KINGSWAY Corp: Form 10-Q for the period ended Sep 30, 2025

FORWARD-LOOKING STATEMENTS

Management's Discussion and Analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. Words such as “expects,” “believes,” “anticipates,” “intends,” “estimates,” “seeks” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect Kingsway management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, see Kingsway’s securities filings, including its Annual Report on Form 10-K for the year ended December 31, 2024 ("2024 Annual Report"). The Company's securities filings can be accessed on the EDGAR section of the U.S. Securities and Exchange Commission’s website at www.sec.gov (http://www.sec.gov), on the Canadian Securities Administrators’ website at www.sedar.com (http://www.sedar.com) or through the Company’s website at www.kingsway-financial.com (http://www.kingsway-financial.com). Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements because of new information, future events or otherwise.

OVERVIEW

Kingsway is a Delaware holding company with operating subsidiaries located in the United States. The Company is the only publicly-traded US company employing the Search Fund model to acquire and build great businesses and owns and operates a collection of high-quality B2B and B2C services companies that are asset-light, growing, profitable, and that have recurring revenues. Kingsway seeks to compound long-term shareholder value on a per share basis via its decentralized management model, its talented team of operators, and its tax-advantaged corporate structure. Kingsway conducts its business through two reportable segments: Kingsway Search Xcelerator and Extended Warranty.

Kingsway Search Xcelerator includes the following subsidiaries of the Company: CSuite Financial Partners, LLC ("CSuite"), Ravix Group, Inc. ("Ravix"), Secure Nursing Service LLC ("SNS"), Systems Products International, Inc. ("SPI"), Digital Diagnostics Inc. ("DDI"), Image Solutions, LLC ("Image Solutions"), Roundhouse Electric & Equipment Co., Inc. ("Roundhouse"), M.L.C. Plumbing, LLC (d/b/a Bud's Plumbing Service, "Bud's Plumbing"), Advanced Plumbing & Drain, LLC (d/b/a AAA Advanced Plumbing & Drain, "Advanced Plumbing") and Efficient Plumbing, LLC (d/b/a Southside Plumbing, "Southside Plumbing"). Throughout Management's Discussion and Analysis, the term the term "Kingsway Search Xcelerator" is used to refer to this segment.

CSuite is a professional services firm that provides experienced chief financial officer and other finance professionals to its clients through a variety of flexible offerings. These offerings include project and interim staffing engagements, and contingent search services for permanent placements for its clients throughout the United States.

Ravix provides outsourced financial services and human resources consulting for short or long duration engagements for customers throughout the United States.

SNS provides healthcare staffing services to acute healthcare facilities on a contract or per diem basis in the United States, primarily in California.

SPI provides software products created exclusively to serve the management needs of all types of shared-ownership properties throughout the United States, Europe, Asia, Australia, Mexico and the Caribbean.

DDI provides outsourced 24 hours a day and 7 days per week ("24/7") cardiac telemetry services for long-term acute care and inpatient rehabilitation hospitals. Outsourcing cardiac monitoring is intended to allow hospitals to eliminate personnel callouts and human resources issues, remove distractions from onsite operations, and free up facility staff to assist directly with patient care. DDI currently has a presence in 42 states and Puerto Rico.

Image Solutions provides comprehensive information technology managed services, including equipment sales, service, and helpdesk support to customers primarily in North Carolina, Kansas, Georgia, Kentucky and Tennessee.

Roundhouse provides industrial-scale electric motor maintenance, repair, testing, and sales solutions primarily to midstream natural gas pipeline operators and utilities across the Permian Basin.

Kingsway Skilled Trades includes Bud's Plumbing, Advanced Plumbing and Southside Plumbing. Kingsway Skilled Trades provides a comprehensive range of plumbing services, including emergency repairs, drain cleaning, water heater installations, and water treatment solutions to residential and commercial customers, primarily in Evansville, Indiana (Bud's Plumbing), Cleveland, Ohio (Advanced Plumbing) and Omaha, Nebraska (Southside Plumbing).

Extended Warranty includes the following subsidiaries of the Company: IWS Acquisition Corporation ("IWS"), Geminus Holding Company, Inc. ("Geminus"), PWI Holdings, Inc. ("PWI") and Trinity Warranty Solutions LLC ("Trinity"). Throughout Management's Discussion and Analysis, the term "Extended Warranty" is used to refer to this segment.

IWS is a licensed motor vehicle service agreement company and is a provider of after-market vehicle protection services distributed by credit unions in 28 states and the District of Columbia to their members, with customers in all fifty states.

Geminus primarily sells vehicle service agreements to used car buyers across the United States, through its subsidiaries, The Penn Warranty Corporation ("Penn") and Prime Auto Care, Inc. ("Prime"). Penn and Prime distribute these products in 46 and 35 states, respectively, via independent used car dealerships and franchised car dealerships. Penn also sells and administers a guaranteed asset protection product ("GAP") in states where Penn is approved.

