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

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.

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~~November 11, 2021 was ~~5,010,377~~5,801,471.

								September 30, 2021 (unaudited)			December 31, 2020
FG FINANCIAL GROUP, INC. Consolidated Balance Sheets ($ in thousands, except share and per share data)							FG FINANCIAL GROUP, INC. Consolidated Balance Sheets ($ in thousands, except share and per share data)

	June 30, 2021 (unaudited)			December 31, 2020				September 30, 2021 (unaudited)			December 31, 2020
ASSETS
Equity securities, at fair value (cost basis of $27,110 and $24,763, respectively) (includes $11,479 and $4,013 held by the Company’s consolidated VIE, respectively)	$	17,467		$	12,554
Equity securities, at fair value (cost basis of $31,239 and $24,763, respectively) (includes $15,608 and $4,013 held by the Company’s consolidated VIE, respectively)								$	19,172		$	12,554
Other investments		6,709			5,334				7,779			5,334
Cash and cash equivalents (includes $805 and $987 held by the Company’s consolidated VIE, respectively)		10,431			12,132
Cash and cash equivalents (includes $116 and $987 held by the Company’s consolidated VIE, respectively)									8,929			12,132
Funds deposited with reinsured companies		2,718			2,444				2,718			2,444
Current income taxes recoverable		1,471			1,724				–			1,724
Reinsurance balances receivable		2,235			–				3,364			–
Deferred policy acquisition costs		837			–				1,017			–
Other assets		824			517				871			517
Total assets	$	42,692		$	34,705			$	43,850		$	34,705

LIABILITIES
Loss and loss adjustment expense reserves	$	678		$	–			$	1,344		$	–
Unearned premium reserves		2,529			–				3,599			–
Accounts payable		447			455				713			455
Other liabilities		48			57				426			57
Total liabilities	$	3,702		$	512			$	6,082		$	512

Commitments and contingencies (Note 12)		-							-			-

SHAREHOLDERS’ EQUITY
Series A Preferred Shares, $25.00 par value, 1,000,000 shares authorized, 894,580 and 700,000 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively	$	22,365		$	17,500
Common stock, $0.001 par value; 10,000,000 shares authorized; 6,291,888 and 6,269,821 shares issued as of June 30, 2021 and December 31, 2020, respectively, and 5,010,377 and 4,988,310 shares outstanding as of June 30, 2021 and December 31, 2020, respectively		6			6
Series A Preferred Shares, $25.00 par value, 1,000,000 shares authorized, 894,580 and 700,000 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively								$	22,365		$	17,500
Common stock, $0.001 par value; 10,000,000 shares authorized; 5,051,471 and 6,269,821 shares issued as of September 30, 2021 and December 31, 2020, respectively, and 5,051,471 and 4,988,310 shares outstanding as of September 30, 2021 and December 31, 2020, respectively									5			6
Additional paid-in capital		46,664			47,065				40,609			47,065
Accumulated deficit		(25,183	)		(24,193	)			(30,593	)		(24,193	)
Less: treasury stock at cost; 1,281,511 shares for both periods		(6,185	)		(6,185	)
Less: treasury stock at cost; 0 and 1,281,511 shares as of September 30, 2021 and December 31, 2020, respectively									–			(6,185	)
Total shareholders’ equity attributable to FG Financial Group, Inc.		37,667			34,193				32,386			34,193
Noncontrolling interests		1,323			–				5,382			–
Total shareholders’ equity		38,990			34,193				37,768			34,193
Total liabilities and shareholders’ equity	$	42,692		$	34,705			$	43,850		$	34,705

														2021			2020			2021			2020
FG FINANCIAL GROUP, INC. Consolidated Statements of Operations ($ in thousands, except share and per share data) (Unaudited)													FG FINANCIAL GROUP, INC. Consolidated Statements of Operations ($ in thousands, except share and per share data) (Unaudited)
	2021			2020			2021			2020
	Three months ended June 30,						Six months ended June 30,							Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020				2021			2020			2021			2020
Revenue:
Net premiums earned	$	937		$	–		$	1,122		$	–			$	1,099		$	–		$	2,221		$	–
Net investment income (loss)		2,241			(571	)		4,091			(9,277	)			(1,299	)		(7,715	)		2,792			(16,992	)
Other income		24			25			79			54				67			25			146			79
Total revenue		3,202			(546	)		5,292			(9,223	)			(133	)		(7,690	)		5,159			(16,913	)

Expenses:
Net losses and loss adjustment expenses		729			–			835			–				1,058			–			1,893			–
Amortization of deferred policy acquisition costs		374			–			431			–				202			–			633			–
General and administrative expenses		1,659			1,505			3,698			2,310				3,000			1,900			6,698			4,210
Total expenses		2,762			1,505			4,964			2,310				4,260			1,900			9,224			4,210

Income (loss) from continuing operations before income taxes		440			(2,051	)		328			(11,533	)
Income tax expense (benefit)		–			520			–			(665	)
Net income (loss) from continuing operations	$	440		$	(2,571	)	$	328		$	(10,868	)
Loss from continuing operations before income taxes															(4,393	)		(9,590	)		(4,065	)		(21,123	)
Income tax benefit															–			–			–			(665	)
Net loss from continuing operations														$	(4,393	)	$	(9,590	)	$	(4,065	)	$	(20,458	)
Discontinued operations (Note 4):
Gain from sale of the Maison Business, net of taxes		–			–			145			–				–			–			145			–
Net income (loss)		440			(2,571	)		473			(10,868	)
Net loss															(4,393	)		(9,590	)		(3,920	)		(20,458	)
Gain attributable to noncontrolling interests		667			–			666			–				569			–			1,235			–
Dividends declared on Series A Preferred Shares		447			350			797			700				448			350			1,245			1,050
Loss attributable to FG Financial Group, Inc. common shareholders	$	(674	)	$	(2,921	)	$	(990	)	$	(11,568	)		$	(5,410	)	$	(9,940	)	$	(6,400	)	$	(21,508	)

Basic and diluted net income (loss) per common share:
Continuing operations	$	(0.13	)	$	(0.48	)	$	(0.23	)	$	(1.91	)		$	(1.08	)	$	(1.69	)	$	(1.31	)	$	(3.58	)
Discontinued operations		–			–			0.03			��				–			–			0.03			–
Earnings Per Share, Basic and Diluted	$	(0.13	)	$	(0.48	)	$	(0.20	)	$	(1.91	)
														$	(1.08	)	$	(1.69	)	$	(1.28	)	$	(3.58	)

Weighted average common shares outstanding:
Basic and diluted		5,010,377			6,068,106			5,001,731			6,067,975				5,032,615			5,893,125			5,012,139			6,009,267


FG FINANCIAL GROUP, INC. Consolidated Statements of Shareholders’ Equity (Unaudited) ($ in thousands)																										FG FINANCIAL GROUP, INC. Consolidated Statements of Shareholders’ Equity (Unaudited) ($ in thousands)
	Shares		Amount		Shares		Amount		Shares		Amount			Capital			Deficit			Inc.			Interests
	Preferred Stock				Common Stock				Treasury Stock					Paid-in			Accumulated			Total Shareholders’ Equity attributable to FG Financial Group,			Non-controlling				Preferred Stock				Common Stock						Treasury Stock
	Shares		Amount		Shares		Amount		Shares		Amount			Capital			Deficit			Inc.			Interests				Shares Out-standing		Amount		Shares Out-standing			Amount			Shares Out-standing			Amount			Paid-in Capital			Accumulated Deficit			Total Shareholders’ Equity attributable to FG Financial Group, Inc.			Non-controlling Interests
Balance, January 1, 2020		700,000	$	17,500		6,065,948	$	6		151,359	$	(1,009	)	$	46,754		$	(336	)	$	62,915		$	–				700,000	$	17,500		6,065,948		$	6			151,359		$	(1,009	)	$	46,754		$	(336	)	$	62,915		$	–
Series A Preferred Share issuance
Series A Preferred Share issuance, shares
Series A Preferred Share issuance , shares
Stock based compensation		–		–		2,158		–		–		–			52			–			52			–				–		–		2,158			–			–			–			52			–			52			–
Retirement of Treasury Stock
Retirement of Treasury Stock, shares
Repurchase Transaction
Repurchase Transaction, shares
Dividends declared on Series A Preferred Shares ($0.50 per share)		–		–		–		–		–		–			–			(350	)		(350	)		–				–		–		–			–			–			–			–			(350	)		(350	)		–
Interests issued for contributed cash
Net loss		–		–		–		–		–		–			–			(8,297	)		(8,297	)		–				–		–		–			–			–			–			–			(8,297	)		(8,297	)		–
Balance, March 31, 2020		700,000	$	17,500		6,068,106	$	6		151,359	$	(1,009	)	$	46,806		$	(8,983	)	$	54,320		$	–				700,000	$	17,500		6,068,106		$	6			151,359		$	(1,009	)	$	46,806		$	(8,983	)	$	54,320		$	–

Stock based compensation		–		–		–		–		–		–			52			–			52			–				–		–		–			–			–			–			52			–			52			–
Dividends declared on Series A Preferred Shares ($0.50 per share)		–		–		–		–		–		–			–			(350	)		(350	)		–				–		–		–			–			–			–			–			(350	)		(350	)		–
Net loss		–		–		–		–		–		–			–			(2,571	)		(2,571	)		–				–		–		–			–			–			–			–			(2,571	)		(2,571	)		–
Balance, June 30, 2020		700,000	$	17,500		6,068,106	$	6		151,359	$	(1,009	)	$	46,858		$	(11,904	)	$	51,451		$	–				700,000	$	17,500		6,068,106		$	6			151,359		$	(1,009	)	$	46,858		$	(11,904	)	$	51,451		$	–

Stock based compensation																												–		–		19,410			–			–			–			59			–			59			–
Repurchase Transaction																																(1,130,152	)					1,130,152			(5,176	)		–			–			(5,176	)
Retirement of Treasury Stock
Dividends declared on Series A Preferred Shares ($0.50 per share)																												–		–		–			–			–			–			–			(350	)		(350	)		–
Net loss																												–		–		–			–			–			–			–			(9,590	)		(9,590	)		–
Balance, September 30, 2020																												700,000	$	17,500		4,957,364		$	6			1,281,511		$	(6,185	)	$	46,917		$	(21,844	)	$	36,394		$	–
Balance, January 1, 2021		700,000	$	17,500		4,988,310	$	6		1,281,511	$	(6,185	)	$	47,065		$	(24,193	)	$	34,193		$	–				700,000	$	17,500		4,988,310		$	6			1,281,511		$	(6,185	)	$	47,065		$	(24,193	)	$	34,193		$	–
Stock based compensation		–		–		22,067		–		–		–			177			–			177			–				–		–		22,067			–			–			–			177			–			177			–
Dividends declared on Series A Preferred Shares ($0.50 per share)		–		–		–		–		–		–			–			(350	)		(350	)		–				–		–		–			–			–			–			–			(350	)		(350	)		–
Interests issued for contributed cash		–		–		–		–		–		–			–			–			–			657				–		–		–			–			–			–			–			–			–			657
Net income (loss)		–		–		–		–		–		–			–			34			34			(1	)			–		–		–			–			–			–			–			34			34			(1	)
Balance, March 31, 2021		700,000	$	17,500		5,010,377	$	6		1,281,511	$	(6,185	)	$	47,242		$	(24,509	)	$	34,054		$	656				700,000	$	17,500		5,010,377		$	6			1,281,511		$	(6,185	)	$	47,242		$	(24,509	)	$	34,054		$	656

Series A Preferred Share issuance		194,580		4,865		–		–		–		–			(648	)		–			4,217			–				194,580		4,865		–			–			–			–			(648	)		–			4,217			–
Stock based compensation		–		–		–		–		–		–			70			–			70			–				–		–		–			–			–			–			70			–			70			–
Dividends declared on Series A Preferred Shares ($0.50 per share)		–		–		–		–		–		–			–			(447	)		(447	)		–				–		–		–			–			–			–			–			(447	)		(447	)		–
Net income (loss)		–		–		–		–		–		–			–			(227	)		(227	)		667				–		–		–			–			–			–			–			(227	)		(227	)		667
Balance, June 30, 2021		894,580	$	22,365		5,010,377	$	6		1,281,511	$	(6,185	)	$	46,664		$	(25,183	)	$	37,667		$	1,323				894,580	$	22,365		5,010,377		$	6			1,281,511		$	(6,185	)	$	46,664		$	(25,183	)	$	37,667		$	1,323

Retirement of Treasury Stock																												–		–		–			(1	)		(1,281,511	)		6,185			(6,184	)		–			–			–
Stock based compensation																												–		–		41,094			–			–			–			129			–			129			–
Dividends declared on Series A Preferred Shares ($0.50 per share)																												–		–		–			–			–			–			–			(448	)		(448	)		–
Interests issued for contributed cash																												–		–		–			–			–			–			–			–			–			3,490
Net income (loss)																												–		–		–			–			–			–			–			(4,962	)		(4,962	)		569
Balance, September 30, 2021																												894,580	$	22,365		5,051,471		$	5			–		$	–		$	40,609		$	(30,593	)	$	32,386		$	5,382

								2021			2020
FG FINANCIAL GROUP, INC. Consolidated Statement of Cash Flows (Unaudited) ($ in thousands)							FG FINANCIAL GROUP, INC. Consolidated Statement of Cash Flows (Unaudited) ($ in thousands)
	2021			2020
	Six months ended June 30,							Nine months ended September 30,
	2021			2020				2021			2020
Cash flows from operating activities:
Net income (loss)	$	473		$	(10,868	)		$	(3,920	)	$	(20,458	)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Adjustments to reconcile net income to net cash used by operating activities:
Net unrealized holding (gains) losses on investments		(4,022	)		9,764				(2,670	)		15,557
Net realized loss on sale of equity investments									4			2,111
Net deferred income taxes		–			(106	)			–			(106	)
Stock compensation expense		247			104				376			163
Purchases of investments by consolidated investment company subsidiary		(2,347	)		–
Purchase of investments by consolidated investment company subsidiary									(6,479	)		(5,203	)
Changes in operating assets and liabilities:
Funds deposited with reinsured companies		(274	)		–				(274	)		–
Current income taxes recoverable		253			(559	)			1,724			(559	)
Reinsurance balances receivable		(2,235	)		–				(3,364	)		–
Deferred policy acquisition costs		(837	)		–				(1,017	)		–
Other assets		(302	)		(534	)
Other assets and receivables									(344	)		(1,319	)
Loss and loss adjustment expense reserves		678			–				1,344			–
Unearned premium reserves		2,529			–				3,599			–
Accounts payable and other liabilities		(17	)		(63	)			627			129
Net cash used by operating activities		(5,854	)		(2,262	)			(10,394	)		(9,685	)

Cash flows from investing activities:
Purchases of furniture and equipment		(6	)		–				(10	)		(3	)
Purchases of equity method investments		(73	)		–				(73	)		–
Return of capital – other investments		155			91				155			–
Net cash provided by investing activities		76			91
Net cash provided (used) by investing activities									72			(3	)

Cash flows from financing activities:
Proceeds from issuance of preferred stock, net		4,217			–				4,217			–
Payment of dividends on preferred shares		(797	)		(700	)			(1,245	)		(1,050	)
Purchase of treasury shares									–			(2,538	)
Cash contributions from non-controlling interests		657			–				4,147			–
Net cash provided (used) by financing activities		4,077			(700	)			7,119			(3,588	)

Net decrease in cash and cash equivalents		(1,701	)		(2,871	)			(3,203	)		(13,276	)
Cash and cash equivalents at beginning of period		12,132			28,509				12,132			28,509
Cash and cash equivalents at end of period	$	10,431		$	25,638			$	8,929		$	15,233

Non-Cash Financing Transactions
Sale of equity investments to purchase treasury shares								$	–		$	2,639

FG Financial Group, Inc. (“FGF”, the “Company”, “we”, or “us”) is a reinsurance and investment management holding company focused on opportunistic collateralized and loss capped reinsurance, while allocating capital in partnership with Fundamental Global^®to SPAC and SPAC sponsor-related businesses. The Company’s principal business operations are conducted through its subsidiaries and affiliates. We were incorporated on October 2, 2012 in the State of Delaware under the name Maison Insurance Holdings, Inc., and changed our legal name to 1347 Property Insurance Holdings, Inc. on November 19, 2013. On March 31, 2014, we completed an initial public offering of our common stock. Prior to the offering, we were a wholly owned subsidiary of Kingsway America Inc., which, in turn, is a wholly owned subsidiary of Kingsway Financial Services Inc., or KFSI, a publicly owned Delaware holding company. From our inception through December 2, 2019, we operated as an insurance holding company, writing property and casualty insurance throughout the states of Louisiana, Florida and Texas through our subsidiaries. On December 2, 2019, we sold our three insurance subsidiaries, and embarked on a new strategy focused on insurance, reinsurance, real estate, and asset management. Accordingly, on December 14, 2020, our shareholders approved a change in our corporate name to FG Financial Group, Inc., to better align with this new business strategy.

