References to the "Company," "our," "us" or "we" refer to Stratim Cloud
Acquisition Corp. The following discussion and analysis of the Company's
financial condition and results of operations should be read in conjunction with
our audited financial statements and the notes related thereto which are
included in "Item 8. Financial Statements and Supplementary Data" of this Annual
Report on Form 10-K. Certain information contained in the discussion and
analysis set forth below includes forward-looking statements. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of many factors, including those set forth under "Special Note
Regarding Forward-Looking Statements," "Item 1A. Risk Factors" and elsewhere in
this Annual Report on Form 10-K.
Overview
We are a blank check company formed under the laws of the State of Delaware on
July 29, 2020 for the purpose of entering into a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses. We intend to effectuate our Business
Combination using cash from the proceeds of the Initial Public Offering and the
sale of the Private Placement Warrants, our capital stock, debt or a combination
of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
41
Recent Developments
Charter Amendment
On March 10, 2023, we held a special meeting of stockholders (the "Special
Meeting"). At the Special Meeting, the Company's stockholders were asked to
approve: (i) a proposal to amend the Company's Amended and Restated Certificate
of Incorporation to extend the date by which the Company must complete an
initial Business Combination from March 16, 2023, to September 16, 2023, or such
earlier date as determined by the Board of Directors of the Company (such date,
the "Extended Date" and such proposal, the "Extension Proposal") and (ii) a
proposal to amend the Charter to eliminate the limitation that the Company may
not redeem public shares to the extent that such redemption would result in the
Company having net tangible assets (as determined in accordance with Rule
3a51-1(g)(1) of the Exchange Act) of less than $5,000,001 (the "Redemption
Limitation") in order to allow the Company to redeem public shares irrespective
of whether such redemption would exceed the Redemption Limitation (the
"Redemption Limitation Amendment Proposal" and, together with the Extension
Proposal, the "Charter Amendment Proposals").
At the Special Meeting, the Company's stockholders approved the Charter
Amendment Proposals, and the Charter amendment became effective on March 10,
2023, upon the filing thereof with the Secretary of State of the State of
Delaware. The foregoing description is qualified in its entirety by reference to
the Amended and Restated Certificate of Incorporation, a copy of which is
attached as Exhibit 3.1 hereto and is incorporated by reference herein.
Letter of Intent
As previously disclosed, on February 14, 2023, we entered into a letter of
intent (the "Letter of Intent") with Force Pressure Control, LLC, a Texas
limited liability company and a provider of surface pressure control solutions
in the oilfield services market (the "Target") and each of the individuals
listed on the signature page of the Letter of Intent, pursuant to which we will
acquire 100% of the outstanding equity interests of the Target (the
"Transaction"). Consummation of this Transaction shall be subject to the
execution of a mutually satisfactory definitive agreement by the Company and the
Target. Pursuant to the Letter of Intent, the parties have entered into a period
of exclusivity in order to negotiate the Company's acquisition of the Target
wherein, among other things, the Company agreed not to solicit, negotiate,
conduct or commit to conduct any Competing Transaction (as defined in the Letter
of Intent). Completion of the Transaction is subject to, among other matters,
the completion of due diligence, the negotiation of a definitive agreement
providing for the Transaction, satisfaction of the conditions negotiated therein
and approval of the Transaction by our stockholders. There can be no assurance
that a definitive agreement will be entered into or that the proposed
Transaction will be consummated. In the event that we enter into a definitive
agreement for an initial business combination, we will issue a press release and
file a Current Report on Form 8-K with the SEC announcing the proposed Business
Combination.
