What changed in this filing

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Item 1. Business

2021-03-31 compared with 2020-03-16 · 307 added, 582 removed, 72 unchanged (93% of the section changed)

Through our subsidiaries and affiliate,

we provide the following services to our customers in the Cayman Islands, The Bahamas, the United States and British Virgin Islands:

Through our subsidiaries and affiliate, we provide the following services to our customers in the Cayman Islands, The Bahamas, the United States and British Virgin Islands:

● Retail Water Operations.

We produce potable water from seawater utilizing reverse osmosis technology and supply this water to end-users, including residential, commercial and government customers in the Cayman Islands under an exclusive retail license issued by the Cayman Islands government to provide water in two of the three most populated and rapidly developing areas on Grand Cayman.

In 2020, our retail water operations generated approximately 32% of our consolidated revenue.

2 unchanged sentences

In 2020, our bulk water operations generated approximately 33% of our consolidated revenue.

As of and through December 31, 2018, we also supplied bulk water in Belize, however, in February 2019, we completed the sale (which was effective as of January 1, 2019) of this subsidiary to our government-controlled customer in Belize.

Accordingly, our results of continuing operations no longer include the results of this Belize subsidiary.

Our former Belize subsidiary’s results of operations for 2018 are reflected in our consolidated results of operations as discontinued operations.

● Services Operations .

We design, construct and sell water production and water treatment plants, and we manage and operate water production and water treatment plants for third parties.

We design, construct and sell water production and water treatment plants, and we manage and operate water production plants and water treatment and reuse infrastructure for third parties.

We also provide water related consulting services.

5 unchanged sentences

We own 50% of the voting rights and 43.53% of the equity rights of Ocean Conversion (BVI) Ltd., which produces and supplies bulk water to the British Virgin Islands Water and Sewerage Department.

As of December 31, 2019, the number

of water production plants we and our affiliate operated in each country, and the production capacities of these plants, were as

As of December 31, 2020, the number of water production and water treatment plants we and our affiliate operated in each country, and the production capacities of these plants, were as follows:

Water Production Plant Location

Cayman Islands

British Virgin Islands

millions of gallons per day.

We are a global water solutions company

that serves a variety of customers through multiple product and service offerings.

In millions of gallons per day.

Water Treatment Plant Location

In estimated millions of gallons per day.

We are a multifaceted water solutions company that serves a variety of customers through multiple product and service offerings.

Presently, we:

produce and sell

potable water through the development and operation of water infrastructure that employs reverse osmosis technology to produce

potable water from seawater;

develop, sell and

manage water treatment and water reuse system infrastructure that meets regulatory, environmental and commercial needs and

requirements;

fabricate/manufacture

specialized and custom equipment and products employed in the production and treatment of water for municipal, commercial

and industrial purposes;

provide water-related

management and consulting services.

We expect to continue to expand and diversify

our products, services and markets to meet the ever-expanding global demand for water.

● produce and sell potable water through the development and operation of water infrastructure that employs reverse osmosis technology to produce potable water from seawater;

● develop, sell and manage water treatment and water reuse system infrastructure that meets regulatory, environmental and commercial needs and requirements;

● fabricate/manufacture specialized and custom equipment and products employed in the production and treatment of water for municipal, commercial and industrial purposes;

● provide water-related management and consulting services.

We expect to continue to expand and diversify our products, services and markets to meet the ever-expanding global demand for water.

Key elements of our strategy include:

We continue to seek to expand our existing operations in the markets we believe have significant unfulfilled

demands for desalinated potable water, water treatment and reuse systems and our other products and services.

These markets include

the Caribbean, the United States and Mexico.

Market expansion.

We continue to seek to expand our existing operations in the markets we believe have significant unfulfilled demands for desalinated potable water, water treatment and reuse systems and our other products and services.

These markets include the Caribbean and the United States.

We may also pursue business in other markets where we believe we can be successful.

Complementary

products, services and businesses .

We continue to aggressively pursue acquisitions or joint ventures that (i) complement

and enhance our existing businesses;

Complementary products, services and businesses .

