UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
For
the fiscal year ended December 31, 2024
or
For
the transition period from _____________________ to _______________________
Commission
file number 001-36366
Fundamental
Global Inc.
(Exact
name of registrant as specified in its charter)
(State of incorporation) (I.R.S Employer Identification No.)
(Address of principal executive offices) (Zip Code)
(704)994-8279
(Registrant’s
telephone number)
Securities
registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share FGF The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933. Yes ☐ No
☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 (the “Act”) 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. Yes
☒ No ☐
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). Yes ☒ No ☐
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 the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Act.:
Large Accelerated Filer ☐ Accelerated Filer ☐
Non-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 Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
On
June 28, 2024, the aggregate market value of the Registrant’s common stock held by non-affiliates was approximately $17.5 million,
computed on the basis of the closing sale price of the Registrant’s common stock on that date.
As
of March 24, 2025, the total number of shares outstanding of the Registrant’s common stock was1,271,619.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Company’s Proxy Statement for its 2025 Annual Meeting of Stockholders are incorporated by reference in Part III, Items 10,
11, 12, 13 and 14.
FUNDAMENTAL
GLOBAL INC.
Table
of Contents
PART I 2
ITEM 1. BUSINESS 3
ITEM 1A. RISK FACTORS 5
ITEM 1B. UNRESOLVED STAFF COMMENTS 18
ITEM 1C. CYBERSECURITY 18
ITEM 2. PROPERTIES 18
ITEM 3. LEGAL PROCEEDINGS 19
ITEM 4. MINE SAFETY DISCLOSURES 19
ITEM 6. [RESERVED] 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 26
ITEM 9A. CONTROLS AND PROCEDURES 66
ITEM 9B. OTHER INFORMATION 66
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 66
PART III 67
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE 67
ITEM 11. EXECUTIVE COMPENSATION 67
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 67
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 68
SIGNATURES 70
FUNDAMENTAL
GLOBAL INC.
PART
I
This
Annual Report on Form 10-K 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, credit risk; our inability to execute on our multi-industry business strategy
and potential loss of value of investments; risk of becoming an investment company; fluctuations in our short-term results as we implement
our business strategies; 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 holdings; risk
of becoming an investment company; fluctuations in our short-term results as we implement our business strategies; risks of being unable to close the sale of our reinsurance business in
a reasonable time period or at all; risks of not 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; 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 included or incorporated by reference to the Form
10-K 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.
FUNDAMENTAL
GLOBAL INC.
ITEM
1. BUSINESS
Fundamental
Global Inc. (“FG”, “FGF” or 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 under the symbols “FGF”
and “FGFPP,” respectively. The address of FG’s principal executive offices is 108
Gateway Blvd, Suite 204, Mooresville, North Carolina 28117, and its telephone number is (704)
994-8279.
Recent
Developments
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 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
consolidated financial statements included in this Annual Report on Form 10-K (this “Form 10-K”).
On
October 10, 2024, the Company’s Board of Directors (the “Board”) approved a reverse stock split of the
Company’s authorized, issued and outstanding shares of the Company’s common stock at a ratio of one (1)-for-twenty-five
(25) (the “Reverse Stock Split”). The Reverse Stock Split became effective on October 31, 2024 (the “Effective
Date”), at 5:00 p.m., Eastern Time. The Company’s common shares began trading on a split-adjusted basis at the
commencement of trading on November 1, 2024. All equity awards outstanding immediately prior to the Reverse Stock Split were
adjusted to reflect the Reverse Stock Split. As a result of the Reverse Stock Split, all references to the Company’s common
stock in this Form 10-K have been adjusted to reflect the Reverse Stock
Split.
Overview
and Current Business Operations
Fundamental
Global 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.
Continuing
Operations
We
currently have two operating business segments, merchant banking and managed services.
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.
Our
wholly-owned subsidiary and managed services business, Strong Technical Services (“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.
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 $5.6 million, which it expects to close in the first half of 2025. The Company also intends to sell the remaining
portion of the reinsurance business in 2025.
The
Company previously operated Strong Studios and Strong/MDI. Those business units were sold in 2024 and are no longer part of the Company’s
consolidated operations as of December 31, 2024. These discontinued business units are more fully described in Item
8, Note 5, in the Notes to the Consolidated Financial Statements included in this Form 10-K.
