References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Flame Acquisition Corp. References to our "management" or our
"management team" refer to our officers and directors, references to the
"Sponsor" refer to Flame Acquisition Sponsor LLC, and references to our
"founders" refer collectively to the Sponsor, FL Co-Investment LLC ("FLC") and
Intrepid Financial Partners, L.L.C. ("IFP"). The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the financial statements and the notes thereto
contained elsewhere in this Quarterly Report. Certain information contained in
the discussion and analysis set forth below includes forward-looking statements
that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") that are not historical facts, and involve risks and
uncertainties that could cause actual results to differ materially from those
expected and projected. All statements, other than statements of historical fact
included in this Quarterly Report on Form 10-Q including, without limitation,
statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding the Company's financial position, business
strategy and the plans and objectives of management for future operations, are
forward-looking statements. Words such as "may," "should," "could," "would,"
"expect," "plan," "anticipate," "believe," "estimate," "continue," or the
negative of such terms or other similar expressions are intended to identify
such forward-looking statements. Such forward-looking statements relate to
future events or future performance, but reflect management's current beliefs,
based on information currently available. A number of factors could cause actual
events, performance or results to differ materially from the events, performance
and results discussed in the forward-looking statements. For information
identifying important factors that could cause actual results to differ
materially from those anticipated in the forward-looking statements, please
refer to the Risk Factors section of the Company's final prospectus for its
Initial Public Offering filed with the U.S. Securities and Exchange Commission
(the "SEC") and the risk factors described in Part I, Item 1A "Risk Factors"
included in our Annual Report on Form 10-K for the year ended December 31, 2021,
and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
The Company's securities filings can be accessed on the EDGAR section of the
SEC's website at www.sec.gov. Except as expressly required by applicable
securities law, the Company disclaims any intention or obligation to update or
revise any forward-looking statements whether as a result of new information,
future events or otherwise.
Overview
We are a blank check company incorporated in Delaware on October 16, 2020 for
the purpose of effecting a merger, capital stock exchange, asset acquisition,
stock purchase, reorganization or similar business combination with one or more
businesses that we have not yet identified. We are an emerging growth company
and, as such, we are subject to all of the risks associated with emerging growth
companies. Our sponsor is Flame Acquisition Sponsor LLC, a Delaware limited
liability and an affiliate of certain of our officers and directors.
Results of Operations
Our entire activity since inception through June 30, 2022 was related to our
formation, the preparation for our initial public offering, and since the
closing of our initial public offering, the search for a target for our initial
business combination. We have neither engaged in any operations nor generated
any revenues to date. We will not generate any operating revenues until after
completion of our initial business combination. We will generate non-operating
income in the form of interest income on cash and cash equivalents and changes
in fair value of our derivative warrant liabilities and promissory notes. We
expect to incur increased expenses as a result of being a public company (for
legal, financial reporting, accounting and auditing compliance), as well as for
due diligence expenses.
Until consummation of its Business Combination, the Company will be using the
funds not held in the Trust Account, and any additional Working Capital Loans
(as defined in Note 5) from the initial stockholders, the Company's officers and
directors, or their respective affiliates (which is described in Note 5), for
identifying and evaluating prospective acquisition candidates, performing
business due diligence on prospective target businesses, traveling to and from
the offices, plants or similar locations of prospective target businesses,
reviewing corporate documents and material agreements of prospective target
businesses, selecting the target business to acquire and structuring,
negotiating and consummating the Business Combination.
If the Company's estimates of the costs of undertaking in-depth due diligence
and negotiating a business combination are less than the actual amounts
necessary to do so, the Company may have insufficient funds available to operate
its business prior to the business combination and will need to raise additional
capital through loans from the Sponsor, its officers and/or directors, or third
parties. Except as contemplated by the terms of the Initial Promissory Note,
First Working Capital Loan, Second Working Capital Loan, and Third Working
Capital Loan, neither the Sponsor or the Company's officers or directors are
under any obligation to advance funds to, or to invest in, the Company (see Note
5). If the Company is unable to raise additional capital, it may be required to
take additional measures to conserve liquidity, which could include, but not
necessarily be limited to, curtailing operations, suspending the pursuit of its
business plan, and reducing overhead expenses. The Company cannot provide any
assurance that new financing will be available to it on commercially acceptable
terms, if at all. We are also subject to a mandatory liquidation and subsequent
dissolution requirement if we do not complete our initial business combination
by March 1, 2023. We cannot assure you that our plans to raise capital or to
consummate an initial business combination before March 1, 2023 will be
successful. These factors, among others, raise substantial doubt about our
ability to continue as a going concern. These financial statements do not
include any adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
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For the three months ended June 30, 2022, we had net income of $2,778,330, due
primarily to a decrease in the fair value of our warrants of $2,824,925,
interest income from Trust Account of $354,238 and a change in fair value of
previously issued promissory note of $5,400, partially offset by $306,338 of
formation and operating costs, consisting primarily of general and
administrative expenses.
