OPAL Fuels (OPAL) - 2022 Q2 - Quarterly Report

Explanatory Note This note clarifies that the report reflects ArcLight's financial state before its July 2022 business combination with OPAL Fuels Business Combination This section details the July 2022 business combination between ArcLight and OPAL Fuels, emphasizing the report's pre-merger focus - ArcLight Clean Transition Corp. II completed its business combination with OPAL Fuels LLC on July 21, 2022, after the end of the fiscal quarter (June 30, 2022)[8] - As part of the transaction, ArcLight changed its name to OPAL Fuels Inc. and domesticated from the Cayman Islands to Delaware[8] - Unless otherwise specified, this quarterly report describes the activities and financial state of ArcLight prior to the business combination[9][10] PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's discussion, market risk disclosures, and internal controls Item 1. Financial Statements The unaudited financial statements for Q2 2022 reflect the company's SPAC status, showing total assets of $312.4 million and net income driven by warrant fair value changes Condensed Balance Sheets This section presents the company's condensed balance sheets as of June 30, 2022, and December 31, 2021 Condensed Balance Sheet Highlights (unaudited) | Balance Sheet Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash | $219,127 | $811,526 | | Investments held in Trust Account | $311,615,892 | $311,175,471 | | Total Assets | $312,381,387 | $312,848,614 | | Liabilities & Shareholders' Deficit | | | | Derivative warrant liabilities | $16,218,840 | $25,795,700 | | Total liabilities | $22,515,550 | $40,766,115 | | Class A ordinary shares subject to possible redemption | $311,515,892 | $311,163,050 | | Total shareholders' deficit | ($21,650,055) | ($39,080,551) | Unaudited Condensed Statements of Operations This section provides the unaudited condensed statements of operations for the three and six months ended June 30, 2022 Condensed Statements of Operations Highlights (unaudited) | Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | General and administrative expenses | $1,733,643 | $3,124,650 | | Change in fair value of derivative warrant liabilities | $4,325,040 | $9,576,860 | | Net income (loss) | $3,287,155 | $7,172,521 | | Basic and diluted net income (loss) per ordinary share | $0.08 | $0.18 | Unaudited Condensed Statements of Cash Flows This section presents the unaudited condensed statements of cash flows for the six months ended June 30, 2022 Condensed Statements of Cash Flows Highlights (unaudited) | Cash Flow Activity | Six Months Ended June 30, 2022 | | :--- | :--- | | Net cash used in operating activities | ($592,399) | | Net cash used in investing activities | $0 | | Net cash provided by financing activities | $0 | | Net decrease in cash | ($592,399) | | Cash - end of the period | $219,127 | Notes to Unaudited Condensed Financial Statements These notes detail the company's formation, the OPAL Fuels business combination, the $10.9 million underwriting commission waiver, and significant post-quarter events including $274.2 million in redemptions - The company entered into a Business Combination Agreement with OPAL Fuels on December 2, 2021, which closed on July 21, 2022[28] - In May 2022, the underwriters from the Initial Public Offering resigned from their role in the Business Combination and waived their entitlement to deferred underwriting commissions of approximately $10.9 million, which was recorded as a gain[96][76] - Subsequent to the quarter end, the Business Combination was consummated. Holders of 27,364,124 Class A ordinary shares redeemed their shares for an aggregate of approximately $274.2 million[130][131] - On August 4, 2022, a subsidiary of the newly combined company entered into a new senior secured credit facility for up to $105 million to fund the construction of RNG projects[133] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This MD&A section reviews the company's limited operations, reporting net income of $3.3 million for Q2 2022, primarily from non-operating gains, and details its liquidity position Results of Operations Summary | Period | Net Income / (Loss) | Key Drivers | | :--- | :--- | :--- | | Q2 2022 | ~$3.3M | $4.3M gain on warrant liabilities, $0.4M gain on investments, $0.3M gain on underwriting fees, offset by $1.7M G&A costs | | H1 2022 | ~$7.2M | $9.6M gain on warrant liabilities, $0.4M gain on investments, $0.3M gain on underwriting fees, offset by $3.1M G&A costs | | Q2 2021 | ~($11.6M) | $11.2M loss on warrant liabilities, $0.4M G&A costs | - As of June 30, 2022, the company had approximately $219,000 in its operating bank account and working capital of approximately $662,000[153][42] - Effective May 14, 2022, the IPO underwriters resigned and waived their entitlement to deferred commissions of approximately $10.9 million, which was recorded as a gain[161] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk[172] Item 4. Controls and Procedures Management concluded that disclosure controls were ineffective as of June 30, 2022, due to a material weakness in accounting for complex financial instruments - Management concluded that disclosure controls and procedures were not effective as of June 30, 2022[173] - The ineffectiveness is due to a material weakness in internal control over financial reporting related to the accounting for complex features of Class A ordinary shares and warrants[173] - This material weakness previously resulted in the restatement of the company's financial statements for periods in 2021[173] - Remediation efforts include performing additional analyses, consulting with experts, and enhancing processes for evaluating complex accounting standards[175] PART II. OTHER INFORMATION This section addresses legal proceedings, updated risk factors, unregistered equity sales, and other miscellaneous disclosures Item 1. Legal Proceedings The company received demand letters from shareholders alleging material omissions in the Form S-4 for the OPAL Fuels transaction, which it denies - The company received two demand letters from purported shareholders in February and March 2022[176][93] - The letters allege material omissions in the Form S-4 registration statement for the OPAL Fuels transaction. The company denies the allegations[176][93] Item 1A. Risk Factors Post-business combination, prior risk factors are superseded; investors should refer to the June 2022 prospectus for current risks - Risk factors from the 2021 Form 10-K are no longer applicable due to the closing of the Business Combination[178] - For current risk factors related to the combined company, readers should refer to the final prospectus filed on June 27, 2022[178] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities This section details the initial issuance of 7,187,500 Founder Shares and confirms the planned use of IPO and private placement proceeds - The Sponsor paid $25,000 for the initial issuance of Founder Shares in January 2021[179] - Net proceeds from the IPO and private placement were deposited into the Trust Account, and there has been no material change in the planned use of these proceeds[181][182] Other Items (Items 3, 4, 5 & 6) This section confirms no defaults on senior securities, no mine safety disclosures, no other material information, and lists the report's exhibits - Item 3, Defaults Upon Senior Securities: None[183] - Item 4, Mine Safety Disclosures: Not applicable[184] - Item 5, Other Information: None[185] - Item 6, Exhibits: This section lists the agreements and certifications filed as exhibits to the Form 10-Q[186]