Website
Our
corporate website is www.fundamentalglobal.com. A copy of our Code of Ethics can be found in the Governance Documents section
of our website. Information contained at the website is not a part of this report.
Human
Capital Resources
We
employed 130 persons at December 31, 2024, all of which were full-time. Of these employees, 31 positions were considered operational,
67 were service related and 32 were considered sales and administrative. We are not a party to any collective bargaining agreement.
The
Company believes it complies with all applicable provincial, state, local and applicable international laws governing nondiscrimination
in employment in every location in which the Company operates. All applicants and employees are treated with the same high level of respect
regardless of their gender, ethnicity, religion, national origin, age, marital status, political affiliation, sexual orientation, gender
identity, disability or protected veteran status. We continue to monitor our demand for skilled and unskilled labor and provide training
and competitive compensation packages in an effort to attract and retain skilled employees.
Our
managed services business remains deeply rooted in cinema and other entertainment venue-focused services. In this regard, we continuously
drive our efforts to be the best partner for our customers, investment for our shareholders, neighbor in our community and to provide
an empowering work environment for our employees.
ITEM
1A. RISK FACTORS
The
Company is engaged in mergers and acquisition activity and may incur significant costs or risks related to execution and integration.
The
Company has completed several transactions, including the merger of FGF and FGH and the merger of FGF and Strong Global
Entertainment, and is continuing to implement initiatives to streamline and simplify its holding company operations, which may
include additional acquisitions or divestitures. We also recently announced an agreement for the sale of a signification portion of
our reinsurance business. We may incur significant legal, financial advisory, accounting, consulting and other advisory fees,
insurance, internal overhead, public company filing fees, and other regulatory fees, printing costs and other related costs. We may
also incur expenses in connection with the integration of operations. There are many factors that could affect the total amount or
the timing of the integration costs. Moreover, many of the costs that will be incurred are, by their nature, difficult to estimate
accurately. These costs may result in the Company taking charges against earnings in future periods.
We
are integrating multiple mergers, which may be more difficult, costly or time-consuming than expected and the Company may fail to realize
the anticipated benefits.
The
success of the Company will depend, in part, on the Company’s ability to successfully combine and integrate the businesses of FGF
and FGH and Strong Global Entertainment in a manner that does not materially disrupt existing operations or result in decreased revenue
or reputational harm. It is possible that the integration process could result in the loss of key employees, the disruption of either
company’s ongoing businesses, difficulties in integrating operations and systems, including communications systems, administrative
and information technology infrastructure and financial reporting and internal control systems, or inconsistencies in standards, controls,
procedures and policies that adversely affect the companies’ ability to maintain relationships with clients, customers and employees
or to achieve the anticipated benefits and cost savings of the Merger. Integration efforts may also divert management attention and resources.
These integration matters could have an adverse effect on the Company.
The
Company’s future results may suffer if the Company does not effectively manage the combined operations from the mergers.
The
Company’s future success will depend, in part, upon its ability to manage the combined businesses, which may pose challenges for
management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity.
There can be no assurances that the Company will be successful or that it will realize the expected operating efficiencies, cost savings,
revenue enhancements or other benefits currently anticipated from the Merger.
The
Company may be unable to retain current personnel.
The
success of the Company will depend in part on its ability to retain the talents and dedication of key employees and officers. It is possible
that these employees and officers may decide not to remain with the Company. If we are unable to retain key employees, including
management, who are critical to the successful integration and future operations of the companies, the Company could face disruptions
in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment
costs. In addition, if key employees terminate their employment, the Company’s business activities may be adversely affected and
management’s attention may be diverted from successfully integrating the businesses to hiring suitable replacements, all of which
may cause the Company’s business to suffer. In addition, the Company may not be able to locate or retain suitable replacements
for any key employees who leave either company.
Our
capital allocation strategy may not be successful, which could adversely impact our financial condition.
We
intend to continue allocating part of our cash balances to companies and may engage in mergers, acquisitions and divestitures. These types
of holdings are riskier than holding our cash balances as bank deposits or, for example, conservative options such as treasury bonds
or money market funds. There can be no assurance that we will be able to maintain or enhance the value or the performance of the companies
in which we have invested or may invest in the future, or that we will achieve returns or benefits from these holdings. Under certain
circumstances, significant declines in the fair values of these holdings may require the recognition of other-than-temporary impairment
losses. We may lose all or part of our holdings relating to such companies if their value decreases as a result of their financial performance
or for any other reason. If our interests differ from those of other investors in companies over which we do not have control, we may
be unable to effect any change at those companies. We are not required to meet any diversification standards, and our holdings may continue
to remain concentrated. In addition, we may seek to sell some or all of our existing businesses as part of our holding company strategy.
