What changed in this filing

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Item 1. Financial Statements

2022-08-11 compared with 2022-05-12 · 168 added, 113 removed, 470 unchanged (37% of the section changed)

55 unchanged sentences

CONSOLIDATED WATER CO.

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)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenue (including purchases from related parties of $ 640,937 and $ 129,401 for the three months ended, and $ 1,480,369 and $ 285,383 for the six months ended, June 30, 2022 and 2021, respectively)

General and administrative expenses (including purchases from related parties of $ 24,231 and $ 24,299 for the three months ended, and $ 48,462 and $ 28,728 for the six months ended, June 30, 2022 and 2021, respectively)

Gain (loss) on asset dispositions and impairments, net

Income from operations

( 2,896,640 )

( 3,145,573 )

Income (loss) from operations

( 1,556,091 )

Other income (expense):

5 unchanged sentences

Other income, net

Income before income taxes

Income (loss) before income taxes

( 1,322,977 )

Income tax provision (benefit)

Net income from continuing operations

Net income (loss) from continuing operations

( 1,316,132 )

Income from continuing operations attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

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

( 1,513,270 )

Loss from discontinued operations

Net income attributable to Consolidated Water Co.

( 1,027,147 )

Net income (loss) attributable to Consolidated Water Co.

( 1,664,649 )

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

2 unchanged sentences

Discontinued operations

Basic earnings per share

Basic earnings (loss) per share

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

2 unchanged sentences

Discontinued operations

Diluted earnings per share

Diluted earnings (loss) per share

Dividends declared per common and redeemable preferred shares

14 unchanged sentences

Balance as of March 31, 2022

Issue of share capital

Exercise of options

Dividends declared

( 1,301,840 )

( 1,766,040 )

Stock-based compensation

Balance as of June 30, 2022

preferred stock

9 unchanged sentences

Balance as of March 31, 2021

Issue of share capital

Conversion of preferred stock

Buyback of preferred stock

Net income (loss)

( 1,664,649 )

( 1,467,511 )

Exercise of options

Dividends declared

( 1,294,697 )

Stock-based compensation

Balance as of June 30, 2021

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

Net cash provided by operating activities - continuing operations

6 unchanged sentences

Additions to property, plant and equipment and construction in progress

( 1,796,196 )

Proceeds from asset dispositions

Net cash used in investing activities - continuing operations

( 1,790,329 )

Cash flows from financing activities

5 unchanged sentences

Repurchase of redeemable preferred stock

Proceeds received from exercise of stock options

Payments made on note payable

8 unchanged sentences

Cash and cash equivalents at end of period

Interest paid in cash

Non-cash transactions:

Issuance of 9,295 and 8,632 , respectively, shares of redeemable preferred stock for services rendered

Issuance of 41,830 and 57,577 , respectively, shares of common stock for services rendered

Conversion (on a one-to-one basis) of 0 and 1,111 , respectively, shares of redeemable preferred stock to common stock

Dividends declared but not paid

Transfers from (to) inventory to (from) property, plant and equipment and construction in progress

Transfers from construction in progress to property, plant and equipment

Net transfers from construction in progress to property, plant and equipment

Right-of-use assets obtained in exchange for new operating lease liabilities

37 unchanged sentences

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

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

Net foreign currency gains arising from transactions and re-measurements were $ 6,988 and $ 14,159 for the three months ended June 30, 2022 and 2021, respectively, and $ 29,034 and $ 14,051 for the six months ended June 30, 2022 and 2021, and are included in “Other income (expense) - Other” in the accompanying condensed consolidated statements of income (loss).

Cash and cash equivalents:

Cash and cash equivalents consist of demand deposits at banks and 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.

Cash and cash equivalents as of June 30, 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.

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 March 31, 2022 and December 31, 2021 were approximately $ 8.4 million and $ 6.4 million, respectively.

The equivalent United States dollar cash balances for deposits held in The Bahamas as of June 30, 2022, and December 31, 2021 were approximately $ 11.5 million and $ 3.9 million, respectively.

Certificate of deposit:

As of June 30, 2022 and December 31, 2021, the Company held a certificate of deposit in The Bahamas of $ 2.5 million and $ 2.5 million, respectively, with an original maturity of six months.

Goodwill and intangible assets:

13 unchanged sentences

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.

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.

Based upon its 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 June 30, 2022 of its manufacturing reporting unit’s goodwill of $ 1,985,211 and its remaining unamortized intangible assets balances of $ 801,111 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.

2 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Retail revenue

21 unchanged sentences

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.

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

Contract costs include labor, materials and amounts payable to subcontractors.

2 unchanged sentences

The Company estimates total project costs and profit to be earned on each long-term, fixed price contract prior to commencement of work on the contract and updates these estimates as work on the contract progresses.

The cumulative amount of revenue recorded on a contract at a specified point in time is that percentage of total estimated revenue that incurred costs to date comprises of estimated total contract costs.

