What changed in this filing

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Item 1. Financial Statements

2022-05-12 compared with 2021-11-15 · 153 added, 295 removed, 430 unchanged (51% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Current assets

12 unchanged sentences

Operating lease right-of-use assets

Net asset arising from put/call options

Long-term assets of discontinued operations

8 unchanged sentences

Contract liabilities

Deferred revenue

Current liabilities of discontinued operations

3 unchanged sentences

Noncurrent operating leases

Net liability arising from put/call options

Other liabilities

20 unchanged sentences

CONSOLIDATED WATER CO.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

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)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,

Cost of revenue ( including purchases from related parties of $ 839,432 in 2022 and $ 155,982 in 2021)

General and administrative expenses ( including purchases from related parties of $ 24,231 in 2022 and $ 4,429 in 2021)

Gain (loss) on asset dispositions and impairments, net

( 3,144,961 )

Income from operations

4 unchanged sentences

Equity in the earnings of OC-BVI

Net unrealized gain (loss) on put/call options

Net unrealized gain on put/call options

Other income, net

Income before income taxes

Provision (benefit) for income taxes

Income tax provision (benefit)

Net income from continuing operations

1 unchanged sentence

Net income from continuing operations attributable to Consolidated Water Co.

Total loss from discontinued operations

( 1,078,367 )

( 1,542,540 )

( 4,448,798 )

Net income (loss) attributable to Consolidated Water Co.

Loss from discontinued operations

Net income attributable to Consolidated Water Co.

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

2 unchanged sentences

Discontinued operations

Basic earnings (loss) per share

Basic earnings per share

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

2 unchanged sentences

Discontinued operations

Diluted earnings (loss) per share

Diluted earnings per share

Dividends declared per common and redeemable preferred shares

9 unchanged sentences

Issue of share capital

Conversion of preferred stock

Buyback of preferred stock

Dividends declared

3 unchanged sentences

Balance as of March 31, 2022

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

Conversion of preferred stock

Exercise of options

Dividends declared

( 1,294,870 )

Stock-based compensation

Balance as of September 30, 2021

preferred stock

2 unchanged sentences

Issue of share capital

Purchase of non-controlling interests in Aerex

( 2,444,047 )

( 6,055,953 )

( 8,500,000 )

Dividends declared

( 1,289,378 )

Stock-based compensation

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

Conversion of preferred stock

Buyback of preferred stock

Exercise of options

Purchase of non-controlling interests in PERC

Dividends declared

2 unchanged sentences

Stock-based compensation

Balance as of September 30, 2020

Balance as of March 31, 2021

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash provided by operating activities - continuing operations

Net cash used in operating activities - discontinued operations

( 1,390,227 )

Net cash provided by operating activities

2 unchanged sentences

( 2,518,493 )

Maturity of certificate of deposit

Additions to property, plant and equipment and construction in progress

( 1,571,450 )

Proceeds from asset dispositions

Purchase of non-controlling interest in Aerex

( 8,500,000 )

Purchase of non-controlling interest in PERC

Net cash used in investing activities

( 3,427,710 )

( 10,971,000 )

Net cash used in investing activities - continuing operations

Cash flows from financing activities

5 unchanged sentences

Repurchase of redeemable preferred stock

Proceeds received from exercise of stock options

Principal repayments on long-term debt

Payments made on note payable

Net cash used in financing activities

1 unchanged sentence

( 1,959,392 )

Net decrease in cash and cash equivalents

( 3,514,361 )

Net increase (decrease) in cash and cash equivalents

( 1,124,555 )

15 unchanged sentences

Consolidated Water Co.

and its subsidiaries (collectively, the “Company”) supply potable water, treat water for reuse and provide water-related products and services to customers in the Cayman Islands, The Bahamas, the United States and the British Virgin Islands.

and its subsidiaries (collectively, the “Company”) supply potable water, treat wastewater and water for reuse and provide water-related products and services to customers in the Cayman Islands, The Bahamas, the United States and the British Virgin Islands.

The Company produces potable water from seawater using reverse osmosis technology and sells this water to a variety of customers, including public utilities, commercial and tourist properties, residential properties and government facilities.