As of ~~June~~September 30, 2021, Fundamental Global ~~Investors,~~GP, LLC, a privately owned investment management company, and its affiliates, or ~~FGI,~~“FG,” beneficially owned approximately 6160% of our outstanding shares of common stock. D. Kyle Cerminara, the Chairman of our Board of Directors, serves as Chief Executive Officer, Co-Founder and Partner of ~~FGI.~~FG.

On December 2, 2019, we completed the sale of all of the issued and outstanding equity of three of the Company’s then wholly-owned subsidiaries, Maison Insurance Company (“Maison”), Maison Managers Inc. (“MMI”) and ClaimCor, LLC (“ClaimCor” and, together with Maison and MMI, the “Maison Business” or the “Insurance Companies”), to FedNat Holding Company, a Florida corporation (“FedNat”), pursuant to the terms and conditions of the Equity Purchase Agreement, dated as of February 25, 2019 (the “Purchase Agreement”), by and among the Company and each of Maison, MMI and ClaimCor, on the one hand, and FedNat, on the other hand (the “Asset Sale”).

As consideration for the Asset Sale, FedNat paid the Company $51.0million, consisting of $25.5million in cash and $25.5million in FedNat’s common stock, or 1,773,102shares of FedNat common stock. In addition, upon the closing of the Asset Sale, $18.0million of outstanding surplus note obligations payable by Maison to the Company, plus all accrued but unpaid interest, was repaid to the Company.

On December 31, 2019, the shares of FedNat common stock issued to the Company in connection with the Asset Sale were registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the terms of the Registration Rights Agreement entered into by the Company and FedNat at the closing of the Asset Sale.

In addition to the Registration Rights Agreement, the Company and FedNat entered into a Standstill Agreement, a Reinsurance Capacity Right of First Refusal Agreement (the “Reinsurance Agreement”), and an Investment Advisory Agreement at the closing of the Asset Sale.

The Standstill Agreement imposes certain limitations and restrictions with respect to the voting securities of FedNat (including shares of FedNat common stock) that are owned or held beneficially or of record by the Company. Under the Standstill Agreement, the Company has agreed to vote all of the voting securities of FedNat beneficially owned by the Company in accordance with the recommendation of the board of directors of FedNat with respect to any matter that is before the stockholders of FedNat for a vote by such stockholders. The Standstill Agreement imposes limitations on the sale of voting securities of FedNat held by the Company and restricts the Company from taking certain actions as a holder of voting securities of FedNat. The Standstill Agreement expires on December 2, 2024.

For insurance regulatory purposes, the Company has waived any rights that it may have to exercise control of FedNat.

The Reinsurance Agreement provides the Company with a right of first refusal to sell reinsurance coverage to the insurance company subsidiaries of FedNat, providing reinsurance on up to 7.5% of any layer in FedNat’s catastrophe reinsurance program, subject to the annual reinsurance limit of $15.0 million, on the terms and subject to the conditions set forth in the Reinsurance Agreement. All reinsurance sold by the Company pursuant to the right of first refusal, if any, will be memorialized in an agreement in such form and subject to such terms and conditions as are customary in the property and casualty insurance industry. The Reinsurance Agreement is assignable by the Company subject to conditions set forth in the agreement. The term of the Reinsurance Agreement is five years, expiring on December 2, 2024. As of ~~June~~September 30, 2021, the Company has not provided any reinsurance coverage to FedNat under the Reinsurance Agreement.

Pursuant to the Investment Advisory Agreement, FG Strategic Consulting, LLC (“FGSC,” formerly Fundamental Global Advisors LLC), a wholly-owned subsidiary of the Company, was formed to provide investment advisory services to FedNat, which include 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.

Our strategy has evolved to focus on opportunistic collateralized and loss capped reinsurance, while allocating capital to special purpose acquisition companies (“SPACs”) and SPAC sponsor-related businesses. Accordingly, in the first quarter 2021, we have launched our “SPAC Platform,” as further discussed below. 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.”

Historically, the Company has operated a real estate business through its subsidiary, FGI Metrolina Property Income Fund, LP; however, the Company does not anticipate that its real estate business will be a significant component of its future business plans.

The Company has formed a wholly-owned reinsurance subsidiary, FG Reinsurance Ltd. (“FGRe”), a Cayman Islands limited liability company, to provide specialty property and casualty reinsurance. FGRe has been granted a Class B (iii) insurer license in accordance with the terms of The Insurance Law, 2010 and underlying regulations thereto and is subject to regulation by the Cayman Islands Monetary Authority (the “Authority”). The terms of the license ~~require~~required FGRe to receive a capital infusion in the amount of $5.0million, which the Company effected in July 2020 via the transfer of 156,000shares of FedNat common stock from the Company along with approximately $3.3million in cash. The terms of the ~~insurer~~ license also 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. In November 2020, FGRe entered into its first reinsurance transaction, effective January 1, 2021, through a Funds at Lloyds syndicate (“FAL”). The maximum loss exposure in the transaction is approximately $2.9million and covers all risks written by the syndicate during the 2021 calendar year. On November 12, 2020 FGRe initially funded a trust account at Lloyd’s with approximately $2.4million in cash to collateralize its obligations under the contract. Effective 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. FGRe’s exposure is limited by a loss-cap stipulated within the quota-share agreement.

FGSC serves as an investment advisor to FedNat under the investment advisory agreement entered into at the closing of the Asset Sale. The Company has also formed Fundamental Global Asset Management, LLC (“FGAM”), a joint venture with an affiliate of ~~FGI,~~FG, to sponsor investment advisors that will manage private funds ranging the full spectrum of alternative equities, fixed income, private equity and real estate. In September 2020, the joint venture sponsored the launch of FG Special Situations Fund via an investment of $5.0million. Approximately $4.0million of this investment represented the sponsorship of our first SPAC.

FGRe is currently in the process of establishing and seeking regulatory approvals for a Risk Retention Group (“RRG”) to be domiciled in the State of Vermont for the purpose of providing directors and officers insurance coverage to special purpose acquisition vehicles. The Company expects to ~~begin operation of~~obtain the necessary regulatory approvals for the RRG in the ~~4th~~fourth quarter of 2021. FGRe ~~would anticipate~~also anticipates providing 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.

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 plan to provide various strategic, administrative, and regulatory support services to newly formed SPACs for a monthly fee. 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. 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 consummated its initial public offering on April 12, 2021. Under the services agreement between FGSS and Aldel Investors, LLC (the “Agreement”), FGSS has agreed to provide certain accounting, regulatory, strategic advisory, and other administrative services to Aldel, which include assistance with negotiations with a potential merger target for the SPAC as well as assistance with the de-SPAC process. Additional information regarding our formation of FGSS and our SPAC Platform can be found in Note 10 – Related Party Transactions under the heading “Formation of FG SPAC Partners, LP.”

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

The accompanying Consolidated Financial Statements include the accounts of FG Financial Group, Inc., consolidated with the accounts of all subsidiaries and affiliates in which we hold a controlling financial interest as of the financial statement date.

Normally, a controlling financial interest reflects ownership of a majority of the voting interests. We also consolidate variable interest entities (“VIE”) when we possess both the power to direct the activities of the VIE that most significantly affect their economic performance, and we (i) are obligated to absorb the losses that could be significant to the VIE or (ii) hold the right to receive benefits from the VIE that could be significant to the VIE. Significant intercompany balances and transactions have been eliminated upon consolidation.

Information regarding our reportable business segments is contained in Note 13 – Segment reporting.

Due to the sale of all of the issued and outstanding equity of Maison, MMI and ClaimCor ~~(the “Maison Business”)~~ on December 2, 2019, these operations have been classified as discontinued operations in the Company’s financial statements presented herein. For the ~~six~~nine months ended ~~June~~September 30, 2021, we recognized a gain from the sale of the Maison Business of approximately $~~145~~145,000~~,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 statements of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and ~~2020.~~2020:

	2021		2020		2021			2020		2021		2020		2021			2020
(in thousands)	Three months ended June 30,				Six months ended June 30,					Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021			2020		2021		2020		2021			2020
Pre-tax gain (loss) on sale	$	–	$	–	$	–		$	–	$	–	$	–	$	–		$	–
Income tax benefit		–		–		(145	)		–		–		–		(145	)		–
Net gain from sale of Maison Business	$	–	$	–	$	145		$	–	$	–	$	–	$	145		$	–

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 are carried at fair value with subsequent changes in fair value recorded to the ~~consolidated statements~~Consolidated Statements of ~~operations~~Operations as a component of net investment income.

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.

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.

In September 2020, the Company invested approximately $5.0 million, through its joint venture, Fundamental Global Asset Management, LLC (“FGAM”) to sponsor the launch of FG Special Situations Fund, LP a Delaware limited partnership formed on September 2, 2020 (the “Fund”). The Fund, a VIE which the Company is required to consolidate, 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. All of the Fund’s investments have been included in ‘equity securities’ in the Company’s consolidated balance sheets presented herein.

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

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).

Financial instruments which potentially expose the Company to concentrations of credit risk include investments, cash, amounts held as collateral under our quota share insurance agreements, as well as other amounts due to us under our quota share insurance ~~agreement.~~agreements. 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~~September 30, 2021, 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.

The Company had not experienced any credit losses related to amounts due to us under our quota share ~~agreement.~~

The Company participates in a quota share contracts and estimates the ultimate premiums for the contract period. These estimates are based on information received from the ceding companies, whereby premiums are recorded as written in the same periods in which the underlying insurance contracts are written and are based on cession statements from cedents. These statements are received quarterly and in arrears, and thus for any reporting lag, premiums written are estimated based on the portion of the ultimate estimated premiums relating to the risks underwritten during the lag period.

Premium estimates are reviewed by management periodically. Such review includes a comparison of actual reported premiums to expected ultimate premiums. Based on management’s review, the appropriateness of the premium estimates is evaluated, and any adjustments to these estimates are recorded in the period in which they are determined. Changes in premium estimates, including premiums receivable, are not unusual and may result in significant adjustments in any period. A significant portion of amounts included in the caption “Reinsurance balances receivable” in the Company’s consolidated balance sheets represent estimated premiums written, net of commissions, brokerage, and loss and loss adjustment expense, and are not currently due based on the terms of the underlying contracts. 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 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.

The caption “Funds Deposited with Reinsured Companies” in the Company’s consolidated balance sheets includes amounts held by Funds at Lloyd’s provided to support our reinsurance contracts with Lloyd’s syndicates. As of ~~June~~September 30, 2021, funds held by cedents were $2.7million. ~~We also anticipate that~~On October 20, 2021, we ~~will be required to provide~~posted additional collateral in the ~~third quarter 2021,~~amount of approximately $1.0 million, to support our automotive insurance quota-share agreement entered into on April 1, 2021.

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

Loss estimates may also be based upon actuarial and statistical projections, an assessment of currently available data, predictions of future developments, estimates of future trends and other factors. The final settlement of losses may vary, perhaps materially, from the reserves recorded. All adjustments to the estimates are recorded in the period in which they are determined. U.S. GAAP does not permit establishing loss reserves, which include case reserves and IBNR loss reserves, until the occurrence of an event which may give rise to a claim. As a result, only loss reserves applicable to losses incurred up to the reporting date are established, with no allowance for the establishment of loss reserves to account for expected future loss events.

Generally, the Company obtains regular updates of premium and loss related information for the current and historical periods, which are utilized to update the initial expected loss ratio. We also experience 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.

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. 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.

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 5 for further information on the fair value of the Company’s financial instruments.

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.

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 available-for-sale debt securities will be measured in a manner similar to current GAAP; however, the amendments require that credit losses be presented as an allowance against the investment, 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.

The following table summarizes the Company’s investments in equity securities as of ~~June~~September 30, 2021 and December 31, ~~2020.~~2020:

($ in thousands)	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount		Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount
As of June 30, 2021
FedNat common stock	$	20,751	$	–	$	14,763	$	5,988
As of September 30, 2021
FNHC common stock									$	20,751	$	–	$	17,187	$	3,564
SPAC investments		680		4		–		684		19		–		–		19
Private placements		5,679		5,116		–		10,795		10,469		5,120		–		15,589
Total equity securities	$	27,110	$	5,120	$	14,763	$	17,467	$	31,239	$	5,120	$	17,187	$	19,172

As of December 31, 2020
FedNat common stock	$	20,751	$	–	$	12,209	$	8,542
FNHC common stock									$	20,751	$	–	$	12,209	$	8,542
Private placements		4,012		–		–		4,012		4,012		–		–		4,012
Total equity securities	$	24,763	$	–	$	12,209	$	12,554	$	24,763	$	–	$	12,209	$	12,554

On December 2, 2019, the Company received 1,773,102 shares of FedNat Holding Company common stock (Nasdaq: FNHC), along with $25.5 million cash as consideration for the Asset Sale. On July 14, 2020, the Company transferred 156,000 shares of FedNat common stock to FGRe, a wholly-owned subsidiary of the Company, as a capital contribution for no consideration, and, on September 15, 2020, the Company transferred 330,231 shares of FedNat common stock to the Hale Parties as further discussed in Note 10 – “Related Party Transactions”. Following the transactions, the Company directly holds 1,286,871 shares of FedNat common stock. As of ~~August 11,~~November 10, 2021, the estimated fair value of the 1,442,871 shares of FedNat common stock held in the aggregate by the Company and its subsidiary was [$~~6.3~~3.2 ~~million]~~.million.

SPAC investments consist of the public equity of newly formed special purpose acquisition companies held by the Fund. The investments typically consist of one share of common stock of the SPAC, along with one-half of one redeemable warrant entitling the holder to purchase one share of common stock at an exercise price of $11.50 per share, although the number of warrants and/or the exercise price of the warrant may vary. The investments are typically issued by the SPAC as a combined unit consisting of both the common stock and warrant at a price of $10.00per ~~unit;~~unit however the offering price may also vary. Following the initial public offering of the SPAC, these units are separated into individual shares of common stock and warrants. The SPAC investments which we have purchased trade on either of the Nasdaq Stock Market or New York Stock Exchange.

