Kingsway Financial Services Inc. (NYSE:KFS) Q2 2024 Earnings Conference Call August 6, 2024 5:00 PM ET Company Participants James Carbonara - Investor Relations John T. Fitzgerald - Chief Executive Officer Kent A. Hansen - Executive Vice President and Chief Financial Officer Conference Call Participants Adam Patinkin - David Capital Operator Good day, and welcome to the Kingsway Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will fo ...

Exhibit 99.1 KINGSWAY REPORTS FIRST QUARTER 2024 FINANCIAL RESULTS Management to Host Conference Call Today at 5 p.m. ET Management to Host Investor Day on Monday, May 20 in New York City Chicago - (May 8, 2024) - (NYSE: KFS) Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its operating results for the three months ended March 31, 2024. First Quarter 2024 Consolidated Financial Highlights Recent Business Highlights ● On March 22, 2024, the Company entered into a one-year exten ...

FORM 10-Q (Mark One) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended March 31, 2024 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _____ to _____ Commission File Number: 001-15204 Kingsway Financial Services Inc. (Exact name of registrant as specified in its charter) Delaware (State or other ...

Financial Data and Key Metrics Changes - Consolidated revenue for 2023 was $103.2 million, an increase of 11% from the previous year, with consolidated adjusted EBITDA of $9.1 million [20][33] - The extended warranty segment reported revenue of $68.2 million in 2023, down from pro forma revenue of $74 million in 2022, with adjusted EBITDA decreasing to $8.4 million from $10.7 million [13][20] - Total expenses were $1.3 million in 2023 compared to $600,000 in 2022, primarily due to an increase in holding company expenses [27] Business Line Data and Key Metrics Changes - The KSX segment reported revenue of $35 million in 2023, up from $19.2 million in 2022, with adjusted EBITDA increasing to $5.7 million from $3.8 million [36] - DDI demonstrated significant growth with revenues increasing over 30% year-over-year in the initial months of ownership [23][45] - The maintenance support business revenues were negatively impacted by smaller job sizes and mild weather conditions, leading to fewer service calls [4] Market Data and Key Metrics Changes - Claims severity began to moderate in Q4 2023 as inflation related to parts and labor receded, allowing for better management of operating expenses [21] - The demand for nurse staffing is projected to remain strong due to a persistent shortage of registered nurses over the next decade [14] Company Strategy and Development Direction - The company aims to continue its growth through acquisitions, targeting two to three new acquisitions per year that meet specific criteria [25][38] - The M&A environment is viewed as more favorable than in the previous year, with a strong pipeline of potential acquisition opportunities [24][38] - The focus remains on operational excellence and strategically deploying excess cash flows to grow the portfolio of businesses [25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery of the warranty business in 2024, despite a challenging 2023 [2][47] - The company is committed to disciplined decision-making in its acquisition strategy, with confidence in the quality of its pipeline [24][38] - Management highlighted the importance of building internal processes and infrastructure to support growth in newly acquired businesses [45][69] Other Important Information - The company repurchased a significant amount of its trust preferred debt, simplifying its balance sheet and enhancing financial flexibility [28][33] - Cash and cash equivalents decreased to $9.1 million at the end of 2023 from $64.2 million at the end of 2022, primarily due to significant cash outflows related to debt repurchases [28] Q&A Session Summary Question: Update on VA Lafayette process - The company is currently under a Letter of Intent (LOI) for the VA Lafayette asset, progressing through the sale process [42] Question: Transition performance of SPI and DDI - The transitions for SPI and DDI have gone smoothly, with DDI experiencing rapid growth and SPI focusing on organic growth opportunities [43][45][59] Question: Demand for nurses and challenges in hiring travel nurses - The demand for travel nurses has been impacted by hospitals reducing reliance on contingent labor, but the per diem business remains strong [65]

[Company Announcement & Overview](index=1&type=section&id=Company%20Announcement%20%26%20Overview) [Press Release & Key Dates](index=1&type=section&id=1.1%20Press%20Release%20%26%20Key%20Dates) Kingsway Financial Services Inc. released its FY2023 full-year operating results on March 5, 2024, and announced an Investor Day on May 20, 2024, at the NYSE - Release Date: **March 5, 2024**[1](index=1&type=chunk) - Announcement Content: **FY2023 full-year operating results**[1](index=1&type=chunk) - Investor Day: **May 20, 2024**, at the New York Stock Exchange[1](index=1&type=chunk) [About the Company & Business Segments](index=2&type=section&id=1.2%20About%20the%20Company%20%26%20Business%20Segments) Kingsway is a holding company operating in extended warranty and commercial services through subsidiaries, with common stock listed on the NYSE - Company Description: Holding company, primarily operating in **extended warranty and commercial services**[12](index=12&type=chunk) - Stock Listing: New York Stock Exchange, ticker symbol **“KFS”**[12](index=12&type=chunk) - Extended Warranty Subsidiaries: **IWS, Penn Warranty, Preferred Warranties, Trinity Warranty Solutions**[13](index=13&type=chunk) - Commercial Services Subsidiaries (KSX): **CSuite, Ravix, Secure Nursing Service, Digital Diagnostics, Inc.**[13](index=13&type=chunk) [Full Year 2023 Financial Performance](index=1&type=section&id=Full%20Year%202023%20Financial%20Performance) [Consolidated Financial Highlights](index=1&type=section&id=2.1%20Consolidated%20Financial%20Highlights) Kingsway achieved 11% consolidated revenue growth to $103.2 million in FY2023, driven by KSX, with net income rising to $24 million but adjusted EBITDA decreasing to $9.1 million FY2023 Consolidated Financial Data | Metric | FY2023 (Millions) | FY2022 (Millions) | Change (%) | | :----------------------- | :---------------- | :---------------- | :--------- | | Consolidated Revenue | $103.2 | $93.3 | +11% | | Consolidated Net Income | $24.0 | $15.1 | +58.9% | | Adjusted Consolidated EBITDA | $9.1 | $11.1 | -18.1% | - Operating companies' 12-month run-rate adjusted EBITDA is **$17 million to $18 million**, reflecting profitability of current or recently acquired businesses[4](index=4&type=chunk) [Segment Performance](index=1&type=section&id=2.2%20Segment%20Performance) The KSX segment showed strong revenue and adjusted EBITDA growth due to recent acquisitions, while the Extended Warranty segment declined due to the PWSC sale and increased claims, though severity eased by year-end [Extended Warranty Segment](index=1&type=section&id=2.2.1%20Extended%20Warranty%20Segment) Extended Warranty revenue decreased to $68.2 million in 2023, with $4.9 million of the $5.8 million decline attributed to the PWSC sale, and adjusted EBITDA fell to $8.4 million due to lower revenue and higher claims, despite year-end stabilization Extended Warranty Segment Key Financial Data | Metric | FY2023 (Millions) | FY2022 (Millions) | Change (YoY) | | :-------------------------------- | :---------------- | :---------------- | :----------- | | Extended Warranty Revenue | $68.2 | $74.0 | -$5.8M (-7.8%) | | Extended Warranty Adjusted EBITDA | $8.4 | $10.7 (pro forma) | -$2.3M (-21.5%) | - Revenue decline of **$4.9 million** attributed to the sale of PWSC in July 2022[4](index=4&type=chunk) - Average claims costs significantly increased in Q2 and Q3 2023, but began to **stabilize by year-end**[4](index=4&type=chunk) [Kingsway Search Xcelerator (KSX) Segment](index=1&type=section&id=2.2.2%20Kingsway%20Search%20Xcelerator%20(KSX)%20Segment) KSX revenue surged 82% to $35 million in 2023, and adjusted EBITDA grew 50% to $5.7 million, primarily driven by strategic acquisitions in late 2022 and 2023 KSX Segment Key Financial Data | Metric | FY2023 (Millions) | FY2022 (Millions) | Change (YoY) | | :---------------------- | :---------------- | :---------------- | :----------- | | KSX Revenue | $35.0 | $19.2 | +$15.8M (+82%) | | KSX Adjusted EBITDA | $5.7 | $3.8 | +$1.9M (+50%) | - Revenue and EBITDA growth primarily driven by acquisitions of **CSuite and SNS (Nov 2022), SPI (Sep 2023), and DDI (Oct 2023)**[4](index=4&type=chunk)[7](index=7&type=chunk) [Business Developments & Strategy](index=1&type=section&id=Business%20Developments%20%26%20Strategy) [Recent Business Highlights](index=1&type=section&id=3.1%20Recent%20Business%20Highlights) Kingsway appointed Paul Vidal as OIR for KSX, bringing AI robotics expertise, and