NOTE 5 ACQUISITIONS AND DISPOSAL

(a)    Acquisitions:

During the three months ended  September 30, 2026 and  September 30, 2025, the Company incurred acquisition expenses related to business combinations of $0.1 million and $0.9 million, respectively ($0.1 million and $1.3 million for the nine months ended  September 30, 2026 and  September 30, 2025, respectively), which are included in selling, general and administrative expenses in the consolidated statements of operations.

The following acquisitions were accounted for as business combinations using the acquisition method of accounting.  The purchase price for each acquisition was provisionally allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition and are subject to adjustment during a measurement period subsequent to the acquisition date, not to exceed one year, as permitted under U.S. GAAP.  The Company records measurement period adjustments in the period in which the adjustments occur. 

The goodwill recognized for each acquisition represents the premium paid over the fair value of the net tangible and intangible assets acquired, which the Company paid to grow its portfolio of companies and acquire an assembled workforce. The goodwill is not deductible for tax purposes. 

Romeo Computer Company, Inc.

On August 5, 2026, the Company's subsidiary, Image Solutions LLC, acquired substantially all of the assets and certain specified liabilities of Romeo Computer Company, Inc. ("RCC") for aggregate consideration consisting of cash of approximately $2.4 million, less certain escrowed amounts for purposes of indemnification claims and working capital adjustments.  RCC is a provider of managed IT and cybersecurity solutions based in the state of Michigan. The pro forma effects of the RCC acquisition were not material to the Company's unaudited consolidated statements of operations for the three and nine months ended   September 30, 2026 and  September 30, 2025.

The unaudited consolidated statements of operations include the earnings of RCC from the date of acquisition. From the date of acquisition through  September 30, 2026, RCC's revenue and net income was immaterial.

M.L.C. Plumbing, LLC (d/b/a Bud's Plumbing)

On March 14, 2025, the Company acquired 100% of the outstanding membership interests of M.L.C. Plumbing, LLC (d/b/a Bud's Plumbing Service, "Bud's Plumbing") for aggregate consideration consisting of cash and a seller note of approximately $5.0 million, less certain escrowed amounts for purposes of indemnification claims and working capital adjustments. The final purchase price was subject to a working capital true-up of less than $0.1 million that was paid during the second quarter of 2025.  During the third quarter of 2025, the Company finalized its fair value analysis of the assets acquired and liabilities assumed with the assistance of a third party. 

The unaudited consolidated statements of operations include the earnings of Bud's Plumbing from the date of acquisition. 

The seller note was due to mature on April 1, 2030; however, on  August 7, 2025, the seller note was repaid in full to the seller of Bud's Plumbing in exchange for shares of Kingsway common stock.  

Roundhouse Electric & Equipment Co., Inc.  

On July 1, 2025, the Company acquired 100% of the outstanding equity interests of Roundhouse Electric & Equipment Co., Inc. ("Roundhouse") for aggregate consideration consisting of cash and phantom equity awards to the selling stockholders, of approximately $23.5 million, less certain escrowed amounts for purposes of indemnification claims and working capital adjustments. During the nine months ended September 30, 2026 and the fourth quarter of 2025, funds that had been held in escrow for the purposes of indemnification claims of $0.1 million and $0.8 million, respectively, were released to the Company. The final purchase price was subject to a working capital true-up of less than $0.1 million that was paid to the Company during the fourth quarter of 2025.  Roundhouse, based in Odessa, Texas, is a provider of industrial-scale electric motor maintenance, repair, testing, and sales solutions primarily to midstream natural gas pipeline operators and utilities across the Permian Basin. As further discussed in Note 21, "Segmented Information," Roundhouse is included in the Kingsway Search Xcelerator segment.  

During the second quarter of 2026, the Company finalized its fair value analysis of the assets acquired and liabilities.  During the nine months ended September 30, 2026, the Company recorded a measurement period adjustment that decreased goodwill by $0.2 million compared to the amount recorded at December 31, 2025.  The measurement period adjustment primarily reflects changes in the accrued liabilities and the release of funds held in escrow.    

The unaudited consolidated statements of operations include the earnings of Roundhouse from the date of acquisition. From the date of acquisition through September 30, 2025, Roundhouse earned revenue of $4.9 million and had net income of $3.0 million, primarily related to a tax benefit recognized for the partial release of the Company's deferred tax valuation allowance related to the acquired deferred tax liabilities.

AAA Flexible Pipe Cleaning Corporation (d/b/a AAA Advanced Plumbing & Drain)

On August 1, 2025, the Company (through its newly formed subsidiary, Advanced Plumbing & Drain LLC) acquired substantially all of the assets and certain specified liabilities of AAA Flexible Pipe Cleaning Corporation (d/b/a AAA Advanced Plumbing & Drain, "Advanced Plumbing") for aggregate consideration consisting of cash, a seller note and contingent consideration, of approximately $3.9 million, less certain escrowed amounts for purposes of indemnification claims and working capital adjustments. The final purchase price was subject to a working capital true-up of $0.1 million that was paid to the Company during the first quarter of 2026. The Company will also pay additional contingent consideration, only to the extent earned, in an aggregate amount of up to $1.5 million, which is subject to certain conditions, including growth in adjusted EBITDA for Advanced Plumbing during the three-year period following the acquisition date.  During the second quarter of 2026, the Company finalized its fair value analysis of the assets acquired and liabilities. 

The unaudited consolidated statements of operations include the earnings of Advanced Plumbing from the date of acquisition. 

