opal-20221122
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 8-K
___________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934


Date of Report (Date of earliest event reported): November 22, 2022

___________________________________
OPAL Fuels Inc.
(Exact name of registrant as specified in its charter)
___________________________________

Delaware
(State or other jurisdiction of
incorporation)
001-40272
(Commission File Number)
98-1578357
(IRS Employer Identification No.)
One North Lexington Avenue, Suite 1450
White Plains, New York
10601
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (914) 705-4000
Not Applicable
(Former name or former address, if changed since last report)
___________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, par value $.0001 per shareOPALThe Nasdaq Stock Market LLC
Warrants, each whole warrant exercisable for one share of Class A Common Stock OPALWThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).



Emerging growth company    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.





Item 8.01. Other Events.

As previously disclosed, on July 21, 2022 (the “Closing Date”), OPAL Fuels Inc. (the “Company”) consummated the previously announced transactions contemplated by that certain Business Combination Agreement, dated as of December 2, 2021 (the “Business Combination Agreement”), by and among ArcLight Clean Transition Corp. II (“ArcLight”), OPAL HoldCo LLC (“OPAL HoldCo”) and OPAL Fuels LLC (“OPAL Fuels”).

As contemplated by the Business Combination Agreement, on July 21, 2022, ArcLight changed its jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware (the "Domestication"). Following the Domestication, on July 21, 2022, Arclight changed its name to "OPAL Fuels Inc." and each outstanding ArcLight Class B ordinary share converted into one ArcLight Class A ordinary share, each outstanding ArcLight Class A ordinary share became one share of Class A common stock of the Company, par value $0.0001 per share (the “Class A common stock”), and each outstanding warrant to purchase one ArcLight Class A ordinary share became a warrant to purchase one share of the Company's Class A common stock at an exercise price of $11.50 per share. Following the consummation of the Business Combination on July 21, 2022, the Company was organized in an “Up-C” structure. The Company is the managing member of OPAL Fuels. OPAL Fuels directly or indirectly holds substantially all of the consolidated assets and business of the Company.

Pursuant to the Business Combination Agreement, the Merger was accounted for as a reverse recapitalization (the “Reverse Recapitalization”) in accordance with U.S. generally accepted accounting principles. Under this method of accounting, ArcLight was treated as the “acquired” company and OPAL Fuels was treated as the acquirer for financial reporting purposes. The Reverse Recapitalization was treated as the equivalent of OPAL Fuels issuing stock for the net assets of ArcLight, accompanied by a recapitalization.

The Company is filing this Current Report on Form 8-K to recast the audited consolidated financial statements of the Company as of December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019, as previously included in the Company’s registration statement on Form S-4 filed with the Securities and Exchange Commission (the “SEC”) on November 18, 2022 (the “S-4”) to reflect the effects of the Reverse Recapitalization.

Item 9.01. Financial Statements and Exhibits

Exhibit Number Description
99.1




SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


Date: November 22, 2022
OPAL Fuels Inc.
By:
/s/ Ann Anthony
Name:
Ann Anthony
Title:
Chief Financial Officer

Document

Report of Independent Registered Public Accounting Firm
 
Shareholders and Board of Directors
OPAL Fuels Inc.
White Plains, NY
 
Opinion on the Consolidated Financial Statements
 
We have audited the accompanying consolidated balance sheets of OPAL Fuels Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in members’(deficit) equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
 
Restatement of 2020 and 2019 Consolidated Financial Statements
 
As discussed in Note 2 to the consolidated financial statements, the accompanying consolidated financial statements as of December 31, 2020 and for each of the two years in the period ended December 31, 2020 have been restated to correct a misstatement.
 
Related Parties
 
As discussed in Note 10 “Related Parties” to the consolidated financial statements, OPAL Fuels Inc. and its subsidiaries have entered into significant transactions with Fortistar, LLC, which is a related party. Our opinion is not modified with respect to this matter.
 
Basis for Opinion
 
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
 
/s/ BDO USA, LLP
 
We have served as the Company’s auditor since 2016.
 
Stamford, CT
 
April 15, 2022, except for the effects of the recapitalization described in Note 1, as to which the date is November 17, 2022
 
F-46
 
 
OPAL FUELS INC.
SMRH:4873-5641-9391.2
-1-



CONSOLIDATED BALANCE SHEETS
(In thousands of dollars except per unit data)
 
 
 As of December 31, 
 
 
2021(1)
  2020 
 
    
(Restated) (1)(2)
 
Assets
      
Current assets:
      
