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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q/A
| | | | | |
| (Amendment No. 1) |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
______________________________
For the quarterly period ended September 30, 2021
or
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission File Number:
001-39644
_____________________________
Archaea Energy Inc.
(Exact name of Registrant as specified in its charter)
_____________________________
| | | | | |
Delaware | 85-2867266 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
4444 Westheimer Road, Suite G450
Houston, Texas 77027
(Address of principal executive offices and zip code)
(346) 708-8272
(Registrant's telephone number, including area code)
Rice Acquisition Corp.
102 East Main Street, Second Story
Carnegie, Pennsylvania 15106
(Former name, former address and former fiscal year, if changed since last report)
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 $0.0001 per share | | LFG | | The New York Stock Exchange |
Warrants, each exercisable for one share of Class A Common Stock at a price of $11.50 per share | | LFG WS | | The New York Stock Exchange |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 8, 2021, there were 53,590,976 shares of Class A common stock and 62,281,735 shares of Class B common stock issued and outstanding.
EXPLANATORY NOTE
References throughout this Amendment No. 1 to the Quarterly Report on Form 10-Q/A to “we,” “us,” "our," or the “Company” are to Archaea Energy Inc., formerly known as Rice Acquisition Corp., unless the context otherwise indicates.
This Amendment No. 1 (“Amendment No. 1”) to the Quarterly Report on Form 10-Q/A amends and restates the Quarterly Report on Form 10-Q of Archaea Energy Inc. (the “Company”) as of and for the period ended September 30, 2021, as filed with the Securities and Exchange Commission (“SEC”) on November 15, 2021.
RESTATEMENT BACKGROUND
On November 15, 2021, the Company filed its Form 10-Q for the quarterly period ending September 30, 2021 (the “Original Filing”). Subsequent to filing, the Company identified an accounting error related to a duplicate entry recorded for the reverse recapitalization transaction. Specifically, an entry was recorded to both the subledger and general ledger as part of the movement of activity from Archaea Energy LLC to the newly formed Archaea Energy II LLC for the reverse recapitalization resulting in a duplicate entry error. The error caused an understatement of accounts payable - trade and general and administrative expenses of $2.8 million in our successor financial statements.
On December 28, 2021, the Company’s management and the audit committee of the Company’s board of directors concluded that the Company’s previously issued unaudited condensed financial statements included in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021 should no longer be relied upon to due to the impact on accounts payable - trade, general and administrative expenses, and our consolidated net loss.
INTERNAL CONTROL CONSIDERATIONS
After re-evaluation, the Company’s management has concluded that in light of the errors described above, a material weakness existed in the Company’s internal control over financial reporting during the nine-month period ended September 30, 2021 and that the Company’s controls and procedures were not effective. The Company’s remediation plan with respect to such material weakness is described in more detail in Item 4 to Part 1 of this Form 10-Q/A.
ITEMS AMENDED IN THIS AMENDMENT NO. 1
For the convenience of the reader, this Amendment No. 1 amends and restates the Q3 Form 10-Q in its entirety. As a result, this Amendment No. 1 includes both items that have been changed as a result of the restatement described above as well as items that are unchanged from the Q3 Form 10-Q. The following items have been amended in this Amendment No. 1 to reflect the restatement described above:
•Part I, Item 1. Consolidated Condensed Financial Statements
•Part I, Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations
•Part I, Item 4. Controls and Procedures
•Part II, Item 6. Exhibits
In addition, in accordance with applicable SEC rules, this Amendment No. 1 includes new certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act from our Chief Executive Officer (as principal executive officer) and our Chief Financial Officer (as principal financial officer) dated as of the filing date of this Amendment No. 1.
Except as described above, this Amendment No. 1 does not amend, update or change any other items or disclosures in the Q3 Form 10-Q. This Amendment No. 1 does not purport to reflect any information or events subsequent to the filing date of the Q3 Form 10-Q. As such, this Amendment No. 1 speaks only as of the date the Q3 Form 10-Q was filed, and we have not undertaken herein to amend, supplement or update any information contained in the Q3 Form 10-Q to give effect to any subsequent events. Accordingly, this Amendment No. 1 should be read in conjunction with our filings made with the SEC subsequent to the filing of the Q3 Form 10-Q.
