What changed in this filing

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Item 1. Financial Statements

2020-11-16 compared with 2020-08-14 · 179 added, 141 removed, 536 unchanged (37% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Current assets

3 unchanged sentences

Costs and estimated earnings in excess of billings

Current assets of discontinued operations

Total current assets

3 unchanged sentences

Investment in OC-BVI

Land and rights of way

Intangible assets, net

Operating lease right-of-use assets

Long-term assets of discontinued operations

LIABILITIES AND EQUITY

6 unchanged sentences

Billings in excess of costs and estimated earnings

Current liabilities of discontinued operations

Total current liabilities

4 unchanged sentences

Other liabilities

Long-term liabilities of discontinued operations

Total liabilities

18 unchanged sentences

CONSOLIDATED WATER CO.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

Three Months Ended June 30,

Six Months Ended June 30,

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended September 30,

Nine Months Ended September 30,

Total revenue

2 unchanged sentences

Gain (loss) on asset dispositions and impairments, net

( 3,030,420 )

( 3,030,640 )

Income (loss) from operations

Income from operations

Other income (expense):

2 unchanged sentences

Profit-sharing income from OC-BVI

Equity in the earnings (losses) of OC-BVI

Equity in the earnings of OC-BVI

Net unrealized gain (loss) on put/call options

Other income (expense), net

Income (loss) before income taxes

Provision for income taxes

Net income (loss) from continuing operations

Other income, net

Income before income taxes

Provision (benefit) for income taxes

Net income from continuing operations

Income from continuing operations attributable to non-controlling interests

Net income (loss) from continuing operations attributable to Consolidated Water Co.

( 1,127,842 )

Net income from continuing operations attributable to Consolidated Water Co.

Gain on sale of discontinued operations

Total income from discontinued operations

Net income (loss) attributable to Consolidated Water Co.

Net loss from discontinued operations

( 4,448,798 )

( 1,786,873 )

Total income (loss) from discontinued operations

( 4,448,798 )

Net income attributable to Consolidated Water Co.

Basic earnings (loss) per common share attributable to Consolidated Water Co.

2 unchanged sentences

Discontinued operations

Basic earnings (loss) per share

Basic earnings per share

Diluted earnings (loss) per common share attributable to Consolidated Water Co.

2 unchanged sentences

Discontinued operations

Diluted earnings (loss) per share

Diluted earnings per share

Dividends declared per common and redeemable preferred shares

27 unchanged sentences

Balance as of June 30, 2020

Exercise of options

Purchase of noncontrolling interest in subsidiary

Dividends declared

( 1,287,526 )

Buyback of preferred stock

Conversion of preferred stock

Stock-based compensation

Balance as of September 30, 2020

preferred stock

2 unchanged sentences

Issue of share capital

Buyback of preferred stock

Dividends declared

1 unchanged sentence

( 1,280,223 )

Buyback of preferred stock

Stock-based compensation

9 unchanged sentences

Balance as of June 30, 2019

Exercise of options

Dividends declared

( 1,279,533 )

Conversion of preferred stock

Stock-based compensation

Balance as of September 30, 2019

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash provided by operating activities - continuing operations

Net cash used in operating activities - discontinued operations

( 1,390,227 )

( 1,511,952 )

Net cash provided by operating activities

2 unchanged sentences

( 1,571,450 )

( 2,673,192 )

Proceeds from asset dispositions

Proceeds from sale of discontinued operations, net of cash provided

Acquisition of noncontrolling interest in Aerex

Purchase of noncontrolling interest in Aerex

( 8,500,000 )

Purchase of noncontrolling interest in PERC

Collections on loans receivable

15 unchanged sentences

Cash and cash equivalents at beginning of period

Cash and cash equivalents at beginning of period - discontinued operations

cash and cash equivalents at end of period - discontinued operations

( 1,361,514 )

Cash and cash equivalents at end of period

35 unchanged sentences

After giving effect to this purchase, CW-Holdings owns 100 % of the outstanding capital stock of Aerex.

On August 11, 2020, CW-Holdings purchased an additional 10 % of the ownership of PERC for $ 900,000 , increasing its ownership of this subsidiary to 61 %.

The accompanying interim condensed consolidated financial statements are unaudited.

11 unchanged sentences

The exchange rates for conversion of Mexican pesos and euros into US$ vary based upon market conditions.