PWI markets, sells and administers vehicle service agreements to used car buyers in all fifty states via independent used car and franchise network of approved automobile and motorcycle dealer partners. PWI’s business model is supported by an internal sales and operations team and partners with American Auto Shield in three states with a white label agreement.

Trinity sells heating, ventilation, air conditioning ("HVAC"), standby generator, commercial LED lighting and commercial refrigeration warranty products and provides equipment breakdown and maintenance support services to companies across the United States. As a seller of warranty products, Trinity markets and administers product warranty contracts for certain new and used products in the HVAC, standby generator, commercial LED lighting and commercial refrigeration industries throughout the United States. Trinity acts as an agent on behalf of the third-party insurance companies that underwrite and guaranty these warranty contracts. Trinity does not guaranty the performance underlying the warranty contracts it sells. As a provider of equipment breakdown and maintenance support services, Trinity acts as a single point of contact to its clients for both certain equipment breakdowns and scheduled maintenance of equipment. Trinity will provide such repair and breakdown services by contracting with certain HVAC providers.

NON-U.S. GAAP FINANCIAL MEASURE

Throughout this quarterly report, we present our operations in the way we believe will be most meaningful, useful and transparent to anyone using this financial information to evaluate our performance. Our unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information. In addition to the U.S. GAAP presentation of net loss, we present segment operating income as a non-U.S. GAAP financial measure, which we believe is valuable in managing our business and drawing comparisons to our peers. Below is a definition of our non-U.S. GAAP measure and its relationship to U.S. GAAP.

Segment Operating Income

Segment operating income represents one measure of the pretax profitability of our segments and is derived by subtracting direct segment expenses from direct segment revenues. Revenues and expenses are presented in the unaudited consolidated interim statements of operations, but are not subtotaled by segment; however, this information is available in total and by segment in Note 20, "Segmented Information," to the unaudited consolidated interim financial statements, regarding reportable segment information. The nearest comparable U.S. GAAP measure to total segment operating income is operating (loss) income that, in addition to total segment operating income, includes corporate general and administrative expenses and excludes segment non-operating other revenue (expense).

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ESTIMATES

The preparation of unaudited consolidated interim financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Estimates and their underlying assumptions are reviewed on an ongoing basis. Changes in estimates are recorded in the accounting period in which they are determined.

The Company’s most critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations, and that require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. The critical accounting policies and judgments in the accompanying unaudited consolidated interim financial statements include revenue recognition; valuation of fixed maturity investments; impairment assessment of investments; valuation of limited liability investment, at fair value; valuation of deferred income taxes; accounting for business combinations; valuation and impairment assessment of intangible assets; goodwill recoverability; fair value assumptions for subordinated debt obligations; and fair value assumptions for subsidiary stock-based compensation awards. Although management believes that its estimates and assumptions are reasonable, they are based upon information available when they are made, and therefore, actual results may differ from these estimates under different assumptions or conditions.

The Company’s significant accounting policies and critical estimates are described in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2024 Annual Report. There has been no material change subsequent to December 31, 2024 to the information previously disclosed in the 2024 Annual Report with respect to these significant accounting policies and critical estimates.

RESULTS OF CONTINUING OPERATIONS

A reconciliation of total segment operating income to net loss for the three and nine months ended September 30, 2025 and September 30, 2024 is presented in Table 1 below:

Table 1 Segment Operating Income

(in thousands of dollars)

(a) The income from discontinued operations and the loss on disposal of discontinued operations is related to VA Lafayette. See Note 5, "Acquisitions and Discontinued Operations," to the unaudited consolidated interim financial statements, for further information.

Among other items, the degree and pace of inflation and interest rate changes may have impacts on our business and the recently announced tariffs or retaliatory responses to such tariffs may impact the Company’s operating income. The potential impact of current macroeconomic uncertainties on the Company’s financial condition, results of operations, and cash flows is subject to change and continues to depend on the extent and duration of these uncertainties.

The discussion below highlights the key drivers of the current and prior year results.

Kingsway Search Xcelerator

The Kingsway Search Xcelerator revenue increased to $19.0 million for the three months ended September 30, 2025 compared to $9.3 million for the three months ended September 30, 2024 (an increase to $43.9 million year to date compared to $28.1 million prior year to date). Kingsway Search Xcelerator operating income was $2.2 million for the three months ended September 30, 2025 compared to $1.1 million for the three months ended September 30, 2024 ($6.0 million year to date compared to $3.9 million prior year to date). Revenue and operating income were primarily impacted by the following:

• The inclusion of Image Solutions for the three and nine months ended September 30, 2025 following its acquisition effective September 26, 2024. For the three months ended September 30, 2025, Image Solutions had revenue and operating income of $2.0 million and $0.6 million, respectively (revenue and operating income of $5.9 million and $1.5 million, respectively for the nine months ended September 30, 2025);
• DDI operating income increased $0.2 million to $0.3 million for the three months ended September 30, 2025 (an increase of $0.3 million year to date to $0.9 million), primarily due to an increase in revenue, partially offset by higher cost of sales for the year to date;
• CSuite operating income increased $0.1 million to $0.1 million for the three months ended September 30, 2025 (an increase of $0.3 million year to date to $0.3 million), due to a decrease in cost of sales and general and administrative expenses, partially offset by a decrease in revenue for the quarter (an increase in revenue for the year to date (primarily driven by interim assignments lasting longer) and less general and administrative expenses, partially offset by higher cost of sales);
• Ravix operating income decreased $0.2 million to $0.5 million for the three months ended September 30, 2025 (a decrease of $0.7 million year to date to $1.9 million), due to decreased revenue (primarily due to loss of retained customers as they were acquired, as well as financially distressed customers spending less on Ravix services), partially offset by a decrease in costs of services sold and general and administrative expenses (year to date only);
• SPI operating loss increased $0.2 million to less than $0.1 million for the three months ended September 30, 2025 (an increase in operating income of less than $0.1 million year to date to operating income of $0.3 million), primarily due to an decrease in revenue from new customer go-lives compared to prior periods, partially offset by lower cost of sales and general and administrative expenses for the quarter and year to date;
• SNS operating loss increased $0.5 million to $0.4 million for the three months ended September 30, 2025 (an increase of $0.6 million year to date to $0.1 million), primarily a decrease in revenue for the quarter and bad debt expense of $0.3 million (higher cost of sales and general and administrative expenses, partially offset by an increase in revenue for the year to date (travel shifts are up 8% year to date, while per diem shifts are up 9% year to date);
• Bud's Plumbing had revenue and operating loss of $1.7 million and less than $0.1 million, respectively, for the three months ended September 30, 2025 (revenue and operating income of $3.7 million and $0.2 million, respectively, for the period from the date of acquisition through September 30, 2025);
• Roundhouse had revenue and operating income of $4.9 million and $1.2 million, respectively, for the three months ended September 30, 2025, following its acquisition on July 1, 2025;
• Advanced Plumbing had revenue and operating income of $1.2 million and less than $0.1 million, respectively, for the period from the August 1, 2025 date of acquisition through September 30, 2025; and
• Southside Plumbing had revenue and operating loss of $0.5 million and $0.1 million, respectively, for the period from the August 14, 2025 date of acquisition through September 30, 2025.

Extended Warranty

The Extended Warranty service fee and commission revenue was $18.2 million for the three months ended September 30, 2025 compared with $17.8 million for the three months ended September 30, 2024 ($52.5 million year to date compared to $51.6 million prior year to date). However, cash sales were up 14.6% over the prior year (9.2% year to date).

The Extended Warranty operating income was $0.4 million for the three months ended September 30, 2025 compared with $1.7 million for the three months ended September 30, 2024 ( $0.9 million year to date compared to $4.0 million prior year to date).

Operating income was primarily impacted by the following:

• A $1.0 million increase in loss at a combined Geminus and PWI to an operating loss of $0.7 million for the three months ended September 30, 2025 (an increase in loss of $2.4 million year to date to an operating loss of $1.4 million), due to:
• For the quarter, revenue was up slightly and offset by higher claims, commissions and general and administrative expenses;
• For the year to date, a decrease in revenue (cash sales up 8.0% year to date), higher commission expense and higher general and administrative expenses; partially offset by lower claims expense;
• Note that year to date general and administrative expenses included $0.3 million of costs associated with severance and redundant salaries, as a new President & CEO was hired March 31, 2025 to run both Geminus and PWI
• A $0.2 million decrease at IWS to operating income of $0.7 million for the three months ended September 30, 2025 (a decrease of $0.5 million year to date to operating income of $1.6 million), due to higher claims and general and administrative expenses, which essentially offset the benefits from increased revenue (cash sales up 12.3% year to date) for the quarter and year to date; and
• A $0.1 million decrease at Trinity to operating income of $0.4 million for the three months ended September 30, 2025 (a decrease of $0.3 million year to date to operating income of $0.7 million), due to higher cost of sales, commission and general and administrative expenses, which essentially offset the benefits from increased revenue for the quarter and year to date.

Net Investment Income

Net investment income was $0.4 million in the third quarter of 2025 compared to $0.4 million in the third quarter of 2024 ($1.2 million year to date compared to $1.0 million prior year to date). The increase in investment income for the nine months ended September 30, 2025 primarily relates to an increase in investment income from fixed maturities and less loss related to limited liability investments, which are accounted for using the equity method.

Net Realized (Losses) Gains

Net realized losses were less than $0.1 million in the third quarter of 2025 compared to net realized gains of $1.0 million in the third quarter of 2024 (net realized gains of $0.1 million year to date compared to $1.4 million prior year to date). The net realized gains for the three and nine months ended September 30, 2024 primarily relate to realized gains recognized by Argo Holdings Fund I, LLC ("Argo Holdings") and a net realized gain related to the sale of one of the private company investments.

