What changed in this filing

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Item 1A. Risk Factors

2020-08-14 compared with 2020-05-15 · 54 added, 219 removed, 5 unchanged (98% of the section changed)

Our business faces significant risks.

These risks include those disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31,

2019 as supplemented by the additional risk factors included below.

If any of the events or circumstances described in the referenced

risks actually occurs, our business, financial condition or results of operations could be materially adversely affected and such

events or circumstances could cause our actual results to differ materially from the results contemplated by the forward-looking

statements contained in this report.

These risks should be read in conjunction with the other information set forth in this Quarterly

Report as well as in our Annual Report on Form 10-K for the year ended December 31, 2019 and in our other periodic reports

on Form 10-Q and Form 8-K.

The COVID-19 pandemic will likely have

a material adverse impact on our financial performance and financial condition in the future, to an extent and for a period of

time that cannot presently be determined.

The worldwide coronavirus (COVID-19) pandemic

was formally recognized by the World Health Organization on March 11, 2020.

In response to this pandemic, the governments

of the countries in which we operate - the Cayman Islands, The Bahamas, and the United States - implemented preventative measures

to slow the spread of COVID-19, measures which have had profound adverse consequences for the economies of those countries.

a major economic driver for The Cayman Islands and The Bahamas, has temporarily ceased in those countries due to closing of these

countries to air and sea travel.

These risks include those disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as supplemented by the additional risk factors included below.

If any of the events or circumstances described in the referenced risks actually occurs, our business, financial condition or results of operations could be materially adversely affected and such events or circumstances could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report.

These risks should be read in conjunction with the other information set forth in this Quarterly Report as well as in our Annual Report on Form 10-K for the year ended December 31, 2019 and in our other periodic reports on Form 10-Q and Form 8-K.

The COVID-19 pandemic will likely continue to have a material adverse impact on our financial performance and financial condition in the future, to an extent and for a period of time that cannot presently be determined.

The worldwide coronavirus (COVID-19) pandemic was formally recognized by the World Health Organization on March 11, 2020.

In response to this pandemic, the governments of the countries in which we operate - the Cayman Islands, The Bahamas, and the United States - implemented preventative measures to slow the spread of COVID-19, measures which have had profound adverse consequences for the economies of those countries.

Tourism, a major economic driver for the Cayman Islands and The Bahamas, has temporarily ceased in those countries due to closing of these countries to air and sea travel.

Overall economic activity in the United States has also declined precipitously.

As a result of the effects of COVID-19

on the economies of the countries in which we operate, we believe the future impacts of COVID-19 on our company will include (but

will not necessarily be limited to):

As a result of the impact of the COVID-19 pandemic on the economies of the countries in which we operate, we have experienced, and will continue to experience, the following adverse effects:

● decreases in our consolidated revenue, cash flows generated from operations, and overall liquidity as compared to comparable prior periods;

● a deterioration in the aging of our accounts receivable, with a resulting increase in the portion of our accounts that ultimately prove to be uncollectible, necessitating an increase in our provisions and allowances for doubtful accounts.

Furthermore, a prolonged extension of the

economic downturn created by COVID-19 period could adversely impact the markets for our products and services.

Such adverse market

impacts could require us to reassess its expected future cash flows from our four reporting units and could require us to record

impairment losses to reduce the carrying values of one or more of these reporting units due to a decline in their fair values.

Although we cannot presently quantify the future financial impacts

of COVID-19 on our company, we believe such impacts will likely have a material adverse impact on our consolidated financial condition,

results of operations, and cash flows.

Given the uncertainty associated with the resolution of this pandemic, we cannot presently

determine how long such adverse financial impacts may last.

Our exclusive license to provide water

to retail customers in the Cayman Islands has not been expressly extended and we are presently unable to predict the outcome of

our on-going negotiations relating to this license.

We sell water through our retail operations

under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that granted Cayman

Water the exclusive right to provide potable water to customers within its licensed service area.

Although the 1990 license was

not expressly extended after January 2018, we continue to supply water under the terms of the 1990 license, as further discussed

in the following paragraph.

