Sable Offshore Corp 10-Q for FY2023 Q1
Sable Offshore Corp. (SOC)
About this 10-Q
Sable Offshore Corp filed this 10-Q on May 15, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $2.04M
- down 68.3% from net income of $6.42M a year earlier
Table of Contents
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
one-half of one warrant |
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| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
Table of Contents
| Page | ||||||
| 2 | ||||||
| Item 1. |
Financial Statements (unaudited) | |||||
| Condensed Balance Sheets | 2 | |||||
| Condensed Statements of Operations | 3 | |||||
| Condensed Statements of Changes in Stockholders’ Deficit | 4 | |||||
| Condensed Statements of Cash Flows | 5 | |||||
| Notes to Condensed Financial Statements | 6 | |||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | ||||
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 24 | ||||
| Item 4. |
Controls and Procedures | 24 | ||||
| 25 | ||||||
| Item 1. |
Legal Proceedings | 25 | ||||
| Item 1A. |
Risk Factors | 25 | ||||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 25 | ||||
| Item 3. |
Defaults Upon Senior Securities | 25 | ||||
| Item 4. |
Mine Safety Disclosures | 25 | ||||
| Item 5. |
Other Information | 25 | ||||
| Item 6. |
Exhibits | 26 | ||||
| 27 | ||||||
1
Table of Contents
March 31, 2023 (unaudited) |
December 31, 2022 |
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| Assets |
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| Current assets: |
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| Cash |
$ | $ | ||||||
| Advances to acquisition target |
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| Prepaid expenses |
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| Total current assets |
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| Investments held in Trust Account |
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| Total assets |
$ |
$ |
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| |
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| Liabilities, Common Stock Subject to Possible Redemption and Stockholders’ Deficit |
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| Accounts payable and accrued expenses |
$ | $ | ||||||
| Excise tax payable |
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| Income taxes payable |
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| Promissory notes to related parties |
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| Convertible promissory notes – related parties, at fair value |
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| Total current liabilities |
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| Warrant liabilities |
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| Total liabilities |
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| Commitments |
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| Class A c ommon s tock subject to possible redemption; |
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| Stockholders’ Deficit: |
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| Preferred stock, $ |
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| Class A common stock, $ respectively |
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| Class B common stock, $ March 31, 2023 and December 31, 2022 |
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| Additional paid-in capital |
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| Accumulated deficit |
( |
) | ( |
) | ||||
| |
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| Total Stockholders’ Deficit |
( |
) |
( |
) | ||||
| |
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| Total Liabilities, Common Stock Subject to Possible Redemption and Stockholders’ Deficit |
$ |
$ |
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| |
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Three Months Ended March 31, |
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2023 |
2022 |
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| Operating costs |
$ | $ | ||||||
| |
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| Loss from operations |
( |
) | ( |
) | ||||
| |
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| Other income (expenses): |
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| Interest income from Trust Account |
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| Change in fair value of convertible promissory notes – related parties |
( |
) | ( |
) | ||||
| Change in fair value of warrant liabilities |
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| Total other income, net |
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| Income before income taxes |
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| Income tax expense |
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| Net income |
$ |
$ |
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| |
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| Weighted average redeemable Class A common stock outstanding |
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| |
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| Basic and diluted net income per Class A common share |
$ | $ | ||||||
| |
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| Weighted average non-redeemable Class B common stock outstanding |
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| |
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| Basic and diluted net income per Class B common share |
$ | $ | ||||||
| |
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|
|
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Common Stock Class B |
Additional Paid-In Capital |
Accumulated |
Total Stockholders’ |
||||||||||||||||||
Shares |
Amount |
Deficit |
Deficit |
||||||||||||||||||
| Balance as of December 31, 2022 |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||
| Fair value adjustment of convertible promissory notes – related parties |
— | — | — | ||||||||||||||||||
| Remeasurement of Class A common stock subject to possible redemption |
— | — | — | ( |
) | ( |
) | ||||||||||||||
| Excise tax on Class A common stock redemptions |