17 unchanged sentences

The accompanying interim condensed consolidated financial statements are unaudited.

These condensed consolidated financial statements reflect all adjustments (which are of a normal recurring nature) that, in the opinion of management, are necessary to fairly present the Company’s financial position, results of operations and cash flows as of and for the periods presented.

The results of operations for these interim periods are not necessarily indicative of the operating results for future periods, including the fiscal year ending December 31, 2021.

These condensed consolidated financial statements reflect all adjustments (which are of a normal recurring nature) that, in the opinion of management, are necessary to fairly present the Company’s consolidated financial position, results of operations and cash flows as of and for the periods presented.

The consolidated results of operations for these interim periods are not necessarily indicative of the operating results for future periods, including the fiscal year ending December 31, 2022.

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”).

8 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 $ 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).

Net foreign currency gains (losses) arising from transactions and re-measurements were $ 22,046 and ($ 108 ) for the three months ended March 31, 2022 and 2021, respectively, and are included in “Other income (expense) - Other” in the accompanying condensed consolidated statements of income.

Cash and cash equivalents:

Cash and cash equivalents consist of demand deposits at banks and highly liquid deposits at banks with an original maturity of three months or less.

Cash and cash equivalents as of September 30, 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 consist of demand deposits at banks and certificates of deposit at banks with an original maturity of three months or less.

Cash and cash equivalents as of March 31, 2022 and

December 31, 2021 include approximately $ 7.4 million and $ 7.4 million, respectively, of certificates of deposits with an original maturity of three months or less.

As of March 31, 2022, the Company held a $ 2.5 million certificate of deposit with an original maturity of six months.

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 September 30, 2021 and December 31, 2020 were approximately $ 8.9 million and $ 15.9 million, respectively.

The equivalent United States dollar cash balances for deposits held in The Bahamas as of March 31, 2022 and December 31, 2021 were approximately $ 8.4 million and $ 6.4 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.

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

Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or upon the identification of a triggering event.

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.

Management identifies the Company’s reporting units, which consist of retail, bulk, services, and manufacturing, 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.

As of December 31, 2021, 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 also estimated the fair value of each of its reporting units as of December 31, 2021 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 respective weightings the Company applied to each method as of December 31, 2021 were 80 % to the discounted cash flow method and 20 % to the guideline public company method.

The fair values the Company estimated for its retail, bulk, services and manufacturing reporting units exceeded their carrying amounts by 32 %, 51 %, 15 %, and 15 % respectively, as of December 31, 2021.

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.

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 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.

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 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.

Based upon its most recent estimation prepared as of December 31, 2021, the fair value of the Company’s manufacturing reporting unit exceeded its carrying value by only 15 %.

If the Company determines in the future that Aerex’s discounted future cash inflows will be less than its present expectation, the Company may be required to record additional impairment losses to reduce the remaining carrying values as of March 31, 2022 of its manufacturing reporting unit’s goodwill of $ 1,985,211 and its remaining unamortized intangible assets balances of $ 824,445 recorded as a result of the acquisition of Aerex.

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

Based upon its most recent estimation prepared as of December 31, 2021, the fair value of the Company’s services reporting unit exceeded its carrying value by only 15 %.

If the Company determines in the future that PERC’s discounted future cash inflows will be less than its present expectation, the Company may be required to record impairment losses to reduce the carrying values as of March 31, 2022 of its services reporting unit’s goodwill of $ 5,320,416 and its remaining unamortized intangible assets balances of $ 2,429,721 recorded as a result of the acquisition of PERC.

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

Revenue recognition:

Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

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

Three Months Ended September 30,

Nine Months Ended September 30,

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

Three Months Ended March 31,

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

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 utilities in the Cayman Islands and The Bahamas.

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

1 unchanged sentence

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 $ 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.

1 unchanged sentence

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

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

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

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

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

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

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

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

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

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

10 unchanged sentences

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

September 30, 2021

December 31, 2020

Revenue recognized to date on contracts in progress

2 unchanged sentences

( 6,370,855 )

Net contract asset

Net contract asset (liability)

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

September 30, 2021

December 31, 2020

Contract assets

Contract liabilities

Net contract asset

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 .

