FG Financial (FGF) - 2024 Q4 - Annual Report

Part I Business Overview Fundamental Global Inc. is a holding company with merchant banking and managed services segments, undergoing significant mergers and divestitures in 2024 - The company operates as a holding company with two main business segments: merchant banking and managed services[19][20] - On February 29, 2024, the company merged with FG Group Holdings, Inc. (FGH) in an all-stock transaction and was renamed Fundamental Global Inc.[15] - The company combined with Strong Global Entertainment in an all-stock transaction that closed on September 30, 2024, consolidating its financials as a majority shareholder[17] - The company sold its indirect wholly-owned subsidiary, Strong/MDI, to Saltire Holdings, Ltd (formerly FGAC) in a transaction that closed on September 25, 2024[16] - The company's reinsurance business is classified as assets held for sale as of December 31, 2024, with an expected sale in the first half of 2025, while Strong Studios and Strong/MDI were sold in 2024 and treated as discontinued operations[25][26] - As of December 31, 2024, the company employed 130 full-time persons, with 67 in service-related roles, 31 in operations, and 32 in sales and administration[28] Risk Factors The company faces significant risks from M&A integration, capital allocation in SPACs, equity valuation, customer concentration, and regulatory compliance - The company faces risks in integrating multiple mergers (FGF, FGH, Strong Global Entertainment), which could be costly, time-consuming, and disrupt operations[32][33] - The capital allocation strategy, including investments in SPACs and their sponsors, involves a high degree of risk, with the potential for a total loss of investment if a SPAC fails to complete a business combination[36][41][42] - Equity holdings comprise a significant portion of assets ($60.1 million as of Dec 31, 2024), and their valuation is subjective, with changes potentially affecting earnings and earnings volatility[48][49] - The company is substantially dependent on its top ten customers, who accounted for 41% of consolidated products and services revenues in 2024, with one customer representing over 10% of both revenue and receivables[64] - The company is subject to the risk of being classified as an investment company under the Investment Company Act of 1940, which would subject it to extensive and restrictive regulations[79][80] - FG Financial Holdings, LLC and its affiliates control approximately 26.0% of the company's common stock, giving them substantial influence, and the CEO also serves as CEO of FG Holdings, creating potential conflicts of interest[93][94] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[104] Cybersecurity The company integrates cybersecurity risk management into its overall risk program, with Audit Committee oversight, and has not experienced material incidents - Cybersecurity risk management is integrated into the company's overall risk program, with oversight from the Audit Committee, senior management, and the IT team[105][109] - The company has not experienced any material cybersecurity incidents to date[109] Properties The company leases its executive offices and warehouse facilities, with plans to transition from some locations in 2025 - The company leases its executive offices and warehouse facilities[110][111] - The company plans to move from its leased executive office in Mooresville and the STS warehouse in Kansas during 2025[112] Legal Proceedings The company is involved in asbestos-related lawsuits, a landfill cost recovery action, and a defaulted guarantee, with a $0.3 million loss contingency reserve - A subsidiary is a defendant in personal injury lawsuits alleging exposure to asbestos-containing materials in past products[114] - The company is a defendant in a civil action for cost recovery related to hazardous substance release from the BKK Class 1 Landfill for periods prior to 1987[114] - A loss contingency reserve of approximately $0.3 million was recorded as of December 31, 2024, for various open proceedings and claims[116] Mine Safety Disclosures This item is not applicable to the company - Not applicable[117] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common and preferred stock trade on Nasdaq, with no common stock dividends planned but regular preferred stock dividends intended - Common stock (FGF) and Series A Preferred Stock (FGFPP) trade on the Nasdaq Global Market[118] - The company has never paid cash dividends on common stock and does not anticipate doing so, preferring to retain earnings for growth[119] - The company intends to declare and pay regular quarterly dividends on its 8.00% Cumulative Preferred Stock, Series A, equivalent to $2.00 per annum per share[120] Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial performance, highlighting the significant impact of recent mergers and divestitures Results of Operations For FY2024, total revenue remained flat, but net loss from continuing operations widened significantly due to higher expenses and impairment charges Comparison of Results of Operations (in thousands) | | Year Ended December 31, 2024 | Year Ended December 31, 2023 | $ Change | % Change | |:---|---:|---:|---:|---:| | Net loss on equity securities and other holdings | $ (14,675) | $ (9,437) | $ (5,238) | 55.5% | | Revenue from products and services | 32,023 | 26,530 | 5,493 | 20.7% | | Total revenue | 17,348 | 17,093 | 255 | 1.5% | | Total expenses | 42,224 | 33,379 | 8,845 | 26.5% | | Loss from operations | (24,876) | (16,286) | (8,590) | 52.7% | | Net loss from continuing operations | (22,859) | (12,307) | (10,552) | 85.7% | - Revenue from products and services increased by $5.5 million (20.7%) to $32.0 million in 2024, driven by growing demand in the managed services business and contributions from the ICS acquisition[147] - Total expenses rose by $8.8 million (26.5%), primarily due to the inclusion of FGF's business operations post-merger (adding ~$3.0 million in G&A), increased costs from operating Strong Entertainment as a public company, and a $1.4 million non-cash impairment on the Digital Ignition building[150] Liquidity and Capital Resources The company's liquidity shifted to negative operating cash flow in 2024, offset by significant cash from investing activities, and believes it has sufficient liquidity for the next twelve months Consolidated Cash Flows Summary (in thousands) | | Year Ended December 