— | — | — | ( |
) | ( |
) | ||||||||||||||
| Net income |
— | — | — | ||||||||||||||||||
| |
|
|
|
|
|
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| Balance as of March 31, 2023 |
$ |
$ |
$ |
( |
) | $ |
( |
) |
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| |
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|
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Common Stock Class B |
Additional Paid-In Capital |
Accumulated |
Total Stockholders’ |
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Shares |
Amount |
Deficit |
Deficit |
|||||||||||||||||
| Balance as of December 31, 2021 |
$ |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||||||
| Initial fair value adjustment of convertible promissory notes – related parties |
— | — | — | |||||||||||||||||
| Net income |
— | — | — | |||||||||||||||||
| |
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| Balance as of March 31, 2022 |
$ |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||||||
| |
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Three Months Ended March 31, 2023 |
Three Months Ended March 31, 2022 |
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| Cash flows from operating activities: |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: |
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| Interest income from Trust Account |
( |
) | ( |
) | ||||
| Change in fair value of convertible promissory notes – related parties |
||||||||
| Change in fair value of warrant liabilities |
( |
) | ( |
) | ||||
| Changes in current assets and current liabilities: |
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| Advances to acquisition target |
( |
) | ||||||
| Prepaid expenses |
( |
) | ||||||
| Accounts payable and accrued expenses |
( |
) | ||||||
| Income taxes payable |
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| |
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| Net cash used in operating activities |
( |
) | ( |
) | ||||
| |
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| Cash flows from investing activities: |
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| Cash withdrawn from Trust Account in connection with redemption |
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| Cash withdrawn from Trust Account to pay taxes |
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| Net cash provided by investing activities |
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| |
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| Cash flows from financing activities: |
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| Payments of redemptions Class A common stock |
( |
) | ||||||
| Proceeds from promissory notes – related parties |
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| Proceeds from convertible promissory notes – related parties |
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| |
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| Net cash (used in) provided by financing activities |
( |
) | ||||||
| |
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| Net change in cash |
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| Cash, beginning of the period |
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| |
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| Cash, end of the period |
$ | $ | ||||||
| |
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| Supplemental disclosure of noncash investing and financing activities |
||||||||
| Conversion of Promissory Notes to Convertible Promissory Notes |
$ | |||||||
| |
|
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|
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| Initial measurement of fair value of Convertible Promissory Notes |
$ | ( |
) | $ | ( |
) | ||
| |
|
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|
|||||
| Remeasurement of Class A common stock subject to possible redemption |
$ | $ | ||||||
| |
|
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| Excise tax payable as a result of redemption of Class A common stock |
$ | $ | ||||||
| |
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| Supplemental Disclosure of Cash Flow Information: |
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| Payment of cash taxes |
$ | $ | ||||||
| |
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| Gross proceeds from Initial Public Offering |
$ | |||
| Less: |
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| Common stock issuance costs |
( |
) | ||
| Proceeds allocated to public warrants |
( |
) | ||
| Plus: |
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| Remeasurement of Class A common stock subject to possible redemption |
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| |
|
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| Contingently redeemable common stock at December 31, 2022 |
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| Less: |
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| Redemption of Class A common stock |
( |
) | ||
| Plus: |
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| Remeasurement of Class A common stock subject to possible redemption |
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| |
|
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| Contingently redeemable Class A common stock at March 31, 2023 |
$ |
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| |
|
For the Three Months Ended March 31, |
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2023 |
2022 |
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| Common stock subject to possible redemption |
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| Numerator: |
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| Net income allocable to Class A common stock subject to possible redemption |
$ | $ | ||||||
| Denominator: |
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| Weighted Average Redeemable Class A common stock, Basic and Diluted |
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| |
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| Basic and Diluted net income per share, Redeemable Class A common stock |
$ | $ | ||||||
| |
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| Non-Redeemable common stock |