The cumulative amount of revenue recorded on a contract at a specified point in time is that percentage of total estimated revenue that incurred costs to date comprise of estimated total contract costs.

If, as work progresses, the actual contract costs exceed estimates, the profit recognized on revenue from that contract decreases.

8 unchanged sentences

( 6,370,855 )

Net contract asset (liability)

Net contract liability

( 2,127,442 )

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

1 unchanged sentence

Contract liabilities

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 .

( 3,225,682 )

Net contract liability

( 2,127,442 )

As of June 30, 2022 , the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 102.7 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 $ 34.3 million during the remainder of the year ending December 31, 2022 and approximately $ 68.4 million thereafter .

In addition, the Company recognized revenue of $ 286,000 in the six months ended June 30, 2022, that was included in the contract liability balance as of December 31, 2021.

Practical Expedients and Exemptions

14 unchanged sentences

The Company’s segments are strategic business units that are managed separately because each segment sells different products and/or services, serves customers with distinctly different needs and generates different gross profit margins.

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Manufacturing

11 unchanged sentences

Net income attributable to Consolidated Water Co.

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

Depreciation and amortization expenses for the three months ended June 30, 2022 for the retail, bulk, services and manufacturing segments were $ 637,796 , $ 704,841 , $ 168,078 and $ 70,307 , respectively.

Three Months Ended June 30, 2021

Manufacturing

2 unchanged sentences

Gain (loss) on asset dispositions and impairments, net

( 2,900,000 )

( 2,896,640 )

Income (loss) from operations

( 3,368,425 )

( 1,556,091 )

Other income, net

Income before income taxes

Loss before income taxes

( 1,322,977 )

Income tax benefit

Net income from continuing operations

Net loss from continuing operations

( 1,316,132 )

Income attributable to non-controlling interests

Net loss from continuing operations attributable to Consolidated Water Co.

( 1,513,270 )

Loss from discontinued operations

Net loss attributable to Consolidated Water Co.

( 1,664,649 )

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

Six Months Ended June 30, 2022

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

Income tax provision

Net income from continuing operations

Income from continuing operations attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

Loss from discontinued operations

( 1,027,147 )

Net income attributable to Consolidated Water Co.

Depreciation and amortization expenses for the three months ended March 31, 2021 for the retail, bulk, services and manufacturing segments were $ 634,255 , $ 953,760 , $ 200,495 and $ 75,533 , respectively.

As of March 31, 2022

Depreciation and amortization expenses for the six months ended June 30, 2022 for the retail, bulk, services and manufacturing segments were $ 1,253,481 , $ 1,407,100 , $ 327,077 and $ 141,515 , respectively.

Six Months Ended June 30, 2021

Manufacturing

Cost of revenue

General and administrative expenses

Gain (loss) on asset dispositions and impairments, net

( 2,900,000 )

( 3,145,573 )

Income (loss) from operations

( 1,039,931 )

( 3,448,914 )

Other income, net

Income before income taxes

Income tax benefit

Net income from continuing operations

Income from continuing operations attributable to non-controlling interests

Net loss from continuing operations attributable to Consolidated Water Co.

Loss from discontinued operations

Net loss attributable to Consolidated Water Co.

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

As of June 30, 2022

Manufacturing

Accounts receivable, net

17 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 March 31,

Net income from continuing operations attributable to Consolidated Water Co.

Three Months Ended June 30,

Six Months Ended June 30,

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

( 1,513,270 )

preferred stock dividends

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

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

( 1,516,445 )

Loss from discontinued operations

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

( 1,027,147 )

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

( 1,667,824 )

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

7 unchanged sentences

(“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.

(“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.

8 unchanged sentences

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 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.

12 unchanged sentences

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”).

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.

5 unchanged sentences

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.

During July 2022, the State initiated discussions with the Company to potentially resolve the issues related to the cancellation by the government of the Rosarito desalination plant contract as well as potentially addressing the State’s acute water shortage issues.

The Company cannot presently determine the outcome of the discussions and the Company has not terminated its efforts to obtain relief through the international arbitration process as a result of these discussions.

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.

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.

Accordingly, the assets and liabilities of CW-Cooperatief, NSC and AdR, as well as all Project development expenses 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:

3 unchanged sentences

Total liabilities of discontinued operations

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Provision for uncollected value added taxes

7 unchanged sentences

In May 2013, NSC repaid a $ 5.7 million loan payable to CW-Cooperatief by issuing additional shares of its stock.

As a result of this share issuance to CW-Cooperatief, the Company indirectly acquired 99.99 % of the ownership of NSC.

As a result of this share issuance to CW-Cooperatief, we indirectly acquired 99.99 % of the ownership of NSC.

