AtlasClear Holdings, Inc 10-Q for FY2024 Q3
AtlasClear Holdings, Inc. (ATCH)
About this 10-Q
AtlasClear Holdings, Inc filed this 10-Q on May 28, 2024, covering the quarter ended March 31, 2024 (FY2024 Q3).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.27M
- Net loss
- $88.58M
- compared with net income of $192.37K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
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Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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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
As of May 24, 2024, there were
ATLASCLEAR HOLDINGS, INC.
FORM 10-Q FOR THE QUARTER ENDED March 31, 2024
TABLE OF CONTENTS
2
PART I - FINANCIAL INFORMATION
Item 1. Interim Consolidated Financial Statements.
ATLASCLEAR HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
| | (Unaudited) | | | | |
ASSETS |
| |
|
| |
|
Cash and cash equivalents |
| $ | |
| $ | |
Cash segregated - customers | | | | | | — |
Cash segregated - PAB | |
| | |
| — |
Receivables - broker-dealers and clearing organizations | |
| | |
| — |
Receivables - customers, net | |
| | |
| — |
Other receivables | | | | | | — |
Prepaid income tax | | | | | | — |
Prepaids | | | | | | |
Trading securities, market value, net | | | | | | |
Total Current Assets | | | | | | |
| | | | | | |
Operating Lease Right to Use Lease Asset | | | | | | — |
Property and equipment, net | | | | | | — |
Customer list, net | | | | | | — |
Identified licenses | | | | | | — |
Pacsquare asset purchase | | | | | | — |
Technology acquired, net | | | | | | — |
Cash deposits - broker-dealers and clearing organizations | | | | | | — |
Winston Strawn Subscription Agreement | | | | | | — |
Commercial bank acquisition deposit | | | | | | — |
Other assets | |
| | |
| — |
TOTAL ASSETS | | $ | | | $ | |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
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| |
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LIABILITIES | | | | | | |
Payables to customers | | $ | | | $ | — |
Accounts and payables to officers/directors | | | | | | — |
Accounts payable and accrued expenses | |
| | |
| |
Non-redemption agreement liability | |
| — | |
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Payables - broker-dealers and clearing organizations | |
| | |
| — |
Commissions, payroll and payroll taxes | |
| | |
| — |
Current portion of lease liability | |
| | |
| — |
Advances from related parties | |
| — | |
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Stock payable | | | | | | — |
Convertible Notes, net | | | | | | — |
Secured Convertible Note, net | |
| | |
| — |
Promissory notes | |
| | |
| — |
Promissory notes - related party | | | — | | | |
Short-term merger financing, net | |
| | |
| — |
Excise tax payable | |
| | |
| |
Deferred income tax liability | | | | | | — |
Total Current Liabilities | | | | | | |
| | | | | | |
Accrued contingent liability | | | | | | — |
Long-term merger financing, net | | | | | | — |
Derivative liability - convertible notes | | | | | | — |
Derivative liability - Warrants | | | | | | |
Earnout - liability | | | | | | — |
Subordinated borrowings | | | | | | — |
Trading account deposit | | | | | | — |
Long-term lease liability | | | | | | — |
TOTAL LIABILITIES | | | | | | |
| | | | | | |
Commitments and Contingencies (Note 6) | | | | | | |
Common stock subject to possible redemption | | | — | | | |
| | | | | | |
STOCKHOLDERS’ DEFICIT | |
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Preferred stock, $ | |
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Common stock, $ | |
| | |
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Additional paid-in-capital | |
| | |
| — |
Accumulated Deficit | |
| ( | |
| ( |
TOTAL STOCKHOLDERS’ DEFICIT | |
| ( | |
| ( |
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | | $ | | | $ | |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3
ATLASCLEAR HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
REVENUES | | | | | | |
Commissions | | $ | | | $ | — |
Vetting fees | | | | | | — |
Clearing fees | | | | | | — |
Net gain/(loss) on firm trading accounts | | | | | | — |
Other | | | | | | — |
TOTAL REVENUES | |
| | |
| — |
| | | | | | |
EXPENSES | | | | | | |
Compensation, payroll taxes and benefits | |
| | |
| — |
Data processing and clearing costs | |
| | |
| — |
Regulatory, professional fees and related expenses | |
| | |
| |
Stock compensation - founder share transfer | |
| | |
| — |
Communications | |
| | |
| — |
Occupancy and equipment | |
| | |
| — |
Transfer fees | |
| | |
| — |
Bank charges | |
| | |
| — |
Intangible assets amortization | | | | | — | |
Other | |
| | |
| — |
TOTAL EXPENSES | |
| | |
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| | | | | | |
LOSS FROM OPERATIONS | | | ( | | | ( |
| | | | | | |
OTHER INCOME/(EXPENSE) | | | | | | |
Interest income | | | | | | |
Loss on AtlasClear asset acquisition | | | ( | | | — |
Vendor settlements | | | | | | |
Change in fair value of warrant liability derivative | | | ( | | | — |
Change in fair value, convertible note derivative | | | ( | | | — |
Change in fair value, long-term and short-term note derivative | | | ( | | | — |
Change in fair value of non-redemption agreement | | | ( | | | — |
Change in fair value of earnout liability | | | ( | | | — |
Change in fair value of subscription agreement | | | | | | — |
Interest expense | | | ( | | | — |
TOTAL OTHER INCOME/(EXPENSE) | | | ( | | | |
| | | | | | |
NET INCOME/(LOSS) BEFORE INCOME TAXES | |
| ( | |
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| | | | | | |
Income tax (expense) benefit | | | | | | ( |
| | | | | | |
NET INCOME/(LOSS) | | $ | ( | | $ | |
| | | | | | |
Basic and diluted weighted average shares outstanding, redeemable common stock | | | | | | |
Basic and diluted net income (loss) per share, redeemable common stock | | $ | ( | | $ | |
| | | | | | |
Basic and diluted weighted average shares outstanding, non-redeemable common stock | | | | | | |
Basic and diluted net income (loss) per share, non-redeemable common stock | | $ | ( | | $ | |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
4
ATLASCLEAR HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2024
| | | | | | | Additional | | | | | Total | ||
| | Common Stock | | Paid-in | | Accumulated | | Stockholders’ | ||||||
|
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||
Balance — December 31, 2023 |
| | | $ | | | $ | — | | $ | ( | | $ | ( |
| | | | | | | | | | | | | | |
Common stock no longer subject to redemption |
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| | |
| — | |
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Common stock issued to settled vendor obligations |
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| | |
| — | |
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Stock Compensation Expense - Founder Shares transferred at closing |
| — | |
| — | |
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| — | |
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| | | | | | | | | | | | | | |
Founder Shares transferred at closing to non-redemption agreement holders |
| — | |
| — | |
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| — | |
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Founder Shares transferred at closing as consideration for Wilson Davis Acquisition |
| — | |
| — | |
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| — | |
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Founder Shares and warrants transferred to Secured convertible note holders | | — | | | — | | | | | | — | | | |
| | | | | | | | | | | | | | |
Shares issued to settle related party advances and promissory notes |
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| — | |
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Shares issued as purchase consideration for the assets of AtlasClear, Inc. |
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| | |
| — | |
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Earnout shares granted as purchase consideration for the assets of AtlasClear, Inc. |
| — | |
| — | |
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| — | |
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Shares issued as deposit for the Commercial Bank acquisition | | | | | | | | | | | — | | | |
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Shares issued as purchase consideration for the assets of Pacsquare | | | | | | | | | | | — | | | |
| | | | | | | | | | | | | | |
Accretion of Common Stock subject to Possible Redemption | | — | | | — | | | — | | | ( | | | ( |
| | | | | | | | | | | | | | |
Excise taxes related to redemptions | | — | | | — | | | — | | | ( | | | ( |
| | | | | | | | | | | | | | |
Net income | | — | | | — | | | — | | | ( | | | ( |
| | | | | | | | | | | | | | |
Balance — March 31, 2024 |
| | | | | | | | | | ( | | | ( |
5
FOR THE THREE MONTHS ENDED MARCH 31, 2023
| | | | | | | Additional | | | | | Total | ||
| | Common Stock | | Paid-in | | Accumulated | | Stockholders’ | ||||||
|
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||
Balance — December 31, 2022 |
| | | $ | | | $ | — | | $ | ( | | $ | ( |
| | | | | | | | | | | | | | |
Accretion of Common Stock subject to Possible Redemption |
| — | |
| — | |
| — | |
| ( | |
| ( |
| | | | | | | | | | | | | | |
Excise taxes related to redemptions |
| — | |
| — | |
| — | |
| ( | |
| ( |
| | | | | | | | | | | | | | |
Net income |
| — | |
| — | |
| — | |
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| | | | | | | | | | | | | | |
Balance — March 31, 2023 |
| | |
| | |
| — | |
| ( | |
| ( |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
6
ATLASCLEAR HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
| | | | | | |
Net income (loss) |
| $ | ( | | $ | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Change in fair value of warrants | |
| | |
| ( |
Change in Fair Value, non-redemption agreement liability | |
| | |
| — |
Loss on Business Combination | |
| | |
| — |
Transaction costs incurred in connection with IPO | |
| ( | |
| — |
Change in Fair Value, Chardan Note Payable Conversion Liability | |
| | |
| — |
Change in Fair Value, Long-Term and Short-Term Investor Notes | |
| | |
| — |
Interest expense on convertible notes | |
| | |
| — |
Transaction costs paid with stock | |
| | |
| — |
Stock based compensation | |
| | |
| — |
Change in Fair Value, Earnout Liability | | | | | | — |
Consulting expenses as stock payable | | | | | | — |
Change in operating lease expense | |
| ( | |
| — |
Interest expenses (earned) on marketable securities held in Trust Account | | | ( | | | ( |
Change in Fair Value, Subscription Agreement Convertible Asset | |
| ( | |
| — |
Depreciation expense | |
| | |
| — |
Amortization of intangibles | |
| | |
| — |
Change in allowance for Doubtful accounts | |
| ( | |
| — |
Changes in operating assets and liabilities: | |
| | |
| |
Marketable securities | | | | | | — |
Receivables from brokers & dealers | |
| | | | — |
Receivables from customers | |
| | | | — |
Receivables from others | |
| ( | | | — |
Advances & prepaid expenses | |
| ( | | | |
Cash deposits with clearing organization & other B/Ds | |
| | | | — |
Other assets | |
| ( | | | — |
Payables to customers | |
| ( | | | — |
Payables to officers & directors | |
| ( | | | ( |
Payable to brokers & dealers | |
| | | | — |
Accounts payable and accrued expenses | |
| ( | | | |
Commissions and payroll taxes payable | |
| ( | | | — |
Stock Loan | |
| ( | | | — |
| |
| | | | |
CASH USED FOR OPERATING ACTIVITIES | |
| ( | | | ( |
7
ATLASCLEAR HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
(UNAUDITED)
CASH FLOWS FROM INVESTING ACTIVITIES |
| |
|
| |
|
Cash paid for purchase of Pacsquare |
| | ( |
| | — |
Cash received from acquisition of Wilson-Davis | | | | | | — |
Investment of cash into Trust Account |
| | ( |
| | ( |
Cash withdrawn from Trust Account to pay franchise and income taxes |
| | |
| | |
Cash withdrawn from Trust Account for working capital purposes |
| | |
| | — |
Cash withdrawn from Trust Account in connection with redemption |
| | |
| | |
Cash paid to Wilson Davis shareholders |
| | ( |
| | — |
CASH PROVIDED BY INVESTING ACTIVITIES |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Advances from related party |
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Proceeds from Secured Convertible Note |
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| | — |
Transaction cost financed |
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| | — |
Redemption of common stock |
| | ( |
| | ( |
CASH USED FOR FINANCING ACTIVITIES |
| | ( |
| | ( |
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NET INCREASE (DECREASE) IN CASH |
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CASH AT BEGINNING OF YEAR |
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CASH AT YEAR END | | $ | | | $ | |
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Non-cash investing and financing activities: | |
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Shares issued to settled advances from related party and notes payable related party | |
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| — |
Transaction cost settled with subscription payable | |
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| — |
Fair value of equity treated earnout in AtlasClear, Inc asset acquisition | |
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| — |
Fair value of shares issued in AtlasClear, Inc asset acquisition | |
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| — |
Fair value of liability treated earnout in AtlasClear, Inc asset acquisition | |
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| — |
Fair value of shares transferred to Wilson Davis shareholders | |
| | |
| — |
Short term notes issued to Wilson Davis shareholders | |
| | |
| — |
Long term notes issued to Wilson Davis shareholders | |
| | |
| — |
Common stock issued to settled vendor obligations | | | | | | — |
Fair value of shares transferred to Secured convertible note holders | |
| | |
| — |
Redeemable shares transferred to permanent equity | |
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| — |
Non-redemption agreement re-classed to permanent equity | |
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| — |
Accretion of common stock subject to possible redemption | |
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| |
Excise tax related to redemptions | | | | | | |
Shares issued to purchase Pacsquare | | | | | | — |
Shares issued as deposit for Commercial bank acquisition | |
| | |
| — |
Cash paid for interest | | | — | | | — |
Cash paid for taxes | | | — | | | — |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
8
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
AtlasClear Holdings, Inc. (formerly known as Calculator New Pubco, Inc.) (the “Company” or “AtlasClear Holdings”) is a Delaware corporation and a direct, wholly-owned subsidiary of Quantum FinTech Acquisition Corporation (“Quantum”) formed solely for the purpose of effectuating a business combination. Quantum was incorporated in Delaware on October 1, 2020. Quantum was a blank check company formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities.