Tyler Gordy joined the Strategic Advisory Board, while acquisitions of SPI and DDI in 2023 further expanded the KSX portfolio - New Appointment (OIR): **Paul Vidal** joined the KSX segment, previously Head of Operations at GrayMatter Robotics (AI industrial robotics company)[4](index=4&type=chunk) - New Appointment (Strategic Advisory Board): **Tyler Gordy**, former CEO of PWSC[4](index=4&type=chunk) - Acquisitions: **SPI in September 2023** and **DDI in October 2023**, both integrated into the KSX platform[4](index=4&type=chunk)[7](index=7&type=chunk) [Management's Strategic Commentary](index=2&type=section&id=3.2%20Management's%20Strategic%20Commentary) CEO John T. Fitzgerald noted FY2023 results met expectations, driven by KSX acquisitions, while the Extended Warranty segment faced macroeconomic and claims challenges, with KSX remaining central to growth and shareholder returns, targeting 2-3 acquisitions annually - FY2023 Performance: Generally met expectations, with **11% revenue growth** driven by KSX acquisitions[5](index=5&type=chunk) - Extended Warranty Challenges: Affected by macroeconomic conditions and increased claims severity, but **claims severity eased by late 2023**[6](index=6&type=chunk) - Strategic Focus: **KSX platform** is central to growing cash flow and enhancing shareholder returns[7](index=7&type=chunk) - Acquisition Strategy: Target **two to three acquisitions annually**, with four OIRs actively seeking investment targets[7](index=7&type=chunk) - Integration Success: **SPI and DDI** transitions were smooth and performed well[7](index=7&type=chunk) [Financing & Investor Relations](index=2&type=section&id=Financing%20%26%20Investor%20Relations) [Recent Financing Highlights](index=2&type=section&id=4.1%20Recent%20Financing%20Highlights) As of February 29, 2024, Kingsway repurchased warrants and common shares for $7.2 million, generated $16.7 million from warrant exercises in 2023, reduced net debt to $35.3 million, and repurchased trust preferred debt at a discount, achieving over 20% IRR Recent Financing Activities | Metric | Value | Period | | :-------------------------------- | :---------------- | :---------------- | | Warrants Repurchased | 1,093,861 | Through Feb 29, 2024 | | Common Shares Repurchased | 430,727 | Through Feb 29, 2024 | | Combined Repurchase Cost | $7.2 million | Through Feb 29, 2024 | | Cash from Warrant Exercises | $16.7 million | FY2023 | | Warrants Outstanding | None | After Sep 15, 2023 | | Principal Debt Payments | $9.1 million | FY2023 | | Total Net Debt (Dec 31, 2023) | $35.3 million | End of FY2023 | | Total Net Debt (Dec 31, 2022) | $37.9 million | End of FY2022 | - Repurchased trust preferred debt in March 2023, repaying **$96.7 million** principal and deferred interest at **60.8 cents** on the dollar, achieving over **20% IRR**[12](index=12&type=chunk) [Investor Conference & Events](index=2&type=section&id=4.2%20Investor%20Conference%20%26%20Events) Management held a conference call on March 5, 2024, to discuss results, and Kingsway will host an Investor Day on May 20, 2024, at the NYSE following its annual meeting - Conference Call Date: **March 5, 2024**, 5:00 PM ET[9](index=9&type=chunk)[10](index=10&type=chunk) - Investor Day Date: **May 20, 2024**, 9:30 AM ET, at the New York Stock Exchange[10](index=10&type=chunk) - Investor Day Contact: **James Carbonara**[12](index=12&type=chunk) [Non-GAAP Measures & Disclosures](index=3&type=section&id=Non-GAAP%20Measures%20%26%20Disclosures) [Non-GAAP Financial Measure Explanation](index=3&type=section&id=5.1%20Non-GAAP%20Financial%20Measure%20Explanation) Management believes non-GAAP adjusted EBITDA provides useful operational insights and enhances financial performance evaluation by enabling more meaningful comparisons across periods, serving as a supplement to GAAP results - Non-GAAP Adjusted EBITDA Purpose: Provides operational performance insights, enhances financial assessment, and enables **more meaningful cross-period comparisons**[14](index=14&type=chunk) - Management Use: Utilized for **planning, budgeting, and reviewing business performance**[14](index=14&type=chunk) - Investor Guidance: Should be considered a **supplement to GAAP measures**, not a substitute or superior metric[14](index=14&type=chunk) [Forward-Looking Statements & Additional Information](index=3&type=section&id=5.2%20Forward-Looking%20Statements%20%26%20Additional%20Information) This press release contains forward-looking statements subject to risks and uncertainties, with investors advised to consult SEC filings for risk factors, and the company disclaims any obligation to update these statements - Statement Nature: Contains **“forward-looking statements”** subject to risks and uncertainties[15](index=15&type=chunk) - Risk Disclosure: Refer to the **“Risk Factors”** section in the company’s 2023 10-K annual report and subsequent 10-Q and 8-K filings[15](index=15&type=chunk) - Disclaimer: The company assumes **no obligation to update or revise** any forward-looking statements[15](index=15&type=chunk) - Information Access: Available via **SEC (www.sec.gov), CSA (www.sedar.com)** websites, or the company’s website **(www.kingsway-financial.com)**[16](index=16&type=chunk) [Detailed Financial Reconciliations](index=4&type=section&id=Detailed%20Financial%20Reconciliations) [Consolidated GAAP Net Income (Loss) to Non-GAAP Adjusted EBITDA Reconciliation](index=4&type=section&id=6.1%20Consolidated%20GAAP%20Net%20Income%20(Loss)%20to%20Non-GAAP%20Adjusted%20EBITDA%20Reconciliation) This section provides a detailed reconciliation of GAAP net income (loss) to non-GAAP adjusted EBITDA for 2023 and 2022, including adjustments for discontinued operations, debt extinguishment, and other non-recurring items Consolidated GAAP Net Income (Loss) to Non-GAAP Adjusted EBITDA Reconciliation | Metric | 12 Months Ended 12/31/23 (Thousands) | 12 Months Ended 12/31/22 (Thousands) | | :------------------------------------------ | :----------------------- | :----------------------- | | GAAP Net Income (Loss) | $24,012 | $15,065 | | Non-GAAP Adjustments (Total) | $(14,914) | $(3,936) | | Non-GAAP Adjusted EBITDA | $9,098 | $11,129 | - Key 2023 adjustments include **$31.6 million** gain on debt extinguishment and **$1.5 million** from discontinued operations[18](index=18&type=chunk) - Key 2022 adjustments include **$26.4 million** gain on PWSC sale and **$15.1 million** from discontinued operations[18](index=18&type=chunk) [Extended Warranty Segment GAAP Operating Income to Non-GAAP Adjusted EBITDA Reconciliation](index=6&type=section&id=6.2%20Extended%20Warranty%20Segment%20GAAP%20Operating%20Income%20to%20Non-GAAP%20Adjusted%20EBITDA%20Reconciliation) This reconciliation details adjustments from GAAP operating income to non-GAAP adjusted EBITDA for the Extended Warranty segment in 2023 and 2022, including investment income, gains/losses on sales, depreciation, and pro forma EBITDA excluding PWSC Extended Warranty Segment GAAP Operating Income to Non-GAAP Adjusted EBITDA Reconciliation | Metric | 12 Months Ended 12/31/23 (Thousands) | 12 Months Ended 12/31/22 (Thousands) | | :------------------------------------------ | :----------------------- | :----------------------- | | GAAP Operating Income for Extended Warranty segment | $6,983 | $9,879 | | Non-GAAP Adjustments (Total) | $1,443 | $1,720 | | Non-GAAP Adjusted EBITDA for Extended Warranty segment | $8,426 | $11,599 | | Pro forma Non-GAAP adjusted EBITDA for Extended Warranty segment (excluding PWSC) | N/A | $10,667 | - 2022 pro forma adjusted EBITDA excludes PWSC performance to provide a comparable view after its **July 2022 sale**[21](index=21&type=chunk)[22](index=22&type=chunk) [KSX Segment GAAP Operating Income to Non-GAAP Adjusted EBITDA Reconciliation](index=7&type=section&id=6.3%20KSX%20Segment%20GAAP%20Operating%20Income%20to%20Non-GAAP%20Adjusted%20EBITDA%20Reconciliation) This section provides a reconciliation of KSX segment GAAP operating income to non-GAAP adjusted EBITDA for 2023 and 2022, with key adjustments for transition-related employee costs and depreciation KSX Segment GAAP Operating Income to Non-GAAP Adjusted EBITDA Reconciliation | Metric | 12 Months Ended 12/31/23 (Thousands) | 12 Months Ended 12/31/22 (Thousands) | | :------------------------------------------ | :----------------------- | :----------------------- | | GAAP Operating Income for KSX segment | $5,252 | $3,548 | | Non-GAAP Adjustments (Total) | $404 | $235 | | Non-GAAP Adjusted EBITDA for KSX segment | $5,656 | $3,783 | - Employee cost adjustments relate to staff providing assistance during the **post-acquisition transition period**[23](index=23&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _____ to _____ Commission File Number 001-15204 Kingsway Financial Services Inc. Delaware 85-1792291 (State or other jurisdiction of incorporation or organization) (I.R.S. Em ...