Net foreign currency gains (losses) arising from transactions and re-measurements were $( 370,315 ) and $( 45,666 ) for the three months ended June 30, 2020 and 2019, respectively, and $( 189,330 ) and $ 12,035 for the six months ended

June 30, 2020 and 2019, respectively, and are included in “Other income (expense) - Other” in the accompanying condensed consolidated statements of income (loss).

Net foreign currency gains arising from transactions and re-measurements were $ 14,751 and $ 20,441 for the three months ended September 30, 2020 and 2019, respectively, and $ 56,050 and $ 54,586 for the nine months ended September 30, 2020 and 2019, respectively, and are included in “Other income (expense) - Other” in the accompanying condensed consolidated statements of income.

Cash and cash equivalents:

Cash and cash equivalents consist of demand deposits at banks and highly liquid deposits at banks with an original maturity of three months or less.

Cash and cash equivalents as of June 30, 2020 and December 31, 2019 include $ 9.1 million and $ 12.7 million, respectively, of certificates of deposits with an original maturity of three months or less.

Cash and cash equivalents as of September 30, 2020 and December 31, 2019 include $ 11.0 million and $ 12.7 million, respectively, of certificates of deposits with an original maturity of three months or less.

Certain transfers from the Company’s Bahamas bank accounts to Company bank accounts in other countries require the approval of the Central Bank of The Bahamas.

As of June 30, 2020, the equivalent United States dollar cash balances for deposits held in The Bahamas were approximately $ 9.8 million.

As of September 30, 2020, the equivalent United States dollar cash balances for deposits held in The Bahamas were approximately $ 12.4 million.

Revenue recognition:

1 unchanged sentence

The following table presents the Company’s revenue disaggregated by revenue source (unaudited).

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Retail revenue

11 unchanged sentences

The Company produces and supplies water to government-owned distributors in the Cayman Islands and The Bahamas.

OC-Cayman provides bulk water to the Water Authority-Cayman (“WAC”), a government-owned utility and regulatory agency, under two agreements.

OC-Cayman sells bulk water to the Water Authority-Cayman (“WAC”), a government-owned utility and regulatory agency, under two agreements.

The WAC in turn distributes such water to properties in Grand Cayman outside of Cayman Water’s retail license area.

The Company sells bulk water in The Bahamas through its majority-owned subsidiary, CW-Bahamas, under two agreements with the Water and Sewerage Corporation of The Bahamas (“WSC”), which distributes such water through its own pipeline system to residential, commercial and tourist properties on the Island of New Providence.

own pipeline system to residential, commercial and tourist properties on the Island of New Providence.

CW-Bahamas also sells water to a private resort on Bimini.

18 unchanged sentences

Revenue recognized and amounts billed on services segment and manufacturing segment contracts in progress are summarized as follows:

June 30, 2020

September 30, 2020

December 31, 2019

4 unchanged sentences

The above net balances are reflected in the accompanying consolidated balance sheet as follows:

June 30, 2020

September 30, 2020

December 31, 2019

1 unchanged sentence

Billings in excess of costs and estimated earnings

As of June 30, 2020, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 3.0 million in aggregate transaction price for contracts with an original expected length of greater than one year.

The Company expects to earn revenue as it satisfies its performance obligations under those contracts

in the amount of approximately $ 1.4 million during the remainder of the year ending December 31, 2020 and $ 1.6 million thereafter.

As of September 30, 2020, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 2.3 million in aggregate transaction price for contracts with an original expected

length of greater than one year.

The Company expects to earn revenue as it satisfies its performance obligations under those contracts in the amount of approximately $ 0.4 million during the remainder of the year ending December 31, 2020 and approximately $ 1.9 million thereafter.

Practical Expedients and Exemptions

1 unchanged sentence

Comparative amounts:

Certain amounts presented in the financial statements previously issued for 2019 have been reclassified to conform to the current year’s presentation.

Certain amounts presented in the financial statements previously issued for 2019 have been reclassified to conform to the current periods’ presentation.

Segment information

10 unchanged sentences

The Company’s segments are strategic business units that are managed separately because each segment sells different products and/or services, serves customers with distinctly different needs and generates different gross profit margins.

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Manufacturing

2 unchanged sentences

Loss on asset dispositions and impairments, net

( 3,030,420 )

Income (loss) from operations

( 3,200,698 )

Other expense, net

Loss before income taxes

Provision for income taxes

Income attributable to non-controlling interests

Net loss attributable to Consolidated Water Co.