Private placements ~~typically~~ consist of the private equity and risk capital associated with the sponsorship of SPACs and are ~~also~~ held by the Fund. In September 2020, the Company invested $5.0million into its joint venture, Fundamental Global Asset Management, LLC (“~~FGAM’~~FGAM”), to capitalize FG Special Situations Fund Advisor, LLC (the “Advisor”), a Delaware limited liability company formed on September 2, 2020, and to sponsor the launch of the Fund. ~~The Fund is majority owned by FGAM through the Fund’s general partner and the Advisor, both of which are ultimately controlled by Mr. Cerminara, the Chairman of the Company’s Board of Directors.~~ Of the initial $5.0million investment, approximately $4.0million was used by FG New America Investors, LLC (the “Sponsor”) as part of a total $8.6million of risk capital used to launch FG New America Acquisition Corp (“FGNA”), a special purpose acquisition company which consummated its initial public offering on October 2, 2020. On July 20, 2021, FGNA completed its definitive business combination with Opportunity Financial, LLC and began operating as OppFi Inc. (“OppFi”), with OppFi’s common stock trading on the NYSE under the ticker symbol “OPFI”. The Fund’s specific investment consists of both class A and class A-1 interests of the Sponsor. On July 15, 2021, the Sponsor entered into a sponsor forfeiture agreement with FGNA and Opportunity Financial, LLC, under which the Sponsor agreed to forfeit a portion of FGNA Class B common stock as well as a portion of warrants to purchase FGNA Class A common stock which the Sponsor previously held. As a result, as of July 20, 2021, the class A and class A-1 interests represent a potential beneficial ownership of approximately 0.86million common shares of OPFI as well as approximately 0.36million warrants to purchase common shares of OPFI at a price of $11.50per share. The class A and class A-1 interests have not been registered under the Securities Act of 1933, as amended, and are not transferrable except as provided for in the operating agreement of the Sponsor.

The Company has determined that its investment in the Fund represents an investment in a variable interest entity (“VIE”) in which the Company is the primary beneficiary and as such, has consolidated the financial results of the Fund as of ~~June~~September 30, 2021. The Company evaluates whether it is the primary beneficiary of a VIE at the time it becomes involved with a variable interest entity and continuously reconsiders that conclusion. In determining whether the Company is the primary beneficiary, the Company evaluates its control rights as well as economic interests in the entity held either directly or indirectly through affiliates via both qualitative and quantitative analysis. Further investments in, or redemptions of investments in FGAM, by either member of ~~the~~ joint venture could affect the entity’s status as a VIE or the determination of the primary beneficiary. At each reporting date, the Company assesses whether it is the primary beneficiary and will consolidate or deconsolidate accordingly.

InFor the ~~first quarter,~~nine months ended September 30, 2021, the Company invested an additional $1.65 million into the ~~Fund. Additionally,~~Fund and the Fund also received outside investment of approximately $~~0.7~~4.1 million, resulting in the presentation of noncontrolling interests in the Company’s consolidated balance sheet as of ~~June~~September 30, 2021. ~~This~~A portion of this additional investment was used by the Fund to sponsor its second SPAC via an investment of ~~$1.65~~$1.65 million in Aldel Investors, LLC, the sponsor of Aldel Financial, Inc. (NYSE: ADF). Of the total ~~$1.65~~$1.65 million the Fund invested in Aldel, $1.0 million was allocated to the Company, with the remaining $0.65 million allocated to noncontrolling interests. The Company’s $11.0 million investment in Aldel represents the beneficial ownership of approximately 286,000 Aldel founder shares.

Additionally, in the third quarter 2021, the Fund invested approximately $4.8 million in a private placement not related to the sponsorship of a SPAC, but which instead seeks to benefit from the underlying publicly traded stock which it owns. Of the total $4.8 million invested by the Fund, approximately $1.5 million has been allocated to the Company.

The assets and liabilities of the Fund, our investment company subsidiary, have been included in the Company’s consolidated balance sheets presented herein and as listed in the table below. The assets of the Fund may only be used to settle its obligations. The Company’s maximum exposure to loss as a result of its involvement with the Fund is $6.65million as of ~~June~~September 30, 2021.

($ in thousands)	June 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Cash equivalents	$	805	$	988	$	116	$	988
Investments-SPACs		684		–		19		–
Investments-private placements		10,795		4,012
Investments-Private placements						15,589		4,012
Other assets		3		–		22		–
Total assets	$	12,287	$	5,000	$	15,746	$	5,000

Accounts payable	$	26	$	–	$	28	$	–
Total liabilities	$	26	$	–	$	28	$	–

Other investments consist, in part, of equity investments made in privately held companies accounted for under the equity method. Equity method investments include our investment of $4.0million in FGI Metrolina Property Income Fund, LP (“Metrolina”), which invests in real estate through a real estate investment trust which is wholly owned by Metrolina. The general partner of Metrolina, FGI Metrolina GP, LLC, is managed, in part, by Mr. Cerminara, the Chairman of the Company’s Board of Directors. The Company, a limited partner of Metrolina, does not have a controlling interest, but exerts significant influence over the entity’s operating and financial policies as it owns an economic interest of approximately 52% as of ~~June~~September 30, 2021. We have recorded equity method earnings from our investment in Metrolina of approximately $~~25,000~~137,000 and $~~95,000~~61,000 for each of the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. The carrying value of our investment in Metrolina as of ~~June~~September 30, 2021 was approximately $~~4.72~~4.83 ~~million, which represents~~million. In the third quarter, 2021, Metrolina announced it would be liquidating and returning capital to its investors. Accordingly, on November 11, 2021, we received approximately $~~0.72~~4.4 million in ~~undistributed~~cash back from the Fund, representing our initial investment of $4.0 million plus approximately $0.4 million in distributed earnings. We anticipate receiving additional earnings from Metrolina in the fourth quarter of 2021, based upon the final net asset value calculated by Metrolina as of November 30, 2021.

Equity method investments also 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 an approximate 49% limited partner interest in FGSP directly and through its subsidiaries. Certain of our directors and officers also hold limited partner interests in FGSP. Our Chief Executive Officer and Director, Larry G. Swets, Jr., holds a limited partner interest through Itasca Financial LLC, an advisory and investment firm for which Mr. Swets is managing member. Hassan R. Baqar, our Chief Financial Officer effective August 6, 2021, also holds a limited partner interest through Sequoia Financial LLC, an advisory firm for which Mr. Baqar is managing member. The Chairman of our Board of Directors, D. Kyle 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. We have recorded equity method earnings from our investment in FGSP of approximately $~~1.43~~2.39 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The carrying value of our investment in FGSP as of ~~June~~September 30, 2021 was approximately $~~1.51~~2.46 million, representing $~~1.43~~2.39 million in undistributed earnings.

On January 11, 2021, FGSP purchased 1,075,000 founder shares from Aldel, for total consideration of $4,674. On March 25, 2021, FGSP entered into a forfeiture agreement with Aldel whereby FGSP agreed to transfer 575,000 of these founder shares back to Aldel at no cost. Concurrent with Aldel’s initial public offering, on April 12, 2021, FGSP also purchased 650,000 warrants at a price of $0.10 per warrant, each exercisable to purchase one share of Aldel’s Class A common stock at an exercise price of $15.00 per share (the “OTM Warrants”), for a purchase price of $65,000. In addition, as discussed above, the Company, through the Fund, has invested $1.0 million in the risk capital of Aldel Investors, LLC, which ~~represents~~represent beneficial ownership of approximately 286,000 Aldel founder shares. Altogether, the Company’s investment represents beneficial interests of approximately 533,000 Aldel founder shares and approximately 321,000 OTM Warrants. ~~Our Chief Executive Officer and Director, Larry G.~~Mr. Swets serves as senior advisor to Aldel. ~~Hassan R.~~Mr. Baqar ~~our Chief Financial Officer effective August 6, 2021,~~ serves as a director and chief financial officer of Aldel. ~~The Chairman of our Board of Directors, D. Kyle~~Mr. Cerminara serves as a director of Aldel.

Other investments 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 ~~investments~~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 $483,000as of ~~June~~September 30, 2021. For the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, the Company has received profit distributions of $~~45,000~~ 73,000and $42,000on these investments, respectively, which has been included in income. Furthermore, both investments began the process of returning capital back to its investors beginning in 2020. As of ~~June~~September 30, 2021, the Company has received approximately 38% of its initial $776,000investment back from these investments.

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.

For equity method investments, such as the Company’s investment in Metrolina, 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:

We have not recorded an impairment on our investments for either of the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

Net investment income (loss) for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 is as follows:

($ in thousands)	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020			2021			2020			2021			2020
Unrealized holding loss on FedNat common stock	$	(693	)	$	(726	)	$	(2,554	)	$	(9,858	)
Unrealized holding loss on FNHC common stock													$	(2,424	)	$	(5,760	)	$	(4,978	)	$	(15,618	)
Unrealized holding gain on private placement investments		1,513			–			5,116			–			4			–			5,120			–
Dividend income from FedNat common stock		–			159			–			319
Realized loss on FHNC shares														–			(2,110	)		–			(2,110	)
Dividend income from FNHC common stock														–			160			–			479
Equity method earnings		1,362			–			1,457			95			1,070			–			2,527			–
Other		59			(4	)		72			167			51			(5	)		123			257
Net investment income (loss)	$	2,241		$	(571	)	$	4,091		$	(9,277	)	$	(1,299	)	$	(7,715	)	$	2,792		$	(16,992	)

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:

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.

We have valued our investment in FedNat and SPAC units at their last reported sales price as the shares and units are traded on a national exchange. They have been characterized in Level 1 of the fair value hierarchy. Furthermore, certain of our private placement investments are characterized in Level 1 of the fair value hierarchy as their value is based on the underlying investments it holds (those investments also traded on a national exchange).

~~Our~~The remainder of our private placement investments have been characterized in Level 3 of the fair value hierarchy. As of ~~June~~September 30, 2021, these consist of the Fund’s private placement investments ~~consist of~~in the equity interests inof the sponsor companies of OppFi (formerly FGNA) and Aldel. The estimated fair value of our OppFi sponsor interests consist of both class A and A-1 interests in the Sponsor, which, represent the beneficial interest of approximately 860,000shares of ~~OPFI~~OppFi as well as approximately 360,000warrants to purchase ~~OPFI~~OppFi common stock at $11.50per share. The estimated fair value of our Aldel sponsor interests consist of a total of approximately 471,000Aldel founder shares held by the Fund to which the Company was allocated approximately 286,000founder shares, with the remaining 185,000founder shares allocated to noncontrolling interests.

The value of these interests was determined using Monte-Carlo simulation and option pricing models. Inherent in Monte-Carlo simulation and option pricing models are assumptions related to expected volatility, expected term, dividend yield and risk-free interest rate of the underlying SPAC common stock. The Company estimates the volatility of the common stock based on the historical performance of various broad market indices blended with various peer companies which the Company considers ~~to have~~having similar characteristics to the underlying SPAC.

Following are the significant inputs in the valuation model for the fair value of our OppFi and Aldel sponsorship interests as of ~~June~~September 30, 2021:

At each subsequent measurement date, we will review the valuation of these investments and will record adjustments as necessary to reflect the expected exit value of the investment under current market conditions. The Fund uses an independent pricing service to value its private operating company investments which may include an income approach, a market approach, or a combination thereof. The Fund may use multiple valuation approaches and estimate fair value based on a weighted average or a selected outcome within a range of multiple valuation results. Due to the inherent uncertainty of valuations, the fair values reflected in the financial statements as of the measurement date may differ materially from: 1) values that would have been used had a readily available market existed for these investments; and 2) the values that may ultimately be realized upon sale of the investments.

Financial instruments measured, on a recurring basis, at fair value as of ~~June~~September 30, 2021 and December 31, 2020 in accordance with the guidance promulgated by the FASB are as follows.

The following table presents the changes in assets classified in Level 3 of the fair value hierarchy for the ~~six~~nine months ended ~~June~~September 30, 2021. There was no activity with respect to Level 3 assets for the ~~six~~nine months ended ~~June~~September 30, 2020.

(in thousands)	2021		2021
Balance, January 1	$	4,012	$	4,012
Purchases		1,667		1,667
Unrealized holding gains		5,116		4,976
Balance, June 30	$	10,795
Balance, September 30			$	10,655

A significant degree of judgment is required to determine amounts recorded in the 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 a large number of individuals, including the opinions of the Company’s management, as well as the management of ceding companies and their actuaries.

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:

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

Under the terms 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~~third quarter 2021 premium and loss information will not be made available to the Company until subsequent to the filing of this quarterly report. Thus, our ~~second~~third quarter results, including the loss and loss adjustment expense reserves presented herein, have been based upon a combination of first and second quarter actual results as well as full-year forecasts reported to us by the ceding companies for which we used to approximate ~~second~~third quarter results. ~~Similarly, our automotive insurance quota share agreement reports monthly results to us approximately 45 days in arrears, requiring us to approximate full second quarter results under the contract.~~

While the Company believes its estimate of loss and loss adjustment expense reserves are adequate as of ~~June~~September 30, 2021, 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~~nine months ended ~~June~~September 30, 2021, is as follows and includes reserves related to both our FAL contract, as well as our automotive insurance quota-share agreement which became effective April 1, 2021. There was no activity with respect to loss and loss adjustment expense reserves for the ~~six~~nine months ended ~~June~~September 30, 2020.

(in thousands)	2021			2021

Balance, January 1, gross of reinsurance	$	–		$	–
Less reinsurance recoverable on loss and LAE expense reserves		–			–
Balance, January 1, net of reinsurance		–			–
Incurred related to:
Current year		835			1,893
Prior years		–			–
Paid related to:
Current year		(157	)		(549	)
Prior years		–			–
Balance, June 30, net of reinsurance		678
Balance, September 30, net of reinsurance					1,344
Plus reinsurance recoverable related to loss and LAE expense reserves		–			–
Balance, June 30, gross of reinsurance	$	678
Balance, September 30, gross of reinsurance				$	1,344

Income tax expense for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 varies from the amount that would result by applying the applicable statutory federal income tax rate to income before income taxes as summarized in the following table:

	2021			2020			2021			2020
($ in thousands)	Three months ended June 30,						Six months ended June 30,						Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020			2021			2020			2021			2020
Income tax expense (benefit) at statutory income tax rate of 21%	$	93		$	(431	)	$	69		$	(2,422	)
Income tax expense (benefit) at statutory income tax rate of 21%													$	(923	)	$	(2,014	)	$	(854	)	$	(4,436	)
Valuation allowance for deferred tax assets deemed unrealizable		47			967			40			2,004			1,041			1,510			1,081			3,514
Rate differential due to CARES Act		–			–			–			(214	)		–			–			–			(214	)
Non-deductible expenses associated with the Share Repurchase Transaction														–			516			–			516
State income tax (net of federal tax benefit)		–			–			(114	)		–			–			–			(114	)		–
Share-based compensation		1			–			2			–
Noncontrolling interests		(140	)					(140	)		–			(119	)					(259	)		–
Other		(1	)		(16	)		(2	)		(33	)		1			(12	)		1			(45	)
Income tax expense (benefit)	$	–		$	520			(145	)	$	(665	)	$	–		$	–			(145	)	$	(665	)

Income tax benefit – from continuing operations	$	–		$	520		$	–		$	(665	)	$	–		$	–		$	–		$	(665	)
Income tax benefit – from discontinued operations	$	–		$	–		$	(145	)	$	–
Income tax benefit – from discontinuing operations													$	–		$	–		$	(145	)	$	–

Due to the sale of all of the issued and outstanding equity of Maison, MMI and Claimcor ~~(the “Maison Business”)~~ on December 2, 2019, these operations have been classified as discontinued operations in the Company’s financial statements presented herein. For the quarter ended March 31, 2021, we recognized a gain from the sale of the Maison Business of approximately $~~145~~145,000~~,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 a result of the passage of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Company recorded a credit of $~~214~~214,000~~,000~~ against its income tax expense for the quarter ended March 31, 2020, due to a provision in the CARES Act which allows for the five-year carryback of net operating losses. Prior to the passage of the CARES Act, these net operating losses were only available to offset future taxable income generated by the Company.

