Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||||
| Managed Services | Merchant Banking | Other | Total | Managed Services | Merchant Banking | Other | Total | |||||||||||||||||||||||||
| Point in time | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Over time | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
At March 31, 2025, the unearned revenue amount associated
with maintenance and monitoring services and extended warranty sales in which the Company is the primary obligor was $
The following table summarizes the Company’s products and services revenue by geographic area for the three months ended March 31, 2025 and 2024 (in thousands):
| Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |||||||
| United States | $ | $ | ||||||
| Canada | ||||||||
| Europe | ||||||||
| Asia | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
| 31 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our consolidated financial statements and related notes and information included elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report for the year ended December 31, 2024 on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2025, and in subsequent filings with the SEC.
Unless context denotes otherwise, the terms “Company,” “Fundamental Global” “we,” “us,” and “our,” refer to Fundamental Global Inc., and its subsidiaries.
Cautionary Note about Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are therefore entitled to the protection of the safe harbor provisions of these laws. These statements may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “budget,” “can,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “evaluate,” “forecast,” “goal,” “guidance,” “indicate,” “intend,” “likely,” “may,” “might,” “outlook,” “plan,” “possibly,” “potential,” “predict,” “probable,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” “view,” “will,” “would,” “will be,” “will continue,” “will likely result” or the negative thereof or other variations thereon or comparable terminology. In particular, discussions and statements regarding the Company’s future business plans and initiatives are forward-looking in nature. We have based these forward-looking statements on our current expectations, assumptions, estimates, and projections. While we believe these to be reasonable, such forward-looking statements are only predictions and involve a number of risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance, or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements and may impact our ability to implement and execute on our future business plans and initiatives.
Management cautions that the forward-looking statements in this Annual Report on Form 10-K are not guarantees of future performance, and we cannot assume that such statements will be realized or the forward-looking events and circumstances will occur. Factors that might cause such a difference include, without limitation, general conditions in the global economy; risks associated with operating in the merchant banking and managed services industries, including inadequately priced insured risks and credit risk; risks of being unable to close the sale of our reinsurance business in a reasonable time period or at all; risks of not being able to execute on our asset management strategy and potential loss of value of our holdings; risk of becoming an investment company; fluctuations in our short-term results as we implement our business strategies; risks of not being able to attract and retain qualified management and personnel to implement and execute on our business and growth strategy; failure of our information technology systems, data breaches and cyber-attacks; our ability to establish and maintain an effective system of internal controls; the requirements of being a public company and losing our status as a smaller reporting company or becoming an accelerated filer; any potential conflicts of interest between us and our controlling stockholders and different interests of controlling stockholders; and potential conflicts of interest between us and our directors and executive officers.
Our expectations and future plans and initiatives may not be realized. If one of these risks or uncertainties materializes, or if our underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. You are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements are made only as of the date hereof and do not necessarily reflect our outlook at any other point in time. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect new information, future events or developments.
Overview
Fundamental Global Inc. (“FG”, “FGF”, the “Company”, “we”, or “us”) is a holding company incorporated in the state of Nevada. On December 9, 2022, FG completed its reincorporation from a Delaware corporation to a Nevada corporation. Our Common Stock and Series A Preferred are currently listed on Nasdaq Stock Market LLC (the “Nasdaq”) under the symbols “FGF” and “FGFPP,” respectively.
| 32 |
On February 29, 2024, FGF and FG Group Holdings, Inc. (“FGH”) closed a plan of merger to combine the companies in an all-stock transaction (the “Merger”). In connection with the Merger, FGH common stockholders received one share of FGF common stock for each share of common stock of FGH held by such stockholder. Upon completion of the Merger, the combined company was renamed to Fundamental Global Inc., and the common stock and Series A cumulative preferred stock of the combined company continued to trade on the Nasdaq under the tickers “FGF” and “FGFPP,” respectively.
