# FG Communities Holdings Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [FG Communities Holdings Inc.](/companies/fgc.md) (CIK 1591890)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 16:08 ET
- Period: 2023-09-30
- Accession: 0001493152-23-040055
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1591890/000149315223040055/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1591890/000149315223040055/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $11.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $19.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $5.6m | us-gaap:ProfitLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $4.1m | us-gaap:ProfitLoss |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 10,303,739 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 9,813,438 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$1.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-09-30 | $5.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-09-30 | $58.8m | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $16.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $42.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,358 characters.

*You should read the following discussion in conjunction with our consolidated financial statements and related notes and information included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report for the year ended December 31, 2022 on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 24, 2023.*

Unless context denotes otherwise, the terms “Company,” “FGF,” “we,” “us,” and “our,” refer to FG Financial Group, Inc., and its subsidiaries.

### Cautionary Note about Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are therefore entitled to the protection of the safe harbor provisions of these laws. These statements may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “budget,” “can,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “evaluate,” “forecast,” “goal,” “guidance,” “indicate,” “intend,” “likely,” “may,” “might,” “outlook,” “plan,” “possibly,” “potential,” “predict,” “probable,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” “view,” “will,” “would,” “will be,” “will continue,” “will likely result” or the negative thereof or other variations thereon or comparable terminology. In particular, discussions and statements regarding the Company’s future business plans and initiatives are forward-looking in nature. We have based these forward-looking statements on our current expectations, assumptions, estimates, and projections. While we believe these to be reasonable, such forward-looking statements are only predictions and involve a number of risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance, or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements, and may impact our ability to implement and execute on our future business plans and initiatives.

Management cautions that the forward-looking statements in this Quarterly Report on Form 10-Q are not guarantees of future performance, and we cannot assume that such statements will be realized or the forward-looking events and circumstances will occur. Factors that might cause such a difference include, without limitation: general conditions in the global economy; our lack of operating history or established reputation in the reinsurance industry; our inability to obtain or maintain the necessary approvals to operate reinsurance subsidiaries; risks associated with operating in the reinsurance industry, including inadequately priced insured risks, credit risk associated with brokers we may do business with, and inadequate retrocessional coverage; our inability to execute on our investment and investment management strategy, including our strategy to invest in the risk capital of special purpose acquisition companies (SPACs); potential loss of value of investments; risk of becoming an investment company; fluctuations in our short-term results as we implement our new business strategy; risks of being unable to attract and retain qualified management and personnel to implement and execute on our business and growth strategy; failure of our information technology systems, data breaches and cyber-attacks; our ability to establish and maintain an effective system of internal controls; our limited operating history as a public company; the requirements of being a public company and losing our status as a smaller reporting company or becoming an accelerated filer; any potential conflicts of interest between us and our controlling stockholders and different interests of controlling stockholders; potential conflicts of interest between us and our directors and executive officers; risks associated with our related party transactions and investments; and risks associated with our investments in SPAC, including the failure of any such SPAC to complete its initial business combination. Our expectations and future plans and initiatives may not be realized. If one of these risks or uncertainties materializes, or if our underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. You are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements are made only as of the date hereof and do not necessarily reflect our outlook at any other point in time. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect new information, future events or developments.

### Overview

FG Financial Group, Inc. (“FGF”, the “Company”, “we”, or “us”) is a reinsurance, merchant banking and asset management holding company. We focus on opportunistic collateralized and loss-capped reinsurance, while allocating capital in partnership with Fundamental Global®, and from time to time, other strategic investors, to merchant banking activities. The Company’s principal business operations are conducted through its subsidiaries and affiliates. From our inception in October 2012 through December 2019, we operated as an insurance holding company, writing property and casualty insurance throughout the states of Louisiana, Florida, and Texas. On December 2, 2019, we sold our three former insurance subsidiaries, and embarked upon our current strategy focused on reinsurance, merchant banking and asset management.

