AtlasClear Holdings(ATCH) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides comprehensive financial data, including interim consolidated statements and detailed notes, along with management's discussion and analysis Item 1. Interim Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' deficit, and cash flows, along with comprehensive notes detailing the company's business, accounting policies, recent acquisitions, related party transactions, and financial instruments Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' deficit at specific reporting dates Condensed Consolidated Balance Sheets | Metric | March 31, 2024 (Unaudited) | December 31, 2023 | | :----------------------------------- | :--------------------------- | :------------------ | | Total Assets | $76,372,975 | $55,477,860 | | Total Liabilities | $80,432,220 | $12,372,267 | | Total Stockholders' Deficit | $(4,059,245) | $(11,512,876) | | Cash and cash equivalents | $7,194,912 | $619,554 | | Trading securities, market value, net | $55 | $54,799,478 | Condensed Consolidated Statements of Operations This section details the company's financial performance, including revenues, expenses, and net income or loss over specific periods Condensed Consolidated Statements of Operations | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total Revenues | $1,270,684 | $0 | | Total Expenses | $15,140,591 | $907,809 | | Loss From Operations | $(13,869,907) | $(907,809) | | Net Income/(Loss) | $(88,577,417) | $192,371 | | Basic and diluted net income (loss) per share, redeemable common stock | $(7.86) | $0.01 | | Basic and diluted net income (loss) per share, non-redeemable common stock | $(7.86) | $0.01 | Condensed Consolidated Statements of Changes in Stockholders' Deficit This section outlines changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit Condensed Consolidated Statements of Changes in Stockholders' Deficit | Metric | March 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------- | :---------------- | | Common Stock Shares Outstanding | 12,277,759 | 5,031,250 | | Total Stockholders' Deficit | $(4,059,245) | $(11,512,876) | | Net income/(loss) for the period | $(88,577,417) | $192,371 | Condensed Consolidated Statements of Cash Flows This section reports the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Cash Used for Operating Activities | $(13,337,453) | $(797,963) | | Cash Provided by Investing Activities | $80,957,354 | $149,188,643 | | Cash Used for Financing Activities | $(40,682,764) | $(147,124,692) | | Net Increase (Decrease) in Cash | $26,937,137 | $1,265,988 | | Cash at Year End | $27,556,691 | $1,395,548 | Notes to Condensed consolidated financial Statements (Unaudited) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS This note describes the company's formation, business objectives, and going concern considerations - AtlasClear Holdings, Inc. (formerly Calculator New Pubco, Inc.) consummated a business combination on February 9, 2024, involving Quantum FinTech Acquisition Corporation, AtlasClear, Inc., and the acquisition of broker-dealer Wilson-Davis & Co., Inc.[18][19] - The company's goal is to build a technology-enabled financial services firm for trading, clearing, settlement, and banking, focusing on financial services firms[21] - The company's liquidity raises substantial doubt about its ability to continue as a going concern through the next twelve months, requiring additional capital or liquidity conservation measures[28] NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles and estimates used in preparing the financial statements - The financial statements are prepared in accordance with GAAP for interim financial information and SEC regulations, with certain disclosures condensed or omitted[31] - The Company is an "emerging growth company" and has elected not to opt out of the extended transition period for new or revised financial accounting standards[35][36] - Key accounting estimates include the fair value of private warrant liabilities, Subscription Agreement, conversion liabilities, customer list, and acquired licenses[38] NOTE 3. CASH SEGREGATED IN ACCORDANCE WITH FEDERAL REGULATIONS This note details cash reserves held for customer and broker-dealer transactions as required by federal regulations - Wilson-Davis is required by SEC Rule 15c3-3 to maintain cash reserves for customer and broker-dealer transactions[62][63] - As of March 31, 2024, the customer reserve was $96,856 less than required, but a $600,000 deposit on April 1, 2024, resulted in an excess of $504,026[62] NOTE 4. NET CAPITAL REQUIREMENTS This note specifies the company's compliance with regulatory net capital requirements for broker-dealers - Wilson-Davis's net capital was $10,449,178 as of March 31, 2024, which was $10,199,178 in excess of the minimum required[64] NOTE 5 – CASH AND