Net contract asset (liability)

As of March 31, 2022 , the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 9.5 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 $ 5.8 million during the remainder of the year ending December 31, 2022 and approximately $ 3.7 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 September 30, 2021

Three Months Ended March 31, 2022

Manufacturing

5 unchanged sentences

Income before income taxes

Benefit from income taxes

Income tax provision

Net income from continuing operations

1 unchanged sentence

Net income from continuing operations attributable to Consolidated Water Co.

Net loss from discontinued operations

( 1,078,367 )

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

Cost of revenue

General and administrative expenses

Loss on asset dispositions and impairments, net

Income (loss) from operations

Other income, net

Income before income taxes

Benefit from income taxes

Net income from continuing operations

Income attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

Net loss from discontinued operations

Loss from discontinued operations

Net income attributable to Consolidated Water Co.

Depreciation and amortization expenses for the three months ended September 30, 2020 for the retail, bulk, services and manufacturing segments were $ 596,528 , $ 971,914 , $ 191,419 and $ 88,452 , respectively.

Nine Months Ended September 30, 2021

Depreciation and amortization expenses for the three months ended March 31, 2022 for the retail, bulk, services and manufacturing segments were $ 615,685 , $ 702,259 , $ 158,999 and $ 71,208 , respectively.

Three Months Ended March 31, 2021

Manufacturing

2 unchanged sentences

Gain (loss) on asset dispositions and impairments, net

( 2,900,000 )

( 3,144,961 )

Income (loss) from operations

( 1,605,769 )

( 3,518,847 )

Other income, net

Income before income taxes

Benefit from income taxes

Net income from continuing operations

Income from continuing operations attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

Net loss from discontinued operations

( 1,542,540 )

Net loss attributable to Consolidated Water Co.

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

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

Income tax (benefit)

Net income from continuing operations

Income from continuing operations attributable to non-controlling interests

Income attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

Net loss from discontinued operations

( 4,448,798 )

Loss from discontinued operations

Net income attributable to Consolidated Water Co.

Depreciation and amortization expenses for the nine months ended September 30, 2020 for the retail, bulk, services and manufacturing segments were $ 1,796,588 , $ 2,906,213 , $ 562,756 and $ 296,926 , respectively.

As of September 30, 2021

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.

As of March 31, 2022

Manufacturing

18 unchanged sentences

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 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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Net income from continuing operations attributable to Consolidated Water Co.

1 unchanged sentence

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

Total loss from discontinued operations

( 1,078,367 )

( 1,542,540 )

( 4,448,798 )

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

Loss from discontinued operations

Net income 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.

5 unchanged sentences

Discontinued operations - Mexico project development

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 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.

Through a series of transactions that began in 2012, NSC purchased 20.1 hectares of land for approximately $ 21.1 million on which the proposed Project’s plant would be constructed.

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

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

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

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

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 2010, the Company began the pursuit, through its Netherlands subsidiary, Consolidated Water Cooperatief, U.A.

(“CW-Cooperatief”), and its Mexico subsidiary, N.S.C.

(“NSC”), of a project (the “Project”) that 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.

Through a series of transactions that began in 2012, NSC purchased 20.1 hectares of land for approximately $ 21.1 million on which the proposed Project’s plant was to be constructed.

A consortium (the “Consortium”) comprised of NSC, Suez Medio Ambiente México, S.A.

(“Suez MA”), a subsidiary of SUEZ International, S.A.S., and NuWater S.A.P.I.

(“NuWater”) 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.

(“AdR”) to pursue completion of 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 operation and (ii) AdR would enter into a Management and Technical Services Agreement with NSC effective on the first day that the Project begins commercial operation.

NSC initially owned 99.6 % of the equity of AdR.

In February 2018, CW-Holdings acquired the remaining 0.4 % ownership in AdR from NuWater.

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

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”), and 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:

the first with a capacity of 50 million gallons per day and an aqueduct to the Mexican public water system in Tijuana, Baja California and the second phase with a capacity of 50 million gallons per day.

3 unchanged sentences

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

Through June 30, 2020, NSC had paid approximately $ 3.0 million to acquire rights of way for the aqueduct to be constructed for the Project to deliver water to the Mexico public water system.

