What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-16 compared with 2020-08-14 · 131 added, 130 removed, 274 unchanged (49% of the section changed)

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performed during the fourth quarter, in 2017 we updated our projections for Aerex’s future cash flows, determined that the carrying value of our Aerex goodwill exceeded its fair value, and recorded an impairment loss of $(1,400,000) for the three months ended December 31, 2017 to further reduce the carrying value of this goodwill to $4,885,211.

We may be required to record additional impairment losses to reduce the carrying value of our Aerex goodwill in future periods if Aerex experiences a significant decline in its results of operations.

Approximately 84% and 68% of Aerex’s revenue, and 86% and 68% of Aerex’s gross profit, for the nine months ended September 30, 2020 and the year ended December 31, 2019, respectively, were generated from sales to one customer.

In October 2020, this customer verbally informed Aerex that it expects (for inventory management purposes) to suspend its purchases from Aerex following the fourth quarter of 2020 for a period of approximately one year.

This customer has verbally informed Aerex that it presently expects to recommence its purchases from Aerex beginning with the first quarter of 2022.

However, we can offer no assurances that this customer will recommence its purchases from Aerex at that time.

Furthermore, any such future purchases (should they occur) may not generate as much revenue and gross profit as Aerex has historically earned from this customer.

We are seeking to replace this anticipated loss in revenue and gross profit for 2020 from this customer by increasing sales of other products that we manufacture to new and existing customers, however, we may not be able to do so.

As a result of this anticipated loss of revenue for Aerex, we updated our projections for our manufacturing reporting unit’s future cash flows.

Such projections assume, in part, that Aerex’s major customer will recommence its purchases from Aerex in 2022 but at a reduced aggregate amount, as compared to 2020 and 2019.

Based upon these updated projections we tested our manufacturing reporting unit’s goodwill for possible impairment as of September 30, 2020 using the discounted cash flow method.

As a result of this impairment testing, we determined that the estimated fair value of our manufacturing reporting unit exceeded its carrying value by approximately 22% as of September 30, 2020.

However, we may be required to record an impairment loss in the future to reduce the carrying value of our manufacturing reporting unit’s goodwill should we determine that Aerex’s future net cash inflows will be less than this most current estimate.

Any such impairment loss could have a material adverse impact on our consolidated financial condition and results of operations.

In February 2019, we sold CW-Belize.

As a result of this sale, CW-Belize has been accounted for as discontinued operations in our consolidated financial statements, and bulk segment goodwill of approximately $380,000 as of December 31, 2018 associated with CW-Belize was reclassified to long-term assets of discontinued operations in our consolidated statements of financial condition and included in the calculation of our gain on sale of discontinued operations of $3.6 million for the six months ended June 30, 2019.

Long-lived assets

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On June 29, 2020, our Mexico subsidiary, AdR, received a letter from the State of Baja California (the “State”) terminating AdR’s contract with the State involving the construction and operation of a desalination plant in Rosarito California and accompanying aqueduct to deliver the water produced by this plant to the Mexican public water system.

As a result of the cancellation of this contract, we recorded an impairment loss of $(3.0 million) for the three months ended June 30, 2020 for rights of way acquired for the contract’s proposed aqueduct.

See the following additional discussion of this matter at “RESULTS OF OPERATIONS – Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019 - Material Developments - Mexico”.

As a result of the cancellation of this contract, we recorded an impairment loss for rights of way acquired for the contract’s proposed aqueduct of $(3.0 million) for the three months ended June 30, 2020, which is reflected in our loss from discontinued operations for the nine months ended September 30, 2020.

Through our former subsidiary, PT Consolidated Water Bali (“CW-Bali”), we built and operated a seawater reverse osmosis plant with a productive capacity of approximately 264,000 gallons per day located in Nusa Dua, one of the primary tourist areas of Bali, Indonesia.

We recorded operating losses for CW-Bali as the sales volumes for its plant were insufficient to cover its operating costs.

In 2017 and 2016 we determined, based upon probability-weighted scenarios for CW-Bali’s future undiscounted cash flows, that the carrying values of CW-Bali’s long-lived assets and our investment in CW-Bali were not recoverable.

CW-Bali were not recoverable.

Consequently, we recorded impairment losses of $(1.6 million) and $(2.0 million), in 2017 and 2016, respectively, to reduce the carrying values of these assets to their fair values.

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“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2019 Form 10-K.

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Material Developments - Mexico

Since 2010 we have pursued, through our Netherlands subsidiary, Consolidated Water Cooperatief, U.A.

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Discontinued Operations – Mexico Project Development

Beginning in 2010, we began the pursuit, through our Netherlands subsidiary, Consolidated Water Cooperatief, U.A.

(“CW-Cooperatief”), and our Mexico subsidiary, N.S.C.

(“NSC”), 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 potable water system.

(“NSC”), of 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 potable water system.

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 was to be constructed.

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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, the Comisión Estatal del Agua de Baja California (“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, we 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, the Comisión Estatal del Agua de Baja California (“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:

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The APP Contract and the APP Law allow for the parties to negotiate (but do not guarantee) modifications to the consideration (i.e.

water tariff) under the APP Contract in the event of such significant macroeconomic condition changes.

water tariff) under the APP Contract in the event of such significant macroeconomic

condition changes.