As of September 30, 2023, FG Financial Holdings, LLC (“FG”), a private partnership focused on long-term strategic holdings, and its affiliated entity collectively beneficially owned approximately 55.0% of our common stock. D. Kyle Cerminara, Chairman of our Board of Directors, serves as Chief Executive Officer, Co-Founder and Partner of FG.

### Critical Accounting Estimates

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Actual results may differ materially from these estimates. Set forth below is qualitative and quantitative information necessary to understand the estimation uncertainty and the impact the critical accounting estimate has had or is reasonably likely to have on financial condition or results of operations, to the extent the information is material and reasonably available.

#### Other Investments

Other investments consist, in part, of equity investments made in privately held companies accounted for under the equity method. As discussed further in Note 4, certain investments held by our equity method investees are valued using Monte-Carlo simulation and option pricing models. Inherent in Monte-Carlo simulation and option pricing models are assumptions related to expected volatility and discount for lack of marketability of the underlying investment. Our investees estimate the volatility of these investments based on the historical performance of various broad market indices blended with various peer companies which they consider as having similar characteristics to the underlying investment, as well as consideration of price and volatility of relevant publicly traded securities such as SPAC warrants. Our investees also consider the probability of a successful merger when valuing equity for SPACs that have not yet completed a business combination.

#### Current Expected Credit Loss

Upon adoption of ASU 2016-13, the Company calculated an allowance for expected credit losses for its reinsurance balances receivable by applying a Probability of Default / Loss Given Default model. The model considers both the external collectability history as well as external loss history. The external loss history that the Company used included a long-term probability of liquidation study specific to insurance companies. Additionally, the life of each of the Company’s reinsurance treaties was also considered as the probability of default was calculated over the contractual length of the reinsurance contracts. The credit worthiness of a counterparty is evaluated by considering the credit ratings assigned by independent agencies and individually evaluating all the counterparties.

Upon adoption of ASU 2016-13, the Company calculated an approximately $0.1 million allowance for expected credit losses for its reinsurance balances receivable.

#### Valuation of Net Deferred Income Taxes

The provision for income taxes is calculated based on the expected tax treatment of transactions recorded in the Company’s consolidated financial statements. In determining its provision for income taxes, the Company interprets tax legislation in a variety of jurisdictions and makes assumptions about the expected timing of the reversal of deferred income tax assets and liabilities and the valuation of net deferred income taxes.

The ultimate realization of the deferred income tax asset balance is dependent upon the generation of future taxable income during the periods in which the Company’s temporary differences reverse and become deductible. A valuation allowance is established when it is more likely than not that all or a portion of the deferred income tax asset balance will not be realized. In determining whether a valuation allowance is needed, management considers all available positive and negative evidence affecting specific deferred income tax asset balances, including the Company’s past and anticipated future performance, the reversal of deferred income tax liabilities, and the availability of tax planning strategies. To the extent a valuation allowance is established in a period, an expense must be recorded within the income tax provision in the consolidated statements of income and comprehensive income.

#### Premium Revenue Recognition

The Company participates in reinsurance quota-share contracts and estimates the ultimate premiums for the contract period. These estimates are based on information received from the ceding companies, whereby premiums are recorded as written in the same periods in which the underlying insurance contracts are written and are based on cession statements from cedents. These statements are received quarterly and in arrears, and thus, for any reporting lag, premiums written are estimated based on the portion of the ultimate estimated premiums relating to the risks underwritten during the lag period. Premium estimates are reviewed by management periodically. Such review includes a comparison of actual reported premiums to expected ultimate premiums. Based on management’s review, the appropriateness of the premium estimates is evaluated, and any adjustments to these estimates are recorded in the period in which they are determined. Changes in premium estimates, including premiums receivable, are not unusual and may result in significant adjustments in any period. A significant portion of amounts included in the caption “Reinsurance balances receivable” in the Company’s consolidated balance sheets represent estimated premiums written, net of commissions, brokerage, and loss and loss adjustment expense, and are not currently due based on the terms of the underlying contracts. Premiums written are generally recognized as earned over the contract period in proportion to the risk covered. Additional premiums due on a contract that has no remaining coverage period are earned in full when written. Unearned premiums represent the unexpired portion of reinsurance provided.

