What changed in this filing

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Item 1. Business

2022-03-29 compared with 2021-03-31 · 41 added, 56 removed, 323 unchanged (23% of the section changed)

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

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

● Retail Water Operations.

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In estimated millions of gallons per day.

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

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

Presently, we:

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

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

and (iv) support our objective to be a comprehensive water solutions provider.

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

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

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

In January 2020, we acquired the remaining 49% equity interest in Aerex.

Ocean Conversion (BVI) Ltd.

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

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

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

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

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As a result of the cancellation of the APP Contract, we discontinued all development activities associated with the Project and commenced active marketing efforts to sell the land NSC purchased for the Project.

Accordingly, the assets and liabilities of CW-Cooperatief, NSC and AdR, as well as all Project development expenses and the impairment loss these subsidiaries incurred, have been reclassified from the services segment to discontinued operations in the accompanying consolidated financial statements as of and for the year ended December 31, 2020.

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

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

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

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

CW-Belize was included in our bulk segment.

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

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

Our Operations

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

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

OfReg, which began operations

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

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

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Standby generation capacity is available at our ACWW plants and West Bay plant to operate a portion of the water production capacity as well.

In the event of an emergency, our distribution system is connected to the distribution system of the WAC.

In prior years, we have purchased water from the WAC for brief periods of time and have also sold potable water to the WAC from our retail plants.

Our distribution system is connected to the distribution system of the WAC.

In prior years, during emergencies, we have purchased water from the WAC for brief periods of time and have also sold potable water to the WAC from our retail plants.

Our pipeline system on Grand Cayman covers the Seven Mile Beach and West Bay areas and consists of approximately 100 miles of potable water pipeline.

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Demand depends upon various factors, most notably rainfall amounts and the number of tourists during any particular time of the year.

general, the majority of tourists come from the United States during the winter which is also the dry season in the Cayman Islands.

The COVID-19 pandemic and the resulting cessation of tourism to the Cayman Islands have significantly reduced demand for our water.

In general, the majority of tourists come from the United States during the winter which is also the dry season in the Cayman Islands.

The COVID-19 pandemic and the resulting cessation of tourism to the Cayman Islands significantly reduced demand for our water.

In November 2021, the Cayman Islands government eliminated certain travel restrictions for COVID-19 vaccinated travelers that allowed tourists to enter the Cayman Islands for the first time since March 2020.

We are unable at this time to determine if or when demand for our water in the Cayman Islands will return to pre-pandemic levels.

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For fiscal years 2021 and 2020, our bulk water operations accounted for approximately 40% and 33%, respectively, of our consolidated revenue.

These operations produce potable water from seawater and sell this water to governments in the Cayman Islands and The Bahamas.

These operations produce potable water from seawater and sell this water to government-owned utilities in the Cayman Islands and The Bahamas, which then distribute the water to end users.

Bulk Water Operations in the Cayman Islands

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The plants we operate for the WAC are located on land owned by the WAC.

In response to a public bidding process for a new operations and maintenance agreement encompassing both the North Sound and Red Gate plants, OC-Cayman submitted a bid for the new agreement.

In August 2018, the WAC accepted OC-Cayman’s bid for the new agreement, and the WAC and OC-Cayman entered into a new five-year contract commencing on February 1, 2019 for the operation of the North Sound and Red Gate plants.

The terms of the new agreement are substantially consistent with those of the prior North Sound and Red Gate water supply agreements, except that (i) we have decreased the price we charge for the water supplied;

and (ii) under the new agreement the WAC pays the energy costs for the operation of these plants directly to the utility company rather than paying OC-Cayman pass -through energy charges for these costs.

The per gallon price we charged for the water supplied under the new agreement in February 2019, excluding the effect of the pass-through energy component, was approximately 25% less than the per gallon rate we charged in February 2018 under the prior agreements which expired contemporaneously with the new agreements coming into force.

As a result of this price reduction (and assuming comparable sales volumes), the revenues and operating income we generate from the North Sound and Red Gate plants commencing February 1, 2019 is less than the revenues and operating income we generated from these plants under the previous agreements.

Pursuant to a public bidding process, in February 2019 we submitted our bid to operate and maintain the third plant operated by OC-Cayman for the WAC, the North Side Water Works (“NSWW”) plant, for a period of seven years after the then current contract expired.

In April 2019, the WAC accepted OC-Cayman’s bid for the new agreement, and the WAC and OC-Cayman entered into a new seven-year contract commencing on July l, 2019 for the operation of the NSWW plant.

The previous operating agreement for the NSWW plant expired in June 2019.

The per gallon price for the water supplied under the new agreement, excluding the pass-through energy component, is approximately 29% less than the price in effect as of June 30, 2019 and December 31, 2018.