On February 9, 2024 (the “Closing Date”), the Company consummated the previously announced transactions pursuant to that certain Business Combination Agreement, dated November 16, 2022 (as amended, the “Business Combination Agreement”), by and among the Company, Quantum, Calculator Merger Sub 1, Inc., a Delaware corporation and a wholly-owned subsidiary of the registrant (“Merger Sub 1”), Calculator Merger Sub 2, Inc., a Delaware corporation and a wholly-owned subsidiary of the registrant (“Merger Sub 2”), AtlasClear, Inc., a Wyoming corporation (“AtlasClear”), Atlas FinTech Holdings Corp., a Delaware corporation (“Atlas FinTech”) and Robert McBey. The transactions contemplated by the Business Combination Agreement are hereinafter referred to as the “Business Combination.” In connection with the consummation of the Business Combination (the “Closing”), the Company changed its name from “Calculator New Pubco, Inc.” to “AtlasClear Holdings, Inc.” As a result, the operation history of Quantum survived the merger.
Pursuant to the Business Combination Agreement, among other things, (i) Merger Sub 1 merged with and into Quantum, with Quantum continuing as the surviving corporation and a wholly-owned subsidiary of AtlasClear Holdings and (ii) Merger Sub 2 merged with and into AtlasClear, with AtlasClear continuing as the surviving corporation and a wholly-owned subsidiary of AtlasClear Holdings. Prior to the Closing, pursuant to the (i) Contribution Agreement (as defined in the Business Combination Agreement), AtlasClear received certain assets from Atlas FinTech and Atlas Financial Technologies Corp., a Delaware corporation, and (ii) Broker-Dealer Acquisition Agreement (as defined in the Business Combination Agreement), AtlasClear completed the acquisition of broker-dealer, Wilson-Davis & Co., Inc. (“Wilson-Davis”). In addition, at Closing, the Bank Acquisition Agreement (as defined in the Business Combination Agreement), pursuant to which AtlasClear has agreed to acquire Commercial Bancorp, a Wyoming corporation and parent of Farmers State Bank (“Commercial Bancorp”), continued to be in full force and effect. Pursuant to the transactions contemplated by a letter of intent, on February 16, 2024, AtlasClear and Pacsquare Technologies, LLC (“Pacsquare”) entered into a Source Code Purchase and Master Services Agreement (the “Pacsquare Purchase Agreement”), pursuant to which AtlasClear purchased a proprietary trading platform with clearing and settlement capabilities that will be developed by Pacsquare, including certain software and source code (the “AtlasClear Platform”).
The Business Combination has been accounted for in accordance with the acquisition method of accounting, with Quantum considered to be the accounting acquirer of Wilson-Davis. Under the acquisition method of accounting, the preliminary purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair market values, with the excess purchase price, if any, allocated to goodwill. Costs related to the transaction were expensed as incurred. (See Note 8 – Acquisition of Wilson-Davis).
AtlasClear Holdings’ goal is to build a cutting-edge technology enabled financial services firm that would create a more efficient platform for trading, clearing, settlement and banking, with evolving and innovative financial products that focus on financial services firms. AtlasClear Holdings is a fintech driven business-to-business platform that expects to power innovation in fintech, investing, and trading.
AtlasClear does not meet the definition of a business and therefore was treated as an asset acquisition by AtlasClear Holdings. As such the assets contributed from Atlas Fintech and the net assets of AtlasClear were recognized at historical cost. ASC 350 prohibits the recognition of goodwill in an asset purchase. (See Note 9 – Acquisition of Assets of AtlasClear, Inc.)
Quantum was deemed the accounting acquirer based on the following factors: i) Quantum issued cash and shares of its common stock; ii) Quantum controlled the voting rights under the no redemption and the maximum contractual redemption scenarios; iii) Quantum had the largest minority voting interest; iv) Quantum has control over the board of directors of the post-combination company and most of senior management of the post-combination company are former officers of Quantum.
Wilson-Davis is a securities broker and dealer, dealing in over-the-counter and listed securities. Wilson-Davis is registered with the Securities and Exchange Commission (the “SEC”)) and is a member of the Financial Industry Regulatory Authority.
9
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
Revenue is derived principally Wilson-Davis’ operations in three areas: commission revenue, fee revenue and interest revenue.
Wilson-Davis has operations in Utah, Arizona, California, Colorado, Florida, New York, Oklahoma and Texas. Transactions for customers are principally in the states where the Company operates, however, some customers are located in other states in which the Company is registered. Principal trading activities are conducted with other broker dealers throughout the United States.
Going Concern
As of March 31, 2024, the Consolidated Company had $
The Company has raised and intends to raise additional capital through loans or additional investments from its stockholders, officers, directors, or third parties. The Company’s officers and directors may, but are not obligated to loan the Company funds, from time to time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs.
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Codification Subtopic 205-40, “Presentation of Financial Statements – Going Concern,” the liquidity of the Company raises substantial doubt about the Company’s ability to continue as a going concern through the twelve months following the issuance of the financial statements. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. No adjustments have been made to the carrying amounts of assets or liabilities as a result of this uncertainty.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. As such the Company has accrued for the estimated excise tax as a result of the redemptions that occurred after December 31, 2022.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
10
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the period ended December 31, 2023, as filed with the SEC on April 16, 2024. The accompanying condensed balance sheet as of December 31, 2023 has been derived from the audited financial statements included in this Form 10-K. The interim results for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any future periods.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s condensed consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the condensed consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. The more significant accounting estimates included in these condensed consolidated financial statements is the determination of the fair value of the private warrant liabilities, the fair value of the Subscription Agreement, the fair value of the conversion liabilities, fair value of the customer list, licenses acquired on February 9, 2024. Such estimates may be subject to change as more current information becomes available and accordingly the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all operating accounts that hold money market funds held and short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
11
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
Trading Securities
Securities held in the Company’s trading account and trading securities, consist primarily of over-the-counter securities and are valued based upon quoted market prices. The value of securities that are not readily marketable are estimated by management based upon quoted prices, the number of market makers, trading volume and number of shares held. Unrealized gains and losses are reflected in income in the financial statements.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation on property and equipment is provided using accelerated and straight-line methods over expected useful lives of to
Leases
In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right-of-use asset and a corresponding lease liability on the statement of financial condition for all leases with terms longer than 12 months. Pursuant to this standard, the Company has recorded an operating lease right-of use (“ROU”) asset and operating lease liability in the accompanying balance sheet as of March 31, 2024.
The Company leases office space under the terms of several operating leases. The determination of whether an arrangement is a lease is made at the lease’s inception. Under ASC 842, a contract is (or contains) a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined under the standard as having both the right to obtain substantially all of the economic benefits from use of the asset and the right to direct the use of the asset. Management only reassesses its determination if the terms and conditions of the contract are changed.
ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses the implicit rate when it is readily determinable. Since the Company’s leases do not provide implicit rates, to determine the present value of lease payments, management uses the Company’s estimated incremental borrowing rate based on the information available at lease commencement.
Warrant Liabilities
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants that do not meet all the criteria for equity classification are recognized as a non-cash gain or loss on the condensed consolidated statements of operations. The fair value of the private warrants was estimated using a Black-Scholes model approach (see Note 9).
12
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
Income Taxes
The Company utilizes the asset and liability method to account for income taxes. The objective of this method is to establish deferred tax assets and liabilities for the temporary differences between net income for financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized.
Income tax expense or benefit is provided based upon the financial statement earnings of the Company. The allowance for doubtful accounts is deductible for financial statement purposes, but not for tax purposes. Depreciation expense is recognized in different periods for tax and financial accounting purposes due to the use of accelerated depreciation methods for income tax purposes. The tax effects of such differences are reported as deferred income taxes in the financial statements.
Revenue Recognition
Wilson-Davis, a subsidiary of the Company, recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, using the modified retrospective method. This revenue recognition guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires an entity to follow a five-step model to: (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract, and (e) recognize revenue when the entity satisfies a performance obligation.
Wilson-Davis acts as an agent by selling securities to customers and collecting commissions. Wilson-Davis recognizes commissions on a trade date basis, which is the day the transaction is executed. Wilson-Davis believes that the performance obligation is satisfied on the trade date because that is when the security is selected, the price is determined, the trade is executed, and the risks and rewards of ownership have been transferred to/from the customer.
Wilson-Davis also receives commissions on mutual funds purchased by customers. Wilson-Davis believes that the performance obligation is not satisfied until the mutual funds are purchased by customers and recognizes the commission at that time.