Financial Data and Key Metrics Changes - Consolidated revenue for Q3 2023 was $24.8 million, an increase of 11% from the previous year, while consolidated adjusted EBITDA decreased to $2.3 million from $3.6 million in the prior year [22][31] - Loss from continuing operations was $797,000 for Q3 2023 compared to income of $38.9 million in the same quarter last year, which included a one-time net gain of $37.9 million from the sale of PWSC [11] - Trailing 12-month adjusted EBITDA run rate increased to a range of $19 million to $20 million, up from the previous range of $18 million to $19 million [10][36] Business Line Data and Key Metrics Changes - Extended Warranty segment revenue was $17.3 million in Q3 2023, down from pro forma revenue of $17.9 million a year ago, with adjusted EBITDA declining to $2.1 million from $3.8 million [24][12] - KSX segment revenue increased to $7.5 million in the current quarter from $3.8 million a year ago, with adjusted EBITDA rising to $1.1 million from $0.8 million [6][52] - CSuite delivered a gross margin of 35.6% but faced lower-than-expected revenues due to a disrupted pipeline during the acquisition process [14][82] Market Data and Key Metrics Changes - VSA revenues were down only 1.1% from the prior year, attributed to payment pressures on consumers from higher interest rates and used car prices [50] - Claims in the VSA segment increased by $600,000 compared to the prior year, driven by rising labor and parts costs [51] - SNS experienced a shift from higher-margin travel assignments to per diem assignments, with a 20% decrease in total shifts compared to the previous year [53] Company Strategy and Development Direction - The company aims to target 2 to 3 new acquisitions per year that fit its acquisition criteria and generate annualized EBITDA of $1.5 million to $3 million each [29] - The company is focused on operational excellence while strategically deploying capital for sustainable long-term growth and positive cash flow [29] - The company continues to believe in the long-term health of the Extended Warranty business despite current challenges [13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged persistent macro-level revenue headwinds impacting consumers, including tighter credit conditions and high used car prices [4] - The management expressed confidence in the long-term demand for nurse staffing despite current challenges in the SNS segment [26] - Management highlighted the importance of maintaining a disciplined approach to acquisitions and ensuring adequate covenant headroom in the current interest rate environment [85] Other Important Information - The company completed the acquisition of SPI in September and DDI in October, with plans to acquire 95% of NICR [7][8][23] - The company repurchased a significant amount of its securities, with $16.7 million received from warrant exercises and $3.3 million from the sale of Limbach stock [35][55] - Total outstanding debt decreased to $40.9 million at the end of Q3 2023, down from $102.1 million at the end of the previous year [16] Q&A Session Summary Question: What is the run rate EBITDA pro forma for the recent acquisitions? - The run rate EBITDA pro forma for recent acquisitions is now in the range of $19 million to $20 million [60] Question: What is the pro forma debt at KFS? - Pro forma debt, including new acquisitions, is estimated at $29.5 million [61] Question: How does management feel about levered acquisitions given the current interest rate environment? - Management indicated a conservative approach to leverage, maintaining a senior funded debt-to-EBITDA ratio of 3x or less at closing [85] Question: Does management have a lower bound for interest coverage? - Management would pull back on acquisitions if interest coverage fell below 1x, emphasizing the importance of maintaining adequate coverage ratios [86]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended September 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _____ to _____ Commission File Number: 001-15204 Kingsway Financial Services Inc. (Exact name of registrant as specified in its charter) Delaware (State or ot ...

Kingsway Financial Services Inc. (NYSE:KFS) Q2 2023 Results Conference Call August 8, 2023 5:00 PM ET Company Participants J.T. Fitzgerald - Chief Executive Officer Kent Hansen - Chief Financial Officer Conference Call Participants Adam Patinkin - David Capital Douglas Ott - Andvari Associates Operator Good day, and welcome to the Kingsway's Second Quarter 2023 Earnings Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions and comments afte ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the unaudited consolidated financial statements of Kingsway Financial Services Inc. for the periods ended June 30, 2023, and December 31, 2022, including balance sheets, statements of operations, comprehensive (loss) income, shareholders' equity, and cash flows, along with detailed notes explaining accounting policies, significant transactions, and financial instrument valuations [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements of Kingsway Financial Services Inc. for the periods ended June 30, 2023, and December 31, 2022, including balance sheets, statements of operations, comprehensive (loss) income, shareholders' equity, and cash flows, along with detailed notes explaining accounting policies, significant transactions, and financial instrument valuations [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202023%20%28unaudited%29%20and%20December%2031%2C%202022) The consolidated balance sheets provide a snapshot of the company's financial position at June 30, 2023, and December 31, 2022, highlighting changes in assets, liabilities, and equity **Consolidated Balance Sheet Highlights (in thousands):** | Metric | June 30, 2023 | December 31, 2022 | Change (2023 vs 2022) | | :-------------------------------- | :------------ | :---------------- | :-------------------- | | Total Assets | $195,344 | $285,650 | $(90,306) | | Total Liabilities | $173,424 | $263,529 | $(90,105) | | Total Shareholders' Equity | $21,920 | $16,108 | $5,812 | | Cash and cash equivalents | $14,162 | $64,168 | $(50,006) | | Subordinated debt, at fair value | $12,544 | $67,811 | $(55,267) | - Total Assets decreased by **$90.3 million**, primarily driven by a significant reduction in cash and cash equivalents and limited liability investments, at fair value[8](index=8&type=chunk) - Total Liabilities decreased by **$90.1 million**, largely due to a substantial reduction in subordinated debt following repurchases[8](index=8&type=chunk) - Total Shareholders' Equity increased by **$5.8 million**, mainly due to an increase in additional paid-in capital and a decrease in accumulated deficit, partially offset by a decrease in accumulated other comprehensive income[8](index=8&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022%20%28unaudited%29) This statement details the company's revenues, expenses, and net income (loss) for the three and six months ended June 30, 2023 and 2022 **Consolidated Statements of Operations Highlights (in thousands, except per share data):** | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total revenues | $26,197 | $23,590 | $52,586 | $46,046 | | Operating income | $393 | $1,528 | $1,281 | $770 | | Net (loss) income | $(1,667) | $(2,365) | $26,172 | $(4,869) | | Basic (loss) earnings per share - net (loss) income | $(0.06) | $(0.12) | $1.07 | $(0.24) | | Diluted (loss) earnings per share - net (loss) income | $(0.06) | $(0.12) | $0.98 | $(0.24) | - Total revenues increased by **11.0%** for the three months and **14.2%** for the six months ended June 30, 2023, compared to the same periods in 2022[11](index=11&type=chunk) - Net income significantly improved to **$26.172 million** for the six months ended June 30, 2023, from a net loss of **$(4.869) million** in the prior year, primarily driven by a **$31.616 million** gain on extinguishment of debt[11](index=11&type=chunk) - Basic and diluted EPS for the six months ended June 30, 2023, turned positive to **$1.07** and **$0.98**, respectively, from losses in the prior year[11](index=11&type=chunk) [Consolidated Statements of Comprehensive (Loss) Income](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20%28Loss%29%20Income%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022%20%28unaudited%29) This statement presents the net (loss) income and other comprehensive (loss) income, leading to total comprehensive (loss) income for the periods **Consolidated Statements of Comprehensive (Loss) Income Highlights (in thousands):** | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net (loss) income | $(1,667) | $(2,365) | $26,172 | $(4,869) | | Other comprehensive (loss) income, net of taxes | $(674) | $5,401 | $(27,858) | $5,194 | | Comprehensive (loss) income | $(2,341) | $3,036 | $(1,686) | $325 | | Comprehensive (loss) income attributable to common shareholders | $(2,104) | $2,735 | $(1,461) | $(83) | - Other comprehensive (loss) income for the six months ended June 30, 2023, was a loss of **$(27.858) million**, a significant decrease from a gain of **$5.194 million** in the prior year, primarily due to reclassification adjustments for debt fair value changes[14](index=14&type=chunk) - Comprehensive (loss) income attributable to common shareholders for the six months ended June 30, 2023, was a loss of **$(1.461) million**, compared to a loss of **$(0.083) million** in the prior year[14](index=14&type=chunk) [Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) This statement details changes in the company's shareholders' equity, including common stock, additional paid-in capital, and accumulated deficit **Shareholders' Equity Highlights (in thousands, except share data):** | Metric | June 30, 2023 | December 31, 2022 | Change | | :------------------------------------------------ | :------------ | :---------------- | :------- | | Common Stock Shares Outstanding | 25,431,552 | 23,190,080 | 2,241,472 | | Additional Paid-in Capital | $371,118 | $359,985 | $11,133 | | Accumulated Deficit | $(344,025) | $(370,427) | $26,402 | | Accumulated Other Comprehensive (Loss) Income | $(1,258) | $26,605 | $(27,863) | | Total Shareholders' Equity | $21,920 | $16,108 | $5,812 | - The increase in common shares outstanding is primarily due to the conversion of redeemable Class A preferred stock and the exercise of Series B warrants[21](index=21&type=chunk) - Accumulated deficit decreased by **$26.4 million**, reflecting the net income reported for the six months ended June 30, 2023[21](index=21&type=chunk) - Accumulated other comprehensive income shifted from a gain to a loss, primarily due to reclassification adjustments related to debt extinguishment[21](index=21&type=chunk) [Consolidated Statements of Cash