What changed in this filing

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Item 1. Financial Statements

2021-05-17 compared with 2020-11-16 · 134 added, 274 removed, 441 unchanged (48% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Current assets

2 unchanged sentences

Prepaid expenses and other current assets

Costs and estimated earnings in excess of billings

Contract assets

Current assets of discontinued operations

10 unchanged sentences

Accounts payable, accrued expenses and other current liabilities

Accounts payable - related parties

Accrued compensation

2 unchanged sentences

Current portion of long-term debt

Billings in excess of costs and estimated earnings

Contract liabilities

Current liabilities of discontinued operations

27 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Total revenue

Total cost of revenue

General and administrative expenses

Gain (loss) on asset dispositions and impairments, net

Total cost of revenue ( including purchases from related parties of $ 155,982 in 2021 and $ 493,463 in 2020 )

General and administrative expenses ( including purchases from related parties of $ 4,429 in 2021 )

Loss on asset dispositions and impairments, net

Income from operations

11 unchanged sentences

Net income from continuing operations attributable to Consolidated Water Co.

Gain on sale of discontinued operations

Net loss from discontinued operations

( 4,448,798 )

( 1,786,873 )

Total income (loss) from discontinued operations

( 4,448,798 )

Total loss from discontinued operations

Net income attributable to Consolidated Water Co.

20 unchanged sentences

Issue of share capital

Purchase of noncontrolling interest in subsidiary

( 2,444,047 )

( 6,055,953 )

( 8,500,000 )

Conversion of preferred stock

Buyback of preferred stock

Dividends declared

3 unchanged sentences

Balance as of March 31, 2021

Issue of share capital

Net income (loss)

( 1,127,842 )

Exercise of options

Dividends declared

( 1,287,474 )

Stock-based compensation

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

Dividends declared

( 1,280,223 )

Purchase of non-controlling interests in Aerex

( 2,444,047 )

Buyback of preferred stock

Stock-based compensation

Balance as of March 31, 2019

Issue of share capital

Buyback of preferred stock

Exercise of options

Dividends declared

( 6,055,953 )

( 8,500,000 )

Sale of CW-Bali

Stock-based compensation

Balance as of June 30, 2019

Exercise of options

Dividends declared

1 unchanged sentence

( 1,289,378 )

Conversion of preferred stock

Stock-based compensation

Balance as of September 30, 2019

Balance as of March 31, 2020

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

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

Net cash provided by (used in) operating activities

Cash flows from investing activities

Additions to property, plant and equipment and construction in progress

( 1,571,450 )

( 2,673,192 )

Proceeds from asset dispositions

Proceeds from sale of discontinued operations, net of cash provided

Purchase of noncontrolling interest in Aerex

( 8,500,000 )

Purchase of noncontrolling interest in PERC

Collections on loans receivable

Net cash provided by (used in) investing activities

Net cash used in investing activities

( 9,015,881 )

4 unchanged sentences

Dividends paid to preferred shareholders

Dividends paid to non-controlling interests

Repurchase of redeemable preferred stock

Proceeds received from exercise of stock options

Principal repayments on long-term debt

2 unchanged sentences

( 1,287,358 )

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

( 1,124,555 )

( 10,591,888 )

Cash and cash equivalents at beginning of period

1 unchanged sentence

cash and cash equivalents at end of period - discontinued operations

( 1,361,514 )

Cash and cash equivalents at end of period

Restricted cash at end of period

Cash and cash equivalents and restricted cash at end of period

Interest paid in cash

17 unchanged sentences

The accompanying condensed consolidated financial statements include the accounts of the Company’s (i) wholly-owned subsidiaries, Aerex Industries, Inc.

("Aerex"), Aquilex, Inc.

(“Aerex”), Aquilex, Inc.

(“Aquilex”), Cayman Water Company Limited (“Cayman Water”), Ocean Conversion (Cayman) Limited (“OC-Cayman”), DesalCo Limited (“DesalCo”), Consolidated Water Cooperatief, U.A.