In February 2017, AdR submitted proposals to CEA requesting the definition of the mechanism required by 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.

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The Subscription Agreement became effective when the additional conditions precedent related to the Project were met.

The aggregate funding to be provided by AdR’s shareholders for the Project, in the form of equity and subordinated shareholder loans, was estimated

at approximately 20% of the total cost of Phase 1 of the Project.

The aggregate funding to be provided by AdR’s shareholders for the Project, in the form of equity and subordinated shareholder loans, was estimated at approximately 20% of the total cost of Phase 1 of the Project.

This Subscription Agreement was scheduled to expire on September 30, 2020.

NSC expected to generate a portion of 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.

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.

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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.

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.

We 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.

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.

We 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 we may have upon termination of the APP Contract, including the reimbursement of expenses and investments.

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

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.

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

We also recorded adjustments during the three months ended June 30, 2020 of $2.6 million and $2.2 million for our services segment to reduce our 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.

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 results of operations for our services segment 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 four our services segment in our 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.

As a result of the cancellation of the APP Contract, during the three months ended September 30, 2020, we discontinued all development activities associated with the Project and commenced active marketing efforts to sell the land NSC purchased for the Project.

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

Our net losses from discontinued operations for the three months ended September 30, 2020 and 2019 of $(377,321) and $(532,710), respectively, consist of legal, accounting, engineering, administrative, consulting and other costs relating to Project development activities and, for 2020, our activities following the cancellation of the APP Contract to pursue reimbursement from the State of Baja California.

The following discussion and analysis of our consolidated results of operations and results of operations by segment for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019 relates only to our continuing operations.

Consolidated Results

Net loss from continuing operations attributable to Consolidated Water Co.

stockholders for 2020 was $(1,127,842) and $(0.07) per share on a fully diluted basis, as compared to net income from continuing operations of $2,476,262 and $0.16 per share on a fully diluted basis for 2019.

Total revenue for 2020 increased to $19,087,247 from $18,305,260 in 2019, as a result of the addition of PERC’s revenue to our services segment, as the revenue for our other three segments decreased from 2019.

Net income from continuing operations attributable to Consolidated Water Co.

stockholders for 2020 was $1,812,156 ($0.12 per share on a fully diluted basis), as compared to net income from continuing operations of $2,259,762 ($0.15 per share on a fully diluted basis) for 2019.

Total revenue for 2020 increased to $17,666,257 from $15,889,239 in 2019, as a result of the addition of PERC’s revenue to our services segment and a small increase in the manufacturing segment, while the revenue for our retail and bulk segments decreased from 2019.

Gross profit for 2020 was $6,215,636 (35% of total revenue) as compared to $6,708,980 (42% of total revenue) for 2019.

For further discussion of revenue and gross profit see the “Results by Segment” discussion and analysis that follows.

General and administrative (“G&A”) expenses on a consolidated basis decreased to $4,861,028 for 2020 as compared to $4,994,992 for 2019.

Additional expenses of approximately $729,000 for 2020 attributable to PERC were offset by a decrease in the development expenses incurred for our Mexico project of $475,491, a decrease of $125,000 in amortization expenses due to the completion of the amortization of certain intangible assets recorded in connection with the Aerex acquisition, and decreases in various other G&A expenses.

As previously discussed, on June 29, 2020 our Mexico subsidiary, AdR, received a letter from the State terminating AdR’s contract with the State involving the construction and operation of a desalination plant in Rosarito California and accompanying aqueduct to deliver the water produced by this plant to the Mexican public water system.

As a result of the cancellation of this contract, we recorded an impairment loss of $(3.0 million) in 2020 for rights of way acquired for the contract’s proposed aqueduct.

In June 2019, we completed the sales of our CW-Bali assets and its stock for $365,000 and $25,000, respectively.

Such sales generated primarily all of the $397,301 gain on asset dispositions for 2019.

We incurred other expense, net of $(155,115) in 2020 as compared to generating other income, net of $50,333 in 2019.

The principal reason for the decline in this component of our statements of income (loss) was an increase of approximately $344,000 in the foreign currency translation losses recorded for our Mexico subsidiaries.

The COVID-19 pandemic had a material adverse impact on our consolidated results of operations for the three months ended June 30, 2020, and we believe the COVID-19 pandemic will continue to adversely impact our results of operations in future periods.

General and administrative (“G&A”) expenses on a consolidated basis increased to $4,810,016 for 2020 as compared to $4,279,972 for 2019 due to PERC’s expenses of approximately $728,000 for 2020.

Other income-net, remained relatively consistent at $245,492 for 2020 as compared to $216,896 for 2019.

The COVID-19 pandemic had a material adverse impact on our consolidated results of operations for the three months ended September 30, 2020 and we believe the COVID-19 pandemic will continue to adversely impact our results of operations in future periods.

See further discussion herein and at “LIQUIDITY AND CAPITAL RESOURCES – Material Commitments, Expenditures and Contingencies – COVID-19 .”

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Retail Segment:

The retail segment incurred a loss from operations of $(69,983) for 2020 while contributing $992,637 to our income from operations for 2019.

Revenue generated by our retail water operations decreased to $5,966,296 in 2020 from $6,983,515 in 2019 due to a 16% decrease in the volume of water sold.

The retail segment incurred a loss from operations of $(961,634) for 2020 compared to a loss from operations of $(165,168) for 2019.

