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Note 5 - Acquisitions, Disposal and Discontinued Operations | 6 Months Ended
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Jun. 30, 2023
Notes to Financial Statements |
Business Combination, Disposal and Discontinued Operations Disclosure [Text Block] | NOTE 5 ACQUISITIONS, DISPOSAL AND DISCONTINUED OPERATIONS
(a) | Business Combinations
CSuite Financial Partners, LLC On November 1, 2022, the Company acquired 100% of the outstanding equity interests of CSuite Financial Partners, LLC ("CSuite"). CSuite, based in Manhattan Beach, California, is a national financial executive services firm providing financial management leadership to companies in every industry, regardless of size, throughout the United States. As further discussed in Note 20 , "Segmented Information ," CSuite is included in the Kingsway Search Xcelerator segment. This acquisition was the Company’s second acquisition under its novel CEO Accelerator program and further expands the Company’s portfolio of businesses with recurring revenue and low capital intensity. The Company acquired CSuite for aggregate cash consideration of approximately $8.5 million, less certain escrowed amounts for purposes of indemnification claims. The final purchase price was subject to a working capital true-up of less than $0.1 million that was settled during the first quarter of 2023. The Company will also pay additional contingent consideration, only to the extent earned, in an aggregate amount of up to $3.6 million, which is subject to certain conditions, including the successful achievement of certain financial metrics for CSuite during the three-year period commencing on the first full calendar month following the acquisition date. The estimated fair value of the contingent consideration obligation at June 30, 2023 and December 31, 2022 was zero. This acquisition was accounted for as a business combination using the acquisition method of accounting. The purchase price was provisionally allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition and were subject to adjustment during a measurement period subsequent to the acquisition date, not to exceed one-year as permitted under U.S. GAAP. During the first quarter of 2023, the Company finalized its fair value analysis of the assets acquired and liabilities assumed with the assistance of a third party. No measurement period adjustments were recorded as a result of finalizing the fair value analysis. Secure Nursing Service, Inc. On November 18, 2022, the Company acquired substantially all of the assets and assumed certain specified liabilities of Secure Nursing Service, Inc. ("SNS") for aggregate cash consideration of $11.5 million, less certain escrowed amounts for purposes of indemnification claims and working capital adjustments. SNS, based in Los Angeles, California, employs highly skilled and professional per diem and travel Registered Nurses, Licensed Vocational Nurses, Certified Nurse Assistants and Allied Healthcare Professionals with multiple years of acute care hospital experience. SNS places these healthcare professionals in both per diem assignments, and in short-term and long-term travel assignments in a variety of hospitals in southern California. As further discussed in Note 20, "Segmented Information," SNS is included in the Kingsway Search Xcelerator segment. This acquisition was the Company’s third acquisition under its novel CEO Accelerator program and further expands the Company’s portfolio of businesses with recurring revenue and low capital intensity. This acquisition was accounted for as a business combination using the acquisition method of accounting. The purchase price was provisionally allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition and were subject to adjustment during a measurement period subsequent to the acquisition date, not to exceed one-year as permitted under U.S. GAAP. During the first quarter of 2023, the Company finalized its fair value analysis of the assets acquired and liabilities assumed with the assistance of a third party. No measurement period adjustments were recorded as a result of finalizing the fair value analysis.
(b) | Disposal
Professional Warranty Service Corporation On July 29, 2022, Professional Warranty Services LLC ("PWS LLC"), a subsidiary of the Company entered into an Equity Purchase Agreement (the "Agreement") with Professional Warranty Service Corporation ("PWSC"), an 80% majority-owned, indirect subsidiary of the Company, Tyler Gordy, the president of PWSC and a 20% owner of PWSC ("Gordy") and PCF Insurance Services of the West, LLC ("Buyer"), pursuant to which PWS LLC and Gordy sold PWSC to Buyer. To the extent the EBITDA of PWSC (as defined in the Agreement) for the one-year period following the sale transaction exceeds 103% of the EBITDA at the closing of the sale transaction (the "Closing EBITDA"), PWS LLC and Gordy will also be entitled to receive an earnout payment in an amount equal to five times the EBITDA in excess of 103% of Closing EBITDA. The Company does not have access to the information needed to reasonably estimate the potential earnout payment and accordingly any gain related to the earnout payment will be recorded in the period the consideration is determined to be realizable. The sale of PWSC did not represent a strategic shift that would have a major effect on the Company's operations or financial results; therefore, PWSC is not presented as a discontinued operation. The earnings of PWSC, which was included in the Extended Warranty segment, are included in the unaudited interim consolidated statements of operations for the three and six months ended June 30, 2022. The assets, liabilities and equity (including the non-controlling interest) of PWSC were deconsolidated effective July 29, 2022. The sale of PWSC represents the disposal of a significant subsidiary of the Company, which had contributions to Extended Warranty service fee and commission revenue of $2.1 million and $4.2 million for the three and six months ended June 30, 2022, respectively. Additionally, PWSC had pre-tax income of $0.4 million and pre-tax loss of $0.3 million for the three and six months ended June 30, 2022, respectively. For the three and six months ended June 30, 2022, pre-tax income of $0.3 million and pre-tax loss of $0.2 million, respectively, was attributable to the controlling interest.
