Business context and reporting period
Important entity distinction: This 10-K is for Flame Acquisition Corp., a special purpose acquisition company (SPAC), not an operating-company 10-K for Sable Offshore Corp. It covers the fiscal year ended December 31, 2022 and was filed March 31, 2023. Flame had no operating business or revenue during the period; it was seeking a business combination.
On November 2, 2022, Flame agreed to combine with Sable Offshore Corp. and its parent, Sable Offshore Holdings, LLC. The proposed transaction would leave Flame as the surviving company, renamed Sable Offshore Corp. Closing remained subject to customary conditions, and the filing gave no assurance it would be completed.
Financial performance and position
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | None | None |
| Operating costs | $6.15 million | $1.68 million |
| Net income (loss) | $(2.59) million | $4.27 million |
| Net cash used in operating activities | $(1.71) million | $(2.01) million |
FY 2022 results included $3.99 million of Trust Account interest, a $498,000 non-cash gain from the change in warrant-liability fair value, a $170,741 non-cash loss from promissory-note fair value changes, and $757,069 of income tax expense. The prior-year profit was substantially affected by a $6.16 million non-cash gain from warrant-liability remeasurement. Margins are not meaningful because Flame had no operating revenue.
At December 31, 2022, Flame reported $100,256 of cash outside the Trust Account, $290.72 million in Trust Account investments, total liabilities of $18.89 million, and a stockholders’ deficit of $18.33 million. Warrant liabilities were $12.15 million. The filing reports a working-capital deficit of $6.55 million in its going-concern discussion, while another risk-factor passage gives $6.22 million excluding specified tax obligations; the text does not clearly reconcile these figures. It reports no operating-company debt or liquidity metrics for Sable.
Related-party promissory and working-capital loans were non-interest-bearing and generally payable upon a business combination. The filing reports $1.50 million drawn under these loans at year-end; it also describes additional 2022 notes, including a $200,000 note. The reported balance-sheet carrying amounts reflect fair-value accounting and may differ from face amounts.
Material changes and subsequent events
- Operating costs rose to $6.15 million from $1.68 million, and the company moved from net income to a net loss. The change in warrant fair value also shifted materially: a $6.16 million gain in 2021 versus a $498,000 gain in 2022.
- In February 2023, stockholders extended the business-combination deadline from March 1 to September 1, 2023. Holders redeemed 20,317,255 Class A shares, about 70.67% of the then-outstanding public shares, for $206.12 million, or approximately $10.15 per share. The filing reports approximately $85.55 million remaining in trust after payment and separately reports $86.51 million in the Trust Account as of March 28, 2023.
- In February 2023, Flame raised a further $535,000 through a sponsor promissory note. In March, the permitted amount of convertible working-capital loans was increased to $3.5 million, and certain notes were amended to allow conversion into post-combination warrants at the lender’s discretion.
- Flame had obtained commitments for a $74.5 million Sable PIPE investment at $10 per share, with plans to seek additional subscriptions subject to a combined cap of $400 million. One passage gives an inconsistent number of membership interests; see verification items below.
Outlook, risks and unusual items
Management provided no operating forecast or financial guidance for Sable in this 10-K. Flame’s ability to continue as a going concern depended on completing a business combination or obtaining additional funding. The auditor highlighted substantial doubt about Flame’s ability to continue as a going concern, citing limited working capital, the need to complete a transaction by September 1, 2023, and uncertainty over funding. If no combination is completed by that deadline, Flame must wind up and redeem public shares; its warrants would expire worthless.
Key risks include substantial public-share redemptions reducing cash available for a transaction; the short remaining transaction window; uncertainty over completing the Sable merger and PIPE financing; possible delisting; and potential claims against the Trust Account. Flame also disclosed a risk of being treated as an unregistered investment company and liquidated Trust Account securities into cash in February 2023 to mitigate that risk, with potentially minimal subsequent interest income. A new 1% federal excise tax on certain repurchases or redemptions after 2022 could reduce cash available, depending on transaction structure and related issuances.
Controls and reporting warrant particular attention. Management concluded disclosure controls and internal control over financial reporting were ineffective as of December 31, 2022 due to material weaknesses involving complex financial instruments, including warrant accounting and redeemable-share classification. The company had previously restated financial statements and said remediation was underway; it gave no assurance the measures would resolve the weaknesses.
Most important facts for investors to verify
- Whether the Sable merger closed, its final terms, and the operating company’s audited financial statements, debt, cash flows, liabilities, and material contingencies; this SPAC 10-K does not provide those operating-company metrics.
- The final amount of Trust Account cash after redemptions and any subsequent movements; the filing reports different amounts for immediately after redemption and March 28, 2023.
- The PIPE commitment: the filing describes approximately $74.5 million at $10 per share but gives conflicting membership-interest counts in different passages, and additional subscriptions were only intended, not assured.
- Flame’s funding needs, related-party loan balances and conversion terms, deferred transaction costs, and whether available cash was sufficient to reach closing.
- Progress in remediating material weaknesses, the status of any further accounting reviews or restatements, and the effects of warrant fair-value changes on reported results.