Interest Expense

Interest expense for the third quarter of 2025 was $1.5 million compared to $1.2 million in the third quarter of 2024 ($4.0 million year to date compared to $3.5 million prior year to date). Interest expense was impacted by the following for the three and nine months ended September 30, 2025:

• An increase of $0.2 million for the three and nine months ended September 30, 2025 related to the Roundhouse Loan, which was effective July 1, 2025 and has an annual interest rate equal to the greater of the one-month term Secured Overnight Financing Rate ("SOFR") plus 3.3%, or 5.0% (current rate of 7.63%);
• An increase of $0.1 million for the three months ended September 30, 2025 related to the Image Solutions Loan (increase of $0.4 million year to date), which was effective September 26, 2024 and has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 7.25% (current rate of 7.75%);
• An increase of $0.1 million for the three and nine months ended September 30, 2025 related to the KPH Loan, which was effective August 14, 2025 and has an annual fixed interest rate of 7.5%;

KINGSWAY FINANCIAL SERVICES INC.

• A decrease of less than $0.1 million for the three months ended September 30, 2025 related to the 2020 KWH Loan (increase of $0.1 million year to date). During 2024, KWH entered into an amendment to the 2020 KWH Loan whereby KWH borrowed $15.0 million and used the proceeds to repay the existing loan balances. During the third and fourth quarters of 2024, KWH borrowed $6.0 million under the KWH DDTL and $1.0 million under the KWH Revolver. These events resulted in higher interest expense related to the KWH Loan for the nine months ended September 30, 2025 compared to the same period in 2024;
• A decrease of less than $0.1 million for the three months ended September 30, 2025 (decrease of $0.1 million year to date) related to the 2021, 2022 and 2025 Ravix Loans. During the first quarter of 2025, Ravix entered into an amendment to the 2021 Ravix Loan whereby Ravix borrowed $9.1 million and used the proceeds to repay the existing loan balances. This resulted in lower overall interest expense related to the Ravix Loans for the three and nine months ended September 30, 2025 compared to the same periods in 2024. The amended loan has an annual interest rate equal to the Prime Rate plus 0.5% (current rate of 7.75%);
• A decrease of less than $0.1 million for the three months ended September 30, 2025 (decrease of $0.1 million year to date) on the Company’s subordinated debt. The Company's subordinated debt bears interest at the rate of CME Term SOFR, plus a spread of 4.20%;
• A decrease of less than $0.1 million for the three months ended September 30, 2025 (decrease of $0.1 million year to date) related to the SNS Loan, which has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 5.00% (current rate of 7.75%); and
• A decrease of less than $0.1 million for the three months ended September 30, 2025 (decrease of $0.1 million year to date) related to the DDI Loan, which has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 5.00% (current rate of 7.75%).

See Note 10, "Debt," to the unaudited consolidated interim financial statements for further details.

General and Administrative Expenses and Other Revenue and Expenses not Allocated to Segments, Net

General and administrative expenses and other revenue not allocated to segments was a net expense of $3.3 million in the third quarter of 2025 compared to $3.3 million in the third quarter of 2024 ($9.0 million year to date compared to $7.1 million prior year to date). Included are primarily expenses associated with our corporate holding company, expenses associated with our Operator-in-Residence who search for our next acquisition, as well as revenue and expenses associated with our various other investments that are accounted for on a consolidated basis.

The increase in net expense for the nine months ended September 30, 2025 is primarily attributable to reimbursement payments made to Aegis in connection with the Settlement Agreement and higher acquisition, search and compensation related expenses, partially offset by zero expense related to the Ravix contingent consideration liability during the nine months ended September 30, 2025 compared to the same period in 2024.

See Note 23, "Commitments and Contingencies," to the unaudited consolidated interim financial statements for further details related to the Aegis Settlement Agreement.

Amortization of Intangible Assets

Amortization of intangible assets was $2.4 million in the third quarter of 2025 compared to $1.4 million in the third quarter of 2024 ($5.8 million year to date compared to $4.3 million prior year to date). The increase is primarily due to the inclusion of Image Solutions (acquired September 26, 2024) and Roundhouse, Advanced Plumbing and Southside Plumbing (acquired in the third quarter of 2025) for the three and nine months ended September 30, 2025, partially offset by decreased amortization expense for the Company's other intangible assets.

Impairment of Intangible Assets

Impairment of intangible assets was $0.2 million in the third quarter of 2025 compared to $0.6 million in the third quarter of 2024 ($0.5 million year to date compared to $1.8 million prior year to date). The Company's indefinite-lived intangible assets consist of trade names, which are assessed for impairment annually as of November 30, or more frequently if events or circumstances indicate that the carrying value may not be recoverable. At each quarter end of the first through third quarters of 2025 and 2024, the Company determined that certain of its trade name intangible assets should be further examined under a quantitative approach due to actual revenue coming in lower than previous projections. Based upon this assessment, the Company recorded an impairment charge of $0.2 million during the third quarter of 2025 ($0.5 million year to date) related to the CSuite and Ravix indefinite-lived trade names; and an impairment charge of $0.6 million during the third quarter of 2024 related to the CSuite and Ravix indefinite-lived trade names ($1.8 million prior year to date, related to the SNS, CSuite and Ravix indefinite-lived trade names). The reductions in value are primarily due to higher discount rates and a reduction in projected revenue. See Note 8,"Intangible Assets," to the unaudited consolidated interim financial statements, for further discussion