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| Numerator: |
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| Net income allocable to Class B common stock not subject to redemption |
$ | $ | ||||||
| Denominator: |
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| Weighted Average Non-Redeemable common stock, Basic and Diluted |
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| |
|
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| Basic and diluted net income per share of non-redeemable Class B common stock |
$ | $ | ||||||
| |
|
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March 31, 2023 |
December 31, 2022 |
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Convertible notes –related parties, at fair value |
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First Working Capital loan |
$ |
$ |
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Second Working Capital loan |
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Third Working Capital loan |
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Q3 2022 Promissory Note |
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Q4 2022 Promissory Note |
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Q1 2023 Promissory Note |
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Total |
$ |
$ |
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Promissory notes to related parties |
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Q3 2022 Promissory Note |
$ |
$ |
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Q4 2022 Promissory Note |
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Q1 2023 Promissory Note |
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Total |
$ |
$ |
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| • | in whole and not in part; |
| • | at a price of $ |
| • | upon not less than |
| • | if, and only if, the last sale price of our Class A common stock equals or exceeds $ |
| • | in whole and not in part; |
| • | at a price equal to a number of shares of Class A common stock to be determined by reference to the agreed table set forth in the warrant agreement based on the redemption date and the “fair market value” of the Class A common stock; |
| • | upon not less than |
| • | if, and only if, the last sale price of our Class A common stock equals or exceeds $ |
| • | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| • | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| • | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Description: |
Level |
March 31, 2023 |
Level |
December 31, 2022 |
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| Assets: |
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| U.S. Money Market Funds Held in Trust Account |
1 | $ | 1 | $ | ||||||||||||
| Liabilities: |
||||||||||||||||
| Warrant liability—Public Warrants |
1 | $ |
1 | $ | ||||||||||||
| Warrant liability—Private Warrants |
3 | $ |
3 | $ | ||||||||||||
| Convertible Promissory Notes—Related Parties |
3 | $ |
3 | $ | ||||||||||||
| Inputs |
March 31, 2023 |
December 31, 2022 |
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| Stock price |
$ | $ | ||||||
| Strike price |
$ | $ | ||||||
| Term (in years) |
||||||||
| Volatility |
% | % | ||||||
| Risk-free rate |
% | % | ||||||
| Dividend yield |
% | % | ||||||
| Inputs |
March 31, 2023 |
December 31, 2022 |
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| Stock price |
$ | $ | ||||||
| Strike price |
$ | $ | ||||||
| Term (in years) |
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| Volatility |
% | % | ||||||
| Risk-free rate |
% | % | ||||||
| Dividend yield |
% | % | ||||||
Public |
Private Placement |
Warrant Liabilities |
||||||||||
| Fair value as of December 31, 2021 |
$ |
$ |
$ |
|||||||||
| |
( |
) | ( |
) | ( |
) | ||||||
| |
|
|
|
|
|
|||||||
| Fair value as of March 31, 2022 |
$ |
$ |
$ |
|||||||||
| |
|
|
|
|
|
|||||||
| Fair value as of December 31, 2022 |
$ |
$ |
$ |
|||||||||
| Change in valuation inputs or other assumptions |
( |
) | ( |
) | ( |
) | ||||||
| |
|
|
|
|
|
|||||||
| Fair value as of March 31, 2023 |
$ |
$ |
$ |
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| |
|
|
|
|
|
|||||||
| Inputs |
March 31, 2023 |
December 31, 2022 |
||||||
| Exercise price |
$ | $ | ||||||
| Volatility |
% | % | ||||||
| Expected term to warrant expiration |
||||||||
| Risk-free-rate |
% | % | ||||||
| Dividend yield |
% | % | ||||||
| Stock price |
$ | $ | ||||||
| Fair value as of December 31, 2021 |
$ |
|||
| Proceeds received through Convertible Promissory Note on March 29, 2022 |
||||
| Initial measurement of fair value of Promissory Note |
( |
) | ||
| Change in fair value of Promissory Notes |
||||
| |
|
|||
| Fair value as of March 31, 2022 |
$ |
|||
| |
|
|||
| Fair value as of December 31, 2022 |
$ |
|||
| Principal amount of Promissory Notes amended on March 29, 2023 |
||||
| Initial measurement of fair value of Promissory Notes upon extinguishment of debt |
( |
) | ||
| Change in fair value of Promissory Notes |
||||
| |
|
|||
| Fair value as of March 31, 2023 |
$ |
|||
| |
|
Table of Contents
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Flame Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsor” refer to Flame Acquisition Sponsor LLC, and references to our “founders” refer collectively to the Sponsor, FL Co-Investment LLC (“FLC”) and Intrepid Financial Partners, L.L.C. (“IFP”). The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s final prospectus for its Initial Public Offering filed with the U.S. Securities and Exchange Commission (the “SEC”), the risk factors described in Part I, Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022, and our preliminary proxy statement, filed with the SEC on November 10, 2022 (as amended). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated in Delaware on October 16, 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We are an emerging growth company and, as such, we are subject to all of the risks associated with emerging growth companies. Our sponsor is Flame Acquisition Sponsor LLC, a Delaware limited liability and an affiliate of certain of our officers and directors.
