Sable Offshore(SOC) - 2022 Q4 - Annual Report

PART I This section provides an overview of the company's business, its initial public offering, and the significant risks associated with its operations as a blank check company Item 1. Business The company, a SPAC formed in October 2020, aims to acquire an energy business, recently entering a merger agreement with Sable Offshore Corp. and extending its business combination deadline to September 1, 2023 - Flame Acquisition Corp. was incorporated on October 16, 2020, as a Delaware corporation, formed to effect a business combination[15] - The company intends to focus on opportunities that capitalize on its management team's expertise, particularly Chairman and CEO James C. Flores, to identify, acquire, and operate a business in the energy industry, primarily targeting the upstream exploration and production sector, midstream sector, and new advancing technologies[15] Initial Public Offering Details (March 1, 2021) | Metric | Value (Units/USD) | | :----- | :---------------- | | Units Offered | 28,750,000 units | | Price Per Unit | $10.00 | | Gross Proceeds | $287,500,000 | | Private Placement Warrants | 7,750,000 warrants | | Private Placement Warrant Price | $1.00 | | Private Placement Proceeds | $7,750,000 | | Total Proceeds to Trust Account | $287,500,000 | - Units began trading on February 25, 2021, on the NYSE under 'FLME.U', with common stock ('FLME') and warrants ('FLME.WS') beginning separate trading on April 19, 2021[19] Potential Business Combination - On November 2, 2022, the company entered into a merger agreement with Sable Offshore Corp. and Sable Offshore Holdings, LLC (Sable), which will result in Sable merging into Flame Acquisition Corp., and the combined entity will be renamed Sable Offshore Corp.[20][309] - The closing of the Merger is subject to customary conditions and is expected to occur on the third business day after satisfaction or waiver of these conditions[21][310] - In connection with the Business Combination, Holdco entered into Sable PIPE Subscription Agreements with certain investors to purchase 7,450,000 Class B shares at $10.00 per share, totaling approximately $74,500,000[23][312] - The company intends to pursue additional private placement subscriptions (Flame PIPE Subscription Agreements) up to $400 million, including the Sable PIPE Investment, prior to the closing of the Business Combination[25][314] - A Registration Rights Agreement will be entered into at closing, granting holders of Holdco Class A shares certain registration rights for Flame Class A common stock received in the merger, subject to a three-year lock-up period[27][29][315][317] Recent Events - On February 21, 2023, the investments in U.S. government securities or money market funds held in the Trust Account were liquidated to be held in cash to mitigate the risk of being deemed an unregistered investment company[31][319] - On February 27, 2023, stockholders approved an amendment to extend the business combination completion date from March 1, 2023, to September 1, 2023[32][320] - In connection with the extension, 20,317,255 shares of Class A Common Stock (approximately 70.67%) were redeemed, resulting in $206,121,060 being removed from the Trust Account[32][320] Acquisition Criteria - The company's acquisition criteria include attractive returns, significant free cash flow, low-risk development upside, high operational control, conservative leverage profile, bolt-on acquisition opportunities, access to infrastructure and end markets, and a strong track record in health, safety, and environmental stewardship[34][40] Our Business Strategy - The company's strategy is to identify and acquire businesses with high-quality assets, substantial upside potential, significant free cash flow, and operational control, leveraging its team's extensive experience and network in the energy industry[37][38][39][41] Industry Opportunity - The company believes the energy industry, particularly E&P, offers compelling opportunities due to strong core industry fundamentals (demand growth, disciplined capital spending), a large fragmented target market, lack of competition from exiting capital providers, and the need for experienced management in M&A and public company operations[42][44] Initial Business Combination - The initial business combination must involve target businesses with an aggregate fair market value of at least 80% of the net assets in the Trust Account[42][45] - The post-business combination company must own or acquire 50% or more of the outstanding voting securities or a controlling interest in the target to avoid being registered as an investment company[43] Our Acquisition Process - The acquisition process involves extensive due diligence, including meetings with management, document reviews, and facility inspections, leveraging the team's operational and capital planning experience[48] - Potential conflicts of interest may arise if management team members own common stock/warrants or have fiduciary obligations to other entities, but the company's certificate of incorporation renounces interest in opportunities not expressly offered to them in their company capacity[49][50] Status as a Public Company - Being an existing public company offers target businesses an alternative to traditional IPOs, potentially providing greater access to capital and management incentives[52][53] - The