Revenue generated by our retail water operations decreased to $4,993,069 in 2020 from $6,271,220 in 2019 due to an 18% decrease in the volume of water sold.

This sales volume decrease is due to the temporary cessation of tourism on Grand Cayman resulting from the closing of all Cayman Islands airports and seaports in March 2020 in response to the COVID-19 pandemic.

Retail segment gross profit decreased to $3,196,799 (54% of retail revenue) for 2020 from $4,000,757 (57% of retail revenue) for 2019 as a result of revenue decline.

Retail segment gross profit decreased to $2,406,168 (48% of retail revenue) for 2020 from $3,325,634 (53% of retail revenue) for 2019 as a result of the revenue decline.

Consistent with prior periods, we record all non-direct G&A expenses in our retail segment and do not allocate any of these non-direct costs to our other three business segments.

Retail G&A expenses remained relatively consistent at $3,367,802 for 2020 as compared to $3,497,320 for 2019.

In June 2019, we completed the sales of our CW-Bali assets and its stock for $365,000 and $25,000, respectively.

Such sales generated primarily all of the $397,301 gain on asset dispositions for 2019.

Bulk Segment:

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Bulk segment revenue was $6,061,475 and $6,449,757 for 2020 and 2019, respectively.

OC-Cayman experienced a decline in revenue of approximately $505,000 for 2020 as a result of the new contract (at a lower rate) with the Water Authority-Cayman (the “WAC”) for water supplied from the North Side Water Works plant, which commenced in July 2019.

CW-Bahamas’ revenue dropped approximately $570,000 for 2020 due to lower energy costs, which correspondingly decreased the energy pass-through component of CW-Bahamas’ rates.

The decrease in bulk segment revenue is attributable to a decrease in CW-Bahamas’ revenue of approximately $431,000 for 2020 due to lower energy costs, which correspondingly decreased the energy pass-through component of CW-Bahamas’ rates.

Gross profit for our bulk segment was $1,660,758 (27% of bulk revenue) and $2,180,018 (34% of bulk revenue) for 2020 and 2019, respectively.

Gross profit in dollars decreased in 2020 as compared to 2019 principally due to the lower margins earned on OC-Cayman’s new contracts (as compared to its previous contracts) with the WAC.

Gross profit in dollars and as a percentage of revenue decreased in 2020 as compared to 2019

principally due to the decline in 2020 revenue and increased operating expenses (primarily chemicals and repairs and maintenance costs) incurred for CW-Bahamas of approximately $364,000.

Bulk segment G&A expenses remained relatively consistent at $382,662 for 2020 as compared to $294,189 for 2019.

Services Segment:

The services segment incurred losses from operations of $(3,200,698) and $(734,184) for 2020 and 2019, respectively.

Services segment revenue increased to $3,476,000 for 2020 from $90,792 for 2019 due to the addition of $3,373,429 in revenue from PERC as a result of our acquisition of 51% of this company in late October 2019.

The services segment income from from operations of $108,850 and $63,830 for 2020 and 2019, respectively.

Services segment revenue increased to $3,351,935 for 2020 from $95,980 for 2019 due to the addition of $3,240,390 in revenue from PERC as a result of our acquisition of a controlling interest in this company in late October 2019.

Gross profit for the services segment improved to $838,663 (25% of services revenue) in 2020 as a result of the addition of PERC.

The services segment generated a gross profit of $64,379 (67% of services revenue) for 2019.

G&A expenses for the services segment increased to $1,014,765 for 2020 as compared to $779,882 for 2019 due to the addition in 2020 of PERC’s G&A expenses of approximately $729,000.

A decrease in the development expenses incurred for our Mexico project of $475,491 in 2020 served to partially offset the incremental G&A expenses from PERC.

As a result of the cancellation of this contract, we recorded an impairment loss of $(3.0 million) for our services segment in 2020 for rights of way acquired for the contract’s proposed aqueduct.

G&A expenses for the services segment increased to $728,829 for 2020 as compared to $549 for 2019 primarily due to the addition of PERC’s G&A expenses.

Manufacturing Segment:

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Manufacturing revenue was $3,259,778 and $3,072,282 for 2020 and 2019, respectively.

Manufacturing revenue declined from 2019 to 2020 due to a decrease in the number of active projects.

Manufacturing revenue increased from 2019 to 2020 due to a shift in the production mix to higher revenue projects.

Manufacturing gross profit was $1,310,047 (40% of manufacturing revenue) and $1,138,949 (37% of manufacturing revenue) for 2020 and 2019, respectively.

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G&A expenses for the manufacturing segment dropped to $330,723 for 2020 as compared to $487,914 for 2019 as a result of a decrease of $125,000 in amortization expenses due to the completion of the amortization of certain intangible assets recorded in connection with the Aerex acquisition.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

In late December 2018, our Board of Directors formally approved the sale of our subsidiary, CW-Belize, which was part of our bulk water operations, to BWSL and on February 14, 2019, we completed the sale (which was effective as of

January 1, 2019) of CW-Belize to BWSL.

In accordance with U.S.

generally accepted accounting principles, the gain we realized on the sale of CW-Belize in 2019 of $3,621,170 ($0.24 per share on a fully diluted basis) is reflected in our 2019 consolidated results of operations as discontinued operations.