Efficient Plumbing, LLC (d/b/a Southside Plumbing)

On August 14, 2025, the Company acquired 80% of the outstanding membership interests of Efficient Plumbing, LLC (d/b/a Southside Plumbing, "Southside Plumbing") for aggregate consideration consisting of cash, a seller note and contingent consideration, of approximately $4.7 million, less certain escrowed amounts for purposes of indemnification claims and working capital adjustments. The final purchase price was subject to a working capital true-up of less than $0.1 million that was paid to the Company during the first quarter of 2026. The Company will also pay additional contingent consideration, only to the extent earned, in an aggregate amount of up to $1.125 million, which is subject to certain conditions, including growth in adjusted EBITDA for Southside Plumbing during the three-year period following the acquisition date. The 20% noncontrolling interest in Southside Plumbing is redeemable by the holder of the noncontrolling interest and includes a put option redemption feature that is outside of the Company’s control; therefore, the 20% interest is treated as redeemable noncontrolling interest and is presented outside of permanent equity in the consolidated balance sheets. See Note 18, "Redeemable Noncontrolling Interest," for further discussion related to the redeemable noncontrolling interest. During the second quarter of 2026, the Company finalized its fair value analysis of the assets acquired and liabilities. 

The unaudited consolidated statements of operations include the earnings of Southside Plumbing from the date of acquisition. 

Bud’s Plumbing (Evansville, IN), Advanced Plumbing (Cleveland, OH) and Southside Plumbing (Omaha, NE), provide various plumbing installation, service and repair services to residential and commercial customers. As further discussed in Note 21, "Segmented Information," these companies are included in the Kingsway Search Xcelerator segment. 

Summary Information

The following table summarizes the purchase price for our acquisitions:

The estimated fair value of the Roundhouse seller phantom equity awards at the acquisition date of $3.3 million was determined based on the economic value of the phantom equity as of the acquisition date, which was derived from the fair value of Roundhouse, net of any debt, and is recorded in other liabilities, noncurrent in the consolidated balance sheets. See Note 22, "Fair Value of Financial Instruments," for further discussion related to the seller phantom equity awards.

The estimated fair value of the Advanced Plumbing and Southside Plumbing contingent consideration obligations at the respective acquisition dates of $0.8 million and $0.2 million, respectively, were determined using a Monte Carlo simulation based on forecasted future results, and are recorded in other liabilities, noncurrent in the consolidated balance sheets. See Note 22, "Fair Value of Financial Instruments," for further discussion related to contingent consideration.

The following table summarizes the allocation of the purchase price and the estimated fair values of the assets acquired and liabilities assumed for our acquisitions:

The fair value of the acquired service fee receivables in the table above are equivalent to their gross contractual amounts. 

The fair value of the 20% redeemable noncontrolling interest in Southside Plumbing at the date of acquisition of $0.9 million was estimated by applying a market approach, utilizing a discount rate of 20%. 

Unaudited Pro Forma Summary - 2025 Acquisitions

The following unaudited pro forma summary presents the Company's consolidated financial statements for the three and nine months ended September 30, 2025 as if Roundhouse, Bud's Plumbing, Advanced Plumbing and Southside Plumbing had been acquired on January 1, 2025. The pro forma summary is presented for illustrative purposes only and does not purport to represent the results of our operations that would have actually occurred had the acquisitions occurred as of the beginning of the period presented or project our results of operations as of any future date or for any future period, as applicable. The pro forma results primarily include purchase accounting adjustments related to the acquisitions of Roundhouse, Bud's Plumbing, Advanced Plumbing and Southside Plumbing, interest expense and the amortization of debt issuance costs and discounts associated with the related financing obtained in connection with the Roundhouse and Southside Plumbing acquisitions (see "Note 10-Debt "), tax related adjustments and acquisition related expenses.

(b)    Disposal:

Trinity Warranty Solutions

On May 8, 2026, pursuant to a membership interest purchase agreement, the Company sold all of the issued and outstanding equity interests of its subsidiary, Trinity Warranty Solutions LLC ("Trinity"), to Trinity Warranty Holding LLC ("Buyer") for gross proceeds of $8.0 million, consisting of $5.0 million in cash and $3.0 million in seller notes.  The seller notes are non-interest bearing and are due May 8, 2036; however they could be paid off early at any time prior to May 8, 2036, for a discount, if certain conditions are met.  At the May 8, 2026 disposal date, the estimated fair value of the seller notes was $1.5 million. See Note 22, "Fair Value of Financial Instruments," for further discussion related to the Trinity seller notes.    

As a result of the sale, the Company recognized a net gain on disposal of $1.3 million during the nine months ended  September 30, 2026.  The sale of Trinity did not represent a strategic shift that will have a major effect on the Company's operations or financial results; therefore, Trinity is not presented as a discontinued operation.  The earnings of Trinity, which were included in the Extended Warranty segment, are included in the unaudited interim consolidated statements of operations through the May 8, 2026 date of sale.  The assets, liabilities and equity of Trinity were deconsolidated effective May 8, 2026.

The sale of Trinity represents the disposal of a subsidiary of the Company, which had contributions to Extended Warranty revenue of zero and $2.7 million for the three months ended September 30, 2026 and September 30, 2025, respectively ($2.8 million and $7.0 million for the nine months ended September 30, 2026 and September 30, 2025, respectively).  Additionally, Trinity had pre-tax income of zero and $0.4 million for the three months ended September 30, 2026 and September 30, 2025, respectively (less than $0.1 million and $0.7 million for the nine months ended September 30, 2026 and September 30, 2025, respectively).