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. As of ~~June~~September 30, 2021, the Company has gross net deferred tax assets of approximately $~~4.0~~5.3 million; however the Company has recorded a valuation allowance against all of its net 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 $0as of ~~June~~September 30, 2021. Significant components of the Company’s net deferred tax assets are as follows:

	June 30, 2021			December 31, 2020			September 30, 2021			December 31, 2020
Deferred income tax assets:
Net operating loss carryforward	$	2,060		$	1,143		$	2,824		$	1,143
Share-based compensation		242			216			221			216
Investments		1,728			2,570			2,085			2,570
Unearned premium reserves								151			–
Other		118			5			21			5
Deferred income tax assets		4,148			3,934			5,302			3,934
Less: Valuation allowance		(3,972	)		(3,934	)		(5,015	)		(3,934	)
Deferred income tax assets net of valuation allowance	$	176		$	–		$	287		$	–

Deferred income tax liabilities:
Deferred policy acquisition costs	$	176		$	–		$	214		$	–
Other		–			–			73			–
Deferred income tax liabilities	$	176		$	–		$	287		$	–

Net deferred income tax asset	$	–		$	–
Net deferred income tax asset (liability)							$	–		$	–

As of ~~June~~September 30, 2021, the Company had net operating loss carryforwards (“NOLs”) for federal income tax purposes of approximately ~~$9.8~~$13.4 million, which ~~will~~may be available to offset future taxable income. The Company’s NOLs expire as follows: $0.5 million in 2039, $0.1 million in 2040, and $~~0.7~~1.2 million in 2041. The remaining $~~8.5~~11.6 million in NOLs do not expire under current tax law.

As of ~~June~~September 30, 2021, the Company had 0no 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 no0 uncertain tax positions. The Company generally recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

In April 2014, the Company established an equity incentive plan for employees and directors of the Company (the “2014 Plan”). The purpose of the 2014 Plan was to create incentives designed to motivate recipients to significantly contribute toward the Company’s growth and success, to attract and retain persons of outstanding competence, and to provide such persons with an opportunity to acquire an equity interest in the Company.

The 2014 Plan allowed for the issuance of non-qualified stock options, restricted stock, restricted stock units (“RSUs”), performance shares, performance cash awards, and other stock-based awards and provided for the issuance of 354,912 shares of common stock. On May 31, 2018, the 2014 Plan was terminated with the adoption of the 2018 Plan, as discussed below.

On May 31, 2018, our shareholders approved the 1347 Property Insurance Holdings, Inc. 2018 Equity Incentive Plan (the “2018 Plan”). The purpose of the 2018 Plan is to attract and retain directors, consultants, and other key employees of the Company and its subsidiaries and to provide to such persons incentives and rewards for superior performance. The 2018 Plan is administered by the Compensation and Management Resources Committee of the Board and has a term of ten years. The 2018 Plan allows for the issuance of both incentive stock options and non-qualified stock options, stock appreciation rights, RSUs, and other stock-based, as well as cash-based ~~awards, and provides for a maximum~~awards. As of September 30, 2021, there remained ~~300,000~~0 shares available for ~~issuance.~~

~~As of June 30, 2021, the Company had RSU agreements outstanding under the 2014 Plan and both non-qualified stock options and RSUs outstanding~~issuance under the 2018 Plan.

~~Restricted Stock Units issued under both~~ Accordingly, the ~~2014 and 2018 Plans~~

~~On May 29, 2015,~~Company is seeking the approval of a new equity incentive plan, to be voted upon at the Company’s ~~Board~~2021 annual meeting of ~~Directors granted~~ ~~4,000~~ RSUs to our former Chief Financial Officer, John S. Hill under the 2014 Plan. Each RSU granted entitled Mr. Hill to one share of the Company’s common stock upon the vesting date of the RSU. As of June 30, 2021, all 4,000 RSUs remained outstanding under the grant. On August 6, 2021, in connection with Mr. Hill’s retirement from the Company, the Company’s Compensation Committee approved the vesting of all ~~4,000~~ ~~RSUs.~~shareholders.

~~On May 31, 2017,~~As of September 30, 2021, the ~~Compensation Committee of~~Company had RSU agreements outstanding under both the ~~Company’s Board of Directors approved a share matching arrangement resulting in~~2014 and 2018 Plans as well as non-qualified stock options outstanding under the ~~issuance of~~ 2018 Plan.

RSUs Outstanding under the 2014 ~~Plan issued to the Company’s officers~~ and ~~non-employee directors. The RSUs were issued on December 15, 2017, and entitle each grantee to one share of the Company’s common stock upon the vesting date of the RSU, which will vest~~ 20~~% per year over a period of~~ ~~five years~~following the date granted, subject to each officer’s continued employment with the Company, or each director’s continued service on the Board. Prior to the vesting of the RSUs, the grantee will not be entitled to any dividends declared on the Company’s common stock. The RSUs do not expire; however, should the grantee discontinue employment or Board service with the Company for any reason other than death or disability, all unvested RSUs will be deemed forfeited on the date employment or Board service is discontinued. The Board of Directors may, in its discretion, accelerate vesting in the event of early retirement. As of June 30, 2021, ~~20,798~~ ~~RSUs remain outstanding under the grant. On August 6, 2021, in connection with Mr. Hill’s retirement from the Company, a total of~~ ~~12,800~~ of these RSU shares vested to Mr. Hill. The RSUs granted on December 15, 2017 will also vest in full as of the last date of service as a director of the Company should the director make himself or herself available and consent to be nominated by the Company for continued service but is not nominated by the Board for election by the shareholders, other than for good reason as determined by the Board in its discretion.2018 Plan

~~On August 22, 2018,~~The following table summarizes RSU activity for the ~~Compensation Committee granted~~ ~~1,000~~ ~~shares of the Company’s common stock (the “Bonus Shares”) and~~ ~~1,000~~ ~~RSUs to Mr. Hill, under the 2018 Plan. Each RSU represents a contingent right to receive one share of the Company’s common stock. As of June~~nine months ended September 30, 2021 and 2020:

~~600~~ ~~RSUs remained unvested under this grant, however, on August 6, 2021, in connection with Mr. Hill’s retirement from the Company, the Compensation Committee approved the vesting~~Schedule of ~~these RSUs.~~Restricted Stock Units Activity

~~Also, on~~(1) On August ~~22, 2018,~~12, 2020, the ~~Company modified its compensation program for all~~Board issued 60,998 RSUs to the Company’s then serving non-employee directors, ~~of the Company, effective September 1, 2018. The modified compensation program allows for an annual grant of RSUs with~~representing a value of $40,000~~, vesting~~ per director, pursuant to the Company’s compensation program in effect for all non-employee directors. The RSUs vest in five equal annual installments, beginning with the first anniversary of the grant date. ~~Accordingly,~~Due to the unavailability of shares under the 2018 Plan, RSUs have not been granted to our non-employee directors for 2021; however, on ~~August 22, 2018, August 13, 2019,~~July 27, 2021, the Compensation and ~~again on August 12, 2020,~~Management Resource Committee of the Board ~~issued RSUs~~approved an increase to ~~each of~~ the ~~Company’s then serving non-employee directors, representing a value of $40,000 per director. The total number~~amount of RSUs granted ~~were~~ ~~34,284~~ ~~on August 22, 2018,~~ ~~61,776~~ ~~on August 13, 2019, and~~ ~~60,998~~ ~~on August 12, 2020. Furthermore, on January 11, 2019, the Company’s Board appointed two new~~annually to non-employee directors to ~~the Board, Ambassador Rita Hayes~~$50,000 from $40,000 and ~~Dr. Marsha G. King, resulting in~~authorized the issuance of ~~5,397~~the 2021 award of RSUs ~~to each~~upon the availability of ~~these two directors, representing their pro-rata share of the RSU grant issued to each of~~sufficient stock under the Company’s non-employee directors on an annual basis. The terms of the RSUs granted allow for their immediate vesting, subject to the Board’s discretion, upon a director’s resignation or retirement from the Board. Accordingly, uponequity incentive plan.

(2) Upon the resignation of Marsha G. King and Lewis M. Johnson on December 14, 2020, and March 12, 2021, respectively, the Board accelerated the vesting of 19,210 RSUs that had been previously granted to Ms. King, and 20,987 RSUs that had been previously granted to Mr. Johnson. On August 6, 2021, in connection with Mr. Hill’s retirement from the Company, the Company’s Compensation Committee approved the vesting of a total of 17,400 RSUs previously granted to Mr. Hill.

~~The following table summarizes RSU activity for the six months ended June 30, 2021 and 2020.~~

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 under the Company’s 2018 Equity Incentive Plan. The Stock Option entitles Mr. Swets to purchase up to 130,000shares of the Company’s common stock at an exercise price of $3.38per share. The Stock Option becomes vested and fully exercisable in 20% increments on each anniversary of the grant date provided that Mr. Swets’ remain in the continuous service of the Company through each applicable vesting date and provided that the Company’s book value per share shall have increased by 15% or more as compared to the Company’s book value per share as of the fiscal year end ~~prior.~~prior. The Stock Option expires on January 11, 2031.

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:

The following table summarizes activity for stock options issued for the nine months ended September 30, 2021. There was no activity for the nine months ended September 30, 2020.

Total stock-based compensation expense for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 was approximately $~~247,000~~377,000 and $~~104,000~~163,000, respectively. As of ~~June~~September 30, 2021, total unrecognized stock compensation expense of $~~635,000~~506,000 remains, which will be recognized through September 30, ~~2025~~.2025. Stock compensation expense has been reflected in the Company’s financial statements as part of general and administrative expense.

~~The following table summarizes activity for stock options issued for the six months ended June 30, 2021. There was no activity for the six months ended June 30, 2020.~~

For the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, warrants were neither granted nor exercised, nor did any warrants expire. As of ~~June~~September 30, 2021, the Company had 1,500,000 warrants outstanding with an exercise price of $15.00, which expire on February 24, 2022.

On May 21, 2021, we completed the underwritten public offering of an additional 194,580 shares of our preferred stock designated as ~~8.00~~8.00%% Cumulative Preferred Stock, Series A, par value $25.00 per share (the “Series A Preferred Stock”), for gross proceeds of approximately $4.9 million, before deducting underwriting commissions and offering expenses. This included the exercise in full by the underwriters of their over-allotment option to purchase up to an additional 25,380 shares, bringing the total number of Series A Preferred Stock shares outstanding to 894,580 as of ~~June~~September 30, 2021.

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 or a duly authorized committee thereof. Dividends are payable out of amounts legally available therefor at a rate equal to ~~8.00~~8.00% % per annum per $25.00of stated liquidation preference per share, or $2.00per share of Series A Preferred Stock per year. ~~[The Company’s~~Our Board of Directors declared the third quarter 2021 dividend on the shares of Series A Preferred Stock on ~~August 13,~~November 12, 2021.]

The Series A Preferred Stock is not redeemable prior to February 28, 2023. On and after that date, the Series A Preferred Stock will be redeemable at our option, for cash, in whole or in part, at a redemption price of $25.00 per share of Series A Preferred Stock, plus all accumulated and unpaid dividends to, but not including, the date of redemption. The Series A Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption. ~~The Series A Preferred Stock will generally have no voting rights except as provided in the Certificate of Designations or as from time to time provided by law.~~ The affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock and each other class or series of voting parity stock will be required at any time for us to authorize, create or issue any class or series of our capital stock ranking senior to the Series A Preferred Stock with respect to the payment of dividends or the distribution of assets on liquidation, dissolution or winding up, to amend any provision of our Certificate of Incorporation so as to materially and adversely affect any rights of the Series A Preferred Stock or to take certain other actions. The Series A Preferred Stock shares trade on the Nasdaq Stock Market under the symbol “FGFPP”.

On October 28, 2021, we closed the underwritten public offering of 652,174 shares of our common stock at a public offering price of $4.00 per share. Furthermore, on November 3, 2021, the underwriters exercised their over-allotment option, closing on the sale of an additional 97,826 shares of our common stock under the same terms. The issuance, including the exercise of the over-allotment, resulted in approximately $2.5 million in net proceeds to us, after deducting underwriting commissions and other offering expenses.

On October 29, 2021, the Company announced the commencement of its previously announced rights offering to holders of its common stock. Pursuant to the terms of the rights offering, the Company distributed, to each holder of its common stock, one non-transferable subscription right to purchase 0.15 share of common stock, at a price of $4.00 per whole share, for each share held as of 5:00 p.m. Eastern Time on October 25, 2021, the record date for the rights offering. The subscription rights may be exercised at any time during the subscription period, which commenced on October 29, 2021. The rights will expire if they are not exercised by 5:00 p.m., Eastern Time, on November 29, 2021, unless the Company extends the rights offering subscription period.The Company will not issue any fractional shares of the Company’s common stock in the rights offering, and subscription rights will be rounded down to the nearest whole number of shares. Stockholders are entitled to purchase, in total, up to 757,720 shares of common stock, for potential gross proceeds to the Company of approximately $3.0 million. The Company intends to use the net proceeds from this offering for working capital and other general corporate purposes.

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 September 30, 2021.

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.

As of ~~June~~September 30, 2021, the Company ~~has~~had invested $4.0 million as a limited partner in FGI Metrolina Property Income Fund, LP (“Metrolina”), which invests in real estate through a real estate investment trust which is wholly owned by Metrolina. The general partner of Metrolina, FGI Metrolina GP, LLC, is managed, in part, by Mr. Cerminara, the Chairman of the Board of Directors of the Company. ~~For~~In the ~~year ending December 31, 2020, the Company made~~third quarter, 2021, Metrolina announced it would be liquidating and returning capital to its investors. Accordingly, on November 11, 2021, we received approximately $~~80,000~~ 4.4 million in ~~performance allocations to~~cash back from the ~~general partner~~Fund, representing our initial investment of ~~Metrolina.~~ $4.0 million plus approximately $0.4 million in distributed earnings. We anticipate receiving additional earnings from Metrolina in the fourth quarter of 2021, based upon the final net asset value calculated by Metrolina as of November 30, 2021.

Metrolina’s investment program iswas managed by ~~FGI~~FG Funds Management LLC, an affiliate of ~~FGI,~~FG, which, with its affiliates, is the largest stockholder of the Company. The Company’s investment represents an approximate 5252% % ownership stake in Metrolina as of ~~June~~September 30, 2021.

On March 31, 2020, the Company entered into the Limited Liability Company Agreement (the “LLC ~~Agreement “)~~Agreement”) of Fundamental Global Asset Management, LLC (“FGAM”), a joint venture owned 5050%% by each of the Company and an affiliate of ~~FGI.~~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 business and the investment products they sponsor.

FGAM is governed by a Board of Managers consisting of four managers, two of which are appointed by each member of the joint venture. 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.

In September 2020, the Company provided seed capital of $5.0 million into FGAM, to capitalize FG Special Situations Fund Advisor, LLC (the “Advisor”), a Delaware limited liability company formed on September 2, 2020, and to sponsor the launch of FG Special Situations Fund, LP (the “Fund”), a Delaware limited partnership also formed on September 2, 2020. ~~The~~FGAM has invested in the Fund ~~is majority owned by FGAM~~ through the Fund’s general partner and the Advisor, both of which are ultimately controlled by Mr. Cerminara, the Chairman of the Company’s Board of Directors. Of the total $5.0 million invested, approximately $4.0 million was used by FG New America Investors, LLC (the “Sponsor”) as part of a total $8.6 million of risk capital used to launch FG New America Acquisition Corp (NYSE: FGNA), a special purpose acquisition company which consummated its initial public offering on October 2, 2020. On July 20, 2021, FGNA completed its definitive business combination with Opportunity Financial, LLC and began operating as OppFi Inc. (“OppFi”), with OppFi’s common stock trading on the NYSE under the ticker symbol “OPFI”. The Fund’s specific investment consists of both class A and class A-1 interests of the Sponsor. On July 15, 2021, the Sponsor entered into a sponsor forfeiture agreement with FGNA and Opportunity Financial, LLC, under which the Sponsor agreed to forfeit a portion of FGNA Class B common stock as well as a portion of warrants to purchase FGNA Class A common stock which the Sponsor previously held. As a result, as of July 20, 2021, the class A and class A-1 interests represent a potential beneficial ownership of approximately 0.86 million common shares of OPFI as well as approximately 0.36 million warrants to purchase common shares of OPFI at a price of $11.50 per share. The class A and class A-1 interests have not been registered under the Securities Act of 1933, as amended, and are not transferrable except as provided for in the operating agreement of the Sponsor.