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Commonly Used Terms and Definitions
Unless the context otherwise requires, the terms “Archaea” and the “Company” refer to Archaea Energy Inc. and its consolidated subsidiaries. In addition, the following company or industry-specific terms and abbreviations are used throughout this report:
Archaea Merger Agreement: The Business Combination Agreement, dated April 7, 2021, as subsequently amended, pursuant to which, among other things, the Company acquired Legacy Archaea
Aria: Aria Energy LLC, a Delaware limited liability company, and its subsidiaries
Aria Holders: The members of Aria immediately prior to the Closing
Aria Merger: The transaction executed by the Archaea Merger Agreement
Aria Merger Agreement: The Business Combination Agreement, dated as of April 7, 2021, as subsequently amended, pursuant to which, among other things, the Company acquired Aria
Atlas: Atlas Point Energy Infrastructure Fund, LLC, a Delaware limited liability company
Btu: British thermal units
Business Combination Agreements: The Aria Merger Agreement and the Archaea Merger Agreement
Business Combinations: The transactions contemplated by the Business Combination Agreements
Class A Common Stock: Class A Common Stock, par value $0.0001 per share, of the Company
Class A Common Units: Class A Common Units of Opco
Class B Common Stock: Class B Common Stock, par value $0.0001 per share, of the Company
Class B Common Units: Class B Common Units of Opco
Closing: The closing of the Business Combinations
Closing Date: September 15, 2021, the closing date of the Business Combinations
Common Stock: Class A Common Stock and the Class B Common Stock
Environmental Attributes: Federal, state and local government incentives in the United States, provided in the form of RINs, RECs, LCFS credits, rebates, tax credits and other incentives to end users, distributors, system integrators and manufacturers of renewable energy projects, that promote the use of renewable energy.
FERC: The Federal Energy Regulatory Commission
Forward Purchase Warrants: The 250,000 warrants issued in a private placement that closed simultaneously with the consummation of the Business Combinations on September 15, 2021
GCES: Gulf Coast Environmental Services, LLC
Initial Public Offering: RAC’s initial public offering, which was consummated on October 26, 2020
ISO: Independent System Operator
Legacy Archaea: Archaea Energy LLC, a Delaware limited liability company, and its subsidiaries
Legacy Archaea Holders: The members of Legacy Archaea immediately prior to the Closing
LCFS: Low Carbon Fuel Standard
LFG: Landfill gas
MMBtu: One million British thermal unit
MW: Megawatts
MWh: Megawatt hours
NYSE: The New York Stock Exchange
Opco: LFG Acquisition Holdings LLC, a Delaware limited liability company, which was formerly named Rice Acquisition Holdings LLC
PIPE Financing: The private placement of 29,166,667 shares of Class A Common Stock for gross proceeds to the Company of $300 million in connection with the Business Combinations
Private Placement Warrants: The 6,771,000 warrants originally issued to Sponsor and Atlas in a private placement that closed simultaneously with the consummation of the Initial Public Offering
Proxy Statement: The Company’s definitive proxy statement regarding the Business Combinations and related transactions filed with the SEC on August 12, 2021
Public Warrants: The 11,862,492 warrants originally sold as part of the units issued in the Initial Public Offering
RAC: Rice Acquisition Corp.
RAC Opco: Rice Acquisition Holdings LLC
RECs: Renewable Energy Credits
Redeemable Warrants: The Company's Public Warrants and Forward Purchase Warrants
RINs: Renewable Identification Numbers
RNG: Renewable natural gas
RTO: Regional transmission organization
SEC: U.S. Securities and Exchange Commission
Sponsor: Rice Acquisition Sponsor LLC, a Delaware limited liability company
Cautionary Note Regarding Forward-Looking Statements
The information in this Amendment No. 1 on Quarterly Report on Form 10-Q/A (this "Report"), including, without limitation, statements under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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”). Statements that do not relate strictly to historical or current facts are forward-looking and usually identified by the use of words such as “anticipate,” “estimate,” “could,” “would,” “should,” “will,” “may,” “forecast,” “approximate,” “expect,” “project,” “intend,” “plan,” “believe” and other similar words. Forward-looking statements may relate to expectations for future financial performance, business strategies or expectations for the Company’s business. Specifically, forward-looking statements may include statements concerning market conditions and trends, earnings, performance, strategies, prospects and other aspects of the business of the Company. Forward looking statements are based on current expectations, estimates, projections, targets, opinions and/or beliefs of the Company, and such statements involve known and unknown risks, uncertainties and other factors.
