Sable Offshore(SOC) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents unaudited condensed financial statements, including balance sheets, operations, equity changes, cash flows, and detailed notes Condensed Balance Sheets Summarizes the company's financial position, detailing assets, liabilities, and stockholders' deficit at specific dates | Metric | September 30, 2023 (unaudited) | December 31, 2022 | | :----------------------------------- | :----------------------------- | :------------------ | | Total Assets | $64,895,514 | $290,906,765 | | Total Liabilities | $28,175,380 | $18,885,023 | | Class A Common Stock Subject to Possible Redemption | $63,123,555 | $290,347,008 | | Total Stockholders' Deficit | $(26,403,421) | $(18,325,266) | - Investments held in Trust Account significantly decreased from $290,718,297 at December 31, 2022, to $63,939,672 at September 30, 2023, primarily due to redemptions[8] - Total liabilities increased from $18,885,023 at December 31, 2022, to $28,175,380 at September 30, 2023, driven by increases in accounts payable, excise tax payable, and warrant liabilities[8] Condensed Statements of Operations Presents the company's financial performance, detailing revenues, expenses, and net income or loss over specific periods | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating costs | $996,938 | $1,281,508 | $3,485,342 | $2,012,339 | | Net (Loss) Income | $(10,473,375) | $(191,750) | $(3,397,274) | $9,054,942 | | Basic and diluted net (loss) income per redeemable Class A common share | $(0.68) | $(0.01) | $(0.17) | $0.25 | | Basic and diluted net (loss) income per non-redeemable Class A and Class B common share | $(0.68) | $(0.01) | $(0.17) | $0.25 | - The company reported a significant net loss of $10,473,375 for the three months ended September 30, 2023, compared to a net loss of $191,750 in the prior year period, primarily due to a large change in the fair value of warrant liabilities[11] - For the nine months ended September 30, 2023, the company incurred a net loss of $3,397,274, a reversal from the net income of $9,054,942 reported for the same period in 2022[11] Condensed Statements of Changes in Stockholders' Deficit Details changes in equity, including net income/loss, stock transactions, and accumulated deficit over time | Metric | December 31, 2022 | September 30, 2023 | | :------------------------------------------------ | :------------------ | :------------------- | | Total Stockholders' Deficit | $(18,325,266) | $(26,403,421) | | Accumulated Deficit | $(18,325,985) | $(26,404,140) | | Class A Common Stock Shares Outstanding | 0 | 7,187,500 | | Class B Common Stock Shares Outstanding | 7,187,500 | 0 | - The accumulated deficit increased from $(18,325,985) at December 31, 2022, to $(26,404,140) at September 30, 2023, reflecting the net losses incurred[14] - Class B common stock was fully converted to Class A common stock on August 22, 2023, resulting in 7,187,500 shares of Class A common stock outstanding (excluding redeemable shares) and zero Class B shares[14][31][71] Condensed Statements of Cash Flows Outlines cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(2,445,957) | $(837,530) | | Net cash provided by investing activities | $230,619,307 | $320,000 | | Net cash (used in) provided by financing activities | $(227,564,156) | $335,000 | | Net change in cash | $609,194 | $(182,530) | | Cash, end of the period | $709,450 | $140,238 | - Net cash provided by investing activities significantly increased to $230,619,307 for the nine months ended September 30, 2023, primarily due to cash withdrawn from the Trust Account in connection with redemptions[19] - Net cash used in financing activities was $(227,564,156) for the nine months ended September 30, 2023, mainly due to payments for redemptions of Class A common stock, partially offset by proceeds from promissory notes[19] Notes to Condensed Financial Statements Provides detailed explanations of accounting policies, financial instruments, and significant events impacting the financial statements Note 1 — Organization, and Business Operations Details the company's formation, merger agreement with Sable Offshore Corp., extension deadlines, and going concern risks - The Company entered into a Merger Agreement with Sable Offshore Corp. on November 2, 2022, with the Company to be renamed Sable Offshore Corp. upon closing[23][158] - Stockholders approved two extensions, moving the business combination deadline from March 1, 2023, to September 1, 2023, and then to March 1, 2024[28][32][33][163][169] | Redemption Event | Shares Redeemed | Percentage of Class A Stock | Amount Removed from Trust Account | | :----------------- | :-------------- | :-------------------------- | :-------------------------------- | | First Extension (Feb 27, 2023) | 20,317,255 | 70.67% | $206,121,060 | | Second Extension (Aug 29, 2023) | 