31, 2024 | Year Ended December 31, 2023 | |:---|---:|---:| | Net cash (used in) provided by operating activities | $ (4,049) | $ 1,579 | | Net cash provided by investing activities | 13,242 | 92 | | Net cash (used in) provided by financing activities | (7,383) | 1,240 | | Net increase in cash and cash equivalents | 1,799 | 2,932 | - Cash from operations decreased primarily due to higher overhead expenses from the FGF/FGH merger and operating Strong Entertainment as a separate public company for nine months[156] - Investing activities were a significant source of cash in 2024, providing $13.2 million from proceeds from the sale of equity securities ($5.0 million), sale of the Digital Ignition building ($6.1 million), and cash acquired in the FGF/FGH Merger ($1.9 million)[157] - Financing activities used $7.4 million in 2024, including $6.0 million for principal payments on debt and finance leases and $1.4 million for dividends on Series A Preferred Shares[158] Quantitative and Qualitative Disclosure About Market Risk This item is not applicable to the company - Not applicable[159] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements and the independent auditor's report, detailing significant corporate transactions and accounting policies Report of Independent Registered Public Accounting Firm HASKELL & WHITE LLP issued an unqualified opinion on the financial statements, emphasizing significant corporate transactions and identifying critical audit matters - The auditor issued an unqualified opinion on the consolidated financial statements[164] - The report highlights several significant transactions as "Emphasis-of-Matters," including the FGF/FGH reverse merger, the SGE merger, discontinued operations, and the reverse stock split[165][166][167][168] - Critical Audit Matters identified were the Valuation of Equity Holdings and the Valuation of Reinsurance Loss and Loss Adjustment Expense Reserves, due to the significant judgment and subjectivity involved[173][174][176] Consolidated Financial Statements The consolidated financial statements show a significant increase in total assets and shareholders' equity in 2024, with a reduced net loss driven by discontinued operations Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2024 | Dec 31, 2023 | |:---|---:|---:| | Total Assets | $109,469 | $62,143 | | Total Liabilities | $35,272 | $25,136 | | Total Stockholders' Equity | $74,197 | $37,007 | Consolidated Statement of Operations Highlights (in thousands) | | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | |:---|---:|---:| | Total Revenue | $17,348 | $17,093 | | Net loss from continuing operations | $(22,859) | $(12,307) | | Net income (loss) from discontinued operations | $21,544 | $(2,334) | | Net loss | $(1,315) | $(14,641) | Notes to the Consolidated Financial Statements The notes detail accounting for the FGH reverse merger, discontinued operations, equity holdings, related party transactions, and segment performance - The merger with FGH was accounted for as a reverse acquisition, with FGH as the accounting acquirer, resulting in a bargain purchase gain of $2.3 million[263][264] - The sale of Strong/MDI resulted in a net gain of approximately $21.8 million, which is presented in discontinued operations[270] - The company plans to sell its reinsurance business in 2025 and has recorded a $2.1 million impairment charge to adjust the disposal group to its fair value less cost to sell[273][274] - As of December 31, 2024, the company held $60.1 million in equity and other holdings, accounted for via fair value, equity, and cost methods[286] - The company has a Shared Services Agreement with Fundamental Global Management, LLC (FGM), an affiliate of the CEO, for which it paid $1.8 million in both 2024 and 2023[348][350] Segment Performance for Year Ended Dec 31, 2024 (in thousands) | Segment | Total Revenue | Segment (Loss) Income Before Taxes | |:---|---:|---:| | Merchant Banking | $ (14,600) | $ (15,788) | | Managed Services | 31,574 | 1,371 | | Other | 374 | (2,085) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[381] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2024 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2024[382] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2024, based on the COSO 2013 framework[383] - There were no changes in internal control over financial reporting during the year that materially affected, or are reasonably likely to materially affect, internal controls[385] Other Information The company reports no other information - None[386] Part III Directors, Executive Officers, and Corporate Governance Information for this item is incorporated by reference from the company's 2025 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the 2025 Proxy Statement[391] Executive Compensation Information for this item is incorporated by reference from the company's 2025 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the 2025 Proxy Statement[392] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details securities authorized for issuance under equity compensation plans and incorporates security ownership information by reference Equity Compensation Plan Information as of December 31, 2024 | Plan Category | Number of securities to be issued upon exercise (a) | Weighted average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance (c) | |:---|---:|---:|---:| | Equity compensation plans approved by security holders | 58,121 | $ - | 104,168 | | Equity compensation plans not approved by security holders | - | $ - | - | | Total | 58,121 | $ - | 104,168 | - Information regarding security ownership of beneficial owners and management is incorporated by reference from the 2025 Proxy Statement[394] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's 2025 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the 2025 Proxy Statement[395] Principal Accountant Fees and Services Information for this item is incorporated by reference from the company's 2025 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the 2025 Proxy Statement[396] Part IV Exhibits and Financial Statement Schedules This section lists the documents filed as part of the Form 10-K, including consolidated financial statements and a comprehensive list of exhibits - This item lists the financial statements, financial statement schedules, and exhibits filed with the Form 10-K[398][400] Form 10-K Summary The company reports no Form 10-K summary - None[401]