RESTRICTED CASH This note provides a breakdown of the company's cash and restricted cash balances NOTE 5 – CASH AND RESTRICTED CASH | Category | Amount (March 31, 2024) | | :----------------------------------- | :---------------------- | | Cash and cash equivalents | $7,194,912 | | Cash segregated - customers | $20,161,017 | | Cash segregated - PAB | $200,762 | | Total cash and restricted cash | $27,556,691 | NOTE 6. RELATED PARTY TRANSACTIONS This note discloses transactions and balances with related parties, including compensation and debt settlements - Stock-based compensation of $1,462,650 related to Founder Shares granted to directors/nominees was recognized upon the closing of the Business Combination on February 9, 2024[69] - A $480,000 promissory note and $4,156,397 in advances from related parties were settled with the issuance of 2,000,000 shares on February 9, 2024[72][73] NOTE 7. COMMITMENTS AND CONTINGENCIES This note outlines the company's contractual obligations, potential liabilities, and excise tax liabilities - A $7,043,750 marketing fee to Chardan Capital Markets LLC was waived in exchange for a $4,150,000 convertible promissory note (Chardan Note) issued on February 9, 2024[77] - On February 9, 2024, AtlasClear Holdings, Inc. issued 2,201,010 shares of Common Stock to settle $5,448,933 in obligations, including 2,000,000 shares to Qvent, LLC for $4,577,569 in advances[82] - The company recorded $2,067,572 and $1,528,101 of excise tax liability as of March 31, 2024, and December 31, 2023, respectively, due to stock redemptions after December 31, 2022[88] NOTE 8. ACQUISITION OF WILSON-DAVIS This note details the acquisition of Wilson-Davis, including purchase price, consideration, and financial impact - The total purchase price for Wilson-Davis was reduced by $5 million, with consideration including $8 million cash and convertible promissory notes ($5M Short-Term, $7.971M Long-Term)[99] - The Sponsor transferred 885,010 Founder Shares (valued at $8,850,100) to Wilson-Davis Sellers as part of the consideration[101] NOTE 8. ACQUISITION OF WILSON-DAVIS | Item | Amount | | :------------------------------------------------------------------------------------------------- | :------------- | | Cash paid to Wilson-Davis shareholders | $7,127,569 | | Short-term notes | $5,000,000 | | Long-term notes | $7,971,197 | | Fair value of shares transferred from sponsor | $8,850,100 | | Total consideration paid | $28,948,866 | | Excess of purchase price over net liabilities assumed before allocation to identifiable intangible assets and goodwill | $18,928,355 | NOTE 9. ACQUISITION OF THE ASSETS OF ATLASCLEAR, INC This note describes the acquisition of AtlasClear, Inc.'s assets, including consideration and the recognition of a significant loss - AtlasClear Stockholders received 4,440,000 shares of common stock and up to 5,944,444 Earn Out Shares based on stock price milestones[105] - Atlas FinTech will receive up to $20 million of Software Products Earn Out Shares based on revenue targets[105] - A $68,546,956 loss was recognized due to ASC 350 prohibiting goodwill recognition in an asset purchase, charged as transaction costs under accumulated deficit[112] NOTE 10. INTANGIBLE ASSETS This note provides a breakdown of the company's intangible assets, including licenses, software, technology, and customer lists - AtlasClear acquired the AtlasClear Platform from Pacsquare for $4.8 million, payable in cash and common stock, including 336,000 shares issued as of March 31, 2024[109] NOTE 10. INTANGIBLE ASSETS | Intangible Asset | Net Amount (March 31, 2024) | | :----------------------------------- | :-------------------------- | | Licenses | $4,553,944 | | Pacsquare assets – Proprietary Software | $1,416,000 | | Technology acquired | $17,845,813 | | Customer Lists | $14,238,178 | | Total Intangible Assets | $38,053,935 | NOTE 11. DEPOSIT ON ACQUISITION OF COMMERCIAL BANCORP This note details the deposit made in connection with the potential acquisition of Commercial Bancorp - AtlasClear and Commercial Bancorp amended their merger agreement, with Commercial Bancorp receiving 40,000 shares of Common Stock as a nonrefundable escrow deposit[111] NOTE 12. LEASES This note outlines the company's operating lease arrangements, including right-of-use assets and lease liabilities - The company has operating leases for office spaces in Addison, Texas, Denver, Colorado, and Salt Lake City, Utah, with ROU assets and lease liabilities recorded[114][115][116] NOTE 12. LEASES | Metric | March 31, 2024 | | :----------------------------------- | :------------- | | Operating lease ROU Asset - Ending Balance | $368,965 | | Operating lease liability - ending balance | $374,214 | | Weighted average remaining lease term | 2.57 years | | Weighted average discount rate | 4.96 % | NOTE 13. STOCKHOLDERS' DEFICIT