company is an 'emerging growth company' and a 'smaller reporting company,' allowing it to take advantage of certain exemptions from disclosure requirements, though it has irrevocably opted out of the extended transition period for new accounting standards[54][55][56][57] Effecting our Initial Business Combination - The company intends to use cash from its IPO and private placement warrants, capital stock, debt, or a combination thereof as consideration for its initial business combination[58] - Additional funds may be raised through private offerings of debt or equity securities in connection with the business combination, not exceeding $400 million[25][60] Sources of Target Businesses - Target business candidates are expected from proprietary transaction opportunities through the team's network, as well as from unaffiliated sources like investment banking firms, consultants, and private equity groups[63] - The company is not prohibited from pursuing an initial business combination with an affiliated target, but would obtain a fairness opinion from an independent firm in such cases[64] Lack of Business Diversification - Post-business combination, the company's success may depend entirely on a single business, leading to potential vulnerability to negative economic, competitive, and regulatory developments[65][67] Limited Ability to Evaluate the Target's Management Team - The company's assessment of a target business's management may not be correct, and future management may lack the necessary skills for a public company, potentially impacting operations and profitability[66][69] Stockholders May Not Have the Ability to Approve our Initial Business Combination - Stockholder approval for a business combination may not be required if conducted via tender offer, unless mandated by law or stock exchange rules (e.g., issuing more than 20% of common stock or a merger where the company does not survive)[70][71] Permitted Purchases of Our Securities - Founders, directors, officers, advisors, or their affiliates may purchase public shares or warrants in privately negotiated transactions or on the open market to influence a vote or satisfy closing conditions, but no Trust Account funds will be used[72][73][74] Redemption Rights for Public Stockholders upon Completion of our Initial Business Combination - Public stockholders have the right to redeem their Class A common stock for a pro-rata cash portion of the Trust Account upon completion of the initial business combination, subject to certain limitations[78] - Founders, officers, and directors have waived their redemption rights for founder shares and public shares in connection with the business combination or certain charter amendments[78] Manner of Conducting Redemptions - Redemptions can be conducted via tender offer (Rule 13e-4 and Regulation 14E) or in conjunction with a proxy solicitation (Regulation 14A), depending on whether stockholder approval is required by law or stock exchange rules[80][81][83] - If stockholder approval is sought, the initial stockholders have agreed to vote their shares in favor of the business combination, making approval more likely[84] Limitation on Redemption upon Completion of our Initial Business Combination if we Seek Stockholder Approval - The company's certificate of incorporation restricts stockholders from redeeming more than 15% of their shares (Excess Shares) if stockholder approval is sought and redemptions are not conducted via tender offer, to prevent large blocks of shares from blocking a business combination[87] Tendering Stock Certificates in Connection with a Tender Of er or Redemption Rights - Public stockholders exercising redemption rights may be required to tender their certificates to the transfer agent prior to the tender offer close or stockholder meeting vote, ensuring the election to redeem is irrevocable[88][92] Redemption of Public Shares and Liquidation if no Initial Business Combination - If a business combination is not completed by September 1, 2023, the company will cease operations, redeem public shares at a pro-rata cash price from the Trust Account (less up to $100,000 for dissolution expenses), and then dissolve and liquidate[96][107] - Warrants will expire worthless if no initial business combination is completed by the deadline[96] - The sponsor has agreed to indemnify the company if third-party claims reduce the Trust Account below $10.00 per public share (or lesser value of trust assets), except for claims from parties who waived rights to the Trust Account or claims under the underwriters' indemnity[102][108] - Stockholders could potentially be liable for claims by creditors to the extent of distributions received if the company does not comply with DGCL Section 280 procedures for dissolution[106][107] Competition - The company faces intense competition from other entities (SPACs, private equity, public companies) for target businesses, many of whom have greater financial, technical, and human resources[113] Employees - The company currently has five officers and no full-time employees, with management team members dedicating time as needed for business combination efforts[114] Periodic Reporting and Financial Information - As a public company, Flame Acquisition Corp. has reporting obligations under the Exchange Act, including filing annual, quarterly, and current reports with the SEC[115] - The