( 1,127,842 )

Depreciation and amortization expenses for the three months ended June 30, 2020 for the retail, bulk, services and manufacturing segments were $ 595,247 , $ 967,064 , $ 189,723 and $ 82,340 , respectively.

Three Months Ended June 30, 2019

Other income, net

Income before income taxes

Benefit from income taxes

Net income from continuing operations

Income from continuing operations attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

Net loss from discontinued operations

Net income attributable to Consolidated Water Co.

Depreciation and amortization expenses for the three months ended September 30, 2020 for the retail, bulk, services and manufacturing segments were $ 596,528 , $ 971,914 , $ 191,419 and $ 88,452 , respectively.

Three Months Ended September 30, 2019

Manufacturing

5 unchanged sentences

Income before income taxes

Provision for income taxes

Benefit from income taxes

Net income from continuing operations

Income attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

Net loss from discontinued operations

Net income attributable to Consolidated Water Co.

Depreciation and amortization expenses for the three months ended June 30, 2019 for the retail, bulk, services and manufacturing segments were $ 615,363 , $ 976,437 , $ 1,137 and $ 215,713 , respectively.

Six Months Ended June 30, 2020

Depreciation and amortization expenses for the three months ended September 30, 2019 for the retail, bulk, services and manufacturing segments were $ 617,671 , $ 933,955 , $ 0 and $ 214,751 , respectively.

Nine Months Ended September 30, 2020

Manufacturing

1 unchanged sentence

General and administrative expenses

Gain (loss) on asset dispositions and impairments, net

( 3,030,840 )

( 3,030,640 )

Gain on asset dispositions and impairments, net

Income (loss) from operations

( 3,490,963 )

Other income, net

1 unchanged sentence

Provision for income taxes

Income attributable to non-controlling interests

Net income from continuing operations

Income from continuing operations attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

Net loss from discontinued operations

( 4,448,798 )

Net income attributable to Consolidated Water Co.

Depreciation and amortization expenses for the six months ended June 30, 2020 for the retail, bulk, services and manufacturing segments were $ 1,200,060 , $ 1,934,299 , $ 373,609 and $ 208,474 , respectively.

Six Months Ended June 30, 2019

Depreciation and amortization expenses for the nine months ended September 30, 2020 for the retail, bulk, services and manufacturing segments were $ 1,796,588 , $ 2,906,213 , $ 562,756 and $ 296,926 , respectively.

Nine Months Ended September 30, 2019

Manufacturing

2 unchanged sentences

Gain on asset dispositions and impairments, net

Income (loss) from operations

( 1,241,411 )

Income from operations

Other income, net

6 unchanged sentences

Net income attributable to Consolidated Water Co.

Depreciation and amortization expenses for the six months ended June 30, 2019 for the retail, bulk, services and manufacturing segments were $ 1,133,377 , $ 1,924,126 , $ 2,273 and $ 492,766 , respectively.

As of June 30, 2020

Depreciation and amortization expenses for the nine months ended September 30, 2019 for the retail, bulk, services and manufacturing segments were $ 1,751,048 , $ 2,858,081 , $ 0 and $ 707,517 , respectively.

As of September 30, 2020

Manufacturing

4 unchanged sentences

Intangibles, net

Land and rights of way

Total segment assets

Assets of discontinued operations

As of December 31, 2019

5 unchanged sentences

Intangibles, net

Land and rights of way

Total segment assets

Assets of discontinued operations

Earnings per share

3 unchanged sentences

The following summarizes information related to the computation of basic and diluted EPS:

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss) from continuing operations attributable to Consolidated Water Co.

( 1,127,842 )

Three Months Ended September 30,

Nine Months Ended September 30,

Net income from continuing operations attributable to Consolidated Water Co.

preferred stock dividends

Net income (loss) from continuing operations available to common shares in the determination of basic earnings per common share

( 1,131,262 )

Total income from discontinued operations

Net income (loss) available to common shares in the determination of basic earnings per common share

Net income from continuing operations available to common shares in the determination of basic earnings per common share

Total income (loss) from discontinued operations

( 4,448,798 )

Net income available to common shares in the determination of basic earnings per common share

Weighted average number of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co.

4 unchanged sentences

common stockholders

NSC and AdR project development

Discontinued operations - Mexico project development

In May 2010, the Company acquired, through its wholly owned Netherlands subsidiary, CW-Cooperatief, a 50 % interest in NSC, a development stage Mexican company.

1 unchanged sentence

NSC was formed to pursue a project (the “Project”) that originally encompassed 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 accompanying pipelines to deliver water to the Mexican public water system.

