Calidi Biotherapeutics(CLDI) - 2022 Q4 - Annual Report

PART I This part covers the company's business operations, associated risks, and other foundational disclosures. Business Overview 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 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][451] - The company has not commenced operations, with activities focused on formation, IPO, and business combination search through December 31, 2022[498][475] - FLAG is classified as a "shell company" under the Exchange Act due to its lack of operations and cash-based assets[498] Business Strategy 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] - 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][511] Investment Criteria 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] Initial Business Combination 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] - 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][86] - 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] Effecting Our Initial Business Combination 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] - 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] - FLAG's success may depend entirely on the future performance of a single business due to limited diversification resources[58][59] Permitted Purchases and Other Transactions with Respect to Our Securities 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][71] - Such purchases would not use funds from the Trust Account and would comply with Regulation M and other federal securities laws[67][73] - 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] Redemption Rights for Public Stockholders upon Completion of Our Initial Business Combination 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] - 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] - Anchor investors have also waived redemption rights for their founder shares[35] Limitations on Redemptions 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] - 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] Manner of Conducting Redemptions 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] - 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] - 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] Limitation on Redemption upon Completion of Our Initial Business Combination If We Seek Stockholder Approval 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] - 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] Tendering Share Certificates in Connection with a Tender Offer or Redemption Rights 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] - 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] Redemption of Public Shares and Liquidation If No Initial Business Combination 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][557][596] - 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][596] - 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] Human Capital/Employees 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] - Officers are not obligated to devote specific hours but intend to dedicate necessary time to company affairs until a business combination is completed[589] 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] - The cost for this location is included in a $10,000 per month fee paid to the sponsor for administrative support and services[8] 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] - Many competitors possess greater financial, technical, human, and other resources, potentially placing FLAG at a competitive disadvantage[9] Emerging Growth Company and Smaller Reporting Company 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][590][591][564] - 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][188][457] Risk Factors 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][159] - 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][161] - 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][52] Summary of Risk Factors 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][12][159][161][593][154] Risks Relating to The Business Combination with Calidi 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] - 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][597] - 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] - 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] Risks Related to Our Business 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] - 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] - 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][48] - If deemed an investment company under the Investment Company Act, FLAG would face burdensome compliance requirements and restricted activities, hindering business combination completion[580][608] - 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][77] - 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][53] Risks Relating to Our Management 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] - 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][143] - 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] - 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] Risks Relating to Ownership of Our Securities 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][112] - 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][117] - 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][127] - 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][129] - FLAG may redeem unexpired warrants prior to their exercise at a disadvantageous time for holders, potentially making them worthless[123][124] General Risk Factors 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][238] - 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][160] - 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] Unresolved Staff Comments The company has no unresolved staff comments from the SEC. - None[191] Properties 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] - 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] Legal Proceedings 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][193] Mine Safety Disclosures The company has no mine safety disclosures to report. - None[155] 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 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] - 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] - 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] Market Information 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] - 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] 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] 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] - Future dividend payments will depend on revenues, earnings, capital requirements, financial condition, and board discretion post-business combination[198] Securities Authorized for Issuance Under Equity Compensation Plans Confirms the absence of equity compensation plans. - The company has no compensation plans under which equity securities are authorized for issuance[199][349] Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings 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] - Concurrently, the sponsor and Metric purchased 3,397,155 private placement warrants at $1.50 per warrant, totaling $5.09 million[171][205] - All founder shares (5,750,000) and private placement warrants (3,397,155) are restricted securities under Rule 144[202] Item 6. [Reserved] This item is reserved and contains no information. Management's Discussion and Analysis of Financial Condition and Results of Operations 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] - 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] - 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][161] 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] - 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] - The company's liquidity needs have been met through sponsor/Metric payments, IPO proceeds, private placement warrants, and promissory notes from related parties[179] Results of Operations 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][177] - 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][177] Going Concern 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] - 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][179][238] - The sponsor is committed to extending Working Capital Loans as needed, though no formal agreement exists[179][455] Off-Balance Sheet Financing Arrangements 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] - FLAG does not participate in transactions that create relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements[180] Contractual Obligations 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][242][1076] - 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][392][664] - 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][665] Commitments and Contingencies 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][648] - 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][651] - The company accounts for warrants as liability-classified instruments, measured at fair value with changes recognized in the statement of operations[214][647] Critical Accounting Estimates 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][615] - 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] - 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][616] Recently Issued Accounting Pronouncements 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][631] - 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] Quantitative and Qualitative Disclosures about Market Risk 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] Financial Statements and Supplementary Data 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] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with accountants on accounting and financial disclosure. - None[220] Controls and Procedures 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] - 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][252] - The material weakness was attributed to a lack of sufficient trained professionals with appropriate accounting knowledge, training, and experience[252] Evaluation of Controls and Procedures 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] - Disclosure controls are designed to ensure timely accumulation and communication of required