The risks and uncertainties that could cause those actual results to differ materially from those expressed or implied by these forward looking statements include, but are not limited to: (a) the ability to recognize the anticipated benefits of the Business Combinations and any transactions contemplated thereby, which may be affected by, among other things, competition, the ability of the Company to grow and manage growth profitably and retain its management and key employees; (b) the possibility that the Company may be adversely affected by other economic, business and/or competitive factors; (c) the Company’s ability to develop and operate new projects; (d) the reduction or elimination of government economic incentives to the renewable energy market; (e) delays in acquisition, financing, construction and development of new projects; (f) the length of development cycles for new projects, including the design and construction processes for the Company’s projects; (g) the Company’s ability to identify suitable locations for new projects; (h) the Company’s dependence on landfill operators; (i) existing regulations and changes to regulations and policies that affect the Company’s operations; (j) decline in public acceptance and support of renewable energy development and projects; (k) demand for renewable energy not being sustained; (l) impacts of climate change, changing weather patterns and conditions, and natural disasters; (m) the ability to secure necessary governmental and regulatory approvals; (n) the Company’s expansion into new business lines and (o) other risks and uncertainties indicated in the Registration Statement on Form S-1 (File No. 333-260094), originally filed by the Company with the SEC on October 6, 2021, as subsequently amended on October 18, 2021 and declared effective by the SEC on October 21, 2021 (the “Registration Statement”), including those under “Risk Factors” therein, and other documents filed or to be filed with the SEC by the Company.
Accordingly, forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ARCHAEA ENERGY INC.
Consolidated Condensed Balance Sheets
(Unaudited)
(As Restated)
| | | | | | | | | | | |
(in thousands, except shares and per share data) | September 30, 2021 | | December 31, 2020 |
| (As Restated) | | |
ASSETS |
| |
|
Current Assets |
| | |
Cash and cash equivalents | $ | 153,644 | | | $ | 1,496 | |
Restricted cash | 17,156 | | | — | |
Accounts receivable, net | 30,244 | | | 1,780 | |
Inventory | 9,285 | | | — | |
Prepaid expenses and other current assets | 29,311 | | | 4,730 | |
Total Current Assets | 239,640 | | | 8,006 | |
Property, plant and equipment, net | 281,610 | | | 52,368 | |
Intangible assets, net | 592,123 | | | 8,693 | |
Goodwill | 27,011 | | | 2,754 | |
Equity method investments | 237,265 | | | — | |
Other non-current assets | 9,596 | | | 2,460 | |
Total Assets | $ | 1,387,245 | | | $ | 74,281 | |
| | | |
LIABILITIES AND EQUITY | | | |
Current Liabilities | | | |
Accounts payable - trade | $ | 6,466 | | | $ | 14,845 | |
Current portion of long-term debt, net | 8,546 | | | 1,302 | |
Accrued and other current liabilities | 21,587 | | | 8,270 | |
Total Current Liabilities | 36,599 | | | 24,417 | |
Long-term debt, net | 329,254 | | | 14,773 | |
Derivative liabilities | 160,630 | | | — | |
Below market contracts | 108,392 | | | — | |
Asset retirement obligations | 3,904 | | | 306 | |
Other long-term liabilities | 8,009 | | | 3,294 | |
Total Liabilities | 646,788 | | | 42,790 | |
Commitments and Contingencies | | | |
Redeemable Noncontrolling Interests | 1,179,616 | | | — | |
Equity | | | |
Members' Equity | — | | | 34,930 | |
Members' Accumulated Deficit | — | | | (4,156) | |
Stockholders' Equity | | | |
Preferred stock, $0.0001 par value; 10,000,000 authorized; none issued and outstanding | — | | | — | |
Class A common stock, $0.0001 par value; 900,000,000 shares authorized; 52,847,195 shares and no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 5 | | | — | |
Class B common stock, $0.0001 par value; 190,000,000 shares authorized; 62,281,735 shares and no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 6 | | | — | |
Additional paid in capital | — | | | — | |
| | | |
Accumulated deficit | (439,297) | | | — | |
Total Stockholders' Equity | (439,286) | | | — | |
Nonredeemable noncontrolling interests | 127 | | | 717 | |
Total Equity | (439,159) | | | 31,491 | |
Total Liabilities, Redeemable Noncontrolling Interests and Equity | $ | 1,387,245 | | | $ | 74,281 | |
The accompanying notes are an integral part of these consolidated financial statements.