company is required to provide audited financial statements of prospective target businesses, which may limit the pool of potential targets if they cannot meet GAAP/IFRS and PCAOB audit standards in time[116] Item 1A. Risk Factors Significant risks include uncertainty of completing a business combination by September 1, 2023, potential delisting, accounting complexities, and conflicts of interest - The company is a newly formed entity with no operating history or revenues, making its ability to achieve its business objective of completing an initial business combination uncertain[120] - The independent auditor's report expresses substantial doubt about the company's ability to continue as a 'going concern' due to limited cash, a working capital deficiency, and the mandatory liquidation requirement if a business combination is not completed by September 1, 2023[121][333] - Public stockholders may not have an opportunity to vote on a proposed business combination if it doesn't require stockholder approval under applicable law or stock exchange rules, meaning a combination could be completed without majority support[122][125] - The initial stockholders have agreed to vote their founder shares and any public shares in favor of the initial business combination, increasing the likelihood of approval regardless of public stockholder votes[124] - The ability of public stockholders to redeem shares for cash may make the company financially unattractive to potential targets, especially if a minimum net worth or cash amount is a closing condition[126] - The reduced size of the Trust Account (to $85,551,238.80 after redemptions related to the Extension) may make it more difficult to complete an initial business combination on commercially acceptable terms[130][131] - If the initial business combination is not completed by September 1, 2023, public stockholders may receive only approximately $10.00 per share (or less in certain circumstances), and warrants will expire worthless[133][145] - The NYSE may delist the company's securities if it fails to meet initial listing requirements post-business combination, especially given the increased likelihood of failing minimum public stockholders' equity and round lot holders thresholds after significant redemptions[138][139] - The company is exempt from certain SEC rules protecting investors in blank check companies (e.g., Rule 419), meaning investors do not receive those benefits or protections[141] - The company has identified material weaknesses in its internal control over financial reporting related to the accounting for warrants and the classification of redeemable Class A common stock, leading to financial statement restatements[267][273][274] - The Inflation Reduction Act of 2022 imposes a new 1% U.S. federal excise tax on certain stock repurchases (including redemptions) occurring after December 31, 2022, which could impact the cash available for a business combination[287][288][841][842] Risks Relating to our Search for, and Consummation of or Inability to Consummate, a Business Combination - The company is a newly formed entity with no operating history or revenues, making its ability to achieve its business objective of completing an initial business combination uncertain[120] - The independent auditor's report expresses substantial doubt about the company's ability to continue as a 'going concern' due to limited cash, a working capital deficiency, and the mandatory liquidation requirement if a business combination is not completed by September 1, 2023[121][333] - Public stockholders may not have an opportunity to vote on a proposed business combination if it doesn't require stockholder approval under applicable law or stock exchange rules, meaning a combination could be completed without majority support[122][125] - The initial stockholders have agreed to vote their founder shares and any public shares in favor of the initial business combination, increasing the likelihood of approval regardless of public stockholder votes[124] - The ability of public stockholders to redeem shares for cash may make the company financially unattractive to potential targets, especially if a minimum net worth or cash amount is a closing condition[126] - The reduced size of the Trust Account (to $85,551,238.80 after redemptions related to the Extension) may make it more difficult to complete an initial business combination on commercially acceptable terms[130][131] - The September 1, 2023 deadline for completing a business combination may give potential targets leverage in negotiations and limit due diligence time[132] - If the initial business combination is not completed by September 1, 2023, public stockholders may receive only approximately $10.00 per share (or less in certain circumstances), and warrants will expire worthless[133][145] - The NYSE may delist the company's securities if it fails to meet initial listing requirements post-business combination, especially given the increased likelihood of failing minimum public stockholders' equity and round lot holders thresholds after significant redemptions[138][139] - The company is exempt from certain SEC rules protecting investors in blank check companies (e.g., Rule 419), meaning investors do not receive those benefits or protections[141] - Stockholders holding more than 15% of Class A common stock may lose the ability to redeem excess shares if