Flows](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202023%20and%202022%20%28unaudited%29) This statement summarizes the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 **Consolidated Statements of Cash Flows Highlights (in thousands):** | Activity | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | | Net cash (used in) provided by operating activities | $(8,299) | $6,246 | | Net cash provided by (used in) investing activities | $15,128 | $(2,185) | | Net cash used in financing activities | $(60,315) | $(7,764) | | Net decrease in cash and cash equivalents and restricted cash from continuing operations | $(53,452) | $(2,759) | - Operating activities shifted from providing **$6.246 million** in cash in 2022 to using **$(8.299) million** in 2023, primarily due to indemnity payments and management fees[24](index=24&type=chunk) - Investing activities provided **$15.128 million** in cash in 2023, a significant improvement from using **$(2.185) million** in 2022, mainly from distributions from limited liability investments and proceeds from fixed maturities[24](index=24&type=chunk) - Financing activities used **$(60.315) million** in cash in 2023, substantially higher than **$(7.764) million** in 2022, primarily due to the repurchase of subordinated debt[24](index=24&type=chunk) [Notes to Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20%28unaudited%29) These notes provide detailed explanations of the accounting policies, significant transactions, and financial instrument valuations underlying the consolidated financial statements [NOTE 1 BUSINESS](index=14&type=section&id=NOTE%201%20BUSINESS) Kingsway Financial Services Inc. is a Delaware-incorporated holding company with operating subsidiaries primarily in the extended warranty and business services industries in the United States - Kingsway Financial Services Inc. is a holding company with operating subsidiaries in the extended warranty and business services industries[27](index=27&type=chunk) [NOTE 2 BASIS OF PRESENTATION](index=14&type=section&id=NOTE%202%20BASIS%20OF%20PRESENTATION) The unaudited consolidated interim financial statements are prepared in accordance with U.S. GAAP for interim information, relying on management estimates and assumptions. They should be read in conjunction with the 2022 Annual Report on Form 10-K - Interim financial statements are unaudited and prepared under U.S. GAAP, requiring management estimates and assumptions[28](index=28&type=chunk)[31](index=31&type=chunk) - Critical accounting estimates include revenue recognition, investment valuations, impairment assessments, deferred income taxes, business combinations, intangible assets, goodwill, deferred contract costs, and fair value assumptions for debt and derivatives[32](index=32&type=chunk) [NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=14&type=section&id=NOTE%203%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Significant accounting policies remain largely unchanged from the 2022 Annual Report, with updates effective January 1, 2023, for Investments and Service Fee Receivables due to the adoption of ASU 2016-13, focusing on expected credit losses - No material changes to significant accounting policies except for updates to Investments and Service Fee Receivables[33](index=33&type=chunk)[34](index=34&type=chunk) - New policy for Investments (Impairments) evaluates intent to sell or credit loss existence for available-for-sale fixed maturities; credit losses are recognized through an allowance[35](index=35&type=chunk)[39](index=39&type=chunk) - Service Fee Receivables now recognize credit losses based on a forward-looking current expected credit losses model, considering historical experience, credit quality, and economic conditions[41](index=41&type=chunk) [NOTE 4 RECENTLY ISSUED ACCOUNTING STANDARDS](index=16&type=section&id=NOTE%204%20RECENTLY%20ISSUED%20ACCOUNTING%20STANDARDS) Effective January 1, 2023, the Company adopted ASU 2016-13, replacing the incurred loss model with an expected loss model for credit losses on financial instruments, with no cumulative-effect adjustment to accumulated deficit. ASU 2023-02, regarding tax credit structures, is not expected to impact the financial statements - Adopted ASU 2016-13 (Financial Instruments-Credit Losses) on January 1, 2023, using a modified retrospective method, with no cumulative-effect adjustment to accumulated deficit[42](index=42&type=chunk)[43](index=43&type=chunk) - ASU 2016-13 replaces the incurred loss model with an expected loss model for various receivables and financial instruments at amortized cost, and modifies impairment measurement for available-for-sale fixed maturities[42](index=42&type=chunk) - ASU 2023-02 (Investments Equity Method and Joint Ventures) is not expected to impact the consolidated financial statements[44](index=44&type=chunk) [NOTE 5 ACQUISITIONS, DISPOSAL AND DISCONTINUED OPERATIONS](index=16&type=section&id=NOTE%205%20ACQUISITIONS%2C%20DISPOSAL%20AND%20DISCONTINUED%20OPERATIONS) Kingsway completed two acquisitions in late 2022 (CSuite Financial Partners, LLC and Secure Nursing Service, Inc.) to expand its Kingsway Search Xcelerator segment. The Company also disposed of Professional Warranty Service Corporation (PWSC) in July 2022 and classified its Leased Real Estate segment as discontinued operations due to strategic shifts and asset sales [Business Combinations](index=16&type=section&id=Business%20Combinations) This section details the acquisitions made by the company to expand its Kingsway Search Xcelerator segment - Acquired **100%** of CSuite Financial Partners, LLC on November 1, 2022, for approximately **$8.5 million** cash, plus potential contingent consideration up to **$3.6 million**[45](index=45&type=chunk)[47](index=47&type=chunk) - Acquired substantially all assets of Secure Nursing Service, Inc. (SNS) on November 18, 2022, for **$11.5 million** cash[49](index=49&type=chunk) - Both CSuite and SNS acquisitions expand the Kingsway Search Xcelerator segment with recurring revenue and low capital intensity businesses[46](index=46&type=chunk)[49](index=49&type=chunk) [Disposal](index=19&type=section&id=Disposal%20%28Professional%20Warranty%20Service%20Corporation%29) This section outlines the disposal of Professional Warranty Service Corporation (PWSC) and its financial impact - Sold Professional Warranty Service Corporation (PWSC) on July 29, 2022, which was an **80%** majority-owned subsidiary[51](index=51&type=chunk) - The sale of PWSC did not represent a strategic shift for the Company and is not presented as a discontinued operation[53](index=53&type=chunk) **PWSC Contribution to Extended Warranty Segment (in thousands):** | Metric | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | | Service fee and commission revenue | $2,100 | $4,200 | | Pre-tax income (loss) | $400 | $(300) | | Pre-tax income (loss) attributable to controlling interest | $300 | $(200) | [Discontinued Operations](index=21&type=section&id=Discontinued%20Operations%20%28Leased%20Real%20Estate%20Segment%29) This section details the reclassification of the Leased Real Estate segment as discontinued operations due to strategic shifts and asset sales - The Leased Real Estate segment (CMC and VA Lafayette) was classified as discontinued operations due to a strategic shift and asset sales, representing over **20%** of total assets[55](index=55&type=chunk)[57](index=57&type=chunk) - CMC's real property was sold on December 29, 2022, for **$44.5 million** gross cash proceeds[58](index=58&type=chunk)[59](index=59&type=chunk) - VA Lafayette, owning LA Real Property, was classified as held for sale at June 30, 2023, and December 31, 2022[61](index=61&type=chunk)[62](index=62&type=chunk) **Income from Discontinued Operations, Net of Taxes (in thousands):** | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Rental revenue | $311 | $3,633 | $630 | $7,300 | | Total expenses | $201 | $2,834 | $413 | $4,993 | | Income from discontinued operations, net of taxes | $110 | $786 | $217 | $2,281 | **Assets and Liabilities Held for Sale (Leased Real Estate, in thousands):** | Category | June 30, 2023 | December 31, 2022 | | :------------------------------------ | :------------ | :---------------- | | Assets held for sale | $19,455 | $19,478 | | Liabilities held for sale | $16,324 | $16,585 | [NOTE 6 INVESTMENTS](index=23&type=section&id=NOTE%206%20INVESTMENTS) The Company's investment portfolio primarily consists of fixed maturities, equity investments, and limited liability investments. Fixed maturities are classified as available-for-sale, with significant unrealized losses primarily due to non-credit related factors. Net investment income decreased for the three months but remained stable for the six months, while equity investments saw significant fair value gains **Total Investments (in thousands):** | Category | June 30, 2023 | December 31, 2022 | | :------------------------------------ | :------------ | :---------------- | | Total fixed maturities (at fair value) | $36,193 | $37,591 | | Equity investments (at fair value) | $2,935 | $153 | | Limited liability investments | $899 | $983 | | Limited liability investments, at fair value | $3,688 | $17,059 | | Total investments | $44,758 | $56,934 | - At June 30, 2023, fixed maturities had **$2.390 million** in gross unrealized losses, primarily due to non-credit related factors, with no intent to sell before recovery[67](index=67&type=chunk)[72](index=72&type=chunk) **Net Investment Income (in thousands):** | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Gross investment income | $360 | $493 | $1,135 | $1,135 | | Investment expenses | $(30) | $(28) | $(67) | $(51) | | Net investment income | $330 | $465 | $1,068 | $1,084 | - Gain on change in fair value of equity investments was **$1.707 million** for the three months and **$2.782 million** for the six months ended June 30, 2023, compared to losses in the prior year, driven by the investment in Limbach Holdings, Inc[83](index=83&type=chunk) [NOTE 7 GOODWILL](index=29&type=section&id=NOTE%207%20GOODWILL) Goodwill decreased slightly by $0.01 million to $45.488 million at June 30, 2023, due to a working capital true-up from the CSuite acquisition. No impairment charges were recorded for the periods presented **Goodwill Activity (in thousands):** | Segment | December 31, 2022 | Measurement Period Adjustment | June 30, 2023 | | :-------------------- | :---------------- | :---------------------------- | :------------ | | Extended Warranty | $31,153 | $0 | $31,153 | | Kingsway Search Xcelerator | $13,613 | $(10) | $13,603 | | Corporate | $732 | $0 | $732 | | Total | $45,498 | $(10) | $45,488 | - Goodwill is assessed for impairment annually as of November 30, or more frequently if circumstances indicate recoverability issues. No impairment charges were recorded for the three and six months ended