We generated other income, net of $14,229 in 2020 as compared to other income, net of $310,423 in 2019.

The principal reason for the decline in this component of our statements of income (loss) was an increase of approximately $209,000 in the foreign currency translation losses recorded for our Mexico subsidiaries.

The following discussion and analysis of our Consolidated Results and Results by Segment refers only to our continuing operations.

Approximately 81% and 53% of our manufacturing segment revenue, and 88% and 43% of our manufacturing segment gross profit, for 2020 and 2019, respectively, were generated from sales to one customer.

This customer has verbally informed Aerex that it presently expects to recommence its purchases from Aerex beginning with the first quarter of 2022.

However, we can offer no assurances that this customer will recommence its purchases from Aerex at that time.

Furthermore, any such future purchases (should they occur) may not generate as much revenue and gross profit as Aerex has historically earned from this customer.

We are seeking to replace this anticipated loss in revenue and gross profit by increasing sales of other products that we manufacture to new and existing customers, however, we may not be able to do so.

Consequently, our manufacturing segment revenue and gross profit for 2021 may decline as compared to the two prior years.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Discontinued Operations – Mexico Project Development

As previously discussed, on June 29, 2020 the State of Baja California cancelled its APP Contract with AdR for the Project.

As a result of the cancellation of the APP Contract, during the three months ended September 30, 2020 we discontinued all development activities associated with the Project and commenced active marketing efforts to sell the land NSC purchased for the Project.

Accordingly, the assets and liabilities of NSC and AdR, as well as all Project development expenses these subsidiaries incurred, have been reclassified to discontinued operations in the accompanying condensed financial statements as of and for the nine months ended September 30, 2020.

Through the date the APP Contract was cancelled, 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.

As a result of the cancellation of the APP Contract, we recorded an impairment loss of $(3.0 million) for the three months ended June 30, 2020 for these rights of way.

Our net loss from discontinued operations of $(4,448,798) for 2020 consists of this impairment loss and the development expenses incurred for the Project.

Our net loss from discontinued operations of $(1,786,873) for 2019 consists of the development expenses incurred for the Project.

In late December 2018, our Board of Directors formally approved the sale of our subsidiary, CW-Belize and on February 14, 2019, we completed the sale (which was effective as of January 1, 2019) of CW-Belize.

The gain we realized on the sale of CW-Belize in 2019 of $3,621,170 is reflected in our 2019 consolidated results of operations as gain on sale from discontinued operations.

The following discussion and analysis of our consolidated results of operations and results of operations by segment for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 relates only to our continuing operations.

Consolidated Results

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shareholders was $8,555,448 ($0.57 per share on a fully diluted basis) for 2019.

Total revenue for 2020 increased to $39,812,968 from $35,293,784 in 2019, as a result of the addition of PERC’s revenue to our services segment and, to a lesser extent, the performance of our manufacturing segment.

Total revenue for 2020 increased to $57,479,225 from $51,183,023 in 2019, primarily as a result of the addition of PERC’s revenue to our services segment.

Gross profit for 2020 was $21,959,100 (38% of total revenue) as compared to $21,224,032 (41% of total revenue) for 2019.

For further discussion of revenue and gross profit see the “Results by Segment” discussion and analysis that follows.

G&A expenses on a consolidated basis increased to $10,014,785 for 2020 as compared to $9,373,026 for 2019 due to the addition in 2020 of PERC’s G&A expenses of approximately $1,418,000.

A decrease in the development expenses incurred for our Mexico project of approximately $502,000 in 2020 served to partially offset the incremental G&A expenses from PERC.

As a result of the cancellation of this contract, we recorded an impairment loss of $(3.0 million) in 2020 for rights of way acquired for the contract’s proposed aqueduct.

In June 2019, we completed the sales of our CW-Bali assets and its stock for $365,000 and $25,000, respectively.

Such sales generated most of the $441,070 gain on asset dispositions for 2019.

The COVID-19 pandemic had a material adverse impact on our consolidated results of operations for the six months ended June 30, 2020, and we believe the COVID-19 pandemic will continue to adversely impact our results of operations in future periods.

Such sales generated primarily all of the $448,088 gain on asset dispositions for 2019.

G&A expenses on a consolidated basis increased to $14,062,938 for 2020 as compared to $12,389,547 for 2019 due to the addition in 2020 of PERC’s G&A expenses of approximately $2,111,000.

Other income-net, remained relatively consistent at $533,710 for 2020 and $518,031 for 2019.

The COVID-19 pandemic had a material adverse impact on our consolidated results of operations for the nine months ended September 30, 2020 and we believe the COVID-19 pandemic will continue to adversely impact our results of operations in future periods.

See further discussion herein and at “LIQUIDITY AND CAPITAL RESOURCES – Material Commitments, Expenditures and Contingencies – COVID-19 .”

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Retail Segment:

The retail segment contributed $826,990 and $1,733,684 to our income from operations for 2020 and 2019, respectively.

Revenue generated by our retail water operations decreased to $13,223,728 in 2020 from $13,670,175 in 2019 due to a 3% decrease in the volume of water sold.

The retail segment incurred a net loss from operations for 2020 of $(134,644) compared to $1,568,516 to our income from operations for 2019.

Revenue generated by our retail water operations decreased to $18,216,797 in 2020 from $19,941,395 in 2019 due to an 8% decrease in the volume of water sold.

