Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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, including the expected completion of the acquisitions of Commercial Bancorp of Wyomin, ("Commercial Bancorp") and Ark Financial Services, Inc. ("Ark"), 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.

Forward-looking statements are not guarantees of performance, and the absence of these words does not mean that a statement is not forward looking. You should understand that the following important factors could affect our future results, and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements herein:

	●	the ability to maintain the listing of our Common Stock on the NYSE American LLC ("NYSE American"), including regaining compliance with the listing standards of the NYSE American, and the potential liquidity and trading of our Common Stock;
	●	our ability to realize the benefits expected from the Business Combination (as defined herein);
	●	our ability to obtain the required regulatory approvals for, and to complete, the acquisitions of Commercial Bancorp and Ark;
	●	our ability to successfully integrate our proposed acquisitions, including the planned acquisitions of Commercial Bancorp and Ark, and to realize the synergies and benefits of such acquisitions;
	●	our ability to successfully implement the AtlasClear Platform (as defined herein);
	●	our significant indebtedness and our ability to service such indebtedness;
	●	the volatility of the price of our common stock, par value $0.0001 per share (the "Common Stock") and the possibility that stockholders could incur substantial losses;
	●	potential dilution of our stockholder interests resulting from our issuance of equity securities;
	●	our ability to grow and manage growth profitably;
	●	our ability to raise financing in the future, if and when needed;
	●	our success in retaining or recruiting, or adapting to changes in, our officers, key employees, or directors following the Business Combination;
	●	our ability to attract and retain our senior management and other highly qualified personnel;
	●	our ability to achieve or maintain profitability;
	●	the period over which we anticipate our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements;
	●	our ability to successfully protect against cybersecurity attacks or breaches, ransomware attacks, and other disruptions to our information technology structure;
	●	our ability to successfully compete against other companies;
	●	our estimates regarding expenses, future revenue, and needs for additional financing; and
	●	the effect of economic downturns and political and market conditions beyond our control.

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 year ended June 30, 2026 (the "Annual Report") filed with the U.S. Securities and Exchange Commission (the "SEC") on September 24, 2026. 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, underwriting 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 our subsidiary AtlasClearing, Inc. (formerly Wilson-Davis & Co) ("AtlasClearing"), a correspondent clearing company, and the anticipated acquisition of Commercial Bancorp, we 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 AtlasClearing are expected to allow for lower cost of capital, higher net interest margins, expanded product development and greater credit extension.

AtlasClearing

AtlasClearing is a correspondent securities broker-dealer registered with the SEC, licensed in 50 states, District of Columbia, and Puerto Rico, and is a member in good standing of the Financial Industry Regulatory Authority, Inc. ("FINRA"). AtlasClearing 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 AtlasClearing clears transactions on a fully disclosed basis, stock locate fees charged to other broker-dealers, and other financial service fees. Commissions are earned by executing transactions for customers. Vetting fee revenues are earned when AtlasClearing vets 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 AtlasClearing's Business

AtlasClearing's business and results of operations have been, and will continue to be, affected by numerous factors and trends, which AtlasClearing believes include the following and those discussed in the section titled "Risk Factors" of the Annual Report.

	○	Liquidity. As a clearing broker-dealer in the U.S., AtlasClearing 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. AtlasClearing's growth requires continued use of its services by new customers.
	○	Expanding AtlasClearing's Relationship with Existing Customers. AtlasClearing's 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, AtlasClearing's customers' behaviors are affected. AtlasClearing's revenue and profitability can be affected by general downturns in the securities markets, resulting from factors such as increased inflation, increased interest rates and other factors.

