Sable Offshore(SOC) - 2022 Q2 - Quarterly Report

General Information This section provides an overview of Flame Acquisition Corp.'s regulatory filing status and its publicly traded securities - Flame Acquisition Corp. (FLME) filed a Form 10-Q for the quarterly period ended June 30, 2022, identifying as a non-accelerated filer, smaller reporting company, and an emerging growth company, electing not to use the extended transition period for new accounting standards[2][4][5] Trading Symbols and Exchanges | Class of Securities | Trading Symbol(s) | Exchange | | :------------------ | :---------------- | :------- | | Units | FLME.U | NYSE | | Class A Common Stock| FLME | NYSE | | Warrants | FLME.WS | NYSE | Shares Outstanding (as of Aug 12, 2022) | Stock Class | Shares Outstanding | | :-------------------- | :----------------- | | Class A Common Stock | 28,750,000 | | Class B Common Stock | 7,187,500 | PART I – FINANCIAL INFORMATION This part presents the unaudited condensed financial statements and management's discussion and analysis of the company's financial condition and results of operations Item 1. Financial Statements (unaudited) This section presents the unaudited condensed financial statements for Flame Acquisition Corp., including the Balance Sheets, Statements of Operations, Statements of Changes in Stockholders' Deficit, and Statements of Cash Flows, along with comprehensive notes detailing the company's organization, accounting policies, IPO, related party transactions, commitments, and fair value measurements Condensed Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' deficit as of June 30, 2022, and December 31, 2021 | Metric | June 30, 2022 (unaudited) | December 31, 2021 | | :---------------------------------------------- | :------------------------ | :---------------- | | Cash | $212,041 | $322,768 | | Investments held in Trust Account | $287,703,046 | $287,516,153 | | Total assets | $288,303,358 | $288,439,429 | | Total current liabilities | $1,427,101 | $1,231,615 | | Warrant liabilities | $3,016,875 | $12,647,250 | | Class A Common Stock subject to possible redemption | $287,584,375 | $287,500,000 | | Total Stockholders' Deficit | $(3,724,993) | $(12,939,436) | - The company's total assets remained relatively stable, while warrant liabilities significantly decreased from $12.6 million to $3.0 million, and the stockholders' deficit improved from $(12.9) million to $(3.7) million[9] Condensed Statements of Operations This section outlines the company's financial performance, including formation and operating costs, interest income, and net income or loss for the reported periods | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Formation and operating costs | $306,338 | $424,566 | $730,831 | $529,793 | | Interest income from Trust Account | $354,238 | $4,294 | $369,359 | $5,710 | | Change in fair value of warrant liabilities | $2,771,625 | $(4,860,500) | $9,630,375 | $(4,383,125) | | Net income (loss) | $2,824,925 | $(5,280,772) | $9,246,692 | $(5,188,037) | | Basic and diluted net income (loss) per Class A common share | $0.08 | $(0.15) | $0.26 | $(0.20) | - The company reported a significant turnaround from a net loss in Q2 2021 and H1 2021 to a net income in Q2 2022 and H1 2022, primarily driven by a positive change in the fair value of warrant liabilities[12] Condensed Statements of Changes in Stockholders' Deficit This section details the changes in the company's stockholders' deficit, reflecting net income and other adjustments over the six-month period ended June 30, 2022 | Metric | Balance as of Dec 31, 2021 | Balance as of June 30, 2022 | | :---------------------------------------------- | :------------------------- | :-------------------------- | | Total Stockholders' Deficit | $(12,939,436) | $(3,724,993) | | Net income (six months ended June 30, 2022) | N/A | $9,246,692 | | Remeasurement of Class A common stock to possible redemption | N/A | $(84,375) | - The stockholders' deficit significantly decreased from $(12,939,436) at December 31, 2021, to $(3,724,993) at June 30, 2022, primarily due to net income of $9,246,692 during the six-month period[15] Condensed Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities for the six-month periods ended June 30, 2022 and 2021 | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(628,193) | $(1,079,866) | | Net cash provided by (used in) investing activities | $182,466 | $(287,500,000) | | Net cash provided by financing activities | $335,000 | $288,656,579 | | Net change in cash | $(110,727) | $76,713 | | Cash, end of the period | $212,041 | $85,727 | - In the first six months of 2022, the company experienced a net decrease in cash of $110,727, primarily from operating activities, contrasting with a net increase in cash in the same period of 2021 driven by IPO proceeds[20] Notes to Condensed Financial Statements This section provides detailed explanations and disclosures supporting the condensed financial statements, covering organization, accounting policies, IPO, related party transactions, commitments, and fair value measurements