This note details changes in stockholders' deficit, including common stock issuances and redemptions - As of March 31, 2024, there were 12,277,759 shares of common stock issued and outstanding, up from 5,031,250 at December 31, 2023[120] - 4,940,885 shares of Quantum Common Stock were redeemed for approximately $53.95 million in connection with the Business Combination approval[122] NOTE 14. WARRANTS This note describes the company's outstanding public and private warrants, including their classification and valuation inputs - 20,125,000 Public Warrants are outstanding, exercisable for one-half share of common stock at $11.50 per whole share, classified as equity[124] - 6,153,125 Private Warrants are outstanding, exercisable for one share of common stock at $11.50 per share, classified as derivative liabilities and re-valued each reporting period[127][129] NOTE 14. WARRANTS | Input | March 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------- | :---------------- | | Market price of public shares | $1.60 | $6.20 | | Risk-free rate | 4.14 % | 3.77 % | | Volatility | 51.1 % | 12.0 % | | Exercise price | $11.50 | $11.50 | NOTE 15. FAIR VALUE MEASUREMENTS This note explains the fair value hierarchy used for financial instruments and details specific derivative liabilities - The company uses a three-tier fair value hierarchy (Level 1, 2, 3) for financial instruments, prioritizing observable inputs[131][134] NOTE 15. FAIR VALUE MEASUREMENTS | Description | Level | March 31, 2024 | December 31, 2023 | | :----------------------------------- | :---- | :------------- | :---------------- | | Warrant liability – Private Warrants | 3 | $615,312 | $307,656 | | Convertible notes derivative | 3 | $12,369,480 | $0 | | Earnout liability | 3 | $11,183,000 | $0 | - The non-redemption agreement liability was transferred to equity as of February 9, 2024, at a total value of $1,606,279[138] NOTE 16. SUBSEQUENT EVENTS This note discloses significant events that occurred after the reporting period, including stock issuances and filings - On April 4, 2024, 32,188 shares of Common Stock were issued to Calabrese Consulting LLC for accounting services[155] - On April 8, 2024, 145,210 shares of Common Stock were issued to Wilson-Davis Sellers to settle the first quarterly interest payments on the Seller Notes[155] - On May 14, 2024, a Form S-1 registration statement was filed to register the resale of up to 37,885,852 shares of Common Stock by selling stockholders[156] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, focusing on the impact of the recent business combination and asset acquisitions Overview This section provides key information regarding overview - AtlasClear Holdings, Inc. aims to build a cutting-edge technology-enabled financial services firm, creating an efficient platform for trading, clearing, settlement, and banking[160] - The target client base includes financial services firms with annual revenues up to $1 billion, currently underserved by larger correspondent clearing firms and banks[161] - Anticipated synergies between Commercial Bancorp (if acquired) and Wilson-Davis are expected to lower capital costs, increase net interest margins, expand product development, and extend credit[162] Wilson-Davis This section provides key information regarding wilson-davis - Wilson-Davis is a self-clearing correspondent securities broker-dealer, registered with the SEC and FINRA, licensed in 50 states, District of Columbia, and Puerto Rico[164] - Revenue is derived principally from commissions on the liquidation of restricted and control microcap securities, vetting fees, and clearing service fees[164][166] - Business and results of operations are affected by liquidity requirements, customer base growth, expanding existing customer relationships, market trends (e.g., downturn since early 2022), and macroeconomic events[170] Recent Developments This section provides key information regarding recent developments - The Business Combination was consummated on February 9, 2024, leading to the company's name change to AtlasClear Holdings, Inc.[168] - Amendments to the Broker-Dealer Acquisition Agreement reduced the total purchase price for Wilson-Davis by $5 million, with consideration including cash and convertible promissory notes[172] - AtlasClear acquired the AtlasClear Platform from Pacsquare for $4.8 million, with payments in cash and common stock, including 336,000 shares issued[176] - The company issued a $4,150,000 convertible promissory note to Chardan Capital Markets LLC and 2,201,010 shares of Common Stock to settle $5,448,933 in other obligations[178][179] - A non-binding term sheet was entered into with an investor (Tau) for up to $10 million of Common Stock purchases over 24 months[183] Results of Operations This section provides key information regarding results of operations Results of Operations | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Total Revenues | $1,270,684 | $0 | 100% | | Total Expenses | $15,140,591 | $907,809 | 1568% | | Net Income/(Loss) | $(88,577,417) | $192,371 | -46050% | | Loss on AtlasClear asset acquisition | $(68,546,956) | $0 | N/A | - The significant increase in revenues and expenses, and the net loss, are primarily due to the business combination and asset purchase transaction with AtlasClear, Inc. and the acquisition of Wilson-Davis[190][202] - Regulatory, professional fees and related expenses increased to $11,537,254, with substantially all ($10,312,053) directly related to the business combination[191] Liquidity and Capital Resources This section provides key information regarding liquidity and capital resources Liquidity and Capital Resources | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Cash used in operating activities | $(13,337,453) | $(797,963) | | Cash provided by investing activities | $80,957,354 | $149,188,643 | | Cash used in financing activities | $(40,682,764) | $(147,124,692) | - The company's liquidity raises substantial doubt about its ability to continue as a going concern, necessitating additional capital or liquidity conservation measures[208] - The company has a $10,000,000 revolving line of credit with BMO Harris Bank N.A., which was unused during the period[207] Critical Accounting Policies This section provides key information regarding critical accounting policies - The preparation of condensed consolidated financial statements requires management to make significant estimates and assumptions that affect reported amounts, which could materially differ from actual results[211] Derivative Liabilities This section provides key information regarding derivative liabilities - Derivative instruments are classified as either equity or liability based on ASC 480 and ASC 815, considering specific terms and indexing to the company's common stock[212] - Liability-classified derivatives are recorded at initial fair value and re-valued at each reporting date, with changes recognized as non-cash gains or losses in the statements of operations[213] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that quantitative and qualitative disclosures about market risk are not required for smaller reporting companies - Quantitative and qualitative disclosures about market risk are not required for smaller reporting companies[214] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of March 31, 2024 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[216] - Changes in internal control over financial reporting were incorporated due to the business combination with Wilson-Davis[217] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not currently a party to any material legal proceedings[220] Item 1A. Risk Factors As of the date of this Quarterly Report, there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes to the risk factors disclosed in the Annual Report on Form 10-K as of the date of this Quarterly Report[221] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities This section details various issuances of Common Stock and convertible notes for acquisitions and expense settlements, made in reliance on exemptions from registration under the Securities Act - Shares of Common Stock were issued under various agreements (Pacsquare Purchase, Bank Acquisition, Calabrese, Grant Thornton, IB, OTB, Carriage, Interest Solutions, JonesTrading, Winston & Strawn) in reliance upon Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act[222] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reported period - No defaults upon senior securities[223] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[224] Item 5. Other Information The company announced the appointments of Craig Ridenhour as President and John Schaible as Executive Chairman, effective May 21, 2024 - Craig Ridenhour was appointed President, effective May 21, 2024[225] - John Schaible was appointed Executive Chairman, effective May 21, 2024[225] Item 6. Exhibits This section lists all exhibits filed as part of, or incorporated by reference into, this Quarterly Report, including various agreements related to the business combination, securities, and corporate governance - Exhibits include amendments to the Business Combination Agreement, Amended and Restated Certificate of Incorporation and By-Laws, Securities Purchase Agreement, Secured Convertible Promissory Note, Registration Rights Agreements, and various other agreements and certifications[227][228][229] Signatures This section contains the official signatures of the company's Chief Executive Officer and Chief Financial Officer - The report was signed by Robert McBey, Chief Executive Officer, and Richard Barber, Chief Financial Officer, on May 24, 2024[234]