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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2022

 

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 001-36366

 

FG Financial Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   46-1119100

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

360 Central Avenue, Suite 800, St. Petersburg, FL 33701

(Address of principal executive offices and zip code)

 

(847) 791-6817

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.001 par value per share   FGF   The Nasdaq Stock Market LLC
8.00% Cumulative Preferred Stock, Series A, $25.00 par value per share   FGFPP   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer Smaller Reporting Company Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

The number of shares outstanding of the registrant’s common stock as of August 11, 2022 was 9,349,771.

 

 

 

 

 

 

Table of Contents

 

PART I. FINANCIAL INFORMATION 3
   
ITEM 1. FINANCIAL STATEMENTS 3
   
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 25
   
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 33
   
ITEM 4. CONTROLS AND PROCEDURES 33
   
PART II. OTHER INFORMATION 34
   
ITEM 1. LEGAL PROCEEDINGS 34
   
ITEM 1A. RISK FACTORS 34
   
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 34
   
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 34
   
ITEM 4. MINE SAFETY DISCLOSURES 34
   
ITEM 5. OTHER INFORMATION 34
   
ITEM 6. EXHIBITS 34
   
SIGNATURES 35

 

2

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

FG FINANCIAL GROUP, INC.

Consolidated Balance Sheets

($ in thousands, except per share data)

 

 

  

 

June 30, 2022

(unaudited)

  

 

December 31,

2021

 
ASSETS          
Equity securities, at fair value (cost basis of $5,111 and $14,495, respectively)  $110   $1,421 
Other investments   10,814    14,040 
Cash and cash equivalents   12,832    15,542 
Deferred policy acquisition costs   1,255    786 
Reinsurance balances receivable   7,332    3,853 
Funds deposited with reinsured companies   3,978    4,442 
Other assets   952    745 
Total assets  $37,273   $40,829 
           
LIABILITIES          
Loss and loss adjustment expense reserves  $2,883   $2,133 
Unearned premium reserves   6,168    3,610 
Accounts payable   392    502 
Other liabilities   117    575 
Total liabilities  $9,560   $6,820 
           
Commitments and contingencies (Note 10)   -       
           
SHAREHOLDERS’ EQUITY          
Series A Preferred Shares, $25.00 par and liquidation value, 1,000,000 shares authorized; 894,580 shares issued and outstanding as of June 30, 2022 and December 31, 2021  $22,365   $22,365 
Common stock, $0.001 par value; 100,000,000 shares authorized; 9,278,001 and 6,497,205 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively   9    6 
Additional paid-in capital   49,933    46,037 
Accumulated deficit   (44,594)   (34,399)
Total shareholders’ equity   27,713    34,009 
Total liabilities and shareholders’ equity  $37,273   $40,829 

 

See accompanying notes to consolidated financial statements

 

3

 

 

FG FINANCIAL GROUP, INC.

Consolidated Statements of Operations

($ in thousands, except per share data)

(Unaudited)

 

 

                     
  

Three months ended

June 30,

  

Six months ended

June 30,

 
   2022   2021   2022   2021 
Revenue:                    
Net premiums earned  $2,953    937   $5,426    1,122 
Net investment (loss) income   (3,714)   2,241    (6,059)   4,091 
Other income   26    24    50    79 
Total revenue   (735)   3,202    (583)   5,292 
                     
Expenses:                    
Net losses and loss adjustment expenses   1,868    729    3,391    835 
Amortization of deferred policy acquisition costs   606    374    1,318    431 
General and administrative expenses   2,269    1,659    4,009    3,698 
Total expenses   4,743    2,762    8,718    4,964 
                     
(Loss) income from continuing operations before income taxes   (5,478)   440    (9,301)   328 
Income tax expense (benefit)                
Net (loss) income from continuing operations  $(5,478)  $440   $(9,301)  $328 
Discontinued operations:                    
Gain from sale of the Maison Business, net of taxes               145 
Net (loss) income   (5,478)   440    (9,301)   473 
Gain (loss) attributable to noncontrolling interests       667        666 
Dividends declared on Series A Preferred Shares   447    447    894    797 
Loss attributable to FG Financial Group, Inc. common shareholders  $(5,925)  $(674)  $(10,195)  $(990)
                     
Basic and diluted net income (loss) per common share:                    
Continuing operations  $(0.87)  $(0.13)  $(1.55)  $(0.23)
Discontinued operations               0.03 
Basic and Diluted earning per share  $(0.87)  $(0.13)  $(1.55)  $(0.20)
                     
Weighted average common shares outstanding:                    
Basic and diluted   6,775,501    5,010,377    6,589,296    5,001,731 

 

See accompanying notes to consolidated financial statements

 

4

 

 

FG FINANCIAL GROUP, INC.

Consolidated Statements of Shareholders’ Equity

(Unaudited)

($ in thousands)

 

                                                   
   Preferred Stock   Common Stock   Treasury Stock   Paid-in   Accumulated   Total Shareholders’ Equity attributable to FG Financial   Non-controlling 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Group, Inc.   Interests 
Balance, January 1, 2021   700,000   $17,500    4,988,310   $5    1,281,511   $(6,185)  $47,065   $(24,193)  $34,193   $ 
Stock based compensation           22,067                177        177     
Dividends declared on Series A Preferred Shares ($0.50 per share)                               (350)   (350)    
Interests issued for contributed cash                                       657 
Net income (loss)                               34    34    (1)
Balance, March 31, 2021   700,000   $17,500    5,010,377   $5    1,281,511   $(6,185)  $47,242   $(24,509)  $34,054   $656 
                                                   
Series A Preferred Share issuance   194,580    4,865                    (648)       4,217     
Stock based compensation                           70        70     
Dividends declared on Series A Preferred Shares ($0.50 per share)                               (447)   (447)    
Net income (loss)                               (227)   (227)   666 
Balance, June 30, 2021   894,580   $22,365    5,010,377   $5    1,281,511   $(6,185)  $46,664   $(25,183)  $37,667   $1,323 
                                                   
Balance, January 1, 2022   894,580   $22,365    6,497,205   $6       $   $46,037   $(34,399)  $34,009   $ 
Stock based compensation           30,796    1            62        63     
Dividends declared on Series A Preferred Shares ($0.50 per share)                               (447)   (447)    
Interests issued for contributed cash                                        
Net income (loss)                               (3,823)   (3,823)    
Balance, March 31, 2022   894,580   $22,365    6,528,001   $7       $   $46,099   $(38,669)  $29,802   $ 
                                                   
Common stock issuance           2,750,000    3            3,781        3,784     
Stock based compensation                           53        52     
Dividends declared on Series A Preferred Shares ($0.50 per share)                               (447)   (447)    
Net income (loss)                               (5,478)   (5,478)    
Balance, June 30, 2022   894,580   $22,365    9,278,001   $9       $   $49,933   $(44,594)  $27,713   $ 

 

See accompanying notes to consolidated financial statements

 

5

 

 

FG FINANCIAL GROUP, INC.

Consolidated Statement of Cash Flows

(Unaudited)

(in thousands)

 

           
   Six months ended June 30, 
   2022   2021 
Cash flows from operating activities:          
Net income (loss)  $(9,301)  $473 
Adjustments to reconcile net income (loss) to net cash used by operating activities:          
Net unrealized holding gain on equity investments   (8,073)   (4,022)
Income (loss) from equity method investments, net of distributions
received
   8,347     
Net realized loss on sale of equity investments   8,791     
Stock compensation expense   115    247 
Purchase of investments by consolidated investment
company subsidiary
       (2,347)
Changes in operating assets and liabilities:          
Current income taxes recoverable       253 
Reinsurance balances receivable   (3,479)   (2,235)
Amounts held on deposit with reinsured companies   464    (274)
Deferred policy acquisition costs   (469)   (837)
Other assets and receivables   (150)   (302)
Loss and loss adjustment expense reserves   750    678 
Unearned premium reserves   2,558    2,529 
Accounts payable and other liabilities   (567)   (17)
Net cash used by operating activities   (1,014)   (5,854)
           
Cash flows from investing activities:          
Purchases of furniture and equipment   (57)   (6)
Purchases of equity method investments   (6,795)   (73)
Distribution from equity method investments   1,521     
Sales of equity securities   593     
Return of capital – other investments   152    155 
Net cash used by investing activities   (4,586)   76 
           
Cash flows from financing activities:          
Payment of dividends on preferred shares   (894)   (797)
Proceeds from issuance of preferred stock, net       4,217 
Proceeds from issuance of common stock, net   3,784     
Cash contributions from non-controlling interests       657 
Net cash provided (used) by financing activities   2,890    4,077 
           
Net decrease in cash and cash equivalents   (2,710)   (1,701)
Cash and cash equivalents at beginning of period   15,542    12,132 
Cash and cash equivalents at end of period  $12,832   $10,431 

 

See accompanying notes to consolidated financial statements.

 

6

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

Note 1. Nature of Business

 

FG Financial Group, Inc. (“FGF”, the “Company”, “we”, or “us”) is a reinsurance 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 special purpose acquisition companies (“SPAC”) and SPAC sponsor-related businesses. The Company’s principal business operations are conducted through its subsidiaries and affiliates. The Company also provides asset management services. 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 and asset management.

 

As of June 30, 2022, Fundamental Global GP, LLC, a privately owned asset management company (“FG”), and its affiliated entities, including Ballantyne Strong, Inc. (“BTN”), collectively beneficially owned approximately 58.8% of our common stock. D. Kyle Cerminara, Chairman of our Board of Directors, serves as Chief Executive Officer, Co-Founder and Partner of FG, and as Chairman of the board of directors of BTN.

 

Sale of the Insurance Business

 

On December 2, 2019, we completed the sale (“Asset Sale”) of our insurance subsidiaries to FedNat Holding Company for a combination of cash and FedNat common stock. The shares of FedNat common stock we received in the Asset Sale were issued to us pursuant to a standstill agreement which provides certain limitations and restrictions with respect to the voting and sale or transfer of the securities until December 2024. As of June 30, 2022, we continue to hold 355,371 shares of FedNat common stock.

 

Current Business

 

Our strategy has evolved to focus on opportunistic collateralized and loss capped reinsurance, with capital allocation to SPAC and SPAC sponsor-related businesses. As part of our refined focus, we have adopted the following capital allocation philosophy:

 

Grow intrinsic value per share with a long-term focus using fundamental research, allocating capital to asymmetric risk/reward opportunities.”

 

Currently, the business operates as a diversified holding company of insurance, reinsurance, asset management and our “SPAC Platform” businesses.

 

Insurance

 

We are in the process of establishing a Risk Retention Group (“RRG”) for the purpose of providing directors and officers insurance coverage to SPAC vehicles. We intend to provide capital, along with other participants, to facilitate the underwriting of such insurance coverage. The Company will focus on fee income derived from originating, underwriting, and servicing the insurance business, while mitigating our financial risk with external reinsurance partners.

 

Reinsurance

 

The Company’s wholly owned reinsurance subsidiary, Fundamental Global Reinsurance Ltd. (“FGRe”), a Cayman Islands limited liability company, provides specialty property and casualty reinsurance. FGRe has been granted a Class B (iii) insurer license in accordance with the terms of The Insurance Act (as revised) of the Cayman Islands and underlying regulations thereto and is subject to regulation by the Cayman Islands Monetary Authority (the “Authority”). The terms of the license require advance approval from the Authority should FGRe wish to enter into any reinsurance agreements which are not fully collateralized to their aggregate exposure limit. FGRe participates in a Funds at Lloyds syndicate covering risks written by the syndicate during the 2021 and 2022 calendar years. On April 1, 2021, FGRe entered into its second reinsurance contract with a leading insurtech company that provides automotive insurance utilizing driver monitoring to predictively segment and price drivers. In addition to renewing this contract for a second year, the Company added a second agreement with the automotive insurance provider as of April 1, 2022. Beginning January 1, 2022, FGRe participates in a quota share reinsurance contact with a startup homeowners’ insurance company with minimal activity as of June 30, 2022. On April 1, 2022, FGRe entered into a homeowners’ property catastrophe excess of loss reinsurance contract with a specialty insurance company covering loss occurrences from named tropical storms arising out of the Atlantic. These agreements limit exposure by loss-caps stipulated within the reinsurance contracts.

 

Asset Management

 

Pursuant to the Investment Advisory Agreement, FG Strategic Consulting, LLC (“FGSC”) a wholly-owned subsidiary of the Company has agreed to provide investment advisory services to FedNat, including identifying, analyzing and recommending potential investments, advising as to existing investments and investment optimization, recommending investment dispositions, and providing advice regarding macro-economic conditions. In exchange for providing the investment advisory services, FedNat has agreed to pay FGSC an annual fee of $100,000. The term of the Investment Advisory Agreement is five years, expiring on December 2, 2024.

 

7

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

SPAC Platform

 

On December 21, 2020, we formed FG SPAC Solutions LLC (“FGSS”), a Delaware company, to facilitate the launch of our “SPAC Platform”. Under the SPAC Platform, we provide various strategic, administrative, and regulatory support services to newly formed SPACs for a monthly fee. Additionally, the Company co-founded a partnership, FG SPAC Partners, LP (“FGSP”) to participate as a co-sponsor for newly formed SPACs. The Company also participates in the risk capital investments associated with the launch of such SPACs through its Asset Management business, specifically FG Special Situations Fund, LP. (“Fund”). As discussed in Note 4, the Company has consolidated the results of the Fund through November 30, 2021; however, effective December 1, 2021, the Company began accounting for its investment in the Fund under the equity method. The first transaction entered into under the SPAC Platform occurred on January 11, 2021, by and among FGSS and Aldel Investors, LLC, the sponsor of Aldel Financial, Inc. (“Aldel”), a special purpose acquisition company which completed its business combination with Hagerty (NYSE: HGTY) on December 2, 2021. Under the services agreement between FGSS and Aldel Investors, LLC (the “Agreement”), FGSS provided accounting, regulatory, strategic advisory, and other administrative services to Aldel, which included assistance with negotiations with potential merger targets for the SPAC as well as assistance with the de-SPAC process.

 

In March and April 2022, the Company continued to build upon its SPAC Platform strategy. On March 3, 2022, FG Merger Corp. (“FG Merger”) (Nasdaq: FGMCU) announced the closing of an $80.5 million IPO in the United States, including the exercise of the over-allotment option granted to the underwriters in the offering. Similarly, on April 5, 2022, FG Acquisition Corp. (“FG Acquisition”) (TSX:FGAA.V), announced the closing of a $115 million IPO in Canada, including the exercise of the over-allotment option granted to the underwriters in the offering. The Company participated in the risk capital associated with the launch of the SPACs through its asset management business, specifically FG Special Situations Fund, LP. Mr. Cerminara, our Chairman, Larry G. Swets, Jr., our Director and Chief Executive Officer, and Hassan R. Baqar, our Executive Vice President and Chief Financial Officer, also hold financial interests in the SPACs and/or their sponsor companies. Additionally, Messrs. Cerminara, Swets, and Baqar are managers of the sponsor companies of FG Merger and FG Acquisition. Mr. Swets serves as Chairman of FG Merger, while Messrs. Baqar and Cerminara serve as Director and Senior Advisor of FG Merger, respectively. Mr. Swets serves as Chief Executive Officer and Director of FG Acquisition. Mr. Baqar serves as Chief Financial Officer, Secretary and Director of FG Acquisition. Mr. Cerminara serves as Chairman of FG Acquisition.