Wilson-Davis performs vetting services to customers that wish to convert restricted stock to eligible trading stock. In addition, Wilson-Davis charges clearing fees to another broker-dealer for which it clears trades. Wilson-Davis recognizes revenue as the related performance obligations are satisfied.
Net (Loss) Income per Common Stock
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net (loss) income per share of common stock is computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding for the period. (Loss) Income is allocated between redeemable and non-redeemable shares based on relative amounts of weighted average shares outstanding. Accretion associated with the redeemable shares of common stock is excluded from (loss) income per share as the redemption value approximates fair value.
The calculation of diluted net (loss) income per share does not consider the effect of the convertible derivative liability nor the warrants issued and outstanding. The calculation excludes the dilutive impact of these instruments because the issuance of the securities underlying the exercise of the warrants are contingent upon the occurrence of future events and inclusion would be antidilutive. As a
13
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
result, diluted net (loss) income per share of common stock is the same as basic net (loss) income per common stock for the periods presented.
The following table reflects the calculation of basic and diluted net income (loss) per share of common stock (in dollars, except share amounts):
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| Three Months Ended | ||||||||||
| | March 31, 2024 | | March 31, 2023 | ||||||||
| | | |
| Non- |
| | |
| Non- | ||
| | Redeemable | | redeemable | | Redeemable | | redeemable | ||||
Basic and diluted net income per common stock |
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| |
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| |
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Numerator: |
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| |
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Allocation of net income, as adjusted | | $ | ( | | $ | ( | | $ | | | $ | |
Denominator: | |
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Basic and diluted weighted average common stock outstanding | |
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Basic and diluted net income per common stock | | $ | ( | | $ | ( | | $ | | | $ | |
Below is a summary of the dilutive instruments as of March 31, 2024 and 2023, these were excluded as including them would be anti dilutive as of March 31, 2024 and were excluded in March 31, 2023 as the exercise was contingent:
Description |
| March 31, 2024 |
| March 31, 2023 |
Short Term Notes |
| |
| — |
Secured convertible note |
| |
| — |
Subscription agreement |
| |
| — |
Promissory note |
| |
| — |
Total Shares issuable under Convertible Note obligations |
| |
| — |
Public Warrants |
| |
| |
Private Warrants |
| |
| |
Secured convertible note warrants |
| |
| — |
Total dilutive |
| |
| |
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times may exceed the Federal Deposit Insurance Coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature, except for warrant liabilities, convertible derivatives and the earnout out liability (see Note 14).
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the issuance date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
14
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
Recent Accounting Standards
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.
NOTE 3. CASH SEGREGATED IN ACCORDANCE WITH FEDERAL REGULATIONS
Wilson-Davis is required by Rule 15c3-3 of the SEC to maintain a cash reserve with respect to customers’ transactions and credit balances, on a settlement date basis. Such a reserve is computed weekly using a formula provided by the rule, and the reserve account must be separate from all other bank accounts of Wilson-Davis. The required reserve as of March 31, 2024, was calculated to be $
Wilson-Davis is required by Rule 15c3-3 of the SEC to maintain a cash reserve with respect to broker-dealer transactions and credit balances. Such a reserve is computed weekly using a formula provided by the rule, and the reserve account must be separate from all other bank accounts of Wilson-Davis. The required reserve as of March 31, 2024, was calculated to be $
NOTE 4. NET CAPITAL REQUIREMENTS
As a broker-dealer, Wilson-Davis is subject to the uniform net capital rule adopted and administered by the SEC. The rule requires maintenance of minimum net capital and prohibits a broker-dealer from engaging in securities transactions at a time when its net capital falls below minimum requirements, as those terms are defined by the rule. Under the alternative method permitted by this rule, net capital shall not be less than the greater of $250,000 or 2% of aggregate debit items arising from customer transactions, as defined. Also, Wilson-Davis has a minimum requirement based upon the number of securities markets that it maintains. On March 31, 2024, Wilson-Davis’s net capital was $
NOTE 5 – CASH AND RESTRICTED CASH
Reconciliation of cash and restricted cash as shown in the condensed statements of cash flows is presented in the table below:
|
| For the Three Months | |
| | Ended | |
| | March 31, 2024 | |
Cash and cash equivalents | | $ | |
Cash segregated - customers | |
| |
Cash segregated - PAB | |
| |
Total cash and restricted cash shown in the statement of cash flows. | | $ | |
NOTE 6. RELATED PARTY TRANSACTIONS
Founder Shares
On October 23, 2020, Quantum Ventures LLC (“Quantum Ventures”), an affiliate of the Company, purchased
15
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
At the time of the Initial Public Offering, the initial stockholders placed the Founder Shares into an escrow account maintained by Continental Stock Transfer & Trust Company until (1) with respect to
The sale of the Founders Shares to the Company’s directors and director nominees is in the scope of FASB ASC Topic 718, “Compensation-Stock Compensation” (“ASC 718”). Under ASC 718, stock-based compensation associated with equity-classified awards is measured at fair value upon the grant date. The fair value of the
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, Quantum Ventures or an affiliate of Quantum Ventures, or certain of the Company’s officers and directors may have, but were not obligated to, loan the Company funds as may be required (“Working Capital Loans”). Such Working Capital Loans were to be evidenced by promissory notes. The notes were to be repaid upon completion of a Business Combination, without interest, or, at the lender’s discretion, up to $
In October 2021, Quantum Ventures committed to provide the Company an aggregate of $
On March 14, 2022, the Company issued an unsecured promissory note, effective as of January 3, 2022, in the amount of up to $
Advances from Related Parties
As of March 31, 2024 and December 31, 2023, the Co-Sponsors had advanced $
16
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
NOTE 7. COMMITMENTS AND CONTINGENCIES
Registration Rights
Pursuant to a registration rights agreement entered into on February 4, 2021, the holders of the Founder Shares, as well as the holders of the Private Warrants (and underlying securities) and any warrants issued in payment of Working Capital Loans made to the Company (and underlying securities) will have registration and stockholder rights pursuant to an agreement to be signed prior to or on the effective date of the Initial Public Offering. The holders of a majority of these securities are entitled to make up to two demands that the Company register such securities. The holders of the majority of the insider shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders of a majority of the Private Warrants (and underlying securities) can elect to exercise these registration rights at any time after the consummation of a Business Combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination. The registration and stockholder rights agreement does not contain liquidating damages or other cash settlement provisions resulting from delays in registering the Company’s securities. The Company will bear the expenses incurred in connection with the filing of any such registration statements. On May 14, 2024, the Company filed a registration statement on Form S-1 to register the resale of up to
Business Combination Marketing Agreement
The Company engaged the underwriters as advisors in connection with a Business Combination to assist the Company in holding meetings with its stockholders to discuss the potential Business Combination and the target business’s attributes, introduce the Company to potential investors that are interested in purchasing the Company’s securities in connection with the potential Business Combination, assist the Company in obtaining stockholder approval for the Business Combination and assist the Company with its press releases and public filings in connection with the Business Combination. The Company will pay the underwriters the marketing fee for such services upon the consummation of our initial business combination in an amount equal to, in the aggregate,
In connection with the Closing, the Company and Chardan Capital Markets LLC (“Chardan”) agreed that the fee, in the amount of $
The Chardan Note has a stated maturity date of February 9, 2028. Interest accrues at a rate per annum equal to
17
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
Also on February 9, 2024, the Company entered into a registration rights agreement with Chardan (the “Chardan Registration Rights Agreement”), pursuant to which the Company agreed, among other things, to file with the U.S. Securities and Exchange Commission within
Non-Redemption Agreement
On August 1, 2023, the Company and Quantum Ventures entered into a non-redemption agreement (the “Non-Redemption Agreement”) with Funicular Funds, LP (the “Holder”) in exchange for the Holder agreeing either not to request redemption in connection with the Extension (as defined below) or to reverse any previously submitted redemption demand in connection with the Extension with respect to an aggregate of
Expense Settlements
In connection with the Closing, AtlasClear Holdings agreed to settle certain accrued expenses and other obligations to certain parties through the issuance of shares of Common Stock. Pursuant to such arrangements, on February 9, 2024, AtlasClear Holdings issued an aggregate of
Additional Settlements
| ● | Grant Thornton LLP – |
● | IB Capital LLC – |
● | Outside The Box Capital Inc. – |
18
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
● | Carriage House Capital, Inc. – up to |
● | Interest Solutions, LLC – up to |
● | JonesTrading Institutional Services LLC – up to |
● | Winston & Strawn LLP – up to |
● | Toppan Merrill LLC – the Company issued to Toppan Merrill LLC (“Toppan”) a promissory note, dated as of February 9, 2024, in the aggregate principal amount of $ |
● | Lead Nectar – up to |
Excise Taxes Payable
On February 6, 2023, the Company’s stockholders redeemed
19
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
Convertible Note Financing
On February 9, 2024, Wilson-Davis and Quantum entered into a securities purchase agreement (the “Purchase Agreement”) with Funicular Funds, LP, a Delaware limited partnership (“Funicular”), pursuant to which the Company sold and issued to Funicular, on that date, a secured convertible promissory note in the principal amount of $
The Funicular Note has a stated maturity date of November 9, 2025. Interest accrues at a rate per annum equal to
The Funicular Note is secured by a perfected security interest in substantially all of the existing and future assets of the Company and each Grantor (as defined in the Security Agreement, as defined below), including a pledge of all of the capital stock of each of the Grantors, subject to certain exceptions, as evidenced by (i) a security agreement, dated as of February 9, 2024 (the “Security Agreement”), entered into among the Company, each of the Company’s subsidiaries and Funicular, and (ii) a guaranty, dated as of February 9, 2024 (the “Guaranty”), executed by each of the Company’s subsidiaries pursuant to which each of them has agreed to guaranty the obligations of the Company under the Funicular Note and the other Loan Documents (as defined in the Funicular Note).
Pursuant to the Purchase Agreement, the Company agreed, among other things, that if the Funicular Note becomes convertible into a number of shares of Common Stock in excess of
In connection with the Note Financing, on February 9, 2024, the Company entered into a registration rights agreement with Funicular (the “Funicular Registration Rights Agreement”), pursuant to which the Company agreed, among other things, to file with the U.S. Securities and Exchange Commission within
20
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
Subscription Agreement and Satisfaction and Discharge Agreement
On February 9, 2024, the Registrant entered into a Subscription Agreement (the “Subscription Agreement”) and Satisfaction and Discharge Agreement (“Discharge Agreement”) with Winston & Strawn LLP (“Winston”), Calculator New Pubco, Inc. and Quantum. The Registrant accepted the offer of Winston to subscribe for an aggregate of $
Indemnification Agreements
On the Closing Date, in connection with the Closing, the Company entered into indemnification agreements with each of its directors and executive officers, which provide for indemnification and advancements by the Company of certain expenses and costs under certain circumstances. The indemnification agreements provide that AtlasClear Holdings will indemnify each of its directors and executive officers against any and all expenses incurred by that director or executive officer because of his or her status as a director or officer of AtlasClear Holdings, to the fullest extent permitted by Delaware law, the Amended and Restated Certificate of Incorporation and the Amended and Restated Bylaws.