5
ARCHAEA ENERGY INC.
Consolidated Condensed Statements of Operations
(Unaudited)
(As Restated)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except shares and per share data) | 2021 | | 2020 | | 2021 | | 2020 |
| (As Restated) | | | | (As Restated) | | |
Revenues and Other Income |
| |
| |
| |
|
Energy revenue | $ | 10,916 | | | $ | — | | | $ | 13,975 | | | $ | — | |
Other revenue | 865 | | | 1,904 | | | 4,588 | | | 4,496 | |
Amortization of intangibles and below-market contracts | 205 | | | — | | | 205 | | | — | |
Total Revenue and Other Income | 11,986 | | | 1,904 | | | 18,768 | | | 4,496 | |
Equity Investment Income, Net | 879 | | | — | | | 879 | | | — | |
Cost of Operations | | | | | | | |
Cost of energy | 9,478 | | | 52 | | | 12,625 | | | 87 | |
Cost of other revenues | 615 | | | 1,202 | | | 2,976 | | | 2,490 | |
Depreciation, amortization and accretion | 3,142 | | | 34 | | | 4,077 | | | 101 | |
Total Cost of Operations | 13,235 | | | 1,288 | | | 19,678 | | | 2,678 | |
General and administrative expenses | 11,889 | | | 1,205 | | | 22,933 | | | 3,652 | |
Operating Income (Loss) | (12,259) | | | (589) | | | (22,964) | | | (1,834) | |
Other Income (Expense) | | | | | | | |
Interest expense, net | (1,586) | | | — | | | (1,606) | | | — | |
Gain (loss) on derivative contracts | (10,413) | | | — | | | (10,413) | | | — | |
Other income (expense) | 81 | | | (13) | | | 377 | | | 15 | |
Total Other Income (Expense) | (11,918) | | | (13) | | | (11,642) | | | 15 | |
Income (Loss) Before Income Taxes | (24,177) | | | (602) | | | (34,606) | | | (1,819) | |
Income tax benefit | — | | | — | | | — | | | — | |
Net Income (Loss) | (24,177) | | | (602) | | | (34,606) | | | (1,819) | |
Net income (loss) attributable to nonredeemable noncontrolling interests | (335) | | | 258 | | | (589) | | | 386 | |
Net income (loss) attributable to Legacy Archaea | (8,569) | | | (860) | | | (18,744) | | | (2,205) | |
Net income (loss) attributable to redeemable noncontrolling interests | (8,262) | | | — | | | (8,262) | | | — | |
Net Income (Loss) Attributable to Class A Common Stock | $ | (7,011) | | | $ | — | | | $ | (7,011) | | | $ | — | |
Net income (loss) per Class A common share: | | | | | | | |
Net income (loss) – basic (1) | $ | (0.13) | | | $ | — | | | $ | (0.13) | | | $ | — | |
Net income (loss) – diluted (1) | $ | (0.13) | | | $ | — | | | $ | (0.13) | | | $ | — | |
Weighted average shares of Class A Common Stock outstanding: | | | | | | | |
Basic (1) | 52,847,195 | | | — | | | 52,847,195 | | | — | |
Diluted (1) | 52,847,195 | | | — | | | 52,847,195 | | | — | |
(1) Class A Common Stock is outstanding beginning September 15, 2021 due to the reverse recapitalization transaction as described in Note 4.
The accompanying notes are an integral part of these consolidated financial statements.
6
ARCHAEA ENERGY INC.
