Kingsway(KFS) - 2020 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion and analysis for Kingsway Financial Services Inc ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements for Kingsway Financial Services Inc., including the balance sheets, statements of operations, comprehensive (loss) income, statements of shareholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, investment portfolio, debt structure, segment performance, and other financial disclosures for the periods ended June 30, 2020, and December 31, 2019 Consolidated Balance Sheets The balance sheet provides a snapshot of the company's assets, liabilities, and equity at specific points in time, showing changes in financial position Consolidated Balance Sheet Highlights (in thousands): | Item | June 30, 2020 (unaudited) | December 31, 2019 | | :------------------------------------------------ | :------------------------ | :------------------ | | Total Assets | $394,611 | $399,623 | | Total Liabilities | $364,743 | $378,850 | | Redeemable Class A preferred stock | $6,039 | $6,819 | | Total Shareholders' Equity | $23,829 | $13,954 | - Total Assets decreased by $5,012 thousand from December 31, 2019, to June 30, 2020, primarily due to a decrease in total investments[10] - Total Liabilities decreased by $14,107 thousand, mainly driven by a reduction in subordinated debt and deferred service fees[10] - Total Shareholders' Equity significantly increased by $9,875 thousand, from $13,954 thousand to $23,829 thousand[11] Consolidated Statements of Operations This statement details the company's revenues, expenses, and net income or loss over specific reporting periods, reflecting operational performance Consolidated Statements of Operations Highlights (in thousands, except per share data): | Item | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $13,879 | $15,226 | $28,548 | $28,527 | | Total operating expenses | $13,854 | $16,054 | $30,145 | $30,254 | | Operating income (loss) | $25 | $(828) | $(1,597) | $(1,727) | | Net (loss) income | $(1,421) | $(396) | $(1,814) | $2,793 | | Net (loss) income attributable to common shareholders | $(1,753) | $(906) | $(3,244) | $1,826 | | Basic (Loss) Earnings Per Share | $(0.08) | $(0.04) | $(0.15) | $0.08 | | Diluted (Loss) Earnings Per Share | $(0.08) | $(0.04) | $(0.15) | $0.08 | - Total revenues decreased by $1,347 thousand (8.8%) for the three months ended June 30, 2020, compared to the same period in 2019, but remained stable for the six-month period[13] - The company reported a net loss of $1,421 thousand for the three months ended June 30, 2020, an increase from the $396 thousand net loss in the prior year's comparable period. For the six months, the net loss was $1,814 thousand, a significant decline from the $2,793 thousand net income in the prior year[13] - Basic and diluted loss per share attributable to common shareholders increased to $(0.08) for the three months and $(0.15) for the six months ended June 30, 2020, from $(0.04) and $0.08, respectively, in the prior year[13] Consolidated Statements of Comprehensive (Loss) Income This statement presents net income alongside other comprehensive income or loss items, providing a complete view of changes in equity from non-owner sources Consolidated Statements of Comprehensive (Loss) Income Highlights (in thousands): | Item | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income | $(1,421) | $(396) | $(1,814) | $2,793 | | Other comprehensive (loss) income | $(869) | $(591) | $10,870 | $(1,431) | | Comprehensive (loss) income | $(2,290) | $(987) | $9,056 | $1,362 | | Comprehensive (loss) income attributable to common shareholders | $(2,405) | $(1,251) | $8,212 | $881 | - Other comprehensive (loss) income for the six months ended June 30, 2020, showed a significant gain of $10,870 thousand, primarily due to a change in fair value of debt attributable to instrument-specific credit risk, contrasting with a loss of $1,431 thousand in the prior year[16] - Comprehensive (loss) income attributable to common shareholders improved to a gain of $8,212 thousand for the six months ended June 30, 2020, from a gain of $881 thousand in the prior year, despite a net loss[16] Consolidated Statements of Shareholders' Equity This statement tracks changes in the company's equity accounts, including net income, dividends, and other comprehensive income, over the reporting period Shareholders' Equity Attributable to Common Shareholders (in thousands): | Period | Balance, December 31, 2019 | Net (loss) income | Preferred stock dividends | Other comprehensive income | Stock-based compensation | Balance, June 30, 2020 | | :-------------------------------- | :------------------------- | :---------------- | :------------------------ | :------------------------- | :----------------------- | :--------------------- | | Six Months Ended June 30, 2020 | $874 | $(2,643) | $(601) | $10,855 | $82 | $9,948 | - Shareholders' equity attributable to common shareholders increased from $874 thousand at December 31, 2019, to $9,948 thousand at June 30, 2020, primarily driven by a significant increase in accumulated other comprehensive income[19] - The increase in accumulated other comprehensive income of $10,855 thousand for the six months ended June 30, 2020, was a key factor in the overall equity growth, offsetting the net loss and preferred stock dividends[19] Consolidated Statements of Cash Flows This statement categorizes cash inflows and outflows into operating, investing, and financing activities, illustrating the company's liquidity and solvency Consolidated Statements of Cash Flows Highlights (in thousands): | Activity | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash used in operating activities | $(1,016) | $(2,454) | | Net cash provided by (used in) investing activities | $3,131 | $(6,694) | | Net cash provided by financing activities | $33 | $5,789 | | Net increase (decrease) in cash and cash equivalents and restricted cash | $2,148 | $(3,359) | | Cash and cash equivalents and restricted cash at end of period | $27,809 | $28,219 | - Net cash used in operating activities decreased significantly from $(2,454) thousand in 2019 to $(1,016) thousand in 2020, primarily due to adjustments reconciling net loss to cash flow, including gains on fair value changes[22] - Investing activities shifted from using $6,694 thousand in 2019 to providing $3,131 thousand in 2020, mainly driven by proceeds from sales and maturities of fixed maturities[22] - Financing activities provided $33 thousand in 2020, a substantial decrease from $5,789 thousand in 2019, reflecting lower principal proceeds from bank loans and