NOTE 10 DEBT

Debt consists of the following instruments at June 30, 2026 and December 31, 2025:

All of the KSX and Extended Warranty indebtedness arises from individual, stand-alone credit agreements with the applicable Company subsidiary.  None of such indebtedness is guaranteed by the Company or any other subsidiary or affiliate of the Company other than the borrower entity and its direct subsidiary, if any, and there are no cross-collateral, cross-default or similar provisions in the credit agreements.

Term loans are carried in the consolidated balance sheets at their amortized cost, which reflects the monthly or quarterly pay-down of principal, as well as amortization of any debt discount and issuance costs using the effective interest rate method.

The various bank loans contain a number of covenants, including, but not limited to, a leverage ratio and a fixed charge ratio, all of which are as defined in and calculated pursuant to the respective bank loan agreements that, among other things, restrict the respective borrower’s ability to incur additional indebtedness, create liens, make dividends and distributions, engage in mergers, acquisitions and consolidations, make certain payments and investments and dispose of certain assets.

The contractual maturities of the Company's principal debt balances as of June 30, 2026 were as follows:

(a)          Bank loans - KSX:

The various amendments to the term loan and revolver were not deemed to be substantially different than prior to the amendment; therefore, the amendments were accounted for as modifications. The unamortized debt discount and issuance costs from the original Ravix term loan at the February 7, 2025 modification date of $0.1 million were recorded as loss on extinguishment of debt and are included in other income, net in the consolidated statement of operations for six months ended June 30, 2025, since the original and supplemental term loans were fully repaid as part of the modification.

The Ravix term loan, as amended, is secured by certain of the equity interests and assets of Ravix and CSuite.

SNS

The SNS term loan has a carrying value of $2.4 million and $2.5 million as of June 30, 2026 and  December 31, 2025, respectively.  The SNS revolver has a carrying value of $1.0 million as of June 30, 2026 and  December 31, 2025.  

As part of the asset acquisition of Secure Nursing Service, Inc. on November 18, 2022, the Company formed Secure Nursing Service LLC ("SNS"), which became a wholly owned subsidiary of Pegasus Acquirer Holdings LLC ("Pegasus LLC"), and together they borrowed from a bank a principal amount of $6.5 million in the form of a term loan, and established a $1.0 million revolver (the "SNS Revolver") to finance the acquisition of SNS (together, the "SNS Loan").  The SNS Loan has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 5.00%.  At June 30, 2026, the interest rate was 7.25%.  The revolver matures on December 2, 2026 and the term loan matures on November 18, 2028.  As of  December 31, 2025, the SNS revolver is fully drawn.  

The SNS Loan is secured by certain of the equity interests and assets of SNS.

Beginning March 31, 2024 through June 30, 2026, SNS was in default under the SNS Loan due to debt covenant violations related to the leverage and fixed charge ratios (measured quarterly). In February 2026, SNS and the lender amended the credit agreement to (1) extend the SNS revolver maturity date to be June 2, 2026; and (2) suspend monthly principal payments beginning February 2026 through May 2026, with the next principal payment resuming in June 2026. In July 2026, SNS and the lender amended the credit agreement to (1) extend the SNS revolver maturity date to be December 2, 2026; and (2) suspend monthly principal payments through November 2026, with the next principal payment resuming in December 2026.  The Company has entered into an amendment to the SNS Loan that waives the events of default for the fiscal quarter ended June 30, 2026.  As of the report date, there is some uncertainty as to whether the Company will be in compliance with the covenants in future periods, and if not, when the Company will be able to cure any potential violations.  As a result, the Company has included the total principal balance due after one-year related to the SNS Loan of $1.7 million and $2.3 million as of  June 30, 2026 and December 31, 2025, respectively, in short-term and current portion of long-term debt in the consolidated balance sheets.  A default may permit the lender to declare the amounts owed under the SNS Loan immediately due and payable, exercise their rights with respect to collateral securing the obligation, and/or exercise any other rights and remedies available. 

DDI

The DDI term loan has a carrying value of $3.7 million and $4.2 million as of June 30, 2026 and  December 31, 2025, respectively.  The DDI revolver has a carrying value of $0.3 million and $0.2 million as of June 30, 2026 and  December 31, 2025, respectively.  