Commercial Bancorp Share Purchase Agreement

On February 5, 2026, the Company entered into a share purchase agreement (the "Purchase Agreement") with Commercial Bancorp, and each of the shareholders of Commercial Bancorp (collectively, the "Sellers"). The Purchase Agreement provides for the Company to acquire (the "CB Acquisition") from the Sellers all of the outstanding shares (the "Shares") of common stock of Commercial Bancorp, which is the owner of all of the outstanding stock of Farmers State Bank, a Wyoming state-chartered member bank (the "Bank"), subject to the terms and conditions set forth in the Purchase Agreement. As previously disclosed, the Company had previously entered into an agreement and plan of merger, as amended, to acquire Commercial Bancorp, which agreement has expired in accordance with its terms.

Pursuant to the terms of the Purchase Agreement, the Company has agreed to purchase the Shares from the Sellers for consideration consisting of a combination of cash and shares of Common Stock, with the total amount of consideration to be determined based on (i) each Seller's election to receive cash, shares of Common Stock, or a combination thereof, (ii) the adjusted book value of the operational portion of the equity capital of Commercial Bancorp as of the closing of the CB Acquisition (the "CB Closing"), determined in accordance with the provisions of the Purchase Agreement (the "ABV"), (iii) the value of the existing building and land comprising the physical location of the Bank (the "Premises"), and (iv) Commercial Bancorp's net operating loss as reflected on its most recent tax return prior to the CB Closing, multiplied by the maximum corporate federal income tax rate in effect as of the date of the CB Closing (the "NOL Tax Benefit"). Each Seller may elect (the "Election") to receive an amount equal to any of the following three options: (i) three times such Seller's pro rata portion of the ABV, plus such Seller's pro rata portion of the value of the Premises and the NOL Tax Benefit, payable one-third in cash and two-thirds in shares of Common Stock; (ii) two times such Seller's pro rata portion of the ABV, plus such Seller's pro rata portion of the value of the Premises and the NOL Tax Benefit, payable entirely in cash; or (iii) three times such Seller's pro rata portion of the ABV, plus such Seller's pro rata portion of the value of the Premises and the NOL Tax Benefit, payable entirely in shares of Common Stock. The Company has made an earnest money deposit payment in the amount of $100,000 to Commercial Bancorp, which deposit will be applied to the cash portion of the consideration payable at the CB Closing or, if the CB Closing does not occur under certain circumstances, retained by Commercial Bancorp.

The shares of Common Stock to be issued pursuant to the Purchase Agreement will be valued based on either the closing price of the Common Stock on the date of execution of the Purchase Agreement ($0.23), or on the business day immediately preceding the date of the CB Closing, at each Seller's option. The Company agreed to file with the Securities Exchange Commission (the "SEC") a resale registration statement with respect to the shares of Common Stock issuable pursuant to the Purchase Agreement (the "Resale Registration Statement"), which was filed on June 8, 2026.

The obligations of each of the Sellers and the Company under the Purchase Agreement are subject to specified conditions, including, among other matters: (i) the receipt of all required regulatory approvals, (ii) the Resale Registration Statement having been declared effective by the SEC, such that all shares of Common Stock to be issued pursuant to the Purchase Agreement shall be registered for resale and freely tradeable (which occurred on June 17, 2026), (iii) the receipt of certain specified third-party consents, and (iv) the absence of any injunctions being entered into or law being adopted that would make the CB Acquisition illegal.

The Purchase Agreement contains customary representations and warranties of Commercial Bancorp and the Bank, the Sellers and the Company. It also contains customary covenants, including (i) covenants providing for each of the parties to use reasonable best efforts to cause the CB Acquisition to be consummated and to receive all required regulatory approvals, including from the Federal Reserve Board and the Wyoming Division of Banking, (ii) covenants providing for Commercial Bancorp and the Bank to carry on their respective businesses in the ordinary course of business, and to refrain from taking certain actions, during the period between the execution of the Purchase Agreement and the CB Closing, and (iii) granting the Company observation rights with respect to meetings of the boards of directors of Commercial Bancorp and the Bank during the period between the execution of the Purchase Agreement and the CB Closing. Commercial Bancorp, the Bank and the Sellers have also agreed not to initiate, solicit, encourage or otherwise facilitate the making of any proposal or offer relating to alternate transactions or, engage in any discussions or negotiations with respect to alternate transactions.