 

In the aggregate, the Company’s indirect exposure to FG Merger through its subsidiaries represents potential beneficial ownership of approximately 820,000 shares of FG Merger’s common stock, approximately 989,000 warrants with an $11.50 exercise price and 5-year expiration, and approximately 85,000 warrants with a $15.00 exercise price and 10-year expiration. The Company has invested approximately $2.6 million in FG Merger through its subsidiaries. The Company’s indirect exposure in FG Acquisition through its subsidiaries represents potential beneficial ownership of approximately 819,000 shares of FG Acquisition’s common stock, approximately 1,400,000 million warrants with an $11.50 exercise price and 5-year expiration (the “FGAC Warrants”), approximately 440,000 warrants with a $15 exercise price and 10-year expiration, and either (i) up to approximately an additional 1,600,000 FGAC Warrants, or (ii) up to approximately $2 million in cash, or (iii) a pro-rata combination of such FGAC Warrants and cash, based on certain adjustment provisions and the level of redemptions of FG Acquisition’s publicly traded warrants at the time of a business combination. The Company has invested approximately $3.4 million in FG Acquisition through its subsidiaries.

 

Note 2. Significant Accounting Policies

 

Basis of Presentation

 

These statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

 

Consolidation Policies

 

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.

 

The consolidated financial statements include the accounts of the Company and entities in which it is required to consolidate under either the Variable Interest Entity (“VIE”) or Voting Interest Entity (“VOE”) models. Both models require the reporting entity to identify whether it has a controlling financial interest in a legal entity and is therefore required to consolidate the legal entity. Under the VOE model, a reporting entity with ownership of a majority of the voting interest of a legal entity is generally considered to have a controlling financial interest. The VIE model was established for situations in which control may be demonstrated other than by the possession of voting rights in a legal entity and instead focuses on the power to direct the activities that most significantly impact the legal entity’s economic performance, as well as the rights to receive benefits and obligations to absorb losses that could potentially be significant to the legal entity.

 

The determination of whether a legal entity is consolidated under either model is reassessed where there is a substantive change in the governing documents or contractual arrangements of the entity, to the capital structure of the entity or in the activities of the entity. The Company continuously reassesses whether it should consolidate under either model.

 

In September 2020, the Company invested approximately $5.0 million to sponsor the launch of the Fund. The Fund, a VIE which the Company was required to consolidate through November 30, 2021, is considered an investment company for GAAP purposes and follows the accounting and reporting guidance in the Financial Accounting Standards Codification (“ASC”) Topic 946, Financial Services-Investment Companies, which includes the presentation of its investments at fair value. Beginning December 1, 2021, the Company has accounted for its investment in the Fund under the equity method of accounting.

 

See Note 4 for additional information regarding the Company’s consolidated investments.

 

8

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

Discontinued Operations

 

Due to the sale of all of the issued and outstanding equity of our previous insurance business on December 2, 2019, these operations have been classified as discontinued operations in the Company’s financial statements presented herein. For the six months ended June 30, 2021, we recognized a gain from the sale of this business for approximately $145,000. This was related to a final true-up and settlement in the first quarter 2021, for income taxes due to the Company under the sale agreement. The following table presents a reconciliation of the major classes of line items constituting pretax profit (loss) of discontinued operations to the after-tax profit (loss) of discontinued operations that are presented in the Company’s consolidated statement of operations for the three and six months ended June 30, 2022 and 2021:

 

   2022   2021   2022   2021 
(in thousands)  Three months ended June 30,   Six months ended June 30, 
   2022   2021   2022   2021 
Pre-tax gain (loss) on sale  $   $   $   $ 
Income tax benefit               145 
Net gain from sale of Maison Business  $   $   $   $145 

 

The Use of Estimates in the Preparation of Consolidated Financial Statements

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. 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 critical accounting estimates and assumptions in the accompanying consolidated financial statements include the valuation of our investments, the valuation of net deferred income taxes and deferred policy acquisition costs, premium revenue recognition, reserves for loss and loss adjustment expenses, and stock-based compensation expense.

 

Investments in Equity Securities

 

Investments in equity securities are carried at fair value with subsequent changes in fair value recorded to the Consolidated Statements of Operations as a component of net investment income.

 

Other Investments

 

Other investments consist, in part, of equity investments made in privately held companies accounted for under the equity method. We utilize the equity method to account for investments when we possess the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when the investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted. We apply the equity method to investments in common stock and to other investments when such other investments possess substantially identical subordinated interests to common stock.

 

In applying the equity method, we record the investment at cost and subsequently increase or decrease the carrying amount of the investment by our proportionate share of the net earnings or losses and other comprehensive income of the investee. We record dividends or other equity distributions as reductions in the carrying value of the investment. Should net losses of the investee reduce the carrying amount of the investment to zero, additional net losses may be recorded if other investments in the investee are at-risk, even if we have not committed to provide financial support to the investee. Such additional equity method losses, if any, are based upon the change in our claim on the investee’s book value.

 

When we receive distributions from our equity method investments, we utilize the cumulative earnings approach. When classifying the related cash flows under this approach, the Company compares the cumulative distributions received, less distributions received in prior periods, with the Company’s cumulative equity in earnings. Cumulative distributions that do not exceed cumulative equity in earnings represent returns on investment and are classified as cash inflows from operating activities. Cumulative distributions in excess of cumulative equity in earnings represent returns on investment and are classified as cash inflows from investing activities.

 

Other investments also consist of equity we have purchased in a limited partnership and a limited liability company for which there does not exist a readily determinable fair value. The Company accounts for these investments at their cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investment of the same issuer. Any profit distributions the Company receives on these investments are included in net investment income.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash and highly liquid investments with original maturities of 90 days or less.

 

Pursuant to the Company’s insurance license, the Authority has required that FGRe hold a minimum capital requirement of $200,000 in cash in a bank in the Cayman Islands which holds an “A” license issued under the Banks and Trust Companies Act (2020 Revision).

 

9

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

Income Taxes

 

The Company follows the asset and liability method of accounting for income taxes, whereby deferred income tax assets and liabilities are recognized for (i) the differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and (ii) loss and tax credit carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not and a valuation allowance is established for any portion of a deferred tax asset that management believes will not be realized. Current federal income taxes are charged or credited to operations based upon amounts estimated to be payable or recoverable as a result of taxable operations for the current year. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense (benefit).

 

Concentration of Credit Risk

 

Financial instruments which potentially expose the Company to concentrations of credit risk include investments, cash, and deposits with reinsured companies. The Company maintains its cash with a major U.S. domestic banking institution which is insured by the Federal Deposit Insurance Corporation (“FDIC”) for up to $250,000. As of June 30, 2022 the Company held funds in excess of these FDIC insured amounts. The terms of these deposits are on demand to mitigate some of the associated risk. The Company has not incurred losses related to these deposits.

 

Premium Revenue Recognition

 

The Company participates in 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 “Reinsurance balances receivable” on the Company’s consolidated balance sheets represents 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. Additional premiums due on a contract that has no remaining coverage period are earned in full when written.

 

Premiums written are generally recognized as earned over the contract period in proportion to the risk covered. Unearned premiums represent the unexpired portion of reinsurance provided.

 

Policy Acquisition Costs

 

Policy acquisition costs are costs that vary with, and are directly related to, the successful production of new and renewal 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.

 

Funds Held by Cedents

 

“Funds Deposited with Reinsured Companies” on the Company’s consolidated balance sheets includes amounts held by cedents provided to support our reinsurance contracts. On November 12, 2020, FGRe, our Cayman Islands based reinsurance subsidiary, initially funded a trust account at Lloyd’s with approximately $2.4 million cash, to collateralize its obligations under a quota-share agreement with a Funds at Lloyds syndicate. The initial contract covered our quota-share percentage of all risks written by the syndicate for the 2021 calendar year. On November 30, 2021, we entered into an agreement with the same syndicate, slightly increasing our quota-share percentage of the risks the syndicate writes for the 2022 calendar year. This resulted in FGRe’s posting an additional $1.0 million in cash collateral to the account. In June 2022, FGRe received approximately $0.4 million in a partial return of initial collateral. During 2021, we also posted cash collateral in the approximate amount of $1.0 million, to support our automotive insurance quota-share agreement entered on April 1, 2021.

 

As of June 30, 2022, and December 31, 2021, the total cash collateral posted to support all of our reinsurance treaties was approximately $4.0 million and $4.4 million, respectively.

 

10

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

Loss and Loss Adjustment Expense Reserves

 

The Company maintains reserves equal to our estimated ultimate liability for losses and loss adjustment expense for reported and unreported claims from our reinsurance business. Loss and loss adjustment reserve estimates are based primarily on estimates derived from reports the Company has received from ceding companies. The Company then uses a variety of statistical and actuarial techniques to monitor reserve adequacy. When setting reserves, the Company considers many factors including: (1) the types of exposures and projected ultimate premium to be written by our cedants; (2) expected loss ratios by type of business; (3) actuarial methodologies which analyze loss reporting and payment experience, reports from ceding companies and historical trends; and (4) general economic conditions. The Company also engages independent actuarial specialists, at least annually, to assist management in establishing appropriate reserves. 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. The final settlement of losses may vary, perhaps materially, from the reserves recorded.

 

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 a 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. Client 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 client 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

 

The Company has accounted for stock-based compensation under the provisions of ASC Topic 718 – Stock Compensation which requires the use of the fair-value based method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model using assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate along with multiple Monte Carlo simulations to determine a derived service period as the options vest based upon meeting certain performance conditions. The fair value of each stock option award is recorded as compensation expense on a straight-line basis over the requisite service period, which is generally the period in which the stock options vest, with a corresponding increase to additional paid-in capital.

 

The Company has also issued restricted stock units (“RSUs”) to certain of its employees and directors which have been accounted for as equity-based awards since, upon vesting, they are required to be settled in the Company’s common shares. We have used the fair value of the Company’s common stock on the date the RSUs were issued to estimate the grant date fair value of those RSUs which vest solely based upon the passage of time, as well as a Monte Carlo valuation model to estimate the fair value of those RSUs which vest solely upon market-based conditions. The fair value of each RSU is recorded as compensation expense over the requisite service period, which is generally the expected period over which the awards will vest. In the case of those RSUs which vest upon market-based conditions, should the market-based condition be achieved prior to the expiration of the derived service period, any unrecognized cost will be recorded as compensation expense in the period in which the RSUs actually vest.

 

Based upon the Company’s historical forfeiture rates relating to stock options and RSUs, the Company has not made any adjustment to stock compensation expense for expected forfeitures as of June 30, 2022.

 

Fair Value of Financial Instruments

 

The carrying values of certain financial instruments, including cash, short-term investments, deposits held, accounts payable, and other accrued expenses approximate fair value due to their short-term nature. The Company measures the fair value of financial instruments in accordance with GAAP which defines fair value as the exchange price that would be received for an asset (or paid to transfer a liability) in the principal or most advantageous market for the asset (or liability) in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. See Note 4 for further information on the fair value of the Company’s financial instruments.

 

11

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

Earnings (Loss) Per Common Share

 

Basic earnings (loss) per common share is computed using the weighted average number of shares outstanding during the respective period.

 

Diluted earnings (loss) per common share assumes conversion of all potentially dilutive outstanding stock options, restricted stock units, warrants or other convertible financial instruments. Potential common shares outstanding are excluded from the calculation of diluted earnings (loss) per share if their effect is anti-dilutive.

 

Note 3. Recently Adopted and Issued Accounting Standards

 

Accounting Standards Pending Adoption

 

ASU 2016-13: Financial Instruments – Credit Losses

 

In June 2016, the FASB issued ASU 2016-13: Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 was issued to provide financial statement users with more useful information regarding the expected credit losses on financial instruments held as assets. Under current GAAP, financial statement recognition for credit losses on financial instruments is generally delayed until the occurrence of the loss was probable. The amendments of ASU 2016-13 eliminate this probable initial recognition threshold and instead reflect an entity’s current estimate of all expected credit losses. The amendments also broaden the information that an entity must consider in developing its expected credit loss estimates for those assets measured at amortized cost by using forecasted information instead of the current methodology which only considered past events and current conditions. Under ASU 2016-13, credit losses on certain types of financial instruments will be measured in a manner similar to current GAAP; however, the amendments require that credit losses be presented as an allowance against the financial instrument, rather than as a write-down. The amendments also allow the entity to record reversals of credit losses in current period net income, which is prohibited under current GAAP. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted, however smaller reporting companies, like the Company, may delay adoption until January 2023. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements. We anticipate that the amounts we record as due to us from our cedant companies under our reinsurance contracts will be impacted by the adoption of ASU 2016-13, requiring us to record an allowance for any projected losses we may incur on these assets. The Company has begun evaluating their position by pooling contracts with shared risk characteristics, evaluating credit worthiness of the counterparties, and defining exposure through contract length, total reinsurance exposure, and collateralized position.

 

Note 4. Investments and Fair Value Disclosures

 

The following table summarizes the Company’s investments held at fair value as of June 30, 2022 and December 31, 2021:

 

(in thousands)                
As of June 30, 2022  Cost Basis  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

Carrying

Amount

 
FedNat common stock  $5,111   $   $5,001   $110 
Total investments  $5,111   $   $5,001   $110 

 

As of December 31, 2021  Cost Basis  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

Carrying

Amount

 
FedNat common stock  $14,495   $   $13,074   $1,421 
Total investments  $14,495   $   $13,074   $1,421 

 

FedNat Common Stock

 

As of June 30, 2022, the Company held 355,371 shares of FedNat Holding Company common stock (Nasdaq: FNHC). Of the total 1,773,102 shares of FedNat common stock which the Company had received as consideration for the Asset Sale, the Company has disposed of 1,417,731 shares. During the second quarter of 2022, the Company sold 435,000 shares of FedNat common stock on the open market. Pursuant to the Standstill Agreement entered into between the Company and FedNat at the closing of the Asset Sale, the Company is restricted as to the timing and number of FedNat shares it can dispose of.