Wilson-Davis
On February 27, 2018, an extended hearing panel of the Department of Enforcement of the Financial Industry Regulatory Authority, Inc. (“FINRA”), Office of Hearing Officers, issued its decision ordering fines aggregating $
On October 16, 2023, Wilson-Davis entered into a Fifth Addendum to Lease for the Salt Lake City office. The lease is for
On December 21, 2023, Wilson-Davis entered into a Second Amendment to Office Lease for the Denver office. The lease is for
21
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
NOTE 8. ACQUISITION OF WILSON-DAVIS
Prior to the Closing, AtlasClear and the Company entered into
Pursuant to the terms of the Amendments, at the closing of the transactions contemplated by the Broker-Dealer Acquisition Agreement (the “Wilson-Davis Closing”) the Company entered into a parent guaranty and registration rights agreement with the Wilson-Davis Sellers (the “Wilson-Davis Guaranty and RRA”), pursuant to which the Company guaranteed the obligations of AtlasClear under the Notes. The Company also agreed (i) to file, within
The Sponsor also entered into Amendment No. 9, for the limited purpose of agreeing to transfer certain Founder Shares owned by the Sponsor to the Wilson-Davis Sellers. The Sponsor agreed to transfer to the Wilson-Davis Sellers, at the Wilson-Davis Closing, Founder Shares having an aggregate value of $
As a result of the closing of the business combination the Company allocated the purchase price with the acquisition of Wilson-Davis under the acquisition method of accounting. The final allocation of the purchase consideration for the Mergers will be determined after the completion of a thorough analysis to determine the fair value of all assets acquired and liabilities assumed, but in no event later than one year following the completion of the Mergers.
22
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
Accordingly, the final acquisition accounting adjustments could differ. The preliminary allocation of the purchase price is as follows:
Cash paid to Wilson-Davis shareholders |
| $ | |
Short-term notes | |
| |
Long-term notes | |
| |
Fair value of shares transferred from sponsor | |
| |
Total consideration paid | |
| |
| | | |
Allocated to: | |
| |
Cash | | $ | |
Cash segregated | |
| |
Receivables | |
| |
Trading Securities, market value | |
| |
Prepaid Income Tax | |
| |
Accounts payable, accrued expenses and other current liabilities | |
| ( |
Current portion of lease liability | |
| ( |
Property and equipment | |
| |
Cash deposit BDs and Clearing Organizations | |
| |
Operating Lease Right-to-Use Lease Assets | |
| |
Other Assets | |
| |
Stock loan | |
| ( |
Long-term Lease liability | |
| ( |
Subordinated Borrowing | |
| ( |
Trading Account deposit | |
| ( |
Net assets acquired | |
| |
Excess of purchase price over net liabilities assumed before allocation to identifiable intangible assets and goodwill | | $ | |
The fair value of property and equipment was determined using the indirect cost approach which utilizes fixed asset record information including historical costs, acquisition dates, and asset descriptions and applying asset category specific nationally recognized indices to the historical cost of each asset to derive replacement cost new less depreciation. Management has also made the initial determination that all other assets and liabilities to be acquired are primarily estimated to be stated at their fair values, which approximates their recorded cost. While a final determination of the value of the identifiable intangibles has not been completed, management has made an initial determination that approximately $
|
| | |
| Estimated |
| | | | | Useful Life |
| | Amount | | (Years) | |
Licenses(a) | | $ | |
| Indefinite |
Customer Lists(b) | |
| |
| |
Intangible Assets | | $ | |
| — |
(a) | The value of the licenses was based on replacement costs for an operating enterprise which are estimated to be $ |
(b) | The Wilson Davis customer relationships were valued using the Multi-Period Excess Earnings Method (“MPEEM”). The MPEEM reflects the present value of the operating cash flows generated by existing customer relationships after taking into account the cost to realize the revenue and an appropriate discount rate to reflect the time value and risk associated with the cash flows. |
23
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
NOTE 9. ACQUISITION OF THE ASSETS OF ATLASCLEAR, INC
In connection with the Closing, and pursuant to the terms of the Business Combination Agreement, stockholders of AtlasClear (the “AtlasClear Stockholders”) received merger consideration (the “Merger Consideration Shares”) consisting of
To reflect the purchase of Developed Technology identified under the Assignment and Assumption Agreement and Bill of Sale (the “Contribution Agreement”) between AtlasClear, Atlas FinTech and Atlas Financial Technologies Corp., pursuant to which Atlas FinTech and Atlas Financial Technologies Corp. contributed to AtlasClear all rights, title and interest in certain intellectual property, among other things. There are no historical revenues for the Developed Technology and AtlasClear’s management determined the fair value based on their experience and expectations from running similar models in previous companies. The value was derived based on the purchase price allocation as follows: (the table below is expressed in thousands)
Total Purchase Price(a) |
| $ | |
Fair value of Software Product Earn Out Shares(b) | |
| |
Fair value of Earn Out Shares(c) | |
| |
Purchase price allocated to Contribution Agreement | | $ | |
SURFACExchange | | $ | |
Bond Quantum | |
| |
Atlas | |
| |
Rubicon | |
| |
Total Developed Technology acquired(d) | | $ | |
Transaction cost(e) | | $ | |
(a) | The closing consideration of $ |
(b) | Atlas FinTech will receive up to $ |
(c) | Atlas FinTech will receive up to |
24
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
(d) | Under SAB topic 5G transfers of nonmonetary assets for stock prior to an initial offering should be recorded at predecessor cost in accordance with GAAP. As such the value of the Developed Technology was based on the carrying value of Atlas FinTech of $ |
(e) | ASC 350 prohibits the recognition of goodwill in an asset purchase. As such the difference between the purchase price of $ |
NOTE 10. INTANGIBLE ASSETS
Pacsquare Purchase Agreement
Pursuant to the transactions contemplated by a letter of intent, on February 16, 2024, AtlasClear and Pacsquare entered into a Source Code Purchase Agreement and Master Services Agreement (the “Pacsquare Purchase Agreement”), pursuant to which AtlasClear acquired the AtlasClear Platform. Pursuant to the Pacsquare Purchase Agreement, Pacsquare will develop, implement and launch the AtlasClear Platform and provide maintenance and support services as described in the agreement. The Pacsquare Purchase Agreement provides that Pacsquare will develop and deliver to AtlasClear the Level 1 equities trading platform and that it will develop and deliver all modules of the clearing platform within
Intangible Assets of the company at March 31, 2024 are summarized as follows:
| | March 31, 2024 | ||||||||||
|
| | |
| Accumulated |
| Impairment |
| | | ||
| | Cost | | Amortization | | of Asset | | Net | ||||
| | | | | | | | | | | | |
Licenses | | $ | | | $ | — | | $ | — | | $ | |
Pacsquare assets – Proprietary Software | |
| | |
| — | |
| — | |
| |
Technology acquired | |
| | |
| ( | |
| — | |
| |
Customer Lists | |
| | |
| ( | |
| — | |
| |
Intangible Assets | | $ | | | $ | ( | | $ | — | | $ | |
NOTE 11. DEPOSIT ON ACQUISITION OF COMMERCIAL BANCORP
Amendment to Bank Acquisition Agreement
On February 26, 2024, AtlasClear and Commercial Bancorp entered into an amendment (the “Amendment”) to the Amended and Restated Agreement and Plan of Merger, dated as of November 16, 2022, by and between AtlasClear and Commercial Bancorp (the “Bank Acquisition Agreement”), pursuant to which, among other things, Commercial Bancorp is expected to merge with and into a subsidiary of AtlasClear. Pursuant to the Amendment Commercial Bancorp received
25
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
NOTE 12. LEASES
In February 2020, Wilson-Davis entered into a
On December 21, 2023, Wilson-Davis renewed a
On October 16, 2023, Wilson-Davis renewed a
Other information related to the operating leases are as follows:
| | March 31, | |
|
| 2024 | |
| | | |
Operating lease ROU Asset - February 9, 2024 | | $ | |
Increase | | | — |
Decrease | | | — |
Amortization | | | ( |
Operating lease ROU Asset - Ending Balance | | $ | |
| | | |
Operating lease liability - February 9, 2024 | | $ | |
Increase | | | — |
Decrease | | | — |
Amortization | | | ( |
Operating lease liability - ending balance | | $ | |
| | | |
Operating lease liability - Short Term | | $ | |
Operating lease liability - Long Term | | | |
Operating lease liability - Total | | $ | |
The following table presents the weighted-average remaining lease term and weighted-average discount rates related to the Company’s operating leases as of March 31, 2024:
|
| March 31, |
|
| | 2024 |
|
Weighted average remaining lease term |
| years | |
Weighted average discount rate |
| | % |
26
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
The future minimum payments required by the lease agreements in effect at March 31, 2024 are as follows:
2024 | | $ | |
2025 | | | |
2026 | | | |
2027 | | | |
Total minimum lease payments | | | |
Less interest factor | | | ( |
Total operating lease liability | | | |
Less operating lease liability - current portion | | | ( |
Operating lease liability - long term portion | | $ | |
NOTE 13. STOCKHOLDERS’ DEFICIT
Preferred Stock — The Company is authorized to issue
Common stock — The Company is authorized to issue
In connection with the Closing, each share of Quantum’s common stock (“Quantum Common Stock” or “Public Shares”) that was outstanding and had not been redeemed was converted into
In connection with the stockholder vote to approve the Business Combination Agreement and the Business Combination, holders of an aggregate of
In connection with the Closing, the Company instructed Continental Stock Transfer & Trust Company (“CST”), as escrow agent under the Stock Escrow Agreement, dated as of February 4, 2021 (the “Stock Escrow Agreement”), between the Company and CST, to release from escrow
The Common Stock commenced trading on the NYSE American LLC (“NYSE”) under the symbol “ATCH” on February 12, 2024. AtlasClear Holdings’ warrants commenced trading on the over-the-counter market (the “OTC”) under the symbol “ATCH WS” on February 12, 2024.
27
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
NOTE 14. WARRANTS
As of March 31, 2024 and December 31, 2023, there are
Once the warrants become exercisable, the Company may redeem the Public Warrants:
| ● | in whole and not in part; |
| ● | at a price of $ |
| ● | at any time after the warrants become exercisable; |
| ● | upon not less than ’ prior written notice of redemption; |
| ● | if, and only if, the reported last sale price of the shares of common stock equals or exceeds $ |
| ● | if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying the warrants at the time of redemption and for the entire |
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, except as described below, the warrants will not be adjusted for issuance of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.
In addition, if (x) the Company issues additional common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $
As of March 31, 2024 and December 31, 2023, there are
28
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
Private Warrants and recognize changes in the fair value from the prior period in the Company’s operating results for the current period. The Private Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that (i) each private warrant is exercisable for
On the Closing Date, the Company, AtlasClear Holdings and CST entered into that certain Assignment, Assumption and Amendment Agreement (the “New Warrant Agreement”). The New Warrant Agreement amends that certain Warrant Agreement, dated as of February 4, 2021, by and between the Company and CST (the “Existing Warrant Agreement”), to provide for the assignment by the Company of all its rights, title and interest in the warrants of the Company to AtlasClear Holdings. Pursuant to the New Warrant Agreement, all Company warrants under the Existing Warrant Agreement will no longer be exercisable for shares of Quantum Common Stock, but instead will be exercisable for shares of Common Stock.
