10-Q: ShoulderUp Technology Acquisition Corp. Reports Q1 2024 Results Amidst Business Combination Efforts and Delisting

ShoulderUp Technology Acquisition Corp. reported a net loss for Q1 2024, navigated delisting from the NYSE, and continued efforts towards a business combination.

Summary

• ShoulderUp Technology Acquisition Corp. reported a net loss of $439,985 for the quarter ended March 31, 2024, compared to a net income of $2,350,377 for the same period in 2023.
• The company's operating expenses were $410,469, which included general and administrative expenses and franchise tax expenses.
• The company experienced a change in fair value of derivative liability of -$247,680.
• Interest income from the trust account was $257,512, significantly lower than the $3,286,169 reported in the same quarter of the previous year.
• The company's cash balance was $335,304, with a working capital deficit of approximately $4.2 million.
• The company has $21,356,778 held in a trust account.
• The company has extended its deadline to complete a business combination to November 19, 2024.
• The company has entered into a business combination agreement with SEE ID, Inc., which is expected to close subject to certain conditions.
• The company's shares were delisted from the NYSE on December 29, 2023, and are expected to be quoted on the Pink Sheets.

Sentiment

Score: 3

Explanation: The document indicates significant financial challenges, including a net loss, working capital deficit, and delisting from the NYSE. While there is progress towards a business combination, the overall tone is negative due to the company's financial instability and going concern issues.

Positives

• The company has secured a working capital loan of $275,000 from its sponsor to address immediate liquidity needs.
• The company has extended its deadline to complete a business combination to November 19, 2024, providing more time to finalize a deal.
• The company has entered into a business combination agreement with SEE ID, Inc., indicating progress towards a merger.
• The company's securities are expected to be quoted on the Pink Sheets, providing a venue for trading after delisting from the NYSE.

Negatives

• The company reported a net loss of $439,985 for Q1 2024, a significant decrease from the net income of $2,350,377 in Q1 2023.
• The company has a working capital deficit of approximately $4.2 million.
• The company's cash balance is low at $335,304.
• The company's shares were delisted from the NYSE on December 29, 2023.
• The company inadvertently used $76,954 of funds withdrawn from the trust account for non-tax operating expenses.
• The company has a material weakness in internal controls related to the use of funds withdrawn from the trust account.

Risks

• The company's ability to continue as a going concern is in doubt due to its liquidity condition and mandatory liquidation date.
• The company may be subject to a 1% excise tax on share redemptions, which could reduce the cash available for a business combination.
• The company's shares are now traded on the Pink Sheets, which may result in lower liquidity and price volatility.
• The company's business combination with SEE ID, Inc. is subject to customary closing conditions and may not be completed.
• The company has material weaknesses in its internal controls over financial reporting.

Future Outlook

The company intends to complete a business combination before the mandatory liquidation date of November 19, 2024. The company is focused on completing the proposed business combination with SEE ID, Inc. The company may seek a further extension of the termination date.

Management Comments

• 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.
• Management determined that the use of funds withdrawn from the Trust Account for non-tax operating expenses was not in accordance with the Trust Agreement.

Industry Context

The report reflects the challenges faced by many SPACs in finding suitable merger targets and the impact of market conditions on their financial performance. The delisting from the NYSE and subsequent trading on the Pink Sheets is a common occurrence for SPACs that fail to meet listing requirements or complete a business combination within the allotted time.

Comparison to Industry Standards

• The company's financial performance is below average compared to other SPACs that have successfully completed a business combination.
• The company's high operating expenses and net loss are not uncommon for SPACs in the pre-merger phase, but the magnitude of the loss is concerning.
• The company's reliance on sponsor loans and working capital deficits is typical for SPACs facing time constraints and financial pressures.
• The company's delisting from the NYSE and move to the Pink Sheets is a negative signal, indicating a failure to meet listing requirements and a potential loss of investor confidence.
• The company's excise tax liability is a common issue for SPACs that have experienced significant redemptions.

Related Party Transactions

• The company has a related party loan from the sponsor.
• The company pays the sponsor a monthly administrative service fee.
• The company entered into non-redemption agreements with certain parties, some of whom are members of the sponsor.

Stakeholder Impact

• Shareholders have experienced significant redemptions and a decline in share value.
• The company's employees face uncertainty due to the company's financial instability and going concern issues.
• The company's creditors face increased risk due to the company's working capital deficit and potential liquidation.
• The company's suppliers may be impacted by the company's financial challenges.

Next Steps

• The company will continue to work towards completing the business combination with SEE ID, Inc.
• The company will seek to have its securities quoted on the Pink Sheets.
• The company will address the material weaknesses in its internal controls over financial reporting.
• The company may seek a further extension of the termination date.

Key Dates

Keywords

SPAC, Business Combination, Merger, Delisting, Pink Sheets, Trust Account, Redemption, Working Capital, SEE ID, Financial Results