Drilling Tools International (DTI) - 2021 Q4 - Annual Report

PART I Item 1. Business ROC Energy Acquisition Corp. is a SPAC focused on acquiring a U.S. upstream oil and gas target, with $209.07 million in trust Overview - ROC Energy Acquisition Corp. is a Delaware blank check company (SPAC) formed to effect an initial business combination[19] - The company focuses its acquisition efforts on the non-operated, upstream oil and gas sector in the U.S., aiming to create a dividend-paying company through consolidation[20] Initial Public Offering - The company consummated its initial public offering (IPO) on December 6, 2021, selling 18,000,000 units at $10.00 per unit, generating $180,000,000[21] - Underwriters fully exercised an over-allotment option on December 9, 2021, purchasing an additional 2,700,000 units for $27,000,000[22] - Simultaneously with the IPO and over-allotment, the sponsor purchased 715,000 and an additional 81,000 private placement units, respectively, at $10.00 per unit[21][22] - A total of $209,070,000 from the IPO and private placement proceeds was placed in a trust account[23] Business Strategy - The non-operated segment of the U.S. oil and gas sector is highly fragmented, with significant assets and limited competition due to reduced private equity investment[25] - Modern shale development is reliable, predictable, and economical, offering predictable economic recoveries and potential upside for investors[26] - The company aims to leverage its sector knowledge and experience to acquire high-quality assets or businesses at compelling prices, offering attractive reinvestment opportunities and dividend payments[27] Our Business Combination Process - The company conducts customary due diligence, including meetings with management, document reviews, and interviews, utilizing its operational and capital allocation experience[29] - Fifth Partners, LLC, an affiliate of the sponsor, may assist in identifying and diligencing acquisition targets, though it is not obligated to do so[30][31] - Conflicts of interest may arise due to management's ownership of company securities and pre-existing fiduciary/contractual obligations to other entities, requiring an independent fairness opinion for affiliated transactions[33][34][35] Sourcing of Potential Business Combination Targets - Potential targets are sourced through the management team's extensive network, as well as from unaffiliated sources like investment bankers, private equity funds, and businesses divesting noncore assets[39][63] - The company may engage professional firms for finder's fees, typically tied to transaction completion and paid from trust account funds[63] - For business combinations with affiliated companies, an opinion from an independent investment banking or valuation firm is required to ensure fairness to unaffiliated stockholders[40][64] Initial Business Combination - The company has until December 6, 2022, to complete an initial business combination, with a possibility to extend twice by three months each, until June 6, 2023[41][42] - Extensions require the sponsor to deposit $2,070,000 ($0.10 per unit) into the trust account for each three-month period, totaling up to $4,140,000[42] - The target business must have an aggregate fair market value of at least 80% of the assets held in the trust account (excluding taxes payable)[46][66][69] - The company will seek stockholder approval or provide a tender offer opportunity for redemptions, with an initial per public share redemption price of $10.10[44][45] Our Management Team - Members of the management team are not obligated to devote specific hours but will dedicate time as necessary, with more time spent during the business combination process[51] - The management team's operating and transaction experience, along with their broad network of contacts, is expected to provide a substantial number of potential business combination targets[52] Status as a public company - Being a public company offers target businesses an alternative to traditional IPOs, potentially providing a more expeditious and cost-effective path to public status, greater capital access, and enhanced profile[53][54] - The company's status as a blank check company, lacking an operating history and requiring stockholder approval for business combinations, may be viewed negatively by some potential targets[55] - The company is an 'emerging growth company' and 'smaller reporting company,' allowing for reduced disclosure obligations and an extended transition period for complying with new accounting standards[56][57][59][61] Financial Position - As of December 31, 2021, the company had $209,100,011.98 available in the trust account for an initial business combination[62] - The company offers flexibility in financing a target business, using cash, debt, equity, or a combination thereof[62] Sources of Target Businesses - Target businesses are identified through various unaffiliated sources, including investment bankers, venture capital funds, private equity groups, and the business contacts of the company's officers and directors[63] - The company may engage professional firms for business acquisitions, paying finder's fees tied to transaction completion from trust account funds[63] - Any initial business combination with an affiliated company requires an independent fairness opinion and approval by a majority of independent directors[64] Selection of a Target Business and Structuring of a Business Combination - Management has virtually unrestricted flexibility in selecting target businesses, subject to the 80% fair market value rule[66] - A thorough due diligence review is conducted, but risks inherent in financially unstable or early-stage businesses may not be fully ascertained[66][67] - Costs