Pursuant to the 1990 license, Cayman Water has the exclusive right to produce potable water and distribute

it by pipeline to its licensed service area, which consists of two of the three most populated areas of Grand Cayman Island:

Mile Beach and West Bay.

For the three months ended March 31, 2020 and 2019, we generated approximately 35% and 39%, respectively,

of our consolidated revenue and 51% and 56%, respectively, of our consolidated gross profit from the retail water operations conducted

under the 1990 license.

The 1990 license was originally scheduled

to expire in July 2010 but was extended several times by the Cayman Islands government in order to provide the parties with

additional time to negotiate the terms of a new license agreement.

The most recent express extension of the license expired on

January 31, 2018.

We continue to operate under the terms of the 1990 license, providing water services to the level and quality

specified in the 1990 license and in accordance with our understanding of its legal obligations, treating those obligations set

forth in the 1990 license as operative notwithstanding the expiration of the express extension.

We continue to pay the royalty

required under the 1990 license.

In October 2016, the Government of the Cayman Islands passed

legislation which created a new utilities regulation and competition office (“OfReg”).

OfReg is an independent and

accountable regulatory body with a view of protecting the rights of consumers, encouraging affordable utility services, and promoting

OfReg, which began operations in January 2017, has the ability to supervise, monitor and regulate multiple utility

undertakings and markets.

Supplemental legislation was passed by the Government of the Cayman Islands in April 2017, which

transferred responsibility for economic regulation of the water utility sector and the negotiations with us for a new retail license

from the Water Authority-Cayman to OfReg in May 2017.

We began license negotiations with OfReg in July 2017 and such

negotiations are continuing.

We have been informed during our retail license negotiations, both by OfReg and its predecessor in

these negotiations, that the Cayman Islands government seeks to restructure the terms of our license in a manner that could significantly

reduce the operating income and cash flows we have historically generated from our retail license.

We are presently unable to determine what impact the resolution

of our retail license negotiations will have on our cash flows, financial condition or results of operations but such resolution

could result in a material reduction (or the loss) of the operating income and cash flows we have historically generated from our

retail operations and could require us to record impairment losses to reduce the carrying values of our retail segment assets.

Such impairment losses could have a material adverse impact on our consolidated financial condition, results of operations, and

have paid $24.2 million for land, rights of way and equipment and incurred development expenses of approximately $ 31.5

million to date for a possible project in Mexico.

We expect to expend significant additional funds for the balance of 2020 to continue

to pursue this project.

However, we may not be successful in completing this project.

We own 99.99% of NSC, a development stage

Mexico company formed to pursue a project encompassing the construction, operation and minority ownership of a 100 million gallon

per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and an accompanying pipeline

to deliver water to the Mexican potable water system (the “Project”).

As of March 31, 2020, our consolidated balance

sheet includes purchases for the Project of approximately $24.2 million for land, rights of way and equipment.

The Project development

activities we have conducted, which include conducting an equipment piloting plant and water data collection program at the proposed

feed water source, completing various engineering studies and obtaining various governmental permits, pursuing debt and equity

funding, and maintaining a corporate presence in Mexico have resulted in additional developmental expenses totaling $31.5 million

from the inception of our efforts on this project in 2010 through March 31, 2020.

In August 2014, the State of Baja

California (the “State”) enacted new legislation to regulate Public-Private Association projects which involve the

type of long-term contract between a public-sector authority and a private party that we are seeking to complete the Project (the

“APP Law”).

Pursuant to this new legislation, in November 2015 the State officially commenced a tender process

for the Project, the scope of which the State defined as a first phase to be operational in 2019 consisting of a 50 million gallon

per day plant and a pipeline that connects to the Mexican potable water infrastructure and a second phase to be operational in

2024 consisting of an additional 50 million gallons per day of production capacity.

Our consortium (“Consortium”) which

included our subsidiary NSC and Suez Medio Ambiente México, S.A.

de C.V., (“Suez MA”), a subsidiary of SUEZ

International, S.A.S.

submitted its tender for the Project in April 2016 and in June 2016, the State designated our Consortium

as the winner of the tender process for the Project.

In August 2016, NSC incorporated Aguas

de Rosarito S.A.P.I.