5 unchanged sentences

(“NSC”), Aguas de Rosarito S.A.P.I.

(“AdR”), and PERC Water Corporation (“PERC”).

(“AdR”), and PERC Water Corporation ("PERC").

The Company’s investment in its affiliate Ocean Conversion (BVI) Ltd.

1 unchanged sentence

All significant intercompany balances and transactions have been eliminated in consolidation.

On January 24, 2020, as a result of CW-Holdings' exercise of a call option, CW-Holdings purchased the remaining 49 % ownership interest in Aerex for $ 8,500,000 in cash.

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 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.

Net foreign currency gains (losses) arising from transactions and re-measurements were ($ 108 ) and $ 16,843 for the three months ended March 31, 2021 and 2020, respectively, and are included in “Other income - 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 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.

Cash and cash equivalents as of March 31, 2021 and

December 31, 2020 include $ 8.5 million and $ 8.5 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 September 30, 2020, the equivalent United States dollar cash balances for deposits held in The Bahamas were approximately $ 12.4 million.

As of March 31, 2021, the equivalent United States dollar cash balances for deposits held in The Bahamas were approximately $ 8.8 million.

Revenue recognition:

1 unchanged sentence

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Retail revenue

3 unchanged sentences

Retail revenue

The Company produces and supplies water to end-users, including residential, commercial and governmental customers in the Cayman Islands under an exclusive retail license issued to Cayman Water by the Cayman Islands government to provide water in two of the three most populated and rapidly developing areas on Grand Cayman Island.

Customers are billed on a monthly basis based on metered consumption and bills are typically collected within 30 to 35 days after the billing date.

Receivables not collected within 45 days subject the customer to disconnection from water service.

In 2021 and 2020, bad debts represented less than 1 % of the Company’s total retail sales.

The Company recognizes revenue from water sales at the time water is supplied to the customer’s premises.

1 unchanged sentence

All retail water contracts are month-to-month contracts.

The Company has elected the "right to invoice"

practical expedient for revenue recognition on its retail water sale contracts and recognizes revenue in the amount to which the Company has a right to invoice.

The Company has elected the “right to invoice” practical expedient for revenue recognition on its retail water sale contracts and recognizes revenue in the amount to which the Company has a right to invoice.

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

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

OC-Cayman provides 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.

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.

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.

CW-Bahamas also sold water to a private resort on Bimini through December 18, 2020, which generated revenue of approximately $ 127,000 for the year ended December 31, 2020.

The Company has elected the “right to invoice” practical expedient for revenue recognition on its bulk water sale contracts and recognizes revenue in the amount to which the Company has a right to invoice.

Services and Manufacturing revenue

The Company, through Aerex, is a custom and specialty manufacturer of water treatment-related systems and products applicable to commercial, municipal and industrial water production.

Substantially all of Aerex’s customers are U.S.

The Company provides design, engineering, management, procurement and construction services for desalination infrastructure through DesalCo, which serves customers in the Cayman Islands, The Bahamas and the British Virgin Islands.

The Company also provides design, engineering, construction and management services for water treatment and reuse infrastructure through PERC.

The Company also develops, builds, sells, operates and manages water, wastewater and water reuse infrastructure through PERC.

All of PERC's customers are companies or governmental entities located in the U.S.

The Company, through Aerex, is a custom and specialty manufacturer of water treatment-related systems and products applicable to commercial, municipal and industrial water production.

Substantially all of Aerex’s customers are U.S.

The Company generates services revenue from DesalCo and PERC and generates manufacturing revenue from Aerex.

The Company recognizes revenue for its construction and specialized/custom manufacturing contracts over time under the input method using costs incurred (which represents work performed) to date relative to total estimated costs at completion to measure progress toward satisfying its performance obligations as such measure best reflects the transfer of control of the promised good to the customer.

Contract costs include labor, material and overhead.