incurred for identifying and evaluating prospective targets that do not result in a completed business combination will lead to losses and reduce funds for future combinations[68] Fair Market Value of Target Business or Businesses - The target business's aggregate fair market value must be at least 80% of the assets held in the trust account at the time of agreement[69] - Fair market value is determined by the board of directors using generally accepted financial community standards (e.g., gross margins, comparable businesses, earnings, cash flow, book value, enterprise value)[70] - An opinion from an independent investment banking or valuation firm will be obtained if the board cannot independently determine the fair market value or for affiliated transactions[70][72] Lack of Business Diversification - After the initial business combination, the company's success may depend entirely on a single business, leading to a lack of diversification[73] - This lack of diversification could expose the company to substantial adverse impacts from negative economic, competitive, and regulatory developments in a single industry, and dependence on a limited number of products or services[77] Limited Ability to Evaluate the Target's Management Team - The company's assessment of a prospective target business's management may not prove correct, and the future role of the SPAC's management team in the target business is uncertain[74] - There is no assurance that the company will be able to recruit additional managers with the necessary skills, knowledge, or experience to enhance the incumbent management of the target business[75] Stockholders May Not Have the Ability to Approve an Initial Business Combination - The company may conduct redemptions without a stockholder vote via a tender offer, unless required by law or applicable stock exchange rules[76][82] - Stockholder approval is required for transactions such as issuing shares equal to or exceeding 20% of outstanding common stock, or if a change of control occurs[78][81] - Initial stockholders, officers, and directors have agreed to vote their shares in favor of any proposed business combination and not to redeem their shares[85] Stockholder Approval Requirements by Transaction Type | Type of Transaction | Whether Stockholder Approval is Required | | :------------------------------------------------------ | :--------------------------------------- | | Purchase of assets | No | | Purchase of stock of target not involving a merger with the company | No | | Merger of target into a subsidiary of the company | No | | Merger of the company with a target | Yes | Permitted Purchases of our Securities - The sponsor, directors, officers, or their affiliates may purchase shares or rights in privately negotiated transactions or in the open market to influence votes or satisfy closing conditions, but have no current commitments[87][89][91] - Such purchases could reduce the public 'float' of common stock and the number of beneficial holders, potentially affecting exchange listing[92] - Purchases will comply with Regulation M and other federal securities laws, and will not be made with material non-public information[89][94] Redemption rights for public stockholders upon completion of our initial business combination - Public stockholders have the right to redeem all or a portion of their common stock upon completion of an initial business combination at a per-share price equal to their pro-rata share of the trust account[96] - As of December 31, 2021, the redemption value was approximately $10.10 per public share[96] - The sponsor, officers, and directors have waived their redemption rights for their founder shares, private shares, and any public shares they hold[96] Manner of conducting redemptions - Redemptions can be conducted either in connection with a general meeting to approve the business combination (proxy solicitation) or by means of a tender offer, at the company's discretion, unless legally mandated[97][98][103] - If stockholder approval is sought, an ordinary resolution (majority vote) is required, and insiders have agreed to vote their shares in favor of the business combination[101] - The company will only redeem public shares if, after redemption, its net tangible assets are at least $5,000,001 and after payment of underwriters' fees and commissions[106] Limitation on redemption upon completion of our initial business combination if we seek stockholder approval - If stockholder approval is sought, public stockholders are restricted from redeeming more than 20% of the shares sold in the initial public offering (Excess Shares)[107] - This restriction aims to prevent large blocks of stockholders from unreasonably blocking a business combination, especially if a minimum net worth or cash closing condition exists[107] - The company may waive this restriction at its sole discretion, but stockholders retain the ability to vote all their shares (including Excess Shares) for or against the business combination[107] Tendering share certificates in connection with a tender offer or redemption rights - Public stockholders exercising redemption rights must tender their certificates or deliver shares electronically via the DWAC System up to two business days prior to the stockholder vote[110] - This delivery requirement ensures that a redeeming holder's election to redeem is irrevocable once the business combination is approved, differing from historical blank check company procedures[112] - Redemption requests can be withdrawn at any time up to the date of the stockholder meeting[113] Redemption of public shares and liquidation if no initial business combination - If an initial business combination is not completed by December 6, 2022 (or June 6, 2023 with