What changed in this filing

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Item 1. Financial Statements

2021-11-15 compared with 2021-08-16 · 136 added, 120 removed, 589 unchanged (30% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Current assets

Cash and cash equivalents

Certificate of deposit

Accounts receivable, net

48 unchanged sentences

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)

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenue ( including purchases from related parties of $ 104,813 and $ 361,004 for the three months ended, and $ 390,196 and $ 1,225,668 for the nine months ended September 30, 2021 and 2020, respectively)

General and administrative expenses ( including purchases from related parties of $ 24,231 and $ 0 for the three months ended, and $ 52,959 and $ 0 for the nine months ended September 30, 2021 and 2020, respectively)

Gain (loss) on asset dispositions and impairments, net

( 3,144,961 )

( 3,145,573 )

Income (loss) from operations

( 1,556,091 )

Income from operations

Other income (expense):

5 unchanged sentences

Other income, net

Income (loss) before income taxes

( 1,322,977 )

Income before income taxes

Provision (benefit) for income taxes

Net income (loss) from continuing operations

( 1,316,132 )

Net income from continuing operations

Income from continuing operations attributable to non-controlling interests

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

( 1,513,270 )

Net income from continuing operations attributable to Consolidated Water Co.

Total loss from discontinued operations

1 unchanged sentence

( 1,542,540 )

Net income (loss) attributable to Consolidated Water Co.

( 4,448,798 )

( 1,127,842 )

Net income (loss) attributable to Consolidated Water Co.

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

38 unchanged sentences

Balance as of June 30, 2021

Conversion of preferred stock

Exercise of options

Dividends declared

( 1,294,870 )

Stock-based compensation

Balance as of September 30, 2021

preferred stock

20 unchanged sentences

Balance as of June 30, 2020

Conversion of preferred stock

Buyback of preferred stock

Exercise of options

Purchase of non-controlling interests in PERC

Dividends declared

( 1,287,526 )

Stock-based compensation

Balance as of September 30, 2020

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash provided by operating activities - continuing operations

Net cash used in operating activities - discontinued operations

( 1,390,227 )

Net cash provided by operating activities

Cash flows from investing activities

Purchase of certificate of deposit

( 2,500,000 )

Additions to property, plant and equipment and construction in progress

( 1,571,450 )

Proceeds from asset dispositions

1 unchanged sentence

( 8,500,000 )

Purchase of non-controlling interest in PERC

Net cash used in investing activities

( 3,427,710 )

( 10,971,000 )

Cash flows from financing activities

61 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 $ 14,159 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).

Net foreign currency gains arising from transactions and re-measurements were $ 15,302 and $ 14,751 for the three months ended September 30, 2021 and 2020, respectively, and $ 29,353 and $ 56,050 for the nine months ended September 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 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.

Cash and cash equivalents as of September 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.

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.

The equivalent United States dollar cash balances for deposits held in The Bahamas as of September 30, 2021 and December 31, 2020 were approximately $ 8.9 million and $ 15.9 million, respectively.

Goodwill and intangible assets:

18 unchanged sentences

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 81 % and 84 % of Aerex’s revenue, and 88 % and 86 % of Aerex’s gross profit, for the three and nine months ended September 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.

3 unchanged sentences

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.

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 company 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 its 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.

3 unchanged sentences

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.

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 September 30, 2021 of the manufacturing reporting unit’s goodwill of $ 1,985,211 and the unamortized balance of its intangible assets of $871,111 associated with the acquisition of Aerex.

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

2 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Retail revenue

8 unchanged sentences

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.

2 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 $29,000 and $71,000 for the three and six months ended June 30, 2020, respectively.

CW-Bahamas also sold water to a private resort on Bimini through December 18, 2020, which generated revenue of approximately $ 46,000 and $ 118,000 for the three and nine months ended September 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.

18 unchanged sentences

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

June 30, 2021

September 30, 2021

December 31, 2020

5 unchanged sentences

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

June 30, 2021

September 30, 2021

December 31, 2020

2 unchanged sentences

Net contract asset

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 .