The Company follows this method since it can make reasonably dependable estimates of the revenue and costs applicable to various stages of a contract.

Contract costs include labor, material and amounts payable to subcontractors.

The Company follows this method since it can make reasonably dependable estimates of the revenue and costs applicable to the various stages of a contract.

Under this input method, the Company records revenue and recognizes profit or loss as work on the contract progresses.

3 unchanged sentences

The Company recognizes the full amount of any estimated loss on a contract at the time the estimates indicate such a loss.

Any costs and estimated earnings in excess of billings are classified as current assets.

Billings in excess of costs and estimated earnings on uncompleted contracts are classified as current liabilities.

The Company has elected the “right to invoice” practical expedient for revenue recognition on its management services agreements and recognizes revenue in the amount to which the Company has a right to invoice.

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

September 30, 2020

Any contract assets are classified as current assets.

Contract liabilities on uncompleted contracts, if any, are classified as current liabilities.

The Company has elected the “right to invoice” practical expedient for revenue recognition on its services agreements and recognizes revenue in the amount to which the Company has a right to invoice.

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

March 31, 2021

December 31, 2020

3 unchanged sentences

( 17,791,928 )

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

September 30, 2020

Net contract asset

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

March 31, 2021

December 31, 2020

Costs and estimated earnings in excess of billings

Billings in excess of costs and estimated earnings

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.

Contract assets

Contract liabilities

Net contract asset

As of March 31, 2021, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 1.4 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 $ 1.0 million during the remainder of the year ending December 31, 2021 and approximately $ 0.4 million thereafter .

Practical Expedients and Exemptions

14 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 September 30, 2020

Manufacturing

Cost of revenue

General and administrative expenses

Loss on asset dispositions and impairments, net

Income (loss) from operations

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

Three Months Ended March 31, 2021

Manufacturing

1 unchanged sentence

General and administrative expenses

Gain on asset dispositions and impairments, net

Gain (loss) on asset dispositions and impairments, net

Income (loss) from operations

3 unchanged sentences

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 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

Cost of revenue

General and administrative expenses

Gain on asset dispositions and impairments, net

Income (loss) from operations

Other income, net

Income before income taxes

Provision for income taxes

Net income from continuing operations

Income from continuing operations attributable to non-controlling interests

1 unchanged sentence

Net loss from discontinued operations

( 4,448,798 )

Net income attributable to Consolidated Water Co.

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

Depreciation and amortization expenses for the three months ended March 31, 2021 for the retail, bulk, services and manufacturing segments were $ 634,255 , $ 953,760 , $ 200,495 and $ 75,533 , respectively.

Three Months Ended March 31, 2020

Manufacturing

1 unchanged sentence

General and administrative expenses

Gain on asset dispositions and impairments, net

Gain (loss) on asset dispositions and impairments, net

Income from operations

3 unchanged sentences

Net income from continuing operations

Income from continuing operations attributable to non-controlling interests

Income attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

Net income from discontinued operations

Net loss from discontinued operations

Net income attributable to Consolidated Water Co.

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

Depreciation and amortization expenses for the three months ended March 31, 2020 for the retail, bulk, services and manufacturing segments were $ 604,813 , $ 967,235 , $ 182,750 and $ 126,134 , respectively.

As of March 31, 2021

Manufacturing

16 unchanged sentences

Earnings per share

Earnings per share (“EPS”) are computed on a basic and diluted basis.

Earnings per share (“EPS”) is computed on a basic and diluted basis.

Basic EPS is computed by dividing net income (less preferred stock dividends) available to common stockholders by the weighted average number of common shares outstanding during the period.

1 unchanged sentence

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Net income from continuing operations attributable to Consolidated Water Co.

1 unchanged sentence

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 )

Total loss from discontinued operations

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

7 unchanged sentences

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

CW-Cooperatief subsequently purchased, through the conversion of a loan it made to NSC, additional shares that increased its ownership interest in NSC to 99.99 %.

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.

