UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended ~~September 30, 2021~~March 31, 2022

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

Commission File Number: 001-36366

FG Financial Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware

46-1119100

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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

(Address of principal executive offices and zip code)

727-304-5666

(Registrant’s telephone number, including area code)

Not Applicable

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

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

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

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

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

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

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☐☒

Smaller Reporting Company ☒

Emerging Growth Company ☐

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

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

The number of shares outstanding of the registrant’s common stock as of ~~November 11, 2021~~May 13, 2022 was ~~5,801,471~~6,528,001.

Table of Contents

PART I. FINANCIAL INFORMATION	3

ITEM 1. FINANCIAL STATEMENTS	3

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2825

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	4333

ITEM 4. CONTROLS AND PROCEDURES	4333

PART II. OTHER INFORMATION	4434

ITEM 1. LEGAL PROCEEDINGS	4434

ITEM 1A. RISK FACTORS	4434

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4434

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	4434

ITEM 4. MINE SAFETY DISCLOSURES	4434

ITEM 5. OTHER INFORMATION	4434

ITEM 6. EXHIBITS	4434

SIGNATURES	4535

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

September 30,
2021 (unaudited)

December 31,
2020

FG FINANCIAL GROUP, INC.
Consolidated Balance Sheets
($ in thousands, except share and per share data)

September 30,
2021 (unaudited)

December 31,
2020

ASSETS
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 7,779 5,334
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
Current income taxes recoverable – 1,724
Reinsurance balances receivable 3,364 –
Deferred policy acquisition costs 1,017 –
Other assets 871 517
Total assets $ 43,850 $ 34,705

LIABILITIES
Loss and loss adjustment expense reserves $ 1,344 $ –
Unearned premium reserves 3,599 –
Accounts payable 713 455
Other liabilities 426 57
Total liabilities $ 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 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 40,609 47,065
Accumulated deficit (30,593 ) (24,193 )
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. 32,386 34,193
Noncontrolling interests 5,382 –
Total shareholders’ equity 37,768 34,193
Total liabilities and shareholders’ equity $ 43,850 $ 34,705

FG FINANCIAL GROUP, INC.

Consolidated Balance Sheets

($ in thousands, except per share data)

	March 31, 2022 (unaudited)			December 31, 2021
ASSETS
Equity securities, at fair value (cost basis of $11,367 and $14,495, respectively)	$	1,067		$	1,421
Other investments		14,633			14,040
Cash and cash equivalents		8,501			15,542
Deferred policy acquisition costs		699			786
Reinsurance balances receivable		3,773			3,853
Funds deposited with reinsured companies		4,442			4,442
Other assets		2,529			745
Total assets	$	35,644		$	40,829

LIABILITIES
Loss and loss adjustment expense reserves	$	1,955		$	2,133
Unearned premium reserves		3,238			3,610
Accounts payable		598			502
Other liabilities		51			575
Total liabilities	$	5,842		$	6,820

Commitments and contingencies (Note 10)		-

SHAREHOLDERS’ EQUITY
Series A Preferred Shares, $25.00 par and liquidation value, 1,000,000 shares authorized; 894,580 shares issued and outstanding as of March 31, 2022 and December 31, 2021	$	22,365		$	22,365
Common stock, $0.001 par value; 100,000,000 shares authorized; 6,528,001 and 6,497,205 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		7			6
Additional paid-in capital		46,099			46,037
Accumulated deficit		(38,669	)		(34,399	)
Total shareholders’ equity		29,802			34,009
Total liabilities and shareholders’ equity	$	35,644		$	40,829

See accompanying notes to consolidated financial statements

2021 2020 2021 2020
FG FINANCIAL GROUP, INC.
Consolidated Statements of Operations
($ in thousands, except share and per share data)
(Unaudited)

Three months ended
September 30,

Nine months ended
September 30,

2021 2020 2021 2020
Revenue:
Net premiums earned $ 1,099 $ – $ 2,221 $ –
Net investment income (loss) (1,299 ) (7,715 ) 2,792 (16,992 )
Other income 67 25 146 79
Total revenue (133 ) (7,690 ) 5,159 (16,913 )

Expenses:
Net losses and loss adjustment expenses 1,058 – 1,893 –
Amortization of deferred policy acquisition costs 202 – 633 –
General and administrative expenses 3,000 1,900 6,698 4,210
Total expenses 4,260 1,900 9,224 4,210

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 –
Net loss (4,393 ) (9,590 ) (3,920 ) (20,458 )
Gain attributable to noncontrolling interests 569 – 1,235 –
Dividends declared on Series A Preferred Shares 448 350 1,245 1,050
Loss attributable to FG Financial Group, Inc. common shareholders $ (5,410 ) $ (9,940 ) $ (6,400 ) $ (21,508 )

Basic and diluted net income (loss) per common share:
Continuing operations $ (1.08 ) $ (1.69 ) $ (1.31 ) $ (3.58 )
Discontinued operations – – 0.03 –
$ (1.08 ) $ (1.69 ) $ (1.28 ) $ (3.58 )

Weighted average common shares outstanding:
Basic and diluted 5,032,615 5,893,125 5,012,139 6,009,267

FG FINANCIAL GROUP, INC.

Consolidated Statements of Operations

($ in thousands, except per share data)

(Unaudited)

	2022			2021
	Three months ended March 31,
	2022			2021
Revenue:
Net premiums earned	$	2,473		$	185
Net investment income (loss)		(2,346	)		1,850
Other income		25			55
Total revenue		152			2,090

Expenses:
Net losses and loss adjustment expenses		1,524			106
Amortization of deferred policy acquisition costs		712			57
General and administrative expenses		1,739			2,039
Total expenses		3,975			2,202

Loss from continuing operations before income taxes		(3,823	)		(112	)
Income tax benefit		–			–
Net loss from continuing operations	$	(3,823	)	$	(112	)
Discontinued operations:
Gain from sale of the Maison Business, net of taxes		–			145
Net income (loss)		(3,823	)		33
Loss attributable to noncontrolling interests		–			(1	)
Dividends declared on Series A Preferred Shares		447			350
Loss attributable to FG Financial Group, Inc. common shareholders	$	(4,270	)	$	(316	)

Basic and diluted net income (loss) per common share:
Continuing operations	$	(0.66	)	$	(0.09	)
Discontinued operations		–			0.03
	$	(0.66	)		(0.06	)

Weighted average common shares outstanding:
Basic and diluted		6,477,568			4,992,989

See accompanying notes to consolidated financial statements

FG FINANCIAL GROUP, INC.
Consolidated Statements of Shareholders’ Equity
(Unaudited)
($ in thousands)

Preferred Stock Common Stock Treasury Stock
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 $ –
Series A Preferred Share issuance
Series A Preferred Share issuance , shares
Stock based compensation – – 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 ) –
Interests issued for contributed cash
Net loss – – – – – – – (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 $ –

Stock based compensation – – – – – – 52 – 52 –
Dividends declared on Series A Preferred Shares ($0.50 per share) – – – – – – – (350 ) (350 ) –
Net loss – – – – – – – (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 $ –

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 $ –
Stock based compensation – – 22,067 – – – 177 – 177 –
Dividends declared on Series A Preferred Shares ($0.50 per share) – – – – – – – (350 ) (350 ) –
Interests issued for contributed cash – – – – – – – – – 657
Net income (loss) – – – – – – – 34 34 (1 )
Balance, March 31, 2021 700,000 $ 17,500 5,010,377 $ 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 –
Stock based compensation – – – – – – 70 – 70 –
Dividends declared on Series A Preferred Shares ($0.50 per share) – – – – – – – (447 ) (447 ) –
Net income (loss) – – – – – – – (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

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

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			Non- controlling
	Shares		Amount		Shares		Amount		Shares		Amount					Capital		Deficit			Inc.			Interests
Balance, January 1, 2021		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			–
Dividends declared on Series A Preferred Shares ($0.50 per share)		–		–		–		–		–				–			–		(350	)		(350	)		–
Interests issued for contributed cash		–		–		–		–		–				–			–		–			–			657
Net income (loss)		–		–		–		–		–				–			–		34			34			(1	)
Balance, March 31, 2021		700,000	$	17,500		5,010,377	$	6		1,281,511			$	(6,185	)	$	47,242	$	(24,509	)	$	34,054		$	656

Balance, January 1, 2022		894,580	$	22,365		6,497,205	$	6		–		$		–		$	46,037	$	(34,399	)	$	34,009		$	–
Stock based compensation		–		–		30,796		1		–				–			62		–			63			–
Dividends declared on Series A Preferred Shares ($0.50 per share)		–		–		–		–		–				–			–		(447	)		(447	)		–
Net income (loss)		–		–		–		–		–				–			–		(3,823	)		(3,823	)
Balance, March 31, 2022		894,580	$	22,365		6,528,001	$	7		–			$	–		$	46,099	$	(38,669	)	$	29,802		$	–

See accompanying notes to consolidated financial statements

FG FINANCIAL GROUP, INC.

2021 2020
FG FINANCIAL GROUP, INC.
Consolidated Statement of Cash Flows
(Unaudited)
($ in thousands)

Nine months ended September 30,
2021 2020
Cash flows from operating activities:
Net income (loss) $ (3,920 ) $ (20,458 )
Adjustments to reconcile net income to net cash used by operating activities:
Net unrealized holding (gains) losses on investments (2,670 ) 15,557
Net realized loss on sale of equity investments 4 2,111
Net deferred income taxes – (106 )
Stock compensation expense 376 163
Purchase of investments by consolidated investment company subsidiary (6,479 ) (5,203 )
Changes in operating assets and liabilities:
Funds deposited with reinsured companies (274 ) –
Current income taxes recoverable 1,724 (559 )
Reinsurance balances receivable (3,364 ) –
Deferred policy acquisition costs (1,017 ) –
Other assets and receivables (344 ) (1,319 )
Loss and loss adjustment expense reserves 1,344 –
Unearned premium reserves 3,599 –
Accounts payable and other liabilities 627 129
Net cash used by operating activities (10,394 ) (9,685 )

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

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

Net decrease in cash and cash equivalents (3,203 ) (13,276 )
Cash and cash equivalents at beginning of period 12,132 28,509
Cash and cash equivalents at end of period $ 8,929 $ 15,233

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

Consolidated Statement of Cash Flows

(Unaudited)

(in thousands)

	2022			2021
	Three months ended March 31,
	2022			2021
Cash flows from operating activities:
Net income (loss)	$	(3,823	)	$	33
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Net unrealized holding gain on equity investments		(2,774	)		(1,735	)
Income from equity method investments, net of distributions received		5,273			(95	)
Net realized loss on sale of equity investments		2,877			–
Stock compensation expense		63			177
Purchase of investments by consolidated investment company subsidiary		–			(2,347	)
Changes in operating assets and liabilities:
Current income taxes recoverable		–			253
Reinsurance balances receivable		80			–
Deferred policy acquisition costs		87			(215	)
Other assets and receivables		(1,783	)		(454	)
Loss and loss adjustment expense reserves		(178	)		106
Unearned premium reserves		(372	)		697
Accounts payable and other liabilities		(428	)		(19	)
Net cash used by operating activities		(978	)		(3,599	)

Cash flows from investing activities:
Purchases of furniture and equipment		(1	)		(4	)
Purchases of equity method investments		(6,781	)		(73	)
Distribution from equity method investments		808			–
Sales of equity securities		251			–
Return of capital – other investments		107			33
Net cash used by investing activities		(5,616	)		(44	)

Cash flows from financing activities:
Payment of dividends on preferred shares		(447	)		(350	)
Cash contributions from non-controlling interests		–			657
Net cash provided (used) by financing activities		(447	)		307

Net decrease in cash and cash equivalents		(7,041	)		(3,336	)
Cash and cash equivalents at beginning of period		15,542			12,132
Cash and cash equivalents at end of period	$	8,501		$	8,796

See accompanying notes to consolidated financial statements.

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

Note 1. Nature of Business

FG Financial Group, Inc. (“FGF”, the “Company”, “we”, or “us”) is a reinsurance and investment management holding ~~company focused~~company. We focus on opportunistic collateralized and loss capped reinsurance, while allocating capital in partnership with Fundamental Global^®, and from time to time, other strategic investors, to SPAC and SPAC sponsor-related businesses. The Company’s principal business operations are conducted through its subsidiaries and affiliates. 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.The Company also provides investment management services. From our inception in October 2012 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.~~Texas. On December 2, 2019, we sold our three former insurance subsidiaries, and embarked ~~on a new~~upon our current 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 ~~September 30, 2021,~~March 31, 2022, Fundamental Global GP, LLC, a privately owned investment management company, and its affiliates, or “FG,” beneficially owned approximately 6056% 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 FG.

Sale of the ~~Maison~~Insurance Business

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~~our insurance 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 for a ~~Florida corporation (“FedNat”), pursuant to the terms and conditions~~combination 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 $51.0~~ ~~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.~~

~~On December 31, 2019, the~~The shares of FedNat common stock ~~issued to the Company~~we received in ~~connection with~~ the Asset Sale were ~~registered under the Securities Act of 1933, as amended (the “Securities Act”),~~issued to us 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.~~

~~Standstill Agreement~~

~~The Standstill Agreement imposes~~standstill agreement which provides certain limitations and restrictions with respect to the voting and sale or transfer of the securities until December 2024. As of ~~FedNat (including~~March 31, 2022, we continue to hold 790,371 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.stock.