On June 29, 2020, AdR received a letter (the “Letter”) from the Director General of CEA and the Director General of CESPT terminating the APP Contract.

The reasoning provided in the Letter for the decision to terminate the APP Contract is that the Project (a) is not financially feasible due to increases in the construction, operating and financing costs for the Project in addition to negative changes in economic conditions (e.g.

interest rates and currency exchange rates);

(b) is not sustainable for CEA and CESPT given its financial unfeasibility;

(d) would force the Government of the State to cover a deficit of CEA and CESPT, thus preventing the State Government from spending on investment programs or social expenditures;

and (e) negatively affects the general interest.

The Letter requested that AdR provide an inventory of the assets that currently comprise the “Project Works” (as defined in the APP Contract) for the purpose of acknowledging and paying the non-recoverable expenses made by AdR in connection with the Project, with such reimbursement to be calculated in accordance with the terms of the APP Contract.

The applicable law requires this list of non-recoverable expenses made by AdR in connection with the Project be submitted to CEA and CESPT within 20 business days from the date of receipt of the Letter.

As a consequence of the termination of the APP Contract, the rights of way NSC and AdR acquired for the aqueduct no longer have any value due to the loss of their strategic importance derived from their incorporation in the Project.

Consequently, the Company recorded an impairment loss of approximately ($ 3.0 million) for the three months ended June 30, 2020 to write off its investment in these rights of way.

The Company also recorded adjustments during the three months ended June 30, 2020 of $ 2.6 million and $ 2.2 million to reduce its operating lease right-of-use assets and operating lease liabilities, respectively, due to the planned cancellation (or transfer to the State) of a long-term land lease associated with the Project.

As a result of the cancellation of the APP Contract, during the three months ended September 30, 2020, the Company discontinued all project development activities associated with the Project and engaged a real estate broker and commenced active marketing efforts to sell the land 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 incurred by the Company, have been reclassified from the services segment to discontinued operations in the accompanying condensed financial statements.

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

September 30,

Prepaid expenses and other current assets

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

Property, plant and equipment, net

Total assets of discontinued operations

Total liabilities of discontinued operations

Three Months Ended September 30,

Nine Months Ended September 30,

Income from operations

Net loss from discontinued operations

Gain on sale of discontinued operations

Depreciation expense

The applicable law required that this list of non-recoverable expenses made by AdR in connection with the Project be submitted to CEA and CESPT within 20 business days from the date of receipt of the Letter.

AdR initiated an amparo claim before a federal district court in Tijuana, Baja California, to challenge the provision of the applicable law requiring submittal of the list of non-recoverable expenses within the 20 business days term, as AdR considered such term to be unreasonably short due to the magnitude of the Project and the scope of supporting documentation required to be provided with respect to the non-recoverable expenses.

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

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

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

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

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

The Company, AdR and NSC plan to vigorously pursue all legal remedies and courses of action available under the APP Contract and applicable law (including international treaties and agreements) with respect to any rights they may have upon termination of the APP Contract, including the reimbursement of expenses and investments.

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

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

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

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

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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.

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.

Two such meetings were held on July 9, 2021 and August 2, 2021 on a confidential basis, without a resolution of the Company’s investment dispute.

On February 9, 2022, CW-Cooperatief, filed a Request for Arbitration with the International Centre for Settlement of International Disputes requesting that the United Mexican States pay CW-Cooperatief damages in excess of US$ 51 million plus MXN$ 137 million (with the exact amount to be quantified in the proceedings), plus fees, costs and pre- and post-award interest.

CW-Cooperatief intends to pursue vigorously the relief sought in the arbitration, in addition to pursuing all other legal remedies and courses of action available under the operative contracts and applicable law with respect to their rights, damages, fees and expenses.

The Company cannot provide any assurances that CW-Cooperatief will be able to obtain the relief sought in the arbitration, and CW-Cooperatief will incur legal and other arbitration-related expenses that the Company expects will be material to its consolidated results of operations and cash flows.

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 have terminated the various agreements ancillary to the Project as a result of the termination of the APP Contract.

