SEC Filing Summary: Flame Acquisition Corp. (proposed Sable Offshore combination)
Important entity clarification: Although requested under Sable Offshore Corp., this Form 10-Q is filed by Flame Acquisition Corp., a blank-check company. It reports no Sable operating results; the proposed merger had not closed as of March 31, 2023.
Business context and reporting period
The unaudited filing covers the quarter ended March 31, 2023. Flame was pursuing a merger with Sable Offshore Corp. and its parent, Sable Offshore Holdings, LLC. If completed, the combined company was to be named Sable Offshore Corp. The filing was signed May 15, 2023.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Operating revenue | None | None; Flame had not commenced operations |
| Operating costs | $1.14 million | $424,493 |
| Net income | $2.04 million | $6.42 million |
| Interest income from trust account | $2.30 million | $15,121 |
| Noncash gain from lower warrant liability | $1.35 million | $6.86 million |
| Net cash used in operating activities | $541,565 | $309,677 |
The year-over-year earnings decline primarily reflects a much smaller favorable change in warrant fair value; Q1 2023 earnings also included substantially higher trust interest income and $473,521 of income tax expense. These results are those of the SPAC, not Sable’s oil and gas business.
At March 31, 2023, cash outside the trust was $133,691, working capital deficit was approximately $10.15 million, and trust assets were $86.86 million. Trust funds were generally restricted to a business combination, shareholder redemptions, or taxes. Current liabilities totaled $10.59 million; this included $2.10 million of related-party convertible notes at fair value and $178,630 of related-party promissory notes. Total liabilities were $21.39 million. Stockholders’ deficit was $20.09 million.
Material changes and transaction developments
- Stockholders approved extending Flame’s business-combination deadline from March 1 to September 1, 2023. Holders redeemed 20,317,255 Class A shares, about 70.67% of public shares, for $206.12 million, approximately $10.15 per share. At quarter-end, 8,432,745 redeemable Class A shares remained.
- The trust balance fell from $290.72 million at December 31, 2022 to $86.86 million at March 31, 2023, largely due to those redemptions.
- Sable PIPE investors had committed to invest an aggregate $74.5 million at $10 per share upon completion of the merger, subject to the subscription agreements and closing.
- Flame recognized a $2.07 million excise-tax liability related to redemptions. The filing states the tax treatment of future redemptions and share issuances may affect funds available for the transaction.
Outlook, risks, and unusual items
- Closing and deadline risk: The merger remained subject to customary closing conditions and could be terminated; Flame gave no assurance it would close. Failure to complete a business combination by September 1, 2023 would require liquidation absent another extension. Public warrants could expire worthless in a liquidation.
- Going concern: Management said the low unrestricted cash, working capital deficit, need for additional funding, and approaching deadline raised substantial doubt about Flame’s ability to continue as a going concern. The filing says sponsors and affiliates were not generally obligated to provide further funding.
- Related-party funding: Flame relied on sponsor and affiliate loans. Certain working-capital loans could, at the lender’s option, convert into post-combination warrants; additional sponsor promissory notes of up to $750,000 were issued and fully drawn in May 2023.
- Internal controls: Management concluded disclosure controls were ineffective at March 31, 2023 due to material weaknesses in accounting for complex financial instruments, which had resulted in restatements of certain prior periods. Management said it performed additional analysis for these interim statements.
- Other risks: The filing notes potential effects of COVID-19 and the conflict in Ukraine, and that trust funds could be exposed to creditor claims. No specific operating outlook or Sable production guidance is provided in this filing.
Important facts for investors to verify
- Whether the merger closed, its final terms, and any subsequent changes to the September 1, 2023 deadline.
- The final redemption level, cash available to the combined company, and whether the $74.5 million PIPE commitment funded.
- Sable’s standalone financial statements, operating performance, debt, asset condition, and business outlook; this filing does not provide those figures.
- The amount and terms of sponsor loans and any warrants issued upon conversion, including resulting dilution.
- Remediation of the disclosed material weaknesses and the effect of the excise tax and transaction costs on closing liquidity.