Kingsway(US:KFS)2025-08-07 20:01PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Presents unaudited consolidated financial statements for periods ended June 30, 2025, and December 31, 2024, including detailed notes Consolidated Balance Sheets Presents the company's financial position at specific dates, detailing assets, liabilities, and equity | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $207,697 | $186,616 | | Total Liabilities | $172,089 | $168,314 | | Redeemable Preferred Stock | $16,250 | $8,250 | | Total Shareholders' Equity | $19,358 | $10,052 | - Total Assets increased by $21,081 thousand from December 31, 2024, to June 30, 2025, primarily driven by increases in investments, cash and cash equivalents, and other assets7 - Shareholders' Equity attributable to common shareholders increased from $8,413 thousand at December 31, 2024, to $17,442 thousand at June 30, 20257 Consolidated Statements of Operations Presents the company's revenues, expenses, and net loss over specific periods | Metric (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $30,919 | $26,446 | $59,268 | $52,606 | | Total operating expenses | $32,045 | $26,320 | $61,108 | $51,713 | | Operating (loss) income | $(1,126) | $126 | $(1,840) | $893 | | Net loss | $(3,165) | $(2,186) | $(6,257) | $(4,514) | | Net loss attributable to common shareholders | $(3,628) | $(2,363) | $(7,067) | $(4,848) | | Basic loss per share - net loss | $(0.13) | $(0.08) | $(0.26) | $(0.18) | - Total revenues increased by $4,473 thousand (16.9%) for the three months ended June 30, 2025, compared to the same period in 2024, and by $6,662 thousand (12.7%) for the six months ended June 30, 20259 - The company reported an operating loss of $1,126 thousand for the three months ended June 30, 2025, a significant decrease from an operating income of $126 thousand in the prior year period. The six-month operating loss also widened to $1,840 thousand from an income of $893 thousand9 Consolidated Statements of Comprehensive Loss Details net loss and other comprehensive income/loss components for the periods | Metric (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(3,165) | $(2,186) | $(6,257) | $(4,514) | | Other comprehensive (loss) income, net of taxes | $(325) | $64 | $78 | $11 | | Comprehensive loss | $(3,490) | $(2,122) | $(6,179) | $(4,503) | | Comprehensive loss attributable to common shareholders | $(3,642) | $(2,301) | $(6,456) | $(4,834) | - Comprehensive loss attributable to common shareholders increased to $3,642 thousand for the three months ended June 30, 2025, from $2,301 thousand in the prior year, primarily due to a higher net loss and an increase in other comprehensive loss11 Consolidated Statements of Shareholders' Equity Tracks changes in equity components, including common stock, additional paid-in capital, and accumulated deficit | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------------------- | :------------ | :---------------- | | Common Stock (Amount) | $294 | $281 | | Additional Paid-in Capital | $392,853 | $376,503 | | Treasury Stock | $(6,545) | $(6,200) | | Accumulated Deficit | $(368,520) | $(361,453) | | Accumulated Other Comprehensive Loss | $(640) | $(718) | | Shareholders' Equity Attributable to Common Shareholders | $17,442 | $8,413 | | Noncontrolling Interests | $1,916 | $1,639 | | Total Shareholders' Equity | $19,358 | $10,052 | - Shareholders' equity attributable to common shareholders significantly increased by $9,029 thousand from December 31, 2024, to June 30, 2025, primarily due to common stock issuance and additional paid-in capital, despite an increase in accumulated deficit1416 - Common stock issued at $11.75 per share, net, contributed $15,602 thousand to additional paid-in capital during the six months ended June 30, 202516 Consolidated Statements of Cash Flows Categorizes cash movements from operating, investing, and financing activities | Metric (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(1,461) | $806 | | Net cash (used in) provided by investing activities | $(13,676) | $930 | | Net cash provided by (used in) financing activities | $21,458 | $(1,290) | | Net increase in cash and cash equivalents and restricted cash from continuing operations | $6,321 | $458 | | Cash and cash equivalents and restricted cash of