stockholder approval is sought and redemptions are not conducted via tender offer[143] - Limited resources and significant competition for business combination opportunities may hinder the company's ability to complete an initial business combination[144] - Insufficient funds outside the Trust Account may prevent the company from operating until September 1, 2023, or completing a business combination, requiring reliance on loans from the sponsor or management team[146][148][149][150] - Third-party claims against the company could reduce the Trust Account proceeds, potentially leading to a per-share redemption amount less than $10.00[151][152] - Independent directors may choose not to enforce the sponsor's indemnification obligations, further reducing funds available for public stockholders[154][155] - If deemed an investment company under the Investment Company Act, the company's activities would be severely restricted, potentially forcing liquidation[160][162][163] - Holding Trust Account funds in cash (instead of U.S. government securities) will likely result in minimal interest, reducing the dollar amount public stockholders receive upon redemption or liquidation[166][167] - Changes in laws or regulations, including proposed SEC rules for SPACs, may adversely affect the business and increase costs/time for a business combination[168][169] - Stockholders may be held liable for third-party claims to the extent of distributions received upon redemption if the company does not comply with Delaware law dissolution procedures[170][172] - The company may not hold an annual meeting of stockholders until after the business combination, delaying the opportunity for stockholders to elect directors[173] - Registration rights granted to initial stockholders and transferees may make a business combination more difficult and adversely affect the market price of Class A common stock[174] - The company is not limited to a particular industry, sector, or geography, making it difficult for investors to ascertain the merits or risks of any specific target business's operations[175] Risks Relating to the Post-Business Combination Company - Post-business combination, the company may be required to take write-downs, write-offs, restructuring, or impairment charges, negatively impacting financial condition, results of operations, and stock price[227] - Management may not maintain control of a target business, and new management may lack the necessary skills to profitably operate a public company[228][229] - The exercise price for public warrants is higher than many past blank check company offerings, increasing the likelihood of warrants expiring worthless[232] - The company may amend warrant terms adversely to public warrant holders with approval from 50% of outstanding public warrants, potentially increasing exercise price, shortening exercise period, or decreasing shares purchasable[238] - The company may redeem unexpired warrants prior to their exercise at a disadvantageous time, making them worthless, if Class A common stock price meets certain thresholds[242][243] - Provisions in the amended and restated certificate of incorporation and Delaware law may inhibit a takeover, potentially limiting the future price of Class A common stock and entrenching management[245][246] - The certificate of incorporation designates Delaware courts as the exclusive forum for certain stockholder actions, potentially limiting stockholders' ability to choose a favorable judicial forum[247][248] Risks Relating to Acquiring and Operating a Business in Foreign Countries - Acquiring a company with international operations would subject the company to additional risks, including higher costs, compliance with diverse legal requirements, currency fluctuations, political instability, and potential government appropriations[250][252] Risks Relating to our Management Team - The company is dependent on its officers and directors, and their loss could adversely affect its ability to operate, as there are no employment agreements or key-man insurance[254][256] - Management team members may negotiate employment or consulting agreements with a target business, potentially creating conflicts of interest in selecting a business combination[257] - Officers and directors may allocate their time to other businesses, leading to conflicts of interest and potentially negatively impacting the company's ability to complete a business combination[260] - Certain officers and directors are affiliated with other entities engaged in similar business activities, creating potential conflicts of interest in presenting business opportunities[262][263] General Risk Factors - The SEC's guidance on warrant accounting required the company to classify warrants as liabilities and restate previously issued financial statements, leading to unanticipated costs and diversion of management resources[266] - The company has identified a material weakness in its internal control over financial reporting related to accounting for complex financial instruments, which could continue to affect accurate and timely financial reporting[267][273][274] - Warrants are accounted for as derivative liabilities, with changes in fair value reported in earnings, leading to quarterly fluctuations in financial statements and potential adverse effects on stock price[270][271] - As an emerging growth company and smaller