Cash and cash equivalents (includes $1,991 and $5,088 at December 31, 2021 and December 31, 2020, respectively, related to consolidated VIEs)
 $39,314  $12,823 
Accounts receivable, net (includes $40 and $— at December 31, 2021 and December 31, 2020, respectively, related to consolidated VIEs)
  25,391   22,002 
Fuel tax credits receivable
  2,393   2,276 
Contract assets
  8,484   5,524 
Parts inventory
  5,143   4,244 
Environmental credits held for sale
  386   545 
Prepaid expense and other current assets (includes $113 and $— at December 31, 2021 and December 31, 2020, respectively, related to consolidated VIEs)
  5,482   2,981 
Derivative financial asset, current portion
  382   810 
Total current assets
  86,975   51,205 
Capital spares
  3,025   3,014 
Property, plant, and equipment, net (includes $27,359 and $18,834 at December 31, 2021 and December 31, 2020, respectively, related to consolidated VIEs)
  169,770   79,492 
Investment in other entities
  47,150   25,573 
Note receivable
  9,200    
Note receivable - variable fee component
  1,656    
Deferred financing costs
  2,370    
Other long-term asset
  489    
Intangible assets, net
  2,861   3,437 
Derivative financial asset, non-current portion
     719 
Restricted cash (includes $1,163 and $2,199 at December 31, 2021 and December 31, 2020, respectively, related to consolidated VIEs)
  2,740   2,565 
Goodwill
  54,608   3,453 
Total assets
 $380,844  $169,458 
Liabilities, Redeemable Preferred Units, and Members’ Equity
        
Current liabilities:
        
Accounts payable (includes $544 and $864 at December 31, 2021 and December 31, 2020, respectively, related to consolidated VIEs)
 $12,581  $8,683 
Accounts payable, related party
  166   1,579 
Fuel tax credits payable
  1,978   1,945 
Accrued payroll
  7,652   2,781 
Accrued capital expenses (includes $1,722$— and $3,300 at December 31, 2021 and December 31, 2020, respectively, related to consolidated VIEs)
  5,517   3,300 
Accrued expenses and other current liabilities (includes $0 and $776 at December 31, 2021 and December 31, 2020, respectively related to consolidated VIEs)
  7,220   7,323 
SMRH:4873-5641-9391.2
-2-



Contract liabilities
  9,785   4,678 
Liability under power sales agreement, current portion
     260 
Senior secured credit facility – term loan, current portion
  73,145   4,900 
Senior secured credit facility – working capital facility, current portion
  7,500   5,182 
OPAL term loan, current portion
  13,425    
Sunoma loan, current portion (includes $756 and $— at December 31, 2021 and December 31, 2020, respectively, related to consolidated VIEs)
  756    
Municipality loan, current portion
  194   194 
Derivative financial liability, current portion
  992   1,689 
Other current liabilities
  374    
Asset retirement obligation, current portion
  831   348 
Total current liabilities
  142,116   42,862 
Asset retirement obligation, non-current portion
  4,907   4,537 
TruStar revolver credit facility
     10,000 
Senior secured credit facility – term loan, net of debt issuance costs
     72,256 
Senior secured credit facility – working capital facility
     7,500 
OPAL term loan
  59,090    
Convertible note payable
  58,710    
Municipality loan
  84   278 
Sunoma loan, net of debt issuance costs (includes $16,199 and $470 at December 31, 2021 and December 31, 2020, respectively, related to consolidated VIEs)
  16,199   470 
Other long-term liabilities
  4,781    
Derivative financial liability, non-current portion
     1,096 
Total liabilities
  285,887   138,999 
Commitments and contingencies (Note 20)
        
Redeemable preferred non-controlling interests
  30,210    
Redeemable non-controlling interests
  63,545   23,760 
Stockholders’ equity (1)
        
Class D common stock, $0.0001 par value, 154,309,729 shares authorized as of September 30, 2022; 144,399,037  issued and outstanding at  December 31, 2021 and 2020
  14   14 
Retained earnings
      
Total Stockholders’ equity attributable to the Company
  14   14 
Non-controlling interest in subsidiaries
  1,188   6,685 
Total stockholders’ equity
  1,202   6,699 
Total liabilities, Redeemable preferred, Redeemable non-controlling interests and Stockholders’ equity
 $380,844  $169,458 
 
(1)
Retroactively restated for the reverse recapitalization upon completion of Business Combination as described in Note 1.
(2)
As described in Note 2, Restatement of financial statements to these consolidated financial statements, we have restated the consolidated financial statements for the years ended December 31, 2020 and 2019.
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-47
 
SMRH:4873-5641-9391.2
-3-



 
OPAL FUELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars except per unit data)
 
  Fiscal Years Ended 
  December 31, 
  2021  2020  2019 
     
(Restated)(1)
  
(Restated)(1)
 