(“AdR”), a special purpose company, to complete the Project and executed a shareholders

agreement for AdR agreeing among other things that:

(i) AdR would purchase the land and other Project assets from NSC on the

date that the Project begins commercial operation and (ii) AdR would enter into a Management and Technical Services Agreement

with NSC effective on the first day that the Project begins commercial operation.

On August 22, 2016, the Public Private

Partnership Agreement for the Project (“APP Contract”), was executed between AdR, the Comisión Estatal del Agua

de Baja California (“CEA”), the Government of Baja California represented by the Secretary of Planning and Finance

and the Public Utilities Commission of Tijuana (“CESPT”).

The APP Contract requires AdR to design, construct, finance

and operate a seawater reverse osmosis desalination plant (and accompanying aqueduct) with a capacity of up to 100 million gallons

per day in two phases:

the first with a capacity of 50 million gallons per day and an aqueduct to the Mexican potable water system

in Tijuana, Baja California and the second phase with a capacity of 50 million gallons per day.

The first phase must be operational

within 36 months of commencing construction and the second phase must be operational by July 2024.

The APP Contract further

requires AdR to operate and maintain the plant and aqueducts for a period of 37 years starting from the commencement of operation

of the first phase.

At the end of the operating period, the plant and aqueducts will be transferred to CEA.

In February 2017,

AdR submitted proposals to the CEA requesting the definition of a mechanism in the APP Contract to update the consideration under

the APP Contract for changes in foreign exchange rates, lending rates and certain laws which have impacted the Project.

2018, AdR and the CEA executed an amendment to the APP Contract which, among other things, increases the scope of Phase 1 of the

Project by including the aqueduct originally designated for Phase 2, and addresses AdR’s concerns regarding the impact on

the Project for changes in the exchange rate for the peso relative to the dollar and changes in interest rates that have occurred

subsequent to the submission of the Consortium’s bid for the Project.

As a result of this amendment to the APP Contract,

the final cost of Phase 1 and the related consideration to be charged by AdR under the APP Contract will be determined based upon

the bid submitted by the Consortium, the changes set forth in the amendment to the APP Contract and the economic conditions (e.g.

interest rates and currency exchange rates) in effect on the financial closing date for Phase 1.

In February 2018, AdR executed a subscription

agreement (the “Agreement”) for the equity funding required for the Project.

The Agreement calls for NSC to retain

a minimum of 25% of the equity in AdR.

One or more affiliates of Greenfield SPV VII, S.A.P.I.

(“Greenfield”),

a Mexico company managed by an affiliate of a leading U.S.

asset manager, will acquire a minimum of 55% of the equity of AdR.

Agreement also provides Suez MA with the option to purchase 20% of the equity of AdR.

If Suez MA does not exercise this option,

NSC will retain 35% of the equity of AdR and Greenfield will acquire 65% of the equity of AdR.

The Agreement will become effective

when the conditions precedent related to the Project are met.

The aggregate investment to be made by the equity partners in the

Project, in the form of equity and subordinated shareholder loans, is presently estimated at approximately 20% of the total cost

of Phase 1 of the Project.

This Agreement was originally scheduled to expire on June 30, 2019 but has been extended to September 30,

The APP Contract does not become effective

until the following open conditions, among others, have been met:

the State has established and registered various payment trusts, guaranties and bank credit lines

for specific use by the Project;

AdR has obtained all rights of way required for the aqueduct;

all debt financing agreements necessary to provide the funding to AdR for the first phase of the

Project have been executed.

Since the signing of the APP Contract,

the Congress of the State of Baja California, Mexico (the “Congress”) has faced several legal challenges, some of which

remain unresolved, to the legal Decretos (decrees) they have passed to ratify and authorize the payment obligations of the corresponding

public entities under the APP Contract and to authorize the corresponding public entities to obtain a credit facility to guarantee

their payment obligations.

The resolution of these legal challenges could adversely impact our ability to complete the Project.

In addition, NSC has been sued by its minority shareholder in a court in Tijuana, Mexico and this litigation could delay or adversely

impact the Project.

If AdR is ultimately unable to proceed with the Project due

to (i) the legal challenges to the Decretos;

(ii) the litigation initiated by NSC’s minority shareholder:

(iii) failure

by any of the parties involved to meet the conditions necessary for the APP Contract to become effective;

or (iv) any other

reason, the land NSC has purchased and the rights of way payments it has made may lose their strategic importance derived from

their association with the Project and consequently may decline in value.