For the six months ended June 30, 2022, we had net income of $9,246,692, due
primarily to a decrease in the fair value of our warrants of $9,630,375 and
interest income from Trust Account of $369,359, partially offset by $730,831 of
formation and operating costs, consisting primarily of general and
administrative expenses, and a negative change in fair value of previously
issued promissory note of $22,211.
For the three months ended June 30, 2021, we had a net loss of $5,280,772. We
incurred $424,566 of formation and operating costs, consisting mostly of general
and administrative expenses, and had interest income of $4,294 on our amounts
held in the Trust Account.
For the six months ended June 30, 2021, we had a net loss of $5,188,037. We
incurred $529,793 of formation and operating costs, consisting mostly of general
and administrative expenses, and had interest income of $5,710 on our amounts
held in the Trust Account.
Going Concern
As of June 30, 2022, we had approximately $0.2 million in cash and working
capital deficit of approximately $0.8 million. We are also subject to a
mandatory liquidation and subsequent dissolution requirement if we do not
complete our initial business combination by March 1, 2023. All remaining cash
held in the Trust Account is generally unavailable for the Company's use, prior
to an initial business combination, and is restricted for use either in a
Business Combination, to redeem common stock or to use for payment of taxes. As
of June 30, 2022, $203,046 of the amount in the Trust Account was available to
be withdrawn as described above and during the six months ended June 30, 2022,
the Company withdrew $182,466 for payment of taxes. Further, we expect to incur
significant costs in pursuit of our acquisition plans. Management's plans to
address this need for capital are discussed in Note 1 to our financial
statements included elsewhere in this Quarterly Report on Form 10-Q. Our plans
to raise capital and to consummate our initial business combination by March 1,
2023 may not be successful. These factors, among others, raise substantial doubt
about our ability to continue as a going concern. The financial statements
contained elsewhere in this Quarterly Report on Form 10-Q do not include any
adjustments that might result from our inability to continue as a going concern.
Through June 30, 2022, the Company's liquidity needs were satisfied through
receipt of $25,000 from the sale of the Founder Shares and the remaining net
proceeds from the IPO and the sale of Private Placement Warrants, as well as
$300,000 that was available under the Initial Promissory Note, $365,000 that was
available under the First Working Capital Loan (see Note 5), $800,000 that was
available under the Second Working Capital Loan (see Note 5) and $335,000 that
was available under the Third Working Capital Loan (see Note 5). As of June 30,
2022, each of the working capital loans was fully drawn down.
Liquidity and Capital Resources
As of June 30, 2022, we had cash of $0.2 million. Until the consummation of our
initial public offering, our only sources of liquidity were an initial purchase
of common stock by our founders and a loan from the Sponsor, FLC and IFP.
Our registration statement for our initial public offering was declared
effective on February 24, 2021. On March 1, 2021, we consummated our initial
public offering of 28,750,000 units, which included 3,875,000 units issued
pursuant to the full exercise by the underwriters of their over-allotment
option, at $10.00 per Unit, generating gross proceeds of $287.5 million, and
incurring offering costs of approximately $16.7 million, inclusive of
$10,062,500 in deferred underwriting commissions pursuant to the Business
Combination Marketing Agreement with Cowen and Company, LLC and Intrepid
Partners, LLC (the "Business Combination Marketing Agreement").
Simultaneously with the closing of our initial public offering, we consummated
the private placement of 7,750,000 warrants to our initial stockholders, each
exercisable to purchase one share of Class A common stock at $11.50 per share,
at a price of $1.00 per private placement warrant, generating gross proceeds to
us of $7.75 million.
Upon the closing of our initial public offering and the private placement,
$287.5 million of the net proceeds of the sale of the Units in our initial
public offering and the sale of private placement warrants in the private
placement were placed in a trust account (the "Trust Account") located in the
United States at J.P. Morgan Chase Bank, N.A., with American Stock Transfer &
Trust Company acting as trustee, and invested only in U.S. "government
securities" within the meaning of Section 2(a)(16) of the Investment Company Act
having a maturity of 185 days or less or in money market funds meeting certain
conditions under Rule 2a-7 promulgated under the Investment Company Act which
invest only in direct U.S. government treasury obligations, as determined by us,
until the earlier of: (i) the completion of our initial business combination and
(ii) the distribution of the Trust Account as described below. Except with
respect to interest earned on the funds held in the trust account that may be
released to us to pay our taxes, if any, the funds held in the trust account
will not be released until the earliest to occur of: (a) the completion of our
initial business combination, (b) the redemption of any public shares properly
submitted in connection with a stockholder vote to amend our amended and
restated certificate of incorporation (A) to modify the substance or timing of
our obligation to allow redemption in connection with our initial business
combination or redeem 100% of our public shares if we do not complete our
initial business combination within 24 months from the closing of our initial
public offering or (B) with respect to any other provision relating to
stockholders' rights or pre-initial business combination activity and (c) the
redemption of our public shares if we are unable to complete our initial
business combination within 24 months from the closing of our initial public
offering, subject to applicable law.