Potential Business Combination
On November 2, 2022, we entered into an agreement and plan of merger, dated as of November 2, 2022 (as it may be amended, supplemented, or otherwise modified from time to time, the “Merger Agreement”), with Sable Offshore Corp., a Texas corporation (“SOC”), and Sable Offshore Holdings, LLC, a Delaware limited liability company and the parent company of SOC (“Holdco” and, together with SOC, “Sable”). The Merger Agreement provides for, among other things, the following transactions at the closing: (i) Holdco will merge with and into the Company, with the Company surviving the merger (the “Holdco Merger”), and (ii) immediately following the effective time of the Holdco Merger, SOC will merge with and into the Company, with the Company surviving the merger (the “SOC Merger”). The Holdco Merger together with the SOC Merger are referred to as the “Merger,” and the Merger and other transactions contemplated by the Merger Agreement are referred to as the “Business Combination.” In connection with the Business Combination, the Company will change its name to Sable Offshore Corp. The independent members of the board of directors of the Company (the “Board”) approved, and recommended that the Board approve, the Merger Agreement and the transactions contemplated thereby. Subsequently, the Board approved the Merger Agreement and the transactions contemplated thereby.
The obligations of the parties to consummate the Business Combination are subject to the satisfaction or waiver of certain customary closing conditions. The closing of the Merger is expected to occur on the third business day after the satisfaction or waiver (if legally permissible) of the conditions set forth in the Merger Agreement, except as otherwise mutually agreed by the parties. The Merger Agreement may be terminated under certain customary and limited circumstances at any time prior to the Closing and the Company can provide no assurance that the Business Combination will be consummated at the expected time, or at all.
On November 10, 2022, we filed a preliminary proxy statement relating to the Business Combination (as amended, the “Proxy Statement”), which included a recommendation of the Board to the Company’s stockholders that they approve the proposals included in the Proxy Statement. For more information on the Business Combination and the transactions contemplated thereby, please refer to the Company’s Current Report on Form 8-K, filed with the SEC on November 2, 2022 and the Company’s preliminary proxy statement on Schedule 14A filed with the SEC on November 10, 2022 (as amended from time to time, including on December 23, 2022 and January 27, 2023).
Recent Developments
On February 21, 2023, to mitigate the risk of us being deemed to have been operating as an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act), we instructed American Stock Transfer & Trust Company, the trustee with respect to the Trust Account, to liquidate the investments in U.S. government securities or money market funds held in the Trust Account (which may include an interest bearing demand deposit account at a national bank) until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the funds in the Trust Account to the Company’s stockholders.
