Filing summary
Entity and period: The supplied filing is Flame Acquisition Corp.’s unaudited Form 10-Q for the quarter ended June 30, 2022, not a filing under the name Sable Offshore Corp. Flame was a blank-check company searching for a business combination and had not begun operations. The filing does not identify Sable Offshore as its target.
Financial results and liquidity
| Metric | Q2 2022 / June 30, 2022 | Comparable period / prior year-end |
|---|---|---|
| Operating revenue | None; no operating revenue had been generated | None reported |
| Net income (loss) | $2.825 million for the quarter; $9.247 million for six months, per the financial statements | Q2 2021 loss: $5.281 million; six-month 2021 loss: $5.188 million |
| Formation and operating costs | $306,338 for the quarter; $730,831 for six months | Q2 2021: $424,566; six-month 2021: $529,793 |
| Cash outside Trust Account | $212,041 | $322,768 at December 31, 2021 |
| Trust Account investments | $287.703 million | $287.516 million at December 31, 2021 |
| Working capital deficit | $826,789 | Prior comparable value not clearly stated |
| Liabilities | $4.444 million total, including $3.017 million warrant liabilities and $1.261 million related-party notes at fair value | $13.879 million total at December 31, 2021 |
| Operating cash flow | $(628,193) for six months | $(1.080) million for six months ended June 30, 2021 |
Reported earnings were driven principally by a $9.630 million six-month gain from the decrease in fair value of warrant liabilities and Trust Account interest, rather than business operations. The filing reports no operating margin. The related-party working-capital loans had $1.5 million of principal outstanding and were non-interest-bearing, payable upon a business combination; their carrying value was measured at fair value.
Changes, outlook and risks
- Compared with the first half of 2021, the company moved from a net loss to net income, largely because warrant-liability remeasurement shifted from a loss to a gain. Operating costs increased to $730,831 from $529,793.
- Flame had no operating business or revenue and reported no specific earnings guidance. Its stated objective was to find and complete a business combination.
- The company had until March 1, 2023 to complete a business combination, subject to possible extension with stockholder approval. Failure to complete one would require redemption of public shares and liquidation.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing limited cash outside the Trust Account, a working-capital deficit, fully drawn working-capital loans, and uncertainty about further financing and completing a transaction before the deadline. The Sponsor and insiders were not obligated to provide additional funds.
- Trust Account funds were generally restricted. The Sponsor’s indemnity for certain third-party claims was not independently verified, and the company said it could not be certain the Sponsor could meet the obligation.
- Disclosure controls were deemed ineffective as of June 30, 2022 due to material weaknesses in accounting for complex financial instruments, which had resulted in restatements of certain prior-period financial statements. The filing reported no material change in internal control during the quarter.
- Management said COVID-19 and the conflict in Ukraine could adversely affect the company’s position, results or target search, but the specific impact was not determinable. The filing reported no legal proceedings and no material changes to previously disclosed risk factors.
Important facts to verify
- Confirm the intended issuer: this document is Flame Acquisition Corp.’s 10-Q, not Sable Offshore Corp.’s filing.
- Reconcile the Q2 net-income figures: the financial statements report $2,824,925, while MD&A reports $2,778,330. MD&A also describes warrant-related amounts that do not match the statement of operations’ $2,771,625 quarterly fair-value gain.
- Confirm the Trust Account balance and related disclosures: one note gives December 31, 2021 investments of $287,516,153, while another gives $287,516,513.
- Review the going-concern disclosure, remaining financing options, and ability to complete a business combination before March 1, 2023.
- Assess remediation of the material weaknesses and the reliability of warrant and related-party-note fair-value estimates.