PART I - FINANCIAL INFORMATION This section presents Calidi Biotherapeutics, Inc.'s unaudited financial statements and management's analysis [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Calidi Biotherapeutics, Inc.'s unaudited consolidated financial statements and notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents Calidi's financial position, detailing assets, liabilities, and stockholders' deficit Condensed Consolidated Balance Sheets (in thousands) | ASSETS (in thousands) | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :-------------------- | :----------------------- | :----------- | | Cash | $10,147 | $372 | | Total current assets | $11,687 | $786 | | Total assets | $18,587 | $2,597 | | LIABILITIES (in thousands) | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :-------------------- | :----------------------- | :----------- | | Total current liabilities | $10,873 | $42,989 | | Total liabilities | $19,681 | $43,436 | | Total stockholders' deficit | $(1,094) | $(50,440) | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details Calidi's revenues, operating expenses, and net loss for the periods presented Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | | Total revenues | $0 | $0 | | Total operating expenses | $(7,221) | $(6,986) | | Loss from operations | $(7,221) | $(6,986) | | Total other income (expenses), net | $5,208 | $1,632 | | Net loss | $(2,024) | $(5,355) | | Net loss per share; basic and diluted | $(0.14) | $(0.63) | | Weighted average common shares outstanding; basic and diluted | 14,310 | 8,566 | | Metric (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | | Total revenues | $0 | $45 | | Total operating expenses | $(19,172) | $(18,485) | | Loss from operations | $(19,172) | $(18,440) | | Total other income (expenses), net | $(1,796) | $783 | | Net loss | $(20,987) | $(17,671) | | Net loss per share; basic and diluted | $(1.98) | $(2.08) | | Weighted average common shares outstanding; basic and diluted | 10,601 | 8,482 | [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This section presents Calidi's net loss and other comprehensive income/loss components for the periods presented Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | | NET LOSS | $(2,024) | $(5,355) | | Foreign currency translation adjustment | $13 | $(13) | | COMPREHENSIVE LOSS | $(2,011) | $(5,368) | | Metric (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | | NET LOSS | $(20,987) | $(17,671) | | Foreign currency translation adjustment | $10 | $(30) | | COMPREHENSIVE LOSS | $(20,977) | $(17,701) | [Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Deficit) This section outlines changes in Calidi's convertible preferred stock and stockholders' deficit - As of September 30, 2023, all Convertible Preferred Stock were converted into common stock due to the FLAG Merger, resulting in **no outstanding preferred shares**[152](index=152&type=chunk)[159](index=159&type=chunk) Stockholders' Deficit (in thousands) | Stockholders' Deficit (in thousands) | Dec 31, 2022 | Sep 30, 2023 | | :----------------------------------- | :----------- | :----------- | | Common stock, amount | $2 | $4 | | Additional paid-in capital | $19,928 | $90,249 | | Accumulated other comprehensive loss | $(14) | $(4) | | Accumulated deficit | $(70,356) | $(91,343) | | Total stockholders' deficit | $(50,440) | $(1,094) | - The total number of common stock shares issued and outstanding increased significantly from **8,583,724** as of December 31, 2022, to **35,436,381** as of September 30, 2023, primarily due to the FLAG Merger and conversions[33](index=33&type=chunk)[154](index=154&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents Calidi's cash flows from operating, investing, and financing activities Cash Flow Summary (in thousands) | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(21,797) | $(9,338) | | Net cash used in investing activities | $(443) | $(333) | | Net cash provided by financing activities | $32,002 | $7,768 | | Net increase (decrease) in cash and restricted cash | $9,775 | $(1,937) | | Cash and restricted cash at end of period | $10,365 | $300 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of Calidi's accounting policies and financial statement components [Note 1. Organization and Nature of Operations](index=10&type=section&id=Note%201.%20Organization%20and%20Nature%20of%20Operations) Calidi is a clinical-stage immuno-oncology company focused on stem cell-based therapies, facing going concern doubts - Calidi is a clinical-stage immuno-oncology company developing novel stem cell-based platforms for oncolytic virus therapies, with key product candidates including **CLD-101** and **CLD-201**[46](index=46&type=chunk) - On September 12, 2023, Calidi completed a merger with First Light Acquisition Group, Inc. (FLAG), with Calidi identified as the **accounting acquirer**[47](index=47&type=chunk) - The company has an accumulated deficit of **$91.3 million** as of September 30, 2023, and used **$21.8 million** in operating activities, raising substantial doubt about its ability to continue as a going concern[54](index=54&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=12&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines Calidi's significant accounting policies, including U.S. GAAP, consolidation, and fair value measurements - The unaudited condensed consolidated financial statements adhere to SEC rules and U.S. GAAP, with historical common share amounts retroactively restated due to the **FLAG Merger's reverse recapitalization**[56](index=56&type=chunk) - Calidi consolidates its wholly-owned subsidiaries and Calidi Cure LLC, identified as a **Variable Interest Entity (VIE)** where Calidi is the primary beneficiary[49](index=49&type=chunk) - Calidi applies the **fair value option (FVO)** to contingently convertible notes and certain term notes, with warrants classified as equity or liability based on terms[65](index=65&type=chunk)[67](index=67&type=chunk) - CIRM grant proceeds of approximately **$0.7 million** and **$2.3 million** were recognized as grant income for the three and nine months ended September 30, 2023, respectively[1](index=1&type=chunk) - Calidi operates as a **single segment**, focusing on research, development, and commercialization of cell-based platforms for oncolytic virus therapies[3](index=3&type=chunk) [Note 3. Merger and Related Transactions](index=22&type=section&id=Note%203.%20Merger%20and%20Related%20Transactions) This note details the FLAG Merger, a reverse recapitalization, including consideration and contingent shares - The FLAG Merger, completed on September 12, 2023, was accounted for as a **reverse recapitalization**, with Calidi identified as the accounting acquirer[5](index=5&type=chunk) - Calidi Security Holders received **27,375,600 shares** of Common Stock as merger consideration, valued at approximately **$250.0 million**, plus a **$23.8 million** net debt adjustment[5](index=5&type=chunk) - Up to **18,000,000 Escalation Shares** may be earned by Calidi Stockholders based on achieving specific stock price hurdles[5](index=5&type=chunk) - Calidi received approximately **$1.8 million** in net cash proceeds from the Trust and **$0.7 million** in cash from non-redeeming shareholders[6](index=6&type=chunk) [Note 4. Fair Value Measurements](index=23&type=section&id=Note%204.%20Fair%20Value%20Measurements) This note details Calidi's fair value measurements for assets and liabilities, including valuation methodologies Fair Value Measurements (in thousands) | Fair Value Measurements (in thousands) | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :------------------------------------- | :----------------------- | :----------- | | Restricted cash held in a money market account | $218 | $218 | | Forward Purchase Agreement Derivative Asset | $1,290 | $0 | | Total assets, at fair value | $1,508 | $218 | | Public Warrants | $2,530 | $0 | | Private Placement Warrants | $421 | $0 | | Contingently convertible notes payable | $0 | $1,152 | | SAFEs | $0 | $29,190 | | Total liabilities, at fair value | $2,951 | $30,342 | - The fair value of the Forward Purchase Agreement Derivative Asset decreased from **$4.5 million** at merger closing to **$1.3 million** as of September 30, 2023, due to a decrease in stock price[87](index=87&type=chunk) - Upon the FLAG Merger, all CCNPs, SAFEs, and Series B Convertible Preferred Stock were converted into Calidi common stock and are **no longer outstanding**[70](index=70&type=chunk)[77](index=77&type=chunk)[72](index=72&type=chunk) [Note 5. Selected Balance Sheet Components](index=28&type=section&id=Note%205.%20Selected%20Balance%20Sheet%20Components) This note details selected balance sheet components, including legal settlement liability, accrued expenses, and deferred financing costs - A legal settlement liability of approximately **$0.6 million** as of December 31, 2022, was fully paid following the FLAG Merger, resulting in **no outstanding liability**[118](index=118&type=chunk) Accrued Expenses and Other Current Liabilities (in thousands) | Accrued Expenses and Other Current Liabilities (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------------------------------ | :----------- | :----------- | | Accrued compensation | $2,014 | $4,070 | | Accrued vendor and other expenses | $2,967 | $1,277 | | Total accrued expenses and other current liabilities | $4,981 | $5,347 | - Deferred financing costs, including advances for merger transaction costs, were reclassified against **additional paid-in capital** upon the FLAG Merger closing[182](index=182&type=chunk) [Note 6. Machinery and Equipment, net](index=29&type=section&id=Note%206.%20Machinery%20and%20Equipment,%20net) This note details Calidi's machinery and equipment, net of accumulated depreciation, showing an increase in net value Machinery and Equipment (in thousands) | Machinery and Equipment (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------- | :----------- | :----------- | | Machinery and equipment | $2,022 | $1,518 | | Accumulated depreciation | $(891) | $(631) | | Machinery and equipment, net | $1,131 | $887 | - Depreciation expense was approximately **$0.1 million** for the three months and **$0.3 million** for the nine months ended September 30, 2023[124](index=124&type=chunk) [Note 7. Related Party Transactions](index=29&type=section&id=Note%207.%20Related%20Party%20Transactions) This note outlines significant transactions and investments involving related parties, including debt and equity instruments - Calidi's operations have been funded significantly by related parties, including **AJC Capital** and certain directors, through various debt and equity instruments[192](index=192&type=chunk) Related Party Transaction (in thousands) | Related Party Transaction (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------------- | :----------- | :----------- | | Convertible notes payable (AJC Capital, Director B, manager) | $19 | $804 | | Term notes payable (AJC Capital, Directors A, E, executive officer's family office) | $1,442 | $1,962 | | SAFEs (AJC Capital, Directors A, D, E, F, officer, manager) | $0 | $4,615 | | Legal settlement liability (Former Executive) | $0 | $640 | | Lease guaranty (AJC Capital) | $163 | $150 | - Upon the FLAG Merger, many related party debt instruments, including convertible notes and SAFEs, were converted into Calidi common stock or settled, **significantly reducing related party liabilities**[183](index=183&type=chunk) [Note 8. Debt](index=31&type=section&id=Note%208.%20Debt) This note details Calidi's outstanding debt obligations, including conversions and amendments post-FLAG Merger Debt (in thousands) | Debt (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------ | :----------- | :----------- | | Convertible notes payable | $19 | $804 | | Contingently convertible notes payable | $0 | $1,152 | | Term notes payable | $4,280 | $2,469 | | Loans payable | $1,000 | $1,000 | | Total debt | $5,299 | $5,425 | | Long-term debt, net of current portion | $1,954 | $0 | - The weighted average interest rate for outstanding debt not under the fair value option increased from approximately **8.7%** as of December 31, 2022, to **13.7%** as of September 30, 2023[185](index=185&type=chunk) - In connection with the FLAG Merger, all 2018 Convertible Notes, 2019/2020 Contingently Convertible Notes Payable, and various Term Notes were converted to Calidi common stock or had their terms amended[204](index=204&type=chunk)[137](index=137&type=chunk)[130](index=130&type=chunk)[140](index=140&type=chunk)[142](index=142&type=chunk)[133](index=133&type=chunk) [Note 9. Simple Agreement for Future Equity](index=38&type=section&id=Note%209.%20Simple%20Agreement%20for%20Future%20Equity) This note describes Calidi's Simple Agreements for Future Equity (SAFEs), which converted into common stock upon the FLAG Merger - Calidi issued SAFEs in 2021, 2022, and 2023, raising aggregate proceeds of **$7.9 million**, **$10.8 million**, and **$2.8 million** respectively, with no maturity dates or interest[155](index=155&type=chunk)[135](index=135&type=chunk)[157](index=157&type=chunk) - All SAFEs, including those from CCNP conversions, were converted into Calidi common stock upon the FLAG Merger and are **no longer outstanding**[155](index=155&type=chunk)[135](index=135&type=chunk)[157](index=157&type=chunk)[136](index=136&type=chunk) [Note 10. Convertible Preferred Stock, Common Stock and Stockholders' Deficit](index=39&type=section&id=Note%2010.%20Convertible%20Preferred%20Stock,%20Common%20Stock%20and%20Stockholders'%20Deficit) This note details Calidi's equity structure, including preferred and common stock, and warrants, impacted by the FLAG Merger - All Founders, Series A-1, Series A-2, and Series B Convertible Preferred Stock were converted into Calidi common stock upon the FLAG Merger and are **no longer outstanding**[159](index=159&type=chunk)[152](index=152&type=chunk)[172](index=172&type=chunk) - As of September 30, 2023, **35,436,381 shares** of common stock were outstanding, a substantial increase from **8,583,724 shares** at December 31, 2022, due to the FLAG Merger and conversions[173](index=173&type=chunk)[154](index=154&type=chunk) - The company assumed **11,500,000 Public Warrants** and **1,912,154 Private Placement Warrants** upon the FLAG Merger, classified as liabilities and subject to remeasurement at fair value[177](index=177&type=chunk)[178](index=178&type=chunk) - All 2020 Term Note Warrants, 2020 LOC Warrants, and 2021 Term Note Warrants were **cashless exercised** into common stock and exchanged for New Calidi Common Stock upon the FLAG Merger[167](index=167&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) [Note 11. Stock-Based Compensation](index=46&type=section&id=Note%2011.%20Stock-Based%20Compensation) This note details Calidi's stock-based compensation, including the 2019 Equity Incentive Plan and option repricing - The 2019 Equity Incentive Plan authorizes various awards, with **stock options** being the sole outstanding type granted to employees, directors, and consultants[189](index=189&type=chunk) - On January 18, 2023, approximately **1.5 million stock options** were repriced, resulting in a noncash compensation charge of approximately **$0.2 million** for the three and nine months ended September 30, 2023[91](index=91&type=chunk) Stock-Based Compensation Expense (in thousands) | Stock-Based Compensation Expense (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :---------------------------------------------- | :------------------------------ | :------------------------------ | | Research and development | $242 | $235 | | General and administrative | $867 | $827 | | Total | $1,109 | $1,062 | | Stock-Based Compensation Expense (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :---------------------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $838 | $469 | | General and administrative | $2,785 | $2,995 | | Total | $3,623 | $3,464 | - As of September 30, 2023, total unamortized stock-based compensation expense was approximately **$8.5 million**, to be amortized over an estimated weighted average life of **3.56 years**[115](index=115&type=chunk) [Note 12. Customer Contracts](index=49&type=section&id=Note%2012.%20Customer%20Contracts) This note describes Calidi's research collaboration agreements, with revenue recognized over time as services were performed - Calidi entered into research collaboration agreements to perform tests on stem cell lines and oncolytic adenoviruses for a customer[115](index=115&type=chunk) - Revenue was recognized over time as services were performed, with **$45,000** in service revenues recognized upon completion of Amendment No. 1[115](index=115&type=chunk) [Note 13. Income Taxes](index=50&type=section&id=Note%2013.%20Income%20Taxes) This note explains Calidi's income tax provision, with no federal or state benefits due to net operating losses - Calidi has incurred net operating losses for U.S. federal and state income tax purposes, with deferred tax assets fully offset by a **valuation allowance**[106](index=106&type=chunk) - The income tax provision for the periods presented was insignificant and entirely attributable to **StemVac operations**, Calidi's German subsidiary[106](index=106&type=chunk) [Note 14. Commitments and Contingencies](index=50&type=section&id=Note%2014.%20Commitments%20and%20Contingencies) This note details Calidi's commitments and contingencies, including leases, legal proceedings, and supplier agreements - Calidi entered into a **48-month operating lease** for its San Diego office and laboratory, with initial monthly rent of **$0.1 million**, secured by a personal guaranty[107](index=107&type=chunk) Future Minimum Lease Commitments (in thousands) | Future Minimum Lease Commitments (in thousands) | Operating Leases | Financing Leases | | :---------------------------------------------- | :--------------- | :--------------- | | 2023 (Oct – Dec) | $347 | $21 | | 2024 | $1,423 | $64 | | 2025 | $1,464 | $43 | | 2026 and thereafter | $1,993 | $46 | | Total minimum lease payments | $5,227 | $174 | | Present value of net minimum lease payments | $4,293 | $158 | - Calidi is involved in a lawsuit with former physicians claiming **3,000,000 vested stock options**, with an estimated loss range of **$0.2 million to $4.9 million**[104](index=104&type=chunk) - Manufacturing and other supplier agreements amount to approximately **$6.6 million** in aggregate commitments as of September 30, 2023[105](index=105&type=chunk) - A separation agreement with George Ng includes a **$0.5 million severance payment** due one year after August 31, 2023, accruing **8.0% interest** if unpaid[193](index=193&type=chunk) [Note 15. Subsequent Events](index=55&type=section&id=Note%2015.%20Subsequent%20Events) This note outlines significant events after September 30, 2023, including debt settlements and executive changes - On October 13, 2023, Calidi settled in cash the full **$1.0 million** principal outstanding related to its line of credit[205](index=205&type=chunk) - Mr. Alan R. Stewart was appointed as a Class I director and Chair of the Audit Committee on October 10, 2023[205](index=205&type=chunk) - Mr. Tony Kalajian resigned as Chief Accounting Officer and interim CFO, and Mr. Andrew Jackson was appointed CFO effective October 30, 2023[205](index=205&type=chunk) - Several term notes payable, totaling approximately **$1.5 million** in principal, were settled in cash in October and November 2023[205](index=205&type=chunk) - A spot bonus of **$0.2 million** was paid to Mr. Tony Kalajian on September 15, 2023, in connection with the completion of the Business Combination[269](index=269&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=55&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's discussion and analysis of Calidi's financial condition and operational results [Company Overview](index=56&type=section&id=Company%20Overview) Calidi is a clinical-stage immuno-oncology company developing stem cell-based therapies, facing significant losses and funding needs - Calidi is a clinical-stage immuno-oncology company focused on developing novel stem cell-based platforms for oncolytic virus therapies, with key product candidates **CLD-101** and **CLD-201**[196](index=196&type=chunk) - The company incurred a net loss of **$2.0 million** for the three months and **$21.0 million** for the nine months ended September 30, 2023, with an accumulated deficit of **$91.3 million**[197](index=197&type=chunk) - Management believes there is **substantial doubt** about the company's ability to continue as a going concern without substantial additional funding[197](index=197&type=chunk) [The FLAG Merger and Related Transactions](index=57&type=section&id=The%20FLAG%20Merger%20and%20Related%20Transactions) This section details the FLAG Merger, outlining merger consideration and contingent Escalation Shares - The Business Combination with FLAG closed on September 12, 2023, with Calidi surviving as a **wholly-owned subsidiary** and FLAG renamed 'Calidi Biotherapeutics, Inc.'