If AdR does not proceed with the Project, NSC may ultimately

be unable to sell this land or recoup its rights of way deposits for amounts at least equal to their aggregate carrying values

as of December 31, 2019 of approximately $24.2 million.

Any loss on the sale of the land, or impairment losses NSC may be

required to record as a result of a decrease in the (i) fair value of the land;

or (ii) value of the rights of way arising

from an inability to complete the Project could have a material adverse impact on our consolidated financial condition and results

of operations.

Periodically, our Bahamas subsidiary

experiences substantial delays in the collection of its accounts receivable.

As a result, our Bahamas subsidiary could have insufficient

liquidity to continue operations, and our consolidated results of operations could be materially adversely affected.

CW-Bahamas’

accounts receivable balances

due from the WSC amounted to $17.8 million as of March 31, 2020 and $18.4 million as of December 31, 2019.

Approximately

75% of the March 31, 2020 accounts receivable balance was delinquent as of that date.

The delay in collecting these accounts

receivable has adversely impacted the liquidity of this subsidiary.

Historically, CW-Bahamas has experienced

delays in collecting its accounts receivable from the WSC.

When these delays occur, we hold discussions and meetings with representatives

of the WSC and The Bahamas government, and as a result, payment schedules are developed for WSC’s delinquent accounts receivable.

Furthermore, the economic downturn created by the COVID-19 pandemic is adversely impacting the markets for our products and services.

Such adverse market impacts, should they continue for a prolonged period of time, could require us to reassess its expected future cash flows from our four reporting units and could require us to record impairment losses to reduce the carrying values of one or more of these reporting units due to a decline in their fair values.

Although we cannot presently quantify the future financial impacts of the COVID-19 pandemic on our company, we believe such impacts will likely continue to have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.

Given the uncertainty associated with the resolution of this pandemic, we cannot presently determine how long such adverse financial impacts may last.

Our exclusive license to provide water to retail customers in the Cayman Islands has not been expressly extended and we are presently unable to predict the outcome of our on-going negotiations relating to this license.

We sell water through our retail operations under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that granted Cayman Water the exclusive right to provide potable water to customers within its licensed service area.

Although the 1990 license was not expressly extended after January 2018, we continue to supply water under the terms of the 1990 license, as further discussed in the following paragraph.

Pursuant to the 1990 license, Cayman Water has the exclusive right to produce potable water and distribute it by pipeline to its licensed service area, which consists of two of the three most populated areas of Grand Cayman Island:

Seven Mile Beach and West Bay.

For the three months ended June 30, 2020 and 2019, we generated approximately 31% and 38%, respectively, of our consolidated revenue and 44% and 53%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license.

For the six months ended June 30, 2020 and 2019, we generated approximately 33% and 39%, respectively, of our consolidated revenue and 47% and 55%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license.

The 1990 license was originally scheduled to expire in July 2010 but was extended several times by the Cayman Islands government in order to provide the parties with additional time to negotiate the terms of a new license agreement.

most recent express extension of the license expired on January 31, 2018.

We continue to operate under the terms of the 1990 license, providing water services to the level and quality specified in the 1990 license and in accordance with our understanding of its legal obligations, treating those obligations set forth in the 1990 license as operative notwithstanding the expiration of the express extension.

We continue to pay the royalty required under the 1990 license.

In October 2016, the Government of the Cayman Islands passed legislation which created a new utilities regulation and competition office (“OfReg”).

OfReg is an independent and accountable regulatory body with a view of protecting the rights of consumers, encouraging affordable utility services, and promoting competition.

OfReg, which began operations in January 2017, has the ability to supervise, monitor and regulate multiple utility undertakings and markets.

Supplemental legislation was passed by the Government of the Cayman Islands in April 2017, which transferred responsibility for economic regulation of the water utility sector and the negotiations with us for a new retail license from the Water Authority-Cayman to OfReg in May 2017.

We began license negotiations with OfReg in July 2017 and such negotiations are continuing.