Consolidated Condensed Statement of Equity
(Unaudited)
(As Restated)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total Equity |
|
|
| | | | | | | Total Stockholders' Equity | | | | |
(in thousands) | Redeemable Noncontrolling Interests | | Members' Equity |
| Members' Accumulated Deficit | | Class A Common Stock |
| Class B Common Stock |
| Additional Paid-in Capital |
| Accumulated Deficit |
| Nonredeemable Noncontrolling Interests |
| Total Equity |
Balance - December 31, 2020 | $ | — | | | $ | 34,930 | |
| $ | (4,156) | | | $ | — | |
| $ | — | |
| $ | — | |
| $ | — | |
| $ | 717 | |
| $ | 31,491 | |
Net income (loss) prior to Closing | — | | | — | |
| (18,744) | | | — | |
| — | |
| — | |
| — | |
| (534) | |
| (19,278) | |
Members' equity contributions | — | | | 70 | |
| — | | | — | |
| — | |
| — | |
| — | |
| — | |
| 70 | |
Share-based compensation expense prior to Closing | — | | | 2,349 | |
| — | | | — | |
| — | |
| — | |
| — | |
| — | |
| 2,349 | |
Reclassification in connection with reverse recapitalization | — | | | (37,349) | | | 22,900 | | | — | | | 3 | | | 37,346 | | | (22,900) | | | — | | | — | |
Net cash contribution from the reverse recapitalization and PIPE Financing, net of warrant liability | — | | | — | |
| — | | | 5 | |
| 1 | |
| 346,239 | | | — | |
| — | |
| 346,245 | |
Issuance of Class B Common Stock in Aria Merger | — | | | — | |
| — | | | — | |
| 2 | |
| 394,908 | |
| — | |
| — | |
| 394,910 | |
Reclassification to redeemable noncontrolling interest | 408,762 | | | — | | | — | | | — | | | — | | | (431,662) | | | 22,900 | | | — | | | (408,762) | |
Net income (loss) after Closing | (8,262) | | | — | | | — | | | — | | | — | | | — | | | (7,011) | | | (56) | | | (7,067) | |
Adjustment of redeemable noncontrolling interest to redemption amount | 779,116 | | | — | | | — | | | — | | | — | | | (346,831) | | | (432,286) | | | — | | | (779,117) | |
Balance - September 30, 2021 | $ | 1,179,616 | | | $ | — | |
| $ | — | | | $ | 5 | |
| $ | 6 | |
| $ | — | |
| $ | (439,297) | |
| $ | 127 | |
| $ | (439,159) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total Equity | | |
| | | | | | | Total Stockholders' Equity |
|
|
|
|
(in thousands) | Redeemable Noncontrolling Interests | | Members' Equity | | Members' Accumulated Deficit |
| Class A Common Stock |
| Class B Common Stock |
| Additional Paid-in Capital( |
| Accumulated Deficit |
| Nonredeemable Noncontrolling Interests |
| Total Equity |
Balance - December 31, 2019 | $ | — | | | $ | 2,470 | | | $ | (1,683) | |
| $ | — | |
| $ | — | |
| $ | — | |
| $ | — | |
| $ | — | |
| $ | 787 | |
Net income (loss) | — | | | — | | | (2,205) | |
| — | |
| — | |
| — | |
| — | |
| 386 | |
| (1,819) | |
Members' equity contributions | — | | | 32,460 | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 32,460 | |
Noncontrolling interest in acquired business acquisition | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 480 | | | 480 | |
Balance - September 30, 2020 | $ | — | | | $ | 34,930 | | | $ | (3,888) | |
| $ | — | |
| $ | — | |
| $ | — | |
| $ | — | |
| $ | 866 | |
| $ | 31,908 | |
The accompanying notes are an integral part of these consolidated financial statements.
7
ARCHAEA ENERGY INC.
Consolidated Condensed Statement of Equity
(Unaudited)
(As Restated)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total Equity | | |
| | | | | | | Total Stockholders' Equity |
|
|
| |
(in thousands) | Redeemable Noncontrolling Interests | | Members' Equity | | Members' Accumulated Deficit |
| Class A Common Stock |
| Class B Common Stock |
| Additional Paid-in Capital |
| Accumulated Deficit |
| Nonredeemable Noncontrolling Interests |
| Total Equity |
Balance - June 30, 2021 | $ | — | | | $ | 35,178 | | | $ | (14,331) | |
| $ | — | |
| $ | — | |
| $ | — | |
| $ | — | |
| $ | 462 | |
| $ | 21,309 | |
Net income (loss) prior to Closing | — | | | — | | | (8,569) | |
| — | |
| — | |
| — | |
| — | |
| (279) | |
| (8,848) | |
Share-based compensation expense prior to Closing | — | | | 2,171 | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 2,171 | |
Reclassification in connection with reverse recapitalization | — | | | (37,349) | | | 22,900 | | | — | | | 3 | | | 37,346 | | | (22,900) | | | — | | | — | |
Net cash contribution from the reverse recapitalization and PIPE Financing, net of warrant liability | — | | | — | | | — | |
| 5 | |
| 1 | |
