Calidi Biotherapeutics, Inc. quarterly report, Q2 FY2023

Business context and reporting period

This is First Light Acquisition Group, Inc. (FLAG)’s Form 10-Q for the quarter and six months ended June 30, 2023—not a standalone Calidi Biotherapeutics filing. FLAG is a blank-check company and had not begun operating activities or generated operating revenue. Calidi is the proposed merger target; the filing describes the pending business combination.

FLAG’s business-combination deadline had been extended to September 14, 2023. A stockholder meeting to vote on the transaction was scheduled for August 22, 2023, subject to required approvals and closing conditions.

Financial results and position

• Net losses in 2023 largely reflected operating costs and noncash fair-value losses on warrant, forward-purchase-unit, and contingent-interest liabilities. Trust-account investment earnings partly offset these losses. In 2022, fair-value gains on liabilities drove reported net income.
• Cash and cash equivalents outside the trust were $669,867 at June 30, 2023, versus $93,892 at year-end 2022. Trust-account marketable securities were $43.21 million, versus $42.45 million. Trust funds are subject to transaction and redemption terms and should not be treated as ordinary operating cash.
• Total liabilities were $12.77 million, up from $5.61 million at December 31, 2022; current liabilities were $8.18 million. Working-capital deficit was $7.39 million, compared with $4.13 million at year-end.
• The company reported $1.49 million drawn under promissory notes, accrued interest of $143,589, and a $273,448 contingent-interest liability. It also reported a $1.94 million warrant liability and a $2.65 million forward-purchase-unit liability. The filing states there was no long-term debt.
• Profit margins are not meaningful because FLAG had no operating revenue.

Material changes and transaction developments

• In September 2022, public shareholders redeemed 18,871,976 Class A shares, leaving 4,128,024 shares subject to possible redemption. The remaining redeemable shares’ recorded value rose to $43.21 million by June 30, 2023.
• FLAG’s operating costs increased materially year over year, and results shifted from income to loss, principally because fair-value changes reversed direction and operating expenses rose.
• On April 5, 2023, the Sponsor and Metric forgave $490,000 of promissory notes; FLAG recorded this as a capital contribution. FLAG drew a further $722,500 under promissory notes during the first half.
• The proposed merger agreement values Calidi at $250 million, subject to adjustments, including net debt and qualifying pre-closing milestone payments. Calidi’s Series B financing terms contemplated up to $25 million, including an initial $5 million investment and additional investments subject to stated conditions.
• Franklin’s previously disclosed forward-purchase agreement contemplated a $50 million investment, but the filing says Franklin was not obligated to fund it in the Calidi transaction and had informed FLAG it would not purchase the forward-purchase securities at the merger closing.

Outlook, risks, and unusual items

• Management stated that available financial resources were insufficient to sustain operations for one year from issuance of the financial statements and disclosed substantial doubt about FLAG’s ability to continue as a going concern. Sponsor support for working-capital loans was not covered by a formal agreement.
• If FLAG did not complete a business combination by September 14, 2023, it was required to cease operations, redeem public shares from the trust account, and wind up, subject to applicable obligations and procedures.
• Management cited uncertainty from the Russia-Ukraine war, inflation, rising interest rates, and financial-institution risks. FLAG also warned that deposits exceeded applicable FDIC insurance limits, although it reported no funds at the named banks that had failed.
• Disclosure controls were found ineffective because of material weaknesses involving derivative accounting and cash-flow presentation, troubled-debt restructuring, and accrued expenses. Management described added review and consultant support but gave no assurance remediation would be successful.
• Fair-value estimates for certain liabilities use Level 3 inputs and management assumptions; changes in those estimates can materially affect reported earnings without equivalent cash effects.

Important facts for investors to verify

• Confirm the business-combination vote, closing status, and any subsequent changes to the September 14, 2023 deadline; this filing alone does not establish that the transaction closed.
• Review the actual funding and conditions for Calidi’s Series B financing, and confirm available post-transaction cash—particularly given Franklin’s decision not to fund its contemplated $50 million forward purchase.
• Assess the going-concern disclosure, Sponsor support (which was not formally committed), and the amounts and repayment terms of high-interest or transaction-contingent promissory notes.
• Evaluate the impact of public-share redemptions, remaining redemption rights, and any resulting dilution or financing needs.
• Check the filing’s subsequent-events note: it states that a proxy statement/prospectus was filed on “August 4, 2024” while describing a meeting scheduled for August 22, 2023. The date appears inconsistent and should be verified against the filed version and related SEC documents.