NOTE 15. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at March 31, 2024 and December 31, 2023, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
|
| |
| March 31, |
| December 31, | ||
Description | | Level | | 2024 | | 2023 | ||
Assets: |
| |
| |
|
| |
|
Marketable securities held in Trust Account |
| 1 | | $ | — | | $ | |
| | | | | | | | |
Liabilities: |
| | |
|
| |
|
|
Warrant liability – Private Warrants |
| 3 | | $ | | | $ | |
Non-redemption agreement liability | | 3 | | $ | — | | $ | |
Convertible notes derivative | | 3 | | $ | | | $ | — |
Earnout liability |
| 3 | | $ | | | $ | — |
The Private Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the condensed consolidated balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liability in the condensed consolidated statements of operations.
29
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
The Private Placement Warrants were, initially and as of the end of each subsequent reporting period, valued using a lattice model, specifically a Black-Scholes model, which is considered to be a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the Private Placement Warrants is the expected volatility of the Company’s common stock. The expected volatility of the Company’s common stock was determined based on the implied volatility of the publicly traded Public Warrants.
The key inputs into the Black-Scholes model for the Private Warrants were as follows:
|
| March 31, |
| December 31, |
| ||
Input | | 2024 | | 2023 |
| ||
Market price of public shares | | $ | | | $ | | |
Risk-free rate | |
| | % |
| | % |
Dividend yield | |
| | % |
| | % |
Volatility | |
| | % |
| | % |
Probability of a business combination | |
| | % |
| | % |
Exercise price | | $ | | | $ | | |
Effective expiration date | |
| |
| | ||
The non-redemption agreement liability was measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of non-redemption agreement liability in the condensed consolidated statements of operations.
The non-redemption agreement liability is comprised of
The key inputs into the Monte Carlo model for the non-redeemable common stock were as follows:
|
| December 31, | | |
Input | | 2023 | | |
Market price of public shares | | $ | | |
Probability of acquisition | |
| | % |
Equity volatility | |
| | % |
Discount for lack of marketability | |
| | % |
Discount for expected forfeiture | |
| | % |
The Earnout liability was, initially and as of February 9, 2024, valued using a Monte Carlo simulation to determine if and when the revenue hurdles would be achieved. The revenue volatility and revenue to equity correlation was based upon the same guideline public companies. The Monte Carlo simulation was performed simultaneously on both the share price and revenue to account for the correlation between revenue and equity.
The key inputs into the Monte Carlo model for the Earnout liability were as follows:
|
| | |
| February 9, |
| |
| | March 31, | | 2024 |
| ||
Input | | 2024 | | (initial measurement) |
| ||
Market price of public shares | | $ | | | $ | | |
Revenue volatility | |
| | % |
| | % |
Discount factor for revenue | |
| | % |
| | % |
The Conversion derivative, associated with Short-term notes, Long-Term notes, and the Chardan Note was accounted for as a liability in accordance with ASC 815-40. The Conversion derivative liability was measured at fair value at inception and on a recurring basis,
30
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
with changes in fair value presented within change in fair value of Conversion derivative liability in the condensed consolidated statements of operations.
On February 9, 2004, the Company issued short-term notes to the former officers and directors of Wilson-Davis. The terms of the short-term notes are as follows: (i) $
| | | | | February 9, |
| |
| | | | 2024 |
| ||
|
| March 31, |
| (initial |
| ||
Input | | 2024 |
| measurement) | | ||
Market price of public shares | | $ | | | $ | | |
Risk-free rate | |
| | % |
| | % |
Dividend yield | |
| | % |
| | % |
Volatility | |
| | % |
| | % |
Exercise price | | $ | | | $ | | |
Effective expiration date | | | 5/9/2024 | | | 5/9/2024 | |
(iv) The conversion feature is deemed to include an embedded derivative that requires bifurcation and separate account. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability with the offset being a discount to the note. The discount will be amortized as interest expense over the term of the short-term note(s). The derivative liability will be revalued at each reporting period with the change being charged to the income statement. The original derivative liability – convertible notes valued at $
On February 9, 2004, the Company issued long-term notes to the former officers and directors of Wilson-Davis. The terms of the long-term notes are as follows: (i) $
| | | | | February 9, |
| |
| | | | 2024 |
| ||
|
| March 31, |
| (initial |
| ||
Input | | 2024 |
| measurement) | | ||
Market price of public shares | | $ | | | $ | | |
Risk-free rate | |
| | % |
| | % |
Dividend yield | |
| | % |
| | % |
Volatility | |
| | % |
| | % |
Exercise price | | $ | | | $ | | |
Effective expiration date | | | 2/9/2026 | | | 2/9/2026 | |
31
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
The conversion feature is deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability with the offset being a discount to the notes. The discount will be amortized as interest expense over the term of the note. The derivative liability will be revalued at each reporting period with the change being charged to Derivative liability – convertible notes. The derivative liability was valued at $
In connection with the Closing, AtlasClear Holdings and Chardan agreed that the fee, in the amount of $
The Chardan Note qualifies for derivative treatment in accordance with ASC 814-40. On February 9, 2024, the Company valued the derivatives using a Black-Scholes model which is considered to be a Level 3 fair value measurement. The key inputs into the Black-Scholes model for the conversion derivative are as follows:
| | | | | February 9, |
| |
| | | | 2024 |
| ||
|
| March 31, |
| (initial |
| ||
Input | | 2024 |
| measurement) | | ||
Market price of public shares | | $ | | | $ | | |
Risk-free rate | |
| | % |
| | % |
Dividend yield | |
| | % |
| | % |
Volatility | |
| | % |
| | % |
Exercise price | | $ | | | $ | | |
Effective expiration date | | | 2/9/2028 | | | 2/9/2028 | |
In addition, on each conversion date AtlasClear Holdings is required to pay to Chardan in cash (or, at AtlasClear Holding’s option and subject to certain conditions, a combination of cash and Common Stock) all accrued interest on the Chardan Note and all interest that would otherwise accrue on the amount of the Note being converted if such converted amount would be held to years after the applicable conversion date. The first quarterly interest payment due on the Chardan Note has not been paid as of the date of this filing.
On February 9, 2004, the Company issued a long-term note to Interest Solutions in the amount of $
On February 9, 2004, the Company issued a long-term note to Funicular Funds in the amount of $
On February 9, 2024, the Registrant entered into a Subscription Agreement and Discharge Agreement with Winston & Strawn LLP (“Winston”) Calculator New Pubco, Inc. and Quantum, as described in Note 1. The Company has concluded that such liabilities are no longer an obligation of the Company and therefore qualify for extinguishment. The Subscription Agreement is considered a variable-share obligation under ASC Topic 480 (“Distinguishing Liabilities from Equity”). The Subscription Agreement meets the requirements
32
ATLASCLEAR HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
(Unaudited)
for classification under ASC 480 and as a result is required to be accounted for as a liability under ASC 480 and is presented as such on the Consolidated Balance Sheets. The Company will record a change in fair value in each reporting period until settlement in its Consolidated Statement of Operations.
The following table presents the changes in the fair value of the Conversion derivative liability and the warrant liability:
|
| Private |
| Non-Redemption | ||
| | Placement | | Agreement | ||
| | Warrants | | Liability | ||
Fair value as of December 31, 2023 | | $ | | | $ | |
Change in valuation inputs or other assumptions | | | | | | |
Transferred to equity | | | — | | | ( |
Fair value as of March 31, 2024 | | $ | | | $ | — |
| | Conversion | | Earnout | ||
|
| derivative |
| Liability | ||
Fair value as of December 31, 2023 | | $ |
| $ | ||
Initial measurement as of February 9, 2024 | | | | | | |
Change in valuation inputs or other assumptions | |
| |
|
| |
Fair value as of March 31, 2024 | | $ | |
| $ | |
There were no transfers between levels during the three months ended March 31, 2024 and 2023.
NOTE 16. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed consolidated financial statements were issued. Based upon this review, other than described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements, other than as described below.
On April 4, 2024,
On April 8, 2024, the Company issued an aggregate of
On May 14, 2024, the Company filed a registration statement on Form S-1 to register the resale of up to
33
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this quarterly report on Form 10-Q (the “Quarterly Report”) to “we,” “us,” “AtlasClear Holdings,” or the “Company” refer to AtlasClear Holdings, Inc. References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Certain defined terms used herein have the meaning ascribed to them in the notes to the financial statements.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy plans and objectives of management for future operations are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“Annual Report on Form 10-K”) filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 16, 2024. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
Our goal is to build a cutting-edge technology enabled financial services firm that would create a more efficient platform for trading, clearing, settlement and banking, with evolving and innovative financial products that focus on financial services firms. We are a fintech driven business-to-business platform that expects to power innovation in fintech, investing, and trading. We believe we are positioned to provide a modern, mission-critical suite of solutions to our clients, enabling them to reduce their transactions costs and compete more effectively in their businesses.
Our target client base for our prime banking and prime brokerage services includes financial services firms, generally with annual revenues up to $1 billion, including brokerage firms, hedge funds, pension plans, and family offices that are not adequately served by today’s larger correspondent clearing firms and banks.
Through the acquisition of Wilson-Davis & Co. Inc. (“Wilson-Davis”), a correspondent clearing company, and our anticipated acquisition of Commercial Bancorp, a federal reserve member (“Commercial Bancorp”), we expect to acquire the capabilities to provide specialized clearing and banking services to financial services firms, with an emphasis on global markets currently underserviced by larger vendors. Once properly integrated, anticipated synergies between Commercial Bancorp, if acquired, and Wilson-Davis are expected to allow for lower cost of capital, higher net interest margins, expanded product development and greater credit extension.
In addition, we believe the acquisition of a proprietary trading platform with clearing and settlement capabilities that will be developed by Pacsquare Technologies, LLC (“Pacsquare”), including certain software and source code (the “AtlasClear Platform”), along with the software products and intellectual property assets acquired from Atlas FinTech and Atlas Financial Technologies Corp., are cutting-edge, flexible and scalable.
Wilson-Davis
Wilson-Davis is a self-clearing correspondent securities broker-dealer registered with the Securities and Exchange Commission (the “SEC”), licensed in 50 states, District of Columbia, and Puerto Rico, and a member in good standing of FINRA. Wilson-Davis derives revenue principally from commissions charged on the liquidation of restricted and control microcap securities, vetting, and clearing service fees charged to introducing brokers for which Wilson-Davis clears transactions on a fully disclosed basis, and other financial
34
service fees. Commissions are earned by executing transactions for customers. Vetting fee revenues are earned when Wilson-Davis vests stock the customers want to bring into their accounts. Clearing fees are earned by clearing transactions for Glendale Securities, as introducing broker on a fully disclosed basis, pursuant to a clearing agreement with Glendale Securities.