reporting company, the company takes advantage of reduced disclosure obligations, which may make its securities less attractive to investors or difficult to compare with other public companies[281][284] - Cyber incidents or attacks could result in information theft, data corruption, operational disruption, and financial loss, especially given the company's early stage and limited investment in data security[285] - A new 1% U.S. federal excise tax may be imposed on stock repurchases (including redemptions) after December 31, 2022, potentially reducing cash available for a business combination[287][288][841][842] - The company could be classified as a personal holding company (PHC) for U.S. federal income tax purposes, subjecting it to an additional 20% PHC tax on undistributed PHC income[290][292] Item 1B. Unresolved Staff Comments The company has no unresolved staff comments from the SEC - Not applicable[294] Item 2. Properties The company does not own any material real estate or physical properties, considering its current executive office space adequate for operations - The company does not own any real estate or other physical properties materially important to its operation[295] - Its executive office is located at 700 Milam Street, Suite 3300, Houston, Texas 77002, and is considered adequate for current operations[295] Item 3. Legal Proceedings To the best of management's knowledge, there is no pending or contemplated litigation against the company or its officers and directors - To the knowledge of management, there is no litigation currently pending or contemplated against the company, any of its officers or directors in their capacity as such or against any of its property[296] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[297] PART II This section details the company's market for equity, financial condition, results of operations, and internal controls Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's units, Class A common stock, and warrants are traded on the NYSE, with limited record holders and no issuer purchases of equity securities during the period - The company's units, Class A common stock, and warrants trade on the NYSE under the symbols 'FLME.U', 'FLME', and 'FLME.WS', respectively[298] Holders of Record (March 28, 2023) | Security Type | Holders of Record (Count) | | :------------ | :------------------------ | | Units | 1 | | Class A Common Stock | 2 | | Public Warrants | 1 | | Class B Common Stock | 8 | | Private Placement Warrants | 8 | - No securities were authorized for issuance under equity compensation plans[300] Initial Public Offering and Private Placement Proceeds (March 1, 2021) | Item | Amount (USD) | | :------------------------------------------------ | :------------- | | Private Placement Warrants Sold | 7,750,000 | | Private Placement Proceeds | $7,750,000 | | IPO Units Sold | 28,750,000 | | IPO Gross Proceeds | $287,500,000 | | Underwriting Discounts and Commissions Paid | $5,750,000 | | Other Offering Costs | $857,751 | | Deferred Underwriting Commissions | $10,062,500 | | Total Net Proceeds to Trust Account | $287,500,000 | - No purchases of equity securities were made by the issuer or affiliated purchasers[304] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The company, a blank check entity, has no operating revenues, focusing on its IPO and a potential merger with Sable Offshore Corp., facing 'going concern' doubts due to limited liquidity and a September 1, 2023 deadline - The company is a blank check company with no operating history or revenues, focused on completing a business combination in the energy industry[307][328] - On November 2, 2022, the company entered into a merger agreement with Sable Offshore Corp. and Sable Offshore Holdings, LLC, with the combined entity to be named Sable Offshore Corp.[309] - In connection with the Business Combination, Holdco entered into Sable PIPE Subscription Agreements for approximately $74,500,000, and the company intends to pursue additional private placement subscriptions up to $400 million[312][314] - On February 21, 2023, Trust Account investments were liquidated to cash to mitigate investment company risk[319][326] - On February 27, 2023, stockholders approved an extension of the business combination deadline to September 1, 2023[320][321] - This resulted in the redemption of 20,317,255 Class A Common Stock shares, removing $206,121,060 from the Trust Account[320][321] Liquidity and Capital Resources (December 31, 2022) | Metric | Amount (USD) | | :-------------------------------- | :------------- | | Cash | $100,256 | | Working Capital Deficit | $(6,547,305) | | Trust Account Balance | $290,718,297 | | Trust Account Available for Withdrawal (net of taxes) | $3,218,297 | | Working Capital Loans Drawn Down | $1,500,000 | - The company's liquidity needs are met through funds outside the Trust Account and Working Capital Loans from initial stockholders, officers, and directors, which may be repaid or converted into warrants[329][330][341] - The company's ability to continue as a going concern is in substantial doubt due to insufficient capital to complete its planned activities and the mandatory liquidation requirement if a business combination is not completed by September 1, 2023[330][333][438][478] - The Inflation Reduction Act of 2022 imposes a new 1% U.S. federal excise tax on certain stock repurchases after December 31, 2022, which could affect cash available for a business combination[841][842] Overview - Flame Acquisition Corp. is a blank check company incorporated in Delaware on October 16, 2020, for the purpose of effecting a business combination[307] - The company is an emerging growth company and its sponsor is Flame Acquisition Sponsor LLC[307] Potential Business Combination - On November 2, 2022, the company entered into a merger agreement with Sable Offshore Corp. and Sable Offshore Holdings, LLC, with the combined entity to be named Sable Offshore Corp.