Revenues:         
RNG fuel $70,360  $11,545  $8,977 
Renewable power  45,324   51,250   55,682 
Fuel station service  50,440   54,911   55,043 
Total revenues, net  166,124   117,706   119,702 
Operating expenses:            
Cost of sales – RNG fuel  41,075   7,376   5,156 
Cost of sales – Renewable power  31,152   37,755   38,714 
Cost of sales – Fuel station service  42,838   45,037   47,102 
Selling, general, and administrative  29,380   20,474   17,795 
Depreciation, amortization, and accretion  10,653   8,338   8,031 
Impairment of assets     17,689    
Gain on termination of PPA     (1,292)   
Loss on sale/disposal of assets     165   (2,051)
Total expenses  155,098   135,542   114,747 
Operating income (loss)  11,026   (17,836)  4,955 
Other income (expenses):            
Interest and financing expense, net  (7,467)  (6,655)  (8,026)
Realized and unrealized gain (loss) on derivative financial instruments, net  99   (2,197)  (1,691)
Gain on acquisition of equity method investment  19,818       
Gain on deconsolidation of VIEs  15,025       
Gain on PPP loan forgiveness     1,792    
Income (loss) from equity method investments  2,268   (475)  (487)
Net income (loss)  40,769   (25,371)  (5,249)
Paid-in-kind preferred dividends  210       
Net loss attributable to non-controlling interests  (804)  (13)   
Net income (loss) attributable to Redeemable non-controlling interests (2)
 $41,363  $(25,358) $(5,249)
 
(1)
As described in Note 2, Restatement of financial statements to these consolidated financial statements, we have restated the consolidated financial statements for the years ended December 31, 2020 and 2019.
(2)
Retroactively restated for the reverse recapitalization upon completion of Business Combination as described in Note 1. Net income (loss) per share information has not been presented for the years ended December 31, 2021, 2020 and 2019 as there are no common shares outstanding upon retroactive restatement resulting from Business Combination as described in Note 1.
 
The accompanying notes are an integral part of these consolidated financial statements.
 
SMRH:4873-5641-9391.2
-4-



F-48
 
 
OPAL FUELS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE NON-CONTROLLING INTEREST, REDEEMABLE PREFERRED NON-CONTROLLING INTEREST AND STOCKHOLDERS’ (DEFICIT) EQUITY
(In thousands of U.S. dollars, except per unit data)
 
  Legacy Common Units  Class D common stock  Retained  Non-redeemable
non-controlling
  Total
Stockholders’
  Redeemable
preferred
non-controlling
  Redeemable
non-controlling
 
  Units  Amount  Shares  Amount  earnings  interests  
Equity (1)
  
interests (1)
  
interests (1)
 
December 31, 2018, as previously reported
  986  $(7,418)    $  $2,133  $  $(5,285) $  $ 
Adjustments (1)
              3,078      3,078       
As restated
  986   (7,418)        5,211      (2,207)      
Retroactive application of recapitalization (2)
  (986)  7,418   142,377,450   14   (5,211)     2,221      (2,221)
December 31, 2018, as adjusted
        142,377,450   14         14      (2,221)
Net loss
                          (5,249)
Contributions from redeemable non-controlling interests
                          30,057 
Distributions to redeemable non-controlling interests
                          (404)
Stock-based compensation
                          315 
December 31, 2019
        142,377,450   14         14      22,498 
Net loss
                 (13)  (13)     (25,358)
SMRH:4873-5641-9391.2
-5-



Issuance of non-redeemable non-controlling interest
                 6,698   6,698      1,834 
Contributions from redeemable non-controlling interests
                          15,128 
Distributions to redeemable non-controlling interests
                          (852)
Stock-based compensation
                          510 
Assignment of related party loan and line of credit
                          10,000 
December 31, 2020
        142,377,450   14      6,685   6,699      23,760 
Net loss
                 (804)  (804)     41,573 
Issuance of non-redeemable non-controlling interest
                 56,231   56,231      3,158 
Issuance to Redeemable preferred non-controlling interest
                 (29,913)  (29,913)  30,000   (87)
Acquisition of non-controlling interest (3)
                 (332)  (332)     (9,124)
Contributions from redeemable non-controlling interests
                          7,531 
Distributions to redeemable non-controlling interests
                                (3,695)
SMRH:4873-5641-9391.2
-6-



Deconsolidation of entities (4)
                 (30,679)  (30,679)      
Stock-based compensation
                          639 
Paid-in-kind preferred dividends
                       210   (210)
December 31, 2021
    $   142,377,450  $14  $  $1,188  $1,202  $30,210  $63,545 
 
(1)
As described in Note 2, Restatement of financial statements to these consolidated financial statements, we have restated the consolidated financial statements for the years ended December 31, 2020 and 2019.

(2)
Retroactively restated for the reverse recapitalization upon completion of Business Combination as described in Note 1.

(3)
As of December 31, 2021, two of our RNG facilities, Pine Bend and Noble Road ( defined below) were deconsolidated and accounted for under equity method as per ASC 323. Please refer to Note 6, Investment in Other Entities and Note 17, Variable Interest Entities for additional information.
 
(4)
On November 29, 2021, the Company issued 300,000 redeemable preferred units to Hillman RNG Investments LLC (“Hillman”) in exchange for its contributions as non-controlling interests in four RNG facilities. Please see Note 1, Description of Business for additional information.
 