The remaining terms of the new agreement are substantially consistent with those of the prior NSWW water supply agreement, except that under the new agreement the WAC will pay the energy costs for the operation of this plant directly to the utility company rather than reimburse OC-Cayman for these costs.

Our agreement with the WAC for the North Sound and Red Gate plants expires in 2024.

Our agreement with the WAC for the NSWW plant expires in 2026.

Bulk Water Operations in The Bahamas

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Our water supply agreement with the WSC for our Windsor plant, which has a capacity of 2.8 million gallons per day, expires in August 2033 and requires us to deliver and requires the WSC to purchase a minimum of 16.8 million gallons per week.

Pursuant to this agreement, CW-Bahamas was required to complete capital improvements to the Windsor plant to ensure that the plant can meet its performance guarantees during the agreement period.

These improvements were completed during the fourth quarter of 2018.

We supply water from the Blue Hills plant, our largest seawater reverse osmosis desalination facility with a capacity of 12.0 million gallons per day, under the terms of a water supply agreement with the WSC that expires in March 2032 that requires us to deliver and requires the WSC to purchase a minimum of 63.0 million gallons of water each week.

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DesalCo also conducts research and development.

DesalCo sometimes tests new components and technology offered by suppliers in our business and, at times, collaborates with suppliers in the development of their products.

DesalCo sometimes tests new components and

technology offered by suppliers in our business and, at times, collaborates with suppliers in the development of their products.

Presently, DesalCo is providing management and purchasing services to our affiliate OC-BVI in the British Virgin Islands.

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Aerex’s manufacturing facility and headquarters are located in Fort Pierce, Florida and substantially all of its customers are U.S.

We acquired a 51% ownership interest in Aerex in 2016, and in January 2020 we acquired the remaining 49% ownership of Aerex.

Affiliate Operations

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The improvements offered by MBR technology include a reduced physical footprint for the facility, higher quality treated effluent and the ability to treat more challenging influent.

PERC has improved upon the standard SBR and MBR processes and strives to locate its equipment underground and concealed below aesthetically pleasing buildings.

PERC has improved upon the standard SBR and MBR processes and whenever possible locates its equipment in concealed areas and in aesthetically pleasing buildings that minimize foul odors.

Raw Materials and Sources of Supply

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Prior to our acquisition of Aerex, we did not manufacture any parts or components for equipment essential to our business.

Aerex has manufactured some of the key components for some of our desalination plants in the past and we expect Aerex to continue to do so from time to time, however, our other businesses are not dependent on Aerex.

Aerex has manufactured key components for some of our desalination plants and we expect Aerex to continue to do so from time to time, however, our other businesses are not dependent on Aerex.

Our access to seawater for processing into potable water is granted through our licenses and contracts with governments of the various jurisdictions in which we have our operations.

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In the Cayman Islands, we normally sell more water during the first and second quarters of the year, when the number of tourists is greater and local rainfall is less than in the third and fourth quarters.

The COVID-19 pandemic and the resulting cessation of tourism to the Cayman Islands have significantly reduced demand for our water.

The COVID-19 pandemic and the resulting cessation of tourism to the Cayman Islands significantly reduced demand for our water.

In November 2021, the Cayman Islands government eliminated certain travel restrictions for

COVID-19 vaccinated travelers that allowed tourists to enter the Cayman Islands for the first time since March 2020.

We are unable at this time to determine if or when demand for our water in the Cayman Islands will return to pre-pandemic levels.

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The Cayman Islands

The Cayman Islands are a British Overseas Territory and has had a stable political climate since 1670, when the Treaty of Madrid ceded the Cayman Islands to England.

The Cayman Islands are a British Overseas Territory with a stable political climate since 1670, when the Treaty of Madrid ceded the Cayman Islands to England.

The Queen of England appoints the Governor of the Cayman Islands to make laws with the advice and consent of the Parliament of the Cayman Islands.

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The Cabinet is responsible for day-to-day government operations.

The Cabinet consists of the Premier and six other ministers who are

chosen by the Premier from its 19 popularly elected members, and the two Civil Service members.

The Cabinet consists of the Premier and six other ministers who are chosen by the Premier from its 19 popularly elected members, and the two Civil Service members.

The elected members choose from among themselves a leader, who is designated the Premier, and is in effect the leader of the elected government.

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We operate all but one of the reverse osmosis desalination plants owned by the WAC on Grand Cayman and supply water under two agreements held by OC-Cayman with the WAC.

According to the most recent information published by the Economics and Statistics Office of the Cayman Islands Government, the population of the Cayman Islands was estimated in December 2019 to be 69,914.

According to the figures

published by the Department of Tourism Statistics Information Center, in 2020 as compared to 2019, tourist air arrivals decreased by 71% to approximately 145,000 and cruise ship tourist arrivals decreased by 71% to approximately 530,000.

According to the most recent information published by the Economics and Statistics Office of the Cayman Islands Government, the population of the Cayman Islands was estimated in 2021 to be 69,656.