[309] - The closing of the Merger is subject to customary conditions and is expected to occur on the third business day after satisfaction or waiver of these conditions[310] - In connection with the Business Combination, Holdco entered into Sable PIPE Subscription Agreements for approximately $74,500,000, and the company intends to pursue additional private placement subscriptions up to $400 million[312][314] - A Registration Rights Agreement will be entered into at closing, granting holders of Holdco Class A shares certain registration rights for Flame Class A common stock received in the merger, subject to a three-year lock-up period[315][317] Recent Events - On February 21, 2023, Trust Account investments were liquidated to cash to mitigate investment company risk[319] - On February 27, 2023, stockholders approved an extension of the business combination deadline to September 1, 2023[320] - This resulted in the redemption of 20,317,255 Class A Common Stock shares, removing $206,121,060 from the Trust Account[320][321] Liquidity and Capital Resources Liquidity and Capital Resources (December 31, 2022) | Metric | Amount (USD) | | :-------------------------------- | :------------- | | Cash | $100,256 | | Working Capital Deficit | $(6,547,305) | | Trust Account Balance | $290,718,297 | | Trust Account Available for Withdrawal (net of taxes) | $3,218,297 | - The company's liquidity needs are met through funds outside the Trust Account and Working Capital Loans from initial stockholders, officers, and directors, which may be repaid or converted into warrants[329][330][341] - The company's ability to continue as a going concern is in substantial doubt due to insufficient capital to complete its planned activities and the mandatory liquidation requirement if a business combination is not completed by September 1, 2023[330][333][438][478] Results of Operations - The company has not engaged in operations or generated operating revenues since inception, with activities focused on formation, IPO, and searching for a business combination[328][463] Net Income (Loss) Summary | Metric | Year Ended Dec 31, 2022 (USD) | Year Ended Dec 31, 2021 (USD) | | :-------------------------------------- | :---------------------------- | :---------------------------- | | Net (Loss) Income | $(2,590,948) | $4,273,078 | | Interest Income from Trust Account | $3,989,061 | $16,153 | | Change in Fair Value of Warrants | $498,000 | $6,155,125 | | Operating Costs | $6,150,199 | $1,682,816 | | Income Tax Expense | $757,069 | $0 | | Change in Fair Value of Promissory Notes | $(170,741) | $83,768 | Going Concern - As of December 31, 2022, the company had $100,256 in cash and a working capital deficit of $6,547,305, raising substantial doubt about its ability to continue as a going concern[333][475] - The company is subject to mandatory liquidation if it does not complete its initial business combination by September 1, 2023[333][478] - Liquidity needs have been met through founder share sales, IPO proceeds, and various promissory notes from related parties, with additional loans potentially needed[334][476][478] Related Party Transactions - Founders acquired 7,187,500 founder shares for $25,000 in November 2020, with some shares transferred to independent directors and executives at original purchase price[335][513] - Initial stockholders agreed to transfer restrictions on founder shares until one year after business combination or certain stock price/liquidation events[336][515] - Simultaneously with the IPO, initial stockholders purchased 7,750,000 private placement warrants for $7,750,000, exercisable at $11.50 per share[337][512] - The company has entered into several non-interest bearing Working Capital Loans with the Sponsor and its affiliates, totaling $1,500,000 drawn down as of December 31, 2022, which may be convertible into warrants[340][341][517][518][520][521][522][523][524] Commitments and Contingencies - Holders of founder shares, private placement warrants, and working capital loan warrants are entitled to registration rights, with the company bearing filing expenses[343][526] - A deferred underwriting fee of $10,062,500 is payable to underwriters upon consummation of an initial business combination[344][528] - As of December 31, 2022, the company incurred $2,633,139 in unbilled legal costs related to its prospective initial Business Combination, deferred until completion[530] Critical Accounting Estimates - Investments held in the Trust Account (U.S. government securities or money market funds) are classified as trading securities and reported at fair value, with gains/losses in earnings[346][490] - Class A common stock subject to possible redemption is classified as temporary equity and measured at redemption value, with changes recognized immediately[347][349][492][493] - Net income (loss) per