As of September 30, 2021, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 6.4 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 $ 445,000 during the remainder of the year ending December 31, 2021 and approximately $ 6.0 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 June 30, 2021

Three Months Ended September 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 )

Gain on asset dispositions and impairments, net

Income (loss) from operations

( 3,368,425 )

( 1,556,091 )

Other income, net

Loss before income taxes

( 1,322,977 )

Income before income taxes

Benefit from income taxes

Net loss from continuing operations

( 1,316,132 )

Net income from continuing operations

Income from continuing operations attributable to non-controlling interests

Net loss from continuing operations attributable to Consolidated Water Co.

( 1,513,270 )

Net income from continuing operations attributable to Consolidated Water Co.

Net loss from discontinued operations

Net loss attributable to Consolidated Water Co.

( 1,078,367 )

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

Net income attributable to Consolidated Water Co.

Depreciation and amortization expenses for the three months ended September 30, 2021 for the retail, bulk, services and manufacturing segments were $ 625,640 , $ 761,429 , $ 203,411 and $ 70,679 , respectively.

Three Months Ended September 30, 2020

Manufacturing

1 unchanged sentence

General and administrative expenses

Gain on asset dispositions and impairments, net

Loss on asset dispositions and impairments, net

Income (loss) from operations

1 unchanged sentence

Income before income taxes

Provision for income taxes

Benefit from income taxes

Net income from continuing operations

2 unchanged sentences

Net loss from discontinued operations

( 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

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.

Nine Months Ended September 30, 2021

Manufacturing

12 unchanged sentences

Income from continuing operations attributable to non-controlling interests

Net loss from continuing operations attributable to Consolidated Water Co.

Net income from continuing operations attributable to Consolidated Water Co.

Net loss from discontinued operations

( 1,542,540 )

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

Depreciation and amortization expenses for the nine months ended September 30, 2021 for the retail, bulk, services and manufacturing segments were $ 1,892,848 , $ 2,621,481 , $ 607,906 and $ 216,346 , respectively.

Nine Months Ended September 30, 2020

Manufacturing

2 unchanged sentences

Gain on asset dispositions and impairments, net

Income from operations

Income (loss) from operations

Other income, net

7 unchanged sentences

Net income attributable to Consolidated Water Co.

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

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.

As of September 30, 2021

Manufacturing

20 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

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

( 1,513,270 )

Three Months Ended September 30,

Nine Months Ended September 30,

Net income from continuing operations attributable to Consolidated Water Co.

preferred stock dividends

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

( 1,516,445 )

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

Total loss from discontinued operations

1 unchanged sentence

( 1,542,540 )

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

( 4,448,798 )

( 1,131,262 )

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

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

13 unchanged sentences

(“NuWater”) and Suez Medio Ambiente México, S.A.

(“Suez MA”), a subsidiary of SUEZ International, S.A.S., submitted its tender for the Project in April 2016 and in June 2016, the State designated the Consortium as the winner of the tender process for the Project.

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.

MA”), a subsidiary of SUEZ International, S.A.S., submitted its tender for the Project in April 2016 and in June 2016, the State designated the Consortium as the winner of the tender process for the Project.

In August 2016, NSC and NuWater incorporated a new company 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.

NSC initially owned 99.6 % of the equity of AdR.

23 unchanged sentences

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

September 30,

Prepaid expenses and other current assets

Value added taxes receivable

Value added taxes receivable (net of allowance of $ 967,115 and $ 316,217 , respectively)

Property, plant and equipment, net

1 unchanged sentence

Total liabilities of discontinued operations

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Income from operations

15 unchanged sentences

The investment dispute remains unresolved to date.

Should CW-Cooperatief elect to refer the dispute to international arbitration, CW-Cooperatief could incur legal and other expenses related to this arbitration that could be material to the Company’s consolidated results of operations.

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.

The Company, AdR and NSC have terminated the various agreements ancillary to the Project as a result of the termination of the APP Contract.

Project Litigation

20 unchanged sentences

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, 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.

The Tenth Civil Judge dismissed such challenge, and thereafter EWG filed a remedy against such dismissal.

NSC appeared before the court to vigorously oppose such remedy, which has been dismissed.

To date, the referral to arbitration has not occurred and, as such, the procedure is currently suspended.

Notwithstanding the resolution of the Tenth Civil Judge to move to arbitration, subparagraphs a) through d) that follow describe certain separate amparo claims, and appeal remedies arising from or relating to such ordinary mercantile claim and amparo claims, all in chronological order.