20
Table of Contents
On February 27, 2023, at a special meeting of stockholders, the Company’s stockholders voted to approve an amendment (the “Extension Amendment Proposal”) to the amended and restated certificate of incorporation to extend the date by which the Company must complete a business combination (the “Extension”) from March 1, 2023, to September 1, 2023 (the “Extended Date”). In connection with the Extension, stockholders holding 20,317,255 shares of Class A common stock exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account, representing approximately 70.67% of our issued and outstanding Class A ordinary shares. As a result, $206,121,060 (approximately $10.15 per share) was removed from the Trust Account to pay such redeeming holders on March 2, 2023.
On February 27, 2023, in connection with the Extension, we filed an amendment (the “Extension Amendment”) to our Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. The Extension Amendment extends the date by which we must consummate our initial business combination from March 1, 2023 to September 1, 2023.
Results of Operations
Our entire activity since inception through March 31, 2023 was related to our formation, the preparation for our initial public offering, and since the closing of our initial public offering, the search for a target for our initial business combination (see Note 1). We have neither engaged in any operations nor generated any revenues to date. We will not generate any operating revenues until after completion of our initial business combination. We will generate non-operating income in the form of interest income on cash and cash equivalents and changes in fair value of our derivative warrant liabilities and promissory notes. We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
Until consummation of its Business Combination, the Company will be using the funds not held in the Trust Account, and any additional Working Capital Loans (as defined in Note 5) from the initial stockholders, the Company’s officers and directors, or their respective affiliates, for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the Business Combination.
If the Company’s estimates of the costs of undertaking in-depth due diligence and negotiating a business combination are less than the actual amounts necessary to do so, the Company may have insufficient funds available to operate its business prior to the business combination and will need to raise additional capital through loans from the Sponsor, its officers and/or directors, or third parties. Except as contemplated by the terms of the Initial Promissory Note, First Working Capital Loan, Second Working Capital Loan, Third Working Capital Loan, Q3 2022 Promissory Note, Q4 2022 Promissory Note and Q1 2023 Promissory Note, neither the Sponsor or the Company’s officers or directors are under any obligation to advance funds to, or to invest in, the Company. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of its business plan, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. We are also subject to a mandatory liquidation and subsequent dissolution requirement if we do not complete our initial business combination by September 1, 2023. We cannot assure you that our plans to raise capital or to consummate an initial business combination before September 1, 2023 will be successful. These factors, among others, raise substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
For the three months ended March 31, 2023, we had a net income of $2,036,482, which consisted of interest income on our amounts held in the Trust Account of $2,304,861, and a decrease in the fair value of warrants of $1,351,500, offset by operating costs of $1,143,238, income tax expense of $473,521 and an increase in the fair value of the previously issued promissory notes of $3,120.
For the three months ended March 31, 2022, we had a net income of $6,421,767, due primarily to a decrease in the fair value of our warrants of $6,858,750 and interest income from the Trust Account of $15,121, partially offset by $424,493 of operating costs, and a decrease in fair value of previously issued promissory note of $27,611
Going Concern
As of March 31, 2023, we had $133,691 in cash and working capital deficit of approximately $10,153,276. We are also subject to a mandatory liquidation and subsequent dissolution requirement if we do not complete our initial business combination by September 1, 2023. All remaining cash held in the Trust Account is generally unavailable for the Company’s use, prior to an initial business combination, and is restricted for use either in a Business Combination, to redeem common stock or to use for payment of taxes. During the period ended March 31, 2023, the Company withdrew $40,000 for payment of taxes, leaving $86,862,098 available for withdrawal from the Trust Account as of March 31, 2023. Further, we expect to incur significant costs in pursuit of our acquisition plans. Management’s plans to address this need for capital are discussed in Note 1. Our plans to raise capital and to consummate our initial business combination by September 1, 2023 may not be successful. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements contained elsewhere in this Quarterly Report on Form 10-Q do not include any adjustments that might result from our inability to continue as a going concern.
