On August 30, 2024, the Company completed the sale of all of the issued and outstanding membership interests of CIS to BSU Leaf Holdings LLC, a Delaware limited liability company, pursuant to the Interest Purchase Agreement, dated as of August 30, 2024 (the "CIS Agreement"), by and among the Company, Buyer and Buyer's parent (the "CIS Sale"). CIS comprised the Company’s managing general agency “MGA” business and was the legal entity used to implement the strategic shift to non risk-bearing revenue from an underwriting-based model as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. CIS also represented almost all of the Wholesale Agency segment. CIS and the related Wholesale Agency segment are now reported as discontinued operations for all periods presented. The Company sold CIS in order to generate liquidity to pay down debt and provide capital to the Insurance Company Subsidiaries.

In connection with the CIS Sale, approximately 67 of the Company’s 77 employees were transferred to the Buyer, including Nicholas Petcoff, the Company’s then current Chief Executive Officer (and related party of the Company), as well as all of the underwriting, claims and IT teams, and a portion of the finance staff and other operating staff. As part of the completion of the CIS Sale, Mr. Petcoff resigned from his role as Chief Executive Officer and director on August 30, 2024. In connection with his resignation, Mr. Petcoff will receive up to $1,270,750 as a performance bonus with $635,375 paid within 30 days of the Closing Date of the Transaction and $635,375 payable within 30 days of the Company’s receipt of the earnout payments only if the Company receives the maximum earnout payments.

Concurrently, Brian Roney, President of the Company, was appointed as the Company’s new Chief Executive Officer. The Company entered into a transition services agreement with the buyer to allow both parties to share resources for a certain period of time, generally less than twelve months, in order to effectuate an orderly separation of the internal systems and operations. The net cost to the Company was $225,000, which expense will be recognized over the period the services are provided.

The initial purchase price of CIS was $45.0 million, subject to purchase price adjustments. In addition, during the three years ending on the third anniversary of the Closing Date, the Company is eligible under the CIS Agreement to receive up to three contingent payments based on performance thresholds of the gross revenue earned by CIS in the applicable quarter, with the aggregate amount of contingent payments capped at $25.0 million. The consideration paid in cash to the Company was $46.6 million on August 30, 2024, which is comprised of the $45.0 million initial purchase price, plus $1.6 million of cash in CIS in excess of the working capital deficiency (as defined in the CIS Agreement). The three contingent payments, in order of achievability are $5.0 million, $10.0 million and $10.0 million. The contingent consideration included in the gain on sale was calculated based on the fair value of the three contingent payments as of September 30, 2024, in accordance with ASC 820 - Fair Value Measurement. The first contingent payment was earned as of September 30, 2024, and was reported at a fair value of $4.9 million. The full $5.0 million contingent payment is expected to be received in December 2024. The second and third $10.0 million contingent payments are not expected to be earned until the end of 2025 or later, if at all. The Company determined the combined fair value of the second and third contingent payments to be $8.0 million, as of September 30, 2024. The fair values of all contingent payments increased the gain on the sale of CIS as of September 30, 2024. As fair value estimates change over time, subsequent measurement adjustments will be reflected in income or loss in the period of change.

There was significant judgment in deriving the fair value of the two $10.0 million contingent payments, including estimating the extent of time it will take to achieve the contingent payment, the credit quality of the buyer and, most importantly, the risk that the contingent payment may not be achieved at all. There is greater than an insignificant chance that we do not receive one or both of these contingent payments. There are no provisions allowing for a partial payment of the contingent payments.

Total consideration on the sale of CIS is $59.5 million comprised of the initial cash consideration of $46.6 million, the fair value of the first contingent payment of $4.9 million, and the combined estimated fair value of the second and third contingent payments of $8.0 million.

The major assets and liabilities that comprise the carrying value of CIS’s net assets as of August 30, 2024 and December 31, 2023, are presented as follows:


	August 30, 2024		December 31, 2023

Cash	$	7,184	$	462
Premiums receivable		30,603		5
Intercompany receivable		—		3,104
Other assets		2,190		—
Total assets	$	39,977	$	3,571

Less:
Premiums payable	$	33,272	$	26
Commissions payable		1,800		86
Unearned commissions		2,052		119
Other liabilities		2,297		170
Total liabilities	$	39,421	$	401

Total carrying value of CIS net assets	$	556	$	3,170

Under ASC 205, the disposition of CIS meets the criteria for discontinued operations. Accordingly, Consolidated Balances of the Company include a single line item for all assets of CIS captioned “Assets from Discontinued Operations” and a single line item for all liabilities of CIS captioned “Liabilities from Discontinued Operations. In addition, net income of CIS for all periods presented have been classified as Net Income from Discontinued Operations in the Consolidated Statements of Operations for all periods presented. The gain on the sale of CIS and SSU (described below) are both presented in the Net Income from Discontinued Operations in the Consolidated Statements of Operations.

In connection with the sale of CIS, the Company also disposed of its equity method investment in Sycamore Specialty Underwriters, LLC ("SSU") on August 30, 2024. The Company’s investment in SSU, and other small agency operations outside of CIS which were discontinued, were included in the presentation of discontinued operations.