The Option Agreement contained an anti-dilution provision that required CW-Cooperatief to transfer or otherwise cause the individual shareholder to acquire, for a total price of $ 1 (regardless of their par or market value), shares in NSC of an amount sufficient to maintain the individual shareholder’s 25 % ownership interest in NSC if (i) any new shares of NSC were issued subsequent to the execution of the Option Agreement (causing the individual shareholder’s 25 % ownership interest in NSC to be decreased);

4 unchanged sentences

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);

1 unchanged sentence

The Tenth Civil Judge granted, ex-parte, the preliminary relief sought by EWG, which resulted in the issuance of official writs to several governmental and public entities involved with the “Rosarito” water desalination project, including the registration of the pendency of the lawsuit in certain public records.

On October 16, 2018, NSC was served with the ordinary mercantile claim.

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.

1 unchanged sentence

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

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

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

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

In any event, AdR is only a named third party called to trial in this claim, and no claims have been made by EWG against AdR.

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.

NSC appeared before the court to vigorously oppose such remedy, and the remedy was subsequently dismissed.

To date, arbitration has not been initiated by either party.

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.

Many of these leases contain rental escalation clauses which are factored into the determination of the lease payments when appropriate.

Many of these leases contain rental escalation clauses which are factored into the determination of the lease payments when

When available, the lease payments are discounted using the rate implicit in the lease;

26 unchanged sentences

The components of lease costs were as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Operating lease costs

3 unchanged sentences

Supplemental cash flow information related to leases is as follows:

Three Months Ended March 31,

Six Months Ended June 30,

Cash paid for amounts included in measurement of liabilities:

1 unchanged sentence

Operating cash outflows for operating leases - discontinued operations

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

Future lease payments relating to the Company’s operating lease liabilities from continuing operations as of June 30, 2022 were as follows:

Years ending December 31,

4 unchanged sentences

Noncurrent lease obligations

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.

As of June 30, 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.

1 unchanged sentence

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

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

Unobservable inputs are inputs that reflect the Company’s

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

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

7 unchanged sentences

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

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

March 31, 2022

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value as of June 30, 2022 and December 31, 2021:

June 30, 2022

Certificate of deposit

3 unchanged sentences

Net asset arising from put/call options

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

The activity for the Level 3 asset for the six months ended June 30, 2022:

Net asset arising from put/call options

1 unchanged sentence

Unrealized gain

Balance as of March 31, 2022

Balance as of June 30, 2022

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

4 unchanged sentences

In response to this pandemic, the governments of the countries in which the Company operates - the Cayman Islands, The Bahamas, and the United States - implemented preventative measures to slow the spread of COVID-19, measures which 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 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.

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.

Overall economic activity in the United States was 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 experienced decreases in consolidated revenue, net income and cash flows from operations as compared to pre-pandemic periods.

The economic downturn arising initially from the COVID-19 pandemic and furthered by the Russian invasion of Ukraine and other factors has further adversely affected the Company’s supply chain and the markets for the Company’s products and services.

A continuation of the current weak economic conditions could have a material adverse impact on the Company’s consolidated financial condition, results of operations and cash flows.

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 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.

For the three months ended June 30, 2022 and 2021, the Company generated approximately 31 % and 34 %, respectively, of its consolidated revenue and 46 % and 48 %, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 license.

For the six months ended June 30, 2022 and 2021, the Company generated approximately 32 % and 34 %, respectively, of its consolidated revenue and 46 % and 48 %, 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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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 (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.

As of March 31, 2022 and December 31, 2021, CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the Water and Sewerage Corporation of The Bahamas (“WSC”) amounted to $ 21.2 million and $ 21.5 million, respectively.

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

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

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

As of 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 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;

(ii) the Company may be required to cease the recognition of revenue on CW-Bahamas’ water supply agreements with the WSC;

and (iii) the Company may be required to provide an allowance for doubtful accounts for CW-Bahamas’ accounts receivable.

Any of these events could have a material adverse impact on the Company’s consolidated financial condition, results of operations, and cash flows.

During the three months ended June 30, 2022, CW-Bahamas received approximately $ 16.4 million in payments on its accounts receivable from the WSC.

As of June 30, 2022, CW-Bahamas’ accounts receivable from the WSC had been reduced to $ 13.5 million.

Related party transactions

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.

During the three months ended June 30, 2022 and 2021, the Company made total purchases of services from these companies of approximately $ 641,000 and $ 129,000 , respectively, and approximately $ 1,480,000 and $ 285,000 during the six months ended June 30, 2022 and 2021, respectively.

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

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This lease has been extended on a month-to-month basis subsequent to August 31, 2021.

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.

During the three months ended June 30, 2022 and 2021, the Company recognized approximately $ 24,000 and $ 24,000 of expense related to this lease, respectively, and approximately $ 48,000 and $ 29,000 during the six months ended June 30, 2022 and 2021, 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.

The total amount of accounts payable outstanding to these companies as of June 30, 2022 and December 31, 2021, was approximately $ 767,000 and $ 164,000 , respectively.

Impact of recent accounting standards

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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