notes payable[23] Notes to Consolidated Financial Statements (Unaudited) These notes provide detailed explanations and additional information supporting the consolidated financial statements, clarifying accounting policies and specific financial items NOTE 1 BUSINESS Kingsway Financial Services Inc. is a Delaware-incorporated holding company with operating subsidiaries in the U.S., primarily engaged in extended warranty, asset management, and real estate industries - Kingsway Financial Services Inc. is a holding company with operating subsidiaries in the extended warranty, asset management, and real estate industries[24] NOTE 2 BASIS OF PRESENTATION The unaudited interim financial statements are prepared under U.S. GAAP, relying on management estimates and assumptions for asset/liability valuation, revenue recognition, and contingent liabilities. Key estimates include loss reserves, investment valuations, and goodwill recoverability. Fair values are categorized using a hierarchy, with most short-term items approximating fair value - Unaudited consolidated interim financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions[25] - Management makes estimates and assumptions affecting reported amounts, including unpaid loss and loss adjustment expenses, investment valuations, deferred income taxes, and goodwill recoverability[28] - Fair values of investments, subordinated debt, and warrant liability are estimated using a fair value hierarchy, while short-term assets and liabilities approximate fair value due to their nature[29] NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The company's significant accounting policies remain largely unchanged from its 2019 Annual Report, with new disclosures focusing on the impact of COVID-19 on its Extended Warranty segment, particularly reduced new warranty sales due to decreased consumer spending and business closures. The company also detailed its holding company liquidity, which is managed separately from its subsidiaries, and its ability to meet obligations, excluding potential preferred stock redemption and deferred interest payments, for the next twelve months - The COVID-19 pandemic has notably impacted the Extended Warranty segment, leading to reduced new warranty sales for vehicle service agreements and homeowner programs due to decreased consumer spending and business closures[32] - Holding company liquidity was $1.2 million at June 30, 2020, down from $2.3 million at December 31, 2019, reflecting approximately three months of operating cash outflows[38] - The company projects insufficient legally available funds to redeem $6.7 million in Preferred Shares and pay $14.9 million in deferred interest on trust preferred securities by April 1, 2021, but is exploring options like negotiations, capital market transactions, and monetizing non-core investments[39][41][42] NOTE 4 RECENTLY ISSUED ACCOUNTING STANDARDS The company adopted several new accounting standards effective January 1, 2020, including ASU 2017-04 for goodwill impairment, ASU 2018-17 for variable interest entities, and ASU 2018-13 for fair value measurement disclosures, none of which had a material impact on its consolidated financial statements. The company is currently evaluating ASU 2016-13 on credit losses, which it will adopt in 2023 - Adopted ASU 2017-04 (Goodwill Impairment), ASU 2018-17 (Variable Interest Entities), and ASU 2018-13 (Fair Value Measurements Disclosure) effective January 1, 2020, with no material impact on financial statements[44][45][46] - Evaluating ASU 2016-13 (Credit Losses), which replaces the incurred loss model with an expected loss model, with an effective adoption date of January 1, 2023, for the company as a smaller reporting company[47][49] NOTE 5 DISCONTINUED OPERATIONS The company completed the sale of its non-standard automobile insurance companies (Mendota) in October 2018, classifying them as discontinued operations. A gain of less than $0.1 million was recognized for the three and six months ended June 30, 2020, related to the settlement of a specified claim, with $3.4 million from an escrow account released to the company in Q1 2020 - Sale of Mendota insurance companies completed in October 2018, classified as discontinued operations[50] - Recognized a gain of less than $0.1 million for the three and six months ended June 30, 2020, from the settlement of a specified claim related to Mendota[50][51] - $3.4 million remaining in the escrow account from the Mendota sale was released to the company in the first quarter of 2020[51] NOTE 6 INVESTMENTS The company's investment portfolio includes fixed maturities, equity investments, limited liability investments, private company investments, and real estate, with total investments at $69.46 million as of June 30, 2020. The company performs quarterly impairment analyses, noting no other-than-temporary impairments for available-for-sale investments, but recorded a $0.7 million impairment for private company investments in the six months ended June 30, 2020, due to COVID-19 impacts. Restricted cash increased to $14.5 million, including PPP loan proceeds Total Investments (in thousands): | Investment Type | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :-------------- | :---------------- | | Fixed maturities, at fair value | $19,591 | $22,195 | | Equity investments, at fair value | $2,313 | $2,421 | | Limited liability investments | $3,719 | $3,841 | | Limited liability investments, at fair value | $30,864 | $29,078 | | Investments in private companies, at adjusted cost | $1,365 | $2,035 | | Real estate investments, at fair value | $10,662 | $10,662 | | Other investments, at cost | $789 | $1,009 | | Short-term investments, at cost | $157 | $155 | | Total investments | $69,460 | $71,396 | - No other-than-temporary impairment write-downs were recorded for available-for-sale investments for the three and six months ended June 30, 2020 and 2019[58] - A $0.7 million impairment was recorded for investments in private companies for the six months ended June 30, 2020, due to the impact of COVID-19 on the underlying business[67] - Restricted cash increased to $14.5 million at June 30, 2020, from $12.2 million at December 31, 2019, including $1.8 million from Paycheck Protection Program (PPP) loan proceeds[72] NOTE 7 INVESTMENT IN INVESTEE The company sold its remaining investment in Itasca Capital Ltd. (ICL) common stock during the fourth quarter of 2019, resulting in no equity in net income of investee for the three and six months ended June 30, 2020, compared to $0.2 million in the prior year - Company sold its remaining investment in Itasca Capital