We continue to aggressively pursue acquisitions or joint ventures that (i) complement and enhance our existing businesses;

(ii) expand our product and service offerings and markets;

and (iv) support our

objective to be a multi-faceted water solution provider.

We conduct our operations in the Cayman

Islands, The Bahamas, the United States, the British Virgin Islands, and Mexico through our subsidiaries and our affiliate.

corporate organizational structure is as follows.

and (iv) support our objective to be a multi-faceted water solution provider.

We conduct our operations in the Cayman Islands, The Bahamas, the United States, and the British Virgin Islands through our subsidiaries and our affiliate.

Our corporate organizational structure is as follows.

Retail Segment

Water Company Limited (“Cayman Water”) .

Cayman Water operates under an exclusive retail license granted

by the Cayman Islands government to provide water to customers within a prescribed service area on Grand Cayman that includes

the Seven Mile Beach and West Bay areas, two of the three most populated areas in the Cayman Islands.

Cayman Water owns and operates

three seawater reverse osmosis desalination plants.

Cayman Water and the Water Authority-Cayman (“WAC”) (which is

owned by the government) are Grand Cayman’s only water utilities.

Cayman Water Company Limited (“Cayman Water”) .

Cayman Water operates under an exclusive retail license granted by the Cayman Islands government to provide water to customers within a prescribed service area on Grand Cayman that includes the Seven Mile Beach and West Bay areas, two of the three most populated areas in the Cayman Islands.

Cayman Water owns and operates four seawater reverse osmosis desalination plants.

Cayman Water and the Water Authority-Cayman (“WAC”) (which is owned by the government) are Grand Cayman’s only water utilities.

Aquilex, Inc.

(“Aquilex”) .

Aquilex, a U.S.

company, provides financial, engineering, information technology, administrative

and supply chain management support services to our subsidiaries and affiliate.

We include Aquilex in our retail segment for financial

segment reporting purposes;

company, provides financial, engineering, information technology, administrative and supply chain management support services to our subsidiaries and affiliate.

We include Aquilex in our retail segment for financial segment reporting purposes;

however, it provides services to all four of our business segments.

Water (Bahamas) Limited (“CW-Bahamas”).

We own 90.9% of CW-Bahamas, which provides bulk water under long-term

contracts to the Water and Sewerage Corporation of The Bahamas (“WSC”), a government agency.

CW-Bahamas owns and operates

our largest desalination plant and two other desalination plants.

Conversion (Cayman) Limited (“OC-Cayman”).

OC-Cayman provides bulk water under long-term contracts to the

WAC, a government-owned utility and regulatory agency, which distributes the water to properties located outside our exclusive

retail license service area on Grand Cayman.

OC-Cayman built, sold and operates three seawater reverse osmosis desalination

plants owned by the WAC.

Consolidated Water (Bahamas) Limited (“CW-Bahamas”).

We own 90.9% of CW-Bahamas, which provides bulk water under long-term contracts to the Water and Sewerage Corporation of The Bahamas (“WSC”), a government agency.

CW-Bahamas owns and operates our largest desalination plant and one other desalination plant.

Ocean Conversion (Cayman) Limited (“OC-Cayman”).

OC-Cayman provides bulk water under long-term contracts to the WAC, a government-owned utility and regulatory agency, which distributes the water to properties located outside our exclusive retail license service area on Grand Cayman.

OC-Cayman built, sold and operates three seawater reverse osmosis desalination plants owned by the WAC.

Services Segment

Limited (“DesalCo”).

A Cayman Islands company, DesalCo provides design, management, engineering and construction

services for desalination projects as well as management and engineering services relating to municipal water distribution and

Water Cooperatief, U.A.

(“CW-Cooperatief”), N.S.C.

(“NSC”) and Aguas de Rosarito S.A.P.I.

(“AdR”).

CW-Cooperatief is a wholly-owned Netherlands subsidiary incorporated in 2010.

CW-Cooperatief

owns 99.9% of NSC, a Mexican company.

NSC was formed to pursue a project encompassing the design, construction, ownership and operation

of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and

accompanying pipeline to deliver water to the Mexican potable water system.

This project is currently in the development stage

and NSC does not generate any operating revenues.