extensions), the company will liquidate, redeem public shares at a pro-rata price (approx. $10.10 per share, net of taxes and up to $100,000 for dissolution expenses), and dissolve[117][121] - Public rights will be forfeited and become worthless if the company fails to complete a business combination within the prescribed timeframe[117] - The sponsor, officers, and directors have waived their rights to liquidating distributions from the trust account with respect to their founder shares and private shares[118] - The sponsor has agreed to indemnify the company if third-party claims reduce the trust account below $10.10 per public share, though its ability to satisfy these obligations is uncertain[124][125][136] Amended and Restated Certificate of Incorporation - The certificate requires the company to seek stockholder approval or conduct a tender offer for its initial business combination, with redemptions limited to ensure net tangible assets remain above $5,000,001[138][140] - It mandates liquidation and distribution of trust account funds to public stockholders if a business combination is not consummated by December 6, 2022 (or June 6, 2023 with extensions)[140] - The certificate prohibits other business combinations or the issuance of additional capital stock that would entitle holders to trust funds or voting rights on the initial business combination prior to its completion[140] Potential Revisions to Agreements with Insiders - Letter agreements with insiders could be amended without stockholder approval, potentially altering terms related to trust account liquidation, voting on business combinations, transfer restrictions, and compensation[141] - Such changes could lead to an extended period for business combination, insiders voting against transactions, new management, or insiders receiving compensation[142][144] - Any revisions would only be agreed upon if deemed in the best interests of stockholders, consistent with officers' and directors' fiduciary obligations[145] Competition - The company faces intense competition from other entities with similar business objectives, many possessing greater technical, human, and financial resources[146] - Its SPAC structure, including obligations for stockholder approval, redemption rights, fees to EarlyBirdCapital, and working capital loan repayments, may place it at a competitive disadvantage[147] - However, its status as a public entity and potential access to U.S. public equity markets may provide a competitive advantage in securing business combinations with high-growth targets[148] Conflicts of interest - Officers and directors have pre-existing fiduciary or contractual obligations to other entities, including another SPAC, which may require them to present business opportunities to those entities first[149][151] - Management's direct or indirect ownership of company securities creates a conflict of interest in evaluating potential target businesses[152] - EarlyBirdCapital, engaged as an advisor, has financial incentives (success fees) that may create conflicts of interest in connection with an initial business combination[153] Indemnity - The sponsor has agreed to indemnify the company if third-party claims reduce the trust account below $10.10 per public share, with exceptions for waived claims and underwriter indemnity[154] - The sponsor's ability to satisfy these indemnity obligations is uncertain, as its only assets are company securities, and it has not been required to reserve for such obligations[154] - The company endeavors to have vendors and service providers waive claims to trust account monies to reduce the possibility of sponsor indemnification[126][134] Employees - The company has two executive officers who are not obligated to devote specific hours but will dedicate time as necessary, particularly during the business combination process[155] - The company does not intend to have any full-time employees prior to the consummation of its initial business combination[155] Periodic Reporting and Audited Financial Statements - As a public company, ROC Energy Acquisition Corp. has SEC reporting obligations, including filing annual, quarterly, and current reports with audited financial statements[157] - The company must provide audited financial statements of the prospective target business, prepared in accordance with or reconciled to U.S. GAAP or IFRS[158] - The company is required to evaluate its internal control procedures for Sarbanes-Oxley Act compliance, which may increase the time and costs for an acquisition if the target is not compliant[159] Item 1A. Risk Factors As a blank check company, ROC Energy Acquisition Corp. faces significant risks, including the inability to complete a suitable business combination, potential conflicts of interest, and substantial doubt about its going concern status - Key risks include the inability to select an appropriate target or complete an initial business combination within the timeframe, and potential conflicts of interest among officers and directors[160] - Financial risks involve potential inability to obtain additional financing, trust account funds not being protected against third-party claims, and limited liquidity for public securities[160] - Post-combination financial performance may be negatively affected by a target's lack of an established record, and the company faces increased competition in finding targets[162] - External factors such as the COVID-19 pandemic and the military conflict in Ukraine may adversely affect the company's search for a target and its ability to consummate a business combination[162][164] - The independent auditor's report contains an explanatory paragraph expressing substantial doubt about the company's ability to continue as a going concern[162] Item 