Ltd. (ICL) common stock in Q4 2019[76] - Equity in net income of investee was $0 for the three and six months ended June 30, 2020, compared to $0.2 million for the same periods in 2019[76] NOTE 8 DEFERRED ACQUISITION COSTS Deferred acquisition costs, primarily commissions and agency expenses for vehicle service agreements, are amortized over the revenue recognition period. The net balance at June 30, 2020, was $8,750 thousand, with additions of $2,254 thousand and amortization of $2,108 thousand for the six-month period - Deferred acquisition costs consist mainly of commissions and agency expenses for vehicle service agreements, amortized over the period related revenues are earned[77] Deferred Acquisition Costs (in thousands): | Item | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------ | :------------------------------- | :------------------------------- | | Beginning balance, net | $8,604 | $6,904 | | Additions | $2,254 | $2,701 | | Amortization | $(2,108) | $(1,881) | | Balance at June 30, net | $8,750 | $7,724 | NOTE 9 INTANGIBLE ASSETS The company's intangible assets totaled $85,277 thousand net carrying value at June 30, 2020, primarily comprising tenant relationships and trade names with indefinite useful lives, which are not amortized. Amortization expense for definite-lived intangibles was $1.1 million for the six months ended June 30, 2020, with no impairment charges recorded Intangible Assets (in thousands): | Item | June 30, 2020 Net Carrying Value | December 31, 2019 Net Carrying Value | | :-------------------------------- | :------------------------------- | :------------------------------- | | Database | $1,167 | $1,413 | | Vehicle service agreements in-force | $0 | $0 | | Customer relationships | $6,181 | $7,024 | | In-place lease | $876 | $907 | | Non-compete | $122 | $149 | | Tenant relationship | $73,667 | $73,667 | | Trade names | $3,264 | $3,264 | | Total | $85,277 | $86,424 | - Tenant relationship and trade names intangible assets have indefinite useful lives and are not amortized, accounting for a significant portion of total intangible assets[78][80][82] - Amortization of intangible assets was $1.1 million for the six months ended June 30, 2020, a slight decrease from $1.2 million in the prior year, with no impairment charges recorded in either period[81][82] NOTE 10 PROPERTY AND EQUIPMENT The net carrying value of property and equipment was $96,981 thousand at June 30, 2020, a slight decrease from $99,064 thousand at December 31, 2019. Site improvements and land represent the largest components Property and Equipment (in thousands): | Item | June 30, 2020 Carrying Value | December 31, 2019 Carrying Value | | :------------------------ | :------------------------------- | :------------------------------- | | Land | $21,120 | $21,120 | | Site improvements | $74,947 | $77,013 | | Buildings | $523 | $530 | | Leasehold improvements | $67 | $47 | | Furniture and equipment | $106 | $111 | | Computer hardware | $218 | $243 | | Total | $96,981 | $99,064 | - The net carrying value of property and equipment decreased by $2,083 thousand from December 31, 2019, to June 30, 2020[83][84] NOTE 11 VEHICLE SERVICE AGREEMENT LIABILITY The vehicle service agreement liability, including deferred service fees, decreased to $50,442 thousand at June 30, 2020, from $51,723 thousand at January 1, 2020. This change reflects gross service fees of $12,520 thousand and recognition of $15,256 thousand in service fees for the six-month period - Vehicle service agreement fees are initially recorded as deferred service fees and recognized over the contract term[85] Vehicle Service Agreement Liability Reconciliation (in thousands): | Item | June 30, 2020 | June 30, 2019 | | :------------------------------------------------ | :-------------- | :-------------- | | Balance at January 1, net | $51,723 | $43,734 | | Gross service fees for vehicle service agreements sold | $12,520 | $14,549 | | Recognition of service fees on vehicle service agreements | $(15,256) | $(12,703) | | Liability for claims authorized on vehicle service agreements | $4,727 | $4,393 | | Payments of claims authorized on vehicle service agreements | $(3,141) | $(2,678) | | Re-estimation of deferred service fees | $(131) | $(321) | | Balance at June 30, net | $50,442 | $57,766 | - The liability is presented as deferred service fees ($49,909 thousand) and accrued expenses and other liabilities ($533 thousand) on the balance sheet at June 30, 2020[87] NOTE 12 UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES The provision for unpaid loss and loss adjustment expenses decreased to $1,497 thousand at June 30, 2020, from $1,774 thousand at the beginning of the period. The company reported unfavorable development of less than $0.1 million for the six months ended June 30, 2020, primarily due to an increase in loss and loss adjustment expenses at Amigo - The provision for unpaid loss and loss adjustment expenses is a complex estimate influenced by various factors including historical trends, regulatory environment, and economic conditions[89][90] Changes in Unpaid Loss and Loss Adjustment Expenses (in thousands): | Item | June 30, 2020 | June 30, 2019 | | :------------------------------------------------ | :-------------- | :-------------- | | Balance at beginning of period, net | $1,774 | $2,073 | | Incurred related to prior years | $15 | $708 | | Paid related to prior years | $(292) | $(844) | | Balance at end of period, net | $1,497 | $1,937 | - Unfavorable development of less than $0.1 million for the six months ended June 30, 2020, was primarily due to increased loss and loss adjustment expenses at Amigo[92] NOTE 13 DEBT The company's debt includes bank loans, notes payable, and subordinated debt, totaling $245,271 thousand carrying value at June 30, 2020. Key changes include the full repayment of the PWSC Loan in January 2020, the receipt of $2.9 million in PPP loans in April 2020, and a $13.1 million decrease in the fair value of subordinated debt, with $10.6 million attributed to instrument-specific credit risk Debt Composition (in thousands): | Debt Type | June 30, 2020 Carrying Value | December 31, 2019 Carrying Value | | :---------------- | :------------------------------- | :------------------------------- | | Bank loans | $8,650 | $9,240 | | Notes payable | $195,033 | $194,634 | | Subordinated debt | $41,588 | $54,655 | | Total | $245,271 | $258,529 | - The PWSC Loan was fully repaid on January 30, 2020. The KWH Loan, with a principal of $9.375 million, matures on March 1, 2024, and bears interest at LIBOR plus 9.25%[94][95] - Received $2.9 million in Paycheck Protection