 

12

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

Deconsolidation of Subsidiary

 

The Company’s original investment in FG Special Situations Fund, LP (the “Fund”), a Delaware limited partnership, consisted of an investment as both a limited and general partner. At the time of the Company’s initial investment into the Fund, in September 2020, the Company had determined that its investment represented an investment in a variable interest entity (“VIE”) in which the Company was the primary beneficiary and as such, had consolidated the financial results of the Fund through November 30, 2021. At each reporting date, the Company evaluates whether it remains the primary beneficiary and continuously reconsiders that conclusion. On December 1, 2021, the Company no longer had the power to govern the financial and operating policies of the Fund, and accordingly derecognized the related assets, liabilities, and noncontrolling interests of the Fund as of that date. The Company did not receive any consideration in the deconsolidation of the Fund, nor did it record any gain or loss upon deconsolidation as the Company carried its investment at fair value. The assets and liabilities of the Fund, over which the Company lost control, were as follows:

 

As of December 1, 2021 (in thousands)      
Cash and cash equivalents  $100 
Investments in private placements   15,734 
Investments in public SPACs   22 
Other assets   18 
Other liabilities   (34)
Net assets deconsolidated  $15,840 

 

While the Company’s investments in the Fund are no longer consolidated, the Company has retained its interest in all of the investments held at the Fund. Accordingly, the Company has not presented its investment in the Fund as a discontinued operation. Effective December 1, 2021, the Company began accounting for its investment in the Fund via the equity method of accounting.

 

13

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

Equity Method Investments

 

As of June 30, 2022, equity method investments include our investment in FG SPAC Partners, LP (“FGSP”). On January 4, 2021, FGSP was formed as a Delaware limited partnership to co-sponsor newly formed SPACs with their founders or partners. The Company is the sole managing member of the general partner of FGSP and holds a limited partner interest in FGSP directly and through its subsidiaries. FGSP participates as a co-sponsor of the SPACs launched under our SPAC Platform. We have recorded equity method losses from our investment in FGSP of approximately $0.1 million for the six months ended June 30, 2022. The carrying value of our investment in FGSP as of June 30, 2022 was approximately $2.4 million, all of which is in the form of undistributed earnings.

 

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 previously discussed under the heading “Deconsolidation of Subsidiary,” equity method investments also include our investment in the Fund as of June 30, 2022. Until December 1, 2021, we had consolidated the Fund as a variable interest entity, however, effective December 1, 2021, we began accounting for this investment under the equity method of accounting. For the six months ended June 30, 2022, we received distributions in the approximate amount of $3.3 million from the Fund and recognized approximately $5.0 million in equity method losses through our investment in the Fund. As of June 30, 2022, the carrying value of our investment in the Fund was approximately $8.1 million.

 

Financial information for our investments accounted for under the equity method, in the aggregate, is as follows:

 

  

As of June 30,

2022

  

As of December 31, 2021

 
(in thousands)        
Other investments  $18,910   $25,936 
Cash   125    72 
Other assets   56    16 
Total assets   19,091    26,024 
           
Accounts payable  $30   $19 
Other liabilities   1     
Total liabilities   31    19 

 

  

Six months ended

June 30, 2022

  

Six months ended

June 30, 2021

 
(in thousands)          
Net investment income (loss)  $(4,696)  $5,119 
General and administrative expenses   (66)   (111)
Net income (loss)   (4,762)   5,008 

 

Investments without Readily Determinable Fair Value

 

In addition to our equity method investments, other investments as listed on our balance sheet also consist of equity we have purchased in a limited partnership and a limited liability company for which there does not exist readily determinable fair values. The Company accounts for these investments at their cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investment of the same issuer. Any profit distributions the Company receives on these investments are included in net investment income. The Company’s total investment in these two entities was approximately $331,000 as of June 30, 2022. Both investments began returning capital to investors beginning in 2020. As of June 30, 2022, the Company has received approximately 57% of its initial $776,000 investment in these entities. There have been no upward or downward price adjustments to these investments for the six months ended June 30, 2022 and 2021.

 

Impairment

 

For equity securities without readily determinable fair values, impairment is determined via a qualitative assessment which considers indicators to evaluate whether the investment is impaired. Some of these indicators include a significant deterioration in the earnings performance or asset quality of the investee, a significant adverse change in regulatory, economic or general market conditions in which the investee operates, or doubt over an investee’s ability to continue as a going concern. If the investment is deemed to be impaired after conducting this analysis, the Company would estimate the fair value of the investment to determine the amount of impairment loss.

 

14

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

For equity method investments, such as the Company’s investments in FGSP and the Fund, evidence of a loss in value might include a series of operating losses of an investee, the absence of an ability to recover the carrying amount of the investment, or a deterioration in the value of the investee’s underlying assets. If these, or other indicators lead to the conclusion that there is a decrease in the value of the investment that is other than temporary, the Company would recognize that decrease in value even though the decrease may be in excess of what would otherwise be recognized under the equity method of accounting.

 

The risks and uncertainties inherent in the assessment methodology used to determine impairment include, but may not be limited to, the following:

 

  the opinions of professional investment managers and appraisers could be incorrect;
     
  the past operating performance and cash flows generated from the investee’s operations may not reflect their future performance; and
     
  the estimated fair values for investment for which observable market prices are not available are inherently imprecise.

 

We have not recorded an impairment on our investments for either of the six months ended June 30, 2022 and 2021.

 

Net investment income (loss) for the three and six months ended June 30, 2022 and 2021 is as follows:

 

                     
($ in thousands)  Three Months Ended June 30,   Six Months Ended June 30, 
   2022   2021   2022   2021 
Investment income (loss):                    
Realized loss on FedNat common stock  $(5,914)  $(693)  $(8,791)  $(2,554)
Unrealized gain on FedNat common stock   5,299        8,073     
Unrealized holding gain on private placement investments       1,513        5,116 
Equity method earnings (loss)   (3,074)   1,362    (5,146)   1,457 
Other   (25)   59    (195)   72 
Net investment (loss) income  $(3,714)  $2,241   $(6,059)  $4,091 

 

Fair Value Measurements

 

The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. The FASB has issued guidance that defines fair value as the exchange price that would be received for an asset (or paid to transfer a liability) in the principal, or most advantageous market in an orderly transaction between market participants. This guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance categorizes assets and liabilities at fair value into one of three different levels depending on the observation of the inputs employed in the measurements, as follows:

 

  Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets providing the most reliable measurement of fair value since it is directly observable.
     
  Level 2 – inputs to the valuation methodology which include quoted prices for similar assets or liabilities in active markets. These inputs are observable, either directly or indirectly, for substantially the full-term of the financial instrument.
     
  Level 3 - inputs to the valuation methodology which are unobservable and significant to the measurement of fair value.

 

The availability of valuation techniques and observable inputs can vary from investment to investment and are affected by a variety of factors, including the type of investment, whether the investment is new and not yet established in the marketplace, the liquidity of markets and other characteristics specific to the individual investment. In some cases, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the hierarchy based on the lowest level input that is significant to the fair value measurement. When determining fair value, the Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

 

15

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

We have valued our investment in FedNat at its last reported sales price as the shares are traded on a national exchange. They have been characterized in Level 1 of the fair value hierarchy.

 

Financial instruments measured, on a recurring basis, at fair value as of June 30, 2022 and December 31, 2021 in accordance with the guidance promulgated by the FASB are as follows.

 

(in thousands)                
                 
As of June 30, 2022  Level 1   Level 2   Level 3   Total 
FedNat common stock  $110   $   $   $110 
   $110   $   $   $110 
                     
As of December 31, 2021                    
FedNat common stock  $1,421   $   $   $1,421 
   $1,421   $   $   $1,421 

 

Note 5. Loss and Loss Adjustment Expense Reserves

 

A significant degree of judgment is required to determine amounts recorded in the Company’s consolidated financial statements for the provision for loss and loss adjustment expense (“LAE”) reserves. The process for establishing this provision reflects the uncertainties and significant judgmental factors inherent in predicting future results of both known and unknown loss events. The process of establishing the provision for loss and LAE reserves relies on the judgment and opinions of many individuals, including the opinions of the Company’s management, as well as the management of ceding companies and their actuaries.

 

16

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

The COVID-19 pandemic is unprecedented, and the Company does not have previous loss experience on which to base the associated estimate for loss and loss adjustment expenses. In estimating losses, the Company may assess any of the following:

 

a review of in-force treaties that may provide coverage and incur losses;
   
general forecasts, catastrophe and scenario modelling analyses and results shared by cedents;
   
reviews of industry insured loss estimates and market share analyses; and
   
management’s judgement.

 

Assumptions which served as the basis for the Company’s estimates of reserves for the COVID-19 pandemic losses and loss adjustment expenses include:

 

the scope of coverage provided by the underlying policies, particularly those that provide for business interruption coverage;
   
the regulatory, legislative, and judicial actions that could influence contract interpretations across the insurance industry;
   
the extent of economic contraction caused by the COVID-19 pandemic and associated actions; and
   
the ability of the cedents and insured to mitigate some or all of their losses.

 

Under the terms of certain of our quota-share agreements, and due to the nature of claims and premium reporting, a lag exists 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. The reports we receive from our cedents have pre-determined due dates. In the case of the Company’s FAL contract, second quarter 2022 premium and loss information will not be made available to the Company until subsequent to the filing of this quarterly report. Thus, our second quarter results, including the loss and loss adjustment expense reserves presented herein, have been based upon a combination of actual results for the first quarter 2022 as well as forecasts for the remainder of 2022 reported to us by the ceding companies. We have approximated second quarter 2022 results under our contracts based upon this historical and forecasted information.

 

While the Company believes its estimate of loss and loss adjustment expense reserves are adequate as of June 30, 2022, based on available information, actual losses may ultimately differ materially from the Company’s current estimates. The Company will continue to monitor the appropriateness of its assumptions as new information is provided.

 

A summary of changes in outstanding loss and loss adjustment expense reserves for the six months ended June 30, 2022 and 2021, is as follows:

 

             
(in thousands) 

Six months ended June 30,

 
   2022   2021 
Balance, beginning of period, gross of reinsurance  $2,133   $ 
Less: reinsurance recoverable on loss and LAE expense reserves        
Balance, beginning of period, net of reinsurance  $2,133   $ 
Incurred related to:        
Current year   2,638    835 
Prior year   753     
Paid related to:          
Current year   (1,590)   (157)
Prior years   (1,051)    
Balance, June 30, net of reinsurance  $2,883   $678 
Plus: reinsurance recoverable related to loss and LAE expense reserves        
Balance, June 30, gross of reinsurance  $2,883   $678 

 

Note 6. Income Taxes

 

A summary of income tax expense (benefit) is as follows:

 

     2022     2021 
(in thousands)  Six months ended June 30, 
   2022   2021 
Current income tax benefit – from continuing operations  $   $ 
Current income tax benefit – from discontinued operations        
Total current income tax benefit        
           
Deferred income tax benefit – from continuing operations        
Deferred income tax benefit – from discontinued operations        
Total deferred income tax benefit        
           
Total income tax benefit – from continuing operations        
Total income tax benefit – from discontinued operations  $   $(145)
Total income tax benefit  $   $(145)

 

17

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

Actual income tax expense (benefit) differs from the income tax expense computed by applying the applicable effective federal and state tax rates to income before income tax expense as follows:

 

     2022     2021     2022     2021 
($ in thousands) 

Three months ended

June 30,

  

Six months ended

June 30,

 
   2022   2021   2022   2021 
Provision for taxes at U.S, statutory marginal income tax rate of 21%  $(1,150)  $93   $(1,953)  $69 
Valuation allowance for deferred tax assets deemed unrealizable   1,150    47    1,948    40 
Rate differential due to CARES Act                
Non-deductible expenses associated with the Share Repurchase Transaction               (114)
Net operating loss carryback       1         2 
State income tax (net of federal benefit)       (140)       (140)
Share-based compensation            5     
Other       (1)        (2)
Income tax expense (benefit)  $   $   $   $(145)

 

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes as compared to the amounts used for income tax purposes. The Company’s gross deferred tax assets and liabilities are $7.9 million and $0.2 million as of June 30, 2022. The Company has recorded a valuation allowance against its deferred tax assets of $7.7 million, as of June 30, 2022, due to the uncertain nature surrounding our ability to realize these tax benefits in the future. Significant components of the Company’s net deferred tax assets are as follows:

 

           
(in thousands)    
  

As of June 30,

2022

  

As of December 31,

2021

 
Deferred income tax assets:          
Net operating loss carryforward  $3,678   $3,010 
Loss and loss adjustment expense reserves   33    25 
Unearned premium reserves   259    152 
Capital loss carryforward   1,418    1,114 
Share-based compensation   249    253 
Investments   2,287    1,692 
Other   4    3 
Deferred income tax assets  $7,928   $6,249 
Less: Valuation allowance   (7,663)   (5,715)
Deferred income tax assets net of valuation allowance  $265   $534 
           
Deferred income tax liabilities:          
Investments  $   $369 
Other   2     
Deferred policy acquisition costs   263    165 
Deferred income tax liabilities  $265   $534 
           
Net deferred income tax asset (liability)  $   $ 

 

As of June 30, 2022, the Company had net operating loss carryforwards (“NOLs”) for federal income tax purposes of approximately $17.5 million, which will be available to offset future taxable income. Approximately $0.5 million expire on December 31, 2039, $0.1 million expire on December 31, 2040, and $1.6 million of the Company’s NOLs will expire on December 31, 2041. The remaining $15.3 million of the Company’s NOLs do not expire under current tax law. Additionally, the Company has approximately $2.3 million of capital loss carryforward that can only be used to offset capital gains and which will expire in December 2026 if not used prior.

 

As of June 30, 2022, the Company had no unrecognized tax benefits. The Company analyzed its tax positions in accordance with the provisions of Accounting Standards Codification Topic 740, Income Taxes, and has determined that there are currently no uncertain tax positions. The Company generally recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

 

18

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

Note 7. Equity Incentive Plan Grants

 

On December 15, 2021, our shareholders approved the FG Financial Group, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). The purpose of the 2021 Plan is to attract and retain directors, consultants, officers and other key employees of the Company and its subsidiaries and to provide to such persons incentives and rewards for superior performance. The 2021 Plan is administered by the Compensation and Management Resources Committee of the Board and has a term of ten years. The 2021 Plan awards may be in the form of stock options (which may be incentive stock options or nonqualified stock options), stock appreciation rights (or “SARs”), restricted shares, restricted share units, and other share-based awards, and provides for a maximum of 1,500,000 shares available for issuance.

 

As of June 30, 2022, the Company had 133,859 RSUs outstanding and 130,000 non-qualified stock options outstanding under its equity incentive plans.

 

RSUs Outstanding

 

The following table summarizes RSU activity for the six months ended June 30, 2022 and 2021.

