What changed in this filing

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Item 1. Financial Statements

2021-08-16 compared with 2021-05-17 · 215 added, 81 removed, 494 unchanged (37% of the section changed)

53 unchanged sentences

CONSOLIDATED WATER CO.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,

Total revenue

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

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenue ( including purchases from related parties of $ 129,401 and $ 371,201 for the three months ended, and $ 285,383 and $ 864,664 for the six months ended, June 30, 2021 and 2020, respectively )

General and administrative expenses ( including purchases from related parties of $ 24,299 and $ 0 for the three months ended, and $ 28,728 and $ 0 for the six months ended, June 30, 2021 and 2020, respectively)

Gain (loss) on asset dispositions and impairments, net

( 2,896,640 )

( 3,145,573 )

Income (loss) from operations

( 1,556,091 )

Other income (expense):

5 unchanged sentences

Other income, net

Income before income taxes

Income (loss) before income taxes

( 1,322,977 )

Provision (benefit) for income taxes

Net income from continuing operations

Net income (loss) from continuing operations

( 1,316,132 )

Income from continuing operations attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

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

( 1,513,270 )

Total loss from discontinued operations

Net income attributable to Consolidated Water Co.

( 3,755,112 )

( 4,071,477 )

Net income (loss) attributable to Consolidated Water Co.

( 1,664,649 )

( 1,127,842 )

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

2 unchanged sentences

Discontinued operations

Basic earnings per share

Basic earnings (loss) per share

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

2 unchanged sentences

Discontinued operations

Diluted earnings per share

Diluted earnings (loss) per share

Dividends declared per common and redeemable preferred shares

16 unchanged sentences

Balance as of March 31, 2021

Issue of share capital

Conversion of preferred stock

Buyback of preferred stock

Net income (loss)

( 1,664,649 )

( 1,467,511 )

Exercise of options

Dividends declared

( 1,294,697 )

Stock-based compensation

Balance as of June 30, 2021

preferred stock

11 unchanged sentences

Balance as of March 31, 2020

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

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

Net cash provided by operating activities - continuing operations

Net cash used in operating activities - discontinued operations

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities

1 unchanged sentence

Proceeds from asset dispositions

Purchase of noncontrolling interest in Aerex

Purchase of non-controlling interest in Aerex

( 8,500,000 )

8 unchanged sentences

Repurchase of redeemable preferred stock

Proceeds received from exercise of stock options

Principal repayments on long-term debt

44 unchanged sentences

These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) relating to interim financial statements and in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).

Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted in these condensed financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading.

Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted in these condensed consolidated financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

6 unchanged sentences

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

Net foreign currency gains (losses) arising from transactions and re-measurements were ($ 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.

Net foreign currency gains arising from transactions and re-measurements were $ 14,159 and $ 24,456 for the three months ended June 30, 2021 and 2020, respectively, and $ 14,051 and $ 41,299 for the six months ended June 30, 2021 and 2020, respectively, and are included in “Other income - Other” in the accompanying condensed consolidated statements of income (loss).

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 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.

Cash and cash equivalents as of June 30, 2021 and

December 31, 2020 include approximately $ 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 March 31, 2021, the equivalent United States dollar cash balances for deposits held in The Bahamas were approximately $ 8.8 million.

The equivalent United States dollar cash balances for deposits held in The Bahamas as of June 30, 2021 and December 31, 2020 were approximately $ 7.6 million and $15.9 million, respectively.

Goodwill and intangible assets:

Goodwill represents the excess cost over the fair value of the assets of an acquired business.

Goodwill and intangible assets acquired in a business combination accounted for as a purchase and determined to have an indefinite useful life are not amortized but are tested for impairment at least annually.

Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment.

The Company evaluates the possible impairment of goodwill annually as part of its reporting process for the fourth quarter of each fiscal year.

Management identifies the Company’s reporting units, which consist of the retail, bulk, services, and manufacturing business segments, and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units.

The Company determines the fair value of each reporting unit and compares the fair value to the carrying amount of the reporting unit.

To the extent the carrying amount of the reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded.

For the year ended December 31, 2020, the Company estimated the fair value of its reporting units by applying the discounted cash flow method, which relied upon seven-year discrete projections of operating results, working capital and capital expenditures, along with a terminal value subsequent to the discrete period.

These seven-year projections were based upon historical and anticipated future results, general economic and market conditions, and considered the impact of planned business and operational strategies.

The discount rates for the calculations represented the estimated cost of capital for market participants at the time of each analysis.

The Company also estimated the fair value of each of it reporting units for the year ended December 31, 2020 by applying the guideline public company method.