share is computed by dividing net income by the weighted average number of shares, with redeemable Class A common stock remeasurement excluded[350][351][496] - All outstanding warrants are recognized as derivative liabilities at fair value, adjusted each reporting period, with changes recognized in the statement of operations[352][353][501] - Convertible promissory notes are accounted for under the fair value option, recorded at initial fair value, with changes recognized as non-cash gains or losses in the statements of operations[354][502] - The company is reviewing ASU 2020-06, which simplifies accounting for convertible instruments and equity-linked contracts, for its potential impact[355][509] JOBS Act - As an 'emerging growth company' under the JOBS Act, the company can delay adopting new or revised accounting pronouncements to align with private company effective dates, but has irrevocably opted out of this extended transition period[283][357][485] - The company may also rely on other reduced reporting requirements, such as exemptions from auditor attestation on internal controls and certain executive compensation disclosures[281][358][360][484] Item 7A. 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 not required to provide quantitative and qualitative disclosures about market risk[361] Item 8. Financial Statements and Supplementary Data This section refers to the company's audited financial statements and supplementary data, which are included on pages F-1 through F-24 of the Annual Report on Form 10-K - Reference is made to Pages F-1 through F-24 comprising a portion of this Annual Report on Form 10-K for financial statements and supplementary data[362] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - None[363] Item 9A. Controls and Procedures The company's disclosure controls were ineffective as of December 31, 2022, due to material weaknesses in internal control over financial reporting, with remediation efforts underway - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were not effective as of December 31, 2022[365] - This ineffectiveness is due to material weaknesses in internal control over financial reporting related to the accounting for complex financial instruments (warrants) and the classification of redeemable Class A common stock, which led to prior financial statement restatements[273][274][365] - Management has begun implementing remediation steps, including expanding and improving the review process for complex securities and accounting standards, and plans to enhance access to accounting literature and professional consultation[275][276][368] - The Annual Report does not include an attestation report from the independent registered public accounting firm due to the company's status as an emerging growth company[369] - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[370] Item 9B. Other Information This item contains no other information - None[371] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[372] PART III This section outlines the company's corporate governance, executive compensation, security ownership, related party transactions, and accountant fees Item 10. Directors, Executive Officers and Corporate Governance The company's leadership, including Chairman and CEO James C. Flores, comprises an experienced energy team with a staggered board and independent committees, receiving no cash compensation prior to a business combination Directors and Executive Officers (as of March 28, 2023) | Name | Age (Years) | Position | | :------------------ | :---------- | :------------------------------------------------ | | James C. Flores | 63 | Chairman and Chief Executive Officer | | J. Caldwell Flores | 29 | President | | Gregory D. Patrinely | 37 | Executive Vice President and Chief Financial Officer | | Doss Bourgeois | 65 | Executive Vice President and Chief Operating Officer | | Anthony Duenner | 63 | Executive Vice President, General Counsel and Secretary | | Michael E. Dillard | 64 | Director | | Gregory P. Pipkin | 63 | Director | | Christopher B. Sarofim | 59 | Director | - James C. Flores has over 35 years of experience in the oil and gas industry, including CEO roles at several public companies[373] - Several officers (J. Caldwell Flores, Gregory D. Patrinely, Doss Bourgeois, Anthony Duenner) were previously affiliated with Sable Permian Resources, which filed for bankruptcy in June 2020 and emerged in February 2021[374][375][376][377][382] - The Board is divided into three staggered classes, with directors serving three-year terms[383][384] - Holders of founder shares have the right to elect all directors prior to the initial business combination[384] - Michael E. Dillard, Gregory P. Pipkin, and Christopher B. Sarofim are independent directors as defined by NYSE listing standards and SEC rules[387] - No cash compensation is paid to officers or directors for services prior to or in connection with the completion of the initial business combination; however, out-of-pocket expenses are reimbursed[388][406] - The Board has three standing committees: an audit committee, a compensation committee, and a nominating and corporate governance committee, all composed of independent directors[391][392][394][398] - The company has adopted a Code of Ethics and Corporate Governance Guidelines, available on its website[404][405] Item 11. Executive Compensation No cash compensation has