Quarterly Report for Quarter Ending December 31, 2025 (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 planned acquisition of Commercial Bancorp, 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:

	●	our ability to realize the benefits expected from the Business Combination (as defined herein);
	●	our ability complete the acquisition of Commercial Bancorp of Wyoming ("Commercial Bancorp");
	●	our ability to successfully integrate our recent and proposed acquisitions, including the acquisition of Commercial Bancorp, 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;
	●	the ability to maintain the listing of our Common Stock on the NYSE American LLC ("NYSE American"), and the potential liquidity and trading of such 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/A for the fiscal year ended June 30, 2025 (the "Annual Report") filed with the U.S. Securities and Exchange Commission (the "SEC") on September 30, 2025. 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

We are building 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 seeks 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.

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"), among the Company, Quantum, Atlas FinTech Holdings Corp. ("Atlas FinTech") and certain other parties. The transactions consummated as a result of 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, AtlasClear received certain assets from Atlas FinTech and Atlas Financial Technologies Corp., a Delaware corporation, and completed the acquisition of broker-dealer Wilson-Davis & Co., Inc. ("Wilson-Davis").

Through the acquisition of Wilson-Davis, a correspondent clearing company, and the anticipated acquisition of 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.

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"). On June 10, 2025, the Company and Pacsquare entered into a Software Development and License Agreement which supersedes and amends the terms under the Purchase Agreement. Under the Software Development and License Agreement, Pacquare agreed to develop and provide services for a period of 36 months, commencing on the date of execution of the Software Development and License Agreement.

We believe that our proprietary trading platform with clearing and settlement capabilities along with the software products and intellectual property assets, are cutting-edge, flexible and scalable.

Wilson-Davis

Wilson-Davis is a self-clearing 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 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 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 Transition Report. Some key factors impacting Wilson-Davis' business include:

	●	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' 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.

Debenture

On August 4, 2025, the Company entered into a securities purchase agreement ("August-Securities Purchase Agreement") with an institutional investor 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 matures on August 3, 2026. 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 after Closing, the Company receives financing from 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, one hundred percent (100%) of the proceeds raised from the third party in excess of an aggregate amount of $10,000,000 (the "Threshold Amount") until such time as the Face Amount of the Debenture has been paid in full. The Company agreed that, within 60 days after the sale of the Debenture, the Company would file with the Securities and Exchange Commission (the "SEC") 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 Notes

On September 16, 2025, September 19, 2025 and September 23, 2025, the Company entered into separate securities purchase agreements (each, a "September-Securities Purchase Agreement") with certain institutional investors under which the Company agreed to issue and sell, in a private placement, convertible promissory notes (each, a "Convertible Note" and collectively, the "Convertible Notes") for an aggregate principal amount of $6,000,000, for a gross purchase price of $5,000,000, reflecting a 20% original issue discount, before fees and other expenses. The Notes did not bear interest, and were to mature on the earlier of six-months from issuance or the date that the Company completes a Qualified Financing (meaning an issuance and sale of capital stock raising gross proceeds of at least $10 million, as defined in the Notes). The Convertible Notes were convertible into equity, at each holder's option, at the closing of a Qualified Financing, at the same per share price as the securities sold in the Qualified Financing. The Notes were subject to customary events of default and related remedies. In October 2025, upon the consummation of the transactions contemplated by the Equity SPA (as defined below), $4.15 million payable by the Company under the Convertible Notes was converted into Units (as defined below), and the remaining balance of the Convertible Notes was paid in full.

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 million 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 Common Stock and one warrant (each, a "2025 Warrant") to purchase Common Stock. Of the total investment amount of $10,000,000, $5,850,000 of proceeds were received and $4,150,000 were converted from the Convertible Notes discussed above.

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 the 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 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), resulting in total transaction cost paid of $1,228,500. The Company also agreed to issue warrants to purchase up to an aggregate of 1,005,000 shares of Common Stock with a fair value of $334,062 to the Placement Agent and its designees, resulting in total transaction cost of $1,562,562. The fair value of the warrants issued to the Placement Agent was included in the transaction cost and allocated between the 2025 Warrant in the amount of $865,659 and the Common Stock in the amount of $696,903 on a pro rated basis.