Note 1 — Organization, and Business Operations Flame Acquisition Corp. was formed in October 2020 as a blank check company to pursue a business combination. It completed its IPO in March 2021, placing $287.5 million in a Trust Account. The company has not commenced operations and faces a going concern risk due to a working capital deficit and a deadline of March 1, 2023, to complete a business combination - Flame Acquisition Corp. is a Delaware-incorporated blank check company (SPAC) formed on October 16, 2020, with the purpose of effecting a business combination[23] - The company consummated its IPO on March 1, 2021, raising $287,500,000 by selling 28,750,000 units at $10.00 per unit, with proceeds placed in a Trust Account[25][28] - As of June 30, 2022, the company had a cash balance of $212,041 outside the Trust Account and a working capital deficit of $826,789, raising substantial doubt about its ability to continue as a going concern if it cannot complete a business combination by March 1, 2023[36][39] Note 2— Significant Accounting Policies This note outlines the significant accounting policies, including the basis of presentation (GAAP for interim reporting), the company's status as an emerging growth company, and its election to use the extended transition period for new accounting standards. It details the accounting for marketable securities in the Trust Account, common stock subject to redemption, derivative warrant liabilities, and convertible promissory notes at fair value, and income tax policies - The financial statements are prepared in accordance with GAAP for interim financial information and SEC rules, with certain disclosures condensed or omitted[41] - The company is an 'emerging growth company' and has elected to use the extended transition period for complying with new or revised financial accounting standards[43][44] - Marketable securities held in the Trust Account are classified as 'Held-for-Trading Securities' and reported at fair value, with unrealized gains or losses included in earnings[48] - Class A common stock subject to possible redemption is classified as temporary equity and measured at redemption value, with changes recognized immediately[50][51] - Warrants are accounted for as derivative warrant liabilities at fair value, adjusted each reporting period, with changes recognized in the statements of operations; convertible promissory notes are also accounted for at fair value[59][60] - The company's effective tax rate was 0.0% for the reporting periods, primarily due to changes in fair value of warrant liability (not included in taxable income) and a full valuation allowance on deferred tax assets[62] Note 3 — Initial Public Offering The company completed its IPO by selling 28,750,000 units at $10.00 per unit, including the full exercise of the over-allotment option. Each unit consisted of one Class A Common Stock and one-half of one redeemable Public Warrant, exercisable at $11.50 per share - The Company sold 28,750,000 Units in its IPO, including the full exercise of the underwriters' over-allotment option[68] - Each Unit was priced at $10.00 and consisted of one share of Class A Common Stock and one-half of one redeemable Public Warrant[68] - Each whole Public Warrant entitles the holder to purchase one share of Class A Common Stock at an exercise price of $11.50 per share[68] Note 4 — Private Placement Warrants Simultaneously with the IPO, the Initial Stockholders purchased 7,750,000 Private Placement Warrants at $1.00 each, generating $7,750,000 in proceeds. These warrants are exercisable for Class A common stock at $11.50 per share - The Initial Stockholders (Sponsor, Intrepid Financial Partners, LLC, and FL Co-Investment, LLC) purchased 7,750,000 Private Placement Warrants[69] - The Private Placement Warrants were sold at $1.00 per warrant, generating $7,750,000 in gross proceeds[69] - Each Private Placement Warrant is exercisable to purchase one share of Class A common stock at a price of $11.50 per share[69] Note 5 — Related Party Transactions This note details transactions with related parties, including the issuance of Founder Shares to the Sponsor and other initial stockholders, and various Working Capital Loans (First, Second, and Third) from the Sponsor to finance transaction costs. These loans are non-interest bearing and convertible into warrants upon a business combination - Founders acquired 7,187,500 Founder Shares (Class B common stock) for $25,000 in November 2020[70] - The company has entered into three unsecured, non-interest bearing convertible promissory notes (Working Capital Loans) with the Sponsor to finance transaction costs[75][76][77][78] Working Capital Loan Status | Loan Type | Principal Amount | Status as of June 30, 2022 | | :------------------------ | :--------------- | :------------------------- | | First Working Capital Loan| $365,000 | Fully drawn | | Second Working Capital Loan| $800,000 | Fully drawn | | Third Working Capital Loan| $335,000 | Fully drawn | - These Working Capital Loans are payable upon consummation of a Business