Mr. Cerminara is a manager of the Sponsor. Mr. Swets, our Chief Executive Officer, was the Chief Executive Officer and a director of FGNA, however no longer holds those positions following FGNAs business combination with OppFi. Mr. Swets is also a manager of the Sponsor. Hassan R. Baqar, our Chief Financial Officer effective August 6, 2021, was the Chief Financial Officer of FGNA, however no longer holds that position following FGNA’s business combination with OppFi.

In the first quarter, 2021, the Company invested an additional $1.65 million into FGAM, which, in turn, was further invested into the Fund. ~~Additionally, the Fund received outside investment of approximately $0.7~~ ~~million during the quarter.~~ This additional investment was used by the Fund to sponsor its second SPAC via an investment of ~~$1.0~~$1.65 million in Aldel Investors, LLC, the sponsor of Aldel Financial, Inc. (NYSE: ADF). Of the total ~~$1.65~~$1.65 million the Fund invested in Aldel, $1.0 million was allocated to the Company, with the remaining $0.65 million allocated to noncontrolling interests. The Company’s $11.0 million investment in Aldel, represents the beneficial ownership of approximately 286,000 Aldel founder shares.

Mr. Swets serves as Senior Advisor to Aldel, Mr. Baqar serves as Director and Chief Financial Officer of Aldel, and Mr. Cerminara serves as a director of Aldel.

Pursuant to the Investment Advisory Agreement entered into upon closing of the Asset Sale, FG Strategic Consulting, LLC (“~~FGSC,”, formerly Fundamental Global Advisors 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 Investment Advisory Agreement expires on December 2, 2024.

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 ~~FGI,~~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 (collectively, the “Services”). In exchange for the Services, the Company pays FGM a fee of $456,250 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.

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.

~~The Company paid $912,500~~ ~~and $456,250~~ ~~to FGM under the Shared Services Agreement for the six months ended June 30, 2021 and 2020, respectively.~~

The Company paid $1.37 million and $0.91 million to FGM under the Shared Services Agreement for the nine months ended September 30, 2021 and 2020, respectively.

On September 15, 2020, the Company entered into a Share Repurchase and Cooperation Agreement (the “Share Repurchase Agreement”) with Hale Partnership Capital Management, LLC and certain of its affiliates (collectively, the “Hale Parties”), which, prior to the transaction, owned more than 18%18% of ~~our~~the Company’s outstanding common stock (the “Share Repurchase Transaction”).

Pursuant to the Share Repurchase Agreement, the Company agreed to purchase (exclusive of any fees or expenses) all of the 1,130,152 shares of the Company’s common stock, owned, of record or beneficially, by the Hale Parties, in exchange for an aggregate of approximately $2.8 million in cash and 330,231 shares of FedNat common stock previously owned by the Company (the “FedNat Shares”) having an estimated fair value of approximately $2.7 million on September 15, 2020. As acknowledged by the Hale Parties in the Share Repurchase Agreement, that certain Standstill Agreement, dated December 2, 2019, by and between FedNat Holding Company and the Company, imposes certain restrictions in respect of the FedNat Shares transferred by the Company to the Hale Parties. FedNat Holding Company is not party to, or a third-party beneficiary of, the agreement.

The Share Repurchase Agreement contains certain customary standstill provisions that, for a period of five years commencing September 15, 2020 (the “Standstill Period”), prohibit, among other things, the Hale Parties from (i) making certain announcements regarding the Company’s transactions, (ii) soliciting proxies, (iii) acquiring ownership of any securities of the Company, (iv) advising, encouraging or influencing any vote or disposition of any securities of the Company, (v) selling securities of the Company resulting in any third party owning more than ~~4.9~~4.9%% of the outstanding shares of the Company’s common stock (subject to certain exceptions set forth in the Share Repurchase Agreement), (vi) taking actions to change or influence the Board of Directors of the Company, Company management or the direction of certain Company matters and (vii) exercising certain stockholder rights. The Company and the Hale Parties further agreed that they will not disparage each other and that they will not initiate any lawsuit, claim or proceeding with respect to any claims against the Company or any of the Hale Parties, as applicable, based on facts known as of the date of the Share Repurchase Agreement, in each case applicable during the Standstill Period, and to a mutual release of claims.

Each of the Company and the Hale Parties has the right to terminate the Share Repurchase Agreement prior to the end of the Standstill Period if (i) any of the Hale Parties, in the case of the Company, or (ii) the Company, in the case of the Hale Parties, commits a material breach of the Share Purchase Agreement and such breach is not cured within 15 days after notice is given to the breaching party.

As the total consideration paid in the Share Repurchase ~~transaction~~Transaction exceeded the fair value of the treasury shares repurchased by the Company, the Company recorded a charge of approximately $0.2million to general and administrative expense for the year ended December 31, 2020, representing the estimated fair value of the rights conveyed to the Company pursuant to the standstill provisions in the agreement. The fair value of the 1,130,152shares of Company common stock, or approximately $5.2million, was recorded to treasury stock.

On January 4, 2021, FG SPAC Partners, LP (“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 an approximate 4949% % limited partner interest in FGSP directly and through its subsidiaries. Certain of our directors and officers also hold limited partner interests in FGSP. ~~Our Chief Executive Officer and Director, Larry G.~~Mr. Swets, holds a limited partner interest through Itasca Financial LLC, an advisory and investment firm for which Mr. Swets is managing member. ~~Hassan R.~~Mr. Baqar ~~our Chief Financial Officer effective August 6, 2021,~~ also holds a limited partner interest through Sequoia Financial LLC, an advisory firm for which Mr. Baqar is managing member. ~~The Chairman of our Board of Directors, D. Kyle Cerminara,~~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.

On January 11, 2021, FGSP purchased 1,075,000founder shares from Aldel, for total consideration of $4,674. On March 25, 2021, FGSP entered into a forfeiture agreement with Aldel whereby FGSP agreed to transfer 575,000of these founder shares back to Aldel at no cost. Concurrent with Aldel’s initial public offering, on April 12, 2021, FGSP also purchased 650,000warrants at a price of $0.10per warrant, each exercisable to purchase one share of Aldel’s Class A common stock at an exercise price of $15.00per share (the “OTM Warrants”), for an aggregate purchase price of $65,000. In addition, the Company through its joint venture investment in Fundamental Global Asset Management, LLC and the FG Special Situations Fund, LP, has invested $1.0million in the risk capital of Aldel Investors, LLC, which represent beneficial ownership of approximately 286,000Aldel founder shares. Altogether, the Company’s investment represents beneficial interests of approximately 533,000Aldel founder shares and approximately 321,000OTM Warrants. ~~Our Chief Executive Officer and Director, Larry G.~~Mr. Swets, serves as senior advisor to Aldel. ~~Hassan R.~~Mr. Baqar ~~our Chief Financial Officer effective August 6, 2021,~~ serves as a director and chief financial officer of Aldel. ~~The Chairman of our Board of Directors, D. Kyle~~Mr. Cerminara serves as a director of Aldel.

Net income (loss) per common 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~~nine months ended ~~June~~September 30, 2021 and 2020.

Schedule of Numerators and Denominators Used in Calculation of Basic and Diluted Earnings Per Share

	2021			2020			2021			2020
($ in thousands)	Three months ended June 30,						Six months ended June 30,
($ in thousands except per share data)													Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020			2021			2020			2021			2020
Basic and diluted:
Net income (loss) from continuing operations	$	440		$	(2,571	)	$	328		$	(10,868	)
Net loss from continuing operations													$	(4,393	)	$	(9,590	)	$	(4,065	)	$	(20,458	)
Gain attributable to noncontrolling interests		(667	)		–			(666	)		–			(569	)		–			(1,235	)		–
Dividends declared on Series A Preferred Shares		(447	)		(350	)		(797	)		(700	)		(448	)		(350	)		(1,245	)		(1,050	)
Loss attributable to FG Financial Group, Inc. common shareholders		(674	)		(2,921	)		(990	)		(11,568	)		(5,410	)		(9,940	)		(6,545	)		(21,508	)
Weighted average common shares outstanding		5,010,377			6,068,106			5,001,731			6,067,975			5,032,615			5,893,125			5,012,139			6,009,267
Loss per common share from continuing operations	$	(0.13	)	$	(0.48	)	$	(0.23	)	$	(1.91	)	$	(1.08	)	$	(1.69	)	$	(1.31	)	$	(3.58	)

Gain from sale of Maison Business, net of taxes	$	–		$	–			145		$	–		$	–		$	–			145		$	–
Weighted average common shares outstanding		5,010,377			6,068,106			5,001,731			6,067,975			5,010,377			–			5,012,139			–
Income per common share from discontinued operations	$	–		$	–		$	0.03		$	–		$	–		$	–		$	0.03		$	–

The following potentially dilutive securities outstanding as of ~~June~~September 30, 2021 and 2020 have been excluded from the computation of diluted weighted-average shares outstanding as their effect would be ~~anti-dilutive.~~anti-dilutive:

	As of June 30,				As of September 30,
	2021		2020		2021		2020
Options to purchase common stock		130,000		–		130,000		–
Warrants to purchase common stock		1,500,000		1,500,000		1,500,000		1,500,000
Restricted stock units		126,419		147,910		85,325		179,432
		1,756,419		1,647,910		1,715,325		1,679,432

On January 18, 2021, the Company and the Company’s Chief Executive Officer, Larry G. Swets, Jr., entered into an Equity Award Letter Agreement (the “Letter Agreement”), pursuant to which the Company agreed to grant Mr. Swets a future award (the “Future Award”) of 370,000 stock options, restricted shares or restricted stock units, 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, and an amended and/or new equity plan, in a form to be prepared and reviewed by the Board of Directors of the Company (the “Board”), has been approved by the Board and stockholders of the Company that authorizes a sufficient number of shares of common stock to make such Future Award.

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.

Effective July 23, 2021, the Company entered into a lease agreement for office space in St. Petersburg, FL. The lease has a term of one year. Total minimum rent over the term is expected to be $18,000. Rent expense was $~~10,000~~15,000 and $~~16,000~~25,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively.

We continue to monitor the recent outbreak of the novel coronavirus (COVID-19) on our operations.

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.

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 includes our two quota share reinsurance agreements, as well 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 investment in Aldel. Our asset management segment includes the operations of the Fund, as well as our investments in Metrolina, our investment advisory agreement with FedNat and the operations of our newly formed SPAC Platform.

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~~nine months ended ~~June~~September 30, 2021 and 2020. The three months ended March 31, 2020 marked the first quarter following the sale of the Company’s insurance operations in the Asset Sale. Accordingly, the Company had limited information to present for its insurance segment for 2020, restricted primarily to its investment in FedNat common stock. Furthermore, cash proceeds received as a result of the Asset Sale had not yet been deployed and have been presented in the ‘other’ segment as of ~~June~~September 30, 2020. The ‘other’ category in the table below consists largely of corporate general and administrative expenses which have not been allocated to a specific segment.

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, 2020 on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 18, 2021.

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. You should be aware that many of the risks listed below were, and may continue to be, exacerbated by the COVID-19 pandemic.

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: risks associated with our limited business operations since the closing of the Asset Sale; risks associated with our inability to identify and realize business opportunities, and the undertaking of any new such opportunities, following the Asset Sale; our ability to spend or invest the net proceeds from the Asset Sale in a manner that yields a favorable return; general conditions in the global economy, including the impact of health and safety concerns from the current COVID-19 pandemic and the impact of governmental measures taken in response thereto; the uncertainty and difficulty in predicting the ultimate impact of the COVID-19 pandemic on our business; our lack of operating history or established reputation in the reinsurance industry; our inability to obtain or maintain the necessary approvals to operate reinsurance subsidiaries; risks associated with operating in the reinsurance industry, including inadequately priced insured risks, credit risk associated with brokers we may do business with, and inadequate retrocessional coverage; our inability to execute on our investment and investment management strategy, including our strategy to invest in real estate assets; 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 not 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 publicly traded 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; the impact of the COVID-19 pandemic on the business of FedNat Holding Company; continued volatility or further decline in the value of the shares of FedNat Holding Company common stock received by us as consideration in the Asset Sale 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 inability to continue to satisfy the listing standards of the Nasdaq following completion of the Asset Sale. Our expectations and future plans and initiatives may not be realized. If one of these risks or uncertainties materialize, 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.

FG Financial Group, Inc. (“FGF”, the “Company”, “we”, or “us”) is a reinsurance and investment management holding company focused on opportunistic collateralized and loss capped reinsurance, while allocating capital in partnership with Fundamental Global^®to SPAC and SPAC sponsor-related businesses. Our principal business operations are conducted through our subsidiaries and affiliates. We were incorporated on October 2, 2012 in the State of Delaware under the name Maison Insurance Holdings, Inc., and changed our legal name to 1347 Property Insurance Holdings, Inc. on November 19, 2013. On March 31, 2014, we completed an initial public offering of our common stock. Prior to the offering, we were a wholly owned subsidiary of Kingsway America Inc., which, in turn, is a wholly owned subsidiary of Kingsway Financial Services Inc., or KFSI, a publicly owned Delaware holding company. From our inception through December 2, 2019, we operated as an insurance holding company, writing property and casualty insurance throughout the states of Louisiana, Florida and Texas through our subsidiaries. On December 2, 2019, we sold our three insurance subsidiaries, and embarked on a new strategy focused on insurance, reinsurance, real estate, and asset management.

Accordingly, on December 14, 2020, our shareholders approved a change in our corporate name to FG Financial Group, Inc., to better align with this new business strategy.

As of ~~June~~September 30, 2021, Fundamental Global ~~Investors,~~GP, LLC, a privately owned investment management company, and its affiliates, or ~~FGI,~~“FG,” beneficially owned approximately ~~61%~~60% of our outstanding shares of common stock. D. Kyle Cerminara, Chairman of our Board of Directors, serves as Chief Executive Officer, Co-Founder and Partner of ~~FGI.~~FG.

As consideration for the Asset Sale, FedNat paid the Company $51.0 million, consisting of $25.5 million in cash and $25.5 million in FedNat’s common stock, or 1,773,102 shares of FedNat common stock. In addition, upon the closing of the Asset Sale, $18.0 million of outstanding surplus note obligations payable by Maison to the Company, plus all accrued but unpaid interest, was repaid to the Company.

For insurance regulatory purposes, the Company has waived any rights that it may have to exercise control of FedNat.

Pursuant to the Investment Advisory Agreement, FG Strategic Consulting, LLC (“~~FGSC,” formerly Fundamental Global Advisors LLC)~~FGSC”), a wholly-owned subsidiary of the Company, was formed to provide investment advisory services to FedNat, which include 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.

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

Historically, the Company has operated a real estate business through its subsidiary, FGI Metrolina Property Income Fund, LP, however, the Company does not anticipate that its real estate business will be a significant component of its future business plans.

The Company has formed a wholly-owned reinsurance subsidiary, FG Reinsurance Ltd. (“FGRe”), a Cayman Islands limited liability company, to provide specialty property and casualty reinsurance. FGRe has been granted a Class B (iii) insurer license in accordance with the terms of The Insurance Law, 2010 and underlying regulations thereto and is subject to regulation by the Cayman Islands Monetary Authority (the “Authority”). The terms of the license require FGRe to receive a capital infusion in the amount of $5.0 million, which the Company effected in July 2020 via the transfer of 156,000 shares of FedNat common stock from the Company along with approximately $3.3 million in cash. The terms of the insurer license also 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. In November 2020, FGRe entered into its first reinsurance transaction, effective January 1, 2021, through a Funds at Lloyds syndicate (“FAL”). The maximum loss exposure in the transaction is approximately $2.9 million and covers all risks written by the syndicate during the 2021 calendar year. On November 12, 2020, FGRe initially funded a trust account at Lloyd’s with approximately $2.4 million in cash to collateralize its obligations under the contract. Effective 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. FGRe’s exposure is limited by a loss-cap stipulated within the quota-share agreement.