Due to the current global COVID-19 pandemic, most tribunals in Mexico suspended their activities intermittently since March 2020, with certain such tribunals partially restarting on different dates and with different special rules.

As such, several resolutions are pending issuance.

6 unchanged sentences

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.

However, from publicly available information it may be concluded that the claim has been dismissed by the amparo court, considering that public excerpts make reference to such dismissal.

If such dismissal has occurred, no public information evidences that EWG has filed a remedy against such dismissal.

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.

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 the resolution of the Tenth Civil Judge dismissing the remedy filed by EWG against the October 1, 2021 resolution within the mentioned ordinary mercantile claim.

NSC has filed before the corresponding amparo court a writ vigorously opposing this claim.

Within this amparo claim, the Third District Court in Tijuana granted a suspension in favor of EWG, merely for the effect of holding in place the referral to arbitration subject matter of the October 1, 2021 resolution mentioned above.

Such suspension was conditioned on the posting of a guarantee in the amount of 50,000 Mexican pesos which, as of the date hereof, has not been posted.

Regardless of the effects of the suspension and the lack of the posting of a guarantee, in September 2021, NSC filed an appeal remedy against its granting.

Recently, AdR was notified of this claim.

However, considering that NSC has vigorously opposed it, and that AdR is a third party with interest, it is not necessary for AdR to appear before the court for this claim and submit arguments against EWG.

To date, CW-Cooperatief has not been notified of this amparo claim.

Further, a final hearing on the main merits of the claim, as well as on the arguments filed by the parties has been deferred on several occasions.

The next scheduled date for such hearing is December 15, 2021.

d) Appeal filed by NSC against the suspension granted in favor of EWG.

The appeal remedy mentioned in the second paragraph of item c) immediately above was admitted by the superior court on October 18, 2021 and is still pending to be resolved.

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.

11 unchanged sentences

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 in 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.

The lease is cancellable by AdR should it ultimately not proceed with the Project.

On June 29, 2020, AdR was notified that the APP Contract was terminated.

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 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:

September 30,

Accounts receivable, net

16 unchanged sentences

The components of lease costs were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Operating lease costs

3 unchanged sentences

Supplemental cash flow information related to leases is as follows:

Six Months Ended June 30,

Nine Months Ended September 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 June 30, 2021 were as follows:

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

Years ending December 31,

4 unchanged sentences

Noncurrent lease obligations

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.

As of September 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:

7 unchanged sentences

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

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

September 30, 2021

Certificate of deposit

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 six months ended June 30, 2021:

The activity for the Level 3 liability for the nine months ended September 30, 2021:

Net liability arising from put/call options

1 unchanged sentence

Unrealized gain

Balance as of June 30, 2021

Balance as of September 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, 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.

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.

Tourist 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.

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.

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

Such adverse market effects could further 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.

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.

1 unchanged sentence

Seven Mile Beach and West Bay.

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.

For the three months ended September 30, 2021 and 2020, the Company generated approximately 32 % and 28 %, respectively, of its consolidated revenue and 44 % and 39 %, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 license.

For the nine months ended September 30, 2021 and 2020, the Company generated approximately 33 % and 32 %, respectively, of its consolidated revenue and 47 % and 45 %, 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.

8 unchanged sentences

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.

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.

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.

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 $ 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.

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $ 21.4 million as of September 30, 2021 and $ 16.8 million as of December 31, 2020.

From time to time (including presently), 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.

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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 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.

As of September 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 $ 6.9 million and $ 15.6 million for the three and nine months ended September 30, 2021, respectively.

Presently, Moody’s Investors Service and Standard & Poor’s have assigned a credit rating to The Bahamas of Ba3 and B+, 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 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.

During the three months ended September 30, 2021 and 2020, the Company made total purchases of services from these companies of approximately $ 105,000 and $ 361,000 , respectively, and approximately $ 390,000 and $ 1,226,000 during the nine months ended September 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 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 has been extended on a month-to-month basis subsequent to August 31, 2021.

During the three months ended September 30, 2021, the Company recognized approximately $ 24,000 of expense related to this lease, and approximately $ 53,000 during the nine months ended September 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.

The total amount of accounts payable outstanding to these companies as of September 30, 2021 and December 31, 2020, was approximately $ 204,000 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