42
Convertible Promissory Note
As previously disclosed, on February 17, 2023, we entered the Sponsor Loan with
our Sponsor. Pursuant to the Sponsor Loan, the Sponsor has agreed that it will
contribute to the Company as a loan (each loan being referred to herein as a
"Contribution") the lesser of (A) $0.04 for each share of Class A common stock
of the Company that was not redeemed in connection with the stockholder vote to
approve certain amendments to the Company's certificate of incorporation at the
special meeting of stockholders held on March 10, 2023, and (B) $300,000.00, for
each month (or a pro rata portion thereof if less than a month) until the
earlier of (i) the date of the special meeting held in connection with the
stockholder vote to approve the Company's initial Business Combination and (ii)
the Extended Date. Up to $1.5 million of the loans may be settled in whole
warrants to purchase shares of Class A common stock at a conversion price equal
to $1.50 per warrant. The Contribution(s) will not bear any interest, and will
be repayable by the Company to the Sponsor upon the earlier of the date by which
the Company must complete an initial business combination and the consummation
of the Company's initial business combination. The Company's board of directors
will have the sole discretion whether to continue extending for up to six
months, and if the Company's board of directors determines not to continue
extending for additional months, the Sponsor's obligation to make additional
Contributions will terminate. If this occurs, the Company would wind up the
Company's affairs and redeem 100% of the outstanding public shares in accordance
with the procedures set forth in the Company's certificate of incorporation.
Monthly deposits into the Company's trust account are based on the number of
public shares still outstanding following the amendments to the Company's
certificate of incorporation. The maturity date of the Sponsor Loan may be
accelerated upon the occurrence of an Event of Default (as defined therein). Any
outstanding principal under the Sponsor Loan may be prepaid at any time by the
Company, at its election and without penalty, provided, however, that the
Sponsor shall have a right to first convert such principal balance as described
in Section 6 of the Sponsor Loan upon notice of such prepayment.
Membership Interests Purchase Agreement
On March 21, 2023, the Company entered into a membership interests purchase
agreement (the "Purchase Agreement"), by and among the Company, Force Pressure
Control, LLC, a Texas limited liability company ("Force") and each of the
individuals listed on the signature page of the Purchase Agreement ("Force
Members"). The transactions contemplated by the Purchase Agreement are referred
to herein as the "Transaction." Following the time of the closing (the
"Closing," and the date on which the Closing occurs, the "Closing Date") of the
Transaction, the Company will change its name to "Force Pressure Control Corp."
Immediately prior to the Closing, Force will effectuate a recapitalization (the
"Recapitalization"), pursuant to which, among other things, all outstanding
membership interests of Force will be converted or exchanged into common units
("Common Units"). Immediately prior to the Closing: (i) Force will adopt a
Second Amended and Restated LLC Agreement (the "A&R LLC Agreement") to, among
other things, (a) permit the issuance and ownership of the post-Recapitalization
equity of Force as contemplated by the Purchase Agreement and (b) to admit the
Company as the sole managing member of Force? and (ii) the Company will file
with the Secretary of State of Delaware an amended and restated certificate of
incorporation (the "A&R Charter") to, among other things, approve the issuance
of shares Class C Common Stock of the Company ("Company Class C Common Stock"),
which will, among other matters, carry such non-economic and voting rights as
set forth in the A&R Charter. Pursuant to the Purchase Agreement, the Company
will purchase an aggregate of up to 12,000,000 Common Units from Force Members
for $120,000,000 prior to any Net Working Capital Adjustment (as defined in the
Purchase Agreement) and the Force Members will retain at least 50% of the total
Common Units issued and outstanding immediately after the Recapitalization (the
"Retained Units"). Pursuant to the Purchase Agreement, the Company will
subscribe for a number of Common Units equal to the total shares of Class B
Common Stock of the Company issued and outstanding immediately prior to the
Transaction, in exchange for the number of shares of Company Class C Common
Stock equal to the number of Retained Units, which will be subsequently
distributed to Force Members. Following the Closing, the Force Members may cause
the Company to redeem their Common Units, which redemption may be effected as an
exchange of Common Units for shares of Class A Common Stock of the Company on a
one-for-one basis (subject to adjustment in certain cases), accompanied by the
corresponding cancellation of shares of Company Class C Common Stock held by
such Members. Following the Closing, and as additional consideration for the
Transaction, within five (5) business days after the determination of the 2023
EBITDA (as defined in the Purchase Agreement), Force and the Company (as
applicable) shall issue or cause to be issued to each Force Member the following
number of Common Units and shares of Company Class C Common Stock (subject to
further adjustment) (the "Earnout Equity"), if the 2023 EBITDA is greater than
$60,000,000 (the "Minimum EBITDA Target"), a one-time issuance of 200,000 units
and shares, as applicable, of Earnout Equity, for each $1,000,000 of EBITDA
(rounded down to the nearest $1,000,000) in excess of the Minimum EBITDA Target,
up to a maximum of 3,000,000 units and shares, as applicable, of Earnout Equity.