Program (PPP) loans in April 2020, with a 1.00% interest rate, which may be forgivable if used for eligible purposes[101] - Subordinated debt decreased in fair value by $13.1 million between December 31, 2019, and June 30, 2020, with $10.6 million attributed to instrument-specific credit risk and $2.4 million reported as a gain on change in fair value of debt[103][291][292] - The company has deferred interest payments on its subordinated debt since Q3 2018, totaling $11.8 million at June 30, 2020, which prohibits redemption of capital stock[105] NOTE 14 LEASES The company has operating lease liabilities of $3,256 thousand at June 30, 2020, with a weighted-average remaining lease term of 5.23 years. As a lessor, the company owns real property subject to a long-term triple net operating lease, generating $3.3 million in rental income for the three and six months ended June 30, 2020, with significant future undiscounted cash flows of $136,963 thousand thereafter Lessee Lease Liabilities (in thousands): | Year | Lease Commitments | | :---------------- | :---------------- | | 2020 | $369 | | 2021 | $802 | | 2022 | $824 | | 2023 | $624 | | 2024 | $550 | | 2025 and thereafter | $546 | | Total undiscounted lease payments | $3,715 | | Imputed interest | $459 | | Total lease liabilities | $3,256 | - The weighted-average remaining lease term for operating leases is 5.23 years, with a weighted average discount rate of 5.31% as of June 30, 2020[108] - Rental income from lessor operating leases was $3.3 million for both the three and six months ended June 30, 2020 and 2019[112] - Future undiscounted cash flows from non-cancelable operating leases are $136,963 thousand for 2025 and thereafter[112] NOTE 15 REVENUE FROM CONTRACTS WITH CUSTOMERS Revenue from contracts with customers, primarily from the Extended Warranty segment, totaled $10,438 thousand for the three months and $21,624 thousand for the six months ended June 30, 2020. The company disaggregates revenue by type, including vehicle service agreement fees, GAP commissions, maintenance support service fees, and homebuilder warranty fees, recognizing revenue as performance obligations are satisfied, often using an expected cost plus margin approach for standalone selling prices Service Fee and Commission Income (in thousands): | Revenue Type | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Vehicle service agreement fees | $7,390 | $7,308 | $15,097 | $12,674 | | GAP commissions | $167 | $242 | $436 | $507 | | Maintenance support service fees | $491 | $1,732 | $1,045 | $3,700 | | Warranty product commissions | $822 | $817 | $1,683 | $1,399 | | Homebuilder warranty service fees | $1,383 | $1,475 | $2,820 | $2,898 | | Homebuilder warranty commissions | $185 | $198 | $543 | $409 | | Total Service fee and commission income | $10,438 | $11,772 | $21,624 | $21,587 | - Maintenance support service fees decreased significantly from $1,732 thousand to $491 thousand for the three months ended June 30, 2020, and from $3,700 thousand to $1,045 thousand for the six months, reflecting a loss of a major customer and COVID-19 impacts[114][242] - Approximately 43.7% of deferred service fees as of June 30, 2020, are expected to be recognized as income within one year[131] NOTE 16 INCOME TAXES The company reported an income tax benefit of $300 thousand for the three months and $130 thousand for the six months ended June 30, 2020. A full valuation allowance is maintained on its net deferred tax assets due to uncertainty regarding future taxable income, excluding specific deferred income tax liabilities. The company carries $28.7 million in net deferred income tax liabilities and a $1.4 million liability for unrecognized tax benefits Income Tax (Benefit) Expense (in thousands): | Item | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax (benefit) expense at United States statutory income tax rate (21%) | $(363) | $(48) | $(410) | $472 | | Valuation allowance | $(120) | $97 | $121 | $(1,234) | | Income tax (benefit) expense | $(300) | $168 | $(130) | $(545) | - A full valuation allowance is maintained on gross deferred tax assets at June 30, 2020, and December 31, 2019, due to uncertainty in generating sufficient future taxable income[133] - Net deferred income tax liabilities were $28.7 million at June 30, 2020, and the liability for unrecognized tax benefits was $1.4 million[136][137] NOTE 17 (LOSS) EARNINGS FROM CONTINUING OPERATIONS PER SHARE Basic and diluted loss from continuing operations per share attributable to common shareholders was $(0.08) for the three months and $(0.15) for the six months ended June 30, 2020. Potentially dilutive securities, including stock options, restricted stock awards, warrants, and convertible preferred stock, were excluded from diluted EPS calculations due to their anti-dilutive effect (Loss) Earnings Per Share - Continuing Operations: | Item | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | (Loss) income from continuing operations attributable to common shareholders | $(1,759) | $(906) | $(3,250) | $1,826 | | Weighted average basic shares outstanding | 22,211 | 21,867 | 22,140 | 21,854 | | Basic (loss) earnings from continuing operations per share | $(0.08) | $(0.04) | $(0.15) | $0.08 | | Diluted (loss) earnings from continuing operations per share | $(0.08) | $(0.04) | $(0.15) | $0.08 | - Potentially dilutive securities (stock options, restricted stock awards, warrants, convertible preferred stock) were excluded from diluted EPS calculations for periods with a loss from continuing operations, as their inclusion would be anti-dilutive[139][140] Anti-Dilutive Securities (Weighted-Average): | Security Type | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock options | 0 | 40,000 | 0 | 40,000 | | Unvested restricted stock awards | 500,000 | 976,950 | 500,000 | 976,950 | | Warrants | 4,423,765 | 4,673,765 | 4,423,765 | 4,673,765 | | Convertible preferred stock | 1,142,975 | 1,392,975 | 1,142,975 | 1,392,975 | | Total | 6,066,740 | 7,083,690 | 6,066,740 | 7,083,690 | NOTE 18 STOCK-BASED COMPENSATION Total stock-based compensation expense, net of forfeitures, was $0.1 million for the three and six months ended June 30, 2020, a decrease from $0.2 million and $0.4 million, respectively, in the prior year. This includes activity related to stock options (all expired by June 30, 2020), various restricted stock awards, and PWSC Restricted Stock Awards, with unamortized compensation expense of $1.4 million for the 2018 Restricted Stock Award and $0.6 million for the PWSC Restricted Stock Award at June 30, 2020 - All stock options outstanding at December 31, 2019 (40,000 shares) expired