Atlasclear Holdings, Inc. current report, 09 February 2024

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Business Context and Reporting Period

AtlasClear Holdings, Inc. filed a Form 8-K reporting events occurring primarily on February 9, 2024, including completion of its business combination with Quantum FinTech Acquisition Corporation and AtlasClear, Inc. The former Calculator New Pubco, Inc. changed its name to AtlasClear Holdings, Inc. and ceased to be a shell company.

  • AtlasClear, Inc. became a wholly owned subsidiary, and Quantum became a wholly owned subsidiary.
  • The company acquired broker-dealer Wilson-Davis & Co., Inc. before or in connection with closing.
  • Proposed acquisitions of Commercial Bancorp and certain technology assets of Pacsquare remained pending or expected after closing.
  • Common stock began trading on the NYSE American under “ATCH” on February 12, 2024; warrants began OTC trading under “ATCH WS.”

Financial Metrics, Capitalization, Debt and Liquidity

  • Quantum stockholders redeemed 4,940,885 shares for approximately $53.9 million, or approximately $10.92 per share. Approximately $1.2 million remaining in the trust account was used to partially fund the transaction.
  • Following closing, 11,781,759 shares of common stock were issued and outstanding.
  • The company issued 2,201,010 shares to settle approximately $5.45 million of accrued expenses and other obligations, including 2,000,000 shares issued to Qvent, LLC for approximately $4.63 million advanced to Quantum.
  • The Wilson-Davis purchase price was reduced by $5 million. Cash paid at closing was $8 million, with the balance represented by seller notes consisting of a $5 million short-term note due 90 days after closing and a $7.971 million long-term note due 24 months after closing.
  • The short-term seller note bears 9% annual interest. The long-term seller note bears 13% annual interest. Interest may generally be paid in shares or cash, and the notes include conversion features based on discounted volume-weighted average prices.
  • The company issued Funicular Funds a secured convertible note with $6 million principal, a November 9, 2025 maturity date and 12.5% annual interest. Interest may be paid in cash or added to principal. The default rate is 20%.
  • The Funicular note is convertible, initially at $10 per share, subject to monthly adjustment based on trailing VWAP and generally subject to a $2 per-share floor. It is secured by substantially all existing and future company and subsidiary assets, subject to exceptions.
  • The company issued Chardan Capital Markets a $4.15 million convertible note in exchange for waiving a $7.04375 million transaction fee. The note matures February 9, 2028, bears 13% annual interest and has conversion and full-ratchet adjustment features.
  • The filing does not provide post-closing revenue, net income, operating cash flow, margins, or a clear cash balance. Wilson-Davis financial statements and pro forma combined financial information were to be provided by amendment.

Material Changes Versus the Prior Comparable Period

  • The transaction materially changed the company from a SPAC shell into an operating financial-services holding company.
  • The company added Wilson-Davis as an acquired broker-dealer and assumed substantial convertible debt and related guarantees.
  • Outstanding Quantum securities were converted into AtlasClear securities, and the company adopted a new charter, bylaws, board structure, management team and code of ethics.
  • The board expanded from two to seven directors. Four directors were determined to be independent under applicable NYSE and SEC standards.
  • The 2023 Equity Incentive Plan became the 2024 Equity Incentive Plan, with 1,178,176 shares reserved for issuance, equal to 10% of shares outstanding immediately after closing.

Outlook, Management Commentary, Risks and Unusual Items

  • AtlasClear expects to pursue the Commercial Bancorp and Pacsquare transactions, but the filing does not provide a definitive closing date or assurance of completion.
  • Eligible AtlasClear stockholders may receive up to 5,944,444 earnout shares based on post-closing stock-price milestones. Atlas FinTech may receive up to $20 million of software-product earnout shares based on annual revenue targets over five years.
  • The company may need stockholder approval for issuance of shares exceeding 19.9% of outstanding shares upon conversion of the Funicular note and may need approval for certain Wilson-Davis note conversions.
  • Registration statements are required for shares issuable under the Funicular and Chardan notes and under the Wilson-Davis arrangements. Delays may trigger cash payments or increased interest rates.
  • Convertible notes could create substantial dilution and downward pressure on the common stock price, particularly because certain conversion prices may adjust downward.
  • If the notes are not converted, principal and interest must be repaid. Defaults could accelerate obligations, increase interest rates, permit foreclosure on secured assets or adversely affect liquidity and solvency.
  • Debt covenants restrict additional indebtedness, liens, asset sales and other activities, potentially limiting operating flexibility and access to capital.
  • The company stated that it has not paid dividends and does not expect to pay dividends in the foreseeable future.

Important Facts for Investors to Verify

  1. Review the amended filing containing Wilson-Davis financial statements, pro forma combined financial information and management’s discussion and analysis.
  2. Confirm the final cash position, operating liquidity, acquisition funding needs and sources of financing after closing.
  3. Assess the maturity schedule, conversion terms, collateral and covenant compliance for the Wilson-Davis, Funicular and Chardan notes.
  4. Track potential dilution from note conversions, earnout shares, software-product earnout shares, warrants and the 2024 Incentive Plan.
  5. Verify the status and financing requirements of the Commercial Bancorp and Pacsquare transactions.
  6. Monitor required registration statements, potential stockholder approvals and any related penalties or interest-rate increases.
  7. Evaluate Wilson-Davis integration, regulatory compliance and the company’s ability to maintain its NYSE American listing.