[198](index=198&type=chunk) - Calidi Security Holders received **27,375,600 shares** of Common Stock as merger consideration, valued at approximately **$250.0 million**, plus a **$23.8 million** net debt adjustment[207](index=207&type=chunk) - Up to **18,000,000 Escalation Shares** are available to Calidi Stockholders, released incrementally upon specific stock price thresholds[200](index=200&type=chunk) [Components of Operating Results](index=58&type=section&id=Components%20of%20Operating%20Results) This section details Calidi's operating results components: R&D, G&A, other income/expenses, and income taxes - Research and development expenses include personnel costs, third-party research funding, manufacturing, preclinical/clinical trial costs, and regulatory compliance[211](index=211&type=chunk) - General and administrative expenses consist of salaries, stock-based compensation, professional services, recruiting, insurance, travel, and facility costs[214](index=214&type=chunk) - Other income or expenses, net, primarily includes changes in the fair value of debt instruments and SAFEs, as well as grant income from CIRM[209](index=209&type=chunk) - Calidi has incurred net operating losses for tax purposes, resulting in **no federal or state income tax benefit**, with the provision solely from its German subsidiary, StemVac[215](index=215&type=chunk) [Results of Operations](index=61&type=section&id=Results%20of%20Operations) This section analyzes Calidi's net loss for the periods presented, highlighting changes in operating expenses and other income Results of Operations (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Research and development | $(3,251) | $(1,945) | $(1,306) | 67% | | General and administrative | $(3,970) | $(5,041) | $1,071 | -21% | | Total other income, net | $5,208 | $1,632 | $3,576 | 219% | | Net loss | $(2,024) | $(5,355) | $3,331 | -62% | Results of Operations (in thousands) | Metric (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Service revenues | $0 | $45 | $(45) | -100% | | Research and development | $(9,050) | $(4,994) | $(4,056) | 81% | | General and administrative | $(10,122) | $(13,477) | $3,355 | -25% | | Total other income (expenses), net | $(1,796) | $783 | $(2,579) | -329% | | Net loss | $(20,987) | $(17,671) | $(3,316) | 19% | - The **$3.6 million increase** in other income, net, for the three months ended September 30, 2023, was primarily due to a net change in fair value of financial instruments (**$3.7 million**) and increased grant income (**$0.7 million**)[218](index=218&type=chunk) - The **$2.6 million decrease** in other income (expense), net, for the nine months ended September 30, 2023, was mainly due to Series B financing costs (**$2.7 million**), fair value changes (**$0.9 million decrease**), and increased interest expense (**$0.8 million**)[229](index=229&type=chunk) [Liquidity and Capital Resources](index=63&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Calidi's liquidity and capital resources, including cash, the FLAG Merger impact, and funding efforts - As of September 30, 2023, Calidi had a cash balance of **$10.1 million**, with debt and liability obligations including **$1.0 million** in loans payable and **$3.0 million** in warrant liabilities[227](index=227&type=chunk) - The FLAG Merger resulted in the conversion of all Founders, Series A-1, Series A-2, and Series B Convertible Preferred Stock, Convertible Notes Payable, Contingently Convertible Notes Payable, and SAFEs into **Common Stock**[227](index=227&type=chunk) - Calidi is negotiating an Equity Line of Credit (ELOC) for up to **$50.0 million**, but its securing is not assured[239](index=239&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Summary (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Operating activities | $(21,797) | $(9,338) | $(12,459) | 133% | | Investing activities | $(443) | $(333) | $(110) | 33% | | Financing activities | $32,002 | $7,768 | $24,234 | 312% | | Net increase (decrease) in cash and restricted cash | $9,775 | $(1,937) | $11,712 | -605% | - Net cash provided by financing activities increased significantly to **$32.0 million** for the nine months ended September 30, 2023, primarily from Series B Preferred Stock proceeds (**$24.5 million**) and PIPE Agreements (**$2.8 million**)[80](index=80&type=chunk) - Calidi expects expenses to increase due to ongoing R&D, clinical trials, and public company operations, necessitating **substantial additional funding**[81](index=81&type=chunk) [Critical Accounting Policies](index=69&type=section&id=Critical%20Accounting%20Policies) This section highlights Calidi's critical accounting policies, including stock-based compensation and fair value option accounting - Stock options and other stock-based awards are measured at fair value on the grant date and expensed over the vesting period, using the **Black-Scholes option pricing model**[257](index=257&type=chunk)[258](index=258&type=chunk) - Prior to the FLAG Merger, common stock fair value was estimated using **OPM, PWERM, or a hybrid method**, considering various market and business factors[248](index=248&type=chunk) - Calidi elected the **fair value option** for CCNPs and certain term notes payable, with SAFEs and Series B preferred stock also accounted for as liabilities at fair value[84](index=84&type=chunk)[260](index=260&type=chunk) - The Forward Purchase Agreement and Private Placement Warrants are accounted for as derivative assets/liabilities, valued using **Monte Carlo simulation** and **Black-Scholes models**[87](index=87&type=chunk)[88](index=88&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=75&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Calidi faces minimal market risk from interest rate changes and foreign currency fluctuations - Calidi is not currently exposed to significant market risk from changes in interest rates, as most debt is **fixed-rate or equity-linked**[254](index=254&type=chunk) - Foreign currency exchange rate risk is currently not significant but may increase due to operations in Germany and planned clinical trial activities in Australia[254](index=254&type=chunk) - Inflation has not had a **material effect** on Calidi's business, financial condition, or results of operations during the reported periods[254](index=254&type=chunk) [Item 4. Controls and Procedures](index=76&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated Calidi's disclosure controls and procedures as effective, with no material changes in internal control - Calidi's disclosure controls and procedures were evaluated as **effective** at the reasonable assurance level as of September 30, 2023[270](index=270&type=chunk) - No **material changes** in internal control over financial reporting were identified during the quarter ended September 30, 2023[100](index=100&type=chunk) [Recent Accounting Pronouncements](index=76&type=section&id=Recent%20Accounting%20Pronouncements) Calidi does not expect material impact from recent accounting pronouncements and delays adoption as an EGC - Calidi does not anticipate any **material impact** from recently issued accounting standards on its financial statements or operations[93](index=93&type=chunk) - As an **Emerging Growth Company (EGC)**, Calidi has elected to use the extended transition period for complying with new or revised financial accounting standards[264](index=264&type=chunk) [Emerging Growth Company and Smaller Reporting Company Status](index=75&type=section&id=Emerging%20Growth%20Company%20and%20Smaller%20Reporting%20Company%20Status) Calidi is classified as an EGC and Smaller Reporting Company, benefiting from reduced reporting requirements - Calidi is an **'emerging growth company' (EGC)** under the JOBS Act, allowing delayed adoption of new accounting standards and reduced reporting requirements[264](index=264&type=chunk) - As an EGC, Calidi can present only **two years of audited financial statements**, is exempt from auditor's attestation on internal controls, and has reduced executive compensation disclosures[265](index=265&type=chunk) - Calidi is also a **'smaller reporting company,'** providing similar disclosure exemptions, such as presenting two most recent fiscal years of audited financial statements[265](index=265&type=chunk) PART II — OTHER INFORMATION This section provides additional information beyond financial statements, including legal proceedings and risk factors [Item 1. Legal Proceedings](index=78&type=section&id=Item%201.%20Legal%20Proceedings) Calidi is subject to various claims and contingencies in the ordinary course of business - Calidi may be subject to litigation in the ordinary course of business, including matters related to business, transactions, and employee issues[95](index=95&type=chunk) - Further details on legal proceedings are available in the company's Registration Statement on Form S-1 filed on October 6, 2023[95](index=95&type=chunk) [Item 1A. Risk Factors](index=78&type=section&id=Item%201A.%20Risk%20Factors) Investing in Calidi's securities involves high risk, including stock price volatility and potential delisting - An investment in Calidi's securities involves a **high degree of risk**, and investors should carefully consider the risk factors outlined in the company's Registration Statements[271](index=271&type=chunk) - The price of Calidi's stock may be **highly volatile**, and an active, liquid, and orderly trading market may not be sustained[271](index=271&type=chunk) - Failure to comply with NYSE American listing standards could result in **delisting**, adversely affecting the company's ability to raise financing and trade securities[271](index=271&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=78&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Unregistered sales of equity securities were previously disclosed, with no issuer purchases or applicable use of proceeds - Unregistered sales of equity securities were reported in Current Reports on Form 8-K filed on August 29, 2023, and August 31, 2023[271](index=271&type=chunk) - There were **no issuer purchases** of equity securities during the period[271](index=271&type=chunk) [Item 3. Defaults Upon Senior Securities](index=78&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[271](index=271&type=chunk) [Item 4. Mine Safety Disclosures](index=78&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Calidi Biotherapeutics, Inc - Mine safety disclosures are **not applicable** to the registrant[271](index=271&type=chunk) [Item 5. Other Information](index=77&type=section&id=Item%205.%20Other%20Information) This section includes information about a **$0.2 million** spot bonus payment to the former Interim CFO - A spot bonus of **$0.2 million** was paid to Mr. Tony Kalajian, former Interim Chief Financial Officer, on September 15, 2023, related to the Business Combination[269](index=269&type=chunk) [Item 6. Exhibits](index=78&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents and various agreements - The exhibits include key corporate documents such as the Second Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws[272](index=272&type=chunk) - Agreements related to the FLAG Merger, including Forward Purchase Agreements, Non-Redemption Agreements, and PIPE Subscription Agreements, are listed as exhibits[272](index=272&type=chunk) - Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act are included[272](index=272&type=chunk) [Signatures](index=80&type=section&id=Signatures) The Form 10-Q is signed by the Chairman and CEO, and CFO, on November 14, 2023 - The report is signed by Allan Camaisa, Chairman and Chief Executive Officer, and Andrew Jackson, Chief Financial Officer, on November 14, 2023[103](index=103&type=chunk)

As filed with the Securities and Exchange Commission on October 6, 2023. Registration No. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Calidi Biotherapeutics, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) Delaware 2834 86-2967193 (I.R.S. Employer Identification No.) 4475 Executive Driv ...

As filed with the Securities and Exchange Commission on October 6, 2023. Registration No. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Calidi Biotherapeutics, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) Delaware 2834 86-2967193 (I.R.S. Employer Identification No.) 4475 Executive Driv ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents unaudited condensed financial statements and detailed notes on organization, accounting policies, IPO, related party transactions, equity, warrants, commitments, fair value, income tax, and subsequent events [Condensed Balance Sheets](index=4&type=section&id=Condensed%20Balance%20Sheets) Presents the company's financial position as of June 30, 2023, and December 31, 2022, showing significant increases in cash, total assets, and total liabilities, particularly warrant and forward purchase unit liabilities Condensed Balance Sheet Highlights | Metric | June 30, 2023 (unaudited) | December 31, 2022 | | :-------------------------------------- | :------------------------ | :---------------- | | Cash | $669,867 | $93,892 | | Total Current Assets | $795,478 | $401,671 | | Marketable securities in trust account | $43,214,249 | $42,453,107 | | Total Assets | $44,009,727 | $42,854,778 | | Total Current Liabilities | $8,182,440 | $4,535,913 | | Warrant liability | $1,937,000 | $745,000 | | Forward purchase unit liability | $2,645,604 | $326,234 | | Total Liabilities | $12,765,044 | $5,607,147 | | Class A common stock subject to redemption | $43,214,249 | $42,453,107 | | Total Stockholders' Deficit | $(11,969,566) | $(5,205,476) | [Condensed Statements of Operations](index=5&type=section&id=Condensed%20Statements%20of%20Operations) Details financial performance for the three and six months ended June 30, 2023, and 2022, highlighting a shift from net income in 2022 to significant net losses in 2023, primarily due to changes in fair value of warrant and forward purchase unit liabilities Condensed Statements of Operations Highlights | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating costs | $1,495,739 | $361,622 | $3,524,950 | $890,480 | | Loss from operations | $(1,495,739) | $(361,622) | $(3,524,950) | $(890,480) | | Earnings on marketable securities | $493,561 | $159,999 | $919,410 | $176,504 | | Change in fair value of contingent interest liability | $(139,179) | — | $(240,583) | — | | Change in fair value of warrant liability | $(1,280,500) | $4,029,850 | $(1,192,000) | $6,124,150 | | Change in fair value of forward purchase unit liability | $(1,764,927) | $332,983 | $(2,319,370) | $210,963 | | Net (loss) income | $(4,268,408) | $4,161,210 | $(6,492,948) | $5,623,403 | - The company experienced a significant shift from net income in 2022 to net losses in 2023, primarily driven by negative changes in the fair value of **warrant and forward purchase unit liabilities**[13](index=13&type=chunk) [Condensed Statements of Changes in Class A Common Stock Subject to Possible Redemption and Stockholders' Deficit](index=6&type=section&id=Condensed%20Statements%20of%20Changes%20in%20Class%20A%20Common%20Stock%20Subject%20to%20Possible%20Redemption%20and%20Stockholders%27%20Deficit) Outlines changes in Class A common stock subject to possible redemption and stockholders' deficit for periods ended June 30, 2023, and 2022, showing the impact of remeasurements, net losses, and promissory note cancellations Changes in Stockholders' Deficit (Unaudited) | Item | December 31, 2022 | March 31, 2023 | June 30, 2023 | | :---------------------------------------- | :---------------- | :------------- | :------------ | | Balance – December 31, 2022 | $(5,205,476) | | | | Remeasurement of Class A common stock | $(453,836) | | | | Net loss | $(2,224,540) | | | | Balance – March 31, 2023 | | $(7,883,852) | | | Cancellation of promissory notes | | $490,000 | | | Remeasurement of Class A common stock | | $(307,306) | | | Net loss | | $(4,268,408) | | | Balance – June 30, 2023 | | | $(11,969,566) | - The cancellation of promissory notes from related parties resulted in a **$490,000 increase** in additional paid-in capital[215](index=215&type=chunk) [Condensed Statements of Cash Flows](index=7&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) Provides an overview of cash flows from operating, investing, and financing activities for the six months ended June 30, 2023, and 2022, indicating a shift from cash used in operations to cash provided by operations in 2023, alongside significant investing and financing activities Condensed Statements of Cash Flows Highlights | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income | $(6,492,948) | $5,623,403 | | Net cash provided by (used in) operating activities | $573,783 | $(733,810) | | Net cash (used in) provided by investing activities | $(720,308) | — | | Net cash provided by (used in) financing activities | $722,500 | — | | Net Change in Cash | $575,975 | $(733,810) | | Cash – Ending | $669,867 | $328,843 | - Net cash provided by operating activities significantly improved from a deficit of **$733,810 in H1 2022** to a positive **$573,783 in H1 2023**[35](index=35&type=chunk) - The company engaged in investing activities, including purchases and sales of marketable securities in the Trust Account, resulting in net cash used of **$720,308 in H1 2023**[35](index=35&type=chunk) [Notes to the Condensed Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Financial%20Statements) Provides detailed explanations and disclosures for the condensed financial statements, covering business operations, significant accounting policies, IPO, private placement, related party transactions, equity, warrants, commitments, fair value, income tax, and subsequent events [NOTE 1. ORGANIZATION AND PLANS OF BUSINESS OPERATIONS](index=8&type=section&id=NOTE%201.%20ORGANIZATION%20AND%20PLANS%20OF%20BUSINESS%20OPERATIONS) Details the company's nature as a blank check company, its IPO, the establishment of a trust account, and ongoing efforts to complete a business combination, including extensions and the proposed merger with Calidi Biotherapeutics, Inc - The Company is a blank check company formed to effect a business combination, with no operating revenues until completion of its initial Business Combination[17](index=17&type=chunk)[37](index=37&type=chunk)[46](index=46&type=chunk) - The IPO closed on September 14, 2021, raising **$230,000,000**, which was placed in a trust account and invested in U.S. government securities[18](index=18&type=chunk)[38](index=38&type=chunk)[80](index=80&type=chunk) - A proposed merger with Calidi Biotherapeutics, Inc. was announced on January 9, 2023, with Calidi surviving as a wholly-owned subsidiary of the new public entity, 'New Calidi'[21](index=21&type=chunk)[42](index=42&type=chunk)[74](index=74&type=chunk) - The completion window for a business combination was extended multiple times, most recently to September 14, 2023, with the Sponsor funding the Trust Account for extensions[20](index=20&type=chunk)[40](index=40&type=chunk)[76](index=76&type=chunk) - Guggenheim Securities, the IPO Underwriter, waived its entitlement to **$8,050,000** of deferred compensation[19](index=19&type=chunk)[58](index=58&type=chunk)[60](index=60&type=chunk) - The merger consideration for Calidi securityholders is based on an equity value of **$250,000,000**, subject to adjustments and potential escalation shares based on future stock price targets (**$12.00, $14.00, $16.00, $18.00**)[43](index=43&type=chunk)[44](index=44&type=chunk)[66](index=66&type=chunk) - Up to **2 million shares** of New Calidi Common Stock will be made available to non-redeeming FLAG public stockholders on a pro rata basis at Closing as an incentive[23](index=23&type=chunk) [NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=NOTE%202.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Outlines significant accounting policies, including basis of presentation, emerging growth company status, use of estimates, cash, common stock subject to redemption, income taxes, earnings per share, fair value, and derivative financial instruments - The Company is an 'emerging growth company' and has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards[90](index=90&type=chunk)[112](index=112&type=chunk) - Class A common stock subject to possible redemption is classified as temporary equity and its carrying value is adjusted to equal the redemption value at the end of each reporting period[95](index=95&type=chunk)[116](index=116&type=chunk) - Warrants are classified as liability instruments and measured at fair value, with changes in fair value recorded in the statement of operations[101](index=101&type=chunk)[152](index=152&type=chunk)[170](index=170&type=chunk) - Contingent interest liability is treated as an embedded derivative, bifurcated, and accounted for at fair value with changes recognized in the statement of operations[153](index=153&type=chunk)[189](index=189&type=chunk) - A full valuation allowance is recorded against net deferred tax assets due to the uncertainty of realizing a benefit from net operating losses[70](index=70&type=chunk)[179](index=179&type=chunk) [NOTE 3. INITIAL PUBLIC OFFERING](index=16&type=section&id=NOTE%203.%20INITIAL%20PUBLIC%20OFFERING) Describes the IPO completed on September 14, 2021, where the company sold 23,000,000 units at $10.00 each, generating $230,000,000 in gross proceeds, with significant offering costs - The Company consummated its IPO on September 14, 2021, selling **23,000,000 Units** at **$10.00 per Unit**, generating gross proceeds of **$230,000,000**[38](index=38&type=chunk)[127](index=127&type=chunk)[213](index=213&type=chunk) IPO Offering Costs | Item | Amount | | :---------------------------------- | :------------ | | Underwriting discount | $2,335,058 | | Deferred underwriting discount | $8,050,000 | | Actual offering costs | $640,129 | | Excess fair value of Founder Shares | $11,491,877 | | Total Offering Costs | $22,517,064 | - An aggregate of **$10.00 per Unit** sold in the IPO was held in the Trust Account[182](index=182&type=chunk) [NOTE 4. PRIVATE PLACEMENT](index=16&type=section&id=NOTE%204.%20PRIVATE%20PLACEMENT) Details the private placement of 3,397,155 Private Placement Warrants to the Sponsor and Metric for $1.50 each, generating $5,095,733, with proceeds added to the Trust Account - The Company consummated the private placement of **3,397,155 Private Placement Warrants** at **$1.50 per warrant** to the Sponsor and Metric, generating **$5,095,733**[38](index=38&type=chunk)[81](index=81&type=chunk)[129](index=129&type=chunk) - A portion of the proceeds from the Private Placement Warrants was added to the proceeds from the IPO held in the Trust Account[129](index=129&type=chunk) [NOTE 5. RELATED PARTY TRANSACTIONS](index=16&type=section&id=NOTE%205.%20RELATED%20PARTY%20TRANSACTIONS) Covers transactions with related parties, including the initial purchase of Founder Shares, promissory notes, and an administrative support agreement, highlighting the cancellation of $490,000 in promissory notes from the Sponsor and Metric, treated as a capital contribution - The Sponsor and Metric purchased **5,750,000 Founder Shares** for an aggregate purchase price of **$25,000**[210](index=210&type=chunk) - The Sponsor and Metric cancelled **$490,000 in promissory notes** on April 5, 2023, which was treated as a capital contribution and recorded to additional paid-in capital[56](index=56&type=chunk)[132](index=132&type=chunk) - The Company entered into promissory note agreements with various parties for an aggregate borrowing capacity of **$1,490,000**, including zero-interest, 50% per annum, and 100% contingent interest notes[57](index=57&type=chunk)[162](index=162&type=chunk) - The Company pays an affiliate of the Sponsor **$10,000 per month** for office space and administrative support[55](index=55&type=chunk)[134](index=134&type=chunk) [NOTE 6. STOCKHOLDERS' EQUITY](index=18&type=section&id=NOTE%206.%20STOCKHOLDERS%27%20EQUITY) Details authorized and outstanding shares of preferred stock, Class A common stock, and Class B common stock, including the redemption of 18,871,976 Class A shares and the conversion terms of Founder Shares - **18,871,976 shares of Class A common stock** were redeemed on September 19, 2022, reducing outstanding redeemable Class A common stock to **4,128,024**[39](index=39&type=chunk)[116](index=116&type=chunk)[135](index=135&type=chunk) - **5,750,000 shares of Class B common stock (Founder Shares)** were issued and outstanding, which will automatically convert into Class A common stock on a one-for-one basis upon consummation of a Business Combination, subject to certain adjustments[130](index=130&type=chunk)[136](index=136&type=chunk)[165](index=165&type=chunk) - No preferred shares were issued or outstanding as of June 30, 2023, and December 31, 2022[164](index=164&type=chunk) [NOTE 7. WARRANTS](index=18&type=section&id=NOTE%207.%20WARRANTS) Describes terms and conditions of Public Warrants and Private Placement Warrants, including exercise prices, exercisability, redemption triggers, anti-dilution adjustments, and accounting treatment as liability instruments - Public Warrants become exercisable on the later of **12 months from the IPO closing** or **30 days after the completion of a Business Combination**, with an exercise price of **$11.50 per share**[137](index=137&type=chunk) - The Company may redeem Public Warrants at **$0.01 per warrant** if the Class A common stock price equals or exceeds **$18.00** for **20 trading days** within a **30-trading day period**[168](index=168&type=chunk) - The Company may redeem Public Warrants at **$0.10 per warrant** if the Class A common stock price equals or exceeds **$10.00**, provided holders can exercise on a cashless basis prior to redemption[185](index=185&type=chunk) - Private Placement Warrants are non-transferable/non-assignable until **30 days after a Business Combination**, exercisable for cash or cashless, and non-redeemable if held by initial purchasers or permitted transferees[198](index=198&type=chunk)[223](index=223&type=chunk) - All warrants are classified as liability instruments and are subject to re-measurement at fair value at each balance sheet date, with changes recognized in the statement of operations[141](index=141&type=chunk)[170](index=170&type=chunk) [NOTE 8. COMMITMENTS AND CONTINGENCIES](index=20&type=section&id=NOTE%208.