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

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

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

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

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

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

The number of shares outstanding of the registrant’s common stock as of ~~May 13,~~November 9, 2022 was ~~6,528,001~~9,394,040.

							September 30, 2022			December 31, 2021
	March 31, 2022 (unaudited)			December 31, 2021			(unaudited)
ASSETS
Equity securities, at fair value (cost basis of $11,367 and $14,495, respectively)	$	1,067		$	1,421
Equity securities, at fair value (cost basis of $1,983 and $14,495, respectively)							$	16		$	1,421
Other investments		14,633			14,040			22,008			14,040
Cash and cash equivalents		8,501			15,542			9,647			15,542
Deferred policy acquisition costs		699			786			1,920			786
Reinsurance balances receivable		3,773			3,853			7,710			3,853
Funds deposited with reinsured companies		4,442			4,442
Funds deposited for benefit of reinsured companies								6,679			4,442
Other assets		2,529			745			943			745
Total assets	$	35,644		$	40,829		$	48,923		$	40,829

LIABILITIES
Loss and loss adjustment expense reserves	$	1,955		$	2,133		$	4,133		$	2,133
Unearned premium reserves		3,238			3,610			6,565			3,610
Accounts payable		598			502			361			502
Other liabilities		51			575			172			575
Total liabilities	$	5,842		$	6,820		$	11,231		$	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
Series A Preferred Shares, $25.00 par and liquidation value, 1,000,000 shares authorized; 894,580 shares issued and outstanding as of September 30, 2022 and December 31, 2021							$	22,365		$	22,365
Common stock, $0.001 par value; 100,000,000 shares authorized; 9,394,040 and 6,497,205 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively								9			6
Additional paid-in capital		46,099			46,037			50,104			46,037
Accumulated deficit		(38,669	)		(34,399	)		(34,786	)		(34,399	)
Total shareholders’ equity		29,802			34,009			37,692			34,009
Total liabilities and shareholders’ equity	$	35,644		$	40,829		$	48,923		$	40,829

	2022			2021			2022		2021			2022			2021
	Three months ended March 31,						Three months ended September 30,					Nine months ended September 30,
	2022			2021			2022		2021			2022			2021
Revenue:
Net premiums earned	$	2,473		$	185		$	4,383	$	1,099		$	9,809		$	2,221
Net investment income (loss)		(2,346	)		1,850			11,174		(1,299	)		5,114			2,792
Other income		25			55			214		67			266			146
Total revenue		152			2,090			15,771		(133	)		15,189			5,159

Expenses:
Net losses and loss adjustment expenses		1,524			106			2,406		1,058			5,798			1,893
Amortization of deferred policy acquisition costs		712			57			1,109		202			2,427			633
General and administrative expenses		1,739			2,039			2,001		3,000			6,009			6,698
Total expenses		3,975			2,202			5,516		4,260			14,234			9,224

Loss from continuing operations before income taxes		(3,823	)		(112	)
Income tax benefit		–			–
Net loss from continuing operations	$	(3,823	)	$	(112	)
Income (loss) from continuing operations before income taxes								10,255		(4,393	)		955			(4,065	)
Income tax expense (benefit)								–		–			–			–
Net income (loss) from continuing operations							$	10,255	$	(4,393	)	$	955		$	(4,065	)
Discontinued operations:
Gain from sale of the Maison Business, net of taxes		–			145			–		–			–			145
Net income (loss)		(3,823	)		33			10,255		(4,393	)		955			(3,920	)
Loss attributable to noncontrolling interests		–			(1	)
Gain attributable to noncontrolling interests								–		569			–			1,235
Dividends declared on Series A Preferred Shares		447			350			447		448			1,342			1,245
Loss attributable to FG Financial Group, Inc. common shareholders	$	(4,270	)	$	(316	)
Income (loss) attributable to FG Financial Group, Inc. common shareholders							$	9,808	$	(5,410	)	$	(387	)	$	(6,400	)

Basic and diluted net income (loss) per common share:
Continuing operations	$	(0.66	)	$	(0.09	)	$	1.05	$	(1.08	)	$	(0.05	)	$	(1.31	)
Discontinued operations		–			0.03			–		–			–			0.03
	$	(0.66	)		(0.06	)
Basic and Diluted earning per share							$	1.05	$	(1.08	)	$	(0.05	)	$	(1.28	)

Weighted average common shares outstanding:
Basic and diluted		6,477,568			4,992,989			9,333,709		5,032,615			7,564,017			5,012,139

	Shares		Amount		Shares		Amount		Shares		Amount					Capital		Deficit			Inc.			Interests			Shares Out-standing		Amount		Shares Out-standing		Amount			Shares Out-standing			Amount			Paid-in Capital			Accumulated Deficit			to FG Financial Group, Inc.			Non-controlling Interests
	Preferred Stock				Common Stock				Treasury Stock							Paid-in		Accumulated			Total Shareholders’ Equity attributable to FG Financial			Non- controlling			Preferred Stock				Common Stock					Treasury Stock												Total Shareholders’ Equity attributable
	Shares		Amount		Shares		Amount		Shares		Amount					Capital		Deficit			Inc.			Interests			Shares Out-standing		Amount		Shares Out-standing		Amount			Shares Out-standing			Amount			Paid-in Capital			Accumulated Deficit			to FG Financial Group, Inc.			Non-controlling Interests
Balance, January 1, 2021		700,000	$	17,500		4,988,310	$	6		1,281,511			$	(6,185	)	$	47,065	$	(24,193	)	$	34,193		$	–			700,000	$	17,500		4,988,310	$	6			1,281,511		$	(6,185	)	$	47,065		$	(24,193	)	$	34,193		$	–
Stock based compensation		–		–		22,067		–		–				–			177		–			177			–			–		–		22,067		–			–			–			177			–			177			–
Dividends declared on Series A Preferred Shares ($0.50 per share)		–		–		–		–		–				–			–		(350	)		(350	)		–			–		–		–		–			–			–			–			(350	)		(350	)		–
Interests issued for contributed cash		–		–		–		–		–				–			–		–			–			657			–		–		–		–			–			–			–			–			–			657
Net income (loss)		–		–		–		–		–				–			–		34			34			(1	)		–		–		–		–			–			–			–			34			34			(1	)
Balance, March 31, 2021		700,000	$	17,500		5,010,377	$	6		1,281,511			$	(6,185	)	$	47,242	$	(24,509	)	$	34,054		$	656			700,000	$	17,500		5,010,377	$	6			1,281,511		$	(6,185	)	$	47,242		$	(24,509	)	$	34,054		$	656

Series A Preferred Share issuance																												194,580		4,865		–		–			–			–			(648	)		–			4,217			–
Stock based compensation																												–		–		–		–			–			–			70			–			70			–
Dividends declared on Series A Preferred Shares ($0.50 per share)																												–		–		–		–			–			–			–			(447	)		(447	)		–
Net (loss) income																												–		–		–		–			–			–			–			(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 (loss) income																												–		–		–		–			–			–			–			(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

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

Common stock issuance																												–		–		2,750,000		2			–			–			3,781			–			3,784			–
Stock based compensation																												–		–		–		–			–			–			53			–			52			–
Dividends declared on Series A Preferred Shares ($0.50 per share)																												–		–		–		–			–			–			–			(447	)		(447	)		–
Net loss																												–		–		–		–			–			–			–			(5,478	)		(5,478	)		–
Balance, June 30, 2022																												894,580	$	22,365		9,278,001	$	9			–		$	–		$	49,933		$	(44,594	)	$	27,713		$	–