~~For insurance regulatory purposes,~~Current Business

Our strategy has evolved to focus on opportunistic collateralized and loss capped reinsurance, with capital allocation to special purpose acquisition companies (“SPACs”) and SPAC sponsor-related businesses. As part of our refined focus, we have adopted the ~~Company has waived any rights that it may have to exercise control of FedNat.~~following capital allocation philosophy:

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

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

Insurance

~~FG FINANCIAL GROUP, INC.~~

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

Reinsurance ~~Capacity Right of First Refusal Agreement~~

The Company’s wholly owned reinsurance subsidiary, Fundamental Global Reinsurance ~~Agreement~~Ltd. (“FGRe”), a Cayman Islands limited liability company, 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 thespecialty property and casualty ~~insurance industry.~~reinsurance. FGRe has been granted a Class B (iii) insurer license in accordance with the terms of The ~~Reinsurance Agreement~~Insurance Act (as revised) of the Cayman Islands and underlying regulations thereto and is ~~assignable~~subject to regulation by the ~~Company subject to conditions set forth in the agreement.~~Cayman Islands Monetary Authority (the “Authority”). The ~~term~~terms of the ~~Reinsurance Agreement is five years, expiring on December 2, 2024. As of September 30, 2021,~~license require advance approval from the ~~Company has not provided~~Authority should FGRe wish to enter into any reinsurance ~~coverage~~agreements which are not fully collateralized to ~~FedNat under~~their aggregate exposure limit. FGRe participates in a Funds at Lloyds syndicate covering risks written by the ~~Reinsurance Agreement.~~syndicate during the 2021 and 2022 calendar years. On April 1, 2021, FGRe entered into its second reinsurance contract with a leading insurtech company that provides automotive insurance utilizing driver monitoring to predictively segment and price drivers. FGRe’s exposure is limited by a loss-cap stipulated within the quota-share agreement.

~~Investment Advisory Agreement~~Asset Management

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~~has agreed to provide investment advisory services to FedNat, ~~which include~~including identifying, analyzing and recommending potential investments, advising as to existing investments and investment optimization, recommending investment dispositions, and providing advice regarding macro-economic conditions. In exchange for providing the investment advisory services, FedNat has agreed to pay FGSC an annual fee of $100,000. The term of the Investment Advisory Agreement is five years, expiring on December 2, 2024.

~~Current Business~~

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.

~~Reinsurance~~

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 required 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 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.

~~Asset Management~~

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 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 SPAC.~~

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

~~Insurance~~

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 obtain the necessary regulatory approvals for the RRG in the fourth quarter of 2021. FGRe 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.

SPAC Platform

On December 21, 2020, we formed FG SPAC Solutions LLC (“FGSS”), a Delaware company, to facilitate the launch of our “SPAC Platform”. Under the SPAC Platform, we ~~plan to~~ provide various strategic, administrative, and regulatory support services to newly formed SPACs for a monthly fee. ~~The~~Additionally, the Company co-founded a partnership, FG SPAC Partners, LP (“FGSP”) to participate as a co-sponsor for newly formed SPACs. The Company also participates in the risk capital investments associated with the launch of such SPACs through its Asset Management business, specifically FG Special Situations Fund, LP. (“Fund”). As discussed in Note 4, the Company has consolidated the results of the Fund through November 30, 2021; however, effective December 1, 2021, the Company began accounting for its investment in the Fund under the equity method. The first transaction entered into under the SPAC Platform occurred on January 11, 2021, by and among FGSS and Aldel Investors, LLC, the sponsor of Aldel Financial, Inc. (“Aldel”), a special purpose acquisition company which ~~consummated~~completed its ~~initial public offering~~business combination with Hagerty on ~~April 12,~~December 2, 2021. Under the services agreement between FGSS and Aldel Investors, LLC (the “Agreement”), FGSS ~~has agreed to provide certain~~provided accounting, regulatory, strategic advisory, and other administrative services to Aldel, which ~~include~~included assistance with negotiations with a potential merger ~~target~~targets for the SPAC as well as assistance with the de-SPAC process. ~~Additional information regarding our formation of FGSS~~

In March and ~~our~~April 2022, the Company continued to build upon its SPAC Platform ~~can be found~~strategy. On March 3, 2022, FG Merger Corp. (“FG Merger”) (Nasdaq: FGMCU) announced the closing of an $80.5 million IPO in ~~Note 10 – Related Party Transactions under~~ the ~~heading “Formation~~United States, including the exercise of the over-allotment option granted to the underwriters in the offering. Similarly, on April 5, 2022, FG Acquisition Corp. (“FG Acquisition”) (TSX:FGAA.V), announced the closing of a $100 million IPO ($115 million including the subsequent exercise of the over-allotment option granted to the underwriters) in Canada. The Company participated in the risk capital associated with the launch of the SPACs through its asset management business, specifically FG Special Situations Fund, LP. Mr. Cerminara, our Chairman, Larry G. Swets, Jr., our Chief Executive Officer, and Hassan R. Baqar, our Chief Financial Officer, also hold financial interests in the SPACs and/or their sponsor companies. Additionally, Messrs. Cerminara, Swets, and Baqar are managers of the sponsor companies of the special purpose acquisition companies. Mr. Swets serves as chairman of FG ~~SPAC Partners, LP.”~~Merger, while Messrs. Baqar and Cerminara serve as director and senior advisor of FG Merger, respectively. Mr. Swets serves as chief executive officer and director of FG Acquisition. Mr. Baqar serves as chief financial officer, secretary and director of FG Acquisition. Mr. Cerminara serves as chairman of FG Acquisition.

In the aggregate, the Company’s indirect exposure to FG Merger through its subsidiaries represents potential beneficial ownership of approximately 820,000 shares of FG Merger’s common stock, approximately 989,000 warrants with an $11.50 exercise price and 5-year expiration, and approximately 85,000 warrants with a $15.00 exercise price and 10-year expiration. The Company has invested approximately $2.6 million in FG Merger through its subsidiaries. The Company’s indirect exposure in FG Acquisition through its subsidiaries represents potential beneficial ownership of approximately 819,000 shares of FG Acquisition’s common stock, approximately 1.4 million warrants with an $11.50 exercise price and 5-year expiration (the “FGAC Warrants”), approximately 440,000 warrants with a $15 exercise price and 10-year expiration, and either (i) up to approximately an additional 1.6 million FGAC Warrants, or (ii) up to approximately $2 million in cash, or (iii) a pro-rata combination of such FGAC Warrants and cash, based on certain adjustment provisions and the level of redemptions of FG Acquisition’s publicly traded warrants at the time of a business combination. The Company has invested approximately $3.4 million in FG Acquisition through its subsidiaries.

Note 2. Significant Accounting Policies

Basis of Presentation

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

~~Nature of Operations and Basis of~~ Consolidation Policies

The accompanying ~~Consolidated Financial Statements~~consolidated financial statements include the accounts of ~~FG Financial Group, Inc., consolidated with~~ the ~~accounts of all subsidiaries~~Company 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 beits subsidiaries. All 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~~The consolidated financial statements include the accounts of the Company and entities in which it is ~~contained~~required to consolidate under either the Variable Interest Entity (“VIE”) or Voting Interest Entity (“VOE”) models. Both models require the reporting entity to identify whether it has a controlling financial interest in ~~Note 13 – Segment~~a legal entity and is therefore required to consolidate the legal entity. Under the VOE model, a reporting. entity with ownership of a majority of the voting interest of a legal entity is generally considered to have a controlling financial interest. The VIE model was established for situations in which control may be demonstrated other than by the possession of voting rights in a legal entity and instead focuses on the power to direct the activities that most significantly impact the legal entity’s economic performance, as well as the rights to receive benefits and obligations to absorb losses that could potentially be significant to the legal entity.

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

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

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

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

Discontinued Operations

Due to the sale of all of the issued and outstanding equity of ~~Maison, MMI and ClaimCor~~our previous insurance business on December 2, 2019, these operations have been classified as discontinued operations in the Company’s financial statements presented herein. For the ~~nine months~~quarter ended ~~September 30,~~March 31, 2021, we recognized a gain from the sale of ~~the Maison Business of~~this business for approximately $145,000. This was related to a final true-up and settlement in the first quarter 2021, for income taxes due to the Company under the sale agreement. The following table presents a reconciliation of the major classes of line items constituting pretax profit (loss) of discontinued operations to the after-tax profit (loss) of discontinued operations that are presented in the Company’s consolidated ~~statements~~statement of operations for the ~~three~~quarters ended March 31, 2022 and ~~nine months ended September 30, 2021 and 2020:~~2021:

Schedule of Discontinued Operations

	2021		2020		2021			2020		2022		2021
(in thousands)	Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
	2021		2020		2021			2020		2022		2021
Pre-tax gain (loss) on sale	$	–	$	–	$	–		$	–	$	–	$	–
Income tax benefit		–		–		(145	)		–		–		(145	)
Net gain from sale of Maison Business	$	–	$	–	$	145		$	–	$	–	$	145

~~FG FINANCIAL GROUP, INC.~~

~~Notes to Consolidated Financial Statements~~

The Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from these estimates. Estimates and their underlying assumptions are reviewed on an ongoing basis. Changes in estimates are recorded in the accounting period in which they are determined. The critical accounting estimates and assumptions in the accompanying consolidated financial statements include the valuation of our investments, the valuation of net deferred income taxes and deferred policy acquisition costs, premium revenue recognition, reserves for loss and loss adjustment expenses, and stock-based compensation expense.

Investments in Equity Securities

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

Other Investments

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

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

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

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

~~Investment Company Accounting~~

~~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.

~~FG FINANCIAL GROUP, INC.~~

~~Notes to Consolidated Financial Statements~~

Cash and Cash Equivalents

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

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

Income Taxes

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

Concentration of Credit Risk

Financial instruments which potentially expose the Company to concentrations of credit risk include investments, cash, ~~amounts held as collateral under our quota share insurance agreements, as well as other amounts due to us under our quota share insurance agreements.~~and deposits with reinsured companies. The Company maintains its cash with a major U.S. domestic banking institution which is insured by the Federal Deposit Insurance Corporation (“FDIC”) for up to $250,000. As of ~~September 30, 2021,~~March 31, 2022 the Company held funds in excess of these FDIC insured amounts. The terms of these deposits are on demand to mitigate some of the associated risk. The Company has not incurred losses related to these deposits.

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

Premium Revenue Recognition

The Company participates in ~~a quota share~~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~~represents estimated premiums written, net of commissions, brokerage, and loss and loss adjustment expense, and are not currently due based on the terms of the underlying contracts. Additional premiums due on a contract that has no remaining coverage period are earned in full when written.

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

Policy Acquisition Costs

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

~~FG FINANCIAL GROUP, INC.~~

~~Notes to Consolidated Financial Statements~~

Funds Held by Cedents

The caption “Funds Deposited with Reinsured Companies” in the Company’s consolidated balance sheets includes amounts held by ~~Funds at Lloyd’s~~cedents provided to support our reinsurance ~~contracts~~contracts. On November 12, 2020, FGRe, our Cayman Islands based reinsurance subsidiary, initially funded a trust account at Lloyd’s with ~~Lloyd’s syndicates. As~~approximately $2.4 million cash, to collateralize its obligations under a quota-share agreement with a Funds at Lloyds syndicate. The initial contract covered our quota-share percentage of ~~September~~all risks written by the syndicate for the 2021 calendar year. On November 30, 2021, ~~funds held by cedents were~~we entered into an agreement with the same syndicate, slightly increasing our quota-share percentage of the risks the syndicate writes for the 2022 calendar year. This resulted in FGRe’s posting an additional $~~2.7~~1.0 ~~million. On October 20, 2021, we~~million in cash collateral to the account. We have also posted ~~additional~~cash collateral in the approximate amount of ~~approximately $1.0~~$1.0 million, to support our automotive insurance quota-share agreement entered into on April 1, 2021. As of both March 31, 2022 and December 31, 2021, the total cash collateral posted to support all of our reinsurance treaties was approximately $4.4 million.

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

Loss and Loss Adjustment Expense Reserves

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

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.

Stock-Based Compensation

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

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

Based upon the Company’s historical forfeiture rates relating to stock options and RSUs, the Company has not made any adjustment to stock compensation expense for expected ~~forfeitures.~~forfeitures as of March 31, 2022.

~~FG FINANCIAL GROUP, INC.~~

~~Notes to Consolidated Financial Statements~~

Fair Value of Financial Instruments

The carrying values of certain financial instruments, including cash, short-term investments, deposits held, accounts payable, and other accrued expenses approximate fair value due to their short-term nature. The Company measures the fair value of financial instruments in accordance with GAAP which defines fair value as the exchange price that would be received for an asset (or paid to transfer a liability) in the principal or most advantageous market for the asset (or liability) in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. See Note 54 for further information on the fair value of the Company’s financial instruments.

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

Earnings ~~(loss)~~(Loss) Per Common Share

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

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

Note 3. Recently Adopted and Issued Accounting Standards

Accounting Standards Pending Adoption

ASU 2016-13: Financial Instruments – Credit Losses

In June 2016, the FASB issued ASU 2016-13: Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial ~~Instruments~~.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~~certain types of financial instruments will be measured in a manner similar to current GAAP; however, the amendments require that credit losses be presented as an allowance against the ~~investment,~~financial instrument, rather than as a write-down. The amendments also allow the entity to record reversals of credit losses in current period net income, which is prohibited under current GAAP. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted, however smaller reporting companies, like the Company, may delay adoption until January 2023. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements. We anticipate that the amounts we record as due to us from our cedant companies under our reinsurance contracts will be impacted by the adoption of ASU 2016-13, requiring us to record an allowance for any projected losses we may incur on these assets, and will continue to evaluate the historical losses, contract length, financial health, size, and geographical concentration of our reinsurers in determining this impact.

