FG Nexus : Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

About this update from Fg Nexus Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion in conjunction with our consolidated financial statements and related notes and information included elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report for the year ended December 31, 2025 on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 27, 2026, and in subsequent filings with the SEC. Unless context denotes otherwise, the terms "Company," "FG Nexus" "we," "us," and "our," refer to FG Nexus Inc., and its subsidiaries. Cautionary Note about Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements are therefore entitled to the protection of the safe harbor provisions of these laws. These statements may be identified by the use of forward-looking terminology such as "anticipate," "believe," "budget," "can," "contemplate," "continue," "could," "envision," "estimate," "expect," "evaluate," "forecast," "goal," "guidance," "indicate," "intend," "likely," "may," "might," "outlook," "plan," "possibly," "potential," "predict," "probable," "probably," "pro-forma," "project," "seek," "should," "target," "view," "will," "would," "will be," "will continue," "will likely result" or the negative thereof or other variations thereon or comparable terminology. In particular, discussions and statements regarding the Company's future business plans and initiatives are forward-looking in nature. We have based these forward-looking statements on our current expectations, assumptions, estimates, and projections. While we believe these to be reasonable, such forward-looking statements are only predictions and involve a number of risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance, or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements and may impact our ability to implement and execute on our future business plans and initiatives. Management cautions that the forward-looking statements in this 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, the Company's ability to execute its business plans which are contemplated to include increasing the Company's scale through acquisition, fluctuations in the market price of ETH and other digital assets and any associated mark to market charges or impairments that the Company may incur as a result of a decrease in the market price of ETH and other digital assets below the value at which the Company's ETH and other digital assets are carried on its balance sheet, changes in the accounting treatment relating to the Company's digital asset holdings, the tokenization of real-world assets, the Company's ability to achieve profitable operations, government regulation of digital assets, changes in securities laws or regulations such as accounting rules as discussed below, customer acceptance of new products and services including the Company's real world tokenization and ETH treasury strategies, general conditions in the global economy; risks associated with operating in the merchant banking industry; risks of not being able to execute on our asset management strategy and potential loss of value of our holdings; risk of becoming an investment company; fluctuations in our short-term results as we implement our business strategies; risks of not being able to attract and retain qualified management and personnel to implement and execute on our business and growth strategy; failure of our information technology systems, data breaches and cyber-attacks; our ability to establish and maintain an effective system of internal controls; the requirements of being a public company and losing our status as a smaller reporting company or becoming an accelerated filer; and potential conflicts of interest between us and our directors and executive officers. Our expectations and future plans and initiatives may not be realized. If one of these risks or uncertainties materializes, or if our underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. You are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements are made only as of the date hereof and do not necessarily reflect our outlook at any other point in time. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect new information, future events or developments. Overview FG Nexus is a holding company incorporated in the state of Nevada. Our common stock and Series A preferred shares are currently listed on Nasdaq under the symbols "FGNX" and "FGNXP," respectively. The Company currently conducts business through its business segments including digital assets and merchant banking. Digital Assets In 2025, the Company transitioned its operations to focus primarily on operating as a digital asset treasury focused on ETH and tokenization opportunities, particularly the tokenization of real-world assets. Ethereum and other Ether related digital assets serve as our primary treasury assets, Ethereum is the foundation of digital finance and settlement layer for the majority of stablecoins, Decentralized Finance (DeFi), and tokenized assets. ETH is the native token of the Ethereum network, which we purchased ETH as our initial treasury asset following the private placement. Our treasury strategy is focused on commercializing and expanding the tokenization of real-world assets, potentially including affordable housing, reinsurance, real estate and other asset classes. As of March 31, 2026, our digital asset portfolio included 20,637 ETH and 7,659 wrapped staked ETH ("wstETH"), with a combined estimated fair value of $60.7 million. All of our digital assets are held in our custodial accounts at Anchorage and BitGo. As part of our ETH treasury strategy, we participate in liquid staking through the Lido protocol. In a Lido liquid staking arrangement, we transfer ETH to the Lido protocol and receive stETH, a fungible rebasing ERC-20 receipt token, which is then wrapped into wstETH, a fungible ERC-20 receipt token, that represents a proportional interest