As part of the transactions, the Company and CIS entered into a new program administrator agreement (the “CIS PAA”) and a claims administration agreement. A small portion of the total commercial premium volume will remain with the Company, produced through CIS, under the CIS PAA and CIS will continue to handle all of the Companies outstanding and new claims. The Company also entered into a new program administrator agreement with SSU to produce and underwrite the remaining homeowners business. Management expects the CIS PAA to not generate significant business going forward,

however the claims administration under CIS and the homeowners business through SSU, is expected to continue for the foreseeable future.

In the month of September, 2024, the Company incurred commission expense of $56,000 for business produced by CIS, $400,000 for claims administration expense for claims services performed by CIS and $1.0 million of commission expense for business produced by SSU.

Below represents statements of operations of the discontinued operations for the three and nine months ended September 30, 2024 and 2023:


Discontinued Operations
Consolidated Statement of Operations	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Revenue and Other Income from operations
Commission revenue	$	8,662		$	560		$	32,944		$	1,950
Investment income		48			11			86			76
Other income		181			30			376			112
Total revenue and other income from operations		8,891			601			33,406			2,138

Expenses
Policy acquisition costs		7,040			585			29,099			1,462
Administrative expenses		1,344			310			5,023			1,027
Total expenses		8,384			895			34,122			2,489

Income (loss) from operations before income taxes		507			(294	)		(716	)		(351	)

Gains from sale and disposal transactions
Gain on sale of CIS		54,767			—			54,767			—
Gain on sale of SSU		6,459			—			6,459			—
Gain from sale of renewal rights		—			2,335			—			2,335
Total gains from sale and disposal transactions		61,226			2,335			61,226			2,335

Income before income taxes		61,733			2,041			60,510			1,984
Equity earnings (loss) in Affiliate, net of tax		(189	)	72				97			(103	)
Income tax expense (benefit)		1,368			457			1,834			464
Net income from discontinued operations	$	60,176		$	1,656		$	58,773		$	1,417

The Company’s accounting policy for net cash received from the sale of discontinued operations is to show a cash inflow from investing activities in continuing operations. As such, the Company reflected $46.0 million in proceeds received from the sale of discontinued operations in the investing section of our cash flow.

Below represents statements of cash flows of the discontinued operations for the nine months ended September 30, 2024 and 2023:


Discontinued Operations Statement of Cash Flows	Nine Months Ended September 30,
	2024			2023
Cash flows from Operating Activities
Net income from discontinued operations	$	58,773		$	1,417
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Gains on sale of CIS		(54,767	)		—
Gain on sale of SSU		(6,459	)		—
Gain from sale of renewal rights		—			(2,500	)
Equity (earnings) loss in subsidiary		(97	)	103
Allocated expense from Corporate		1,147		144
Other		755			(35	)

Changes in Assets & Liabilities:
Premiums receivable		(30,598	)		2
Settlement of intercompany balances		(2,507	)		—
Change in deferred acquisition costs		1,933			(41	)
Intercompany receivables		4,154			(2,955	)
Other receivables		(1,692	)		276
Income taxes payable		(655	)		462
Premiums payable		33,272			—
Other liabilities		3,463			(2,423	)
Net cash provided by (used in) operating activities		6,722			(5,550	)

Cash flows from Investing Activities
Cash disposed in CIS sale		(7,184	)		—
Proceeds from sale of renewal rights		—			2,500
Additional true-up Contribution to SSU		—			(934	)
Net cash provided by (used in) investing activities		(7,184	)		1,566


Change in cash from discontinued operations		(462	)		(3,984	)
Cash at beginning of period from discontinued operations		462			4,864
Cash at end of period from discontinued operations		-			880

Prior to August 30, 2024 the Company owned 50% of SSU and the other 50% of SSU was owned by Andrew Petcoff, the son of James Petcoff, the Company’s former Executive Chairman and Co-Chief Executive Officer and beneficial owner of more than 5% of the Company’s common stock. Andrew Petcoff purchased 50% of SSU from the Company on December 31, 2022, for $1,000.

On August 30, 2024, the Company completed the sale of its 50% ownership interest in SSU to an entity owned by Andrew Petcoff. Pursuant to the Membership Interest Purchase Agreement, dated as of August 30, 2024 (the “SSU Agreement”) among Sycamore Financial Group, LLC, Andrew Petcoff and VSRM Insurance Agency, Inc., the aggregate purchase price was $6.5 million with $3.0 million paid in cash to the Company at the time of the closing and $3.5 million due throughout the balance of 2024. A gain of $6.5 million was recognized on the sale of SSU.

With a portion of the proceeds from the CIS Sale, the Company paid off 100% of the $9.3 million privately placed 12.5% Senior Secured Note which were outstanding at August 30, 2024 (the "Senior Secured Notes"), and redeemed 100% of the $6.0 million of Preferred Stock. The Company incurred a redemption premium of $397,000 from the Preferred Stock, and recorded the premium as additional dividends paid on the Preferred Stock. See Note 8 ~ Debt and Note 10 ~ Shareholders Equity for more information.