2,328,063 | 27.61% | $24,008,096 | - The company faces substantial doubt about its ability to continue as a going concern if it cannot complete a business combination by March 1, 2024, or raise additional capital[50][177] - An excise tax payable of $2,308,378 was recognized for Class A common stock redemptions during the nine months ended September 30, 2023, due to the Inflation Reduction Act of 2022[55] Note 2— Significant Accounting Policies Outlines accounting policies for interim statements, financial instruments, income taxes, and new accounting standards - The company classifies Class A common stock subject to possible redemption as temporary equity, measured at redemption value, due to redemption rights outside the company's control[65] - Derivative warrant liabilities are recognized at fair value and re-measured each reporting period, with changes in fair value recognized in the condensed statements of operations[77] - Convertible promissory notes are accounted for using the fair value option, with initial fair value and subsequent changes recognized in the condensed statements of operations[78] | Period | Effective Tax Rate | | :----------------------------------- | :------------------- | | Three Months Ended Sep 30, 2023 | -1.42% | | Three Months Ended Sep 30, 2022 | 156.66% | | Nine Months Ended Sep 30, 2023 | -30.08% | | Nine Months Ended Sep 30, 2022 | 5.53% | Note 3 — Initial Public Offering Describes the company's IPO, including units sold, gross proceeds, and the composition of each unit - IPO on March 1, 2021, sold 28,750,000 units at $10.00 per unit, generating $287,500,000 gross proceeds[89] - Each unit consisted of one Class A common stock share and one-half of one redeemable public warrant, exercisable at $11.50 per share[89] Note 4 — Private Placement Warrants Explains the purchase of private placement warrants by initial stockholders and their exercise terms - Initial stockholders purchased 7,750,000 private placement warrants at $1.00 per warrant, generating $7,750,000[90] - Each private placement warrant is exercisable for one share of Class A common stock at $11.50 per share[90] Note 5 — Related Party Transactions Details transactions with related parties, including founder share conversions and various working capital loans - Founder shares (Class B common stock) were converted to Class A common stock on August 22, 2023, with 7,187,500 shares issued to the Sponsor and other initial stockholders[93] - The company has entered into multiple non-interest bearing working capital loans (convertible promissory notes) and promissory notes with the Sponsor and related parties to finance transaction costs and acquisition target expenditures[94][107] | Convertible Promissory Notes (Principal Value) | September 30, 2023 | | :--------------------------------------------- | :------------------- | | First Working Capital Loan | $365,000 | | Second Working Capital Loan | $800,000 | | Third Working Capital Loan | $335,000 | | Q3 2022 Promissory Note | $170,000 | | Q4 2022 Promissory Note | $200,000 | | Q1 2023 Promissory Note (convertible portion) | $356,370 | | First Q2 2023 Promissory Note | $395,000 | | Fourth Q2 2023 Promissory Note | $50,000 | | First Q3 2023 Promissory Note | $635,000 | | Total Convertible Notes | $3,306,370 | | Promissory Notes (Principal Value) | September 30, 2023 | | :--------------------------------- | :------------------- | | Q1 2023 Promissory Note (non-convertible portion) | $178,630 | | Second Q2 2023 Promissory Note | $355,000 | | Third Q2 2023 Promissory Note | $100,000 | | Second Q3 2023 Promissory Note | $495,000 | | Total Promissory Notes | $1,128,630 | Note 6 — Commitments and Contingencies Covers commitments like registration rights and business combination marketing fees, along with deferred legal costs - Holders of Founder Shares, Private Placement Warrants, and warrants from Working Capital Loans are entitled to registration rights[113] - A marketing fee of 3.5% of IPO gross proceeds ($10,062,500) is due to underwriters upon consummation of the initial business combination[114][179] - Deferred legal costs related to the prospective business combination amounted to $3,623,594 as of September 30, 2023[116] Note 7 — Stockholders' Deficit Details authorized and outstanding shares, significant Class A common stock redemptions, and Class B conversion - No preferred stock was issued or outstanding as of September 30, 2023, and December 31, 2022[117] - 7,187,500 shares of Class A common stock were issued and outstanding at September 30, 2023, excluding redeemable shares[118] - All 7,187,500 shares of Class B common stock were converted to Class A common stock on August 22, 2023, resulting in no Class B shares outstanding[119][120] - Stockholders holding 22,645,318 shares of Class A common stock exercised redemption rights during the nine months ended September 