June 30, 2023 and 2022[86](index=86&type=chunk) [NOTE 8 INTANGIBLE ASSETS](index=29&type=section&id=NOTE%208%20INTANGIBLE%20ASSETS) Net intangible assets decreased to $30.271 million at June 30, 2023, from $33.099 million at December 31, 2022, primarily due to amortization. Trade names, with indefinite useful lives, are not amortized and were assessed for impairment qualitatively and quantitatively, with no impairment recorded **Intangible Assets (in thousands):** | Category | June 30, 2023 Net Carrying Value | December 31, 2022 Net Carrying Value | | :------------------------------------ | :------------------------------- | :------------------------------- | | Customer relationships | $15,984 | $18,812 | | Trade names | $14,287 | $14,287 | | Total | $30,271 | $33,099 | - Amortization of intangible assets was **$1.4 million** for the three months and **$2.8 million** for the six months ended June 30, 2023[87](index=87&type=chunk) - Indefinite-lived intangible assets (trade names) are assessed for impairment annually; no impairment charges were recorded for the periods presented[88](index=88&type=chunk) [NOTE 9 PROPERTY AND EQUIPMENT](index=32&type=section&id=NOTE%209%20PROPERTY%20AND%20EQUIPMENT) Net property and equipment decreased to $0.640 million at June 30, 2023, from $0.773 million at December 31, 2022. Depreciation expense was $0.1 million for both the three and six months ended June 30, 2023 **Property and Equipment (in thousands):** | Category | June 30, 2023 Carrying Value | December 31, 2022 Carrying Value | | :------------------------------------ | :----------------------------- | :----------------------------- | | Leasehold improvements | $235 | $279 | | Furniture and equipment | $48 | $56 | | Computer hardware | $357 | $438 | | Total | $640 | $773 | - Depreciation expense on property and equipment was **$0.1 million** for the three months ended June 30, 2023 and 2022, and **$0.1 million** and **$0.2 million** for the six months ended June 30, 2023 and 2022, respectively[91](index=91&type=chunk) [NOTE 10 DERIVATIVES](index=32&type=section&id=NOTE%2010%20DERIVATIVES) The Company holds an interest rate swap to manage variable interest rate exposure on its 2020 KWH Loan, recorded at fair value as an asset. Additionally, the Company entered into and subsequently exercised Trust Preferred Debt Repurchase Options (TruPs Options) in early 2023, which were derivative contracts measured at fair value, resulting in a $1.4 million loss on change in fair value for the six months ended June 30, 2023 - Interest rate swap: Notional amount of **$7.7 million** at June 30, 2023, with a fair value asset of **$0.2 million**. Recognized a loss of less than **$0.1 million** for the three months and **$0.1 million** for the six months ended June 30, 2023[94](index=94&type=chunk) - Trust Preferred Debt Repurchase Options (TruPs Options): Derivative contracts entered in Q3 2022, exercised in March 2023. Fair value was **$19.0 million** at December 31, 2022[104](index=104&type=chunk)[105](index=105&type=chunk) - Recognized a loss on change in fair value of TruPs Options contracts of **$1.4 million** for the six months ended June 30, 2023[105](index=105&type=chunk) [NOTE 11 DEBT](index=35&type=section&id=NOTE%2011%20DEBT) Total debt decreased significantly from $102.092 million at December 31, 2022, to $42.045 million at June 30, 2023, primarily due to the repurchase of $75.5 million in Trust Preferred Debt (TruPs) for $56.5 million, resulting in a $31.6 million gain on extinguishment. The Company also has various bank loans (Ravix, SNS, KWH) with floating interest rates and associated covenants **Debt Summary (in thousands):** | Category | June 30, 2023 Carrying Value | December 31, 2022 Carrying Value | | :------------------------------------ | :----------------------------- | :----------------------------- | | Total bank loans | $29,501 | $34,281 | | Subordinated debt (at fair value) | $12,544 | $67,811 | | Total Debt | $42,045 | $102,092 | - Repurchased **$75.5 million** of TruPs principal and **$23.0 million** of deferred interest payable for **$56.5 million** in March 2023, recognizing a **$31.6 million** gain on extinguishment of debt[126](index=126&type=chunk) - Bank loans include 2021 Ravix Loan (**8.75%** interest), 2022 Ravix Loan (**9.00%** interest), SNS Loan (**8.75%** interest), and 2020 KWH Loan (**8.01%** interest), all with various covenants[109](index=109&type=chunk)[110](index=110&type=chunk)[115](index=115&type=chunk)[119](index=119&type=chunk) - The **$55.3 million** decrease in subordinated debt is primarily due to the **$56.1 million** repurchase of TruPs, partially offset by a **$1.1 million** increase in fair value of the remaining TruPs[129](index=129&type=chunk) [NOTE 12 LEASES](index=41&type=section&id=NOTE%2012%20LEASES) The Company has operating leases for office space, with total lease liabilities of $1.260 million at June 30, 2023. Lease costs, including fixed and variable payments, are expensed as incurred **Annual Maturities of Lease Liabilities (in thousands):** | Year | Lease Commitments | | :--- | :---------------- | | 2023 | $233 | | 2024 | $442 | | 2025 | $283 | | 2026 | $220 | | 2027 | $162 | | 2028 and thereafter | $79 | | Total undiscounted lease payments | $1,419 | | Imputed interest | $159 | | Total lease liabilities | $1,260 | - Weighted-average remaining lease term for operating leases was **3.81 years**, with a weighted average discount rate of **5.94%** at June 30, 2023[135](index=135&type=chunk) [NOTE 13 REVENUE FROM CONTRACTS WITH CUSTOMERS](index=41&type=section&id=NOTE%2013%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) Revenue from contracts with customers, primarily from Extended Warranty and Kingsway Search Xcelerator segments, increased to $26.197 million for the three months and $52.586 million for the six months ended June 30, 2023. Deferred service fees increased to $82.833 million, with approximately 50.5% expected to be recognized within one year **Service Fee and Commission Revenue by Type (in thousands):** | Revenue Type | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Vehicle service agreement fees and GAP commissions | $15,034 | $14,832 | $29,869 | $28,135 | | Maintenance support service fees | $930 | $1,394 | $1,884 | $3,192 | | Warranty product commissions | $1,079 | $1,096 | $1,961 | $2,228 | | Homebuilder warranty service fees | $0 | $1,911 | $0 | $3,727 | | Homebuilder warranty commissions | $0 | $211 | $0 | $448 | | Business services consulting fees | $9,154 | $4,146 | $18,872 | $8,316 | | Total service fee and commission revenue | $26,197 | $23,590 | $52,586 | $46,046 | - Business services consulting fees saw significant growth, increasing from **$4.146 million** to **$9.154 million** for the three months and **$8.316 million** to **$18.872 million** for the six months ended June 30, 2023[137](index=137&type=chunk) **Deferred Service Fees (in thousands):** | Metric | June 30, 2023 | | :------------------------------------ | :------------ | | Balance, December 31, 2022 | $82,713 | | Deferral of revenue | $29,819 | | Recognition of deferred service fees | $(29,699) | | Balance, June 30, 2023 | $82,833 | - Deferred contract costs increased to **$13.792 million** at June 30, 2023, from **$13.257 million** at December 31, 2022, with additions exceeding amortization[154](index=154&type=chunk) [NOTE 14 INCOME TAXES](index=45&type=section&id=NOTE%2014%20INCOME%20TAXES) The Company reported income tax expense of $0.213 million for the three months and $0.912 million for the six months ended June 30, 2023, primarily due to state tax expense. A full valuation allowance is maintained for gross deferred tax assets due to uncertainty of future taxable income **Income Tax Expense (Benefit) (in thousands):** | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax (benefit) expense at U.S. statutory income tax rate | $(338) | $(666) | $5,643 | $(1,594) | | Valuation allowance | $240 | $176 | $(5,664) | $469 | | State income tax | $121 | $150 | $610 | $195 | | Income tax expense (benefit) | $213 | $(19) | $912 | $(441) | - The Company maintains a full valuation allowance on its net deferred tax asset due to uncertainty regarding the generation of future taxable income to utilize prior operating losses[155](index=155&type=chunk) - Net deferred income tax liabilities were **$4.3 million** at June 30, 2023, primarily related to indefinite-lived intangible assets and state income tax[157](index=157&type=chunk)[159](index=159&type=chunk) [NOTE 15 (LOSS) EARNINGS PER SHARE](index=47&type=section&id=NOTE%2015%20%28LOSS%29%20EARNINGS%20PER%20SHARE) Basic and diluted earnings per share from continuing operations were $(0.06) for the three months and $1.06 and $0.97, respectively, for the six months ended June 30, 2023. Potentially dilutive securities were excluded from loss periods as their inclusion would be anti-dilutive **Basic and Diluted (Loss) Earnings Per Share (attributable to common shareholders):** | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic EPS - Continuing operations | $(0.06) | $(0.15) | $1.06 | $(0.32) | | Diluted EPS - Continuing operations | $(0.06) | $(0.15) | $0.97 | $(0.32) | | Basic EPS - Net (loss) income | $(0.06) | $(0.12) | $1.07 | $(0.24) | | Diluted EPS - Net (loss) income | $(0.06) | $(0.12) | $0.98 | $(0.24) | **Weighted-Average Shares Outstanding (in '000s):** | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic | 25,295 | 22,883 | 24,681 | 22,883 | | Diluted | 25,295 | 22,883 | 26,850 | 22,883 | - Potentially dilutive securities, including unvested restricted stock awards and warrants, were excluded from diluted EPS calculations in loss periods or when anti-dilutive[160](index=160&type=chunk)[161](index=161&type=chunk) [NOTE 16 STOCK-BASED COMPENSATION](index=49&type=section&id=NOTE%2016%20STOCK-BASED%20COMPENSATION) The Company granted restricted stock awards (RSAs) under its 2013 and 2020 Equity Incentive Plans, with total unamortized compensation expense of $2.9 million at June 30, 2023. Additionally, Ravix and SNS granted restricted common unit awards (RUAs) to officers, with vesting based on service and performance conditions - Total unamortized compensation expense for the Company's Restricted Stock Awards was **$2.9 million** at June 30, 2023[163](index=163&type=chunk)[164](index=164&type=chunk) - Ravix LLC granted **199,000** restricted Class B common unit awards (2021 Ravix RUA) vesting based on service and Ravix/CSuite IRR, with **80,944** unvested shares at June 30, 2023[172](index=172&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) - Pegasus LLC granted **75,000** restricted Class B common unit awards (SNS RUA) vesting based on service and SNS IRR, with **50,000** unvested shares at June 30, 2023[178](index=178&type=chunk)[180](index=180&type=chunk) [NOTE 17 REDEEMABLE