(c) | Discontinued Operations
Leased Real Estate Segment The Company’s subsidiaries, VA Lafayette, LLC ("VA Lafayette") and CMC Industries Inc. ("CMC"), which includes CMC’s subsidiaries Texas Rail Terminal LLC and TRT Leaseco, LLC ("TRT"), comprised the Company's entire Leased Real Estate segment prior to the fourth quarter of 2022. Each of CMC, through indirect wholly owned subsidiary, TRT, and VA Lafayette own a single asset, which is real estate property. As further described below, on December 29, 2022, TRT sold its assets and at December 31, 2022, VA Lafayette was classified as held for sale. In accordance with ASU No. 2014-08, Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal is categorized as a discontinued operation if the disposal group is a component of an entity or group of components that meets the held for sale criteria, is disposed of by sale, or is disposed of other than by sale, and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. Leased Real Estate is a component of Kingsway since its operations and cash flows can be clearly distinguished, both operationally and for financial reporting purposes, from the rest of the reporting entity. A component of an entity may consist of multiple disposal groups and does not need to be disposed of in a single transaction. The disposal of the Leased Real Estate segment represents a strategic shift that will have a major effect on the Company's operations and financial results, as the disposal of the Leased Real Estate assets was in excess of 20% of the entity's total assets. As a result, the assets, liabilities, operating results and cash flows related to Leased Real Estate have been classified as discontinued operations in the consolidated financial statements for all periods presented. Sale of CMC Real Property CMC owned, through its indirect wholly owned subsidiary, TRT, a parcel of real property consisting of approximately 192 acres located in the State of Texas (the "Real Property"), which was subject to a long-term triple net lease agreement. The Real Property was also subject to two mortgages (the "Mortgages"). On December 22, 2022, TRT entered into a Purchase and Sale Agreement (the "CMC Agreement") with BNSF Dayton LLC ("Purchaser"), pursuant to which TRT agreed to sell to the Purchaser the Real Property. TRT was also the landlord and an affiliate of the Purchaser was the current tenant under the long-term triple net lease over the Real Property. Under the terms of the CMC Agreement, at the closing on December 29, 2022, TRT assigned, and the Purchaser assumed, the rights and obligations of the landlord under the existing long-term triple net lease. As discussed above, CMC and TRT are part of the Leased Real Estate disposal group. The sale of the Leased Real Estate's assets represents a strategic shift that will have a major effect on the Company's operations and financial results. As a result, CMC and its subsidiaries, have been classified as a discontinued operation and the results of their operations are reported separately for all periods presented. VA Lafayette During the fourth quarter of 2022, the Company began executing a plan to sell its subsidiary, VA Lafayette. VA Lafayette owns the LA Real Property, that is subject to a long-term lease and the LA Mortgage. As discussed above, VA Lafayette is part of the Leased Real Estate disposal group. In conjunction with the sale of the CMC Real Property, the sale of the Leased Real Estate's assets represents a strategic shift that will have a major effect on the Company's operations and financial results. As a result, VA Lafayette has been classified as a discontinued operation and the results of its operations are reported separately for all periods presented. The assets and liabilities of VA Lafayette are presented as held for sale in the consolidated balance sheets at June 30, 2023 and December 31, 2022. Summary financial information for Leased Real Estate included in income from discontinued operations, net of taxes in the unaudited consolidated statements of operations for the three and six months ended June 30, 2023 and June 30, 2022 is presented below:
(in thousands) |  | Three months ended June 30, |  |  | Six months ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Income from discontinued operations, net of taxes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rental revenue |  | $ | 311 |  |  | $ | 3,633 |  |  | $ | 630 |  |  | $ | 7,300 |
Total revenues |  |  | 311 |  |  |  | 3,633 |  |  |  | 630 |  |  |  | 7,300 |
Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of services sold |  |  | 54 |  |  |  | 59 |  |  |  | 101 |  |  |  | 103 |
General and administrative expenses |  |  | 59 |  |  |  | 1,062 |  |  |  | 136 |  |  |  | 1,437 |
Leased real estate segment interest expense |  |  | 91 |  |  |  | 1,663 |  |  |  | 182 |  |  |  | 3,354 |
Non-operating other revenue |  |  | (3 | ) |  |  | (2 | ) |  |  | (6 | ) |  |  | (5 | )
Amortization of intangible assets |  |  | — |  |  |  | 52 |  |  |  | — |  |  |  | 104 |
Total expenses |  |  | 201 |  |  |  | 2,834 |  |  |  | 413 |  |  |  | 4,993 |
Income from discontinued operations before income tax expense |  |  | 110 |  |  |  | 799 |  |  |  | 217 |  |  |  | 2,307 |
Income tax expense |  |  | — |  |  |  | 13 |  |  |  | — |  |  |  | 26 |
Income from discontinued operations, net of taxes |  | $ | 110 |  |  | $ | 786 |  |  | $ | 217 |  |  | $ | 2,281 |
For the three months ended June 30, 2023 and June 30, 2022, pre-tax income from discontinued operations of $0.1 million and $0.6 million, respectively, was attributable to the controlling interest ($0.2 million and $1.9 million for the six months ended June 30, 2023 and June 30, 2022, respectively). The carrying amounts of the major classes of assets and liabilities of Leased Real Estate presented as held for sale at June 30, 2023 and December 31, 2022 are as follows:
(in thousands) |  | June 30, 2023 |  |  | December 31, 2022 |
Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 536 |  |  | $ | 570 |
Property and equipment, net |  |  | 16,171 |  |  |  | 16,160 |
Intangible assets, net |  |  | 2,748 |  |  |  | 2,748 |
Assets held for sale |  | $ | 19,455 |  |  | $ | 19,478 |
Liabilities |  |  |  |  |  |  |  |
Accrued expenses and other liabilities |  | $ | 652 |  |  | $ | 473 |
Notes payable |  |  | 15,672 |  |  |  | 16,112 |
Liabilities held for sale |  | $ | 16,324 |  |  | $ | 16,585 |

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