FGSC serves as an investment advisor to FedNat under the investment advisory agreement entered into at the closing of the Asset Sale. The Company has also formed Fundamental Global Asset Management, LLC (“FGAM”), a joint venture with ~~an affiliate~~a wholly owned subsidiary of ~~FGI,~~FG, to sponsor investment advisors that will manage private funds ranging the full spectrum of alternative equities, fixed income, private equity and real estate. In September 2020, the joint venture sponsored the launch of FG Special Situations Fund via an investment of $5.0 million. Approximately $4.0 million of this investment represented the sponsorship of our first special purpose acquisition company, or “SPAC”.

We continue to monitor the recent outbreak of the novel coronavirus (COVID-19) on our operations.

Critical accounting policies are those that require us to make significant judgments, estimates or assumptions that affect amounts reported in our financial statements or the notes thereto. We base our judgments, estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable and prudent. Actual results may differ materially from these estimates. The business and economic uncertainty resulting from the novel coronavirus (COVID-19) pandemic has made such estimates and assumptions difficult to calculate. Set forth below is a summary of what we believe to be our most critical accounting policies and estimates.

The Company’s equity securities are recorded at fair value using observable inputs such as quoted prices in both active and inactive markets, quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs. Certain of the Company’s equity securities do not trade on established markets and are thus valued using unobservable inputs and other valuation approaches such as an income or market approach and are accordingly classified as Level 3 valuation inputs under the fair value hierarchy established by the Financial Accounting and Standards Board. Due to the inherent uncertainty of valuations, the fair values reflected in the financial statements as of the measurement date may differ materially from: 1) values that would have been used had a readily available market existed for these investments; and 2) the values that may ultimately be realized upon sale of the investments.

Any change in the estimated fair value of its investments could impact the amount of unrealized gain or loss the Company has recorded, which could change the amount the Company has recorded for its investments and on its consolidated balance sheets and statements of income.

Gains and losses realized on the disposition of investments are determined on the first-in first-out basis and credited or charged to the consolidated statements of income and comprehensive income.

The Company performs a quarterly analysis of its investment portfolio to determine if declines in market value are other-than-temporary. Further information regarding its detailed analysis and factors considered in establishing an other-than-temporary impairment on an investment is discussed within Note 4 – Investments, to the consolidated financial statements.

The determination of whether or not 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.

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.

The Company participates in a quota share ~~contracts~~contract under a Funds at Lloyds (“FAL”) transaction 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, in arrears and thus for any reporting lag, premiums written are estimated based on the portion of the ultimate estimated premiums relating to the risks underwritten during the lag period.

Premium estimates are reviewed by management periodically. Such review includes a comparison of actual reported premiums to expected ultimate premiums. Based on management’s review, the appropriateness of the premium estimates is evaluated, and any adjustments to these estimates are recorded in the period in which they are determined. Changes in premium estimates, including premiums receivable, are not unusual and may result in significant adjustments in any period. A significant portion of amounts included in the caption “Reinsurance balances receivable” in the Company’s consolidated balance sheets represent estimated premiums written, net of commissions, brokerage, and loss and loss adjustment expense, and are not currently due based on the terms of the underlying contracts. ~~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. Additional premiums due on a contract that has no remaining coverage period are earned in full when written. Unearned premiums represent the unexpired portion of reinsurance provided.

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.

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

Generally, the Company obtains regular updates of premium and loss related information for the current and historical periods, which are utilized to update the initial expected loss ratio. We also experience lag between (i) claims being reported by the underlying insured to the Company’s cedent and (ii) claims being reported by the Company’s cedent to the Company. This lag may impact the Company’s loss reserve estimates. 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.

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

See Note 3 – “Recently Adopted and Issued Accounting Standards” to the consolidated financial statements included in Part I, Item 1 of this report for a discussion of recent accounting pronouncements and their effect, if any, on the Company.

The following table summarizes the Company’s investments in equity securities as of ~~June~~September 30, 2021 and December 31, ~~2020.~~2020:

($ in thousands)	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount		Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount
As of June 30, 2021
FedNat common stock	$	20,751	$	–	$	14,763	$	5,988
As of September 30, 2021
FNHC common stock									$	20,751	$	–	$	17,187	$	3,564
SPAC investments		680		4		–		684		19		–		–		19
Private placements		5,679		5,116		–		10,795		10,469		5,120		–		15,589
Total equity securities	$	27,110	$	5,120	$	14,763	$	17,467	$	31,239	$	5,120	$	17,187	$	19,172

As of December 31, 2020
FedNat common stock	$	20,751	$	–	$	12,209	$	8,542
FNHC common stock									$	20,751	$	–	$	12,209	$	8,542
Private placements		4,012		–		–		4,012		4,012		–		–		4,012
Total equity securities	$	24,763	$	–	$	12,209	$	12,554	$	24,763	$	–	$	12,209	$	12,554

SPAC investments consist of the public equity of newly formed special purpose acquisition companies held by the Fund. The investments typically consist of one share of common stock of the SPAC, along with one-half of one redeemable warrant entitling the holder to purchase one share of common stock at an exercise price of $11.50 per share, although the number of warrants and/or the exercise price of the warrant may vary. The investments are typically issued by the SPAC as a combined unit consisting of both the common stock and warrant at a price of $10.00 per ~~unit;~~unit however the offering price may also vary. Following the initial public offering of the SPAC, these units are separated into individual shares of common stock and warrants. The SPAC investments which we have purchased trade on either of the Nasdaq Stock Market or New York Stock Exchange.

Private placements typically consist of the private equity and risk capital associated with the sponsorship of SPACs and are also held by the Fund. In September 2020, the Company invested $5.0 million into its joint venture, Fundamental Global Asset Management, LLC (“~~FGAM’~~FGAM”), to capitalize FG Special Situations Fund Advisor, LLC (the “Advisor”), a Delaware limited liability company formed on September 2, 2020, and to sponsor the launch of the Fund. ~~The~~FGAM has invested in the Fund ~~is majority owned by FGAM~~ through the Fund’s general partner and the Advisor, both of which are ultimately controlled by Mr. Cerminara, the Chairman of the Company’s Board of Directors. Of the initial $5.0 million investment, approximately $4.0 million was used by FG New America Investors, LLC (the “Sponsor”) as part of a total $8.6 million of risk capital used to launch FG New America Acquisition Corp (“FGNA”), a special purpose acquisition company which consummated its initial public offering on October 2, 2020. On July 20, 2021, FGNA completed its definitive business combination with Opportunity Financial, LLC and began operating as OppFi Inc. (“OppFi”), with OppFi’s common stock trading on the NYSE under the ticker symbol “OPFI”. The Fund’s specific investment consists of both class A and class A-1 interests of the Sponsor. On July 15, 2021, the Sponsor entered into a sponsor forfeiture agreement with FGNA and Opportunity Financial, LLC, under which the Sponsor agreed to forfeit a portion of FGNA Class B common stock as well as a portion of warrants to purchase FGNA Class A common stock which the Sponsor previously held. As a result, as of July 20, 2021, the class A and class A-1 interests represent a potential beneficial ownership of approximately 0.86 million common shares of ~~OPFI~~OppFi as well as approximately 0.36 million warrants to purchase common shares of ~~OPFI~~OppFi at a price of $11.50 per share. The class A and class A-1 interests have not been registered under the Securities Act of 1933, as amended, and are not transferrable except as provided for in the operating agreement of the Sponsor.

The Company has determined that its investment in the Fund represents an investment in a variable interest entity (“VIE”) in which the Company is the primary beneficiary and as such, has consolidated the financial results of the Fund as of ~~June~~September 30, 2021. The Company evaluates whether it is the primary beneficiary of a VIE at the time it becomes involved with a variable interest entity and continuously reconsiders that conclusion. In determining whether the Company is the primary beneficiary, the Company evaluates its control rights as well as economic interests in the entity held either directly or indirectly through affiliates via both qualitative and quantitative analysis. Further investments in, or redemptions of investments in FGAM, by either member of joint venture could affect the entity’s status as a VIE or the determination of the primary beneficiary. At each reporting date, the Company assesses whether it is the primary beneficiary and will consolidate or deconsolidate accordingly.

InFor the ~~first quarter,~~nine months ended September 30, 2021, the Company invested an additional $1.65 million into the ~~Fund. Additionally,~~Fund and the Fund also received outside investment of approximately ~~$0.7~~$4.1 million, resulting in the presentation of noncontrolling interests in the Company’s consolidated balance sheet as of ~~June~~September 30, 2021. ~~This~~A portion of this additional investment was used by the Fund to sponsor its second SPAC via an investment of $1.65 million in Aldel Investors, LLC, the sponsor of Aldel Financial, Inc. (NYSE: ADF). Of the total $1.65 million the Fund invested in Aldel, $1.0 million was allocated to the Company, with the remaining $0.65 million allocated to noncontrolling interests.

On August 17, 2021, Aldel entered into a business combination agreement with The Hagerty Group, LLC, a specialty vehicle and marine insurer (“Hagerty”). Under the agreement, Aldel has agreed to acquire all of Hagerty’ s limited liability company interests, for $3 billion, less certain transaction expenses, in aggregate consideration, consisting of Aldel and Hagerty equity securities and up to $500 million in cash. The Company’s ~~$1 million~~ investment in Aldel Investors, LLC, through the Fund represents ~~the~~a beneficial ~~ownership of~~interest in approximately 286,000 Aldel ~~founder~~ shares.

Other investments consist, in part, of equity investments made in privately held companies accounted for under the equity method. Equity method investments include our investment of $4.0 million in FGI Metrolina Property Income Fund, LP (“Metrolina”), which invests in real estate through a real estate investment trust which is wholly owned by Metrolina. The ~~general partner of Metrolina, FGI Metrolina GP, LLC, is managed, in part, by Mr. Cerminara, the Chairman of the Company’s Board of Directors. The~~ Company, a limited partner of Metrolina, does not have a controlling interest, but exerts significant influence over the entity’s operating and financial policies as it owns an economic interest of approximately 52% as of ~~June~~September 30, 2021. We have recorded equity method earnings from our investment in Metrolina of approximately ~~$25,000~~$137,000 and ~~$95,000~~$61,000 and for each of the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. The carrying value of our investment in Metrolina as of ~~June~~September 30, 2021 was approximately ~~$4.72 million, which represents $0.72~~$4.83 million. In the third quarter, 2021, Metrolina announced it would be liquidating and returning capital to its investors. Accordingly, on November 11, 2021, we received approximately $4.4 million in ~~undistributed~~cash back from the Fund, representing our initial investment of $4.0 million plus approximately $0.4 million in distributed earnings. We anticipate receiving additional earnings from Metrolina in the fourth quarter of 2021, based upon the final net asset value calculated by Metrolina as of November 30, 2021.

Equity method investments also 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 an approximate 49% limited partner interest in FGSP directly and through its subsidiaries. Certain of our directors and officers also hold limited partner interests in FGSP. ~~Our Chief Executive Officer and Director, Larry G.~~Mr. Swets holds a limited partner interest through Itasca Financial LLC, an advisory and investment firm for which Mr. Swets is managing member. ~~Hassan R.~~Mr. Baqar ~~our Chief Financial Officer effective August 6, 2021,~~ also holds a limited partner interest through Sequoia Financial LLC, an advisory firm for which Mr. Baqar is managing member. ~~The Chairman of our Board of Directors, D. Kyle~~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. We have recorded equity method earnings from our investment in FGSP of approximately ~~$1.43~~$2.39 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The carrying value of our investment in FGSP as of ~~June~~September 30, 2021 was approximately ~~$1.51~~$2.46 million, representing ~~$1.43~~$2.39 million in undistributed earnings.

On January 11, 2021, FGSP purchased 1,075,000 founder shares from Aldel, for total consideration of $4,674. On March 25, 2021, FGSP entered into a forfeiture agreement with Aldel whereby FGSP agreed to transfer 575,000 of these founder shares back to Aldel at no cost. Concurrent with Aldel’s initial public offering, on April 12, 2021, FGSP also purchased 650,000 warrants at a price of $0.10 per warrant, each exercisable to purchase one share of Aldel’s Class A common stock at an exercise price of $15.00 per share (the “OTM Warrants”), for a purchase price of $65,000. In addition, as discussed above, the Company, through the Fund, has invested $1.0 million in the risk capital of Aldel Investors, LLC, which represent beneficial ownership of approximately 286,000 Aldel founder shares. Altogether, the Company’s investment represents beneficial interests of approximately 533,000 Aldel founder shares and approximately 321,000 OTM Warrants. Our Chief Executive Officer and Director, Larry G. Swets, serves as senior advisor to Aldel. Hassan R. Baqar, our Chief Financial Officer effective August 6, 2021, serves as a director and chief financial officer of Aldel. The Chairman of our Board of Directors, D. Kyle Cerminara serves as a director of Aldel.

Other investments 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 $483,000 as of ~~June~~September 30, 2021. For the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, the Company has received profit distributions of ~~$45,000~~$73,000 and $42,000 on these investments, respectively, which has been included in income. Furthermore, both investments began the process of returning capital back to its investors in 2020. As of ~~June~~September 30, 2021, the Company has received approximately 38% of its initial $776,000 investment back from these investments.

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

We have not recorded an impairment on our investments for either of the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

On November 12, 2020, FGRe, our Cayman Islands based reinsurance subsidiary, initially funded a trust account at Lloyd’s with approximately $2.4 million in cash, to collateralize its obligations under our quota share agreement. The quota share agreement became effective January 1, 2021. As of ~~June~~September 30, 2021, the balance in the trust account was $2.7 million. ~~We also anticipate that~~On October 20, 2021, we ~~will be required to provide~~posted additional collateral in the ~~third quarter 2021,~~amount of approximately $1.0 million, to support our automotive insurance quota-share agreement entered into on April 1, 2021.

Current income taxes recoverable were approximately ~~$1.5 million~~$0 as of ~~June~~September 30, 2021, compared to approximately $1.7 million as of December 31, 2020, representing the estimate of both the Company’s state and federal income taxes receivable as of each date. In the third quarter, 2021 we received a refund on our federal taxes in the amount of approximately $1.5 million associated with a carryback refund request filed for our 2018, 2017 and 2014 tax years.

Reinsurance balances receivable were ~~$2.2~~$3.4 million as of ~~June~~September 30, 2021 compared to $0 as of December 31, 2020 and represent 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 these contracts, based on information received by us from the ceding companies, a significant portion of this balance is based on estimates and may not ultimately be collected by the Company.

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. As of ~~June~~September 30, 2021, the Company has gross net deferred tax assets of approximately ~~$4.0~~$5.3 million; 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 tax asset of $0 as of ~~June~~September 30, 2021. Significant components of the Company’s net deferred taxes are as follows:

	June 30, 2021			December 31, 2020			September 30, 2021			December 31, 2020
Deferred income tax assets:
Net operating loss carryforward	$	2,060		$	1,143		$	2,824		$	1,143
Share-based compensation		242			216			221			216
Investments		1,728			2,570			2,085			2,570
Unearned premium reserves								151			–
Other		118			5			21			5
Deferred income tax assets		4,148			3,934			5,302			3,934
Less: Valuation allowance		(3,972	)		(3,934	)		(5,015	)		(3,934	)
Deferred income tax assets net of valuation allowance	$	176		$	–		$	287		$	–

Deferred income tax liabilities:
Deferred policy acquisition costs	$	176		$	–		$	214		$	–
Other		–			–			73			–
Deferred income tax liabilities	$	176		$	–		$	287		$	–

Net deferred income tax asset (liability)	$	–		$	–		$	–		$	–

As of ~~June~~September 30, 2021, the Company had net operating loss carryforwards (“NOLs”) for federal income tax purposes of approximately ~~$9.8~~$13.4 million, which ~~will~~may be available to offset future taxable income. The Company’s NOLs expire as follows: $0.5 million in 2039, $0.1 million in 2040, and ~~$0.7~~$1.2 million in 2041. The remaining ~~$8.5~~$11.6 million in NOLs do not expire under current tax law.

