FG Nexus Inc. Income Taxes Disclosure

Note 10. Income Taxes

 

Net loss from continuing operations before income taxes consists of (in thousands):

 Schedule of Net loss from Continuing Operations

		2025				2024
		Years Ended December 31,
		2025				2024
United States		$	(67,798	)		$	(18,838	)
Foreign			91				(5,439	)
Total		$	(67,707	)		$	(24,277	)

 

 

Income tax benefit from continuing operations consists of (in thousands):

 Schedule of Income Tax Benefit Expense from Continuing Operations

		2025				2024
		Years Ended December 31,
		2025				2024
Current:
Federal		$	(69	)		$	(108	)
State			(15	)			(25	)
Foreign			(1,902	)			(423	)
Total			(1,986	)			(556	)
Deferred:
Federal			-				648
State			-				-
Foreign			2,059				-
Total			2,059				648
Total		$	73			$	92

 

Income tax benefit from continuing operations differed from the amounts computed by applying the U.S. Federal income tax rate to pretax loss from continuing operations as follows (in thousands):

 Schedule of Income Tax Benefit from Continuing Operations

		Years Ended December 31,
		2025								2024
Expected federal income tax benefit		$	14,212				-21.0	%		$	5,098				-21.0	%
State income taxes, net of federal benefit			(10	)			0.0	%			29				-0.1	%
Foreign tax effects - Canada			175				-0.3	%			791				-3.3	%
Change in state tax rate			-				-				(233	)			1.0	%
Change in valuation allowance			(8,712	)			12.9	%			(4,763	)			19.6	%
Merger of FGF and FGH			-				-				(2,049	)			8.4	%
Other permanent items			(188	)			0.3	%			(753	)			3.1	%
Gain on preferred shares			(1,365	)			2.0	%			-				-
Acquisition costs			(1,301	)			1.9	%			-				-
Net investment income			(973	)			1.4	%			-				-
Return to provision			(587	)			0.9	%			2,269				-9.3	%
Tax credits			45				-0.1	%			-				-
Transfer of equity method and other holdings to CVR Trust			(750	)			1.1	%			-				-
Other			(473	)			0.7	%			(297	)			1.2	%
Total		$	73				-0.1	%		$	92				-0.4	%

 

Deferred tax assets and liabilities were comprised of the following (in thousands):

 Schedule of Deferred Tax Assets and Liabilities

		December 31, 2025				December 31, 2024
Deferred tax assets:
Non-deductible accruals		$	385			$	212
Stock compensation expense			517				677
Uncollectible receivable reserves			5				5
Net operating losses			14,680				10,737
Tax credits			1,744				1,699
Disallowed interest expense			2,719				2,654
Equity in income of equity method investments			-				860
Unrealized measurement of fair value of ETH			8,159				-
Depreciation and amortization			45				23
Other			191				4
Total deferred tax assets			28,445				16,871
Valuation allowance			(28,336	)			(16,838	)
Net deferred tax assets after valuation allowance			109				33
Deferred tax liabilities:
Depreciation and amortization			(220	)			(247	)
Equity in income of equity method investments			-				-
State tax effecting methodology			-				(33	)
Section 987 loss			(109	)			-
Cash repatriation			(145	)			(2,165	)
Total deferred tax liabilities			(474	)			(2,445	)
Net deferred tax liability		$	(365	)		$	(2,412	)

 

 

Income tax paid (net of refunds) by jurisdiction (in thousands):

 Schedule of Income Taxes Paid

		2025				2024
		Years Ended December 31,
		2025				2024
Federal		$	-			$	-
State			(45	)			135
Federal			1,199				214
Total		$	1,154			$	349

 

The majority of state payments in 2024 were to Georgia and Illinois. All foreign tax payments were related to Canada, for 2025 $0.8 million was related to withholding tax for remitting Canadian earnings to the U.S. and the remaining $0.4 million was related to annual Canadian income tax returns. In 2024, all of the foreign payments were related to annual Canadian income tax returns.

 

The tax expense/benefit related to the managed services and reinsurance businesses has been allocated to discontinued operation. The Company has sufficient net operating losses to offset materially the taxable income/loss from these discontinued operations, all of which is offset by valuation allowance.

 

As a result of the Private Placement Offering, the Company underwent an ownership change as defined under Internal Revenue Code Section 382 (“Section 382”). As a result, the Company’s ability to utilize its Federal net operating loss and capital loss carryforwards in future years is subject to an annual limitation. The estimated base limitation under Section 382 on the future utilization of net operating losses generated prior to the ownership change is approximately $0.5 million per year. This limitation is calculated based on the value of the Company’s stock immediately before the deemed ownership change, multiplied by the applicable long-term tax-exempt rate, and may be subject to further adjustment as provided under Section 382 and related regulations. Due to the application of these limitations and the carryforward periods for Federal net operating loss and capital loss carryforwards, the gross deferred tax asset related to net operating losses has been reduced by $1.9 million, and the gross deferred tax asset related to capital losses has been reduced by $10.0 million.

 

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. The Company considers the scheduled reversal of taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment. A cumulative loss in a particular jurisdiction in recent years is a significant piece of evidence with respect to the realizability that is difficult to overcome. Based on the available objective evidence including recent updates to the taxing jurisdictions generating income, the Company concluded that a valuation allowance of $28.3 million should be recorded against the Company’s U.S. tax jurisdiction deferred tax assets as of December 31, 2025. The valuation allowance covers substantially all U.S. net deferred tax assets. The remaining deferred items that are realizable are the deferred tax liabilities for Canadian withholding tax and Canadian fixed assets. The overall change in valuation allowance is driven primarily by deferred tax impacts of unrealized fair value changes in ETH holdings and the increase in current year net operating losses. The effective tax rate above relates only to continuing operations.

 

The Company recorded a deferred tax liability related to withholding tax on the repatriation of earnings from its Canadian subsidiary of $0.1 million and $2.2 million at December 31, 2025 and December 31, 2024, respectively. The change in liability during 2025 was due to distributions and withholding tax accrued and paid in 2025. This Canadian withholding tax expense is reported in the foreign tax effects section of the summary of tax expense and rate reconciliation.

 

A provision of Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was the implementation of the Global Intangible-Low Taxed Income Tax, or “GILTI.” The Company has elected to account for the impact of GILTI in the period in which the tax actually applies to the Company. U.S. GAAP does not prescribe a single required approach for GILTI under ASC Topic 740; entities may either recognize deferred taxes for temporary differences expected to reverse as GILTI or treat GILTI as a period cost. During the year ended December 31, 2025, the Company did not incur any additional taxable income as a result of this provision.

 

As of December 31, 2025, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $50.7 million and $56.7 million, respectively. Federal net operating losses of $5.0 million expire in 2037 for Federal losses generated through December 31, 2017. The federal net operating losses generated in 2018 and future years will be carried forward indefinitely.

 

In July 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted and effective and made significant changes to Federal tax laws, including certain changes that were effective for the 2025 tax year. Changes in tax laws are accounted for in the period of enactment and the retroactive effects are recognized in these financial statements. There were no material income tax consequences of this enacted legislation on the reporting period of these financial statements.

 

 

The Company is subject to possible examinations not yet initiated for Federal purposes for the fiscal years 2022, 2023, and 2024. In most cases, the Company has examinations open for state or local jurisdictions based on the particular jurisdiction’s statute of limitations.

 

Estimated amounts related to underpayment of income taxes, including interest and penalties, were not material for the years ended December 31, 2025 and 2024. Amounts accrued for estimated underpayment of income taxes were zero as of December 31, 2025 and 2024.