Note 4. Investments and Fair Value Disclosures

The following table summarizes the Company’s investments ~~in equity securities~~held at fair value as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021.

Schedule of Investments

($ in thousands) Cost Basis Gross Unrealized Gains Gross Unrealized Losses Carrying Amount
As of September 30, 2021
FNHC common stock $ 20,751 $ – $ 17,187 $ 3,564
SPAC investments 19 – – 19
Private placements 10,469 5,120 – 15,589
Total equity securities $ 31,239 $ 5,120 $ 17,187 $ 19,172

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

(in thousands)
As of March 31, 2022	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount
FedNat common stock	$	11,367	$	–	$	10,300	$	1,067
Total investments	$	11,367	$	–	$	10,300	$	1,067

As of December 31, 2021

Cost Basis

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Carrying

Amount

FedNat common stock

14,495

–

13,074

1,421

Total investments

14,495

–

13,074

1,421

FedNat Common Stock

As of March 31, 2022, the Company held 790,371 shares of FedNat Holding Company common stock (Nasdaq: FNHC). Of the total 1,773,102 shares of FedNat common stock which the Company had received as consideration for the Asset Sale, the Company has disposed of 982,731 shares. During the first quarter of 2022, the Company sold 217,500 shares of FedNat common stock on the open market. Pursuant to the Standstill Agreement entered into between the Company and FedNat at the closing of the Asset Sale, the Company is restricted as to the timing and number of FedNat shares it can dispose of.

1312

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

~~FedNat Common Stock~~

~~On December 2, 2019, the Company received~~ ~~1,773,102~~ ~~shares~~Deconsolidation 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 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 $3.2~~ ~~million.~~

Subsidiary

~~SPAC Investments~~

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 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~~

~~Private placements consist of the private equity and risk capital associated with the sponsorship of SPACs and are held by the Fund. In September 2020, the Company invested $5.0~~ million into its joint venture, Fundamental Global Asset Management, LLC (“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. 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 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.

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

Schedule of Subsidiaries Assets

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

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

~~For the nine months ended September 30, 2021, the Company invested an additional $1.65~~ ~~million into the Fund and the Fund also received outside investment of approximately $4.1~~ million, resulting in the presentation of noncontrolling interests in the Company’s consolidated balance sheet as of September 30, 2021. 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. The Company’s $1.0~~ ~~million investment in Aldel represents the beneficial ownership of approximately~~ ~~286,000~~ ~~Aldel founder shares.~~Equity Method Investments

1413

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

~~Additionally, in the third quarter 2021, the Fund invested approximately $4.8~~ ~~million in a private placement not related to the sponsorship~~As 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.~~

~~Schedule of Investments~~

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 $~~6.65~~ ~~million as of September 30, 2021.~~

~~Schedule of Subsidiaries Assets~~

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

Cash equivalents $ 116 $ 988
Investments-SPACs 19 –
Investments-Private placements 15,589 4,012
Other assets 22 –
Total assets $ 15,746 $ 5,000

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

~~Other Investments~~

~~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 September 30, 2021. We have recorded~~March 31, 2022, equity method ~~earnings from our investment in Metrolina of approximately $137,000~~ ~~and $61,000~~ ~~for each of the nine months ended September 30, 2021 and 2020, respectively. The carrying value of our investment in Metrolina as of September 30, 2021 was approximately $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 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%a 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~~FGSP participates as 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 oneco-sponsor of the ~~members.~~SPACs launched under our SPAC Platform. We received distributions in the approximate amount of $1.4 million from FGSP for the quarter ended March 31, 2022, and have recorded equity method ~~earnings~~losses from our investment in FGSP of approximately $~~2.39~~ 0.8million for the ~~nine months ended September 30, 2021.~~quarter. The carrying value of our investment in FGSP as of ~~September 30, 2021~~March 31, 2022 was approximately $~~2.46~~1.6 million, all of which is in the form of undistributed earnings.

Certain investments held by our equity method investees are valued using Monte-Carlo simulation and option pricing models. Inherent in Monte-Carlo simulation and option pricing models are assumptions related to expected volatility and discount for lack of marketability of the underlying investment. Our investees estimate the volatility of these investments based on the historical performance of various broad market indices blended with various peer companies which they consider as having similar characteristics to the underlying investment.

As previously discussed under the heading “Deconsolidation of Subsidiary,” equity method investments also include our investment in the Fund as of March 31, 2022. Until December 1, 2021, we had consolidated the Fund as a variable interest entity, however, effective December 1, 2021, we began accounting for this investment under the equity method of accounting. For the quarter ended March 31, 2022, we made a net additional investment of approximately $4.1 million into the Fund. Of this amount, $1.8 million has been recorded under the heading “Other assets” on the Company’s balance sheet as of March 31, 2022, representing a return of capital for investments which were oversubscribed within the Fund. This receivable was settled, in cash, on April 1, 2022. We received distributions in the approximate amount of $~~2.39~~2.6 million from the Fund for the quarter ended March 31, 2022 and recognized approximately $1.3 million in equity method losses through our investment in the Fund. As of March 31, 2022, the carrying value of our investment in the Fund was approximately $12.6 million, including $1.8 million in undistributed earnings.

~~On January 11, 2021, FGSP purchased~~ ~~1,075,000~~ ~~founder shares from Aldel,~~Financial information, 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”),~~our investments accounted for ~~a purchase price of $65,000. In addition, as discussed above,~~under the ~~Company, through the Fund, has invested $1.0~~ ~~million~~equity method, in the ~~risk capital~~aggregate, is as follows:

Schedule of ~~Aldel Investors, LLC, which represent beneficial ownership of approximately~~ ~~286,000~~ Investments under Equity Method~~Aldel founder shares. Altogether, the Company’s investment represents beneficial interests of approximately~~

	As of March 31, 2022		As of December 31, 2021
(in thousands)
Other investments	$	18,022	$	25,936
Cash		1,206		72
Other assets		4,951		16
Total assets		24,179		26,024

Accounts payable	$	36	$	19
Other liabilities		1,172		–
Total liabilities		1,208		19

~~533,000~~

	Three months ended March 31, 2022			Three months ended March 31, 2021
(in thousands)
Net investment income (loss)	$	(3,455	)	$	3,553
General and administrative expenses		(73	)		–
Net income (loss)		(3,528	)		3,553

~~Aldel founder shares and approximately~~ ~~321,000~~ ~~OTM Warrants. Mr. Swets serves as senior advisor to Aldel. Mr. Baqar serves as a director and chief financial officer of Aldel. Mr. Cerminara serves as a director of Aldel.~~Investments without Readily Determinable Fair Value

~~FG FINANCIAL GROUP, INC.~~

~~Notes~~In addition to ~~Consolidated Financial Statements~~

~~Other~~our equity method investments, other investments as listed on our balance sheet also consist of equity we have purchased in a limited partnership and a limited liability company for which there does not exist readily determinable fair values. The Company accounts for these investments at their cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investment of the same issuer. Any profit distributions the Company receives on these investments are included in net investment income. The Company’s total investment in these two entities was approximately $~~483,000~~376,000 as of ~~September 30, 2021. For the nine months ended September 30, 2021 and 2020, the Company has received profit distributions of $73,000~~ ~~and $42,000~~ ~~on these investments, respectively, which has been included in income. Furthermore, both~~March 31, 2022. Both investments began ~~the process of~~ returning capital ~~back~~ to ~~its~~ investors beginning in 2020. As of ~~September 30, 2021,~~March 31, 2022, the Company has received approximately 3852% of its initial $776,000 investment ~~back from~~in these ~~investments.~~entities. There have been no upward or downward price adjustments to these investments for the three months ended March 31, 2022 and 2021.

Impairment

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

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

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

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

	●	the opinions of professional investment managers and appraisers could be incorrect;

	●●	the past operating performance and cash flows generated from the investee’s operations may not reflect their future performance; and

	●	the estimated fair values for investment for which observable market prices are not available are inherently imprecise.

We have not recorded an impairment on our investments for either of the ~~nine months~~quarters ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Net investment income (loss) for the ~~three~~quarters ended March 31, 2022 and ~~nine months ended September 30,~~ 2021 ~~and 2020~~ is as follows:

Schedule of Net Investment Income (Loss)

($ in thousands) Three Months Ended September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Unrealized holding loss on FNHC common stock $ (2,424 ) $ (5,760 ) $ (4,978 ) $ (15,618 )
Unrealized holding gain on private placement investments 4 – 5,120 –
Realized loss on FHNC shares – (2,110 ) – (2,110 )
Dividend income from FNHC common stock – 160 – 479
Equity method earnings 1,070 – 2,527 –
Other 51 (5 ) 123 257
Net investment income (loss) $ (1,299 ) $ (7,715 ) $ 2,792 $ (16,992 )

	2022			2021
(in thousands)	Three months ended March 31,
	2022			2021
Investment income (loss):
Realized loss on FedNat common stock	$	(2,877	)	$	–
Unrealized gain on FedNat common stock		2,774			(1,861	)
Unrealized holding gain on private placement investments		–			3,603
Equity method earnings (losses)		(2,071	)		95
Other		(172	)		13
Net investment income (loss)	$	(2,346	)	$	1,850

~~FG FINANCIAL GROUP, INC.~~

~~Notes to Consolidated Financial Statements~~

5. Fair Value Measurements

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

	●	Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets providing the most reliable measurement of fair value since it is directly observable.

	●	Level 2 – inputs to the valuation methodology which include quoted prices for similar assets or liabilities in active markets. These inputs are observable, either directly or indirectly, for substantially the full-term of the financial instrument.

	●	Level 3 - inputs to the valuation methodology which are unobservable and significant to the measurement of fair value.

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

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

We have valued our investment in FedNat ~~and SPAC units~~ at ~~their~~its 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).

The remainder of our private placement investments have been characterized in Level 3 of the fair value hierarchy. As of September 30, 2021, these consist of the Fund’s private placement investments in the equity interests of 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 ~~860,000~~ ~~shares of OppFi as well as approximately~~ ~~360,000~~ ~~warrants to purchase OppFi common stock at $11.50~~ ~~per share. The estimated fair value of our Aldel sponsor interests consist of a total of approximately~~ ~~471,000~~ ~~Aldel founder shares held by the Fund to which the Company was allocated approximately~~ ~~286,000~~ ~~founder shares, with the remaining~~ ~~185,000~~ ~~founder 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 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 September 30, 2021:~~

~~Summary of Valuation Model for Fair Value~~

OppFi Aldel
Founder Shares Warrants Founder Shares
Expected volatility 55.0 % 36.0 % 25.0 %
Expected term (years) 0.7 to 0.8 4.8 0.8 to 1.3
Dividend yield 0.0 % 0.0 % 0.0 %
Risk-free rate 0.1 % 0.9 % 0.1 %
Probability of completing a business combination 100.0 % 100.0 % 90.0 %
Discount for lack of marketability 19.0 % n/a 10.0 %

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.

~~FG FINANCIAL GROUP, INC.~~

~~Notes to Consolidated Financial Statements~~

Financial instruments measured, on a recurring basis, at fair value as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 in accordance with the guidance promulgated by the FASB are as follows.

Schedule of Financial Instruments Measured at Fair Value

(in thousands)
As of September 30, 2021 Level 1 Level 2 Level 3

Total

FedNat common stock $ 3,564 $ – $ – $ 3,564
SPAC investments 19 – – 19
Private placements 4,934 – 10,655 15,589
$ 8,517 $ – $ 10,655 $ 19,172

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

(in thousands)

As of March 31, 2022	Level 1		Level 2		Level 3		Total
FedNat common stock	$	1,067	$	–	$	–	$	1,067
	$	1,067	$	–	$	–	$	1,067

As of December 31, 2021
FedNat common stock	$	1,421	$	–	$	–	$	1,421
	$	1,421	$	–	$	–	$	1,421

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

~~Schedule of Changes in Classified Assets~~

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

6.Note 5. Loss and Loss Adjustment Expense Reserves

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~~many individuals, including the opinions of the Company’s management, as well as the management of ceding companies and their actuaries.

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

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

	●	a review of in-force treaties that may provide coverage and incur losses;

●	general forecasts, catastrophe and scenario modelling analyses and results shared by cedents;

●	reviews of industry insured loss estimates and market share analyses; and

●	management’s judgement.

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

	●	the scope of coverage provided by the underlying policies, particularly those that provide for business interruption coverage;

●	the regulatory, legislative, and judicial actions that could influence contract interpretations across the insurance industry;

●	the extent of economic contraction caused by the COVID-19 pandemic and associated actions; and

●	the ability of the cedents and insured to mitigate some or all of their losses.

~~FG FINANCIAL GROUP, INC.~~

~~Notes to Consolidated Financial Statements~~

Under the terms of certain of our ~~quota share~~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, ~~third~~first quarter ~~2021~~2022 premium and loss information will not be made available to the Company until subsequent to the filing of this quarterly report. Thus, our ~~third~~first 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 for the 2021 calendar year as well as ~~full-year~~ forecasts for 2022 reported to us by the ceding ~~companies for which we used to approximate third~~companies. We have approximated first quarter ~~results.~~2022 results under our contracts based upon this historical and forecasted information.