The Purchase Agreement contains termination rights for each of the Sellers and the Company, including, without limitation, in the event that (i) any governmental entity issues a non-appealable final order denying approval of the CB Acquisition; (ii) the CB Acquisition is not consummated within two years of the execution of the Purchase Agreement, subject to extension under certain circumstances; or (iii) the other party breaches its representations, warranties or covenants under the Purchase Agreement which would give rise to the failure of a closing condition and such breach is not cured within 30-days of receipt of written notice of such breach.

Ark

On October 14, 2026 (the "Signing Date"), the Company entered into a business combination agreement (the "Acquisition Agreement") with Ark Financial Services, Inc., a Delaware corporation ("Ark"), AC Ark Subco 1, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), AC Ark Subco 2, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company ("Merger Sub II" and together with Merger Sub, the "Merger Subs"), The Robert D. Keyser, Jr. Revocable Trust, a Florida revocable trust and the majority stockholder of Ark (the "Trust"), and Robert D. Keyser, Jr., an individual. Ark is the sole owner of Dawson James Securities, Inc. ("Dawson James"), an investment bank and registered broker-dealer. Robert D. Keyser, Jr., the trustee of the Trust, is also an officer and director of Ark and a director of the Company. Pursuant to the terms of the Acquisition Agreement, on the Signing Date the Company purchased 24.9% of the issued and outstanding equity securities of Ark from the Trust (the "Initial Equity Purchase"), and the Company will, subject to the satisfaction of certain conditions, acquire the remaining equity securities of Ark at a subsequent closing (the "Closing") by means of the merger of Merger Sub with and into Ark, immediately followed by the merger of the surviving company with and into Merger Sub II.

The purchase price for the Initial Equity Purchase on the Signing Date consisted of $2,500,000 in cash and the issuance to the Trust of a promissory note in the original principal amount of $2,500,000 (the "Seller Note"). The Seller Note bears interest at the rate of 5% per annum and is payable in full on the earliest to occur of 90 days from the Signing Date, the date of the closing of a Qualified Financing (as defined in the Seller Note), and the Closing. Pursuant to the terms of the Acquisition Agreement, the purchase price payable by the Company at the Closing for the remaining equity securities of Ark will consist of $2,437,500 in cash and a number of shares of the Company's common stock ("Common Stock") calculated as $13,812,500 divided by the average volume weighted average price ("VWAP") of the Common Stock over the five trading day period ending on the date of the Closing. In addition, the Company may pay up to an additional $812,500 in cash and a number of additional shares of Common Stock calculated as $2,437,500 divided by the average VWAP of the Common Stock immediately prior to issuance (collectively, the "Deferred Consideration") based on the revenue of Ark and its subsidiaries exceeding $21,250,000 in the years ending December 31, 2026 and 2027 (with up to 50% of the Deferred Consideration payable on account of each such year). A portion of the cash and shares of Common Stock payable at Closing is to be held in an escrow account for up to 18 months following the Closing as security for the Company's indemnification rights under the Acquisition Agreement.

The obligations of each of the parties under the Acquisition Agreement are subject to specified conditions, including, among other things: (i) the receipt of all required regulatory approvals, including the consent of FINRA, (ii) the Company's stockholders having approved the issuance of the shares of Common Stock pursuant to the Acquisition Agreement, if such stockholder approval is required pursuant to the listing rules of the NYSE American (the "Company Stockholder Approval"), (iii) the absence of any material adverse effect with respect to the other parties, and (iv) the absence of any injunctions being entered into or law being adopted that would make the consummation of the transactions at the Closing illegal.