F-49
 
 
OPAL FUELS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
 
  December 31, 
  2021  2020  2019 
     
(Restated)(1)
  
(Restated)(1)
 
Cash flows from operations:         
Net income (loss) $40,769  $(25,371) $(5,249)
Adjustments to reconcile Net income (loss) to net cash provided by operating activities:
            
(Income) loss from equity method investments  (2,268)  475   487 
(Recovery) provision for bad debts     (600)  600 
Provision for inventory obsolescence     58   (30)
Depreciation and amortization  10,078   8,150   7,854 
Amortization of deferred financing costs  1,085   877   820 
Amortization of PPA liability  (260)  (295)  (294)
Accretion expense related to asset retirement obligations  575   188   177 
Stock-based compensation  639   510   315 
Paid-in-kind interest income  (406)      
Paid-in-kind interest expense  3,300       
Unrealized (gain) loss on derivative financial instruments  (645)  2,226   2,249 
SMRH:4873-5641-9391.2
-7-



Gain on acquisition of equity method investment  (19,818)     44 
Gain on deconsolidation of VIEs  (15,025)      
Write-off of capitalized development costs     84    
Loss (gain) on sale/disposal of assets     165   (2,052)
Gain on termination of PPA     (1,292)   
Gain on PPP loan forgiveness     (1,792)   
Impairment of assets     17,689    
Noncash transfer of equipment to construction expense        262 
Change in operating assets and liabilities:            
Accounts receivable  (2,944)  (1,169)  10,651 
Fuel tax credits receivable  (117)  2,642   (4,917)
Capital spares  155   27   197 
Parts inventory  (899)  (513)  (702)
Environmental credits held for sale  159   (545)   
Prepaid expense and other current assets  (2,928)  (896)  36 
Contract assets  (2,960)  548   (350)
Accounts payable  2,559   744   (6,160)
Accounts payable, related party  (1,413)  (1,207)  (505)
Fuel tax credits payable  33   (1,717)  3,662 
Accrued payroll  4,864   986   (359)
Other liabilities – current and non-current  699      (712)
Accrued expense and other current liabilities  (1,483)  138    
Contract liabilities  5,107   2,177   (1,686)
Net cash provided by operating activities  18,856   2,287   4,338 
Cash flows from investing activities:            
Purchase of property, plant, and equipment  (89,646)  (24,940)  (5,469)
Purchase of intellectual property        (43)
Purchase of capital spares     (50)  (128)
Cash paid for investment in other entity  (1,570)     (27,791)
Purchase of note receivable  (10,450)      
 
F-50
 
 
OPAL FUELS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
(In thousands of dollars)
 
SMRH:4873-5641-9391.2
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  December 31, 
  2021  2020  2019 
     
(Restated)(1)
  
(Restated)(1)
 
Cash acquired from business acquisition
  1,975       
Deconsolidation of VIEs, net of cash
  (21,208)      
Proceeds from termination of PPA
     1,850    
Proceeds from disposal of plant and equipment
     109   3,179 
Distributions received from equity method investment
  3,695   852   404 
Net cash used in investing activities
  (117,204)  (22,179)  (29,848)
Cash flows from financing activities:
            
Proceeds from line of credit – affiliate
        3,000 
Proceeds from line of credit
     5,200   1,300 
Repayment of line of credit
     (500)  (1,200)
Proceeds from OPAL term loan
  75,000       
Proceeds from Sunoma loan
  15,679       
Proceeds from notes payable and long-term debt, net
     674    
Financing costs paid to other third parties
  (3,607)  (221)   
Repayment of Senior secured facility – term loan
  (4,901)  (8,106)  (7,906)
Repayment of Senior secured facility – working capital facility
  (5,182)      
Repayment of Municipality loan
  (194)  (194)  (194)
Repayment of Trustar revolver facility
  (10,000)      
Proceeds from PPP loan
     1,792    
Acquisition of non-controlling interest
  (5,000)      
Proceeds from sale of non-controlling interest
  21,579   8,532    
Contributions from non-controlling interest
  7,804       
Proceeds from sale of non-controlling interest, related party
  16,639       
Contributions from non-controlling interest, related party
  13,361       
Distributions to member
  (3,695)  (852)  (404)
Contributions from member
  7,531   15,128   30,057 
Net cash provided by financing activities
  125,014   21,453   24,653 
Net increase in cash, cash equivalents, and restricted cash
  26,666   1,561   (857)
Cash, cash equivalents, and restricted cash, beginning of year
  15,388   13,827   14,684 
Cash, cash equivalents, and restricted cash, end of year
 $42,054  $15,388  $13,827 
Supplemental disclosure of cash flow information:
            
Interest paid, net of $756 and $0 capitalized, respectively
 $4,339  $6,243  $4,622 
Noncash investing and financing activities
            