$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.

Commercial Bancorp Share Purchase Agreement

On February 5, 2026, the Company entered into a share purchase agreement (the "Purchase Agreement") with Commercial Bancorp, a Wyoming corporation ("Commercial Bancorp"), and each of the shareholders of Commercial Bancorp (collectively, the "Sellers"). The Purchase Agreement provides for the Company to acquire (the "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 the Company's common stock ("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 potion of the equity capital of Commercial Bancorp as of the closing of the Acquisition (the "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 Closing, multiplied by the maximum corporate federal income tax rate in effect as of the date of the 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 madean 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 Closing or, if the 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 Closing, at each Seller's option. The Company has agreed to file with the Securities Exchange Commission (the "SEC"), by the later of 90 days following the date of the Purchase Agreement and ten business days following the deadline for each Seller to make an Election, a resale registration statement with respect to the shares of Common Stock issuable pursuant to the Purchase Agreement (the "Resale Registration Statement").

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, (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 Transaction 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 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 Closing, and (ii) granting the Company observation rights with respect to meetings of the boards of directors of Commercial Bancorp and the Bank during the between the execution of the Purchase Agreement and the 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 Acquisition; (ii) the Transaction is not consummated within two years of the execution of the Purchase, 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 with 30-days of receipt of written notice of such breach.

Results of Operations

Comparison of the Three Months Ended December 31, 2025 Compared to the Three Months Ended December 31, 2024

		Three Months Ended								Three Months
		December 31,								Ended
		2025				2024				Changes
REVENUES
Commissions		$	3,097,701			$	1,598,153				1,499,548
Vetting fees			351,850				357,601				(5,751	)
Clearing fees			582,148				785,227				(203,079	)
Net gain/(loss) on firm trading accounts			205,569				2,245				203,324
Other revenue			819,826				3,273				816,553
TOTAL REVENUES			5,057,094				2,746,499				2,310,595
EXPENSES
Compensation, payroll taxes and benefits			2,790,561				1,580,182				1,210,379
Data processing and clearing costs			967,778				629,733				338,045
Regulatory, professional fees and related expenses			1,508,774				1,107,762				401,012
Stock compensation expense			1,173,360				-				1,173,360
Communications			190,253				126,089				64,164
Occupancy and equipment			45,950				54,428				(8,478	)
Transfer fees			40,339				39,917				422
Bank charges			58,486				53,425				5,061
Bad debt			(1,847	)			-				(1,847	)
Intangible assets amortization			355,795				355,268				527
Other			382,967				(51,156	)			434,123
TOTAL EXPENSES			7,512,416				3,895,648				3,616,768
LOSS FROM OPERATIONS			(2,455,322	)			(1,149,149	)			(1,306,173	)
OTHER INCOME/(EXPENSE)
Interest income			493,359				460,315				33,044
Change in fair value of warrant liability derivative			1,849,662				(61,531	)			1,911,193
Change in fair value, convertible note derivative			435,027				823,076				(388,049	)
Change in fair value, long-term and short-term note derivative			-				294,729				(294,729	)
Change in fair value of secured convertible note			(1,796,432	)			89,535				(1,885,967	)
Change in fair value of Merger financing			-				25,749				(25,749	)
Change in fair value of earnout liability			10,624,000				1,594,000				9,030,000
Change in fair value of Winston & Strawn agreement			921				(13,041	)			13,962
Change in fair value stock payable			-				25,260				(25,260	)
Change in fair value of debenture derivative			606,886				-				606,886
Change in fair value of Tau agreement			-				73,284				(73,284	)
Interest expense			(2,777,916	)			(2,667,285	)			(110,631	)
TOTAL OTHER INCOME/(EXPENSE)			9,435,507				644,091				8,791,416
Income before provision for income taxes			6,980,185				(505,058	)			7,485,243
Benefit (provision) for income taxes			(196,014	)			85,368				(281,382	)
Net income (loss)		$	6,784,171			$	(419,690	)			7,203,861

Revenues of $5,057,094 for the three-months ended December 31, 2025, represent a 84% increase from revenues of $2,746,499 for the three-month period ended December 31, 2024. The increase was primarily attributable to the addition of stock locate fees which is a new revenue source and the participation in an at the market offering as a selling agent. 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 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, stock locates 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.