Loss on Extinguishment of Debt

During the third quarter of 2025, the KPH Note was repaid in full to the seller of Bud's Plumbing in exchange for shares of Kingsway common stock. See Note 18 "Shareholders' Equity for further discussion of the exchange. The settlement of the KPH Note by issuing the Company's common shares is accounted for as a debt extinguishment. The difference between the reacquisition price of the debt and the net carrying amount of $0.1 million is recorded as loss on extinguishment of debt on the unaudited consolidated statement of operations for the three and nine months ended September 30, 2025. During the first quarter of 2025, there was a modification to the 2021 Ravix Loan. Loss on extinguishment of debt for the nine months ended September 30, 2025 includes $0.1 million relates to the write-down of the unamortized debt discount and issuance costs from the 2022 Ravix Loan at the modification date, since the original debt was fully repaid as part of the modification.

During the second quarter of 2024, there was a modification to the 2020 KWH Loan. For the nine months ended September 30, 2024, loss on extinguishment of debt of $0.2 million relates to the write-down of the unamortized debt discount and issuance costs from the 2020 KWH Loan at the modification date, since the original debt was fully repaid as part of the modification.

See Note 10 "Debt," to the unaudited consolidated interim financial statements, for further discussion.

Income Tax (Benefit) Expense

Income tax benefit for the third quarter of 2025 was $2.1 million compared to an expense of less than $0.1 million in the third quarter of 2024 (benefit of $2.4 million year to date compared to an expense of $0.2 million prior year to date). For the three and nine months ended September 30, 2025, the Company reported a tax benefit primarily due to the partial release of its valuation allowance related to deferred tax liabilities from corporate acquisitions. For the three and nine months ended September 30, 2024, the Company reported income tax expense primarily due to state tax expense. See Note 13, "Income Taxes," to the unaudited consolidated interim financial statements, for additional detail of the income tax (benefit) expense recorded for the three and nine months ended September 30, 2025 and September 30, 2024.

INVESTMENTS

Portfolio Composition

See Note 2(d), "Summary of Significant Accounting Policies - Investments," to the consolidated financial statements in the 2024 Annual Report for an overview of how we account for our various investments.

At September 30, 2025, we held cash and cash equivalents, restricted cash and investments with a carrying value of $58.8 million. Our operations typically invest in U.S. dollar-denominated instruments to mitigate their exposure to currency rate fluctuations.

Table 2 below summarizes the carrying value of investments, including cash and cash equivalents and restricted cash, at the dates indicated.

TABLE 2 Carrying value of investments, including cash and cash equivalents and restricted cash

(in thousands of dollars, except for percentages)

Investment Impairment

The Company performs a quarterly analysis of its investments to determine if declines in fair value may result in the recognition of impairment losses in net loss. Factors considered in the determination of whether or not an impairment loss is recognized in net loss include a current intention or need to sell the security or an indication that a credit loss exists. See the "Significant Accounting Policies and Critical Estimates" section of Management's Discussion and Analysis of Financial Condition included in the 2024 Annual Report for further information regarding the Company's detailed analysis and factors considered in establishing an impairment loss on an investment.

The Company's fixed maturities are subject to declines in fair value below amortized cost that may result in the recognition of impairment losses in net loss. If the decline in fair value is due to credit factors and the Company does not expect to receive cash flows sufficient to support the entire amortized cost basis, the credit loss is reported in the consolidated statements of operations in the period that the declines are evaluated. Significant judgment is required in the determination of whether a credit loss has occurred for a security. The Company considers all available evidence when determining whether a security requires a credit allowance to be recorded, including the financial condition and expected near-term and long term prospects of the issuer, whether the issuer is current with interest and principal payments, credit ratings on the security or changes in ratings over time, general market conditions, industry, sector or other specific factors and whether the Company expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company performs a quarterly analysis of its available for-sale fixed maturity investments and other investments to determine if an impairment loss has occurred.

There were no impairment losses recorded related to investments during the three and nine months ended September 30, 2025 and September 30, 2024.

At September 30, 2025 and December 31, 2024, the gross unrealized losses for fixed maturities amounted to $0.6 million and $1.2 million, respectively, and there were no unrealized losses attributable to non-investment grade fixed maturities.

DEBT

The principal and carrying value of the Company's debt instruments at September 30, 2025 and December 31, 2024 are as follows:

(in thousands)

See Note 10, "Debt," to the unaudited consolidated interim financial statements for a detailed discussion of the Company’s debt instruments. Changes related to the Company’s debt during the nine months ended September 30, 2025 are further described below.