Notwithstanding the foregoing, the Company shall be permitted to satisfy its
obligation to deliver Earnout Equity pursuant to the Minimum EBITDA Target by:
(i) delivering $12.50 cash per unit and share, as applicable, of Earnout Equity
within thirty (30) calendar days of determination of the 2023 EBITDA or (ii) if
the volume weighted average closing sale price of the Company Class A Common
Stock for the five (5) trading days following public announcement of the 2023
EBITDA (the "Company Trading Price") exceeds $14.00 per share, by delivering the
number of shares of Company Class A Common Stock equal to (x) the aggregate
number of units and shares, as applicable, of Earnout Equity multiplied by
$12.50, divided by (y) the Company Trading Price, subject to the adjustment
provided in the Purchase Agreement.
43
Sponsor Support Agreement
Concurrently with the execution of the Purchase Agreement, the Company, Force,
the Sponsor and other holders of shares of Company Class B Common Stock
(together with the Sponsor, the "Support Parties"), entered into a sponsor
support agreement (the "Sponsor Support Agreement"), pursuant to which the
Support Parties agreed to, among other things, vote in favor of the Purchase
Agreement and the transactions contemplated thereby, in each case, subject to
the terms and conditions contemplated by the Sponsor Support Agreement. The
Sponsor Support Agreement will terminate and be of no further force or effect
upon the earliest of (i) the Expiration Time (as defined in the Sponsor Support
Agreement), (ii) the liquidation of the Company and (iii) the written agreement
of the Sponsor, Force Members, and Force.
Amended and Restated Registration Rights Agreement
The Purchase Agreement contemplates that, at the Closing, the Company, the
Sponsor, holders of shares of Company Class B Common Stock and certain Force
Members will enter into an Amended and Restated Registration Rights Agreement,
pursuant to which the Company will agree to register for resale, pursuant to
Rule 415 under the Securities Act, certain shares of Company Common Stock and
other equity securities of the Company that are held by the parties thereto from
time to time.
Lock-Up Agreement
The Purchase Agreement contemplates that, at the Closing, the Company, the
Sponsor, holders of shares of Company Class B Common Stock and certain Force
Members will enter into Lock-Up Agreements restricting the transfer of Company
Common Stock, Private Placement Warrants (as defined in the Purchase Agreement),
and any Common Units issued in connection with the Transaction, as applicable.
The lock-up period for Company Common Stock is 180 days after the Closing,
subject to early termination (i) of a liquidation, merger, stock exchange,
reorganization or other similar transaction of Force after the Closing or (ii)
upon the stock price of Company Common Stock reaching $12.00 (as adjusted for
stock splits, stock capitalizations, reorganizations, recapitalizations and the
like) for any 20 trading days within any 30-trading day period commencing at
least 150 days after the Closing.