As discussed in paragraphs that follow, during 2015 the scope of the Project was defined by the State of Baja California (the “State”) to consist of a first phase consisting of a 50 million gallons per day plant and an aqueduct that connects to the Mexican public water infrastructure and a second phase consisting of an additional 50 million gallons per day of production capacity.

As discussed in paragraphs that follow, during 2015 the scope of the Project was defined by the State of Baja California (the “State”) to consist of a first phase

consisting of a 50 million gallons per day plant and an aqueduct that connects to the Mexican public water infrastructure and a second phase consisting of an additional 50 million gallons per day of production capacity.

Through a series of transactions that began in 2012, NSC purchased 20.1 hectares of land for approximately $ 21.1 million on which the proposed Project’s plant would be constructed.

13 unchanged sentences

NSC initially owned 99.6 % of the equity of AdR.

In February 2018, NSC acquired the remaining 0.4 % ownership in AdR from NuWater.

On August 22, 2016, the Public Private Partnership Agreement for public private partnership number 002/2015, bid number SIDUE-CEA-APP-2015-002 (“APP Contract”), was executed between AdR, CEA, the Government of Baja California, as represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana (“CESPT”).

In February 2018, CW-Holdings acquired the remaining 0.4 % ownership in AdR from NuWater.

On August 22, 2016, the Public Private Partnership Agreement for the Project (the “APP Contract”) was executed between AdR, CEA, the Government of Baja California, as represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana (“CESPT”).

The APP Contract required 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:

7 unchanged sentences

These amendments were included in Decreto #168, which was approved by the Congress in December 2017.

The authorization of the payment obligations of the public entities under the APP Contract and for the execution of the credit agreement to guarantee such payment obligations given in Decreto #57, as amended by Decreto #168, expired on December 31, 2018.

The authorization of the payment obligations of the public entities under the APP Contract and for the execution of the credit

agreement to guarantee such payment obligations given in Decreto #57, as amended by Decreto #168, expired on December 31, 2018.

During the congressional session held at the end of March 2019, the Congress passed Decreto #335, which renewed the authorizations for the various payment trusts, guaranties and bank credit lines required to be established for the Project by the State entities.

Decreto #335 expired December 31, 2019.

During the congressional session held at the end of December 2019, the Congress passed Decreto #37, which renewed the authorizations for the various payment

trusts, guaranties and bank credit lines required to be established for the Project by the State entities.

During the congressional session held at the end of December 2019, the Congress passed Decreto #37, which renewed the authorizations for the various payment trusts, guaranties and bank credit lines required to be established for the Project by the State entities.

Decreto #37 expired June 30, 2020.

18 unchanged sentences

NSC expected to generate a portion of its funding for its additional future equity investment in AdR through the sale to AdR of the land it had purchased for the Project.

As of June 30, 2020, NSC had paid approximately $ 3.0 million to acquire rights of way for the aqueduct to be constructed for the Project to deliver water to the Mexico public water system.

Through June 30, 2020, NSC had paid approximately $ 3.0 million to acquire rights of way for the aqueduct to be constructed for the Project to deliver water to the Mexico public water system.

On June 29, 2020, AdR received a letter (the “Letter”) from the Director General of CEA and the Director General of CESPT terminating the APP Contract.

7 unchanged sentences

The applicable law requires this list of non-recoverable expenses made by AdR in connection with the Project be submitted to CEA and CESPT within 20 business days from the date of receipt of the Letter.

As a consequence of the termination of the APP Contract, the rights of way NSC and AdR acquired for the aqueduct no longer have any value due to the loss of their strategic importance derived from their incorporation in the Project.

Consequently, the Company recorded an impairment loss of approximately $( 3.0 million) for the three months ended

June 30, 2020 to write off its investment in these rights of way.

The Company also recorded adjustments during the three months ended June 30, 2020 of $ 2.6 million and $ 2.2 million to reduce its operating lease right-of-use assets and operating lease liabilities, respectively, due to the planned cancellation (or transfer to the State) of a long-term land lease associated with the Project.

As a result of the cancellation of the APP Contract, during the three months ended September 30, 2020 the Company discontinued all project development activities associated with the Project and engaged a real estate broker and commenced active marketing efforts to sell the land it purchased for the Project.

Accordingly, the assets and liabilities of NSC and AdR, as well as all Project development expenses and the impairment loss incurred by the Company, have been reclassified from the services segment to discontinued operations in the accompanying condensed financial statements as of and for the three and nine months ended September 30, 2020.