#### Deferred Policy Acquisition Costs

Policy acquisition costs are costs that vary with, and are directly related to, the successful production of new and renewal reinsurance business, and consist principally of commissions, taxes, and brokerage expenses. If the sum of a contract’s expected losses and loss expenses and deferred acquisition costs exceeds associated unearned premiums and expected investment income, a premium deficiency is determined to exist. In this event, deferred acquisition costs are written off to the extent necessary to eliminate the premium deficiency. If the premium deficiency exceeds deferred acquisition costs, then a liability is accrued for the excess deficiency. There were no premium deficiency adjustments recognized during the periods presented herein.

#### Loss and Loss Adjustment Expense Reserves

Loss and loss adjustment expense reserve estimates are based on estimates derived from reports received from ceding companies. These estimates are periodically reviewed by the Company’s management and adjusted as necessary. Since reserves are estimates, the final settlement of losses may vary from the reserves established and any adjustments to the estimates, which may be material, are recorded in the period they are determined.

Loss estimates may also be based upon actuarial and statistical projections, an assessment of currently available data, predictions of future developments, estimates of future trends and other factors. Significant assumptions used by the Company’s management and third-party actuarial specialists include loss development factor selections, initial expected loss ratio selections, and weighting of methods used. The final settlement of losses may vary, perhaps materially, from the reserves recorded. All adjustments to the estimates are recorded in the period in which they are determined. U.S. GAAP does not permit establishing loss reserves, which include case reserves and IBNR loss reserves, until the occurrence of an event which may give rise to a claim. As a result, only loss reserves applicable to losses incurred up to the reporting date are established, with no allowance for the establishment of loss reserves to account for expected future loss events. Generally, the Company obtains regular updates of premium and loss related information for the current and historical periods, which are utilized to update the initial expected loss ratio. We also experience lag between (i) claims being reported by the underlying insured to the Company’s cedent and (ii) claims being reported by the Company’s cedent to the Company. This lag may impact the Company’s loss reserve estimates. Cedent reports have pre-determined due dates (for example, thirty days after each month end). As a result, the lag depends in part upon the terms of the specific contract. The timing of the reporting requirements is designed so that the Company receives premium and loss information as soon as practicable once the cedent has closed its books. Accordingly, there should be a short lag in such reporting. Additionally, most of the contracts that have the potential for large single event losses have provisions that such loss notifications are provided to the Company immediately upon the occurrence of an event.

#### Stock-Based Compensation Expense

The Company uses the fair-value method of accounting for stock-based compensation awards granted. The Company has determined the fair value of its outstanding stock options on their grant date using the Black-Scholes option pricing model along with multiple Monte Carlo simulations to determine a derived service period as the options vest based upon meeting certain performance conditions. The Company determines the fair value of restricted stock units (“RSUs”) on their grant date using the fair value of the Company’s common stock on the date the RSUs were issued (for those RSU which vest solely based upon the passage of time). The fair value of these awards is recorded as compensation expense over the requisite service period, which is generally the expected period over which the awards will vest, with a corresponding increase to additional paid-in capital. When the stock options are exercised, or correspondingly, when the RSUs vest, the amount of proceeds together with the amount recorded in additional paid-in capital is recorded in shareholders’ equity.

### Recent Accounting Pronouncements

See Item 8, Note 3 – Recently Adopted and Issued Accounting Standards in the Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements and their effect, if any, on the Company.

### Analysis of Financial Condition

### As of September 30, 2023 Compared to December 31, 2022

### Investments

See Item 8, Note 4, Investments and Fair Value Disclosures, for information regarding the Company’s investments held at fair value as of September 30, 2023 and December 31, 2022.

#### Equity Method Investments

See Item 8, Note 4, under the caption, “Equity Method Investments,” for information relating to the Company’s investments accounted for under the equity method.