The Company weighted the fair values estimated for each of its reporting units under each method and summed such weighted fair values to estimate the overall fair value for each reporting unit.

The respective weightings the Company applied to each method for the years ended December 31 were as follows:

As of December 31, 2020

Manufacturing

Discounted cash flow

Guideline public company

Mergers and acquisitions

The fair values the Company estimated for its retail, bulk, services and manufacturing reporting units exceeded their carrying amounts by 101 %, 49 %, 17 %, and 31 % respectively, as of December 31, 2020.

Approximately 87 % and 86 % of Aerex’s revenue, and 91 % and 84 % of Aerex’s gross profit, for the three and six months ended June 30, 2020, respectively, were generated from sales to one customer.

Approximately 80 % of Aerex’s revenue, and 89 % of Aerex’s gross profit, for the year ended December 31, 2020 were generated from sales to this customer.

In October 2020, this customer informed Aerex that, for inventory management purposes, it was suspending its purchases from Aerex following 2020 for a period of approximately one year.

This customer informed Aerex at that time that it expected to recommence its purchases from Aerex beginning with the first quarter of 2022.

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

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

Based upon these updated projections, the Company tested its manufacturing reporting unit’s goodwill for possible impairment as of September 30, 2020 and December 31, 2020 using the discounted cash flow and guideline public companies methods, with a weighting of 80 % and 20 % applied to these two methods, respectively.

As a result of these impairment tests, the Company determined that the estimated fair value of our

manufacturing reporting unit exceeded its carrying value by approximately 22% as of September 30, 2020 and 31 % as of December 31, 2020.

In late July 2021, this former major customer communicated to Aerex that it expected to recommence its purchases from Aerex in 2022 and subsequent years, but informed Aerex that such purchases would be at substantially reduced annual amounts, as compared to the amounts it had purchased from Aerex in 2020 and prior years.

The updated sales estimate for this customer based on this new information is substantially below the sales previously anticipated to this customer for 2022 and subsequent years that the Company used in the discounted cash flow projections prepared for purposes of testing the manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020.

Aerex’s efforts to replace the revenue previously generated from this customer with revenue from existing and new customers have been adversely impacted by the continuing negative economic impacts of the COVID-19 pandemic, which have increased Aerex’s raw material costs, resulted in raw material shortages and extended delivery times for such materials and, the Company believes, also adversely affected the overall financial condition of Aerex’s current and prospective customer base.

Accordingly, in light of this new information from Aerex’s former major customer, and present weak economic conditions that the Company believes will continue into 2022, the Company updated its projections of future cash flows for its manufacturing reporting unit and tested its goodwill for possible impairment as of June 30, 2021 using the discounted cash flow and guideline public company methods, with a weighting of 80 % and 20 % applied to these two methods, respectively.

Based upon this testing, the Company determined that the carrying value of its manufacturing reporting unit exceeded its fair value by $ 2.9 million, and the Company recorded an impairment loss to reduce its manufacturing reporting unit’s goodwill by this amount for the three months ended June 30, 2021.

If it is determined in the future that Aerex’s future cash inflows will be less than the Company’s present expectations, it may be required to record additional impairment losses to reduce the remaining carrying values as of June 30, 2021 of the manufacturing reporting unit’s goodwill of $ 1,985,211 and the unamortized balance of its intangible assets of $ 894,444 associated with the acquisition of Aerex.

Any such impairment losses could have a material adverse impact on the Company’s consolidated results of operations.

Revenue recognition:

1 unchanged sentence

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Retail revenue

5 unchanged sentences

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.

6 unchanged sentences

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.

CW-Bahamas also sold water to a private resort on Bimini through December 18, 2020, which generated revenue of approximately $29,000 and $71,000 for the three and six months ended June 30, 2020, respectively.

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.

7 unchanged sentences

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 amounts payable to subcontractors.

Contract costs include labor, materials 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.

8 unchanged sentences

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

March 31, 2021

June 30, 2021

December 31, 2020

4 unchanged sentences

Net contract asset

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

March 31, 2021

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

June 30, 2021

December 31, 2020

2 unchanged sentences

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 .

As of June 30, 2021, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 1.2 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 $ 0.5 million during the remainder of the year ending December 31, 2021 and approximately $ 0.7 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 March 31, 2021

Three Months Ended June 30, 2021

Manufacturing

Cost of revenue

Gross profit (loss)

General and administrative expenses

Gain (loss) on asset dispositions and impairments, net

( 2,900,000 )

( 2,896,640 )

Income (loss) from operations

( 3,368,425 )

( 1,556,091 )

Other income, net

Income before income taxes

Loss before income taxes

( 1,322,977 )

Benefit from income taxes

Net income from continuing operations

Net loss from continuing operations

( 1,316,132 )

Income from continuing operations attributable to non-controlling interests

Net loss from continuing operations attributable to Consolidated Water Co.