While the Company believes its estimate of loss and loss adjustment expense reserves are adequate as of ~~September 30, 2021,~~March 31, 2022, based on available information, actual losses may ultimately differ materially from the Company’s current estimates. The Company will continue to monitor the appropriateness of its assumptions as new information is provided.

A summary of changes in outstanding loss and loss adjustment expense reserves for the ~~nine months~~quarters ended ~~September 30,~~March 31, 2022 and 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 nine months ended September 30, 2020.follows.

Summary of Changes in Outstanding Loss and Loss Adjustment Expense Reserves

(in thousands)	2021			2022			2021

Balance, January 1, gross of reinsurance	$	–		$	2,133		$	–
Less reinsurance recoverable on loss and LAE expense reserves		–			–			–
Balance, January 1, net of reinsurance		–			2,133			–
Incurred related to:
Current year		1,893			732			106
Prior years		–			791			–
Paid related to:
Current year		(549	)		(1,026	)
Prior years		–			(675	)		–
Balance, September 30, net of reinsurance		1,344
Balance, March 31, net of reinsurance					1,955			106
Plus reinsurance recoverable related to loss and LAE expense reserves		–			–			–
Balance, September 30, gross of reinsurance	$	1,344
Reinsurance recoverable related to loss and LAE expense reserves					-			-
Balance, March 31, gross of reinsurance				$	1,955		$	106

Note 6. Income Taxes

7. ~~Income Taxes~~

~~Income~~A summary of income tax expense ~~for the three and nine months ended 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~~(benefit) is as ~~summarized in the following table:~~follows:

Summary of Income Tax Expense (Benefit)

($ in thousands)
Three months ended
September 30,

Nine months ended
September 30,

2021 2020 2021 2020
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 1,041 1,510 1,081 3,514
Rate differential due to CARES Act – – – (214 )
Non-deductible expenses associated with the Share Repurchase Transaction – 516 – 516
State income tax (net of federal tax benefit) – – (114 ) –
Noncontrolling interests (119 ) (259 ) –
Other 1 (12 ) 1 (45 )
Income tax expense (benefit) $ – $ – (145 ) $ (665 )

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

Due to the sale of all of the issued and outstanding equity of Maison, MMI and Claimcor 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.~~

	2022		2021
(in thousands)	Three months ended March 31,
	2022		2021
Current income tax benefit – from continuing operations	$	–	$	–
Current income tax benefit – from discontinued operations		–		–
Total current income tax benefit		–		–

Deferred income tax benefit – from continuing operations		–		–
Deferred income tax benefit – from discontinued operations		–		–
Total deferred income tax benefit		–		–

Total income tax benefit – from continuing operations		–		–
Total income tax benefit – from discontinued operations	$	–	$	(145	)
Total income tax benefit	$	–	$	(145	)

1917

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

~~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~~Actual income tax expense ~~for~~(benefit) differs from the ~~quarter ended March 31, 2020, due~~income tax expense computed by applying the applicable effective federal and state tax rates to ~~a provision in the CARES Act which allows for the five-year carryback~~income before income tax expense as follows:

Schedule 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.~~Reconciliation Effective Tax Rates

($ in thousands)	Three months ended March 31,
	2022						2021
	Amount			%			Amount			%

Provision for taxes at U.S. statutory marginal income tax rate of 21%	$	(803	)		21.0	%	$	(24	)		21.0	%
Valuation allowance for deferred tax assets deemed unrealizable		798			(20.9	)%		(7	)		6.7	%
Rate differential due to CARES Act		–			–	%		–			–	%
Non-deductible expenses associated with the Share Repurchase Transaction		–			–	%		–			–	%
Net operating loss carryback		–			–	%		–			–	%
State income tax (net of federal benefit)		–			–	%		(114	)		103.1	%
Share-based compensation		5			(0.1	)%		1			(1.5	)%
Other		–			–	%		(1	)		1.0	%
Income tax benefit	$	–			–	%	$	(145	)		130.3	%

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 September 30, 2021, the Company has~~The Company’s gross ~~net~~ deferred tax assets and liabilities are $6.7million and $0.1 million as of ~~approximately $5.3million; however the~~March 31, 2022. The Company has recorded a valuation allowance against ~~all of~~ its ~~net~~ deferred tax assets of $6.5 million, as of March 31, 2022, 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.~~future. Significant components of the Company’s net deferred tax assets are as follows:

Schedule of Deferred Income Taxes

							2022			2021
(in thousands)
	September 30, 2021			December 31, 2020			As of March 31, 2022			As of December 31, 2021
Deferred income tax assets:
Net operating loss carryforward	$	2,824		$	1,143		$	3,329		$	3,010
Loss and loss adjustment expense reserves								22			25
Unearned premium reserves								136			152
Capital loss carryforward								1,045			1,114
Share-based compensation		221			216			238			253
Investments		2,085			2,570			1,886			1,692
Unearned premium reserves		151			–
Other		21			5			4			3
Deferred income tax assets		5,302			3,934		$	6,660		$	6,249
Less: Valuation allowance		(5,015	)		(3,934	)		(6,513	)		(5,715	)
Deferred income tax assets net of valuation allowance	$	287		$	–		$	147		$	534

Deferred income tax liabilities:
Investments							$	–		$	369
Deferred policy acquisition costs	$	214		$	–			147			165
Other		73			–
Deferred income tax liabilities	$	287		$	–		$	147		$	534

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

As of ~~September 30, 2021,~~March 31, 2022, the Company had net operating loss carryforwards (“NOLs”) for federal income tax purposes of approximately $~~13.4~~15.9 million, which ~~may~~will be available to offset future taxable income. ~~The Company’s NOLs expire as follows:~~Approximately $0.5 million inexpire on December 31, 2039, $0.1 million inexpire on December 31, 2040, and $~~1.2~~1.6 million inof the Company’s NOLs will expire on December 31, 2041. The remaining $~~11.6~~13.7 million inof the Company’s NOLs do not expire under current tax law. Additionally, the Company has approximately $1.0 million of capital loss carryforward that can only be used to offset capital gains and which will expire in December 2026 if not used prior.

As of ~~September 30, 2021,~~March 31, 2022, the Company had no unrecognized tax benefits. The Company analyzed its tax positions in accordance with the provisions of Accounting Standards Codification Topic 740, Income Taxes, and has determined that there are currently 0no uncertain tax positions. The Company generally recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

FG FINANCIAL GROUP, INC.

8.Notes to Consolidated Financial Statements

Note 7. Equity Incentive Plan Grants

~~In April 2014,~~On December 15, 2021, our shareholders approved the ~~Company established an equity incentive plan for employees and directors of the Company~~FG Financial Group, Inc. 2021 Equity Incentive Plan (the ~~“2014~~“2021 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~~2021 Plan is to attract and retain directors, consultants, officers and other key employees of the Company and its subsidiaries and to provide to such persons incentives and rewards for superior performance. The ~~2018~~2021 Plan is administered by the Compensation and Management Resources Committee of the Board and has a term of ten years. The ~~2018~~2021 Plan ~~allows for~~awards may be in the ~~issuance~~form of ~~both~~stock options (which may be incentive stock options ~~and non-qualified~~or nonqualified stock ~~options,~~options), stock appreciation rights ~~RSUs,~~(or “SARs”), restricted shares, restricted share units, and other ~~stock-based, as well as cash-based awards. As~~share-based awards, and provides for a maximum of ~~September 30, 2021, there remained~~ 01,500,000 shares available for ~~issuance under the 2018 Plan. Accordingly, the Company is seeking the approval of a new equity incentive plan, to be voted upon at the Company’s 2021 annual meeting of shareholders.~~issuance.

~~FG FINANCIAL GROUP, INC.~~

~~Notes to Consolidated Financial Statements~~

As of ~~September 30, 2021,~~March 31, 2022, the Company had ~~RSU agreements~~133,859 RSUs outstanding ~~under both the 2014~~ and ~~2018 Plans as well as~~130,000 non-qualified stock options outstanding under ~~the 2018 Plan.~~its equity incentive plans.

RSUs Outstanding ~~under the 2014 and 2018 Plan~~

The following table summarizes RSU activity for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021.

Schedule of Restricted Stock Units Activity

Restricted Stock Units	Number of Units			Weighted Average Grant Date Fair Value		Number of Units			Weighted Average Grant Date Fair Value
Non-vested units, January 1, 2020		140,002		$	5.93
Non-vested units, January 1, 2022							164,655		$	4.35
Granted		60,998			–		–			–
Vested		(21,568	)		4.94		(30,796	)		4.45
Forfeited		–			–		–			–
Non-vested units, September 30, 2020		179,432		$	5.94
Non-vested units, March 31, 2022							133,859		$	4.33

Non-vested units, January 1, 2021		148,486		$	5.44		148,486		$	5.44
Granted		–			–		–			–
Vested		(63,161	)		5.55		(22,067	)		5.46
Forfeited		–			–		–			–
Non-vested units, September 30, 2021		85,325		$	5.36
Non-vested units, March 31, 2021							126,419		$	5.44

~~(1)~~ On ~~August 12, 2020, the Board~~December 17, 2021, we issued a total of ~~60,998~~83,329 RSUs to ~~the Company’s then serving non-employee directors, representing a value of $40,000~~ ~~per director, pursuant to the Company’s compensation program in effect for all~~our non-employee directors. The RSUs vest in five equal annual installments, beginning with the first anniversary of the grant ~~date. Due to the unavailability of shares under the 2018 Plan,~~date, other than those RSUs ~~have not been~~ granted to ~~our non-employee directors for 2021; however,~~a former director. As the former director made himself available to serve on ~~July 27, 2021, the Compensation and Management Resource Committee of~~ the Board ~~approved an increase~~but was not elected to ~~the amount of RSUs granted annually to non-employee directors to $50,000~~ ~~from $40,000~~ ~~and authorized the issuance of the 2021 award of RSUs upon the availability of sufficient stock under~~do so at the Company’s ~~equity incentive plan.~~

~~(2) Upon the resignation~~2021 annual meeting of ~~Marsha G. King and Lewis M. Johnson on December 14, 2020, and March 12, 2021, respectively,~~shareholders, the Board accelerated the vesting of his RSUs, such that they all vested on January 1, 2022. This included ~~19,210~~14,492 RSUs ~~that had been previously~~ granted ~~to Ms. King, and~~on December 17, 2021, as well as an additional ~~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~~15,224 RSUs previously ~~granted to Mr. Hill.~~granted.

Stock Options Outstanding ~~under the 2018 Plan~~

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.~~Swets. 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~~Swets remains in the continuous service of the Company through each applicable vesting date and ~~provided~~ that the Company’s book value per share ~~shall have~~has 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.

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

The Stock Option contains performance and service conditions that affect vesting. Pursuant to ASC Topic 718- Stock Compensation, these conditions have not been reflected in estimating the fair value of the award upon its grant ~~date,~~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:

~~FG FINANCIAL GROUP, INC.~~

~~Notes to Consolidated Financial Statements~~

Schedule of Fair Value of Stock Options

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

The following table summarizes activity for stock options issued for the ~~nine months~~quarters ended ~~September 30,~~March 31, 2022 and 2021. ~~There was no activity for the nine months ended September 30, 2020.~~

Schedule of Stock Option Activity

Common Stock Options

Weighted Ave Exercise Price

Weighted Ave Remaining Contractual Term (yrs)

Weighted Ave Grant Date Fair Value

Aggregate Intrinsic Value

Weighted Ave Exercise Price

Weighted Ave Remaining Contractual Term (yrs)

Weighted Ave Grant Date Fair Value

Aggregate Intrinsic Value

Outstanding, January 1, 2022

130,000

3.38

9.04

1.88

49,400

Exercisable, January 1, 2022

–

Granted

–

Exercised

–

Cancelled

–

Outstanding, March 31, 2022

130,000

3.38

8.79

1.88

(85,800

)

Exercisable, March 31, 2022

–

Outstanding, January 1, 2021

–

Exercisable, January 1, 2021

–

Granted

130,000

3.38

10.00

1.88

–

130,000

3.38

10.00

1.88

–

Exercised

–

Cancelled

–

Outstanding, September 30, 2021

130,000

3.38

9.29

1.88

193,700

Exercisable, September 30, 2021

–

Outstanding, March 31, 2021

130,000

3.38

9.79

1.88

165,100

Exercisable, March 31, 2021

–

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

Total stock-based compensation expense for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ was approximately $~~377,000~~62,000 and $~~163,000~~177,000, respectively. As of ~~September 30, 2021,~~March 31, 2022, total unrecognized stock compensation expense of $~~506,000~~548,000 remains, which will be recognized through ~~September 30, 2025.~~December 31, 2026. Stock compensation expense has been reflected in the Company’s financial statements as part of general and administrative expense.

Warrants

~~For the nine months ended September 30, 2021 and 2020,~~No warrants were ~~neither~~ granted ~~nor~~or exercised ~~nor did any warrants expire. As of September 30, 2021,~~during the ~~Company had~~quarters ended March 31, 2022 and 2021. On February 24, 2022, 1,500,000 warrants ~~outstanding~~ with an exercise price of $15.00~~, which expire on~~ ~~February 24, 2022~~.

9. ~~Shareholders’ Equity~~

~~Series A Preferred Stock~~

~~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 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~~ expired. As 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. Our Board of Directors declared~~31, 2022, the ~~third quarter 2021 dividend on the shares of Series A Preferred Stock on November 12, 2021.~~

~~The Series A Preferred Stock is~~Company did 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 tohave any sinking fund or mandatory redemption. 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”.warrants outstanding.