#### Investments without Readily Determinable Fair Value

See Item 8, Note 4, under the caption, “Investments without Readily Determinable Fair Value,” for information relating to Company investments for which readily determinable fair values do not exist.

### Funds Deposited with Reinsured Companies

See Item 8, Note 2, under the caption, “*Funds Deposited for benefit of Reinsured Companies,”* for information relating to FGRe’s collateral deposits.

### Reinsurance Balances Receivable

Reinsurance balances receivable were $14.5 million, net of a current expected loss allowance of $0.1 million, as of September 30, 2023 compared to $9.3 million as of December 31, 2022, representing net amounts due to the Company under our quota-share agreements. As the Company estimates the ultimate premiums, loss expenses and other costs associated with some of these contracts, based on information received by us from the ceding companies, a significant portion of this balance is based on estimates and, ultimately, may not be collected by the Company.

### Net Deferred Taxes

See Item 8, Note 6, Income Taxes, for information relating to deferred income taxes.

### Loss and Loss Adjustment Expense Reserves

See Item 8, Note 5, Loss and Loss Adjustment Expense Reserves, for information relating to loss and loss adjustment expense and judgments required for recording such items.

### Off Balance Sheet Arrangements

None.

### Shareholders’ Equity

#### 8.00% Cumulative Preferred Stock, Series A

The total number of Series A Preferred Stock shares outstanding as of September 30, 2023 is 894,580.

Dividends on the Series A Preferred Stock are cumulative from the date of original issue and are payable quarterly on the 15th day of March, June, September and December of each year, when, as and if declared by our Board of Directors. Dividends are payable out of amounts legally available therefore at a rate equal to 8.00% per annum per $25.00 of stated liquidation preference per share, or $2.00 per share of Series A Preferred Stock per year. Our Board of Directors declared the third quarter 2023 dividend on the shares of Series A Preferred Stock on August 10, 2023. The Series A Preferred Stock shares trade on the Nasdaq Stock Market under the symbol “FGFPP.”

#### Common Stock

In June 2022, we sold a total of 2,750,000 shares of our common stock in an underwritten public offering, at a price of $1.58 per share, for net proceeds of approximately $3.8 million. On August 2, 2022, ThinkEquity, the underwriter with respect to the public offering, partially exercised its overallotment option and we sold an additional 71,770 shares of our common stock, at a price of 1.58 per share, for net proceeds of $0.1 million. The Company intends to use the net proceeds from the underwritten public offering for working capital and other general corporate purposes.

On November 3, 2022, the Company entered into a Sales Agreement with ThinkEquity LLC, pursuant to which the Company may offer and sell, from time to time through ThinkEquity LLC, shares of the Company’s common stock, subject to the terms and conditions of the Sales Agreement. During the first quarter of 2023, the Company sold approximately 27,000 shares under the Sales Agreement for net proceeds of approximately $74,000. On May 26, 2023, the Sales Agreement was terminated.

In June of 2023, the Company sold a total of 865,000 shares of common stock in an underwritten public offering, at a price of $1.85 per share, for net proceeds of approximately $1.3 million. The Company intends to use the net proceeds from the underwritten public offering for general working capital purposes.

The total number of common stock outstanding as of September 30, 2023 is 10,303,739.

#### Change in Shareholders’ Equity

The table below presents the primary components of changes to total shareholders’ equity for the nine months ended September 30, 2023 and 2022.

|  | Preferred Shares Outstanding | Common Shares Outstanding | Total Shareholders’ Equity attributable to FG Financial Group, Inc. |
| --- | ---: | ---: | ---: |
| **Balance, January 1, 2022** | 894,580 | 6,497,205 | $34,009 |
| Stock compensation expense | – | 75,065 | 180 |
| Dividends declared on Series A Preferred Stock | – | – | (1,341) |
| Issuance of common stock |  | 2,821,770 | 3,889 |
| Net income | – | – | 955 |
| **Balance, September 30, 2022** | 894,580 | 9,394,040 | $37,692 |
| **Balance, January 1, 2023** | 894,580 | 9,410,473 | $37,296 |
| Stock compensation expense | – | 1,080 | 1,481 |
| Dividends declared on Series A Preferred Stock | – | – | (1,339) |
| Issuance of common stock | – | 892,186 | 1,280 |
| Net income | – | – | 4,055 |
| Cumulative effect of adoption of accounting guidance for expected credit losses at January 1, 2023 | - | - | (106) |
| **Balance, September 30, 2023** | 894,580 | 10,303,739 | $42,667 |