Total expenses of $7,512,416 for the three-months ended December 31, 2025, represent a 93% increase of $3,616,768 from total expenses of $3,895,648 for the three-month period ended December 31, 2024. The increase was primarily due to an increase in variable compensation related to the increase in revenue.

Compensation, payroll taxes and benefits increased to $2,790,561 for the three-month period ended December 31, 2025, an increase of $1,210,379 from total expenses of $1,580,182 for the three-month period ended December 31, 2024. The increase was primarily due to increase in variable compensation related to the increase in revenue.

Data processing and clearing costs increased to $967,778 for the three-month period ended December 31, 2025 compared to $629,733 for the three-month period ending December 31, 2024. The increase was additional expenses related to the stock locate revenue.

Regulatory, professional fees and related expenses increased to $1,508,774 for the three-months ended December 31, 2025 compared to $1,107,762 in the three-month period ended December 31, 2024. The increase was primarily due a the approval of board compensation of $743,997 which was no present in the comparative three-month period ending December 31, 2024.

Stock based compensation increased to $1,173,360 for the three-months ended December 31, 2025 as a result of the new employment agreement entered into with the executive officers. The expense incurred in the quarter ended December 31, 2025 is the portion over the service period of the granted stock based compensation. No such expense was present in the three-months period ended December 31, 2024.

Other income of $9,435,507 for the three-month period ended December 31, 2025, represents a significant increase from $644,091 for the three-month period ended December 31, 2024. The increase was due to the changes in fair value of various financial instruments, which were settled in the three-month period ended December 31, 2025.The primary decrease is for $10,624,000 related to the change in the fair value of the earnout liability as a result of the delay in financing and closing of the Commercial Bancorp acquisition resulting in a reduction in the anticipated revenue, therefore reducing the estimated fair value of the earnout liability.

Income tax of $196,014 for the three-months period ended December 31, 2025 increased from an income taxes benefit of $85,368 for the three-month period ended December 31, 2024. The increased tax of $281,382 is primarily due to changes in deferred tax liabilities and assets.

The foregoing factors resulted in a net income of $6,784,171 for the three-month period ended December 31, 2025, compared to net loss of $419,690 for the three-month period ended December 31, 2024. The decrease was primarily due to the gain recognized from changes in fair value of the convertible notes that resulted from a change is valuation model as a result of the Company's delay in financing and closing of the acquisition of Commercial Bancorp which resulted in the decrease in expected revenue, therefore reducing the value of the earnout liability by $10,624,000 during the three-month period ended December 31, 2025.

Comparison of the Six Months Ended December 31, 2025 Compared to the Six Months Ended December 31, 2024