CW-Cooperatief has since purchased, through the conversion of a loan it made to NSC, additional shares that increased its ownership interest in NSC to 99.99 %.

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.

In August 2014, the State enacted new legislation to regulate Public-Private Association projects which involve the type of long-term contract between a public-sector authority and a private party required for the Project (the “APP Law”).

Pursuant to this new legislation, in January 2015, NSC submitted an expression of interest for its project to the Ministry of Infrastructure and Urban Development of the State of Baja California (“SIDUE”).

SIDUE accepted NSC’s expression of interest and requested that NSC submit a detailed proposal for the Project that complied with the requirements of the new legislation.

NSC submitted this detailed proposal (the “APP Proposal”) to SIDUE in late March 2015.

The new legislation required that such proposal be evaluated by SIDUE and submitted to the Public-Private Association Projects State Committee (the “APP Committee”) for review and authorization.

In response to its APP Proposal, in September 2015 NSC received a letter dated June 30, 2015 from the Director General of the Comisión Estatal del Agua de Baja California (“CEA”), the State agency with responsibility for the Project, stating that (i) the Project is in the public interest with high social benefits and is consistent with the objectives of the State development plan;

and (ii) that the Project should proceed, and the required public tender should be conducted.

In November 2015, the State officially commenced the tender for the Project, the scope of which the State defined as a first phase to be operational in 2019 consisting of a 50 million gallon per day plant and an aqueduct that connects to the Mexican potable water infrastructure and a second phase to be operational in 2024 consisting of an additional 50 million gallons per day of production capacity.

Following an assessment by the State of Baja, California (the “State”) of the need for such a desalination plant and the passage of enabling legislation in November 2015, the State officially commenced the tender for the Project.

The scope of the Project was defined by the State as a first phase to be operational in 2019 consisting of a 50 million gallon per day plant and an aqueduct that connected to the Mexican potable water infrastructure and a second phase to be operational in 2024 consisting of an additional 50 million gallons per day of production capacity.

A consortium (the “Consortium”) comprised of NSC, NuWater S.A.P.I.

2 unchanged sentences

In August 2016, NSC and NuWater incorporated Newco under the name Aguas de Rosarito S.A.P.I.

(“AdR”), a special purpose company, to complete the Project and executed a shareholders agreement for AdR agreeing among other things that (i) AdR would purchase the land and other Project assets from NSC on the date that the Project begins commercial operations and (ii) AdR would enter into a Management and Technical Services Agreement with NSC effective on the first day that the Project begins commercial operations.

(“AdR”), a special purpose company, to complete the Project and executed a shareholders agreement for AdR agreeing among other

things that (i) AdR would purchase the land and other Project assets from NSC on the date that the Project begins commercial operations and (ii) AdR would enter into a Management and Technical Services Agreement with NSC effective on the first day that the Project begins commercial operations.

NSC initially owned 99.6 % of the equity of AdR.

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”).

On August 22, 2016, the Public Private Partnership Agreement for the Project (the “APP Contract”) was executed between AdR, the State Water Commsiion of 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:

3 unchanged sentences

At the end of the operating period, the plant and aqueduct would have been transferred to CEA.

In December 2016, the Congress of the State of Baja California, Mexico (the “Congress”) passed Decreto #57 which, among other things, ratified and authorized the payment obligations of the corresponding public entities under the APP Contract and authorized the corresponding public entities to obtain a credit facility to guarantee their payment obligations.

During 2017, following consultations between representatives of the State and the Ministry of Finance of the Federal Government of Mexico, it was determined that certain amendments to Decreto #57 were required to comply with recent changes to the Federal Financial Discipline Law for Federative Entities and Municipalities.

In addition, an amendment of Decreto #57 was required to authorize the inclusion of revenue from the CESPT in the primary payment trust for the Project.

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.

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.

Decreto #37 expired June 30, 2020.

Both the exchange rate for the Mexican peso relative to the dollar and general macroeconomic conditions in Mexico varied since the execution of the APP Contract.