If
our capital allocation strategy is not successful or we achieve less than expected returns from these holdings, it could have a material
adverse effect on us. The Board may also change our capital allocation strategy at any time, and such changes could further
increase our exposure, which could adversely impact us.
Any
potential future acquisitions, strategic investments, entry into new lines of business, divestitures, mergers or joint ventures may subject
us to significant risks, any of which could harm our business.
Our
long-term strategy may include identifying and acquiring, investing in or merging with suitable candidates on acceptable terms, entry
into new lines of business and markets or divesting of certain business lines or activities. Mergers, acquisitions, divestitures and
entries into new lines of business include a number of risks and present financial, managerial and operational challenges, including
but not limited to:
● diversion of management attention from running our existing business;
● possible material weaknesses in internal control over financial reporting;
Any
acquired business, technology, service or product, or entry into a new line of business could significantly under-perform relative to
our expectations and may not achieve the benefits we expect. For all these reasons, our pursuit of an acquisition, investment, new line
of business, divestiture, merger or joint venture could cause our actual results to differ materially from those anticipated.
Our
holdings in special purpose acquisition companies as well as the sponsors of special purpose acquisition companies involve a high degree
of risk.
We
have invested in initial public offerings (“IPOs”) of special purpose acquisition companies, including SPACs that are sponsored
by our affiliates. In general, a SPAC is a special purpose vehicle that is formed to raise capital from the public through an IPO with
the purpose, usually, of using the proceeds to acquire a single unspecified business or assets to be identified after the IPO. The IPO
proceeds are held in a trust account until released to fund a business combination or used to redeem shares sold in the IPO. SPACs are
required to either consummate a business combination or liquidate within a set period of time following their IPO. Because, at the time
of the IPO, the SPAC has no operating history or any plans, arrangements or understandings with any prospective investment targets, we
will have no basis upon which to evaluate the SPAC’s ability to achieve its business objectives. If a SPAC fails to complete its
initial business transaction within the required time period, it will never generate any operating revenues and our SPAC holding may
receive only a fixed dollar amount per share upon redemption, or less than such fixed amount in certain circumstances which could significantly
affect our operating results and shareholders’ equity.
Additionally, we have acquired equity interests in various sponsors of SPACs (“Sponsor”) and expect to acquire
additional interests in sponsors of SPACs in the future. By investing in a Sponsor, we have provided at-risk capital which allows the
Sponsor to launch the IPO of the SPAC. In exchange for this investment, we own interests in the Sponsor that entitle us to receive distributions
of shares and warrants in the SPAC. These Sponsor interests do not have redemption rights to receive any portion of our original investment
back from the trust account of the SPAC, as is normally associated with an IPO investment directly into a SPAC. Accordingly, an investment
in a Sponsor is subject to a much higher degree of risk than an investment directly in a SPAC’s IPO because the entire investment
may be lost if the SPAC is not successful in consummating a business combination. Such potential loss could have a material effect on
our financial results and shareholders’ equity.
As
the number of SPACs evaluating targets increases, attractive targets may become more scarce, and there may be increased competition for
attractive targets. This could increase the cost of an initial business combination and it could even result in an inability to find
a target or to consummate an initial business combination.
In
recent years, the number of SPACs that have been formed has increased substantially. Many potential targets for special purpose acquisition
companies have already entered into an initial business combination. As a result, at times, fewer attractive targets may be available
to consummate an initial business combination.
In
addition, because there are more SPACs seeking to enter into an initial business combination with available targets, the competition
for available targets with attractive fundamentals or business models may increase, which could cause target companies to demand improved
financial terms. Attractive deals could also become more scarce for other reasons, such as economic or industry sector downturns, geopolitical
tensions, or increases in the cost of additional capital needed to close business combinations or operate targets post-business combination.
Together, this could increase the cost of, delay or otherwise complicate or frustrate the ability of a SPAC to find and consummate an
initial business combination and may result in an inability to consummate an initial business combination on terms favorable to investors
altogether.