Fair value of contingent consideration to redeem the non- controlling interest included in other long-term liabilities
 $4,456  $  $ 
Paid-in-kind dividend on redeemable preferred units
 $210  $  $ 
Issuance of notes payable related to business acquisition, excluding paid-in-kind interest
 $55,410  $  $ 
Accrual for purchase of Property, plant and equipment included in Accrued capital expenses and Accounts Payable
 $6,205  $3,300  $ 
Accrual for deferred financing costs included in Accrued expenses and other current liabilities
 $1,379  $  $ 
Assignment of debt to Parent Company
 $  $10,000  $ 
SMRH:4873-5641-9391.2
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(1)
As described in Note 2, Restatement of financial statements to these consolidated financial statements, we have restated the consolidated financial statements for the years ended December 31, 2020 and 2019.
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-51
 
 
OPAL FUELS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per unit data)
 
1. Description of Business
 
OPAL Fuels Inc. (including its subsidiaries, (the “Company”) is engaged in the business of producing and distributing renewable natural gas (“RNG”) to power transportation throughout the United States. The Company owns RNG production facilities that are in operation, under construction, and in late-stage development. OPAL Fuels Inc. also constructs, owns and services fueling stations that dispense RNG and compressed natural gas (“CNG”) for vehicle fleets across the country that use RNG and CNG to displace diesel as their transportation fuel. RNG is derived from landfill gas (“LFG”) and dairy digester gas. In addition, the Company owns LFG fueled power plants that sell renewable electricity to public utilities. The Company is a wholly owned subsidiary of OPAL HoldCo LLC (the “Parent”) which, in turn, is an indirect subsidiary of Fortistar LLC (the “Ultimate Parent”).
 
On May 1, 2021, we completed the acquisition Beacon Acquisition of Beacon RNG LLC (“Beacon”). Beacon extracts and converts methane gas to RNG from two landfills located in western Pennsylvania and sells the extracted gas to public utilities and separately monetizes environmental attributes through sales to third parties. Prior to the acquisition, the Company accounted for its 44.3% interest in Beacon as an equity method investment as the Company had the ability to exercise significant influence, but not control, over the operating and financial policies of Beacon’s operations. See Note 5 Acquisition, for more information.
 
On November 29, 2021, the Company amended its limited liability agreement (“LLCA”) which converted the outstanding membership interests into 986 common units. Therefore, the earnings per unit has been presented retrospectively for all periods presented in the consolidated financial statements. See Note 3, Summary of Significant Accounting Policies, for additional information.
 
Hillman RNG Investments LLC (“Hillman”), an affiliate of the Ultimate Parent, made a combined $30,000 of capital contributions from August to November 2021 in four individual RNG projects that the Company is developing and constructing. On November 29, 2021, the Company entered into an exchange agreement with Hillman whereby Hillman exchanged its ownership interests in the four RNG projects of $30,000 into 300,000 series A-1 preferred units at par value of $100 per unit and 1.4% of the common units in the Company. See Note 3, Summary of Significant Accounting Policies, and Note 18 Redeemable Preferred Units and Equity, for additional information.
 
On November 29, 2021, we signed two agreements with NextEra Energy (“NextEra”). NextEra agreed to invest up to $100,000 in Series A preferred units of the Company. The Company is allowed to draw down the $100,000 in whole or in increments until June 30, 2022. The Company did not issue any preferred units as of December 31, 2021. Additionally, the Company also entered into a purchase and sale agreement with NextEra for the environmental attributes generated by the RNG Fuels business. Under this agreement, the Company will sell a minimum of 90% of the environmental attributes generated and will receive net proceeds based on the ultimate sale price to a third party less a specified discount. A specified volume of environmental attributes sold per quarter will incur a small fee per environmental attribute in addition to the specified discount. The agreement is effective beginning first quarter of 2022.
 
On December 2, 2021, the Company signed a business combination agreement (“BCA”) with ArcLight Clean Transition Corp. II, a NASDAQ publicly traded special purpose acquisition company. The business combination agreement values OPAL at an enterprise value of $1.75 billion. Upon closing, the Company is expected to be listed on the NASDAQ exchange under the ticker symbol “OPL”. The transaction includes a $125,000 fully committed common stock PIPE (private investment in public equity) at $10.00 per share anchored by a $25,000 investment by NextEra.
 
On December 10, 2021, the Company entered into a settlement agreement with the landfill owner of one of the Company’s RNG projects involving the timing of RIN royalty payments amounting to $10,951 as of October 31,
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2021. As part of this agreement, the Company agreed to pay the accrued and outstanding balance of royalty payments of $10,951 to the landfill owners and the landfill owner reimbursed the Company $6,253 as a reimbursement towards costs the Company previously incurred to purchase equipment at the landfill site. The Company recorded $4,740 as
 
F-52
 
 
OPAL FUELS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per unit data)
 
1. Description of Business (cont.)
 
a reduction of the Property, plant and equipment which represents the net book value of the equipment and $1,513 as a reduction of Selling, general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2021. In addition, a new gas rights agreement was negotiated which is not subordinated to any debt service and under which RIN royalty payments would be made on a monthly basis going forward. As part of the settlement, the Company and GFL Renewables LLC have also entered into a new 50/50 joint venture through the formation of Emerald RNG LLC and Sapphire RNG LLC and this joint venture is planning to convert an existing electric facility into an RNG facility. and build a new RNG facility, respectively.
 
