Fundamental Global Inc

Previous wording

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 and in our Annual Report for the year ended December 31, 2023 on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 14, 2023.

Current wording

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, 2023 on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 14, 2024, and in subsequent filings with the SEC.

Previous wording

Unless context denotes otherwise, the terms “Company,” “Fundamental Global” “we,” “us,” and “our,” refer to FG Fundamental Global Inc., and its subsidiaries.

Current wording

Unless context denotes otherwise, the terms “Company,” “Fundamental Global” “we,” “us,” and “our,” refer to Fundamental Global Inc., and its subsidiaries.

Previous wording

Management cautions that the forward-looking statements in this Quarterly Report on Form 10-Q 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; our lack of operating history or established reputation in the reinsurance industry; our inability to obtain or maintain the necessary approvals to operate reinsurance subsidiaries; risks associated with operating in the reinsurance industry, including inadequately priced insured risks, credit risk associated with brokers we may do business with, and inadequate retrocessional coverage; our inability to execute on our investment and investment management strategy, including our strategy to invest in the risk capital of special purpose acquisition companies (SPACs); potential loss of value of investments; risk of becoming an investment company; fluctuations in our short-term results as we implement our new business strategy; risks of being unable 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; our limited operating history as a public company; 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; potential conflicts of interest between us and our directors and executive officers; risks associated with our related party transactions and investments; and risks associated with our investments in SPAC, including the failure of any such SPAC to complete its initial business combination. 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.

Current wording

Management cautions that the forward-looking statements in this Quarterly Report on Form 10-Q 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: failure to realize cost savings, efficiencies and other expected benefits from recent acquisition and sale transactions and the anticipated Arrangement; general conditions in the global economy; our lack of operating history or established reputation in the reinsurance industry; our inability to obtain or maintain the necessary approvals to operate reinsurance subsidiaries; risks associated with operating in the reinsurance industry, including inadequately priced insured risks, credit risk associated with brokers we may do business with, and inadequate retrocessional coverage; our inability to execute on our investment and investment management strategy, including our strategy to invest in the risk capital of special purpose acquisition companies (SPACs); potential loss of value of investments; risk of becoming an investment company; fluctuations in our short-term results as we implement our new business strategy; risks of being unable 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; our limited operating history as a public company; 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; potential conflicts of interest between us and our directors and executive officers; risks associated with our related party transactions and investments; and risks associated with our investments in SPAC, including the failure of any such SPAC to complete its initial business combination. 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.

Previous wording

On January 3, 2024, FGF and FG Group Holdings, Inc. (“FGH”), signed a definitive plan of merger to combine the companies in an all-stock transaction (the “Merger”). Under the plan of the merger, FGH common stockholders would receive 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 and the common stock and Series A cumulative preferred stock of the combined company would continue to trade on the Nasdaq under the tickers “FGF” and “FGFPP,” respectively. On February 29, 2024, FGF and FGH completed the merger transaction.

Current wording

On February 29, 2024, FGF and FG Group Holdings, Inc. (“FGH”), closed the 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 and the common stock and Series A cumulative preferred stock of the combined company continue to trade on the Nasdaq under the tickers “FGF” and “FGFPP,” respectively.

Previous wording

As of March 31, 2024, Fundamental Global GP, LLC (“FG”) and its affiliated entities collectively beneficially owned approximately 28.3% of our common stock. D. Kyle Cerminara, our Chief Executive Officer and the Chairman of our Board of Directors, serves as Chief Executive Officer, Co-Founder and Partner of FG.

Current wording

As of June 30, 2024, Fundamental Global GP, LLC (“FG”) and its affiliated entities collectively beneficially owned approximately 28.2% of our common stock. D. Kyle Cerminara, our Chief Executive Officer and the Chairman of our Board of Directors, serves as Chief Executive Officer, Co-Founder and Partner of FG.

Previous wording

Three Ended March 31, 2024 Compared with Three Months Ended March 31, 2023

Current wording

Three Months Ended June 30, 2024 Compared with Three Months Ended June 30, 2023

Previous wording

The primary driver of revenue growth was a $1.1 million increase in revenue from Strong Entertainment combined with improved investment performance as compared with the prior year period. The growth in revenue from Strong Entertainment was due to increased demand from cinema operators for screen products and installation services. Investment income was favorable as the Company’s equity method losses were lower in the current year period. The three months ended March 31, 2024 also includes reinsurance premiums and investment income for one month following the merger transaction which was effective February 29, 2024. The second quarter of 2024 will be the first reporting period that will reflect a full quarter of reinsurance and investment operating results from the acquired FG Financial business lines.

Current wording

The primary driver of revenue growth was the addition of $3.7 million of reinsurance premium revenue resulting from the Merger in February 2024 and a $1.3 million increase in revenue from Strong Entertainment, partially offset by a slight increase in investment losses compared with the prior year period. The growth in revenue from Strong Entertainment was due to the acquisition of the net assets of Innovative Cinema Solutions, LLC (“ICS”) in late 2023 and increased demand from cinema operators for installation services. Net investment income was unfavorable as the Company’s equity method losses were higher in the current year period. The second quarter of 2024 was the first reporting period that reflects a full quarter of reinsurance and investment operating results from the acquired FG Financial business lines.