2220

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

~~Common Stock~~

~~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.~~

~~Retirement of Treasury Stock~~

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

~~10.~~Note 8. Related Party Transactions

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

~~Investment in Metrolina~~

~~As of September 30, 2021, the Company 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. 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 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.

Metrolina’s investment program was managed by FG Funds Management LLC, an affiliate of FG, 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 September 30, 2021.~~

Joint Venture Agreement

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

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

~~FG FINANCIAL GROUP, INC.~~

~~Notes to Consolidated Financial Statements~~

~~In September 2020, the Company provided seed capital of $5.0~~ ~~million into FGAM, to capitalize~~ FG Special Situations Fund ~~Advisor, LLC (the “Advisor”),~~

As of March 31, 2022, the Company had invested $10.8 million, net of redemptions, as 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. FGAM has investedpartner in the ~~Fund through~~Fund. Of this amount, $1.8 million has been recorded under the ~~Fund’s~~heading “Other assets” on the Company’s balance sheet as of March 31, 2022, representing a return of capital for investments which were oversubscribed within the Fund. This receivable was settled, in cash, on April 1, 2022. The general partner of the Fund, and the ~~Advisor, both~~investment advisor of ~~which~~the Fund are ultimately controlled by Mr. Cerminara, the Chairman of the Company’s Board of Directors. OfPortions 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~~Company’s investment into the Fund were used to sponsor the launch ~~FG New America Acquisition Corp (NYSE: FGNA), a~~of special purpose acquisition ~~company which consummated its initial public offering on October 2, 2020. On July 20, 2021, FGNA completed its definitive business combination~~companies affiliated with ~~Opportunity Financial, LLC~~certain of our officers 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.directors.

Mr. Cerminara, ~~is a manager of the Sponsor.~~our chairman, and Mr. Swets, our Chief Executive Officer, are managers of the sponsor companies FG New America Investors, LLC and Aldel Financial, LLC. Messrs. Cerminara, Swets and Baqar are managers of the sponsor companies of FG Merger and FG Acquisition. Mr. Swets, was the Chief Executive Officer and a director of FGNA ~~however no longer holds those positions following FGNAs business combination with OppFi.~~and 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~~until 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. 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 $1.0~~ ~~million investment in Aldel, represents the beneficial ownership of approximately~~ ~~286,000~~ ~~Aldel founder shares.~~ Mr. Swets ~~serves~~served as Senior Advisor to ~~Aldel,~~Aldel; Mr. Baqar ~~serves~~served as Director and Chief Financial Officer of ~~Aldel,~~Aldel; and Mr. Cerminara served as a director of Aldel; until Aldel’s business combination with Hagerty. Messrs. Cerminara, Swets, and Baqar also hold financial interests in the SPACs and/or their sponsor companies. Mr. Swets serves as chairman of FG Merger, while Messrs. Baqar and Cerminara serve as director and senior advisor of FG Merger, respectively. Mr. Swets serves as chief executive officer and director of FG Acquisition. Mr. Baqar serves as chief financial officer, secretary and director of FG Acquisition. Mr. Cerminara serves as ~~a director~~chairman of ~~Aldel.~~FG Acquisition.

FG SPAC Partners

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

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

Investment Advisory Agreement

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

Shared Services Agreement

On March 31, 2020, the Company entered into a Shared Services Agreement (the “Shared Services Agreement”) with Fundamental Global Management, LLC (“FGM”), an affiliate of FG, pursuant to which FGM provides the Company with certain services related to the day-to-day management of the Company, including assisting with regulatory compliance, evaluating the Company’s financial and operational performance, providing a management team to supplement the executive officers of the Company, and such other services consistent with those customarily performed by executive officers and employees of a public ~~company (collectively, the “Services”).~~company. In exchange for the ~~Services,~~these services, the Company pays FGM a fee of $~~456,250~~456,000 per quarter (the “Shared Services Fee”), plus reimbursement of expenses incurred by FGM in connection with the performance of the Services, subject to certain limitations approved by the Company’s Board of Directors or Compensation Committee from time to time.

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

The Shared Services Agreement has an initial term of three years, and thereafter renews automatically for successive one-year terms unless terminated in accordance with its terms. The Shared Services Agreement may be terminated by FGM or by the Company, by a vote of the Company’s independent directors, at the end of the initial or automatic renewal term upon 120 days’ notice, subject to payment by the Company of certain costs incurred by FGM to wind down the provision of ~~Services~~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.

~~FG FINANCIAL GROUP, INC.~~

~~Notes to Consolidated Financial Statements~~

The Company paid $~~1.37~~457,000 ~~million~~ and $~~0.91~~456,250 ~~million~~ to FGM under the Shared Services Agreement for each of the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

Note 9. Net Earnings Per Share ~~Repurchase Transaction~~

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 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.

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 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 $5.2million, was recorded to treasury stock.~~

~~Formation of FG SPAC Partners, LP~~

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. Mr. Swets, holds a limited partner interest through Itasca Financial LLC, an advisory and investment firm for which Mr. Swets is managing member. Mr. Baqar also holds a limited partner interest through Sequoia Financial LLC, an advisory firm for which Mr. Baqar is managing member. Mr.Cerminara, also holds a limited partner interest through Fundamental Global, LLC, a holding company for which Mr. Cerminara is the manager and one of the members.

~~FG FINANCIAL GROUP, INC.~~

~~Notes to Consolidated Financial Statements~~

~~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. Mr. Swets, serves as senior advisor to Aldel. Mr. Baqar serves as a director and chief financial officer of Aldel. Mr. Cerminara serves as a director of Aldel.~~

~~11.~~ Net ~~Income (Loss) Per Common Share~~

~~Net income (loss)~~earnings 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 nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.

FG FINANCIAL GROUP, INC.

Notes to Consolidated Financial Statements

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

													2022			2021
($ in thousands except per share data)	Three months ended September 30,						Nine months ended September 30,
($ in thousands, except per share data)													Three months ended March 31,
	2021			2020			2021			2020			2022			2021
Basic and diluted:
Net loss from continuing operations	$	(4,393	)	$	(9,590	)	$	(4,065	)	$	(20,458	)	$	(3,823	)	$	(112	)
Gain attributable to noncontrolling interests		(569	)		–			(1,235	)		–
Loss attributable to noncontrolling interest														–			(1	)
Dividends declared on Series A Preferred Shares		(448	)		(350	)		(1,245	)		(1,050	)		(447	)		(350	)
Loss attributable to FG Financial Group, Inc. common shareholders		(5,410	)		(9,940	)		(6,545	)		(21,508	)
Weighted average common shares outstanding		5,032,615			5,893,125			5,012,139			6,009,267
Loss attributable to FG Financial Group, Inc. common shareholders from continuing operations														(4,270	)		(461	)
Weighted average common shares														6,477,568			4,992,989
Loss per common share from continuing operations	$	(1.08	)	$	(1.69	)	$	(1.31	)	$	(3.58	)	$	(0.66	)	$	(0.09	)

Gain from sale of Maison Business, net of taxes	$	–		$	–			145		$	–
Gain from sale of former insurance business													$	–		$	145
Weighted average common shares outstanding		5,010,377			–			5,012,139			–			–			4,992,989
Income per common share from discontinued operations	$	–		$	–		$	0.03		$	–		$	–		$	0.03

Loss per share attributable to common shareholders													$	(0.66	)	$	(0.06	)

The following potentially dilutive securities outstanding as of ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ have been excluded from the computation of diluted weighted-average shares outstanding as their effect would be ~~anti-dilutive:~~anti-dilutive.

Schedule of Potentially Dilutive Securities Excluded from Calculation

	As of September 30,				As of March 31,
	2021		2020		2022		2021
Warrants to purchase common stock						-		1,500,000
Options to purchase common stock		130,000		–		130,000		130,000
Warrants to purchase common stock		1,500,000		1,500,000
Restricted stock units		85,325		179,432		133,859		126,419
		1,715,325		1,679,432		263,859		1,756,419

~~12.~~Note 10. Commitments and Contingencies

~~Equity Award Letter Agreement~~

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.

~~FG FINANCIAL GROUP, INC.~~

~~Notes to Consolidated Financial Statements~~

Legal ~~Proceedings~~Proceedings:

As of March 31, 2022, the Company was not a party to any legal proceedings and was not aware of any material claims or actions pending or threatened against us. From time to time, we are involved in legal proceedings and litigation arising in the ordinary course of business. Currently, it is not possible to predict legal outcomes and their impact on the future development of claims. Any such development will be affected by future court decisions and interpretations. Because of these uncertainties, additional liabilities may arise for amounts in excess of the Company’s current reserves.

Operating Lease ~~Commitments~~Commitments:

~~Effective~~In 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.~~12 months. Total minimum rent over the 12-month term is expected to be approximately $17,000. Due to the short-term nature of the lease, the Company has recognized lease expense on a straight-line basis over the term of the lease, with any variable lease payments recognized in the period in which the obligation for the payment occurred. Rent expense was approximately $5,000 for the three months ended March 31, 2022.

In April 2022, the Company entered into a lease agreement for office space in Itasca, IL. The lease has a term of 44 months beginning on May 1, 2022. Total minimum rent over the term of the lease is expected to be approximately $~~18,000~~77,000. ~~Rent expense was $15,000~~ ~~and $25,000~~The Company will account for the ~~nine months ended September 30, 2021 and 2020, respectively.~~lease under ASC 842. Future minimum lease commitments are as follows:

Schedule of Future Minimum Lease Commitments

Year ending December 31, Minimum Commitment
2022 $ 17,500
2023 21,000
2024 21,000
2025 17,500
Total $ 77,000
23
FG FINANCIAL GROUP, INC.
Notes to Consolidated Financial Statements

Impact of ~~the~~ Coronavirus (COVID-19) Pandemic
~~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.

~~13.~~Note 11. Segment Reporting
The Company has ~~two~~ 2operating ~~segments;~~ 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~~as of March 31, 2022, included our two ~~quota share~~quota-share reinsurance agreements, as well as the returns associated with the investments made by our reinsurance operations, which include the Company’s FedNat common stock investment, as well as a portion of our ~~investment~~investments in ~~Aldel.~~the SPACs which we have sponsored. Our asset management segment includes ~~the operations of~~our investment in the Fund, as well as our ~~investments in Metrolina, our~~ investment advisory agreement with ~~FedNat and the operations of our newly formed SPAC Platform.~~FedNat.

The following table presents the financial information for each segment that is specifically identifiable or based on allocations using internal methodology as of and for the three ~~and nine months ended 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 deployed2022 and ~~have been presented in the ‘other’ segment as of September 30, 2020.~~2021. The ‘other’ category in the table below consists largely of corporate general and administrative expenses which have not been allocated to a specific segment. Segment assets for the “other” category primarily consist of unrestricted cash in the amounts of $7.9 million and $6.7 million as of March 31, 2022 and 2021, respectively.
Summary of Segment Reporting
(in thousands)

For the three months ended September 30, 2021
Insurance Asset Management Other Total
Revenues from external customers $ 1,099 $ 66 $ – $ 1,165
Interest revenue (8 ) 37 – 29
Total revenue 3,882 (4,015 ) – (133 )
Depreciation and amortization – 1 2 3
Income (loss) before income tax 2,275 (4,123 ) (2,545 ) (4,393 )

For the nine months ended September 30, 2021
Revenues from external customers $ 2,221 $ 146 $ – $ 2,367
Interest revenue 5 49 – 54
Total revenue 3,894 1,265 – 5,159
Depreciation and amortization – 1 35 36
Income (loss) before income tax 686 905 (5,656 ) (4,065 )

As of September 30, 2021
Segment assets $ 13,452 $ 21,382 $ 9,016 $ 43,850

For the three months ended September 30, 2020
Revenues from external customers $ – $ 25 $ – $ 25
Interest revenue 1 28 – 29
Total revenue (7,710 ) 20 – (7,690 )
Depreciation and amortization – – 2 2
Income (loss) before income tax (7,746 ) 19 (1,863 ) (9,590 )

For the nine months ended September 30, 2020
Revenues from external customers $ – $ 75 $ 4 $ 79
Interest revenue 1 153 – 154
Total revenue (17,249 ) 332 4 (16,913 )
Depreciation and amortization – – 4 4
Income (loss) before income tax (17,318 ) 331 (4,136 ) (21,123 )

As of September 30, 2020
Segment assets $ 12,459 $ 10,361 $ 14,136 $ 36,956
(in thousands)

For the three months ended March 31, 2022 Insurance Asset Management Other Total
Net premiums earned $ 2,473 $ – $ – $ 2,473
Net investment loss (969 ) (1,377 ) – (2,346 )
Other income – 25 – 25
Total revenue 1,504 (1,352 ) – 152
Loss before income tax (661 ) (1,562 ) (1,600 ) (3,823 )

As of March 31, 2022
Segment assets $ 11,995 $ 13,365 $ 10,284 $ 35,644

For the three months ended March 31, 2021
Net premiums earned $ 185 $ – $ – $ 185
Net investment (loss) income (1,849 ) 3,699 – 1,850
Other income – 55 – 55
Total revenue (1,664 ) 3,754 – 2,090
Income (loss) before income tax (2,129 ) 3,598 (1,581 ) (112 )