As part of the acquisition of Digital Diagnostics Inc. ("DDI") on October 26, 2023, DDI became a wholly owned subsidiary of DDI Acquisition, LLC ("DDI LLC"), and together they borrowed from a bank a principal amount of $5.6 million in the form of a term loan, and established a $0.4 million revolver to finance the acquisition of DDI (together, the "DDI Loan").  The DDI Loan has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 5.00%.  At June 30, 2026, the interest rate was 7.25%. The DDI revolver matures on November 1, 2026 and the term loan matures on October 26, 2029.  During the six months ended June 30, 2026, DDI borrowed $0.2 million and made repayments of less than $0.1 million under the DDI revolver. 

The DDI Loan is secured by certain of the equity interests and assets of DDI.

Beginning September 30, 2025 through  June 30, 2026, DDI was in default under the DDI Loan due to a debt covenant violation related to the fixed charge ratio (measured quarterly).  The Company has entered into an amendment to the DDI Loan that waives the event of default for the fiscal quarter ended June 30, 2026.  As of the report date, there is some uncertainty as to whether the Company will be in compliance with the covenants in future periods, and if not, when the Company will be able to cure any potential violations. As a result, the Company has reclassified the total principal balance of the DDI Loan due after one-year of $2.6 million from long-term debt to short-term and current portion of long-term debt in the consolidated balance sheet as of  June 30, 2026.  A default may permit the lender to declare the amounts owed under the DDI Loan immediately due and payable, exercise their rights with respect to collateral securing the obligation, and/or exercise any other rights and remedies available.

Image Solutions

The Image Solutions term loan has a carrying value of $6.3 million and $6.7 million as of June 30, 2026 and  December 31, 2025, respectively.  At  June 30, 2026 and  December 31, 2025, the balance of the revolver was zero. 

As part of the acquisition of Image Solutions, LLC ("Image Solutions") on September 26, 2024, Image Solutions became a wholly owned subsidiary of Steel Bridge Acquisition, LLC ("SB LLC"), and together they borrowed from a bank a principal amount of $7.75 million in the form of a term loan, and established a $0.5 million revolver to finance the acquisition of Image Solutions (together, the "Image Solutions Loan"). The Image Solutions Loan requires monthly payments of principal and interest and has an annual interest rate equal to the greater of the Prime Rate plus 0.5%, or 7.25%.  At June 30, 2026, the interest rate was 7.25%.  The revolver matures on September 26, 2026 and the term loan matures on September 26, 2030.  

The Image Solutions Loan is secured by certain of the equity interests and assets of Image Solutions.

Roundhouse

The Roundhouse term loan has a carrying value of $9.5 million and $10.3 million as of June 30, 2026 and  December 31, 2025, respectively. At  June 30, 2026 and  December 31, 2025, the balance of the revolver was zero.

As part of the acquisition of Roundhouse on July 1, 2025, Roundhouse became a wholly owned subsidiary of Longhorns Acquisition LLC ("Longhorns LLC"), and together they borrowed from a bank a principal amount of $11.0 million in the form of a term loan, and established a $0.5 million revolver to finance the acquisition of Roundhouse (together, the "Roundhouse Loan"). The Roundhouse term loan requires monthly payments of principal and interest and has an annual interest rate equal to the greater of the one-month term Secured Overnight Financing Rate ("SOFR") plus 3.3%, or 5.0%.  At June 30, 2026, the interest rate was 7.38%.  The Roundhouse term loan and revolver mature on July 1, 2035. 

The Roundhouse Loan is secured by certain of the equity interests and assets of Roundhouse.

Kingsway Plumbing Holdco LLC ("KPH")

The KPH term loan has a carrying value of $3.6 million as of June 30, 2026 and  December 31, 2025.  The KPH revolver has a carrying value of $0.4 million as of June 30, 2026 and  December 31, 2025.    

In 2025, the Company formed KPH, whose subsidiaries include Bud's Plumbing, Advanced Plumbing and Southside Plumbing. As part of the acquisition of Southside Plumbing on August 14, 2025, KPH and its subsidiaries borrowed from a bank a principal amount of $3.75 million in the form of a term loan, and established a $0.5 million revolver (together, the "KPH Loan").  The KPH term loan requires monthly payments of interest and has an annual fixed interest rate of 7.5%.  Monthly principal payments on the KPH term loan begin September 14, 2026.  The term loan matures on August 14, 2032. The KPH revolver requires monthly payments of interest and has an annual interest rate equal to the greater of the Prime Rate plus 0.75%, or 7.5%. The KPH revolver matures on August 14, 2026.  

The KPH Loan is secured by certain of the equity interests and assets of KPH.

At  June 30, 2026, KPH was in default under the KPH Loan due to a debt covenant violation related to the leverage and fixed charge ratios (measured quarterly).  As of the report date, the Company has not received a waiver or amendment from the lender regarding this non-compliance.  As a result, the Company has reclassified the total principal balance of the KPH Loan due after one-year of $3.3 million from long-term debt to short-term and current portion of long-term debt in the consolidated balance sheet as of  June 30, 2026. The Company is in active discussions with the lender with respect to obtaining a waiver.  As of the report date, there is some uncertainty as to whether the Company will be in compliance with the covenants in future periods, and if not, when the Company will be able to cure any potential violations.  A default may permit the lender to declare the amounts owed under the KPH Loan immediately due and payable, exercise their rights with respect to collateral securing the obligation, and/or exercise any other rights and remedies available.

(b)          Bank loans - Extended Warranty:

Kingsway Warranty Holdings LLC ("KWH")

The KWH term loan has a carrying value of $6.7 million and $10.8 million as of June 30, 2026 and  December 31, 2025, respectively. The KWH delayed draw term loan ("DDTL") has a carrying value of $4.2 million and $4.7 million as of June 30, 2026 and  December 31, 2025, respectively.  As of June 30, 2026 and  December 31, 2025, the KWH DDTL is fully drawn. The KWH revolver has a carrying value of $3.8 million and $2.0 million as of June 30, 2026 and  December 31, 2025, respectively. 

In 2019, the Company formed KWH, whose original subsidiaries included IWS Acquisition Corporation ("IWS"), Geminus Holdings Company, Inc. ("Geminus") and Trinity. As part of the acquisition of PWI Holdings, Inc. ("PWI") on December 1, 2020, PWI became a wholly owned subsidiary of KWH, which borrowed a principal amount of $25.7 million from a bank, consisting of a $24.7 million term loan and a $1.0 million revolving credit facility.

The KWH term loan and revolver has an annual interest rate equal to SOFR, having a floor of 0.75%, plus spreads ranging from 2.62% to 3.12%.  At June 30, 2026, the interest rate was 6.76%.  The KWH term loan and DDTL mature on May 24, 2029.  The revolver matures on March 31, 2027.

Since origination, there have been amendments to the KWH term loan and revolver.  Changes to the KWH term loan and revolver during 2026 and 2025 are as follows:

The amendments were not deemed to be substantially different than prior to the amendments; therefore, the amendments were accounted for as a modification.  

The term loan and revolver, as amended, are secured by certain of the equity interests and assets of KWH and its subsidiaries.

(c)          Notes payable - KSX:

On July 1, 2025 Roundhouse established a $0.75 million non-revolving equipment line of credit with a bank. On March 4, 2026, Roundhouse borrowed $0.4 million under the equipment line of credit. The Roundhouse equipment loan matures on March 1, 2033, requires monthly payments of principal and interest and has an annual fixed interest rate of 7.0%.  

The following seller notes were entered into during 2026 and 2025 in connection with various acquisitions which were used to partially finance the respective acquisitions:

(d)          Subordinated debt:

On May 22, 2003, a subsidiary trust of the Company, Kingsway DE Statutory Trust III, issued $15.0 million of 30-year capital securities to third-parties in a private transaction. A corresponding floating rate junior subordinated deferrable interest debenture was then issued by KAI to the trust in exchange for the proceeds from the private sale. The floating rate debenture bears interest at the rate of CME Term SOFR, plus a spread of 4.20%. The Company has the right to call these securities at par value any time after five years from its issuance until its maturity. 

The subordinated debt, or TruPs, is carried in the consolidated balance sheets at fair value. See Note 22, "Fair Value of Financial Instruments," for further discussion of the subordinated debt. The portion of the change in fair value of subordinated debt related to the instrument-specific credit risk is recognized in other comprehensive (loss) income. 

The change in fair value of the Company’s subordinated debt is recorded in the consolidated financial statements for the three and six months ended June 30, 2026 and June 30, 2025 are as follows:

The agreement governing the remaining subordinated debt contains a number of covenants that, among other things, restrict the Company’s ability to incur additional indebtedness, make dividends and distributions, and make certain payments in respect of the Company’s outstanding securities.