Atlas Financial Holdings, Inc. (“Atlas” or, “We”, “us”, “our” or the “Company”) commenced operations on December 31, 2010. The primary business of Atlas focuses on a managing general agency (“MGA”) strategy, primarily through our wholly owned subsidiary, Anchor Group Management, Inc. (“AGMI”). AGMI focuses on a niche market orientation for the “light” commercial automobile sector. This sector includes taxi cabs, non-emergency para-transit, limousine, livery, including certainfull-time transportation network companies (“TNC”) drivers/operators, and business autos.other specialty commercial auto operators. Automobile insurance products provide insurance coverage in three major areas: liability, accident benefits and physical damage.

Atlas’ business is carried out through its non-insurance company subsidiaries: AGMI, UBI Holdings Inc. (“UBI Holdings”) and UBI Holdings’ wholly-owned subsidiaries, optOn Digital IP Inc. (“OOIP”) and optOn Insurance Agency Inc. (“optOn” and together with OOIP and UBI Holdings, “UBI”).

Prior to a strategic transition, our core business was the underwriting and risk bearing of commercial automobile insurance policies, focusing on the “light” commercial automobile sector, through American Country Insurance Company (“American Country”), American Service Insurance Company, Inc. (“American Service”) and Gateway Insurance Company (“Gateway” and together with American Country and American Service, the “ASI Pool Companies”) and Global Liberty Insurance Company of New York (“Global Liberty” and together with the ASI Pool Companies, our “Insurance Subsidiaries”), along with our wholly owned managing general agency,MGA, AGMI. The ASI Pool Companies were placed into rehabilitation under the statutory control of the Illinois Department of Insurance during the second half of 2019 and were subsequently placed into liquidation and have been deconsolidated from our consolidated financial statements as of October 1, 2019 as a result of these actions. Other regulatory actions were taken in certain states, including restriction, suspension, or revocation of certain state licenses and certificates of authority held by the ASI Pool Companies preceding and following the initiation of rehabilitation.

During the fourth quarter of 2019, the Company began actively pursuing the potential sale of Global Liberty, Insurance Company of New York (“Global Liberty”), and as a result, Global Liberty has beenwas held for sale and thus classified as a discontinued operation sincefrom October 1, 2019. On October 13, 2021,2019 through September 30, 2021. Global Liberty was placed into liquidation (see “Part I, Item 1, Note 17, Subsequent Events”).by the New York Department of Financial Services in October 2021 and, as a result, it has been deconsolidated from our consolidated financial statements beginning October 2021.

Atlas’ ordinary common shares are listed on the OTC Markets system under the symbol “AFHIQ” and is expected to return to “AFHIF”. in the near future.

These statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of Atlas and the entities it controls. Equity investments in entities that we do not consolidate, including corporate entities in which we have significant influence and partnership and partnership-like entities in which we have more than minor influence over operating and financial policies, are accounted for under the equity method unless we have elected the fair value option. All significant intercompany accounts and transactions have been eliminated.

The results for the three and nine months ended September 30, 2021March 31, 2022 are not necessarily indicative of the results expected for the full calendar year.

The accompanying unaudited condensed consolidated financial statements, in accordance with Securities and Exchange Commission (“SEC”) rules for interim periods, do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with Atlas’ Annual Report on Form 10-K for the year ended December 31, 2020,2021, which provides a more complete understanding of the Company’s accounting policies, financial position, operating results, business properties, and other matters. Atlas has consistently applied the same accounting policies throughout all periods presented.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and changes in estimates are recorded in the accounting period in which they are determined. Significant estimates in the accompanying financial statements include revenue recognition, evaluation of assets for impairment, valuation of financing instruments, and deferred tax asset valuation, and allowances on premiums receivable.valuation.