30, 2023, resulting in $230,129,156 being removed from the Trust Account[70][118] Note 8 — Warrants Describes public and private warrant terms, including exercisability, expiration, and redemption conditions - Public Warrants become exercisable on the later of 30 days after business combination completion or 12 months from IPO closing, expiring five years from business combination completion[125] - The company may redeem public warrants for cash if Class A common stock price equals or exceeds $10.00 per share, or for shares if the price equals or exceeds $18.00 per share[128][130][137] - Private Placement Warrants are identical to Public Warrants but are non-transferable, exercisable on a cashless basis, and non-redeemable as long as held by initial purchasers[134] Note 9— Fair Value Measurements Details fair value measurements for assets and liabilities, including valuation inputs for warrants and convertible notes | Description | Level | September 30, 2023 | Level | December 31, 2022 | | :------------------------------------ | :---- | :------------------- | :---- | :------------------ | | Funds Held in Trust Account | 1 | $0 | 1 | $290,718,297 | | Warrant liability—Public Warrants | 1 | $11,500,000 | 1 | $9,343,750 | | Warrant liability—Private Warrants | 3 | $3,654,125 | 3 | $2,805,500 | | Convertible Promissory Notes—Related Parties | 3 | $2,645,096 | 3 | $1,409,730 | - Investments in the Trust Account were liquidated to cash during the nine months ended September 30, 2023, resulting in $0 in marketable securities at period-end[140] - The fair value of warrant liabilities increased from $12,149,250 at December 31, 2022, to $15,154,125 at September 30, 2023, with private warrants valued using Level 3 inputs (Modified Black-Scholes Option Pricing Model)[142][148] - The fair value of convertible promissory notes increased from $1,409,730 at December 31, 2022, to $2,645,096 at September 30, 2023, valued using Level 3 inputs (Black-Scholes and Geske models)[139][149][151] Note 10 — Subsequent Events Reports on post-period events, specifically amendments to the Proxy Statement filed to address SEC Staff comments - Amendments to the Proxy Statement were filed on October 13, 2023, and November 6, 2023, to address SEC Staff comments[153] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on financial condition, operations, proposed business combination, liquidity, and going concern risks Special Note Regarding Forward-Looking Statements Highlights that the report contains forward-looking statements subject to risks and uncertainties, advising caution - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[156] - Readers are advised to refer to the Risk Factors section in prior SEC filings for important factors that could impact actual results[156] Overview Introduces Flame Acquisition Corp. as a Delaware-incorporated blank check company formed to effect a business combination - Flame Acquisition Corp. is a Delaware-incorporated blank check company formed on October 16, 2020, to effect a business combination[157] - The company is an emerging growth company, subject to associated risks[157] Potential Business Combination Details the proposed merger agreement with Sable Offshore Corp. and the conditions for its consummation - The company entered into a Merger Agreement with Sable Offshore Corp. on November 2, 2022, which involves Holdco and SOC merging into the Company, with the Company surviving and changing its name to Sable Offshore Corp[158] - Consummation of the Business Combination is subject to customary closing conditions, and there is no assurance it will be completed at the expected time or at all[159] Recent Developments Covers recent events like Trust Account liquidation, extension approvals, and Class A common stock redemptions - On February 21, 2023, the company liquidated Trust Account investments to cash to mitigate the risk of being deemed an unregistered investment company[162] - Stockholders approved extensions to the business combination deadline, first to September 1, 2023, and then to March 1, 2024, resulting in significant Class A common stock redemptions[163][168][169] - On August 22, 2023, 7,187,500 shares of Class B common stock were converted to Class A common stock[167] Results of Operations Analyzes the company's financial performance, focusing on net loss, interest income, and changes in warrant fair value - The company has not generated operating revenues and its activities are focused on its formation, IPO, and search for a business combination target[170] | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net (Loss) Income | $(10,473,375) | $(191,750) | $(3,397,274) | $9,054,942 | | Interest income from Trust Account | $699,906 | $1,245,964 | $3,840,682 | $1,615,323 | | Change in fair value of warrant liabilities | $(9,271,875) | $372,750 | $(3,004,875) | $10,003,125 | | Operating