Common stock issuance																												–		–		71,770		–			–			–			106			–			106			–
Stock based compensation																												–		–		44,269		–			–			–			65			–			65			–
Dividends declared on Series A Preferred Shares ($0.50 per share)																												–		–		–		–			–			–			–			(447	)		(447	)		–
Net income																												–		–		–		–			–			–			–			10,255			10,255			–
Balance, September 30, 2022																												894,580	$	22,365		9,394,040	$	9			–		$	–		$	50,104		$	(34,786	)	$	37,692		$	–

	2022			2021			2022			2021
	Three months ended March 31,						Nine months ended September 30,
	2022			2021			2022			2021
Cash flows from operating activities:
Net income (loss)	$	(3,823	)	$	33		$	955		$	(3,920	)
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 unrealized holding (gain) on equity investments								(10,521	)		(2,670	)
(Income) loss from equity method investments, net of distributions received								(2,880	)		-
Net realized loss on sale of equity investments		2,877			–			11,263			4
Stock compensation expense		63			177			180			376
Purchase of investments by consolidated investment company subsidiary		–			(2,347	)		–			(6,479	)
Changes in operating assets and liabilities:
Current income taxes recoverable		–			253			–			1,724
Reinsurance balances receivable		80			–			(3,857	)		(3,364	)
Amounts held on deposit with reinsured companies								(2,237	)		(274	)
Deferred policy acquisition costs		87			(215	)		(1,134	)		(1,017	)
Other assets and receivables		(1,783	)		(454	)		(121	)		(344	)
Loss and loss adjustment expense reserves		(178	)		106			2,000			1,344
Unearned premium reserves		(372	)		697			2,955			3,599
Accounts payable and other liabilities		(428	)		(19	)		(544	)		627
Net cash used by operating activities		(978	)		(3,599	)		(3,941	)		(10,394	)

Cash flows from investing activities:
Purchases of furniture and equipment		(1	)		(4	)		(77	)		(10	)
Purchases of equity method investments		(6,781	)		(73	)		(6,795	)		(73	)
Distribution from equity method investments		808			–			1,521			–
Sales of equity securities		251			–
Proceeds from sales of equity securities								664			–
Return of capital – other investments		107			33			185			155
Net cash used by investing activities		(5,616	)		(44	)
Net cash (used) provided by investing activities								(4,502	)		72

Cash flows from financing activities:
Payment of dividends on preferred shares		(447	)		(350	)		(1,341	)		(1,245	)
Proceeds from issuance of preferred stock, net								–			4,217
Proceeds from issuance of common stock, net								3,889			–
Cash contributions from non-controlling interests		–			657			–			4,147
Net cash provided (used) by financing activities		(447	)		307
Net cash provided by financing activities								2,548			7,119

Net decrease in cash and cash equivalents		(7,041	)		(3,336	)		(5,895	)		(3,203	)
Cash and cash equivalents at beginning of period		15,542			12,132			15,542			12,132
Cash and cash equivalents at end of period	$	8,501		$	8,796		$	9,647		$	8,929

FG Financial Group, Inc. (“FGF”, the “Company”, “we”, or “us”) is a reinsurance and ~~investment~~asset management holding company. We focus on opportunistic collateralized and loss capped reinsurance, while allocating capital in partnership with Fundamental Global^®, and from time to time, other strategic investors, to ~~SPAC and SPAC sponsor-related businesses.~~merchant banking activities. The Company’s principal business operations are conducted through its subsidiaries and affiliates. The Company also provides ~~investment~~asset management services. From our inception in October 2012 through December 2019, we operated as an insurance holding company, writing property and casualty insurance throughout the states of Louisiana, Florida, and Texas. On December 2, 2019, we sold our three former insurance subsidiaries, and embarked upon our current strategy focused on reinsurance and asset management.

As of ~~March 31,~~September 30, 2022, Fundamental Global GP, LLC, a ~~privately owned investment management company,~~private partnership focused on long-term strategic holdings (“FG”), and its ~~affiliates, or “FG,”~~affiliated entity, collectively beneficially owned approximately 5660.0% of our common stock. D. Kyle Cerminara, Chairman of our Board of Directors, serves as Chief Executive Officer, Co-Founder and Partner of FG.

On December 2, 2019, we completed the sale (“Asset Sale”) of our insurance subsidiaries to FedNat Holding Company for a combination of cash and FedNat common stock. The shares of FedNat common stock we received in the Asset Sale were issued to us pursuant to a standstill agreement which provides certain limitations and restrictions with respect to the voting and sale or transfer of the securities until December 2024. As of ~~March 31,~~September 30, 2022, ~~we continue to hold~~the Company held ~~790,371~~137,871 shares of FedNat common stock. On October 2, 2022, the Company sold the remaining FedNat common stock shares held for approximately $30,000 of net proceeds.

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.~~merchant banking activities. As part of our refined focus, we have adopted the following capital allocation philosophy:

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

Currently, the business operates as a diversified holding company of insurance, reinsurance, asset management and our ~~“SPAC~~“Special purpose acquisition corporation (“SPAC”) Platform” businesses.

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

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

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

On December 21, 2020, we formed FG Management Solutions LLC (“FGMS”), formerly known as FG SPAC Solutions LLC, ~~(“FGSS”),~~ a Delaware company, to facilitate the launch of our “SPAC Platform”. Under the SPAC Platform, we provide various strategic, administrative, and regulatory support services to newly formed SPACs for a monthly fee. Additionally, the Company co-founded a partnership, FG Merchant Partners, LP (“FGMP”), formerly known as 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~~had 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~~FGMS and Aldel Investors, LLC, the sponsor of Aldel Financial, Inc. (“Aldel”), a special purpose acquisition company which completed its business combination with Hagerty (NYSE: HGTY) on December 2, 2021. Under the services agreement between ~~FGSS~~FGMS and Aldel Investors, LLC (the “Agreement”), ~~FGSS~~FGMS provided accounting, regulatory, strategic advisory, and other administrative services to Aldel, which included assistance with negotiations with potential merger targets for the SPAC as well as assistance with the de-SPAC process.

In March and April 2022, the Company continued to build upon its SPAC Platform strategy. On March 3, 2022, FG Merger Corp. (“FG Merger”) (Nasdaq: FGMCU) announced the closing of an $80.5 million IPO in the United States, including the exercise of the over-allotment option granted to the underwriters in the offering. Similarly, on April 5, 2022, FG Acquisition Corp. (“FG Acquisition”) (TSX:FGAA.V), announced the closing of a $~~100~~115 million IPO ($~~115~~ ~~million~~in Canada, including the ~~subsequent~~ exercise of the over-allotment option granted to the ~~underwriters)~~underwriters in ~~Canada.~~the offering. The Company participated in the risk capital associated with the launch of the SPACs through its asset management business, specifically FG Special Situations Fund, LP. Mr. Cerminara, our Chairman, Larry G. Swets, Jr., our Director and Chief Executive Officer, and Hassan R. Baqar, our Executive Vice President and Chief Financial Officer, also hold financial interests in the SPACs and/or their sponsor companies. Additionally, Messrs. Cerminara, Swets, and Baqar are managers of the sponsor companies of ~~the special purpose acquisition companies.~~FG Merger and FG Acquisition. Mr. Swets serves as ~~chairman~~Chairman of FG Merger, while Messrs. Baqar and Cerminara serve as ~~director~~Director and ~~senior advisor~~Senior Advisor of FG Merger, respectively. Mr. Swets serves as ~~chief executive officer~~Chief Executive Officer and ~~director~~Director of FG Acquisition. Mr. Baqar serves as ~~chief financial officer, secretary~~Chief Financial Officer, Secretary and ~~director~~Director of FG Acquisition. Mr. Cerminara serves as ~~chairman~~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~~1,400,000 million warrants with an $11.50 exercise price and 5-year expiration (the “FGAC Warrants”), approximately 440,000 warrants with a $15 exercise price and 10-year expiration, and either (i) up to approximately an additional ~~1.6~~1,600,000 ~~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~~$3.4 million in FG Acquisition through its subsidiaries.