Restricted Stock Units  Number of Units  

Weighted

Average Grant Date Fair Value

 
Non-vested units, January 1, 2022   164,655   $4.35 
Granted        
Vested   (30,796)   4.45 
Forfeited        
Non-vested units, June 30, 2022   133,859   $4.33 
           
Non-vested units, January 1, 2021   148,486   $5.44 
Granted        
Vested   (22,067)   5.46 
Forfeited        
Non-vested units, June 30, 2021   126,419   $5.44 

 

On December 17, 2021, we issued a total of 83,329 RSUs to our non-employee directors. The RSUs vest in five equal annual installments, beginning with the first anniversary of the grant date, other than those RSUs granted to a former director. As the former director made himself available to serve on the Board but was not elected to do so at the Company’s 2021 annual meeting of shareholders, the Board accelerated the vesting of his RSUs, such that they all vested on January 1, 2022. This included 14,492 RSUs granted on December 17, 2021, as well as an additional 15,224 RSUs previously granted.

 

Stock Options Outstanding

 

On January 12, 2021, in connection with Larry G. Swets, Jr.’s appointment as Chief Executive Officer, the Company entered into a Stock Option Agreement (the “Stock Option”) with Mr. Swets. The Stock Option entitles Mr. Swets to purchase up to 130,000 shares of the Company’s common stock at an exercise price of $3.38 per share. The Stock Option becomes vested and fully exercisable in 20% increments on each anniversary of the grant date, provided that Mr. Swets remains in the continuous service of the Company through each applicable vesting date and that the Company’s book value per share has increased by 15% or more as compared to the Company’s book value per share as of the fiscal year end prior. The Stock Option expires on January 11, 2031.

 

19

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

The Stock Option contains performance and service conditions that affect vesting. Pursuant to ASC Topic 718- Stock Compensation, these conditions have not been reflected in estimating the fair value of the award upon its grant date; however, the Company employed a Monte-Carlo model to estimate the likelihood of satisfaction of the required performance and service conditions. This resulted in a derived service period of approximately 3.3 years under the grant.

 

In estimating the fair value of the Stock Option, the Company estimated volatility based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury Constant Maturity similar to the expected remaining life of the Stock Option. The expected life of the Stock Option is assumed to be equivalent to its contractual term. The dividend rate is based on our historical rate, which the Company anticipates will remain at zero. The following assumptions were used to determine the estimated fair value of the Stock Option:

Expected volatility   45.60%
Expected life (years)   10.00 
Risk-free interest rate   1.15%
Dividend yield   0.00%

 

The following table summarizes activity for stock options issued for the six months ended June 30, 2022 and 2021.

Common Stock Options  Shares   Weighted Ave Exercise Price   Weighted Ave Remaining Contractual Term (yrs)   Weighted Ave Grant Date Fair Value   Aggregate Intrinsic Value 
Outstanding, January 1, 2022   130,000   $3.38    9.04   $1.88   $49,400 
Exercisable, January 1, 2022      $       $   $ 
Granted                       
Exercised                    
Cancelled                    
Outstanding, June 30, 2022   130,000   $3.38    8.79   $1.88   $(249,600)
Exercisable, June 30, 2022      $       $   $ 
                          
Outstanding, January 1, 2021      $       $   $ 
Exercisable, January 1, 2021      $       $   $ 
Granted   130,000    3.38    10.00    1.88     
Exercised                    
Cancelled                    
Outstanding, June 30, 2021   130,000   $3.38    9.54   $1.88   $781,300 
Exercisable, June 30, 2021      $       $   $ 

 

On January 18, 2021, Company entered into an Equity Award Letter Agreement (the “Letter Agreement”) with Mr. Swets, pursuant to which the Company clarified its intention to grant an additional 370,000 stock options, restricted shares or restricted stock units pursuant to a future award (the “Future Award”), subject to the approval of an amended and/or new equity plan, among other conditions. Specifically, under the Letter Agreement, no such Future Award may be granted until there is a determination by the Compensation Committee of the specific vesting and other terms of the award.

 

Total stock-based compensation expense for the six months ended June 30, 2022 and 2021 was approximately $115,000 and $247,000, respectively. As of June 30, 2022, total unrecognized stock compensation expense of approximately $495,000 remains, which will be recognized through December 31, 2026. Stock compensation expense has been reflected in the Company’s financial statements as part of general and administrative expense.

 

Warrants

 

No warrants were granted or exercised during the six months ended June 30, 2022 and 2021. On February 24, 2022, 1,500,000 warrants with an exercise price of $15.00 expired. As of June 30, 2022, the Company did not have any warrants outstanding.

 

20

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

Note 8. Related Party Transactions

 

Related party transactions are carried out in the normal course of operations and are measured in part by the amount of consideration paid or received, as established and agreed by the parties. Management believes that consideration paid for such services in each case approximates fair value. Except where disclosed elsewhere in these consolidated financial statements, the following is a summary of related party transactions.

 

Joint Venture Agreement

 

On March 31, 2020, the Company entered into the Limited Liability Company Agreement of Fundamental Global Asset Management, LLC (“FGAM”), a newly formed joint venture owned 50% by each of the Company and FG. The purpose of FGAM is to sponsor, capitalize and provide strategic advice to investment managers in connection with the launch and/or growth of their asset management businesses and the investment products they sponsor (each, a “Sponsored Fund”).

 

FGAM is governed by a Board of Managers consisting of four managers, two of which have been appointed by each Member. The Company has appointed two of its independent directors to the Board of Managers of FGAM. Certain major actions, including any decision to sponsor a new investment manager, require the prior consent of both Members.

 

FG Special Situations Fund

 

As of June 30, 2022, the Company had invested $12.1 million, net of redemptions at cost, as a limited partner in the Fund. The general partner of the Fund, and the investment advisor of the Fund are ultimately controlled by Mr. Cerminara, the Chairman of the Company’s Board of Directors. Portions of the Company’s investment into the Fund were used to sponsor the launch of SPACS affiliated with certain of our officers and directors.

 

Mr. Cerminara, our chairman, and Mr. Swets, our Chief Executive Officer and Director, are managers of the sponsor company of FG New America Acquisition Corp (“FGNA”). Mr. Cerminara, Mr. Swets and Mr. Baqar, our Executive Vice President and Chief Financial Officer, serve as managers of the sponsor companies of FG Merger and FG Acquisition. Until FGNA’s business combination with OppFi (NYSE: OPFI), Mr. Swets was the Chief Executive Officer and a Director of FGNA, Mr. Cerminara was the Director of FGNA, and Mr. Baqar was the Chief Financial Officer of FGNA. Until Aldel’s business combination with Hagerty, Mr. Swets served as Senior Advisor to Aldel, Mr. Baqar served as Chief Financial Officer of Aldel, and Mr. Cerminara served as a Director of Aldel. Messrs. Cerminara, Swets, and Baqar also hold financial interests in the SPACs and/or their sponsor companies. Mr. Swets serves as Chairman of FG Merger, while Messrs. Baqar and Cerminara serve as Director and Senior Advisor of FG Merger, respectively. Mr. Swets serves as Chief Executive Officer and Director of FG Acquisition. Mr. Baqar serves as Chief Financial Officer, Secretary and Director of FG Acquisition. Mr. Cerminara serves as Chairman of FG Acquisition.

 

FG SPAC Partners

 

FGSP was formed to co-sponsor newly formed SPACs with their founders or partners. The Company is the sole managing member of the general partner of FGSP and holds a limited partner interest in FGSP. Certain of our directors and officers also hold limited partner interests in FGSP. Mr. Swets holds a limited partner interest through Itasca Financial LLC, an advisory and investment firm for which Mr. Swets is managing member. Mr. Baqar also holds a limited partner interest through Sequoia Financial LLC, an advisory firm for which Mr. Baqar is managing member. Mr. Cerminara also holds a limited partner interest through Fundamental Global, LLC, a holding company for which Mr. Cerminara is the manager and one of the members.

 

FGSP has invested in the founder shares and warrants of Aldel, FG Merger and FG Acquisition. Certain of our directors and officers are affiliated with these SPACs and their sponsor companies as described above.

 

Investment Advisory Agreement

 

FGSC, a wholly owned subsidiary of the Company, provides investment advisory services to FedNat, including identifying, analyzing and recommending potential investments, advising as to existing investments and investment optimization, recommending investment dispositions, and providing advice regarding macro-economic conditions. In exchange for providing the investment advisory services, FedNat pays FGSC an annual fee of $100,000. The Investment Advisory Agreement expires on December 2, 2024.

 

Shared Services Agreement

 

On March 31, 2020, the Company entered into a Shared Services Agreement (the “Shared Services Agreement”) with Fundamental Global Management, LLC (“FGM”), an affiliate of FG, pursuant to which FGM provides the Company with certain services related to the day-to-day management of the Company, including assisting with regulatory compliance, evaluating the Company’s financial and operational performance, providing a management team to supplement the executive officers of the Company, and such other services consistent with those customarily performed by executive officers and employees of a public company. In exchange for these services, the Company pays FGM a fee of $456,000 per quarter (the “Shared Services Fee”), plus reimbursement of expenses incurred by FGM in connection with the performance of the Services, subject to certain limitations approved by the Company’s Board of Directors or Compensation Committee from time to time.

 

21

 

 

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

The Shared Services Agreement has an initial term of three years, and thereafter renews automatically for successive one-year terms unless terminated in accordance with its terms. The Shared Services Agreement may be terminated by FGM or by the Company, by a vote of the Company’s independent directors, at the end of the initial or automatic renewal term upon 120 days’ notice, subject to payment by the Company of certain costs incurred by FGM to wind down the provision of services and, in the case of a termination by the Company without cause, payment of a termination fee equal to the Shared Services Fee paid for the two quarters preceding termination.

 

Subsequent to June 30, 2022, the Shared Services Agreement has been amended to eliminate termination fees and to increase the termination notice from 120 days to 365 days.

 

The Company paid $912,500 to FGM under the Shared Services Agreement for each of the six months ended June 30, 2022 and 2021, respectively.

 

Note 9. Net Earnings Per Share

 

Net earnings per share is computed by dividing net income by the weighted average number of common shares and common share equivalents outstanding during the periods presented. In calculating diluted earnings per share, those potential common shares that are found to be anti-dilutive are excluded from the calculation. The table below provides a summary of the numerators and denominators used in determining basic and diluted earnings per share for the three and six months ended June 30, 2022 and 2021.

 

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FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

     2022     2021     2022     2021 
($ in thousands) 

Three months ended

June 30,

  

Six months ended

June 30,

 
   2022   2021   2022   2021 
Basic and diluted:                    
Net income (loss) from continuing operations  $(5,478)  $440   $(9,301)  $328 
Gain attributable to noncontrolling interests       (667)       (666)
Dividends declared on Series A Preferred Shares   (447)   (447)   (894)   (797)
Loss attributable to FG Financial Group, Inc. common shareholders from continuing operations   (5,925)   (674)   (10,195)   (1,135)
Weighted average common shares   6,775,501    5,010,377    6,589,296    5,001,731 
Loss per common share from continuing operations  $(0.87)  $(0.13)  $(1.55)  $(0.23)
                     
Gain from sale of former insurance business  $   $       $145 
Weighted average common shares outstanding   6,775,501    5,010,377    6,589,296    5,001,731 
Income per common share from discontinued operations  $   $   $   $ 0.03 

 

The following potentially dilutive securities outstanding as of June 30, 2022 and 2021 have been excluded from the computation of diluted weighted-average shares outstanding as their effect would be anti-dilutive.

   As of June 30, 
   2022   2021 
Warrants to purchase common stock       1,500,000 
Options to purchase common stock   130,000    130,000 
Restricted stock units   133,859    126,419 
    263,859    1,756,419 

 

Note 10. Commitments and Contingencies

 

Legal Proceedings:

 

As of June 30, 2022, the Company was not a party to any legal proceedings and was not aware of any material claims or actions pending or threatened against us. From time to time, we are involved in legal proceedings and litigation arising in the ordinary course of business. Currently, it is not possible to predict legal outcomes and their impact on the future development of claims. Any such development will be affected by future court decisions and interpretations. Because of these uncertainties, additional liabilities may arise for amounts in excess of the Company’s current reserves.

 

Operating Lease Commitments:

 

In July 2021, the Company entered into a lease agreement for office space in St. Petersburg, FL. The lease had a term of 12 months. Total minimum rent over the 12-month term was approximately $17,000. Due to the short-term nature of the lease, the Company recognized lease expense on a straight-line basis over the term of the lease, with any variable lease payments recognized in the period in which the obligation for the payment occurred. Rent expense was approximately $10,000 for the six months ended June 30, 2022.

 

In April 2022, the Company entered into a lease agreement for office space in Itasca, IL. The lease has a term of 44 months beginning on May 1, 2022. Total minimum rent over the term of the lease is expected to be approximately $77,000. The Company has accounted for the lease under ASC 842. As of June 30, 2022, the right of use asset and lease liability are approximately $65,000, each, and held in “Other assets” and “Other liabilities” on the balance sheet. Rent expense was approximately $3,500 for the three months ended June 30, 2022. Future minimum lease commitments are as follows:

Year ending

December 31,

  Minimum Commitment 
2022  $10,500 
2023   21,000 
2024   21,000 
2025   15,750 
Total  $68,250 

 

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FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

 

Impact of Coronavirus (COVID-19) Pandemic

 

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 pandemic on our business. Adverse events such as health-related concerns about working in our offices, the inability to travel and other matters affecting the general work environment have negatively impacted and could continue to harm our business and our business strategy. The extent to which our operations and investments may continue to be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new developments concerning the severity of the pandemic and actions by government authorities to contain the pandemic or treat its impact. Furthermore, the impacts of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets remain unknown. In the event of a major disruption caused by the pandemic, we may lose the services of our employees, experience system interruptions or face challenges accessing the capital or credit markets, which could lead to diminishment of our business operations. Any of the foregoing could harm our business and delay the implementation of our business strategy.

 

Impact of Russian/Ukraine Conflict

 

Management is currently evaluating the impact of rising interest rates, inflation and the Russia-Ukraine war and has concluded that while it is reasonably possible that any of these could have a negative effect on the Company’s financial position and results of its operations, the specific impact is not readily determinable as of the date of these unaudited consolidated financial statements. The unaudited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Note 11. Segment Reporting

 

The Company has two operating segments—insurance and asset management. The chief operating decision maker (“CODM”) is the Company’s Chief Executive Officer. The measure of profit or loss used by the CODM to identify and measure the Company’s reportable segments is income before income tax. Our insurance segment consists of the operations of our Cayman Islands-based reinsurance subsidiary, FGRe, which, as of June 30, 2022, included our six reinsurance agreements, as well as the returns associated with the investments made by our reinsurance operations, which include the Company’s FedNat common stock investment, as well as a portion of our investments in the SPACs which we have sponsored. Our asset management segment includes our investment in the Fund, as well as our investment advisory agreement with FedNat.

 

The following table presents the financial information for each segment that is specifically identifiable or based on allocations using internal methodology as of and for the three and six months ended June 30, 2022 and 2021. The ‘other’ category in the table below consists largely of corporate general and administrative expenses which have not been allocated to a specific segment. Segment assets for the “other” category primarily consist of unrestricted cash in the amounts of $11.4 million and $9.1 million as of June 30, 2022 and 2021, respectively.