%20COMMITMENTS%20AND%20CONTINGENCIES) Outlines the company's commitments and contingencies, including registration and shareholder rights, underwriter agreements, and the forward purchase agreement, noting the underwriter waived its deferred fee and Franklin is not obligated to purchase forward purchase shares for the Calidi business combination - Holders of founder shares and Private Placement Warrants are entitled to registration rights[59](index=59&type=chunk)[142](index=142&type=chunk) - The underwriter waived its right to the **$8,050,000 deferred underwriting fee** as of December 31, 2022[58](index=58&type=chunk)[60](index=60&type=chunk)[143](index=143&type=chunk) - The Company entered into a forward purchase agreement with Franklin Strategic Series for **5,000,000 shares of Class A common stock** plus **2,500,000 forward purchase warrants** for an aggregate purchase price of **$50,000,000**[62](index=62&type=chunk)[173](index=173&type=chunk) - Franklin is not obligated under its forward purchase agreement to purchase the forward purchase shares in connection with the Business Combination with Calidi[99](index=99&type=chunk)[202](index=202&type=chunk) [NOTE 9. FAIR VALUE MEASUREMENTS](index=21&type=section&id=NOTE%209.%20FAIR%20VALUE%20MEASUREMENTS) Provides details on fair value measurements of financial instruments, categorizing them into Level 1, Level 2, and Level 3 based on observability of inputs, highlighting the valuation of warrant liability, forward purchase units, and contingent interest liability - The Company categorizes fair value measurements into a three-tier hierarchy: **Level 1** (quoted prices in active markets), **Level 2** (observable inputs other than Level 1), and **Level 3** (unobservable inputs)[124](index=124&type=chunk) - Warrant liability, forward purchase units, and contingent interest liability are measured at fair value, with changes in fair value recognized in the statement of operations[145](index=145&type=chunk)[186](index=186&type=chunk)[189](index=189&type=chunk) Fair Value of Financial Instruments (June 30, 2023) | Item | Level 1 | Level 2 | Level 3 | | :------------------------------------ | :------------ | :--------- | :---------- | | **Assets:** | | | | | Marketable securities in trust account | $43,214,249 | — | — | | **Liabilities:** | | | | | Public Warrants | $1,495,000 | — | — | | Private Placement Warrants | — | $442,000 | — | | Forward Purchase Units | — | — | $2,645,604 | | Contingent Interest Liabilities | — | — | $273,448 | Changes in Fair Value of Level 3 Financial Instruments (Six Months Ended June 30, 2023) | Item | December 31, 2022 | Change in Fair Value | June 30, 2023 | | :------------------------------------ | :---------------- | :------------------- | :------------ | | Forward Purchase Units | $326,234 | $2,319,370 | $2,645,604 | | Contingent Interest Liability | $32,865 | $240,583 | $273,448 | [NOTE 10. INCOME TAX](index=23&type=section&id=NOTE%2010.%20INCOME%20TAX) Discusses the company's income tax provision and effective tax rate, noting a full valuation allowance against net deferred tax assets due to cumulative net losses and uncertainty of realizing benefits Income Tax Provision and Effective Tax Rate | Period | Tax Provision | Effective Tax Rate | | :------------------------------------ | :------------ | :----------------- | | Three months ended June 30, 2023 | $77,949 | 2.30% | | Six months ended June 30, 2023 | $143,424 | 1.91% | - The effective tax rates differ from the statutory rate of **21.0%** due to the change in fair value of warrants and a full valuation allowance on deferred tax assets[70](index=70&type=chunk) - A full valuation allowance was recorded against net deferred tax assets as of June 30, 2023, and December 31, 2022, due to the uncertainty of realizing benefits from those items[70](index=70&type=chunk) [NOTE 11. SUBSEQUENT EVENTS](index=23&type=section&id=NOTE%2011.%20SUBSEQUENT%20EVENTS) Notes the filing of a proxy statement/prospectus with the SEC on August 4, 2024, and the setting of the special stockholder meeting for August 22, 2023, to approve the Business Combination - On August 4, 2024, the Company filed a proxy statement/prospectus with the SEC[71](index=71&type=chunk) - The special stockholder meeting to approve the Business Combination has been set for August 22, 2023[71](index=71&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, including forward-looking statements, an overview of the proposed merger with Calidi, detailed analysis of financial performance, going concern considerations, contractual obligations, and critical accounting estimates [Special Note Regarding Forward-Looking Statements](index=24&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) Advises readers that the report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially from projections - This Quarterly Report includes 'forward-looking statements' that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected[73](index=73&type=chunk) [Overview](index=24&type=section&id=Overview) Provides a general overview of the company's status as a blank check company, its proposed merger with Calidi Biotherapeutics, and the various extensions and promissory notes used to fund operations and extensions - The Company is a blank check company formed to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination[79](index=79&type=chunk) - On January 9, 2023, the Company entered into an Agreement and Plan of Merger with Calidi Biotherapeutics, Inc[74](index=74&type=chunk) - The Company's completion window for a business combination was extended multiple times, most recently to September 14, 2023, with the Trust Account funded by the Sponsor for extensions[76](index=76&type=chunk) - Promissory notes were issued to fund extension fees, some with interest rates ranging from **50% to 100% per annum**, and **$490,000** in related party promissory notes were cancelled[77](index=77&type=chunk)[78](index=78&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Compares financial results for the three and six months ended June 30, 2023, and 2022, showing a significant shift from net income in 2022 to net losses in 2023, primarily driven by changes in fair value of warrant and forward purchase unit liabilities - The Company has not generated any operating revenues from inception through June 30, 2023[46](index=46&type=chunk) Net (Loss) Income Comparison | Period | Net (Loss) Income | | :------------------------------------ | :---------------- | | Three months ended June 30, 2023 | $(4.3) million | | Three months ended June 30, 2022 | $4.2 million | | Six months ended June 30, 2023 | $(6.5) million | | Six months ended June 30, 2022 | $5.6 million | - The net losses in 2023 were primarily due to increased operating costs and significant losses on the change in fair value of **forward purchase unit liability, contingent interest liability, and warrant liability**[47](index=47&type=chunk)[48](index=48&type=chunk) [Going Concern](index=26&type=section&id=Going%20Concern) Discusses the company's liquidity challenges, including a working capital deficit, and reliance on the Sponsor for working capital loans, raising substantial doubt about its ability to continue as a going concern Operating Cash and Working Capital Deficit | Metric | June 30, 2023 | December 31, 2022 | | :---------------------- | :------------ | :---------------- | | Operating cash | $669,867 | $93,892 | | Working capital deficit | $7,386,962 | $4,134,242 | - The Company's liquidity needs have been satisfied through payments from the Sponsor and Metric, the IPO, Private Placement Warrants, and unsecured promissory notes[52](index=52&type=chunk)[110](index=110&type=chunk) - The Company lacks the financial resources to sustain operations for a reasonable period (one year), raising substantial doubt about its ability to continue as a going concern[53](index=53&type=chunk)[54](index=54&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk) - The Sponsor is committed to extend Working Capital Loans as needed, although no formal agreement exists[53](index=53&type=chunk)[87](index=87&type=chunk) [Contractual Obligations](index=26&type=section&id=Contractual%20Obligations) Details the company's contractual obligations, primarily an administrative support fee and various promissory notes, and notes the waiver of the deferred underwriting discount - As of June 30, 2023, the Company had no long-term debt, capital lease obligations, operating lease obligations, or long-term liabilities other than an administrative support agreement[55](index=55&type=chunk) - The Company has an agreement to pay an affiliate of its sponsor a monthly fee of **$10,000** for office space and administrative support[55](index=55&type=chunk) - The Company had drawn down an aggregate of **$1,490,000** on Promissory Notes as of June 30, 2023, with varying interest terms[57](index=57&type=chunk) - The underwriter of the IPO waived its right to the **$8,050,000 deferred discount** as of December 31, 2022[58](index=58&type=chunk) [Critical Accounting Estimates](index=29&type=section&id=Critical%20Accounting%20Estimates) Identifies critical accounting estimates related to warrant liability, forward purchase units, and contingent interest liability, emphasizing their measurement at fair value with changes recognized in the statement of operations - Warrant liability is measured at fair value with changes in fair value recorded to the statement of operations[101](index=101&type=chunk) - Forward purchase units are accounted for as a liability-classified instrument at fair value, with changes in fair value recorded to the statement of operations[102](index=102&type=chunk) - Contingent interest liability is treated as an embedded derivative, bifurcated, and accounted for as a liability-classified instrument at fair value, with changes recorded to the statement of operations[189](index=189&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not required for smaller reporting companies - Quantitative and Qualitative Disclosures About Market Risk are not required for smaller reporting companies[216](index=216&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting, identifying material weaknesses and outlining remediation efforts [Evaluation of Disclosure Controls and Procedures](index=31&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2023, due to material weaknesses in internal control over financial reporting, specifically related to accounting for derivatives, cash flow statement presentation, troubled debt restructuring, and accrued expenses - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2023[219](index=219&type=chunk) - Material weaknesses were identified in internal controls over financial reporting related to accounting for derivatives, presentation of the statement of cash flows, evaluation and recording of troubled debt restructuring, and recording of accrued expenses[219](index=219&type=chunk) [Remediation Activities](index=31&type=section&id=Remediation%20Activities) The company is undertaking remediation activities, including additional post-closing review procedures, consulting with subject matter experts, and retaining an additional consultant to improve internal control over financial reporting - The Chief Financial Officer performed additional post-closing review procedures, including consulting with subject matter experts related to accounting for derivatives, marketable securities, debt, and accrued expenses[226](index=226&type=chunk) - Management has retained an additional consultant to provide further review and subject matter expertise[226](index=226&type=chunk) - The Company plans to continue enhancing review procedures for evaluating and implementing accounting standards, including through additional analyses by personnel and third-party professionals[226](index=226&type=chunk) [Changes in Internal Control over Financial Reporting](index=31&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2023, other than the previously discussed material weaknesses - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2023, other than the material weaknesses discussed[193](index=193&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) This section is not provided in the document, implying no material legal proceedings to report - No information regarding legal proceedings is provided in this section[217](index=217&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) Updates on risk factors, specifically highlighting the adverse impacts of developments in the financial services industry, such as bank failures, on the company's liquidity and ability to secure financing - There have been no material changes in risk factors from the Annual Report on Form 10-K, except for new risks related to adverse developments affecting the financial services industry[227](index=227&type=chunk) - Adverse developments in the financial services industry, including limited liquidity, defaults, or non-performance by financial institutions, could adversely affect the Company's liquidity and ability to acquire financing[194](index=194&type=chunk)[221](index=221&type=chunk)[228](index=228&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Reports the private placement of 3,397,155 Private Placement Warrants to the Sponsor and Metric for $5,095,733, issued under Section 4(a)(2) of the Securities Act - On September 14, 2021, the Company consummated the private placement of **3,397,155 Private Placement Warrants** to the Sponsor and Metric for total gross proceeds of **$5,095,733**[229](index=229&type=chunk) - The issuance of the Private Warrants was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended[229](index=229&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) States that there are no defaults upon senior securities - None[196](index=196&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that there are no mine safety disclosures - None[196](index=196&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) States that there is no other information to disclose - None[196](index=196&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) Provides a list of exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q, including amendments to the merger agreement, sponsor agreement, and certifications - The Exhibit Index includes the Amended and Restated Certificate of Incorporation, Bylaws, Amendment No. 2 to Agreement and Plan of Merger, Amendment No. 1 to Sponsor Agreement, Amendment No. 1 to Voting Agreement, and Certifications of the Chief Executive Officer and Chief Financial Officer[234](index=234&type=chunk) Signatures [Signatures](index=35&type=section&id=Signatures) Official signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report - The report was signed by Tom Vecchiolla, Chief Executive Officer, and Michael J. Alber, Chief Financial Officer, on August 21, 2023[240](index=240&type=chunk)[241](index=241&type=chunk)

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the quarter [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed financial statements for First Light Acquisition Group, Inc. for the quarter ended March 31, 2023, detailing balance sheets, statements of operations, changes in stockholders' deficit, cash flows, and related notes - The company is a **blank check company (SPAC)** formed for the purpose of effecting a Business Combination, with all activity through March 31, 2023, relating to its formation, IPO, and target identification[171](index=171&type=chunk)[34](index=34&type=chunk) - For the three months ended March 31, 2023, the company reported a **net loss of approximately $2.2 million**, primarily due to operating costs and losses from changes in fair value of liabilities[105](index=105&type=chunk) - The company's liquidity needs have been met through Sponsor payments, IPO proceeds, Private Placement Warrants, and promissory notes, but it still faces a **working capital deficit** and **'going concern' doubts**[106](index=106&type=chunk)[120](index=120&type=chunk)[205](index=205&type=chunk)[262](index=262&type=chunk) [Net (Loss) Income Comparison (Three Months Ended March 31)](index=3&type=section&id=Net%20(Loss)%20Income%20Comparison%20(Three%20Months%20Ended%20March%2031)) | Metric | 2023 Amount ($) | 2022 Amount ($) | | :------------ | :------------ | :---------- | | Net (Loss) Income | $(2,224,540) | $1,462,193 | [Operating Cash and Working Capital Deficit](index=3&type=section&id=Operating%20Cash%20and%20Working%20Capital%20Deficit) | Metric | March 31, 2023 Amount ($) | December 31, 2022 Amount ($) | | :---------------------- | :------------- | :---------------- | | Operating Cash | $82,828 | $93,892 | | Working Capital Deficit | $6,346,675 | $4,134,242 | [Condensed Balance Sheets](index=4&type=section&id=Condensed%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing total assets, liabilities, and stockholders' deficit at specific reporting dates [Condensed Balance Sheet Highlights](index=4&type=section&id=Condensed%20Balance%20Sheet%20Highlights) | Asset/Liability Category | March 31, 2023 (unaudited) Amount ($) | December 31, 2022 Amount ($) | | :----------------------- | :------------------------- | :---------------- | | Total Assets | $43,175,807 | $42,854,778 | | Total Liabilities | $8,152,716 | $5,607,147 | | Total Stockholders' Deficit | $(7,883,852) | $(5,205,476) | [Condensed Statements of Operations](index=5&type=section&id=Condensed%20Statements%20of%20Operations) This section presents the company's financial performance over specific periods, detailing revenues, expenses, and net income or loss [Condensed Statements of Operations Highlights (Three Months Ended March 31)](index=5&type=section&id=Condensed%20Statements%20of%20Operations%20Highlights%20(Three%20Months%20Ended%20March%2031)) | Metric | 2023 Amount ($) | 2022 Amount ($) | | :---------------------------------------------- | :------------ | :---------- | | Operating costs | $2,029,212 | $528,858 | | Loss from operations | $(2,029,212) | $(528,858) | | Unrealized gain on marketable securities | $27,986 | $2,266 | | Earnings on marketable securities | $425,850 | $16,505 | | Change in fair value of contingent interest liability | $(101,404) | — | | Change in fair value of warrant liability | $88,500 | $2,094,300 | | Change in fair value of forward purchase unit liability | $(554,443) | $(122,020) | | Net (loss) income | $(2,224,540) | $1,462,193 | | Basic and diluted net (loss) income per share, redeemable Class A common stock | $(0.16) | $0.05 | | Basic and diluted net (loss) income per share, non-redeemable Class B common stock | $(0.27) | $0.05 | [Condensed Statements of Changes in Class A Common Stock Subject to Possible Redemption and Stockholders' Deficit](index=6&type=section&id=Condensed%20Statements%20of%20Changes%20in%20Class%20A%20Common%20Stock%20Subject%20to%20Possible%20Redemption%20and%20Stockholders'%20Deficit) This section details the changes in the company's equity, specifically focusing on Class A common stock subject to redemption and the overall stockholders' deficit [Changes in Stockholders' Deficit (March 31, 2023)](index=6&type=section&id=Changes%20in%20Stockholders'%20Deficit%20(March%2031,%202023)) | Item | December 31, 2022 Amount ($) | Remeasurement of Class A common stock to redemption value Amount ($) | Net loss Amount ($) | March 31, 2023 (unaudited) Amount ($) | | :---------------------------------------------------------------- | :---------------- | :-------------------------------------------------------- | :------------ | :------------------------- | | Class A Subject to Possible Redemption Amount | $42,453,107 | $453,836 | — | $42,906,943 | | Accumulated Deficit | $(5,206,051) | $(453,836) | $(2,224,540) | $(7,884,427) | | Total Stockholders' Deficit | $(5,205,476) | $(453,836) | $(2,224,540) | $(7,883,852) | [Condensed Statements of Cash Flows](index=7&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) This section summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods [Condensed Statements of Cash Flows Highlights (Three Months Ended March 31)](index=7&type=section&id=Condensed%20Statements%20of%20Cash%20Flows%20Highlights%20(Three%20Months%20Ended%20March%2031)) | Cash Flow Activity | 2023 Amount ($) | 2022 Amount ($) | | :---------------------------------- | :------------ | :---------- | | Net cash (used in) provided by operating activities | $192,286 | $(465,131) | | Net cash (used in) provided by investing activities | $(425,850) | — | | Net cash provided by (used in) financing activities | $222,500 | — | | Net Change in Cash | $(11,064) | $(465,131) | | Cash – Ending | $82,828 | $597,522 | [Notes to Interim Condensed Financial Statements](index=8&type=section&id=Notes%20to%20Interim%20Condensed%20Financial%20Statements) This section provides detailed explanations and additional information supporting the interim condensed financial statements [NOTE 1. ORGANIZATION AND PLANS OF BUSINESS OPERATIONS](index=8&type=section&id=NOTE%201.%20ORGANIZATION%20AND%20PLANS%20OF%20BUSINESS%20OPERATIONS) First Light Acquisition Group, Inc. is a blank check company that completed its IPO in September 2021, extended its business combination deadline to June 14, 2023, and entered a merger agreement with Calidi Biotherapeutics, Inc., facing going concern doubts - The company was formed on March 24, 2021, as a **blank check company** to effect a Business Combination[171](index=171&type=chunk) - The IPO closed on September 14, 2021, raising **$230,000,000**, which was placed in a Trust Account[10](index=10&type=chunk)[199](index=199&type=chunk) - The completion window for a business combination was extended to **June 14, 2023**, with prior extensions funded by the Sponsor[11](index=11&type=chunk)[173](index=173&type=chunk) - On January 9, 2023, the company entered into a **Merger Agreement with Calidi Biotherapeutics, Inc.** for a proposed business combination, with an **equity value of Calidi at $250,000,000**, subject to adjustments[37](index=37&type=chunk)[38](index=38&type=chunk)[202](index=202&type=chunk) - The company's financial resources are **insufficient to sustain operations for one year**, leading to **substantial doubt about its going concern ability**, despite the Sponsor's commitment to extend Working Capital Loans[15](index=15&type=chunk)[42](index=42&type=chunk)[107](index=107&type=chunk)[120](index=120&type=chunk) [NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=NOTE%202.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details the company's significant accounting policies, covering interim financial statement presentation, estimates, emerging growth company status, cash, IPO costs, income taxes, Class A common stock redemption, earnings per share, fair value measurements, and derivative financial instruments - The unaudited condensed financial statements are prepared in accordance with **GAAP** for interim financial information and **SEC rules**, omitting certain disclosures for brevity[16](index=16&type=chunk) - The company is an **'emerging growth company'** and has elected not to opt out of the extended transition period for new or revised financial accounting standards[43](index=43&type=chunk)[74](index=74&type=chunk)[207](index=207&type=chunk) - Cash and cash equivalents include short-term investments with original maturities of three months or less; operating cash was **$82,828** as of March 31, 2023[18](index=18&type=chunk)[75](index=75&type=chunk) - Class A common stock subject to possible redemption is classified as **temporary equity** and measured at **redemption value**; as of March 31, 2023, **4,128,024 shares** were subject to possible redemption at **$42,906,943**[183](index=183&type=chunk)[46](index=46&type=chunk) - Derivative financial instruments, including warrants and contingent interest, are recorded as **liabilities at fair value**, with changes recognized in the statement of operations[81](index=81&type=chunk)[214](index=214&type=chunk)[228](index=228&type=chunk)[238](index=238&type=chunk) [NOTE 3. INITIAL PUBLIC OFFERING](index=16&type=section&id=NOTE%203.