Revenues from contracts with customers include both commission and fee income. The recognition and measurement of revenue is based on the assessments of individual contract terms. As a managing general agency (an “MGA”),an MGA, AGMI has contracts with various insurance carrierscarrier partners to write premiums for specific programs which determines AGMI’s commission income revenue. Each contract specifies what our performance obligations are as an MGA and what determines our commission income revenue, generally a percentage of gross written premiums, net of cancellations and refunds.refunds, multiplied by an MGA commission percentage. Under these contracts there are a number of performance obligations; however, it is the bundle of these services and not a single obligation that results in the performance of the MGA under the contracts. The Company considers these performance obligations as a non-bifurcated bundle of services where the performance obligations are satisfied simultaneous to the point in time where the CompanyAGMI issues a policy, or cancels a policy to an insured. The commission rate stated in the individual contract is the standalone selling price of these non-bifurcated services, which is allocated to the service bundle and not to any individual obligation under the various contracts.

The Company operates in 1 business segment, the Managing General Agency segment.

There have been no recent pronouncements or changes in pronouncements during the ninethree months ended September 30, 2021,March 31, 2022, as compared to those described in our Annual Report on Form 10-K for the twelve months ended December 31, 2020,2021, that are of significance or potential significance to Atlas. Pertinent Accounting Standard Updates (“ASUs”) are issued from time to time by the Financial Accounting Standards Board (“FASB”) and are adopted by the Company as they become effective. All recently issued accounting pronouncements with effective dates prior to OctoberApril 1, 20212022 have been adopted by the Company.

Common shares are defined as ordinary voting common shares, restricted voting common shares and participative restricted stock units (“RSUs”). Earnings per common share diluted is computed by dividing net loss by the weighted average number of common shares outstanding for each period plus the incremental number of shares added as a result of converting dilutive potential ordinary voting common shares, calculated using the treasury stock method. Atlas’ potential dilutive ordinary voting common shares consists of outstanding stock options to purchase ordinary voting common shares and warrants to purchase 2,387,368 ordinary voting common shares of Atlas for $0.69 per share.share (as indicated in the 13G filing by American Financial Group, Inc. dated January 20, 2022).

Atlas’ dilutive potential ordinary voting common shares consist of outstanding stock options to purchase ordinary voting common shares. The effects of these convertible instruments are excluded from the computation of earnings per common share diluted from continuing operations in periods in which the effect would be anti-dilutive. For the three and nine months ended September 30,March 31, 2022 and 2021, and 2020, all exercisable stock options, warrants and Credit Agreement were deemed to be anti-dilutive.

The revenue included as commission income was $2.0 million$833,000 and $1.7 million for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively, and $5.5 million and $4.7 million for the nine months ended September 30, 2021 and 2020, respectively.

The balance of receivables related to contracts with customers, which is recorded as part of premiums receivable on the Condensed Consolidated Statementscondensed consolidated statements of Financial Positionfinancial position, as of September 30, 2021March 31, 2022 and December 31, 2020:2021:

During 2013 and 2019, due to shareholder activity, “triggering events” as determined under IRCInternal Revenue Code (“IRC”) Section 382 may have occurred. As a result, under IRC Section 382, the use of the Company’s net operating loss (“NOL”) and other carryforwards generated prior to the “triggering events” may be subject to a yearly limitation as a result of this “ownership change” for tax purposes, which is defined as a cumulative change of more than 50% during any three-year period by shareholders owning 5% or greater portions of the Company’s shares. Due to the mechanics of the Section 382 calculation when there are multiple triggering events, the Company’s losses will generally be limited based on the thresholds of the 2019 triggering event. The Company has established a valuation allowance against the NOLs that will expire unused as a result of the yearly limitation.

Atlas accounts for uncertain tax positions in accordance with the income taxes accounting guidance. Atlas has analyzed filing positions in the federal and state jurisdictions where it is required to file tax returns, as well as the open tax years in these jurisdictions. Atlas believes that its federal and state income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain federal and state income tax positions have been recorded. Atlas would recognize interest expense and penalties related to unrecognized tax benefits as a component of the provision for federal income taxes. Atlas did not incur any federal income tax related interest income, interest expense or penalties for the three and nine months ended September 30, 2021March 31, 2022 and 2020.2021. Tax year 20172018 and years thereafter are subject to examination by the Internal Revenue Service (“IRS”).