Tax Receivable Agreement
The Purchase Agreement contemplates that, at the Closing, the Company will enter
into a Tax Receivable Agreement (the "Tax Receivable Agreement") with Force and
certain Force Members (the "TRA Holders"). Pursuant to the Tax Receivable
Agreement, among other things, the Company will be required to pay to each TRA
Holder 85% of certain tax benefits, if any, that it realizes (or in certain
cases is deemed to realize) as a result of the increases in tax basis resulting
from any exchange of Common Units for Company Class A Common Stock or cash in
the future and certain other tax benefits arising from payments under the Tax
Receivable Agreement. In certain cases, the Company's obligations under the Tax
Receivable Agreement may accelerate and become due and payable, based on certain
assumptions, upon a change in control and certain other termination events, as
defined therein.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from July 29, 2020 (inception) through December 31, 2022
were organizational activities, those necessary to prepare for the Initial
Public Offering, described below, and identifying a target company for a
Business Combination. We do not expect to generate any operating revenues until
after the completion of our Business Combination. We have historically generated
non-operating income in the form of interest income on marketable securities
held in the Trust Account. We incur expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for due diligence expenses in connection with searching for, and
completing, a Business Combination.
For the year ended December 31, 2022, we had a net income of $9,217,598, which
consists of a change in fair value of warrant liabilities of $7,540,000 and
interest earned on marketable securities held in Trust Account of $3,577,988,
offset by operating and formation costs of $1,003,279, unrealized loss on
marketable securities held in the Trust Account of $277,009 and provision for
income taxes of $620,102.
For the year ended December 31, 2021, we had a net income of $9,636,139, which
consists of change in fair value of warrant liability of $11,246,666, interest
earned on marketable securities held in Trust Account of $14,433, offset by
transaction costs related to warrants of $688,515, and operating costs of
$936,445.
Liquidity and Capital Resources
On March 16, 2021, we consummated the Initial Public Offering of 25,000,000
Units at $10.00 per unit, generating gross proceeds of $250,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 4,666,667 Private Placement Warrants at a price of $1.50 per Private
Placement Warrant in a private placement to the Sponsor, generating gross
proceeds of $7,000,000.
44
Following the Initial Public Offering and the sale of the Private Units, a total
of $250,000,000 was placed in the Trust Account. We incurred $14,326,696 in
Initial Public Offering related costs, including $5,000,000 of underwriting
fees, $8,750,000 of deferred underwriting fees and $576,696 of other offering
costs.
For the year ended December 31, 2022, cash used in operating activities was
$891,665. Net income of $9,217,598 was affected by a change in fair value of
warrant liabilities of $7,540,000, interest earned on marketable securities held
in Trust Account of $3,577,988 and unrealized loss on marketable securities held
in the Trust Account of $277,009. Changes in operating assets and liabilities
provided $203,363 of cash for operating activities.
For the year ended December 31, 2021, cash used in operating activities was
$628,059. Net income of $9,636,139 was affected by a change in fair value of
warrant liabilities of $11,246,666, transaction costs incurred in connection
with warrant liabilities of $688,515, and interest earned on marketable
securities held in Trust Account of $14,433. Changes in operating assets and
liabilities used $308,386 of cash for operating activities.
As of December 31, 2022, we had marketable securities held in the Trust Account
of $252,973,594. On March 10, 2023, our stockholders voted to approve an
amendment to our certificate of incorporation to (i) extend the date by which we
must complete an initial Business Combination and (ii) remove the limitation
that we may not redeem public shares to the extent such redemption results in us
having net tangible assets of less than $5,000,001. In connection therewith,
stockholders elected to redeem 18,744,981 shares of Class A common stock, and
approximately $190,866,926 was paid out of the Trust Account in connection
therewith. Interest income on the balance in the Trust Account may be used by us
to pay taxes. Through December 31, 2022, we withdrawn $341,818 of interest
earned from the Trust Account to pay taxes. We intend to use substantially all
of the funds held in the Trust Account, including any amounts representing
interest earned on the Trust Account (less income taxes payable), to complete
our Business Combination. To the extent that our capital stock or debt is used,
in whole or in part, as consideration to complete our Business Combination, the
remaining proceeds held in the Trust Account will be used as working capital to
finance the operations of the target business or businesses, make other
acquisitions and pursue our growth strategies.