%20INITIAL%20PUBLIC%20OFFERING) The company completed its IPO on September 14, 2021, raising $230 million from 23 million units at $10.00 each, incurring $22.5 million in transaction costs, and the underwriter waived an $8.05 million deferred fee - The IPO was consummated on September 14, 2021, selling **23,000,000 Units** at **$10.00 per Unit**, generating **$230,000,000**[199](index=199&type=chunk)[217](index=217&type=chunk) - IPO transaction costs totaled **$22,517,064**, comprising underwriting discounts, offering costs, and excess fair value of Founder Shares[54](index=54&type=chunk)[76](index=76&type=chunk)[236](index=236&type=chunk) - The underwriter waived its **$8,050,000** deferred fee as of December 31, 2022[65](index=65&type=chunk)[122](index=122&type=chunk)[124](index=124&type=chunk)[200](index=200&type=chunk) [NOTE 4. PRIVATE PLACEMENT](index=16&type=section&id=NOTE%204.%20PRIVATE%20PLACEMENT) The Sponsor and Metric purchased 3,397,155 Private Placement Warrants at $1.50 each, generating $5.1 million, exercisable at $11.50 per share, with transfer restrictions and non-redeemability for initial holders - **3,397,155 Private Placement Warrants** were sold to the Sponsor and Metric at **$1.50 per warrant**, generating **$5,095,733**[85](index=85&type=chunk)[104](index=104&type=chunk)[142](index=142&type=chunk)[199](index=199&type=chunk) - Private Placement Warrants are exercisable at **$11.50 per share**, are not transferable until 30 days post-Business Combination, and are **non-redeemable** if held by initial purchasers or permitted transferees[85](index=85&type=chunk)[151](index=151&type=chunk)[250](index=250&type=chunk) [NOTE 5. RELATED PARTY TRANSACTIONS](index=16&type=section&id=NOTE%205.%20RELATED%20PARTY%20TRANSACTIONS) Related party transactions include the Sponsor and Metric's purchase of Founder Shares (20% of post-IPO shares), promissory notes totaling $990,000 with accrued interest, and monthly administrative support fees - The Sponsor and Metric purchased **5,750,000 Founder Shares** for **$25,000**, representing approximately **20%** of the company's issued and outstanding shares after the IPO[219](index=219&type=chunk)[242](index=242&type=chunk) - The company entered into promissory note agreements with the Sponsor and Metric for an aggregate of **$490,000**, which are **non-interest bearing** and payable upon a business combination or winding up[88](index=88&type=chunk)[108](index=108&type=chunk) - The company has drawn **$990,000** on promissory notes from various parties as of March 31, 2023, with accrued interest of **$73,158** and a contingent interest liability of **$134,269**[244](index=244&type=chunk)[264](index=264&type=chunk) - The company pays an affiliate of the Sponsor **$10,000 per month** for office space and administrative support[121](index=121&type=chunk)[245](index=245&type=chunk) [NOTE 6. STOCKHOLDERS' EQUITY](index=17&type=section&id=NOTE%206.%20STOCKHOLDERS'%20EQUITY) This note outlines the company's authorized and outstanding shares, including no preferred stock, 4,128,024 redeemable Class A common shares, and 5,750,000 Class B common shares outstanding as of March 31, 2023 - The company is authorized to issue **1,000,000 shares of preferred stock**, with **none issued or outstanding** as of March 31, 2023[223](index=223&type=chunk) - As of March 31, 2023, **4,128,024 shares of Class A common stock** were **subject to possible redemption**, with no non-redeemable Class A shares issued and outstanding[90](index=90&type=chunk) - **5,750,000 shares of Class B common stock** were issued and outstanding as of March 31, 2023, which **automatically convert to Class A common stock** upon a Business Combination[60](index=60&type=chunk)[246](index=246&type=chunk) [NOTE 7. WARRANTS](index=19&type=section&id=NOTE%207.%20WARRANTS) This note details the terms and accounting for the company's warrants, including exercisability, redemption conditions for Public Warrants, and their classification as liability instruments measured at fair value - Public Warrants become exercisable on the later of **12 months from IPO closing** or **30 days after a Business Combination**[225](index=225&type=chunk) - The company may redeem Public Warrants if the Class A common stock price equals or exceeds **$18.00 or $10.00**, under specific conditions[62](index=62&type=chunk)[92](index=92&type=chunk) - All **14,897,155 warrants** (Public and Private Placement) are accounted for as **liability-classified instruments at fair value**, with re-measurement changes recognized in the statement of operations[63](index=63&type=chunk)[128](index=128&type=chunk)[228](index=228&type=chunk)[254](index=254&type=chunk) [NOTE 8. COMMITMENTS AND CONTINGENCIES](index=21&type=section&id=NOTE%208.%20COMMITMENTS%20AND%20CONTINGENCIES) This note details the company's commitments and contingencies, including registration rights for Founder Shares and Private Placement Warrants, the underwriter's waived $8.05 million deferred fee, and the non-obligation of Franklin Strategic Series in the forward purchase agreement - Holders of Founder Shares and Private Placement Warrants are entitled to **registration rights** for resale of their securities[64](index=64&type=chunk)[123](index=123&type=chunk)[251](index=251&type=chunk) - The underwriter's deferred fee of **$8,050,000** was waived as of December 31, 2022[65](index=65&type=chunk)[122](index=122&type=chunk)[124](index=124&type=chunk)[200](index=200&type=chunk) - Franklin Strategic Series, a party to the forward purchase agreement, is **not obligated to purchase** the forward purchase shares in connection with the Calidi Business Combination[126](index=126&type=chunk)[231](index=231&type=chunk) [NOTE 9. FAIR VALUE MEASUREMENTS](index=22&type=section&id=NOTE%209.%20FAIR%20VALUE%20MEASUREMENTS) This note details the fair value measurements of financial assets and liabilities using a three-tier hierarchy, classifying marketable securities and Public Warrants as Level 1, Private Placement Warrants as Level 2, and Forward Purchase Units and Contingent Interest Liabilities as Level 3 - Fair value is defined as the **price received for an asset or paid to transfer a liability** in an orderly transaction[50](index=50&type=chunk) - The fair value hierarchy prioritizes inputs: **Level 1** (quoted prices in active markets), **Level 2** (observable inputs other than quoted prices), and **Level 3** (unobservable inputs)[50](index=50&type=chunk) [Fair Value Hierarchy of Financial Assets and Liabilities (March 31, 2023)](index=22&type=section&id=Fair%20Value%20Hierarchy%20of%20Financial%20Assets%20and%20Liabilities%20(March%2031,%202023)) | Item | Level 1 Amount ($) | Level 2 Amount ($) | Level 3 Amount ($) | | :--------------------------------------- | :------------ | :--------- | :--------- | | Marketable securities held in trust account | $42,906,943 | $— | $— | | Public Warrants | $517,500 | $— | $— | | Private Placement Warrants | $— | $139,000 | $— | | Forward Purchase Units | $— | $— | $880,677 | | Contingent Interest Liabilities | $— | $— | $134,269 | - The valuation of Forward Purchase Units and Contingent Interest Liability relies on **Level 3 inputs**, including the **estimated probability of an acquisition occurring**[70](index=70&type=chunk)[101](index=101&type=chunk)[116](index=116&type=chunk)[129](index=129&type=chunk)[134](index=134&type=chunk)[258](index=258&type=chunk) [NOTE 10. INCOME TAX](index=24&type=section&id=NOTE%2010.%20INCOME%20TAX) The company recorded a $65,475 tax provision for the three months ended March 31, 2023, resulting in an effective tax rate of (3.03)%, primarily due to warrant fair value changes and a full valuation allowance on deferred tax assets - A tax provision of **$65,475** was recorded for the three months ended March 31, 2023, with an effective tax rate of **(3.03)%**[234](index=234&type=chunk) - The effective tax rate differs from the statutory rate of **21.0%** primarily due to changes in the fair value of warrants and a **full valuation allowance on deferred tax assets**[234](index=234&type=chunk)[258](index=258&type=chunk) - The company has recorded a **full valuation allowance** against net deferred tax assets due to a history of **cumulative net losses** and uncertainty in realizing future tax benefits[258](index=258&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of the company's financial condition and operational results, addressing its blank check company status, net loss, liquidity challenges, going concern uncertainty, contractual obligations, and critical accounting estimates - The company is a **blank check company** whose entire activity from inception through March 31, 2023, relates to its formation, IPO, and search for a Business Combination candidate[119](index=119&type=chunk)[237](index=237&type=chunk) - For the three months ended March 31, 2023, the company reported a **net loss of approximately $2.2 million**, primarily due to operating costs and losses from changes in fair value of liabilities[105](index=105&type=chunk) - The company's liquidity needs have been met through Sponsor payments, IPO proceeds, Private Placement Warrants, and promissory notes, but it still faces a **working capital deficit** and **'going concern' doubts**[106](index=106&type=chunk)[120](index=120&type=chunk)[205](index=205&type=chunk)[262](index=262&type=chunk) [Special Note Regarding Forward-Looking Statements](index=25&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section cautions readers that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report contains **forward-looking statements** that involve **risks and uncertainties**, which could cause actual results to differ materially from expectations[259](index=259&type=chunk) - The company **disclaims any obligation to update or revise** forward-looking statements unless required by applicable securities law[259](index=259&type=chunk) [Overview](index=25&type=section&id=Overview) This section provides a brief introduction to First Light Acquisition Group, Inc. as a blank check company and its primary activities since inception - First Light Acquisition Group, Inc. is a **blank check company** formed to effect a business combination[119](index=119&type=chunk) - The company consummated its IPO on September 14, 2021, raising **$230 million**, and incurred offering costs of approximately **$22.5 million**[236](index=236&type=chunk) - Proceeds from the IPO and Private Placement Warrants were placed in a **Trust Account**, to be invested in **U.S. government securities** until a business combination or redemption[260](index=260&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance for the reporting period, detailing key revenue and expense items contributing to net income or loss [Net (Loss) Income Breakdown (Three Months Ended March 31, 2023)](index=26&type=section&id=Net%20(Loss)%20Income%20Breakdown%20(Three%20Months%20Ended%20March%2031,%202023)) | Item | Amount ($) | | :-------------------------------------------- | :------------ | | Net loss | $(2.2) million | | Operating costs | $2.1 million | | Loss on change in fair value of forward purchase unit liability | $0.6 million | | Loss on change in fair value of contingent interest liability | $0.1 million | | Provision for income taxes | $0.1 million | | Gain on change in fair value of warrant liability | $0.1 million | | Earnings and unrealized gain on marketable securities | $0.5 million | [Net Income Breakdown (Three Months Ended March 31, 2022)](index=26&type=section&id=Net%20Income%20Breakdown%20(Three%20Months%20Ended%20March%2031,%202022)) | Item | Amount ($) | | :-------------------------------------------- | :------------ | | Net income | $1.5 million | | Operating costs | $0.5 million | | Loss on change in fair value of forward purchase unit liability | $0.1 million | | Gain on change in fair value of warrant liability | $2.1 million | | Interest income and unrealized gain on marketable securities | Offset by | [Going Concern](index=26&type=section&id=Going%20Concern) This section addresses the company's ability to continue operations for the foreseeable future, given its financial resources and operational challenges - The company has incurred **significant costs** and **lacks sufficient financial resources** to sustain operations for one year, raising **substantial doubt about its ability to continue as a going concern**[120](index=120&type=chunk)[107](index=107&type=chunk) - The Sponsor is **committed to extending Working Capital Loans** as needed, but the success of a Business Combination is **not assured**[120](index=120&type=chunk) - Management is evaluating the impact of **macro-economic factors** like the Russia-Ukraine war, rising interest rates, and inflation on the company's financial position and search for a target[120](index=120&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by Sponsor payments, IPO proceeds, Private Placement Warrants, and promissory notes, yet it faces a $6.3 million working capital deficit with $82,828 operating cash as of March 31, 2023 - Liquidity needs have been satisfied through Sponsor payments (**$25,000** for Class B common stock), IPO proceeds, Private Placement Warrants, and unsecured promissory notes[205](index=205&type=chunk)[262](index=262&type=chunk) [Operating Cash and Working Capital Deficit](index=26&type=section&id=Operating%20Cash%20and%20Working%20Capital%20Deficit) | Metric | March 31, 2023 Amount ($) | December 31, 2022 Amount ($) | | :---------------------- | :------------- | :---------------- | | Operating Cash | $82,828 | $93,892 | | Working Capital Deficit | $6,346,675 | $4,134,242 | - The company has drawn an aggregate of **$990,000** on promissory notes as of March 31, 2023, with accrued interest of **$73,158** and a contingent interest liability of **$134,269**[264](index=264&type=chunk) [Contractual Obligations](index=26&type=section&id=Contractual%20Obligations) The company has no long-term debt or lease obligations as of March 31, 2023, apart from a $10,000 monthly administrative fee to an affiliate, and the underwriter's $8.05 million deferred fee was waived - The company has **no long-term debt**, capital lease obligations, operating lease obligations, or **long-term liabilities** as of March 31, 2023[121](index=121&type=chunk) - A monthly fee of **$10,000 per month** is paid to an affiliate of the sponsor for office space and administrative support, commencing September 13, 2021[121](index=121&type=chunk) - The underwriter waived its right to the deferred fee of **$8,050,000** as of December 31, 2022[122](index=122&type=chunk)[124](index=124&type=chunk) [Critical Accounting Estimates](index=28&type=section&id=Critical%20Accounting%20Estimates) This section highlights critical accounting estimates, including the fair value valuation of Warrant Liability, Forward Purchase Units, and Contingent Interest Liability, which are classified as liability instruments and involve complex Level 3 inputs - Management's estimates and assumptions are **critical** in preparing financial statements, and actual results may **differ materially**[127](index=127&type=chunk) - Warrant Liability, Forward Purchase Units, and Contingent Interest Liability are classified as **liability instruments** and **measured at fair value**, with changes recognized in the statement of operations[128](index=128&type=chunk)[129](index=129&type=chunk)[134](index=134&type=chunk) - The valuation of Forward Purchase Units and Contingent Interest Liability are classified as **Level 3 measurements**, relying on **unobservable inputs** like the probability and timing of an acquisition[129](index=129&type=chunk)[134](index=134&type=chunk) [Recent Accounting Pronouncements](index=29&type=section&id=Recent%20Accounting%20Pronouncements) The company is assessing the impact of ASU No. 2020-06, effective after December 15, 2023, which simplifies convertible instrument accounting, while other recent pronouncements are not expected to have a material effect - The company is assessing the impact of **ASU No. 2020-06**, **effective for fiscal years beginning after December 15, 2023**, which simplifies accounting for convertible instruments[216](index=216&type=chunk) - Management does **not believe other recent accounting pronouncements would materially affect** the company's condensed financial statements[83](index=83&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This disclosure is not required for First Light Acquisition Group, Inc. as it qualifies as a smaller reporting company - This disclosure is **not required** for **smaller reporting companies**[135](index=135&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) As of March 31, 2023, the company's disclosure controls and procedures were ineffective due to a material weakness in internal control over financial reporting related to derivatives and cash flow, with remediation efforts underway - Disclosure controls and procedures were **not effective** as of March 31, 2023, due to a **material weakness in internal control over financial reporting**[137](index=137&type=chunk) - The material weakness is related to the **accounting for derivatives and presentation of cash flows**, attributed to a **lack of sufficient trained professionals**[137](index=137&type=chunk) - **Remediation activities** include additional post-closing review procedures, **consulting subject matter experts**, and **retaining additional consultants** to enhance review processes for complex accounting standards[138](index=138&type=chunk) [PART II. OTHER INFORMATION](index=30&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, details on unregistered equity sales, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) No material changes in legal proceedings have occurred since the Annual Report on Form 10-K for the year ended December 31, 2022 - **No material changes** in legal proceedings since the Annual Report on Form 10-K for the year ended December 31, 2022[140](index=140&type=chunk) [Item 1A. Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported, except for new concerns regarding adverse developments in the financial services industry, which could impact liquidity and financing for a business combination - **No material changes** in risk factors from the Annual Report on Form 10-K, except for new concerns regarding **adverse developments in the financial services industry**[140](index=140&type=chunk) - Adverse developments in the financial services industry, such as bank failures, could lead to **less favorable financing terms**, **tighter credit**, and **systemic limitations on liquidity**, potentially impacting the company's ability to secure financing for a business combination[141](index=141&type=chunk)[149](index=149&type=chunk) - The company's cash accounts **exceed FDIC insurance limits**, and while it did not have funds in recently closed banks (Silicon Valley Bank, First Republic Bank, Signature Bank), it **cannot guarantee its banks won't face similar issues**[149](index=149&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the private placement of 3,397,155 Private Placement Warrants to the Sponsor and Metric, generating $5.1 million, with transfer restrictions and non-redeemability, issued under Section 4(a)(2) of the Securities Act - **3,397,155 Private Placement Warrants** were sold to the Sponsor and Metric at **$1.50 per warrant**, generating **$5,095,733**[142](index=142&type=chunk) - The Private Placement Warrants are identical to Public Warrants but are **not transferable** until 30 days after a Business Combination and are **non-redeemable** if held by initial purchasers or permitted transferees[151](index=151&type=chunk) - The issuance of Private Warrants was made pursuant to the **exemption from registration** contained in **Section 4(a)(2) of the Securities Act of 1933**[142](index=142&type=chunk) [Item 3. Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported in this period - **No defaults** upon senior securities[153](index=153&type=chunk) [Item 4. Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No mine safety disclosures were reported in this period - **No mine safety disclosures**[154](index=154&type=chunk) [Item 5. Other Information](index=32&type=section&id=Item%205.%20Other%20Information) No other information is reported in this section - **No other information** to report[152](index=152&type=chunk) [Item 6. Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with or incorporated by reference into this Quarterly Report on Form 10-Q, including organizational documents, merger agreements, and certifications - The exhibit index lists various documents, including the **Amended and Restated Certificate of Incorporation**, **Merger Agreement**, **Sponsor Agreement**, **Registration Rights Agreement**, and **Voting and Lock-Up Agreements**[144](index=144&type=chunk) - **Certifications** from the Chief Executive Officer and Chief Financial Officer pursuant to the **Sarbanes-Oxley Act of 2002** are included[144](index=144&type=chunk) [Signatures](index=34&type=section&id=Signatures) The report is duly signed by First Light Acquisition Group, Inc.'s Chief Executive Officer, Tom Vecchiolla, and Chief Financial Officer, Michael J. Alber, on May 15, 2023 - The report is signed by **Tom Vecchiolla, Chief Executive Officer**, and **Michael J. Alber, Chief Financial Officer**, on **May 15, 2023**[148](index=148&type=chunk)[159](index=159&type=chunk)