In the ordinary course of its business, Atlas is involved in legal proceedings, including lawsuits, regulatory examinations and inquiries.

Atlas is exposed to credit risk on balances receivable from insureds and agents. Credit exposure to any one individual insured is not material. The policies placed with risk takingrisk-taking partners are distributed by agents who may manage cash collection on its behalf pursuant to the terms of their agency agreement. Atlas has procedures to monitor and minimize its exposure to delinquent agent balances, including, but not limited to, reviewing agent account statements, processing policy cancellations for non-payment and other collection efforts deemed appropriate. As a managing agent, our ability to generate commission revenue is pursuant to contractual agreements with risk-taking partners. Our objective is to maintain long-term relationships with these risk-taking partners. Such relationships are dependent upon market conditions, business results, and other factors which may be outside of our control.

Depreciation expense and amortization from continuing operations was $378,000$354,000 and $741,000$684,000 for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively, and $1.5 million and $2.5 million for the nine months ended September 30, 2021 and 2020, respectively. For the year ended December 31, 2020,2021, depreciation expense and amortization from continuing operations was $3.2$1.8 million.

During 2016, Atlas purchased a building and land to serve as its new corporate headquarters to replace its former leased office space. Atlas’ Chicago area staff moved into this space in late October 2017 and occupies approximately 70,000 square feet in the building. An unrelated tenant occupies the remaining office space in the building.building, pursuant to a lease agreement with American Insurance Acquisition, Inc. (“American Acquisition”), a subsidiary of Atlas. Rental income related to this lease agreement was $119,000$123,000 and $116,000$119,000 for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively, and $357,000 and $346,000 for the nine months ended September 30, 2021 and 2020, respectively. Depreciation expense related to the building and its improvements was $0 and $284,000 for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively, and $284,000 and $833,000 for the nine months ended September 30, 2021 and 2020, respectively. The decrease in depreciation expense for itsthe corporate headquarters is a result of the held for sale status of the corporate headquarters.

On April 1, 2021, the Company transitioned the assets related to its corporate headquarters from long-lived asset as held and used to long-lived assets held for sale. The Company has engaged an independent third party whichthat is actively marketing the sale of the corporate headquarters including the land, building, building improvements and contents including furniture and fixtures and a sale is expected to close within one year from the classification transition date. The assets transferred totaled $11.5 million which were previously classified as property and equipment, net on the condensed consolidated statements of financial position and now included as part of assets held for sale.fixtures. The Company engaged an independent third party that performed an evaluationa valuation of the net bookcorporate headquarters and determined the fair market value as $7.5 million as of March 4, 2022. The valuation of the assets and recorded an impairment of $1.5 million and $3.0 million which is recorded as part ofcorporate headquarters resulted in a net realized losses on the condensed consolidated statements of operationsloss totaling $7.0 million for the year ended December 31, 2021.

Amortization expense recorded related to internal-use software projects in the post-implementation/operation stage was $302,000 for each of the three and nine months ended September 30,March 31, 2022 and 2021. For the three months ended March 31, 2022 and 2021, respectively.the Company did not capitalize any projects in the application development stage.

Realized gains on disposals of fixed assets totaled $0$1,000 and $12,000 for the three and nine months ended September 30,March 31, 2022 and 2021, respectively. There were no losses on disposals of fixed assets for each of the three and nine months ended September 30, 2020.

