Executive Summary / Key Takeaways

• Fundamental Global Inc. (FGF) is undergoing a significant strategic transformation, divesting non-core assets like reinsurance and media production to focus on its Merchant Banking and Managed Services segments.
• The Managed Services segment (Strong Technical Services) provides mission-critical technology and support to the cinema and entertainment industry, facing recent headwinds from macroeconomic uncertainty and delayed customer projects, resulting in a 13.6% revenue decline in Q1 2025.
• The Merchant Banking segment, focused on SPACs and equity investments, experienced higher non-cash losses in Q1 2025 due to market volatility impacting holdings, contributing significantly to the overall net loss.
• Despite recent losses and revenue pressure in core segments, management is pursuing cost reduction initiatives and expects a recovery in Managed Services order volumes, alongside planned sales of the remaining reinsurance business in Q2 and H2 2025.
• FGF operates as a niche player against larger, more diversified financial and insurance institutions, leveraging specialized expertise in SPACs and cinema technology services, but faces challenges related to scale, operating costs, and market volatility inherent in its investment activities.

Setting the Scene: A Holding Company in Transition

Fundamental Global Inc. (FGF) is not a monolithic operating entity but rather a holding company strategically allocating capital across distinct business operations and investment holdings. The company is currently in a period of significant realignment, actively shedding non-core assets to sharpen its focus on two primary segments: Merchant Banking and Managed Services. This strategic pivot follows a history marked by diverse ventures, including past forays into media production and technology incubation, and is now centered on leveraging expertise in specialized financial activities and technical services for the entertainment industry.

Operating within a landscape dominated by much larger, more diversified financial institutions and specialized service providers, FGF positions itself as a niche player. Its competitive stance is defined by targeted expertise rather than broad scale. In the financial realm, its Merchant Banking activities, particularly its SPAC platform, operate alongside giants like AIG (AIG), Chubb (CB), and Travelers (TRV), which possess vastly superior capital bases, extensive global networks, and sophisticated technological infrastructure. Similarly, its Managed Services business, Strong Technical Services (STS), serves a specific vertical – cinema and entertainment – requiring specialized technical skills and relationships. While larger competitors may offer broader financial or technical services, FGF aims to differentiate through focused offerings and potentially more agile execution in its chosen niches. However, this smaller scale inherently brings challenges related to cost efficiency and market influence compared to its larger counterparts.

Core Operations: Merchant Banking and Managed Services

FGF's strategic focus is now firmly on its two operating segments.

The Merchant Banking segment, managed through FG Management Solutions LLC and FG Merchant Partners, LP, is involved in asset management, advisory services, and capital allocation. A key component is the SPAC Platform, which provides strategic, administrative, and regulatory support services to newly formed Special Purpose Acquisition Companies. This segment also involves direct allocation of capital to equity holdings, including interests in companies like FG Communities and Saltire Holdings. The value proposition here lies in identifying and fostering growth opportunities, facilitating capital formation, and managing a portfolio of investments.

The Managed Services segment is anchored by Strong Technical Services, Inc. (STS). With a history spanning over 90 years, STS provides mission-critical products and services to cinema exhibitors and entertainment venues. Its offerings are comprehensive, including remote network operating center support, on-site field service, content delivery, and installation services. The core function of STS is to ensure the uptime and availability of essential technical solutions for its customers, which are vital for the operation of modern entertainment venues.

Technological Edge in Managed Services

Within the Managed Services segment, STS's operational capabilities represent a key technological differentiator, albeit one not defined by proprietary hardware but by the sophisticated application of technical services. STS provides mission-critical support through:

• Remote Network Operating Center Support: This allows for proactive monitoring and management of complex technical systems in cinemas and entertainment venues, enabling rapid identification and resolution of issues often before they impact operations. While specific quantitative metrics on response times or uptime improvements were not detailed, the nature of this service is inherently focused on minimizing downtime.
• On-Site Field Service: A network of skilled technicians provides hands-on support for installation, maintenance, and repair. This ensures that complex equipment, from projectors to sound systems, is correctly installed and quickly serviced, directly contributing to the reliability of the customer's operations.
• Content Delivery: Facilitating the secure and timely delivery of digital content (like movies) to venues is a critical, technology-enabled service that underpins the core business of cinema operators.
• Installation Services: Expertise in installing intricate audio-visual and networking systems ensures that new venues or upgrades are implemented correctly and efficiently.

The tangible benefits of these services for customers are primarily operational: ensuring solution uptime, maintaining high-quality presentation standards, and providing reliable technical support. For FGF, these services represent a recurring revenue stream and leverage long-standing relationships within the entertainment industry. While specific R&D expenditure figures or quantifiable performance metrics like "X% faster repair times" or "Y% reduction in customer downtime" are not available, the strategic intent is clear: to be the trusted technical partner for entertainment venues, providing the essential services that keep their complex systems running smoothly. This specialized technical expertise and service delivery model form a competitive moat against generalist IT service providers.