These changes adversely impacted the estimated construction, operating and financing costs for the Project.

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

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.

On June 1, 2018, AdR and CEA executed an amendment to the APP Contract which, among other things, increased the scope of Phase 1 of the Project for including the aqueduct originally designated for Phase 2, and addressed AdR’s concerns regarding the impact on the Project for changes in the exchange rate for the peso relative to the dollar and changes in interest rates that occurred subsequent to the submission of the Consortium’s bid for the Project.

As a result of this amendment to the APP Contract, the final cost of Phase 1 and the related consideration to be charged by AdR under the APP Contract would have been determined based upon the bid submitted by the Consortium, the changes set forth in the amendment to the APP Contract and the economic conditions (e.g.

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

In February 2018, AdR executed a subscription agreement (the “Agreement”) for the equity funding required for the Project.

The Agreement calls for NSC to retain a minimum of 25% of the equity in AdR.

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

(“Greenfield”), a Mexico company managed by an affiliate of a leading U.S.

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

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

If Suez MA did not exercise this option, NSC would retain 35% of the equity of AdR and Greenfield will acquire 65% of the equity of AdR.

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

The aggregate investment to be made by the equity partners in the Project, in the form of equity and subordinated shareholder loans, is presently estimated at approximately 20% of the total cost of Phase 1 of the Project.

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

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.

The APP Contract was subsequently amended by the parties in June 2018 to increase the scope of Phase 1 and to allow for changes in the water tariff due to the changes in the exchange rate for the peso, interest rates and construction costs that had and would occur from the date the APP contract was signed to the date construction commenced.

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.

9 unchanged sentences

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.

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.

Accordingly, the assets and liabilities of CW-Cooperatief, 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.

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

September 30,

Current assets

Prepaid expenses and other current assets

Value added taxes receivable

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,

Three Months Ended March 31,

Income from operations

Net loss from discontinued 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 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 considered 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, 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.

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

Therefore, on August 28, 2020, AdR submitted, in due time and form, its list of non-recoverable expenses, including those of NSC, to CEA and CESPT which was comprised of 51,144,525 United States dollars and an additional 137,333,114 Mexican pesos.

In February 2021, AdR withdrew this amparo claim, and such withdrawal was accepted by the federal district court in Tijuana.

To date, AdR has not received a response from CEA or CESPT to its submission of non-recoverable expenses.

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.

As a Netherlands company, CW-Cooperatief, believes it has certain rights relating to its investments in NSC and AdR under the Agreement on Promotion, Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the United Mexican States entered into force as of October 1, 1999 (the “Treaty”).

On April 16, 2021, CW-Cooperatief submitted a letter to the President of Mexico and other Mexican federal government officials alleging that the State’s termination of the APP Contract constituted a breach by Mexico of its international obligations under the Treaty, entitling CW-Cooperatief to full reparation, including monetary damages.

This letter invites Mexico to seek a resolution of this investment dispute through consultation and negotiation, but states that if the dispute cannot be resolved in this manner, CW-Cooperatief elects to refer the dispute to the International Centre for the Settlement of International Disputes for arbitration, as provided for in the Treaty.

To date, CW-Cooperatief has not received a response to this letter.

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.

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and (d) order public officials in Mexico and credit institutions abroad to refrain from authorizing or executing any legal act related with the activities of the plaintiff, the co-defendants and the third party called to trial to avoid damages to third parties, including those with whom negotiations or any form of commercial or administrative activities, or activities of any other nature related with the “Rosarito” water desalination project, are being conducted.

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.

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 “Rosarito” water desalination 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.

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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.

EWG challenged such resolution, arguing that its notification was not lawful.

The Tenth Civil Judge dismissed such challenge, and thereafter EWG filed a remedy against such dismissal, which remedy has not been resolved (notwithstanding that NSC appeared to vigorously oppose such remedy).