As of December 31, 2022, the Company had $402,902 in its operating bank account,
and working capital deficit of $49,503. The Company's liquidity needs prior to
the Company's Initial Public Offering and Private Placement had been satisfied
through a capital contribution from the Sponsor in the amount of $25,000 (see
Note 5) for the Founder Shares, and an unsecured promissory note from the
Sponsor of $300,000 (see Note 5). The Company fully repaid the promissory note
to the Sponsor on January 15, 2021. Subsequent to the consummation of the
Initial Public Offering and Private Placement, the Company's liquidity needs
have been satisfied through the proceeds from the consummation of the Private
Placement not held in the Trust Account. In addition, in order to finance
transaction costs in connection with a Business Combination, the Company's
Sponsor, or an affiliate of the Sponsor, or certain Company's officers and
directors may, but are not obligated to, provide the Company with Working
Capital Loans (see Note 5).
45
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete a Business Combination, we will repay such
loaned amounts. In the event that a Business Combination does not close, we may
use a portion of the working capital held outside the Trust Account to repay
such loaned amounts but no proceeds from our Trust Account would be used for
such repayment. Up to $1,500,000 of such loans may be convertible into warrants
at a price of $1.50 per warrant, at the option of the lender. The warrants would
be identical to the Private Placement Warrants.
As previously disclosed, on February 17, 2023, we entered the Sponsor Loan with
our Sponsor. Pursuant to the Sponsor Loan, the Sponsor has agreed that it will
contribute to the Company as a loan (each loan being referred to herein as a
"Contribution") the lesser of (A) $0.04 for each share of Class A common stock
of the Company that was not redeemed in connection with the stockholder vote to
approve certain amendments to the Company's certificate of incorporation at the
special meeting of stockholders held on March 10, 2023, and (B) $300,000.00, for
each month (or a pro rata portion thereof if less than a month) until the
earlier of (i) the date of the special meeting held in connection with the
stockholder vote to approve the Company's initial Business Combination and (ii)
the Extended Date. Up to $1.5 million of the loans may be settled in whole
warrants to purchase shares of Class A common stock at a conversion price equal
to $1.50 per warrant. The Contribution(s) will not bear any interest, and will
be repayable by the Company to the Sponsor upon the earlier of the date by which
the Company must complete an initial business combination and the consummation
of the Company's initial business combination. The Company's board of directors
will have the sole discretion whether to continue extending for up to six
months, and if the Company's board of directors determines not to continue
extending for additional months, the Sponsor's obligation to make additional
Contributions will terminate. If this occurs, the Company would wind up the
Company's affairs and redeem 100% of the outstanding public shares in accordance
with the procedures set forth in the Company's certificate of incorporation.
Monthly deposits into the Company's trust account are based on the number of
public shares still outstanding following the amendments to the Company's
certificate of incorporation. The maturity date of the Sponsor Loan may be
accelerated upon the occurrence of an Event of Default (as defined therein). Any
outstanding principal under the Sponsor Loan may be prepaid at any time by the
Company, at its election and without penalty, provided, however, that the
Sponsor shall have a right to first convert such principal balance as described
in Section 6 of the Sponsor Loan upon notice of such prepayment.
Going Concern
In connection with our assessment of going concern considerations in accordance
with Financial Accounting Standards Board's Accounting Standards Codification
Topic 205-40, "Presentation of Financial Statements - Going Concern," we have
until September 16, 2023, to consummate an initial business combination. It is
uncertain that we will be able to consummate an initial business combination by
this time. If an initial business combination is not consummated by this date,
there will be a mandatory liquidation and subsequent dissolution of the Company.
46
On February 17, 2023, the Company entered into a Convertible Promissory Note
(the "Sponsor Loan") with its sponsor, Stratim Cloud Acquisition, LLC, a
Delaware limited liability company. Pursuant to the Sponsor Loan, the Sponsor
has agreed that it will contribute to the Company as a loan the lesser of $0.04
for each share of Class A common stock that was not redeemed in connection with
the stockholder vote to approve the proposals presented at the special meeting
of stockholders that was held on March 10, 2023, and $300,000.00, for each month
(or a pro rata portion thereof if less than a month) until the earlier of the
date of the special meeting held in connection with the stockholder vote to
approve the Company's initial Business Combination and the Extended Date.
