KINGSWAY Corp: Form 10-Q for the period ended Jun 30, 2026

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, 2025 ("2025 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, fractional and interim staffing of senior finance professionals, CFO mentoring, board advisory services, and executive search services for permanent placements for its clients throughout the United States.

Ravix provides outsourced financial services and human resources consulting to its clients on a fractional basis for both projects with definitive endpoints and ongoing engagements of indeterminate length 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 globally.

DDI provides outsourced 24 hours a day and 7 days per week ("24/7") cardiac telemetry services for general acute care, long-term acute care and inpatient rehabilitation hospitals. Outsourcing cardiac monitoring allows 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 solutions, including field maintenance, in-shop repair, testing, and new motor sales primarily to midstream natural gas pipeline operators and utilities across the Permian Basin.

Kingsway Skilled Trades ("KST") includes Bud's Plumbing, Advanced Plumbing and Southside Plumbing. KST 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"). As discussed in Note 5, "Acquisitions and Disposal," to the unaudited consolidated interim financial statements, the Company sold Trinity on May 8, 2026. The earnings of Trinity are included in the unaudited interim consolidated statements of operations and the segment disclosures through the date of sale. 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 subsidiary, The Penn Warranty Corporation ("Penn"). Penn distributes these products in 46 states via independent used car dealerships and franchised car dealerships.

PWI markets, sells and administers vehicle service agreements to used car buyers in 47 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.

Trinity sold heating, ventilation, air conditioning ("HVAC"), standby generator, commercial LED lighting and commercial refrigeration warranty products and provided equipment breakdown and maintenance support services to companies across the United States. As a seller of warranty products, Trinity marketed and administered 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 acted 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 acted as a single point of contact to its clients for both certain equipment breakdowns and scheduled maintenance of equipment. Trinity would 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 21, "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 income, net.

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; valuation of contingent consideration; fair value assumptions for subordinated debt obligations; fair value assumptions for subsidiary stock-based compensation awards; and valuation of redeemable noncontrolling interest. 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 2025 Annual Report. There has been no material change subsequent to December 31, 2025 to the information previously disclosed in the 2025 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 income (loss) for the three and six months ended June 30, 2026 and June 30, 2025 is presented in Table 1 below:

Table 1 Segment Operating Income

(in thousands of dollars)

40

Among other items, the current U.S. conflict with Iran, the degree and pace of inflation and interest rate changes may have impacts on our business and 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

Kingsway Search Xcelerator revenue increased to $22.3 million (67.7%) for the three months ended June 30, 2026 compared to $13.3 million for the three months ended June 30, 2025 (an increase to $43.5 million year to date compared to $25.0 million prior year to date). Kingsway Search Xcelerator operating income was $3.5 million for the three months ended June 30, 2026 compared to $2.0 million for the three months ended June 30, 2025 ($6.4 million year to date compared to $3.8 million prior year to date).

Revenue and operating income were primarily impacted by the following:

• The inclusion of Roundhouse for the six months ended June 30, 2026 following its acquisition on July 1, 2025. For the three months ended June 30, 2026, Roundhouse had revenue and operating income of $5.2 million and $0.8 million, respectively (revenue and operating income of $10.0 million and $1.8 million, respectively for the six months ended June 30, 2026);
• The inclusion of KST for the six months ended June 30, 2026 following the acquisitions of Bud's Plumbing in March 2025, and Advanced Plumbing and Southside Plumbing in August 2025. KST had revenue and operating income of $4.8 million and $0.1 million, respectively, for the three months ended June 30, 2026 (revenue and operating income of $9.5 million and $0.2 million, respectively for the six months ended June 30, 2026); and
• Ravix revenue increased $0.8 million to $3.3 million (34.0% increase from prior year quarter) and operating income increased $0.4 million to $1.0 million for the three months ended June 30, 2026 (increases in revenue of $0.8 million to $6.4 million and operating income of $0.3 million to $1.7 million year to date). Operating income benefitted from the increase in revenue, which was partially offset by higher general and administrative expenses for the three and six months ended June 30, 2026. The increases in revenue, operating income and general and administrative expenses was primarily due to the acquisitions of The HR Team (August 2025) and Ledgers (January 2026).