Notwithstanding the resolution of the Tenth Civil Judge to move to arbitration, subparagraphs a) and b) 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 intermittently 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.

In April 2018, AdR filed an amparo against the official writs issued by the Tenth Civil Judge to two governmental entities.

In May 2018, the amparo claim was amended to also request protection against additional official writs issued by the Tenth Civil Judge to two other governmental entities and one banking institution.

In May 2018, the Third District Court for Amparo and Federal Trials in the State of Baja California with residence in Tijuana granted a temporary suspension of the effects and consequences of the claimed official writs issued by the Tenth Civil Judge pending a further determination by the Third District Court.

Such suspension was granted definitively in July 2018, and in August 2018, a resolution determining that the claimed official writs are unconstitutional, was issued.

EWG appealed such resolution, and in January 2020, the Collegiate Tribunal resolving such appeal dismissed the amparo filed by AdR.

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

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

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

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.

c) Amparo filed by EWG against the revocation of the preliminary relief.

In January 2020, EWG filed a new amparo claim against the resolution of the appeal remedy previously mentioned in item (ii).

b) Amparo filed by EWG against the revocation of the preliminary relief.

In January 2020, EWG filed a new amparo claim against the resolution of the appeal remedy previously mentioned in subparagraph a).

NSC has responded to this new amparo to vigorously oppose such amparo claim of EWG and to uphold the resolution of such appeal remedy.

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

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.

before obtaining a resolution revoking the preliminary relief as mentioned previously), NSC filed before the Public Registry of Property of Baja California a cancellation request for the provisional lien and the preventive annotation recorded against NSC’s property in the public real estate records.

On June 24, 2019, the Public Registry of Property of Baja California issued an encumbrances cancellation resolution, approving the release of the provisional lien and the preventive annotation recorded against NSC’s property in the public real estate records.

Such encumbrances cancellation resolution was registered before the Public Registry of Property of Playas de Rosarito on June 25, 2019.

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.

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).

The Court resolved in favor of such motion to dismiss.

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

To this date, the resolution to this amparo claim has not been issued (notwithstanding that a final hearing within such procedure was held) and, as such, it does not affect the revocation of the preliminary relief.

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.

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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.

Many of these leases contain rental escalation clauses which are factored into the determination of lease payments when appropriate.

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

Many of these leases contain rental escalation clauses which are factored into the determination of the lease payments when appropriate.

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

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.

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

These leases contain both lease and non-lease components, which the Company has elected to treat as a single lease component.

The Company elected not to recognize leases that have an original lease term, including reasonably certain renewal or purchase obligations, of twelve months or less in its consolidated balance sheets for all classes of underlying assets.

The Company elected not to recognize leases that have an original lease term, including reasonably certain renewal or purchase obligations, of twelve months or less in its condensed consolidated balance sheets for all classes of underlying assets.

Lease costs for such short-term leases are expensed on a straight-line basis over the lease term.

The land used by the Company to operate its seawater desalination plants in the Cayman Islands and The Bahamas are owned by the Company or leased to the Company for immaterial annual amounts and are not included in the lease amounts presented on the consolidated balance sheets.

The land used by the Company to operate its seawater desalination plants in the Cayman Islands and The Bahamas is owned by the Company or leased to the Company for immaterial annual amounts and are not included in the lease amounts presented on the condensed consolidated balance sheets.

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.

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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 September 30, 2020 do not include this lease.

As such, the lease right-of-use asset and lease liability amounts as of March 31, 2021 and December 31, 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.

All lease liabilities denominated in a foreign currency are remeasured using the exchange rate as of the consolidated balance sheet date.

Effective May 1, 2019, the Company executed a new lease for its office located in the Cayman Islands under terms comparable to the prior lease.

This new lease expires April 30, 2024.

All lease liabilities denominated in a foreign currency are remeasured using the exchange rate as of the condensed consolidated balance sheet date.

Effective March 9, 2021, the Company entered into a new office lease for the existing office located in Coral Springs, Florida under similar terms compared to the prior lease.