On May 3, 2024, Strong Global Entertainment, Inc. (“Strong Global Entertainment” or “SGE”) entered into an acquisition agreement (the “Acquisition Agreement”) with FG Acquisition Corp. (“FGAC”), a special purpose acquisition company (“SPAC”), Strong/MDI Screen Systems, Inc. (“Strong/MDI”), FGAC Investors LLC, and CG Investments VII Inc. The transaction closed on September 25, 2024. As part of the closing, FGAC was renamed Saltire Holdings, Ltd (“Saltire”), and Saltire acquired all of the outstanding shares of one of the Company’s indirect wholly-owned subsidiaries, Strong/MDI. As a result of the acquisition, Strong/MDI became a wholly-owned subsidiary of Saltire.
On May 30, 2024, the Company and Strong Global Entertainment, an operating company in which we held approximately 76% of the Class A common shares, entered into a definitive arrangement agreement and plan of arrangement to combine the companies in an all-stock transaction (the “Arrangement”). Upon completion of the Arrangement, the stockholders of Strong Global Entertainment received 1.5 common shares of the Company for each share of Strong Global Entertainment. The transaction closed on September 30, 2024. Following the closing, Strong Global Entertainment ceased to exist, and its common shares were delisted from NYSE American LLC (“NYSE American”) and deregistered under the Securities Exchange Act of 1934 (the “Exchange Act”). As the Company was the majority shareholder of Strong Global Entertainment, the financial results of Strong Global Entertainment are presented on a consolidated basis in the Company’s condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (this “Form 10-Q”).
As a result of the reverse merger of FGF and FGH, the consolidated financial statements for the periods prior to the merger represent the results of FGH, as the accounting acquirer. For periods subsequent to the merger, the consolidated financial statements represent the combined results of FGH and FGF. As a result, the three months ended March 31, 2024 presents three months of activity related to the FGH operations and one month of activity related to the FGF operations. Accordingly, the results of the current period and the prior period may not be directly comparable. In addition, Strong Studios, Strong/MDI and our reinsurance business are presented as discontinued operations in the accompanying consolidated financial statements.
We sold Strong Studios and Strong/MDI during 2024 and intend to sell our reinsurance operations in 2025. The results of those business units are presented as Discontinued Operations in the accompanying consolidated financial statements. Management’s discussion and analysis of financial condition and results of operations that follows reflects the continuing operations of the Company.
Results of Operations
As a result of the reverse merger of FGF and FGH, the condensed consolidated financial statements for the periods prior to the merger represent the results of FGH, as the accounting acquirer. For periods subsequent to the merger, the condensed consolidated financial statements represent the combined results of FGH and FGF. In addition, Strong Studios, Inc., the reinsurance business, and Strong/MDI are presented as discounted operations in the accompanying condensed consolidated financial statements.
We are closely monitoring U.S. trade policy developments with countries from which we and our customers source product and equipment. There is uncertainty as to the extent and duration of additional tariffs that have or may be imposed on imports from these countries. Additionally, certain of our U.S.-based suppliers source some of their components from these countries, which could result in higher procurement costs from U.S.-based suppliers. Our results of operations in future periods may be adversely impacted if we were unable to navigate the foreign regulatory environment.
Because of the reverse merger transaction, the first quarter of 2024 includes one month of revenue, expenses and cash flows from FGF whereas the first quarter of 2025 reflects three full months of consolidated operating activities. Accordingly, comparisons between periods may not be comparable.
| 33 |
Management’s discussion and analysis of financial condition and results of operations that follows reflects the continuing operations of the Company.
| Three Months Ended March 31, | ||||||||||||||||
| 2025 | 2024 | $ Change | % Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Net loss on equity securities and other holdings | $ | (6,419 | ) | $ | (3,399 | ) | $ | (3,020 | ) | 88.8 | % | |||||
| Revenue from products and services | 6,811 | 7,879 | (1,068 | ) | (13.6 | )% | ||||||||||
| Total revenue | 392 | 4,480 | (4,088 | ) | (91.3 | )% | ||||||||||
| Expenses | 9,242 | 11,291 | (2,049 | ) | (18.1 | )% | ||||||||||
| Loss from operations | (8,850 | ) | (6,811 | ) | (2,039 | ) | 29.9 | % | ||||||||
| Bargain purchase on acquisition and other expense, net | (15 | ) | 1,718 | (1,733 | ) | (100.9 | )% | |||||||||
| Net loss from continuing operations | (8,797 | ) | (5,076 | ) | (3,721 | ) | 73.3 | % | ||||||||
Three Months Ended March 31, 2025 Compared with Three Months Ended March 31, 2024
Revenue
Total revenue during the three months ended March 31, 2025 decreased $4.1 million from the prior year as a result of a decrease in product sale revenues in our managed services business combined with higher non-cash equity method adjustments the current quarter.