In Q3 2022, the Company announced the expansion of its growth strategy through the formation of a merchant banking division. Company plans to expand the addressable market beyond SPACs to encompass a larger universe of opportunities including reverse mergers and sponsoring startups. Company believes this offers enhanced flexibility to capitalize on asymmetric risk/reward opportunities.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financial instruments which potentially expose the Company to concentrations of credit risk include investments, cash, 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 ~~March 31,~~September 30, 2022 the Company held funds in excess of these FDIC insured amounts. The terms of these deposits are on demand to mitigate some of the associated risk. The Company has not incurred losses related to these deposits.

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

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

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

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

~~The caption “Funds~~“Funds Deposited ~~with~~for benefit of Reinsured Companies” inon the Company’s consolidated balance sheets includes amounts held by cedents provided to support our reinsurance contracts. On November 12, 2020, FGRe, our Cayman Islands based reinsurance subsidiary, initially funded a trust account at Lloyd’s with approximately $2.4 million cash, to collateralize its obligations under a quota-share agreement with a ~~Funds at Lloyds~~FAL syndicate. The initial contract covered our quota-share percentage of all risks written by the syndicate for the 2021 calendar year. On November 30, 2021, we entered into an agreement with the same syndicate, slightly increasing our quota-share percentage of the risks the syndicate writes for the 2022 calendar year. This resulted in FGRe’s posting an additional $1.0 million in cash collateral to the account. ~~We have~~In June 2022, FGRe received approximately $0.4 million in a partial return of initial collateral. During 2021, we also posted cash collateral in the approximate amount of $1.0 million, to support our automotive insurance quota-share agreement entered ~~into~~ on April 1, 2021. We entered into an additional agreement with the same automotive insurance company on April 1, 2022, and in the third quarter of 2022, we posted additional collateral of approximately $0.2 million. In the third quarter of 2022, FGRe posted cash collateral of approximately $1.1 million and received approximately $1.5 million in premiums from the cedent, to support the homeowners’ property catastrophe excess of loss reinsurance contract that became effective April 1, 2022. The cash is held in a segregated account until such time that the Company’s liability for losses ascribed have been commuted, or all losses have been closed or settled for this contract. The named tropical storm season starts June 1, 2022 and ends November 30, 2022.

As of ~~both March 31,~~September 30, 2022, and December 31, 2021, the total cash collateral posted to support all of our reinsurance treaties was approximately $6.7 million and $4.4 ~~million.~~million, respectively.

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

U.S. GAAP does not permit establishing loss reserves, which include case reserves and IBNR loss reserves, until the occurrence of an event which may give rise to a claim. As a result, only loss reserves applicable to losses incurred up to the reporting date are established, with no allowance for the establishment of loss reserves to account for expected future loss events.

Generally, the Company obtains regular updates of premium and loss related information for the current and historical periods, which are utilized to update the initial expected loss ratio. We also experience a lag between (i) claims being reported by the underlying insured to the Company’s cedent and (ii) claims being reported by the Company’s cedent to the Company. This lag may impact the Company’s loss reserve estimates. Client reports have pre-determined due dates (for example, thirty days after each month end). As a result, the lag depends in part upon the terms of the specific contract. The timing of the reporting requirements is designed so that the Company receives premium and loss information as soon as practicable once the client has closed its books. Accordingly, there should be a short lag in such reporting. Additionally, most of the contracts that have the potential for large single event losses have provisions that such loss notifications are provided to the Company immediately upon the occurrence of an event.

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

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

Based upon the Company’s historical forfeiture rates relating to stock options and RSUs, the Company has not made any adjustment to stock compensation expense for expected forfeitures as of ~~March 31,~~September 30, 2022.

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

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

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

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

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

(in thousands)
As of March 31, 2022	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount
As of September 30, 2022									Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Amount
FedNat common stock	$	11,367	$	–	$	10,300	$	1,067	$	1,983	$	–	$	1,967	$	16
Total investments	$	11,367	$	–	$	10,300	$	1,067	$	1,983	$	–	$	1,967	$	16

As of ~~March 31,~~September 30, 2022, the Company held ~~790,371~~137,871 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~~1,635,231 shares. During the ~~first~~third 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~~On October 2, 2022, the Company ~~and FedNat at~~sold the ~~closing of the Asset Sale, the Company is restricted as to the timing and number~~remaining shares held of FedNat ~~shares it can dispose of.~~common stock for approximately $30,000 of net proceeds.

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

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.

~~Notes to~~Other investments on the Company’s Consolidated ~~Financial Statements~~Balance Sheets consists of equity method investments, which as of September 30, 2022 includes our investment in FGMP and the Fund.

~~As of March 31, 2022, equity method investments include our investment in FG SPAC Partners, LP (“FGSP”).~~ On January 4, 2021, ~~FGSP~~FGMP 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~~FGMP and holds a limited partner interest in ~~FGSP~~FGMP directly and through its subsidiaries. ~~FGSP~~FGMP participates as a co-sponsor of the SPACs launched under our SPAC Platform. ~~We received distributions in~~For the ~~approximate amount of~~nine months ended September 30, 2022, the Company has contributed $~~1.4~~0.1 million ~~from FGSP for the quarter ended March 31, 2022,~~into FGMP, and ~~have~~has recorded equity method ~~losses from our investment in FGSP~~gains of approximately $~~0.8~~2.4 ~~million for the quarter.~~million. The carrying value of our investment in ~~FGSP~~FGMP as of ~~March 31,~~September 30, 2022 was approximately $~~1.6~~4.9 million, all of which is in the form of undistributed earnings. Of the $4.9 million carrying value of our investment in FGMP, the Company may allocate up to approximately $1.0 million to incentivize and compensate individuals and entities for the successful merger of SPAC’s launched under our platform.

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 well as consideration of price and volatility of relevant publicly traded securities such as SPAC warrants.

~~As previously discussed under the heading “Deconsolidation of Subsidiary,” equity~~Equity method investments also include our investment in the Fund as of ~~March 31,~~September 30, 2022. Until December 1, 2021, we had consolidated the Fund as a variable interest entity, however, effective December 1, 2021, we began accounting for this investment under the equity method of accounting. For the ~~quarter~~nine months ended ~~March 31,~~September 30, 2022, ~~we made a net additional investment of approximately~~the Company has contributed $~~4.1~~ 6.7million into the ~~Fund.~~ ~~Of this amount, $~~Fund, and ~~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 $~~2.6~~3.3 million. The Company has recorded equity method gains from the Fund of approximately $3.6 million for the ~~quarter~~nine months ended ~~March 31, 2022~~ ~~and recognized approximately $1.3~~ ~~million in equity method losses through our investment in the Fund.~~September 30, 2022. As of ~~March 31,~~September 30, 2022, the carrying value of our investment in the Fund was approximately $~~12.6~~ ~~million, including $1.8~~16.8 ~~million in undistributed earnings.~~million.