CLASS A PREFERRED STOCK](index=52&type=section&id=NOTE%2017%20REDEEMABLE%20CLASS%20A%20PREFERRED%20STOCK) All 149,733 outstanding Class A Preferred Shares were converted into 935,831 common shares during the six months ended June 30, 2023, following the Company's notice of redemption - Zero Class A Preferred Shares outstanding at June 30, 2023, down from **149,733** at December 31, 2022[184](index=184&type=chunk) - During the six months ended June 30, 2023, **149,733** Preferred Shares were converted into **935,831** common shares at a conversion price of **$4.00** per common share[184](index=184&type=chunk) [NOTE 18 SHAREHOLDERS' EQUITY](index=54&type=section&id=NOTE%2018%20SHAREHOLDERS%27%20EQUITY) Shareholders' equity was impacted by the conversion of preferred stock to common stock, increasing additional paid-in capital by $6.1 million. The Company also initiated a $10.0 million security repurchase program, repurchasing 564,970 shares of common stock and warrants for $2.1 million during the three months ended June 30, 2023 - Conversion of **149,733** Preferred Shares resulted in **935,831** common shares and a **$6.1 million** reclassification to additional paid-in capital[185](index=185&type=chunk) - Board approved a **$10.0 million** security repurchase program through March 22, 2024[186](index=186&type=chunk) - Repurchased **564,970** shares of common stock and warrants for approximately **$2.1 million** during the three months ended June 30, 2023[186](index=186&type=chunk) - Warrants to purchase **1,311,941** common shares were exercised during the six months ended June 30, 2023, generating **$6.6 million** in cash proceeds[187](index=187&type=chunk) [NOTE 19 ACCUMULATED OTHER COMPREHENSIVE INCOME](index=54&type=section&id=NOTE%2019%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20INCOME) Accumulated other comprehensive income (loss) attributable to common shareholders shifted from a gain of $26.605 million at January 1, 2023, to a loss of $(1.258) million at June 30, 2023. This change was primarily driven by a $27.177 million reclassification adjustment to gain on extinguishment of debt related to repurchased Trust Preferred Debt (TruPs) **Accumulated Other Comprehensive Income (Loss) (in thousands):** | Component | June 30, 2023 | December 31, 2022 | | :------------------------------------ | :------------ | :---------------- | | Unrealized Losses on Available-for-Sale Investments | $(2,326) | $(2,464) | | Foreign Currency Translation Adjustments | $(3,286) | $(3,286) | | Change in Fair Value of Debt Attributable to Instrument-Specific Credit Risk | $4,354 | $32,355 | | Total Accumulated Other Comprehensive Loss | $(1,258) | $26,605 | - A reclassification adjustment of **$27.177 million** from accumulated other comprehensive income to gain on extinguishment of debt occurred due to the repurchase of TruPs[193](index=193&type=chunk)[194](index=194&type=chunk) [NOTE 20 SEGMENTED INFORMATION](index=57&type=section&id=NOTE%2020%20SEGMENTED%20INFORMATION) Kingsway operates through two reportable segments: Extended Warranty and Kingsway Search Xcelerator. The Leased Real Estate segment was reclassified as discontinued operations. Extended Warranty revenue decreased due to the PWSC disposal and mild weather impacting Trinity, while Kingsway Search Xcelerator revenue significantly increased due to recent acquisitions - Kingsway operates two reportable segments: Extended Warranty and Kingsway Search Xcelerator. The Leased Real Estate segment was reclassified as discontinued operations[195](index=195&type=chunk)[196](index=196&type=chunk) **Revenues by Reportable Segment (in thousands):** | Segment | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Extended Warranty | $17,043 | $19,444 | $33,714 | $37,730 | | Kingsway Search Xcelerator | $9,154 | $4,146 | $18,872 | $8,316 | | Total revenues | $26,197 | $23,590 | $52,586 | $46,046 | **Segment Operating Income (in thousands):** | Segment | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Extended Warranty | $1,392 | $2,936 | $2,824 | $4,659 | | Kingsway Search Xcelerator | $1,616 | $893 | $3,193 | $1,699 | | Total segment operating income | $3,008 | $3,829 | $6,017 | $6,358 | [NOTE 21 FAIR VALUE OF FINANCIAL INSTRUMENTS](index=61&type=section&id=NOTE%2021%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) The Company categorizes financial instruments measured at fair value using a three-level hierarchy. Fixed maturities and interest rate swaps are Level 2, while certain limited liability investments, trust preferred debt repurchase options, and contingent consideration are Level 3, requiring significant unobservable inputs. The fair value of Net Lease's investments, previously measured using NAV, is now zero due to asset sales - Fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), Level 3 (unobservable inputs)[213](index=213&type=chunk) - Fixed maturities are classified as Level 2, valued using market approach with inputs like trades, quoted prices in inactive markets, and credit spreads[212](index=212&type=chunk)[219](index=219&type=chunk) - Limited liability investments, at fair value, contingent consideration, and derivative contracts (TruPs options) are categorized as Level 3, utilizing valuation multiples, discount rates, risk-free rates, and expected volatility as unobservable inputs[220](index=220&type=chunk)[222](index=222&type=chunk)[223](index=223&type=chunk)[230](index=230&type=chunk) **Assets and Liabilities Measured at Fair Value (in thousands):** | Category | June 30, 2023 Total Fair Value | December 31, 2022 Total Fair Value | | :------------------------------------ | :----------------------------- | :----------------------------- | | Total Assets | $43,020 | $74,163 | | Total Liabilities | $15,827 | $71,029 | [NOTE 22 RELATED PARTIES](index=70&type=section&id=NOTE%2022%20RELATED%20PARTIES) The Company's CEO and certain family members hold equity interests in Argo Holdings, managed by Argo Management Group, LLC, a Company subsidiary. Equity holders are required to fund pro rata shares of Capital Calls, though none occurred in the reported periods - John T. Fitzgerald, CEO, and his immediate family members own equity interests in Argo Holdings, managed by Argo Management Group, LLC, a Company subsidiary[235](index=235&type=chunk) - Equity holders in Argo Holdings are required to fund pro rata shares of Capital Calls, but no Capital Calls were made during the six months ended June 30, 2023, or the year ended December 31, 2022[235](index=235&type=chunk) [NOTE 23 COMMITMENTS AND CONTINGENCIES](index=72&type=section&id=NOTE%2023%20COMMITMENTS%20AND%20CONTINGENCIES) The Company faces legal proceedings, including an indemnification obligation to Aegis Security Insurance Company for customs bond losses, with a $0.1 million reimbursement payment made in Q2 2023. It also settled a $2.5 million guarantee related to the Mendota sale. Restricted cash of $9.6 million is held for various purposes, including deposits by subsidiaries and state regulatory authorities - Made a **$0.1 million** reimbursement payment to Aegis Security Insurance Company in Q2 2023 for customs bond losses, with potential exposure up to **$4.8 million**[236](index=236&type=chunk) - Satisfied a **$2.5 million** payment obligation related to open claims from the Mendota sale by releasing **$2.0 million** from escrow in Q1 2023, with no remaining exposure[239](index=239&type=chunk) - Restricted cash totaled **$9.6 million** at June 30, 2023, including **$8.4 million** held as deposits by subsidiaries and **$0.5 million** on deposit with state regulatory authorities[241](index=241&type=chunk)[243](index=243&type=chunk) [NOTE 24 SUBSEQUENT EVENT](index=73&type=section&id=NOTE%2024%20SUBSEQUENT%20EVENT) Between July 1 and August 7, 2023, 450,619 of the Company's outstanding warrants were exercised, generating $2.3 million. As of August 7, 2023, 2,143,506 warrants remained outstanding, expiring on September 15, 2023 - **450,619** warrants were exercised between July 1 and August 7, 2023, generating **$2.3 million**[242](index=242&type=chunk) - As of August 7, 2023, **2,143,506** warrants with a **$5.00** strike price remained outstanding, expiring on September 15, 2023[242](index=242&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=74&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on Kingsway Financial Services Inc.'s financial condition and results of operations for the three and six months ended June 30, 2023. It covers segment performance, investment activities, debt management, liquidity, and capital resources, highlighting the impact of acquisitions, disposals, and debt repurchases on the Company's financial results [FORWARD-LOOKING STATEMENTS](index=74&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section highlights that the report contains forward-looking statements subject to risks and uncertainties, and the company disclaims any obligation to update them - The discussion includes forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[244](index=244&type=chunk) - The Company disclaims any obligation to update or revise forward-looking statements unless required by applicable securities law[244](index=244&type=chunk) [OVERVIEW](index=74&type=section&id=OVERVIEW) Kingsway is a Delaware holding company operating through two reportable segments: Extended Warranty and Kingsway Search Xcelerator, with its Leased Real Estate segment reclassified as discontinued operations - Kingsway is a Delaware holding company with operating subsidiaries in extended warranty and business services, operating through two reportable segments: Extended Warranty and Kingsway Search Xcelerator[245](index=245&type=chunk) - The Extended Warranty segment includes IWS, Geminus, PWI, PWSC (disposed July 2022), and Trinity, offering vehicle protection, home warranties, and HVAC/generator warranty products[247](index=247&type=chunk)[248](index=248&type=chunk)[249](index=249&type=chunk)[250](index=250&type=chunk)[252](index=252&type=chunk)[253](index=253&type=chunk) - The Kingsway Search Xcelerator segment includes CSuite, Ravix, and SNS, providing financial executive services, HR consulting, and healthcare staffing[255](index=255&type=chunk)[256](index=256&type=chunk) - The Leased Real Estate segment (CMC and VA Lafayette) was classified as discontinued operations, with CMC's property sold in December 2022 and VA Lafayette held for sale[246](index=246&type=chunk)[251](index=251&type=chunk) [NON-U.S. GAAP FINANCIAL MEASURE](index=76&type=section&id=NON-U.S.