Anaergia reviews accounting policies for accounting for fixed asset 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 reviewing its interpretation of certain technical accounting standards relating to the accounting for sales of fixed assets and construction own operating (“BOO”) project costs for three of the Company’s US BOO projects following discussions with KPMG LLP (“KPMG”), the Company’s external auditor, that the previously audited accounting interpretation could be incorrect.

From time to time, the Company will use general contractors with specialized industry knowledge to construct its biogas facilities. For three of the Company’s BOO projects in the United States, the general contractor subcontracted to a subsidiary of the Company the performance of certain project-related activities, for which the subsidiary invoiced the general contractor for fees and incurred related costs. The Company recognized these costs as revenue and the associated costs as cost of sales, in its fixed asset sales segment. The Company recognized this revenue and the associated cost of sales on the basis that the terms of the arrangement and the fees charged were commensurate with those charged to general contractors for capital sale projects related to third-party facilities that the Company does not own or control.

The question is whether specific technical guidance related to revenue in the International Financial Reporting Standards would allow these costs to be recognized as revenue, the costs incurred as cost of associated sales and the margin realized as profit and cost of constructing the facility.

This is a technical accounting issue only and does not impact ongoing operations, the Company’s cash position or future cash flows from BOO’s assets. It should have minimal impact on the company’s previously disclosed $4.7 billion 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 arm’s length terms. The impact would reduce the revenues (and associated costs) recognized during construction, but would have an offsetting reduction in the capitalized costs recognized of the impacted BOO projects. There would be no ultimate loss of profitability, as this is purely a matter of timing, with the reduction in net income in the fixed asset sales segment directly translating into a reduction in the capitalized costs of the BOO project. and being recovered during the operating period of the BOO assets through a reduction in future depreciation charges (therefore improving the profitability of the BOO assets but without an overall impact on cash flow).

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 audited consolidated financial statements financial statements for the fiscal year ended December 31, 2021, relevant comparative periods, related MD&A for those periods and its prior guidance for fiscal years 2022 and 2023 (collectively, the “Relevant Information”).

The Company is currently working to complete the analysis required to quantify the impacts on the Relevant Disclosures and the Company’s other public disclosures as soon as possible. As restatement of the relevant information may be required, it should not be relied upon during this period. The Company will provide an update on changes, if any, resulting from this assessment once the analysis is complete. Preliminary estimates indicate a reduction in 2021 revenue in the range of $25-31 million and an increase in 2021 net loss in the range of $2-7 million. The Company currently expects to file its financial statements and related MD&A for the second quarter of 2022 in accordance with the timelines prescribed by applicable securities laws.

Management cease trade request

Because the affected disclosures should not be relied upon until further notice, the Company is providing this announcement by default pursuant to National Policy 12-203 – Management Cease Trade Orders (“NP 12-203”) ). The Company files an application with the Ontario Securities Commission (the “OSC”), as the Company’s principal regulator, for a management cease trade order (“MCTO”) under AN 12-203 with regard to the possible default concerning the parties concerned. Disclosures. The granting of the MCTO is at the discretion of the OSC. 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 the MCTO is granted, it will be effective until the Company determines that no restatement is necessary or the affected Information is restated and refiled.

The Company intends to follow the provisions of the alternative disclosure guidelines set forth in NP 12-203, including issuing default status reports every two weeks in the form of news releases, so long as the Company remains in default. The Company confirms as of the date of this press release that there are no insolvency proceedings against it and that there is no other material information relating to 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 converting organic waste into renewable natural gas (“RNG”), fertilizer and water, using proprietary technologies. With a proven track record delivering 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 , produce fertilizer and clean water. Our customers are in the municipal solid waste, municipal wastewater, agriculture and food processing sectors. In each of these markets, Anaergia has built many successful factories, including some of the largest in the world. Anaergia owns and operates some of the factories it builds, and it also operates factories that are owned by its customers.

Forward-looking statements

This press release contains forward-looking information within the meaning of applicable securities laws, which reflects the Company’s current expectations regarding future events, including statements regarding the ability of our technologies and projects to process approximately 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. These risks and uncertainties include, but are not limited to, the factors described 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 undertakes no obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities laws.

For more information, please visit: www.anaergia.com

Source: Anaergia Inc.

Sallie R. Loera