Furthermore,
the strength of the market for SPAC IPOs has fluctuated substantially from year to year and has experienced cycles of relative strength
and weakness. There can be no assurance that the SPAC market will be strong in the future.
Our
results of operations will fluctuate from period to period and may not be indicative of our long-term prospects.
We
anticipate that the performance of our merchant banking and managed services will fluctuate from period to period. In addition,
because we plan to underwrite products and make investments to achieve favorable return on equity over the long-term, our short-term
results of operations may not be indicative of our long-term prospects. Our results of operations may also be adversely impacted by
general economic conditions and the conditions and outlook of the markets for merchant banking and managed services.
Changes in the value of
our equity holdings could have a significant impact on our reported financial results.
Our equity holdings comprise
a significant portion of our total assets, and we use several methods to determine the appropriate value for each of our holdings. The
valuation of our holdings under generally accepted accounting principles involves the use of specialists and relies on inputs, assumptions,
and methodologies that can be considered highly subjective and judgmental. For holdings in private companies, there may be limited
publicly available information to use as a basis for our estimates. For holdings in companies that are publicly traded, valuations are
based on current trading prices, some of which are thinly traded and subject to significant price volatility from quarter to quarter.
Any changes to our assumptions and methodologies, or changes in the price of the underlying securities, could have a significant impact
on our reported financial results in any given quarterly or annual period.
Changes
in the value of the holdings we directly own, or indirectly own through our ownership of equity method holdings, could materially affect
our income and increase the volatility of our earnings.
As
of December 31, 2024, our consolidated balance sheet includes approximately $60.1 million related to equity and other holdings held directly
by us or indirectly through equity method holdings.
Included
in the $60.1 million are holdings in FG New America Acquisition Corp, FG Merger Corp, and FGAC, all of which were originally
launched as special purpose acquisition companies. FG New America Acquisition Corp. completed its business combination in July 2021 and
now operates as OppFi, Inc. (NYSE: OPFI). Our holdings consists of approximately 358,000 warrants to purchase common shares of OPFI at
a price of $11.50 per share. FG Merger Corp completed its business combination in August 2023 and now operates as iCoreConnect, Inc.
(NASDAQ: ICCT). Our holdings consists of approximately 45,000 common shares of ICCT as well as approximately 1,240,000 warrants to purchase
preferred shares of ICCT at a price of $11.50 per share, and approximately 190,000 warrants to purchase preferred shares of ICCT at a
price of $15.00 per share. FGAC completed its business combination in September 2024 and now operates as Saltire Capital
Ltd. (TSX: SLT.U) (“Saltire”). Our holdings consists of approximately 2,600,000 common shares of Saltire and 750,000 preferred
shares of Saltire as well as approximately 3,000,000 warrants to purchase common shares of Saltire at a price of $11.50 per share, and
approximately 440,000 warrants to purchase common shares of Saltire at a price of $15.00 per share
As
of December 31, 2024, Aldel Financial II Inc. (“Aldel II”) had not yet completed a business combination agreement. Our holdings
in Aldel II consists of approximately 382,000 shares of Aldel II’s common stock, approximately 14,000 warrants with an $11.50 exercise
price and 5-year expiration (the “Aldel II Warrants”), approximately 33,000 warrants with a $15 exercise price and 10-year
expiration.
In
addition to the holdings noted above, we also hold interests in FGC and Craveworthy LLC, an innovative fast casual restaurant platform company (“Craveworthy”), both of which are private
companies.
The
change in value of any of the holdings noted above, could significantly impact our reported results and shareholders’ equity.
We
may not be successful in carrying out our asset management strategy, and the fair value of our holdings will be subject to a loss in
value.
Through
our SPAC sponsorships, we may be subject to lock-up agreements, and our ability to access the capital used to sponsor SPACs may be limited
for a defined period, which may increase a risk of loss of all or a significant portion of value. Our holdings may also become concentrated.
A significant decline in the values of these holdings may produce a large decrease in our consolidated shareholders’ equity and
can have a material adverse effect on our consolidated book value per share and earnings.
We
have no assurance of future business from our managed services customers.
We
estimate future revenue associated with customers and customer prospects in our managed services business for purposes of financial planning
and measurement of our sales pipeline, but we have limited contractual assurance of future business from our customers. While we do have
arrangements with some of our customers, customers are not required to purchase any minimum amounts and could stop doing business with
us. Some customers maintain simultaneous relationships with our competitors and could shift more of their business away from us if they
choose to do so in the future.