costs | $996,938 | $1,281,508 | $3,485,342 | $2,012,339 | Going Concern Assesses the company's ability to continue operations, citing cash position, working capital deficit, and liquidation risk - As of September 30, 2023, the company had $709,450 in cash and a working capital deficit of approximately $12,065,413[177] - The company is subject to mandatory liquidation if it does not complete its initial business combination by March 1, 2024[177] - These factors raise substantial doubt about the company's ability to continue as a going concern[177] Liquidity and Capital Resources Examines the company's cash sources, including IPO proceeds and related party loans, and their restricted use - The company's liquidity sources include IPO proceeds and related party loans[178] - IPO generated gross proceeds of $287,500,000, with $287,500,000 placed in the Trust Account[179][181] - The Trust Account funds are restricted and will not be released until a business combination, specific amendments, or liquidation by March 1, 2024[181][182] | Related Party Loans (Principal Value) | September 30, 2023 | | :------------------------------------ | :------------------- | | Convertible Working Capital Loans | $3,306,370 | | Non-Convertible Promissory Note Loans | $1,128,630 | | Total Related Party Loans | $4,435,000 | Critical Accounting Estimates Identifies key accounting estimates, such as fair value of financial instruments, and notes no material changes - Key accounting estimates include the fair value of financial instruments and accrued expenses[198] - No material changes to critical accounting estimates were reported during the period[198] Recent Accounting Pronouncements Discusses the impact of new accounting standards, particularly ASU 2020-06, on the company's financial statements - The company is reviewing ASU 2020-06, effective January 1, 2024, which simplifies accounting for convertible instruments and equity-linked contracts[199] - Management does not believe other recently issued, but not yet effective, accounting standards will materially affect financial statements[200] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Flame Acquisition Corp. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is exempt from providing quantitative and qualitative disclosures about market risk[201] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to material weaknesses in accounting for complex financial instruments Evaluation of Disclosure Controls and Procedures Concludes on the effectiveness of disclosure controls, noting material weaknesses in accounting for complex financial instruments - Disclosure controls and procedures were deemed not effective as of September 30, 2023[203] - Ineffectiveness was due to material weaknesses in internal control over financial reporting related to accounting for complex financial instruments, which resulted in prior financial statement restatements[203] Changes in Internal Control over Financial Reporting Reports on any material changes in internal control over financial reporting during the most recent fiscal quarter - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[204] PART II – OTHER INFORMATION Item 1. Legal Proceedings Flame Acquisition Corp. reported no legal proceedings as of the filing date - There are no legal proceedings to report[205] Item 1A. Risk Factors The company refers to the risk factors detailed in its Annual Report on Form 10-K and preliminary proxy statement - Risk factors are described in the Annual Report on Form 10-K for 2022 and the preliminary proxy statement[206] - No material changes to the disclosed risk factors have occurred as of the date of this Quarterly Report[206] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Flame Acquisition Corp. reported no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds to report[207] Item 3. Defaults Upon Senior Securities Flame Acquisition Corp. reported no defaults upon senior securities during the period - No defaults upon senior securities to report[208] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to Flame Acquisition Corp - Mine Safety Disclosures are not applicable[209] Item 5. Other Information Flame Acquisition Corp. reported no other information requiring disclosure under this item - No other information to report[210] Item 6. Exhibits This section lists the exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q - Exhibits include Promissory Notes dated August 30, 2023, certifications from principal executive and financial officers, and XBRL instance documents[212] SIGNATURES SIGNATURES Confirms the official signing of the report by the company's principal executive and financial officers - The report was signed by James C. Flores, Chairman and Chief Executive Officer, and Gregory D. Patrinely, Executive Vice President and Chief Financial Officer, on November 14, 2023[215][216][217]