Revenue from products and services, which primarily includes our managed services segment, decreased $1.1 million or 13.6% to $6.8 million during the three months ended March 31, 2025 from $7.9 million during the three months ended March 31, 2024. The decrease in revenue during the first quarter of 2025 was primarily related to lower product sales as we saw cinema customers delay projects partly due to a softer first quarter release schedule and box office, combined with a reaction to the overall macroeconomic uncertainties in early 2025. We saw order volumes and revenues trend upward as the quarter progressed and expect those trends to continue looking to the remainder of the year, however, we are monitoring the economic environment and customer order trends closely as the year progresses.
Losses on our equity holdings were higher during the first quarter of 2025 as compared to the prior year primarily as a result of declines in the market value of the common stock of Saltire and GreenFirst Forest Products. Our results of equity holdings are impacted by many factors including market volatility, which can be amplified in any given short term measurement period. The market value of Saltire, for example, recovered significantly following the quarterly reporting period.
Expenses
Total expenses decreased $2.1 million or 18.2% to $9.2 million for the three months ended March 31, 2025 from $11.3 million for the three months ended March 31, 2024. Expenses are comprised of cost of sales related to managed services, costs of the asset management business and selling, general and administrative expenses.
The decrease in total expenses during the first quarter of 2025 compared to the prior year is comprised of a $0.8 million reduction in costs of products sold as a result of lower revenue in the current year and a $1.5 million non-cash impairment related to the sale of the Digital Ignition building recognized in the prior year.
The increase in total expenses was primarily due to the addition of the FGF business operations as a result of the Merger in February 2024, which are not reflected in the prior year results and which added approximately $3.0 million in general and administrative expenses during 2025.
If FGF and FGH were presented on a combined basis for the first quarter of 2025 and 2024, total general and administrative expenses would have been $5.3 million in 2024 as compared with $3.3 million in 2025, decreasing due to the merger and cost reduction initiatives.
While significant cost reductions have been achieved as a result of the mergers and restructuring activities, management believes that general and administrative costs continue to be too high for the current scale of the company, particularly the compliance, legal, tax, audit and other costs of operating as a small public company. We are evaluating additional actions to further simplify our organization, reduce our general and administrative burden, and increase long term value creation.
Loss from Operations
Loss from operations increased $2.0 million or 29.9% to $8.8 million for the three months ended March 31, 2025 from $6.8 million during the three months ended March 31, 2024. The increase in the loss from operations was primarily due to lower gross profit from STS and higher non-cash losses on equity holdings, partially offset by the $1.5 million non-cash impairment related to the sale of the Digital Ignition building recognized in the prior year.
| 34 |
Net Loss from Continuing Operations
Net loss from continuing operations increased $3.8 million to $8.9 million for the three months ended March 31, 2025 from $5.1 million during the three months ended March 31, 2024. The increase in net loss from continuing operations was due to the increase in loss from operations in the first quarter of 2025 as well as a $1.8 million gain related to the FGF merger transaction that closed in the first quarter of 2024. Excluding the prior year gain, net loss from continuing operations increased $1.9 million with three months of FGF expenses in the current period as compared with one month in the prior year period due to timing of the reverse merger.
Critical Accounting Estimates
Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Actual results may differ materially from these estimates. Set forth below is qualitative and quantitative information necessary to understand the estimation uncertainty and the impact the critical accounting estimate has had or is reasonably likely to have on financial condition or results of operations, to the extent the information is material and reasonably available.