There
is no guarantee that we will be able to service and retain or renew existing agreements, maintain relationships with any of our customers
or business partners on acceptable terms or at all, or collect amounts owed to us from insolvent customers or business partners. The
loss of any of our large customers could have a material adverse impact on our business.
Our
operating results could be harmed if we are unable to accurately forecast demand for our products and services and adequately manage
our inventory.
To
ensure adequate inventory supply for our distribution of projection, audio service and related equipment to cinema operators, we forecast inventory needs, place orders and plan personnel levels based on estimates of future
demand. Our ability to accurately forecast demand for our products and services is limited and could be affected by many factors,
including an increase or decrease in customer demand for our products and services or for products and services of our competitors,
product and service introductions by competitors, unanticipated changes in general market conditions, effects of a global
pandemic and the weakening of economic conditions or consumer confidence in future economic conditions. If we fail to accurately
forecast customer demand, we may experience excess inventory levels or a shortage of products available for sale. Conversely, if we
underestimate customer demand for our products and services, we may not be able to deliver products to meet requirements, and this
could result in damage to our brand and customer relationships and adversely affect our revenue and operating results.
Interruptions
of, or higher prices of, components from our suppliers may affect our results of operations and financial performance.
A
portion of our revenues is dependent on the distribution of projections, servers, and other audio-visual products supplied by
various key suppliers. If we fail to maintain satisfactory relationships with our suppliers, or if our suppliers experience
significant financial difficulties, we could experience difficulty in obtaining needed goods and services. Some suppliers could also
decide to reduce inventories or raise prices to increase cash flow. The loss of any one or more of our suppliers could have an
adverse effect on our business, and we may be unable to secure alternative manufacturing arrangements. Even if we are able to obtain
alternative manufacturing arrangements, such arrangements may not be on terms similar to our current arrangements, or we may be
forced to accept less favorable terms in order to secure a supplier as quickly as possible so as to minimize the impact on our
business operations. In addition, any required changes in our suppliers could cause delays in our operations and increase our
production costs and new suppliers may not be able to meet our production demands as to volume, quality, or timeliness.
The
markets for our products and services are highly competitive and if market share is lost, we may be unable to lower our cost structure
quickly enough to offset the loss of revenue.
The
markets for our products and services are highly competitive. We expect the intensity of competition in each of these areas to continue
in the future for a number of reasons including:
In
addition, we face competition for consumer attention from other forms of entertainment, including streaming services and other forms
of entertainment that may impact the cinema industry. The other forms of entertainment may be more attractive to consumers than those
utilizing our technologies, which could harm our business, prospects and operating results.
For
these and other reasons, we must continue to enhance our technologies and our existing products and services, and introduce new, high-quality
technologies and products and services to meet the wide variety of competitive pressures that we face. If we are unable to compete successfully,
our business, prospects and results of operations will be materially adversely impacted.
If
we are unable to maintain our brand and reputation, our business, results of operations and prospects could be materially harmed.
Our
business, results of operations and prospects depend, in part, on maintaining and strengthening our brand and reputation for providing
high quality products and services. Reputational value is based in large part on perceptions. Although reputations may take decades to
build, any negative incidents can quickly erode trust and confidence, particularly if they result in adverse publicity, governmental
investigations or litigation. If problems with our products cause operational disruption or other difficulties, or there are delays or
other issues with the delivery of our products or services, our brand and reputation could be diminished. Damage to our reputation could
also arise from actual or perceived legal violations, product safety issues, data security breaches, actual or perceived poor employee
relations, actual or perceived poor service, actual or perceived poor privacy practices, operational or sustainability issues, actual
or perceived ethical issues or other events within or outside of our control that generate negative publicity with respect to us. Any
event that has the potential to negatively impact our reputation could lead to lost sales, loss of new opportunities and retention and
recruiting difficulties. If we fail to promote and maintain our brand and reputation successfully, our business, results of operations
and prospects could be materially harmed.
Our
operating margins may decline as a result of increasing product costs.
Our
business is subject to pressure on pricing and costs caused by many factors, including supply chain disruption, intense competition,
the cost of components used in our products, labor costs, constrained sourcing capacity, inflationary pressure, pressure from customers
to reduce the prices we charge for our products and services, and changes in consumer demand. Factors including global supply chain disruptions
have resulted in shortages in labor, materials and services. Such shortages have resulted in cost increases, particularly for labor,
and could continue to increase.
