What changed in this filing

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Item 1A. Risk Factors

2021-08-16 compared with 2021-05-17 · 30 added, 27 removed, 54 unchanged (51% of the section changed)

7 unchanged sentences

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

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.

reluctance of people to travel internationally.

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

9 unchanged sentences

Seven Mile Beach and West Bay.

For the three months ended March 31, 2021 and 2020, we generated approximately 33% and 35%, respectively, of our consolidated revenue and 49% and 51%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license.

For the three months ended June 30, 2021 and 2020, we generated approximately 34% and 31%, respectively, of our consolidated revenue and 48% and 44%, respectively, of our 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.

12 unchanged sentences

As a result, our Bahamas subsidiary could have insufficient liquidity to continue operations, and our consolidated results of operations could be materially adversely affected.

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.

Approximately 78% of the March 31, 2021 accounts receivable balance was delinquent as of that date.

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.

Approximately 78% of the June 30, 2021 accounts receivable balance was delinquent as of that date.

The delay in collecting these accounts receivable has adversely impacted the liquidity of this subsidiary.

As of April 30, 2021, CW-Bahamas’ accounts receivable from the WSC totaled an all-time high of approximately $21.7 million.

As of July 31, 2021, CW-Bahamas’ accounts receivable from the WSC totaled an all-time high of approximately $23.5 million.

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

When these delays occur, we hold 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, we have not provided an allowance for doubtful accounts for CW-Bahamas’ accounts receivable from the WSC.

As of June 30, 2021, we have 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:

6 unchanged sentences

PERC, our principal services segment subsidiary, generates most of its revenue from contracts (“O&M contracts”) to operate and maintain water treatment and reuse facilities owned by third parties.

For the three months ended March 31, 2021, we generated revenue of approximately $2.9 million under these O&M contracts.

For the three and six months ended June 30, 2021, we generated revenue of approximately $3.4 million and $6.3 million, respectively, under these O&M contracts.

PERC’s O&M contracts have terms ranging from one to five years, with varying renewal options exercisable solely at the discretion of the customer.

Approximately 20% of PERC’s revenue for the three months ended March 31, 2021 was generated under O&M contracts that expire at various dates through December 31, 2021.

Approximately 12% of PERC’s revenue for the six months ended June 30, 2021 was generated under O&M contracts that expire at various dates through December 31, 2021.

If we are unable to obtain extensions of these expiring O&M contracts, or are unable to replace the revenue lost from contracts that expire with revenue from new O&M contracts, our consolidated financial condition, results of operations, and cash flows could be adversely affected.

If Aerex’s future financial performance falls short of our most recent financial projections for this subsidiary, we may be required to record an impairment loss to reduce the carrying value of the goodwill recorded for our manufacturing reporting unit.

If Aerex’s future financial performance falls short of our most recent financial projections for this subsidiary, we may be required to record an impairment loss to reduce the carrying values of the goodwill and intangible assets of our manufacturing reporting unit.

In February 2016, we acquired a 51% ownership interest in Aerex.

4 unchanged sentences

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

Approximately 86% and 80% of Aerex’s revenue, and 78% and 89% of Aerex’s gross profit, for the three months ended March 31, 2020 and for the year ended December 31, 2020, respectively, were generated from sales to one 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 and Aerex did not generate any revenue from this customer during the three months ended March 31, 2021.

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

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

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

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

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

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.

While Aerex sells various products to this customer, Aerex’s revenue from this customer has historically been derived primarily from one specialized product.

In October 2020, this customer informed Aerex that, for inventory management purposes, it was suspending its purchases of the specialized product 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 of the specialized product from Aerex beginning with the first quarter of 2022.

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

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

Based upon these updated projections, we tested our manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020 using the discounted cash flow method.

As a result of this impairment testing, we determined that the estimated fair value of our manufacturing reporting unit exceeded its carrying value by approximately 31% as of December 31, 2020.

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

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

Current economic conditions are adversely impacting the supply chain for our manufacturing operations and could have a material adverse impact on our financial results.

As a result of the economic conditions resulting from the COVID-19 pandemic, during the three months ended March 31, 2021 Aerex began experiencing issues with its supply chain for the raw materials and components used in its manufacturing operations, including higher prices, scarcities/shortages, and longer fulfillment times for its orders to suppliers.

Should these economic conditions and issues continue, Aerex could have difficulty completing its orders from its customers, which could have a material adverse impact on our consolidated revenue, results of operations and cash flows, and could require us to record an impairment loss to reduce the carrying value of the goodwill recorded for our manufacturing segment.

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

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, we tested our 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, we 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 of the specialized product 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.

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

Furthermore, 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 also adversely affected Aerex’s current and prospective customer base.

Accordingly, in light of this new information from Aerex’s former major customer and the on-going weak economic conditions, we updated our projections of future cash flows for the 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, we determined that the carrying value of our manufacturing reporting unit exceeded its fair value by $2.9 million, and we recorded an impairment loss to reduce our manufacturing reporting unit’s goodwill by this amount for the three months ended June 30, 2021.

If we determine in the future that Aerex’s future cash inflows will be less than our present expectation, we may be required to record additional impairment losses to reduce the remaining carrying values as of June 30, 2021 of our manufacturing reporting unit’s goodwill of $1,985,211 and the unamortized intangible assets balances of $894,444 recorded as a result of the acquisition of Aerex.

Any such impairment losses could have a material adverse impact on our consolidated results of operations.

Current economic conditions are adversely impacting the supply chain for our operations and could have a material adverse impact on our financial results.

As a result of the economic conditions resulting from the COVID-19 pandemic, during the six months ended June 30, 2021, we began experiencing issues with our supply chain for the raw materials, components, chemicals, and capital expenditures used in our manufacturing operations, including rapidly increasing prices, scarcities/shortages, and longer fulfillment times for our orders to suppliers.

Should these economic conditions and issues continue, our operations could be adversely affected, which could have a material adverse impact on our consolidated revenue, results of operations and cash flows, and financial condition.

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 1A. Risk Factors