According to the figures published by the Department of Tourism Statistics Information Center, in 2021 as compared to 2020, tourist air arrivals decreased by 86% to approximately 17,000 and cruise ship tourist arrivals decreased to zero.

We believe that our water sales in the Cayman Islands are more positively impacted by stay-over tourists that arrive by air than by those arriving by cruise ship, since cruise ship tourists generally only visit the island for one day or less and do not remain on the island overnight.

Our water sales in the Cayman Islands are also greatly impacted by rainfall patterns and amounts on Grand Cayman.

The COVID-19 pandemic and the resulting cessation of tourism to the Cayman Islands have significantly reduced demand for our water.

The COVID-19 pandemic and the resulting cessation of tourism to the Cayman Islands significantly reduced demand for our water.

We are unable at this time to determine if or when demand for our water in the Cayman Islands will return to pre-pandemic levels.

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more recent estimates suggest it is approximately 275,000.

According to statistics published by the Bahamas Ministry of Tourism, the number of cruise ship arrival and air arrival tourists to New Providence exceeded 2.8 million and 1.3 million, respectively, in 2019 and are estimated to have dropped by more than 70% in each case in 2020.

In 2021, cruise ship arrivals decreased 20% to approximately 465,000 and air arrivals increased from approximately 335,000 to approximately 650,000.

British Virgin Islands .

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The last express extension of this license expired on January 31, 2018.

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

the license as operative notwithstanding the expiration of the express extension.

Negotiations for a new license are on-going.

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Although we have no competition within our exclusive retail license service area for potable water, our ability to expand our service area is at the discretion of the Cayman Islands government.

We have competed with such companies as SUEZ (formerly GE Water), Veolia, IDE Technologies and small local contractors for bulk water supply contracts with the WAC and expect to compete with these and other companies for any new water supply contracts awarded by the WAC.

We have competed with such companies as SUEZ/ Veolia, IDE Technologies and small local contractors for bulk water supply contracts with the WAC and expect to compete with these and other companies for any new water supply contracts awarded by the WAC.

The Bahamas .

We have competed with companies such as SUEZ (formerly GE Water), Veolia, IDE Technologies, and TSG for the contracts with The Bahamas government to build and operate seawater desalination plants in the past.

We have competed with companies such as SUEZ/Veolia, IDE Technologies, and TSG for the contracts with The Bahamas government to build and operate seawater desalination plants in the past.

We expect to compete with these companies and others for any future water supply contracts in The Bahamas.

British Virgin Islands .

In the British Virgin Islands, SUEZ (formerly GE Water) operates seawater reverse osmosis desalination plants in West End, Tortola, and on Virgin Gorda and generally bids against OC-BVI for projects.

In the British Virgin Islands, SUEZ/Veolia operates seawater reverse osmosis desalination plants in West End, Tortola, and on Virgin Gorda and generally bids against OC-BVI for projects.

Seven Seas Water owns and operates a 2.75 million gallon per day desalination plant in Parakeeta Bay, Tortola for the British Virgin Islands government.

We expect that OC-BVI will be required to compete against SUEZ (formerly GE Water), Seven Seas Water and other parties for any future business opportunities that may arise in the British Virgin Islands.

We expect that OC-BVI will be required to compete against SUEZ/Veolia, Seven Seas Water and other parties for any future business opportunities that may arise in the British Virgin Islands.

United States .

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In order to do so, we aim to have a safe and encouraging workplace, with opportunities for our employees to grow and develop professionally, supported by strong compensation, benefits, and other incentives.

Historically, we have experienced a low turnover of employees.

As of March 26, 2021, we employed a total of 102 persons, 60 in the Cayman Islands, 22 in the United States, and 20 in The Bahamas.

We also leased 20 employees for Aerex’s manufacturing activities in the United States, leased 71 employees for PERC’s activities in the United States and managed the five employees of OC-BVI in the British Virgin Islands.

We have historically experienced low employee turnover.

As of March 24, 2022, we employed a total of 197 persons, 60 in the Cayman Islands, 116 in the United States, 19 in The Bahamas and two in The Netherlands.

We also managed the five employees of OC-BVI in the British Virgin Islands.

We have 14 management employees and 40 administrative and clerical employees.

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We consider our relationships with our employees to be good.

Throughout the COVID-19 pandemic, some of our employees have been working remotely.

We implemented a number of significant safety measures based on current guidelines recommended by the Centers for Disease Control for employees who work at our facilities.

These include, but are not limited to, social distancing, capacity limitations, mask requirements in common areas, weekly deep cleaning and daily sanitation procedures.

During the COVID-19 pandemic, we have implemented a number of significant safety measures based on current guidelines recommended by the Centers for Disease Control for employees who work at our facilities.

Available Information

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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-K

Item 1. Business