COVID-19 Impact
 
In March 2020, the World Health Organization categorized the Coronavirus Disease 2019 (“COVID-19”) as a pandemic and the President of the United States declared the COVID-19 outbreak as a national emergency. Management considered the impact of COVID-19 on the assumptions and estimates used and determined that, because the Company was deemed to be an essential business by the U.S. government and incurred neither layoffs of personnel nor a decline in its customer base or business operations, there was no material adverse impact on the Company’s statement of position and result of operations as of, and for the year ended December 31, 2021.
 
On March 27, 2020, the “Coronavirus Aid, Relief, and Economic Security (CARES) Act” was signed into law. The CARES Act appropriated funds for the Small Business Administration Paycheck Protection Program (“PPP”) loans that are forgivable in certain situations to promote continued employment. In May 2020, the Company received a loan of $1,792 under the PPP. At the time the Company applied for this loan, there was considerable uncertainty as to the impact of the pandemic on the Company’s operations as well as the U.S. economy in general. The full amount of this PPP loan was forgiven in November 2020. As of December 31, 2021, no amounts were outstanding.
 
The future impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and its impact on our customers, all of which are uncertain and cannot be predicted. As of the date of issuance of these consolidated financial statements, the extent to which the COVID-19 pandemic may impact the Company’s financial condition, liquidity, or results of operations is uncertain.
 
Liquidity and Capital Resources
 
In August 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Under the new standard, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.
 
F-53
 
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OPAL FUELS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per unit data)
 
1. Description of Business (cont.)
 
In performing the first step of this assessment, we concluded that the following conditions raise substantial doubt about our ability to meet our financial obligations as they come due within one year after the date that the financial statements are issued.
 
We have history of net losses from our operations excluding certain non-cash gains related to the Beacon step acquisition and deconsolidation of VIEs. We have retained earnings of $15,967 as of December 31, 2021 and cash provided by operating activities of $18,856 for the year ended December 31, 2021.
 
Our cash balance as of December 31, 2021 was $42,054, out of which $2,740 is restricted.
 
We have $94,988 of our outstanding debt excluding interest repayment due on Sunoma loan coming due in 2022 which is reflected in our working capital deficit of $55,141.
 
We also considered our projected capital expenditures to fund our growth plans.
 
In performing the second step of this assessment, we are required to evaluate whether our plans to mitigate the above conditions alleviate the substantial doubt about our ability to meet our obligations as they become due within one year after the date of financial statements are issued. We list below our plans to alleviate the substantial doubt
 
(1)An existing below-market contract for the sale of environmental credits generated by Beacon RNG LLC ended in August 2020. In addition, in May 2021, we acquired the remaining interests in Beacon RNG LLC by issuing a $50,000 convertible note to our joint venture partner. Beginning in 2022 and beyond, we anticipate a significant increase in revenues and resulting cash flows from operating activities from the operation of this facility.
 
(1)We have closed on a delayed draw term loan, OPAL term loan for an aggregate amount of $125,000 with a syndicate of lenders, led by Bank of America as book runner and agent. $90,000 was available at closing and the remaining $35,000 becomes available in third quarter of 2022 as three more facilities become operational. Pursuant to the closing of the facility, we drew down $75,000 in October 2021 and an additional $15,000 in February, 2022. The three RNG facilities are expected to be operational by July 2022 at which time we will have remaining $35,000 available for us to draw from this term loan.
 
We have closed a preferred equity investment of $100,000 with NextEra. The $100,000 is available for us at our discretion to be drawn in $10,000 minimum increments through June 30, 2022. We have drawn $25.0 million under this capital raise in March 2022.
 
We have announced a business combination with ArcLight Clean Transition Corp II, a SPAC that trades on the NASDAQ under the ticker “ACTD”. We expect to raise net proceeds of approximately $391,352, after associated transaction costs, assuming no redemptions and $105,364 assuming maximum redemptions in which maximum 28,698,800 Arclight Clean Transition Corp II Class A ordinary shares are redeemed. Additionally, we raised a PIPE investment of $125,000 which would be available for us upon the closing of the proposed business combination.
 
A significant portion of our projected revenues for 2022 are already under existing fixed contract arrangements.
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We have ability to postpone our uncommitted capital expenditures without significantly impacting our revenue generation capabilities for the upcoming 12 months from the date of the financial statements are issued.
 
We believe that we would be able to pay the debt coming due in 2022 with the availability under the existing facilities together with the cash on hand and cash flows from operations.
 
