ATCH

Business Context and Reporting Period

Company: AtlasClear Holdings, Inc. (NYSE American: ATCH)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended March 31, 2026
Business Overview: A fintech-driven business-to-business platform providing trading, clearing, settlement, and banking services. The company operates through its broker-dealer subsidiary, Wilson-Davis & Co., Inc., focusing on over-the-counter and listed securities, particularly microcap securities.

Key Financial Metrics

Note: Net income for the nine-month period was significantly influenced by non-cash gains from changes in the fair value of financial instruments.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 65% for the quarter and 67% for the nine-month period compared to the prior year. This growth was primarily driven by new "Stock locate fees" revenue ($1.36M for the quarter; $3.01M for nine months) and increased commissions.
• Expense Increases: Total expenses rose 97% for the quarter and 76% for the nine-month period. Key drivers included:
  • Stock-Based Compensation: $1.15M (quarter) and $2.48M (nine months), resulting from new executive employment agreements signed in September 2025. No such expense existed in the comparable 2025 periods.
  • Compensation & Payroll: Increased due to variable compensation tied to revenue growth and higher headcount.
  • Regulatory & Professional Fees: Increased due to costs associated with the Commercial Bancorp acquisition negotiations.
• Net Income Volatility: While the quarter ended with a net loss of $1.93M, the nine-month period showed a net income of $4.41M. This nine-month income was largely attributable to a $10.68M gain from the revaluation of the earnout liability (due to revised revenue targets) and other fair value adjustments on derivatives, offsetting an operating loss of $6.27M.
• Debt Settlement: The company settled the Winston & Strawn agreement in January 2026, resulting in a $570,300 loss on settlement. Several convertible notes and merger financing obligations were also settled or converted to equity during the period.

Guidance, Outlook, and Risks

• Liquidity and Going Concern: Management previously raised substantial doubt about the company's ability to continue as a going concern. This doubt has been alleviated following financing transactions in October 2025, including a $10M Restated Secured Convertible Note and a $10M Equity SPA (Units), providing approximately $15.85M in aggregate gross proceeds. Management expects sufficient liquidity for at least 12 months.
• Acquisition Strategy:
  • Commercial Bancorp: Entered into a Share Purchase Agreement on February 5, 2026, to acquire Commercial Bancorp (owner of Farmers State Bank). Consideration includes cash and stock. A $100,000 earnest money deposit has been made.
  • Ark Financial Services: Announced a non-binding Letter of Intent (LOI) on April 24, 2026, to acquire Ark and its subsidiary Dawson James Securities. Closing is subject to due diligence and regulatory approvals.
• Key Risks:
  • Derivative Valuation: Significant volatility in net income is driven by fair value changes of warrant liabilities, convertible notes, and earnout obligations.
  • Regulatory Compliance: Wilson-Davis is subject to ongoing FINRA proceedings regarding short sales and anti-money laundering rules. A contingent liability of $100,000 is accrued, though the final fine amount is not estimable.
  • Internal Controls: Management concluded that disclosure controls and procedures were not effective as of March 31, 2026.

Investor Verification Checklist

• Verify Liquidity Runway: Confirm the actual cash proceeds received from the October 2025 financings and current burn rate to validate the 12-month liquidity assertion.
• Assess Acquisition Viability: Monitor the status of regulatory approvals for the Commercial Bancorp acquisition and the progress of the Ark LOI toward a definitive agreement.
• Review Derivative Liabilities: Analyze the sensitivity of the $11.7M Secured Convertible Note and $2.75M Warrant Liability to stock price volatility, as these significantly impact reported earnings.
• Monitor FINRA Proceedings: Track the outcome of the appeal regarding the $490,000 fine to determine if the accrued $100,000 liability is sufficient.
• Check Internal Control Remediation: Review future filings for updates on the remediation plan for the ineffective disclosure controls and procedures.