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

	As of March 31, 2022		As of December 31, 2021		As of September 30, 2022		As of December 31, 2021
(in thousands)
Other investments	$	18,022	$	25,936	$	33,762	$	25,936
Cash		1,206		72		130		72
Other assets		4,951		16		39		16
Total assets		24,179		26,024		33,931		26,024

Accounts payable	$	36	$	19	$	42	$	19
Other liabilities		1,172		–		–		–
Total liabilities		1,208		19		42		19

	Three months ended March 31, 2022			Three months ended March 31, 2021		Nine months ended September 30, 2022			Nine months ended September 30, 2021
(in thousands)
Net investment income (loss)	$	(3,455	)	$	3,553	$	8,170		$	7,498
General and administrative expenses		(73	)		–		(95	)		(143	)
Net income (loss)		(3,528	)		3,553		8,075			7,355

In addition to our equity method investments, other investments as listed on our balance sheet also consist of equity we have purchased in a limited partnership and a limited liability company for which there does not exist readily determinable fair values. The Company accounts for these investments at their cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investment of the same issuer. Any profit distributions the Company receives on these investments are included in net investment income. The Company’s total investment in these two entities was approximately $~~376,000~~298,000 as of ~~March 31,~~September 30, 2022. Both investments began returning capital to investors beginning in 2020. As of ~~March 31,~~September 30, 2022, the Company has received approximately 5262% of its initial $776,000 investment in these entities. There have been no upward or downward price adjustments to these investments for the ~~three~~nine months ended ~~March 31,~~September 30, 2022 and 2021.

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

For equity method investments, such as the Company’s investments in ~~FGSP~~FGMP 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:

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

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

	2022			2021			2022			2021			2022			2021
(in thousands)	Three months ended March 31,
($ in thousands)							Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021			2022			2021
Investment income (loss):
Realized loss on FedNat common stock	$	(2,877	)	$	–		$	(2,472	)	$	-		$	(11,441	)	$	-
Unrealized gain on FedNat common stock		2,774			(1,861	)
Unrealized gain (loss) on FedNat common stock								2,448			(2,424	)		10,521			(4,978	)
Unrealized holding gain on private placement investments		–			3,603			–			4			–			5,120
Equity method earnings (losses)		(2,071	)		95
Equity method earnings								11,226			1,070			6,080			2,527
Other		(172	)		13			(28	)		51			(46	)		123
Net investment income (loss)	$	(2,346	)	$	1,850		$	11,174		$	(1,299	)	$	5,114		$	2,792

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

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

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

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

(in thousands)

As of March 31, 2022	Level 1		Level 2		Level 3		Total
As of September 30, 2022									Level 1		Level 2		Level 3		Total
FedNat common stock	$	1,067	$	–	$	–	$	1,067	$	16	$	–	$	–	$	16
	$	1,067	$	–	$	–	$	1,067	$	16	$	–	$	–	$	16

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

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

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:

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

Under the terms of certain of our quota-share agreements, and due to the nature of claims and premium reporting, a lag exists between (i) claims being reported by the underlying insured to the Company’s cedent and (ii) claims being reported by the Company’s cedent to the Company. This lag may impact the Company’s loss reserve estimates. The reports we receive from our cedents have pre-determined due dates. In the case of the Company’s FAL ~~contract, first~~contracts, third quarter 2022 premium and loss information will not be made available to the Company until subsequent to the filing of this quarterly report. Thus, our ~~first~~third quarter results, including the loss and loss adjustment expense reserves presented herein, have been based upon a combination of actual results ~~for~~through the ~~2021 calendar year~~second quarter 2022 as well as forecasts for the remainder of 2022 reported to us by the ceding companies. We have approximated ~~first~~third quarter 2022 results under our contracts based upon this historical and forecasted information.

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

A summary of changes in outstanding loss and loss adjustment expense reserves for the ~~quarters~~nine months ended ~~March 31,~~September 30, 2022 and 2021, is as ~~follows.~~follows:

						2022			2021
(in thousands)	2022			2021		Nine months ended September 30,
						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			–
Balance, beginning of period, gross of reinsurance						$	2,133		$	–
Less: reinsurance recoverable on loss and LAE expense reserves							–			–
Balance, beginning of period, net of reinsurance						$	2,133		$	–
Incurred related to:							–			–
Current year		732			106		4,984			1,893
Prior years		791			–
Prior year							814			–
Paid related to:
Current year		(1,026	)				(2,568	)		(549	)
Prior years		(675	)		–		(1,230	)		–
Balance, March 31, net of reinsurance		1,955			106
Plus reinsurance recoverable related to loss and LAE expense reserves		–			–
Balance, September 30, net of reinsurance						$	4,133		$	1,344
Plus: reinsurance recoverable related to loss and LAE expense reserves							–			–
Reinsurance recoverable related to loss and LAE expense reserves		-			-
Balance, March 31, gross of reinsurance	$	1,955		$	106
Balance, September 30, gross of reinsurance						$	4,133		$	1,344

2022

2021

2022

2021

(in thousands)

Three months ended March 31,

Nine months ended September 30,

2022

2021

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

)

–

(145

)

Total income tax benefit

–

(145

)

–

(145

)

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

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes as compared to the amounts used for income tax purposes. The Company’s gross deferred tax assets and liabilities are $~~6.7~~7.9 million and $~~0.1~~ 2.4million as of ~~March 31,~~September 30, 2022. The Company has recorded a valuation allowance against its deferred tax assets of $~~6.5~~ 5.5million, as of ~~March 31,~~September 30, 2022, due to the uncertain nature surrounding our ability to realize these tax benefits in the future. Significant components of the Company’s net deferred tax assets are as follows:

As of ~~March 31,~~September 30, 2022, the Company had net operating loss carryforwards (“NOLs”) for federal income tax purposes of approximately $~~15.9~~19.0 million, which will be available to offset future taxable income. Approximately $0.5 million expire on December 31, 2039, $0.1 million expire on December 31, 2040, and $1.6 million of the Company’s NOLs will expire on December 31, 2041. The remaining $~~13.7~~16.8 million of the Company’s NOLs do not expire under current tax law. Additionally, the Company has approximately $~~1.0~~ 2.9million 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 ~~March 31,~~September 30, 2022, the Company had no unrecognized tax benefits. The Company analyzed its tax positions in accordance with the provisions of Accounting Standards Codification Topic 740, Income Taxes, and has determined that there are currently no uncertain tax positions. The Company generally recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

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

As of ~~March 31,~~September 30, 2022, the Company had ~~133,859~~272,815 RSUs outstanding,25,000 restricted shares, and 130,000 non-qualified stock options outstanding under its equity incentive plans.

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

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, 2022		164,655		$	4.35		164,655		$	4.35
Granted		–			–		158,225			1.58
Vested		(30,796	)		4.45		(50,065	)		4.81
Forfeited		–			–		—			—
Non-vested units, March 31, 2022		133,859		$	4.33
Non-vested units, September 30, 2022							272,815		$	2.66

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

On December 17, 2021, we issued a total of 83,329RSUs to our non-employee directors. The RSUs vest in five equal annual installments, beginning with the first anniversary of the grant date, other than those RSUs granted to a former director. As the former director made himself available to serve on the Board but was not elected to do so at the Company’s 2021 annual meeting of shareholders, the Board accelerated the vesting of his RSUs, such that they all vested on January 1, 2022. This included 14,492 RSUs granted on December 17, 2021, as well as an additional 15,224RSUs previously granted. On August 19, 2022, we issued a total of 158,225 RSUs to our non-employee directors. The RSUs vest in five equal annual installments, beginning with the first anniversary of the grant date.