%20GAAP%20FINANCIAL%20MEASURE) This section defines segment operating income as a non-U.S. GAAP financial measure and identifies its nearest comparable U.S. GAAP measure - Segment operating income is presented as a non-U.S. GAAP financial measure, representing pretax profitability of segments by subtracting direct segment expenses from direct segment revenues[257](index=257&type=chunk)[258](index=258&type=chunk) - The nearest comparable U.S. GAAP measure is (loss) income from continuing operations before income tax expense (benefit)[258](index=258&type=chunk) [SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ESTIMATES](index=76&type=section&id=SIGNIFICANT%20ACCOUNTING%20POLICIES%20AND%20CRITICAL%20ESTIMATES) This section states that the preparation of financial statements involves management estimates and assumptions, with no material changes since the 2022 Annual Report - Preparation of financial statements requires management to make estimates and assumptions affecting reported amounts[259](index=259&type=chunk) - No material changes to significant accounting policies and critical estimates since December 31, 2022, as reported in the 2022 Annual Report[261](index=261&type=chunk) [RESULTS OF CONTINUING OPERATIONS](index=77&type=section&id=RESULTS%20OF%20CONTINUING%20OPERATIONS) The Company reported a net income of $26.172 million for the six months ended June 30, 2023, a significant improvement from a loss in the prior year, primarily driven by a $31.6 million gain on extinguishment of debt. Segment operating income decreased overall, with Extended Warranty declining due to the PWSC disposal and increased claims, while Kingsway Search Xcelerator grew significantly from recent acquisitions [Segment Operating Income, (Loss) Income from Continuing Operations and Net (Loss) Income](index=77&type=section&id=Segment%20Operating%20Income%2C%20%28Loss%29%20Income%20from%20Continuing%20Operations%20and%20Net%20%28Loss%29%20Income) This section provides a summary of segment operating income, income from continuing operations, and net income (loss) for the reported periods **Segment Operating Income and Net (Loss) Income (in thousands):** | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total segment operating income | $3,008 | $3,829 | $6,017 | $6,358 | | (Loss) income from continuing operations before income tax expense (benefit) | $(1,564) | $(3,170) | $26,867 | $(7,591) | | Net (loss) income | $(1,667) | $(2,365) | $26,172 | $(4,869) | - Total segment operating income decreased by **$0.8 million** for the three months and **$0.3 million** for the six months ended June 30, 2023, primarily due to the disposal of PWSC and decreased operating income at other Extended Warranty subsidiaries, partially offset by increased operating income from Kingsway Search Xcelerator[263](index=263&type=chunk) - Net income for the six months ended June 30, 2023, was **$26.172 million**, a significant improvement from a loss of **$(4.869) million** in the prior year, largely driven by a **$31.6 million** gain on extinguishment of debt[262](index=262&type=chunk)[267](index=267&type=chunk) [Extended Warranty](index=79&type=section&id=Extended%20Warranty) This section details the performance of the Extended Warranty segment, noting revenue and operating income declines due to the PWSC disposal and increased claims - Extended Warranty service fee and commission revenue decreased by **12.4%** to **$17.0 million** for the three months and to **$33.7 million** for the six months ended June 30, 2023[269](index=269&type=chunk) - Revenue decline was primarily due to the **$2.1 million** decrease from PWSC disposal and a **$0.5 million** decrease at Trinity due to mild weather and long lead times[272](index=272&type=chunk) - Operating income decreased to **$1.4 million** for the three months and **$2.8 million** for the six months ended June 30, 2023, mainly due to increased claims paid at auto Extended Warranty companies from inflationary pressures on parts and labor[270](index=270&type=chunk)[272](index=272&type=chunk)[273](index=273&type=chunk) [Kingsway Search Xcelerator](index=81&type=section&id=Kingsway%20Search%20Xcelerator) This section highlights the significant growth in revenue and operating income for the Kingsway Search Xcelerator segment, driven by recent acquisitions - Kingsway Search Xcelerator revenue increased to **$9.2 million** for the three months and **$18.9 million** for the six months ended June 30, 2023[274](index=274&type=chunk) - Operating income increased to **$1.6 million** for the three months and **$3.2 million** for the six months ended June 30, 2023[274](index=274&type=chunk) - The increases in revenue and operating income are primarily due to the inclusion of CSuite and SNS following their acquisitions in November 2022[274](index=274&type=chunk) [Net Investment Income](index=81&type=section&id=Net%20Investment%20Income) This section reports on the company's net investment income, noting a decrease in Q2 2023 but stable year-to-date performance - Net investment income was **$0.3 million** in Q2 2023, down from **$0.5 million** in Q2 2022, primarily due to decreased income from real estate investments[275](index=275&type=chunk) - Year-to-date net investment income remained stable at **$1.1 million** for both 2023 and 2022[275](index=275&type=chunk) [Net Realized Gains](index=81&type=section&id=Net%20Realized%20Gains) This section details the net realized gains, primarily from Argo Holdings and sales of limited liability investments - Net realized gains were **$0.1 million** in Q2 2023 and **$0.3 million** year-to-date, primarily from Argo Holdings and sales of limited liability investments[276](index=276&type=chunk) [Gain (Loss) on Change in Fair Value of Equity Investments](index=81&type=section&id=Gain%20%28Loss%29%20on%20Change%20in%20Fair%20Value%20of%20Equity%20Investments) This section reports a significant gain on equity investments, primarily driven by the company's investment in Limbach Holdings, Inc - Recorded a gain of **$1.7 million** in Q2 2023 and **$2.8 million** year-to-date on equity investments, a significant improvement from losses in the prior year[277](index=277&type=chunk) - The gain is attributed to the Company's investment in Limbach Holdings, Inc., following an increase in its common stock price and a cashless exercise of warrants[277](index=277&type=chunk) [Gain (Loss) on Change in Fair Value of Limited Liability Investments, at Fair Value](index=81&type=section&id=Gain%20%28Loss%29%20on%20Change%20in%20Fair%20Value%20of%20Limited%20Liability%20Investments%2C%20at%20Fair%20Value) This section discusses the loss reported for limited liability investments at fair value, influenced by Net Lease and Argo Holdings, with Net Lease's investment now at zero - Reported a loss of **$0.1 million** year-to-date for limited liability investments at fair value, compared to a gain of **$0.2 million** in the prior year[278](index=278&type=chunk) - The year-to-date loss reflects a **$0.5 million** decrease in fair value related to Net Lease, partially offset by a **$0.4 million** increase related to Argo Holdings[278](index=278&type=chunk) - The Company's investment in Net Lease is now zero following the sale of its final investment property in Q2 2023[278](index=278&type=chunk) [Loss on Change in Fair Value of Derivative Asset Option Contracts](index=81&type=section&id=Loss%20on%20Change%20in%20Fair%20Value%20of%20Derivative%20Asset%20Option%20Contracts) This section reports a loss related to the change in fair value of derivative asset option contracts, specifically the exercised trust preferred debt repurchase options - A loss of **$1.4 million** was recognized for the six months ended June 30, 2023, related to the change in fair value of derivative asset option contracts[279](index=279&type=chunk) - This loss is associated with the three trust preferred debt repurchase option agreements that the Company entered into and exercised during the first quarter of 2023[279](index=279&type=chunk) [Interest Expense](index=82&type=section&id=Interest%20Expense) This section details the company's interest expense, noting a decrease in Q2 2023 due to debt repurchase but an increase year-to-date from higher LIBOR rates and new bank loans - Interest expense decreased to **$1.1 million** in Q2 2023 from **$1.7 million** in Q2 2022, but increased to **$4.1 million** year-to-date from **$3.1 million** in the prior year[281](index=281&type=chunk) - The Q2 decrease is due to the repurchase of subordinated debt, while the year-to-date increase is from higher LIBOR rates on remaining subordinated debt and new bank loans (SNS, 2022 Ravix)[287](index=287&type=chunk) [Other Revenue and Expenses not Allocated to Segments, Net](index=82&type=section&id=Other%20Revenue%20and%20Expenses%20not%20Allocated%20to%20Segments%2C%20Net) This section discusses the net increase in unallocated expenses, primarily due to management fees paid to managers of Net Lease and Flower - Net expense increased to **$3.8 million** in Q2 2023 from **$3.2 million** in Q2 2022, and to **$6.4 million** year-to-date from **$6.2 million** in the prior year[282](index=282&type=chunk) - The Q2 increase is mainly due to a **$1.5 million** management fee paid to the manager of Net Lease[264](index=264&type=chunk)[283](index=283&type=chunk) - The year-to-date increase is attributable to management fees paid to managers of Flower and Net Lease, partially offset by decreased stock-based compensation expense[284](index=284&type=chunk) [Loss on Change in Fair Value of Debt](index=82&type=section&id=Loss%20on%20Change%20in%20Fair%20Value%20of%20Debt) This section reports on the loss from changes in the fair value of debt, influenced by market rates and credit spread assumptions - Loss on change in fair value of debt decreased to **$0.3 million** in Q2 2023 from **$1.3 million** in Q2 2022, and to less than **$0.1 million** year-to-date from **$3.2 million** in the prior year[285](index=285&type=chunk) - The year-to-date change reflects a **$0.3 million** gain on repurchased TruPs debt and a **$0.3 million** loss on the remaining TruPs debt[285](index=285&type=chunk) - Changes in fair value are primarily influenced by changes in LIBOR and risk-free rates, and credit spread assumptions[286](index=286&type=chunk) [Gain on Extinguishment of Debt](index=84&type=section&id=Gain%20on%20Extinguishment%20of%20Debt) This section details the significant gain recognized from the extinguishment of debt, resulting from the repurchase of Trust Preferred Debt (TruPs) - Recognized a **$31.6 million** gain on extinguishment of debt for the six months ended June 30, 2023[289](index=289&type=chunk) - This gain resulted from the repurchase of **$75.5 million** of Trust Preferred Debt (TruPs) and the removal of related fair value, options, deferred interest, and accumulated other comprehensive income from the balance sheet[289](index=289&type=chunk) [Income Tax Expense (Benefit)](index=84&type=section&id=Income%20Tax%20Expense%20%28Benefit%29) This section reports on the company's income tax expense, primarily due to state taxes, and