1B. Unresolved Staff Comments This item is not applicable to the company - The company has no unresolved staff comments[167] Item 2. Properties The company's executive offices are located in Dallas, Texas, for which it pays an affiliate of its sponsor $13,000 per month for office space and administrative support - Executive offices are located at 16400 Dallas Parkway, Dallas, Texas 75248[168] - The company pays an affiliate of its sponsor $13,000 per month for office space, administrative, and shared personnel support services[168] - The current office space is considered adequate for current operations[168] Item 3. Legal Proceedings To the knowledge of management, there are no legal proceedings currently pending or contemplated against the company, its officers, or directors - There is no litigation currently pending or contemplated against the company, its officers or directors, or any of its property[169] Item 4. Mine Safety Disclosures This item is not applicable to the company - The company has no mine safety disclosures[171] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's units, public shares, and public rights are traded on Nasdaq, with $209.07 million from its IPO and private placement held in a trust account Market Information - The company's units, public shares, and public rights are traded on Nasdaq under the symbols ROCAU, ROC, and ROCAR, respectively[175] - Units commenced public trading on December 2, 2021, while public shares and public rights began separate trading on December 29, 2021[175] Holders Holders of Record (as of March 22, 2022) | Security Type | Number of Holders | | :------------ | :---------------- | | Units | 2 | | Common Stock | 7 | | Rights | 1 | Dividends - The company has not paid any cash dividends on its common stock to date and does not intend to prior to the completion of its initial business combination[177] - Future dividend payments will depend on revenues, earnings, capital requirements, and general financial condition post-business combination, and may be limited by restrictive covenants from any incurred indebtedness[177] Securities Authorized for Issuance Under Equity Compensation Plans - No securities are authorized for issuance under equity compensation plans[178] Recent Sales of Unregistered Securities - There have been no recent sales of unregistered securities[179] Use of Proceeds from the Initial Public Offering - The initial public offering (IPO) and the full exercise of the over-allotment option generated aggregate gross proceeds of $207,000,000[180] - A total of $209,070,000, including proceeds from the private placement units, was placed in a U.S.-based trust account[181] - Proceeds in the trust account are invested in U.S. government securities with a maturity of 185 days or less or in money market funds meeting specific conditions[181] Purchases of Equity Securities by the Issuer and Affiliated Purchasers - There were no purchases of equity securities by the issuer or affiliated purchasers[182] Item 6. Reserved This item is reserved and contains no information - Item 6 is reserved[183] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The company, a blank check entity formed in September 2021, incurred a net loss of $235,380 through December 31, 2021, with $209.07 million in its trust account, and faces substantial doubt about its going concern status Cautionary Note Regarding Forward-Looking Statements - The report contains forward-looking statements, particularly in this section, based on management's current expectations[186] - Actual results may differ materially from expectations due to various factors, and the company undertakes no obligation to update these statements except as required by law[186][187] Overview - ROC Energy Acquisition Corp. was formed on September 2, 2021, as a blank check company to effect a business combination[188] - The company intends to use cash from its IPO and private units, capital stock, debt, or a combination for its initial business combination[188] - Significant costs are expected in pursuit of acquisition plans, with no assurance of success[189] Results of Operations - The company has not engaged in operations or generated revenues to date, focusing on organizational activities and searching for a business combination target[190] Results of Operations (Sept 2 - Dec 31, 2021) | Item | Amount ($) | | :----------------------------------------- | :--------- | | General and administrative expenses | 252,254 | | Loss from operations | (252,254) | | Interest earned on investments in Trust Account | 16,874 | | Net loss | (235,380)| Liquidity and Capital Resources - The company consummated its IPO and over-allotment, generating $207,000,000, and private placement units, resulting in $209,070,000 placed in the trust account[192][194][195] - IPO-related costs amounted to $4,012,520, including underwriting fees[195] - As of December 31, 2021, the company had $1,361,137 in cash held outside the trust account for working capital and due diligence[198] - The sponsor or affiliates may provide working capital loans, up to $1,500,000 of which may be convertible into units at $10.00 per unit upon business combination[199] Going Concern - Management has determined that the liquidity condition and the mandatory liquidation date (December 6, 2022, extendable to 18 months) raise substantial doubt about the company's ability to continue as a going concern[200] - No adjustments have been made to the carrying amounts of assets or liabilities, as there is no assurance a business combination will be consummated by the deadline[200] Off-Balance Sheet Financing Arrangements - As of December 31, 2021, the company had no obligations, assets, or liabilities considered off-balance sheet arrangements[201][203] Contractual