PART I This part covers the company's business operations, associated risks, and other foundational disclosures. [Business Overview](index=6&type=section&id=Item%201.%20Business) FLAG is a blank check company with no operations, focused on identifying and completing an initial business combination, and has entered a merger agreement with Calidi Biotherapeutics. [Company Overview](index=6&type=section&id=Overview) Details the company's formation, purpose as a blank check company, and its status as a shell company. - FLAG was formed on March 24, 2021, as a Delaware corporation, solely to effect a business combination[498](index=498&type=chunk)[451](index=451&type=chunk) - The company has not commenced operations, with activities focused on formation, IPO, and business combination search through December 31, 2022[498](index=498&type=chunk)[475](index=475&type=chunk) - FLAG is classified as a **"shell company"** under the Exchange Act due to its lack of operations and cash-based assets[498](index=498&type=chunk) [Business Strategy](index=10&type=section&id=Business%20Strategy) Outlines FLAG's approach to identifying and transacting with target companies in core markets. - FLAG's business strategy is to identify and transact with companies in core markets where its team has significant operational and investment experience and deep relationships[79](index=79&type=chunk) - The company aims to leverage its experienced team's "know-how" and additional capital to benefit prospective combination partners and create long-term value for stockholders[79](index=79&type=chunk)[511](index=511&type=chunk) [Investment Criteria](index=11&type=section&id=Investment%20Criteria) Specifies the key characteristics FLAG seeks in potential business combination partners. - Proprietary technologies and market-disruptive applications with multiple use-cases - Solutions in large, identifiable, and fast-growing end markets - Strong, visionary management and leadership teams - Demonstrated success or on the precipice of achieving success in core markets that extend to adjacent markets - Ability to benefit from U.S. domicile to expand market share and customer base - Defensible market positions or ability to create markets with high barriers to entry - Valuations attractive relative to comparable publicly traded companies, positioned for further value creation post-closing[80](index=80&type=chunk) [Initial Business Combination](index=11&type=section&id=Initial%20Business%20Combination) Describes the requirements and anticipated structure for FLAG's initial business combination. - An initial business combination must involve one or more target businesses with an aggregate fair market value equal to at least **80%** of FLAG's assets held in the Trust Account[82](index=82&type=chunk) - FLAG anticipates structuring the combination to own or acquire **100%** of the target's equity interests or assets, but may acquire less than **100%** if it secures a controlling interest (**50%** or more of voting securities)[85](index=85&type=chunk)[86](index=86&type=chunk) - The company intends to effectuate its initial business combination using cash from the IPO proceeds, private placement warrants, sale of shares/warrants, shares issued to target owners, debt, or a combination[88](index=88&type=chunk) [Effecting Our Initial Business Combination](index=12&type=section&id=Effecting%20Our%20Initial%20Business%20Combination) Explains the due diligence process and potential challenges in completing a business combination. - FLAG conducts thorough due diligence, including meetings with management, document reviews, customer/supplier interviews, and facility inspections[95](index=95&type=chunk) - Costs incurred for identifying and evaluating prospective target businesses that are not ultimately completed will result in losses and reduce funds for other combinations[96](index=96&type=chunk) - FLAG's success may depend entirely on the future performance of a single business due to limited diversification resources[58](index=58&type=chunk)[59](index=59&type=chunk) [Permitted Purchases and Other Transactions with Respect to Our Securities](index=15&type=section&id=Permitted%20Purchases%20and%20Other%20Transactions%20with%20Respect%20to%20Our%20Securities) Discusses potential purchases of securities by insiders to influence votes or meet closing conditions. - Initial stockholders, directors, officers, advisors, or their affiliates may purchase public shares or warrants in privately negotiated transactions or the open market to influence votes or meet closing conditions[67](index=67&type=chunk)[71](index=71&type=chunk) - Such purchases would not use funds from the Trust Account and would comply with Regulation M and other federal securities laws[67](index=67&type=chunk)[73](index=73&type=chunk) - Any such purchases could reduce the public "float" and number of beneficial holders, potentially affecting the listing or trading of securities on a national exchange[72](index=72&type=chunk) [Redemption Rights for Public Stockholders upon Completion of Our Initial Business Combination](index=17&type=section&id=Redemption%20Rights%20for%20Public%20Stockholders%20upon%20Completion%20of%20Our%20Initial%20Business%20Combination) Explains public stockholders' right to redeem shares upon business combination completion. - Public stockholders have the right to redeem all or a portion of their Class A common stock upon the consummation of an initial business combination at a per-share price equal to the aggregate amount in the Trust Account[35](index=35&type=chunk) - Sponsor, officers, directors, and Metric have waived their redemption rights for founder shares and any public shares acquired during/after the IPO in connection with the business combination[35](index=35&type=chunk) - Anchor investors have also waived redemption rights for their founder shares[35](index=35&type=chunk) [Limitations on Redemptions](index=18&type=section&id=Limitations%20on%20Redemptions) Details conditions that may restrict public stockholders from redeeming their shares. - FLAG will not redeem public shares if it would cause net tangible assets to be less than **$5,000,001** upon consummation of the initial business combination[137](index=137&type=chunk) - If aggregate cash required for redemptions plus cash conditions of the business combination exceed available cash, the business combination will not be completed, and no shares will be redeemed[137](index=137&type=chunk) [Manner of Conducting Redemptions](index=18&type=section&id=Manner%20of%20Conducting%20Redemptions) Describes the methods for public stockholders to exercise their redemption rights. - Redemptions can occur either in connection with a stockholder meeting to approve the business combination (as with Calidi) or by means of a tender offer[138](index=138&type=chunk) - The decision on seeking stockholder approval or conducting a tender offer is at the company's discretion, based on transaction timing and legal/listing requirements[138](index=138&type=chunk) - If a tender offer is used, it will remain open for at least **20 business days** and is conditioned on public stockholders not tendering more shares than permitted[45](index=45&type=chunk) [Limitation on Redemption upon Completion of Our Initial Business Combination If We Seek Stockholder Approval](index=20&type=section&id=Limitation%20on%20Redemption%20upon%20Completion%20of%20Our%20Initial%20Business%20Combination%20If%20We%20Seek%20Stockholder%20Approval) Addresses restrictions on large redemptions when stockholder approval is sought. - Public stockholders are restricted from redeeming more than an aggregate of **15%** of public shares without prior consent, to discourage large block holders from using redemption rights to force premium purchases[529](index=529&type=chunk) - This restriction aims to limit the ability of a small group of stockholders to block a business combination, especially if a minimum net worth or cash condition is required[529](index=529&type=chunk) [Tendering Share Certificates in Connection with a Tender Offer or Redemption Rights](index=20&type=section&id=Tendering%20Share%20Certificates%20in%20Connection%20with%20a%20Tender%20Offer%20or%20Redemption%20Rights) Explains the requirement for stockholders to tender certificates for redemption. - Public stockholders exercising redemption rights must tender their stock certificates or deliver shares electronically via DWAC system prior to the specified date in proxy or tender offer materials[553](index=553&type=chunk) - This requirement ensures a redeeming stockholder's election to redeem is irrevocable once the business combination is approved, unlike previous procedures that allowed an "option window"[555](index=555&type=chunk) [Redemption of Public Shares and Liquidation If No Initial Business Combination](index=21&type=section&id=Redemption%20of%20Public%20Shares%20and%20Liquidation%20If%20No%20Initial%20Business%20Combination) Describes the process for redeeming public shares and liquidating if no business combination is completed. - If FLAG fails to complete an initial business combination within **15 months** (or up to **24 months** with extensions) from the IPO closing, it will cease operations, redeem **100%** of public shares, and liquidate[3](index=3&type=chunk)[557](index=557&type=chunk)[596](index=596&type=chunk) - Public shares will be redeemed at a per-share price equal to the aggregate amount in the Trust Account, including interest (less taxes and dissolution expenses); warrants will expire worthless[3](index=3&type=chunk)[596](index=596&type=chunk) - Sponsor, officers, directors, Metric, and anchor investors have waived rights to liquidating distributions from the Trust Account for founder shares if no business combination is completed[534](index=534&type=chunk) [Human Capital/Employees](index=25&type=section&id=Human%20Capital%2FEmployees) Provides information on the company's current staffing and future employment plans. - The company currently has two officers and does not intend to have any full-time employees prior to the consummation of its initial business combination[589](index=589&type=chunk) - Officers are not obligated to devote specific hours but intend to dedicate necessary time to company affairs until a business combination is completed[589](index=589&type=chunk) [Facilities](index=25&type=section&id=Facilities) Details the company's executive office location and associated costs. - FLAG's executive offices are located at 11110 Sunset Hills Road 2278, Reston, VA 20190[8](index=8&type=chunk) - The cost for this location is included in a **$10,000 per month** fee paid to the sponsor for administrative support and services[8](index=8&type=chunk) [Competition](index=25&type=section&id=Competition) Discusses the competitive landscape FLAG faces in identifying business combination targets. - FLAG faces intense competition from other blank check companies, private equity groups, leveraged buyout funds, and operating businesses seeking strategic acquisitions[9](index=9&type=chunk) - Many competitors possess greater financial, technical, human, and other resources, potentially placing FLAG at a competitive disadvantage[9](index=9&type=chunk) [Emerging Growth Company and Smaller Reporting Company](index=26&type=section&id=Emerging%20Growth%20Company%20and%20Smaller%20Reporting%20Company) Explains the regulatory classifications and reduced disclosure obligations for FLAG. - FLAG is an **"emerging growth company"** and **"smaller reporting company,"** allowing it to take advantage of reduced disclosure obligations, such as not complying with auditor attestation requirements of Sarbanes-Oxley Act Section 404 and reduced executive compensation disclosures[10](index=10&type=chunk)[590](index=590&type=chunk)[591](index=591&type=chunk)[564](index=564&type=chunk) - The company intends to use the extended transition period for complying with new or revised accounting standards, which may make financial statement comparisons with other public companies difficult[541](index=541&type=chunk)[188](index=188&type=chunk)[457](index=457&type=chunk) [Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks that could materially harm FLAG's business, operating results, and financial condition. - FLAG is a recently incorporated company with no operating history or revenues, making it difficult for investors to evaluate its ability to achieve its business objective[11](index=11&type=chunk)[159](index=159&type=chunk) - The company's independent registered public accounting firm's report contains an explanatory paragraph expressing substantial doubt about its ability to continue as a **"going concern"**[12](index=12&type=chunk)[161](index=161&type=chunk) - A material weakness in internal control over financial reporting was identified for the year ended December 31, 2022, related to accounting for derivatives and cash flow statement presentation[12](index=12&type=chunk)[52](index=52&type=chunk) [Summary of Risk Factors](index=26&type=section&id=Summary%20of%20Risk%20Factors) Provides a high-level overview of the most significant risks facing the company. - No operating history and no revenues, making evaluation of business objective difficult - Potential conflicts of interest for sponsor, officers, and directors due to their investment and other business affiliations - Substantial doubt about the company's ability to continue as a **"going concern"** - Identified material weakness in internal control over financial reporting related to derivatives accounting and cash flow presentation - Geopolitical conditions (e.g., Russia-Ukraine conflict) and macroeconomic factors (e.g., rising interest rates, inflation) could adversely impact business combination search[11](index=11&type=chunk)[12](index=12&type=chunk)[159](index=159&type=chunk)[161](index=161&type=chunk)[593](index=593&type=chunk)[154](index=154&type=chunk) [Risks Relating to The Business Combination with Calidi](index=28&type=section&id=Risks%20Relating%20to%20The%20Business%20Combination%20with%20Calidi) Outlines specific risks associated with the proposed merger with Calidi Biotherapeutics. - The Merger Agreement includes a minimum cash condition, which may make it more difficult to complete the Business Combination with Calidi[567](index=567&type=chunk) - If the Business Combination's benefits do not meet investor expectations, the market price of New Calidi's securities may decline, and historical trading prices of FLAG Class A common stock may not be indicative of future prices[15](index=15&type=chunk)[597](index=597&type=chunk) - FLAG stockholders will experience dilution due to the issuance of Class A common stock as Merger Consideration and potential PIPE Investment, reducing their influence on New Calidi's management[601](index=601&type=chunk) - The release of Escalation Shares to Calidi Stockholders is tied to New Calidi Common Stock trading price targets over a **five-year period**, creating uncertainty about their value at closing[599](index=599&type=chunk) [Risks Related to Our Business](index=33&type=section&id=Risks%20Related%20to%20Our%20Business) Details risks inherent to FLAG's operations as a blank check company. - Public stockholders may not have an opportunity to vote on the proposed initial business combination, allowing it to be completed even if a majority of public stockholders do not support it[576](index=576&type=chunk) - If non-Trust Account proceeds are insufficient to operate until the completion window expires, FLAG may be unable to complete a business combination, leading to public stockholders receiving less than **$10.00 per share** and warrants expiring worthless[574](index=574&type=chunk) - Third-party claims against FLAG could reduce the Trust Account proceeds, resulting in a per-share redemption amount less than **$10.00** for public stockholders[26](index=26&type=chunk)[48](index=48&type=chunk) - If deemed an investment company under the Investment Company Act, FLAG would face burdensome compliance requirements and restricted activities, hindering business combination completion[580](index=580&type=chunk)[608](index=608&type=chunk) - FLAG may be subject to a new **1%** U.S. federal excise tax on stock redemptions, which could reduce the cash available for distribution in a subsequent liquidation[76](index=76&type=chunk)[77](index=77&type=chunk) - A material weakness in internal control over financial reporting was identified, which could limit the ability to prevent or detect misstatements and adversely affect investor confidence[52](index=52&type=chunk)[53](index=53&type=chunk) [Risks Relating to Our Management](index=48&type=section&id=Risks%20Relating%20to%20Our%20Management) Addresses risks stemming from the company's management, including conflicts of interest. - FLAG is dependent on a small group of officers and directors, and their loss could adversely affect operations[141](index=141&type=chunk) - Officers and directors allocate time to other businesses, creating conflicts of interest in determining time devoted to FLAG's affairs and in presenting business opportunities[133](index=133&type=chunk)[143](index=143&type=chunk) - The sponsor and, indirectly, officers and directors, will lose their entire investment if a business combination is not completed, potentially creating a conflict of interest in selecting a target[144](index=144&type=chunk) - The low acquisition cost of founder shares (approximately **$0.004 per share**) creates an economic incentive for officers, directors, and initial stockholders to profit even if the target business declines in value[147](index=147&type=chunk) [Risks Relating to Ownership of Our Securities](index=41&type=section&id=Risks%20Relating%20to%20Ownership%20of%20Our%20Securities) Describes risks related to holding FLAG's securities, such as delisting and dilution. - The NYSE American may delist FLAG's securities, which could limit investors' ability to trade and subject the company to additional restrictions[99](index=99&type=chunk)[112](index=112&type=chunk) - The Class A common stock issuable upon warrant exercise is not currently registered, potentially forcing cashless exercise and reducing the number of shares received by holders[114](index=114&type=chunk)[117](index=117&type=chunk) - FLAG may issue a substantial number of additional shares of common or preferred stock to complete a business combination or under an employee incentive plan, significantly diluting existing equity interests[105](index=105&type=chunk)[127](index=127&type=chunk) - The terms of the warrants may be amended in a manner adverse to holders with the approval of at least **50%** of outstanding public warrants, potentially increasing exercise price or shortening the exercise period[119](index=119&type=chunk)[129](index=129&type=chunk) - FLAG may redeem unexpired warrants prior to their exercise at a disadvantageous time for holders, potentially making them worthless[123](index=123&type=chunk)[124](index=124&type=chunk) [General Risk Factors](index=51&type=section&id=General%20Risk%20Factors) Covers broader macroeconomic and financial risks impacting the company. - FLAG's management has determined there is substantial doubt about its ability to continue as a **"going concern"** due to limited cash and working capital deficit[161](index=161&type=chunk)[238](index=238&type=chunk) - The securities in which Trust Account funds are invested could bear a negative rate of interest, potentially reducing the per-share redemption amount below **$10.00**[148](index=148&type=chunk)[160](index=160&type=chunk) - Geopolitical conditions (e.g., Russia-Ukraine war) and macroeconomic factors (e.g., rising interest rates, inflation) could adversely affect the search for a business combination[154](index=154&type=chunk) [Unresolved Staff Comments](index=54&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments from the SEC. - None[191](index=191&type=chunk) [Properties](index=54&type=section&id=Item%202.%20Properties) The company does not own any properties. Its executive offices are located at 11110 Sunset Hills Road 2278 Reston, VA 29190, with costs covered by a monthly fee to an affiliate of its sponsor. - The company maintains executive offices at 11110 Sunset Hills Road 2278 Reston, VA 29190[192](index=192&type=chunk) - The cost for office space and administrative support is included in a **$10,000 per month** fee paid to an affiliate of the sponsor[192](index=192&type=chunk) [Legal Proceedings](index=54&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently subject to any material legal proceedings, nor is any material legal proceeding threatened against it or its officers or directors. - None[168](index=168&type=chunk)[193](index=193&type=chunk) [Mine Safety Disclosures](index=54&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company has no mine safety disclosures to report. - None[155](index=155&type=chunk) PART II This part details the market for the company's securities, management's financial analysis, and internal controls. [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=55&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This section provides information on the trading market for FLAG's securities, its stockholder base, dividend policy, and recent sales of unregistered securities. - FLAG's units, Class A common stock, and warrants are traded on the NYSE American under symbols **"FLAGU," "FLAG,"** and **"FLAGW,"** respectively[196](index=196&type=chunk) - As of March 31, 2023, there was one holder of record for units, separately traded common stock, and separately traded warrants, despite a larger number of beneficial owners[197](index=197&type=chunk) - The company has not paid any cash dividends to date and does not intend to prior to the completion of its initial business combination[198](index=198&type=chunk) [Market Information](index=55&type=section&id=Market%20Information.) Provides details on the listing and trading of FLAG's securities on the NYSE American. - FLAG's units, Class A common stock, and warrants are listed on the NYSE American[196](index=196&type=chunk) - The company's Units began trading on the New York Stock Exchange on September 10, 2021, and Class A common stock began separate trading on November 1, 2021; the listing transferred to NYSE American on November 14, 2022[493](index=493&type=chunk) [Holders](index=55&type=section&id=Holders) Reports the number of record holders for the company's various securities. - As of March 31, 2023, there was one holder of record for the company's units, separately traded common stock, and separately traded warrants[197](index=197&type=chunk) [Dividends](index=55&type=section&id=Dividends) States the company's dividend policy and historical dividend payments. - FLAG has not paid any cash dividends on its common stock to date and does not intend to prior to the completion of its initial business combination[198](index=198&type=chunk) - Future dividend payments will depend on revenues, earnings, capital requirements, financial condition, and board discretion post-business combination[198](index=198&type=chunk) [Securities Authorized for Issuance Under Equity Compensation Plans](index=55&type=section&id=Securities%20Authorized%20for%20Issuance%20Under%20Equity%20Compensation%20Plans) Confirms the absence of equity compensation plans. - The company has no compensation plans under which equity securities are authorized for issuance[199](index=199&type=chunk)[349](index=349&type=chunk) [Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings](index=55&type=section&id=Recent%20Sales%20of%20Unregistered%20Securities;%20Use%20of%20Proceeds%20from%20Registered%20Offerings) Details the IPO, private placement, and use of proceeds. - On September 9, 2021, FLAG completed its Initial Public Offering of **23,000,000 units** at **$10.00 per unit**, generating gross proceeds of **$230 million**[170](index=170&type=chunk) - Concurrently, the sponsor and Metric purchased **3,397,155 private placement warrants** at **$1.50 per warrant**, totaling **$5.09 million**[171](index=171&type=chunk)[205](index=205&type=chunk) - All founder shares (**5,750,000**) and private placement warrants (**3,397,155**) are restricted securities under Rule 144[202](index=202&type=chunk) [Item 6. [Reserved]](index=56&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information. [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=56&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of FLAG's financial condition and results of operations. - FLAG is a blank check company formed as a Delaware corporation to effect a business combination[204](index=204&type=chunk) - The company's entire activity from inception through December 31, 2022, relates to its formation, IPO, and search for a business combination candidate, with no operating revenues generated yet[176](index=176&type=chunk) - As of December 31, 2022, FLAG had **$93,892** in operating cash and a working capital deficit of **$4.13 million**, raising substantial doubt about its ability to continue as a going concern[178](index=178&type=chunk)[161](index=161&type=chunk) [Overview](index=56&type=section&id=Overview) Provides a summary of FLAG's financial condition and operational activities since its IPO. - FLAG consummated its IPO of **23,000,000 units** at **$10.00 per unit** on September 14, 2021, generating gross proceeds of **$230 million**[173](index=173&type=chunk) - Following redemptions in connection with a charter amendment, **$41.68 million** remained in the Trust Account as of December 31, 2022, with a deadline to consummate a business combination by September 14, 2023 (with one extension remaining)[175](index=175&type=chunk) - The company's liquidity needs have been met through sponsor/Metric payments, IPO proceeds, private placement warrants, and promissory notes from related parties[179](index=179&type=chunk) [Results of Operations](index=57&type=section&id=Results%20of%20Operations) Presents a summary of the company's financial performance, including net income and expenses. Net Income Summary | Metric | For the Year Ended December 31, 2022 | For the period From March 24, (Inception) Through December 31, 2021 | | :----- | :----------------------------------- | :------------------------------------------------------------------ | | Net Income | $3,530,190 | $3,386,750 | - 2022 net income was driven by a **$6.7 million** gain on warrant liability and **$1.6 million** earnings/unrealized