by June 30, 2020[142] - Total unamortized compensation expense for the 2018 Restricted Stock Award was $1.4 million at June 30, 2020, with 500,000 unvested shares[153][154] - Total unamortized compensation expense for the PWSC Restricted Stock Award was $0.6 million at June 30, 2020, with 750 unvested shares, but no expense recorded for the performance condition component as it's not probable of being achieved[155] - Total stock-based compensation expense, net of forfeitures, was $0.1 million for the three and six months ended June 30, 2020, down from $0.2 million and $0.4 million in the prior year periods[156] NOTE 19 ACCUMULATED OTHER COMPREHENSIVE INCOME Accumulated other comprehensive income attributable to common shareholders increased significantly to $46,202 thousand at June 30, 2020, from $35,347 thousand at January 1, 2020. This increase was primarily driven by $10,624 thousand in other comprehensive income arising from changes in the fair value of debt attributable to instrument-specific credit risk during the six-month period Accumulated Other Comprehensive Income (in thousands): | Component | Balance at January 1, 2020 | Net current-period other comprehensive income | Balance at June 30, 2020 | | :------------------------------------------------ | :------------------------- | :-------------------------------------------- | :----------------------- | | Unrealized Gains on Available-for-Sale Investments | $59 | $231 | $290 | | Foreign Currency Translation Adjustments | $(3,286) | $0 | $(3,286) | | Change in Fair Value of Debt Attributable to Instrument Specific Credit Risk | $38,574 | $10,624 | $49,198 | | Total Accumulated Other Comprehensive Income | $35,347 | $10,855 | $46,202 | - The most significant change was a $10,624 thousand increase in the fair value of debt attributable to instrument-specific credit risk for the six months ended June 30, 2020[160] - Reclassification adjustments from unrealized gains/losses on available-for-sale investments to net realized gains/losses resulted in a $(66) thousand impact on net (loss) income for the six months ended June 30, 2020[160] NOTE 20 SEGMENTED INFORMATION The company operates through two reportable segments: Extended Warranty and Leased Real Estate. For the six months ended June 30, 2020, Extended Warranty generated $21,728 thousand in total revenues and $2,135 thousand in operating income, while Leased Real Estate generated $6,820 thousand in total revenues and $1,435 thousand in operating income. Total segment operating income increased to $3,570 thousand from $2,807 thousand in the prior year - The company's two reportable segments are Extended Warranty (IWS, Trinity, PWSC, Geminus) and Leased Real Estate (CMC)[162][163][167] Revenues by Reportable Segment (in thousands): | Segment | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Extended Warranty | $10,468 | $11,813 | $21,728 | $21,703 | | Leased Real Estate | $3,411 | $3,413 | $6,820 | $6,824 | | Total revenues | $13,879 | $15,226 | $28,548 | $28,527 | Operating Income by Reportable Segment (in thousands): | Segment | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Extended Warranty | $1,285 | $1,035 | $2,135 | $1,602 | | Leased Real Estate | $838 | $753 | $1,435 | $1,205 | | Total segment operating income | $2,123 | $1,788 | $3,570 | $2,807 | - Extended Warranty operating income increased by $533 thousand (33.3%) for the six months ended June 30, 2020, primarily due to Geminus' full inclusion and reduced G&A expenses at PWSC, despite a decrease at Trinity[171][246] - Leased Real Estate operating income increased by $230 thousand (19.1%) for the six months ended June 30, 2020, mainly due to lower litigation expenses[171][243] NOTE 21 FAIR VALUE OF FINANCIAL INSTRUMENTS The company measures financial instruments at fair value using a three-level hierarchy. At June 30, 2020, total assets measured at fair value were $64,376 thousand, with $2,313 thousand in Level 1 (equity investments), $20,537 thousand in Level 2 (fixed maturities, other investments, short-term investments), and $14,952 thousand in Level 3 (limited liability investments, real estate investments). Liabilities measured at fair value totaled $41,847 thousand, with subordinated debt in Level 2 and warrant liability in Level 3. Level 3 valuations for limited liability investments, real estate, and warrant liability use unobservable inputs like valuation multiples and cap rates - Fair value is categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (significant unobservable inputs)[173] Fair Value Measurements at June 30, 2020 (in thousands): | Item | Total | Level 1 | Level 2 | Level 3 | Measured at Net Asset Value | | :------------------------------------------------ | :------ | :------ | :------ | :------ | :-------------------------- | | Assets: | | | | | | | Fixed maturities | $19,591 | $0 | $19,591 | $0 | $0 | | Equity investments | $2,313 | $2,313 | $0 | $0 | $0 | | Limited liability investments, at fair value | $30,864 | $0 | $0 | $4,290 | $26,574 | | Real estate investments | $10,662 | $0 | $0 | $10,662 | $0 | | Other investments | $789 | $0 | $789 | $0 | $0 | | Short-term investments | $157 | $0 | $157 | $0 | $0 | | Total assets | $64,376 | $2,313 | $20,537 | $14,952 | $26,574 | | Liabilities: | | | | | | | Subordinated debt | $41,588 | $0 | $41,588 | $0 | $0 | | Warrant liability | $259 | $0 | $0 | $259 | $0 | | Total liabilities | $41,847 | $0 | $41,588 | $259 | $0 | Level 3 Fair Value Valuation Techniques and Inputs at June 30, 2020: | Categories | Fair Value (in thousands) | Valuation Techniques | Unobservable Inputs | Input Value(s) | | :-------------------------------- | :------------------------ | :------------------- | :------------------ | :------------- | | Limited liability investments, at fair value | $4,290 | Market approach | Valuation multiples | 3.1x-7.0x | | Real estate investments | $10,662 | Market and income approach | Cap rates | 7.5% | | Warrant liability | $259 | Market approach | Valuation multiple | 6.0x | NOTE 22 RELATED PARTIES The company has various related party relationships and transactions, including equity interests in Argo Holdings with its CEO, John T. Fitzgerald, and his family. The company sold its remaining investment in Itasca Capital Ltd. (ICL) in Q4 2019, including a sale to former CEO Larry G. Swets, Jr. It also holds 100% of Insurance Income Strategies Ltd. (IIS) but has waived management fees until certain conditions are met. Other related party transactions involve limited liability investments and a consulting agreement with its former CFO - The company, CEO John T. Fitzgerald, and his family hold