The Acquisition Agreement contains customary representations and warranties of the parties. It also contains customary covenants, including (i) covenants providing for each of the parties to use best efforts to satisfy all conditions to Closing, (ii) covenants providing for Ark to carry on its business in the ordinary course of business, and to refrain from taking certain actions, during the period between the Signing Date and the Closing, and (iii) covenants regarding efforts to obtain all required regulatory approvals and the Company Stockholder Approval. Ark and the Trust have also agreed not to solicit, initiate, induce, encourage or otherwise facilitate the making of any proposal or offer relating to alternate transactions or, engage in any discussions or negotiations with respect to certain alternate transactions.

The Acquisition Agreement contains termination rights for each of Ark and the Company, including, without limitation, in the event that (i) any governmental entity issues a non-appealable final order denying approval of the transactions contemplated by the Acquisition Agreement; (ii) the Closing does not occur within one year of the Signing Date; or (iii) the other party breaches its representations, warranties or covenants under the Acquisition Agreement which would give rise to the failure of a closing condition and such breach is not cured within 30 days of receipt of written notice of such breach.

Also on the Signing Date and in connection with the execution of the Acquisition Agreement, the Company and the Trust entered into a registration rights and lock-up agreement (the "RRA"), which will become effective at the Closing. Pursuant to the terms of the RRA, the Company granted the Trust certain registration rights with respect to the shares of Common Stock issuable pursuant to the terms of the Acquisition Agreement, and the Trust agreed not to transfer any of such shares for a period of six months following the Closing, subject to certain exceptions. Among other things, the Company agreed to file a resale shelf registration statement within six months following the Closing.

Debenture

On August 4, 2025, the Company entered into a securities purchase agreement with an institutional investor (the "Holder") controlled by Robert D. Keyser, Jr., a member of our board of directors, under which the Company agreed to issue and sell, in a private placement, Series A convertible debentures (the "Debenture") for an aggregate principal amount of $500,000, for a gross purchase price of $490,000, net of legal fees. The Debenture bears 10% interest and originally was to mature on August 3, 2026. On September 11, 2026, the maturity date was extended to February 3, 2027, subject to accelerated repayment under certain circumstances. The holder is entitled to convert the unpaid principal amount of the Debenture, plus accrued interest and penalties, any time, at $0.15 per share. If, at any time prior to maturity, the Company receives financing from a third party (excluding the Holder), the Company is required to pay to the Holder, in the form of cash, equity, or a combination of the two, solely at the discretion of the Holder, 100% of the proceeds raised from the third party until such time as the face amount of the Debenture has been paid in full. The Company also agreed (to file with the "SEC") (at the Company's sole cost and expense) a registration statement, or an amendment to a previously-filed registration statement registering the resale of the shares of Common Stock underlying the Debenture.

Convertible Note Financing

On October 8, 2025, the Company entered into an amended and restated securities purchase agreement (the "Restated SPA") with Funicular Funds, LP ("Funicular"), which amended and restated in its entirety the securities purchase agreement, dated February 9, 2024, pursuant to which the Company had issued and sold to Funicular, in a private placement, a secured convertible note in the original principal amount of $6,000,000 (the "Funicular Note"). Pursuant to the Restated SPA, the Company issued and sold to Funicular, for a purchase price of $10,000,000, an amended and restated convertible promissory note, dated October 8, 2025 (the "Restated Note"), which amends and restates the Funicular Note in its entirety. The principal amount of the Restated Note is $10,097,782, consisting of the $10,000,000 purchase price plus $97,782 in remaining outstanding principal under the Funicular Note.

The Restated Note has a stated maturity date of October 8, 2030. Interest accrues at a rate per annum equal to 11%, 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 Restated Note. In the event of an Event of Default (as defined in the Restated Note), in addition to Funicular's other rights and remedies, the interest rate would increase to 14% per annum. The Restated Note is convertible, in whole or in part, into shares of the Company's common stock at the election of the holder at any time at an initial conversion price of $0.75 per share (the "Conversion Price"). The Conversion Price is subject to adjustment if the Company issues or is deemed to issue shares of common stock at a price below the then-current conversion price (subject to certain exceptions), and is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like. The Restated Note contains covenants which, among other things, limit the ability of the Company and its subsidiaries to incur additional indebtedness, incur additional liens and sell its assets or properties.