Obligations - The company pays Fifth Partners, an affiliate of the sponsor, $13,000 per month for general and administrative services[204] - EarlyBirdCapital, as an advisor for the initial business combination, is entitled to a cash fee of 3.5% of the IPO gross proceeds upon consummation[206] - An additional 1.0% cash fee of the total consideration is payable to EarlyBirdCapital if they introduce the target business with whom the company completes the initial business combination[206] Critical Accounting Policies - Common stock subject to possible redemption is classified as temporary equity and measured at fair value, with changes in redemption value recognized immediately[208] - Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares outstanding, excluding accretion associated with redeemable shares[210] Recent Accounting Standards - The company adopted ASU 2020-06 (simplifying convertible instruments and equity classification) effective September 2, 2021, which did not have a material impact on its financial statements[211] - Management does not believe any other recently issued, but not yet effective, accounting standards would have a material effect if currently adopted[212] Factors That May Adversely Affect Our Results of Operations - The company's results of operations and ability to complete a business combination may be adversely affected by various external factors beyond its control[213] - These factors include downturns in financial markets, economic conditions, increases in oil prices, inflation, interest rates, supply chain disruptions, the COVID-19 pandemic, and geopolitical instability (e.g., the military conflict in Ukraine)[213] Item 7A. Quantitative and Qualitative Disclosures about Market Risk The company's activities are limited to organizational efforts and searching for a target business, with no material exposure to interest rate risk due to short-term investments in its trust account - The company's efforts have been limited to organizational activities and searching for a target business, with no hedging activities since inception[214] - Net proceeds in the trust account are invested in U.S. government treasury bills (185 days or less maturity) or money market funds[215] - Due to the short-term nature of these investments, the company believes there is no associated material exposure to interest rate risk[215] Item 8. Financial Statements and Supplementary Data This item refers to the company's audited financial statements and supplementary data, which are incorporated by reference from pages F-1 through F-18 of the report - The company's financial statements and supplementary data are incorporated by reference from pages F-1 through F-18 of this Report[216] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[218] Item 9A. Controls and Procedures As of December 31, 2021, the company's disclosure controls were effective, but management's assessment and attestation report on internal controls over financial reporting are excluded due to a transition period for newly public companies Evaluation of Disclosure Controls and Procedures - As of December 31, 2021, the company's disclosure controls and procedures were evaluated and concluded to be effective by management, including the CEO and CFO[220] - Disclosure controls provide only reasonable, not absolute, assurance that objectives are met, due to inherent limitations and resource constraints[221] Management's Annual Report on Internal Controls over Financial Reporting - This Report does not include management's assessment or an attestation report from the independent registered public accounting firm regarding internal control over financial reporting[222] - This exclusion is due to a transition period established by SEC rules for newly public companies[222] Changes in Internal Control over Financial Reporting - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[223] Item 9B. Other Information This item contains no other information - There is no other information to disclose under this item[224] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. This item is not applicable to the company - This item is not applicable[226] PART III Item 10. Directors, Executive Officers and Corporate Governance The company's leadership includes Joseph Drysdale (Chairman), Daniel Kimes (CEO), and Rosemarie Cicalese (CFO), supported by a board of seven directors, four of whom are independent and serve in three classes Directors and Executive Officers Directors and Executive Officers (as of Report Date) | Name | Age | Position | | :----------------- | :-- | :------------------------------------- | | Joseph Drysdale | 41 | Chairman of the Board | | Daniel Jeffrey Kimes | 39 | Chief Executive Officer and Director | | Rosemarie Cicalese | 39 | Chief Financial Officer | | Brian Minnehan | 49 | Director | | Alberto Pontonio | 55 | Director | | Lee Canaan | 65 | Director | | Win Graham | 51 | Director | | Joseph Colonnetta | 59 | Director | - Executive officers and directors possess extensive experience in finance, energy, investment banking, and private equity[229][230][231][232][234][235][236][237][239] Special Advisors - The company has special advisors (Mike Allen, Dan Hunt, Bill Hall, Jeremy Gottlieb, Ruben Martin) who assist in sourcing targets, providing business insights, and value creation[240][241][242][243][244][245] - Special advisors are not under fiduciary obligations, do not perform board or committee functions, and have no voting or decision-making capacity[245] Number and Terms of Office of Officers and Directors - The board of directors has seven members, with four deemed 'independent' under SEC and Nasdaq rules[248] - The board is divided into three classes, with each class serving a three-year term[248] - Officers are appointed by and serve at the discretion of the board of directors[249] Committees of the Board of Directors - The company has an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee[250][254][257] - All members of these committees (Mr. Graham, Ms. Canaan, Mr. Colonnetta) are independent directors, meeting Nasdaq and SEC requirements[250][254][257] - The Audit Committee oversees independent auditors and financial reporting, the Compensation Committee reviews executive compensation, and the Nominating and Corporate Governance Committee identifies director candidates and oversees governance guidelines[251][253][255][259] Code of Ethics - The company has adopted a Code of Ethics applicable to all executive officers, directors, and employees, codifying business and ethical principles[261] Compliance with Section 16(a) of the Exchange Act - For the year ended December 31, 2021, all Section 16(a) reports for executive officers, directors, and greater than 10% beneficial owners were filed timely, except for the sponsor's late Form 4 filing related to its purchase of additional private units[262] Item 11. Executive Compensation No executive officers have received cash compensation, but the company pays an administrative fee of $13,000 per month to an affiliate of the sponsor, and may pay consulting or success fees to insiders upon business combination - No executive officer has received cash compensation for services rendered to the company[263] - The company pays Fifth Partners, an affiliate of its sponsor, $13,000 per month for office space, utilities, and secretarial services[263] - Officers and directors are reimbursed for out-of-pocket expenses incurred in connection with company activities, with no limit on the amount[263][267] - Consulting, success, or finder fees may be paid to the sponsor, officers, directors, initial stockholders, or their affiliates upon the closing of an initial business combination, subject to audit committee review and market rates[264][266] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 22, 2022, ROC Energy Holdings, LLC was the largest beneficial owner with 22.24% of outstanding common stock, and the company has no authorized securities under equity compensation plans Beneficial Ownership of Common Stock (as of March 22, 2022) | Name and Address of Beneficial Owner | Number of Shares Beneficially Owned | Approximate Percentage of Outstanding Common Stock | | :----------------------------------- | :---------------------------------- | :------------------------------------------------- | | ROC Energy Holdings, LLC | 5,971,000 | 22.24 % | | All officer and directors as a group (8 individuals) | 5,971,000 | 22.24 % | | Highbridge Capital Management, LLC | 1,626,417 | 6.06 % | | Saba Capital Management, L.P. | 1,240,197 | 5.80 % | Securities Authorized for Issuance under Equity Compensation Plans - No securities are authorized for issuance under equity compensation plans[274] Changes in Control - There have been no changes in control[275] Item 13. Certain Relationships and Related Transactions, and Director Independence The sponsor acquired founder shares and private units, and the company has an administrative support agreement with an affiliate for $13,000 per month, with all related-party transactions requiring audit committee approval - The sponsor purchased 4,312,500 founder shares for $25,000, which increased to 5,175,000 shares after a stock dividend[276][278] - The sponsor purchased 796,000 private units (including over-allotment) for an aggregate of $7,960,000[279] - An unsecured promissory note from the sponsor for up to $300,000 was repaid by December 31, 2021[280] - Insiders may loan funds for working capital, with up to $1,500,000 convertible into private units upon business combination[281] - The company pays Fifth Partners, an affiliate, $13,000 per month for administrative services[283] - All ongoing and future transactions with officers, directors, or their affiliates require prior approval by the audit committee and a majority of uninterested independent directors[286] Director Independence - A majority of the board of directors (Mr. Minnehan, Ms. Canaan, Mr. Graham, and Mr. Colonnetta) are deemed 'independent directors' as defined by Nasdaq listing standards[287] - The audit committee is entirely composed of independent directors meeting Nasdaq's additional requirements[287] - Any business combination must be approved by a majority of the independent directors[287] Item 14. Principal Accountant Fees and Services For the period from September 2, 2021, through December 31, 2021, the company paid WithumSmith+Brown, PC $82,210 in audit fees, with no other fees billed - WithumSmith+Brown, PC acts as the company's independent registered public accounting firm[288] Principal Accountant Fees (Sept 2 - Dec 31, 2021) | Fee Type | Amount ($) | | :-------------- | :--------- | | Audit Fees | 82,210 | | Audit-Related Fees | None | | Tax Fees | None | | All Other Fees | None | - The audit committee pre-approves all auditing services and permitted non-audit services to be performed by the auditors[292] PART IV Item 15. Exhibit and Financial Statement Schedules This section lists the financial statements, indicates no financial statement schedules, and provides an index of exhibits filed as part of the report Financial Statements - The financial statements include the Report of Independent Registered Public Accounting Firm, Balance Sheet, Statement of Operations, Statement of Changes in Stockholders' Equity, Statement of Cash Flows, and Notes to Financial Statements[296][302] Financial Statement Schedules - No financial statement schedules are included[296] Exhibits - The exhibit index lists various agreements, including underwriting, business combination marketing, certificate of incorporation, rights agreement, letter agreement, trust agreement, registration rights agreement, administrative support agreement, private placement units purchase agreement, promissory note, and certifications[406] - The report includes financial statements and an exhibit index[296][297] - No financial statement schedules are included[296] - Exhibits are filed as part of this Report and can be inspected on the SEC website[297] Item 16. Form 10-K Summary This item is not applicable to the company - This item is not applicable[299] Financial Statements Report of Independent Registered Public Accounting Firm WithumSmith+Brown, PC provided an unqualified opinion on the company's financial statements but included an explanatory paragraph regarding substantial doubt about its ability to continue as a going concern - WithumSmith+Brown, PC issued an unqualified opinion on the financial statements for the period from September 2, 2021 (inception) through December 31, 2021[304] - The report includes a 'going concern' explanatory paragraph, citing substantial doubt about the company's ability to continue due to the business combination deadline (December 6, 2022) and potential liquidity needs[305] Balance Sheet As of December 31, 2021, the company reported total assets of $210,448,011, primarily comprising cash and marketable securities held in the trust account ($209,086,874), with total liabilities of $249,996 and stockholders' equity of $1,128,015 Balance Sheet (as of December 31, 2021) | Item | Amount ($) | | :----------------------------------------- | :------------ | | ASSETS | | | Current assets – Cash | 1,361,137 | | Cash and Marketable securities held in trust account | 209,086,874 | | Total Assets | 210,448,011 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | Current liabilities | | | Accrued expenses | 238,696 | | Accrued offering costs | 11,300 | | Total Liabilities | 249,996 | | Common stock subject to possible redemption, 20,700,000 shares at $10.10 per share redemption value | 209,070,000 | | Stockholders' Equity | | | Preferred stock | — | | Common stock | 615 | | Additional paid-in capital | 1,362,780 | | Accumulated deficit | (235,380) | | Total Stockholders' Equity | 1,128,015 | Statement of Operations For the period from September 2, 2021 (inception) through December 31, 2021, the company reported a net loss of $235,380, primarily due to general and administrative expenses offset by interest income from the trust account Statement of Operations (Sept 2 - Dec 31, 2021) | Item | Amount ($) | | :----------------------------------------- | :--------- | | General and administrative expenses | 252,254 | | Loss from operations | (252,254) | | Other income: | | | Interest earned on investments held in Trust Account | 16,874 | | Net loss | (235,380)| | Weighted average shares outstanding of common stock | 9,182,858 | | Basic and diluted loss per share, common stock | (0.03) | Statement of Changes in Stockholders' Equity For the period from September 2, 2021 (inception) through December 31, 2021, total stockholders' equity was $1,128,015, reflecting stock issuances, public rights allocation, and a net loss Statement of Changes in Stockholders' Equity (Sept 2 - Dec 31, 2021) | Item | Common Shares | Stock Amount ($) | Additional Paid-in Capital ($) | Accumulated Deficit ($) | Total Stockholders' Equity ($) | | :----------------------------------------- | :------------ | :--------------- | :----------------------------- | :---------------------- | :----------------------------- | | Balance - September 2, 2021 (Inception) | — | — | — | — | — | | Issuance of common stock to Sponsor | 5,175,000 | 517 | 24,483 | — | 25,000 | | Issuance of Representative Shares | 180,000 | 18 | 897 | — | 915 | | Sale of 796,000 Private Placement Units | 796,000 | 80 | 7,959,920 | — | 7,960,000 | | Proceeds allocated to Public Rights | — | — | 17,595,000 | — | 17,595,000 | | Accretion of Common stock subject to redemption | — | — | (24,217,520) | — | (24,217,520) | | Net loss | — | — | — | (235,380) | (235,380) | | Balance - December 31, 2021 | 6,151,000 | 615 | 1,362,780 | (235,380) | 1,128,015 | Statement of Cash Flows For the period from September 2, 2021 (inception) through December 31, 2021, the company reported net cash used in operating activities of $13,000 and investing activities of $209,070,000, offset by $210,444,137 from financing activities, resulting in $1,361,137 cash at period-end Statement of Cash Flows (Sept 2 - Dec 31, 2021) | Item | Amount ($) | | :----------------------------------------- | :------------ | | Cash Flows from Operating Activities: | | | Net loss | (235,380) | | Adjustments to reconcile net loss to net cash used in operating activities: | | | Interest earned on investments held in Trust Account | (16,874) | | Changes in operating assets and liabilities: | | | Accrued expenses | 239,254 | | Net cash used in operating activities | (13,000) | | Cash Flows from Investing Activities: | | | Investment of cash into Trust Account | (209,070,000) | | Net cash used in investing activities | (209,070,000) | | Cash Flows from Financing Activities: | | | Proceeds from issuance of representative shares | 15 | | Proceeds from sale of Units, net of underwriting discounts paid | 202,860,000 | | Proceeds from sale of Private Placement Units | 7,960,000 | | Proceeds from promissory note – related party | 250 | | Repayment of promissory note – related party | (135,463) | | Payment of offering costs | (240,665) | | Net cash provided by financing activities | 210,444,137 | | Net Change in Cash | 1,361,137 | | Cash – Beginning of period | — | | Cash – End of period | 1,361,137 | Notes to Financial Statements The notes detail the company's SPAC formation, December 2021 IPO and private placement, $209.07 million trust account, December 2022 business combination deadline, going concern doubt, and key accounting policies NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS - ROC Energy Acquisition Corp. was incorporated on September 2, 2021, as a Delaware blank check company to effect a business combination[323] - The company completed its IPO and private placement in December 2021, placing $209,070,000 in a trust account[325][327][329] - The company must complete a business combination by December 6, 2022 (extendable to 18 months) or liquidate, redeeming public shares at a pro-rata portion of the trust account[336][337] - Management and the auditor have raised substantial doubt about the company's ability to continue as a going concern due to the business combination deadline and potential liquidity issues[342] NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Financial statements are prepared in accordance with U.S. GAAP[343] - The company is an 'emerging growth company' and has elected the extended transition period for complying with new or revised financial accounting standards[345][346] - Investments held in the trust account are classified as held-to-maturity securities and recorded at amortized cost[349][400] - Common stock subject to possible redemption is classified as temporary equity and measured at redemption value, with changes recognized immediately[355][356] - The adoption of ASU 2020-06, effective September 2, 2021, did not have a material impact on the company's financial statements[364] NOTE 3. INITIAL PUBLIC OFFERING - The company sold 20,700,000 units (including over-allotment) at $10.00 per unit, totaling $207,000,000[366] - Each unit consists of one share of common stock and one public right, with each right entitling the holder to receive one-tenth of a common stock share upon consummation of a business combination[366] NOTE 4. PRIVATE PLACEMENT - The sponsor purchased an aggregate of 796,000 private placement units (including over-allotment) at $10.00 per unit, for a total of $7,960,000[368] - Each private placement unit consists of a share of common stock and one right, identical to the public units[368] - Proceeds from the sale of private placement units were added to the trust account[368] NOTE 5. RELATED PARTY TRANSACTIONS - The sponsor holds 5,175,000 founder shares, acquired for $25,000, with no shares subject to forfeiture due to the full exercise of the over-allotment option[369] - The company pays Fifth Partners, LLC, an affiliate of the sponsor, $13,000 per month for administrative services[371] - A $300,000 unsecured promissory note from the sponsor was repaid by December 31, 2021[372] - The sponsor or affiliates may provide working capital loans, with up to $1,500,000 convertible into units at $10.00 per unit upon business combination[374] NOTE 6. COMMITMENTS - The company acknowledges potential negative effects of the COVID-19 pandemic on its financial position and search for a target company[375] - Registration rights are granted to holders of founder shares, representative shares, private units, and units from working capital loans[376] - EarlyBirdCapital, as an advisor for the business combination, is entitled to a cash fee of 3.5% of the IPO gross proceeds and an additional 1.0% if they introduce the target[383] - 180,000 representative founder shares were issued to EarlyBirdCapital, subject to a 180-day lock-up period and waiver of redemption/liquidation rights[378][380][381] NOTE 7. STOCKHOLDERS' EQUITY - The company is authorized to issue 1,000,000 shares of preferred stock (none outstanding) and 100,000,000 shares of common stock (6,151,000 issued and outstanding, excluding 20,700,000 subject to redemption)[384][385] - Holders of common stock are entitled to one vote per share, and insiders have agreed to vote in favor of the initial business combination[386] - Public stockholders have redemption rights for their shares, and each right converts into one-tenth of a common stock share upon consummation of a business combination[389] - If a business combination is not completed, rights will expire worthless, and holders will not receive funds from the trust account[390] NOTE 8. INCOME TAX - As of December 31, 2021, the company had no significant deferred tax assets or liabilities[391] Deferred Tax Asset (as of December 31, 2021) | Item | December 31, 2021 ($) | | :--------------------------------- | :-------------------- | | Net operating loss carryforward | 10,390 | | Organizational costs/Startup expenses | 39,040 | | Total deferred tax asset | 49,430 | | Valuation allowance | (49,430) | | Deferred tax asset, net of allowance | — | - A full valuation allowance of $49,430 was established due to significant uncertainty regarding the future realization of deferred tax assets[394] Income Tax Provision (Sept 2 - Dec 31, 2021) | Item | December 31, 2021 ($) | | :---------------------------------- | :-------------------- | | Federal Current | — | | Federal Deferred | (49,430) | | State Current | — | | State Deferred | — | | Change in valuation allowance | 49,430 | | Income tax provision | — | - The effective tax rate for the period was 0%[395] NOTE 9. FAIR VALUE MEASUREMENTS The fair value of the company's financial assets and liabilities approximates their carrying amounts due to their short-term nature, with trust account assets primarily in U.S. Treasury securities - The fair value of the company's financial assets and liabilities approximates their carrying amounts due to their short-term nature[396] - Assets held in the trust account as of December 31, 2021, comprised $5,426 in cash and $209,081,449 in U.S. Treasury securities[401] - U.S. Treasury and equivalent securities are classified as held-to-mat