As of March 31, 2021
Segment assets $ 10,533 $ 16,375 $ 8,952 $ 35,860
27
FG FINANCIAL GROUP, INC.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our consolidated financial statements and related notes and information included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report for the year ended December 31, ~~2020~~2021 on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March ~~18, 2021.~~30, 2022.
Unless context denotes otherwise, the terms “Company,” “FGF,” “we,” “us,” and “our,” refer to FG Financial Group, Inc., and its subsidiaries.
Cautionary Note about Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are therefore entitled to the protection of the safe harbor provisions of these laws. These statements may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “budget,” “can,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “evaluate,” “forecast,” “goal,” “guidance,” “indicate,” “intend,” “likely,” “may,” “might,” “outlook,” “plan,” “possibly,” “potential,” “predict,” “probable,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” “view,” “will,” “would,” “will be,” “will continue,” “will likely result” or the negative thereof or other variations thereon or comparable terminology. In particular, discussions and statements regarding the Company’s future business plans and initiatives are forward-looking in nature. We have based these forward-looking statements on our current expectations, assumptions, estimates, and projections. While we believe these to be reasonable, such forward-looking statements are only predictions and involve a number of risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance, or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements, and may impact our ability to implement and execute on our future business plans and initiatives. ~~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;~~pandemic; our lack of operating history or established reputation in the reinsurance industry; our inability to obtain or maintain the necessary approvals to operate reinsurance subsidiaries; risks associated with operating in the reinsurance industry, including inadequately priced insured risks, credit risk associated with brokers we may do business with, and inadequate retrocessional coverage; our inability to execute on our investment and investment management strategy, including our strategy to invest in ~~real estate assets;~~the risk capital of special purpose acquisition companies (SPACs); potential loss of value of investments; risk of becoming an investment company; fluctuations in our short-term results as we implement our new business strategy; risks of ~~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~~public company; the requirements of being a public company and losing our status as a smaller reporting company or becoming an accelerated filer; any potential conflicts of interest between us and our controlling stockholders and different interests of controlling stockholders; potential conflicts of interest between us and our directors and executive officers; ~~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~~sale of our insurance business or limitations and restrictions with respect to our ownership of such shares; risks of being a minority stockholder of FedNat Holding Company; risks associated with our related party transactions and investments; and risks associated with our ~~inability~~investments in SPAC, including the failure of any such SPAC to ~~continue to satisfy the listing standards of the Nasdaq following completion of the Asset Sale.~~complete its initial business combination. Our expectations and future plans and initiatives may not be realized. If one of these risks or uncertainties ~~materialize,~~materializes, or if our underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. You are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements are made only as of the date hereof and do not necessarily reflect our outlook at any other point in time. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect new information, future events or developments.
28
~~FG FINANCIAL GROUP, INC.~~
Overview
FG Financial Group, Inc. (“FGF”, the “Company”, “we”, or “us”) is a reinsurance and investment management holding ~~company focused~~company. We focus on opportunistic collateralized and ~~loss capped~~loss-capped reinsurance, while allocating capital in partnership with Fundamental Global^®, and from time to time, other strategic investors, to SPAC and SPAC sponsor-related businesses. ~~Our~~The Company’s principal business operations are conducted through ~~our~~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.The Company also provides investment management services. From our inception in October 2012 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.~~Texas. On December 2, 2019, we sold our three former insurance subsidiaries, and embarked ~~on a new~~upon our current 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 ~~September 30, 2021,~~March 31, 2022, Fundamental Global GP, LLC, a privately owned investment management company, and its affiliates, or “FG,” beneficially owned approximately ~~60%~~56% 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 FG.
Sale of ~~the Maison~~Insurance Business

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~~our insurance 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 for a ~~Florida corporation (“FedNat”), pursuant to the terms and conditions~~combination 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 $51.0 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.
~~On December 31, 2019, the~~The shares of FedNat common stock ~~issued to the Company~~we received in ~~connection with~~ the Asset Sale were ~~registered under the Securities Act of 1933, as amended (the “Securities Act”),~~issued to us 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.~~
~~Standstill Agreement~~
~~The Standstill Agreement imposes~~standstill agreement which provides certain limitations and restrictions with respect to the voting and sale or transfer of the securities until December 2024. As of ~~FedNat (including~~March 31, 2022, we continue to hold 790,371 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.~~stock.

2925
FG FINANCIAL GROUP, INC.
~~Reinsurance Capacity Right of First Refusal Agreement~~
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 September 30, 2021, the Company has not provided any reinsurance coverage to FedNat under the Reinsurance Agreement.
~~Investment Advisory Agreement~~
Pursuant to the Investment Advisory Agreement, FG Strategic Consulting, 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.
~~Current Business~~Critical Accounting Estimates

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.
~~Reinsurance~~
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 licenseCritical accounting estimates are those estimates made in accordance with ~~the terms~~generally accepted accounting principles that involve a significant level of ~~The Insurance Law, 2010~~estimation uncertainty and ~~underlying regulations thereto and is subject~~have had or are reasonably likely to ~~regulation by the Cayman Islands Monetary Authority (the “Authority”). The terms of the license require FGRe to receive~~have 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.
30
~~FG FINANCIAL GROUP, INC.~~
~~Asset Management~~
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 a wholly owned subsidiary of 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”.
~~Insurance~~
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 obtain the necessary regulatory approvals for the RRG in the fourth quarter of 2021. FGRe also anticipates providing capital, along with other participants, to facilitate the underwriting of such insurance coverage. The Company will focusmaterial impact on ~~fee income derived from originating, underwriting, and servicing the insurance business, while mitigating~~ our financial ~~risk with external reinsurance partners.~~
~~SPAC Platform~~
~~On December 21, 2020, we formed FG SPAC Solutions LLC (“FGSS”), a Delaware company, to facilitate the launch~~condition or results 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.”
~~Impact of the Coronavirus (COVID-19) Pandemic~~
~~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.
~~Critical Accounting Estimates and Assumptions~~
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~~qualitative and quantitative information necessary to ~~be our most~~understand the estimation uncertainty and the impact the critical accounting ~~policies and estimates.~~
31
~~FG FINANCIAL GROUP, INC.~~
~~Discontinued Operations~~
~~Due~~estimate has had or is reasonably likely to have on financial condition or results of operations, to the ~~sale~~extent the information is material and reasonably available. Certain of ~~all of the issued and outstanding equity of Maison, MMI and ClaimCor on December~~these are described in Note 2, 2019, these operations have been classified as discontinued operations in the Company’s financial statements presented herein. For the nine months ended September 30, 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 CompanySignificant Accounting Policies, under the ~~sale agreement.~~captions, “Investments in Equity Securities,” Other Investments,” “Premium Revenue Recognition,” “Policy Acquisition Costs,” “Loss and Loss Adjustment Expense Reserves,” and “Stock Based Compensation.”

~~Valuation of Investments~~
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. CertainConsolidation 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.
Variable Interest Entities

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

The ultimate realization of the deferred income tax asset balance is dependent upon the generation of future taxable income during the periods in which the Company’s temporary differences reverse and become deductible. A valuation allowance is established when it is more likely than not that all or a portion of the deferred income tax asset balance will not be realized. In determining whether a valuation allowance is needed, management considers all available positive and negative evidence affecting specific deferred income tax asset balances, including the Company’s past and anticipated future performance, the reversal of deferred income tax liabilities, and the availability of tax planning strategies. To the extent a valuation allowance is established in a period, an expense must be recorded within the income tax provision in the consolidated statements of income and comprehensive income.
3226
FG FINANCIAL GROUP, INC.
~~Premium Revenue Recognition~~Recent Accounting Pronouncements

The Company participates in a quota share 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.
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~~
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.
~~Loss and Loss Adjustment Expense Reserves~~
Loss and loss adjustment expense reserve estimates are based on estimates derived from reports received from ceding companies. These estimates are periodically reviewed by the Company’s management and adjusted as necessary. Since reserves are estimates, the final settlement of losses may vary from the reserves established and any adjustments to the estimates, which may be material, are recorded in the period they are determined.
Loss estimates may also be based upon actuarial and statistical projections, an assessment of currently available data, predictions of future developments, estimates of future trends and other factors. The final settlement of losses may vary, perhaps materially, from the reserves recorded. All adjustments to the estimates are recorded in the period in which they are determined. U.S. GAAP does not permit establishing loss reserves, which include case reserves and IBNR loss reserves, until the occurrence of an event which may give rise to a claim. As a result, only loss reserves applicable to losses incurred up to the reporting date are established, with no allowance for the establishment of loss reserves to account for expected future loss events.
Generally, the Company obtains regular updates of premium and loss related information for the current and historical periods, which are utilized to update the initial expected loss ratio. We also experience lag between (i) claims being reported by the underlying insured to the Company’s cedent and (ii) claims being reported by the Company’s cedent to the Company. This lag may impact the Company’s loss reserve estimates. 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.
33
~~FG FINANCIAL GROUP, INC.~~
~~Stock-Based Compensation Expense~~
��
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.
~~New Accounting Pronouncements~~
See Item 8, Note 3 – ~~“Recently~~Recently Adopted and Issued Accounting ~~Standards”~~Standards in the Notes to the ~~consolidated financial statements included in Part I, Item 1 of this report~~Consolidated Financial Statements for a discussion of recent accounting pronouncements and their effect, if any, on the Company.

Analysis of Financial Condition

As of ~~September 30, 2021 compared~~March 31, 2022 Compared to December 31, ~~2020~~2021
Investments
~~The following table summarizes~~See Note 4, Investments and Fair Value Disclosure, for information regarding the Company’s investments ~~in equity securities~~held at fair value as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020:~~
($ in thousands) Cost Basis Gross Unrealized Gains Gross Unrealized Losses Carrying Amount
As of September 30, 2021
FNHC common stock $ 20,751 $ – $ 17,187 $ 3,564
SPAC investments 19 – – 19
Private placements 10,469 5,120 – 15,589
Total equity securities $ 31,239 $ 5,120 $ 17,187 $ 19,172

As of December 31, 2020
FNHC common stock $ 20,751 $ – $ 12,209 $ 8,542
Private placements 4,012 – – 4,012
Total equity securities $ 24,763 $ – $ 12,209 $ 12,554
~~FedNat Common Stock~~
~~On December 2, 2019, the Company received 1,773,102 shares~~2021 and our holdings 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 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 $3.2 million.~~

~~SPAC Investments~~
~~SPAC investments consist~~Deconsolidation 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 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.Subsidiary

34
~~FG FINANCIAL GROUP, INC.~~
~~Private Placements~~
~~Private placements typically consist~~See Note 4, under the caption, “Deconsolidation of ~~the private equity and risk capital associated with the sponsorship~~Subsidiary,” for information regarding deconsolidation 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”), to capitalize~~ FG Special Situations Fund, ~~Advisor, LLC~~LP (the “Advisor”), a Delaware limited liability company formed on September 2, 2020, and to sponsor the launch of the Fund. FGAM has invested in the Fund 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 OppFi as well as approximately 0.36 million warrants to purchase common shares of 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 September 30, 2021. At each reporting date, the Company assesses whether it is the primary beneficiary and will consolidate or deconsolidate accordingly.
For the nine months ended September 30, 2021, the Company invested an additional $1.65 million into the Fund and the Fund also received outside investment of approximately $4.1 million, resulting in the presentation of noncontrolling interests in the Company’s consolidated balance sheet as of September 30, 2021. 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”~~“Fund”). 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 investment in Aldel Investors, LLC, through the Fund represents a beneficial interest in approximately 286,000 Aldel 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.

~~Other~~Equity Method Investments
~~Other~~See Note 4, under the caption, “Equity Method Investments,” for information relating to the Company’s 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 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 September 30, 2021. We have recorded equity method earnings from our investment in Metrolina of approximately $137,000 and $61,000 and for each of the nine months ended September 30, 2021 and 2020, respectively. The carrying value of our investment in Metrolina as of September 30, 2021 was approximately $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 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. Mr. Swets holds a limited partner interest through Itasca Financial LLC, an advisory and investment firm for which Mr. Swets is managing member. Mr. Baqar also holds a limited partner interest through Sequoia Financial LLC, an advisory firm for which Mr. Baqar is managing member. Mr. Cerminara also holds a limited partner interest through Fundamental Global, LLC, a holding company for which Mr. Cerminara is the manager and one of the members. We have recorded equity method earnings from our investment in FGSP of approximately $2.39 million for the nine months ended September 30, 2021. The carrying value of our investment in FGSP as of September 30, 2021 was approximately $2.46 million, representing $2.39 million in undistributed earnings.
35
~~FG FINANCIAL GROUP, INC.~~

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.Investments without Readily Determinable Fair Value

~~Other~~See Note 4, under the caption, “Investments without Readily Determinable Fair Value,” for information relating to Company 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 September 30, 2021. For the nine months ended September 30, 2021 and 2020, the Company has received profit distributions of $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 September 30, 2021, the Company has received approximately 38% of its initial $776,000 investment back from these investments.values do not exist.

~~We have not recorded an impairment on our investments for either of the nine months ended September 30, 2021 and 2020.~~
Funds Deposited with Reinsured Companies

~~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,~~See Note 2, under the caption, “Funds Held by Cedents,” for information relating to collateralize its obligations under our quota share agreement. The quota share agreement became effective January 1, 2021. As of September 30, 2021, the balance in the trust account was $2.7 million. On October 20, 2021, we posted additionalFGRe’s collateral ~~in the amount of approximately $1.0 million, to support our automotive insurance quota-share agreement entered into on April 1, 2021.~~deposits.
~~Current Income Taxes Recoverable~~
Current income taxes recoverable were approximately $0 as of 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
Reinsurance balances receivable were ~~$3.4~~$3.8 million as of ~~September 30, 2021~~March 31, 2022 compared to $0$3.9 million as of December 31, ~~2020 and represent~~2021, representing net amounts due to the Company under our ~~quota share~~quota-share agreements. As the Company estimates the ultimate premiums, loss expenses and other costs associated with some of these contracts, based on information received by us from the ceding companies, a significant portion of this balance is based on estimates and, ultimately, may not ~~ultimately~~ be collected by the Company.
36
~~FG FINANCIAL GROUP, INC.~~
Net Deferred Taxes
~~Deferred~~See Note 6, Income Taxes, for information relating to 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 September 30, 2021, the Company has gross net deferred tax assets of approximately $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 September 30, 2021. Significant components of the Company’s net deferred taxes are as follows:taxes.