We
are substantially dependent upon significant customers who could cease purchasing our products at any time.
The
Company’s top ten customers accounted for approximately 41% and 38% of consolidated products and services revenues during the year
ended December 31, 2024 and 2023, respectively. Trade accounts receivable from these customers represented approximately 70% of net consolidated
trade receivables at December 31, 2024. One of the our customers accounted for more than 10% of both our consolidated net products and
services revenues during the year ended December 31, 2024 and its net consolidated trade receivables as of December 31, 2024. None of
our customers accounted for more than 10% of both our consolidated products and services net revenues during the year ended December
31, 2023 and its net consolidated trade receivables as of December 31, 2023. While management believes its relationships with such customers
are stable, most arrangements are made by purchase order and are terminable at will by either party. A significant decrease or interruption
in business from the Company’s significant customers could have a material adverse effect on the Company’s business, financial
condition and results of operations. The Company could also be adversely affected by such factors as changes in foreign currency rates
and weak economic and political conditions in each of the countries in which the Company sells its products and offers its services.
Our
business is subject to the economic and political risks of selling products in foreign countries.
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. Recent escalation in tariffs and other political tensions in the United
States and Canada have created uncertainty regarding international trade, unanticipated or unfavorable circumstances arising from
host country laws or regulations, unfavorable changes in U.S. policies on international trade and investment, the imposition of
governmental economic sanctions on countries in which we do business, quotas, capital controls or other trade barriers, whether
adopted by individual governments or addressed by regional trade blocks, threats of war, terrorism or governmental instability,
currency controls, fluctuating exchange rates with respect to sales not denominated in U.S. dollars, changes in import/export
regulations, tariffs and freight rates, potential negative consequences from changes to taxation policies, restrictions on the
transfer of funds into or out of a country and the disruption of operations from labor, political and other disturbances, such as
the impact of the coronavirus and other public health epidemics or pandemics. Government policies on international trade and
investment can affect the demand for our products, impact the competitive position of our products or prevent us from being able to
sell or manufacture products in certain countries. The implementation of more restrictive trade policies, such as higher tariffs or
new barriers to entry, in countries in which we sell large quantities of products and services could negatively impact our business,
financial condition and results of operations. For example, a government’s adoption of “buy national” policies or
retaliation by another government against such policies could have a negative impact on our results of operations. If we were unable
to navigate the foreign regulatory environment, or if we were unable to enforce our contractual rights in foreign countries, our
business could be adversely impacted. Any of these events could reduce our sales, limit the prices at which we can sell our
products, interrupt our supply chain or otherwise have an adverse effect on our operating performance.
Any
of these factors could adversely affect our activities and our business, financial condition and results of operations.
The
risk of non-compliance with U.S. and foreign laws and regulations applicable to our international operations could have a significant
impact on our financial condition, results of operations and strategic objectives.
Our
global operations subject us to regulation by U.S. federal and state laws and multiple foreign laws, regulations and policies, which
could result in conflicting legal requirements. These laws and regulations are complex, change frequently, have tended to become more
stringent over time and increase our cost of doing business. These laws and regulations include import and export control, environmental,
health and safety regulations, data privacy requirements, international labor laws and work councils and anti-corruption and bribery
laws such as the U.S. Foreign Corrupt Practices Act, the U.N. Convention Against Bribery and local laws prohibiting corrupt payments
to government officials. We are subject to the risk that we, our employees, our affiliated entities, contractors, agents or their respective
officers, directors, employees and agents may take action determined to be in violation of any of these laws. An actual or alleged violation
could result in substantial fines, sanctions, civil or criminal penalties, debarment from government contracts, curtailment of operations
in certain jurisdictions, competitive or reputational harm, litigation or regulatory action and other consequences that might adversely
affect our financial condition, results of operations and strategic objectives.
In
addition, we are subject to foreign anti-corruption laws and regulations. In general, these laws prohibit a company and its employees and intermediaries from bribing or making other prohibited
payments to foreign officials or other persons to obtain or retain business or gain some other business advantage. We cannot predict
the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing
laws might be administered or interpreted. Failure by us or our predecessors to comply with the applicable legislation and other similar
foreign laws could expose us and our senior management to civil and/or criminal penalties, other sanctions and remedial measures, legal
expenses and reputational damage, all of which could materially and adversely affect our business, financial condition and results of
operations. Likewise, any investigation of any alleged violations of the applicable anti-corruption legislation by foreign
authorities could also have an adverse impact on our business, financial condition and results of operations.