( 1,513,270 )

Net loss from discontinued operations

Net loss attributable to Consolidated Water Co.

( 1,664,649 )

Depreciation and amortization expenses for the three months ended June 30, 2021 for the retail, bulk, services and manufacturing segments were $ 632,953 , $ 906,292 , $ 204,000 and $ 70,134 , respectively.

Three Months Ended June 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 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 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

( 3,755,112 )

Net loss attributable to Consolidated Water Co.

( 1,127,842 )

Depreciation and amortization expenses for the three months ended June 30, 2020 for the retail, bulk, services and manufacturing segments were $ 595,247 , $ 967,064 , $ 188,586 and $ 82,340 , respectively.

Six Months Ended June 30, 2021

Manufacturing

2 unchanged sentences

Gain (loss) on asset dispositions and impairments, net

( 2,900,000 )

( 3,145,573 )

Income (loss) from operations

( 1,039,931 )

( 3,448,914 )

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 loss from continuing operations attributable to Consolidated Water Co.

Net loss from discontinued operations

Net loss attributable to Consolidated Water Co.

Depreciation and amortization expenses for the six months ended June 30, 2021 or the retail, bulk, services and manufacturing segments were $ 1,267,208 , $ 1,860,052 , $ 404,495 and $ 145,667 , respectively.

Six Months Ended June 30, 2020

Manufacturing

Cost of revenue

General and administrative expenses

Gain on asset dispositions and impairments, net

Income from operations

3 unchanged sentences

Net income from continuing operations

Income attributable to non-controlling interests

Income from continuing operations attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

Net loss from discontinued operations

( 4,071,477 )

Net income attributable to Consolidated Water Co.

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

Depreciation and amortization expenses for the six months ended June 30, 2020 for the retail, bulk, services and manufacturing segments were $ 1,200,060 , $ 1,934,299 , $ 371,337 and $ 208,474 , respectively.

As of June 30, 2021

Manufacturing

17 unchanged sentences

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.

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

The computation of diluted EPS assumes the issuance of common shares for all potential common shares outstanding during the reporting period and, if dilutive, the effect of stock options as computed under the treasury stock method.

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

Three Months Ended March 31,

Net income from continuing operations attributable to Consolidated Water Co.

Three Months Ended June 30,

Six Months Ended June 30,

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

( 1,513,270 )

preferred stock dividends

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

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

( 1,516,445 )

Total loss from discontinued operations

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

( 3,755,112 )

( 4,071,477 )

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

( 1,667,824 )

( 1,131,262 )

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

6 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 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 %.

CW-Cooperatief thereafter 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 potable water system.

10 unchanged sentences

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, 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”).

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

23 unchanged sentences

Property, plant and equipment, net

Land and rights of way

Total assets of discontinued operations

Total liabilities of discontinued operations

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Income from operations

12 unchanged sentences

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.

On June 29, 2021, the Mexican Ministry of Economy responded to CW-Cooperatief’s letter and proposed to hold a consultation meeting.

Two such meetings were held on July 9, 2021 and August 2, 2021 on a confidential basis.

The investment dispute remains unresolved to date.

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.

12 unchanged sentences

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

EWG requested that the courts, as a preliminary matter (a) suspend the effectiveness of the challenged transactions;

EWG requested that the court, as a preliminary matter (a) suspend the effectiveness of the challenged transactions;

(b) order certain public officials in Mexico to record the pendency of the lawsuit in the public records (including a special request to register a lien over the real estate owned by NSC);

8 unchanged sentences

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.

Notwithstanding the resolution of the Tenth Civil Judge to move to arbitration, subparagraphs a) and b) that follow describe certain separate amparo claims, and 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 partially restarting activities in August 2020.

As such, several resolutions are pending issuance.

5 unchanged sentences

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, 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.

To this date, the resolution to this amparo claim has not been made public or communicated to NSC.

However, from publicly available information it appears that the claim has been dismissed and, as such, the revocation of the preliminary relief is not affected.

c) Amparo apparently filed by EWG against a resolution of the Tenth Civil Judge.

In August 2021, counsel to NSC and AdR became aware, from publicly available information of Mexican Federal courts, of an amparo claim filed by EWG, against a certain resolution of the Tenth Civil Judge within the mentioned ordinary mercantile claim.

However, to date, neither NSC nor AdR have been notified of this amparo claim and, as such, it is not clear if they are parties to it.