F-54
 
 
OPAL FUELS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per unit data)
 
1. Description of Business (cont.)
 
We acknowledge that we face a challenging competitive environment and we continue to focus on our overall profitability and manage our extensive growth plans. We believe that the actions taken in 2021 with capital raises, the proposed business combination and significant growth in the projected cash flows from operating activities are probable of occurring and mitigate the substantial doubt raised and we believe we will be able to satisfy our liquidity needs 12 months from the date of the issuance of the financial statements. However, we cannot predict, with certainty, the outcomes of our actions to generate liquidity including consummation of the contemplated business combination. Further, any decrease in demand for our products or our ability to manage our production facilities, could impact our ability to fund our operations and meet the obligations under the existing debt facilities as they come due and meet the debt covenants.
 
To fuel future growth, we may seek additional capital through equity offerings or debt financings. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our project development efforts. We may be unable to obtain any such additional financing on acceptable terms or at all. Our ability to access capital when needed is not assured and, if capital is not available when, and in the amounts, needed, we could be required to delay, scale back or abandon some or all of our development programs and other operations, which could materially harm our business, prospects, financial condition, and operating results.
 
The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern.
 
Business Combination
 
On July 21, 2022, ArcLight filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which ArcLight was domesticated and continued as a Delaware corporation (the “Domestication”). Pursuant to the Domestication, (i) each outstanding Class B ordinary share, par value $0.0001 per share of ArcLight was automatically converted, on a one-for-one basis, into a Class A ordinary share, par value $0.0001 per share (the “Class A ordinary shares”), of ArcLight; (ii) each issued and outstanding Class A ordinary share (including Class A ordinary shares resulting from the conversion of Class B ordinary shares into Class A ordinary shares) was automatically converted, on a one-for-one basis, into a share of the Company’s Class A common stock, par value $0.0001 per share; (iii) each issued and outstanding whole warrant to purchase Class A ordinary shares of ArcLight automatically converted into a warrant to acquire one share of the Company’s Class A common stock at an exercise price of $11.50 per share (“OPAL Warrant”); and (iv) each issued and outstanding unit of ArcLight that had not been previously separated into the underlying Class A ordinary shares of ArcLight and the underlying warrants of ArcLight upon the request of the holder thereof prior to the Domestication was cancelled and entitled the holder thereof to one share of the Company’s Class A common stock and one-half of one OPAL Warrant.
 
In connection with consummation of the Business Combination, the events summarized below, among others, occurred:
 
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OPAL Fuels and its existing members caused OPAL Fuels’ existing limited liability company agreement to be amended and restated and in connection therewith, all of the common units of OPAL Fuels issued and outstanding immediately prior to the closing were re-classified into 144,399,037 Class B common units ( “Class B Units”) of OPAL Fuels. The Company accounts for these Class B units as Redeemable non-controlling interests in its condensed consolidated financial statements. Each Class B unit is paired with 1 non-economic share of Class D common stock issued by the Company.
 
ArcLight (i) contributed to OPAL Fuels $138,850 in cash net of transaction expenses of $9.7 million, representing the sum of cash in the trust account after giving effect to the exercise of redemption rights by any Arclight shareholders plus the aggregate proceeds of the PIPE investment received and (ii) issued to OPAL Fuels 144,399,037 shares of Class D common stock of the Company, par value $0.0001 per share; (ii) issued 11,080,600 shares of the Company’s Class A common stock to the PIPE investors at $10.0 per share, par value $0.0001 per share and (iii) issued 3,059,533 shares of the Company’s Class A common stock to ARCC Beacon LLC (“Ares”);
 
F-55
 
 
OPAL FUELS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per unit data)
 
OPAL Fuels issued 25,671,390 Class A Units of OPAL Fuels to the Company; and
 
The Company contributed to OPAL Fuels, and OPAL Fuels in turn distributed to pre-closing members of OPAL Fuels, 144,399,037 shares of Class D common stock, par value $0.0001 per share (such shares of Class D common stock do not have any economic value but entitle the holder thereof to five votes per share).
 
The Business Combination was accounted for as a reverse recapitalization as OPAL Fuels was determined to be the accounting acquirer under Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. OPAL HoldCo held a controlling financial interest in OPAL Fuels prior to the closing date. At transaction close, OPAL HoldCo obtained a controlling financial interest in the Company and indirectly retained control over OPAL Fuels through the Company. OPAL HoldCo did not relinquish control over OPAL Fuels during the transaction, instead it affected a transfer of a controlled subsidiary (i.e., OPAL Fuels) to a newly-controlled subsidiary (i.e., OPAL Fuels Inc) and in exchange for issuing Class A common units of OPAL Fuels for the net assets of the Company. As there was no change in control, OPAL Fuels has been determined to be the accounting acquirer. Under this method of accounting, ArcLight is treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the transaction is treated as the equivalent of OPAL Fuels issuing stock for the net assets of ArcLight, accompanied by a recapitalization. The net assets of ArcLight are stated at historical cost, with no goodwill or other intangible assets recorded. Results of operations prior to Business Combination are presented as belonging to OPAL Fuels in future reports of the combined entity. The components of Stockholders’ equity have been retroactively restated reflecting the reverse recapitalization. The name of the Company was retroactively changed from OPAL Fuels LLC to OPAL Fuels Inc.
 