Combination or convertible into warrants at $1.00 per warrant at the lender's discretion[75] Note 6 — Commitments & Contingencies The company has commitments related to registration rights for its Founder Shares, Private Placement Warrants, and warrants from Working Capital Loans. It also has a Business Combination Marketing Agreement requiring a fee of 3.5% of IPO gross proceeds upon consummation of an initial business combination, and paid a fixed underwriting discount of $5,750,000 - Holders of Founder Shares, Private Placement Warrants, and warrants from Working Capital Loans are entitled to registration rights[82] - The company will pay a Marketing Fee of 3.5% of the IPO's gross proceeds upon the consummation of its initial business combination[83] - A fixed underwriting discount of $5,750,000 was paid on March 1, 2021[84] Note 7 — Stockholders' Deficit The company is authorized to issue Preferred Stock, Class A Common Stock, and Class B Common Stock. As of June 30, 2022, no Preferred Stock or Class A Common Stock (excluding redeemable shares) were outstanding, while 7,187,500 shares of Class B Common Stock were issued and outstanding. Class B shares have specific transfer restrictions and waiver of redemption rights Authorized and Outstanding Shares (June 30, 2022) | Stock Class | Authorized Shares | Issued & Outstanding | | :-------------------- | :---------------- | :------------------- | | Preferred Stock | 1,000,000 | None | | Class A Common Stock | 200,000,000 | None (excluding 28,750,000 redeemable) | | Class B Common Stock | 20,000,000 | 7,187,500 | - Class B common stock holders have the same voting rights as Class A, but their shares are subject to transfer restrictions and waiver of redemption rights in connection with a business combination or liquidation[87][88][89] Note 8 — Warrants This note details the terms of Public Warrants and Private Placement Warrants. Public Warrants become exercisable 30 days after a business combination or 12 months from IPO closing, expiring five years post-combination. Both types of warrants have specific exercise conditions, including cashless exercise options, and redemption clauses based on Class A common stock price thresholds - Public Warrants become exercisable on the later of 30 days after a Business Combination or 12 months from the IPO closing, and expire five years from the Business Combination completion[90] - The company may redeem Public Warrants for cash if the Class A common stock price equals or exceeds $18.00 per share for 20 trading days within a 30-day period[93][94] - Private Placement Warrants are identical to Public Warrants but are non-transferable for 30 days post-Business Combination, exercisable on a cashless basis, and non-redeemable as long as held by initial purchasers or permitted transferees[99] Note 9— Fair Value Measurements The company categorizes its financial instruments measured at fair value into a three-tier hierarchy (Level 1, 2, 3). Investments in the Trust Account are Level 1. Public Warrants are Level 1, while Private Warrants and Convertible Promissory Notes are Level 3, valued using models like Modified Black-Scholes and Geske, with significant unobservable inputs - The company uses a three-tier fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[100] Fair Value Measurements | Description | Level | June 30, 2022 | December 31, 2021 | | :---------------------------------------------- | :---- | :------------ | :---------------- | | U.S. Money Market and Treasury Securities Held in Trust Account | 1 | $287,703,046 | $287,516,153 | | Warrant liability—Public Warrants | 1 | $2,300,000 | $8,625,000 | | Warrant liability—Private Warrants | 3 | $716,875 | $4,022,250 | | Convertible Promissory Notes—Related Parties | 3 | $1,261,200 | $956,115 | - Private Warrants and Convertible Promissory Notes are Level 3 instruments, valued using models like Modified Black-Scholes and Black-Scholes/Geske, respectively, with inputs such as stock price, strike price, term, volatility, and risk-free rate[105][112] Warrant Liabilities Changes in Fair Value | Warrant Liabilities Changes in Fair Value | | :---------------------------------------- | | Fair value as of Dec 31, 2021: $12,647,250 | | Change in valuation inputs or other assumptions (Jan-Mar 2022): $(6,858,750) | | Change in valuation inputs or other assumptions (Apr-Jun 2022): $(2,771,625) | | Fair value as of June 30, 2022: $3,016,875 | Convertible Promissory Notes Changes in Fair Value | Convertible Promissory Notes Changes in Fair Value | | :------------------------------------------------- | | Fair value as of Dec 31, 2021: $956,115 | | Proceeds received through Convertible Promissory Note on March 29, 2022: $335,000 | | Initial measurement of fair value of Promissory Note: $(52,126) | | Change in fair value of Promissory Notes (Jan-Mar 2022): $27,611 | | Change in fair value of Promissory Notes (Apr-Jun 2022): $(5,400) | | Fair value as of June 30, 2022: $1,261,200 | Note 10 — Subsequent Events The company reviewed subsequent events through the financial statement issuance date