This sales volume decrease is due to the temporary cessation of tourism on Grand

Cayman resulting from the closing of all Cayman Islands airports and seaports in March 2020 in response to the COVID-19 pandemic.

Retail segment gross profit decreased to $9,873,779 (54% of retail revenue) for 2020 from $11,187,447 (56% of retail revenue) for 2019 principally as a result of the drop in revenue.

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Gross profit for our bulk segment was $5,461,550 (30% of bulk revenue) and $6,509,669 (32% of bulk revenue) for 2020 and 2019, respectively.

Gross profit in dollars decreased in 2020 as compared to 2019 due to repairs and maintenance expenses for CW-Bahamas for 2020 that exceeded those incurred in 2019 and lower margins earned by OC-Cayman on its new contracts (as compared to its previous contracts) with the WAC.

Gross profit decreased in 2020 as compared to 2019 due to repairs and maintenance expenses for CW-Bahamas for 2020 that exceeded those incurred in 2019 and lower margins earned by OC-Cayman on its new contracts (as compared to its previous contracts) with the WAC.

Bulk segment G&A expenses remained relatively consistent at $935,808 for 2020 as compared to $900,572 for 2019.

Services Segment:

The services segment incurred losses from operations of $(3,490,963) and $(1,241,411) for 2020 and 2019, respectively.

Services segment revenue increased to $6,590,813 for 2020 from $191,369 for 2019 due to the addition of $6,374,502 in revenue from PERC as a result of our acquisition of 51% of this company in late October 2019.

The services segment contributed $415,375 and $85,870 to our income from operations for 2020 and 2019, respectively.

Services segment revenue increased to $9,942,748 for 2020 from $287,349 for 2019 due to the addition of $9,614,892 in revenue from PERC as a result of our acquisition of a contolling interest in this company in late October 2019.

Gross profit for the services segment improved to $2,524,443 (25% of services revenue) in 2020 as a result of the addition of PERC.

1 unchanged sentence

G&A expenses for the services segment increased to $2,112,869 for 2020 as compared to $2,865 for 2019 due to the addition of PERC.

As a result of the cancellation of this contract, we recorded an impairment loss of $(3.0 million) for our services segment in 2020 for rights of way acquired for the contract’s proposed aqueduct.

Manufacturing Segment:

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Manufacturing revenue was $10,951,524 and $10,452,158 for 2020 and 2019, respectively.

Manufacturing revenue increased from 2019 to 2020 due to an increase in project production activity.

Manufacturing revenue increased from 2019 to 2020 due to a shift in the production mix to higher revenue projects.

Manufacturing gross profit was $4,099,328 (37% of manufacturing revenue) and $3,438,181 (33% of manufacturing revenue) for 2020 and 2019, respectively.

The increase in manufacturing gross profit in dollars and as a percentage of revenue stems from a mix of higher margin projects, coupled with overall higher production activity that led to improved plant efficiency.

G&A expenses for the manufacturing segment dropped by $303,062 to $675,115 for 2020 as compared to $978,177 for 2019 as a result of a decrease of approximately $264,000 in the amortization expenses due to the completion of the amortization of certain intangible assets recorded in connection with the Aerex acquisition.

G&A expenses for the manufacturing segment dropped to $1,005,838 for 2020 as compared to $1,466,091 for 2019 as a result of a decrease of approximately $389,000 in amortization expenses due to the completion of the amortization of certain intangible assets recorded in connection with the Aerex acquisition.

Approximately 84% and 67% of our manufacturing segment revenue, and 86% and 64% of our manufacturing segment gross profit, for 2020 and 2019, respectively, were generated from sales to one customer.

This customer has verbally informed Aerex that it presently expects to recommence its purchases from Aerex beginning with the first quarter of 2022.

However, we can offer no assurances that this customer will recommence its purchases from Aerex at that time.

Furthermore, any such future purchases (should they occur) may not generate as much revenue and gross profit as Aerex has historically earned from this customer.

Consequently, our manufacturing segment revenue and gross profit for 2021 may decline as compared to the two prior years.

FINANCIAL CONDITION

The significant changes in the components of our consolidated balance sheet as of June 30, 2020 as compared to December 31, 2019 (other than the change in our cash and cash equivalents, which is discussed later in “LIQUIDITY AND CAPITAL RESOURCES”) and the reasons for these changes are discussed in the following paragraphs.

The significant changes in the components of our consolidated balance sheet as of September 30, 2020 as compared to December 31, 2019 (other than the change in our cash and cash equivalents, which is discussed later in “LIQUIDITY AND CAPITAL RESOURCES”) and the reasons for these changes are discussed in the following paragraphs.

Accounts receivable increased by approximately $1.2 million.

This net increase reflects an increase in Aerex’s accounts receivable of approximately $1.8 million due to an extension of invoice due dates (unrelated to the COVID-19 pandemic) for Aerex’s largest customer, approximately $557,000 in incremental accounts receivable arising from the addition of PERC, and an increase in CW-Bahamas’ accounts receivable of approximately $1.5 million.

Current inventory increased by approximately $1.8 million primarily as a result of raw materials purchased to support Aerex’s increased production activity.