As a result of the cancellation of the APP Contract, in 2020 the Company 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, the impairment loss of approximately ($ 3.0 million) recorded during 2020 for Project assets, and the costs for legal and administrative activities to pursue reimbursement from the State of Baja California following the cancellation of the APP Contract, have been reclassified from the services segment to discontinued operations in the accompanying consolidated financial statements.

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

Prepaid expenses and other current assets

Value added taxes receivable (net of allowance of $ 1,657,083 and $ 1,279,757 , respectively)

Total assets of discontinued operations

Total liabilities of discontinued operations

Three Months Ended March 31,

Provision for uncollected value added taxes

Loss from discontinued operations

Depreciation expense

Project Litigation

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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);

(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);

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On November 7, 2018, NSC filed a legal response to the claim, vigorously opposing the claims made by EWG.

In addition to such legal response, NSC filed (i) a request to submit the claim to arbitration, based on certain provisions of the by-laws of NSC, (ii) an appeal remedy against the preliminary relief (which was resolved in December 2019, and ordered the revocation of the order of the Tenth Civil Judge granting EWG the preliminary relief), and (iii) a request for the setting of a guarantee to release the preliminary relief granted in favor of EWG.

On October 1, 2020, and following an order from a Federal Judge obtained by NSC, the Tenth Civil Judge resolved to (i) move the claim of EWG to arbitration, and (ii) suspend the corresponding ordinary mercantile procedure.

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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.

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

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

The appeal remedy filed by NSC on November 7, 2018, mentioned previously, suspended the proceeding (through the posting of a guarantee by NSC) and was resolved in December 2019 and communicated to EWG in January 2020.

Such resolution revoked the order of the Tenth Civil Judge whereby EWG was granted the preliminary relief.

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

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

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

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

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 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.

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

In July 2021, EWG filed an amparo claim against the resolution of the Tenth Civil Judge dismissing the remedy filed by EWG against the October 1, 2020 resolution within the mentioned ordinary mercantile claim.

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

Considering the foregoing, and that AdR was only named as a third party with interest, it is unnecessary for it to submit arguments against EWG in this claim.

Further, CW-Cooperatief has not been notified of this amparo 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, 2020 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.

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

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

Following a final hearing that took place in March 2022, a resolution dismissing this claim was issued and notified to NSC at the beginning of April 2022.

From the publicly available information, it would seem that EWG failed to submit a remedy against such resolution within the applicable term, which expired at the end of April 2022.

NSC has submitted a writ requesting an official confirmation on the expiration of such term without EWG having filed a remedy.

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

The appeal remedy mentioned in the second paragraph of item a) 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.

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The Company cannot presently determine what impact the resolution of this litigation may have on its consolidated financial condition, results of operations or cash flows.

The Company leases property and equipment under operating leases, primarily office and warehouse locations.

The Company leases consist primarily of leases for office and warehouse space.

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

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

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

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

Lease assets and liabilities

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

September 30,

Accounts receivable, net

Prepaid expenses and other current assets

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The components of lease costs were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Operating lease costs

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Supplemental cash flow information related to leases is as follows:

Nine Months Ended September 30,

Three Months Ended March 31,

Cash paid for amounts included in measurement of liabilities:

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Operating cash outflows for operating leases - discontinued operations

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

Future lease payments relating to the Company’s operating lease liabilities from continuing operations as of March 31, 2022 were as follows:

Years ending December 31,

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Noncurrent lease obligations

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.

As of March 31, 2022 and December 31, 2021, the carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued expenses, accrued compensation, dividends payable and other current liabilities approximate their fair values due to the short-term maturities of these instruments.

Under US GAAP, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

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

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

September 30, 2021

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value as of March 31, 2022 and December 31, 2021:

March 31, 2022

Certificate of deposit

Net liability arising from put/call options

Net asset arising from put/call options

December 31, 2021

Net liability arising from put/call options

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

Net liability arising from put/call options

Certificate of deposit

Net asset arising from put/call options

The activity for the Level 3 asset for the three months ended March 31, 2022:

Net asset arising from put/call options

Balance as of December 31, 2021

Unrealized gain

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.

These fair values are calculated using discounted cash flow analysis valuation techniques that incorporate unobservable inputs, such as future cash flows, weighted-average cost of capital and expected future volatility.

