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Note 5 - Acquisitions and Discontinued Operations | 9 Months Ended
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Sep. 30, 2024
Notes to Financial Statements |
Business Combination, Disposal and Discontinued Operations Disclosure [Text Block] | NOTE 5 ACQUISITIONS A ND DISCONTINUED OPERATIONS
(a) | Business Combinations
Image Solutions, LLC On September 26, 2024, the Company acquired 100% of the outstanding membership interests of Image Solutions, LLC ("Image Solutions") for aggregate cash consideration of $20.4 million, less certain escrowed amounts for purposes of indemnification claims and working capital adjustments. Image Solutions, based in Fletcher, North Carolina, is an information technology managed services provider. As further discussed in Note 20, "Segmented Information," Image Solutions is included in the Kingsway Search Xcelerator segment. This acquisition was the Company’s sixth 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 are subject to adjustment during a measurement period subsequent to the acquisition date, not to exceed one year, as permitted under U.S. GAAP. The Company expects to complete its purchase price allocation within the next six months. These estimates, allocations and calculations are subject to change as we obtain further information; therefore, the final fair values of the assets acquired and liabilities assumed could change from the estimates included in these consolidated financial statements. Refer to Note 8,"Intangible Assets," for further disclosure of the intangible assets related to this acquisition. The goodwill of $6.1 million represents the premium paid over the fair value of the net tangible and intangible assets acquired, which the Company paid to grow its portfolio of companies and acquire an assembled workforce. The goodwill is not deductible for tax purposes. The following table summarizes the preliminary allocation of the Image Solutions purchase price and the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
(in thousands) |  |  |  |
|  | September 26, 2024 |
Purchase Price |  | $ | 20,354 |
Cash and cash equivalents |  | $ | 331 |
Service fee receivable |  |  | 712 |
Property and equipment, net |  |  | 71 |
Intangible asset not subject to amortization - trade name |  |  | 1,500 |
Intangible asset subject to amortization - customer relationships |  |  | 11,100 |
Other assets - inventory |  |  | 1,236 |
Total assets |  | $ | 14,950 |
Accrued expenses and other liabilities |  | $ | 713 |
Net deferred income tax liabilities |  |  | — |
Total liabilities |  | $ | 713 |
Total identifiable assets and liabilities |  | $ | 14,237 |
Excess purchase price allocated to goodwill |  | $ | 6,117 |
Since Image Solutions was acquired on September 26, 2024, the consolidated statement of operations for the three and nine months ended September 30, 2024 does not include any revenue, expenses or earnings of Image Solutions, as such items are insignificant. During the three and nine months ended September 30, 2024, the Company incurred expenses related to the acquisition of Image Solutions of $0.4 million, which are included in general and administrative expenses in the consolidated statements of operations. The following unaudited pro forma summary presents the Company's consolidated financial statements for the three and nine months ended September 30, 2024 and September 30, 2023 as if Image Solutions had been acquired on January 1, 2023. The pro forma summary is presented for illustrative purposes only and does not purport to represent the results of our operations that would have actually occurred had the acquisition occurred as of the beginning of the period presented or project our results of operations as of any future date or for any future period, as applicable. The pro forma results primarily include purchase accounting adjustments related to the acquisition of Image Solutions, interest expense and the amortization of debt issuance costs and discounts associated with the related financing obtained in connection with the Image Solutions acquisition (see Note 11, "Debt") and acquisition-related expenses.
(in thousands, except per share data) |  | Three months ended September 30, |  |  | Nine months ended September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Revenues |  | $ | 29,326 |  |  | $ | 26,986 |  |  | $ | 86,584 |  |  | $ | 83,785 |
(Loss) income from continuing operations attributable to common shareholders |  | $ | (3,104 | ) |  | $ | (1,898 | ) |  | $ | (8,025 | ) |  | $ | 23,543 |
Basic (loss) earnings per share - continuing operations |  | $ | (0.11 | ) |  | $ | (0.07 | ) |  | $ | (0.29 | ) |  | $ | 0.93 |
Diluted (loss) earnings per share - continuing operations |  | $ | (0.11 | ) |  | $ | (0.07 | ) |  | $ | (0.29 | ) |  | $ | 0.91 |
Systems Products International, Inc. On September 7, 2023, the Company acquired 100% of the outstanding equity interests of Systems Products International, Inc. ("SPI") for aggregate cash consideration of $2.8 million, less certain escrowed amounts for purposes of indemnification claims and working capital adjustments. SPI, based in Miami, Florida, is a vertical market software company, created exclusively to serve the management needs of all types of shared-ownership properties. As further discussed in Note 20, "Segmented Information," SPI is included in the Kingsway Search Xcelerator segment. This acquisition was the Company’s fourth acquisition under its novel CEO Accelerator program and its first in the vertical market software space 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 are 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 second quarter of 2024, the Company finalized its fair value analysis of the assets acquired and liabilities assumed with the assistance of a third party. The Company records measurement period adjustments in the period in which the adjustments occur. During the second quarter of 2024, the Company recorded measurement period adjustments that increased goodwill by $0.3 million compared to the amount recorded at December 31, 2023. The measurement period adjustment primarily reflects changes in the estimated value of the contract asset of $0.3 million. The final fair values of the assets acquired and liabilities assumed as of September 7, 2023, were $3.7 million of assets and $1.2 million of liabilities, which included $1.4 million of contract asset and $1.7 million of intangible assets. See Note 4, "Acquisitions," to the consolidated financial statements in the 2023 Annual Report for further details on the Company's acquisition of SPI. Digital Diagnostics Imaging, Inc. On October 26, 2023, the Company acquired 100% of the outstanding equity interests of Digital Diagnostics Imaging, Inc. ("DDI") for aggregate cash consideration of approximately $11.0 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 second quarter of 2024. DDI, based in Wall, New Jersey, is a provider of fully managed outsourced cardiac telemetry services. As further discussed in Note 20, "Segmented Information," DDI is included in the Kingsway Search Xcelerator segment. This acquisition was the Company’s fifth 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 are 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 second quarter of 2024, the Company finalized its fair value analysis of the assets acquired and liabilities assumed with the assistance of a third party. The Company records measurement period adjustments in the period in which the adjustments occur. During the second quarter of 2024, the Company recorded a measurement period adjustment that increased goodwill by $0.2 million compared to the amount recorded at December 31, 2023. The measurement period adjustments primarily relate to a decrease in the estimated fair value of property and equipment of $0.4 million, partially offset by an increase to the customer relationships intangible asset of $0.2 million. The final fair values of the assets acquired and liabilities assumed as of October 26, 2023, were $8.5 million of assets and $2.5 million of liabilities, which included $0.8 million of property and equipment and $7.0 million of intangible assets. See Note 4, "Acquisitions," to the consolidated financial statements in the 2023 Annual Report for further details on the Company's acquisition of DDI.