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

Under the terms 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~~third quarter 2021 premium and loss information will not be made available to the Company until subsequent to the filing of this quarterly report. ~~Similarly,~~Thus, our ~~automotive insurance quota share agreement reports monthly results to us approximately 45 days in arrears, requiring us to approximate full second~~third quarter ~~results under the contract. Thus, quarterly~~ results, including the loss and loss adjustment expense reserves presented herein, have been ~~partially~~ based upon a combination of first and second quarter actual results as well as full-year forecasts reported to us by the ceding ~~companies.~~companies for which we used to approximate third quarter results. The Company ~~will obtain~~obtains regular updates of premium and loss related information for the current and historical periods, which ~~will be~~are utilized to update ~~this~~the initial expected loss ~~ratio.~~ratios on our reinsurance contracts.

A summary of changes in outstanding loss and loss adjustment expense reserves for the ~~six~~nine months ended ~~June~~September 30, 2021 is as follows. There was no activity with respect to loss and loss adjustment expense reserves for the ~~six~~nine months ended ~~June~~September 30, 2020.

As of June 30, 2021, the Company has invested $4.0 million as a limited partner in FGI Metrolina Property Income Fund, LP (“Metrolina”), which invests in real estate through a real estate investment trust which is wholly owned by Metrolina. The general partner of Metrolina, FGI Metrolina GP, LLC, is managed, in part, by Mr. Cerminara, the Chairman of the Board of Directors of the Company. For the year ending December 31, 2020, the Company made approximately $80,000 in performance allocations to the general partner of Metrolina. Metrolina’s investment program is managed by FGI Funds Management LLC, an affiliate of FGI, which, with its affiliates, is the largest stockholder of the Company. The Company’s investment represents an approximate 52% ownership stake in Metrolina as of June 30, 2021.

On March 31, 2020, the Company entered into the Limited Liability Company Agreement (the “LLC Agreement “) of Fundamental Global Asset Management, LLC (“FGAM”), a joint venture owned 50% by each of the Company and an affiliate of FGI. 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 business and the investment products they sponsor.

In September 2020, the Company provided seed capital of $5.0 million into FGAM, to capitalize FG Special Situations Fund Advisor, LLC (the “Advisor”), a Delaware limited liability company formed on September 2, 2020, and to sponsor the launch of FG Special Situations Fund, LP (the “Fund”), a Delaware limited partnership also formed on September 2, 2020. The Fund is majority owned by FGAM through the Fund’s general partner and the Advisor, both of which are ultimately controlled by Mr. Cerminara, the Chairman of the Company’s Board of Directors. Of the total $5.0 million invested, approximately $4.0 million was used by FG New America Investors, LLC (the “Sponsor”) as part of a total $8.6 million of risk capital used to launch FG New America Acquisition Corp (NYSE: FGNA), a special purpose acquisition company which consummated its initial public offering on October 2, 2020. On July 20, 2021, FGNA completed its definitive business combination with Opportunity Financial, LLC and began operating as OppFi Inc. (“OppFi”), with OppFi’s common stock trading on the NYSE under the ticker symbol “OPFI”. The Fund’s specific investment consists of both class A and class A-1 interests of the Sponsor. On July 15, 2021, the Sponsor entered into a sponsor forfeiture agreement with FGNA and Opportunity Financial, LLC, under which the Sponsor agreed to forfeit a portion of FGNA Class B common stock as well as a portion of warrants to purchase FGNA Class A common stock which the Sponsor previously held. As a result, as of July 20, 2021, the class A and class A-1 interests represent a potential beneficial ownership of approximately 0.86 million common shares of OPFI as well as approximately 0.36 million warrants to purchase common shares of OPFI at a price of $11.50 per share. The class A and class A-1 interests have not been registered under the Securities Act of 1933, as amended, and are not transferrable except as provided for in the operating agreement of the Sponsor.

Mr. Cerminara is a manager of the Sponsor. Mr. Swets, our Chief Executive Officer, was the Chief Executive Officer and a director of FGNA, however no longer holds those positions following FGNA’s business combination with OppFi. Mr. Swets is also a manager of the Sponsor. Hassan R. Baqar, our Chief Financial Officer effective August 6, 2021, was the Chief Financial Officer of FGNA, however no longer holds that position following FGNA’s business combination with OppFi.

In the first quarter, 2021, the Company invested an additional $1.65 million into FGAM, which, in turn, was further invested into the Fund. Additionally, the Fund received outside investment of approximately $0.7 million during the quarter. This additional investment was used by the Fund to sponsor its second SPAC via an investment of $1.65 million in Aldel Investors, LLC, the sponsor of Aldel Financial, Inc. (NYSE: ADF). Of the total $1.65 million the Fund invested in Aldel, $1.0 million was allocated to the Company, with the remaining $0.65 million allocated to noncontrolling interests. The Company’s $1 million investment in Aldel, represents the beneficial ownership of approximately 286,000 Aldel founder shares.

~~Mr. Swets serves as Senior Advisor to Aldel, Mr. Baqar serves as Director and Chief Financial Officer of Aldel, and Mr. Cerminara serves as a director of Aldel.~~

Pursuant to the Investment Advisory Agreement entered into upon closing of the Asset Sale, FG Strategic Consulting, LLC (“FGSC,”, formerly Fundamental Global Advisors LLC), 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 Investment Advisory Agreement expires on December 2, 2024.

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 FGI, 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 (collectively, the “Services”). In exchange for the Services, the Company pays FGM a fee of $456,250 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.

~~The Company paid $912,500 and $456,250 to FGM under the Shared Services Agreement for the six months ended June 30, 2021 and 2020, respectively.~~

On September 15, 2020, the Company entered into a Share Repurchase and Cooperation Agreement (the “Share Repurchase Agreement”) with Hale Partnership Capital Management, LLC and certain of its affiliates (collectively, the “Hale Parties”), which, prior to the transaction, owned more than 18% of ~~our~~the Company’s outstanding common stock (the “Share Repurchase Transaction”).

Pursuant to the Share Repurchase Agreement, the Company agreed to purchase ~~(exclusive of any fees or expenses)~~ all of the 1,130,152 shares of the Company’s common stock, owned, of record or beneficially, by the Hale Parties, in exchange for an aggregate of approximately $2.8 million in cash and 330,231 shares of FedNat common stock previously owned by the Company (the “FedNat Shares”) having an estimated fair value of approximately $2.7 million on September 15, 2020. As acknowledged by the Hale Parties in the Share Repurchase Agreement, that certain Standstill Agreement, dated December 2, 2019, by and between FedNat Holding Company and the Company, imposes certain restrictions in respect of the FedNat Shares transferred by the Company to the Hale Parties. FedNat Holding Company is not party to, or a third-party beneficiary of, the agreement.

The Share Repurchase Agreement contains certain customary standstill provisions that, for a period of five years commencing September 15, 2020 (the “Standstill Period”), prohibit, among other things, the Hale Parties from (i) making certain announcements regarding the Company’s transactions, (ii) soliciting proxies, (iii) acquiring ownership of any securities of the Company, (iv) advising, encouraging or influencing any vote or disposition of any securities of the Company, (v) selling securities of the Company resulting in any third party owning more than 4.9% of the outstanding shares of the Company’s common stock (subject to certain exceptions set forth in the Share Repurchase Agreement), (vi) taking actions to change or influence the Board of Directors of the Company, Company management or the direction of certain Company matters and (vii) exercising certain stockholder rights. The Company and the Hale Parties further agreed that they will not disparage each other and that they will not initiate any lawsuit, claim or proceeding with respect to any claims against the Company or any of the Hale Parties, as applicable, based on facts known as of the date of the Share Repurchase Agreement, in each case applicable during the Standstill Period, and to a mutual release of claims.

As the total consideration paid in the Share Repurchase ~~transaction~~Transaction exceeded the fair value of the treasury shares repurchased by the Company, the Company recorded a charge of approximately $0.2 million to general and administrative expense for the year ended December 31, 2020, representing the estimated fair value of the rights conveyed to the Company pursuant to the standstill provisions in the agreement. The fair value of the 1,130,152 shares of Company common stock, or approximately $5.2 million, was recorded to treasury stock.

On January 4, 2021, FG SPAC Partners, LP (“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 an approximate 49% limited partner interest in FGSP directly and through its subsidiaries. Certain of our directors and officers also hold limited partner interests in FGSP. Our Chief Executive Officer and Director, Larry G. Swets, holds a limited partner interest through Itasca Financial LLC, an advisory and investment firm for which Mr. Swets is managing member. Hassan R. Baqar, our Chief Financial Officer effective August 6, 2021, also holds a limited partner interest through Sequoia Financial LLC, an advisory firm for which Mr. Baqar is managing member. The Chairman of our Board of Directors, D. Kyle 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.

On January 11, 2021, FGSP purchased 1,075,000 founder shares from Aldel, for total consideration of $4,674. On March 25, 2021, FGSP entered into a forfeiture agreement with Aldel whereby FGSP agreed to transfer 575,000 of these founder shares back to Aldel at no cost. Concurrent with Aldel’s initial public offering, on April 12, 2021, FGSP also purchased 650,000 warrants at a price of $0.10 per warrant, each exercisable to purchase one share of Aldel’s Class A common stock at an exercise price of $15.00 per share (the “OTM Warrants”), for an aggregate purchase price of $65,000. In addition, the Company through its joint venture investment in Fundamental Global Asset Management, LLC and the FG Special Situations Fund, LP, has invested $1.0 million in the risk capital of Aldel Investors, LLC, which represent beneficial ownership of approximately 286,000 Aldel founder shares. Altogether, the Company’s investment represents beneficial interests of approximately 533,000 Aldel founder shares and approximately 321,000 OTM Warrants. Our Chief Executive Officer and Director, Larry G. Swets, serves as senior advisor to Aldel. Hassan R. Baqar, our Chief Financial Officer effective August 6, 2021, serves as a director and chief financial officer of Aldel. The Chairman of our Board of Directors, D. Kyle Cerminara serves as a director of Aldel.

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 gross proceeds of approximately $4.9 million, before deducting underwriting commissions and offering expenses. This included the exercise in full by the underwriters of their over-allotment option to purchase up to an additional 25,380 shares, bringing the total number of Series A Preferred Stock shares outstanding to 894,580 as of ~~June~~September 30, 2021.

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 or a duly authorized committee thereof. Dividends are payable out of amounts legally available therefor 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. ~~[The Company’s~~Our Board of Directors declared the third quarter 2021 dividend on the shares of Series A Preferred Stock on ~~August 13,~~November 12, 2021.]

On October 29, 2021, the Company announced the commencement of its previously announced rights offering to holders of its common stock. Pursuant to the terms of the rights offering, the Company distributed, to each holder of its common stock, one non-transferable subscription right to purchase 0.15 share of common stock, at a price of $4.00 per whole share, for each share held as of 5:00 p.m. Eastern Time on October 25, 2021, the record date for the rights offering. The subscription rights may be exercised at any time during the subscription period, which commenced on October 29, 2021. The rights will expire if they are not exercised by 5:00 p.m., Eastern Time, on November 29, 2021, unless the Company extends the rights offering subscription period. The Company will not issue any fractional shares of the Company’s common stock in the rights offering, and subscription rights will be rounded down to the nearest whole number of shares. Stockholders are entitled to purchase, in total, up to 757,720 shares of common stock, for potential gross proceeds to the Company of approximately $3.0 million. The Company intends to use the net proceeds from this offering for working capital and other general corporate purposes.

On January 18, 2021, Company and the Company’s Chief Executive Officer, Larry G. Swets, Jr., entered into an Equity Award Letter Agreement (the “Letter Agreement”), pursuant to which the Company agreed to grant Mr. Swets a future award (the ~~��Future~~“Future Award”) of 370,000 stock options, restricted shares or restricted stock units, 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, and an amended and/or new equity plan, in a form to be prepared and reviewed by the Board of Directors of the Company (the “Board”), has been approved by the Board and stockholders of the Company that authorizes a sufficient number of shares of common stock to make such Future Award.

The table below presents the primary drivers behind the changes to total shareholders’ equity for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2021 Compared with Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2020

Net premiums earned represent actual premiums earned on our quota-share agreements as well as estimated premiums earned on our FAL agreement for the ~~second~~third quarter 2021 and is approximately ~~$0.9~~$1.1 million and ~~$1.1~~$2.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. 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 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. As our quota-share agreements became effective in 2021, we had no corresponding net earned premiums for the three and ~~six~~nine months ~~ending June~~ended September 30, 2020.

Net investment ~~income increased to $4.1~~loss was $(1.3) million ~~from $(9.3)~~and $(7.7) million for the ~~six~~three months ended ~~June~~September 30, 2021 and 2020, respectively, primarily as a result of unrealized holding ~~gains~~losses on our equity investments. ~~Similarly,~~For the nine month periods, net investment income (loss) was $2.8 million and $(17.0) million, respectively. While the value of our SPAC and private placement investments increased ~~to $2.2 million from $(0.6) million for~~over the ~~three months ended June 30,~~nine month period in 2021, ~~and 2020, respectively.~~this was offset by unrealized holding losses on our FedNat common stock. The value of our SPAC and private placement investments is determined using a number of unobservable level 3 inputs under the guidance issued by the Financial Accounting Standards Board and, as a result, the fair values reflected in our financial statements may differ materially from: 1) values that would have been used had a readily available market existed for these investments; and 2) the values that may ultimately be realized upon sale of the investments. Net investment income (loss) for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 is as follows:

($ in thousands)	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020			2021			2020			2021			2020
Unrealized holding loss on FedNat common stock	$	(693	)	$	(726	)	$	(2,554	)	$	(9,858	)
Unrealized holding loss on FNHC common stock													$	(2,424	)	$	(5,760	)	$	(4,978	)	$	(15,618	)
Unrealized holding gain on private placement investments		1,513			–			5,116			–			4			–			5,120			–
Dividend income from FedNat common stock		–			159			–			319
Realized loss on FHNC shares														–			(2,110	)		–			(2,110	)
Dividend income from FNHC common stock														–			160			–			479
Equity method earnings		1,362			–			1,457			95			1,070			–			2,527			–
Other		59			(4	)		72			167			51			(5	)		123			257
Net investment income (loss)	$	2,241		$	(571	)	$	4,091		$	(9,277	)	$	(1,299	)	$	(7,715	)	$	2,792		$	(16,992	)

Other income was ~~$79,000~~$146,000 compared to ~~$54,000~~$79,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively, and is comprised of fees earned under the Investment Advisory and Transition Services Agreements between the Company and FedNat. Also included in other income for the ~~six~~nine months ended ~~June~~September 30, 2021 is approximately ~~$30,000~~$72,000 in service fee revenue we have earned under our new SPAC Platform, whereby we have provided certain accounting, regulatory, strategic advisory, and other administrative services to Aldel.

Net losses and loss adjustment expenses (‘LAE”) for the three and ~~six~~nine months ended ~~June~~September 30, 2021 represent ~~the charge~~charges associated with the establishment of loss and LAE reserves under our quota share reinsurance agreements. Also included in this figure are loss and LAE payments in the approximate amount of $549 for the nine-month period. As discussed under the heading “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 arrangement.