Extended Warranty

Extended Warranty revenue decreased 2.8% (or $0.5 million) to $17.1 million for the three months ended June 30, 2026 compared with $17.6 million for the three months ended June 30, 2025, while cash sales and the average price per contract sold were up 2.4% and 4.6%, respectively, over the prior year (revenue of $35.0 million year to date compared to $34.3 million prior year to date). Extended Warranty operating income was $0.7 million for the three months ended June 30, 2026 compared with operating loss of $0.1 million for the three months ended June 30, 2025 (operating income of $0.9 million year to date compared to $0.5 million prior year to date). Extended Warranty's revenue – and therefore operating income – is impacted by the fact that VSA sales are recognized over the life of the contract, which is not on a straight-line basis. This means that in periods where cash VSA sales are declining, revenue and operating income may continue to be strong due to higher prior-year sales. Conversely, when VSA cash sales are in a period of growth – as we are seeing now – revenue and operating income may continue to lag as prior-year lower sales have a larger impact on current period revenue/operating income than current period VSA cash sales.

During the three and six months ended June 30, 2026, there was a 0.7% decrease and a 2.9% increase in claims paid at our auto Extended Warranty companies, respectively. While the number of claims were down in the quarter and year-to-date compared to prior year, the average cost per claim continued to increase primarily due to inflationary pressures on the cost of parts and labor, as well as the type of claims incurred. We are able to mitigate the impact of higher claims expense by increasing pricing and re-categorizing vehicles to ensure they are in the appropriate rate class, which we do at least annually. However, due to the deferred revenue model under US GAAP, these price increases may impact our financials more in future periods rather than in the current period.

Note that the Company sold Trinity on May 8, 2026; as such, revenue, operating income and other Extended Warranty financial results were lower for the three and six months ended June 30, 2026. However, Extended Warranty claims were not impacted by the sale of Trinity, given Trinity did not bear the risk of the warranty policies it sold and, therefore, incurred no claims expense itself.

Interest and Investment Income, Net

Interest and investment income, net was $2.7 million in the second quarter of 2026 compared to $0.7 million in the second quarter of 2025 ($3.4 million year to date compared to $1.0 million prior year to date). The increase for the second quarter and year to date of 2026 is primarily due to realized gains recognized of $2.0 million resulting from distributions received during the second quarter of 2026 from private company investments and investments held by Argo Holdings Fund I, LLC ("Argo Holdings"). Also, the gain on change in fair value recognized by Argo Holdings was $0.4 million for the three months ended June 30, 2026 compared to $0.2 million for the three months ended June 30, 2025 ($0.7 million year to date compared to $0.2 million prior year to date).

Selling, General and Administrative Expenses and Other Income not Allocated to Segments, Net

Selling, general and administrative expenses and other income not allocated to segments was a net expense of $4.1 million in the second quarter of 2026 compared to $2.9 million in the second quarter of 2025 ($6.5 million year to date compared to $5.8 million prior year to date). Included are expenses associated with our corporate holding company, expenses associated with our Operator-in-Residence who search for our next acquisitions, revenue and expenses associated with our various other investments (such as Argo Holdings) that are accounted for on a consolidated basis, (loss) gain on change in fair value of debt and loss on extinguishment of debt.

The increase in net expense for the three and six months ended June 30, 2026 is primarily attributable to higher stock-based compensation expenses during the three months ended June 30, 2026 compared to the same period in 2025. See Note 16, "Stock-Based Compensation," to the unaudited consolidated interim financial statements, for further discussion of stock options granted during the second quarter of 2026. The six months ended June 30, 2026 increase was partially offset by lower acquisition and search related expenses during the six months ended June 30, 2026 compared to the same period in 2025.

See Note 10, "Debt," to the unaudited consolidated interim financial statements, for further discussion of changes in fair value of debt and loss on extinguishment of debt recorded for the three and six months ended June 30, 2026 and June 30, 2025.

Interest Expense

Interest expense for the second quarter of 2026 was $1.4 million compared to $1.3 million in the second quarter of 2025 ($2.8 million year to date compared to $2.5 million prior year to date). The increase for the three and six months ended June 30, 2026 is primarily due to the inclusion of the Roundhouse and KPH loans for the second quarter and year to date of 2026, partially offset by reduced expense for existing loans due to principal amortization.

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

Amortization and Impairment of Intangible Assets

Amortization of intangible assets was $2.1 million in the second quarter of 2026 compared to $1.7 million in the second quarter of 2025 ($4.3 million year to date compared to $3.4 million prior year to date). The increase is primarily due to the inclusion of Roundhouse, Advanced Plumbing and Southside Plumbing (acquired in the third quarter of 2025) for the three and six months ended June 30, 2026, partially offset by decreased amortization expense for the Company's other intangible assets.