equity interests in Argo Holdings, with the company funding approximately $0 in 2020 and $0.6 million in 2019 in response to Capital Calls[195][197] - The company sold its remaining investment in Itasca Capital Ltd. (ICL) common stock in Q4 2019, including 3,011,447 shares to former CEO Larry G. Swets, Jr. for cash and company common stock[198][200] - The company holds 100% of Insurance Income Strategies Ltd. (IIS) but has waived its right to receive management fees until the third-party investor is redeemed or exchanged for publicly traded equity shares, for consideration not less than the original $15.0 million investment[203][204][206] - The company recorded a $0.1 million write-down for other-than-temporary impairment related to promissory notes issued to Atlas Financial Holdings, Inc. employees for the six months ended June 30, 2020[214] NOTE 23 COMMITMENTS AND CONTINGENCIES The company is involved in legal proceedings, including a lawsuit against TRT LeaseCo alleging unpaid fees, which could materially impact Kingsway's financial position if decided adversely. It also settled a breach of contract claim with Aegis Security Insurance Company for $0.9 million and agreed to reimburse 60% of future losses up to $4.8 million. The company has no unfunded capital commitments for limited liability investments at June 30, 2020 - TRT LeaseCo, an indirect subsidiary, is a defendant in a lawsuit alleging unpaid fees under a Management Services Agreement, with potential material adverse effects on Kingsway's financial position if decided against it[216] - Settled a breach of contract claim with Aegis Security Insurance Company for $0.9 million in Q1 2020 and agreed to reimburse 60% of future customs bond losses up to $4.8 million[217] - As part of the Mendota sale, the company indemnifies the buyer for loss and loss adjustment expenses for open claims in excess of carried amounts, with potential exposure not reasonably determinable[218] - The company had no unfunded capital commitments for limited liability investments at June 30, 2020[220] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and operational results, highlighting the impact of COVID-19 on its Extended Warranty segment, a reconciliation of segment operating income to net loss, and detailed analysis of investment performance, debt, liquidity, and regulatory compliance. The company reported a net loss of $1.8 million for the six months ended June 30, 2020, primarily due to non-allocated interest and other expenses, partially offset by segment operating income OVERVIEW This section provides a high-level introduction to Kingsway's business model, operating segments, and strategic focus within its industries - Kingsway is a Delaware holding company with operating subsidiaries in extended warranty, asset management, and real estate industries[223] - The company operates through two reportable segments: Extended Warranty (IWS, Trinity, PWSC, Geminus) and Leased Real Estate (CMC)[223][224][229] Impact of COVID-19 This section details the significant effects of the COVID-19 pandemic on the company's operations, particularly its Extended Warranty segment and overall financial outlook - The COVID-19 pandemic has significantly impacted general economic conditions, leading to temporary business closures, 'shelter in place' regulations, and reduced consumer spending[230][232] - The near-term impacts are primarily on the Extended Warranty segment, with reduced new warranty sales for vehicle service agreements and homeowner programs due to declines in vehicle and new home sales[233] - The company is monitoring the impact of COVID-19 and the CARES Act, but the full extent of the impact on operations and financial results remains uncertain[234] NON-U.S. GAAP FINANCIAL MEASURE This section defines and explains the use of segment operating income as a non-U.S. GAAP financial measure, providing context for its reconciliation to GAAP - 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[235][236] - The nearest comparable U.S. GAAP measure is (loss) income from continuing operations before income tax (benefit) expense[236] CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS This section outlines the key accounting estimates and assumptions that significantly impact the company's financial statements, noting any material changes - No material changes to critical accounting estimates and assumptions have occurred since December 31, 2019, as disclosed in the 2019 Annual Report[238] RESULTS OF CONTINUING OPERATIONS This section analyzes the financial performance of the company's ongoing business activities, detailing revenues, expenses, and profitability trends (Loss) Income from Continuing Operations and Net (Loss) Income The company reported a loss from continuing operations of $1.4 million for Q2 2020 (vs. $0.4 million loss in Q2 2019) and $1.8 million for the six months ended June 30, 2020 (vs. $2.8 million income in H1 2019). These losses were primarily driven by unallocated interest expense and other net expenses, partially offset by segment operating income and investment gains (Loss) Income from Continuing Operations (in thousands): | Item | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | (Loss) income from continuing operations before income tax (benefit) expense | $(1,727) | $(228) | $(1,950) | $2,248 | | Income tax (benefit) expense | $(300) | $168 | $(130) | $(545) | | (Loss) income from continuing operations | $(1,427) | $(396) | $(1,820) | $2,793 | | Gain on disposal of discontinued operations, net of taxes | $6 | $0 | $6 | $0 | | Net (loss) income | $(1,421) | $(396) | $(1,814) | $2,793 | - The loss from continuing operations for Q2 2020 was primarily due to unallocated interest expense and other net expenses, partially offset by operating income from Extended Warranty and Leased Real Estate, and net investment income[240] - For the six months ended June 30, 2020, the loss was mainly due to unallocated interest expense and other net expenses, partially offset by segment operating income, gain on change in fair value of debt, and gain on change in fair value of limited liability investments[241] Extended Warranty Extended Warranty service fee and commission income decreased by 11.9% to $10.4 million for Q2 2020, primarily due to a $1.2 million decrease at Trinity. However, operating income increased to $1.3 million for Q2 2020 and $2.1 million year-to-date, driven by increased revenues at Geminus and reduced general and administrative expenses at PWSC, partially offset by a decrease at Trinity - Extended Warranty service fee and commission income decreased by $1.4 million (11.9%) to $10.4 million for Q2 2020, mainly due to a $1.2 million decrease at Trinity[242] - Trinity's decrease was driven by reduced revenues in equipment breakdown and maintenance support services due to a major customer loss and COVID-19 impacts[242] - Extended Warranty operating income increased to $1.3 million for Q2 2020 (from $1.0 million) and $2.1 million year-to-date (from $1.6 million), primarily due to Geminus' increased revenues and lower G&A at PWSC, partially offset by Trinity's decline[243][246] Leased Real Estate Leased Real Estate rental income remained stable at $3.3 million for Q2 2020 and $6.7 million year-to-date. Operating income increased to $0.8 million for Q2 2020 and $1.4 million year-to-date, primarily due to lower litigation expenses compared to the prior year - Leased Real Estate rental income was stable at $3.3 million for Q2 2020 and $6.7 million year-to-date[243] - Operating income increased to $0.8 million for Q2 2020 (from $0.8 million) and $1.4 million year-to-date (from $1.2 million), mainly due to lower litigation expenses[243] - Leased Real Estate operating income includes $1.5 million in interest expense for Q2 2020 and $3.0 million year-to-date[243] Net Realized Gains (Losses) The company reported net realized gains of less than $0.1 million for Q2 2020 (vs. $0.6 million net losses in Q2 2019) and $0.2 million year-to-date (vs. $0.2 million net losses in H1 2019). These gains were primarily from sales of fixed maturities and distributions from an investment whose carrying value was previously written down - Net realized gains were less than $0.1 million in Q2 2020, a significant improvement from $0.6 million in net realized losses in Q2 2019[244] - Year-to-date, net realized gains were $0.2 million, compared to net realized losses of $0.2 million in the prior year[244] - Gains for H1 2020 primarily relate to sales of fixed maturities and distributions from a private company investment[244] Gain (Loss) on Change in Fair Value of Equity Investments The company recorded a gain of $0.5 million on change in fair value of equity investments for Q2 2020, a reversal from a $0.1 million loss in Q2 2019. Year-to-date, there was a loss of $0.1 million, compared to a gain of less than $0.1 million in H1 2019, primarily due to unrealized gains on equity investments held - Gain on change in fair value of equity investments was $0.5 million in Q2 2020, compared to a loss of $0.1 million in Q2 2019[246] - Year-to-date, a loss of $0.1 million was reported, compared to a gain of less than $0.1 million in H1 2019[246] - Significant drivers include unrealized gains of $0.5 million on equity investments held during Q2 2020[246] (Loss) Gain on Change in Fair Value of Limited Liability Investments, at Fair Value The company reported a loss of $0.1 million on change in fair value of limited liability investments for Q2 2020, a significant shift from a $2.3 million gain in Q2 2019. Year-to-date, a gain of $1.8 million was recorded, down from $6.6 million in H1 2019. The Q2 2020 loss was due to Argo Holdings, while prior year gains were largely from 1347 Investors and Net Lease - Loss on change in fair value of limited liability investments was $0.1 million in Q2 2020, compared to a gain of $2.3 million in Q2 2019[247] - Year-to-date, a gain of $1.8 million was reported, down from $6.6 million in H1 2019[247] - The Q2 2020 loss was due to a decrease in fair value of Argo Holdings Fund I, LLC[247] - The company's investment in 1347 Investors was dissolved in Q4 2019[249] Net Change in Unrealized (Loss) Gain on Private Company Investments The net change in unrealized (loss) gain on private company investments was zero for Q2 2020 and Q2 2019. However, for the six months ended June 30, 2020, a loss of $0.7 million was recorded, compared to a gain of less than $0.1 million in H1 2019, primarily due to a 90% write-down of one investment caused by COVID-19 impacts - Net change in unrealized (loss) gain on private company investments was zero for Q2 2020 and Q2 2019[250] - For the six months ended June 30, 2020, a loss of $0.7 million was recorded, compared to a gain of less than $0.1 million in H1 2019[250] - The $0.7 million loss was due to a 90% write-down of one investment for other-than-temporary impairment, resulting from COVID-19 impacts on its underlying business[250] Interest Expense not Allocated to Segments Interest expense not allocated to segments decreased to $2.0 million for Q2 2020 (from $2.3 million in Q2 2019) and $4.2 million year-to-date (from $4.4 million in H1 2019). This reduction is primarily due to lower LIBOR rates affecting the company's subordinated debt, partially offset by the KWH Loan being outstanding for the entire six months of 2020 - Interest expense not allocated to segments decreased to $2.0 million in Q2 2020 and $4.2 million year-to-date[251] - The decrease is primarily attributable to lower LIBOR rates affecting the company's subordinated debt[251] - The year-to-date decrease was partially offset by interest expense related to the KWH Loan being outstanding for the entire six months of 2020[251] Other Income and Expenses not Allocated to Segments, Net Other income and expenses not allocated to segments resulted in a net expense of $2.1 million for Q2 2020 (vs. $2.6 million in Q2 2019) and $5.2 million year-to-date (vs. $4.4 million in H1 2019). The Q2 decrease was due to lower loss and loss adjustment expenses, while the year-to-date increase was driven by higher professional services fees and a $0.9 million litigation settlement expense - Net expense was $2.1 million in Q2 2020, down from $2.6 million in Q2 2019, primarily due to a $0.6 million decrease in loss and loss adjustment expenses[252] - Year-to-date net expense increased to $5.2 million from $4.4 million in H1 2019[252] - The year-to-date increase was mainly due to higher professional services fees for the 2018 Annual Report and a $0.9 million expense from a litigation settlement with Aegis Security Insurance Company[253] (Loss) Gain on Change in Fair Value of Debt The company reported a loss of $0.2 million on change in fair value of debt for Q2 2020 (vs. $0.9 million gain in Q2 2019) and a gain of $2.4 million year-to-date (vs. $1.5 million gain in H1 2019). The Q2 2020 loss reflects an increase in the fair value of subordinated debt due to a decrease in the risk-free rate, while gains in other periods were driven by lower overall LIBOR rates - Loss on change in fair value of debt was $0.2 million in Q2 2020, compared to a gain of $0.9 million in Q2 2019[254] - Year-to-date, a gain of $2.4 million was reported, compared to a gain of $1.5 million