and identified no events requiring adjustment or disclosure - No subsequent events requiring adjustment or disclosure were identified by the company through the date the condensed financial statements were issued[113] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results. It highlights the company's status as a blank check company focused on a business combination, its transition from net losses to net income driven by warrant fair value changes, and reiterates the significant going concern risk due to limited liquidity outside the Trust Account and the March 1, 2023 deadline for a business combination - The company is a blank check company (SPAC) formed to effect a business combination and has not generated operating revenues to date[116][117] - For the three months ended June 30, 2022, the company reported a net income of $2,778,330, primarily due to a $2,824,925 decrease in the fair value of warrants and $354,238 in interest income from the Trust Account[120] - For the six months ended June 30, 2022, the company had a net income of $9,246,692, largely driven by a $9,630,375 decrease in the fair value of warrants[121] - The company faces substantial doubt about its ability to continue as a going concern due to a working capital deficit of approximately $0.8 million and a mandatory liquidation requirement if a business combination is not completed by March 1, 2023[119][124] - Liquidity needs have been met through Founder Shares, IPO proceeds, Private Placement Warrants, and fully drawn Working Capital Loans totaling $1,500,000 from related parties[125][126][134] Item 3. Quantitative and Qualitative Disclosures about Market Risk As of June 30, 2022, Flame Acquisition Corp. was not subject to any material market or interest rate risk. Funds in the Trust Account are invested in short-term U.S. government securities or money market funds, minimizing exposure to interest rate fluctuations - As of June 30, 2022, the company was not subject to any material market or interest rate risk[138] - Net proceeds in the Trust Account are invested in U.S. government securities with maturities of 185 days or less or in money market funds, which limits exposure to interest rate risk due to their short-term nature[138] Item 4. Controls and Procedures The company's CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2022, due to material weaknesses in internal control over financial reporting related to complex financial instruments, which led to prior financial statement restatements. Despite this, additional analysis ensured the fair presentation of the current financial statements - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of June 30, 2022[140] - The ineffectiveness is attributed to material weaknesses in internal control over financial reporting concerning the accounting for complex financial instruments, which previously resulted in financial statement restatements[140] - Despite the material weaknesses, management believes the financial statements in this report are fairly presented due to additional analysis performed[140] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[141] PART II – OTHER INFORMATION This part addresses other required disclosures, including legal proceedings, risk factors, equity sales, defaults, mine safety, and a list of exhibits Item 1. Legal Proceedings The company reported no legal proceedings - There are no legal proceedings[143] Item 1A. Risk Factors The company refers to the risk factors disclosed in its Annual Report on Form 10-K for 2021 and Quarterly Report on Form 10-Q for Q1 2022, stating that there have been no material changes to these risk factors as of the current report's date - The company refers to the 'Risk Factors' section in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2022[144] - As of the date of this Quarterly Report, there have been no material changes to the risk factors previously disclosed[144] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds - There were no unregistered sales of equity securities and use of proceeds[145] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - There were no defaults upon senior securities[145] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[145] Item 5. Other Information The company reported no other information - There is no other information to report[145] Item 6. Exhibits This section lists the exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and XBRL-related documents - The report includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[147] - XBRL (eXtensible Business Reporting Language) taxonomy extension documents (Instance, Calculation, Schema, Definition, Labels, Presentation) and the Cover Page Interactive Data File are filed as exhibits[147] SIGNATURES This section contains the official signatures of the company's President and Chief Executive Officer and Chief Financial Officer and Secretary, certifying the report - The report is signed by James C. Flores, President and Chief Executive Officer, and Gregory D. Patrinely, Chief Financial Officer and Secretary, on August 15, 2022[152]