On January 6, 2011, Atlas adopted a stock option plan (“Stock Option Plan”) in order to advance the interests of Atlas by providing incentives to eligible persons defined in the plan. In the second quarter of 2013, a new equity incentive plan (“Equity Incentive Plan”) was approved by the Company’s common shareholders at the Annual General Meeting, and Atlas ceased to

grant new stock options under the preceding Stock Option Plan. The Equity Incentive Plan is a securities based compensation plan, pursuant to which Atlas may issue restricted stock grants for ordinary voting common shares, restricted stock, stock grants for ordinary voting common shares, stock options and other forms of equity incentives to eligible persons as part of their compensation. The Equity Incentive Plan is considered an amendment and restatement of the Stock Option Plan, although outstanding stock options issued pursuant to the Stock Option Plan will continue to be governed by the terms of the Stock Option Plan. As of March 31, 2022, all outstanding stock options were issued under the Equity Incentive Plan.

On April 22, 2021, the Company granted an aggregate of 1,016,000 options (“Options”) with an exercise price of $0.49 per common share of the Company to directors, managers, and executives pursuant to the Company’s Equity Incentive Plan. This exercise price is the average of the high bid and low asked prices on the date of the grant quoted on the OTC Bulletin Board Service. The Options granted to management will vest in three equal installments, with each installment vesting on the 1st, 2nd and 3rd anniversary of the date of the grant. The Options granted to independent directors vested immediately upon the date of the grant. The Options will expire on the seventh anniversary of the date of the grant. In the event of a change of control of the Company, or should a director’s or employee’s service with the Company be terminated other than for cause or voluntary resignation, any unvested Options will immediately vest. During the first quarter of 2022, 109,000 Options were canceled because the Options were not exercised after voluntary terminations. The estimated fair values of the Options are amortized to expense over the Options’ vesting period. The Company estimated the fair value of the Options at the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:

On December 31, 2018, the Company awarded restricted stock unit grants for ordinary voting common shares of the Company to its external directors pursuant to a director equity award agreement dated December 31, 2018. The awards, which were approved by the Company’s Board of Directors in March 2018, were valued at $40,000 per external director (“Aggregate Award”) and were made under the Company’s Equity Incentive Plan. The number of restricted stock units awarded was determined by dividing (A) the Aggregate Award by (B) the closing price of a Company ordinary voting common share at the close of market on April 4, 2018, which was $10.50 per share. For new directors, the Aggregate Award is proportionate to the director’s start date and priced as of that same day. During 2018, the Company awarded 17,524 RSU grants having an aggregate grant date fair value of $179,000. As of September 30, 2021,March 31, 2022, all of the RSU grants have vested.

Atlas has a defined contribution 401(k) plan covering all qualified employees of Atlas and its subsidiaries. Contributions to this plan are limited based on IRS guidelines. Atlas may match up to 100% of the employee contribution up to 2.5% of annual earnings, plus 50% of additional contributions up to 2.5% of annual earnings, for a total maximum expense of 3.75% of annual earnings per participant. Atlas’ matching contributions are discretionary. Employees are 100% vested in their own contributions and vest in Atlas contributions based on years of service equally over 5 years with 100% vested after 5 years. There were no Company contributions were $0 and $19,000 for either of the three months ended September 30, 2021March 31, 2022 and 2020, respectively, and $0 and $77,000 for the nine months ended September 30, 2021 and 2020, respectively.2021. The matching portion of this plan was suspended until further notice during the third quarter of 2020.

The Atlas Employee Stock Purchase Plan (“ESPP”) encourages employee interest in the operation, growth and development of Atlas and provides an additional investment opportunity to employees. Full time and permanent part time employees working more than 30 hours per week are allowed to invest up to 7.5% of adjusted salary in Atlas ordinary voting common shares. Atlas may match up to 100% of the employee contribution up to 2.5% of annual earnings, plus 50% of additional contributions up to 5% of annual earnings, for a total maximum expense of 5% of annual earnings per participant. Atlas’ matching contributions are discretionary. Atlas also pays all administrative costs related to this plan. Atlas’Atlas incurred no costs incurred related to the matching

portion of the ESPP were $0 and $5,000 for either of the three months ended September 30, 2021March 31, 2022 and 2020, respectively, and $0 and $21,000 for the nine months ended September 30, 2021 and 2020, respectively.2021. The matching portion of this plan was suspended until further notice during the third quarter of 2020.