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 (the "Buyer"), 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. 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, 68 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 was paid $635,375 as a performance bonus in 2024. Mr. Petcoff can earn an additional $635,375 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, in order to effectuate an orderly separation of the internal systems and operations. The Company incurred $145,000 and $104,000 of expense for the years ended December 31, 2025 and 2024, respectively, related to the transition services agreement.

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 contingent consideration 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 received in December 2024. The second contingent payment was earned and received during the second quarter of 2025. The third contingent payment has not been earned as of December 31, 2025. The Company determined the fair value of the third contingent payment to be $4.3 million as of December 31, 2025. As fair value estimates change over time, subsequent measurement adjustments will be reflected in income or loss in the period of change. See Note 4 ~ Fair Value Measurements for further details.

There was significant judgment in deriving the fair value of the third $10.0 million contingent payment, 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 the third contingent payment. There are no provisions allowing for a partial payment of the contingent payment.

Total consideration on the sale of CIS was $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 as of August 30, 2024.

The gain on sale of CIS is calculated as follows:


Total consideration at closing	$	46,552
First contingent consideration as of August 30, 2024		4,894
Second and third contingent considerations as of August 30, 2024		8,030
Total consideration	$	59,476

Less:
Carrying value of CIS net assets	$	556
Transaction costs and other adjustments		4,339
Gain on sale of CIS	$	54,581

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


	August 30, 2024

Cash	$	7,184
Premiums receivable		30,603
Other assets		2,190
Total assets	$	39,977

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

Total carrying value of CIS net assets	$	556

Under ASC 205, the disposition of CIS meets the criteria for discontinued operations. Accordingly, 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 has remained 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.

For the year ended December 31, 2025, the Company incurred a gain on commission expense of $39,000 for business produced by CIS, as the Company's commercial lines were in runoff during 2025. For the year ended December 31, 2025, the Company incurred $13.9 million of gross commission expense for business produced by SSU. The Company also incurred $4.4 million for claims administration expense for claims services performed by CIS during 2025.

After the completion of the sale in 2024, the Company incurred commission expense of $1.6 million for business produced by CIS, $1.5 million for claims administration expense for claims services performed by CIS and $2.4 million of commission expense for business produced by SSU from September 1, 2024 through December 31, 2024.


Discontinued Operations
Consolidated Statement of Operations	Year Ended December 31,
	2024
Revenue and Other Income from operations
Commission revenue	$	32,944
Investment income		86
Other income		376
Total revenue and other income from operations		33,406

Expenses
Policy acquisition costs		29,099
Administrative expenses		5,023
Total expenses		34,122

Income (loss) from operations before income taxes		(716	)

Gains from sale and disposal transactions
Gain on sale of CIS		54,581
Gain on sale of SSU		6,459
Gain from sale of renewal rights		—
Total gains from sale and disposal transactions		61,040

Income before income taxes		60,324
Equity earnings (loss) in Affiliate, net of tax		97
Income tax expense (benefit)		1,834
Net income from discontinued operations	$	58,587

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 $54.8 million in proceeds received from the sale of discontinued operations in the investing section of our cash flow for the year ended December 31, 2024.

Below represents statements of cash flows of the discontinued operations for the year ended December 31, 2024:


Discontinued Operations Statement of Cash Flows	Year Ended December 31,
	2024
Cash flows from Operating Activities
Net income from discontinued operations	$	58,587
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Gains on sale of CIS		(54,581	)
Gain on sale of SSU		(6,459	)
Gain from sale of renewal rights		—
Deferred income tax expense		—
Equity (earnings) loss in subsidiary		(97	)
Allocated expense from Corporate		1,147
Other		755

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

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


Change in cash from discontinued operations		(462	)
Cash at beginning of period from discontinued operations		462
Cash at end of period from discontinued operations		-

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 the remaining $3.5 million was paid to the Company during the fourth quarter of 2024. A gain of $6.5 million was recognized on the sale of SSU.

As part of the sale, the Company entered into a new program administration agreement with SSU, which requires SSU to provide underwriting and systems support to the homeowners programs that they produce. Separately, the Company entered into a claims administration agreement with CIS, now owned by BSU Leaf Holdings LLC., to handle all homeowners claims going forward.

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 the Series A Preferred Stock. The Company incurred a redemption premium of $397,000 from the Series A Preferred Stock, and recorded the premium as additional dividends paid on the Series A Preferred Stock. See Note 8 ~ Debt and Note 12 ~ Shareholders' Equity for more information.