(b) | Discontinued Operations
Leased Real Estate Segment The Company’s former subsidiaries, VA Lafayette, LLC ("VA Lafayette") and CMC Industries Inc. ("CMC"), which included 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. 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 was a component of Kingsway since its operations and cash flows could 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. During the third quarter of 2024, CMC and its subsidiaries were legally dissolved. As a result, the remaining equity related to CMC and its subsidiaries that was included in noncontrolling interests in consolidated subsidiaries is now included in accumulated deficit in the consolidated balance sheet at September 30, 2024. 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. During the second quarter of 2024, the Company entered into a letter of intent for the sale of VA Lafayette. On August 16, 2024, the Company completed the sale of VA Lafayette to an entity associated with a current holder of the Company's Class B Preferred Stock (the sale occurred prior to negotiations regarding the issuance of the Class B Preferred Stock). Refer to Note 22, "Related Parties," for further disclosure. The purchase price paid by the purchaser at the closing consisted of $1.3 million in cash plus the assumption of the unpaid principal balance as of the closing of the LA Mortgage of approximately $11.8 million, netting cash proceeds of $1.1 million to Kingsway after expenses. During the three months ended September 30, 2024, the Company recognized a loss on disposal of $0.2 million, which is included in loss on disposal of discontinued operations, net of taxes in the consolidated statements of operations for the three and nine months ended September 30, 2024. As part of recognizing the business as held for sale, the Company was required to measure VA Lafayette at the lower of its carrying amount or fair value less cost to sell. As a result of this analysis, during the first quarter of 2024, the Company recognized an estimated non-cash, loss on disposal of $0.4 million, which is included in loss on disposal of discontinued operations, net of taxes in the consolidated statements of operations for the nine months ended September 30, 2024. The loss is a result of adjusting the net carrying value of VA Lafayette to be equal to the estimated selling price and was determined by comparing the expected cash consideration received for the sale of VA Lafayette with the net assets of VA Lafayette. As discussed above, VA Lafayette was part of the Leased Real Estate disposal group. In conjunction with the sale of the CMC Real Property on December 29, 2022, 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 sheet at December 31, 2023. 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 nine months ended September 30, 2024 and September 30, 2023 is presented below:
(in thousands) |  | Three months ended September 30, |  |  | Nine months ended September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Income from discontinued operations, net of taxes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rental revenue |  | $ | 157 |  |  | $ | 311 |  |  | $ | 890 |  |  | $ | 941 |
Total revenues |  |  | 157 |  |  |  | 311 |  |  |  | 890 |  |  |  | 941 |
Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of services sold |  |  | 31 |  |  |  | 46 |  |  |  | 136 |  |  |  | 147 |
General and administrative expenses |  |  | 8 |  |  |  | 56 |  |  |  | 128 |  |  |  | 192 |
Leased real estate segment interest expense |  |  | 43 |  |  |  | 90 |  |  |  | 218 |  |  |  | 272 |
Total expenses |  |  | 82 |  |  |  | 192 |  |  |  | 482 |  |  |  | 611 |
Non-operating other revenue |  |  | 6 |  |  |  | 3 |  |  |  | 31 |  |  |  | 9 |
Income from discontinued operations before income tax expense |  |  | 81 |  |  |  | 122 |  |  |  | 439 |  |  |  | 339 |
Income tax expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Income from discontinued operations, net of taxes |  | $ | 81 |  |  | $ | 122 |  |  | $ | 439 |  |  | $ | 339 |
For the three and nine months ended September 30, 2024, and September 30, 2023, all of the pre-tax income from discontinued operations disclosed in the table above is attributable to the controlling interest. The carrying amounts of the major classes of assets and liabilities of Leased Real Estate presented as held for sale at December 31, 2023 are as follows:
(in thousands) |  | December 31, 2023 |
Assets |  |  |  |
Cash and cash equivalents |  | $ | 612 |
Property and equipment, net |  |  | 16,171 |
Intangible assets, net |  |  | 2,748 |
Loss on write-down of disposal group |  |  | (1,779 | )
Assets held for sale |  | $ | 17,752 |
Liabilities |  |  |  |
Accrued expenses and other liabilities |  | $ | 885 |
Notes payable |  |  | 15,229 |
Liabilities held for sale |  | $ | 16,114 |
Loss on disposal of discontinued operations, net of taxes, related to Leased Real Estate, in the unaudited consolidated statement of operations for the three and nine months ended September 30, 2024 is comprised of $0.2 million and $0.6 million, respectively, of loss on disposal of discontinued operations before income tax benefit and income tax benefit of zero.

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