been paid to officers or directors for services rendered to the company. Reimbursement for out-of-pocket expenses is provided. Post-business combination, directors or management team members who remain with the company may receive consulting or management fees, which will be disclosed to stockholders - None of the officers or directors have received any cash compensation for services rendered to the company[406] - Out-of-pocket expenses incurred by the sponsor, officers, and directors for company activities are reimbursed[406][407] - After the business combination, remaining directors or management team members may be paid consulting or management fees, which will be fully disclosed to stockholders[408] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Flame Acquisition Sponsor LLC and James C. Flores hold significant voting power, with detailed beneficial ownership provided for major holders and management, and no changes in control reported - Percentage ownership is based on 8,432,745 shares of Class A common stock and 7,187,500 shares of Class B common stock outstanding as of March 28, 2023[410] - Class A common stock and Class B common stock vote together as a single class, and Class B shares are convertible into Class A shares on a one-for-one basis[410] Beneficial Ownership of Common Stock (March 28, 2023) | Name and Address of Beneficial Owner | Class A Common Stock (Number of Shares Owned) | Class B Common Stock (Number of Shares Owned) | Approximate Percentage of Outstanding Common Stock | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------------- | | Flame Acquisition Sponsor LLC | — | 4,263,750 | 27.3% | | James C. Flores | 7,500 | 4,263,750 | 27.3% | | Entities affiliated with Saba Capital Management, L.P. | 1,150,783 | — | 10.3% | | Entities affiliated with Sculptor Capital LP | 1,425,015 | — | 9.5% | | Entities affiliated with Fort Baker Capital Management LP | 2,688,882 | — | 17.2% | | Hartree Partners, LP | 2,000,000 | — | 12.8% | | Gregory D. Patrinely | — | 71,875 | * | | J. Caldwell Flores | 47,500 | 71,875 | * | | Doss Bourgeois | 200,000 | — | 1.3% | | Anthony Duenner | 100,000 | — | * | | Michael E. Dillard | 5,000 | 96,875 | * | | Gregory P. Pipkin | 15,000 | 96,875 | * | | Christopher B. Sarofim | 500,000 | 96,875 | 3.8% | | All officers and directors as a group (eight individuals) | 875,000 | 4,698,125 | 35.7% | - James C. Flores, as managing member of Flame Acquisition Sponsor LLC, is deemed to share beneficial ownership of the sponsor's Class B common stock[413] - The table excludes shares of Class A common stock underlying private placement warrants held by the sponsor, directors, and officers if not exercisable within 60 days[410][416] - There have been no changes in control[417] Item 13. Certain Relationships and Related Transactions, and Director Independence The company has engaged in related party transactions, including founder share and warrant acquisitions, working capital loans, and registration rights, all reviewed by the audit committee - Founders acquired 7,187,500 founder shares for $25,000 in November 2020, with some transferred to independent directors and executives[418] - Initial stockholders purchased 7,750,000 private placement warrants for $1.00 per warrant in February 2021, which are subject to transfer restrictions and are non-redeemable for cash if held by initial purchasers or permitted transferees[419] - The sponsor, officers, directors, and their affiliates are reimbursed for out-of-pocket expenses incurred on the company's behalf[420] - The sponsor or its affiliates may provide working capital loans, initially up to $1,500,000 (increased to $3,500,000 on March 24, 2023), which can be converted into warrants at $1.00 per warrant[421] - A registration rights agreement grants initial stockholders and holders of working capital loan warrants the right to register certain securities for sale[423] - The audit committee reviews all payments made to the sponsor, officers, directors, or their affiliates on a quarterly basis[420] Item 14. Principal Accountant Fees and Services Marcum LLP provided audit and audit-related services, with all services pre-approved by the audit committee Fees Paid to Marcum LLP | Fee Type | Year Ended Dec 31, 2022 (USD) | Year Ended Dec 31, 2021 (USD) | | :--------------- | :---------------------------- | :---------------------------- | | Audit Fees | $118,965 | $99,910 | | Audit-Related Fees | $57,680 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | - The audit committee pre-approves all auditing services and permitted non-audit services performed by the auditors[429] PART IV This section lists the exhibits, financial statements, and schedules included in the report, with no Form 10-K Summary Item 15. Exhibits, Financial Statements and Financial Statement Schedules This section lists the exhibits, financial statements, and schedules filed as part of the report, including the Merger Agreement and various corporate documents - The report includes an Exhibit Index listing various documents such as the Agreement and Plan of Merger, Amended and Restated Certificate of Incorporation, Bylaws, Warrant Agreement, Promissory Notes, and Registration Rights Agreement[430][575][576] - Financial statements are filed as part of this report, referenced on pages F-1 through F-24[432][434] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - None[431]