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

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

Net deferred income tax asset (liability) $ – $ –
27

As of September 30, 2021, the Company had net operating loss carryforwards (“NOLs”) for federal income tax purposes of approximately $13.4 million, which 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 $1.2 million in 2041. The remaining $11.6 million in NOLs do not expire under current tax law.FG FINANCIAL GROUP, INC.

Loss and Loss Adjustment Expense Reserves
~~A significant degree of judgment is required to determine amounts recorded in the consolidated financial statements~~See Note 5, Loss and Loss Adjustment Expense Reserves, 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:
● ~~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.~~
~~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:~~
● ~~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.~~
37
~~FG FINANCIAL GROUP, INC.~~
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, 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 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 third quarter results. 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 ratios on our reinsurance contracts.
While the Company believes its estimate of loss and loss adjustment expense reserves are adequate as of 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 nine months ended September 30, 2021 is as follows. There was no activity with respect~~relating to loss and loss adjustment expense ~~reserves~~and judgments required for ~~the nine months ended September 30, 2020.~~recording such items.

(in thousands) 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 1,893
Prior years –
Paid related to:
Current year (549 )
Prior years –
Balance, September 30, net of reinsurance 1,344
Plus reinsurance recoverable related to loss and LAE expense reserves –
Balance, September 30, gross of reinsurance $ 1,344
Off Balance Sheet Arrangements
None.

Shareholders’ Equity
~~Share Repurchase Transaction~~
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 the Company’s outstanding common stock (the “Share Repurchase Transaction”).
Pursuant to the Share Repurchase Agreement, the Company agreed to purchase 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.
As the total consideration paid in the Share Repurchase 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.

8.00% Cumulative Preferred Stock, Series A

On May 21, 2021, we completed the underwritten public offering of an additional 194,580 shares of our preferred stock designated as 8.00% Cumulative Preferred Stock, Series A, par value $25.00 per share (the “Series A Preferred Stock”), for ~~gross~~net proceeds of approximately ~~$4.9~~$4.2 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 ~~September 30, 2021.~~
March 31
38
~~FG FINANCIAL GROUP, INC.~~, 2022.

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.~~Directors. 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. Our Board of Directors declared the ~~third~~first quarter ~~2021~~2022 dividend on the shares of Series A Preferred Stock on ~~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 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.10, 2022. The Series A Preferred Stock shares trade on the Nasdaq Stock Market under the symbol “FGFPP”.
28
FG FINANCIAL GROUP, INC.
Common Stock
~~On October 28,~~In the 2021 fourth quarter, we ~~closed the underwritten public offering~~sold a total of ~~652,174~~750,000 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 inshare, for net proceeds to us ~~after deducting underwriting commissions and other offering expenses.~~
~~On October 29, 2021,~~of approximately $2.5 million. Also in the fourth quarter, the Company ~~announced the commencement of its previously announced~~completed a 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,~~691,735 shares were subscribed 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 grossnet proceeds ~~to the Company~~ of approximately ~~$3.0~~$2.7 million. The Company intends to use the net proceeds from ~~this offering~~the issuance of its common shares for working capital and other general corporate purposes.
~~Equity Award Letter Agreement~~
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 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.
39
~~FG FINANCIAL GROUP, INC.~~
Retirement of Treasury Stock
On August 19, 2021, the Board approved the retirement of all 1,281,511 common stock treasury shares owned by the Company. Accordingly, these shares have been classified as authorized, but unissued shares on the Company’s balance sheet, as of ~~September 30, 2021.~~March 31, 2022.
Change in Shareholders’ Equity
The table below presents the primary ~~drivers behind the~~components of changes to total shareholders’ equity for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.

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 – 21,568 – 163 –
Dividends declared on Series A Preferred Stock – – – (1,050 ) –
Share Repurchase Transaction (1,130,152 ) 1,130,152 (5,176 )
Net loss – – – (20,458 ) –
Balance, September 30, 2020 700,000 4,957,364 1,281,511 $ 36,394 $ –
Preferred Shares Outstanding Common Shares Outstanding Treasury Shares
Total Shareholders’
Equity attributable to FG Financial Group, Inc.

Non-controlling
Interests

Balance, January 1, 2021 700,000 4,988,310 1,281,511 $ 34,193 $ – 700,000 4,988,310 1,281,511 $ 34,193 $ –
Retirement of Treasury Stock – – (1,281,511 ) – –
Series A Preferred Share issuance 194,580 – – 4,217 –
Stock compensation expense – 63,161 – 376 – – 22,067 – 177 –
Dividends declared on Series A Preferred Stock – – – (1,245 ) – – – – (350 ) –
Interests issued for contributed cash – – – – 4,147 – – – – 657
Net loss – – – (5,155 ) 1,235 – – – 34 (1 )
Balance, September 30, 2021 894,580 5,051,471 – $ 32,386 $ 5,382
Balance, March 31, 2021 700,000 5,010,377 1,281,511 $ 34,054 $ 656

Balance, January 1, 2022 894,580 6,497,205 – $ 34,009 $ –
Stock compensation expense – 30,796 – 63 –
Dividends declared on Series A Preferred Stock – – – (447 ) –
Net loss – – – (3,823 ) –
Balance, March 31, 2022 894,580 6,528,001 – $ 29,802 $ –
Results of Operations
Three ~~and Nine~~ Months Ended ~~September 30, 2021~~March 31, 2022 Compared with Three ~~and Nine~~ Months Ended ~~September 30, 2020~~March 31, 2021
Net Premiums Earned

Net premiums earned represent actual premiums earned on our quota-share agreements as well as estimated premiums earned on our FAL agreement for the ~~third~~first quarter 2022 and 2021 and isare approximately ~~$1.1~~$2.5 million and ~~$2.2~~$0.2 million for the ~~three and nine months ended September 30, 2021,~~two periods, 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~~arrears; so, for any reporting lag, premiums written are estimated based on the portion of the ultimate estimated premiums relating to the risks underwritten during the lag period. ~~As our quota-share agreements became effective in 2021, we had no corresponding net earned premiums for the three and nine months ended September 30, 2020.~~
4029
FG FINANCIAL GROUP, INC.
Net Investment Income ~~(Loss)~~

Net investment loss was $(1.3) million and $(7.7) million for the three months ended September 30, 2021 and 2020, respectively, primarily as a result of unrealized holding losses on our equity investments. 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 over the nine month period in 2021, 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 nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ is as follows:

($ in thousands) Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Unrealized holding loss on FNHC common stock $ (2,424 ) $ (5,760 ) $ (4,978 ) $ (15,618 )
Unrealized holding gain on private placement investments 4 – 5,120 –
Realized loss on FHNC shares – (2,110 ) – (2,110 )
Dividend income from FNHC common stock – 160 – 479
Equity method earnings 1,070 – 2,527 –
Other 51 (5 ) 123 257
Net investment income (loss) $ (1,299 ) $ (7,715 ) $ 2,792 $ (16,992 )
(in thousands) Three months ended March 31,
2022 2021
Investment income (loss):
Realized loss on FedNat common stock $ (2,877 ) $ –
Unrealized gain on FedNat common stock 2,774 (1,861 )
Unrealized holding gain on private placement investments – 3,603
Equity method earnings (losses) (2,071 ) 95
Other (172 ) 13
Net investment income (loss) $ (2,346 ) $ 1,850
Other Income

Other income was ~~$146,000 compared to $79,000~~approximately $25,000 and $55,000 for the ~~nine~~three months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020,~~ respectively, and is comprised of fees earned under the ~~Investment Advisory~~investment advisory and ~~Transition Services Agreements~~transition services agreements between the Company and FedNat. Also included in other income for the nine months ended September 30, 2021 is approximately $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
Net losses and loss adjustment expenses (‘(“LAE”) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~represent charges associated with the establishment of loss~~were $1.5 million 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.~~$0.1 million, respectively. As discussed under ~~the heading “Loss~~Note 5, Loss and Loss Adjustment Expense ~~Reserves”,~~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

General and administrative expenses ~~increased~~decreased by ~~$2.5~~$0.3 million to $1.7 million for the ~~nine~~three months ended ~~September 30, 2021, as~~March 31, 2022, compared to ~~2020.~~$2.0 million for the three months ended March 31, 2021. The ~~increase~~decrease was primarily due to ~~underwriting expenses allocated~~one-time, upfront professional fees relating to ~~us pursuant to~~the beginning of our ~~two quota share~~FAL reinsurance ~~contracts, which accounted~~agreement incurred for ~~approximately $0.5 million of~~ the increase as our reinsurance agreements became effective in 2021. Also included in general and administrative expenses are payments to Fundamental Global Management, LLC (“FGM”), pursuant to a shared services agreement entered into onthree months ended 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 $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. 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.2021.

4130
FG FINANCIAL GROUP, INC.
Income Tax Expense (Benefit)
Our actual effective tax rate varies from the statutory federal income tax rates as shown in the following ~~table:~~table.

($ in thousands)
Three months ended
September 30,

Nine months ended
September 30,

2021 2020 2021 2020
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 1,041 1,510 1,081 3,514
Rate differential due to CARES Act – – – (214 )
Non-deductible expenses associated with the Share Repurchase Transaction – 516 – 516
State income tax (net of federal tax benefit) – – (114 ) –
Noncontrolling interests (119 ) (259 ) –
Other 1 (12 ) 1 (45 )
Income tax expense (benefit) $ – $ – (145 ) $ (665 )

Income tax benefit – from continuing operations $ – $ – $ – $ (665 )
Income tax benefit – from discontinuing operations $ – $ – $ (145 ) $ –
($ in thousands) Three months ended March 31,
2022 2021
Amount % Amount %

Provision for taxes at U.S. statutory marginal income tax rate of 21% $ (803 ) 21.0 % $ (24 ) 21.0 %
Valuation allowance for deferred tax assets deemed unrealizable 798 (20.9 )% (7 ) 6.7 %
Rate differential due to CARES Act
–

–
% – – %
Non-deductible expenses associated with the Share Repurchase Transaction
–

–
% – – %
Net operating loss carryback
–

–
% – – %
State income tax (net of federal benefit) –
–
% (114 ) 103.1 %
Share-based compensation 5 (0.1 )% 1 (1.5 )%
Other –
–
% (1 ) 1.0 %
Income tax benefit $ – – % $ (145 ) 130.3 %

Due to the sale of all of the issued and outstanding equity of Maison, MMI and ~~Claimcor~~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,~~March 31, 2022 and ~~Economic Security Act (the “CARES Act”),~~2021, the Company ~~recorded a credit~~has gross deferred tax assets of ~~$214,000 against its income tax expense for~~approximately $6.6 million and $3.9 million, respectively; however 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~~Company has 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~~its deferred tax assets due to the uncertain nature surrounding our ability to realize these tax benefits in the future, resulting in a net deferred income tax asset of $0 as of ~~September 30, 2021..~~March 31, 2022 and 2021.

Net Loss

~~Net~~Information regarding our net loss and loss per share for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ is as shown in the following table:

(in thousands)
Three months ended
September 30,

Nine months ended
September 30,

2021 2020 2021 2020

Net loss $ (4,393 ) $ (9,590 ) $ (3,920 ) $ (20,458 )
Gain attributable to noncontrolling interests 569 – 1,235 –
Dividends declared on Series A Preferred Shares 448 350 1,245 1,050
Loss attributable to FG Financial Group, Inc. common shareholders $ (5,410 ) $ (9,940 ) $ (6,400 ) $ (20,458 )

Loss per common share:
Basic and diluted $ (1.08 ) $ (1.69 ) $ (1.28 ) $ (3.58 )

Weighted average common shares outstanding:
Basic and diluted 5,032,615 5,893,125 5,012,139 6,009,267
($ in thousands, except per share data) Three months ended March 31,
2022 2021
Basic and diluted:
Net loss from continuing operations $ (3,823 ) $ (112 )
Loss attributable to noncontrolling interest – (1 )
Dividends declared on Series A Preferred Shares (447 ) 350
Loss attributable to FG Financial Group, Inc. common shareholders from continuing operations (4,270 ) (461 )
Weighted average common shares 6,447,568 4,992,989
Loss per common share from continuing operations $ (0.66 ) $ (0.09 )

Gain from sale of former insurance business $ – $ 145
Weighted average common shares outstanding 6,447,568 4,992,989
Income per common share from discontinued operations $ – $ 0.03

Loss per share attributable to common shareholders $ (0.66 ) $ (0.06 )
31
FG FINANCIAL GROUP, INC.
Liquidity and Capital Resources
The purpose of liquidity management is to ensure that there is sufficient cash to meet all financial commitments and obligations as they fall due. The liquidity requirements of the Company and its subsidiaries have been met primarily from the cash proceeds of the Asset Sale, by funds generated from operations, and from the proceeds from the sales of our common and preferred stock. Cash provided from these sources has historically been used for loss and loss adjustment expense payments, as well as other operating expenses.