Bank Loans

On February 7, 2025, Ravix, Ravix LLC and CSuite entered into a fourth amendment to the 2021 Ravix Loan that provides for: (1) a new 2025 term loan in the principal amount of $9.1 million, with a maturity date of February 7, 2031 (the "2025 Ravix Loan"); and (2) extending the maturity date of the 2022 Ravix Revolver to February 7, 2027. In connection with the fourth amendment, Ravix used a portion of the proceeds from the 2025 Ravix Loan to repay the following outstanding principal balances under the 2021 and 2022 Ravix Loans: (1) $2.2 million related to the 2021 Ravix term loan; and (2) $4.2 million related to the 2022 Ravix term loan. The Company also recorded as a discount to the carrying value of the 2025 Ravix Loan issuance costs of less than $0.1 million specifically related to the 2025 Ravix Loan.

The 2025 Ravix Loan was not deemed to be substantially different as a result of the fourth amendment; therefore, the amended 2021 Ravix Loan is accounted for as a modification of the second amended 2021 Ravix Loan. The unamortized debt discount and issuance costs from the 2022 Ravix Loan at the modification date of $0.1 million were recorded as loss on extinguishment of debt during the nine months ended September 30, 2025 since the original debt related the 2021 Ravix Loan and 2022 Ravix Loan were fully repaid as part of the modification.

During the nine months ended September 30, 2025, the Company borrowed $0.6 million under the SNS Revolver.

The SNS Loan contains a number of covenants, including, but not limited to, a leverage ratio and a fixed charge ratio and limits on annual capital expenditures, all of which are as defined in and calculated pursuant to the SNS Loan that, among other things, restrict SNS’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets. At each quarter end beginning March 31, 2024 through September 30, 2025, the Company was in default under the SNS Loan due to debt covenant violations related to the leverage and fixed charge ratios. The Company has entered into an amendment to the SNS Loan that waives the events of default for the fiscal quarter ended September 30, 2025. As of the report date, there is some uncertainty as to whether the Company will be in compliance with the covenants in future periods, and if not, when the Company will be able to cure any potential violations. A default may permit the lender to declare the amounts owed under the SNS Loan immediately due and payable, exercise their rights with respect to collateral securing the obligation, and/or exercise any other rights and remedies available.

During the nine months ended September 30, 2025, the Company borrowed $0.1 million and made principal repayments of less than $0.1 million under the DDI Revolver.

The DDI Loan contains a number of covenants, including, but not limited to, a senior leverage ratio and a fixed charge ratio and limits on annual capital expenditures, all of which are as defined in and calculated pursuant to the DDI Loan that, among other things, restrict DDI’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets. As of September 30, 2025, DDI was in default under the DDI Loan due to a debt covenant violation related to the fixed charge ratio. The Company has entered into an amendment to the DDI Loan that waives the event of default for the fiscal quarter ended September 30, 2025. As of the report date, there is some uncertainty as to whether the Company will be in compliance with the covenants in future periods, and if not, when the Company will be able to cure any potential violations. A default may permit the lender to declare the amounts owed under the DDI Loan immediately due and payable, exercise their rights with respect to collateral securing the obligation, and/or exercise any other rights and remedies available.

On June 15, 2025, the Company's subsidiaries, SPI and Vertical Market Solutions LLC, together established a $0.3 million revolver with a bank (the "SPI Revolver"). The SPI Revolver has an annual interest rate equal to the Prime Rate. The SPI Revolver matures on July 15, 2026. At September 30, 2025, the balance of the SPI Revolver was zero.

As part of the acquisition of Roundhouse on July 1, 2025, Roundhouse became a wholly owned subsidiary of Longhorns Acquisition LLC ("Longhorns LLC"), and together they borrowed from a bank a principal amount of $11.0 million in the form of a term loan, and established a $0.5 million revolver to finance the acquisition of Roundhouse. The Roundhouse term loan requires monthly payments of principal and interest and has an annual interest rate equal to the greater of the one-month term Secured Overnight Financing Rate plus 3.3%, or 5.0%. The term loan and revolver mature on July 1, 2035. At September 30, 2025, the balance of the revolver was zero.

In 2025, the Company formed Kingsway Plumbing Holdco LLC ("KPH"), whose subsidiaries include Bud's Plumbing, Advanced Plumbing and Southside Plumbing. As part of the acquisition of Southside Plumbing on August 14, 2025, KPH and its subsidiaries borrowed from a bank a principal amount of $3.75 million in the form of a term loan, and established a $0.5 million revolver. The KPH term loan requires monthly payments of interest and has an annual fixed interest rate of 7.5%. Monthly principal payments on the KPH term loan begin September 14, 2026. The term loan matures on August 14, 2032. At September 30, 2025, the balance of the revolver was zero.

Notes Payable

As part of the acquisition of Bud's Plumbing on March 14, 2025, Bud's Plumbing became a wholly owned subsidiary of KPH, and together they borrowed from the seller of Bud's Plumbing a principal amount of $1.25 million in the form of a promissory note, to partially finance the acquisition of Bud's Plumbing (the "KPH Note"). The KPH Note was recorded at its estimated fair value of $1.1 million, which included the unpaid principal amount of $1.25 million as of the date of acquisition less a discount of $0.2 million. The KPH Note required monthly payments of principal and interest and had an annual fixed interest rate of 6.00%. The KPH Note was due to mature on April 1, 2030; however on August 7, 2025, the KPH Note was repaid in full to the seller of Bud's Plumbing in exchange for shares of Kingsway common stock. See Note 18, "Shareholders' Equity" for further discussion of the exchange. The settlement of the KPH Note by issuing the Company's common shares is accounted for as a debt extinguishment. The difference between the reacquisition price of the debt and the net carrying amount of the KPH Note at the date of the exchange of $0.1 million is recorded as loss on extinguishment of debt in the unaudited consolidated statement of operations for the three and nine months ended September 30, 2025.