in the protocol's pool of staked ETH. The token balance remains fixed and, instead, the value per unit increases to reflect staking rewards. The Lido protocol establishes a daily Protocol Conversion Rate ("PCR"), which reflects the amount of ETH into which a unit of wstETH is redeemable. The PCR is calculated by dividing the total ETH held by the protocol, including accumulated staking rewards (net of penalties or slashing fees), by the total number of wstETH tokens in circulation. The PCR is updated daily through the protocol's on-chain infrastructure and is publicly accessible. The PCR is not a market trading price. The process of redeeming wstETH for ETH is subject to the validator exit queue, bonding periods and other mechanics that may affect the timing and execution of redemption. As a result, we may not be able to redeem our holdings immediately. Merchant Banking 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"), to participate as a co-sponsor for newly formed SPACs and other merchant banking clients. The Company's 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 Craveworthy LLC ("Craveworthy"), an innovative fast casual restaurant platform company. Saltire Holdings Ltd. ("Saltire"), a Canadian public company that allocates capital to equity, debt and/or hybrid securities of high-quality private companies, among others. Recent Developments and Transactions Potential Business Combination with FG Communities, Inc. In April 2026, we announced that our Board of Directors (the "Board") was reviewing potential strategic alternatives to enhance long-term stockholder value and further our strategic objectives. As part of this review, the Board discussed a potential business combination transaction with FG Communities, Inc. ("FG Communities") (the "Potential Transaction") to advance our strategy to become a leader in the tokenization of real-world assets. The Board has established a special committee composed solely of independent directors (the "Special Committee") to evaluate the Potential Transaction or other strategic alternatives. The Special Committee has retained an independent financial advisor to provide a fairness opinion for the Potential Transaction and to assist in the Board's evaluation and negotiation of the Potential Transaction. We believe this strategy would better align our digital asset platform with a durable, income-producing real estate business that addresses critical housing needs. If the Potential Transaction is completed, we expect it would have a material impact on our future business operations, risks and opportunities, as well as our overall financial position, results of operations, segment and other financial reporting in future periods. The Board's discussions with respect to the Potential Transaction are preliminary in nature and no decisions or agreements have been reached. There can be no assurance that the Potential Transaction will be pursued or consummated. Agreement to Sell Reinsurance Business In October 2025, we entered into an agreement to sell the remaining portion of our reinsurance business. Pursuant to the agreements, we received (1) the release of $3.3 million of collateral that we had posted in connection with certain reinsurance contracts; (2) the payment of $1.0 million in cash; and (3) a 40% equity interest in the entity purchasing the reinsurance business. Additionally, pursuant to the agreements, we agreed to leave $1.3 million dollars in cash in the reinsurance business in exchange for a promissory note in the amount of $1.3 million that accrues interest at a rate of 6% per annum with all principal and accrued interest due and payable on January 1, 2028. The sale transaction closed in early 2026. Letter of Intent to Sell Quebec Real Estate In October 2025, we signed a non-binding letter of intent to sell our Quebec property for $15.0 million CAD, or approximately $11.0 million USD. Following repayment of the existing installment loan, the transaction is expected to generate approximately $8.0-$9.0 million USD in net pretax proceeds. The letter of intent does not constitute a binding agreement, and there can be no assurance that a definitive sale agreement will be reached or that the transaction will be completed. The transaction, if completed, is expected to close during the second quarter of 2026, subject to the execution of definitive agreements, completion of due diligence, and satisfaction of customary closing conditions. Asset Transfer and CVR Trust In August 2025, we transferred a significant portion of our legacy assets (the "Asset Transfer") to a trust (the "CVR Trust") established in connection with the creation of contingent value rights ("CVRs") for the benefit of the Company's stockholders as of August 8, 2025. The CVRs represent the contractual right to receive a pro rata portion of the net proceeds received by the CVR Trust upon the future disposition, if any, of the assets transferred to the CVR Trust by the Company. Results of Operations Management's discussion and analysis of financial condition and results of operations reflects the continuing operations of the Company as they existed as of March 31, 2026. Three Months Ended Months 31, 2026 2025 $ Change % Change Total revenue $ 232 $ 238 $ (6 ) (2.5 %) General and administrative expenses (3,680 ) (2,337 ) (1,343 ) 57.5 % Stock-based compensation (117 ) (175 ) 58 (33.1 %) Realized loss on digital assets (18,664 ) - (18,664 ) 100.0 % Unrealized loss on measurement of fair value of ETH digital assets (17,995 ) - (17,995 ) 100.0 % Loss from operations (40,224 ) (2,274 ) (37,950 ) 1,668.9 % Interest income (expense), net 44 (4 ) 48 (1,200.0 %) Gain (loss) on equity holdings 32 (6,419 ) 6,451 (100.5 %) Loss on financial instruments (98 ) - (98 ) 100.0 % Foreign currency translation loss (26 ) - (26 ) 100.0 % Loss from continuing operations before income taxes (40,272 ) (8,697 ) (31,575 ) 363.1 % Income tax benefit 9 68 (59 ) (86.8 %) Net loss from