contrasts it with a prior year benefit from valuation allowance release - Income tax expense was **$0.2 million** in Q2 2023 and **$0.9 million** year-to-date, primarily due to state tax expense[290](index=290&type=chunk) - In Q2 2022, the Company reported an income tax benefit, mainly from the release of a valuation allowance on indefinite-life business interest expense carryforwards[290](index=290&type=chunk) [INVESTMENTS](index=84&type=section&id=INVESTMENTS) The Company's investment portfolio, including cash and restricted cash, totaled $68.5 million at June 30, 2023, a decrease from $134.2 million at December 31, 2022. Fixed maturities constitute the largest portion, with unrealized losses primarily due to non-credit factors. The Company recorded impairment losses related to other investments and limited liability investments at fair value [Portfolio Composition](index=84&type=section&id=Portfolio%20Composition) This section outlines the composition and carrying value of the company's investment portfolio, cash, and restricted cash **Carrying Value of Investments, Cash, and Restricted Cash (in thousands):** | Type of Investment | June 30, 2023 | % of Total | December 31, 2022 | % of Total | | :------------------------------------ | :------------ | :--------- | :---------------- | :--------- | | Total fixed maturities | $36,193 | 52.8% | $37,591 | 28.1% | | Equity investments - common stock | $2,935 | 4.3% | $153 | 0.1% | | Limited liability investments, at fair value | $3,688 | 5.4% | $17,059 | 12.7% | | Total investments | $44,758 | 65.3% | $56,934 | 42.4% | | Cash and cash equivalents | $14,162 | 20.7% | $64,168 | 47.9% | | Restricted cash | $9,618 | 14.0% | $13,064 | 9.7% | | Total | $68,538 | 100.0% | $134,166 | 100.0% | - Total investments, cash, and restricted cash decreased by **$65.6 million** from December 31, 2022, to June 30, 2023[293](index=293&type=chunk) [Investment Impairment](index=84&type=section&id=Investment%20Impairment) This section discusses the company's policy and recorded impairment losses for investments, particularly fixed maturities and other investments - Effective January 1, 2023, the Company adopted ASU 2016-13, requiring credit losses on fixed maturities to be reported in net (loss) income if a credit loss exists and cash flows are insufficient to cover amortized cost[295](index=295&type=chunk) - Recorded an impairment loss of **$0.1 million** related to other investments for the three and six months ended June 30, 2023[296](index=296&type=chunk) - No impairment losses were recorded for available-for-sale fixed maturity investments for the three and six months ended June 30, 2023[296](index=296&type=chunk) - Gross unrealized losses for fixed maturities were **$2.4 million** at June 30, 2023, with no losses attributable to non-investment grade fixed maturities[300](index=300&type=chunk) [DEBT](index=86&type=section&id=DEBT) The Company's debt portfolio includes various bank loans and subordinated debt. A significant event was the repurchase of $75.5 million of Trust Preferred Debt (TruPs) in March 2023, resulting in a $31.6 million gain on extinguishment and a substantial reduction in total subordinated debt. Bank loans carry floating interest rates and specific covenants [Bank Loans](index=86&type=section&id=Bank%20Loans) This section details the company's bank loans, including interest rates, maturities, and associated covenants - The 2020 KWH Loan has an annual interest rate of **8.01%** at June 30, 2023, and matures on December 1, 2025. A second amendment provides for an additional delayed draw term loan of up to **$10.0 million**[302](index=302&type=chunk)[304](index=304&type=chunk) - The 2021 Ravix Loan (**8.75%** interest) and 2022 Ravix Loan (**9.00%** interest) are secured by assets of Ravix and CSuite, with the 2022 Ravix Loan maturing on November 16, 2028[305](index=305&type=chunk)[306](index=306&type=chunk) - The SNS Loan (**8.75%** interest) matures on November 18, 2028, and is secured by SNS assets. All bank loans contain various covenants restricting additional indebtedness, liens, and distributions[308](index=308&type=chunk)[309](index=309&type=chunk) [Subordinated Debt](index=88&type=section&id=Subordinated%20Debt) This section focuses on the company's subordinated debt, highlighting the significant repurchase of Trust Preferred Debt (TruPs) and its impact on debt levels and fair value - In March 2023, the Company repurchased **$75.5 million** of Trust Preferred Debt (TruPs) for **$56.5 million**, resulting in a **$31.6 million** gain on extinguishment[319](index=319&type=chunk) - The repurchase included a credit for **$2.3 million** previously paid for repurchase options[319](index=319&type=chunk) - At June 30, 2023, **$15.0 million** of principal remained outstanding related to one TruPs instrument[319](index=319&type=chunk) - The fair value of subordinated debt increased by **$0.8 million** between December 31, 2022, and June 30, 2023, due to changes in market observable swap rates, credit spread assumptions, and the passage of time[323](index=323&type=chunk)[326](index=326&type=chunk) [RECENTLY ISSUED ACCOUNTING STANDARDS](index=90&type=section&id=RECENTLY%20ISSUED%20ACCOUNTING%20STANDARDS) This section refers to Note 4 for details on recently issued accounting standards applicable to the Company's financial statements - Refer to Note 4 for discussion of recently issued accounting standards applicable to the Company's financial statements[328](index=328&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=90&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The Company's liquidity is primarily met by operations, capital raising, disposals, and investment income. Net cash used in operating activities from continuing operations was $8.6 million for the six months ended June 30, 2023, while investing activities provided $15.1 million. Financing activities used $60.0 million, largely due to subordinated debt repurchases. Holding company liquidity significantly decreased due to these repurchases, but future warrant exercises and available delayed draw term loans could provide additional funds [Cash Flows](index=90&type=section&id=Cash%20Flows) This section summarizes the company's cash flows from operating, investing, and financing activities for continuing operations - Net cash used in operating activities from continuing operations was **$8.6 million** for the six months ended June 30, 2023, primarily due to management fees and an indemnity payment[332](index=332&type=chunk) - Net cash provided by investing activities from continuing operations was **$15.1 million**, mainly from distributions from limited liability investments and fixed maturity sales[333](index=333&type=chunk) - Net cash used in financing activities from continuing operations was **$60.0 million**, primarily due to the **$56.5 million** repurchase of TruPs and principal payments on bank loans[336](index=336&type=chunk) [Holding Company Liquidity](index=92&type=section&id=Holding%20Company%20Liquidity) This section discusses the holding company's liquidity position, noting a significant decrease due to debt repurchases and potential future funding sources - Holding company liquidity was **$5.7 million** at June 30, 2023, a significant decrease from **$48.9 million** at December 31, 2022, primarily due to the repurchase of trust preferred debt[344](index=344&type=chunk)[345](index=345&type=chunk) - The Company is entitled to receive **$3.3 million** of 2022 excess cash flow from KWH in 2023[338](index=338&type=chunk) - Potential future liquidity sources include **$10.7 million** from outstanding warrant exercises and an additional **$10.0 million** available from the KWH Delayed Draw Term Loan[346](index=346&type=chunk) - Management expects existing cash, investments, and anticipated cash flows to be sufficient for working capital and operating expenses for the next twelve months[347](index=347&type=chunk) [REGULATORY CAPITAL](index=94&type=section&id=REGULATORY%20CAPITAL) This section outlines the regulatory capital requirements for Kingsway Reinsurance Corporation and its operational funding needs - Kingsway Reinsurance Corporation (Kingsway Re) is required to maintain minimum statutory capital of **$125,000** by the Barbados regulator[349](index=349&type=chunk) - Kingsway Re operates near the regulatory minimum and requires periodic capital contributions to fund approximately **$0.1 million** in annual operating expenses[349](index=349&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=94&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) As a smaller reporting company, Kingsway Financial Services Inc. is not required to provide quantitative and qualitative disclosures about market risk - The Company is a smaller reporting company and is not required to make disclosures under this Item[350](index=350&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=94&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, with CEO and CFO participation, concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2023, due to an unremediated material weakness related to accounting for complex and nonrecurring transactions, specifically ASU 2014-09. Despite this, management believes the financial statements fairly present the Company's financial condition. A remediation plan is expected to be implemented in 2023 [Evaluation of Disclosure Controls and Procedures](index=94&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on the evaluation of the company's disclosure controls and procedures, concluding they were not effective due to a material weakness - Management concluded that disclosure controls and procedures were not effective as of June 30, 2023[353](index=353&type=chunk) - Ineffectiveness is due to an unremediated material weakness in internal control over financial reporting related to accounting for and disclosure of certain complex and nonrecurring transactions, specifically the adoption and application of ASU 2014-09[353](index=353&type=chunk)[355](index=355&type=chunk) [Material Weaknesses in Internal Control over Financial Reporting](index=94&type=section&id=Material%20Weaknesses%20in%20Internal%20Control%20over%20Financial%20Reporting) This section defines a material weakness and states management's belief that, despite the weakness, the financial statements are fairly presented - A material weakness is defined as a reasonable possibility that a material misstatement of financial statements will not be prevented or detected timely[354](index=354&type=chunk) - Despite the material weakness, management believes the unaudited consolidated financial statements for the three and six months ended June 30, 2023, fairly present the Company's financial condition, results of operations, and cash flows[356](index=356&type=chunk) [Remediation Process](index=94&t