This net increase reflects an increase in Aerex’s accounts receivable of approximately $1.3 million due to an extension of invoice due dates (unrelated to the COVID-19 pandemic) for Aerex’s largest customer and approximately $595,000 in incremental accounts receivable arising from the addition of PERC.

Prepaid expenses and other current assets increased by approximately $1.4 million due to the prepayment of insurance policies.

Construction in progress decreased by approximately $862,000 primarily due to the completion of the renovation of the North Side Water Works plant on Grand Cayman.

On June 29, 2020, AdR was notified that its contract with the State for the construction and operation of a desalination plant and aqueduct had been terminated by the State.

Land and rights of way held by the Company decreased by approximately $(3.0 million) due to an impairment loss recorded for the rights of way acquired for the contract’s proposed aqueduct.

Operating lease right-of-use assets and noncurrent operating leases liabilities decreased by $2.9 million and $3.0 million respectively, due to the expected termination (or transfer to the State) of a land lease for the contract’s proposed desalination plant.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Position

Our projected liquidity requirements for the balance of 2020 include capital expenditures for our existing operations of approximately $1.0 million and approximately $1.3 million for dividends payable.

Our projected liquidity requirements for the balance of 2020 include capital expenditures for our existing operations of approximately $150,000 and approximately $1.3 million for dividends payable.

Our liquidity requirements may also include future quarterly dividends if such dividends are declared by our Board.

Our dividend payments amounted to approximately $2.6 million for the six months ended June 30, 2020 and approximately $5.1 million for the year ended December 31, 2019.

As of June 30, 2020, we had cash and cash equivalents of $35.0 million and working capital of $62.8 million.

Our dividend payments amounted to approximately $3.9 million for the nine months ended September 30, 2020 and approximately $5.1 million for the year ended December 31, 2019.

As of September 30, 2020, we had cash and cash equivalents of $38.2 million and working capital of $63.8 million.

With the possible exception of the liquidity matter relating to CW-Bahamas that is discussed in the paragraphs that follow, we are not presently aware of anything that would lead us to believe that we will not have sufficient liquidity to meet our needs.

CW-Bahamas Liquidity

CW-Bahamas’ accounts receivable balances due from the Water and Sewerage Corporation of The Bahamas (“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.

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the Water and Sewerage Corporation of The Bahamas (“WSC”) amounted to $18.4 million as of September 30, 2020 and $18.4 million as of December 31, 2019.

Approximately 77% of the September 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.

As of July 31, 2020, CW-Bahamas’ accounts receivable from the WSC totaled approximately $17.8 million.

As of October 31, 2020, CW-Bahamas’ accounts receivable from the WSC totaled approximately $15.1 million.

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

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

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 September 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 were extended due to the impact of Hurricane Dorian, which devastated the northern Bahamas in September 2019 and the severe economic impact of the COVID-19 pandemic on The Bahamas government’s revenue sources.

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

Discussion of Cash Flows for the Six Months Ended June 30, 2020

Our cash and cash equivalents decreased to $34,956,328 as of June 30, 2020 from $42,902,669 as of December 31, 2019.

Discussion of Cash Flows for the Nine Months Ended September 30, 2020

Our cash and cash equivalents decreased to $38,179,414 as of September 30, 2020 from $42,071,083 as of December 31, 2019.

Cash Flows from Operating Activities

Net cash provided by our operating activities was $3,843,490.

This net cash reflects net income generated for the six months ended June 30, 2020 of $2,301,917 as adjusted for (i) various items included in the determination of net income that do not affect cash flows during the year;

Net cash provided by our operating activities from continuing operations was $11,909,538.

This net cash reflects net income generated for the nine months ended September 30, 2020 of $3,837,889 as adjusted for (i) various items included in the determination of net income that do not affect cash flows during the year;

and (ii) changes in the other components of working capital.

The more significant of such items and changes in working capital components included depreciation and amortization of $3,716,442, an impairment loss of $(3,035,625) for investments in rights of ways, an increase in accounts receivable of $3,709,644 and an increase in inventory of 2,065,424 (primarily in the manufacturing segment).

The more significant of such items and changes in working capital components included depreciation and amortization of $5,562,483, a loss from discontinued operations of $4,448,798, an increase in accounts receivable of $1,290,015 and an increase in prepaid expenses and other current assets (primarily in the bulk segment) of $1,169,195.

Cash Flows from Investing Activities

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In January 2020, we acquired the remaining 49% ownership in Aerex for $8,500,000 in cash.

In August 2020, we acquired an additional 10% of PERC for $900,000.

Additions to property, plant and equipment and construction in progress used $1,571,450 in cash.

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and closed all Cayman Islands airports to international passenger arrivals effective March 22, 2020.

Effective March 28, 2020, the Cabinet and Cayman Islands law enforcement enacted various ‘stay-at-home’ regulations and curfews, which closed all businesses not deemed essential by the government and required citizens to stay at home unless they were purchasing necessities or

engaged in an essential errand.

In May 2020, the Cabinet started the phased relaxation of the shelter-in-place regulations and has subsequently designated October 1, 2020 as the planned date for the phased reopening of the Cayman Islands’ to air travel for those travelers that provide evidence of a negative COVID-19 test performed within three days prior to arrival in the Cayman Islands and agree to remain in quarantine for five days after arrival.

No date has yet been set for the planned reopening of the Cayman Islands’ seaports.