gain on marketable securities, offset by **$4.7 million** in general and administrative expenses and **$0.3 million** in income taxes[207](index=207&type=chunk)[177](index=177&type=chunk) - 2021 net income consisted of a **$5.6 million** gain on warrant liability, offset by **$1.8 million** in general and administrative expenses and a **$0.5 million** loss on forward purchase units[207](index=207&type=chunk)[177](index=177&type=chunk) [Going Concern](index=57&type=section&id=Going%20Concern) Discusses the company's ability to continue operations given its financial position. - As of December 31, 2022, the company had **$93,892** in operating cash and a working capital deficit of **$4.13 million**[178](index=178&type=chunk) - These factors raise substantial doubt about the company's ability to continue as a going concern, as it lacks sufficient financial resources to sustain operations for a reasonable period[161](index=161&type=chunk)[179](index=179&type=chunk)[238](index=238&type=chunk) - The sponsor is committed to extending Working Capital Loans as needed, though no formal agreement exists[179](index=179&type=chunk)[455](index=455&type=chunk) [Off-Balance Sheet Financing Arrangements](index=58&type=section&id=Off-Balance%20Sheet%20Financing%20Arrangements) Confirms the absence of off-balance sheet arrangements. - The company has no long-term debt, capital lease obligations, operating lease obligations, or long-term liabilities, other than an optional monthly payment of **$10,000** to an affiliate of its sponsor for office space and administrative support[209](index=209&type=chunk) - FLAG does not participate in transactions that create relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements[180](index=180&type=chunk) [Contractual Obligations](index=58&type=section&id=Contractual%20Obligations) Outlines the company's significant contractual commitments and related party notes. - The underwriter of the IPO waived its right to a deferred fee of **$8.05 million**, reducing the payable amount to zero as of December 31, 2022[210](index=210&type=chunk)[242](index=242&type=chunk)[1076](index=1076&type=chunk) - FLAG entered into promissory note agreements with the Sponsor and Metric for an aggregate of **$490,000**, which are non-interest bearing and payable upon business combination or winding up[181](index=181&type=chunk)[392](index=392&type=chunk)[664](index=664&type=chunk) - Additional promissory notes with various parties for **$767,500** were drawn as of December 31, 2022, some accruing **50% per annum** interest and others with **100% contingent interest** payable upon business combination[240](index=240&type=chunk)[665](index=665&type=chunk) [Commitments and Contingencies](index=58&type=section&id=Commitments%20and%20Contingencies) Details various commitments and potential liabilities, including registration rights and warrant accounting. - Holders of Founder Shares and Private Placement Warrants are entitled to registration rights, requiring the company to register such securities for resale after a business combination[211](index=211&type=chunk)[648](index=648&type=chunk) - Franklin is not obligated to purchase forward purchase shares in connection with the Business Combination with Calidi and has informed the company of its decision not to[184](index=184&type=chunk)[651](index=651&type=chunk) - The company accounts for warrants as liability-classified instruments, measured at fair value with changes recognized in the statement of operations[214](index=214&type=chunk)[647](index=647&type=chunk) [Critical Accounting Estimates](index=60&type=section&id=Critical%20Accounting%20Estimates) Explains the significant judgments and estimates used in financial reporting. - Warrant Liability: Warrants are liability-classified instruments measured at fair value, with changes recognized in the statement of operations. Public Warrants transferred from Level 3 to Level 1 measurement in 2021, Private Placement Warrants from Level 3 to Level 2 in 2022[214](index=214&type=chunk)[615](index=615&type=chunk) - Forward Purchase Units: Accounted for as a liability-classified instrument at fair value, with changes recognized in the statement of operations. Classified as Level 3 measurements[215](index=215&type=chunk) - Contingent Interest Liability: Contingent interest on promissory notes is treated as an embedded derivative, bifurcated and accounted for as a liability-classified instrument at fair value. Classified as a Level 3 measurement[216](index=216&type=chunk)[616](index=616&type=chunk) [Recently Issued Accounting Pronouncements](index=61&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) Discusses the impact of new accounting standards on the company. - 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 Company's financial statements[217](index=217&type=chunk)[631](index=631&type=chunk) - The company is currently assessing the impact of ASU No. 2020-06, "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity"[618](index=618&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=61&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a smaller reporting company, FLAG is not required to provide the information typically required under this item. - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[218](index=218&type=chunk) [Financial Statements and Supplementary Data](index=61&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This item refers to the financial statements and supplementary data presented in the subsequent pages of the report, which are incorporated by reference. - This information appears following Item 15 of this Report and is included herein by reference[219](index=219&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=62&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with accountants on accounting and financial disclosure. - None[220](index=220&type=chunk) [Controls and Procedures](index=62&type=section&id=Item%209A.%20Controls%20and%20Procedures) FLAG's management concluded that its disclosure controls and procedures were not effective as of December 31, 2022, due to identified material weaknesses. - Disclosure controls and procedures were not effective as of December 31, 2022, due to material weaknesses[221](index=221&type=chunk) - A material weakness was identified in internal control over financial reporting related to accounting for derivatives and presentation of the statement of cash flows[52](index=52&type=chunk)[252](index=252&type=chunk) - The material weakness was attributed to a lack of sufficient trained professionals with appropriate accounting knowledge, training, and experience[252](index=252&type=chunk) [Evaluation of Controls and Procedures](index=62&type=section&id=Evaluation%20of%20Controls%20and%20Procedures) Assesses the effectiveness of the company's disclosure controls and procedures. - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were not effective as of December 31, 2022[221](index=221&type=chunk) - Disclosure controls are designed to ensure timely accumulation and communication of required information to management for disclosure decisions[249](index=249&type=chunk) [Management's Annual Report on Internal Control Over Financial Reporting](index=62&type=section&id=Management's%20Annual%20Report%20on%20Internal%20Control%20Over%20Financial%20Reporting) Presents management's assessment of the effectiveness of internal control over financial reporting. - Management identified material weaknesses in internal control over financial reporting during the audit for the year ended December 31, 2022[223](index=223&type=chunk) - The material weakness relates to the lack of effective controls for accounting for derivatives and presentation of the statement of cash flows, due to insufficient trained professionals[52](index=52&type=chunk)[252](index=252&type=chunk) - Management determined that the company did not maintain effective internal control over financial reporting as of December 31, 2022[251](index=251&type=chunk) [Remediation Plan](index=62&type=section&id=Remediation%20Plan) Outlines the steps the company is taking to address identified material weaknesses. - Management is expending substantial effort and resources for remediation, including consulting with subject matter experts and retaining an additional consultant[225](index=225&type=chunk)[253](index=253&type=chunk) - The plan includes improving processes to effectively evaluate complex accounting standards and ensure timely and accurate reporting[253](index=253&type=chunk) [Changes in Internal Control Over Financial Reporting](index=62&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) Reports any changes in internal control over financial reporting during the last fiscal quarter. - Other than the material weaknesses discussed, there were no other changes in internal control over financial reporting during the fiscal quarter ended December 31, 2022, that materially affected or are reasonably likely to materially affect internal control over financial reporting[227](index=227&type=chunk) [Other Information](index=64&type=section&id=Item%209B.%20Other%20Information) This item reports that there is no other information to disclose. - None[228](index=228&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=65&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) The company has no disclosures regarding foreign jurisdictions that prevent inspections. - None[229](index=229&type=chunk) PART III This part outlines the company's corporate governance, executive compensation, and related party transactions. [Directors, Executive Officers and Corporate Governance](index=66&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) This section details FLAG's leadership, including its executive officers and directors, their qualifications, and the company's corporate governance structure. - FLAG's board of directors consists of four members, serving staggered **three-year terms**, with holders of founder shares having the exclusive right to elect and remove directors prior to a business combination[269](index=269&type=chunk)[300](index=300&type=chunk) - Three of the four directors (William Fallon, Michael Ruettgers, and Jeanne Tisinger) are deemed independent under NYSE American listing standards and SEC rules[301](index=301&type=chunk) - No cash compensation is paid to officers or directors for services rendered to FLAG; however, an affiliate of the sponsor receives **$10,000 per month** for administrative support, and out-of-pocket expenses are reimbursed[302](index=302&type=chunk)[324](index=324&type=chunk) [Directors and Executive Officers](index=66&type=section&id=Directors%20and%20Executive%20Officers) Provides biographical information and qualifications for the company's leadership team. Current Directors and Executive Officers | Name | Age | Director Class | Position | | :--- | :-- | :------------- | :------- | | Thomas A. Vecchiolla | 67 | III | Chief Executive Officer and Chairman | | Michael J. Alber | 65 | — | Chief Financial Officer | | Michael C. Ruettgers | 80 | I | Lead Independent Director | | William J. Fallon | 78 | II | Independent Director | | Jeanne C. Tisinger | 61 | II | Independent Director | - Thomas A. Vecchiolla, CEO and Chairman, has over **40 years** of experience in aerospace and defense, including leadership roles at Raytheon and ST Engineering Ltd[257](index=257&type=chunk)[232](index=232&type=chunk) - Michael J. Alber, CFO, has over **35 years** of experience in corporate finance, accounting, and M&A, including roles at KeyW and Engility Holdings[259](index=259&type=chunk)[260](index=260&type=chunk) [Number and terms of office of officers and directors](index=69&type=section&id=Number%20and%20terms%20of%20office%20of%20officers%20and%20directors) Details the board's structure and terms for officers and directors. - The board of directors consists of four members, divided into three classes (Class I, II, III) with staggered **three-year terms**[269](index=269&type=chunk)[300](index=300&type=chunk) - Officers are elected by the board and serve at its discretion, not for specific terms[299](index=299&type=chunk) - Prior to the initial business combination, holders of a majority of founder shares have the exclusive right to elect and remove directors[269](index=269&type=chunk) [Classified board of directors](index=69&type=section&id=Classified%20board%20of%20directors) Explains the staggered board structure and its implications. - The board is divided into three classes with staggered **three-year terms**, meaning only a minority of directors are considered for election each year[300](index=300&type=chunk) [Director independence](index=69&type=section&id=Director%20independence) Identifies the independent directors on the board according to listing standards. - William Fallon, Michael Ruettgers, and Jeanne Tisinger are determined to be **"independent directors"** as defined by NYSE American listing standards and SEC rules[301](index=301&type=chunk) - Independent directors conduct regularly scheduled meetings without other directors present[301](index=301&type=chunk) [Officer and director compensation](index=69&type=section&id=Officer%20and%20director%20compensation) Describes the compensation policies for officers and directors. - No cash compensation has been or will be paid to officers or directors for services prior to, or for effectuating, a business combination[302](index=302&type=chunk) - An affiliate of the sponsor receives an optional **$10,000 per month** for administrative support and services[302](index=302&type=chunk) - Officers and directors are reimbursed for out-of-pocket expenses incurred on the company's behalf[302](index=302&type=chunk) [Committees of the board of directors](index=70&type=section&id=Committees%20of%20the%20board%20of%20directors) Outlines the composition and responsibilities of the board's standing committees. - The board has three standing committees: an audit committee, a compensation committee, and a nominating and corporate governance committee[275](index=275&type=chunk) - All three committees are comprised solely of independent directors, as required by NYSE American rules[275](index=275&type=chunk)[276](index=276&type=chunk)[305](index=305&type=chunk)[279](index=279&type=chunk) [Audit Committee](index=70&type=section&id=Audit%20Committee) Details the audit committee's members, financial expert, and oversight responsibilities. - Members: Michael C. Ruettgers (Chair), William J. Fallon, and Jeanne C. Tisinger, all independent[276](index=276&type=chunk) - Functions include overseeing audits, financial statement integrity, risk management, internal controls, and the independent registered public accounting firm's qualifications and performance[304](index=304&type=chunk) - Michael C. Ruettgers qualifies as an **"audit committee financial expert"**[276](index=276&type=chunk) [Compensation Committee](index=70&type=section&id=Compensation%20Committee) Describes the compensation committee's members and role in executive compensation. - Members: Michael C. Ruettgers, William J. Fallon, and Jeanne C. Tisinger (Chair), all independent[305](index=305&type=chunk) - Functions include determining and approving executive officer compensation, and reviewing/approving incentive and equity compensation policies[306](index=306&type=chunk) - The committee may retain compensation consultants or other advisors, considering their independence[307](index=307&type=chunk) [Compensation Committee Interlocks and Insider Participation](index=71&type=section&id=Compensation%20Committee%20Interlocks%20and%20Insider%20Participation) Confirms the absence of compensation committee interlocks. - None of FLAG's officers currently serve, or in the past year have served, as a member of the board of directors or compensation committee of any entity that has one or more officers serving on FLAG's board[333](index=333&type=chunk) [Nominating and Corporate Governance Committee](index=71&type=section&id=Nominating%20and%20Corporate%20Governance%20Committee) Outlines the committee's role in director nominations and governance oversight. - Members: Michael C. Ruettgers, William J. Fallon (Chair), and Jeanne C. Tisinger, all independent[279](index=279&type=chunk) - Identifying and screening director candidates - Developing and reviewing corporate governance guidelines - Overseeing annual self-evaluation of the board, committees, and management - Reviewing overall corporate governance and recommending improvements[334](index=334&type=chunk) [Director Nominations](index=72&type=section&id=Director%20Nominations) Explains the process for nominating director candidates to the board. - The nominating and corporate governance committee recommends director candidates to the board[280](index=280&type=chunk) - Prior to a business combination, holders of founder shares can recommend director candidates, but public shareholders cannot[280](index=280&type=chunk) - The board considers educational background, diversity of professional experience, business knowledge, integrity, reputation, independence, and ability to represent stockholder interests[335](index=335&type=chunk) [Code of Business Conduct and Ethics](index=72&type=section&id=Code%20of%20Business%20Conduct%20and%20Ethics) Describes the company's ethical guidelines for directors, officers, and employees. - FLAG has adopted a Code of Business Conduct and Ethics applicable to its directors, officers, and employees[281](index=281&type=chunk) - The Code requires avoiding conflicts of interest, except as approved by the board or disclosed in SEC filings[395](index=395&type=chunk) [Conflicts of Interest](index=72&type=section&id=Conflicts%20of%20Interest) Addresses potential conflicts arising from officers' and directors' other affiliations and economic incentives. - Officers and directors have affiliations with other entities, creating potential conflicts in allocating time and presenting business opportunities[143](index=143&type=chunk)[311](index=311&type=chunk)[337](index=337&type=chunk) - The sponsor, officers, directors, and Metric have agreed to waive redemption rights for founder shares and vote in favor of the initial business combination, creating a conflict of interest in target evaluation[316](index=316&type=chunk)[144](index=144&type=chunk) - FLAG's amended and restated certificate of incorporation renounces interest in corporate opportunities offered to directors/officers unless offered solely in their capacity as such and suitable for the company[143](index=143&type=chunk)[282](index=282&type=chunk)[319](index=319&type=chunk) [Limitation on Liability and Indemnification of Officers and Directors](index=75&type=section&id=Limitation%20on%20Liability%20and%20Indemnification%20of%20Officers%20and%20Directors) Details the company's policies for limiting liability and indemnifying its leadership. - Officers and directors are indemnified to the fullest extent authorized by Delaware law, and their personal liability for fiduciary duty breaches is limited[321](index=321&type=chunk) - Indemnity agreements and directors' and officers' liability insurance are in place to attract and retain talented personnel[322](index=322&type=chunk)[323](index=323&type=chunk) - Indemnification will only be satisfied if FLAG has sufficient funds outside the Trust Account or completes an initial business combination, as officers and directors have waived claims against the Trust Account[322](index=322&type=chunk) [Executive Compensation](index=76&type=section&id=Item%2011.%20Executive%20Compensation) FLAG's executive officers and directors do not receive cash compensation for their services prior to a business combination, but the sponsor receives a monthly administrative fee, and out-of-pocket expenses are reimbursed. - No cash compensation is paid to executive officers or directors for services rendered to FLAG[347](index=347&type=chunk) - The sponsor receives an optional **$10,000 per month** for office space, administrative, and support services[324](index=324&type=chunk) - Executive officers and directors are reimbursed for out-of-pocket expenses incurred in identifying potential target businesses and performing due diligence[347](index=347&type=chunk) - Post-business combination, any consulting or management fees for remaining FLAG team members will be determined by the combined company's board and fully disclosed to stockholders[303](index=303&type=chunk)[347](index=347&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=77&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details the beneficial ownership of FLAG's common stock by its sponsor, Metric, anchor investors, and other significant holders. - The sponsor and Metric beneficially own a significant portion of FLAG's common stock, with the sponsor holding **38.4%** and Metric **17.4%** as of March 31, 2023[379](index=379&type=chunk) - Founder shares and private placement warrants are subject to transfer restrictions until certain conditions are met post-business combination[328](index=328&type=chunk)[329](index=329&type=chunk)[353](index=353&type=chunk) - Franklin is not obligated to purchase forward purchase shares in connection with the Calidi Business Combination[360](index=360&type=chunk) [Securities Authorized for Issuance Under Equity Compensation Plans](index=77&type=section&id=Securities%20Authorized%20for%20Issuance%20Under%20Equity%20Compensation%20Plans) Confirms no equity compensation plans are authorized. - The company has no compensation plans under which equity securities are authorized for issuance[349](index=349&type=chunk) [Security Ownership of Certain Beneficial Owners and Management](index=77&type=section&id=Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management) Provides a table of beneficial ownership for key stakeholders. Beneficial Ownership of Common Stock (as of March 31, 2023) | Name and address of beneficial owner | Number of shares beneficially owned | Percentage of shares of common stock outstanding | | :----------------------------------- | :---------------------------------- | :----------------------------------------------- | | First Light Acquisition Group, LLC (our sponsor) | 2,575,803 | 38.4% | | Metric Finance Holdings I, LLC | 871,543 | 17.4% | | Polar Asset Management Partners Inc. | 412,800 | 9.9% | | Woodline Partners LP | 400,000 | 9.7% | | 683 Capital Management, LLC | 300,000 | 7.3% | | Bank of Montreal | 329,128 | 7.97% | | Hudson Bay Capital Management LP | 500,000 | 12.11% | | Koch Industries, Inc. | 356,098 | 8.62% | | Jackson Investment Group | 450,000 | 9.82% | | Meteora | 400,000 | 9.7% | | First Trust Merger Arbitrage Fund | 385,000 | 9.3% | | Michael J. Alber | — | — | | William J. Fallon | — | — | | Michael C. Ruettgers | — | — | | Jeanne C. Tisinger | — | — | | Thomas A. Vecchiolla | — | — | - Officers and directors have an indirect economic interest through ownership of membership interests in the sponsor but do not directly beneficially own the listed shares[380](index=380&type=chunk) [Restrictions on transfers of founder shares and private placement warrants](index=78&type=section&id=Restrictions%20on%20transfers%20of%20founder%20shares%20and%20private%20placement%20warrants) Explains the lock-up periods and transfer restrictions on these securities. - Founder shares are generally not transferable until **one year** after the business combination, or earlier if certain stock price targets are met or a liquidation event occurs[353](index=353&type=chunk) - Private placement warrants are not transferable until **30 days** following the consummation of the initial business combination[329](index=329&type=chunk) - Permitted transferees are subject to the same transfer restrictions and voting agreements[330](index=330&type=chunk)[354](index=354&type=chunk) [Founder Shares and Private Placement Warrants](index=80&type=section&id=Founder%20Shares%20and%20Private%20Placement%20Warrants) Details