### Results of Operations

### Three and Nine Months Ended September 30, 2023 Compared with Three and Nine Months Ended September 30, 2022

#### Net Premiums Earned

Net premiums earned represent actual premiums earned on our reinsurance agreements as well as estimated premiums earned on our FAL agreement as disclosed previously. All actual and estimated premiums earned are the result of property and casualty assumed premium. For the nine months ended September 30, 2023 and 2022, earned premiums are approximately $11.5 million and $9.8 million, respectively. For the three months ended September 30, 2023 and 2022, earned premiums are approximately $4.1 million and $4.4 million, respectively. The increase in reinsurance premiums for the nine months ended was due primarily to the additional reinsurance agreement entered into with FAL to cover risks written by the syndicate during the calendar year 2023.

#### Net Investment Income

Net investment income (loss) for the three and nine months ended September 30, 2023 and 2022 is as follows:

*($ in thousands)*

| Investment income (loss): | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Realized gain (loss) on common stock | $3,078 | $(2,472) | $3,062 | $(11,441) |
| Change in unrealized holding on common stock | 404 | 2,448 | 319 | 10,521 |
| Equity method earnings | 3,460 | 11,226 | 4,192 | 6,080 |
| Increase in investments without a readily determinable fair value | - | - | 250 | - |
| Decrease (increase) in fair value of convertible note | (52) | - | 125 | - |
| Other | 71 | (28) | 324 | (46) |
| Net investment (loss) income | $6,961 | $11,174 | $8,272 | $5,114 |

#### Other Income

Other income was $84,000 compared to $266,000 for the nine months ended September 30, 2023 and 2022, respectively, and is primarily comprised of service fee revenue we have earned under our SPAC Platform.

#### Net Losses and Loss Adjustment Expenses

Net losses and loss adjustment expenses (“LAE”) for the three months ended September 30, 2023 and 2022, were $2.2 million and $2.4 million, respectively ($6.1M and $5.8M for the nine months ended September 30, 2023 and 2022, respectively). As discussed under Note 5, Loss and Loss Adjustment Expense Reserves, a portion of this charge represents an estimate based upon a full calendar year forecast of results provided to us by the ceding companies under our FAL arrangements.

#### General and Administrative Expenses

General and administrative expenses increased by $1.2 million to $7.2 million for the nine months ended September 30, 2023, compared to $6.0 million for the nine months ended September 30, 2022. For the three months ended September 30, 2023, general and administrative expenses was $2.3 million, compared to $2.0 million for the three months ended September 30, 2022. The increase for both 2023 periods was primarily due to an increase in stock compensation expense, which is a non-cash charge to the consolidated statements of operations.

#### Income Tax Expense (Benefit)

Our actual effective tax rate varies from the statutory federal income tax rates as shown in the following table.

*($ in thousands)*

|  | Three months ended September 30, 2023 | 2022 | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Provision for taxes at U.S., statutory marginal income tax rate of 21% | $1,182 | $2,154 | $852 | $201 |
| Valuation allowance for deferred tax assets deemed unrealizable | (1,200) | (2,168) | (871) | (219) |
| Non-deductible expenses associated with the Share Repurchase Transaction | – | 2 | 1 | 2 |
| Share-based compensation | 18 | 12 | 18 | 16 |
| Income tax expense (benefit) | $– | $– | $– | $– |

As of September 30, 2023 and 2022, the Company has gross deferred tax assets of approximately $8.0 million and $7.9 million, respectively; however the Company has recorded a valuation allowance against all of its deferred tax assets due to the uncertain nature surrounding our ability to realize these tax benefits in the future, resulting in a net deferred income tax asset of $0 as of September 30, 2023 and 2022.