2. Restatements of Financial Statements
 
Our consolidated balance sheet as of December 31, 2020, consolidated statements of operations for the years ended December 31, 2020 and 2019, consolidated statements of changes in stockholders’ equity (deficit) as of December 31, 2020, 2019 and 2018 and consolidated statements of cash flows for the years ended December 31, 2020 and 2019 have been restated for certain errors made with regard to accounting for certain commodity swap agreements which the Company entered into in December 2018 and November 2019, recording of certain invoices related to construction in progress in the wrong period and for the gross up of revenue for certain federal and state taxes collected by the Company on behalf of the customer, which the Company subsequently remitted to the government.
 
Restatement relating to commodity swap contracts
 
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In December 2018, the Company signed an amendment to an existing power purchase agreement (“PPA”) which converted the PPA into a swap structure whereby the Company was able to sell the capacity separately and schedule the sale of electricity independent of the PPA. Post the amendment and conversion to a swap, the counterparty agreed to pay the Company the difference between the market price collected from the sale of the electricity and the contract price in the PPA. The contract was expected to be net settled in cash on a monthly basis. Please see Note 12 Derivative Financial Instruments for additional information.
 
In November 2019, the Company entered into an International Swaps and Derivatives Association(“ISDA”) agreement pursuant to which, the Company entered into a commodity swap contract for a notional quantity of 87,720 MWh at 5MWh per hour for a period of two years — 2020 and 2021 at a fixed contract price of $35.75 per MWh. The swap was expected to be net settled in cash on a monthly basis. Please see Note 12 Derivative Financial Instruments for additional information.
 
The Company recorded $1,382, $1,129 and nil of realized gain on the above swap arrangements as part of Revenues in its consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018. The Company previously reported this gain as part of Revenues in the Statement of Operations but the gain was not properly disclosed in the notes to the financial statements.
 
F-56
 
 
OPAL FUELS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per unit data)
 
2. Restatements of Financial Statements (cont.)
 
The Company concluded that these two contracts were economic hedges against market price volatility and are considered as derivatives under ASC 815 Derivatives and Hedging, which required the Company to record mark to market unrealized gain (loss) in its consolidated statements of operations and a corresponding asset or liability for the remaining contract period on the consolidated balance sheets as of and for the years ended December 31, 2020, 2019 and 2018.
 
The Company did not record an unrealized loss of $1,175 and $373 for the years ended December 31, 2020 and 2019 respectively and unrealized gain of $3,078 for the year ended December 31, 2018 in its consolidated statements of operations and a corresponding asset on its consolidated balance sheets of $1,529, $2,705 and $3,078 as of December 31, 2020, 2019 and 2018. Additionally, the Company did not make the relevant footnote disclosures for the swap arrangements in its financial statements for the years ended December 31, 2020 and 2019.
 
Restatement relating to taxes collected on behalf of customers
 
The Company collects federal and state taxes on its revenues generated from customers in our RNG Fuel Dispensing segment and remits the same to the government subsequently. The Company concluded that these taxes should be presented on a net basis in Revenues-RNG fuel in its consolidated statements of operations. Therefore, the Company restated its revenues and cost of sales by $1,172 and $460 for the years ended December 31, 2020 and 2019. This adjustment did not have any impact on net loss reported for both the years.
 
Restatement relating to recording of invoices in the wrong period
 
The Company recorded certain invoices from the contractor of a construction project in the first quarter of 2021 for which the services were performed in December 2020. The total amount that should have been recorded as part of its Property, plant and equipment as of December 31, 2020 was $3,300 and a corresponding increase in accrued capital expenses. The missing accrual also resulted in incorrect disclosures related to non-controlling interest, supplementary cash flow information and VIEs. This adjustment did not have any impact on net loss reported for the year ended December 31, 2020.
 
The information in the following tables shows the effect of the restatement on each affected financial statement line item:
 
CONSOLIDATED BALANCE SHEET
 
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  As of December 31, 2020 
  As previously       
  reported  Adjustment  Restated 
          
Derivative financial asset – current portion $  $810  $810 
Total current assets  50,395   810   51,205 
Derivative financial asset – non-current portion     719   719 
Property, plant and equipment, net  76,192   3,300   79,492 
Total assets  164,629   4,829   169,458 
Accrued capital expenses     3,300   3,300 
Total liabilities     3,300   3,300 
Retained deficit  (26,925)  1,529   (25,396)
Total stockholders’ equity  28,930   1,529   30,459 
Total liabilities and stockholders’ equity  164,629   4,829   169,458 
 
F-57
 
 
OPAL FUELS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per unit data)
 
2. Restatements of Financial Statements (cont.)
 
CONSOLIDATED BALANCE SHEET
 
  As of December 31, 2019 
  As previously       
  reported  Adjustment  Restated 
Derivative financial asset – current portion $  $