| Business Combination and Reverse Recapitalization |
Note
3 – Business Combination and Reverse Recapitalization
Business
Combination
On
March 18, 2024, the Company entered into a Business Combination Agreement with ShoulderUp, ShoulderUp Merger Sub, Inc., and SEI Merger
Sub, Inc. and the Legacy Company.
On
June 18, 2025, the Company consummated its Business Combination pursuant to the terms of the Business Combination Agreement. The Business
Combination was structured as follows:
| ● | At the Closing, each ordinary share of ShoulderUp that was not redeemed or converted was exchanged for one share of Common Stock. Each issued and outstanding unit of ShoulderUp (“Unit”) was automatically separated into (i) one ordinary share and (ii) one-half of one warrant. Each whole warrant is exercisable to purchase one ordinary share at an exercise price of $11.50 per share. |
| ● | A total of 506,589 shares of Common Stock were issued to the public shareholders of ShoulderUp. An additional 6,698,333 shares were issued to ShoulderUp’s officers and directors, ShoulderUp Technology Sponsor LLC (the “Sponsor”), and each transferee of founder shares. |
| ● | 1,345,001 shares of Common Stock were issued to certain original public shareholders who had previously agreed not to redeem their shares. |
| ● | 482,500 shares of Common Stock were issued to the holders of the ShoulderUp bridge loan to partially settle the outstanding loan balance at Closing. Lastly, 150,000 shares were issued to legal services provider DLA Piper LLP to partially settle outstanding service fees, pursuant to the Expense Release and Payment Agreement executed on June 3, 2025. |
| ● | All of SEE ID’s 108,975,000 common stock issued and outstanding immediately prior to the Closing was canceled and converted into 12,210,718 shares of the Company’s Common Stock after giving effect to the exchange ratio of 0.11205. |
| ● | 2,909,057 shares of Common Stock were issued to the SEE ID SAFE note holders. |
| ● | 11,205 shares of Common Stock were issued in exchange for financial advisory services at Closing. |
| ● | 3,323,536 shares of Common Stock were issued to three major PIPE investors. |
| ● | The Company assumed 15,654,983 public and private warrants of ShoulderUp, net of 20,017 forfeitures, as of June 30, 2025. |
Redemption
Prior
to the Closing, certain public shareholders of ShoulderUp exercised their rights to redeem certain ordinary shares for funds previously
held in the trust account, resulting in the redemption of 2,000 ordinary shares for an aggregate payment of approximately $22,019. After
redemptions, there was a total of 506,589 ordinary shares, which were converted into Common Stock in connection with the Business Combination,
and approximately $5.58 million remained in the trust account. Share
Ownership Upon Closing
The
number of shares of Common Stock issued in connection with the Business Combination and subsequent equity conversion was as follows:
| | |
Common
Stock | |
| Ordinary shares, outstanding prior
to the Business Combination | |
| 508,589 | |
| Less: Redemption of ordinary shares | |
| (2,000 | ) |
| Ordinary
shares held by ShoulderUp’s officers and directors, the Sponsor and each transferee of founder shares | |
| 6,698,333 | |
| Ordinary shares held by non-redemption share
holders | |
| 1,345,001 | |
| Ordinary shares held by ShoulderUp bridge loan
holder | |
| 482,500 | |
| Ordinary shares held by DLA Piper, LLP | |
| 150,000 | |
| Common Stock issued to holders of SEE ID Inc. | |
| 12,210,718 | |
| Common Stock issued to SEE ID SAFE note holders | |
| 2,909,057 | |
| Common Stock issued to StarUpNV | |
| 11,205 | |
| Common Stock issued
to PIPE investors | |
| 3,323,536 | |
| Common
Stock Upon the Business Combination | |
| 27,636,939 | |
The Legacy Company incurred $2,726,183 in transaction costs in connection with the Business Combination, which was determined not to be a capital-raising transaction for the Legacy Company. The $2,726,183 consists of the following:
| ● | $1,003,500 in assumed expenses from ShoulderUp for financial advisory services provided by Cohen Capital Markets; |
| ● | $156,870 for financial advisory services provided by a financial advisor; |
| ● | $295,000 in registration fees paid to Nasdaq Corporate Solutions, LLC; |
| ● | $271,079 paid to Continental Stock Transfer & Trust Co.; |
| ● | $126,812 paid to Edgar Agents, LLC; and |
| ● | $872,922 in bonus expenses related to the successful closing of the Business Combination. |
The
following tables reconcile elements of the Business Combination to the Company’s condensed consolidated financial statements, and
should be read in conjunction with the footnotes referenced above:
| | |
Recapitalization | |
| Closing proceeds | |
| |
| Proceeds
from Trust account | |
$ | 5,577,304 | |
| Proceeds from PIPE investors | |
| 10,837,643 | |
| Proceeds from legacy
ShoulderUp bank accounts | |
| 74,499 | |
| Closing disbursements | |
| | |
| Less:
Payment to purchase founder shares | |
| (5,000,000 | ) |
| Net
cash proceeds from the Business Combination | |
$ | 11,489,446 | |
| Noncash activities | |
| | |
| Conversion of SAFE notes
to equity | |
| 40,726,793 | |
| Conversion of short-term
debt to equity | |
| 8,597,750 | |
| Transaction costs paid
in shares | |
| 156,870 | |
| Less: Accrued taxes
assumed from ShoulderUp | |
| (3,913,668 | ) |
| Less: Short-term debt
assumed from ShoulderUp | |
| (900,000 | ) |
| Net
equity impact of the Business Combination | |
$ | 56,157,191 | |
| Par value of common
stock issued | |
| (1,543 | ) |
| Total
Impact of Business Combination on additional paid-in capital | |
$ | 56,155,649 | |
Bridge
Loan Agreements
For
the three and six months June 30, 2025, the Legacy Company entered into unsecured bridge loan agreements with two major lenders, totaling
$2,850,000 in principal. These loans bear interest at an annual rate of 20%, calculated on a 365-day basis, and include a minimum interest
provision requiring payment of at least 8% or 10% of the principal amount if repaid prior to their six-month maturity dates. As of the
date of Closing, the Company recorded an accrued interest liability of $280,000, which was settled as of June 30, 2025.
Prior
to the Closing of the Business Combination, one of the lenders elected to convert a portion of its outstanding principal and accrued
interest into 614,125 shares of Common Stock, based on a conversion price of $4.00 per share. The other lender opted to receive full
repayment in cash.
The
table below summarizes the transaction:
| Bridge Loans | | Effective Date | | Amount | | | Interest at closing | | | Payback in
Cash | | | Payback in
shares at
$4/share | | | Shares | | | Bridge loan 1* | | 1/29/2025 | | $ | 1,500,000 | | | $ | 150,000 | | | $ | (193,500 | ) | | $ | 1,456,500 | | | | 364,125 | | | Bridge loan 2* | | 4/9/2025 | | | 500,000 | | | | 50,000 | | | | (50,000 | ) | | | 500,000 | | | | 125,000 | | | Bridge loan 3* | | 5/7/2025 | | | 500,000 | | | | 50,000 | | | | (50,000 | ) | | | 500,000 | | | | 125,000 | | | Bridge loan 4 | | 3/29/2025 | | | 100,000 | | | | 10,000 | | | | (110,000 | ) | | | - | | | | - | | | Bridge loan 5 | | 6/5/2025 | | | 250,000 | | | | 20,000 | | | | (270,000 | ) | | | - | | | | - | | | Total | | | | $ | 2,850,000 | | | $ | 280,000 | | | $ | (673,500 | ) | | $ | 2,456,500 | | | | 614,125 | |
| * | Bridge loans from this investor had an aggregate principal amount of $2,500,000. At the Closing of the Business Combination, the investor received a cash payment of $293,500, consisting of $250,000 in minimum 10% interest and $43,500 in principal repayment. In addition, the investor received 614,125 shares of Common Stock in exchange for $2,456,500 of combined principal and accrued interest, based on a per share price of $4.00. |
In
connection with the bridge loan conversion, the Company derecognized a liability of $2,456,500 upon issuing 614,125 shares of Common
Stock and recognized a total loss on debt extinguishment of $6,141,250, based on the fair value of the Common Stock at the Closing of
$14.00 per share.
PIPE
Investments
In
connection with the Business Combination, the Company entered into a private investment in public equity (“PIPE”) financing
agreement with certain accredited investors. Pursuant to the PIPE subscription agreements, these investors committed to purchase an aggregate
of 2,709,411 shares of Common Stock at a price of $4.00 per share, for total gross proceeds of $10,837,643. The PIPE investment provided
additional capital to support the Company’s post-closing operations and was consummated concurrently with the Closing of the Business
Combination. Following table illustrates the breakdown of all PIPE investments.
| PIPE | | Effective Date | | Amount | | | Shares | | | PIPE 1 | | 6/16/2025 | | $ | 2,814,500 | | | | 703,625 | | | PIPE 2 | | 6/10/2025 | | | 1,000,000 | | | | 250,000 | | | PIPE 3 | | 6/17/2025 | | | 7,023,143 | | | | 1,755,786 | | | Total PIPE | | | | $ | 10,837,643 | | | | 2,709,411 | |
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