		Six Months Ended								Six Months
		December 31,								Ended
		2025				2024				Changes
REVENUES
Commissions		$	5,432,090			$	2,981,981				2,450,109
Vetting fees			723,550				722,984				566
Clearing fees			1,296,497				1,832,939				(536,442	)
Net gain/(loss) on firm trading accounts			205,458				3,956				201,502
Other revenue			1,650,089				8,721				1,641,368
TOTAL REVENUES			9,307,684				5,550,581				3,757,103
EXPENSES
Compensation, payroll taxes and benefits			5,914,191				2,859,486				3,054,705
Data processing and clearing costs			1,552,028				1,241,379				310,649
Regulatory, professional fees and related expenses			1,759,347				2,203,581				(444,234	)
Stock compensation expense			1,328,771				-				1,328,771
Communications			409,122				278,843				130,279
Occupancy and equipment			82,701				108,432				(25,731	)
Transfer fees			88,499				91,507				(3,008	)
Bank charges			117,204				109,326				7,878
Bad debt			(1,807	)			-				(1,807	)
Intangible assets amortization			711,590				662,459				49,131
Other			678,598				85,819				592,779
TOTAL EXPENSES			12,640,244				7,640,832				4,999,412
LOSS FROM OPERATIONS			(3,332,560	)			(2,090,251	)			(1,242,309	)
OTHER INCOME/(EXPENSE)
Interest income			979,716				1,067,073				(87,357	)
Change in fair value of warrant liability derivative			1,788,131				184,594				1,603,537
Change in fair value, convertible note derivative			382,154				3,990,385				(3,608,231	)
Change in fair value, long-term and short-term note derivative			103,185				11,447,599				(11,344,414	)
Change in fair value of contingent guarantee			-				(839,775	)			839,775
Change in fair value of secured convertible note			(1,796,432	)			-				(1,796,432	)
Change in fair value of Merger financing			63,696				(37,446	)			101,142
Change in fair value of earnout liability			10,508,000				1,254,000				9,254,000
Change in fair value of Winston & Strawn agreement			1,799,545				(47,882	)			1,847,427
Change in fair value of debenture derivative			(231,002	)			221,410				(452,412	)
Change in fair value of Tau agreement			334,549				(760,699	)			1,095,248
Interest expense			(4,212,126	)			(4,124,281	)			(87,845	)
TOTAL OTHER INCOME/(EXPENSE)			9,719,416				12,354,978				(2,635,562	)
Income before provision for income taxes			6,386,856				10,264,727				(3,877,871	)
Benefit (provision) for income taxes			(42,979	)			63,616				(106,595	)
Net income (loss)		$	6,343,877			$	10,328,343				(3,984,466	)

Revenues of $9,307,684 for the six-months ended December 31, 2025, represent a 68% increase from revenues of $5,550,581 for the six-month period ended December 31, 2024. The increase in revenue is primarily due to the addition of stock locate revenue and Wilson-Davis acting as a selling agent for an at the market offering. 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 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, stock locates 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.

Total expenses of $12,640,244 for the six-months ended December 31, 2025, represent a 65% increase of $4,999,412 from total expenses from $7,640,832 for the six-month period ended December 31, 2024. The increase was primarily due to an increase in variable compensation related to the increase in revenue.

Compensation, payroll taxes and benefits increased to $5,914,191 for the six-month period ended December 31, 2025, an increase of $3,054,705 from total expenses of $2,859,486 for the six-month period ended December 31, 2024. The increase was primarily due to increase in variable compensation related to the increase in revenue.

Data processing and clearing costs increased to $1,552,028 for the six-month period ended December 31, 2025 compared to $1,241,379 for the six-month period ending December 31, 2024. The increase was due to additional expenses related to the stock locate line of business.

Regulatory, professional fees and related expenses decreased to $1,759,347 for the six-months ended December 31, 2025 compared to $2,203,581 in the six-month period ended December 31, 2024. The decrease was primarily due a reduction in legal fees in the period ending December 31, 2025.

Stock based compensation increased to $1,328,771 for the six-months ended December 31, 2025 as a result of the new employment agreement entered into with the executive officers. The expense incurred in the quarter ended December 31, 2025 is the pro rata portion over the service period of the granted stock based compensation. No such expense was present in the six-months period ended December 31, 2024.

Other income of $9,719,416 for the six-month period ended December 31, 2025, represents a significant decrease from $12,354,978 for the six-month period ended December 31, 2024. The decrease was due to the changes in fair value of various financial instruments, which were settled in the six-month period ended December 31, 2025. The primary decrease is for $11,344,414 related to the change in the fair value of the short term and long term notes issued to the sellers of Wilson-Davis during the six-months ended December 31, 2024. During the year ended June 30,2025 the Company settled a substantial balance of the sellers' notes, resulting in a significant decrease in the carrying balance of the derivative embedded in the sellers notes. In addition, during the six-months ended December 31, 2025 the remaining balance were converted into shares, resulting in the change in fair value of $103,185.

Income tax of $42,979 for the six-months period ended December 31, 2025 increased from a from income tax benefit of $63,616 for the six-month period ended December 31, 2024. The increased income tax of $106,595 is primarily due to changes in deferred tax liabilities and assets.

The foregoing factors resulted in a net income of $6,343,877 for the six-month period ended December 31, 2025, compared to net income of $10,328,343 for the six-month period ended December 31, 2024. The decrease was primarily due to the gain recognized from changes in fair value of the convertible notes that resulted from a change is valuation model as a result of the Company settled a substantial balance of the sellers' notes, resulting in a significant decrease in the carrying balance of the derivative embedded in the sellers notes obligations during the six-month period ended December 31, 2025.

Liquidity and Capital Resources

Cash used in operating activities for the six-month period ended December 31, 2025 was $1,001,804 as compared to cash provided by operating activities for the six-month period ended December 31, 2024 of $761,406. This was primarily affected by $998,924 in changes in operational assets and liabilities. Adjustment to net income primarily consisted of change in fair value related to various financial instruments as discussed above, resulting in an adjustment of $12,951,826, where the largest change in fair value was related to the revised revenue projection qualified under the Earnout liability, resulting in a decrease of $10,508,000. Further adjustments for the income was non-cash interest expense on convertible notes and other financial instruments of $4,132,383, amortization of intangible assets of $711,590 and stock based compensation of $1,328,771.

Cash used for investing activities for the three-month period ended December 31, 2025 was $65,000 as compared to $125,000 for the six-month period ended December 31, 2024. This is primarily due to $65,000 in deposits made to extend the Commercial Bancorp acquisition agreement. The $125,000 of cash used for investing activities in the period ended December 31, 2024 represents cash payment towards the AtlasClear Platform.

Cash provided by financing activities for the six-month period ended December 31, 2025 was $17,673,908 as compared to $513,381 for the six-month period ended December 31, 2024. This was primarily due to the $5,850,000 in cash proceed from the Equity SPA, $9,975,000 in cash proceeds under the restated SPA Secured Convertible Note, $4,700,000 in cash proceeds from the Convertible Notes, $490,000 in cash proceeds from the Debenture and $200,000 of good faith advance from Hanire Purchase Agreement less repayments of promissory notes of $462,592, repayment of Convertible Notes of $1,850,000 and payment of transaction cost under the Equity SPA of $1,228,500. During the six-month period ended December 31, 2024, the Company received $533,381 under the ELOC Agreement and repaid $20,000 in subordinated debt.

Going Concern Consideration

Historically, the Company has funded its operations primarily through the issuance of equity and debt securities. As of December 31, 2025, the Company had cash and cash equivalents of $23,080,646 and had experienced recurring operating losses. These factors previously raised substantial doubt about the Company's ability to continue as a going concern within one year from the issuance date of these financial statements.

On October 8, 2025, the Company entered into (i) the Restated SPA with Funicular Funds, LP, pursuant to which the Company issued and sold the Restated Note for gross proceeds of $10.0 million, and (ii) the Equity SPA with certain institutional investors, including Funicular, pursuant to which the Company issued and sold Units at $0.60 per Unit for an aggregate sales price of $10.0 million (including $4.15 million converted from the Convertible Notes). The closings of these financings occurred between October 9 and October 14, 2025.

Management believes that the total net proceeds from these financings, together with expected cash inflows from operations, will provide adequate liquidity to support the Company's operating plan and meet its obligations for at least the next twelve months following the date of this filing. As a result, management has determined that substantial doubt about the Company's ability to continue as a going concern has been alleviated.

Management continues to evaluate its operating plan, monitor cash flow requirements, and assess potential financing alternatives to support the Company's long-term growth initiatives and capital requirements.

Off-Balance Sheet Arrangements

The Company has no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2025.

Contractual Obligations

The Company holds several long-term debt obligations with outside vendors and investors, with loans maturing between 2025 and 2026 (see Notes 8 and 12 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") 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 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.