Impairment of intangible assets was $0.3 million in the second quarter of 2026 compared to $0.1 million in the second quarter of 2025 ($0.5 million year to date compared to $0.2 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 and second quarters of 2026 and 2025, 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 during the second quarter of 2026 related to the CSuite indefinite-lived trade name (year to date impairment related to CSuite and SNS indefinite-lived trade names); and during the second quarter and year to date of 2025 related to the Ravix indefinite-lived trade name. 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.

Gain on Disposal of Subsidiary

On May 8, 2026, the Company sold its subsidiary, Trinity. As a result of the sale, the Company recognized a net gain on disposal of $1.3 million during the three and six months ended June 30, 2026. The sale of Trinity did not represent a strategic shift that will have a major effect on the Company's operations or financial results; therefore, Trinity is not presented as a discontinued operation. See Note 5,"Acquisitions and Disposal," to the unaudited consolidated interim financial statements, for further discussion of the Trinity disposal.

Income Tax Expense (Benefit)

Income tax for the second quarter of 2026 was an expense of $0.2 million compared to a benefit of $0.1 million in the second quarter of 2025 (expense of $0.1 million year to date compared to a benefit of $0.4 million prior year to date). For the three and six months ended June 30, 2026, the Company reported a tax expense primarily due to state income tax expense. For the three and six months ended June 30, 2025, the Company reported a tax benefit primarily due to the release of its valuation allowance associated with indefinite life business interest expense carryforwards. See Note 14, "Income Taxes," to the unaudited consolidated interim financial statements, for additional detail of the income tax expense (benefit) recorded for the three and six months ended June 30, 2026 and June 30, 2025.

INVESTMENTS

Portfolio Composition

See Note 2(f), "Summary of Significant Accounting Policies - Investments," to the consolidated financial statements in the 2025 Annual Report for an overview of how we account for our various investments.

At June 30, 2026, we held cash and cash equivalents, restricted cash and investments with a carrying value of $59.1 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)

42

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 income (loss). Factors considered in the determination of whether or not an impairment loss is recognized in net income (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 2025 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 income (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.

There were no impairment losses recorded related to investments during the three and six months ended June 30, 2026 and June 30, 2025.

At June 30, 2026 and December 31, 2025, the gross unrealized losses for fixed maturities amounted to $0.6 million and $0.5 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 June 30, 2026 and December 31, 2025 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 six months ended June 30, 2026 are further described below.

Bank Loans

Our bank loans contain 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 respective loan that, among other things, restrict the borrowing company’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.

During the six months ended June 30, 2026:

• Ravix, Ravix LLC and CSuite entered into a sixth amendment to the Ravix term loan that provides for adding a second tranche to the Ravix term loan with a principal amount of $0.5 million;
• KWH borrowed $1.75 million under the KWH revolver; and
• DDI borrowed $0.2 million and made repayments of less than $0.1 million under the DDI revolver.

Beginning March 31, 2024 through June 30, 2026, SNS was in default under its loan due to debt covenant violations related to the leverage and fixed charge ratios (measured quarterly). In February 2026, SNS and the lender amended the credit agreement to (1) extend the SNS revolver maturity date to be June 2, 2026; and (2) suspend monthly principal payments beginning February 2026 through May 2026, with the next principal payment resuming in June 2026. In July 2026, SNS and the lender amended the credit agreement to (1) extend the SNS revolver maturity date to be December 2, 2026; and (2) suspend monthly principal payments through November 2026, with the next principal payment resuming in December 2026.

Beginning September 30, 2025 through June 30, 2026, DDI was in default under its loan due to a debt covenant violation related to the fixed charge ratio (measured quarterly).

Each of SNS and DDI has entered into an amendment to its respective loan that waives the events of default for the fiscal quarter ended June 30, 2026. As of the report date, there is some uncertainty as to whether the companies will be in compliance with the covenants in future periods, and if not, when the companies will be able to cure any potential violations. As a result, the Company has included the total principal balance due after one-year related to the DDI Loan of $2.6 million and the SNS Loan of $1.7 million in short-term and current portion of long-term debt in the consolidated balance sheet as of June 30, 2026. A default may permit the lender to declare the amounts owed under the loans immediately due and payable, exercise their rights with respect to collateral securing the obligations, and/or exercise any other rights and remedies available.