| 346,239 | |
| — | |
| — | |
| 346,245 | |
Issuance of Class B Common Stock in Aria Merger | — | | | — | | | — | |
| — | |
| 2 | |
| 394,908 | |
| — | |
| — | |
| 394,910 | |
Reclassification to redeemable noncontrolling interest | 408,762 | | | — | | | — | |
| — | |
| — | |
| (431,662) | |
| 22,900 | |
| — | |
| (408,762) | |
Net income (loss) after Closing | (8,262) | | | — | | | — | | | — | | | — | | | — | | | (7,011) | | | (56) | | | (7,067) | |
Adjustment of redeemable noncontrolling interests to redemption amount | 779,116 | | | — | | | — | | | — | | | — | | | (346,831) | | | (432,286) | | | — | | | (779,117) | |
Balance - September 30, 2021 | $ | 1,179,616 | | | $ | — | | | $ | — | |
| $ | 5 | |
| $ | 6 | |
| $ | — | |
| $ | (439,297) | |
| $ | 127 | |
| $ | (439,159) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total Equity | | |
| | | | | | | Total Stockholders' Equity |
|
|
|
|
(in thousands) | Redeemable Noncontrolling Interests | | Members' Equity |
| Members' Accumulated Deficit | | Class A Common Stock |
| Class B Common Stock |
| Additional Paid-in Capital |
| Accumulated Deficit |
| Noncontrolling Interests |
| Total Equity |
Balance - June 30, 2020 | $ | — | | | $ | 18,220 | |
| $ | (3,028) | | | $ | — | |
| $ | — | |
| $ | — | | | $ | — | |
| $ | 608 | |
| $ | 15,800 | |
Net income (loss) | — | | | — | |
| (860) | | | — | |
| — | |
| — | |
| — | |
| 258 | |
| (602) | |
Members' equity contributions | — | | | 16,710 | |
| — | | | — | |
| — | |
| — | |
| — | |
| — | |
| 16,710 | |
Balance - September 30, 2020 | $ | — | | | $ | 34,930 | |
| $ | (3,888) | | | $ | — | |
| $ | — | |
| $ | — | |
| $ | — | |
| $ | 866 | |
| $ | 31,908 | |
The accompanying notes are an integral part of these consolidated financial statements.
8
ARCHAEA ENERGY INC.
Consolidated Condensed Statement of Cash Flows
(Unaudited)
(As Restated)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
(in thousands) | 2021 |
| 2020 |
| (As Restated) | | |
Cash flows from operating activities |
|
|
|
Net income (loss) | $ | (34,606) | |
| $ | (1,819) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| |
Depreciation, amortization and accretion expense | 4,077 | |
| 101 | |
Amortization of debt issuance costs | 627 | |
| — | |
Amortization of intangibles and below-market contracts | (6) | |
| — | |
Bad debt expense | 10 | |
| 76 | |
Return on investment in equity method investments | 336 | |
| — | |
Equity in earnings of equity method investments | (879) | |
| — | |
Change in fair value of derivative liabilities | 10,413 | |
| — | |
Forgiveness of Paycheck Protection Loan | (201) | |
| — | |
Stock-based compensation expense | 2,887 | |
| — | |
| | | |
Changes in operating assets and liabilities: | |
| |
Accounts receivable | (692) | |
| (1,124) | |
Inventory | (270) | |
| — | |
Prepaid expenses and other current assets | (22,315) | |
| (627) | |
Accounts payable - trade | (1,207) | |
| (335) | |
Accrued and other liabilities | (7,475) | |
| 810 | |
Other non-current assets | (3,490) | | | — | |
Other long-term liabilities | (1,919) | | | 98 | |
Net cash provided by (used in) operating activities | (54,710) | |
| (2,820) | |
Cash flows from investing activities | |
| |
Acquisition of Aria, net of cash acquired | (463,334) | |
| — | |
Acquisition of assets and businesses, excluding Aria | (31,527) | |
| (1,156) | |
Purchases of property, plant and equipment | (88,209) | |
| (9,659) | |
Purchases of biogas rights | (202) | |
| (7,892) | |
Contributions to equity method investments | (4,100) | |
| — | |
Net cash used in investing activities | (587,372) | |
| (18,707) | |
Cash flows from financing activities | |
| |
Borrowings on line of credit agreement | 12,478 | |
| — | |
Repayments on line of credit agreement | (12,478) | |
| — | |
Proceeds from long-term debt, net of issuance costs | 361,959 | |
| — | |
Repayments of long-term debt | (47,040) | |
| — | |
Proceeds from PPP Loan | — | |
| 691 | |
Proceeds from reverse recapitalization and PIPE Financing | 496,397 | |
| — | |
Capital contributions | 70 | |
| 21,150 | |
Distributions to noncontrolling interest | — | |
| — | |
Net cash provided by financing activities | 811,386 | |
| 21,841 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 169,304 | |
| 314 | |
Cash, cash equivalents and restricted cash - beginning of period | 1,496 | |
| 423 | |
