The statements in the discussion and analysis regarding industry outlook, our
expectations regarding the performance of our business and the forward-looking
statements are subject to numerous risks and uncertainties, including, but not
limited to, the risks and uncertainties described in "Risk Factors" and
"Cautionary Note Regarding Forward-Looking Statements." Our actual results may
differ materially from those contained in or implied by any forward-looking
statements. You should read the following discussion together with the sections
entitled "Risk Factors"," "Business" and the audited financial statements,
including the related notes, appearing elsewhere in this Annual Report. All
references to years, unless otherwise noted, refer to our fiscal years, which
end on December 31.
Overview
We are a blank check company formed under the laws of the State of Delaware on
October 1, 2020, for the purpose of entering into a merger, share exchange,
asset acquisition, stock purchase, recapitalization, reorganization or other
similar business combination with one or more businesses or entities. We intend
to effectuate our business combination using cash from the proceeds of the
initial public offering and the sale of the private warrants, our capital stock,
debt or a combination of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a business
combination will be successful.
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On October 31, 2022, the New York Stock Exchange (the "NYSE") notified us that
the NYSE determined to commence proceedings to delist the public warrants from
the NYSE and that trading in the warrants would be suspended immediately, due to
abnormally low trading price levels. We did not appeal the NYSE's determination
and on November 15, 2022, the NYSE filed a Form 25 with the SEC to delist the
public warrants. Our common stock and units continue to trade on the NYSE. The
public warrants currently trade on the over-the-counter markets through the pink
sheets.
As approved by its stockholders at the special meeting in lieu of annual meeting
of stockholders held on February 6, 2023 (the "Special Meeting"), we entered
into an amendment to the Investment Management Trust Agreement on February 6,
2023 (the "Trust Amendment") and filed an amendment to our amended and restated
certificate of incorporation with the Delaware Secretary of State on February 6,
2023 (the "Charter Amendment"). Pursuant to the Trust Amendment, the amendment
extended the initial date on which we must commence liquidation of the Trust
Account to up to August 9, 2023, or such earlier date as determined by the
Company's board of directors (the "Board"), unless the closing of the Company's
initial business combination shall have occurred, provided that the Sponsor (or
its affiliates or permitted designees) will deposit into a trust account
established for the benefit of the Company's public stockholders (the "Trust
Account") an amount determined by multiplying $0.055 by the number of public
shares then outstanding, up to a maximum of $175,000 for each such one-month
extension unless the closing of the Company's initial business combination shall
have occurred, in exchange for a non-interest bearing, unsecured promissory note
payable upon consummation of a business combination. In connection with the
Special Meeting, the holders of 14,667,626 shares of common stock of the Company
properly exercised their right to redeem their shares for cash at a redemption
price of approximately $10.13 per share, for an aggregate redemption amount of
approximately $148.5 million, leaving approximately $55.3 million in the trust
account.
Significant Events and Transactions
Proposed AtlasClear Business Combination
On November 16, 2022, we entered into a Business Combination Agreement (the
"Business Combination Agreement") by and among us, Calculator New Pubco, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Company ("New Pubco"),
Calculator Merger Sub 1, Inc., a Delaware corporation and a wholly-owned
subsidiary of New Pubco ("Merger Sub 1"), Calculator Merger Sub 2, Inc., a
Delaware corporation and a wholly-owned subsidiary of New Pubco ("Merger Sub
2"), AtlasClear, Inc., a Wyoming corporation ("AtlasClear"), Atlas FinTech
Holdings Corp., a Delaware corporation ("Atlas FinTech") and Robert McBey. The
Business Combination Agreement was unanimously approved by our board of
directors (the "Board") based upon the unanimous recommendation of a special
committee of independent directors. If the Business Combination Agreement is
approved by our stockholders, and the transactions contemplated by the Business
Combination Agreement are consummated, (i) Merger Sub 1 will merge with and into
the Company, with the Company continuing as the surviving corporation and a
wholly-owned subsidiary of New Pubco and (ii) Merger Sub 2 will merge with and
into AtlasClear, with AtlasClear continuing as the surviving corporation and a
wholly-owned subsidiary of New Pubco (collectively, the "Business Combination").