Other Holdings
Other holdings consist, in part, of equity holdings made in privately held companies accounted for under the equity method. As discussed further in Note 5 to the accompanying condensed consolidated financial statements, certain holdings held by our equity method investees are valued using Monte-Carlo simulation and option pricing models. Inherent in Monte-Carlo simulation and option pricing models are assumptions related to expected volatility and discount for lack of marketability of the underlying holding. Our investees estimate the volatility of these holdings based on the historical performance of various broad market indices blended with various peer companies which they consider as having similar characteristics to the underlying holding, as well as consideration of price and volatility of relevant publicly traded securities such as SPAC warrants. Our investees also consider the probability of a successful merger when valuing equity for SPACs that have not yet completed a business combination.
Current Expected Credit Loss
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Management determines the allowance for expected credit losses based on several factors, including overall customer credit quality, historical write-off experience and a specific analysis that projects the ultimate collectability of the account. As such, these factors may change over time causing the allowance level and provision for expected credit losses to be adjusted accordingly. Past due accounts are written off when our efforts have been unsuccessful in collecting amounts due.
Valuation of Net Deferred Income Taxes
The provision for income taxes is calculated based on the expected tax treatment of transactions recorded in the Company’s consolidated financial statements. In determining its provision for income taxes, the Company interprets tax legislation in a variety of jurisdictions and makes assumptions about the expected timing of the reversal of deferred income tax assets and liabilities and the valuation of net deferred income taxes.
The ultimate realization of the deferred income tax asset balance is dependent upon the generation of future taxable income during the periods in which the Company’s temporary differences reverse and become deductible. A valuation allowance is established when it is more likely than not that all or a portion of the deferred income tax asset balance will not be realized. In determining whether a valuation allowance is needed, management considers all available positive and negative evidence affecting specific deferred income tax asset balances, including the Company’s past and anticipated future performance, the reversal of deferred income tax liabilities, and the availability of tax planning strategies. To the extent a valuation allowance is established in a period, an expense must be recorded within the income tax provision in the consolidated statements of income and comprehensive income.
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Revenue Recognition for Products and Services
The Company accounts for revenue using the following steps:
| ● | Identify the contract, or contracts, with a customer; | |
| ● | Identify the performance obligations in the contract; | |
| ● | Determine the transaction price; | |
| ● | Allocate the transaction price to the identified performance obligations; and | |
| ● | Recognize revenue when, or as, the Company satisfies the performance obligations. |
We combine contracts with the same customer into a single contract for accounting purposes when the contracts are entered into at or near the same time and the contracts are negotiated as a single commercial package, consideration in one contract depends on the other contract, or the services are considered a single performance obligation. If an arrangement involves multiple performance obligations, the items are analyzed to determine the separate units of accounting, whether the items have value on a standalone basis and whether there is objective and reliable evidence of their standalone selling price. The total contract transaction price is allocated to the identified performance obligations based upon the relative standalone selling prices of the performance obligations. The standalone selling price is based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost plus margin approach. We estimate the amount of total contract consideration we expect to receive for variable arrangements by determining the most likely amount we expect to earn from the arrangement based on the expected quantities of services we expect to provide and the contractual pricing based on those quantities. We only include some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is subsequently resolved. We consider the sensitivity of the estimate, our relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement.
As discussed in more detail below, revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. We typically do not have any material extended payment terms, as payment is due at or shortly after the time of the sale. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.
We recognize contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced to the clients. Unbilled receivables are recorded as accounts receivable when we have an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when we invoice clients, or receive cash, in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when we have satisfied the related performance obligation.
We defer costs to acquire contracts, including commissions, incentives and payroll taxes, if they are incremental and recoverable costs of obtaining a customer contract with a term exceeding one year. Deferred contract costs are reported within other assets and amortized to selling expense over the contract term, which generally ranges from one to five years. The Company has elected to recognize the incremental costs of obtaining a contract with a term of less than one year as a selling expense when incurred. We did not have any deferred contract costs as of March 31, 2025 or December 31, 2024.