In August 2016, NSC incorporated AdR, a special purpose Mexican company,

that will ultimately own the Mexico project if it proceeds.

NSC owns 99.6% of AdR and in February 2018, our subsidiary, Consolidated

Holdings, Inc.

acquired the remaining 0.4% of AdR’s equity ownership previously held by an unrelated party.

If our Mexico project proceeds, we will own from 25% to 35% of the equity of AdR (the remaining equity in AdR will be sold to unrelated

investors) as well as 50% of the joint venture that will operate and maintain the plant.

Water Corporation (“PERC”).

DesalCo Limited (“DesalCo”).

A Cayman Islands company, DesalCo provides design, management, engineering and construction services for desalination projects as well as management and engineering services relating to municipal water distribution and treatment.

PERC Water Corporation (“PERC”).

On October 24, 2019, we purchased, through our wholly-owned U.S.

Consolidated Water U.S.

Holdings, Inc., 51% of the equity in PERC, a U.S.

company headquartered in Costa Mesa, California.

PERC develops, builds, sells, operates and manages wastewater and water reuse infrastructure.

Manufacturing Segment

subsidiary, Consolidated Water U.S.

Holdings, Inc.

(“CW-Holdings”) and Aerex Industries, Inc.

(“Aerex”) .

2016, we purchased, through CW-Holdings, 51% of the equity in Aerex, a U.S.

(“CW-Holdings”), 51% of the equity in PERC, a U.S.

company headquartered in Fountain Valley, California.

PERC develops, builds, sells, operates and manages water, wastewater and water reuse infrastructure.

In August 2020, we purchased an additional 10% ownership interest of PERC, increasing our ownership of this subsidiary to 61%.

Manufacturing Segment

Aerex Industries, Inc.

In 2016, we purchased, through CW-Holdings, 51% of the equity in Aerex, a U.S.

company located in Fort Pierce, Florida.

an original equipment manufacturer of a wide range of specialized and custom products and systems applicable to desalination,

municipal water treatment and industrial water and wastewater treatment.

Aerex’s products include reverse osmosis desalination

equipment, membrane separation equipment, filtration equipment, piping systems, vessels and custom fabricated components.

also offers engineering, design, consulting, inspection, training and equipment maintenance services to its customers.

In January 2020,

we acquired the remaining 49% equity interest in Aerex for $8.5 million.

Conversion (BVI) Ltd.

(“OC-BVI”) .

We own 50% of the voting stock of OC-BVI, a British Virgin Islands

company, which sells bulk water to the Government of the British Virgin Islands Water and Sewerage Department.

We own an overall

43.53% equity interest in OC-BVI’s profits and certain profit-sharing rights that raise our effective interest in OC-BVI’s

profits to approximately 45%.

OC-BVI also pays our subsidiary, DesalCo Limited, fees for certain engineering and administrative

Aerex is an original equipment manufacturer of a wide range of specialized and custom products and systems applicable to desalination, municipal water treatment and industrial water and wastewater treatment.

Aerex’s products include reverse osmosis desalination equipment, membrane separation equipment, filtration equipment, piping systems, vessels and custom fabricated components.

Aerex also offers engineering, design, consulting, inspection, training and equipment maintenance services to its customers.

In January 2020, we acquired the remaining 49% equity interest in Aerex for $8.5 million.

Ocean Conversion (BVI) Ltd.

We own 50% of the voting stock of OC-BVI, a British Virgin Islands company, which sells bulk water to the Government of the British Virgin Islands Water and Sewerage Department.

We own an overall 43.53% equity interest in OC-BVI’s profits and certain profit-sharing rights that raise our effective interest in OC-BVI’s profits to approximately 45%.

OC-BVI also pays our subsidiary, DesalCo Limited, fees for certain engineering and administrative services.

We account for our investment in OC-BVI under the equity method of accounting.

Discontinued Operations

As of and through December 31, 2018,

we sold bulk water in Belize through our wholly-owned subsidiary, Consolidated Water Belize Ltd.

(“CW-Belize”), which

is the exclusive provider of water in Ambergris Caye to Belize Water Services Ltd.

(“BWSL”), a government-controlled

entity which distributes the water through its own pipeline system to residential, commercial and tourist properties.

