afh-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended:						COMMISSION FILE NUMBER:
March 31, 2021						000-54627

ATLAS FINANCIAL HOLDINGS, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



Cayman Islands						27-5466079
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

953 American Lane, 3rd Floor						60173
Schaumburg, IL						(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (847) 472-6700

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ¨ Accelerated filer ¨

Non-accelerated filer ¨ Smaller reporting company ☑

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

There were 12,047,334 shares of the registrant’s common stock outstanding as of April 30, 2021, all of which are ordinary voting common shares. There are no restricted voting common shares outstanding. Of the registrant’s ordinary voting common shares outstanding, 10,701,784 shares as of April 30, 2021 were held by non-affiliates of the registrant.

For purposes of the foregoing calculation only, the registrant has included in the shares owned by affiliates, those shares owned by directors and officers of the registrant, but such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose.

Atlas Financial Holdings, Inc.

Index to Quarterly Report on Form 10-Q

March 31, 2021


Part I. Financial Information
Item 1.	Financial Statements and Supplemental Schedules
	Condensed Consolidated Statements of Financial Position as of March 31 , 202 1 (unaudited) and December 31, 20 20	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31 , 202 1 and 20 20 (unaudited)	2
	Condensed Consolidated Statements of Shareholders’ Deficit for the Three Months Ended March 31 , 202 1 and 20 20 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31 , 202 1 and 20 20 (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition
	I. Company Overview	20
	II. Operating Results	22
	III. Financial Condition	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28
Part II. Other Information
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
	Signature	31

Table of Contents

Part I. Financial Information

Item 1. Financial Statements and Supplemental Schedules

Atlas Financial Holdings, Inc.

Condensed Consolidated Statements of Financial Position


($ in ‘000s, except for share and per share data)	March 31, 2021		December 31, 2020
Assets	(unaudited)
Cash and cash equivalents	$	2,960	$	5,238
Restricted cash	3,879		5,287
Premiums receivable (net of allowance of $800 and $800)	12,986		13,442


Intangible assets, net	2,137		2,235
Property and equipment, net	18,131		18,815
Right-of-use asset	728		888
Notes receivable	18,017		18,017
Other assets	2,278		1,895
Assets held for sale	48,101		53,885
Total assets	$	109,217	$	119,702
Liabilities
Premiums payable	$	17,955	$	19,416
Lease liability	880		1,091
Due to deconsolidated affiliates	19,091		19,170
Notes payable, net	38,029		36,168
Other liabilities and accrued expenses	3,071		4,342
Liabilities held for sale	53,794		60,407
Total liabilities	$	132,820	$	140,594
Commitments and contingencies (see Note 7)
Shareholders' Deficit

Ordinary voting common shares, $0.003 par value, 266,666,667 shares authorized, shares issued: March 31, 2021 - 12,302,839 and December 31, 2020 - 12,248,798; shares outstanding: March 31, 2021 - 12,047,334 and December 31, 2020 - 11,993,293	$	37	$	37
Restricted voting common shares, $0.003 par value, 33,333,334 shares authorized, shares issued and outstanding: March 31, 2021 and December 31, 2020 - 0	—		—
Additional paid-in capital	81,850		81,840
Treasury stock, at cost: 255,505 shares of ordinary voting common shares at March 31, 2021 and December 31, 2020, respectively	(3,000)		(3,000)
Retained deficit	(102,749)		(100,199)
Accumulated other comprehensive income, net of tax	259		430
Total shareholders' deficit	$	(23,603)	$	(20,892)
Total liabilities and shareholders' deficit	$	109,217	$	119,702

See accompanying Notes to Condensed Consolidated Financial Statements.

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Atlas Financial Holdings, Inc.

Condensed Consolidated Statements of Operations


Condensed Consolidated Statements of Operations
($ in ‘000s, except for share and per share data)	Three months ended March 31,
	2021		2020
	(unaudited)
Commission income	$	1,693	$	2,052
Net realized gains	12		—
Other income	636		154
Total revenue	2,341		2,206
Acquisition costs	894		1,409
Other underwriting expenses	3,482		3,509
Amortization of intangible assets	98		98

Interest expense, net	569		320
Total expenses	5,043		5,336
Loss from operations before income taxes	(2,702)		(3,130)
Income tax expense	—		104
Loss from continuing operations	(2,702)		(3,234)
Income (loss) from discontinued operations, net of tax	152		(57)
Net loss	$	(2,550)	$	(3,291)

Basic net (loss) income per share attributable to common shareholders
Continuing operations	$	(0.22)	$	(0.27)
Discontinued operations	0.01		—
Net loss	$	(0.21)	$	(0.27)
Diluted net (loss) income per share attributable to common shareholders
Continuing operations	$	(0.22)	$	(0.27)
Discontinued operations	0.01		—
Net loss	$	(0.21)	$	(0.27)
Basic weighted average common shares outstanding	12,023,655		11,914,849
Diluted weighted average common shares outstanding	12,023,655		11,914,849

Condensed Consolidated Statements of Comprehensive Loss
Net loss	$	(2,550)	$	(3,291)

Other comprehensive loss:
Changes in net unrealized investment losses	(13)		(58)
Reclassification to net loss	(158)		(91)

Other comprehensive loss	(171)		(149)
Total comprehensive loss	$	(2,721)	$	(3,440)

See accompanying Notes to Condensed Consolidated Financial Statements.