As part of the acquisition of certain assets from The HR Team, Inc. on August 1, 2025, Ravix borrowed from the seller a principal amount of $0.2 million in the form of a promissory note, to partially finance the acquisition of assets (the "Ravix Note"). The Ravix Note requires quarterly payments of principal and interest beginning October 1, 2025 and has an annual fixed interest rate of 8.00%. The Ravix Note matures on August 1, 2027.

As part of the acquisition of Advanced Plumbing on August 1, 2025, Advanced Plumbing borrowed from the seller of Advanced Plumbing a principal amount of $0.5 million in the form of a promissory note, to partially finance the acquisition of Advanced Plumbing (the "AAA Note"). The AAA Note, which is recorded as notes payable in the consolidated balance sheet at September 30, 2025, was recorded at its estimated fair value of $0.4 million, which included the unpaid principal amount of $0.5 million as of the date of acquisition less a discount of $0.1 million. The AAA Note requires quarterly payments of principal and interest beginning November 1, 2025 and has an annual fixed interest rate of 6.00%. The AAA Note matures on August 1, 2030.

As part of the acquisition of Southside Plumbing on March 14, 2025, Southside Plumbing became a wholly owned subsidiary of KPH, and together they borrowed from the seller of Southside Plumbing a principal amount of $0.5 million in the form of a promissory note, to partially finance the acquisition of Southside Plumbing (the "Southside Note"). The Southside Note, which is recorded as note payable in the consolidated balance sheet at September 30, 2025, was recorded at its estimated fair value of $0.4 million, which included the unpaid principal amount of $0.5 million as of the date of acquisition less a discount of $0.1 million. The Southside Note requires quarterly payments of principal and interest beginning November 1, 2025 and has an annual fixed interest rate of 6.00%. The Southside Note matures on August 1, 2030.

Subordinated Debt

The Company's subordinated debt is measured and reported at fair value. At September 30, 2025, the carrying value of the subordinated debt is $13.9 million. The fair value of the subordinated debt is calculated using a model based on significant market observable inputs and inputs developed by a third party. For a description of the market observable inputs and inputs developed by a third party used in determining fair value of debt, see Note 21, "Fair Value of Financial Instruments," to the unaudited consolidated interim financial statements.

Though changes in the market observable swap rates will continue to introduce some volatility each quarter to the Company’s reported gain or loss on change in fair value of debt, changes in the credit spread assumption developed by the third party does not introduce volatility to the Company’s consolidated statements of operations. The fair value of the Company’s subordinated debt will eventually equal the principal value totaling $15.0 million of the subordinated debt by the time of the stated redemption date of the remaining trust, which matures on May 22, 2033.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 4, "Recently Issued Accounting Standards," to the unaudited consolidated interim financial statements, for discussion of certain accounting standards that may be applicable to the Company's current and future consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

The purpose of liquidity management is to ensure there is sufficient cash to meet all financial commitments and obligations as they fall due. The liquidity requirements of the Company and its subsidiaries have been met primarily by funds generated from operations, capital raising, disposal of subsidiaries, investment maturities and investment income, and other returns received on investments and from the sale of investments.

A significant portion of the cash provided by our Extended Warranty companies is required to be placed into restricted trust accounts, as determined by the insurers who back-up our service contracts, in order to fund future expected claims. On a periodic basis (quarterly or annually), we may be required to contribute more into the restricted accounts or we may be permitted to draw additional funds from the restricted accounts, dependent upon actuarial analyses performed by the insurers regarding sufficiency of funds to cover future expected claims. A substantial portion of the restricted trust accounts are invested in fixed maturities and other instruments that have durations similar to the expected future claim projections.

Cash provided from these sources is used primarily for warranty expenses, business service expenses, debt servicing, acquisitions and operating expenses of the holding company.

The Company's Kingsway Search Xcelerator and Extended Warranty subsidiaries fund their obligations primarily through service fee and commission revenue.

Cash Flows from Continuing Operations

During the nine months ended September 30, 2025, the Company reported less than $0.1 million of net cash provided by operating activities from continuing operations, primarily due to operating income from the Extended Warranty and Kingsway Search Xcelerator segments, partially offset by cash paid to settle the Ravix contingent liability of $2.3 million that is reported as an operating activity. During the nine months ended September 30, 2024, the Company reported $0.7 million of net cash provided by operating activities from continuing operations, primarily due to operating income from the Extended Warranty and Kingsway Search Xcelerator segments.