information to management for disclosure decisions[249] Management's Annual Report on Internal Control Over Financial Reporting 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] - 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][252] - Management determined that the company did not maintain effective internal control over financial reporting as of December 31, 2022[251] Remediation Plan 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][253] - The plan includes improving processes to effectively evaluate complex accounting standards and ensure timely and accurate reporting[253] Changes in Internal Control Over Financial Reporting 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] Other Information This item reports that there is no other information to disclose. - None[228] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections The company has no disclosures regarding foreign jurisdictions that prevent inspections. - None[229] PART III This part outlines the company's corporate governance, executive compensation, and related party transactions. Directors, Executive Officers and Corporate Governance 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][300] - Three of the four directors (William Fallon, Michael Ruettgers, and Jeanne Tisinger) are deemed independent under NYSE American listing standards and SEC rules[301] - 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][324] Directors and Executive Officers 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][232] - 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][260] Number and terms of office of officers and directors 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][300] - Officers are elected by the board and serve at its discretion, not for specific terms[299] - Prior to the initial business combination, holders of a majority of founder shares have the exclusive right to elect and remove directors[269] Classified board of directors 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] Director independence 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] - Independent directors conduct regularly scheduled meetings without other directors present[301] Officer and director compensation 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] - An affiliate of the sponsor receives an optional $10,000 per month for administrative support and services[302] - Officers and directors are reimbursed for out-of-pocket expenses incurred on the company's behalf[302] Committees of the board of directors 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] - All three committees are comprised solely of independent directors, as required by NYSE American rules[275][276][305][279] Audit Committee 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] - Functions include overseeing audits, financial statement integrity, risk management, internal controls, and the independent registered public accounting firm's qualifications and performance[304] - Michael C. Ruettgers qualifies as an "audit committee financial expert"[276] Compensation Committee 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] - Functions include determining and approving executive officer compensation, and reviewing/approving incentive and equity compensation policies[306] - The committee may retain compensation consultants or other advisors, considering their independence[307] Compensation Committee Interlocks and Insider Participation 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] Nominating and Corporate Governance Committee 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] - 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] Director Nominations Explains the process for nominating director candidates to the board. - The nominating and corporate governance committee recommends director candidates to the board[280] - Prior to a business combination, holders of founder shares can recommend director candidates, but public shareholders cannot[280] - The board considers educational background, diversity of professional experience, business knowledge, integrity, reputation, independence, and ability to represent stockholder interests[335] Code of Business Conduct and Ethics 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] - The Code requires avoiding conflicts of interest, except as approved by the board or disclosed in SEC filings[395] Conflicts of Interest 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][311][337] - 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][144] - 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][282][319] Limitation on Liability and Indemnification of Officers and Directors 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] - Indemnity agreements and directors' and officers' liability insurance are in place to attract and retain talented personnel[322][323] - 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] Executive Compensation 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] - The sponsor receives an optional $10,000 per month for office space, administrative, and support services[324] - Executive officers and directors are reimbursed for out-of-pocket expenses incurred in identifying potential target businesses and performing due diligence[347] - 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][347] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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] - Founder shares and private placement warrants are subject to transfer restrictions until certain conditions are met post-business combination[328][329][353] - Franklin is not obligated to purchase forward purchase shares in connection with the Calidi Business Combination[360] Securities Authorized for Issuance Under Equity Compensation Plans Confirms no equity compensation plans are authorized. - The company has no compensation plans under which equity securities are authorized for issuance[349] Security Ownership of Certain Beneficial Owners and Management 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] Restrictions on transfers of founder shares and private placement warrants 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] - Private placement warrants are not transferable until 30 days following the consummation of the initial business combination[329] - Permitted transferees are subject to the same transfer restrictions and voting agreements[330][354] Founder Shares and Private Placement Warrants 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] - Anchor investors purchased 1,452,654 founder shares from the sponsor and Metric at the original purchase price[332] - The sponsor and Metric purchased 3,397,155 private placement warrants for $5.09 million, exercisable at $11.50 per share[383] Forward Purchase Agreement 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] - Franklin's obligations are conditioned on receiving material terms of the business combination and its sole discretion to consummate the purchase[388] - Franklin is not obligated and has determined not to purchase these shares in connection with the Calidi Business Combination[360] Registration Rights 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] - These rights include up to three demand registrations and "piggy-back" registration rights for resale of securities[361] - The company will bear the expenses incurred in connection with filing such registration statements[361] Administrative Support 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] - These monthly fees will cease upon completion of a business combination or liquidation[391] Relationship with Metric 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] - Metric owes no fiduciary or contractual duties to promote FLAG's success and may engage in conflicting activities, including sponsoring other SPACs[363] Related Party Loans 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] - 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] - 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][662][688][689] Licensing Arrangement 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] Related Party Policy 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] - The audit committee is responsible for reviewing and approving related party transactions, requiring an affirmative vote of a majority of its members[370] Certain Relationships and Related Transactions, and Director Independence 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] - 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] - FLAG has an optional administrative services agreement to pay its sponsor $10,000 per month for office space and support[391] - 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][372] Principal Accountant Fees and Services 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][427] Audit Fees. 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] - These fees cover the audit of annual financial statements, review of quarterly financial information, and other required SEC filings[399] Audit-Related Fees. 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] Tax Fees. 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] All Other Fees. 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] Pre-Approval Policy 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] - Services rendered prior to the audit committee's formation were approved by the board of directors[427] PART IV This part lists the exhibits and financial statement schedules included in the report. Exhibits, Financial Statement Schedules 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][429][404][377][378][405] - Financial statements and supplementary data are included by reference[402][403] Form 10-K Summary The company states that there is no Form 10-K summary provided in this section. - None[432] INDEX TO FINANCIAL STATEMENTS Provides an index to the company's financial statements and related notes. Report of Independent Registered Public Accounting Firm 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] - 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] Balance Sheets 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][175] Statements of Operations 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 | $