General and administrative expenses increased by ~~$1.4~~$2.5 million for the ~~six~~nine months ~~ending June~~ended September 30, 2021, as compared to 2020. The increase was primarily due to ~~an increase in professional fees incurred in connection with the commencement of~~underwriting expenses allocated to us pursuant to our two quota share ~~agreements as well as~~reinsurance contracts, which accounted for approximately $0.5 million of the ~~establishment and approval of our risk-retention group. Personnel costs have also increased~~increase as our ~~employees count has increased from two to five when comparing six month periods.~~reinsurance agreements became effective in 2021. Also ~~costs associated with the Shared Services Agreement, as further described under the heading “Related Party Transactions” above have been~~ included in general and administrative ~~expenses.~~expenses are payments to Fundamental Global Management, LLC (“FGM”), pursuant to a shared services agreement entered into on March 31, 2020. Pursuant to the agreement, 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 (collectively, the “Services”). In exchange for the Services, the Company pays FGM a fee of $456,250 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. The Company paid ~~$0.91~~$1.37 million and ~~$0.46~~$0.91 million to FGM under the Shared Services Agreement for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. FGM is an affiliate of FG, the Company’s largest shareholder.

Personnel costs have also increased as our employee count has increased from two to six when comparing nine month periods. Employee salaries and benefits including associated payroll taxes account for approximately $1.0 million of the increase to general and administrative expenses when comparing nine month periods.

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

($ in thousands)	Three months ended June 30,						Six months ended June 30,						Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020			2021			2020			2021			2020
Income tax expense (benefit) at statutory income tax rate of 21%	$	93		$	(431	)	$	69		$	(2,422	)	$	(923	)	$	(2,014	)	$	(854	)	$	(4,436	)
Valuation allowance for deferred tax assets deemed unrealizable		47			967			40			2,004			1,041			1,510			1,081			3,514
Rate differential due to CARES Act		–			–			–			(214	)		–			–			–			(214	)
Non-deductible expenses associated with the Share Repurchase Transaction														–			516			–			516
State income tax (net of federal tax benefit)		–			–			(114	)		–			–			–			(114	)		–
Share-based compensation		1			–			2			–
Noncontrolling interests		(140	)					(140	)		–			(119	)					(259	)		–
Other		(1	)		(16	)		(2	)		(33	)		1			(12	)		1			(45	)
Income tax expense (benefit)	$	–		$	520			(145	)	$	(665	)	$	–		$	–			(145	)	$	(665	)

Income tax benefit – from continuing operations	$	–		$	520		$	–		$	(665	)	$	–		$	–		$	–		$	(665	)
Income tax benefit – from discontinued operations	$	–		$	–		$	(145	)	$	–
Income tax benefit – from discontinuing operations													$	–		$	–		$	(145	)	$	–

Due to the sale of all of the issued and outstanding equity of Maison, MMI and Claimcor ~~(the “Maison Business”)~~ on December 2, 2019, these operations have been classified as discontinued operations in the Company’s financial statements presented herein. For the quarter ended March 31, 2021, we recognized a gain from the sale of the Maison 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 a result of the passage of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Company recorded a credit of $214,000 against its income tax expense for the year ended December 31, 2020, due to a provision in the CARES Act that allows for the five-year carryback of net operating losses. Prior to the passage of the CARES Act, these net operating losses were only available to offset future taxable income generated by the Company.

We have also recorded charges of $1,081 and $3,514 for the nine months ended September 30, 2021 and 2020, respectively, associated with a valuation allowance against all of our net deferred tax assets due to the uncertain nature surrounding our ability to realize these tax benefits in the future, resulting in a net deferred income tax asset of $0 as of September 30, 2021..

Net ~~income (loss)~~loss and ~~earnings~~loss per share for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 is as shown in the following ~~table.~~table:

(in thousands)	Three months ended June 30,						Six months ended June 30,						Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020			2021			2020			2021			2020

Net income (loss)	$	440		$	(2,051	)	$	328		$	(11,533	)
Net loss													$	(4,393	)	$	(9,590	)	$	(3,920	)	$	(20,458	)
Gain attributable to noncontrolling interests		667			–			666			–			569			–			1,235			–
Dividends declared on Series A Preferred Shares		447			350			797			700			448			350			1,245			1,050
Loss attributable to FG Financial Group, Inc. common shareholders	$	(674	)	$	(2,921	)	$	(990	)	$	(11,568	)	$	(5,410	)	$	(9,940	)	$	(6,400	)	$	(20,458	)

Loss per common share:
Basic and diluted	$	(0.13	)	$	(0.48	)	$	(0.20	)	$	(1.91	)	$	(1.08	)	$	(1.69	)	$	(1.28	)	$	(3.58	)

Weighted average common shares outstanding:
Basic and diluted		5,010,377			6,068,106			5,001,731			6,067,975			5,032,615			5,893,125			5,012,139			6,009,267

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.

On May 21, 2021, we consummated the public offering of 194,580 shares of our ~~8.0%~~ Series A ~~Cumulative~~ Preferred Stock, ~~(the “Series A Preferred Stock”) at a public offering price of $25.00 per share, for~~resulting in net proceeds of approximately $4.2 million, after deducting underwriting commissions and offering expenses. ~~This includes~~On October 28, 2021, we closed the ~~exercise in full by~~underwritten public offering of 652,174 shares of our common stock at a public offering price of $4.00 per share. Furthermore, on November 3, 2021, the underwriters ofexercised their over-allotment option, ~~to purchase up to~~closing on the sale of an additional ~~25,380 shares.~~97,826 shares of our common stock under the same terms. The issuance, including over-allotment resulted in approximately $2.5 million in net proceeds to us, after deducting underwriting commissions and other offering ~~was made pursuant to an effective shelf registration statement filed with~~expenses. Additional information regarding the ~~SEC. The final prospectus supplement relating to the offering was filed with the SEC on May 19, 2021. Including the May 21, 2021~~ public offering ~~we have 894,580~~of our common stock and Series A Preferred Stock ~~shares outstanding.~~

~~FG FINANCIAL GROUP, INC.~~can be found under the heading “Shareholders’ Equity.”

Upon the closing of the Asset Sale, the Company received cash consideration from FedNat in the amount of $25.5 million as well as $18.7 million representing the repayment of surplus notes and accrued interest due from Maison to the Company. Pursuant to the terms of the Purchase Agreement, at the closing, the Maison Business was required to have a consolidated net GAAP book value of at least $42.0 million and was also required to settle any balances between the Company and the Maison Business. Additionally, prior to the closing of the Asset Sale, Maison was a limited partner in two limited partnerships and also had a limited interest in a limited liability company (collectively, the “Funds”). Pursuant to the terms of the Purchase Agreement, Maison assigned its interests in the Funds to the Company in exchange for the statutory carrying value of the Funds, paid in cash, at the closing of the Asset Sale. This resulted in net cash proceeds to the Company of approximately $24.8 million, as shown in the table below.

The following table summarizes the Company’s consolidated cash flows for the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~2020.~~2020:

(in thousands)	Six months ended June 30,						Nine months ended September 30,
Summary of Cash Flows	2021			2020			2021			2020
Cash and cash equivalents – January 1	$	12,132		$	28,509		$	12,132		$	28,509

Net cash used by operating activities		(5,854	)		(2,262	)		(10,394	)		(9,685	)
Net cash provided by investing activities		76			91
Net provided (used) by investing activities								72			(3	)
Net cash provided (used) by financing activities		4,077			(700	)		7,119			(3,588	)
Net decrease in cash and cash equivalents		(1,701	)		(2,871	)		(3,203	)		(13,276	)

Cash and cash equivalents – June 30	$	10,431		$	25,638
Cash and cash equivalents – September 30							$	8,929		$	15,233

For the ~~six~~nine months ended ~~June~~September 30, 2021, net cash used by operating activities was approximately ~~$5.9~~$10.4 million, the major drivers of which were as follows:

For the ~~six~~nine months ended ~~June~~September 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~~$7.1 million, ~~primarily the result of~~related to our issuance of ~~194,580 shares of~~both our common and Series A Preferred Stock ~~on May 21, 2021.~~as previously discussed, as well as the contribution of approximately $4.1 million in outside investment to our consolidated investment company subsidiary, recorded as contributions from non-controlling interests.

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) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of ~~June~~September 30, 2021. 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.

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~~September 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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, 2020 filed with the SEC on March 18, 2021.

As previously reported, on Form 8-K filed August 3, 2021, on July 29, 2021, Hassan Baqar, age 43, was appointed the Company’s Chief Financial Officer, effective August 6, 2021. Mr. Baqar has served as a consultant to the Company since February 2019 through Sequoia Financial LLC (“Sequoia”), an advisory firm for which Mr. Baqar is managing member, at a rate of $10,833 per month. Effective August 11, 2021, the Company entered into the Second Amended and Restated Management Services Agreement (the “MSA”) between the Company and Sequoia, with it being agreed that Mr. Baqar would provide the services described on behalf of Sequoia. The Agreement provides that Mr. Baqar will act as the Company’s Chief Financial Officer and will perform services and duties as required by the Company’s Board of Directors and Chief Executive Officer, to whom he shall report.None.

In consideration for the services, the Company agrees to pay Sequoia $40,000 per month during the term of the MSA. The initial term of the MSA is twelve months unless terminated earlier as described below. Unless either party to the MSA provides the other with ninety days written notice, the MSA will renew for a subsequent twelve-month period. If the MSA is terminated for “Good Reason” by Mr. Baqar, payment for the remainder of the full term will be provided in lumpsum to Mr. Baqar at the time of termination. The Company may terminate the MSA for “Cause,” at any time upon fifteen days’ prior written notice. Upon termination by the Company for Cause, payment will stop immediately upon the effective date of termination. If the Agreement is terminated by either party without Cause or Good Reason prior to the end of the term, payment for the remainder of the term will be provided to Mr. Baqar subject to a maximum of three months.

~~In addition, the Company shall pay all of Mr. Baqar’s reasonable expenses associated with the performance of the duties as Chief Financial Officer.~~

The MSA contains a customary confidentiality provision and a six-month post-termination of the MSA restriction against both soliciting employees and independent contractors of the Company and inducing them to terminate their relationship with the Company.

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.

~~(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,~~ ~~2021~~

Or

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

PART I. FINANCIAL INFORMATION	3

ITEM 1. FINANCIAL STATEMENTS	3


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2828


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	4345


ITEM 4. CONTROLS AND PROCEDURES	4346


PART II. OTHER INFORMATION	4446


ITEM 1. LEGAL PROCEEDINGS	4446


ITEM 1A. RISK FACTORS	4446


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4446


ITEM 3. DEFAULTS UPON SENIOR SECURITIES	4446


ITEM 4. MINE SAFETY DISCLOSURES	4446


ITEM 5. OTHER INFORMATION	4446

ITEM 6. EXHIBITS	44
~~ITEM 6. EXHIBITS~~	46
SIGNATURES	45
~~SIGNATURES~~	47

	●	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.

	●	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.

	OppFi						Aldel
	Founder Shares			Warrants			Founder Shares
Expected volatility		55.0	%		15.0	%		20.0	%
Expected term (years)		0.6 to 1.1			5.1			0.7 to 1.6
Dividend yield		0.0	%		0.0	%		0.0	%
Risk-free rate		0.1	%		0.9	%		0.1	%
Probability weighted restructure adjustment*		0.0	%		n/a			18.7	%
Probability of completing a business combination		100.0	%		100.0	%		70.0	%
Discount for lack of marketability		20.0	%		n/a			8.0	%

(in thousands)
As of June 30, 2021	Level 1		Level 2		Level 3		Total
FedNat common stock	$	5,988	$	–	$	–	$	5,988
SPAC investments		684		–		–		684
Private placements		–		–		10,795		10,795
	$	6,672	$	–	$	10,795	$	17,467

As of December 31, 2020
FedNat common stock	$	8,542	$	–	$	–	$	8,542
Private placements		–		–		4,012		4,012
	$	8,542	$	–	$	4,012	$	12,554

	●	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.

	●	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.

Restricted Stock Units	Number of Units			Weighted Average Grant Date Fair Value
Non-vested units, January 1, 2020		140,002		$	5.93
Granted		60,998			–
Vested		(21,568	)		4.94
Forfeited		–			–
Non-vested units, September 30, 2020		179,432		$	5.94

Non-vested units, January 1, 2021		148,486		$	5.44
Granted		–			–
Vested		(63,161	)		5.55
Forfeited		–			–
Non-vested units, September 30, 2021		85,325		$	5.36


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

(in thousands) For the three months ended June 30, 2021	Insurance			Asset Management		Other			Total
Revenues from external customers	$	937		$	25	$	–		$	962
Interest revenue		–			4		–			4
Total revenue		1,676			1,526		–			3,202
Depreciation and amortization		–			–		2			2
Income (loss) before income tax		540			1,430		(1,530	)		440

For the six months ended June 30, 2021
Revenues from external customers	$	1,122		$	80	$	–		$	1,202
Interest revenue		13			12		–			25
Total revenue		12			5,280		–			5,292
Depreciation and amortization		–			–		33			33
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

For the three months ended June 30, 2020
Revenues from external customers	$	–		$	25	$	–		$	25
Interest revenue		–			42		–			42
Total revenue		(567	)		21		–			(546	)
Depreciation and amortization		–			–		1			1
Income (loss) before income tax		(600	)		21		(1,472	)		(2,051	)

For the six months ended June 30, 2020
Revenues from external customers	$	–		$	50	$	4		$	54
Interest revenue		–			125		–			125
Total revenue		(9,539	)		312		4			(9,223	)
Depreciation and amortization		–			–		2			2
Income (loss) before income tax		(9,572	)		312		(2,273	)		(11,533	)

As of June 30, 2020
Segment assets	$	19,636		$	4,082	$	28,103		$	54,783

	●	~~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.~~

	Preferred Shares Outstanding		Common Shares Outstanding		Treasury Shares		Total Shareholders’ Equity attributable to FG Financial Group, Inc.			Non-controlling Interests
Balance, January 1, 2020		700,000		6,065,948		151,359	$	62,915		$	–
Stock compensation expense		–		2,158		–		104			–
Dividends declared on Series A Preferred Stock		–		–		–		(700	)		–
Net loss		–		–		–		(10,868	)		–
Balance, June 30, 2020		700,000		6,068,106		151,359	$	51,451		$	–


Balance, January 1, 2021		700,000		4,988,310		1,281,511	$	34,193		$	–
Series A Preferred Share issuance		194,580		–		–		4,217			–
Stock compensation expense		–		22,067		–		247			–
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

(in thousands)
Cash consideration from FedNat	$	25,500
Cash from FedNat to repay outstanding surplus note obligations		18,728
Capital contribution from the Company to the Maison Business to meet GAAP book value requirement		(9,057	)
Transaction bonuses paid to current and former executive officers of the Company		(605	)
Company acquisition of the Funds from Maison		(3,218	)
Payment of intercompany federal tax obligations		(3,702	)
Payment of transaction expenses directly associated with the Asset Sale		(2,868	)
Net cash proceeds	$	24,778

	●	Our net ~~income~~loss for the period of approximately ~~$473,000~~$3.9 million.

	●	An adjustment to our net loss for ~~the quarter, adjusted downward by $4.0~~approximately $2.7 million ~~for~~related to unrealized ~~gains~~losses on our equity investments.

	●	An adjustment to our net loss of approximately $(3.4) million reflecting the increase in amounts due to us under our reinsurance quota share agreements.

	●	A cash outflow of approximately ~~$2.3~~$6.5 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.

Exhibit		Description
10.1*10.1		~~Amended and Restated Limited Liability Agreement of Fundamental Global Asset Management, LLC dated August 6, 2021.~~
~~10.2*†~~		~~Second Amended and Restated Management Services~~Underwriting Agreement, dated ~~August 11,~~October 25, 2021, by and between ~~Sequoia~~FG Financial Group, Inc. and ThinkEquity LLC ~~and registrant~~(incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K, Dated October 26, 2021)
31.1*		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.
31.2*		Certification of Chief 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 Chief 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)

				FG FINANCIAL GROUP, INC.

Date:	~~August 16,~~November 15, 2021	By:	/s/ Larry G. Swets, Jr.
			Larry G. Swets, Jr., Chief Executive Officer
			(principal executive officer)

Date:	~~August 16,~~November 15, 2021	By:	/s/ Brian D. Bottjer
			Brian D. Bottjer, Chief Accounting Officer
			(principal financial and accounting officer)