Competitive Positioning and Market Dynamics

FGF operates in markets where scale and efficiency are often paramount. In Merchant Banking, it competes with large financial institutions and specialized investment firms. Its SPAC platform offers a niche service, but the broader investment landscape is dominated by players with significantly larger asset bases and more sophisticated trading and analytical technologies. While FGF's investment holdings strategy aims for capital efficiency, its overall financial health and profitability metrics, such as negative operating and net profit margins (TTM Operating Margin: -235.21%, TTM Net Margin: -55.68%), lag far behind larger, profitable competitors like AIG (TTM Net Margin: -5%, but with positive operating margin), Chubb (TTM Net Margin: 17%), Travelers (TTM Net Margin: 11%), and Progressive (PGR) (TTM Net Margin: 11%). These larger firms also demonstrate superior efficiency metrics, with Progressive, for instance, leveraging technology for significantly faster operational processes.

In Managed Services, STS competes within the specialized entertainment technology support market. While direct, publicly traded competitors in this exact niche are less common than in broad financial services, STS faces competition from smaller, specialized service providers and potentially in-house technical teams of larger cinema chains. STS's long history and comprehensive service offering (remote + field service) provide a competitive advantage. However, the segment's performance is closely tied to the health of the cinema industry and macroeconomic conditions, as evidenced by the Q1 2025 revenue decline attributed partly to delayed customer projects.

FGF's customer concentration is a notable factor in its competitive dynamic. The top ten customers accounted for approximately 61% of consolidated products and services revenues in Q1 2025, with one customer exceeding 10%. While relationships are described as stable, the purchase order basis makes them terminable at will, posing a risk. Furthermore, the Managed Services segment's reliance on purchasing certain products from StrongMDI, now a subsidiary of Saltire (in which FGF holds an interest), introduces a related-party dynamic to its supply chain.

Overall, FGF's competitive positioning is that of a specialized player seeking to leverage niche expertise in SPACs and entertainment technology services. Its strategy involves using its investment holdings to drive value, but it faces significant headwinds from its smaller scale, higher relative operating costs (particularly G&A costs for a public company), and the inherent volatility of its investment portfolio compared to the stable, profitable operations of larger, more diversified competitors.

Recent Financial Performance: A Snapshot of Transition

The first quarter of 2025 provided a clear look at FGF's performance during this transitional phase. Total revenue saw a significant decrease, falling by $4.1 million from $4.48 million in Q1 2024 to just $392 thousand in Q1 2025. This sharp decline was primarily driven by two factors: a decrease in product sale revenues within the Managed Services business and, notably, higher non-cash equity method adjustments related to investment losses.

Revenue from products and services, primarily from the Managed Services segment, decreased by $1.1 million, or 13.6%, from $7.88 million in Q1 2024 to $6.81 million in Q1 2025. Management attributed this decline mainly to lower product sales, as cinema customers delayed projects due to a softer early 2025 release schedule and box office performance, coupled with broader macroeconomic uncertainties. Service revenue within this segment remained relatively stable ($3.06 million in Q1 2025 vs. $3.05 million in Q1 2024).

The Merchant Banking segment's impact on total revenue was negative due to investment performance. Net loss on equity holdings and other holdings increased significantly, from $3.40 million in Q1 2024 to $6.42 million in Q1 2025. This higher loss was primarily a result of declines in the market value of common stock holdings in Saltire and GreenFirst Forest Products (GFP), highlighting the volatility inherent in this segment's results, particularly in short-term periods.

Total expenses decreased by $2.1 million, or 18.1%, from $11.29 million in Q1 2024 to $9.24 million in Q1 2025. This reduction was partly due to lower costs of products sold, reflecting the decrease in product revenue, and the absence of a $1.5 million non-cash impairment charge related to the Digital Ignition building recognized in Q1 2024. However, general and administrative expenses increased year-over-year, partly due to the inclusion of three full months of FGF business operations post-merger in Q1 2025, compared to only one month in Q1 2024. On a pro forma combined basis, G&A expenses did decrease from $5.3 million in Q1 2024 to $3.3 million in Q1 2025, indicating some success in cost reduction initiatives following the mergers and restructuring.

The combined effect of lower revenue (driven by investment losses and managed services softness) and expense changes resulted in an increased loss from operations, rising by $2.0 million (29.9%) from $6.81 million in Q1 2024 to $8.85 million in Q1 2025. The net loss from continuing operations widened even further, increasing by $3.8 million (73.3%) from $5.08 million in Q1 2024 to $8.80 million in Q1 2025. This was influenced by the higher operating loss and the absence of a $1.8 million bargain purchase gain recognized in Q1 2024 related to the FGF merger transaction.

Liquidity and Capital Resources

As of March 31, 2025, FGF's cash and cash equivalents stood at $5.67 million, down from $7.79 million at December 31, 2024. The company's liquidity is primarily supported by funds from operations, proceeds from the sale of equity holdings, and available credit facilities.