In May 2020, the Cabinet started the phased relaxation of the shelter-in-place regulations and on October 1, 2020, the Cayman Islands reopened its borders for residents or individuals who own property in the Cayman Islands that provide evidence of a negative COVID-19 test performed within three days prior to arrival in the Cayman Islands and agree to remain in quarantine for 14 days after arrival.

No date has yet been set for the planned reopening of the Cayman Islands to tourists.

As a result of these measures taken by the Cayman Islands government, tourism in the Cayman Islands has temporarily ceased and economic activity on Grand Cayman has slowed dramatically.

The preventative measures taken by the Cayman Islands government in response to the COVID-19 pandemic did not commence until the latter half of March 2020 and thus affected our retail sales volumes for only the latter half of the six months ended June 30, 2020.

Consequently, our retail sales volume for the six months ended June 30, 2020 declined by only 3% from the same six month period in 2019.

However, the retail sales volume for the three months ended June 30, 2020 was 16% less than that for the three months ended June 30, 2019.

Consequently, our retail sales volume for the nine months ended September 30, 2020 declined by only 8% from the same nine month period in 2019.

However, the retail sales volume for the three months ended September 30, 2020 was 18% less than that for the three months ended September 30, 2019.

We expect that our retail segment revenue and cash flows will continue to be materially adversely impacted until such time as tourism and the economy in the Cayman Islands fully recover from the impact and effects of the COVID-19 pandemic.

During the previous quarter, the Cayman Islands government requested Cayman Water to temporarily suspend all disconnections for non-payment of its water services to ensure that all residents continued to have access to potable water during the COVID-19 pandemic, and to give customers that experienced financial hardship additional time to make their payments.

During the quarter ended March 31, 2020, the Cayman Islands government requested Cayman Water to temporarily suspend all disconnections for non-payment of its water services to ensure that all residents continued to have access to potable water during the COVID-19 pandemic, and to give customers that experienced financial hardship additional time to make their payments.

We complied with this request.

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The closure of the post office also inhibited our customers from paying us as they could not mail their payments.

As as result of these circumstances, Cayman Water’s total balance of delinquent accounts receivable as of June 30, 2020 increased from historical norms and from March 30, 2020, and consequently we recorded a provision for doubtful accounts of $80,000 for the three months ended June 30, 2020 for uncollectible accounts receivable.

As as result of these circumstances, Cayman Water’s total balance of delinquent accounts receivable as of June 30, 2020 increased from historical norms and from March 30, 2020, and consequently we recorded a provision for doubtful accounts of approximately $80,000 for the three months ended June 30, 2020 for uncollectible accounts receivable.

In July 2020, Cayman Water reinstituted its disconnection policy, but we expect to agree to payment plans with those delinquent customers we consider credit worthy in lieu of disconnecting their service.

During the three months ended September 30, 2020, we reduced our allowance for uncollectible retail accounts receivable by $49,483 due to an improvement in collections .

Cayman Water’s operations have been designated as essential services by the Cayman Islands government.

Presently, the day-to-day operations of Cayman Water’s water production facilities and distribution network have not been materially impeded by the COVID-19 pandemic – we continue to produce and supply water to meet the demand for water in our retail license area.

We believe Cayman Water has adequate spare parts and supplies in stock to continue normal operations for the remainder of 2020.

We believe Cayman Water has adequate spare parts and supplies in stock to continue normal operations for the remainder of 2020 and into 2021.

Although it operates on Grand Cayman - and therefore is also affected by the preventative measures enacted by government that have been discussed previously - OC-Cayman sells water on a bulk basis to the WAC, which in turn provides this water to areas of Grand Cayman that are more residential, and less tourist related, than the license area served by Cayman Water.

The monthly amounts OC-Cayman charges the WAC for water supplied under its water supply agreements consist of fixed amounts that constitute the majority of the amounts charged, and lesser amounts that vary with the volume of water supplied.

Therefore, unlike Cayman Water, OC-Cayman’s revenue is not as directly affected by tourism on Grand Cayman and, due to the structure of the underlying water supply agreements, is not as acutely sensitive to declines in water demand.

Rainfall during the first three months of 2020 on Grand Cayman was significantly less than the 30-year average and the same three months of 2019.

As a result of the lower rainfall, the volume of water provided by OC-Cayman to the WAC in for the first three months of the six months ended June 30, 2020 exceeded that provided for the comparable period in 2019 by 12%.

However the amount of water provided by OC-Cayman to the WAC for the three months ended June 30, 2020 was 3% less than that provided for the three months ended June 30, 2019.

Therefore, unlike Cayman Water, OC-Cayman’s revenue is not as directly affected by tourism on Grand

Cayman and, due to the structure of the underlying water supply agreements, is not as acutely sensitive to declines in water demand.

The amount of water provided by OC-Cayman to the WAC for the three months ended September 30, 2020 was 5% less than that provided for the three months ended September 30, 2019 but was 1% more for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

We cannot presently determine to what extent OC-Cayman’s future revenue will be impacted by the COVID-19 pandemic.

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Presently, OC-Cayman’s day-to-day operations have not been materially impeded by the COVID-19 pandemic – we continue to produce and supply water to meet the requirements of our two water supply agreements with the WAC.

We believe OC-Cayman has adequate spare parts and supplies in stock to continue normal operations for the remainder of 2020.