Prior to the closing of the Business Combination (the "Closing"), AtlasClear
will receive certain assets from Atlas FinTech and Atlas Financial Technologies
Corp., will complete the acquisition of broker-dealer Wilson-Davis & Co., Inc.
("WDCO") and will consummate a transaction with Pacsquare Technologies, LLC
("Pacsquare"). In addition, at Closing, the definitive agreement pursuant to
which AtlasClear has agreed to acquire Commercial Bancorp, a Wyoming corporation
("CB") shall continue to be in full force and effect (the "CB Merger
Agreement"). The Company expects the Closing to occur before the closing of the
transactions contemplated by the CB Merger Agreement (the "CB Closing"). At the
Closing, AtlasClear stockholders will receive merger consideration in shares of
New Pubco common stock equal to the quotient of (i) $75.4 million, less the
purchase prices for WDCO and CB, divided by (ii) $10. In addition, the
AtlasClear stockholders will receive up to 5,944,444 shares of New Pubco common
stock (the "Earn Out Shares"). The Earn Out Shares will be issued to AtlasClear
stockholders upon certain milestones (based on the achievement of certain price
targets of New Pubco common stock following the Closing). In the event such
milestones are not met within the first 18 months following the Closing, the
Earn Out Shares will be cancelled. Atlas FinTech will also receive up to $20
million of New Pubco common stock ("Software Products Earn Out Shares"), which
will be issued to Atlas FinTech upon certain milestones based on the achievement
of certain revenue targets of software products contributed to AtlasClear by
Atlas FinTech and Atlas Financial Technologies Corp. following the Closing. The
revenue targets will be measured yearly for the five years following Closing,
with no catch-up between the years.
Refer to Note 6 of our financial statements for further details on the Business
Combination.
Termination of TradeStation Merger Agreement
We previously entered into a merger agreement with TradeStation Group, Inc.
("TradeStation") on November 4, 2021, as amended on December 17, 2021 and April
28, 2022 (the "Merger Agreement"). On August 2, 2022, we received a notice from
TradeStation that purported to terminate the Merger Agreement pursuant to
Section 12.01(c) thereof. Section 12.01(c) provided that the Merger Agreement
may be terminated by either party if the merger of the Company with Merger Sub
had not occurred on or before August 1, 2022 (the "Termination Date"); provided
that such termination right was not available to any party whose breach of any
provision of the Merger Agreement had been the primary cause of, or primarily
resulted in, the failure of the closing of the business combination to occur on
or before such date. On August 2, 2022, we sent a letter to TradeStation
stating that TradeStation was not permitted to terminate the Merger Agreement
pursuant to Section 12.01(c) because TradeStation's breaches of, and failure to
perform under, the Merger Agreement were the primary cause of the failure of the
closing of the business combination to occur on or before the Termination Date.
On November 15, 2022, we sent a notice to TradeStation terminating the Merger
Agreement pursuant to Section 12.01(b) thereof.
30
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities through December 31, 2022 were organizational activities,
the initial public offering, which is described below, and subsequent to the
initial public offering, identifying a target company for a business
combination. We do not expect to generate any operating revenues until after the
completion of our business combination. We generate non-operating income in the
form of income on marketable securities held in the trust account and change in
fair value of derivative liabilities. We incur expenses as a result of being a
public company (for legal, financial reporting, accounting and auditing
compliance), as well as for due diligence expenses.
For the year ended December 31, 2022, we had a net income of $11,045,567, which
consists of income earned on marketable securities held in trust account of
$3,087,315, change in fair value of PIPE derivative liability of $4,566,000 and
change in fair value of warrant liability of $6,953,336, partially offset by
operating costs of $3,024,231 and provision for income taxes of $536,853.
For the year ended December 31, 2021, we had a net loss of $5,702,793, which
consists of a change in fair value of the PIPE derivative liability of $966,000,
unrealized gain on marketable securities held in our trust account of $2,395 and
interest earned on marketable securities held in trust account of $56,233,
offset by operating costs of $3,404,429 and change in fair value of warrant
liability of $3,322,992.
Liquidity and Capital Resources
On February 9, 2021, we consummated our initial public offering of 17,500,000
units, each unit consisting of one share of common stock, par value $0.0001 per
share, and one warrant to purchase one-half of one share of common stock at an
exercise price of $11.50, at $10.00 per unit, generating gross proceeds of
$175,000,000. Simultaneously with the closing of our initial public offering, we
consummated the sale of 5,562,500 private warrants at a price of $1.00 per
private warrant in a private placement to the Co-Sponsors, generating gross
proceeds of $5,562,500.
On February 12, 2021, in connection with the underwriters' exercise of their
over-allotment option in full, we consummated the sale of an additional
2,625,000 units at a price of $10.00 per unit, generating total gross proceeds
of $26,250,000. In addition, we consummated the sale of an additional 590,625
private warrants at $1.00 per private warrant, generating gross proceeds of
$590,625.
Following the initial public offering, the full exercise of the over-allotment
option, and the sale of the private warrants, a total of $201,250,000 was placed
in the trust account. We incurred $5,017,526 in initial public offering related
costs, including $4,528,125 of underwriting fees and $489,401 of other costs.
For the year ended December 31, 2022, net cash used in operating activities was
$1,084,259. Net income of $11,045,567 was affected by income earned on
marketable securities held in the trust account of $3,087,315, change in fair
value of PIPE derivative liability of $4,566,000 and the change in fair value of
warrant liability of $6,953,336. Changes in operating assets and liabilities
provided $2,476,825 of cash for operating activities, primarily due to an
increase in accounts payable and accrued expenses.
For the year ended December 31, 2021, cash used in operating activities was
$1,072,107. Net loss of $5,702,793 was affected by a change in fair value of the
PIPE derivative liability of $966,000, unrealized gain on marketable securities
held in the trust account of $2,395, interest earned on marketable securities
held in the trust account of $56,233, the change in fair value of warrant
liability of $3,322,992 and transaction costs allocated to the warrant
liabilities of $9,348. Changes in operating assets and liabilities provided
$2,322,974 of cash for operating activities.
As of December 31, 2022, we had marketable securities of $204,044,469 (including
$2,794,469 of income, net of amounts withdrawn to pay taxes) held in the trust
account, invested in U.S. government treasury bills, notes or bonds having a
maturity of 185 days or less and/or (ii) in money market funds meeting certain
conditions under Rule 2a-7 of the Investment Company Act, as determined by us.
Investment income on the balance in the trust account may be used by us to pay
taxes and dissolution expenses up to $100,000. During the year ended December
31, 2022, we withdrew an amount of $351,474 in income earned from the trust
account.
We intend to use substantially all of the funds held in the trust account,
including any amounts representing income earned on the trust account (less
income taxes payable), to complete our business combination. To the extent that
our capital stock or debt is used, in whole or in part, as consideration to
complete our business combination, the remaining proceeds held in the trust
account will be used as working capital to finance the operations of the target
business or businesses, make other acquisitions and pursue our growth
strategies.
As of December 31, 2022, we had cash of $129,560 in our operating bank accounts,
$204,044,469 in marketable securities held in the Trust Account to be used for a
Business Combination or to repurchase or redeem stock in connection therewith
and working capital deficit of $5,449,512. As of December 31, 2022, $2,794,469
of the amount on deposit in the Trust Account represented income on marketable
securities which is available to the Company to pay franchise and income taxes.
During year ended December 31, 2022, we withdrew $351,474 from the Trust Account
to pay franchise and income taxes.
31
In October 2021, Quantum Ventures committed to provide us up to $2,000,000 in
working capital loans. In February 2022, Quantum Ventures committed to provide
us up to an additional $1,000,000 for a total of $3,000,000 in working capital
loans (the "Working Capital Loans"). Refer to Note 5 of our financial
statements. On March 14, 2022, we issued an unsecured promissory note, effective
as of January 3, 2022, in the amount of up to $480,000 to Quantum Ventures
evidencing the Working Capital Loans. The note bears no interest and is payable
in full upon the earlier (i) February 9, 2023 and (ii) the effective date of the
consummation of our initial business combination. The note is required to be
repaid in cash at the Closing and is not convertible into private warrants.
Refer to Note 5 of our financial statements. We may raise additional capital
through loans or additional investments from Quantum Ventures or its
stockholders, officers, directors, or third parties. As of December 31, 2022, a
principal balance of $480,000 has been advanced to the Company.
Through the date of this filing, the co-Sponsors have advanced an aggregate
total of $319,166 to the Company.
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standard Board's Accounting Standards
Codification Subtopic 205-40, "Presentation of Financial Statements - Going
Concern," the liquidity and date for mandatory liquidation and dissolution
raises substantial doubt about the Company's ability to continue as a going
concern through April 9, 2023, (the extended scheduled liquidation date of the
Company if it does not complete a Business Combination prior to such date).
Management's plan is to complete a business combination prior to August 9, 2023.
The Company entered into a Business Combination Agreement on November 16, 2022
and is in the process of completing this Business Combination. However there are
no assurances the Company will complete the Business Combination prior to the
mandatory liquidation date and may require an extension vote and potentially
require additional funds to be added to the trust. As discussed above, on March
14, 2022, we issued an unsecured non-interest bearing promissory note, effective
as of January 3, 2022, in the amount of up to $480,000 to Quantum Ventures
evidencing the Working Capital Loans. If we are unable to raise additional
capital, we may be required to take additional measures to conserve liquidity,
which could include, but not necessarily be limited to, curtailing operations,
suspending the pursuit of a potential transaction, and reducing overhead
expenses. We cannot provide any assurance that new financing will be available
to us on commercially acceptable terms, if at all. The date for mandatory
liquidation and the liquidity condition raise substantial doubt about our
ability to continue as a going concern for at least one year from the date that
the financial statements are issued. No adjustments have been made to the
carrying amounts of assets or liabilities should we be required to liquidate
after April 9, 2023.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of December 31, 2022.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities other than an agreement to pay Quantum
Ventures a monthly fee of $10,000 for office space, utilities and secretarial
support. We began incurring these fees on February 4, 2021 and will continue to
incur these fees monthly until the earlier of the completion of the business
combination and our liquidation.
We engaged Chardan as an advisor in connection with a business combination to
assist us in holding meetings with our stockholders to discuss the potential
business combination and the target business's attributes, introduce us to
potential investors that are interested in purchasing our securities in
connection with the potential business combination, assist us in obtaining
stockholder approval for the business combination and assist us with our press
releases and public filings in connection with the business combination. We will
pay Chardan a marketing fee for such services upon the consummation of our
initial business combination in an amount equal to, 7,043,750, or 3.5% of the
gross proceeds of the initial public offering, including the proceeds from the
full exercise of the over-allotment option.
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 the warrants and the
PIPE derivatives are outstanding. We have concluded that the public warrants
should be classified as equity instruments, and the PIPE derivatives and the
private warrants should be classified as liability instruments.
32
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.
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible redemption in accordance
with the guidance in ASC 480. Common stock subject to mandatory redemption is
classified as a liability instrument and measured at fair value. Conditionally
redeemable common stock (including common stock that features redemption rights
that are either within the control of the holder or subject to redemption upon
the occurrence of uncertain events not solely within our control) is classified
as temporary equity. At all other times, common stock is classified as
stockholders' equity. Our common stock features certain redemption rights that
are considered to be outside of our control and subject to occurrence of
uncertain future events. Accordingly, all shares of common stock subject to
possible redemption are presented at redemption value as temporary equity,
outside of the stockholders' equity (deficit) section of our consolidated
balance sheets.
Net Loss Per Common Share
Net loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding for the period. Accretion associated
with the redeemable shares of common stock is excluded from loss per common
share as the redemption value approximates fair value.
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, "Debt-Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity" ("ASU 2020-06"), which simplifies
accounting for convertible instruments by removing major separation models
required under current GAAP. ASU 2020-06 removes certain settlement conditions
that are required for equity contracts to qualify for the derivative scope
exception, and it also simplifies the diluted earnings per share calculation in
certain areas. ASU 2020-06 is effective for fiscal years beginning after
December 15, 2023, including interim periods within those fiscal years, with
early adoption permitted. We are currently assessing the impact, if any, that
ASU 2020-06 would have on its financial position, results of operations or cash
flows.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our financial statements.
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ATLASCLEAR HOLDINGS, INC. 
