10-Q: ShoulderUp Technology Acquisition Corp. Reports Q3 2024 Results Amidst Business Combination Efforts

ShoulderUp Technology Acquisition Corp. reported a net loss for Q3 2024, while continuing efforts to finalize a business combination and manage its financial obligations.

Summary

• ShoulderUp Technology Acquisition Corp., a blank check company, reported a net loss of approximately $0.3 million for the three months ended September 30, 2024, and a net loss of approximately $0.9 million for the nine months ended September 30, 2024.
• The company's operating expenses included general and administrative costs, franchise tax expenses, and changes in the fair value of derivative liabilities.
• The company has been focused on identifying and completing a business combination, with a non-binding letter of intent terminated in December 2023 and a new business combination agreement entered into in March 2024 with SEE ID, Inc.
• The company has extended its deadline to complete a business combination multiple times, with the latest extension approved on November 19, 2024, pushing the deadline to December 31, 2024.
• Significant redemptions of Class A common stock have occurred in connection with these extensions, reducing the amount of cash held in the trust account.
• As of September 30, 2024, the company had $192,363 in its operating bank account and a working capital deficit of approximately $4.8 million.
• The company has also incurred excise tax liabilities related to share redemptions, with a liability of $3,046,381 recorded as of September 30, 2024.
• The company's securities are now trading on the over-the-counter market after being delisted from the NYSE in December 2023.
• The company has issued convertible promissory notes to its sponsor for working capital needs, totaling $375,000 as of September 30, 2024.

Sentiment

Score: 3

Explanation: The document presents a concerning financial situation with net losses, a working capital deficit, and a significant excise tax liability. The delisting from the NYSE and the need for multiple deadline extensions further contribute to a negative outlook. While a business combination agreement is in place, the overall sentiment is negative due to the financial challenges and uncertainties.

Positives

• The company has secured a business combination agreement with SEE ID, Inc.
• The company has received a waiver of $11,200,000 in deferred underwriting commissions.
• The company has extended its deadline to complete a business combination to December 31, 2024, providing more time to finalize the deal.
• The company's securities are now trading on the over-the-counter market, allowing for continued trading.

Negatives

• The company reported a net loss for both the three and nine months ended September 30, 2024.
• The company has a significant working capital deficit of approximately $4.8 million.
• The company has incurred a substantial excise tax liability of $3,046,381 related to share redemptions.
• The company's securities were delisted from the NYSE and are now trading on the over-the-counter market.
• The company has used $67,317 of funds withdrawn from the trust account for non-tax related operating expenses, which is not in accordance with the trust agreement.
• The company has a going concern issue due to the mandatory liquidation date.

Risks

• The company may not be able to complete the business combination with SEE ID, Inc.
• The company's securities are subject to the penny stock rules, which may make it more difficult to trade in its securities.
• The company's ability to complete a business combination is dependent on the availability of funds and the satisfaction of closing conditions.
• The company's financial condition and results of operations could be adversely affected by the excise tax on share redemptions.
• The company's securities are not covered securities and are subject to regulation in each state in which they are offered.
• The company has a material weakness in internal controls related to failures in reporting period closing and compliance with the trust agreement.

Future Outlook

The company intends to complete a business combination before the mandatory liquidation date of December 31, 2024. The company is focused on completing the proposed business combination with SEE ID, Inc.

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 $67,317 of funds withdrawn from the Trust Account for payment of other operating expenses not related to taxes was not in accordance with the Trust Agreement.

Industry Context

The document reflects the challenges faced by many SPACs in finding and completing a business combination within the required timeframe. The delisting from the NYSE and subsequent trading on the OTC market is a common occurrence for SPACs that struggle to meet listing requirements or complete a deal. The company's efforts to extend its deadline and secure a business combination agreement are indicative of the broader trend of SPACs seeking to maximize their chances of success.

Comparison to Industry Standards

• The company's financial performance is below average compared to other SPACs that have successfully completed a business combination. Many successful SPACs have maintained a positive cash balance and have not incurred significant losses prior to the merger.
• The company's high redemption rate is a common issue for SPACs, indicating a lack of investor confidence in the company's ability to find a suitable target. This is similar to other SPACs that have struggled to complete a deal.
• The company's delisting from the NYSE and subsequent trading on the OTC market is a negative signal, as it indicates a failure to meet listing requirements. This is a common issue for SPACs that have not been able to complete a business combination within the required timeframe.
• The company's reliance on sponsor loans for working capital is also a common practice for SPACs, but it also indicates a lack of sufficient funds to operate independently.
• The company's excise tax liability is a result of the Inflation Reduction Act of 2022, which is a common issue for SPACs that have had significant redemptions. This is a new challenge for the industry and is not specific to this company.

Related Party Transactions

• The company has issued convertible promissory notes to its sponsor for working capital needs.
• The company has an administrative service agreement with its sponsor.
• The company has a due to related party balance with its sponsor.

Stakeholder Impact

• Shareholders have experienced significant redemptions of their shares, reducing the amount of cash held in the trust account.
• Shareholders are now trading on the OTC market, which may have reduced liquidity and increased trading restrictions.
• Employees may be impacted by the uncertainty surrounding the company's future.
• Creditors may be concerned about the company's working capital deficit and ability to repay its debts.

Next Steps

• The company needs to complete the business combination with SEE ID, Inc. by December 31, 2024.
• The company needs to address its working capital deficit and excise tax liability.
• The company needs to regain investor confidence and improve its financial performance.

Key Dates

Keywords

SPAC, Business Combination, Merger, Redemption, Excise Tax, OTC, Trust Account, Working Capital, SEE ID, Delisting