Previous wording

Total expenses increased $3.9 million or 36.3% to $14.6 million for the three months ended March 31, 2024 from $10.7 million for the three months ended March 31, 2023. Expenses are comprised of cost of sales related to the Strong Entertainment operating business, costs of the reinsurance and asset management business and selling, general and administrative expenses. The increase in total expenses was due to $0.7 million increase in cost of cinema product and service revenues accompanying the revenue growth in the entertainment business; a $1.1 million increase in selling, general and administrative expenses due to the combination of growth in the entertainment business, the additional costs of operating Strong Entertainment as a public company, and the additional SG&A from the FGF Financial business following the February 2024 merger which added $1.1 million in reinsurance expenses and general and expense in the period following the February 2024 merger; and a $1.4 million non-cash impairment related to the sale of the Digital Ignition building. As an objective of merging FGH and FGF, management expects general and administrative costs to decline following the merger transition.

Current wording

Total expenses increased $4.4 million or 46.0% to $13.9 million for the three months ended June 30, 2024 from $9.5 million for the three months ended June 30, 2023. Expenses are comprised of cost of sales related to the Strong Entertainment operating business, costs of the reinsurance and asset management business and selling, general and administrative expenses.

Previous wording

Net loss from continuing operations increased $0.5 million or 12.0% to $4.3 million for the three months ended March 31, 2024 from $3.8 million during the first quarter of 2023. Improvements in operating results from Strong Entertainment and improved investment results were offset by increased overhead costs related to operating Strong Entertainment as a separate public company and the non-cash impairment loss of $1.4 million related to the sale of Digital Ignition. Net loss from continuing operations also benefited from $1.8 million gain related to the FGF merger transaction presented in bargain purchase from acquisition and other income, net.

Current wording

Loss from operations increased $1.9 million or 17.6% to $12.9 million for the six months ended June 30, 2024 from $10.9 million during the first quarter of 2023. Improved gross profit contributions from Strong Entertainment were offset by increased general and administrative costs related to both operating Strong Entertainment as a separate public company and the addition of FGF which is not included in the prior period comparisons as well as a non-cash impairment loss of $1.4 million related to the sale of Digital Ignition.

Previous wording

Loss from operations increased $1.8 million or 43.7% to $5.9 million for the three months ended March 31, 2024 from $4.1 million during the first quarter of 2023. Improvements in operating results from Strong Entertainment and improved investment results were offset by increased overhead costs related to operating Strong Entertainment as a separate public company and the non-cash impairment loss of $1.4 million related to the sale of Digital Ignition. Those increased expenses were partially offset by a non-recurring $1.8 million gain related to the FGF merger transaction and the improved gross profit contribution from Strong Entertainment.

Current wording

Net loss from continuing operations increased $0.1 million or 0.7% for the six months ended June 30, 2024 from $11.1 million during the first half of 2023. Improved gross profit contributions from Strong Entertainment and a $1.8 million gain related to the FGF merger transaction were offset by increased general and administrative costs related to both operating Strong Entertainment as a separate public company and the addition of FGF which is not included in the prior period comparisons as well as a non-cash impairment loss of $1.4 million related to the sale of Digital Ignition.

Previous wording

The following table summarizes the Company’s consolidated cash flows for the three months ended March 31, 2024 and 2023.

Current wording

The following table summarizes the Company’s consolidated cash flows for the six months ended June 30, 2024 and 2023 (in thousands).

Previous wording

For the three months ended March 31, 2024, net cash used in operating activities was approximately $0.2 million, compared to $15,000 for the three months ended March 31, 2023. Cash from operations decreased due to a net cash outflow for working capital including higher payments to our vendors and for other accrued expenses, an increase in net outflows related to our insurance business, which were partially offset by the receipt of customer deposits.

Current wording

For the six months ended June 30, 2024, net cash used in operating activities from continuing operations was approximately $3.2 million, compared to $0.3 for the six months ended June 30, 2023. Cash from operations decreased due to a net cash outflow for working capital, including an increase in net outflows related to our insurance business, which were partially offset by an improvement in Strong Global Entertainments’s results from operations.

Previous wording

For the three months ended March 31, 2024, net cash provided by investing activities was approximately $1.9 million, compared to $0.1 million for the three months ended March 31, 2023. 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. Investing cash flows during the three months ended March 31, 2024 and 2023, included approximately $22,000 and $0.1 million, respectively, of capital expenditures in the Strong Entertainment business.

Current wording

For the six months ended June 30, 2024, net cash provided by investing activities from continuing operations was approximately $4.3 million, compared to $0.1 million for the six months ended June 30, 2023. Cash provided by investing activities during the six months ended June 30, 2024 included $1.9 million of an increase in cash as a result of the merger of FGF and FGH, $1.2 million of proceeds from the sale of equity securities and $1.3 million from the sale of the Digital Ignition building. Investing cash flows during the six months ended June 30, 2024 and 2023, included approximately $20,000 and $0.1 million, respectively, of capital expenditures in the Strong Entertainment business.

Previous wording

For the three months ended March 31, 2024, net cash used in financing activities was approximately $0.6 million, compared to cash provided by financing activities of $1.0 million for the three months ended March 31, 2023. Cash used in financing activities during the three months ended March 31, 2024 included $0.3 million of principal payments on debt and finances leases and $0.4 million of payments of dividends on our Series A Preferred Shares. Cash by financing activities during the three months ended March 31, 2023 included $1.4 million of net borrowing under our credit facility, partially offset by $0.3 million of principal payments on debt and finances leases.

Current wording

For the six months ended June 30, 2024, net cash used in financing activities from continuing operations was approximately $1.3 million, compared to cash provided by financing activities of $2.0 million for the six months ended June 30, 2023. Cash used in financing activities during the six months ended June 30, 2024 included $0.4 million of principal payments on debt and finances leases and $0.9 million of payments of dividends on our Series A Preferred Shares. Cash by financing activities during the six months ended June 30, 2023 included $2.4 million of net proceeds from the IPO of Strong Global Entertainment, partially offset by $0.3 million of principal payments on debt and finances leases.