in H1 2019[254] - The Q2 2020 loss reflects an increase in the fair value of subordinated debt due to a decrease in the risk-free rate[254] Equity in Net Income of Investee Equity in net income of investee was zero for the three and six months ended June 30, 2020, as the company sold its remaining investment in Itasca Capital Ltd. (ICL) common stock during the fourth quarter of 2019. In contrast, the prior year periods reported $0.2 million and $0.2 million, respectively - Equity in net income of investee was $0 for Q2 2020 and H1 2020, compared to $0.2 million for the same periods in 2019[255] - This change is due to the company selling its remaining investment in Itasca Capital Ltd. (ICL) common stock in Q4 2019[255] Income Tax (Benefit) Expense The company reported an income tax benefit of $0.3 million for Q2 2020 (vs. $0.2 million expense in Q2 2019) and $0.1 million year-to-date (vs. $0.5 million benefit in H1 2019) - Income tax benefit was $0.3 million in Q2 2020, compared to an expense of $0.2 million in Q2 2019[256] - Year-to-date, an income tax benefit of $0.1 million was reported, compared to a benefit of $0.5 million in H1 2019[256] INVESTMENTS This section details the company's investment portfolio, including composition, valuation, and the impact of market conditions on asset values Portfolio Composition At June 30, 2020, the company's total cash, cash equivalents, restricted cash, and investments had a carrying value of $97.3 million. The portfolio includes fixed maturities, equity investments, limited liability investments, private company investments, real estate, and other short-term investments, with fixed maturities and limited liability investments at fair value being the largest components - At June 30, 2020, total cash, cash equivalents, restricted cash, and investments had a carrying value of $97.3 million[257][260] Carrying Value of Investments, Cash, and Restricted Cash (in thousands): | Type of investment | June 30, 2020 | % of Total | December 31, 2019 | % of Total | | :------------------------------------------------ | :-------------- | :--------- | :---------------- | :--------- | | Fixed maturities | $19,591 | 20.1% | $22,195 | 22.8% | | Equity investments | $2,313 | 2.4% | $2,421 | 2.5% | | Limited liability investments | $3,719 | 3.8% | $3,841 | 4.0% | | Limited liability investments, at fair value | $30,864 | 31.7% | $29,078 | 30.0% | | Investments in private companies | $1,365 | 1.4% | $2,035 | 2.1% | | Real estate investments | $10,662 | 11.0% | $10,662 | 11.0% | | Other investments | $789 | 0.8% | $1,009 | 1.0% | | Short-term investments | $157 | 0.2% | $155 | 0.2% | | Total investments | $69,460 | 71.4% | $71,396 | 73.6% | | Cash and cash equivalents | $13,351 | 13.7% | $13,478 | 13.9% | | Restricted cash | $14,458 | 14.9% | $12,183 | 12.5% | | Total | $97,269 | 100.0% | $97,057 | 100.0% | - Investments held by the insurance subsidiary, Amigo, must comply with domiciliary state regulations regarding type, quality, and concentration[258] Other-Than-Temporary Impairment The company performs quarterly analyses for other-than-temporary impairment on its investments. For the six months ended June 30, 2020, a $0.7 million write-down was recorded for private company investments due to COVID-19 impacts, but no write-downs for available-for-sale or limited liability investments. All unrealized losses on fixed maturities were considered temporary at June 30, 2020 - No write-downs for other-than-temporary impairment were recorded for other investments for Q2 2020 and Q2 2019, but $0.1 million for H1 2020[262] - No write-downs for other-than-temporary impairment were recorded for limited liability investments for Q2 2020, but $0.1 million for H1 2019[263] - A $0.7 million write-down for other-than-temporary impairment was recorded for private company investments for H1 2020 due to COVID-19 impacts[265] - At June 30, 2020, gross unrealized losses for fixed maturities were less than $0.1 million, with all considered temporary and no unrealized losses attributable to non-investment grade fixed maturities[268] Impact of COVID-19 on Investments The company continues to assess the impact of the COVID-19 pandemic on its investment values, which could lead to future material decreases and potential write-downs, depending on whether these decreases are deemed temporary or other-than-temporary - The COVID-19 pandemic has had a notable impact on general economic conditions and the company is assessing its potential impact on investment values[269] - Future material decreases in investment values could occur, potentially requiring write-downs if deemed other-than-temporary[270] UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES This section details the company's estimated liabilities for insurance claims and related adjustment expenses, including changes and underlying assumptions - Unpaid loss and loss adjustment expenses represent estimated liabilities for reported and incurred but not reported loss events, and related adjustment expenses[271] Provision for Unpaid Loss and Loss Adjustment Expenses - Gross (in thousands): | Line of Business | June 30, 2020 | December 31, 2019 | | :----------------------- | :-------------- | :---------------- | | Non-standard automobile | $266 | $475 | | Commercial automobile | $136 | $73 | | Other | $1,095 | $1,226 | | Total | $1,497 | $1,774 | - The gross provision for non-standard automobile business decreased to $0.3 million at June 30, 2020, from $0.5 million at December 31, 2019, due to payments of loss and loss adjustment expenses at Amigo[274] - The company reported unfavorable development of less than $0.1 million for loss and loss adjustment expenses from prior accident years for the six months ended June 30, 2020, related to an increase at Amigo[277] DEBT This section provides a comprehensive overview of the company's debt structure, including bank loans, notes payable, and subordinated debt, along with associated terms and covenants Bank Loans The PWSC Loan of $5.0 million was fully repaid on January 30, 2020. The KWH Loan, a $10.0 million facility secured for the Geminus acquisition, matures on March 1, 2024, with an interest rate of LIBOR plus 9.25%, and includes various covenants restricting the company's financial activities - The $5.0 million PWSC Loan was fully repaid on January 30, 2020[279] - The $10.0 million KWH Loan, secured for the Geminus acquisition, matures on March 1, 2024, with an annual interest rate of LIBOR plus 9.25%[280] - The KWH Loan contains covenants restricting additional indebtedness, liens, dividends, mergers, and asset disposals[281](index=281&type=ch