continuing operations at end of period | $19,457 | $17,956 | - Operating activities shifted from providing $806 thousand in cash in H1 2024 to using $1,461 thousand in H1 202519 - Investing activities used significantly more cash in H1 2025 ($13,676 thousand) compared to providing cash in H1 2024 ($930 thousand), primarily due to business acquisitions19 - Financing activities provided substantial cash of $21,458 thousand in H1 2025, a reversal from using $1,290 thousand in H1 2024, driven by common and preferred stock issuances and bank loan proceeds19 Notes to Consolidated Financial Statements Provides detailed explanations and additional information supporting the consolidated financial statements NOTE 1 BUSINESS Describes Kingsway Financial Services Inc.'s business and operating subsidiaries - Kingsway Financial Services Inc. is a Delaware holding company with operating subsidiaries primarily in the business services and extended warranty industries21 NOTE 2 BASIS OF PRESENTATION Outlines accounting principles and assumptions for interim financial statements - The unaudited consolidated interim financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, and should be read with the 2024 Annual Report on Form 10-K2223 - Management's estimates and assumptions affect reported amounts, with critical estimates including revenue recognition, investment valuation, deferred income taxes, business combinations, and intangible asset impairment2526 NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Confirms no material changes to the company's significant accounting policies - There have been no material changes to the Company's significant accounting policies as reported in its 2024 Annual Report28 NOTE 4 RECENTLY ISSUED ACCOUNTING STANDARDS Discusses the adoption and expected impact of new accounting pronouncements - The Company adopted ASU 2024-02 (Codification Improvements) effective January 1, 2025, with no impact on consolidated financial statements29 - ASU 2023-09 (Improvements to Income Tax Disclosures) is effective for annual periods after December 15, 2024, and is expected to expand annual income tax disclosures30 - ASU 2024-03 (Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures) is effective for public companies with annual periods beginning after December 15, 2026, and is expected to result in additional expense disaggregation in footnote disclosures32 NOTE 5 ACQUISITIONS AND DISCONTINUED OPERATIONS Details recent business acquisitions and the financial impact of discontinued operations - On March 14, 2025, Kingsway acquired Bud's Plumbing for approximately $5.0 million, expanding its Kingsway Search Xcelerator segment with recurring revenue and low capital intensity33 Bud's Plumbing Preliminary Purchase Price Allocation (March 14, 2025) | Item | Amount (in thousands) | | :-------------------------------------- | :-------------------- | | Total purchase price | $4,960 | | Total identifiable assets and liabilities | $4,021 | | Excess purchase price allocated to goodwill | $939 | - From acquisition to June 30, 2025, Bud's Plumbing generated $2.0 million in revenue and $0.2 million in net income38 - The Leased Real Estate segment (VA Lafayette and CMC Industries Inc.) was classified as discontinued operations due to a strategic shift, with VA Lafayette sold on August 16, 2024, for $1.3 million cash plus assumption of $11.8 million mortgage444647 Income from Discontinued Operations (Leased Real Estate) (in thousands) | Metric | Three months ended June 30, 2024 | Six months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :----------------------------- | | Rental revenue | $360 | $733 | | Income from discontinued operations, net of taxes | $167 | $358 | | Loss on disposal of discontinued operations, net of taxes | — | $404 | NOTE 6 INVESTMENTS Provides details on the company's investment portfolio, including fixed maturities and net investment income Fixed Maturities at Fair Value (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------------- | :------------ | :---------------- | | U.S. government, government agencies and authorities | $13,715 | $13,354 | | States, municipalities and political subdivisions | $2,249 | $2,775 | | Mortgage-backed | $10,254 | $9,886 | | Asset-backed | $1,455 | $1,326 | | Corporate | $9,857 | $9,622 | | Total fixed maturities | $37,530 | $36,963 | - Total fixed maturities increased slightly to $37,530 thousand at June 30, 2025, from $36,963 thousand at December 31, 20245154 Net Investment Income (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net investment income | $410 | $308 | $790 | $634 | | Net realized gains | $128 | $277 | $57 | $401 | - Net investment income increased by $102 thousand (33.1%) for the three months and $156 thousand (24.6%) for the six months ended June 30, 2025, primarily due to increased interest from fixed maturities and less loss from limited liability investments63 - Net realized gains decreased significantly from $277 thousand to $128 thousand for the three months and from $401 thousand to $57 thousand for the six months ended June 30, 202563 NOTE 7 GOODWILL Outlines changes in goodwill, including additions from acquisitions and impairment assessments Goodwill Activity (in thousands) | Segment | Balance, December 31, 2024 | Acquisition | Measurement period adjustments | Balance, June 30, 2025 | | :-------------------------------------- | :------------------------- | :---------- | :----------------------------- | :--------------------- | | Extended Warranty | $31,153 | — | — | $31,153 | | Kingsway Search Xcelerator | $25,371 | $938 | $85 | $26,394 | | Total | $56,524 | $938 | $85 | $57,547 | - Goodwill increased by $1,023 thousand to $57,547 thousand at June 30, 2025, primarily due to the acquisition of Bud's Plumbing ($938 thousand) and a measurement period adjustment for Image Solutions ($85 thousand)6566 - No goodwill impairment charges were recorded during the three and six months ended June 30, 2025 and 202468 NOTE 8 INTANGIBLE ASSETS Details the carrying value and changes in intangible assets, including amortization and impairment Intangible Assets, Net Carrying Value (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------------- | :------------ | :---------------- | | Customer relationships | $22,661 | $25,477 | | Developed technology | $541 | $521 | | Trade names | $16,932 | $14,051 | | Total | $40,134 | $40,049 | - Net carrying value of intangible assets increased slightly to $40,134 thousand at June 30, 2025, from $40,049 thousand at December 31, 202469 - The acquisition of Bud's Plumbing added $3.6 million in separately identifiable intangible assets, including $0.5 million in amortizable customer relationships and $3.1 million in indefinite-lived trade name71 - Impairment charges of $0.1 million (Q2 2025) and $0.2 million (YTD 2025) were recorded for the Ravix indefinite-lived trade name, due to lower-than-projected revenue and higher discount rates74 NOTE 9 PROPERTY AND EQUIPMENT Presents the net carrying value of property and equipment Property and Equipment, Net Carrying Value (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------------- | :------------ | :---------------- | | Leasehold improvements | $227 | $237 | | Furniture and equipment | $104 | $28 | | Computer hardware | $808 | $801 | | Medical equipment | $353 | $438 | | Vehicles | $187 | $63 | | Total | $1,679 | $1,567 | - Net carrying value of property and equipment increased to $1,679 thousand at June 30, 2025, from $1,567 thousand at December 31, 202475 NOTE 10 DEBT Provides details on the company's debt, including bank loans, notes payable, and subordinated debt Total Debt (in thousands) | Category | Principal (June 30, 2025) | Carrying Value (June 30, 2025) | Principal (December 31, 2024) | Carrying Value (December 31, 2024) | | :-------------------------------------- | :------------------------ | :----------------------------- | :---------------------------- | :----------------------------- | | Bank loans | $43,709 | $43,351 | $44,606 | $44,128 | | Note payable | $1,196 | $1,053 | — | — | | Subordinated debt | $15,000 | $13,928 | $15,000 | $13,409 | | Total | $59,905 | $58,332 | $59,606 | $57,537 | - Total debt increased slightly in principal amount to $59,905 thousand at June 30, 2025, from $59,606 thousand at December 31, 202477 - A new $9.1 million 2025 Ravix Loan was established on February 7, 2025, with proceeds used to repay existing 2021 and 2022 Ravix Loans, resulting in a $0.1 million loss on extinguishment of debt8688 - SNS was in default under its loan covenants (leverage and fixed charge