Additionally, it is uncertain that we will have sufficient liquidity to fund the
working capital needs of the Company through September 16, 2023. We have
determined that the liquidity condition and mandatory liquidation, should an
initial business combination not occur, and potential subsequent dissolution
raises substantial doubt about the Company's ability to continue as a going
concern. No adjustments have been made to the carrying amounts of assets or
liabilities should the Company be required to liquidate after September 16,
2023.
Off-Balance Sheet Arrangements
We have no obligations, assets, or liabilities, which would be considered
off-balance sheet arrangements as of December 31, 2022. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of
other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay our Sponsor
a monthly fee of $10,000 for office space, utilities, administrative and support
services. We began incurring these fees on March 11, 2021 and will continue to
incur these fees monthly until the earlier of the completion of the Business
Combination and our liquidation.
The underwriters are entitled to a deferred fee of $0.35 per share, or
$8,750,000 in the aggregate. The deferred fee will become payable to the
underwriters from the amounts held in the Trust Account solely in the event that
we complete a Business Combination, subject to the terms of the underwriting
agreement.
47
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Offering Costs Associated with the Initial Public Offering
The Company complies with the requirements of the ASC 340-10-S99-1and SEC Staff
Accounting Bulletin ("SAB") Topic 5A - "Expenses of Offering". Offering costs
consist principally of professional and registration fees incurred through the
balance sheet date. Offering costs are allocated to the separable financial
instruments issued in the Initial Public Offering based on a relative fair value
basis compared to total proceeds received. Offering costs associated with
warrant liabilities is expensed, and offering costs associated with the Class A
common stock are charged to the stockholders' deficit. Accordingly, as December
31, 2022, offering costs in the aggregate of $14,326,696 have been charged to
stockholders' deficit and $233,334 of offering costs associated with warrant and
forward purchase unit issuance cost has been expensed on the Company's
statements of operations.
Warrant Liabilities
We account for the Warrants in accordance with the guidance contained in ASC
815-40 under which the Warrants do not meet the criteria for equity treatment
and must be recorded as liabilities. Accordingly, we classify the Warrants as
liabilities at their fair value and adjust the Warrants to fair value at each
reporting period. This liability is subject to re-measurement at each balance
sheet date until exercised, and any change in fair value is recognized in the
statements of operations. The Private Warrants and the public warrants for
periods where no observable traded price was available are valued using a
Modified Black-Scholes Option Pricing Model. For periods subsequent to the
detachment of the public warrants from the Units, the public warrant quoted
market price will be used as the fair value as of each relevant date.
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Class A common stock subject to
mandatory redemption is classified as a liability instrument and measured at
fair value. Conditionally redeemable common stock (including common stock that
features redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within
our control) is classified as temporary equity. At all other times, common stock
is classified as stockholders' deficit. Our Class A common stock features
certain redemption rights that are considered to be outside of our control and
subject to occurrence of uncertain future events. Accordingly, Class A common
stock subject to possible redemption is presented at redemption value as
temporary equity, outside of the stockholders' deficit section of our balance
sheets.
Net Income Per Common Stock
Net income per common stock, basic and diluted for Class A common stock subject
to possible redemption is calculated by dividing the interest income earned on
the Trust Account, net of applicable taxes, if any, by the weighted average
number of shares of Class A common stock subject to possible redemption
outstanding for the period. Net income per common stock, basic and diluted, for
non-redeemable common stock is calculated by dividing net income less income
attributable to Class A common stock subject to possible redemption, by the
weighted average number of common stock of non-redeemable common stock
outstanding for the period presented.
48
Recent Accounting Standards
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our financial statements.
© Edgar Online, source Glimpses
STRATIM CLOUD ACQUISITION CORP. 