 

(in thousands)

 

For the three months ended June 30, 2022

  Insurance   Asset Management   Other   Total 
Net premiums earned  $2,953   $   $   $2,953 
Net investment income (loss)   64    (3,778)       (3,714)
Other income       26        26 
Total revenue   3,017    (3,752)       (735)
Income (loss) before income tax   114    (3,555)   (2,037)   (5,478)
                     
For the six months ended June 30, 2022                    
Net premiums earned  $5,426   $   $   $5,426 
Net investment loss   (905)   (5,154)       (6,059)
Other income       50        50 
Total revenue   4,521    (5,104)       (583)
Income (loss) before income tax   (547)   (5,118)   (3,636)   (9,301)
                     
As of June 30, 2022                    
Segment assets  $15,295   $9,032   $12,946   $37,273 
                     
For the three months ended June 30, 2021                    
Net premiums earned  $937   $   $   $937 
Net investment income (loss)   739    1,502        2,241 
Other income       24        24 
Total revenue   1,676    1,526        3,202 
Income (loss) before income tax   540    1,430    (1,530)   440 
                     
For the six months ended June 30, 2021                    
Net premiums earned  $1,122   $   $   $1,122 
Net investment income (loss)   (1,110)   5,201        4,091 
Other income       79        79 
Total revenue   12    5,280        5,292 
Income (loss) before income tax   (1,589)   5,028    (3,111)   328 
                     
As of June 30, 2021                    
Segment assets  $13,620   $17,669   $11,403   $42,692 

 

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FG FINANCIAL GROUP, INC.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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, 2021 on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2022.

 

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, including the impact of health and safety concerns from the current COVID-19 pandemic; 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 asset 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; volatility or decline in the value of the shares of FedNat Holding Company common stock received by us as consideration in the sale of our insurance business or limitations and restrictions with respect to our ownership of such shares; risks of being a minority stockholder of FedNat Holding Company; 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 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 SPAC and SPAC sponsor-related businesses. The Company’s principal business operations are conducted through its subsidiaries and affiliates. The Company also provides asset management services. 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 and asset management.

 

As of June 30, 2022, Fundamental Global GP, LLC, a privately owned asset management company (“FG”), and its affiliated entities, including Ballantyne Strong, Inc. (“BTN”), collectively beneficially owned approximately 58.8% of our common stock. D. Kyle Cerminara, Chairman of our Board of Directors, serves as Chief Executive Officer, Co-Founder and Partner of FG, and as Chairman of the board of directors of BTN.

 

Sale of Insurance Business

 

On December 2, 2019, we completed the sale of our insurance subsidiaries to FedNat Holding Company for a combination of cash and FedNat common stock. The shares of FedNat common stock we received in the Asset Sale were issued to us pursuant to a standstill agreement which provides certain limitations and restrictions with respect to the voting and sale or transfer of the securities until December 2024. As of June 30, 2022, we continue to hold 355,371 shares of FedNat common stock.

 

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FG FINANCIAL GROUP, INC.

 

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. The business and economic uncertainty resulting from the coronavirus (COVID-19) pandemic has made such estimates and assumptions difficult to calculate. 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. Certain of these are described in Note 2, Significant Accounting Policies, under the captions, “Investments in Equity Securities,” Other Investments,” “Premium Revenue Recognition,” “Policy Acquisition Costs,” “Loss and Loss Adjustment Expense Reserves,” and “Stock Based Compensation.”

 

Consolidation of Variable Interest Entities

 

The determination whether to consolidate a variable interest entity under GAAP requires a significant amount of judgment concerning the degree of control over an entity by its holders of variable interests. To make these judgments, management has conducted an analysis, on a case-by-case basis, of whether we are the primary beneficiary and are therefore required to consolidate the entity. Upon the occurrence of certain events, such as modifications to organizational documents and investment management agreements, management will reconsider its conclusion regarding the status of an entity as a variable interest entity.

 

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.

 

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FG FINANCIAL GROUP, INC.

 

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 June 30, 2022 Compared to December 31, 2021

 

Investments

 

See Note 4, Investments and Fair Value Disclosure, for information regarding the Company’s investments held at fair value as of June 30, 2022 and December 31, 2021 and our holdings of FedNat Holding Company common stock.

 

Deconsolidation of Subsidiary

 

See Note 4, under the caption, “Deconsolidation of Subsidiary,” for information regarding deconsolidation of FG Special Situations Fund, LP (the “Fund”).

 

Equity Method Investments

 

See 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 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 Note 2, under the caption, “Funds Held by Cedents,” for information relating to FGRe’s collateral deposits.

 

Reinsurance Balances Receivable

 

Reinsurance balances receivable were $7.3 million as of June 30, 2022 compared to $3.9 million as of December 31, 2021, 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 Note 6, Income Taxes, for information relating to deferred income taxes.

 

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FG FINANCIAL GROUP, INC.

 

Loss and Loss Adjustment Expense Reserves

 

See 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

 

On May 21, 2021, we completed the underwritten public offering of an additional 194,580 shares of our preferred stock designated as 8.00% Cumulative Preferred Stock, Series A, par value $25.00 per share (the “Series A Preferred Stock”), for net proceeds of approximately $4.2 million. The total number of Series A Preferred Stock shares outstanding as of June 30, 2022 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 second quarter 2022 dividend on the shares of Series A Preferred Stock on August 11, 2022. The Series A Preferred Stock shares trade on the Nasdaq Stock Market under the symbol “FGFPP”.

 

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FG FINANCIAL GROUP, INC.

 

Common Stock

 

In the fourth quarter of 2021, we sold a total of 750,000 shares of our common stock, at a price of $4.00 per share, for net proceeds of approximately $2.5 million. Also in the fourth quarter, the Company completed a rights offering to holders of its common stock. Pursuant to the rights offering, 691,735 shares were subscribed for, for net proceeds of approximately $2.7 million. The Company intends to use the net proceeds from the issuance of its common shares for working capital and other general corporate purposes.

 

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.

 

Retirement of Treasury Stock

 

On August 19, 2021, the Board approved the retirement of all 1,281,511 common stock treasury shares owned by the Company. Accordingly, these shares have been classified as authorized, but unissued shares on the Company’s balance sheet, as of June 30, 2022.

 

Change in Shareholders’ Equity

 

The table below presents the primary components of changes to total shareholders’ equity for the six months ended June 30, 2022 and 2021.

 

   Preferred Shares Outstanding   Common Shares Outstanding   Treasury Shares  

Total Shareholders’

Equity attributable to FG Financial Group, Inc.

  

Non-controlling

Interests

 
Balance, January 1, 2021   700,000    4,988,310    1,281.511   $34,193   $ 
Stock compensation expense       22,067        247     
Series A Preferred Share issuance   194,580              4,217      
Dividends declared on Series A Preferred Stock               (797)    
Interests issued for contributed cash                       657 
Net loss               (193)   666 
Balance, June 30, 2021   894,580    5,010,377    1,281,511   $37,667   $1,323 
                          
Balance, January 1, 2022   894,580    6,497,205       $34,009   $ 
Stock compensation expense       30,796        115     
Dividends declared on Series A Preferred Stock               (895)    
Issuance of common stock       2,750,000        3,785     
Net loss               (9,301)    
Balance, June 30, 2022   894,580    9,278,001       $27,713   $ 

 

Results of Operations

 

Three and Six Months Ended June 30, 2022 Compared with Three and Six Months Ended June 30, 2021

 

Net Premiums Earned

 

Net premiums earned represent actual premiums earned on our reinsurance agreements as well as estimated premiums earned on our FAL agreement. Our FAL 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, in arrears; so, 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. For the six months ended June 30, 2022 and 2021, earned premiums are approximately $5.4 million and $1.1 million, respectively. The increase in reinsurance premiums was due primarily to the additional three reinsurance agreements signed during the year.

 

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FG FINANCIAL GROUP, INC.

 

Net Investment Income

 

Net investment income (loss) for the three and six months ended June 30, 2022 and 2021 is as follows:

 

($ in thousands)  Three Months Ended June 30,   Six Months Ended June 30, 
   2022   2021   2022   2021 
Investment income (loss):                    
Realized loss on FedNat common stock  $(5,914)  $(693)  $(8,791)  $(2,554)
Unrealized gain on FedNat common stock   5,299        8,073     
Unrealized holding gain on private placement investments       1,513        5,116 
Equity method earnings (loss)   (3,074)   1,362    (5,146)   1,457 
Other   (25)   59    (195)   72 
Net investment (loss) income  $(3,714)  $2,241   $(6,059)  $4,091 

 

Other Income

 

Other income was $50,000 compared to $79,000 for the six months ended June 30, 2022 and 2021, respectively, and is comprised of fees earned under the investment advisory agreements between the Company and FedNat. Also included in other income for the six months ended June 30, 2021 is approximately $30,000 in service fee revenue we have earned under our SPAC Platform, whereby we have provided certain accounting, regulatory, strategic advisory, and other administrative services.

 

Net Losses and Loss Adjustment Expenses

 

Net losses and loss adjustment expenses (“LAE”) for the three months ended June 30, 2022 and 2021, were $1.9 million and $0.7 million, respectively ($3.4M and $0.8M for the six months ended June 30, 2022 and 2021). 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 $0.3 million to $4.0 million for the six months ended June 30, 2022, compared to $3.7 million for the six months ended June 30, 2021. The increase was primarily due to salaries and wages relating to the expansion of staff adding three new employees in the last quarter of 2021 as well as professional fees related to obtaining new reinsurance agreements.

 

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FG FINANCIAL GROUP, INC.

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

June 30,

  

Six months ended

June 30,

 
   2022   2021   2022   2021 
Provision for taxes at U.S, statutory marginal income tax rate of 21%  $(1,150)  $93   $(1,953)  $69 
Valuation allowance for deferred tax assets deemed unrealizable   1,150    47    1,948    40 
Rate differential due to CARES Act                
Non-deductible expenses associated with the Share Repurchase Transaction               (114)
Net operating loss carryback       1         2 
State income tax (net of federal benefit)       (140)       (140)
Share-based compensation            5     
Other       (1)        (2)
Income tax expense (benefit)  $   $   $   $(145)

 

On December 2, 2019, we completed the sale of our insurance subsidiaries to FedNat Holding Company for a combination of cash and FedNat common stock (the “Asset Sale”). Due to the Asset Sale, these operations have been classified as discontinued operations in the Company’s financial statements presented herein. For the six months ended June 30, 2021, we recognized a gain from the sale of the insurance business of approximately $145,000. This was related to a final true-up and settlement in the current quarter, for income taxes due to the Company under the sale agreement.

 

As of June 30, 2022 and 2021, the Company has gross deferred tax assets of approximately $7.9 million and $4.1 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 June 30, 2022 and 2021.

 

Net Loss

 

Information regarding our net loss and loss per share for the three months and six months ended June 30, 2022 and 2021 is as shown in the following table:

 

($ in thousands) 

Three months ended

June 30,

  

Six months ended

June 30,

 
   2022   2021   2022   2021 
Basic and diluted:                    
Net income (loss) from continuing operations  $(5,478)  $440   $(9,301)  $328 
Gain attributable to noncontrolling interests       (667)       (666)
Dividends declared on Series A Preferred Shares   (447)   (447)   (894)   (797)
Loss attributable to FG Financial Group, Inc. common shareholders from continuing operations   (5,925)   (674)   (10,195)   (1,135)
Weighted average common shares   6,775,501    5,010,377    6,589,296    5,001,731 
Loss per common share from continuing operations  $(0.87)  $(0.13)  $(1.55)  $(0.23)
                     
Gain from sale of former insurance business  $   $       $145 
Weighted average common shares outstanding   6,775,501    5,010,377    6,589,296    5,001,731 
Income per common share from discontinued operations  $   $   $   $ 0.03 

 

31

 

 

FG FINANCIAL GROUP, INC.

 

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 from the cash proceeds of the Asset Sale, by funds generated from operations, and from the proceeds from the sales of our common and preferred stock. Cash provided from these sources has historically been used for loss and loss adjustment expense payments, as well as other operating expenses.

 

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

 

Cash Flows

 

The following table summarizes the Company’s consolidated cash flows for the six months ended June 30, 2022 and 2021.

 

(in thousands)  Six months ended June 30, 
Summary of Cash Flows  2022   2021 
Cash and cash equivalents – beginning of period  $15,542   $12,132 
           
Net cash used by operating activities   (1,014)   (5,854)
Net cash (used) provided by investing activities   (4,586)   76 
Net cash provided (used) by financing activities   2,890    4,077 
Net decrease in cash and cash equivalents   (2,710)   (1,701)
           
Cash and cash equivalents – end of period  $12,832   $10,431 

 

For the six months ended June 30, 2022, net cash used by operating activities was approximately $1.0 million, the major drivers of which were as follows:

 

  Our net loss of approximately $9.3 million for the period;
  Approximately $8.0 million for a non-cash charge related to the unrealized holding gain, offset by $8.8 million in realized loss on sale associated with our shares of FedNat common stock; and
  Approximately $8.3 million for a non-cash charge related to the unrealized holding gains on our various investments.

 

For the six months ended June 30, 2022, net cash used by investing activities was $4.6 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 $2.9 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 $0.9 million.

 

For the six months ended June 30, 2021, net cash used by operating activities was approximately $5.9 million, the major drivers of which were as follows:

 

  Our net income of approximately $473,000 for the quarter, adjusted downward by $4.0 million for unrealized gains on our equity investments.
     
  A cash outflow of approximately $2.3 million for our consolidated Fund investments in private placement securities. As this investment was made by our investment company subsidiary, we are required to show these cash outflows as operating activities.

 

For the six months ended June 30, 2021, net cash provided by investing activities was $76,000, primarily related to the partial return of principal on our investments. Net cash provided by financing activities was $4.1 million, primarily the result of our issuance of 194,580 shares of Series A Preferred Stock on May 21, 2021.

 

32

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

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 June 30, 2022. 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.

 

33

 

 

FG FINANCIAL GROUP, INC.

 

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 June 30, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

As of June 30, 2022, the Company was not a party to any legal proceedings and was not aware of any material claims or actions pending or threatened against us. From time to time, we are involved in legal proceedings and litigation arising in the ordinary course of business. Currently, it is not possible to predict legal outcomes and their impact on the future development of claims. Any such development will be affected by future court decisions and interpretations. Because of these uncertainties, additional liabilities may arise for amounts in excess of the Company’s current reserves.

 

ITEM 1A. RISK FACTORS

 

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, 2021 filed with the SEC on March 30, 2022.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit   Description
10.1*   Amended and Restated Shared Services Agreement, dated August 11, 2022, by and between FG Financial Group, Inc. and Fundamental Global Management, LLC.
31 .1*   Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.
31.2*   Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.
32.1**   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*   Inline XBRL Instance Document.
101.SCH*   Inline XBRL Taxonomy Extension Schema.
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB*   Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE*   Inline XBRL Taxonomy Extension Presentation Linkbase.
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* Filed herewith.