continuing operations $ (40,263 ) $ (8,629 ) $ (31,634 ) 366.6 % Three Months Ended March 31, 2026 Compared with Three Months Ended March 31, 2025 Revenue of $0.2 million during the first quarter of 2026 included $0.1 million of merchant banking advisory fees and $0.1 million of rental income. We did not generate any revenue from ETH native staking activities during the first quarter of 2026. Total revenue during the first quarter of 2025 also consisted of $0.1 million of merchant banking advisory fees and $0.1 million of rental income. Loss from operations increased to $40.2 million during the first quarter of 2026 as compared to $2.3 million during the first quarter of 2025. Loss from operations during the first quarter of 2026 included losses on digital assets totaling $36.7 million, which was comprised of (i) an $18.0 million unrealized mark to market adjustment on the valuation of our ETH digital assets and (ii) realized losses on the sale of ETH and conversion of ETH to other digital assets totaling $18.7 million. General and administrative expenses increased $1.3 million during the first quarter of 2026 as compared to the prior year period was primarily due to higher compensation costs, professional fees, audit fees and public relations expenses incurred as we launched our new ETH treasury operations. The first quarter of 2026 included an equity method gain on the shares of Saltire of $32 thousand, as compared to a $1.5 million equity method loss on the shares of Saltire in the first quarter of 2025. The remainder of the net loss on equity holdings and other holdings during the first quarter of 2025 related to holdings distributed to the CVR Trust in August 2025. Net loss from continuing operations increased to $40.3 million during the first quarter of 2026 from $8.6 million during the first quarter of 2025 primarily due to the unrealized mark to market adjustments during the current year due to fluctuations in the value of our ETH, realized losses on the sale of ETH and conversion of ETH to other digital assets, as well as the increased operating expenses and other costs associated with launching our digital asset treasury operations. Critical Accounting Estimates Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Actual results may differ materially from these estimates. Set forth below is qualitative and quantitative information necessary to understand the estimation uncertainty and the impact the critical accounting estimate has had or is reasonably likely to have on financial condition or results of operations, to the extent the information is material and reasonably available. ETH Digital Assets The Company's ETH digital assets fall within the scope of ASC 350-60. As of March 31, 2026, the Company held $43.5 million of ETH, which are held at fair value and are included as part of the ETH digital assets line on the condensed consolidated balance sheets. In determining the fair value of the digital assets in accordance with ASC 820, the Company utilizes Coinbase as the principal market. The activity from remeasurement of ETH at fair value is reflected in the condensed consolidated statements of operations within Unrealized measurement of fair value of ETH digital assets. We use a first-in, first-out methodology to assign costs to digital assets for purposes of the digital assets held and realized gains and losses. Sales and purchases of ETH digital assets are reflected as cash flows from investing activities in the condensed consolidated statements of cash flows. Digital Intangible Assets, at Cost Less Impairment We hold wstETH, which are receipt tokens received in exchange for staking ETH via liquid staking protocols. We exercise significant judgment in determining whether specific digital assets fall within the scope of ASC 350-60. We have determined that wstETH does not meet the scope criteria of ASC 350-60 because the token represents a contract that provides the holder with enforceable rights to residual assets (redeemable ETH), thereby failing the "other goods and services" criterion of the standard. Consequently, we account for wstETH as an indefinite-lived intangible asset under ASC 350-30, measured at cost less impairment. We evaluate wstETH for impairment quarterly. This requires tracking the lowest intraday quoted price of wstETH on our principal market since the acquisition of the specific asset lot. If the carrying value exceeds the lowest intraday price, an impairment loss is recognized immediately. This methodology differs significantly from the fair value treatment of our native ETH and creates a disparity in how gains (recognized only upon sale/redemption) and losses (recognized immediately upon price decline) are reported for wstETH. Staking Native Staking Beginning in August 2025, and continuing through December 2025, we deployed our ETH in native staking activities. We utilize a third-party asset manager to manage and stake ETH on our behalf. Through the agreement with the asset manager, our ETH is held by qualified custodians, staked in the Ethereum protocol, and the stake is delegated to third party validators. When chosen as validators by the Ethereum network, these validators earn staking rewards and transaction fees proportional to the amount of stake delegated to them. We recognize rewards from native staking as revenue in accordance with ASC 606. However, since the amount of rewards are not known by us until a validation activity is completed, and we receive rewards in our custodial account, the staking rewards are constrained under the Topic 606 guidance on variable consideration until such time. Because we are not the principal to the block validation service, we do not control the full output of the reward-generating activity, and instead receives net staking rewards, after validator commissions are deducted. As such, we present staking revenue on a net basis, reflecting only the portion of protocol rewards to which it is entitled. Asset