ratios) from March 31, 2024, through June 30, 2025, but received a waiver for the quarter ended June 30, 202594 - A new $1.25 million KPH Note (note payable) was issued as part of the Bud's Plumbing acquisition on March 14, 2025, recorded at an estimated fair value of $1.1 million113 NOTE 11 LEASES Details the company's lease arrangements, including operating lease costs and lease terms Operating Lease Costs (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $218 | $139 | $411 | $282 | | Variable lease cost | $46 | $67 | $102 | $137 | | Short-term lease cost | $29 | $24 | $58 | $49 | - Operating lease costs increased by $79 thousand (56.8%) for the three months and $129 thousand (45.7%) for the six months ended June 30, 2025, compared to the prior year periods119 - The weighted-average remaining lease term for operating leases was 4.99 years, and the weighted-average discount rate was 6.24% as of June 30, 2025121 - Revenue from sales-type leases was $0.4 million for the three months and $0.7 million for the six months ended June 30, 2025, compared to zero in the prior year periods122 NOTE 12 REVENUE FROM CONTRACTS WITH CUSTOMERS Breaks down revenue by service type and discusses deferred service fees Service Fee and Commission Revenue by Type (in thousands) | Revenue Type | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Vehicle service agreement fees and GAP commissions | $15,140 | $14,998 | $30,034 | $29,980 | | Maintenance support service fees | $1,170 | $878 | $2,096 | $1,641 | | Warranty product commissions | $1,332 | $1,229 | $2,182 | $2,168 | | Business services consulting fees | $5,723 | $4,382 | $11,931 | $8,932 | | Healthcare services fees | $4,567 | $4,088 | $9,159 | $8,314 | | Software license and support fees | $1,246 | $871 | $1,837 | $1,571 | | Skilled trades repair and service fees | $1,741 | — | $2,029 | — | | Total Service fee and commission revenue | $30,919 | $26,446 | $59,268 | $52,606 | - Total service fee and commission revenue increased by $4,473 thousand (16.9%) for the three months and $6,662 thousand (12.7%) for the six months ended June 30, 2025124 - Skilled trades repair and service fees, primarily from the Bud's Plumbing acquisition, contributed $1,741 thousand in Q2 2025 and $2,029 thousand YTD 2025124 - Deferred service fees increased to $86,430 thousand at June 30, 2025, from $83,108 thousand at December 31, 2024, due to additions exceeding recognized fees135136 NOTE 13 INCOME TAXES Details the company's income tax benefit/expense and deferred tax liabilities Income Tax (Benefit) Expense (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax (benefit) expense | $(131) | $104 | $(395) | $188 | | Income tax benefit at U.S. statutory income tax rate | $(692) | $(473) | $(1,397) | $(899) | | Valuation allowance | $510 | $553 | $903 | $1,092 | - The Company reported an income tax benefit of $131 thousand for Q2 2025 and $395 thousand YTD 2025, a shift from an expense in the prior year, primarily due to the release of its valuation allowance associated with indefinite life business interest expense carryforwards141142143 - Net deferred income tax liabilities were $3.8 million at June 30, 2025, and $4.4 million at December 31, 2024144 NOTE 14 LOSS PER SHARE Presents basic and diluted loss per share attributable to common shareholders Loss Per Share Attributable to Common Shareholders | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic loss per share - net loss | $(0.13) | $(0.08) | $(0.26) | $(0.18) | | Diluted loss per share - net loss | $(0.13) | $(0.08) | $(0.26) | $(0.18) | | Weighted-average basic shares outstanding (in '000s) | 27,196 | 27,309 | 27,150 | 27,223 | - Basic and diluted loss per share increased to $(0.13) for Q2 2025 and $(0.26) YTD 2025, compared to $(0.08) and $(0.18) in the prior year periods, respectively146 - Potentially dilutive securities (stock options, unvested restricted stock awards, convertible preferred stock) were excluded from diluted EPS calculations due to the Company reporting a loss, making their inclusion anti-dilutive148149150 NOTE 15 STOCK-BASED COMPENSATION Details stock-based compensation expense and awards granted - Total stock-based compensation expense was $0.3 million for both Q2 2025 and Q2 2024, and $0.8 million YTD 2025 compared to $0.6 million YTD 2024153 - KPH LLC granted 199,000 restricted Class B common unit awards to an officer of Bud's Plumbing in Q1 2025, with a weighted-average grant date fair value of $0.85 per unit152 NOTE 16 REDEEMABLE PREFERRED STOCK Describes the issuance and terms of various classes of redeemable preferred stock - The Company issued 330,000 shares of Class B Preferred Stock in September 2024 for $8.3 million, convertible into common shares and redeemable by September 24, 2031154155156 - In February 2025, 240,000 shares of Class C Preferred Stock were issued for $6.0 million, convertible into common shares and redeemable by February 12, 2032160161162 - On May 8, 2025, 80,000 shares of Class D Preferred Stock were issued for $2.0 million, convertible into common shares and redeemable by May 7, 2032166167168 - All preferred stock classes rank senior to common shares and carry a fixed, cumulative preferential cash dividend rate of 8% per year, increasing to 18% if dividends are not paid for two consecutive quarters156162168 NOTE 17 SHAREHOLDERS' EQUITY Details changes in shareholders' equity, including stock issuances, dividends, and repurchases - On June 24, 2025, the Company sold 1,336,264 shares of Common Stock in a private placement for aggregate gross proceeds of $15.7 million, with net proceeds of $15.6 million173 - Cash dividends paid on preferred stock were $0.2 million for Q2 2025 and $0.4 million YTD 2025175 - The Company repurchased 42,900 shares of common stock for $0.3 million YTD 2025, fully utilizing its authorized repurchase program which expired in January 2025176 NOTE 18 ACCUMULATED OTHER COMPREHENSIVE LOSS Provides a breakdown of components contributing to accumulated other comprehensive loss Accumulated Other Comprehensive Loss (in thousands) | Component | June 30, 2025 | December 31, 2024 | | :-------------------------------------- | :------------ | :---------------- | | Unrealized Gains (Losses) on Available-for-Sale Investments | $(541) | $(1,157) | | Foreign Currency Translation Adjustments | $(3,286) | $(3,286) | | Change in Fair Value of Debt Attributable to Instrument Specific Credit Risk | $3,187 | $3,725 | | Total Accumulated Other Comprehensive Loss | $(640) | $(718) | - Total accumulated other comprehensive loss decreased to $(640) thousand at June 30, 2025, from $(718) thousand at December 31, 2024, primarily due to a reduction in unrealized losses on available-for-sale investments178179 NOTE 19 SEGMENTED INFORMATION Presents financial data by reportable segment, including revenues and operating income - Kingsway operates through two reportable segments: Extended Warranty and Kingsway Search Xcelerator (KSX)183 - Extended Warranty includes IWS, Geminus, PWI, and Trinity, providing vehicle service agreements, GAP products, and HVAC/generator warranty products184185186187 - KSX includes CSuite, Ravix, SNS, SPI, DDI, Image Solutions, and Bud's Plumbing, offering professional services, healthcare staffing, software, IT managed services, and plumbing services188189190191192 Revenues by Reportable Segment (in thousands) | Segment | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Extended Warranty | $17,642 | $17,105 | $34,312 | $33,790 | | Kingsway Search Xcelerator (KSX) | $13,277 | $9,341 | $24,956 | $18,816 | | Total revenues | $30,919 | $26,446 | $59,268 | $52,606 | Operating Income (Loss) by Reportable Segment (in thousands) | Segment | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Extended Warranty | $(63) | $1,244 | $452 | $2,320 | | Kingsway Search Xcelerator (KSX) | $2,049 | $1,441 | $3,792 | $2,784 | | Total segment operating income | $1,986 | $2,685 | $4,244 | $5,104 | NOTE 20 FAIR VALUE OF FINANCIAL INSTRUMENTS Explains the fair value hierarchy and valuation techniques for financial instruments - The Company uses a fair value hierarchy (Level 1, 2, 3) to categorize inputs for valuation techniques, with Level 1 being quoted prices in active markets and Level 3 involving significant unobservable inputs199203 - Fixed maturities are classified as Level 2, with fair values derived from quoted prices of similar instruments or third-party evidence200201 - Limited liability investment at fair value is categorized as Level 3, valued using a market approach with valuation multiples applied to performance metrics202205 - Subordinated debt is classified as Level 2, with fair value calculated using a model based on market observable inputs and third-party developed credit spread assumptions206 - Contingent consideration liabilities are Level 3, revalued each period using Monte Carlo simulation, with the Ravix contingent liability paid in full in February 2025 and CSuite's estimated fair value at zero207210 NOTE 21 RELATED PARTIES Discloses transactions and relationships with related parties, including management and significant shareholders - Company CEO John T. Fitzgerald, his family members, and Board members invested a total of $5.2 million in Class B Preferred Stock, $3.7 million in Class C Preferred Stock, and $2.0 million in Class D Preferred Stock private placements223 - The sale of VA Lafayette in August 2024 was to an entity associated with a current holder of the Company's Class B Preferred Stock, determined to be an arms-length transaction225 - The $1.25 million KPH Note (note payable) for the Bud's Plumbing acquisition was issued to the seller, who is a current employee of Bud's Plumbing226 - Blue Riband Fund LP, managed by Mirabella Financial Services LLP (a >5% common shareholder), invested $3.0 million in the June 2025 common stock private placement227 NOTE 22 COMMITMENTS AND CONTINGENCIES Outlines the company's commitments, contingencies, and subsequent events - The Company's obligation to reimburse Aegis Security Insurance Company for customs bond losses, under a 2020 settlement agreement, terminated on June 30, 2025228229 - Restricted cash totaled $7.4 million at June 30, 2025, including deposits by subsidiaries and amounts on deposit with state regulatory authorities230 - Subsequent events include the acquisition of Roundhouse Electric & Equipment Co., Inc. on July 1, 2025, for $22.4 million, and AAA Flexible Pipe Cleaning Corp. on August 1, 2025, for $2.8 million plus contingent consideration231232 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Provides management's perspective on financial condition and results, covering segment trends, non-GAAP measures, estimates, investments, debt, and liquidity FORWARD-LOOKING STATEMENTS Cautions that forward-looking statements are subject to risks and uncertainties - The discussion includes forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from expectations235 OVERVIEW Provides a high-level description of Kingsway's business structure and operating segments - Kingsway is a Delaware holding company with operating subsidiaries in business services and extended warranty industries, structured into two reportable segments: Extended Warranty and Kingsway Search Xcelerator (KSX)236 - The Extended Warranty segment includes IWS, Geminus, PWI, and Trinity, offering vehicle service agreements and various warranty products237238239240241 - The KSX segment comprises CSuite, Ravix, SNS, SPI, DDI, Image Solutions, and Bud's Plumbing, providing diverse services from financial consulting to plumbing242243244245246247 NON-U.S. GAAP FINANCIAL MEASURE Defines segment operating income as a non-U.S. GAAP financial measure - Segment operating income is presented as a non-U.S. GAAP measure, representing pretax profitability of segments by subtracting direct segment expenses from direct segment revenues249 SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ESTIMATES Highlights critical accounting estimates and confirms no material changes - Critical accounting estimates include revenue recognition, investment valuation, deferred income taxes, business combinations, intangible asset impairment, goodwill recoverability, and fair value assumptions for debt and stock-based compensation251 - No material changes to significant accounting policies and critical estimates have occurred since December 31, 2024252 RESULTS OF CONTINUING OPERATIONS Analyzes financial performance of continuing operations, including segment results and key financial metrics Segment Operating Income and Net Loss (in thousands) | Metric | Q2 2025 | Q2 2024 | Change (QoQ) | YTD 2025 | YTD 2024 | Change (YoY) | | :-------------------------------------- | :------ | :------ | :----------- | :------- | :------- | :----------- | | Extended Warranty Operating Income (Loss) | $(63) | $1,244 | $(1,307) | $452 | $2,320 | $(1,868) | | KSX Operating Income | $2,049 | $1,441 | $608 | $3,792 | $2,784 | $1,008 | | Total Segment Operating Income | $1,986 | $2,685 | $(699) | $4,244 | $5,104 | $(860) | | Net Loss | $(3,165) | $(2,186) | $(979) | $(6,257) | $(4,514) | $(1,743) | - Extended Warranty segment operating income decreased significantly, turning into a loss of $63 thousand in Q2 2025 from an income of $1,244 thousand in Q2 2024, primarily due to higher commission and general and administrative expenses, including severance costs259260 - Kingsway Search Xcelerator (KSX) segment operating income increased by $608 thousand (42.2%) in Q2 2025 to $2,049 thousand, driven by the inclusion of Image Solutions and growth in SPI, DDI, and CSuite, partially offset by a decrease in Ravix261263265 - Net investment income increased by $102 thousand (33.1%) in Q2 2025, while net realized gains decreased by $149 thousand (53.8%)264266 - Interest expense increased by $103 thousand (8.9%) in Q2 2025, mainly due to the Image Solutions Loan and KWH Loan amendments, partially offset by lower Ravix and SNS loan interest267273 - General and administrative expenses not allocated to segments increased by $799 thousand (38.3%) in Q2 2025, primarily due to Aegis reimbursement payments and higher search-related expenses268269 - Amortization of intangible assets increased by $253 thousand (17.4%) in Q2 2025, mainly due to the Image Solutions acquisition274 - Impairment of intangible assets decreased significantly to $0.1 million in Q2 2025 from $0.7 million in Q2 2024, related to the Ravix trade name275 - The Company recorded a $0.1 million loss on extinguishment of debt in YTD 2025 related to the Ravix Loan modification277 - Income tax benefit of $0.1 million was reported in Q2 2025, compared to an expense of $0.1 million in Q2 2024, primarily due to the release of valuation allowance on business interest expense carryforwards279 INVESTMENTS Discusses the company's investment portfolio, including carrying values and unrealized gains/losses Carrying Value of Investments (in thousands) | Type of investment | June 30, 2025 | % of Total | December 31, 2024 | % of Total | | :-------------------------------------- | :------------ | :--------- | :---------------- | :--------- | | Total fixed maturities | $37,530 | 61.0% | $36,963 | 67.9% | | Limited liability investments | $650 | 1.1% | $650 | 1.2% | | Limited liability investment, at fair value | $3,037 | 4.9% | $2,859 | 5.2% | | Investments in private companies | $628 | 1.0% | $696 | 1.3% | | Short-term investments | $173 | 0.3% | $169 | 0.3% | | Total investments | $42,018 | 68.3% | $41,337 | 75.9% | | Cash and cash equivalents | $12,079 | 19.6% | $5,493 | 10.1% | | Restricted cash | $7,378 | 12.0% | $7,643 | 14.0% | | Total | $61,475 | 100.0% | $54,473 | 100.0% | - Total carrying value of investments, cash, and restricted cash increased to $61.5 million at June 30, 2025, from $54.5 million at December 31, 2024280282 - No impairment losses were recorded related to investments during the three and six months ended June 30, 2025 and 2024285 - Gross unrealized losses for fixed maturities amounted to $0.7 million at June 30, 2025, down from $1.2 million at December 31, 2024285 DEBT Provides an overview of the company's debt structure, including principal amounts and carrying values Principal and Carrying Value of Debt (in thousands) | Category | Principal (June 30, 2025) | Carrying Value (June 30, 2025) | Principal (December 31, 2024) | Carrying Value (December 31, 2024) | | :-------------------------------------- | :------------------------ | :----------------------------- | :---------------------------- | :----------------------------- | | Total bank loans | $43,709 | $43,351 | $44,606 | $44,128 | | Note payable | $1,196 | $1,053 | — | — | | Subordinated debt | $15,000 | $13,928 | $15,000 | $13,409 | | Total | $59,905 | $58,332 | $59,606 | $57,537 | - Total debt principal increased to $59,905 thousand at June 30, 2025, from $59,606 thousand at December 31, 2024286 - A new $9.1 million 2025 Ravix Loan was established, repaying prior Ravix loans and resulting in a $0.1 million loss on extinguishment of debt287288 - SNS was in default on debt covenants but received a waiver for Q2 2025, with uncertainty regarding future compliance290 - A new $1.25 million KPH Note was