BWSL distributes

water primarily to residential properties, small hotels, and businesses that serve the tourist market.

CW-Belize was included in

our bulk segment.

In February 2019, we completed the

sale (which was effective as of January 1, 2019) of CW-Belize to BWSL.

See further discussion of this sale at Note 13 of the

Notes to the Consolidated Financial Statements at ITEM 8 of this Annual Report.

Mexico project development

Consolidated Water Cooperatief, U.A.

(“CW-Cooperatief”), N.S.C.

(“NSC”) and Aguas de Rosarito S.A.P.I.

CW-Cooperatief is a wholly-owned Netherlands subsidiary incorporated in 2010.

CW-Cooperatief owns 99.9% of NSC, a Mexican company.

NSC was formed to pursue a project encompassing the design, construction, ownership and operation of a 100 million gallon per day seawater reverse osmosis desalination plant which was to be located in northern Baja California, Mexico and accompanying pipeline to deliver water to the Mexican potable water system (the “Project”).

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”).

On June 29, 2020, the Director General of CEA and the Director General of CESPT terminated the APP Contract.

As a result of the cancellation of the APP Contract, 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 CW-Cooperatief, 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 consolidated financial statements as of and for the year ended December 31, 2020.

As of and through December 31, 2018, we sold bulk water in Belize through our wholly-owned subsidiary, Consolidated Water Belize Ltd.

(“CW-Belize”), which is the exclusive provider of water in Ambergris Caye to Belize Water Services Ltd.

(“BWSL”), a government-controlled entity which distributes the water through its own pipeline system to residential, commercial and tourist properties.

BWSL distributes water primarily to residential properties, small hotels, and businesses that serve the tourist market.

CW-Belize was included in our bulk segment.

In February 2019, we completed the sale (which was effective as of January 1, 2019) of CW-Belize to BWSL.

See further discussion of this sale at Note 8 of the Notes to the Consolidated Financial Statements at ITEM 8 of this Annual Report.

Our Operations

For fiscal year 2019, our retail water,

bulk water, services and manufacturing segments generated approximately 38%, 39%, 3% and 20%, respectively, of our consolidated

For additional information about our business segments and geographical information about our operating revenue and long-lived

assets, see Note 17 to our consolidated financial statements at ITEM 8 of this Annual Report.

For fiscal year 2020, our retail water, bulk water, services and manufacturing segments generated approximately 32%, 33%, 18% and 17%, respectively, of our consolidated revenue.

For additional information about our business segments and geographical information about our operating revenue and long-lived assets, see Note 14 to our consolidated financial statements at ITEM 8 of this Annual Report.

Retail Water Operations

For fiscal years 2019 and 2018, our retail

water operations accounted for approximately 38%, and 39%, respectively, of our consolidated revenue.

This business produces and

supplies water to end-users, including residential, commercial and government customers in the Cayman Islands.

For fiscal years 2020 and 2019, our retail water operations accounted for approximately 32%, and 38%, respectively, of our consolidated revenue.

This business produces and supplies water to end-users, including residential, commercial and government customers in the Cayman Islands.

Retail Operations in the Cayman Islands

We sell water through our retail operations

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

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

Although the 1990 license has

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

discussed in the following paragraph.

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

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

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

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

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

Seven Mile Beach and West Bay.

The 1990 license was originally scheduled

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

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

The most recent express extension of the license expired on

January 31, 2018.

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

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

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

We continue to pay the royalty

required under the 1990 license.

In October 2016, the Government of

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

is an independent and accountable regulatory body with a view of protecting the rights of consumers, encouraging affordable utility

services and promoting competition.

OfReg, which began operations in January 2017, has the ability to supervise, monitor

and regulate multiple utility undertakings and markets.

Supplemental legislation was passed by the Government of the Cayman Islands

in April 2017, which transferred responsibility for economic regulation of the water utility sector and the retail license

negotiations from the WAC to OfReg in May 2017.

We began license negotiations with OfReg in July 2017 and such negotiations

are continuing.

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

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

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

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

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

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

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

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

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

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

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

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.

What changed 10-K

Item 1. Business