Stock-Based Compensation Expense
The Company uses the fair-value method of accounting for stock-based compensation awards granted. The Company has determined the fair value of its outstanding stock options on their grant date using the Black-Scholes option pricing model along with multiple Monte Carlo simulations to determine a derived service period as the options vest based upon meeting certain performance conditions. The Company determines the fair value of restricted stock units (“RSUs”) on their grant date using the fair value of the Company’s common stock on the date the RSUs were issued (for those RSUs which vest solely based upon the passage of time). The fair value of these awards is recorded as compensation expense over the requisite service period, which is generally the expected period over which the awards will vest, with a corresponding increase to additional paid-in capital. When the stock options are exercised, or correspondingly, when the RSUs vest, the amount of proceeds together with the amount recorded in additional paid-in capital is recorded in shareholders’ equity.
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Recent Accounting Pronouncements
See Note 2, Significant Accounting Policies, to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of recently issued accounting pronouncements.
Liquidity and Capital Resources
The purpose of liquidity management is to ensure that there is sufficient cash to meet all financial commitments and obligations as they fall due. The liquidity requirements of the Company and its subsidiaries have been met primarily by funds generated from operations, proceeds from the sales of our equity holdings and credit facilities.
Cash Flows
The following table summarizes the Company’s consolidated cash flows for the three months ended March 31, 2025 and 2024 (in thousands).
Three Months Ended March 31, | ||||||||
| Summary of Cash Flows | 2025 | 2024 | ||||||
| Cash and cash equivalents – beginning of period | $ | 7,794 | $ | 6,644 | ||||
| Net cash used in operating activities from continuing operations | (2,159 | ) | (1,211 | ) | ||||
| Net cash provided by investing activities from continuing operations | 1,519 | 2,239 | ||||||
| Net cash used in financing activities from continuing operations | (720 | ) | (708 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | (1 | ) | - | |||||
| Net (decrease) increase in cash and cash equivalents from continuing operations | (1,361 | ) | 320 | |||||
| Net (decrease) increase in cash and cash equivalents from discontinued operations | (764 | ) | 245 | |||||
| Cash and cash equivalents – end of period | $ | 5,669 | $ | 7,209 | ||||
For the three months ended March 31, 2025, net cash used in operating activities from continuing operations was approximately $2.2 million, compared to $1.2 million for the three months ended March 31, 2024. Cash from operations decreased primarily due to lower operating earnings in our managed services division and increased working capital.
For the three months ended March 31, 2025, net cash provided by investing activities from continuing operations was approximately $1.5 million, compared to $2.2 million for the three months ended March 31, 2024. Cash provided by investing activities during the three months ended March 31, 2025 primarily included $1.5 million of a net inflow from the sale of equity holdings. Cash provided by investing activities during the three months ended March 31, 2024 included $1.9 million of an increase in cash as a result of the Merger of FGF and FGH and $0.4 million of proceeds from the sale of equity holdings.
For each of the three months ended March 31, 2025 and March 31, 2024, net cash used in financing activities from continuing operations was approximately $0.7 million. Cash used in financing activities during each of the three months ended March 31, 2025 and March 31, 2024 included $0.3 million of principal payments on debt and finance leases and $0.4 million of payments of dividends on our Series A Preferred Shares.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management performed an evaluation under the supervision and with the participation of the Company’s principal executive officer and principal financial officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March 31, 2025. Based upon this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2025, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved, from time to time, in certain legal disputes in the ordinary course of business. No such disputes, individually or in the aggregate, are expected to have a material effect on our business or financial condition.
There have been no material changes to the risk factors previously disclosed in Part I, Item 3. “Legal Proceedings” to our annual report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 31, 2025.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed in Part I, Item 1A. “Risk Factors” to our annual report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 31, 2025.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith. |
| † | Certain information in this exhibit has been redacted pursuant to Item 601(a)(6) of Regulation S-K. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FUNDAMENTAL GLOBAL INC. | ||
| Date: May 14, 2025 | By: | /s/ D. Kyle Cerminara |
| D. Kyle Cerminara, Chief Executive Officer | ||
| (principal executive officer) | ||
| Date: May 14, 2025 | By: | /s/ Mark D. Roberson |
| Mark D. Roberson, Chief Financial Officer | ||
| (principal financial officer) | ||
| Date: May 14, 2025 | By: | /s/ Todd R. Major |
| Todd R. Major, Chief Accounting Officer | ||
| (principal accounting officer) | ||
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