Summarized financial information for the Mexico project development is as follows:

September 30,

Current assets

Property, plant and equipment, net

Land and rights of way

Intangible assets

Total assets of discontinued operations

Total liabilities of discontinued operations

Three Months Ended

Nine Months Ended

September 30,

Income from operations

Gain on sale of discontinued operations

Depreciation expense

AdR initiated an amparo claim before a federal district court in Tijuana, Baja California, to challenge the provision of the applicable law requiring submittal of the list of non-recoverable expenses within the 20 business days term, as AdR considers such term to be unreasonably short due to the magnitude of the Project and the scope of supporting documentation required to be provided with respect to the non-recoverable expenses.

AdR obtained an initial provisional suspension of the lapsing of such 20 day term from the court, and on August 10, 2020 the court made such suspension definitive until the completion of the amparo trial.

As such, as of the filing of this report, the 20 day term for filing the list of non-recoverable expenses is suspended.

The Company, AdR and NSC plan to vigorously pursue all legal remedies and courses of action available under the APP Contract and applicable law (including, if necessary, international treaties and agreements) with respect to any rights they may have upon termination of the APP Contract, including the reimbursement of expenses and investments.

As such, the 20 day term for filing the list of non-recoverable expenses has been suspended.

On August 28, 2020, AdR and NSC submitted their list of non-recoverable expenses to CEA and CESPT which was comprised of 51,144,525 United States dollars and an additional 137,333,114 Mexican pesos.

The Company, AdR and NSC plan to vigorously pursue all legal remedies and courses of action available under the APP Contract and applicable law (including international treaties and agreements) with respect to any rights they may have upon termination of the APP Contract, including the reimbursement of expenses and investments.

However, the Company cannot provide any assurances that it will be able to obtain reimbursement for any expenses or investments made with respect to the Project.

The Company, AdR and NSC will terminate the various agreements ancillary to the Project as a result of the termination of the APP Contract unless the State elects to assume such agreements.

Consequently, the Company recorded an impairment loss of $( 3.0 million) for the three months ended June 30, 2020 to write off its investment in these rights of way.

Based upon independent appraisals performed in July 2020, the fair value of the investment in land purchased for the Project exceeded its carrying value of $ 21.1 million as of June 30, 2020.

Included in the Company’s results of operations are general and administrative expenses from NSC and AdR, consisting of organizational, legal, accounting, engineering, consulting, and other costs relating to Project development activities.

Such expenses amounted to approximately $ 304,000 and $ 779,000 for the three months ended June 30, 2020 and 2019, respectively, and approximately $ 762,000 and $ 1,263,000 for the six months ended June 30, 2020 and 2019, respectively.

The assets and liabilities of NSC and AdR included in the Company’s consolidated balance sheets amounted to approximately $ 23.4 million and $ 135,000 , respectively, as of June 30, 2020 and approximately $ 29.3 million and $ 2.9 million, respectively, as of December 31, 2019.

Project Litigation

9 unchanged sentences

In January 2018, EWG initiated an ordinary mercantile claim against the individual shareholder, NSC and CW-Cooperatief, (with AdR being named as a third party to be called to trial) before the Tenth Civil Judge in Tijuana, Baja California for Mercantile Matters (the “Tenth Civil Judge”).

The paragraphs that follow include a description of such litigation, while subparagraphs a) through f) that follow describe certain separate amparo claims, an appeal and an administrative act arising from or relating to such ordinary mercantile claim, all in chronological order.

Due to the current global COVID-19 pandemic, most tribunals in Mexico suspended their activities since March, with certain such tribunals restarting activities in August.

As such, several resolutions are pending issuance.

In the ordinary mercantile claim, EWG challenged, among other things, the transactions contemplated under the Option Agreement, and therefore, the capital investment transactions that increased the ownership interest of CW-Cooperatief in NSC to 99.99% as a consequence of the Option Agreement.

4 unchanged sentences

The Tenth Civil Judge granted, ex-parte, the preliminary relief sought by EWG, which resulted in the issuance of official writs to several governmental and public entities involved with the Project, including the registration of the pendency of the lawsuit in certain public records.

On October 16, 2018, NSC was served with the ordinary mercantile claim.

On November 7, 2018, NSC filed a legal response to the claim, vigorously opposing the claims made by EWG.

