Business context and reporting period
Important issuer distinction: The supplied filing is ROC Energy Acquisition Corp.’s Form 10-K for the year ended December 31, 2022—not an operating-company 10-K for Drilling Tools International Corp. (DTI). ROC was a SPAC with no operating revenue, formed to pursue a business combination. Its proposed merger with DTI was signed on February 13, 2023, after the reporting period, and had not closed as of the filing.
Financial results and position
| Metric | 2022 | Prior comparable period |
|---|---|---|
| Revenue | None; ROC had not begun operating activities | None |
| Net income (loss) | $1.016 million | $(235,380), from inception on September 2, 2021 through December 31, 2021 |
| Trust-account interest income | $2.844 million | $16,874 |
| General and administrative expenses | $1.282 million | $252,254 |
| Income tax provision | $546,045 | None |
| Cash used in operating activities | $1.667 million | $13,000 |
At December 31, 2022, ROC reported $213.475 million in cash and marketable securities in trust and $207,915 cash outside trust. The trust balance represented approximately $10.30 per redeemable public share. Current liabilities were $2.644 million, including a $2.070 million related-party extension note; stockholders’ deficit was $1.970 million. ROC reported no off-balance-sheet arrangements. Operating margins are not meaningful for this non-operating SPAC.
Material changes and proposed DTI transaction
- Trust assets increased from $209.087 million at year-end 2021 to $213.475 million at year-end 2022, principally reflecting interest and extension funding; $525,351 of trust interest was withdrawn for taxes during 2022.
- ROC agreed to merge with DTI, a downhole-tool rental business operating from 22 locations across North America, Europe and the Middle East. The agreement requires at least $55 million of cash from trust and equity financing at closing, after redemptions but before specified expenses. Closing also depends on stockholder approvals, regulatory and listing conditions, at least $5,000,001 in net tangible assets, and redemptions of less than 95% of public shares.
- The agreement provides for a 10% post-closing fully diluted share reserve for an incentive plan, subject to approval. The sponsor agreed to forfeit up to 50% of its founder shares for reissuance to equity-financing investors and split the remaining founder shares with DTI stockholders under the support agreement.
- EarlyBirdCapital’s transaction fee was amended to a flat $2 million cash fee upon closing.
Outlook, risks and unusual items
ROC’s combination deadline was extended to June 6, 2023, through two sponsor-funded $2.070 million extension notes. Management and the auditor stated that substantial doubt exists about ROC’s ability to continue as a going concern if a transaction is not completed by the deadline or liquidity proves insufficient. If no combination closes, ROC must liquidate, and creditor claims could reduce public-stockholder recoveries. The filing cites transaction-financing and redemption risk, related-party conflicts, market and energy-price volatility, inflation, higher interest rates, geopolitical uncertainty, and possible U.S. excise tax on redemptions. It provides no DTI operating guidance or DTI financial performance for 2022.
The auditor issued an unqualified opinion on ROC’s financial statements while highlighting the going-concern uncertainty. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-controls attestation.
Most important facts to verify
- Confirm that DTI’s own audited financial statements and operating results are reviewed separately; this filing reports ROC SPAC results, not DTI results.
- Check the merger’s current status, required approvals, minimum-cash condition, financing commitments, and expected redemption levels.
- Verify the extension notes’ repayment or conversion treatment and the sponsor’s founder-share forfeiture and allocation arrangements.
- Reconcile the MD&A cash-flow narrative, which calls $1.015 million a “net loss,” with the audited statements showing $1.016 million of net income for 2022.
- Assess trust-account creditor exposure, liquidation protections, and any excise tax or transaction expenses that could reduce cash available at closing.