42
~~FG FINANCIAL GROUP, INC.~~Cash Flows

On May 21, 2021, we consummated the public offering of 194,580 shares of our Series A Preferred Stock, resulting in net proceeds of approximately $4.2 million, after deducting underwriting commissions and offering expenses. 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 over-allotment resulted in approximately $2.5 million in net proceeds to us, after deducting underwriting commissions and other offering expenses. Additional information regarding the public offering of our common stock and Series A Preferred Stock can be found under the heading “Shareholders’ Equity.”
~~Cash Flows~~
The following table summarizes the Company’s consolidated cash flows for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021.

(in thousands) Nine months ended
September 30,
($ in thousands) Three months ended March 31,
Summary of Cash Flows 2021 2020 2022 2021
Cash and cash equivalents – January 1 $ 12,132 $ 28,509
Cash and cash equivalents – beginning of period $ 15,542 $ 12,132

Net cash used by operating activities (10,394 ) (9,685 ) (978 ) (3,599 )
Net provided (used) by investing activities 72 (3 )
Net cash used by investing activities (5,616 ) (44 )
Net cash provided (used) by financing activities 7,119 (3,588 ) (447 ) 307
Net decrease in cash and cash equivalents (3,203 ) (13,276 ) (7,041 ) (3,336 )

Cash and cash equivalents – September 30 $ 8,929 $ 15,233
Cash and cash equivalents – end of period $ 8,501 $ 8,796

For the ~~nine months~~quarter ended ~~September 30, 2021,~~March 31, 2022, net cash used by operating activities was approximately ~~$10.4~~$1.0 million, the major drivers of which were as follows:

● Our net loss of approximately $3.8 million for the ~~period of approximately $3.9 million.~~
period;
● An adjustment to our net loss for ~~approximately $2.7~~$2.0 million related to unrealized ~~losses on~~gains associated with our equity ~~investments.~~method investments;
A cash inflow of approximately $3.2 million for distribution from equity method investments; and
● ~~An adjustment to our net loss~~A cash outflow of approximately ~~$(3.4)~~$1.8 million ~~reflecting the increase in amounts~~representing a receivable due to ~~us under~~the Company from one of its equity investees. This receivable was settled, in cash, in April, 2022.
For the quarter ended March 31, 2022, net cash used by investing activities was $5.6 million primarily related to our increase investment in the Fund to sponsor FG Merger and FG Acquisition. Net cash used by financing activities was approximately $447,000, as a result of a cash dividend declared on our Series A Preferred Shares.
For the quarter ended March 31, 2021, net cash used by operating activities was approximately $3.6 million, the major drivers of which were as follows:
● Our net income of approximately $33,000 for the quarter, increased for unrealized gains on our ~~reinsurance quota share agreements.~~equity investments of approximately $1.8 million; and

● A cash outflow of approximately ~~$6.5~~$2.3 million for our consolidated Fund investments in private placement securities. As this investment was made by our investment company subsidiary, we ~~are~~were required to show these cash outflows as operating activities.

For the ~~nine months~~quarter ended ~~September 30,~~March 31, 2021, net cash used by investing activities was $44,000, primarily related to our purchase and sale of equity investments outside of our investment company subsidiary. Net cash provided by financing activities was ~~$7.1 million, related~~$307,000, primarily as a result of a contribution cash to our ~~issuance of both our common and Series A Preferred Stock 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~~noncontrolling interests.
32

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.

ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures

The Company’s management performed an evaluation under the supervision and with the participation of the Company’s principal executive officer and principal financial officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) ~~or 15d-15(e)~~ promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of ~~September 30, 2021.~~March 31, 2022. Based upon this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

4333
FG FINANCIAL GROUP, INC.
Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended ~~September 30, 2021~~March 31, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 2022, the Company was not a party to any legal proceedings and was not aware of any material claims or actions pending or threatened against us. From time to time, we are involved in legal proceedings and litigation arising in the ordinary course of business. Currently, it is not possible to predict legal outcomes and their impact on the future development of claims. Any such development will be affected by future court decisions and interpretations. Because of these uncertainties, additional liabilities may arise for amounts in excess of the Company’s current reserves.

ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed in Part I, Item 1A. “Risk Factors” to our annual report on Form 10-K for the year ended December 31, ~~2020~~2021 filed with the SEC on March ~~18, 2021.~~30, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit Description
~~10.1~~ Underwriting Agreement, dated October 25, 2021, by and between FG Financial Group, Inc. and ThinkEquity LLC (incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K, Dated October 26, 2021)
31.1*31 .1* Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.
31.2* Certification of ~~Chief~~Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.
32.1** Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2** Certification of ~~Chief~~Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS* Inline XBRL Instance Document.
101.SCH* Inline XBRL Taxonomy Extension Schema.
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith.
** Furnished herewith.

4434
FG FINANCIAL GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FG FINANCIAL GROUP, INC.

Date: ~~November 15, 2021~~May 16, 2022 By: /s/ Larry G. Swets, Jr.
Larry G. Swets, Jr., Chief Executive Officer
(principal executive officer)

Date: ~~November 15, 2021~~May 16, 2022 By: /s/ Brian D. Bottjer
Brian D. Bottjer, Chief Accounting Officer
(principal financial and accounting officer)

4535

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

	September 30, 2021 (unaudited)			December 31, 2020
ASSETS
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		7,779			5,334
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
Current income taxes recoverable		–			1,724
Reinsurance balances receivable		3,364			–
Deferred policy acquisition costs		1,017			–
Other assets		871			517
Total assets	$	43,850		$	34,705

LIABILITIES
Loss and loss adjustment expense reserves	$	1,344		$	–
Unearned premium reserves		3,599			–
Accounts payable		713			455
Other liabilities		426			57
Total liabilities	$	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 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		40,609			47,065
Accumulated deficit		(30,593	)		(24,193	)
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.		32,386			34,193
Noncontrolling interests		5,382			–
Total shareholders’ equity		37,768			34,193
Total liabilities and shareholders’ equity	$	43,850		$	34,705

($ in thousands)	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount
As of September 30, 2021
FNHC common stock	$	20,751	$	–	$	17,187	$	3,564
SPAC investments		19		–		–		19
Private placements		10,469		5,120		–		15,589
Total equity securities	$	31,239	$	5,120	$	17,187	$	19,172

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

($ in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Unrealized holding loss on FNHC common stock	$	(2,424	)	$	(5,760	)	$	(4,978	)	$	(15,618	)
Unrealized holding gain on private placement investments		4			–			5,120			–
Realized loss on FHNC shares		–			(2,110	)		–			(2,110	)
Dividend income from FNHC common stock		–			160			–			479
Equity method earnings		1,070			–			2,527			–
Other		51			(5	)		123			257
Net investment income (loss)	$	(1,299	)	$	(7,715	)	$	2,792		$	(16,992	)

	OppFi						Aldel
	Founder Shares			Warrants			Founder Shares
Expected volatility		55.0	%		36.0	%		25.0	%
Expected term (years)		0.7 to 0.8			4.8			0.8 to 1.3
Dividend yield		0.0	%		0.0	%		0.0	%
Risk-free rate		0.1	%		0.9	%		0.1	%
Probability of completing a business combination		100.0	%		100.0	%		90.0	%
Discount for lack of marketability		19.0	%		n/a			10.0	%

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

Year ending December 31,	Minimum Commitment
2022	$	17,500
2023		21,000
2024		21,000
2025		17,500
Total	$	77,000

(in thousands) For the three months ended September 30, 2021	Insurance			Asset Management			Other			Total
Revenues from external customers	$	1,099		$	66		$	–		$	1,165
Interest revenue		(8	)		37			–			29
Total revenue		3,882			(4,015	)		–			(133	)
Depreciation and amortization		–			1			2			3
Income (loss) before income tax		2,275			(4,123	)		(2,545	)		(4,393	)

For the nine months ended September 30, 2021
Revenues from external customers	$	2,221		$	146		$	–		$	2,367
Interest revenue		5			49			–			54
Total revenue		3,894			1,265			–			5,159
Depreciation and amortization		–			1			35			36
Income (loss) before income tax		686			905			(5,656	)		(4,065	)

As of September 30, 2021
Segment assets	$	13,452		$	21,382		$	9,016		$	43,850

For the three months ended September 30, 2020
Revenues from external customers	$	–		$	25		$	–		$	25
Interest revenue		1			28			–			29
Total revenue		(7,710	)		20			–			(7,690	)
Depreciation and amortization		–			–			2			2
Income (loss) before income tax		(7,746	)		19			(1,863	)		(9,590	)

For the nine months ended September 30, 2020
Revenues from external customers	$	–		$	75		$	4		$	79
Interest revenue		1			153			–			154
Total revenue		(17,249	)		332			4			(16,913	)
Depreciation and amortization		–			–			4			4
Income (loss) before income tax		(17,318	)		331			(4,136	)		(21,123	)

As of September 30, 2020
Segment assets	$	12,459		$	10,361		$	14,136		$	36,956

(in thousands)

For the three months ended March 31, 2022	Insurance			Asset Management			Other			Total
Net premiums earned	$	2,473		$	–		$	–		$	2,473
Net investment loss		(969	)		(1,377	)		–			(2,346	)
Other income		–			25			–			25
Total revenue		1,504			(1,352	)		–			152
Loss before income tax		(661	)		(1,562	)		(1,600	)		(3,823	)

As of March 31, 2022
Segment assets	$	11,995		$	13,365		$	10,284		$	35,644

For the three months ended March 31, 2021
Net premiums earned	$	185		$	–		$	–		$	185
Net investment (loss) income		(1,849	)		3,699			–			1,850
Other income		–			55			–			55
Total revenue		(1,664	)		3,754			–			2,090
Income (loss) before income tax		(2,129	)		3,598			(1,581	)		(112	)

As of March 31, 2021
Segment assets	$	10,533		$	16,375		$	8,952		$	35,860

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

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

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

	●	~~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.~~

	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		–		21,568			–			163			–
Dividends declared on Series A Preferred Stock		–		–			–			(1,050	)		–
Share Repurchase Transaction				(1,130,152	)		1,130,152			(5,176	)
Net loss		–		–			–			(20,458	)		–
Balance, September 30, 2020		700,000		4,957,364			1,281,511		$	36,394		$	–
														Preferred Shares Outstanding		Common Shares Outstanding		Treasury Shares		Total Shareholders’ Equity attributable to FG Financial Group, Inc.			Non-controlling Interests
Balance, January 1, 2021		700,000		4,988,310			1,281,511		$	34,193		$	–		700,000		4,988,310		1,281,511	$	34,193		$	–
Retirement of Treasury Stock		–		–			(1,281,511	)		–			–
Series A Preferred Share issuance		194,580		–			–			4,217			–
Stock compensation expense		–		63,161			–			376			–		–		22,067		–		177			–
Dividends declared on Series A Preferred Stock		–		–			–			(1,245	)		–		–		–		–		(350	)		–
Interests issued for contributed cash		–		–			–			–			4,147		–		–		–		–			657
Net loss		–		–			–			(5,155	)		1,235		–		–		–		34			(1	)
Balance, September 30, 2021		894,580		5,051,471			–		$	32,386		$	5,382
Balance, March 31, 2021															700,000		5,010,377		1,281,511	$	34,054		$	656

Balance, January 1, 2022															894,580		6,497,205		–	$	34,009		$	–
Stock compensation expense															–		30,796		–		63			–
Dividends declared on Series A Preferred Stock															–		–		–		(447	)		–
Net loss															–		–		–		(3,823	)		–
Balance, March 31, 2022															894,580		6,528,001		–	$	29,802		$	–

	●	Our net loss of approximately $3.8 million for the ~~period of approximately $3.9 million.~~
		period;
	●	An adjustment to our net loss for ~~approximately $2.7~~$2.0 million related to unrealized ~~losses on~~gains associated with our equity ~~investments.~~method investments;
		A cash inflow of approximately $3.2 million for distribution from equity method investments; and
	●	~~An adjustment to our net loss~~A cash outflow of approximately ~~$(3.4)~~$1.8 million ~~reflecting the increase in amounts~~representing a receivable due to ~~us under~~the Company from one of its equity investees. This receivable was settled, in cash, in April, 2022.

	●	Our net income of approximately $33,000 for the quarter, increased for unrealized gains on our ~~reinsurance quota share agreements.~~equity investments of approximately $1.8 million; and

	●	A cash outflow of approximately ~~$6.5~~$2.3 million for our consolidated Fund investments in private placement securities. As this investment was made by our investment company subsidiary, we ~~are~~were required to show these cash outflows as operating activities.

Exhibit		Description
~~10.1~~		Underwriting Agreement, dated October 25, 2021, by and between FG Financial Group, Inc. and ThinkEquity LLC (incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K, Dated October 26, 2021)
31.131 .1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.
31.2*		Certification of ~~Chief~~Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.
32.1**		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of ~~Chief~~Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		Inline XBRL Instance Document.
101.SCH*		Inline XBRL Taxonomy Extension Schema.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

		FG FINANCIAL GROUP, INC.

Date:	~~November 15, 2021~~May 16, 2022	By:	/s/ Larry G. Swets, Jr.
			Larry G. Swets, Jr., Chief Executive Officer
			(principal executive officer)

Date:	~~November 15, 2021~~May 16, 2022	By:	/s/ Brian D. Bottjer
			Brian D. Bottjer, Chief Accounting Officer
			(principal financial and accounting officer)