#### Net Income (Loss)

Information regarding our net loss and loss per share for the three months and nine months ended September 30, 2023 and 2022 is as shown in the following table:

*($ in thousands)*

| Basic and diluted: | Three months ended September 30, 2023 | 2022 | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income from continuing operations | $5,628 | $10,255 | $4,055 | $955 |
| Dividends declared on Series A Preferred Shares | (447) | (447) | (1,339) | (1,342) |
| Income (loss) attributable to FG Financial Group, Inc. common shareholders from continuing operations | 5,181 | 9,808 | 2,716 | (387) |
| Weighted average common shares | 10,303,739 | 9,333,709 | 9,813,438 | 7,564,017 |
| Income (loss) per common share from continuing operations | $0.50 | $1.05 | $0.28 | $(0.05) |
| Weighted average common shares outstanding | 10,303,739 | 9,333,709 | 9,813,438 | 7,564,017 |

### Liquidity and Capital Resources

The purpose of liquidity management is to ensure that 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 and from the proceeds from the sales of our common stock. Cash provided from these sources has historically been used for making investments, loss and LAE payments, as well as other operating expenses.

### Cash Flows

The following table summarizes the Company’s consolidated cash flows for the nine months ended September 30, 2023 and 2022.

*(in thousands)*

| Summary of Cash Flows | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents – beginning of period | $3,010 | $15,542 |
| Net cash used by operating activities | (1,530) | (3,941) |
| Net cash provided (used) by investing activities | 4,104 | (4,502) |
| Net cash (used) provided by financing activities | (59) | 2,548 |
| Net Increase (decrease) in cash and cash equivalents | 2,515 | (5,895) |
| Cash and cash equivalents – end of period | $5,525 | $9,647 |

For the nine months ended September 30, 2023, net cash used by operating activities was approximately $1.5 million, primarily driven by net income for the period of $4.0 million, an increase in unearned premium reserves of $2.6 million, a decrease in funds deposited with reinsured companies of $2.2 million, an increase in loss and loss adjustment expense reserves of $1.5 million, and an increase in stock compensation expense of $1.5 million. This was offset by a change in equity method and other investments of approximately $4.9 million, a realized gain of $3.0 million, and a increase in reinsurance balances receivable of $5.3 million.

For the nine months ended September 30, 2023, net cash provided by investing activities was $4.1 million, primarily related to the sale of equity securities, offset by our investments into convertible notes and equity method investments.

Net cash used by financing activities was approximately $0.1 million, as a result of our common stock offering for approximately $1.3 million offset by cash dividends declared on our Series A Preferred Shares for approximately $1.4 million.

For the nine months ended September 30, 2022, net cash used by operating activities was approximately $3.9 million, the major drivers of which were as follows:

- Our net income of approximately $1.0 million for the period;
- Approximately $10.5 million for a non-cash charge related to the unrealized holding gain, offset by $11.2 million in realized loss on sale associated with our shares of FedNat common stock; and
- Approximately $2.9 million for a non-cash charge related to the unrealized holding gains on our various investments.
- Approximately $2.7 million increase to amounts held on deposit with reinsured companies.

For the nine months ended September 30, 2022, net cash used by investing activities was $4.5 million primarily related to our increased investment in the Fund to sponsor FG Merger and FG Acquisition. Net cash provided by financing activities was approximately $2.5 million, as a result of our common stock offering for approximately $3.8 million offset by cash dividends declared on our Series A Preferred Shares for approximately $1.3 million.

## Controls and procedures

As filed, 1,572 characters.

#### Evaluation of Disclosure Controls and Procedures

The Company’s management performed an evaluation under the supervision and with the participation of the Company’s principal executive officer and principal financial officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2023. Based upon this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

#### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 220 characters.

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A. “Risk Factors” to our annual report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 24, 2023.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-040055. Last ingested by Listed: Nov 6, 2026, 18:21 ET. No prices; not investment advice.