We believe OC-Cayman has adequate spare parts and supplies in stock to continue normal operations for the remainder of 2020 and into 2021.

The government of The Bahamas enacted Emergency Powers Regulations which became effective March 18, 2020 in an effort to combat the spread of COVID-19.

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As a result of these measures taken by The Bahamas government, tourism on New Providence Island, where CW-Bahamas operates, has temporarily ceased and economic activity in The Bahamas has slowed dramatically.

In May 2020, the Bahamian government relaxed some of the shelter-in-place regulations but has since reinstated shelter-in-place regulations effective August 4, 2020 through at least August 19, 2020.

In May 2020, the Bahamian government relaxed some of the shelter-in-place regulations and in July 2020, the government of The Bahamas enacted a limited reopening of The Bahamas to air travel.

However, increased travel restrictions were reimposed shortly thereafter due to an increase in COVID-19 cases.

As of November 2020, shelter-in-place regulations have been loosened and commercial and retail operations are permitted to open with limited capacity.

Conditions for travel to The Bahamas have also been loosened and individuals that wish to travel to The Bahamas must obtain a health travel visa which will be issued upon receipt of a negative RTPCR COVID-19 test five days in advance of travel;

they must submit to a mandatory COVID-19 rapid antigen test five days after arrival in The Bahamas or upon exhibiting symptoms of COVID-19 while in The Bahamas.

The Bahamian government has yet to set a date for the reopening of The Bahamas to cruise ship arrivals.

In July 2020, the government of The Bahamas enacted a limited reopening of The Bahamas to air travel but increased travel restrictions again shortly thereafter due to an increase in COVID-19 cases.

Presently, individuals that wish to travel to The Bahamas must submit to a mandatory 14 day quarantine upon arrival to The Bahamas and must take a COVID-19 test at the end of the quarantine period.

CW-Bahamas sells the water produced by its plants on a bulk basis to the WSC, which in turn provides water to the residences, businesses, and other end users on New Providence.

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To date, the volume of water CW-Bahamas sells to the WSC has not been adversely impacted by the COVID-19 pandemic despite the downturn in economic activity on New Providence that began in April 2020 stemming from the preventative measures taken by the government in March 2020.

However, we believe that at some point in the coming months, if the current economic conditions in The Bahamas do not improve, CW-Bahamas could experience a decrease in the demand for its water, with a resulting decline in its revenue.

In addition, the adverse impact of the COVID-19 pandemic on The Bahamas government’s revenue sources may further delay the collection of CW-Bahamas’ delinquent accounts receivable from the WSC.

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Presently, CW-Bahamas’ day-to-day operations have not been materially impeded by the COVID-19 pandemic – we continue to produce and supply water to meet the requirements of our two water agreements with the WSC.

We believe CW-Bahamas has sufficient spare parts and consumables inventories to continue normal operations for the remainder of 2020.

We believe CW-Bahamas has sufficient spare parts and consumables inventories to continue normal operations for the remainder of 2020 and into 2021.

Presently, the COVID-19 pandemic has not materially impeded Aerex’s day-to-day operations.

One specific product generated approximately 86% and 68% of Aerex’s sales for the six months ended June 30, 2020 and the year ended December 31, 2019, respectively.

Aerex relies on one raw material supplier for the major component used in the manufacture of this product.

Due to its relatively high cost and supplier manufacturing constraints, Aerex receives shipments of this component in increments based upon its production schedule.

Shipments from the supplier of this component have at times fallen behind since the advent of the COVID-19 pandemic.

Any disruption in the supply chain for this component or for the other raw materials used by Aerex due to the COVID-19 pandemic (or other reasons) could have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.

Aerex presently has 15 plant employees.

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Presently, the COVID-19 pandemic has not materially impeded PERC’s day-to-day operations.

Approximately 71% of PERC’s revenue of $6.4 million for the six months ended June 30, 2020 was generated in California under contracts with government entities.

Approximately 73% of PERC’s revenue of $9.6 million for the nine months ended September 30, 2020 was generated in California under contracts with government entities.

The State of California has publicly acknowledged its on-going financial difficulties as a result of the COVID-19 pandemic, and such difficulties presently, or could in the future, extend to the various counties, municipalities and other government-related entities in California, including PERC’s customers, which could adversely impact PERC’s revenue and the collection of its accounts receivable.

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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.

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

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

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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 WAC to OfReg in May 2017.

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

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

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.

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● On May 20, 2020, our Board declared a dividend of $0.085 payable on July 31, 2020 to shareholders of record on July 1, 2020.

● On August 18, 2020, our Board declared a dividend of $0.085 payable on October 30, 2020 to shareholders of record on October 1, 2020.

We have paid dividends to owners of our common stock and redeemable preferred stock since we began declaring dividends in 1985.

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Under the terms of our Cayman Islands license and our water sales agreements in The Bahamas and the British Virgin Islands, our water rates are automatically adjusted for inflation on an annual basis.

We, therefore, believe that the impact of inflation on our gross profit, measured in consistent dollars, should not be material.

We, therefore, believe that the impact

of inflation on our gross profit, measured in consistent dollars, should not be material.

However, significant increases in items such as fuel and energy costs could create additional credit risks for us, as our customers’ ability to pay our invoices could be adversely affected by such increases.

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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 2. Management’s Discussion and Analysis