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Through March 31, 2023, the Company’s liquidity needs were satisfied through receipt of $25,000 from the sale of the Founder Shares and the remaining net proceeds from the IPO and the sale of Private Placement Warrants, as well as $300,000 that was available under the Initial Promissory Note, $365,000 that was available under the First Working Capital Loan (see Note 5), $800,000 that was available under the Second Working Capital Loan (see Note 5), $335,000 that was available under the Third Working Capital Loan (see Note 5), $170,000 that was available under the Q3 2022 Promissory Note (see Note 5), $200,000 that was available under the Q4 2022 Promissory Note (see Note) and $535,000 that was available under the Q1 2023 Promissory Note (see Note 5). As of March 31, 2023, each of the First Working Capital Loan, Second Working Capital Loan, Third Working Capital Loan, Q3 2022 Promissory Note, Q4 2022 Promissory Note and Q1 2023 Promissory Note was fully drawn down.
Liquidity and Capital Resources
As of March 31, 2023, we had cash of $133,691. Until the consummation of our initial public offering, our only sources of liquidity were an initial purchase of common stock by our founders and a loan from the Sponsor, FLC and IFP.
Our registration statement for our initial public offering was declared effective on February 24, 2021. On March 1, 2021, we consummated our initial public offering of 28,750,000 units, which included 3,750,000 units issued pursuant to the full exercise by the underwriters of their over-allotment option, at $10.00 per Unit, generating gross proceeds of $287,500,000 and incurring offering costs of $16,670,251, inclusive of $10,062,500 in deferred underwriting commissions pursuant to the Business Combination Marketing Agreement with Cowen and Company, LLC and Intrepid Partners, LLC (the “Business Combination Marketing Agreement”).
Simultaneously with the closing of our initial public offering, we consummated the private placement of 7,750,000 warrants to our initial stockholders, each exercisable to purchase one share of Class A common stock at $11.50 per share, at a price of $1.00 per private placement warrant, generating gross proceeds to us of $7,750,000.
Upon the closing of our initial public offering and the private placement, $287,500,000 of the net proceeds of the sale of the Units in our initial public offering and the sale of private placement warrants in the private placement were placed in the Trust Account, located in the United States at J.P. Morgan Chase Bank, N.A., with American Stock Transfer & Trust Company acting as trustee, and invested only in U.S. “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations, as determined by us, until the earlier of: (i) the completion of our initial business combination and (ii) the distribution of the Trust Account as described below. Except with respect to interest earned on the funds held in the Trust Account that may be released to us to pay our taxes, if any, the funds held in the Trust Account will not be released until the earliest to occur of: (a) the completion of our initial business combination, (b) the redemption of any public shares properly submitted in connection with a stockholder vote to amend our amended and restated certificate of incorporation (A) to modify the substance or timing of our obligation to allow redemption in connection with our initial business combination or redeem 100% of our public shares if we do not complete our initial business combination by September 1, 2023, or (B) with respect to any other provision relating to stockholders’ rights or pre-initial business combination activity and (c) the redemption of our public shares if we are unable to complete our initial business combination by September 1, 2023, subject to applicable law. On February 21, 2023, to mitigate the risk of us being deemed to have been operating as an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act), we instructed American Stock Transfer & Trust Company, the trustee with respect to the Trust Account, to liquidate the investments in U.S. government securities or money market funds held in the Trust Account were liquidated to thereafter be held in cash (which may include an interest bearing demand deposit account at a national bank) until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the funds in the Trust Account to the Company’s stockholders (see Note 9). Based on current interest rates, we expect that interest income earned on the Trust Account (if any) will be sufficient to pay our income and franchise taxes.
If we are unable to complete our initial business combination by September 1, 2023 (or such later date as may be provided pursuant to a further amendment to our amended and restated certificate of incorporation), we will (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but no more than ten business days thereafter subject to lawfully available funds therefor, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes as well as expenses relating to the administration of the Trust Account (less up to $100,000 of interest to pay dissolution expenses) divided by the number of the then outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and the board of directors, liquidate and dissolve, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to our warrants, which will expire worthless if we fail to complete our initial business combination by the end of the Combination Period, or by the applicable deadline as may be extended.