Key Factors Impacting Wilson-Davis’ Business
Wilson-Davis’ business and results of operations have been, and will continue to be, affected by numerous factors and trends, which Wilson-Davis believes include those discussed in the section titled “Risk Factors” of the Annual Report on Form 10-K.
| ● | Liquidity. As a clearing broker-dealer in the U.S., Wilson-Davis is subject to cash deposit requirements with clearing organizations, brokers, and banks that may be large in relation to its total liquid assets. |
| ● | Growth of Customer Base. Wilson-Davis’ growth requires continued use of its services by new customers. |
| ● | Expanding Wilson-Davis’ Relationship with Existing Customers. Wilson-Davis’ ability to expand its relationship with its existing customers will be an important contributor to its long-term growth. |
| ● | Market Trends. As financial markets grow and contract, Wilson-Davis’ customers’ behaviors are affected. Wilson-Davis’ recent revenue and profitability have been adversely affected by the general downturn in the securities markets since early 2022, resulting from increasing inflation, increasing interest rates, the lingering economic effects of the COVID-19 pandemic, supply chain disruptions and other factors. |
| ● | Macroeconomic Events. Customer behavior is impacted by the overall macroeconomic environment, which is influenced by elements beyond Wilson-Davis’ control, including economic and political conditions, inflation, tax rates, the ongoing COVID-19 pandemic, the military conflict in Ukraine, and natural disasters. |
Recent Developments
Business Combination
On February 9, 2024, we consummated the previously announced transactions contemplated by the business combination agreement, dated November 16, 2022 by and among Calculator New Pubco, Inc., Quantum FinTech Acquisition Corporation (“Quantum”), Calculator Merger Sub 1, Inc., Calculator Merger Sub 2, Inc., AtlasClear, Inc. (“AtlasClear”), Atlas FinTech and Robert McBey (as amended, the “Business Combination Agreement”). In connection with the consummation of the Business Combination, Calculator changed its name from “Calculator New Pubco, Inc.” to “AtlasClear Holdings, Inc.”
For more information about the Business Combination, see Note 1.
Non-Redemption Agreement
On August 1, 2023, Quantum and Quantum Ventures entered into a non-redemption agreement (the “Non-Redemption Agreement”) with Funicular Funds, LP (the “Holder”) in exchange for the Holder agreeing either not to request redemption in connection with the Extension (as defined below) or to reverse any previously submitted redemption demand in connection with the Extension with respect to an aggregate of 2,351,800 shares of Common Stock at the special meeting of stockholders called by the Company to, among other things, approve an amendment to the Company’s amended and restated certificate of incorporation to extend the date by which the Company must consummate an initial business combination to up to February 9, 2024 or such earlier date as is determined by the board of directors of the Company to be in the best interests of the Company (the “Extension”). In consideration of the foregoing agreement, immediately prior to, and substantially concurrently with, the closing of an initial business combination (the “Closing”), (i) Quantum Ventures agreed to surrender and forfeit to the Company for no consideration an aggregate of 235,180 shares of Common Stock held by Quantum Ventures (the “Forfeited Shares”) and an aggregate of 235,180 warrants held by Quantum Ventures to purchase 235,180 shares of Common Stock (the “Forfeited Warrants”) and (ii) the Company agreed to issue to the Holder a number of shares of Common Stock equal to the number of Forfeited Shares and a number of warrants to purchase shares of Common Stock equal to the number of Forfeited Warrants. As a result of the closing of the Business Combination, there is no further obligation regarding the Non-Redemption Agreement, as such the liability was trued up as of February 9, 2024 and transferred to permanent equity as the shares have been transferred.
35
Amendments to Broker-Dealer Acquisition Agreement
Prior to the Closing, AtlasClear and AltasClear Holdings entered into two amendments to the Broker-Dealer Acquisition Agreement (as defined in the with Wilson-Davis and the then-owners of Wilson-Davis (the “Wilson-Davis Sellers”), Amendment No. 8 dated January 9, 2024 (“Amendment No. 8”) and Amendment No. 9 dated February 7, 2024 (“Amendment No. 9” and, together with Amendment No. 8, the “Amendments”). Among other things, the Amendments reduced the total purchase price payable under the Broker- Dealer Acquisition Agreement by $5 million and reduced the cash payable at the Wilson-Davis Closing as part of the purchase price to $8 million, with the balance of the purchase price paid in the form of convertible promissory notes issued by AtlasClear to the Wilson-Davis Sellers, as follows: (i) $5,000,000 in aggregate principal amount of notes due 90 days after the Closing Date (the “Short-Term Notes”) and (ii) $7,971,000 in aggregate principal amount of notes due 24 months after the Closing Date (the “Long-Term Notes” and, together with the Short-Term Notes, the “Seller Notes”). The Short-Term Notes accrue interest at a rate of 9% per annum, payable quarterly in arrears, in shares of Common Stock at a rate equal to 90% of the trailing seven-trading day VWAP prior to payment (or, at the Company’s option, cash), and are convertible at the option of the holder at any time during the continuance of an event of default, at a rate equal to 90% of the trailing seven-trading day VWAP prior to conversion. The Long-Term Notes accrue interest at a rate of 13% per annum, payable quarterly in arrears, in shares of Common Stock at a rate equal to 90% of the trailing seven-trading day VWAP prior to payment (or, at the Company’s option, in cash), and are convertible at the option of the holder at any time commencing six months after the Closing Date, at a rate equal to 90% of the trailing seven-trading day VWAP prior to conversion (or 85% if an event of default occurs and is continuing). The first quarterly interest payments on the Seller Notes were paid on April 8, 2024 in the form of an aggregate of 145,210 shares of Common Stock.
For more information about the Amendments to Broker-Dealer Acquisition Agreement, see Note 8.
Convertible Note Financing
On February 9, 2024, AtlasClear Holdings and Quantum entered into a securities purchase agreement (the “Funicular Purchase Agreement”) with Funicular, pursuant to which AtlasClear Holdings sold and issued to Funicular, on that date, a secured convertible promissory note in the principal amount of $6,000,000 for a purchase price of $6,000,000, in a private placement (the “Note Financing”). The proceeds raised in the Note Financing were used to pay a portion of the purchase price paid at Closing to the Wilson-Davis sellers. The Funicular Note has a stated maturity date of November 9, 2025. Interest accrues at a rate per annum equal to 12.5%, and is payable semi-annually on each June 30 and December 31. On each interest payment date, the accrued and unpaid interest shall, at the election of the Company in its sole discretion, be either paid in cash or paid in-kind by increasing the principal amount of the Funicular Note. In the event of an Event of Default (as defined in the Funicular Note), in addition to Funicular’s other rights and remedies, the interest rate would increase to 20% per annum. The Funicular Note is convertible, in whole or in part, into shares of Common Stock at the election of the holder at any time at an initial conversion price of $10.00 per share (the “Conversion Price”). The Conversion Price is subject to adjustment monthly to a price equal to the trailing five-day VWAP, subject to a floor of $2.00 per share (provided that if the Company sells stock at an effective price below $2.00 per share, such floor would be reduced to such effective price), and is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like. The Company has the right to redeem the Funicular Note upon 30 days’ notice after the earlier of August 7, 2024 and the effectiveness of the Registration Statement (as defined in the Funicular Note), and Funicular would have the right to require the Company to redeem the Note in connection with a Change of Control (as defined in the Note), in each case for a price equal to 101% of the outstanding principal amount of the Note plus accrued and unpaid interest.
For more information about the Note Financing, see Notes 7 and 14.
36
Pacsquare Purchase Agreement
Pursuant to the transactions contemplated by a letter of intent, on February 16, 2024, AtlasClear and Pacsquare entered into a Source Code Purchase Agreement and Master Services Agreement (the “Pacsquare Purchase Agreement”), pursuant to which AtlasClear acquired the AtlasClear Platform. Pursuant to the Pacsquare Purchase Agreement, Pacsquare will develop, implement and launch the AtlasClear Platform and provide maintenance and support services as described in the agreement. The Pacsquare Purchase Agreement provides that Pacsquare will develop and deliver to AtlasClear the Level 1 equities trading platform and that it will develop and deliver all modules of the clearing platform within 12 months of signing the Pacsquare Purchase Agreement. AtlasClear owns all the intellectual property relating to the AtlasClear Platform, including the software and source code. The Pacsquare Purchase Agreement also granted AtlasClear a right of first refusal to any products or services that relate to trading, settlement, clearance or any other business of AtlasClear that Pacsquare proposes to offer to other persons. The purchase price for the assets was $4.8 million as follows: (i) $1.9 million, consisting of (A) $100,000 payable in a cash upon delivery of the source code and execution of the Pacsquare Purchase Agreement; (B) $850,000 payable in shares of Common Stock at a price of $6.00 per share; and (C) $950,000 to be paid in four monthly installments of $237,500, payable in shares of Common Stock at the price per share on the day of issuance and (ii) $2.7 million to be paid ratably on a module-by-module basis upon delivery and acceptance of each of the AtlasClear Platform modules. AtlasClear has sole discretion to determine whether any of the foregoing payments will be made in cash or shares of Common Stock. The Company has issued 336,000 shares of Common Stock to Pacsquare pursuant to the terms of the Pacsquare Purchase Agreement.
Amendment to Bank Acquisition Agreement
On February 26, 2024, AtlasClear and Commercial Bancorp entered into an amendment (the “Amendment”) to the Amended and Restated Agreement and Plan of Merger, dated as of November 16, 2022, by and between AtlasClear and Commercial Bancorp (the “Bank Acquisition Agreement”), pursuant to which, among other things, Commercial Bancorp is expected to merge with and into a subsidiary of AtlasClear. Pursuant to the Amendment Commercial Bancorp received 40,000 shares of Common Stock in lieu of a nonrefundable escrow deposit.
Expense Settlements
In connection with the Closing, AtlasClear Holdings and Chardan agreed that the fee, in the amount of $7,043,750, payable by Quantum to Chardan upon the Closing pursuant to the terms of the business combination marketing agreement entered into in connection with Quantum’s IPO, would be waived in exchange for the issuance by AtlasClear Holdings to Chardan of a convertible promissory note in the aggregate principal amount of $4,150,000. The Chardan Note was issued by AtlasClear Holdings at the Closing. The Chardan Note has a stated maturity date of February 9, 2028. Interest accrues at a rate per annum equal to 13%, and is payable quarterly on the first day of each calendar quarter. On each interest payment date, the accrued and unpaid interest shall, at the election of AtlasClear Holdings, be either paid in cash or, subject to the satisfaction of certain conditions, in shares of Common Stock, at a rate equal to 85% of the VWAP for the trading day immediately prior to the applicable interest payment date. The Chardan Note is convertible, in whole or in part, into shares of Common Stock at the election of the holder at any time at a conversion price equal to 90% of the VWAP of the Common Stock for the trading day immediately preceding the applicable conversion date. In addition, on each conversion date AtlasClear Holdings is required to pay to Chardan in cash (or, at AtlasClear Holding’s option and subject to certain conditions, a combination of cash and Common Stock) all accrued interest on the Chardan Note and all interest that would otherwise accrue on the amount of the Note being converted if such converted amount would be held to three years after the applicable conversion date. The first quarterly interest payment due on the Chardan Note has not been paid as of the date of this filing.
