LanzaTech Global Inc

Background

In LanzaTech’s registration statement (as filed with the SEC on May 24, 2023), LanzaTech disclosed within the risk factors a material weakness in its internal controls over financial reporting. The disclosure noted that LanzaTech had not sufficiently designed, documented, and implemented formal accounting policies, processes, and controls at the entity level or over the process of the accounting for complex transactions under U.S. GAAP, due to size limitations of the finance and accounting group.

Furthermore, as noted in our quarterly report on Form 10-Q for the period ended September 30, 2023 filed with the U.S. Securities and Exchange Commission (“SEC”) on November 13, 2023, subsequent to September 30, 2023 and prior to the third quarter 2023 10-Q filing, we revised the accounting treatment of the Forward Purchase Agreement (“FPA”) to reclassify the prepaid forward contract from being presented as a net derivative asset on our condensed consolidated balance sheet to equity and non-current liability on the condensed consolidated balance sheet.

As a result, we restated our financial statements for the quarters ended March 31, 2023 and June 30, 2023, as filed with the SEC on December 4, 2023, to be consistent with this accounting treatment. In connection with the restatement, we concluded that the failure of our internal controls designed to ensure appropriate accounting for complex transactions remains a material weakness in our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a–15(e) and 15d-15(e)) as of December 31, 2023. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as a result of the material weaknesses in our internal control over financial reporting described below, the Company’s disclosure controls and procedures were ineffective as of December 31, 2023. We are in the process of implementing measures designed to improve our disclosure controls and procedures.

Management's Report on Internal Control Over Financial Reporting

Management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting includes those policies and procedures designed to, in reasonable detail, accurately and fairly reflect the Company’s transactions, and provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external reporting purposes in accordance with GAAP.

An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud. Effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.

Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on this evaluation, management has concluded our internal control over financial reporting as of December 31, 2023 was not effective due to the material weaknesses in the Company’s internal control over financial reporting described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of LanzaTech’s annual or interim financial statements will not be prevented or detected on a timely basis.

During the audit of our financial statements for the fiscal year ended December 31, 2023 we identified material weaknesses in internal control over financial reporting relating to: (i) the accounting for complex transactions and estimates requiring significant judgment and (ii) revenue recognition.

Throughout 2023, management implemented controls designed to remediate elements of the deficiency noted in the previously disclosed material weakness. However, the material weakness has not been fully remediated as of December 31, 2023. In particular, the Company has not effectively designed and implemented internal controls related to accounting for complex transactions and estimates requiring significant judgment.

The Company's revenue contracts often contain unique and complex terms that require judgement in applying the relevant revenue guidance. The Company’s controls over revenue recognition were not designed and operating at the appropriate level of precision to address the complexity inherent in our revenue cycle as of December 31, 2023.

This was the first year that we were required to conduct an evaluation of the effectiveness of our internal control over financial reporting. We will continue to assess the allocation of resources necessary to design and implement effective controls over the accounting for complex transactions and other areas requiring significant judgment. We have taken and will continue to take steps to improve our internal control processes and will continue to review, optimize, enhance, and test our controls and procedures as our control environment matures over time. These measures include enhancing the design and implementation of our internal controls over financial reporting to comply with the COSO 2013 Internal Control-Integrated Framework, with particular focus on our material weaknesses.

The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Accordingly, the material weaknesses were not remediated as of December 31, 2023.

Notwithstanding the material weaknesses in internal control over financial reporting described above, our management has concluded that our consolidated financial statements included in this Annual Report on Form 10-K are fairly stated in all material respects in accordance with GAAP.

Changes in Internal Control Over Financial Reporting

Other than the material weaknesses and remediation efforts described above, including the documentation of the design of our internal controls over financial reporting to meet the requirements of a large accelerated filer which we became as of December 31, 2023, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.