Related Party Loans
On November 25, 2020, our founders agreed to loan us an aggregate of up to $300,000 to cover expenses related to our initial public offering pursuant to a promissory note (the “Initial Promissory Note”). This loan was non-interest bearing and payable upon the completion of our initial public offering. We borrowed $75,000 under the Initial Promissory Note and repaid the Initial Promissory Note to our founders in full as of September 30, 2021. On March 1, 2021, we issued an unsecured promissory note as a working capital loan to the Sponsor in the principal amount of $365,000 to cover additional expenses related to our initial public offering (the “First Working Capital Loan”). This loan was non-interest bearing and is payable upon the completion of the initial business combination. The Sponsor assigned $145,000 of the First Working Capital Loan to our Executive Vice President and Chief Financial Officer, Gregory Patrinely, $110,000 of the First Working Capital Loan to our Executive Vice President, General Counsel and Secretary, Anthony Duenner, and $110,000 of the First Working Capital Loan to our President, Caldwell Flores. As of March 31, 2023, we have borrowed $365,000 under the First Working Capital Loan. On December 27, 2021, we issued an unsecured promissory note as a working capital loan to the Sponsor in the principal amount of $800,000 to cover additional expenses related to our search for the initial business combination (the “Second Working Capital Loan”). This loan was non-interest bearing and payable upon the completion of the initial business combination. As of March 31, 2023, we have borrowed $800,000 under the Second Working Capital Loan. On March 29, 2022, we issued an unsecured promissory note as a working capital loan to the Sponsor in the principal amount of $335,000 to cover additional expenses related to our search for the initial business combination (the “Third Working Capital Loan”). This loan is non-interest bearing and payable upon the completion of the initial business combination. As of
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March 31, 2023, we have borrowed $335,000 under the Third Working Capital Loan. The Sponsor assigned $112,000 of the Third Working Capital Loan to our Executive Vice President and Chief Financial Officer, Gregory Patrinely, $112,000 of the Third Working Capital Loan to our Executive Vice President, General Counsel and Secretary, Anthony Duenner, and $112,000 of the Third Working Capital Loan to our President, Caldwell Flores. On September 30, 2022, we issued an unsecured promissory note as a working capital loan to the Sponsor in the principal amount of $170,000 to cover additional expenses related to our search for the initial business combination (the “Q3 2022 Promissory Note”). This loan is non-interest bearing and payable upon the completion of the initial business combination. As of March 31, 2023, we have borrowed $170,000 under the Q3 2022 Promissory Note. On October 31, 2022, the Company issued an unsecured promissory note to the Sponsor (the “Q4 2022 Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $200,000. The Q4 2022 Promissory Note is non-interest bearing and payable on the consummation of the Company’s Business Combination. As of March 31, 2023, we have borrowed $200,000 under the Q4 2022 Promissory Note . On February 6, 2023, the Company issued an unsecured promissory note to the Sponsor (the “Q1 2023 Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $535,000. The Q1 2023 Promissory Note is non-interest bearing and payable on the consummation of the Company’s Business Combination. As of March 31, 2023, we have borrowed $535,000 under the Q1 2023 Promissory Note .
In addition, in order to finance transaction costs in connection with an intended initial business combination, the Sponsor or an affiliate of the Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial business combination, we may repay such loaned amounts. In the event that our initial 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 the Trust Account would be used for such repayment. Initially up to $1,500,000, which was increased to $3,500,000 on March 24, 2023, of such loans may be convertible into warrants at a price of $1.00 per warrant at the option of the lender (the “Working Capital Loans”). Such warrants are identical to the private placement warrants, including as to exercise price, exercisability and exercise period. On March 29, 2023, the Company and the Sponsor entered into amendments to each of the Q3 2022 Promissory Note, Q4 2022 Promissory Note and Q1 2023 Promissory Note, pursuant to which loans made under such notes are, at the lender’s discretion, convertible into warrants of the post-Business Combination entity at a price of $1.00 per warrant. On May 12, 2023, the Q1 2023 Promissory note was amended to clarify that approximately $356,370 of the note proceeds are convertible into warrants of the post-Business Combination entity at a price of $1.00 per warrant. Each of the First Working Capital Loan, Second Working Capital Loan, Third Working Capital Loan, Q3 2022 Promissory Note, Q4 2022 Promissory Note and a portion of the Q1 2023 Promissory Note are Working Capital Loans and may be convertible into warrants at a price of $1.00 per warrant at the option of the Sponsor. We do not expect to seek loans from parties other than the Sponsor or an affiliate of the Sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in the Trust Account. As of March 31, 2023, we had drawn down $2,226,370 of such loans.
On May 12, 2023, the Company issued two unsecured promissory notes to the Sponsor (the “Q2 2023 Promissory Notes”), pursuant to which the Company may borrow up to an aggregate principal amount of $750,000. The Q2 2023 Promissory Notes are non-interest bearing and payable on the consummation of the Company’s Business Combination. $395,000 of such notes are, at the lender’s discretion, convertible into warrants of the post-Business Combination entity at a price of $1.00 per warrant. On May 15, 2023, the Q2 2023 Promissory Notes were fully drawn down by the Company.
Critical Accounting Estimates
This management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to fair value of financial instruments and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes during the period to our critical accounting estimates included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06 to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2024, and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. We are currently reviewing what impact, if any, adoption will have on the Company’s financial position, results of operations or cash flows.
Our management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed financial statements.
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| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2023. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2023, our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective as of March 31, 2023, due to the material weaknesses in our internal control over financial reporting over the accounting for complex financial instruments, which resulted in the restatement of the Company’s financial statements for certain prior periods. In light of this, we performed additional analysis as deemed necessary to ensure that the accompanying condensed financial statements were prepared in accordance with U.S. GAAP. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the periods presented.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
| Item 1. | Legal Proceedings. |
None.
| Item 1A. | Risk Factors. |
Factors that could cause our actual results to differ materially from those in this report include the risks described under the heading “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 10-K”) and our preliminary proxy statement, filed with the SEC on November 10, 2022 (as amended, the “Preliminary Proxy Statement”). Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in the 2022 10-K or the Preliminary Proxy Statement. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
| Item 3. | Defaults Upon Senior Securities. |
None.
| Item 4. | Mine Safety Disclosures. |
Not Applicable.
| Item 5. | Other Information. |
None.
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| Item 6. | Exhibits |
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished |
| (1) | Previously filed as an exhibit to our Current Report on Form 8-K filed on February 7, 2023 and incorporated by reference herein. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FLAME ACQUISITION CORP. | ||||||
| Date: May 15, 2023 | By: | /s/ James C. Flores | ||||
| Name: | James C. Flores | |||||
| Title: | Chairman and Chief Executive Officer (Principal Executive Officer) | |||||
| Date: May 15, 2023 | By: | /s/ Gregory D. Patrinely | ||||
| Name: | Gregory D. Patrinely | |||||
| Title: | Executive Vice President and Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer) | |||||
27
EXHIBIT 31.1
CERTIFICATION
I, James C. Flores, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Flame Acquisition Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 15, 2023
| /s/ James C. Flores |
| James C. Flores |
| Chairman and Chief Executive Officer |
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION
I, Gregory D. Patrinely, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Flame Acquisition Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 15, 2023
| /s/ Gregory D. Patrinely |
| Gregory D. Patrinely |
| Executive Vice President and Chief Financial Officer |
| (Principal Accounting Officer and Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Flame Acquisition Corp. (the “Company”) for the period ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James C. Flores, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: May 15, 2023
| /s/ James C. Flores |
| James C. Flores |
| Chairman and Chief Executive Officer |
| (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Flame Acquisition Corp. (the “Company”) for the period ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory D. Patrinely, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: May 15, 2023
| /s/ Gregory D. Patrinely |
| Gregory D. Patrinely |
| Executive Vice President and Chief Financial Officer |
| (Principal Accounting Officer and Principal Financial Officer) |