In addition to such legal response, NSC filed (i) a request to submit the claim to arbitration, based on certain provisions of the by-laws of NSC, (ii) an appeal remedy against the preliminary relief, and (iii) a request for the setting of a guarantee to release the preliminary relief granted in favor of EWG.

On October 1, 2020, and following an order from a Federal Judge obtained by NSC, the Tenth Civil Judge resolved to (i) move the claim of EWG to arbitration, and (ii) suspend the corresponding ordinary mercantile procedure.

Although EWG has certain remedies available to oppose to such resolution, at present NSC does not have knowledge of the filing thereof.

Notwithstanding the resolution of the Tenth Civil Judge to move to arbitration, subparagraphs a) through e) that follow describe certain separate amparo claims, an appeal and an administrative act arising from or relating to such ordinary mercantile claim, all in chronological order.

Due to the current global COVID-19 pandemic, most tribunals in Mexico have suspended their activities since March 2020, with certain such tribunals restarting activities in August 2020.

As such, several resolutions are pending issuance.

a) AdR amparo claim against the preliminary relief sought by EWG.

5 unchanged sentences

However, such dismissal does not adversely impact AdR, considering the resolution to the appeal mentioned in subparagraph b) that follows.

On October 16, 2018, NSC was served with the ordinary mercantile claim.

On November 7, 2018, NSC filed a legal response to the claim, vigorously opposing the claims made by EWG.

b) Appeal filed by NSC against the preliminary relief sought by EWG.

The appeal remedy mentioned previously in item (ii) suspended the proceeding (through the posting of a guarantee by NSC) and was resolved in December 2019 and communicated to EWG in January 2020.

The appeal remedy filed by NSC on November 7, 2018 mentioned previously, suspended the proceeding (through the posting of a guarantee by NSC) and was resolved in December 2019 and communicated to EWG in January 2020.

Such resolution revoked the order of the Tenth Civil Judge whereby EWG was granted the preliminary relief.

3 unchanged sentences

To this date, this amparo claim has not been resolved and, as such, it does not affect the revocation of the preliminary relief.

On February 26, 2019, the Tenth Civil Judge acknowledged NSC’s filing of the legal response to the ordinary mercantile claim, its request to submit to arbitration, and the appeal remedy previously mentioned in item (ii), granting EWG a period of three business days to, among others, state what it deemed convenient to its interest.

Further, on February 26, 2019, the Tenth Civil Judge set the guarantee requested in NSC’s November 7, 2018 legal response, in the form of a security deposit in the amount of 1,000,000 Mexican pesos, to release the preliminary relief sought by EWG.

On March 4, 2019, NSC filed before the Tenth Civil Judge evidence of such security deposit, requesting the release of the mentioned preliminary relief.

Irrespective of the resolution revoking the preliminary relief previously granted in favor of EWG (due to the filing of the security deposit by NSC) and the pendency of the appeal remedy filed by EWG against such revocation, on April 12, 2019, the Tenth Civil Judge granted EWG the opportunity to file a counter guarantee in the amount of 1,500,000 Mexican pesos to maintain the ex-parte preliminary relief granted in its favor.

With respect to this matter, the Tenth Civil Judge issued a resolution on April 26, 2019 allowing such counter guarantee to be filed in the form of a security deposit or in any other form allowed by the law, without extending the term initially granted for the filing of the counter guarantee.

NSC has vigorously opposed the resolution of the Tenth Civil Judge allowing the filing of a counter guarantee through the filing of a revocation remedy.

To date, such appeal remedy has not been resolved.

Further, on April 12, 2019, the Tenth Civil Judge ruled that the request for arbitration filed on November 7, 2018 was not applicable under Mexican law.

d) Amparo filed by NSC against the resolution rejecting submission to arbitration.

On May 17, 2019, NSC filed an amparo claim against the April 12, 2019 ruling.

Such amparo claim was resolved on October 31, 2019, ordering the Tenth Civil Judge to issue a new resolution on the request to submit the claim to arbitration.

EWG filed an appeal remedy opposing such order for the issuance of a new resolution, and NSC has filed pleadings to uphold the order for the issuance of a new resolution challenged by EWG.

In March 2020, such appeal remedy was resolved in favor of NSC, as the order to the Tenth Civil Judge for issuing a new resolution was confirmed.

While such order requires the Tenth Civil Judge to issue a new resolution on the matter of arbitration, this order does not necessarily imply that the Tenth Civil Judge shall rule to move to arbitration.

However, if the new resolution is unfavorable for NSC, NSC is prepared to vigorously oppose such resolution.

e) Administrative cancellation of registrations before the Public Registry of Property.

Despite the posting of the previously mentioned 1,000,000 Mexican pesos guarantee in February 26, 2019 to release the preliminary relief sought by EWG within the ordinary mercantile claim, the Tenth Civil Judge failed to make the resolution effective, which would thereby rescind the previously mentioned preliminary relief granted to EWG.

d) Administrative cancellation of registrations before the Public Registry of Property.

Despite the posting of a guarantee to release the preliminary relief sought by EWG within the ordinary mercantile claim, the Tenth Civil Judge failed to make the resolution effective, which would thereby rescind the previously mentioned preliminary relief granted to EWG.

Consequently, on June 19, 2019 (i.e.

3 unchanged sentences

On June 26, 2019, the Public Registry of Property of Playas de Rosarito issued a certificate of no liens with respect to the real estate owned by NSC.

f) Amparo filed by EWG against the administrative cancellation of registrations before the Public Registry of Property .

e) Amparo filed by EWG against the administrative cancellation of registrations before the Public Registry of Property.

In November 2019, NSC learned that EWG had filed an amparo claim before the Third District Court in Tijuana against such encumbrances cancellation resolution, and in December 2019, NSC responded to such claim, vigorously opposing it.

Thereafter, NSC submitted a motion to dismiss, based on the resolution of the appeal remedy mentioned previously in subparagraph b) revoking the preliminary relief, previously mentioned in item (ii).

Thereafter, NSC submitted a motion to dismiss, based on the resolution of the appeal remedy mentioned previously in subparagraph b) revoking the preliminary

relief, previously mentioned in item (ii).

The Court resolved in favor of such motion to dismiss.

However, EWG may file an appeal remedy against such resolution.

On June 27, 2019, the Tenth Civil Judge acknowledged the posting, by EWG, of a bond policy as the counter guarantee allowed pursuant to the Tenth Civil Judge’s ruling on April 26, 2019.

NSC plans to vigorously oppose the filing of such bond policy upon continuation of the proceedings, following the suspension granted as a result of the filing of the appeal remedy previously mentioned in subparagraph b).

CW-Cooperatief has not been officially served with the ordinary mercantile claim, and AdR has not been notified that it has to appear for such trial.

Notwithstanding the resolution to move to arbitration mentioned previously, CW-Cooperatief has not been officially served with the ordinary mercantile claim, and AdR has not been notified that it has to appear for such trial.

In any event, AdR is only a named third party called to trial in this claim, and no claims have been made by EWG against AdR.

The Company cannot presently determine what impact the resolution of this litigation may have on its consolidated financial condition, results of operations or cash flows.

The Company leases property and equipment under operating leases, primarily land, office and warehouse locations.

The Company leases property and equipment under operating leases, primarily office and warehouse locations.

For leases with terms greater than twelve months, the related asset and obligation are recorded at the present value of lease payments over the term.

1 unchanged sentence

When available, the lease payments are discounted using the rate implicit in the lease;

however, the current leases entered into do not provide a readily determinable implicit rate.

however, the Company’s current leases do not provide a readily determinable implicit rate.

Therefore, the Company’s incremental borrowing rate is estimated to discount the lease payments based on information available at lease commencement.

4 unchanged sentences

AdR entered into a lease for land to be used in the Project with an initial effective term of 20 -years from the date of full operation of its proposed seawater desalination plant.

The amounts due on this lease are payable in Mexican pesos at an amount that is currently equivalent to approximately $ 26,000 every two months.

The lease is cancellable by AdR should it ultimately not proceed with the Project.

1 unchanged sentence

As a result, the Company, AdR and NSC expect to terminate the various agreements ancillary to the Project or to transfer them to the State, including this land lease for the Project.

As such, the lease amounts as of June 30, 2020 do not include this lease.

As such, the lease amounts as of September 30, 2020 do not include this lease.

All lease assets denominated in a foreign currency are measured using the exchange rate at the commencement of the lease.