** Furnished herewith.

 

34

 

 

FG FINANCIAL GROUP, INC.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    FG FINANCIAL GROUP, INC.
       
Date: August 11, 2022 By: /s/ Larry G. Swets, Jr.
      Larry G. Swets, Jr., Chief Executive Officer
      (principal executive officer)
       
Date: August 11, 2022 By: /s/ Hassan R. Baqar
      Hassan R. Baqar, Chief Financial Officer
      (principal financial and accounting officer)

 

35

 

 

Exhibit 10.1

 

SHARED SERVICES AGREEMENT

 

THIS AMENDED AND RESTATED SHARED SERVICES AGREEMENT (this “Agreement”) is made as of August 11, 2022 (the “Effective Date”) by and between FG Financial Group, Inc., a Delaware corporation (the “Company”), and Fundamental Global Management, LLC, a Delaware limited liability company (the “FGM”). Each party hereto shall be referred to as, individually, a “Party” and, collectively with each other Party, the “Parties.” This Agreement amends and restates in its entirety the prior Shared Services Agreement between the Company and FGM dated effective as of March 31, 2020.

 

WHEREAS, the Company desires to engage FGM to provide the Services described herein, and FGM wishes to be engaged to provide such Services, on the terms and subject to the conditions set forth herein.

 

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS

 

Section 1.1 Defined Terms. Except as otherwise noted, for all purposes of this Agreement, the following terms shall have the respective meanings set forth in this Section 1.1, which meanings shall apply equally to the singular and plural forms of the terms so defined:

 

Affiliate” means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person or (ii) any officer, director, general partner, managing member, manager or trustee of such Person. For purposes of this definition, the terms “controlling,” “controlled by” or “under common control with” shall mean, with respect to any Persons, the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, or the power to elect at least 50% of the directors, general partners, managers or Persons exercising similar authority with respect to such Person.

 

Agreement” has the meaning set forth in the preamble of this Agreement.

 

Automatic Renewal Term” has the meaning set forth in Section 2.2 hereof.

 

Board” means, with respect to the Company, the Board of Directors of the Company, or any committee thereof that has been duly authorized by the Board of Directors to make a decision on, or bind the Company, as to the matter in question.

 

Business Day” means any day other than a Saturday, a Sunday or a day on which banks in The City of New York are required, permitted or authorized, by applicable law or executive order, to be closed for regular banking business.

 

 
 

 

Direct Expenses” has the meaning set forth in Section 7.2(a) hereof.

 

Effective Date” has the meaning set forth in the preamble of this Agreement.

 

Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

Federal Securities Laws” means, collectively, the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder.

 

FGM” has the meaning set forth in the preamble of this Agreement.

 

Fiscal Quarter” means the Company’s fiscal quarter for purposes of its reporting obligations under the Exchange Act.

 

GAAP” means generally accepted accounting principles in effect in the United States, consistently applied.

 

Governing Documents” means the Certificate of Incorporation and Bylaws of the Company, each as may be amended, revised, supplemented or otherwise modified from time to time.

 

Indebtedness” means, with respect to any Person, (i) any liability for borrowed money, or under any reimbursement obligation relating to a letter of credit, (ii) all indebtedness (including bond, note, debenture, purchase money obligation or similar instrument) for the acquisition of any businesses, properties or assets of any kind (other than property, including inventory, and services purchased, trade payables, other expenses accruals and deferred compensation items arising in the Ordinary Course of Business), (iii) all obligations under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (iv) any liabilities of others described in the preceding clauses (i) to (iii) (inclusive) that such Person has guaranteed or that is otherwise its legal liability, and (v) (without duplication) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of the types referred to in clauses (i) through (iv) above.

 

Indemnitee” has the meaning set forth in Section 9.1 hereof.

 

Independent Director” means a director who (i)(a) is not an officer or employee of the Company, or an officer, director or employee of any of the Subsidiaries of the Company or their Subsidiaries, and (b) was not appointed as a director pursuant to the terms of this Agreement, and (ii) satisfies the independence requirements under the Exchange Act and the rules and regulations of the principal securities exchange on which the Company’s shares are traded.

 

Initial Term” has the meaning set forth in Section 2.2 hereof.

 

Investment Advisers Act” means the Investment Advisers Act of 1940, as amended.

 

Investment Company Act” means the Investment Company Act of 1940, as amended.

 

2
 

 

Losses” has the meaning set forth in Section 9.1 hereof.

 

Ordinary Course of Business” means, with respect to any Person, an action taken by such Person if such action is (i) taken in the normal day-to-day business or operations of such Person and (ii) which is not required to be specifically authorized or approved by the board of directors of such Person.

 

Partyand Parties have the meaning set forth in the preamble of this Agreement.

 

“Person” means an individual, a partnership, a joint venture, a corporation, an association, a joint stock company, a limited liability company, a trust, an estate, a nominee, an unincorporated organization or a government or any department or agency or political subdivision thereof.

 

Securities Act” means the Securities Act of 1933, as amended.

 

Services” has the meaning set forth in Section 3.1(a) hereof.

 

“Subsidiary” means, with respect to the Company, any other Person in which the Company, directly or indirectly through one or more Affiliates or otherwise, beneficially owns at least fifty percent (50%) of either the ownership interest (determined by equity or economic interests) in, or the voting control of, such other Person.

 

Wind-Down Costs” has the meaning set forth in Section 8.4(c) hereof.

 

In addition, the words “herein,” “hereof’ and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision, and the words “includes” or “including” shall be deemed to mean “includes” or “including without limitation.”

 

ARTICLE II

ENGAGEMENT OF FGM; TERM

 

Section 2.1 Engagement. The Company hereby engages FGM to perform the Services as set forth in Section 3.1 hereof, and FGM hereby accepts such engagement, on the terms and subject to the conditions set forth herein.

 

Section 2.2 Term. This Agreement is effective as of the Effective Date and shall continue in operation, unless terminated in accordance with the terms hereof, until the third (3rd) anniversary of the Effective Date (the “Initial Term”). After the Initial Term, this Agreement shall be deemed renewed automatically each year for an additional one-year period (an “Automatic Renewal Term”) unless terminated in accordance with the terms hereof.

 

3
 

 

ARTICLE III

OBLIGATIONS OF THE PARTIES

 

Section 3.1 Obligations of FGM.

 

(a) Subject to the oversight and supervision of the Board and the terms and conditions of this Agreement, FGM shall during the term of this Agreement (including any Automatic Renewal Term) (i) perform the services as set forth in Schedule A hereto (collectively, the “Services”) and (ii) comply with the provisions of the Governing Documents, as amended from time to time, and the operational objectives and business plans of the Company in existence from time to time. The Company has, as of the Effective Date, provided FGM with the Governing Documents, internal policies and all stated operational objectives and business plans of the Company (and the Subsidiaries, as applicable) approved by the Board, and thereafter shall promptly provide FGM with all amendments to the Governing Documents, internal policies and all stated operational objectives and business plans of the Company (and the Subsidiaries, as applicable) approved by the Board and any other available information reasonably requested by FGM in order to perform the Services.

 

(b) In connection with the performance of its obligations under this Agreement, FGM shall be required to obtain authorization and approval of the Company’s Board in accordance with the Company’s internal policies regarding action requiring Board approval, as otherwise required by the Board (or any applicable committee thereof) or the Company’s officers, or as otherwise required by applicable law.

 

(c) In connection with the performance of the Services under this Agreement, FGM shall use reasonable efforts to comply with the Company’s internal compliance policies and procedures.

 

(d) In connection with the performance of its obligations under this Agreement, FGM is not permitted to, and nothing in this Agreement shall require FGM to, engage in any activities that would cause it to become an “investment adviser” as defined in Section 202(a)(11) of the Investment Advisers Act, or any successor provision thereto.

 

(e) While FGM is providing the Services under this Agreement, FGM shall also be permitted to provide services, including services similar to the Services covered hereby, to any other Persons, including any Affiliates of FGM, but FGM shall not render any services to any other Person on behalf of the Company or the Subsidiaries except as may be directed by the Board. This Agreement and FGM’s obligation to provide the Services under this Agreement shall not create an exclusive relationship between FGM and its Affiliates, on the one hand, and the Company and the Subsidiaries, on the other.

 

Section 3.2 Obligations of the Company

 

(a) The Company shall, and shall cause the Subsidiaries to, do all things reasonably necessary as requested by FGM consistent with the terms of this Agreement to enable FGM to fulfill its obligations under this Agreement.

 

4
 

 

(b) The Company shall take reasonable steps to (i) direct its officers and employees to act in accordance with the terms of this Agreement and the reasonable directions of FGM in fulfilling FGM’s obligations hereunder and allowing FGM to exercise its powers and rights hereunder and (ii) provide to FGM all access, information and reports (including monthly management reports and all other relevant reports), which FGM may reasonably require on such dates as FGM may reasonably require.

 

(c) Without the prior written consent of FGM, the Company shall not amend any provision of the Governing Documents that adversely affects the rights of FGM hereunder.

 

(d) The Company agrees that, in connection with the performance by FGM of its obligations hereunder, FGM may recommend to the Company, and may engage in, transactions with any of FGM’s Affiliates; provided, that any such transactions between the Company and any of FGM’s Affiliates shall be subject to the authorization and approval of the Independent Directors.

 

(e) The Company shall take any and all actions necessary to ensure that it does not engage in any activities that would cause the Company to become an “investment company” as defined in Section 3(a)(1) of the Investment Company Act, or any successor provision thereto, subject to any grace periods set forth therein.

 

Section 3.3 Other Activities and Competition.

 

(a) Except to the extent otherwise agreed between FGM and the Company in writing, FGM, its members (including any natural persons) and any of its Affiliates, agents, representatives or employees may engage in or possess an interest in other investments, business ventures or entities of any nature or description, independently or with others, similar or dissimilar to, or that compete with, the business of the Company or the Subsidiaries, and may provide advice and other assistance to any such investment, business venture or entity, and the Company shall have no rights by virtue of this Agreement in and to such investments, business ventures or entities or the income or profits derived therefrom, and the pursuit of any such investment or venture, even if competitive with the business of the Company or the Subsidiaries, shall not be deemed wrongful or improper. None of FGM, its members or any of its Affiliates, agents, representatives or employees shall be obligated to present any particular investment or business opportunity to the Company even if such opportunity is of a character that, if presented to the Company, could be taken by the Company or its Subsidiaries, and FGM, its members or any of its Affiliates, agents, representatives or employees shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or business opportunity. While information and recommendations supplied to the Company and the Subsidiaries shall, in FGM’s reasonable and good faith judgment, be appropriate under the circumstances and in light of the policies of the Company and the Subsidiaries, such information and recommendations may be different in certain material respects from the information and recommendations supplied by FGM or any Affiliate of FGM to others.

 

5
 

 

(b) The Company acknowledges and agrees that (i) personnel and members of FGM and its Affiliates may work on other projects and matters, and that conflicts may arise with respect to the allocation of personnel and (ii) there may be circumstances where FGM and/or its personnel and members acquire knowledge of a corporate opportunity of the Company or the Subsidiaries and FGM, its personnel, members and/or its Affiliates, and such corporate opportunity may be pursued by FGM, its personnel, members and/or its Affiliates or shared with other parties (in lieu of the Company or the Subsidiaries).

 

Section 3.4 Change of Services.

 

(a) The Company and FGM shall have the right at any time during the term of this Agreement (including any Automatic Renewal Term) to jointly agree to change the Services provided by FGM.

 

(b) Any change in the Services shall be authorized in writing and evidenced by an amendment to this Agreement, as provided in Section 12.9 hereof. Unless otherwise agreed in writing, the provisions of this Agreement shall apply to all changes in the Services.

 

ARTICLE IV

POWERS OF FGM

 

Section 4.1 Powers of FGM.

 

(a) FGM shall, subject to the oversight and supervision of the Board and the terms and conditions of this Agreement, have the power and obligation to perform the Services for and on behalf of the Company, with all such powers as may reasonably be incident to such responsibilities. FGM shall also perform such other duties and may exercise such other powers as from time to time may be assigned to FGM by the Board.

 

(b) Notwithstanding anything to the contrary set forth herein and except as such authority is provided to FGM by the Board or a committee thereof, FGM shall have no power to enter into any contract for or on behalf of the Company or otherwise subject it to any obligation, such power to be the sole right and obligation of the Company, acting through its Board and/or the officers of the Company.

 

(c) Subject to Section 4.2 and for purposes other than to delegate its duties and powers to perform the Services hereunder, FGM shall have the power to engage agents, consultants, contractors and advisors (including accounting, financial, tax and legal advisors) that it deems necessary or desirable in connection with the performance of its obligations hereunder, which costs therefor shall be subject to reimbursement or direct payment by the Company in accordance with Section 7.2 hereof. For the avoidance of doubt, FGM may not engage investment advisers on behalf of the Company or the Subsidiaries unless such authority is provided to FGM by the Board or a committee thereof.

 

6
 

 

Section 4.2 Delegation. FGM may delegate or appoint one or more other Persons, which may or may not be Affiliates of FGM, as its agent, to perform any or all of the Services hereunder; provided, however, that, if such agent is not an Affiliate of FGM, those Services shall not be critical to the ability of FGM to satisfy its obligations hereunder, as determined in the sole discretion of FGM; provided, further, that, in each case, FGM shall not be relieved of any of its obligations or duties owed to the Company or the Subsidiaries hereunder as a result of such delegation. FGM shall be permitted to share information of the Company and the Subsidiaries with its appointed agents subject to appropriate confidentiality arrangements. For the avoidance of doubt, any reference to FGM herein shall include its delegates or appointees pursuant to this Section 4.2.

 

ARTICLE V

INSPECTION OF RECORDS

 

Section 5.1 Books and Records of the Company. At reasonable times and on reasonable notice, FGM and any Person authorized by FGM shall have access to, and the right to inspect, for any reasonable purpose, during the term of this Agreement (including any Automatic Renewal Term) and for a period of three (3) years after termination hereof, the books, records and data stored in computers and all documentation of the Company and the Subsidiaries pertaining to all Services performed by FGM or the Shared Services Fee, Direct Expenses to be paid by the Company to FGM, in each case, hereunder. There shall be no cost or expense charged by any Party to another Party pursuant to the exercise of rights under this Section 5.1.

 

ARTICLE VI

REPRESENTATIONS OF THE COMPANY

AND FGM AS TO AUTHORITY

 

Section 6.1 Representations as to Authority. Each Party represents to the other that it is duly authorized with full power and authority to execute, deliver and perform its obligations and duties under this Agreement. The Company represents that the engagement of FGM has been duly authorized by the Board and is in accordance with the Governing Documents of the Company.