On July 31, 2022, the Company issued 25,000 restricted shares under the 2021 Equity Incentive Plan to an employee of the Company. The restriction will be lifted on the first anniversary of the grant date.

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

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

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

The following table summarizes activity for stock options issued for the ~~quarters~~nine months ended ~~March 31,~~September 30, 2022 and 2021.

Common Stock Options	Shares		Weighted Ave Exercise Price		Weighted Ave Remaining Contractual Term (yrs)		Weighted Ave Grant Date Fair Value		Aggregate Intrinsic Value			Shares		Weighted Ave Exercise Price		Weighted Ave Remaining Contractual Term (yrs)		Weighted Ave Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding, January 1, 2022		130,000	$	3.38		9.04	$	1.88	$	49,400			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, September 30, 2022													130,000	$	3.38		8.29	$	1.88	$	–
Exercisable, September 30, 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, March 31, 2021		130,000	$	3.38		9.79	$	1.88	$	165,100
Exercisable, March 31, 2021		–	$	–		–	$	–	$	–
Outstanding, September 30, 2021													130,000	$	3.38		9.29	$	1.88	$	193,700
Exercisable, September 30, 2021													–	$	–		–	$	–	$	–

On January 18, 2021, the 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 ~~three~~nine months ended ~~March 31,~~September 30, 2022 and 2021 was approximately $~~62,000~~180,000 and $~~177,000~~376,000, respectively. As of ~~March 31,~~September 30, 2022, total unrecognized stock compensation expense of approximately $~~548,000~~718,000 remains, which will be recognized through December 31, 2026. Stock compensation expense has been reflected in the Company’s financial statements as part of general and administrative expense.

No warrants were granted or exercised during the ~~quarters~~nine months ended ~~March 31,~~September 30, 2022 and 2021. On February 24, 2022,, 1,500,000 warrants with an exercise price of $15.00 expired. As of ~~March 31,~~September 30, 2022, the Company did not have any warrants outstanding.

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.

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

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

As of ~~March 31,~~September 30, 2022, the Company had invested $~~10.8~~ 12.1million, net of redemptions at cost, as a limited partner in 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. The general partner of the Fund, and the investment advisor of the Fund are ultimately controlled by Mr. Cerminara, the Chairman of the Company’s Board of Directors. Portions of the Company’s investment into the Fund were used to sponsor the launch of ~~special purpose acquisition companies~~SPACs affiliated with certain of our officers and directors.

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

~~FGSP~~FGMP 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~~FGMP and holds a limited partner interest in ~~FGSP.~~FGMP. Certain of our directors and officers also hold limited partner interests in ~~FGSP.~~FGMP. 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~~FGMP 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.

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

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

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

In the third quarter of 2022, the Shared Services Agreement was amended to eliminate termination fees and to increase the termination notice from 120 days to 365 days.

The Company paid $~~457,000~~1,368,000 ~~and $456,250~~ to FGM under the Shared Services Agreement for each of the ~~three~~nine months ended ~~March 31,~~September 30, 2022 and 2021, respectively.

Net earnings per share is computed by dividing net income by the weighted average number of common shares and common share equivalents outstanding during the periods presented. In calculating diluted earnings per share, those potential common shares that are found to be anti-dilutive are excluded from the calculation. The table below provides a summary of the numerators and denominators used in determining basic and diluted earnings per share for the three and nine months ended ~~March 31,~~September 30, 2022 and 2021.

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

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

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

	As of March 31,				As of September 30,
	2022		2021		2022		2021
Warrants to purchase common stock		-		1,500,000		–		1,500,000
Options to purchase common stock		130,000		130,000		130,000		130,000
Restricted Shares						25,000		-
Restricted stock units		133,859		126,419		272,815		85,325
		263,859		1,756,419		427,815		1,715,325

As of ~~March 31,~~September 30, 2022, the Company was not a party to any legal proceedings and was not aware of any material claims or actions pending or threatened against us. From time to time, we are involved in legal proceedings and litigation arising in the ordinary course of business. Currently, it is not possible to predict legal outcomes and their impact on the future development of claims. Any such development will be affected by future court decisions and interpretations. Because of these uncertainties, additional liabilities may arise for amounts in excess of the Company’s current reserves.

In July 2021, the Company entered into a lease agreement for office space in St. Petersburg, FL. The lease ~~has~~had a term of 12 months. Total minimum rent over the ~~12-month~~12-month term ~~is expected to be~~was 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~~10,000 for the ~~three~~nine months ended ~~March 31,~~September 30, 2022.

In April 2022, the Company entered into a lease agreement for office space in Itasca, IL. The lease has a term of 44 months beginning on May 1, 2022. Total minimum rent over the term of the lease is expected to be approximately $77,000. The Company ~~will account~~has accounted for the lease under ASC 842. As of September 30, 2022, the right of use asset and lease liability are approximately $61,000, each, and held in “Other assets” and “Other liabilities” on the balance sheet. Rent expense was approximately $8,800 for the nine months ended September 30, 2022. Future minimum lease commitments are as follows:

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.

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

The Company has 2two operating segments—insurance and asset management. The chief operating decision maker (“CODM”) is the Company’s Chief Executive Officer. The measure of profit or loss used by the CODM to identify and measure the Company’s reportable segments is income before income tax. Our insurance segment consists of the operations of our Cayman Islands-based reinsurance subsidiary, FGRe, which, as of ~~March 31,~~September 30, 2022, included our ~~two quota-share~~seven reinsurance agreements, as well as the returns associated with the investments made by our reinsurance operations, which include the Company’s FedNat common stock investment, as well as a portion of our investments in the SPACs which we have sponsored. Our asset management segment includes our investment in the Fund, as well as our investment advisory agreement with FedNat.

The following table presents the financial information for each segment that is specifically identifiable or based on allocations using internal methodology as of and for the three and nine months ended ~~March 31,~~September 30, 2022 and 2021. The ‘other’ category in the table below consists largely of corporate general and administrative expenses which have not been allocated to a specific segment. Segment assets for the “other” category primarily consist of unrestricted cash in the amounts of $~~7.9~~8.7 million and $~~6.7~~8.2 million as of ~~March 31,~~September 30, 2022 and 2021, respectively.

(in thousands)

For the three months ended March 31, 2022	Insurance			Asset Management			Other			Total
(in thousands) For the three months ended September 30, 2022													Insurance		Asset Management			Other			Total
Net premiums earned	$	2,473		$	–		$	–		$	2,473		$	4,383	$	–		$	–		$	4,383
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
Net investment income														2,468		8,706			–			11,174
Other income		–			55			–			55			–		89			125			214
Total revenue		(1,664	)		3,754			–			2,090			6,851		8,795			125			15,771
Income (loss) before income tax		(2,129	)		3,598			(1,581	)		(112	)		3,274		8,798			(1,817	)		10,255

As of March 31, 2021
For the nine months ended September 30, 2022
Net premiums earned													$	9,809	$	–		$	–		$	9,809
Net investment income														1,562		3,552			–			5,114
Other income														–		141			125			266
Total revenue														11,371		3,693			125			15,189
Income (loss) before income tax														2,728		3,680			(5,453	)		955

As of September 30, 2022
Segment assets	$	10,533		$	16,375		$	8,952		$	35,860		$	21,662	$	17,777		$	9,484		$	48,923

For the three months ended September 30, 2021
Net premiums earned													$	1,099	$	–		$	–		$	1,099
Net investment income (loss)														2,784		(4,083	)		–			(1,299	)
Other income														–		67			–			67
Total revenue														3,883		(4,016	)		–			(133	)
Income (loss) before income tax														2,276		(4,123	)		(2,546	)		(4,393	)

For the nine months ended September 30, 2021
Net premiums earned													$	2,221	$	–		$	–		$	2,221
Net investment income														1,674		1,118			–			2,792
Other income														–		146			–			146
Total revenue														3,895		1,264			–			5,159
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

On October 11, 2022, the Company invested $2.0 million into FG Communities, Inc, a self-managed real estate investment company focused on a growing portfolio of manufactured housing communities which are owned and operated by FG Communities, Inc.

On October 19, 2022, the Company entered into an Agreement and Plan of Merger, dated as of October 19, 2022 by and between the Company and FG Financial Group, Inc., a Nevada corporation and a wholly owned subsidiary of the Company, pursuant to which the Company will be reincorporated from Delaware to Nevada. The Plan of Merger was adopted and approved by the board of directors of the Company by unanimous written consent on October 14, 2022. Consummation of the reincorporation is subject to the adoption and approval of the Plan of Merger by the holders of a majority of the outstanding common stock of the Company.

On November 3, 2022, the Company entered into a Sales Agreement (the “Sales Agreement”) with ThinkEquity LLC (the “Sales Agent”), pursuant to which the Company may offer and sell, from time to time through the Sales Agent, shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), having an aggregate offering price of up to $2,575,976, subject to the terms and conditions of the Sales Agreement. The Company filed a prospectus supplement to its registration statement on Form S-3. Under the Sales Agreement, the Sales Agent may sell the Shares in sales deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on or through The Nasdaq Global Market or any other existing trading market for the Common Stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices, and/or any other method permitted by law. The Company may instruct the Sales Agent not to sell the shares of Common Stock if the sales cannot be effected at or above the price designated by the Company from time to time. The Company is not obligated to make any sales of the shares under the Sales Agreement.

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

You should read the following discussion in conjunction with our consolidated financial statements and related notes and information included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report for the year ended December 31, 2021 on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2022.

Unless context denotes otherwise, the terms “Company,” “FGF,” “we,” “us,” and “our,” refer to FG Financial Group, Inc., and its subsidiaries.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are therefore entitled to the protection of the safe harbor provisions of these laws. These statements may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “budget,” “can,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “evaluate,” “forecast,” “goal,” “guidance,” “indicate,” “intend,” “likely,” “may,” “might,” “outlook,” “plan,” “possibly,” “potential,” “predict,” “probable,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” “view,” “will,” “would,” “will be,” “will continue,” “will likely result” or the negative thereof or other variations thereon or comparable terminology. In particular, discussions and statements regarding the Company’s future business plans and initiatives are forward-looking in nature. We have based these forward-looking statements on our current expectations, assumptions, estimates, and projections. While we believe these to be reasonable, such forward-looking statements are only predictions and involve a number of risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance, or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements, and may impact our ability to implement and execute on our future business plans and initiatives.

Management cautions that the forward-looking statements in this Quarterly Report on Form 10-Q are not guarantees of future performance, and we cannot assume that such statements will be realized or the forward-looking events and circumstances will occur. Factors that might cause such a difference include, without limitation: general conditions in the global economy, including the impact of health and safety concerns from the current COVID-19 pandemic; our lack of operating history or established reputation in the reinsurance industry; our inability to obtain or maintain the necessary approvals to operate reinsurance subsidiaries; risks associated with operating in the reinsurance industry, including inadequately priced insured risks, credit risk associated with brokers we may do business with, and inadequate retrocessional coverage; our inability to execute on our investment and ~~investment~~asset management strategy, including our strategy to invest in the risk capital of special purpose acquisition companies (SPACs); potential loss of value of investments; risk of becoming an investment company; fluctuations in our short-term results as we implement our new business strategy; risks of being unable to attract and retain qualified management and personnel to implement and execute on our business and growth strategy; failure of our information technology systems, data breaches and cyber-attacks; our ability to establish and maintain an effective system of internal controls; our limited operating history as a public company; the requirements of being a public company and losing our status as a smaller reporting company or becoming an accelerated filer; any potential conflicts of interest between us and our controlling stockholders and different interests of controlling stockholders; potential conflicts of interest between us and our directors and executive officers; volatility or decline in the value of the shares of FedNat Holding Company common stock received by us as consideration in the sale of our insurance business or limitations and restrictions with respect to our ownership of such shares; risks of being a minority stockholder of FedNat Holding Company;; risks associated with our related party transactions and investments; and risks associated with our investments in SPAC, including the failure of any such SPAC to complete its initial business combination. Our expectations and future plans and initiatives may not be realized. If one of these risks or uncertainties materializes, or if our underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. You are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements are made only as of the date hereof and do not necessarily reflect our outlook at any other point in time. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect new information, future events or developments.

FG Financial Group, Inc. (“FGF”, the “Company”, “we”, or “us”) is a reinsurance and ~~investment~~asset management holding company. We focus on opportunistic collateralized and loss-capped reinsurance, while allocating capital in partnership with Fundamental Global^®, and from time to time, other strategic investors, to ~~SPAC and SPAC sponsor-related businesses.~~merchant banking activities. The Company’s principal business operations are conducted through its subsidiaries and affiliates. The Company also provides ~~investment~~asset management services. From our inception in October 2012 through December 2019, we operated as an insurance holding company, writing property and casualty insurance throughout the states of Louisiana, Florida, and Texas. On December 2, 2019, we sold our three former insurance subsidiaries, and embarked upon our current strategy focused on reinsurance and asset management.

As of ~~March 31,~~September 30, 2022, Fundamental Global GP, LLC, a ~~privately owned investment management company,~~private partnership focused on long-term strategic holdings (“FG”), and its ~~affiliates, or “FG,”~~affiliated entity collectively beneficially owned approximately ~~56%~~60.0% of our common stock. D. Kyle Cerminara, Chairman of our Board of Directors, serves as Chief Executive Officer, Co-Founder and Partner of FG.

On December 2, 2019, we completed the sale of our insurance subsidiaries to FedNat Holding Company for a combination of cash and FedNat common stock. ~~The~~As of September 30, 2022, the Company held 137,871 shares of FedNat common ~~stock we received in~~stock. On October 2, 2022, the ~~Asset Sale were issued to us pursuant to a standstill agreement which provides certain limitations and restrictions with respect to~~Company sold the ~~voting and sale or transfer of the securities until December 2024. As of March 31, 2022, we continue to hold 790,371 shares of~~remaining FedNat common ~~stock.~~stock shares held for approximately $30,000 of net proceeds.

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Actual results may differ materially from these estimates. The business and economic uncertainty resulting from the coronavirus (COVID-19) pandemic has made such estimates and assumptions difficult to calculate. Set forth below is qualitative and quantitative information necessary to understand the estimation uncertainty and the impact the critical accounting estimate has had or is reasonably likely to have on financial condition or results of operations, to the extent the information is material and reasonably available. Certain of these are described in Note 2, Significant Accounting Policies, under the captions, “Investments in Equity Securities,” Other Investments,” “Premium Revenue Recognition,” “Policy Acquisition Costs,” “Loss and Loss Adjustment Expense Reserves,” and “Stock Based Compensation.”

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

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.

See Item 8, Note 3 – Recently Adopted and Issued Accounting Standards in the Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements and their effect, if any, on the Company.

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

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

See Note 4, under the caption, “Equity Method Investments,” for information relating to the Company’s investments accounted for under the equity method.

See Note 4, under the caption, “Investments without Readily Determinable Fair Value,” for information relating to Company investments for which readily determinable fair values do not exist.

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

Reinsurance balances receivable were ~~$3.8~~$7.7 million as of ~~March 31,~~September 30, 2022 compared to $3.9 million as of December 31, 2021, representing net amounts due to the Company under our quota-share agreements. As the Company estimates the ultimate premiums, loss expenses and other costs associated with some of these contracts, based on information received by us from the ceding companies, a significant portion of this balance is based on estimates and, ultimately, may not be collected by the Company.

See Note 5, Loss and Loss Adjustment Expense Reserves, for information relating to loss and loss adjustment expense and judgments required for recording such items.

On May 21, 2021, we completed the underwritten public offering of an additional 194,580 shares of our preferred stock designated as 8.00% Cumulative Preferred Stock, Series A, par value $25.00 per share (the “Series A Preferred Stock”), for net proceeds of approximately $4.2 ~~million, bringing the~~million. The total number of Series A Preferred Stock shares outstanding ~~to 894,580~~ as of ~~March 31, 2022.~~September 30, 2022 is 894,580.

Dividends on the Series A Preferred Stock are cumulative from the date of original issue and are payable quarterly on the 15th day of March, June, September and December of each year, when, as and if declared by our Board of Directors. Dividends are payable out of amounts legally available ~~therefor~~therefore at a rate equal to 8.00% per annum per $25.00 of stated liquidation preference per share, or $2.00 per share of Series A Preferred Stock per year. Our Board of Directors declared the ~~first~~third quarter 2022 dividend on the shares of Series A Preferred Stock on ~~February 10,~~November 9, 2022. The Series A Preferred Stock shares trade on the Nasdaq Stock Market under the symbol “FGFPP”.

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

In June 2022, we sold a total of 2,750,000 shares of our common stock in an underwritten public offering, at a price of $1.58 per share, for net proceeds of approximately $3.8 million. On August 2, 2022, ThinkEquity, the underwriter with respect to the public offering, partially exercised its overallotment option and we sold an additional 71,770 shares of our common stock, at a price of 1.58 per share, for net proceeds of $0.1 million. The Company intends to use the net proceeds from the underwritten public offering for working capital and other general corporate purposes.

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 ~~March 31,~~September 30, 2022.

The table below presents the primary components of changes to total shareholders’ equity for the ~~three~~nine months ended September ~~March 31~~30, 2022 and 2021.

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

Balance, January 1, 2022		894,580		6,497,205		–	$	34,009		$	–			894,580		6,497,205		–		$	34,009		$	–
Stock compensation expense		–		30,796		–		63			–
Stock compensation														–		75,065		–			180			–
Dividends declared on Series A Preferred Stock		–		–		–		(447	)		–			–		–		–			(1,341	)		–
Net loss		–		–		–		(3,823	)		–
Balance, March 31, 2022		894,580		6,528,001		–	$	29,802		$	–
Issuance of common stock														–		2,821,770		–			3,889			–
Net income														–		–		–			955			–
Balance, September 30, 2022														894,580		9,394,040		–		$	37,692		$	–

Three and Nine Months Ended ~~March 31,~~September 30, 2022 Compared with Three and Nine Months Ended ~~March 31,~~September 30, 2021

Net premiums earned represent actual premiums earned on our ~~quota-share~~reinsurance agreements as well as estimated premiums earned on our FAL agreement ~~for~~disclosed previously. For the ~~first quarter~~nine months ended September 30, 2022 and 2021, ~~and~~earned premiums are approximately ~~$2.5~~$9.8 million and ~~$0.2~~$2.2 million, ~~for~~respectively. For the ~~two periods, respectively. Our FAL estimates are based on information received from the ceding companies, whereby~~three months ended September 30, 2022 and 2021, earned premiums are ~~recorded, as written,~~approximately $4.4 million and $1.1 million, respectively. The increase in the same periods in which the underlying insurance contracts are written and are based on cession statements from cedents. These statements are received quarterly, in arrears; so, for any reporting lag,reinsurance premiums ~~written are estimated based on the portion of the ultimate estimated premiums relating~~was due primarily to the ~~risks underwritten~~additional reinsurance agreements signed during the ~~lag period.~~current year.

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

Other income was approximately ~~$25,000 and $55,000~~$266,000 compared to $146,000 for the ~~three~~nine months ended ~~March 31,~~September 30, 2022 and 2021, respectively, and is comprised of fees earned under the investment advisory ~~and transition services~~ agreements between the Company and FedNat. Also included in other income for the nine months ended September 30 2022 and 2021 is service fee revenue we have earned under our SPAC Platform, whereby we provide certain accounting, regulatory, strategic advisory, and other administrative services.

Net losses and loss adjustment expenses (“LAE”) for the three months ended September ~~March 31~~30, 2022 and 2021, were ~~$1.5~~$2.4 million and ~~$0.1~~$1.1 million, ~~respectively.~~respectively ($5.8 million and $1.9 million for the nine months ended September 30, 2022 and 2021). As discussed under Note 5, Loss and Loss Adjustment Expense Reserves, a portion of this charge represents an estimate based upon a full calendar year forecast of results provided to us by the ceding companies under our FAL ~~arrangement.~~arrangements.

General and administrative expenses decreased by ~~$0.3~~$0.7 million to ~~$1.7~~$6.0 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2022, compared to $6.7 million for the nine months ended September 30, 2021. The decrease was primarily due to lower legal professional fees and stock compensation. General and administrative expenses decreased by $1.0 million to $2.0 million for the three months ended ~~March 31, 2021. The decrease was primarily due~~September 30, 2022, compared to ~~one-time, upfront professional fees relating to the beginning of our FAL reinsurance agreement incurred~~$3.0 million for the three months ended ~~March 31, 2021.~~September 30, 2021 primarily due to reduction in professional fees and salaries and benefits.

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

On December 2, 2019, we completed the sale of our insurance subsidiaries to FedNat Holding Company for a combination of cash and FedNat common stock (the “Asset Sale”). Due to the ~~sale of all of the issued and outstanding equity of Maison, MMI and ClaimCor (the “Maison Business”) on December 2, 2019,~~Asset Sale, these operations have been classified as discontinued operations in the Company’s financial statements presented herein. For the ~~quarter~~nine months ended ~~March 31,~~September 30, 2021, we recognized a gain from the sale of the ~~Maison Business~~insurance business of approximately $145,000. This was related to a final true-up and settlement ~~in the current quarter,~~ for income taxes due to the Company under the sale agreement.

As of ~~March 31,~~September 30, 2022 and 2021, the Company has gross deferred tax assets of approximately ~~$6.6~~$7.9 million and ~~$3.9~~$5.3 million, respectively; however the Company has recorded a valuation allowance against all of its deferred tax assets due to the uncertain nature surrounding our ability to realize these tax benefits in the future, resulting in a net deferred income tax asset of $0 as of ~~March 31,~~September 30, 2022 and 2021.

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

($ in thousands, except per share data)	Three months ended March 31,
($ in thousands)							Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021			2022			2021
Basic and diluted:
Net loss from continuing operations	$	(3,823	)	$	(112	)
Loss attributable to noncontrolling interest		–			(1	)
Net income (loss) from continuing operations							$	10,255		$	(4,393	)	$	955		$	(4,065	)
Gain attributable to noncontrolling interests								–			(569	)		–			(1,235	)
Dividends declared on Series A Preferred Shares		(447	)		350			(447	)		(448	)		(1,342	)		(1,245	)
Loss attributable to FG Financial Group, Inc. common shareholders from continuing operations		(4,270	)		(461	)
Income (loss) attributable to FG Financial Group, Inc. common shareholders from continuing operations								9,808			(5,410	)		(387	)		(6,545	)
Weighted average common shares		6,447,568			4,992,989			9,333,709			5,032,615			7,564,017			5,012,139
Loss per common share from continuing operations	$	(0.66	)	$	(0.09	)
Income (loss) per common share from continuing operations							$	1.05		$	(1.08	)	$	(0.05	)	$	(1.31	)

Gain from sale of former insurance business	$	–		$	145		$	–		$	–			–		$	145
Weighted average common shares outstanding		6,447,568			4,992,989			9,333,709			5,032,615			7,564,017			5,012,139
Income per common share from discontinued operations	$	–		$	0.03		$	–		$	–		$	–		$	0.03

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

The purpose of liquidity management is to ensure that there is sufficient cash to meet all financial commitments and obligations as they fall due. The liquidity requirements of the Company and its subsidiaries have been met primarily from the cash proceeds of the Asset Sale, by funds generated from operations, and from the proceeds from the sales of our common and preferred stock. Cash provided from these sources has historically been used for loss and loss adjustment expense payments, as well as other operating expenses.

In June 2022, we sold a total of 2,750,000 shares of our common stock in an underwritten public offering, at a price of $1.58 per share, for net proceeds of approximately $3.8 million. On August 2, 2022, ThinkEquity, the underwriter with respect to the public offering partially exercised its overallotment option and we sold an additional 71,770 shares of our common stock, at a price of 1.58 per share, for net proceeds of $0.1 million. The Company intends to use the net proceeds from the underwritten public offering for working capital and other general corporate purposes

The following table summarizes the Company’s consolidated cash flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2022 and 2021.

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

Net cash used by operating activities		(978	)		(3,599	)		(3,941	)		(10,394	)
Net cash used by investing activities		(5,616	)		(44	)
Net cash provided (used) by financing activities		(447	)		307
Net cash (used) provided by investing activities								(4,502	)		72
Net cash provided by financing activities								2,548			7,119
Net decrease in cash and cash equivalents		(7,041	)		(3,336	)		(5,895	)		(3,203	)

Cash and cash equivalents – end of period	$	8,501		$	8,796		$	9,647		$	8,929

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

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~~$3.9 million, the major drivers of which were as follows:

For the nine months ended September 30, 2022, net cash used by investing activities was $4.5 million primarily related to our increased investment in the Fund to sponsor FG Merger and FG Acquisition. Net cash provided by financing activities was approximately $2.5 million, as a result of our common stock offering for approximately $3.8 million offset by cash dividends declared on our Series A Preferred Shares for approximately $1.3 million.

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

For the ~~quarter~~nine months ended ~~March 31,~~September 30, 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 ~~$307,000, primarily~~$7.1 million, related to our issuance of both our common and Series A Preferred Stock as ~~a result~~previously discussed, as well as the contribution of ~~a contribution cash~~approximately $4.1 million in outside investment to our consolidated investment company subsidiary, recorded as contributions from ~~noncontrolling~~non-controlling interests.

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

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 ~~March 31,~~September 30, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A. “Risk Factors” to our annual report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 30, 2022.

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.

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

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

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

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

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

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

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

●	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.~~judgment.

●	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.

PART I. FINANCIAL INFORMATION	3

ITEM 1. FINANCIAL STATEMENTS	3

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	25

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	33

ITEM 4. CONTROLS AND PROCEDURES	33

PART II. OTHER INFORMATION	34

ITEM 1. LEGAL PROCEEDINGS	34

ITEM 1A. RISK FACTORS	34

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	34

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	34

ITEM 4. MINE SAFETY DISCLOSURES	34

ITEM 5. OTHER INFORMATION	34

ITEM 6. EXHIBITS	34

SIGNATURES	35

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


(in thousands)
	As of September 30, 2022			As of December 31, 2021
Deferred income tax assets:
Net operating loss carryforward	$	3,981		$	3,010
Loss and loss adjustment expense reserves		48			25
Unearned premium reserves		276			152
Capital loss carryforward		2,929			1,114
Share-based compensation		241			253
Investments		413			1,692
Other		3			3
Deferred income tax assets	$	7,891		$	6,249
Less: Valuation allowance		(5,496	)		(5,715	)
Deferred income tax assets net of valuation allowance	$	2,395		$	534

Deferred income tax liabilities:
Investments	$	1,989		$	369
Other		3			–
Deferred policy acquisition costs		403			165
Deferred income tax liabilities	$	2,395		$	534

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

Expected volatility	45.60		~~45.60~~	%
Expected life (years)	10.00		10~~.00~~
Risk-free interest rate	1.15	%
Dividend yield	0.00	%

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

Year ending December 31,	Minimum Commitment
2022	$	5,250
2023		21,000
2024		21,000
2025		15,750
Total	$	63,000

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

	●	Our net income of approximately ~~$33,000~~$1.0 million for the ~~quarter, increased~~period;
	●	Approximately $(10.5) million for a non-cash charge related to the unrealized ~~gains~~holding gain, offset by $11.2 million in realized loss on sale associated with our ~~equity investments~~shares of ~~approximately $1.8 million;~~FedNat common stock; and
	●	Approximately $(2.9) million for a non-cash charge related to the unrealized holding gains on our various investments.
	●	Approximately $(2.7) million increase to amounts held on deposit with reinsured companies.

	●	Our net loss for the period of approximately $3.9 million
	●	An adjustment to our net loss for approximately $2.7 million related to unrealized losses on our equity investments.
	●	An adjustment to our net loss of approximately $(3.4) million reflecting the increase in amounts due to us under our reinsurance quota share agreements.
	●	A cash outflow of approximately ~~$2.3~~$6.5 million for our consolidated Fund investments in private placement securities. As this investment was made by our investment company subsidiary, we were required to show these cash outflows as operating activities.

Exhibit		Description
2.1		Agreement and Plan of Merger, dated as of October 19, 2022, by and between the Company and FG Financial Group, Inc., a Nevada corporation (incorporated by reference to exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 20, 2022).
3.1		Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation of FG Financial Group, Inc., dated September 27, 2022 (incorporated by reference to exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 29, 2022).
3.2		Certificate of Correction, dated October 11, 2022, to the Certificate of Amendment of the Fourth Amended and Restated Certificate of Incorporation of FG Financial Group, Inc (incorporated by reference to exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 12, 2022).
31 .1*		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.
31.2*		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.
32.1**		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		Inline XBRL Instance Document.
101.SCH*		Inline XBRL Taxonomy Extension Schema.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

		FG FINANCIAL GROUP, INC.

Date:	~~May 16,~~November 9, 2022	By:	/s/ Larry G. Swets, Jr.
			Larry G. Swets, Jr., Chief Executive Officer
			(principal executive officer)

Date:	~~May 16,~~November 9, 2022	By:	/s/ ~~Brian D. Bottjer~~Hassan R. Baqar
			~~Brian D. Bottjer,~~Hassan R. Baqar, Chief ~~Accounting~~Financial Officer
			(principal financial and accounting officer)