The Restated 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) the security agreement, dated as of February 9, 2024 (the "Security Agreement"), among the Company, each of the Company's subsidiaries and Funicular, and (ii) the 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 Restated Note and the other Loan Documents (as defined in the Restated Note), each of which was entered into in connection with the Funicular Note.

Pursuant to the Restated SPA, the Company agreed, among other things, that if the Restated Note becomes convertible into a number of shares of common stock in excess of 19.9% of the Company's total number of shares of common stock outstanding, to seek the approval of its stockholders for the issuance of all shares of common stock issuable upon conversion of the Restated Note in excess of that amount, in accordance with the rules of the NYSE American.

Equity Financing

On October 8, 2025, the Company entered into a securities purchase agreement (the "Equity SPA") with certain institutional investors (each, an "Investor"), including Funicular, pursuant to which the Company agreed to issue and sell, in a private placement, an aggregate of 16,666,666 units of securities (each, a "Unit"), for a purchase price of $0.60 per Unit. Each Unit consists of one share of the Company's common stock and one warrant (each, a "2025 Warrant") to purchase common stock.

The 2025 Warrants are immediately exercisable on a cash basis or exchangeable on a cashless basis and will expire five years from the date of issuance. Each 2025 Warrant will be initially exercisable for one share of common stock at an initial exercise price of $0.75 per share, subject to adjustment for stock splits, distributions and the like (the "Initial Exercise Price"). The Initial Exercise Price is also subject to potential increase if the Company completes certain subsequent offerings at a price greater than the Initial Exercise Price while the 2025 Warrants remain outstanding. At any time after the issuance of the 2025 Warrants, the holder of a 2025 Warrants may exchange the 2025 Warrants on a cashless basis for a number of shares of common stock determined by multiplying the total number of shares with respect to which the 2025 Warrant is then being exercised by the Black Scholes Value (as defined in the 2025 Warrant) divided by the lower of the two closing bid prices of the common stock in the two days prior the time of such exercise.

In the event of a Fundamental Transaction (as defined in the 2025 Warrants), the holders of the 2025 Warrants will be entitled to receive upon exercise of the 2025 Warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the 2025 Warrants immediately prior to such Fundamental Transaction. Additionally, as more fully described in the 2025 Warrants, the holders of the 2025 Warrants will be entitled to receive consideration in an amount equal to the Black Scholes value of the 2025 Warrant in connection with a Fundamental Transaction. If the Company fails to timely deliver the shares of common stock issuable upon exercise of the 2025 Warrants, the Company will be subject to liquidated damages.

Subject to the provisions of the Equity SPA, if, during the 12-month period commencing on the date of the closing, the Company carries out one or more Subsequent Financings (as defined in the Equity SPA), each Investor that purchases $50,000 or more of Units will have the right to participate in an amount up to 100% of such Investor's investment amount under the Equity SPA in any such securities offered by the Company, subject to certain exceptions.

The Company engaged Dawson James Securities, Inc. as the placement agent (the "Placement Agent") with respect to the offering of the Restated Note and the Units. The Company agreed to pay the Placement Agent's fees totaling (i) 4.5% of the aggregate gross proceeds from the sale of the Restated Note, (ii) 6% of the aggregate gross proceeds from the sale of the Units to current or previous investors not introduced to the Company by the Placement Agent and (iii) 7% of the aggregate gross proceeds from the sale of the Units to investors introduced to the Company by the Placement Agent, and to reimburse the Placement Agent's expenses (subject to a cap). The Company also agreed to issue certain warrants to the Placement Agent and its designees.

$500,000 of the Units sold pursuant to the Equity SPA were purchased by Sixth Borough Capital Fund, LP, an entity controlled by Robert D. Keyser, Jr., who is a member of the Company's board of directors and the Chief Executive Officer of the Placement Agent.

