Anaergia Reviewing Accounting Policies for Recognition of Capital Sales and Project Costs for 3 BOO Projects
BURLINGTON, Ontario–(BUSINESS WIRE)–Anaergia Inc. (“Anaergia” or the “Company”) (TSX: ANRG) announced today that the Company is revisiting its interpretation of certain technical accounting standards relating to the recognition of capital sales and related Build Own Operate (“BOO”) project costs for three of the Company’s U.S. BOO projects following discussions with KPMG LLP (“KPMG”), the Company’s external auditor, that the previously audited accounting interpretation may be incorrect.
From time to time, the Company will utilize general contractors with specialized industry knowledge to construct its biogas facilities. For three of the Company’s U.S.-based BOO projects, the general contractor subcontracted a subsidiary of the Company to fulfill certain project-related activities, for which the subsidiary charged the general contractor a fee and incurred associated costs. The Company has recognized this fee as revenue and the associated costs as cost of sales, within its capital sales segment. The Company recognized these revenues and associated cost of sales on the basis that the terms of the arrangement and fees charged were commensurate with those charged to general contractors for capital sales projects related to third party facilities that the Company does not own or control.
At issue is whether specific revenue-related technical guidance within International Financial Reporting Standards would permit the recognition of these fees as revenue, costs incurred as associated cost of sales, and the margin earned as profit and a cost of constructing the facility.
This is a technical accounting matter only and does not impact the Company’s ongoing operations, cash position or future cash flows from BOO assets. It is expected to have minimal impact on the Company’s previously disclosed $4.7 billion revenue backlog. However, this would negatively impact future revenue and EBITDA recognition in the capital sales segment, relating only to future BOO projects where the Company has hired a third-party general contractor on arms-length terms. The impact would reduce revenue (and associated costs) recognized during construction but would have an offsetting reduction in the recognized capitalized costs of the impacted BOO projects. There would be no ultimate loss of profitability, as the matter is a timing issue only, with the net income reduction in the capital sales segment translating directly into a reduction of the BOO project capitalized costs and being recaptured during the BOO asset operation period through reduced future depreciation expense (therefore enhancing the profitability of the BOO assets but with no overall impact on cash flows).
The Company is working with its external auditor, KPMG, to assess the implications of its accounting policies and the potential impact on its unaudited condensed consolidated interim financial statements for the periods ended June 30, 2022 and March 31, 2022, its annual audited consolidated financial statements for the year ended December 31, 2021, relevant comparative periods, the related management’s discussion and analysis (“MD&A”) for those periods and its previously disclosed fiscal 2022 and 2023 forward guidance (collectively, the “Affected Disclosures”).
The Company is currently working to complete the analysis required to quantify the impacts on the Affected Disclosures and the Company’s other public disclosures, at the earliest possible date. Since a restatement of the Affected Disclosures may be required, they should not be relied upon during this time. The Company will provide an update on the changes, if any, resulting from this evaluation once the analysis has been completed. Preliminary estimates indicate a reduction in 2021 revenue in the range of $25 million to $31 million, and an increase in 2021 net loss in the range of $2 million to $7 million. The Company currently expects to file its financial statements and related MD&A for the second quarter of 2022 in compliance with the timelines prescribed by applicable securities laws.
Management Cease Trade Order Application
Since the Affected Disclosures should not be relied upon until further notice, the Company is providing this default announcement in accordance with National Policy 12-203 – Management Cease Trade Orders (“NP 12-203”). The Company is making an application to the Ontario Securities Commission (the “OSC”), as principal regulator of the Company, for a management cease trade order (“MCTO”) under NP 12-203 in respect of the possible default regarding the Affected Disclosures. The granting of the MCTO is at the discretion of the OSC. The issuance of the MCTO generally will not affect the ability of persons who have not been directors, officers or insiders of the Company to trade in their securities. In the event that the MCTO is granted, it will be in effect until the Company determines that no restatement is necessary or the Affected Disclosures are restated and refiled.
The Company intends to follow the provisions of the Alternative Information Guidelines set out in NP 12-203, including the issuance of bi-weekly default status reports in the form of news releases, for as long as the Company remains in default. The Company confirms as of the date of this news release that there is no insolvency proceeding against it and there is no other material information concerning the affairs of the Company that has not been generally disclosed.
About Anaergia
Anaergia was created to eliminate a major source of greenhouse gases by cost effectively turning organic waste into renewable natural gas (“RNG”), fertilizer and water, using proprietary technologies. With a proven track record from delivering world-leading projects on four continents, Anaergia is uniquely positioned to provide end-to-end solutions for extracting organics from waste, implementing high efficiency anaerobic digestion, upgrading biogas, producing fertilizer and cleaning water. Our customers are in the municipal solid waste, municipal wastewater, agriculture, and food processing industries. In each of these markets Anaergia has built many successful plants including some of the largest in the world. Anaergia owns and operates some of the plants it builds, and it also operates plants that are owned by its customers.
Forward-Looking Statements
This news release contains forward-looking information within the meaning of applicable securities legislation, which reflects the Company’s current expectations regarding future events, including statements relating to the ability of our technologies and projects to address about two-thirds of all point source methane emissions and our business plans, growth strategies and ESG initiatives. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the Company’s control. Such risks and uncertainties include, but are not limited to, the factors discussed under “Risk Factors” in the Company’s annual information form dated March 28, 2022 for the fiscal year ended December 31, 2021. Actual results could differ materially from those projected herein. Anaergia does not undertake any obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required under applicable securities laws.
For further information please see: www.anaergia.com
Source: Anaergia Inc.
Contacts
For media relations please contact: Melissa Bailey, Director, Marketing & Corporate Communications, Melissa.Bailey@Anaergia.com
For investor relations please contact: IR@Anaergia.com