the issuance and terms of founder shares and private placement warrants. - **5,750,000 founder shares** were issued to the sponsor and Metric for **$25,000**, representing **20%** of outstanding shares post-IPO[331](index=331&type=chunk) - Anchor investors purchased **1,452,654 founder shares** from the sponsor and Metric at the original purchase price[332](index=332&type=chunk) - The sponsor and Metric purchased **3,397,155 private placement warrants** for **$5.09 million**, exercisable at **$11.50 per share**[383](index=383&type=chunk) [Forward Purchase Agreement](index=81&type=section&id=Forward%20Purchase%20Agreement) Describes the agreement with Franklin and its current status regarding the Calidi merger. - FLAG entered into a forward purchase agreement with Franklin Strategic Series – Franklin Small Cap Growth Fund to purchase **5,000,000 Class A common stock** and **2,500,000 forward purchase warrants** for **$50 million**[387](index=387&type=chunk) - Franklin's obligations are conditioned on receiving material terms of the business combination and its sole discretion to consummate the purchase[388](index=388&type=chunk) - Franklin is not obligated and has determined not to purchase these shares in connection with the Calidi Business Combination[360](index=360&type=chunk) [Registration Rights](index=82&type=section&id=Registration%20Rights) Outlines the registration rights granted to holders of certain securities. - Holders of founder shares, private placement warrants, and warrants from convertible loans are entitled to registration rights[361](index=361&type=chunk) - These rights include up to **three demand registrations** and **"piggy-back"** registration rights for resale of securities[361](index=361&type=chunk) - The company will bear the expenses incurred in connection with filing such registration statements[361](index=361&type=chunk) [Administrative Support](index=82&type=section&id=Administrative%20Support) Details the monthly fee paid to the sponsor's affiliate for administrative services. - FLAG has the option to pay an affiliate of its sponsor **$10,000 per month** for office space, secretarial, and administrative support[391](index=391&type=chunk) - These monthly fees will cease upon completion of a business combination or liquidation[391](index=391&type=chunk) [Relationship with Metric](index=83&type=section&id=Relationship%20with%20Metric) Describes Metric's capital commitment and potential conflicts of interest. - Metric has committed capital to FLAG and will lose it if a business combination is not consummated within the prescribed time[363](index=363&type=chunk) - Metric owes no fiduciary or contractual duties to promote FLAG's success and may engage in conflicting activities, including sponsoring other SPACs[363](index=363&type=chunk) [Related Party Loans](index=83&type=section&id=Related%20Party%20Loans) Details loans from the sponsor, Metric, and other related parties. - The sponsor loaned FLAG **$188,804** for IPO expenses, which was repaid at closing[364](index=364&type=chunk) - Promissory notes totaling **$490,000** were entered into with the Sponsor and Metric, which are non-interest bearing and payable upon business combination or winding up[392](index=392&type=chunk) - Additional promissory notes with officers, directors, and others for an aggregate borrowing capacity of **$710,000** were issued in late 2022 and early 2023, some with **50% to 100% per annum** interest[367](index=367&type=chunk)[662](index=662&type=chunk)[688](index=688&type=chunk)[689](index=689&type=chunk) [Licensing Arrangement](index=84&type=section&id=Licensing%20Arrangement) Explains the non-exclusive, royalty-free licensing of the company's name. - FLAG Sponsor Manager, LLC, which owns the name "First Light Acquisition Group," entered into a non-exclusive, royalty-free licensing arrangement with FLAG and its sponsor[368](index=368&type=chunk) [Related Party Policy](index=84&type=section&id=Related%20Party%20Policy) Describes the company's policy for reviewing and approving related party transactions. - FLAG has not yet adopted a formal policy for the review, approval, or ratification of related party transactions[369](index=369&type=chunk) - The audit committee is responsible for reviewing and approving related party transactions, requiring an affirmative vote of a majority of its members[370](index=370&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=80&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) This section details the various relationships and transactions between FLAG and its related parties, including the sponsor, Metric, officers, and directors. - The sponsor and Metric purchased **3,397,155 private placement warrants** for **$1.50 per warrant**, totaling **$5.09 million**[383](index=383&type=chunk) - Private placement warrants are non-redeemable (except under specific conditions) and exercisable on a cashless basis when held by initial purchasers or permitted transferees[384](index=384&type=chunk) - FLAG has an optional administrative services agreement to pay its sponsor **$10,000 per month** for office space and support[391](index=391&type=chunk) - The sponsor, its affiliates, or officers/directors may loan funds to FLAG for transaction costs or to extend the business combination period, with up to **$4.6 million** convertible into warrants[393](index=393&type=chunk)[372](index=372&type=chunk) [Principal Accountant Fees and Services](index=86&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) This section outlines the fees paid to BDO USA LLP for audit and other services. Principal Accountant Fees and Services | Fee Type | Year Ended December 31, 2022 | Period from March 24, 2021 (inception) through December 31, 2021 | | :------- | :--------------------------- | :----------------------------------------------------------------- | | Audit Fees | $138,675 | $199,990 | | Audit-Related Fees | None | None | | Tax Fees | None | None | | All Other Fees | None | None | - The audit committee pre-approves all auditing services and permitted non-audit services performed by the auditors[374](index=374&type=chunk)[427](index=427&type=chunk) [Audit Fees.](index=86&type=section&id=Audit%20Fees.) Details the fees billed by the independent registered public accounting firm for audit services. - Audit fees billed by BDO USA LLP were **$138,675** for the year ended December 31, 2022, and **$199,990** for the period from March 24, 2021 (inception) through December 31, 2021[399](index=399&type=chunk) - These fees cover the audit of annual financial statements, review of quarterly financial information, and other required SEC filings[399](index=399&type=chunk) [Audit-Related Fees.](index=86&type=section&id=Audit-Related%20Fees.) Reports any fees for assurance and related services performed by the principal accountant that are reasonably related to the performance of the audit or review of financial statements. - No audit-related fees were paid to BDO USA LLP for the period from March 24, 2021 (inception) through December 31, 2021, and the year ended December 31, 2022[373](index=373&type=chunk) [Tax Fees.](index=86&type=section&id=Tax%20Fees.) Reports fees for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. - No tax fees were paid to BDO USA LLP for tax planning and advice for the period from March 24, 2021 (inception) through December 31, 2021, and the year ended December 31, 2022[426](index=426&type=chunk) [All Other Fees.](index=86&type=section&id=All%20Other%20Fees.) Reports fees for any other services rendered by the principal accountant. - No other fees were paid to BDO USA LLP for the period from March 24, 2021 (inception) through December 31, 2021, and the year ended December 31, 2022[400](index=400&type=chunk) [Pre-Approval Policy](index=86&type=section&id=Pre-Approval%20Policy) Describes the audit committee's policy for pre-approving audit and non-audit services. - The audit committee pre-approves all auditing services and permitted non-audit services performed by the auditors, including fees and terms[427](index=427&type=chunk) - Services rendered prior to the audit committee's formation were approved by the board of directors[427](index=427&type=chunk) PART IV This part lists the exhibits and financial statement schedules included in the report. [Exhibits, Financial Statement Schedules](index=80&type=section&id=Item%2015.%20Exhibits,%20Financial%20Statement%20Schedules) This section lists all exhibits and financial statement schedules filed as part of the Form 10-K report, including merger agreements, certificates of incorporation, warrant agreements, and various other contractual documents. - The report includes a list of exhibits, such as the Agreement and Plan of Merger with Calidi Biotherapeutics, Inc., Amended and Restated Certificate of Incorporation, Bylaws, Warrant Agreement, and various letter agreements[428](index=428&type=chunk)[429](index=429&type=chunk)[404](index=404&type=chunk)[377](index=377&type=chunk)[378](index=378&type=chunk)[405](index=405&type=chunk) - Financial statements and supplementary data are included by reference[402](index=402&type=chunk)[403](index=403&type=chunk) [Form 10-K Summary](index=89&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company states that there is no Form 10-K summary provided in this section. - None[432](index=432&type=chunk) [INDEX TO FINANCIAL STATEMENTS](index=91&type=section&id=INDEX%20TO%20FINANCIAL%20STATEMENTS) Provides an index to the company's financial statements and related notes. [Report of Independent Registered Public Accounting Firm](index=92&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) BDO USA, LLP, the independent registered public accounting firm, issued an unqualified opinion on FLAG's financial statements for 2022 and 2021. - BDO USA, LLP issued an unqualified opinion, stating that the financial statements present fairly, in all material respects, the financial position as of December 31, 2022 and 2021[413](index=413&type=chunk) - The report includes an explanatory paragraph expressing substantial doubt about the company's ability to continue as a **"going concern"** due to insufficient cash and working capital[414](index=414&type=chunk) [Balance Sheets](index=93&type=section&id=Balance%20Sheets) The balance sheets present FLAG's financial position as of December 31, 2022, and 2021. Balance Sheet Summary (as of December 31) | Metric | 2022 | 2021 | | :----------------------------------- | :----------- | :----------- | | Cash | $93,892 | $1,062,653 | | Total Current Assets | $401,671 | $1,483,561 | | Marketable securities held in trust account | $42,453,107 | $230,004,784 | | Total Assets | $42,854,778 | $231,769,289 | | Total Current Liabilities | $4,535,913 | $410,985 | | Total Non-current Liabilities | $1,071,234 | $16,040,334 | | Total Liabilities | $5,607,147 | $16,451,319 | | Class A common stock subject to possible redemption | $42,453,107 | $230,004,784 | | Total Stockholders' Deficit | $(5,205,476) | $(14,686,814) | - The significant decrease in marketable securities held in the trust account from 2021 to 2022 is primarily due to redemptions of Class A common stock[418](index=418&type=chunk)[175](index=175&type=chunk) [Statements of Operations](index=94&type=section&id=Statements%20of%20Operations) The statements of operations show FLAG's financial performance for the year ended December 31, 2022, and the period from March 24, 2021 (inception) through December 31, 2021. Statements of Operations Summary | Metric | For the Year Ended December 31, 2022 | For the period From March 24, (Inception) Through December 31, 2021 | | :----------------------------------- | :----------------------------------- | :------------------------------------------------------------------ | | Operating costs | $4,669,524 | $1,781,700 | | Loss from operations | $(4,669,524) | $(1,781,700) | | Unrealized gain on marketable securities held in Trust Account | — | $3,115 | | Earnings on marketable securities held in Trust Account | $

Financial Performance - For the three months ended September 30, 2022, the company reported a net income of approximately $0.5 million, with general and administrative expenses of $0.7 million and a gain of $1.1 million on marketable securities held in the trust account [112]. - For the nine months ended September 30, 2022, the company achieved a net income of approximately $6.1 million, offset by $1.6 million in general and administrative expenses [114]. - The company had a net loss of approximately $0.8 million for the three months ended September 30, 2021, primarily due to general and administrative expenses of $1.1 million [113]. Cash and Capital Structure - As of September 30, 2022, the company had $39,944 in operating cash and a working capital deficit of $860,553 [116]. - The company raised approximately $230 million from its Initial Public Offering, with offering costs totaling approximately $22.5 million [108]. - The underwriter of the IPO is entitled to a deferred fee of $8,050,000, payable only upon the completion of a Business Combination [126]. - The company has no long-term debt or off-balance sheet arrangements as of September 30, 2022 [120]. Business Combination and Financing - The company has until December 14, 2022, to consummate a Business Combination, with the option to extend to September 14, 2023 [110]. - The company has incurred significant costs in pursuit of its financing and acquisition plans, with no formal agreement for additional funding, although the Sponsor is committed to extend Working Capital Loans as needed [118]. - The company entered into a forward purchase agreement with Franklin for the purchase of 5,000,000 shares of Class A common stock and 2,500,000 warrants for an aggregate price of $50 million [127]. Equity and Liabilities - Class A common stock subject to possible redemption is classified as temporary equity, with a redemption value presented outside of stockholders' equity as of September 30, 2022 [130]. - The net income (loss) per Class A redeemable common stock is calculated using an 80% allocation for Class A and 20% for non-redeemable common stock for the three and nine months ended September 30, 2022 [132]. - The company issued 14,897,155 warrants classified as liabilities, subject to re-measurement at each balance sheet date [133]. - The accounting treatment for warrants requires them to be recorded as liabilities at fair value, with changes recognized in the statement of operations [134]. Internal Controls - Management identified a material weakness in internal controls over financial reporting related to complex financial instruments as of September 30, 2022 [140]. - A remediation plan has been implemented to enhance processes for applying accounting requirements, though results may take time to materialize [142]. - No significant changes in internal control over financial reporting occurred during the fiscal quarter ended September 30, 2022 [143].

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed financial statements, including balance sheets, statements of operations, changes in stockholders' deficit, cash flows, and comprehensive notes [Condensed Balance Sheets](index=4&type=section&id=Condensed%20Balance%20Sheets%20as%20of%20June%2030%2C%202022%20%28unaudited%29%20and%20December%2031%2C%202021) The balance sheets reflect decreased operating cash and total liabilities, with Trust Account marketable securities slightly increasing from December 2021 to June 2022 Condensed Balance Sheet Highlights | Metric | June 30, 2022 | December 31, 2021 | Change | | :--------------------------------------- | :------------ | :---------------- | :----- | | Cash | $328,843 | $1,062,653 | $(733,810) | | Marketable securities in Trust Account | $230,183,554 | $230,004,784 | $178,770 | | Total Assets | $231,020,255 | $231,769,289 | $(749,034) | | Warrant Liability | $1,345,000 | $7,469,150 | $(6,124,150) | | Total Liabilities | $10,078,882 | $16,451,319 | $(6,372,437) | | Accumulated Deficit | $(9,242,756) | $(14,687,389) | $5,444,633 | | Total Stockholders' Deficit | $(9,242,181) | $(14,686,814) | $5,444,633 | [Condensed Statements of Operations](index=5&type=section&id=Condensed%20Statements%20of%20Operations%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202022%2C%20the%20three%20months%20ended%20June%2030%2C%202021%2C%20and%20for%20the%20period%20from%20March%2024%2C%202021%20%28inception%29%20through%20June%2030%2C%202021%20%28unaudited%29) The company reported net income for the three and six months ended June 30, 2022, a significant improvement driven by fair value gains on warrant and forward purchase unit liabilities Condensed Statements of Operations Highlights | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | Inception Through June 30, 2021 | | :-------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :------------------------------ | | Operating costs | $361,622 | $83,303 | $890,480 | $83,303 | | Net income (loss) | $4,161,210 | $(83,303) | $5,623,403 | $(83,303) | | Basic and diluted net income per share, redeemable Class A common stock | $0.15 | — | $0.20 | — | | Basic and diluted net income per share, non-redeemable Class B common stock | $0.14 | $(0.02) | $0.19 | $(0.02) | | Change in fair value of warrant liability | $4,029,850 | — | $6,124,150 | — | | Change in fair value of forward purchase unit liability | $332,983 | — | $210,963 | — | | Interest income on marketable securities | $159,999 | — | $176,504 | — | [Condensed Statements of Changes in Class A Common Stock Subject to Possible Redemption and Stockholders' Deficit](index=6&type=section&id=Condensed%20Statements%20of%20Changes%20in%20Class%20A%20Common%20Stock%20Subject%20to%20Possible%20Redemption%20and%20Stockholders%27%20Deficit%20for%20the%20six%20months%20ended%20June%2030%2C%202022%20and%20for%20the%20period%20from%20March%2024%2C%202021%20%28inception%29%20through%20June%2030%2C%202021%20%28unaudited%29) This statement details changes in Class A common stock subject to redemption and stockholders' deficit, reflecting net income and remeasurement adjustments Changes in Stockholders' Deficit (Six Months Ended June 30, 2022) | Metric | Amount | | :-------------------------------------------------- | :------------- | | Balance – December 31, 2021 | $(14,686,814) | | Remeasurement of Class A common stock to redemption value | $(178,770) | | Net income | $5,623,403 | | Balance – June 30, 2022 | $(9,242,181) | Changes in Stockholders' Deficit (Inception Through June 30, 2021) | Metric | Amount | | :-------------------------------------------------- | :------------- | | Balance – March 24, 2021 (inception) | $0 | | Issuance of Class B common stock to Sponsor | $20,025 | | Issuance of Class B common stock to Metric | $4,975 | | Net loss | $(83,303) | | Balance – June 30, 2021 | $(58,303) | [Condensed Statements of Cash Flows](index=7&type=section&id=Condensed%20Statements%20of%20Cash%20Flows%20for%20six%20months%20ended%20June%2030%2C%202022%20%28unaudited%29%20and%20for%20the%20period%20from%20March%2024%2C%202021%20%28inception%29%20through%20June%2030%2C%202021) The cash flow statement shows significant net cash outflow from operating activities for the six months ended June 30, 2022, decreasing the overall cash balance Condensed Statements of Cash Flows Highlights | Metric | 6 Months Ended June 30, 2022 | Inception Through June 30, 2021 | | :------------------------------------ | :--------------------------- | :------------------------------ | | Net cash used in operating activities | $(733,810) | $(118,804) | | Net cash from financing activities | — | $213,804 | | Net Change in Cash | $(733,810) | $95,000 | | Cash – Ending | $328,843 | $95,000 | [Notes to Interim Condensed Financial Statements](index=8&type=section&id=Notes%20to%20Interim%20Condensed%20Financial%20Statements%20%28unaudited%29) These notes provide essential context and detailed explanations for the financial statements, covering the company's organization, accounting policies, and specific financial instruments [NOTE 1. Organization and Plans of Business Operations](index=8&type=section&id=NOTE%201.%20ORGANIZATION%20AND%20PLANS%20OF%20BUSINESS%20OPERATIONS) The company, a SPAC, completed its IPO in September 2021, placing $230 million in a Trust Account, but faces liquidity challenges and going concern doubts despite Sponsor loan commitments - The Company is a blank check company (SPAC) formed on March 24, 2021, for the purpose of entering into a business combination[28](index=28&type=chunk) - The IPO was consummated on September 14, 2021, raising **$230,000,000** from **23,000,000 Units** at **$10.00 per Unit**, with proceeds placed in a Trust Account[30](index=30&type=chunk)[31](index=31&type=chunk) - As of June 30, 2022, the Company had **$328,843** in operating cash and working capital of **$386,007**, which is insufficient to sustain operations for one year, raising substantial doubt about its ability to continue as a going concern[33](index=33&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) [NOTE 2. Summary of Significant Accounting Policies](index=9&type=section&id=NOTE%202.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details the company's GAAP adherence, EGC status, and key accounting policies for cash, trust account investments, redeemable Class A common stock, and financial instrument fair value - The Company is an 'emerging growth company' and has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards[39](index=39&type=chunk)[40](index=40&type=chunk) - Cash held in the Trust Account (**$230,183,554** as of June 30, 2022) is invested in U.S. government securities or money market funds, pending a business combination or redemption[44](index=44&type=chunk) - **Class A common stock** subject to possible redemption is classified as temporary equity and adjusted to redemption value at each reporting period, with changes reflected in additional paid-in capital or accumulated deficit[46](index=46&type=chunk)[47](index=47&type=chunk) - Warrants for the Company's common stock are accounted for as liabilities at fair value and re-valued at each reporting date, with changes recognized in the statements of operations[59](index=59&type=chunk) [NOTE 3. Initial Public Offering](index=14&type=section&id=NOTE%203.%20INITIAL%20PUBLIC%20OFFERING) The IPO, completed September 9, 2021, generated $230 million from 23 million Units at $10.00 each, with proceeds placed in the Trust Account and $22.5 million in transaction costs - The Company sold **23,000,000 Units** in its IPO at **$10.00 per Unit**, generating gross proceeds of **$230,000,000**[63](index=63&type=chunk) - **$230,000,000** of the IPO proceeds was placed in the Trust Account, with **$2,081,180** available for working capital[64](index=64&type=chunk)[65](index=65&type=chunk) - Total transaction costs for the IPO were **$22,517,064**, including underwriting discounts, deferred underwriting fees, and excess fair value of founder shares[65](index=65&type=chunk) [NOTE 4. Private Placement](index=14&type=section&id=NOTE%204.%20PRIVATE%20PLACEMENT) Concurrently with the IPO, the company sold 3,397,155 Private Placement Warrants for $5.1 million to the Sponsor and Metric, with proceeds added to the Trust Account and expiration contingent on a business combination - The Company sold **3,397,155 Private Placement Warrants** to the Sponsor and Metric for **$1.50** per warrant, generating **$5,095,733**[66](index=66&type=chunk) - Proceeds from the Private Placement Warrants were added to the Trust Account[66](index=66&type=chunk) [NOTE 5. Related Party Transactions](index=14&type=section&id=NOTE%205.%20RELATED%20PARTY%20TRANSACTIONS) Related party transactions include the Sponsor and Metric's purchase of 5,750,000 Founder Shares for $25,000, a repaid Sponsor promissory note, potential future Working Capital Loans, and a $10,000 monthly administrative support agreement - The Sponsor and Metric purchased **5,750,000 Founder Shares** for an aggregate of **$25,000**, representing **approximately 20%** of outstanding shares post-IPO[67](index=67&type=chunk) - The Sponsor loaned the Company **$188,804** via a non-interest bearing promissory note, which was repaid in full on September 14, 2021[72](index=72&type=chunk) - The Company has an optional agreement to pay an affiliate of the Sponsor **$10,000 per month** for administrative support[74](index=74&type=chunk) [NOTE 6. Stockholders' Equity](index=15&type=section&id=NOTE%206.%20STOCKHOLDERS%27%20EQUITY) The company is authorized to issue preferred, Class A, and Class B common stock, with 23 million Class A and 5.75 million Class B shares outstanding as of June 30, 2022, where Class B converts to Class A upon a business combination - The Company is authorized to issue **1,000,000 shares** of preferred stock (none outstanding), **300,000,000 shares** of **Class A common stock** (**23,000,000** subject to redemption outstanding), and **30,000,000 shares** of **Class B common stock** (**5,750,000** outstanding)[75](index=75&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk) - **Class B common stock** (**Founder Shares**) will automatically convert into **Class A common stock** on a one-for-one basis upon consummation of a Business Combination, subject to adjustment[78](index=78&type=chunk) [NOTE 7. Warrants](index=15&type=section&id=NOTE%207.%20WARRANTS) This note details Public and Private Placement Warrant terms, including exercisability, registration, and redemption conditions, with Private Placement Warrants being non-redeemable while held by initial purchasers - Public Warrants become exercisable on the later of **12 months** from IPO closing or **30 days** after a Business Combination[79](index=79&type=chunk) - The Company may redeem Public Warrants at **$0.01** per warrant if **Class A common stock** equals or exceeds **$18.00** for **20 trading days** within a **30-day** period[83](index=83&type=chunk) - Private Placement Warrants are identical to Public Warrants but are not transferable/saleable until **30 days** post-Business Combination and are non-redeemable while held by initial purchasers[87](index=87&type=chunk) - All **14,897,155 warrants** (Public and Private) are accounted for as derivative liabilities at fair value, with changes recognized in the statement of operations[88](index=88&type=chunk)[89](index=89&type=chunk) [NOTE 8. Commitments and Contingencies](index=17&type=section&id=NOTE%208.%20COMMITMENTS%20AND%20CONTINGENCIES) The company has commitments for registration rights, an $8.05 million deferred underwriting fee payable upon a business combination, and a forward purchase agreement with Franklin Strategic Series for $50 million in Class A common stock and warrants - Holders of **Founder Shares** and Private Placement Warrants are entitled to registration rights[90](index=90&type=chunk) - A deferred underwriting fee of **$8,050,000** is payable to the underwriter upon completion of a Business Combination[92](index=92&type=chunk) - The Company entered into a forward purchase agreement with Franklin Strategic Series to purchase **5,000,000 Class A common stock** and **2,500,000 warrants** for **$50,000,000**, contingent on closing an initial business combination[93](index=93&type=chunk) [NOTE 9. Fair Value Measurements](index=18&type=section&id=NOTE%209.%20FAIR%20VALUE%20MEASUREMENTS) The company measures warrant and forward purchase unit liabilities at fair value using a three-tier hierarchy, with warrant liability at $1.345 million and forward purchase unit liability at $310,221 as of June 30, 2022, reflecting reclassification due to increased input observability Fair Value of Warrant and Forward Purchase Unit Liabilities | Liability | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Warrant Liability | $1,345,000 | $7,469,150 | | Forward Purchase Unit Liability | $310,221 | $521,184 | - Public Warrants were transferred from Level 3 to Level 1, and Private Placement Warrants from Level 3 to Level 2, due to increased observability of valuation inputs[98](index=98&type=chunk) Changes in Fair Value of Derivative Warrant Liabilities (December 31, 2021 to June 30, 2022) | Metric | Public Warrants | Private Placement Warrants | Forward Purchase Units | | :------------------------------------------ | :-------------- | :------------------------- | :--------------------- | | Derivative warrant liabilities as of Dec 31, 2021 | $5,751,150 | $1,718,000 | $521,184 | | Change in fair value (Q1 2022) | $(1,612,300) | $(482,000) | $122,020 | | Derivative warrant liabilities as of Mar 31, 2022 | $4,138,850 | $1,236,000 | $643,204 | | Change in fair value (Q2 2022) | $(3,103,850) | $(926,000) | $(332,983) | | Derivative warrant liabilities as of Jun 30, 2022 | $1,035,000 | $310,000 | $310,221 | [NOTE 10. Income Tax](index=20&type=section&id=NOTE%2010.%20INCOME%20TAX) The company recorded no income tax benefits for net operating losses due to realization uncertainty and established a full valuation allowance against net deferred tax assets - No income tax benefits were recorded for net operating losses due to uncertainty of realization[103](index=103&type=chunk) - A full valuation allowance was recorded against net deferred tax assets as of June 30, 2022, and December 31, 2021[104](index=104&type=chunk) [NOTE 11. Subsequent Events](index=20&type=section&id=NOTE%2011.%20SUBSEQUENT%20EVENTS) Subsequent to the balance sheet date, the company filed a preliminary proxy statement to extend the business combination deadline from September 14, 2022, to December 14, 2022, with potential for further extensions - The Company filed a preliminary proxy statement to extend the business combination deadline from September 14, 2022, to December 14, 2022, with options for up to three additional three-month extensions[106](index=106&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, covering its SPAC status, fair value-driven operations, going concern issues, key accounting policies, and contractual obligations [Overview](index=21&type=section&id=Overview) The company, a blank check company, completed its IPO in September 2021, raising $230 million for a Trust Account, and must complete a business combination by September 2022 or liquidate - The Company is a blank check company formed to effect a business combination[110](index=110&type=chunk) - The IPO on September 14, 2021, generated **$230 million**, with proceeds placed in a Trust Account[111](index=111&type=chunk)[113](index=113&type=chunk) - The Company has until September 14, 2022 (or March 14, 2023, with extensions) to consummate a Business Combination, or it will redeem public shares and liquidate[114](index=114&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) For the three and six months ended June 30, 2022, the company reported net income of approximately $4.2 million and $5.6 million, respectively, primarily due to fair value gains on warrant and forward purchase unit liabilities - Net income for the three months ended June 30, 2022, was approximately **$4.2 million**, primarily due to a **$4.0 million** gain on warrant liability and a **$0.3 million** gain on forward purchase unit liability[117](index=117&type=chunk) - Net income for the six months ended June 30, 2022, was approximately **$5.6 million**, driven by a **$6.1 million** gain on warrant liability and a **$0.2 million** gain on forward purchase unit liability[118](index=118&type=chunk) [Going Concern](index=22&type=section&id=Going%20Concern) As of June 30, 2022, the company had $328,843 in operating cash and $386,007 in working capital, raising substantial doubt about its ability to continue as a going concern despite Sponsor loan commitments - As of June 30, 2022, the Company had **$328,843** in operating cash and **$386,007** in working capital[119](index=119&type=chunk) - The Company lacks sufficient financial resources to sustain operations for one year, raising substantial doubt about its ability to continue as a going concern[121](index=121&type=chunk)[122](index=122&type=chunk) - The Sponsor is committed to extending Working Capital Loans as needed, though no formal agreement exists[121](index=121&type=chunk) [Off-Balance Sheet Arrangements](index=22&type=section&id=Off-Balance%20Sheet%20Arrangements) As of June 30, 2022, the company had no off-balance sheet arrangements, such as relationships with unconsolidated entities or special purpose entities - The Company had no off-balance sheet arrangements as of June 30, 2022[123](index=123&type=chunk) [Contractual Obligations](index=22&type=section&id=Contractual%20Obligations) The company's primary contractual obligations include a $10,000 monthly administrative fee to an affiliate of its Sponsor and an $8.05 million deferred underwriting discount, payable only upon a business combination - The Company has an agreement to pay an affiliate of its Sponsor **$10,000 per month** for office space and administrative support[124](index=124&type=chunk) - A deferred underwriting discount of **$8,050,000** is payable to the underwriter only if the Company completes a Business Combination[125](index=125&type=chunk) [Commitments and Contingencies](index=23&type=section&id=Commitments%20and%20Contingencies) The company has commitments related to registration rights for Founder Shares and Private Placement Warrants, and a forward purchase agreement with Franklin Strategic Series for $50 million in Class A common stock and warrants upon a business combination - Holders of **Founder Shares** and Private Placement Warrants are entitled to registration rights, requiring the Company to register such securities for resale[126](index=126&type=chunk) - The Company is committed to filing a registration statement for a secondary offering of forward purchase securities within **30 calendar days** after the closing of an initial business combination[127](index=127&type=chunk) - A forward purchase agreement with Franklin Strategic Series commits Franklin to purchase **5,000,000 Class A common stock** and **2,500,000 warrants** for **$50,000,000** concurrently with the closing of an initial business combination[128](index=128&type=chunk) [Critical Accounting Policies and Estimates](index=23&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Management identifies critical accounting policies involving significant judgment and estimates, including accounting for redeemable Class A common stock, net income per common stock using the two-class method, and fair value measurement of warrant liabilities - **Class A common stock** subject to possible redemption is classified as temporary equity and measured at redemption value[131](index=131&type=chunk) - Net income per common stock is calculated using the two-class method, allocating income/loss based on an **80%** (**Class A**) to **20%** (**Class B**) ratio[133](index=133&type=chunk) - Warrants are classified as derivative liabilities at fair value, subject to re-measurement at each balance sheet date, with changes recognized in the statement of operations[134](index=134&type=chunk)[135](index=135&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that quantitative and qualitative disclosures about market risk are not required for the company as it qualifies as a smaller reporting company - Disclosure on quantitative and qualitative market risk is not required for smaller reporting companies[138](index=138&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of June 30, 2022, due to a material weakness in accounting for complex financial instruments [Evaluation of Disclosure Controls and Procedures](index=25&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The CEO and CFO determined that the company's disclosure controls and procedures were not effective as of June 30, 2022, due to a material weakness in accounting for complex financial instruments - Disclosure controls and procedures were deemed not effective as of June 30, 2022[140](index=140&type=chunk) - The ineffectiveness is attributed to a material weakness in internal control over financial reporting related to accounting for complex financial instruments[140](index=140&type=chunk) [Previously Identified Material Weakness](index=25&type=section&id=Previously%20Identified%20Material%20Weakness) A material weakness in disclosure controls and procedures was previously identified as of December 31, 2021 - A material weakness in disclosure controls and procedures was previously identified as of December 31, 2021[141](index=141&type=chunk) [Remediation Activities](index=25&type=section&id=Remediation%20Activities) The company is implementing a remediation plan to improve its processes for identifying and applying accounting requirements for complex financial instruments, involving additional analyses - The Company is implementing a remediation plan to enhance processes for identifying and applying accounting requirements for complex financial instruments[142](index=142&type=chunk) [Changes in Internal Control over Financial Reporting](index=25&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No other material changes in internal control over financial reporting occurred during the quarter ended June 30, 2022, beyond the previously discussed material weakness - No other material changes in internal control over financial reporting occurred during the quarter ended June 30, 2022[143](index=143&type=chunk) [PART II. OTHER INFORMATION](index=25&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=25&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings as of the reporting date - There are no legal proceedings[145](index=145&type=chunk) [Item 1A. Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the Annual Report on Form 10-K for risk factors and highlights new risks related to the proposed extension of the business combination deadline and potential adverse effects from changes in SPAC regulations - Reference is made to Part I Item 1A. Risk Factors in the Annual Report on Form 10-K for the year ended December 31, 2021[146](index=146&type=chunk) - New risks include uncertainties regarding the approval and effectiveness of the extension request for the business combination deadline[147](index=147&type=chunk)[149](index=149&type=chunk) - Changes in laws or regulations, particularly proposed SEC rules relating to SPACs, may adversely affect the company's ability to complete a business combination and increase associated costs and time[151](index=151&type=chunk)[152](index=152&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported the unregistered sale of 3,397,155 Private Placement Warrants to the Sponsor and Metric for $5.1 million, which occurred simultaneously with the IPO - On September 14, 2021, **3,397,155 Private Placement Warrants** were sold to the Sponsor and Metric for **$1.50** per warrant, generating **$5,095,733**[153](index=153&type=chunk) - The issuance was exempt from registration under Section 4(a)(2) of the Securities Act of 1933[153](index=153&type=chunk) - Private Placement Warrants are not transferable/saleable until **30 days** after a Business Combination and are non-redeemable while held by initial purchasers[154](index=154&type=chunk) [Item 3. Defaults Upon Senior Securities](index=27&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - There are no defaults upon senior securities[155](index=155&type=chunk) [Item 4. Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reported no mine safety disclosures - There are no mine safety disclosures[156](index=156&type=chunk) [Item 5. Other Information](index=27&type=section&id=Item%205.%20Other%20Information) The company reported no other information - There is no other information to report[157](index=157&type=chunk) [Item 6. Exhibits](index=27&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with or incorporated by reference into the Form 10-Q, including the Amended and Restated Certificate of Incorporation, Bylaws, CEO/CFO certifications, and XBRL documents - The exhibit index includes the Amended and Restated Certificate of Incorporation, Bylaws, CEO/CFO certifications, and various Inline XBRL documents[159](index=159&type=chunk)

Financial Performance - The company had a net income of approximately $1.5 million for the three months ended March 31, 2022, consisting of $0.5 million in general and administrative expenses and a $0.1 million loss on the change in the fair value of the forward purchase unit liability, offset by a $2.1 million gain on the change in the fair value of warrant liability [108]. - The company generated gross proceeds of approximately $230 million from its Initial Public Offering, with offering costs amounting to approximately $22.5 million [103]. - As of March 31, 2022, the company had $597,522 in operating cash and working capital of $645,674 [109]. Business Combination - The company has until September 14, 2022, to consummate a Business Combination, with a potential extension to March 14, 2023 [106]. - The company has entered into a forward purchase agreement with Franklin Strategic Series for the purchase of 5,000,000 shares of Class A common stock and 2,500,000 forward purchase warrants for an aggregate purchase price of $50 million [119]. - The company incurred a deferred discount of $8,050,000 to the underwriter of the IPO, which will be payable only upon the completion of a Business Combination [116]. Financial Position and Resources - The company lacks sufficient financial resources to sustain operations for a reasonable period, raising substantial doubt about its ability to continue as a going concern [113]. - The company has no long-term debt or capital lease obligations as of March 31, 2022, but incurs a monthly fee of $10,000 for office space and administrative support [115]. - The company has no off-balance sheet arrangements as of March 31, 2022 [114]. Accounting Standards - FASB issued ASU No. 2020-06 to simplify accounting for convertible instruments, effective for fiscal years beginning after December 15, 2023 [126]. - ASU 2020-06 removes certain settlement conditions for equity contracts and simplifies diluted earnings per share calculation [126]. - The company is currently assessing the impact of ASU 2020-06 on its financial position, results of operations, or cash flows [126]. - Management does not believe that other recently issued accounting pronouncements would materially affect the balance sheet [127]. Market Risk Disclosures - Quantitative and qualitative disclosures about market risk are not required for smaller reporting companies [128].

Company Formation and Financial Overview - The company was formed as a blank check company on March 24, 2021, with no operations or identified business combination partner as of December 31, 2021[18]. - The company raised approximately $230 million from its Initial Public Offering, placing the net proceeds in a trust account[28]. - The company completed a private placement of 3,397,155 warrants at $1.50 each, generating gross proceeds of approximately $5.1 million[27]. - The net proceeds from the Initial Public Offering and related sales amount to up to $221,950,000 for completing the initial business combination[184]. Target Markets and Growth Potential - The target markets include aerospace, space, microelectronics, cybersecurity, power & energy, and autonomy & mobility, with significant growth potential[31]. - The U.S. space economy is projected to grow from approximately $385 billion in 2018 to about $1.5 trillion by 2040, representing an annual growth rate of approximately 6%[31]. - Global cybersecurity spending is expected to exceed $140 billion in 2021, driven by ongoing data protection initiatives[32]. Business Combination Strategy - The company aims to identify technology-enabled solutions with high-growth applications in government and commercial markets[19]. - The company is focused on acquiring companies with proprietary technologies and strong management teams that can benefit from its operational expertise[35]. - The initial business combination must involve target businesses with a fair market value equal to at least 80% of the assets held in the Trust Account[37]. - The company intends to use cash from the Initial Public Offering and private placement proceeds to effectuate the initial business combination, which may involve financially unstable or early-stage businesses[42]. Stockholder Rights and Redemption - Public stockholders will have the opportunity to redeem shares of Class A common stock at a per-share price of approximately $10.00, based on the amount in the Trust Account[67]. - The company will not redeem public shares if it would cause net tangible assets to fall below $5,000,001 upon consummation of the initial business combination[69]. - A majority of the outstanding shares must be voted in favor of the business combination for it to be approved, requiring at least 8,625,001 public shares or 37.5% of the 23,000,000 public shares sold[75]. - The company has a restriction on public stockholders redeeming more than 15% of their public shares without prior consent, aimed at preventing stockholders from blocking business combinations[80]. Risks and Challenges - The company may not have the ability to diversify operations and may focus on a single industry, which could expose it to significant risks[52]. - There is no assurance that key personnel will remain in senior management positions post-business combination, and additional managers may need to be recruited[55]. - The company has identified a material weakness in internal control over financial reporting, which could adversely affect investor confidence and financial results[122]. - The company may face challenges in completing a business combination due to the impact of COVID-19 and market conditions[130]. Regulatory and Compliance Issues - The company is classified as an "emerging growth company," allowing it to take advantage of certain exemptions from reporting requirements, which may affect the attractiveness of its securities to investors[113]. - The company is also a "smaller reporting company," which allows for reduced disclosure obligations, potentially complicating comparisons with other public companies[116]. - Compliance with laws and regulations may be difficult and costly, potentially affecting the ability to negotiate and complete the initial business combination[169]. Competition and Market Conditions - Intense competition is expected from other blank check companies, private equity groups, and operating businesses, which may limit the company's ability to acquire larger target businesses[110]. - The company may face intense competition for business combination opportunities, which could hinder the completion of its initial business combination[151]. Financial and Operational Considerations - The company may need to seek stockholder approval for its initial business combination, which could influence the public float of Class A common stock[144][146]. - If the company fails to complete a business combination within the specified time frame, it will cease operations except for winding up and redeeming public shares[142][143]. - The company may face difficulties in maintaining or obtaining the quotation or listing of its securities on a national exchange due to reduced public float from potential share purchases[146][148]. Future Plans and Considerations - The company may continue to seek a different target for the initial business combination if the first proposed combination is not completed[88]. - The company plans to redeem public shares promptly after the 12-month period from the initial public offering, subject to stockholder approval and applicable law[103]. - The company may pursue acquisition opportunities outside of the FLAG team's area of expertise, potentially impacting the evaluation of significant risk factors[178].