issued as part of the Bud's Plumbing acquisition293 - The fair value of subordinated debt increased to $13.9 million at June 30, 2025, from $13.4 million at December 31, 2024294 RECENTLY ISSUED ACCOUNTING STANDARDS Refers to Note 4 for details on recently issued accounting standards - The Company refers to Note 4 for discussion of recently issued accounting standards applicable to current and future financial statements296 LIQUIDITY AND CAPITAL RESOURCES Assesses the company's ability to meet its financial obligations and fund operations - Liquidity is primarily met by operations, capital raising, subsidiary disposals, investment maturities, and income297 - Extended Warranty companies are required to place a significant portion of cash into restricted trust accounts to fund future expected claims298 - Net cash used in operating activities from continuing operations was $1.5 million YTD 2025, primarily due to settling the Ravix contingent liability300 - Net cash used in investing activities from continuing operations was $13.7 million YTD 2025, mainly for the Bud's Plumbing acquisition and pre-funding the Roundhouse acquisition301 - Net cash provided by financing activities from continuing operations was $21.5 million YTD 2025, driven by common and preferred stock issuances and bank loan proceeds302 - Holding company liquidity was $6.2 million at June 30, 2025, up from $0.9 million at December 31, 2024307 - Existing cash, equivalents, investments, and anticipated cash flows are expected to be sufficient for the next twelve months, subject to macroeconomic uncertainties308 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, Kingsway is not required to provide disclosures under this item - The Company is a smaller reporting company and is not required to make disclosures under this item309 ITEM 4. CONTROLS AND PROCEDURES Details the evaluation of disclosure controls and internal control over financial reporting, concluding effectiveness as of June 30, 2025, with Bud's Plumbing excluded - The Company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2025313 - Management concluded that internal control over financial reporting was effective as of June 30, 2025, based on the COSO framework314 - Bud's Plumbing, acquired on March 14, 2025, was excluded from the scope of the quarterly discussion of material changes in internal control over financial reporting316 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Legal proceedings information is incorporated by reference from Note 22, 'Commitments and Contingencies' - Legal proceedings information is incorporated by reference from Note 22, 'Commitments and Contingencies'318 ITEM 1A. RISK FACTORS No material changes to risk factors previously disclosed in the 2024 Annual Report - No material changes to risk factors previously disclosed in the 2024 Annual Report319 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Details unregistered sales of equity securities, including Class D Preferred Stock for $2.0 million and Common Stock for $15.7 million in private placements - On May 8, 2025, the Company issued 80,000 shares of Class D Preferred Stock for $2.0 million in a private placement to accredited investors, including Board members321 - On June 24, 2025, the Company issued 1,336,264 shares of Common Stock for aggregate gross proceeds of $15.7 million (net $15.6 million) in a private placement to accredited investors321 ITEM 3. DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities were reported - No defaults upon senior securities were reported322 ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable - This item is not applicable322 ITEM 5. OTHER INFORMATION No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter323 ITEM 6. EXHIBITS Lists all exhibits filed with the Form 10-Q, including certificates, agreements, and certifications - Exhibits include Class D Certificate of Designations, Subscription Agreements, Stock Purchase Agreement, Section 302 and 906 Certifications, and Inline XBRL documents324 SIGNATURES The report was signed by John T. Fitzgerald (President, CEO, and Director) and Kent A. Hansen (CFO and Executive VP) on August 7, 2025 - The report was signed by John T. Fitzgerald (President, CEO, and Director) and Kent A. Hansen (CFO and Executive VP) on August 7, 2025326