10-Q: ShoulderUp Technology Acquisition Corp. Reports Q2 2024 Results Amidst Business Combination Efforts

ShoulderUp Technology Acquisition Corp. reports a net loss for Q2 2024, while continuing efforts to finalize a business combination.

Summary

• ShoulderUp Technology Acquisition Corp., a blank check company, reported a net loss of $222,793 for the three months ended June 30, 2024, and a net loss of $662,778 for the six months ended June 30, 2024.
• The company's cash balance was $290,466 as of June 30, 2024, with a working capital deficit of approximately $4.6 million.
• 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., but there is no assurance that the deal will close.
• The company has withdrawn $2,636,344 from its trust account to pay income and franchise taxes, and has remitted $2,527,064 to tax authorities.
• The company has a $3,046,381 liability for excise tax related to share redemptions.
• The company's Class A common stock is now trading on the over-the-counter market under the symbols SUAC, SUACU, and SUACW.

Sentiment

Score: 3

Explanation: The document presents a concerning financial situation with significant losses, a working capital deficit, and substantial liabilities. The company's ability to continue as a going concern is in doubt, and there is no guarantee that the business combination will be completed. The multiple extensions and redemptions further contribute to a negative sentiment.

Positives

• The company has secured a business combination agreement with SEE ID, Inc.
• The company has extended its deadline to complete a business combination to November 19, 2024.
• The company's shares are now trading on the over-the-counter market, providing some liquidity.

Negatives

• The company reported a net loss for both the three and six months ended June 30, 2024.
• The company has a significant working capital deficit of approximately $4.6 million.
• The company has a substantial liability for excise tax related to share redemptions.
• The company has a non-redemption agreements derivative liability of $10,901,760.
• There is no assurance that the business combination with SEE ID, Inc. will close.
• The company has a history of share redemptions, which reduces the funds available in the trust account.

Risks

• The company may not be able to complete the business combination with SEE ID, Inc.
• The company's liquidity condition and mandatory liquidation date raise substantial doubt about its ability to continue as a going concern.
• The company may be subject to a 1% excise tax on share repurchases, which could reduce the cash available to complete a business combination.
• The company has material weaknesses in its internal controls over financial reporting.
• The company may be deemed an investment company, which could impose burdensome compliance requirements and restrict its activities.
• The company has a history of share redemptions, which reduces the funds available in the trust account.

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 the business combination with SEE ID, Inc., but there is no assurance that the deal will close.

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

Industry Context

The document reflects the challenges faced by many SPACs in finding suitable merger targets and completing business combinations within the required timeframes. The company's struggles with redemptions and the need for multiple extensions are common in the current SPAC market.

Comparison to Industry Standards

• The company's financial performance is below average compared to other SPACs that have successfully completed business combinations.
• The high level of redemptions and the resulting reduction in the trust account balance are concerning and indicate a lack of investor confidence.
• The company's reliance on sponsor loans and non-redemption agreements to maintain operations is not sustainable in the long term.
• The company's delisting from the NYSE and subsequent trading on the over-the-counter market is a negative signal compared to other SPACs that have maintained their exchange listings.

Related Party Transactions

• The company issued a $275,000 convertible promissory note to the sponsor for working capital needs.
• The company pays the sponsor $10,000 per month for office space, secretarial, and administrative services.
• The sponsor has provided working capital loans to the company.

Stakeholder Impact

• Shareholders face the risk of losing their investment if the company is unable to complete a business combination.
• Employees may be impacted by the uncertainty surrounding the company's future.
• Creditors may be at risk if the company is unable to meet its obligations.
• The company's suppliers and customers may be impacted by the uncertainty surrounding the company's future.

Next Steps

• The company needs to finalize the business combination with SEE ID, Inc.
• The company needs to address its liquidity issues and working capital deficit.
• The company needs to resolve the material weaknesses in its internal controls over financial reporting.
• The company needs to manage the excise tax liability and non-redemption agreements derivative liability.

Key Dates

Keywords

business combination, SPAC, merger, redemption, trust account, excise tax, SEE ID, working capital, derivative liability, over-the-counter