The closings of the issuance and sale of the Restated Note and the Units occurred on October 9 through October 14, 2025.

At the closings, the Company entered into a registration rights agreement with the Investors (the "Registration Rights Agreement"), pursuant to which the Company agreed, among other things, to file one or more registration statements covering the resale of the shares of common stock included as part of the Units, as well as the shares issuable upon conversion of the Restated Note or exercise of the Warrants. The Company will be subject to liquidated damages if it fails to meet certain conditions set forth in the Registration Rights Agreement.

Results of Operations

Comparison of the Three Months Ended September 30, 2026 Compared to the Three Months Ended September 30, 2025

		Three Months Ended								Three Months
		September 30,								Ended
		2026				2025				Changes
REVENUES
Commissions		$	1,736,434			$	2,334,389				(597,955	)
Vetting fees			230,015				371,700				(141,685	)
Clearing fees			101,786				714,349				(612,563	)
Stock locate fees			2,997,205				-				2,997,205
Net gain/(loss) on firm trading accounts			66,825				(111	)			66,936
Other revenue			261,846				830,263				(568,417	)
TOTAL REVENUES			5,394,111				4,250,590				1,143,521
EXPENSES
Compensation, payroll taxes and benefits			2,718,784				3,123,630				(404,846	)
Data processing and clearing costs			1,897,046				584,250				1,312,796
Regulatory, professional fees and related expenses			1,302,136				250,573				1,051,563
Stock compensation expense			606,740				155,411				451,329
Communications			195,547				218,869				(23,322	)
Occupancy and equipment			103,595				36,751				66,844
Transfer fees			18,415				48,160				(29,745	)
Bank charges			60,570				58,718				1,852
Bad debt			62,328				40				62,288
Intangible assets amortization			355,795				355,795				-
Other			592,717				295,631				297,086
TOTAL EXPENSES			7,913,673				5,127,828				2,785,845
LOSS FROM OPERATIONS			(2,519,562	)			(877,238	)			(1,642,324	)
OTHER INCOME/(EXPENSE)
Interest income			496,135				486,357				9,778
Change in fair value of warrant liability derivative			344,380				(61,531	)			405,911
Change in fair value, convertible note derivative			-				(52,873	)			52,873
Change in fair value, long-term and short-term note derivative			-				103,185				(103,185	)
Change in fair value of secured convertible note			665,192				-				665,192
Change in fair value of Merger financing			-				63,696				(63,696	)
Change in fair value of earnout liability			249,000				(116,000	)			365,000
Change in fair value of subscription agreement			-				1,798,624				(1,798,624	)
Change in fair value of debenture			(109,721	)			(837,888	)			728,167
Change in fair value of Tau agreement			-				334,549				(334,549	)
Interest expense			(401,713	)			(1,434,210	)			1,032,497
TOTAL OTHER INCOME/(EXPENSE)			1,243,273				283,909				959,364
Income before provision for income taxes			(1,276,289	)			(593,329	)			(682,960	)
Benefit (provision) for income taxes			223,318				153,035				70,283
Net income (loss)		$	(1,052,971	)		$	(440,294	)			(612,677	)

Total revenues increased by $1,143,521, or 27%, to $5,394,111 for the three months ended September 30, 2026, compared to $4,250,590 for the three months ended September 30, 2025.

AtlasClearing is a self-clearing correspondent securities broker-dealer registered with the SEC and a member in good standing of FINRA. AtlasClearing is engaged principally in over-the-counter ("OTC") microcap securities transactions (defined as companies with market capitalizations under $250 million, including penny stocks trading under $5.00 per share with market capitalizations under $50 million), as well as exchange-traded securities. It derives its revenue from liquidations of restricted and control microcap securities; clearing transactions on behalf of introducing broker-dealers on a fully disclosed basis; and trading in equity securities for its own account. Secondary revenues stem from fully paid stock lending, stock locates, and margin accounts. Historical activities also include underwritten at-the-market offerings, private placements, mutual fund sales, and ancillary financial services.

The net revenue growth was primarily driven by $2,997,205 generated from stock locate fees during the three months ended September 30, 2026. This increase was partially offset by decreases in clearing fees (down $612,563, or 86%), commissions (down $597,955, or 26%), other revenue (down $568,417, or 68%), and vetting fees (down $141,685, or 38%).     

Operating Expenses

Total operating expenses increased by $2,785,845, or 54%, to $7,913,673 for the three months ended September 30, 2026, compared to $5,127,828 for the three months ended September 30, 2025. Primary drivers of period-over-period variations include:     

Compensation, Payroll Taxes, and Benefits: Decreased by $404,846, or 13%, to $2,718,784 for the three months ended September 30, 2026, compared to $3,123,630 for the prior three month period. Variable compensation continues to correlate with line-item volume shifts across operations.     

Data Processing and Clearing Costs: Increased by $1,312,796, or 225%, to $1,897,046 for the three months ended September 30, 2026, from $584,250 for the prior three month period. Primary drivers for the increase is due to cost associated to the new stock locate revenue stream.     

Regulatory, Professional Fees, and Related Expenses: Increased by $1,051,563, or 420%, to $1,302,136 for the three months ended September 30, 2026, compared to $250,573 for the three months ended September 30, 2025, driven by higher legal and professional advisory requirements in the current period as a result of the planned transaction with Commercial Bancorp and Ark.     

Stock-Based Compensation: Increased by $451,329, or 290%, to $606,740 for the three months ended September 30, 2026, compared to $155,411 in the prior three month period. This reflects the continued pro-rata amortization over the requisite service periods of stock-based compensation granted under executive officer employment agreements and additional stock options grants in the quarter.

Occupancy and Equipment: Increased by $66,844, or 182%, to $103,595 for the three months ended September 30, 2026, from $36,751 for the prior three months period.     

Other expenses: Increased by $297,086, or 100%, to $592,717 for the three months ended September 30, 2026, from $295,631 for the prior three-month period.  The increase was primarily driven by a true-up entry recorded as of September 30, 2026. The Company routinely adjusts its monthly balances to match FIS reports as of the final day of each reporting period. Management believes the period-over-period variance is largely attributable to timing differences between the balance sheet and the underlying adjusted accounts.

Other Income (Expense)

Total other income increased by $959,364, or 338%, to $1,243,273 for the three months ended September 30, 2026, compared to $283,909 for the three months ended September 30, 2025.

The primary variance in other income was driven by fair value adjustments on financial instruments and derivative liabilities:   

During the three months ended September 30, 2026, the Company recognized fair value gains on the Secured Convertible note ($665,192), Warrant Liability ($344,380), and Earnout Liability ($249,000), offset by a fair value loss on the Debenture derivative of $109,721.     

In contrast, the prior period ending September 30, 2025, included a $1,798,624 fair value gain on the Subscription Agreement, offset by fair value losses on Debentures ($837,888) and Earnout Liability ($116,000). In addition, remaining seller note balances were converted into shares during the prior year, resulting in a fair value adjustment of $103,185.     

Interest Expense: Decreased by $1,032,497, or 72%, to $401,713 for the three months ended September 30, 2026, from $1,434,210 for the three months ended September 30, 2025, reflecting lower outstanding principal balances on debt instruments during the current period.     

Income Taxes

Income tax benefit was $223,318 for the three months ended September 30, 2026, compared to an income tax benefit of $153,035 for the three months ended September 30, 2025. The increase in tax benefit of $70,283 was primarily attributable to changes in deferred tax liabilities and assets and valuation allowance assessments.     

Net Loss

As a result of the operational and non-operating factors outlined above, net loss increased by $612,677 to $1,052,971 for the three months ended September 30, 2026, compared to a net loss of $440,294 for the three months ended September 30, 2025.

