10-Q: dMY Squared Faces Going Concern Amidst Soaring Losses

dMY Squared Technology Group, Inc. reports a substantial increase in net loss and accumulated deficit, raising significant doubt about its ability to continue as a going concern, despite a non-binding LOI with Horizon Quantum Computing.

Summary

• The company, a blank check company (SPAC), reported a net loss of $10,931,166 for the six months ended June 30, 2025, a significant increase from $489,515 for the same period in 2024.
• Accumulated deficit surged to $19,293,009 as of June 30, 2025, compared to $6,847,037 at December 31, 2024.
• Cash on hand plummeted to $348 as of June 30, 2025, from $309,399 at December 31, 2024, indicating severe liquidity issues.
• Total liabilities increased dramatically to $19,604,780 from $7,389,300 over the same period, primarily due to a $10,093,750 loss from the change in fair value of derivative warrant liabilities.
• Management has identified substantial doubt about the company's ability to continue as a going concern due to its liquidity condition and the mandatory liquidation if a business combination is not completed.
• A non-binding Letter of Intent (LOI) for a business combination with Horizon Quantum Computing Pte. Ltd., valuing Horizon at approximately $500 million pre-money equity, was announced on February 26, 2025.
• The company extended its deadline to complete a business combination to August 29, 2025, with potential for further monthly extensions until December 29, 2025, requiring additional contributions to the Trust Account from the Sponsor or its affiliates.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, including a 'going concern' warning, critically low cash, and substantial losses. While a non-binding LOI for a business combination is a positive signal, the underlying financial health and internal control issues present significant risks, making the overall sentiment highly negative.

Positives

• The company announced a non-binding Letter of Intent (LOI) for a business combination with Horizon Quantum Computing Pte. Ltd., a developer of advanced software development tools for quantum computers, valuing Horizon at approximately $500 million pre-money equity.
• Investment income from the Trust Account contributed $532,812 for the six months ended June 30, 2025, providing some non-operating income.

Negatives

• Net loss for the six months ended June 30, 2025, was $10,931,166, a substantial increase from $489,515 in the prior year period.
• The accumulated deficit grew significantly to $19,293,009 as of June 30, 2025, from $6,847,037 at December 31, 2024.
• Cash balance is critically low at $348 as of June 30, 2025, down from $309,399 at December 31, 2024.
• Total liabilities increased to $19,604,780 from $7,389,300, driven largely by a $10,093,750 loss from the change in fair value of derivative warrant liabilities.
• The company recorded a new excise tax payable of $421,924 related to January 2024 redemptions, which was not recognized at year-end 2024.
• General and administrative expenses increased to $1,270,961 for the six months ended June 30, 2025, from $607,780 in the prior year period.
• Investment income from the Trust Account decreased to $532,812 for the six months ended June 30, 2025, from $669,921 in the prior year period.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to its current liquidity condition and the mandatory liquidation if a business combination is not completed within the Combination Period.
• The company faces macroeconomic, geopolitical, and regulatory uncertainties, including inflation, changes in trade policies, interest rate policies, and international conflicts, which could negatively impact its search for a business combination.
• The proposed regulations for the 1% U.S. federal excise tax on stock repurchases (including redemptions) from the Inflation Reduction Act of 2022 are not finalized, and the amount of such tax could change, potentially reducing cash available for a business combination.
• Funds in the Trust Account, including interest, cannot be used to pay for any Excise Tax liabilities, which could further strain the company's operating cash.
• Material weaknesses in internal control over financial reporting have been identified, including an error in the redemption value formula for Class A shares and improper recognition of excise tax obligations, which could lead to inaccurate financial reporting.
• The company may face litigation and other risks as a result of the identified material weaknesses and restatements of financial statements.
• Changes in international trade policies, tariffs, and treaties could adversely affect the search for a business combination target, the ability to complete a business combination, and the business prospects of a target company.

Future Outlook

The company's future outlook is highly uncertain, with management expressing substantial doubt about its ability to continue as a going concern. While a non-binding Letter of Intent (LOI) has been signed with Horizon Quantum Computing, there is no assurance that a definitive agreement will be reached or that the proposed transaction will be consummated. The company continues to extend its deadline for a business combination, currently to August 29, 2025, with potential for further monthly extensions until December 29, 2025, requiring ongoing contributions to the Trust Account. The company anticipates incurring significant costs in pursuit of its acquisition plans and faces risks related to the excise tax on redemptions and material weaknesses in internal controls.

Management Comments

• Management has determined that the liquidity condition, mandatory liquidation, should a Business Combination not occur, and potential subsequent dissolution raises substantial doubt about its ability to continue as a going concern through the earlier of the liquidation date or the completion of the initial Business Combination.
• There is no assurance that our plans to consummate the initial Business Combination will be successful or successful within the Combination Period.
• Management intends to take steps to remediate both material weaknesses identified, including enhancing documentation, expanding internal review procedures for non-routine and tax-sensitive transactions, increasing scrutiny over Trust Account balances, and strengthening oversight from the audit committee and Board.

Industry Context

As a Special Purpose Acquisition Company (SPAC), dMY Squared Technology Group, Inc. operates in a highly time-sensitive and speculative segment of the market. The company's current state, marked by a 'going concern' warning, critically low operating cash, and significant accumulated losses, reflects the inherent risks and challenges faced by SPACs that struggle to identify and complete a suitable business combination within their mandated timeframe. The announcement of a non-binding LOI with Horizon Quantum Computing, a developer in the emerging quantum computing sector, indicates an attempt to capitalize on high-growth technology trends, a common strategy for SPACs. However, the financial deterioration and internal control issues highlight the execution risks and regulatory scrutiny prevalent in the SPAC market, especially as deadlines approach and redemptions occur.

Comparison to Industry Standards

• The company's 'going concern' warning and critically low cash balance of $348 are significantly below industry standards for operating companies and raise severe red flags for investors, indicating an inability to meet short-term obligations without external funding or a successful business combination.
• The substantial increase in net loss to $10.9 million and accumulated deficit to $19.3 million for a non-operating SPAC is highly unfavorable compared to peers, where the primary 'loss' typically comes from warrant revaluation, but the magnitude here is extreme.
• The significant increase in derivative warrant liabilities to $11.5 million suggests a substantial increase in the fair value of warrants, which could be due to an increase in the company's stock price or changes in market volatility, but as a liability, it negatively impacts the balance sheet.
• The identification of material weaknesses in internal control over financial reporting, particularly regarding redemption value calculations and excise tax recognition, indicates a failure to meet basic financial reporting standards expected of publicly traded companies, unlike well-governed SPACs such as those managed by Pershing Square Tontine Holdings or Churchill Capital Corp, which typically maintain robust internal controls.
• The reliance on related party advances and convertible notes for operational funding and Trust Account extensions, totaling over $2.3 million, is common for SPACs nearing their liquidation deadline but underscores the lack of independent funding sources and the financial strain on the sponsor, similar to other SPACs that have faced multiple extension votes.

Corporate Governance

Related Party Transactions

• The Sponsor (dMY Squared Sponsor, LLC) purchased Founder Shares and Private Placement Warrants, extended Overfunding Loans ($947,850 outstanding), and provides administrative and support services for $10,000 per month.
• Harry L. You (Chairman, CEO, CFO, and an affiliate of the Sponsor) is the payee of a convertible promissory note with a principal amount up to $1.75 million, of which $941,667 was outstanding as of June 30, 2025, and $991,667 subsequent to that date.
• The Sponsor and its affiliates have paid for certain expenses on behalf of the company, resulting in approximately $1.4 million in outstanding advances as of June 30, 2025.
• The Sponsor contributed approximately $0.73 million to the company in March 2025 to cover operating expenses and interest, following management's determination that prior use of Trust Account funds for operating expenses was not in accordance with the Trust Agreement.

Stakeholder Impact

• Shareholders face significant risk due to the 'going concern' warning, substantial net losses, and critically low operating cash, which could lead to a loss of investment if a business combination is not successfully completed.
• Public Shareholders who redeemed shares in January 2024 may be subject to the 1% U.S. federal excise tax, which is a new liability for the company.
• The Sponsor and its affiliates continue to provide financial support through loans and advances, indicating their commitment but also exposing them to significant financial risk.
• Potential target businesses, such as Horizon Quantum Computing, face uncertainty regarding the completion of a business combination given the SPAC's financial condition and internal control issues.
• Creditors face increased risk due to the company's 'going concern' status and limited liquidity outside the Trust Account.

Next Steps

• Negotiate and execute a definitive merger agreement with Horizon Quantum Computing Pte. Ltd. for the proposed business combination.
• Seek board and equity holder approval, as well as regulatory approvals, for the proposed business combination.
• Continue to extend the Business Combination period, potentially until December 29, 2025, requiring ongoing contributions to the Trust Account.
• Implement remediation plans to address identified material weaknesses in internal control over financial reporting, including enhanced documentation, expanded review procedures, and increased oversight.
• File the 2024 excise tax return (Form 720) by April 30, 2025, and ensure timely payment of the obligation.

Key Dates

Recommendation

The company is in a precarious financial position, evidenced by a 'going concern' warning, a critically low cash balance of $348, and a massive increase in net loss and accumulated deficit. While the non-binding LOI with Horizon Quantum Computing offers a glimmer of hope, the significant financial deterioration, material weaknesses in internal controls, and the ongoing reliance on related-party funding for extensions present overwhelming risks. The potential for liquidation, coupled with the uncertainty of the business combination and the newly recognized excise tax liability, makes this a highly speculative and high-risk investment. A seasoned investor would likely view these factors as strong indicators to exit the position.

Keywords

SPAC, blank check company, business combination, Horizon Quantum Computing, quantum computing, 10-Q, SEC filing, going concern, net loss, accumulated deficit, warrant liabilities, excise tax, internal controls, liquidity, related party transactions