Failure
to effectively utilize or successfully assert intellectual property rights could negatively impact us.
We
own or otherwise have rights to various trademarks and trade names used in conjunction with the sale of our products, the most significant
of which is Strong®. We rely on trademark laws to protect these intellectual property rights. We cannot assure that these intellectual
property rights will be effectively utilized or, if necessary, successfully asserted. There is a risk that we will not be able to obtain
and perfect our own intellectual property rights, or, where appropriate, license from others, intellectual property rights necessary
to support new product introductions. Our intellectual property rights, and any additional rights we may obtain in the future, may be
invalidated, circumvented or challenged in the future. Our failure to perfect or successfully assert intellectual property rights could
harm our competitive position and could negatively impact us.
The
insurance that we maintain may not fully cover all potential exposures.
We
maintain property, business interruption and casualty insurance but such insurance may not cover all risks associated with the hazards
of our business and is subject to limitations, including deductibles and maximum liabilities covered. We are potentially at risk if one
or more of our insurance carriers fail. Additionally, severe disruptions in the domestic and global financial markets could adversely
impact the ratings and survival of some insurers. In the future, we may not be able to obtain coverage at current levels, and our premiums
may increase significantly on coverage that we maintain.
Risks
Relating to Our Reinsurance Business
Failure
to complete the sale of all or a substantial portion of our reinsurance business may have a material adverse effect on our future business,
financial condition, results of operations and prospects.
We
entered into an agreement to sell a significant portion of our reinsurance business and have classified our reinsurance operations as
discontinued operations. There is no assurance that the sale will be completed or that we will realize the planned proceeds or fully
exit the reinsurance business.
In
the event we remain in the reinsurance business, we will be required to maintain approvals from insurance regulators, may need to allocate
additional capital to our reinsurance operations and will continue to depend on third party cedents and specialists for evaluating and
managing underwriting risks and determining loss reserves in our quota share reinsurance contracts. Failure to comply with the laws,
regulations and requirements applicable to a Cayman Islands-domiciled reinsurance subsidiary could result in consequences which may have
a material adverse effect on our business and results of operations. Our future business plans may also require advance approval of our
insurance operations. Failure to receive or maintain the licenses necessary to execute on our strategy or receive necessary approvals
may have a material adverse effect on our future business. If we were unable to maintain those approvals or manage our reinsurance risks,
the value of our reinsurance assets could be significantly impacted. If our loss reserves are determined to be inadequate, we would be
required to increase loss reserves at the time of such determination with a corresponding reduction in our net income in the period when
the deficiency becomes known. It is possible that claims in respect of events that have occurred could exceed our claim reserves and
have a material adverse effect on our results of operations, in a particular period, or our financial condition in general. As a compounding
factor, although most insurance contracts have policy limits, the nature of property and casualty insurance and reinsurance is such that
losses and the associated expenses can exceed policy limits for a variety of reasons and could significantly exceed the premiums received
on the underlying policies, thereby further adversely affecting our financial condition.
Legal
and Regulatory Risks
The
requirements of being a public company may strain our resources, divert management’s attention, affect our ability to attract and
retain qualified board members and have a material adverse effect on us and our stockholders.
As
a publicly traded company, we are required to develop and implement substantial control systems, policies and procedures to satisfy our
periodic SEC reporting and Nasdaq obligations. Management’s previous experience may not be sufficient to successfully develop and
implement these systems, policies and procedures and to operate our Company. Failure to do so could jeopardize our status as a public
company, and the loss of such status may have a material adverse effect on us and our stockholders.
In
addition, as a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank
Act, and Nasdaq rules, including those promulgated in response to the Sarbanes-Oxley Act. The requirements of these rules and regulations
increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand
on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with
respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure
controls and procedures and internal controls for financial reporting. To maintain and improve the effectiveness of our disclosure controls
and procedures, we need to continually commit significant resources, maintain staff and provide additional management oversight. In addition,
implementing our business strategy and sustaining our growth will require us to commit additional management, operational and financial
resources to identify new professionals to join our organization and to maintain appropriate operational and financial systems to adequately