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FG Financial (FGF) - 2020 Q2 - Quarterly Report
FG Financial FG Financial (US:FGF)2020-08-14 12:30

PART I. FINANCIAL INFORMATION Financial Statements The company reported a significant net loss for the first half of 2020, primarily due to unrealized losses on equity investments, with total assets decreasing Consolidated Balance Sheets As of June 30, 2020, total assets were $51.8 million, a decrease from $63.5 million at December 31, 2019, primarily due to a significant drop in the fair value of equity securities, leading to a decrease in shareholders' equity Consolidated Balance Sheet Highlights ($ in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $51,821 | $63,454 | | Equity securities, at fair value | $19,628 | $29,487 | | Cash and cash equivalents | $25,638 | $28,509 | | Total Liabilities | $370 | $539 | | Total Shareholders' Equity | $51,451 | $62,915 | Consolidated Statements of Operations and Comprehensive Income (Loss) For the six months ended June 30, 2020, the company reported a net loss from continuing operations of $10.9 million, primarily driven by a $9.3 million net investment loss from unrealized losses on equity securities Statement of Operations Summary ($ in thousands, except per share data) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Total Revenue | $(9,223) | $734 | | Net Investment Income (Loss) | $(9,277) | $734 | | General & Administrative Expenses | $2,310 | $1,641 | | Net Loss from Continuing Operations | $(10,868) | $(757) | | Net Loss from Discontinued Operations | $– | $(3,677) | | Net Loss | $(10,868) | $(4,434) | | Loss Per Share (Continuing) | $(1.91) | $(0.24) | Consolidated Statement of Cash Flows For the six months ended June 30, 2020, net cash used in operating activities was $2.3 million, a significant shift from the prior-year period, resulting in a $2.9 million decrease in cash and cash equivalents Cash Flow Summary ($ in thousands) | Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $(2,262) | $19 | | Net cash provided by investing activities | $91 | $2,663 | | Net cash used by financing activities | $(700) | $(721) | | Net (decrease) increase in cash | $(2,871) | $1,961 | | Cash at end of period | $25,638 | $32,863 | Notes to Financial Statements The notes detail the company's transformation into a holding company focused on reinsurance, investment management, and real estate following the December 2019 sale of its insurance business - On December 2, 2019, the company completed the sale of its insurance subsidiaries (the "Maison Business") to FedNat Holding Company for $51.0 million, consisting of $25.5 million in cash and $25.5 million in FedNat common stock1920 - The company is implementing a new business plan to operate as a diversified holding company named "Fundamental Global Financial Corporation" (FGFC), focusing on insurance (reinsurance), asset management, and real estate30 - The company formed a reinsurance subsidiary, Fundamental Global Reinsurance Ltd. ("FGRe"), in the Cayman Islands, capitalized with $5.0 million in July 202031 - The company entered into a Shared Services Agreement with an affiliate of its largest shareholder, FGI, to provide management services for a quarterly fee of $456 thousand119141 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's transition to a diversified holding company, highlighting decreased assets due to investment losses, a significant net loss, and strong liquidity from the Asset Sale proceeds Overview and Business Strategy Following the sale of its insurance operations, the company is repositioning as a diversified holding company, focusing on specialty reinsurance, asset management, and real estate acquisitions - The company completed the sale of its Maison Business to FedNat on December 2, 2019, for $51 million in cash and stock157158 - The company is implementing a new business plan to operate as a diversified holding company focusing on three primary avenues: insurance, asset management, and real estate169 - A wholly-owned reinsurance subsidiary, Fundamental Global Reinsurance Ltd. (FGRe), has been formed and licensed in the Cayman Islands170 Analysis of Financial Condition The company's financial condition as of June 30, 2020, is characterized by a decrease in total investments to $23.6 million due to a decline in FedNat stock value, and a corresponding drop in shareholders' equity Investment Portfolio ($ in thousands) | Type of Investment | Carrying Amount (June 30, 2020) | Carrying Amount (Dec 31, 2019) | | :--- | :--- | :--- | | FedNat common stock | $19,628 | $29,487 | | Limited liability investments | $4,009 | $4,005 | | Total investments | $23,637 | $33,492 | - As of June 30, 2020, the company had gross deferred tax assets of $2,004 thousand but recorded a full valuation allowance against them due to uncertainty about future realization207 - Shareholders' equity decreased by $11.5 million during the first six months of 2020, primarily due to a net loss of $10.9 million and payment of $0.7 million in preferred dividends229 Results of Operations For the six months ended June 30, 2020, the company's net loss from continuing operations was $10.9 million, primarily due to a $9.3 million net investment loss from unrealized losses on FedNat stock Net Investment Income (Loss) Components ($ in thousands) | Component | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Unrealized holding loss on FNHC common stock | $(9,858) | $– | | Dividend income from FNHC common stock | $319 | $– | | Interest on surplus notes issued by Maison | $– | $913 | | Total Net Investment Income (Loss) | $(9,277) | $734 | - General and administrative expenses increased to $2.3 million for the first six months of 2020 from $1.6 million in 2019, primarily due to a $456 thousand quarterly fee under the Shared Services Agreement and costs no longer being part of discontinued operations235 Liquidity and Capital Resources The company's liquidity is primarily sourced from $24.8 million in net cash proceeds from the Asset Sale, with cash and cash equivalents at $25.6 million as of June 30, 2020 - The company received net cash proceeds of $24.8 million from the Asset Sale transaction250 Summary of Cash Flows ($ in thousands) | Activity | Six Months Ended June 30, 2020 | | :--- | :--- | | Net cash used by operating activities | $(2,262) | | Net cash provided by investing activities | $91 | | Net cash used by financing activities | $(700) | | Net decrease in cash | $(2,871) | Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the reporting period - The company has indicated that this item is not applicable254 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting - The principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2020255 - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2020, that materially affected, or are reasonably likely to materially affect, internal controls256 PART II. OTHER INFORMATION Legal Proceedings The company is involved in legal proceedings and litigation in the ordinary course of business, with unpredictable outcomes - The company is involved in legal proceedings and litigation arising in the ordinary course of business, but it is not possible to predict the outcomes257 Risk Factors The company's risks, exacerbated by the COVID-19 pandemic, include adverse global economic conditions and significant losses on its FedNat common stock investment - Risks identified in the 2019 Form 10-K are, and will be further, exacerbated by the impact of the COVID-19 pandemic258 - The COVID-19 pandemic has adversely affected the business and could continue to do so, particularly through significant losses in the value of its investment in FedNat common stock263 - The full impact of the COVID-19 pandemic on future results is difficult to predict due to its dynamic nature and the uncertainty of economic recovery264 Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None265 Exhibits This section lists the exhibits filed with the report, including corporate governance documents, a new consulting agreement, and officer certifications