Cash flow from operating activities in continuing operations showed a net use of $2.16 million in Q1 2025, compared to a net use of $1.21 million in Q1 2024. This increased cash usage was primarily attributed to the lower operating earnings in the Managed Services division and an increase in working capital requirements.

Investing activities from continuing operations provided $1.52 million in cash during Q1 2025. This was mainly driven by a net inflow from the sale of equity holdings. In contrast, Q1 2024 investing activities provided $2.24 million, which included a significant $1.90 million increase in cash resulting from the FGF and FGH merger, alongside proceeds from equity sales.

Financing activities from continuing operations used $0.72 million in cash during Q1 2025, consistent with the $0.71 million used in Q1 2024. These outflows primarily consisted of principal payments on debt and finance leases ($0.3 million in Q1 2025) and dividend payments on the Series A Preferred Shares ($0.45 million in Q1 2025).

While the cash balance decreased in the quarter, the company's liquidity position is influenced by its ability to generate cash from its operations, realize value from its investment holdings, and access credit. The planned divestiture of the reinsurance business is expected to provide a cash inflow, with $5.6 million anticipated in Q2 2025 from the sale of a portion.

Outlook and Strategic Path Forward

Management's outlook for the remainder of 2025 centers on executing the strategic realignment and improving performance in the core segments. Despite the soft start to the year in Managed Services product sales, management observed an upward trend in order volumes and revenues as Q1 2025 progressed and expects this trend to continue. They are, however, closely monitoring the economic environment and customer order patterns.

A key near-term catalyst is the planned divestiture of the reinsurance business. The sale of a portion is expected to close in the second quarter of 2025, bringing in $5.6 million in consideration. The company intends to sell the remaining portion in the second half of the year, which would further simplify the business structure and provide additional liquidity.

On the cost front, while significant reductions have been achieved through recent mergers and restructuring activities, management acknowledges that general and administrative costs remain high relative to the company's current scale, particularly those associated with operating as a small public company (compliance, legal, tax, audit). They are actively evaluating additional actions to further simplify the organization and reduce this burden, aiming to increase long-term value creation.

The Merchant Banking segment's performance will continue to be influenced by the success of the SPAC platform and the performance of its equity holdings, which are subject to market volatility. The expected extension of the Craveworthy loan maturity also indicates ongoing management of the investment portfolio.

Risks and Challenges

Investing in FGF involves several key risks and challenges that could impact the investment thesis:

• Market Volatility and Investment Performance: The Merchant Banking segment's results are highly sensitive to fluctuations in the market value of its equity holdings and the success of SPAC transactions. Significant unrealized or realized losses could negatively impact profitability and book value.
• Managed Services Market Dependence: The performance of the STS segment is closely tied to the health of the cinema and entertainment industries and broader macroeconomic conditions. Delays in customer projects or reduced capital expenditures by venues can directly impact revenue and profitability, as seen in Q1 2025.
• Customer Concentration: Reliance on a small number of large customers for a significant portion of Managed Services revenue poses a risk. The loss of a major customer could have a material adverse effect.
• Execution Risk of Divestitures: The successful and timely completion of the planned reinsurance business sales is crucial for simplifying the business and providing expected cash inflows. Delays or unfavorable terms could impact liquidity and strategic goals.
• High Public Company Costs: Management explicitly noted that the costs associated with being a small public company (compliance, legal, audit, etc.) are high relative to the company's scale, potentially hindering profitability and requiring further cost reduction efforts.
• Legal and Contingency Risks: The company faces ongoing legal proceedings, including asbestos-related claims and the recently disclosed landfill cost recovery action and subsidiary guaranty obligation. While a reserve is held, adverse outcomes could exceed estimates.
• Macroeconomic and Geopolitical Risks: General economic conditions, changes in international trade and tariff policies, and foreign currency fluctuations can impact both operating segments and the value of investment holdings.

Conclusion

Fundamental Global Inc. is actively reshaping its identity, moving away from a diverse collection of assets towards a more focused structure centered on its Merchant Banking and Managed Services segments. The first quarter of 2025 results underscore the challenges inherent in this transition, marked by revenue contraction driven by both volatile investment losses and temporary softness in the core Managed Services business. The increased operating and net losses highlight the impact of market conditions and the ongoing need to align the cost structure with the current scale of operations.

However, the strategic narrative is one of deliberate realignment. The planned divestiture of the reinsurance business is a significant step towards simplification and is expected to bolster liquidity. Management's focus on improving efficiency and reducing the burden of public company costs, alongside expectations for a recovery in the Managed Services segment, provides a potential path towards improved financial performance. For investors, the thesis hinges on the successful execution of this strategic pivot, the ability of the core segments to generate sustainable value, and the effective management of market volatility inherent in the investment portfolio. The coming quarters, particularly the completion of the reinsurance sale and progress on cost reduction, will be critical indicators of FGF's ability to translate its focused strategy into enhanced shareholder value.