Also in connection with the Closing, AtlasClear Holdings agreed to settle certain accrued expenses and other obligations to certain parties through the issuance of shares of Common Stock. Pursuant to such arrangements, on February 9, 2024, AtlasClear Holdings issued an aggregate of 2,201,010 shares of Common Stock in settlement of obligations in the aggregate amount of $5,448,933, including the issuance of 2,000,000 shares of Common Stock to Qvent, LLC, an affiliate of Quantum Ventures, in settlement of an aggregate of $4,633,833 advanced to Quantum through the Closing Date. Additionally, on the Closing Date, AtlasClear Holdings issued notes to settle other expenses of Quantum in the aggregate principal amount of approximately $3.3 million, some of which are convertible into shares of Common Stock.
For more information about the Chardan Note and additional expense settlements, see Note 7 and Note 14.
37
Additional Settlements
The Company entered into the following settlements for certain accrued expenses and other obligations to third parties through the
issuance of common stock and/or convertible promissory notes as follows:
| ● | Calabrese LLC – 32,188 shares of Common Stock that were issued to Calabrese Consulting LLC (“Calabrese”), pursuant to a Satisfaction and Discharge Agreement, dated as of April 4, 2024, between Calabrese and the Company (the “Calabrese Agreement”), in lieu of payment for accounting services in the amount of $64,236, at a price per share of $2.00. |
| ● | Grant Thornton LLP – 46,010 shares of Common Stock that were issued to Grant Thornton LLP (“Grant Thornton”), pursuant to a Satisfaction and Discharge Agreement, dated as of February 9, 2024, between Grant Thornton and the Company (the “Grant Thornton Agreement”), in lieu of payment for services in the amount of $460,100, at a price per share of $10.00. |
| ● | IB Capital LLC – 155,000 shares of Common Stock that were issued to IB Capital LLC (“IB”), pursuant to a Satisfaction and Discharge Agreement, dated as of February 9, 2024, between IB and the Company (the “IB Agreement”), in lieu of payment for services in the amount of $295,000, at a price per share of $1.90. |
| ● | Outside The Box Capital Inc. – 20,000 shares of Common Stock that were issued to Outside The Box Capital Inc. (“OTB”), pursuant to a Marketing Services Agreement, dated as of September 13, 2023, between OTB and Quantum (the “OTB Agreement”), as payment in shares for services rendered to Quantum. |
| ● | Carriage House Capital, Inc. – up to 350,000 shares of Common Stock that were issued, or may become issuable, to Carriage House Capital, Inc. (“Carriage”), pursuant to the Consulting Agreement, dated as of February 19, 2024, between Carriage and the Company (the “Carriage Agreement”), as partial consideration for consulting services rendered to the Company, at the price per share of $4.98 on the day of issuance. The total consideration due under the Consulting Agreement is 350,000 shares of Common Stock, 100,007 shares of which were due upon signing of the contract and 27,777 shares of which are due in months four through twelve from the date of signing. |
| ● | Interest Solutions, LLC – up to 298,017 shares of Common Stock that may become issuable to Interest Solutions, LLC (“Interest Solutions”), pursuant to a convertible promissory note, dated as of February 9, 2024, in the aggregate principal amount of $275,000 (the “Interest Solutions Note”) at a price per share of $1.00. Accrued interest on the Interest Solutions Note is payable monthly, beginning on June 30, 2024, at a rate of 13% per annum. Until all payments have been made to the Wilson-Davis Sellers, interest on the Interest Solutions Note may be paid in cash or shares of Common Stock valued at the then-current conversion price. Thereafter, all accrued interest must be paid in cash. |
| ● | JonesTrading Institutional Services LLC – p to 375,000 shares of Common Stock that may become issuable to JonesTrading Institutional Services LLC (“JonesTrading”), pursuant to a convertible promissory note, dated as of February 9, 2024, in the aggregate principal amount of $375,000 (the “JonesTrading Note”) at a price per share of $1.00. Accrued interest on the JonesTrading Note is payable monthly, beginning on June 30, 2024, at a rate of 13% per annum. Until all payments have been made to the Wilson-Davis Sellers, interest on the Interest Solutions Note may be paid in cash or shares of Common Stock valued at the then-current conversion price. Thereafter, all accrued interest must be paid in cash. |
38
| ● | Winston & Strawn LLP – up to 833,333 shares of Common Stock that may become issuable to Winston & Strawn LLP (“Winston & Strawn”), pursuant to a subscription agreement, dated as of February 9, 2024, between Winston & Strawn and the Company (the “Winston & Strawn Agreement”) at a price per share of $1.00. Pursuant to the Winston Agreement, the Company may issue $2,500,000 worth of shares of Common Stock as payment for legal services, in three equal installments of $833,333 beginning on August 9, 2024. |
| ● | Toppan Merrill LLC – the Company issued to Toppan Merrill LLC (“Toppan”) a promissory note, dated as of February 9, 2024, in the aggregate principal amount of $160,025 (the “Toppan Note”). The maturity date of the Toppan Note is February 8, 2026 and the note accrues interest at a rate of 13% per annum. The principal and interest payments due under the note is not payable in shares of Common Stock. |
| ● | Lead Nectar – up to 12,000 shares of Common Stock that may become issuable to Lead Nectar in lieu of payment for internet marketing services in the amount of $20,000. |
ELOC Term Sheet
On April 29, 2024, the Company and an investor, entered into a non-binding term sheet (the “ELOC Term Sheet”). Pursuant to the ELOC Term Sheet, Tau would commit to purchase up to $10 million of Common Stock of the Company over the course of 24 months from the date of entry into a definitive agreement. Each advance may be up to the greater of 200,000 shares or 50% of the average daily volume traded of the shares during the 30 trading days immediately prior to the date the Company requests each advance. The ELOC Term Sheet is not binding and subject to completion of definitive agreements between the parties.
39
Results of Operations
The Company did not have operations until the acquisition of Wilson-Davis in connection with the business combination which closed on February 9, 2024. Therefore, the period-to-period comparison below primarily reflects financial results of Wilson-Davis since February 9, 2024.
| | For the Periods Ended | | |
| ||||
| | March 31, | | |
| ||||
|
| 2024 |
| 2023 |
| $ Change | |||
| | | | | | | | | |
REVENUES |
| |
|
| |
| |
|
|
Commissions | | $ | 929,514 | | $ | — | | $ | 929,514 |
Vetting fees | |
| 159,075 | |
| — | |
| 159,075 |
Clearing fees | |
| 131,843 | |
| — | |
| 131,843 |
Net gain/(loss) on firm trading accounts | |
| 3,656 | |
| — | |
| 3,656 |
Other | |
| 46,596 | |
| — | |
| 46,596 |
TOTAL REVENUES | |
| 1,270,684 | |
| — | |
| 1,270,684 |
| | | | | | | | | |
EXPENSES | |
|
| |
|
| |
|
|
Compensation, payroll taxes and benefits | |
| 1,031,779 | |
| — | |
| 1,031,779 |
Data processing and clearing costs | |
| 455,703 | |
| — | |
| 455,703 |
Regulatory, professional fees and related expenses | |
| 11,537,254 | |
| 907,809 | |
| 10,629,445 |
Stock compensation – founder share transfer | |
| 1,462,650 | |
| — | |
| 1,462,650 |
Communications | |
| 82,590 | |
| — | |
| 82,590 |
Occupancy and equipment | |
| 21,559 | |
| — | |
| 21,559 |
Transfer fees | |
| 20,618 | |
| — | |
| 20,618 |
Bank charges | |
| 36,176 | |
| — | |
| 36,176 |
Intangible assets amortization | |
| 453,464 | |
| — | |
| 453,464 |
Other | |
| 38,798 | |
| — | |
| 38,798 |
TOTAL EXPENSES | |
| 15,140,591 | |
| 907,809 | |
| 14,232,782 |
| | | | | | | | | |
INCOME/(LOSS) FROM OPERATIONS | |
| (13,869,907) | |
| (907,809) | |
| (12,962,098) |
| | | | | | | | | |
OTHER INCOME/(EXPENSE) | |
|
| |
|
| |
|
|
Interest income | |
| 607,444 | |
| 1,301,453 | |
| (694,009) |
Loss on AtlasClear asset acquisition | |
| (68,546,956) | |
| — | |
| (68,546,956) |
Vendor settlements | |
| 765,274 | |
| 61,532 | |
| 703,742 |
Change in fair value of warrant liability derivatives | |
| (307,656) | |
| — | |
| (307,656) |
Change in fair value, convertible note derivative | |
| (2,593,750) | |
| — | |
| (2,593,750) |
Change in fair value, long-term and short-term note derivative | |
| (8,106,998) | |
| — | |
| (8,106,998) |
Change in fair value of non-redemption agreement | |
| (164,626) | |
| — | |
| (164,626) |
Change in fair value of earnout liability | |
| (220,000) | |
| — | |
| (220,000) |
Change in fair value of subscription agreement | |
| 4,375,150 | |
| — | |
| 4,375,150 |
Interest expense | |
| (521,392) | |
| — | |
| (521,392) |
TOTAL OTHER INCOME/(EXPENSE) | |
| (74,713,510) | |
| 1,362,985 | |
| (76,076,495) |
| | | | | | | | | |
NET INCOME/(LOSS) BEFORE INCOME TAXES | |
| (88,583,417) | |
| 455,176 | |
| (89,038,593) |
| | | | | | | | | |
Income tax benefit/(expense) | |
| 6,000 | |
| (262,805) | |
| 268,305 |
| | | | | | | | | |
NET INCOME/(LOSS) | | $ | (88,577,417) | | $ | 192,371 | | $ | (88,769,788) |
Revenues of $1,270,684 from the date of acquisition through March 31, 2024, represent a 100% increase from revenues of $0 for the three months ended March 31, 2023. Wilson-Davis is a self-clearing correspondent securities broker-dealer registered with the SEC and a member in good standing of FINRA. Wilson-Davis is engaged principally in the over-the-counter, or “OTC,” markets in microcap securities. Microcap securities generally are issued by companies with low or “micro” capitalizations, meaning the total market capitalization value of the company’s stock is less than $250 million, which includes low-priced securities, or penny stocks, that trade
40
for less than $5.00 per share and have a market capitalization of less than $50 million. Wilson-Davis also executes transactions in exchange-traded securities. It derives its revenue from the liquidation of restricted and control microcap securities; clearing transactions on behalf of an introducing broker-dealer on a fully disclosed basis; and trading in equity securities for its own account. It receives limited revenues from fully paid stock lending and margin accounts. During its history, Wilson-Davis has underwritten at-the-market offerings for publicly traded companies, placed private offerings, sold mutual funds, introduced margin accounts cleared by other firms on a fully disclosed basis, and provided ancillary financial services.
Expenses of $15,140,591 from the date of acquisition through March 31, 2024 represent a 1568% increase from expenses of $907,809 for the three months ended March 31, 2023. The increase was due to the business combination and asset purchase transaction with AtlasClear, Inc.