This new lease expires, including all renewal options, on March 8, 2031.

Lease assets and liabilities

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

September 30, 2020

December 31, 2019

Prepaid expenses and other current assets

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The components of lease costs were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Operating lease costs

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Supplemental cash flow information related to leases is as follows:

Nine Months Ended September 30,

Three Months Ended March 31,

Cash paid for amounts included in measurement of liabilities:

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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:

Future lease payments relating to the Company’s operating lease liabilities as of March 31, 2021 were as follows:

Years ending December 31,

Remainder of 2020

Total future lease payments

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Noncurrent lease obligations

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.

As of March 31, 2021 and December 31, 2020, 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.

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The Company reviews its fair value hierarchy classifications on a quarterly basis.

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 September 30, 2020 and December 31, 2019:

September 30, 2020

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 March 31, 2021 and December 31, 2020:

March 31, 2021

Net liability arising from put/call options

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Net liability arising from put/call options

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

The activity for the Level 3 liability for the three months ended March 31, 2021:

Net liability arising from put/call options

Balance as of December 31, 2020

Unrealized loss

Balance as of September 30, 2020

Unrealized gain

Balance as of March 31, 2021

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

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

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

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

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:

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

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

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

Furthermore, a prolonged extension of the economic downturn created by the COVID-19 pandemic could adversely affect the markets for the Company’s products and services.

Such adverse market effects could adversely impact the Company’s expected future cash flows from its four reporting units and could require the Company to record impairment losses to reduce the carrying values of one or more of these reporting units due to a decline in their fair values.

Although the Company cannot presently quantify the future financial impacts of the COVID-19 pandemic, such impacts will likely have a material adverse impact on the Company’s consolidated financial condition, results of operations, and cash flows.

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

The Company sells water through its 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, the Company

continues to supply water under the terms of the 1990 license, as further discussed in the following paragraph.

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

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

Seven Mile Beach and West Bay.

For the three months ended 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.

For the three months ended March 31, 2021 and 2020, the Company generated approximately 33 % and 35 %, respectively, of its consolidated revenue and 49 % and 51 %, 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.

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

Supplemental legislation was passed by the Government of the Cayman Islands in April 2017, which transferred responsibility for the 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 ongoing.

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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 (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.

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $ 19.5 million as of March 31, 2021 and $ 16.8 million as of December 31, 2020.

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

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

As of March 31, 2021, the Company has 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:

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

Discontinued operations - CW-Belize

On February 14, 2019, the Company completed the sale of its former subsidiary, Consolidated Water (Belize) Limited ("CW-Belize") to Belize Water Services Ltd.

(“BWSL”) effective January 1, 2019.

After adjustments, the final price for CW-Belize was approximately $ 7.0 million.

Pursuant to the sale and purchase agreement, BWSL initially paid the Company $ 6.735 million of the purchase price and approximately $ 265,000 was withheld to cover indemnification obligations of the Company under the agreement.

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 nine months ended September 30, 2019.

Related party transactions

The Company, through PERC and the services segment, purchases engineering and technology support services from various companies with a minority shareholder who is also a minority shareholder of PERC.

During the three months ended March 31, 2021 and 2020, the Company made total purchases of services of approximately $ 156,000 and $ 493,000 from these companies, respectively.

These total purchases are included in the Company’s cost of revenue in the accompanying condensed consolidated statements of income.

On February 1, 2021, PERC entered into a sublease agreement with a related company commencing March 14, 2021 and ending August 31, 2021.

During the three months ended March 31, 2021, the Company recognized approximately $ 4,000 of expense related to this lease.

This lease amount is included in the Company's general and administrative expenses in the accompanying condensed consolidated statements of income.

The total amount of accounts payable outstanding to these companies as of March 31, 2021 and December 31, 2020, was approximately $ 247,000 and $201,000, respectively.

Impact of recent accounting standards

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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 1. Financial Statements