Further, no additional information on this claim, its scope or potential consequences, if any, is available.

In the event that NSC and/or AdR are named parties to this claim, they plan to vigorously oppose to it.

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.

10 unchanged sentences

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 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.

2 unchanged sentences

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 right-of-use asset and lease liability amounts as of March 31, 2021 and December 31, 2020 do not include this lease.

As such, the lease right-of-use asset and lease liability amounts as of June 30, 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.

4 unchanged sentences

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

Accounts receivable, net

Prepaid expenses and other current assets

15 unchanged sentences

The components of lease costs were as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Operating lease costs

3 unchanged sentences

Supplemental cash flow information related to leases is as follows:

Three Months Ended March 31,

Six Months Ended June 30,

Cash paid for amounts included in measurement of liabilities:

1 unchanged sentence

Operating cash outflows for operating leases - discontinued operations

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

Future lease payments relating to the Company’s operating lease liabilities as of June 30, 2021 were as follows:

Years ending December 31,

4 unchanged sentences

Noncurrent lease obligations

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.

As of June 30, 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.

1 unchanged sentence

Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company.

Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability.

Unobservable inputs are inputs that reflect the Company’s

assumptions about the factors market participants would use in valuing the asset or liability.

The guidance establishes three levels of inputs that may be used to measure fair value:

6 unchanged sentences

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 March 31, 2021 and December 31, 2020:

March 31, 2021

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

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value as of June 30, 2021 and December 31, 2020:

June 30, 2021

Net liability arising from put/call options

1 unchanged sentence

Net liability arising from put/call options

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

The activity for the Level 3 liability for the six months ended June 30, 2021:

Net liability arising from put/call options

1 unchanged sentence

Unrealized gain

Balance as of March 31, 2021

Balance as of June 30, 2021

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

4 unchanged sentences

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 the closing of these countries to air and sea travel.

Overall economic activity in the United States has declined.

Tourism, a major economic driver for the Cayman Islands, has temporarily ceased due to closing of the country to tourist arrivals by air and

Tourists arrivals to The Bahamas by air and sea have declined significantly due to the pandemic and continue to be only a small fraction of pre-pandemic numbers due to travel restrictions within and outside of The Bahamas, as well the continued reluctance of people to travel internationally.

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

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.

1 unchanged sentence

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

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

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Seven Mile Beach and West Bay.

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.

For the three months ended June 30, 2021 and 2020, the Company generated approximately 34 % and 31 %, respectively, of its consolidated revenue and 48 % and 44 %, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 license.

For the six months ended June 30, 2021 and 2020, the Company generated approximately 34 % and 33 %, respectively, of its consolidated revenue and 48 % and 47 %, 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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The Company has been informed during its retail license negotiations, both by OfReg and its predecessor in these negotiations, that the Cayman Islands government seeks to restructure the terms of its license in a manner that could significantly reduce the operating income and cash flows the Company has historically generated from its retail license.

The Company is presently unable to determine what impact the resolution of its retail license negotiations will have on its cash flows, financial condition or results of operations but such resolution could result in a material reduction (or the loss) of the operating income and cash flows the Company has historically generated from Cayman Water’s retail operations and could require the Company to record impairment losses to reduce the carrying values of its retail segment assets.

of the operating income and cash flows the Company has historically generated from Cayman Water’s retail operations and could require the Company to record impairment losses to reduce the carrying values of its retail segment assets.

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 (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.

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $ 21.3 million as of June 30, 2021 and $ 16.8 million as of December 31, 2020.

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

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

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

All previous delinquent accounts receivable from the WSC, including accrued interest thereon, were eventually paid in full.

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

As of March 31, 2021, the Company has not provided an allowance for doubtful accounts for CW-Bahamas’ accounts receivable from the WSC.

As of June 30, 2021, the Company has not provided an allowance for doubtful accounts for CW-Bahamas’ accounts receivable from the WSC.

The Bahamas government and the WSC continue to make intermittent payments on these accounts receivable, and such payments amounted to approximately $ 3.6 million and $ 5.1 million for the three and six months ended June 30, 2021, respectively.

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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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.

During the three months ended June 30, 2021 and 2020, the Company made total purchases of services from these companies of approximately $ 129,000 and $ 371,000 , respectively, and approximately $ 285,000 and $ 865,000 during the six months ended June 30, 2021 and 2020, respectively.

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

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.

During the three months ended June 30, 2021, the Company recognized approximately $ 24,000 of expense related to this lease, and approximately $ 29,000 during the six months ended June 30, 2021.

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

The total amount of accounts payable outstanding to these companies as of June 30, 2021 and December 31, 2020, was approximately $ 279,000 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