During the nine months ended September 30, 2025, the net cash used in investing activities from continuing operations was $29.9 million. This use of cash is primarily attributed to the acquisitions of Bud's Plumbing, Roundhouse, Advanced Plumbing and Southside Plumbing, net of cash acquired. During the nine months ended September 30, 2024, the net cash used in investing activities from continuing operations was $16.4 million. This use of cash is primarily attributed to the acquisition of Image Solutions, net of cash acquired and purchases of fixed maturities in excess of proceeds from sales and maturities of fixed maturities, distributions received by Argo Holdings from three of its underlying limited liability investment companies, proceeds from the sale of a private company investment and proceeds from the sale of VA Lafayette.

During the nine months ended September 30, 2025, the net cash provided by financing activities from continuing operations was $33.6 million. This source of cash was primarily attributed to net proceeds from the issuance of common stock of $15.6 million, principal proceeds from bank loans of $24.1 million and proceeds from the issuance of Class C and Class D preferred stock of $6.0 and $2.0 million, respectively, partially offset by principal repayment on bank loans of $12.6 million, cash paid to settle the Ravix contingent liability of $0.4 million, payment of preferred stock dividends of $0.7 million and cash paid for repurchases of common stock of $0.3 million. During the nine months ended September 30, 2024, the net cash provided by financing activities from continuing operations was $13.3 million. This source of cash was primarily attributed to principal proceeds from bank loans of $33.7 million and proceeds from the issuance of Class B preferred stock of $8.3 million, partially offset by principal repayment on bank loans of $20.0 million, taxes paid related to net share settlements of restricted stock awards of $2.2 million, cash paid for repurchases of common stock of $2.5 million, cash paid to acquire the IWS noncontrolling interest of $2.5 million and distributions to noncontrolling interest holders of $1.4 million.

Holding Company Liquidity

The liquidity of the holding company is managed separately from its subsidiaries. The obligations of the holding company primarily consist of holding company operating expenses; transaction-related expenses; investments; stock repurchases; and any other extraordinary demands on the holding company.

Pursuant to satisfying the covenants under the 2020 KWH Loan, distributions to the holding company in an aggregate amount not to exceed $1.5 million in any 12-month period are permitted. Also, beginning in 2022, the holding company is permitted to receive a portion of the excess cash flow (as defined in the 2020 KWH Loan document) generated by the KWH Subs in the previous year.

The amount of excess cash flow the Company is entitled to retain is dependent upon the leverage ratio (as defined in the 2020 KWH Loan document):

The holding company’s liquidity, defined as the amount of cash in the bank accounts of Kingsway Financial Services Inc. and Kingsway America Inc., was $1.3 million and $0.9 million at September 30, 2025 and December 31, 2024, respectively, which excludes future actions available to the holding company that could be taken to generate liquidity. Such future actions include, but are not limited to, issuance of equity securities and distributions from the Extended Warranty and Kingsway Search Xcelerator operating companies subject to certain loan covenants that may be in place at each operating company. The holding company cash amounts are reflected in the cash and cash equivalents of $9.3 million and $5.5 million reported at September 30, 2025 and December 31, 2024, respectively, on the Company’s consolidated balance sheets.

Based on the Company’s current business plan and revenue prospects, existing cash, cash equivalents, investment balances and anticipated cash flows from operations are expected to be sufficient to meet the Company’s working capital and operating expenditure requirements, for the next twelve months. However, the Company’s assessment could also be affected by various risks and uncertainties, including, but not limited to, the developing macro-economic environment.

We are a smaller reporting company as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); therefore, pursuant to Regulation S-K, we are not required to make disclosures under this Item.

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act as of September 30, 2025.

The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports the Company files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosures.

In designing and evaluating our disclosure controls and procedures, the Company’s management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints that require the Company’s management to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on the evaluation of our disclosure controls and procedures, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2025, the Company’s disclosure controls and procedures were effective.

Management's Report on Internal Control over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's management evaluated the effectiveness of its internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), or COSO. Based on that evaluation, the Company’s management has concluded that, as of September 30, 2025, our internal control over financial reporting were effective based on the COSO framework.

Changes in Internal Control over Financial Reporting

On March 14, 2025, the Company acquired 100% of the outstanding membership interests of Bud's Plumbing. On July 1, 2025, the Company acquired 100% of the outstanding equity interests of Roundhouse. On August 1, 2025, the Company acquired 100% of the outstanding membership interests of Advanced Plumbing. On August 14, 2025, the Company acquired 80% of the outstanding membership interests of Southside Plumbing. Since the date of these acquisitions, the Company has been analyzing and evaluating procedures and controls to determine their effectiveness and to make them consistent with our disclosure controls and procedures. As permitted by the SEC, Bud's Plumbing, Roundhouse, Advanced Plumbing and Southside Plumbing have been excluded from the scope of our quarterly discussion of material changes in internal control over financial reporting below.

There have been no changes in the Company's internal control over financial reporting during the period beginning July 1, 2025, and ending September 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting, except with respect to Bud's Plumbing, Roundhouse, Advanced Plumbing and Southside Plumbing.