 

ARTICLE VII

SHARED SERVICES FEE; DIRECT EXPENSES

 

Section 7.1 Shared Services Fee. Subject to the terms and conditions set forth in this Section 7.1, for the term of this Agreement, including any Automatic Renewal Term, the Company shall pay FGM a shared services fee for the Services provided under this Agreement equal to $456,250 for each Fiscal Quarter (or $1,825,000 on an annual basis) (the “Shared Services Fee”) within 10 days following the beginning of each Fiscal Quarter.

 

7
 

 

Section 7.2 Reimbursement of Expenses.

 

(a) Subject in all respects to the Company’s Expenditure and Contract Authorization Matrix, as reviewed and approved by the Board from time to time (the “Authority Matrix”), the Company shall reimburse FGM for the following amounts that are actually incurred by FGM during the term of this Agreement in connection with the performance of the Services (collectively, the “Direct Expenses”) or timely pay said Direct Expenses directly upon prior agreement of the Company:

 

(i) costs of legal, tax, accounting, consulting, auditing, administrative and other similar services rendered for the Company and the Subsidiaries by providers retained by FGM;

 

(ii) the cost of liability insurance to indemnify the Company’s directors and officers;

 

(iii) costs associated with the establishment and maintenance of any of the Company’s or any Subsidiary’s credit or other indebtedness of the Company or any Subsidiary (including commitment fees, accounting fees, legal fees, closing and other similar costs) or any of the Company’s or any Subsidiary’s securities offerings;

 

(iv) expenses connected with communications to holders of the Company’s or any Subsidiary’s securities and other bookkeeping and clerical work necessary in maintaining relations with holders of such securities and in complying with the continuous reporting and other requirements of governmental bodies or agencies, including all costs of preparing and filing required reports with the Securities and Exchange Commission, the costs payable by the Company to any transfer agent and registrar in connection with the listing and/or trading of the Company’s stock on any exchange, the fees payable by the Company to any such exchange in connection with its listing, costs of preparing, printing and mailing the Company’s annual report to its stockholders and proxy materials with respect to any meeting of the Company’s stockholders;

 

(v) costs associated with any computer software or hardware, electronic equipment or purchased information technology services from third party vendors that is used by the Company and/or the Subsidiaries;

 

(vi) expenses incurred by managers, officers, personnel and agents of FGM for travel on the Company’s or any Subsidiary’s behalf and other out-of-pocket expenses incurred by managers, officers, personnel and agents of FGM while providing the Services;

 

(vii) the costs of maintaining compliance with all U.S. federal, state and local rules and regulations or those of any other regulatory agency;

 

(viii) license fees;

 

8
 

 

(ix) all insurance costs incurred in connection with the operation of the Company’s and the Subsidiaries’ business, including for the costs attributable to the insurance that FGM elects to carry or incur for itself and its personnel related to the provision of Services;

 

(x) expenses relating to any office(s) or office facilities, including, but not limited to disaster backup recovery sites and facilities, maintained for the Company and the Subsidiaries separate from the office or offices of FGM;

 

(xi) expenses connected with the payments of interest, dividends or distributions in cash or any other form authorized or caused to be made by the Board to or on account of holders of the Company’s or any Subsidiary’s securities, including in connection with any dividend reinvestment plan;

 

(xii) any judgment or settlement of pending or threatened proceedings (whether civil, criminal or otherwise) against the Company or any of the Subsidiaries, or against any trustee, director, partner, member or officer of the Company or of any of the Subsidiaries in his, her or its capacity as such for which the Company or any of the Subsidiaries is required to indemnify such Person by any court or governmental agency; and

 

(xiii) all other expenses actually incurred by FGM which are reasonably necessary for, or incurred in connection with, the performance by FGM of its duties and functions under this Agreement.

 

In the event any Direct Expenses are not within the limitations set forth in the Authority Matrix, the reimbursement of any such Direct Expenses shall be subject to the prior approval of the Company’s Compensation Committee.

 

(b) Prior to the Effective Date, FGM has provided the Compensation Committee with complete records regarding the Direct Expenses incurred on behalf of the Company for the period from January 1, 2020 to, but excluding, the Effective Date (the “Pre-Effective Date Direct Expenses”). Within ten Business Days following the Effective Date, the Company shall pay FGM an amount equal to the Pre-Effective Date Direct Expenses.

 

(c) Any Direct Expenses reimbursement required to be made in accordance with this Section 7.2 shall be made promptly (an in any event within thirty (30) days) after the approval of the Compensation Committee, if required, and the delivery of supporting documentation, in U.S. dollars by wire transfer in immediately available funds to an account or accounts designated by FGM from time to time. FGM shall maintain cumulative books and records with respect to the details of any calculations made pursuant to this Section 7.2, which records shall be available for inspection and reproduction at any time upon request by the Board or the Compensation Committee, including pursuant to the reviews provided for in Section 7.2(d).

 

(d) Except as otherwise provided for in this Section 7.2, all reimbursements made pursuant to this Section 7.2 shall, at least annually, be reviewed by the Company’s Compensation Committee in connection with the preparation of the Company’s quarterly and year-end consolidated financial statements. If the Company’s Compensation Committee identifies any discrepancy in such reimbursements, then the Company’s Compensation Committee, on behalf of the Company, and FGM shall mutually resolve such discrepancy.

 

9
 

 

(e) Nothing herein shall obligate FGM to advance any Direct Expenses on behalf of the Company.

 

ARTICLE VIII

TERMINATION

 

Section 8.1 Termination by FGM. FGM may resign and terminate this Agreement at any time with 120 days’ prior written notice to the Company of FGM’s intention to terminate this Agreement, which right shall not be contingent upon the finding of a replacement service provider. However, if FGM resigns, until the date upon which the resignation becomes effective, FGM shall, upon request of the Board, use reasonable efforts to assist the Board to find a replacement service provider.

 

Section 8.2 Termination by the Company.

 

(a) The Company’s Board may terminate this Agreement and FGM’s appointment only at the end of the Initial Term or at the end of any Automatic Renewal Term with one year’s prior written notice if, at any time, the Independent Directors of the Company’s Board unanimously vote to terminate this Agreement. For the avoidance of doubt, the Initial Term or subsequent Automatic Renewal Terms will automatically renew at the end of Initial Term or each such Automatic Renewal Term (as applicable) unless the Agreement is terminated as described in this Section 8.2(a) or Section 8.1.

 

(b) The Company’s Board, by unanimous vote of its Independent Directors, may terminate this Agreement and FGM’s appointment with immediate effect by written notice if, at any time:

 

(i) (x) FGM materially breached the terms of this Agreement and such breach continued unremedied for sixty (60) days after FGM receives written notice from the Company setting forth the terms of such breach or (y) FGM (A) acted with gross negligence, willful misconduct, or bad faith in performing its duties and obligations under this Agreement or (B) engaged in fraudulent or dishonest acts in connection with the business or operations of the Company; or

 

(ii) FGM has been convicted of a felony under federal or state law.

 

Section 8.3 Directions. After a written notice of termination has been given under this Article VIII, the Company may direct FGM to undertake any actions reasonably necessary to transfer any aspect of the ownership or control of the assets of the Company to the Company or to any nominee of the Company and to do all other things reasonably necessary to bring the appointment of FGM to an end, and FGM shall comply with all such reasonable directions. In addition, FGM shall, at the Company’s expense, deliver to any new service provider or the Company any books or records held by FGM under this Agreement and shall execute and deliver such instruments and do such things as may reasonably be required to permit new management of the Company to effectively assume its responsibilities.

 

10
 

 

Section 8.4 Payments Upon Termination.

 

(a) Notwithstanding anything in this Agreement to the contrary, upon any termination of this Agreement pursuant to this Article VIII, the Company shall pay FGM any Direct Expenses reimbursable to FGM pursuant to Section 7.2 hereof. Following the date of termination, FGM shall have no obligation to fund any Direct Expenses of the Company. All payments made pursuant to this Section 8.4(a) shall be made in accordance with Article VII hereof.

 

(b) In addition, upon termination of this Agreement for any reason pursuant to this Article VIII, the Company shall pay FGM an amount concurrently with such termination equal to the Company’s pro rata share of Wind-Down Costs (as reasonably determined by FGM). For purposes of this Agreement, “Wind-Down Costs” shall be equal to the actual costs incurred by FGM and its Affiliates to wind-down the Services being provided to the Company immediately prior to the termination date, which costs may include, without limitation, employee severance payments, lease payments (offset by any ability to sublease leased space), and other costs associated with winding down the Services. Any payments made pursuant to this Section 8.4(c) shall be made in U.S. dollars by wire transfer in immediately available funds to an account or accounts designated by FGM from time to time.

 

ARTICLE IX

INDEMNITY

 

Section 9.1 Indemnity. The Company agrees that FGM, including any officer, director, member, partner, principal, employee, agent or other Affiliate of FGM (each hereinafter referred to as an “Indemnitee”) shall not have any liability, responsibility or accountability whatsoever in damages or otherwise to the shareholders of Company or to Company (including its Affiliates) for any debt, obligation, or liability of, or loss suffered by Company or its Affiliates that arises out of any act or omission performed or omitted by such Indemnitee, except to the extent of acts or omissions that constitute fraud, gross negligence, bad faith, willful misconduct or a knowing violation of law by such Indemnitee, in each case as finally determined by a court of competent jurisdiction. Each Indemnitee shall be indemnified by Company, and Company hereby agrees to defend, indemnify, pay, protect and hold harmless the Indemnitee (on the demand of and to the satisfaction of such Indemnitee), to the fullest amount available or permitted under law, from and against any and all liabilities, obligations, losses, damages, actions, judgments, suits, proceedings, costs, expenses and disbursements of any kind or nature (collectively, “Losses”) arising by reason of the fact that such Indemnitee is or was providing Services to Company (including its Affiliates) or is or was serving as a director, officer or other representative of Company or a Subsidiary at the request of Company except to the extent of acts or omissions that constitute fraud, gross negligence, bad faith, willful misconduct or a knowing violation of law by such Indemnitee, in each case as finally determined by a court of competent jurisdiction. The foregoing indemnification includes, without limitation, all reasonable legal fees, costs and expenses of defense, appeal and settlement of any and all suits, actions or proceedings instituted against such Indemnitee or Company (including its Affiliates) and all costs of investigation in connection therewith that may be imposed on, incurred by or asserted against the Indemnitee or Company (including its Affiliates) in any way relating to or arising out of, or alleged to relate to or arise out of, any action or inaction on the part of Company (including its Affiliates), or on the part of the Indemnitee, except to the extent of acts or omissions that constitute fraud, gross negligence, bad faith, willful misconduct or a knowing violation of law by such Indemnitee, in each case as finally determined by a court of competent jurisdiction. If any action, suit or proceeding shall be brought, filed, served, or be pending against Company (including its Affiliates) or the Indemnitee relating to or arising out of, or alleged to relate to or arise out of, any action or inaction on either of their parts, the Indemnitee shall have the right to employ, at the sole expense of Company, separate counsel of its choice in such action, suit or proceeding.

 

11
 

 

The rights of any Indemnitee referred to above shall be in addition to any rights that such Indemnitee shall otherwise have at law or in equity.

 

Any expenses (including reasonable attorneys’ fees) incurred by any Indemnitee in defending or otherwise in connection with any action, suit or proceeding shall be paid by Company in advance of the final disposition of such matter if such Indemnitee expressly agrees to repay in full all such amounts if such Indemnitee shall ultimately be determined not to be entitled to indemnification under Section 9.1 hereof.

 

Without the prior written consent of the Company, no Indemnitee shall settle, compromise or consent to the entry of any judgment in, or otherwise seek to terminate any, claim, action, proceeding or investigation in respect of which indemnification could be sought hereunder unless (a) such Indemnitee indemnifies the Company from any liabilities arising out of such claim, action, proceeding or investigation, (b) such settlement, compromise or consent includes an unconditional release of the Company and Indemnitee from all liability arising out of such claim, action, proceeding or investigation and (c) the parties involved agree that the terms of such settlement, compromise or consent shall remain confidential.

 

Section 9.2 Insurance. The Company agrees that it shall maintain reasonably adequate insurance in support of the indemnity obligation set forth in this Article IX.

 

ARTICLE X

LIMITATION OF LIABILITY OF FGM

 

Section 10.1 Limitation of Liability. FGM shall not be liable for, and Company shall not take, or permit to be taken, any action against FGM to hold FGM liable for, any error of judgment or mistake of law or for any loss suffered by the Company or the Subsidiaries in connection with the performance of FGM’s duties under this Agreement, except for a loss resulting from gross negligence, bad faith, willful misconduct, or fraud or knowing violation of law on the part of FGM in the performance of its duties and obligations under this Agreement, in each case as finally determined by a court of competent jurisdiction.

 

12
 

 

Section 10.2 Reliance of FGM. FGM may take and may act and rely upon:

 

(a) the opinion or advice of legal counsel, which may be in-house counsel to the Company or FGM, any U.S.-based law firm, or other legal counsel reasonably acceptable to the Board, in relation to the interpretation of this Agreement or any other document (whether statutory or otherwise) or generally in connection with the Company;

 

(b) advice, opinions, statements or information from bankers, accountants, auditors, valuation consultants and other Persons consulted by FGM who have been reasonably selected by FGM in good faith; and

 

(c) any other document or other information provided to FGM in connection with the Company or the Subsidiaries upon which it is reasonable for FGM to rely. FGM shall not be liable for anything done, suffered or omitted by it in good faith in reliance upon such opinion, advice, statement, information or document.

 

ARTICLE XI

LEGAL ACTIONS

 

Section 11.1 Third Party Claims.

 

(a) FGM shall notify the Company promptly of any claim made by any third party in relation to the assets of the Company and shall send to the Company any notice, claim, summons or writ served on FGM concerning the Company.

 

(b) FGM shall not, without the prior written consent of the Board, purport to accept or admit any claims or liabilities of which it receives notification pursuant to Section 11.1(a) hereof on behalf of the Company or make any settlement or compromise with any third party in respect of the Company.

 

ARTICLE XII

MISCELLANEOUS

 

Section 12.1 Obligation of Good Faith; No Fiduciary Duties. FGM shall perform its duties under this Agreement in good faith and for the benefit of the Company. The relationship of FGM to the Company is as an independent contractor and nothing in this Agreement shall be construed to impose on FGM an express or implied fiduciary duty. Neither FGM nor any of its officers or employees shall have any authority to act for, represent, bind or obligate the Company (including without limitation entering into engagement letters or other contractual arrangements with third parties to provide resources or services to the Company) except as specifically provided herein or except in their capacity as an officer or director of the Company.

 

Section 12.2 Binding Effect. This Agreement shall be binding upon, shall inure to the benefit of and be enforceable by the Parties hereto and their respective successors and permitted assigns.

 

13
 

 

Section 12.3 Compliance. FGM shall (and must ensure that each of its officers, agents and employees) be in material compliance with any applicable law, including the Federal Securities Laws and the securities laws of any applicable jurisdiction and the Nasdaq Stock Market (or any successors thereto) rules and regulations, in each case, as in effect from time to time, to the extent that it concerns the functions of FGM under this Agreement.