4 unchanged sentences

The following table presents the lease-related assets and liabilities and their respective classification on the condensed consolidated balance sheets:

June 30, 2020

September 30, 2020

December 31, 2019

Prepaid expenses and other current assets

Current assets of discontinued operations

Operating lease right-of-use assets

Long-term assets of discontinued operations

Total lease right-of-use assets

Current maturities of operating leases

Current liabilities of discontinued operations

Noncurrent operating leases

Noncurrent liabilities of discontinued operations

Total lease liabilities

1 unchanged sentence

Operating leases

Operating leases - discontinued operations

Weighted average discount rate:

Operating leases

Operating leases - discontinued operations

The components of lease costs were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Operating lease costs

Short-term lease costs

Lease costs - discontinued operations

Total lease costs

Supplemental cash flow information related to leases is as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

Cash paid for amounts included in measurement of liabilities:

Operating cash outflows for operating leases

Future lease payments relating to the Company’s operating lease liabilities as of June 30, 2020 were as follows:

Operating cash outflows for operating leases - discontinued operations

Future lease payments relating to the Company’s operating lease liabilities as of September 30, 2020 were as follows:

Years ending December 31,

5 unchanged sentences

Noncurrent lease obligations

As of June 30, 2020 and December 31, 2019, the carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued expenses, accrued compensation, dividends payable and other current liabilities approximate their fair values due to the short-term maturities of these instruments.

As of September 30, 2020 and December 31, 2019, the carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued expenses, accrued compensation, dividends payable and other current liabilities approximate their fair values due to the short-term maturities of these instruments.

Under US GAAP, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

11 unchanged sentences

Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value as of June 30, 2020 and December 31, 2019:

June 30, 2020

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value as of September 30, 2020 and December 31, 2019:

September 30, 2020

Net liability arising from put/call options

1 unchanged sentence

Net liability arising from put/call options

The activity for the Level 3 liability for the six months ended June 30, 2020:

The activity for the Level 3 liability for the nine months ended September 30, 2020:

Net liability arising from put/call options

1 unchanged sentence

Unrealized loss

Balance as of June 30, 2020

Balance as of September 30, 2020

Put/call options are reported at fair value as either assets or liabilities in the condensed consolidated balance sheets.

These fair values are calculated using discounted cash flow analysis valuation techniques that incorporate unobservable inputs, such as future cash flows, weighted-average cost of capital and expected future volatility.

The inputs to these valuations are considered Level 3 inputs.

The inputs for these valuations are considered Level 3 inputs.

Contingencies

2 unchanged sentences

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 declined precipitously.

Overall economic activity in the United States has declined.

As a result of the impact of the COVID-19 pandemic on the economies of the countries in which the Company operates, the Company has experienced, and could continue to experience, the following adverse effects:

10 unchanged sentences

Seven Mile Beach and West Bay.

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

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

For the three months ended September 30, 2020 and 2019, the Company generated approximately 28 % and 39 %, respectively, of its consolidated revenue and 39 % and 50 %, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 license.

For the nine months ended September 30, 2020 and 2019, the Company generated approximately 32 % and 39 %, respectively, of its consolidated revenue and 45 % and 53 %, respectively, of its 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.

6 unchanged sentences

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 the Company for a new retail license from the WAC to OfReg in May 2017.

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

The Company began license negotiations with OfReg in July 2017 and such negotiations are ongoing.

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

1 unchanged sentence

Such impairment losses could have a material adverse impact on the Company’s consolidated financial condition and results of operations.

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.

CW-Bahamas’ accounts receivable balances (including accrued interest) due from the WSC amounted to $18.4 million as of September 30, 2020 and $ 18.4 million as of December 31, 2019.

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

2 unchanged sentences

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, the Company had not provided an allowance for doubtful accounts for CW-Bahamas’ accounts receivable from the WSC.

As of September 30, 2020, the Company had not provided an allowance for doubtful accounts for CW-Bahamas’ accounts receivable from the WSC.

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:

1 unchanged sentence

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

and (iii) the Company may be required to provide an allowance for doubtful accounts for CW-Bahamas’ accounts

and (iii) the Company 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 the Company’s consolidated financial condition, results of operations, and cash flows.

5 unchanged sentences

The remaining $ 265,000 of the purchase price was paid by BWSL in August 2019.

As a result of the sale of CW-Belize, the Company realized a gain of $ 3,621,170 , which is reported as gain on sale of discontinued operations in the accompanying consolidated statement of operations for the six months ended June 30, 2019.

Impact of recent accounting standards

7 unchanged sentences

The Company evaluated subsequent events through the time of the filing of this report on Form 10-Q.

On August 11, 2020, the Company acquired an additional 10 % of PERC for $ 900,000 , raising its ownership interest in this subsidiary to 61 %.

Other than as disclosed in these condensed consolidated financial statements, the Company is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on its condensed consolidated financial statements.

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 1. Financial Statements