Liquidity and Capital Resources

Net cash used in operating activities was $3,867,059 for the three months ended September 30, 2026, compared to net cash used in operating activities of $2,500,236 for the three months ended September 30, 2025. The increase in cash used in operations was primarily driven by the following factors:

	●	Net Loss and Non-Cash Items: Our operating cash flows for the current period were impacted by our net loss of $1,052,971, which was offset by significant non-cash adjustments including net fair value gains on financial instruments and derivative liabilities (such as the Secured Convertible Note (Funicular) fair value gain of $665,192, Warrant liability gain of $344,380, and Earnout liability gain of $249,000, offset by Debenture losses of $109,721), stock-based compensation expense of $606,740, amortization of intangibles of $355,795, non-cash interest expense of $344,825, and bad debt expense of $62,328.
	●	Working Capital Fluctuations: Changes in operating assets and liabilities used net cash during the period, primarily resulting from an increase in receivables from customers of $5,560,889, decreases in accounts payable and accrued expenses of $660,234, and decreases in commissions and payroll taxes payable of $482,449. These outflows were partially offset by positive cash impacts from a decrease in receivables from brokers and dealers of $2,467,410 and an increase in payables to customers of $1,482,024.

Investing Activities

Net cash used in investing activities was $0 for the three months ended September 30, 2026, compared to $65,000 for the three months ended September 30, 2025. The prior-period cash outflow was entirely attributable to cash paid for purchase of Pacsquare.

Financing Activities

Net cash used in financing activities was $137,260 for the three months ended September 30, 2026, compared to net cash provided by financing activities of $5,140,445 for the three months ended September 30, 2025.

	●	Current Period: Cash outflows during the three months ended September 30, 2026, consisted exclusively of promissory note repayments totaling $137,260.
	●	Comparative Period: In contrast, cash inflows during the three months ended September 30, 2025, were driven by capital raises, including $4,700,000 in net proceeds from the Securities Agreement, $490,000 in proceeds from debentures, and $200,000 in third-party advances, offset by $249,555 in promissory note repayments.

Going Concern Consideration

As of September 30, 2026, the Company had unrestricted cash and cash equivalents of $9.4 million and has experienced recurring operating losses and negative cash flows from operations since inception. During the three months ended September 30, 2026, and in the period immediately following the balance sheet date, the Company incurred significant cash outflows, including operating cash expenditures, a $2.5 million cash payment in October 2026 related to the Ark acquisition (see Note 15). In addition, additional cash commitments are expected for $2.44 million due at the Ark closing, and the Company has a $2.5 million seller note maturing in January 2027.

Management evaluated the Company's liquidity position and continuous operational plans in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Subtopic 205-40, Presentation of Financial Statements - Going Concern. Management's base cash flow forecast for the twelve months following the issuance date of these condensed consolidated financial statements indicates that projected operating cash flows and existing cash balances on hand may not be sufficient to satisfy all anticipated obligations as they become due.

However, management has evaluated probable and executable mitigation plans. Specifically, the Company has accessible capital resources that can be drawn down or completed to fully fund any potential cash flow deficits. While management does not anticipate requiring capital beyond baseline operational expectations, these funding mechanisms are available, and management believes them to be sufficient to absorb any liquidity shortfalls during the assessment period.

Based on the available capital resources and management's operational and financial mitigation plans, management expects to have sufficient liquidity to satisfy its obligations as they become due for at least twelve months following the date these condensed consolidated financial statements are issued. Accordingly, management concluded that there is no substantial doubt about the Company's ability to continue as a going concern.

Off-Balance Sheet Arrangements

The Company has no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 2026.

Contractual Obligations

The Company holds several long-term debt obligations with outside vendors and investors, with loans maturing between 2026 and 2030 (see Notes 8 and 9 in the accompanying condensed consolidated financial statements). Additionally, the Company leases office space under several operating leases. 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 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") 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 financial instruments are outstanding.

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.