At June 30, 2026, KPH was in default under the KPH Loan due to a debt covenant violation related to the leverage and fixed charge ratios (measured quarterly). As of the report date, the Company has not received a waiver or amendment from the lender regarding this non-compliance. As a result, the Company has reclassified the total principal balance of the KPH Loan due after one-year of $3.3 million from long-term debt to short-term and current portion of long-term debt in the consolidated balance sheet as of June 30, 2026. The Company is in active discussions with the lender with respect to obtaining a waiver. 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 KPH Loan immediately due and payable, exercise their rights with respect to collateral securing the obligation, and/or exercise any other rights and remedies available.

All of the KSX and Extended Warranty indebtedness arises from individual, stand-alone credit agreements with the applicable Company subsidiary. None of such indebtedness is guaranteed by the Company or any other subsidiary or affiliate of the Company other than the borrower entity and its direct subsidiary, if any, and there are no cross-collateral, cross-default or similar provisions in the credit agreements.

Notes Payable

On January 2, 2026, Ravix entered into a seller note with a principal amount of $0.9 million in connection with an asset acquisition. The seller note was used to partially finance the asset acquisition.

On March 4, 2026, Roundhouse borrowed $0.4 million under an equipment line of credit. The Roundhouse equipment loan matures on March 1, 2033, requires monthly payments of principal and interest and has an annual fixed interest rate of 7.0%.

Subordinated Debt

The Company's subordinated debt is measured and reported at fair value. At June 30, 2026, the carrying value of the subordinated debt is $13.4 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 22, "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 other revenue.

Cash Flows

During the six months ended June 30, 2026, the net cash provided by operating activities was $1.2 million, primarily due to operating income from the Kingsway Search Xcelerator and Extended Warranty (the latter due to higher cash sales) segments. During the six months ended June 30, 2025, the Company reported $1.5 million of net cash used in operating activities, primarily due to cash paid to settle the Ravix contingent liability of $2.3 million that is reported as an operating activity, partially offset by operating income from the Extended Warranty and Kingsway Search Xcelerator segments.

During the six months ended June 30, 2026, the net cash provided by investing activities was $3.3 million. This source of cash is primarily attributed to proceeds received from the sale of Trinity, net of cash disposed, of $4.4 million and cash distributions received from private company investments and investments held by Argo Holdings of $2.0 million, partially offset by purchases of fixed maturities in excess of sales and maturities of fixed maturities, as well as net purchases of property and equipment. During the six months ended June 30, 2025, the net cash used in investing activities was $13.7 million. This use of cash is primarily attributed to the acquisition of Bud's Plumbing, net of cash acquired, and cash paid on June 30, 2025 to pre-fund the acquisition of Roundhouse that occurred on July 1, 2025 of $10.3 million.

During the six months ended June 30, 2026, the net cash used in financing activities was $5.7 million. This use of cash was primarily attributed to principal repayments on debt of $7.1 million, distributions to noncontrolling interest holders of $0.7 million and payment of preferred stock dividends of $0.6 million, partially offset by principal proceeds from debt of $3.0 million. During the six months ended June 30, 2025, the net cash provided by financing activities was $21.5 million. This source of cash was primarily attributed to net proceeds from the issuance of common stock of $15.6 million, principal proceeds from debt of $9.4 million and proceeds from the issuance of Class C and Class D preferred stock of $6.0 million and $2.0 million, respectively, partially offset by principal repayment on debt of $10.4 million, cash paid to settle the Ravix contingent liability of $0.4 million, payment of preferred stock dividends of $0.4 million and cash paid for repurchases of common stock of $0.3 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; and any other extraordinary demands on the holding company. The holding company does not provide guarantees to any of the operating companies with respect to borrowings that they might have and, as such, any debt incurred by the operating companies is non-recourse to the holding company. In addition, any debt incurred by the operating companies does not have cross-collateral or cross-default provisions; therefore, any default that might arise is limited only to the underlying borrower that might be in default and does not extend to other operating companies’ debt.

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

The holding company’s liquidity, defined as the amount of cash in the bank accounts of Kingsway Corporation and Kingsway America Inc., was $1.0 million and $1.0 million at June 30, 2026 and December 31, 2025, 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 Kingsway Search Xcelerator and Extended Warranty 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 $7.4 million and $8.3 million reported at June 30, 2026 and December 31, 2025, 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 June 30, 2026.

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 June 30, 2026, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company's internal control over financial reporting during the period beginning April 1, 2026, and ending June 30, 2026, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.