manager fees are presented as separate operating expenses within General and administrative expenses on the condensed consolidated statements of operations. Liquid Staking We also participate in liquid staking through a liquid staking protocol. One key difference and intended benefit of liquid staking versus native staking is that it allows us to earn staking rewards, like native staking, but provides liquidity and the ability to enter into other transactions through the use of receipt token. Instead of directly locking ETH into Ethereum's staking deposit contract, we deposit ETH through our custodian into the liquid staking protocol's smart contract. The liquid staking protocol then controls the ETH for deposit into the Ethereum's staking deposit contract and further delegation to its chosen validators. In exchange for staking its ETH, we receive wstETH, a freely transferable ERC-20 liquid staking receipt token, which enables participation in decentralized finance (DeFi) and other crypto markets while the underlying ETH remains staked on Ethereum. Upon staking ETH through the liquid staking protocol, the ETH is derecognized because the liquid staking protocol obtains the ability to deploy and direct its use, and the wstETH token received concurrently is then recognized. Any gain or loss on the derecognition of ETH and the recognition of the wstETH is recognized in accordance with ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets ("ASC 610-20") based on the difference between the carrying amount of the ETH staked and the fair value of the wstETH received. The liquid staking protocol uses a floating conversion rate, or protocol conversion rate, between the receipt token and staked tokens, reflecting the value of accrued network rewards, penalties, and fees associated with the staked ETH. The conversion rate between wstETH and ETH increases over time as staking rewards accrue to the protocol; no new wstETH are received. Staking rewards in the form of ETH are only received upon redemption of wstETH. Since wstETH is accounted for under ASC 350-30, increases in wstETH fair value while we remain staked with the liquid staking protocols, are not recognized. There is no ongoing performance obligation following the staking of ETH through the liquid staking protocol. Additionally, wstETH is a non-rebasing token, meaning its quantity remains fixed over time. Staking rewards are not continuously reflected in token balances but are instead realized separately. Staking rewards are therefore recognized only when the wstETH is redeemed, measured at the fair value of ETH at contract inception, which is when the ETH were staked. Valuation of Net Deferred Income Taxes The provision for income taxes is calculated based on the expected tax treatment of transactions recorded in the Company's consolidated financial statements. In determining its provision for income taxes, the Company interprets tax legislation in a variety of jurisdictions and makes assumptions about the expected timing of the reversal of deferred income tax assets and liabilities and the valuation of net deferred income taxes. The ultimate realization of the deferred income tax asset balance is dependent upon the generation of future taxable income during the periods in which the Company's temporary differences reverse and become deductible. A valuation allowance is established when it is more likely than not that all or a portion of the deferred income tax asset balance will not be realized. In determining whether a valuation allowance is needed, management considers all available positive and negative evidence affecting specific deferred income tax asset balances, including the Company's past and anticipated future performance, the reversal of deferred income tax liabilities, and the availability of tax planning strategies. To the extent a valuation allowance is established in a period, an expense must be recorded within the income tax provision in the consolidated statements of income and comprehensive income. Revenue Recognition The Company accounts for revenue for rental income and merchant banking advisory services using the following steps: ● Identify the contract, or contracts, with a customer; ● Identify the performance obligations in the contract; ● Determine the transaction price; ● Allocate the transaction price to the identified performance obligations; and ● Recognize revenue when, or as, the Company satisfies the performance obligations. The Company combines contracts with the same customer into a single contract for accounting purposes when the contracts are entered into at or near the same time and the contracts are negotiated as a single commercial package, consideration in one contract depends on the other contract, or the services are considered a single performance obligation. If an arrangement involves multiple performance obligations, the items are analyzed to determine the separate units of accounting, whether the items have value on a standalone basis and whether there is objective and reliable evidence of their standalone selling price. The total contract transaction price is allocated to the identified performance obligations based upon the relative standalone selling prices of the performance obligations. The standalone selling price is based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost plus margin approach. Management estimates the amount of total contract consideration the Company expects to receive for variable arrangements by determining the most likely amount we expect to earn from the arrangement based on the expected quantities of services the Company expects to provide and the contractual pricing based on those quantities. The Company only includes some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is subsequently resolved. Management considers the sensitivity of the estimate, the Company's relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement. As discussed in more detail below, revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration the Company expects to receive in exchange for providing services. The Company typically does not have any material extended payment terms, as payment is due at or shortly after the time of the sale. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue. The Company recognizes contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced to the clients. Unbilled receivables are recorded as accounts receivable when we have an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when we invoice clients, or receive cash, in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when we have satisfied the related performance obligation. The Company defers costs to acquire contracts, including commissions, incentives and payroll taxes, if they are incremental and recoverable costs of obtaining a customer contract with a term exceeding one year. Deferred contract costs are reported within other assets and amortized to selling expense over the contract term, which generally ranges from one to five years. The Company has elected to recognize the incremental costs of obtaining a contract with a term of less than one year as a selling expense when incurred. The Company did not have any deferred contract costs as of March 31, 2026 or December 31, 2025. Stock-Based Compensation Expense The Company uses the fair-value method of accounting for stock-based compensation awards granted. The Company has determined the fair value of its outstanding stock options on their grant date using the Black-Scholes option pricing model along with multiple Monte Carlo simulations to determine a derived service period as the options vest based upon meeting certain performance conditions. The Company determines the fair value of restricted stock units ("RSUs") on their grant date using the fair value of the Company's common stock on the date the RSUs were issued (for those RSUs which vest solely based upon the passage of time). The fair value of these awards is recorded as compensation expense over the requisite service period, which is generally the expected period over which the awards will vest, with a corresponding increase to additional paid-in capital. When the stock options are exercised, or correspondingly, when the RSUs vest, the amount of proceeds together with the amount recorded in additional paid-in capital is recorded in shareholders' equity. Recent Accounting Pronouncements See Note 2, Significant Accounting Policies, to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of recently issued accounting pronouncements. Liquidity and Capital Resources As of March 31, 2026, we had cash and cash equivalents of $14.1 million and ETH and other digital assets with a combined fair value of $60.7 million. The purpose of liquidity management is to ensure that there is sufficient cash to meet all financial commitments and obligations as they fall due. The liquidity requirements of the Company and its subsidiaries have been met primarily by funds generated from operations, proceeds from capital raises, sales of ETH digital assets and certain equity holdings and credit facilities. Our ETH and other digital assets are not subject to any trading restrictions and are not pledged as collateral. We believe our ETH and other digital assets are readily convertible into cash, and we may convert ETH and other digital assets to cash periodically to fund operations. Cash Flows The following table summarizes the Company's consolidated cash flows for the three months ended March 31, 2026 and 2025 (in thousands). Three Months Ended March 31, Summary of Cash Flows 2026 2025 Cash and cash equivalents - beginning of period $ 13,395 $ 6,562 Net cash used in operating activities from continuing operations (6,236 ) (2,374 ) Net cash provided by investing activities from continuing operations 21,660 1,533 Net cash used in financing activities from continuing operations (14,427 ) (578 ) Effect of exchange rate changes on cash and cash equivalents (1 ) (1 ) Net increase (decrease) in cash and cash equivalents from continuing operations 996 (1,420 ) Net increase in cash and cash equivalents from discontinued operations (250 ) (705 ) Cash and cash equivalents - end of period $ 14,141 $ 4,437 For the first quarter of 2026, net cash used in operating activities from continuing operations was approximately $6.2 million compared to $2.4 million for the first quarter of 2025. Cash used in operations increased during the first quarter of 2026 as a result of higher operating expenses as well as an increase in working capital uses. For the first quarter of 2026, net cash provided by investing activities from continuing operations was approximately $21.7 million, compared to $1.5 million during the first quarter of 2025. Cash provided by investing activities during the first quarter of 2026 primarily included $22.0 million of ETH sales and $0.2 million repayment of a note receivable, partially offset by $0.5 million outflow from purchase of equity holdings. Cash provided by investing activities during the first quarter of 2025 included $1.8 million of proceeds from the sale of equity securities, partially offset by $0.3 million of purchases of equity securities. For the first quarter of 2026, net cash used in financing activities from continuing operations was approximately $14.4 million compared to $0.6 million during the first quarter of 2025. Cash used in financing activities during the first quarter of 2026 included $14.0 million of purchases under our common and preferred share buyback programs, $28 thousand of principal payments on debt, $0.4 million of payments of dividends on our Series A Preferred Shares. Cash used in financing activities during the first quarter of 2025 primarily included $0.1 million of principal payments on debt and $0.4 million of payments of dividends on our Series A Preferred Shares.

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