If we are unable to complete our initial business combination by March 1, 2023,
we will (i) cease all operations except for the purpose of winding up; (ii) as
promptly as reasonably possible but no more than ten business days thereafter
subject to lawfully available funds therefor, redeem the Public Shares, at a
per-share price, payable in cash, equal to the aggregate amount then on deposit
in the Trust Account, including interest earned on the funds held in the Trust
Account and not previously released to us to pay our taxes as well as expenses
relating to the administration of the trust account (less
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up to $100,000 of interest to pay dissolution expenses) divided by the number of
the then outstanding Public Shares, which redemption will completely extinguish
Public Stockholders' rights as stockholders (including the right to receive
further liquidation distributions, if any), subject to applicable law; and (iii)
as promptly as reasonably possible following such redemption, subject to the
approval of the remaining stockholders and the board of directors, liquidate and
dissolve, subject in each case to our obligations under Delaware law to provide
for claims of creditors and the requirements of other applicable law.
Related Party Loans
On November 25, 2020, our founders agreed to loan us an aggregate of up to
$300,000 to cover expenses related to our initial public offering pursuant to a
promissory note (the "Initial Promissory Note"). This loan was non-interest
bearing and payable upon the completion of our initial public offering. We
borrowed approximately $75,000 under the Initial Promissory Note and repaid the
Initial Promissory Note to our founders in full as of June 30, 2021. On March 1,
2021, we issued an unsecured promissory note as a working capital loan to the
Sponsor in the principal amount of $365,000 to cover additional expenses related
to our initial public offering (the "First Working Capital Loan"). This loan was
non-interest bearing and is payable upon the completion of the initial business
combination. The Sponsor assigned approximately $145,000 of the First Working
Capital Loan to our Chief Financial Officer and Secretary, Gregory Patrinely,
approximately $110,000 of the First Working Capital Loan to our Vice President,
Anthony Duenner, and approximately $110,000 of the First Working Capital Loan to
our Vice President, Caldwell Flores. As of June 30, 2022, we have borrowed
$365,000 under the First Working Capital Loan. On December 27, 2021, we issued
an unsecured promissory note as a working capital loan to the Sponsor in the
principal amount of $800,000 to cover additional expenses related to our search
for the initial business combination (the "Second Working Capital Loan"). This
loan was non-interest bearing and payable upon the completion of the initial
business combination. As of June 30, 2022, we have borrowed $800,000 under the
Second Working Capital Loan. On March 29, 2022, we issued an unsecured
promissory note as a working capital loan to the Sponsor in the principal amount
of $335,000 to cover additional expenses related to our search for the initial
business combination (the "Third Working Capital Loan"). This loan is
non-interest bearing and payable upon the completion of the initial business
combination. As of June 30, 2022, we have borrowed $335,000 under the Third
Working Capital Loan. The Sponsor assigned approximately $112,000 of the Third
Working Capital Loan to our Chief Financial Officer and Secretary, Gregory
Patrinely, approximately $112,000 of the Third Working Capital Loan to our Vice
President, Anthony Duenner, and approximately $112,000 of the Third Working
Capital Loan to our Vice President, Caldwell Flores.
In addition, in order to finance transaction costs in connection with an
intended initial business combination, the Sponsor or an affiliate of the
Sponsor or certain of our officers and directors may, but are not obligated to,
loan us funds as may be required. If we complete our initial business
combination, we may repay such loaned amounts. In the event that our initial
business combination does not close, we may use a portion of the working capital
held outside the trust account to repay such loaned amounts but no proceeds from
our trust account would be used for such repayment. Up to $1,500,000 of such
loans may be convertible into warrants, at a price of $1.00 per warrant at the
option of the lender (the "Working Capital Loans"). Such warrants are identical
to the private placement warrants, including as to exercise price,
exercisability and exercise period. Each of the First Working Capital Loan,
Second Working Capital Loan and Third Working Capital Loan are Working Capital
Loans and may be convertible into warrants at a price of $1.00 per warrant at
the option of the Sponsor. We do not expect to seek loans from parties other
than the Sponsor or an affiliate of the Sponsor as we do not believe third
parties will be willing to loan such funds and provide a waiver against any and
all rights to seek access to funds in our trust account. As of June 30, 2022, we
had drawn down $1,500,000 of such loans.
Critical Accounting Estimates
This management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of our financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
income and expenses and the disclosure of contingent assets and liabilities in
our financial statements. On an ongoing basis, we evaluate our estimates and
judgments, including those related to fair value of financial instruments and
accrued expenses. We base our estimates on historical experience, known trends
and events and various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. There have been no material changes during the period
to our critical accounting estimates included in our Annual Report on Form 10-K
for the year ended December 31, 2021.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06 to simplify accounting for certain
financial instruments. ASU 2020-06 eliminates the current models that require
separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity's own equity. The
new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own
equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments.
ASU 2020-06 is effective January 1, 2024, and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on January
1, 2021. We are currently reviewing what impact, if any, adoption will have on
the Company's financial position, results of operations or cash flows.
Our 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 accompanying condensed financial statements.
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