The inputs for these valuations are considered Level 3 inputs.

Balance as of March 31, 2022

The put/call options are reported at fair value at their net asset or liability balance in the condensed consolidated balance sheets.

The underlying asset and liability fair values are calculated using discounted cash flow analysis valuation techniques that incorporate unobservable inputs, such as future cash flows, weighted-average cost of capital, and expected future volatility.

The inputs to these valuations are considered Level 3 inputs.

Contingencies

The worldwide coronavirus (COVID-19) pandemic was formally recognized by the World Health Organization on March 11, 2020.

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 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.

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 had profound adverse consequences for the economies of those countries.

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

Tourist arrivals to The Bahamas by air and sea also declined significantly due to the pandemic and continue to be less than prior to the pandemic due to the continued reluctance of people to travel internationally.

Overall economic activity in the United States has also been adversely affected by COVID-19.

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, net income and cash flows from operations as compared to pre-pandemic periods.

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.

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

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

The Company sells water through its retail operations under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that granted Cayman Water the exclusive right to provide potable water to customers

within its licensed service area.

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

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

Pursuant to the 1990 license, Cayman Water has the exclusive right to produce potable water and distribute it by pipeline to its licensed

service area, which consists of two of the three most populated areas of Grand Cayman Island:

Seven Mile Beach and West Bay.

For the three months ended September 30, 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.

For the three months ended March 31, 2022 and 2021, the Company generated approximately 32 % and 33 %, respectively, of its consolidated revenue and 46 % and 49 %, 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.

The Company is presently unable to determine what impact the resolution of its retail license negotiations will have on its consolidated 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 $ 21.4 million as of September 30, 2021 and $ 16.8 million as of December 31, 2020.

CW-Bahamas’ accounts receivable balances (including accrued interest) due from the WSC amounted to $ 21.2 million as of March 31, 2022 and $ 21.5 million as of December 31, 2021.

From time to time (including presently), CW-Bahamas has experienced delays in collecting its accounts receivable from the WSC.

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

As of September 30, 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.

As of March 31, 2022, the Company has not provided an allowance for doubtful accounts for CW-Bahamas’ accounts receivable from the WSC.

In February 2022, CW-Bahamas received correspondence from the Ministry of Finance of the Government of the Bahamas that set forth a payment schedule providing for the gradual reduction over the course of 2022 of the CW-Bahamas' delinquent accounts receivable due from the WSC.

Such correspondence also indicated that the Government intends to return all of CW-Bahamas’ accounts receivable from the WSC to current status.

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:

If CW-Bahamas is ultimately unable to collect a significant portion of its delinquent accounts receivable, one or more of the following events may occur:

(i) CW-Bahamas may not have sufficient liquidity to meet its obligations;

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Related party transactions

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

During the three months ended 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.

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

During the three months ended March 31, 2022 and 2021, the Company made total purchases of services from these companies of approximately $ 839,000 and $ 156,000 , respectively.

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

PERC has entered into a sublease agreement with one of these related companies that commenced on March 14, 2021 and ended August 31, 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 September 30, 2021 and December 31, 2020, was approximately $ 204,000 and $ 201,000 , respectively.

During the three months ended March 31, 2022 and 2021, the Company recognized approximately $ 24,000 and $ 4,000 of expense related to this lease, respectively.

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, 2022 and December 31, 2021, was approximately $ 716,000 and $ 164,000 , respectively.

Impact of recent accounting standards

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Effect of newly issued but not yet effective accounting standards:

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions to the current guidance on contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates.

The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

The Company is currently evaluating the impact of the new guidance on the consolidated financial statements, however the adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Subsequent events

On May 10, 2022, the Company signed a definitive agreement with the WAC for its planned seawater reverse osmosis plant in George Town, Grand Cayman.

The Company will design, construct and commission the plant over approximately the next 18 months and then sell the facility to the WAC.

The Company will subsequently operate and maintain the plant and produce water for the WAC for the next 10 years after commissioning.

The plant will produce up to 2.64 million gallons of potable water per day for the WAC using two independent reverse osmosis trains.

The Company evaluated subsequent events through the time of the filing of this report on Form 10-Q.

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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