Regulatory, professional fees and related expenses increased to $11,537,254 from the date of acquisition through March 31, 2024, compared to $907,809 in the prior year. The increase was due to the business combination and asset purchase transaction with AtlasClear, Inc. specifically substantially all $10,312,053 were directly related to the closing of the business combination.
Stock compensation – founder share transfer increased $1,462,650 from the date of acquisition through March 31, 2024. No expense was recorded in the prior period. The increase was due to the business combination and asset purchase transaction with AtlasClear, Inc.
Intangible asset amortization increased $453,464 from the date of acquisition through March 31, 2024. No expense was recorded in the prior period. The increase was due to the business combination and asset purchase transaction with AtlasClear, Inc.
Other expenses, which includes: Communications, Occupancy and equipment, Transfer fees, Bank charges and Other, increased to $199,741 from the date of acquisition through March 31, 2024. No expense was recorded in the prior period. The increase was due to the business combination and asset purchase transaction with AtlasClear, Inc.
Loss from operations was $13,869,907 from the date of acquisition through March 31, 2024. Loss from operations was $907,809 in the prior period. The increase was due to the business combination and asset purchase transaction with AtlasClear, Inc.
Other income/expense of $74,713,510 from the date of acquisition through March 31, 2024, represents a 5382% increase from $1,362,985 when compared to the prior year. The increase was due to the business combination and asset purchase transaction with AtlasClear, Inc.
Interest income decreased to $607,444 from the date of acquisition through March 31, 2024, represents a 53% decrease from $1,301,453 when compared to the prior period. In the prior period, the Company held cash in a trust account for the benefit of Quantum’s stockholders which generated the increased interest income.
The $68,546,956 loss from the date of acquisition through March 31, 2024 was due to the business combination and asset purchase transaction with AtlasClear, Inc. ASC 350 prohibits the recognition of goodwill in an asset purchase. As such the difference between the purchase price of $86.98 million was charged as transactions and recorded under accumulated deficit of $68.55 million. Refer to Note 9 for further detail. No similar loss was present in the prior period.
Total Purchase Price(a) |
| $ | 44,400,000 |
Fair value of Software Product Earn Out Shares(b) |
| | 10,963,000 |
Fair value of Earn Out Shares(c) |
| | 31,347,000 |
Purchase price allocated to Contribution Agreement |
| $ | 86,710,000 |
SURFACExchange |
| $ | 381,461 |
Bond Quantum |
| | 32,284 |
Atlas |
| | 7,749,299 |
Rubicon |
| | 10,000,000 |
Total Developed Technology acquired(d) |
| $ | 18,163,044 |
Transaction cost(e) |
| $ | 68,546,956 |
41
The Company recognized a total of $7,017,880 in loss in change in fair value from the date of acquisition through March 31, 2024 and $61,532 in the prior period. This consisted of $307,656 loss in change of fair value of the warrant liability, $164,626 loss in change of fair value of the non-redemption agreement liability, 2,593,750 loss in change of fair value of the convertible note, $8,106,998 loss in change of fair value of the short and long term financing, $220,000 loss in change in fair value of the earnout liability and gain of $4,375,150 in change in fair value of the Subscription Agreement. The Company entered into numerous agreements which qualified for derivative treatment after the acquisition date. The Company also has a subscription agreement, an earnout liability, and a non-redemption agreement that requires revaluation at the end of each quarter. The increase was due to the business combination and asset purchase transaction with AtlasClear, Inc.
Vendor settlements increased to $765,274 from the date of acquisition through March 31, 2024 from $61,532 in the prior period. The increase was due to the business combination and asset purchase transaction with AtlasClear, Inc.
Interest expense increased to $521,394 from the date of acquisition through March 31, 2024 compared to $0 in the prior period. The increase was due to the Promissory Notes the company entered into after the business combination and asset purchase transaction with AtlasClear, Inc.
The foregoing factors resulted in net loss of $88,577,417 from the date of acquisition through March 31, 2024, compared to net income of $192,371 during the prior period. The increase was due to the business combination and asset purchase transaction with AtlasClear, Inc.
For the three months ended March 31, 2023, we had a net loss of $192,371, which consists of change in fair value of warrant liability of $61,532, operating costs of $907,809 and provision for income taxes of $262,805, partially offset by income earned on marketable securities held in trust account of $1,301,453.
Liquidity and Capital Resources
Cash used in operating activities for the three months ended March 31, 2024 was 13,337,453 as compared 797,963 for the three months ended March 31, 2023. This was primarily affected by $4,204,886 in changes in operation assets and liabilities and the impact of operating revenue and operating expense due to the business combination and asset purchase transaction with AtlasClear, Inc.
Cash provided by investing activities for the three months ended March 31, 2024 was $80,957,354 as compared to $149,188,643 for the three months ended March 31, 2023. This is primarily due to the redemptions of cash held in trust of $53,947,064 and cash paid to Wilson-Davis shareholders of $7,127,569 at closing of the business combination and the acquisition of $33,333,876 in cash from the closing of the business combination.
Cash used in financing activities from the three months ended March 31, 2024 was $40,682,764 as compared to $147,124,692 for the three months ended March 31, 2023. This is primarily due to the redemptions of $53,947,064 and $148,523,642, respectively and the financing of transaction cost and financing from funicular totaling $12,212,000.
42
Line of Credit
The Company has a $10,000,000 revolving line of credit with BMO Harris Bank N.A. The interest rate is determined at the time of borrowing as agreed by the Company and the bank. The line of credit currently provides for interest at the bank’s overnight rate plus 1.5% and is secured by Wilson-Davis’ assets. In addition, the line of credit carries an interest rate of 0.5% on its unused portion. The line of credit agreement requires Wilson-Davis to maintain line of credit collateral with value, as determined by the bank, in an amount at least equal to a percentage of the loan amount as specified by the bank. Advances on the line of credit are payable on demand. The entire amount of this credit facility is available to be drawn and used to meet Wilson-Davis’ liquidity requirements for NSCC clearing margin deposits. Wilson-Davis did not draw on its line of credit during the months ended March 31, 2024 and 2023. As of March 31, 2024 and 2023, Wilson-Davis was in compliance with all financial covenants contained in its revolving line of credit agreement.
In connection with AtlasClear Holdings’ assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Codification Subtopic 205-40, “Presentation of Financial Statements – Going Concern,” the liquidity of Quantum raises substantial doubt about its ability to continue as a going concern through the twelve months following the issuance of the financial statements. If AtlasClear Holdings’ is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations and reducing overhead expenses. AtlasClear Holdings’ cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2024.
Contractual Obligations
The Company holds several long-term debt obligations with outside vendors and investors, with loans maturing between 2025 and 2028 (see Note 6, 7 and 14). Additionally, the Company leases office space under several operating leases (see Note 11). The Company has no capital lease obligations. Further, there are no other outstanding long-term liabilities contractually obligated by the Company.
Critical Accounting Policies
The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates.
Derivative Liabilities
We account for derivative instruments as either equity-classified or liability-classified instruments based on an assessment of the derivative instruments’ specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the derivative instruments are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the derivative instruments meet all of the requirements for equity classification under ASC 815, including whether the derivative instruments are indexed to our own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of issuance and as of each subsequent quarterly period end date while the warrants and the PIPE derivatives are outstanding. We have concluded that the public warrants should be classified as equity instruments, and the PIPE derivatives and the private warrants should be classified as liability instruments.
For issued or modified derivatives that meet all of the criteria for equity classification, the derivatives are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified derivatives that do not meet all the criteria for equity classification, the derivatives are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the derivatives are recognized as a non-cash gain or loss on the statements of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
43
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to the company’s management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
As of March 31, 2024, an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) was carried out by our management, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Based upon that evaluation, the CEO and CFO have concluded that as of the end of that fiscal quarter, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
As a result of the business combination, the Company has incorporated changes in internal controls as it relates to the controls and procedures which were present with Wilson-Davis. Except as discussed, there were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently a party to any material legal proceedings.
Item 1A. Risk Factors
Factors that could cause our actual results to differ materially from those in this report include the risk factors described in our Annual Report on Form 10-K. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
The information set forth in the “Overview” section above with respect to the issuances under each of the Pacsquare Purchase Agreement, the Bank Acquisition Agreement, the Calabrese Agreement, the Grant Thornton Agreement, the IB Agreement, the OTB Agreement, the Carriage Agreement, the Interest Solutions Note, the JonesTrading Note and the Winston & Strawn Agreement is incorporated by reference herein. The shares of Common Stock have been or will be issued pursuant to each of the respective agreements in reliance upon the exemption from registration provided under Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act in transactions not requiring registration under the Securities Act.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
On May 21, 2024, the board of directors of the Company (the “Board”) appointed Craig Ridenhour to serve as the Company's President, effective as of such date. Mr. Ridenhour currently serves as a member of the Board and previously served as the Company’s Chief Business Development Officer from February 2023 until his appointment as President. In addition, on May 21, 2024, the Board also appointed John Schaible to serve as Executive Chairman of the Company. Mr. Schaible previously served as the Company’s Chief Strategy Officer from February 2024 until his appointment as Executive Chairman.
45
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report.
Exhibit No. |
| Description |
2.1 | ||
3.1 | ||
3.2 | ||
4.1 | ||
10.1† | ||
10.2† | ||
10.3 | ||
10.4† | ||
10.5 | ||
10.6 | ||
10.7 | ||
10.8 | ||
10.9 | ||
10.10(a) | ||
10.10(b) | ||
10.10(c) |
46
10.10(d) | ||
10.10(e) | ||
10.10(f) | ||
10.10(g) | ||
10.10(h) † | ||
10.10(i) | ||
10.11 | ||
10.12# | ||
10.13# | ||
10.14 | ||
31.1* | Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a). | |
31.2* | Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a). | |
32.1** | ||
32.2** | | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
* Filed herewith.
** Furnished herewith.
# Indicates management contract or compensatory plan, contract or arrangement.
47
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ATLASCLEAR HOLDINGS, INC. | |
| | |
Date: May 24, 2024 | By: | /s/ Robert McBey |
| Name: | Robert McBey |
| Title: | Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
Date: May 24, 2024 | By: | /s/ Richard Barber |
| Name: | Richard Barber |
| Title: | Chief Financial Officer |
| | (Principal Financial Officer) |
48
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert McBey, certify that:
1.I have reviewed this quarterly report on Form 10-Q of AtlasClear Holdings, Inc. ;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 24, 2024
|
| /s/ Robert McBey |
| | Robert McBey |
| | Chief Executive Officer |
| | (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard Barber, certify that:
1.I have reviewed this quarterly report on Form 10-Q of AtlasClear Holdings, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 24, 2024
|
| /s/ Richard Barber |
| | Richard Barber |
| | Chief Financial Officer |
| | (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AtlasClear Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert McBey, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 24, 2024
|
| /s/ Robert McBey |
| | Robert McBey |
| | Chief Executive Officer |
| | (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AtlasClear Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard Barber, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 24, 2024
|
| /s/ Richard Barber |
| | Richard Barber |
| | Chief Financial Officer |
| | (Principal Financial Officer) |