 

Section 12.4 Effect of Termination. This Agreement shall be effective as of the Effective Date and shall continue in full force and effect during the Initial Term and any Automatic Renewal Term thereafter until termination hereof in accordance with Article VIII. The obligations of the Company set forth in Articles VIII and IX and Sections 7.2, 10.1, 12.5, 12.9 and 12.17 hereof shall survive such termination of this Agreement, subject to applicable law.

 

Section 12.5 Notices. Any notice or other communication required or permitted under this Agreement shall be deemed to have been duly given (i) five (5) Business Days following deposit in the mails if sent by registered or certified mail, postage prepaid, (ii) when sent, if sent by facsimile transmission, if receipt thereof is confirmed by telephone, (iii) when delivered, if delivered personally to the intended recipient, (iv) when receipt is electronically acknowledged, if sent by electronic mail, and (v) two (2) Business Days following deposit with a nationally recognized overnight courier service, in each case addressed as follows:

 

If to the Company, to:

 

FG Financial Group, Inc.

360 Central Ave., Suite 800

Saint Petersburg, Florida 33701

Attn:

 

If to FGM, to:

 

Fundamental Global Management, LLC

108 Gateway Blvd., Suite 204

Mooresville, North Carolina 28117

Attn:

 

or to such other address, email or facsimile number as any such Party may, from time to time, designate in writing to all other Parties hereto, and any such communication shall be deemed to be given, made or served as of the date so delivered or, in the case of any communication delivered by mail, as of the date so received.

 

Section 12.6 Headings. The headings in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.

 

14
 

 

Section 12.7 Applicable Law. This Agreement, the legal relations between and among the Parties and the adjudication and the enforcement thereof shall be governed by and interpreted and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of law provisions thereof to the extent such principles or rules would require or permit the application of the laws of another jurisdiction.

 

Section 12.8 Arbitration; Submission to Jurisdiction; Waiver of Jury Trial.

 

(a) Except for injunctive or other equitable relief or as otherwise provided in this Agreement, any and all legal action or proceeding brought with respect to any of the obligations arising under or relating to this Agreement shall be resolved by binding arbitration in Charlotte, North Carolina, before three (3) arbitrators independent of the parties and selected in accordance with, and the arbitration shall be administered by JAMS pursuant to, JAMS’ Comprehensive Arbitration Rules and Procedures excluding its optional Arbitration Appeal procedures. All arbitration proceedings will be closed to the public and confidential, and all records relating thereto will be permanently sealed, except as necessary to obtain court confirmation of the judgment of the arbitrator, and except as necessary to give effect to res judicata and collateral estoppel, in which case, all filings with any court shall be sealed to the extent permissible by the court. Nothing in this Section 12.8(a) is intended to, or shall, preclude a party to the arbitration from communicating with, or making disclosures to his, her, or its lawyers, tax advisors, auditors and insurers, as necessary and appropriate or from making such other disclosures as may be required by any applicable law. To the maximum extent permitted by Law, the decision of the arbitrator shall be final and binding and not be subject to appeal. If a party against whom the arbitrator renders an award fails to abide by such award, the other party may seek to enforce such award in any court of competent jurisdiction.

 

(b) Except as provided in Section 12.8(a), each of the Parties submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware, provided that if jurisdiction is not then available in the Court of Chancery of the State of Delaware, then any such legal action or proceeding may be brought in any federal court located in the State of Delaware and each of the Parties hereby irrevocably submits to and accepts with regard to any such action or proceeding, for itself and in respect of its property, generally and unconditionally, the exclusive jurisdiction of the aforesaid courts. Each Party hereby further irrevocably waives any claim that any such courts lack jurisdiction over such Party, and agrees not to plead or claim, in any legal action or proceeding with respect to this Agreement or the transactions contemplated hereby brought in any of the aforesaid courts, that any such court lacks jurisdiction over such Party. Each Party irrevocably consents to the service of process in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such party, at its address for notices set forth in Section 12.5 hereof; such service to become effective ten (10) days after such mailing. Each Party hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any action or proceeding commenced hereunder or under any other documents contemplated hereby that service of process was in any way invalid or ineffective. The foregoing shall not limit the rights of any Party to serve process in any other manner permitted by applicable law. The foregoing consents to jurisdiction shall not constitute general consents to service of process in the State of Delaware for any purpose except as provided above and shall not be deemed to confer rights on any Person other than the respective Parties.

 

15
 

 

(a) Each of the Parties hereby waives any right it may have under the laws of any jurisdiction to commence by publication any legal action or proceeding with respect this Agreement. To the fullest extent permitted by applicable law, each of the Parties hereby irrevocably waives the objection which it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement in any of the courts referred to in this Section 12.8 and hereby further irrevocably waives and agrees not to plead or claim that any such court is not a convenient forum for any such suit, action or proceeding.

 

(b) The Parties agree that any judgment obtained by any Party or its successors or assigns in any action, suit or proceeding referred to above may, in the discretion of such Party (or its successors or assigns), be enforced in any jurisdiction, to the extent permitted by applicable law.

 

(c) The Parties agree that the remedy at law for any breach of this Agreement may be inadequate and that should any dispute arise concerning any matter hereunder, this Agreement shall be enforceable in a court of equity by an injunction or a decree of specific performance. Such remedies shall, however, be cumulative and nonexclusive, and shall be in addition to any other remedies which the Parties may have.

 

(d) Each Party hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any litigation as between the Parties directly or indirectly arising out of, under or in connection with this Agreement or the transactions contemplated hereby or disputes relating hereto. Each Party (i) certifies that no representative, agent or attorney of any other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other Parties have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 12.8.

 

Section 12.9 Amendment; Waivers. No term or condition of this Agreement may be amended, modified or waived without the prior written consent of the Party against whom such amendment, modification or waiver will be enforced; provided, that any amendment of Article VII shall not be effective as to any Party hereto unless, in addition to the above, it is approved by a unanimous vote of the Independent Directors. Any waiver granted hereunder shall be deemed a specific waiver relating only to the specific event giving rise to such waiver and not as a general waiver of any term or condition hereof.

 

Section 12.10 Remedies to Prevailing Party. If any action at law or equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled.

 

16
 

 

Section 12.11 Severability. Each provision of this Agreement is intended to be severable from the others so that if, any provision or term hereof is illegal, invalid or unenforceable for any reason whatsoever, such illegality, invalidity or unenforceability shall not affect or impair the validity of the remaining provisions and terms hereof; provided, however, that the provisions governing payment of the Shared Services Fee described in Article VII hereof are not severable.

 

Section 12.12 Benefits Only to Parties. Except with respect to Indemnitees as provided in Article IX, nothing expressed by or mentioned in this Agreement is intended or shall be construed to give any Person other than the Parties and their respective successors or permitted assigns, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the Parties and their respective successors and permitted assigns, and for the benefit of no other Person.

 

Section 12.13 Further Assurances. Each Party hereto shall take any and all such actions, and execute and deliver such further agreements, consents, instruments and any other documents as may be necessary from time to time to give effect to the provisions and purposes of this Agreement.

 

Section 12.14 No Strict Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by all Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement.

 

Section 12.15 Entire Agreement. This Agreement, including the Schedules attached hereto which are incorporated herein by reference, constitutes the sole and entire agreement of the Parties with regards to the subject matter of this Agreement. Any written or oral agreements, statements, promises, negotiations or representations not expressly set forth in this Agreement are of no force and effect.

 

Section 12.16 Assignment. This Agreement shall not be assignable by either Party without the prior written consent of the other Party, except by FGM to any Person with which FGM may merge or consolidate or to which FGM transfers substantially all of its assets, or to an Affiliate of FGM, and then only in the event that such assignee assumes all of the obligations to the Company and the Subsidiaries hereunder.

 

17
 

 

Section 12.17 Confidentiality.

 

(a) FGM shall not, and FGM shall cause its Affiliates and their respective agents and representatives not to, at any time from and after the date of this Agreement, directly or indirectly, disclose or use any confidential or proprietary information involving or relating to (x) the Company, including any information contained in the books and records of the Company and (y) the Subsidiaries, including any information contained in the books and records of any such Subsidiaries; provided, however, that disclosure and use of any information shall be permitted (i) with the prior written consent of the Company, (ii) as, and solely to the extent, necessary or required for the performance by FGM, any of its Affiliates or its delegates of any of their respective obligations under this Agreement, (iii) as, and to the extent, necessary or required in the operation of the Company’s business or operations in the Ordinary Course of Business, (iv) to the extent such information is generally available to, or known by, the public or otherwise has entered the public domain (other than as a result of disclosure in violation of this Section 12.17 by FGM or any of its Affiliates) or has been independently developed by FGM without any reliance on confidential information of the Company, (v) as, and to the extent, necessary or required by any governmental order, applicable law or any governmental or regulatory authority, subject to Section 12.17(c), and (vi) as, and to the extent, necessary or required or reasonably appropriate in connection with the enforcement of any right or remedy relating to this Agreement or any other agreement between FGM and the Company or any of the Subsidiaries.

 

(b) For the avoidance of doubt, confidential information includes business plans, financial information, operational information, strategic information, legal strategies or legal analysis, formulas, production processes, lists, names, research, marketing, sales information and any other information similar to any of the foregoing or serving a purpose similar to any of the foregoing with respect to the business or operations of the Company or any of the Subsidiaries. However, the Parties are not required to mark or otherwise designate information as “confidential or proprietary information,” “confidential” or “proprietary” in order to receive the benefits of this Section 12.17.

 

(c) In the event that FGM is required by governmental order, applicable law or any governmental or regulatory authority to disclose any confidential information of the Company or any of the Subsidiaries that is subject to the restrictions of this Section 12.17, FGM shall (i) notify the Company or any of the Subsidiaries in writing as soon as possible, unless it is otherwise affirmatively prohibited by such governmental order, applicable law or such governmental or regulatory authority from notifying the Company or any such Subsidiaries, as the case may be, (ii) cooperate with the Company or any such Subsidiaries to preserve the confidentiality of such confidential information consistent with the requirements of such governmental order, applicable law or such governmental or regulatory authority and (iii) use its commercially reasonable efforts to limit any such disclosure to the minimum disclosure necessary or required to comply with such governmental order, applicable law or such governmental or regulatory authority, in each case, at the sole cost and expense of the Company.

 

(d) Nothing in this Section 12.17 shall prohibit FGM from keeping or maintaining any copies of any records, documents or other information that may contain information that is otherwise subject to the requirements of this Section 12.17, subject to its compliance with this Section 12.17.

 

(e) FGM shall be responsible for any breach or violation of the requirements of this Section 12.17 by any of its agents or representatives.

 

Section 12.18 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the same instrument.

 

18
 

 

IN WITNESS WHEREOF, the Parties have executed this Shared Services Agreement as of the date first written above to be effective as of the Effective Date.

 

  FG FINANCIAL GROUP, INC.
     
  By:

/s/ Larry G. Swets, Jr.

  Name:

Larry G. Swets, Jr.

  Title:

Chief Executive Officer

     
  Fundamental Global Management, LLC
     
  By: /s/ Kyle Cerminara
  Name: Kyle Cerminara
  Title: Manager

 

19
 

 

Schedule A

Services

 

Subject to Article VII, FGM agrees and covenants that it shall perform the following services:

 

(a) manage the Company’s and the Subsidiaries’ day-to-day business and operations, including assisting the Company and the Subsidiaries in complying with all regulatory requirements applicable to the Company and the Subsidiaries in respect of the Company’s and the Subsidiaries’ business activities;

 

(b) evaluate the financial and operational performance of any of the Subsidiaries, including monitoring the business and operations thereof, and the financial performance of any of the Company’s or the Subsidiaries’ other assets;

 

(c) provide, as determined necessary by FGM and in accordance with the terms and conditions of this Agreement and the Governing Documents, a management team to serve as executive officers of the Company and the Subsidiaries or as members of the Board (subject to applicable regulatory requirements and the terms of this Agreement); and

 

(d) subject to the other provisions of this Agreement, perform any other services for and on behalf of the Company and the Subsidiaries to the extent that such services are consistent with those that are customarily performed by the executive officers and employees of a publicly listed company.

 

The foregoing Services shall include, but are not limited to, the following: (1) working with the Company’s CFO and other staff to ensure that the Company and the Subsidiaries are establishing and maintaining books and records in accordance with customary practice and GAAP; (2) recommend to the Board changes or other modifications in the capital structure of the Company or the Subsidiaries, including repurchases; (3) recommend to the Board the engagement of or, if approval is not otherwise required hereunder, engage agents, consultants or other third party service providers to the Company and the Subsidiaries, including accountants, lawyers or experts, in each case, as may be needed by the Company or the Subsidiaries from time to time; (4) maintain the Company’s and the Subsidiaries’ property and assets in the Ordinary Course of Business; (5) manage or oversee litigation, administrative or regulatory proceedings, investigations or any other reviews of the Company’s and/or the Subsidiaries’ business or operations that may arise in the Ordinary Course of Business or otherwise, subject to the approval of the Board to the extent necessary in connection with the settlement, compromise, consent to the entry of an order or judgment or other agreement resolving any of the foregoing; (6) establish and maintain appropriate insurance policies with respect to the Company’s and the Subsidiaries’ business and operations; (7) recommend to the Board the payment of dividends or other distributions on the equity interests of the Company; and (8) working with the Company’s CFO to ensure timely calculation of taxes payable, and the filing of all taxes return due, by the Companies and the Subsidiaries.

 

 

 

 

EXHIBIT 31.1

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Larry G. Swets, Jr., certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2022 of FG Financial Group, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 11, 2022  
   
By: /s/ Larry G. Swets, Jr.  
  Larry G. Swets, Jr., Chief Executive Officer  
  (Principal Executive Officer)  

 

 

 

EXHIBIT 31.2

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Hassan R. Baqar, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2022 of FG Financial Group, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 11, 2022  
   
By: /s/ Hassan R. Baqar  
  Hassan R. Baqar, Chief Financial Officer  
  (Principal Financial Officer and Principal Accounting Officer)  

 

 

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q (the “Report”) of FG Financial Group, Inc. (the “Company”) for the quarterly period ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof, I, Larry G. Swets, Jr., the Principal Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:

 

  (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 11, 2022  
   
By: /s/ Larry G. Swets, Jr.  
  Larry G. Swets, Jr., Chief Executive Officer  
  (Principal Executive Officer)  

 

 

 

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q (the “Report”) of FG Financial Group, Inc. (the “Company”) for the quarterly period ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof, I, Hassan R. Baqar, the Chief Financial Officer and Principal Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:

 

  (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 11, 2022  
   
By: /s/ Hassan R. Baqar  
  Hassan R. Baqar, Chief Financial Officer  
 

(Principal Financial Officer and Principal

Accounting Officer)