We have been informed during our retail license negotiations, both by OfReg and its predecessor in these negotiations, that the Cayman Islands government seeks to restructure the terms of our license in a manner that could significantly reduce the operating income and cash flows we have historically generated from our retail license.

We are presently unable to determine what impact the resolution of our retail license negotiations will have on our cash flows, financial condition or results of operations but such resolution could result in a material reduction (or the loss) of the operating income and cash flows we have historically generated from our retail operations and could require us to record impairment losses to reduce the carrying values of our retail segment assets.

Such impairment losses could have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.

Periodically, our Bahamas subsidiary experiences substantial delays in the collection of its accounts receivable.

As a result, our Bahamas subsidiary could have insufficient liquidity to continue operations, and our consolidated results of operations could be materially adversely affected.

CW-Bahamas’ accounts receivable balances due from the WSC amounted to $19.9 million as of June 30, 2020 and $18.4 million as of December 31, 2019.

Approximately 79% of the June 30, 2020 accounts receivable balance was delinquent as of that date.

The delay in collecting these accounts receivable has adversely impacted the liquidity of this subsidiary.

Historically, CW-Bahamas has experienced delays in collecting its accounts receivable from the WSC.

When these delays occur, we hold discussions and meetings with representatives of the WSC and The Bahamas government, and as a result, payment schedules are developed for WSC’s delinquent accounts receivable.

All previous delinquent accounts receivable from the WSC were eventually paid in full.

Based upon this payment history, CW-Bahamas

has never been required to provide an allowance for doubtful accounts for any of its accounts receivable, despite the periodic

accumulation of significant delinquent balances.

As of March 31, 2020, we have not provided an allowance for CW-Bahamas’

accounts receivable from the WSC.

We believe the delays we have experienced

in collecting CW-Bahamas’

receivables may be further extended by the impact of COVID-19 on the economy of The Bahamas.

If CW-Bahamas continues to be unable to collect a significant

portion of its delinquent accounts receivable, one or more of the following events may occur:

(i) CW-Bahamas may not have

sufficient liquidity to meet its obligations;

(ii) we may be required to cease the recognition of revenue on CW-Bahamas’

water supply agreements with the WSC;

and (iii) we may be required to provide an allowance for CW-Bahamas’

Any of these events could have a material adverse impact on our consolidated financial condition, results of operations,

and cash flows.

Based upon this payment history, CW-Bahamas has never been required to provide an allowance for doubtful accounts for any of its accounts receivable, despite the periodic accumulation of significant delinquent balances.

As of June 30, 2020, we have not provided an allowance for doubtful accounts for CW-Bahamas’ accounts receivable from the WSC.

We believe the delays we have experienced in collecting CW-Bahamas’ receivables may be further extended by the impact of the COVID-19 pandemic on the economy of The Bahamas.

If CW-Bahamas continues to be unable to collect a significant portion of its delinquent accounts receivable, one or more of the following events may occur:

(i) CW-Bahamas may not have sufficient liquidity to meet its obligations;

(ii) we may be required to cease the recognition of revenue on CW-Bahamas’ water supply agreements with the WSC;

and (iii) we may be required to provide an allowance for doubtful accounts for CW-Bahamas’ accounts receivable.

Any of these events could have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.

Most of our services segment revenue is generated under short term contracts.

An inability to obtain extensions of these contracts or to obtain new contracts to replace the revenue that is lost from contracts that are not extended could adversely impact our financial results.

PERC, our principal services segment subsidiary, generates most of its revenue from contracts (“O&M contracts”) to operate and maintain water treatment and reuse facilities owned by third parties.

For the three and six months ended June 30, 2020, we generated revenue of approximately $2.5 million and $4.1 million, respectively, under these O&M contracts.

PERC’s O&M contracts have terms ranging from one to five years, with varying renewal options exercisable

solely at the discretion of the customer.

Approximately 21% of PERC’s revenue for the six months ended June 30, 2020 was generated under O&M contracts that expire at various dates through July 31, 2021.

If we are unable to obtain extensions of these expiring O&M contracts, or are unable to replace the revenue lost from contracts that expire with revenue from new O&M contracts, our consolidated financial condition, results of operations, and cash flows could be adversely affected.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors