10-Q/A: ShoulderUp Technology Acquisition Corp. Files Amended Quarterly Report After Accounting Error

ShoulderUp Technology Acquisition Corp. has filed an amended quarterly report to correct a miscalculation of a derivative liability related to non-redemption agreements.

Summary

• ShoulderUp Technology Acquisition Corp. filed an amendment to its quarterly report for the period ended June 30, 2024, due to an error in calculating the non-redemption agreements derivative liability.
• The error stemmed from using an incorrect number of sponsor shares to be issued in connection with non-redemption agreements made on May 17, 2024.
• The company has restated its financial statements to reflect the correction, which reduced the derivative liability by $2,672,003.
• The restatement did not impact the company's cash position.
• A material weakness remains in the company's internal control over financial reporting related to accounting for complex financial liabilities.
• The company's disclosure controls and procedures were also deemed ineffective.
• The company has a remediation plan to address the material weakness.
• The company had a net loss of approximately $0.6 million for the six months ended June 30, 2024.
• As of June 30, 2024, the company had $290,466 in its operating bank account and a working capital deficit of approximately $4.6 million.
• The company has a mandatory liquidation date of November 19, 2024, which raises substantial doubt about its ability to continue as a going concern.

Sentiment

Score: 3

Explanation: The document reveals significant issues including a restatement, material weakness in internal controls, a large working capital deficit, and going concern issues. The company is facing a mandatory liquidation date and has had to extend its business combination deadline multiple times. The sentiment is negative due to these substantial challenges and uncertainties.

Positives

• The company has identified and corrected a material error in its financial reporting.
• The company has a remediation plan to address the material weakness in internal controls.
• The company has a $600,000 subscription receivable to help with liquidity needs.
• The company has a business combination agreement in place with SEE ID, Inc.

Negatives

• The company has a material weakness in internal control over financial reporting.
• The company's disclosure controls and procedures were not effective.
• The company has a significant working capital deficit of approximately $4.6 million.
• The company has a mandatory liquidation date of November 19, 2024, raising substantial doubt about its ability to continue as a going concern.
• The company has incurred a net loss of approximately $0.6 million for the six months ended June 30, 2024.
• The company has used funds withdrawn from the trust account for non-tax related operating expenses.

Risks

• The company may not be able to complete a business combination before the mandatory liquidation date of November 19, 2024.
• The company's material weakness in internal control over financial reporting could lead to future misstatements.
• The company's ineffective disclosure controls and procedures could result in inaccurate or incomplete reporting.
• The company's working capital deficit could hinder its ability to operate effectively.
• The company may be subject to an excise tax on share redemptions, which could reduce available cash.
• The company may be deemed an investment company, which could impose burdensome compliance requirements and restrictions.

Future Outlook

The company intends to complete a business combination before the mandatory liquidation date of November 19, 2024. The company is currently working towards completing a business combination with SEE ID, Inc.

Management Comments

• The company's management has concluded that a material weakness remains in the company's internal control over financial reporting as it relates to the accounting for complex financial liabilities.
• The company's management has determined that the liquidity condition and the mandatory liquidation date raises substantial doubt about the company's ability to continue as a going concern.

Industry Context

This announcement is typical for a SPAC that is facing challenges in completing a business combination within its allotted timeframe. The restatement and material weakness highlight the complexities and risks associated with SPAC accounting and internal controls. The company's move to the over-the-counter market is also a common occurrence for SPACs that have been delisted from major exchanges.

Comparison to Industry Standards

• The restatement due to a miscalculation of derivative liability is not uncommon among SPACs, which often deal with complex financial instruments.
• The identification of a material weakness in internal control over financial reporting is a significant concern and is not uncommon for SPACs, particularly those nearing their liquidation deadline.
• The company's working capital deficit and the need for additional financing from the sponsor are also typical challenges faced by SPACs that have not yet completed a business combination.
• The company's move to the over-the-counter market after being delisted from the NYSE is a common occurrence for SPACs that have struggled to meet listing requirements.
• The company's financial performance is below average compared to other SPACs that have successfully completed a business combination. Many successful SPACs have a strong management team, a clear target acquisition strategy, and robust internal controls.
• The company's reliance on sponsor funding and non-redemption agreements is also a common practice among SPACs, but it also highlights the company's financial vulnerability.

Related Party Transactions

• The company issued a $275,000 convertible promissory note to the sponsor for working capital needs.
• The company has a due to related party balance of $178,272 as of June 30, 2024.
• The company pays the sponsor $10,000 per month for office space, secretarial, and administrative services.
• The sponsor has agreed to provide working capital loans to the company, which may be convertible into units of the post-business combination entity.

Stakeholder Impact

• Shareholders face the risk of liquidation if a business combination is not completed by November 19, 2024.
• Shareholders may experience dilution if the sponsor's working capital loans are converted into equity.
• Employees may face uncertainty regarding their future employment if the company is unable to complete a business combination.
• Creditors may face the risk of non-payment if the company is liquidated.
• Customers and suppliers of the target company may face uncertainty regarding the future of the business combination.

Next Steps

• The company intends to complete a business combination with SEE ID, Inc.
• The company needs to remediate the material weakness in internal control over financial reporting.
• The company needs to improve its disclosure controls and procedures.
• The company needs to address its working capital deficit.
• The company needs to secure additional funding if required.
• The company needs to maintain compliance with the terms of the trust agreement.

Key Dates

Keywords

restatement, material weakness, internal control, derivative liability, non-redemption agreements, business combination, SPAC, liquidation, working capital, redemption, trust account, financial reporting