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Atlas Financial Holdings, Inc.

Condensed Consolidated Statements of Shareholders’ Deficit


($ in ‘000s)	Ordinary Voting Common Shares		Restricted Voting Common Shares		Additional Paid-In Capital		Treasury Stock		Retained Deficit		Accumulated Other Comprehensive Income		Total Share-holders’ Equity (Deficit)
Balance December 31, 2019	$	36	$	—	$	81,548	$	(3,000)	$	(87,469)	$	424	$	(8,461)
Net loss	—		—		—		—		(3,291)		—		(3,291)
Other comprehensive loss	—		—		—		—		—		(149)		(149)
Share-based compensation	—		—		179		—		—		—		179
Balance March 31, 2020 (unaudited)	36		—		81,727		(3,000)		(90,760)		275		(11,722)

Balance December 31, 2020	$	37	$	—	$	81,840	$	(3,000)	$	(100,199)	$	430	$	(20,892)
Net loss	—		—		—		—		(2,550)		—		(2,550)
Other comprehensive loss	—		—		—		—		—		(171)		(171)
Share-based compensation	—		—		10		—		—		—		10
Balance March 31, 2021 (unaudited)	37		—		81,850		(3,000)		(102,749)		259		(23,603)

See accompanying Notes to Condensed Consolidated Financial Statements.

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Atlas Financial Holdings, Inc.

Condensed Consolidated Statements of Cash Flows


($ in ‘000s)	Three months ended March 31,
	2021		2020
	(unaudited)
Operating activities:
Net loss	$	(2,550)	$	(3,291)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Income from discontinued operations, net of taxes	(152)		57
Depreciation and amortization	684		869
Share-based compensation expense	10		179
Amortization of intangible assets	98		98

Net realized gains	(12)		—
Amortization of financing costs	56		56
Net changes in operating assets and liabilities:
Premiums receivable, net	(444)		9,854
Other assets	(383)		(1,935)
Premiums payable	(1,461)		(12,169)
Due to deconsolidated affiliates	(78)		902
Other liabilities and accrued expenses	(1,271)		(1,601)
Net cash flows used in operating activities - continuing operations	(5,503)		(6,981)
Net cash flows used in operating activities - discontinued operations	(494)		(6,602)
Net cash flows used in operating activities	(5,997)		(13,583)
Investing activities:
Purchases of:
Property, equipment and other	—		(121)
Proceeds from sale of:
Property, equipment and other	12		—
Net cash flows provided by (used in) investing activities - continuing operations	12		(121)
Net cash flows provided by investing activities - discontinued operations	2,705		5,933
Net cash flows provided by investing activities	2,717		5,812
Financing activities:
Proceeds from notes payable	2,000		—
Repayment of notes payable	(195)		(186)
Net cash flows provided by (used in) financing activities - continuing operations	1,805		(186)
Net cash flows provided by financing activities - discontinued operations	—		—
Net cash flows provided by (used in) financing activities	1,805		(186)

Net change in cash and cash equivalents and restricted cash - continuing operations	(3,686)		(7,288)

Cash and cash equivalents and restricted cash, beginning of period	13,554		23,859
Less: cash and cash equivalents of discontinued operations - beginning of period	3,029		7,712
Cash and cash equivalents and restricted cash of continuing operations, beginning of period	10,525		16,147
Cash and cash equivalents and restricted cash of continuing operations, end of period	$	6,839	$	8,859


Supplemental disclosure of cash information:
Cash (recovered) paid for:
Income taxes	$	—	$	52
Interest	499		509

See accompanying Notes to Condensed Consolidated Financial Statements.

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Atlas Financial Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Nature of Operations and Basis of Presentation

Atlas Financial Holdings, Inc. (“Atlas” or “We” or the “Company”) commenced operations on December 31, 2010. The primary business of Atlas focuses on a managing general agency 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 certain transportation network companies (“TNC”) drivers/operators, and business autos. 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 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, 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 been classified as a discontinued operation since.

Atlas’ ordinary common shares are listed on the OTC Markets system under the symbol “AFHIF”.

Basis of Presentation

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 months ended March 31, 2021 are not necessarily indicative of the results expected for the full calendar year.

SEC Form 10-Q filed by Atlas Financial Holdings, Inc.