Cash, cash equivalents and restricted cash - end of period | $ | 170,800 | |
| $ | 737 | |
Supplemental cash flow information: | |
| |
Cash paid for interest1 | $ | 1,869 | |
| $ | — | |
Non-cash investing activities: | |
| |
Accruals of property, plant and equipment and biogas rights incurred but not paid | $ | 2,317 | |
| $ | 1,597 | |
1Net of capitalized interest of $7.2 million and zero for the nine months ended September 30, 2021 and 2020, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
9
ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(As Restated)
NOTE 1 - Organization and Description of Business
Archaea Energy Inc. ("Archaea" or the "Company"), a Delaware corporation (formerly named Rice Acquisition Corp.), is one of the largest RNG producers in the U.S., with an industry-leading RNG platform primarily focused on capturing and converting waste emissions from landfills and anaerobic digesters into low-carbon RNG and electricity. As of September 30, 2021, Archaea owns and operates a diversified portfolio of 23 LFG recovery and processing projects across 12 states, including 13 LFG to electric projects and 10 projects that produce pipeline-quality RNG.
On September 15, 2021, Archaea consummated the previously announced business combinations pursuant to (i) the Business Combination Agreement, dated April 7, 2021 (as amended, the “Aria Merger Agreement”), by and among Rice Acquisition Corp., a Delaware corporation ("RAC"), Rice Acquisition Holdings LLC, a Delaware limited liability company and direct subsidiary of RAC (“RAC Opco”), LFG Intermediate Co, LLC, a Delaware limited liability company and direct subsidiary of RAC Opco (“RAC Intermediate”), LFG Buyer Co, LLC, a Delaware limited liability company and direct subsidiary of RAC Intermediate (“RAC Buyer”), Inigo Merger Sub, LLC, a Delaware limited liability company and direct subsidiary of RAC Buyer (“Aria Merger Sub”), Aria Energy LLC, a Delaware limited liability company (“Aria”), and Aria Renewable Energy Systems LLC, a Delaware limited liability company, pursuant to which, among other things, Aria Merger Sub was merged with and into Aria, with Aria surviving the merger and becoming a direct subsidiary of RAC Buyer, on the terms and subject to the conditions set forth therein (the transactions contemplated by the Aria Merger Agreement, the “Aria Merger”), and (ii) the Business Combination Agreement, dated April 7, 2021 (as amended, the “Archaea Merger Agreement” and, together with the Aria Merger Agreement, the “Business Combination Agreements”), by and among RAC, RAC Opco, RAC Intermediate, RAC Buyer, Fezzik Merger Sub, LLC, a Delaware limited liability company and direct subsidiary of RAC Buyer (“Archaea Merger Sub”), Archaea Energy LLC, a Delaware limited liability company, and Archaea Energy II LLC, a Delaware limited liability company (“Legacy Archaea”), pursuant to which, among other things, Archaea Merger Sub was merged with and into Legacy Archaea, with Legacy Archaea surviving the merger and becoming a direct subsidiary of RAC Buyer, on the terms and subject to the conditions set forth therein (the transactions contemplated by the Archaea Merger Agreement, the “Archaea Merger” and, together with the Aria Merger, the “Business Combinations”). As further discussed in Note 4 - Business Combinations and Reverse Recapitalization, Legacy Archaea was determined to be the accounting acquirer of the Business Combinations, and Aria was the predecessor to the Company.
Archaea has retained its “up-C” structure, whereby all of the equity interests in Aria and Legacy Archaea are held by RAC Buyer, all of the equity interests in RAC Buyer are held by RAC Intermediate, all of the equity interests in RAC Intermediate are held by Opco and Archaea’s only assets are its equity interests in Opco. In connection with the consummation of the Business Combinations, Opco, or Rice Acquisition Holdings LLC was renamed LFG Acquisition Holdings LLC. In accordance with Accounting Standards Codification ("ASC") 810 - Consolidation, Opco is considered a variable interest entity ("VIE") where Archaea is the sole managing member of Opco, and therefore, the primary beneficiary. As such, Archaea consolidates Opco, and the remaining unitholders that hold economic interest directly at Opco are presented as redeemable noncontrolling interests on the Company’s financial statements.
ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(As Restated)
Opco issued additional Class A Common Units as part of the consideration in the Business Combinations. The ownership structure of Opco upon closing of the Business Combinations, which gives rise to the redeemable noncontrolling interest at Archaea, is as follows:
| | | | | | | | | | | | | | |
Equity Holder | | Class A Common Units | | % Interest |
Archaea | | 52,847,195 | | | 45.9 | % |
Total controlling interests | | 52,847,195 | | | 45.9 | % |
Aria Holders | | 23,000,000 | | | 20.0 | % |
Legacy Archaea Holders | | 33,350,385 | | | 29.0 | % |
Sponsor, Atlas and RAC independent directors | | 5,931,350 | | | 5.2 | % |
Total redeemable noncontrolling interests | | 62,281,735 | | | 54.1 | % |
Total | | 115,128,930 | | | 100.0 | % |
NOTE 2 - Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
These unaudited, interim, consolidated condensed financial statements and notes are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") and in accordance with the rules and regulations of the SEC. These unaudited interim financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the results for the interim periods presented. The Company's accounting policies conform to US GAAP and have been consistently applied in the presentation of financial statements. The Company's consolidated condensed financial statements include all wholly-owned subsidiaries and all variable interest entities that the Company determined it is the primary beneficiary. Certain information and disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted.
The Archaea Merger with RAC was accounted for as a reverse recapitalization with Legacy Archaea deemed the accounting acquirer, and therefore, there was no step-up to fair value of any RAC assets or liabilities and no goodwill or other intangible assets were recorded. The Aria Merger was accounted for using the acquisition method of accounting with Aria deemed to be the acquiree for accounting purposes. The Company also determined that Aria is the Company's predecessor and therefore has included the historical financial statements of Aria as predecessor beginning on page 38. The Company recorded the fair value of the net assets acquired from Aria as of the Business Combination Closing Date, and goodwill was recorded. See Note 4 - Business Combinations and Reverse Recapitalization for additional information regarding the Archaea Merger and Aria Merger. Restatement of Previously Issued Financial Statements
The Company restated its consolidated condensed balance sheet as of September 30, 2021, its consolidated condensed statements of operations and consolidated condensed statements of equity for the three and nine months ended September 30, 2021, and its consolidated condensed statement of cash flows for the nine months ended September 30, 2021 for the successor. The restatement only impacts the third quarter of 2021 and the nine months ended September 30, 2021, and has no effect on periods prior to the third quarter of 2021. The restatement corrects the error related to a duplicate entry recorded for the reverse recapitalization transaction. Specifically, an entry was recorded to both the subledger and general ledger as part of the movement of activity from Archaea Energy LLC to the newly formed Archaea Energy II LLC for the reverse recapitalization resulting in a duplicate entry error. The error caused an understatement of accounts payable - trade and general and administrative expenses of $2.8 million in our successor financial statements. This understatement also resulted in an understatement of the net loss attributable to Legacy Archaea and, as such, had no impact on net loss attributable to Class A common stock or related net loss per Class A common share. In addition, due to the adjustment of the redeemable noncontrolling interest to redemption value as discussed in Note 13 - Redeemable Noncontrolling Interest and Stockholders' Equity, the error correction impacted accumulated deficit. The error had no
ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(As Restated)
impact on the predecessor financial statements. The Company has made necessary conforming changes in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” resulting from the correction of this error.
The table below presents the effect of the financial statement adjustments related to the restatement discussed above on the Company's previously reported unaudited balance sheet as of September 30, 2021:
| | | | | | | | | | | | | | | | | |
| September 30, 2021 |
(in thousands) | As Previously Reported | | Adjustment | | As Restated |
Accounts payable - trade | $ | 3,630 | | | 2,836 | | | $ | 6,466 | |
Total Liabilities | $ | 643,952 | | | 2,836 | | | $ | 646,788 | |
Accumulated deficit | $ | (436,461) | | | (2,836) | | | $ | (439,297) | |
Total Stockholders' Equity | $ | (436,450) | | | (2,836) | | | $ | (439,286) | |
The table below presents the effect of the financial statement adjustments related to the restatement discussed above on the Company's previously unaudited income statements for the three and nine months ended September 30, 2021: