What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-09 compared with 2023-08-10 · 130 added, 80 removed, 532 unchanged (28% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Current assets

49 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenue ( including related party expenses of $0 and $ 640,937 for the three months ended, and $ 0 and $ 1,480,369 for the six months ended, June 30, 2023 and 2022, respectively)

General and administrative expenses ( including related party expenses of $0 and $ 24,231 for the three months ended, and $ 0 and $ 48,462 for the six months ended, June 30, 2023 and 2022, respectively)

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenue ( including related party expense of $0 and $ 685,481 for the three months ended, and $ 0 and $ 2,165,850 for the nine months ended, September 30, 2023 and 2022, respectively)

General and administrative expenses ( including related party expense of $0 and $ 24,231 for the three months ended, and $ 0 and $ 72,693 for the nine months ended, September 30, 2023 and 2022, respectively)

Gain on asset dispositions and impairments, net

5 unchanged sentences

Equity in the earnings of OC-BVI

Net gain on put/call options

Other income, net

Net gain (loss) on put/call options

Other income (expense), net

Income before income taxes

43 unchanged sentences

Balance as of June 30, 2023

Conversion of preferred stock

Exercise of options

Dividends declared

( 1,499,538 )

Stock-based compensation

Balance as of September 30, 2023

preferred stock

2 unchanged sentences

Issue of share capital

Conversion of preferred stock

Buyback of preferred stock

Dividends declared

4 unchanged sentences

Issue of share capital

Buyback of preferred stock

Exercise of options

4 unchanged sentences

Balance as of June 30, 2022

Conversion of preferred stock

Exercise of options

Purchase of non-controlling interests in PERC

Dividends declared

( 1,302,110 )

Stock-based compensation

Balance as of September 30, 2022

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash provided by operating activities - continuing operations

Net cash used in operating activities - discontinued operations

( 1,123,193 )

Net cash provided by operating activities

11 unchanged sentences

( 6,542,387 )

( 1,790,329 )

Cash flows from financing activities

4 unchanged sentences

Dividends paid to non-controlling interests

( 1,102,475 )

Buyback of redeemable preferred stock

13 unchanged sentences

Issuance of 44,783 and 41,830 , respectively, shares of common stock for services rendered

Conversion (on a one-to-one basis) of 7,936 and 6,585 , respectively, shares of redeemable preferred stock to common stock

Dividends declared but not paid

46 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 $ 24,397 and $ 6,988 for the three months ended June 30, 2023 and 2022, respectively, and $ 50,176 and $ 29,034 for the six months ended June 30, 2023 and 2022, and are included in “Other income (expense) - Other” in the accompanying condensed consolidated statements of income.

Net foreign currency gains (losses) arising from transactions and re-measurements were $ 22,077 and ($ 8,068 ) for the three months ended September 30, 2023 and 2022, respectively, and $ 72,253 and $ 20,966 for the nine months ended September 30, 2023 and 2022, 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 certificates of deposit at banks with an original maturity of three months or less.

Cash and cash equivalents as of June 30, 2023 and December 31, 2022 include approximately $ 5.1 million and $ 7.4 million, respectively, of certificates of deposits with an original maturity of three months or less.

Cash and cash equivalents as of September 30, 2023 and December 31, 2022 include approximately $ 5.1 million and $ 5.0 million, respectively, of certificates of deposits with an original maturity of three months or less.

Certain transfers from the Company’s Bahamas bank accounts to Company bank accounts in other countries require the approval of the Central Bank of The Bahamas.

The equivalent United States dollar cash balances for deposits held in The Bahamas as of June 30, 2023 and December 31, 2022 were approximately $ 10.1 million and $ 5.7 million, respectively.

The equivalent United States dollar cash balances for deposits held in The Bahamas as of September 30, 2023 and December 31, 2022 were approximately $ 5.1 million and $ 5.7 million, respectively.

Goodwill and intangible assets:

6 unchanged sentences

To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded.

As of December 31, 2022, the Company elected to assess qualitative factors to determine whether it was necessary to perform the quantitative goodwill impairment testing conducted in prior years for all goodwill reporting units other than the manufacturing reporting unit.

As of December 31, 2022, the Company elected to assess qualitative factors to determine whether it was necessary to perform the quantitative goodwill impairment testing conducted in prior years for all reporting units other than the manufacturing reporting unit.

The Company assessed relevant events and circumstances to evaluate whether it is more likely than not that the fair values of such reporting units are less than their carrying values.

5 unchanged sentences

The discount rates for the calculations represented the estimated cost of capital for market participants at the time of the analysis.

The Company also estimated the fair value of its manufacturing reporting unit for the year ended December 31, 2022 by applying the guideline public company method.

The Company also estimated the fair value of its manufacturing reporting unit for the year ended December 31, 2022 by applying the guideline public company

The Company weighted the fair values estimated for its manufacturing reporting unit under each method and summed such weighted fair values to estimate the overall fair value for the reporting unit.

The respective weightings the

Company applied to each method for the year ended December 31, 2022 were 80 % to the discounted cash flow method and 20 % to the guideline public company method.

The respective weightings the Company applied to each method for the year ended December 31, 2022 were 80 % to the discounted cash flow method and 20 % to the guideline public company method.

The fair value the Company estimated for its manufacturing reporting unit exceeded its carrying amount by 63 % as of December 31, 2022.

The Company believes the inherent uncertainties associated with the accounting estimates and assumptions it uses for its estimates of its manufacturing reporting unit’s fair value have increased due to the current, less predictable economic conditions, which have resulted in increasing raw material prices, extended and unexpected delays in the procurement and delivery of its raw materials, and have also, the Company believes, adversely affected its customers.

The Company believes that the inherent uncertainties associated with the accounting estimates and assumptions it uses for its estimates of its manufacturing reporting unit’s fair value have increased due to the current, less predictable economic conditions, which have resulted in increasing raw material prices, extended and unexpected delays in the procurement and delivery of its raw materials, and have also, the Company believes, adversely affected its customers.

Should interest rates rise significantly in the future the Company would likely be required to increase the discount rate it uses under the discounted cash flow method to estimate the fair value of this reporting unit, and such increased discount rate in and of itself could decrease the estimated fair value of the manufacturing reporting unit under the discounted cash flow method.

As noted previously, based upon the Company’s estimation prepared as of December 31, 2022, the fair value of the Company’s manufacturing reporting unit exceeded its carrying value by 63 %.

However, if the Company determines in the future that Aerex’s discounted future cash inflows will be less than its present expectations, the Company may be required to record additional impairment losses to reduce the remaining carrying values of its manufacturing reporting unit’s goodwill and its remaining unamortized intangible assets balances, which amounted to $ 1,985,211 and $ 707,778 , respectively, as of June 30, 2023.

However, if the Company determines in the future that Aerex’s discounted future cash inflows will be less than its present expectations, the Company may be required to record impairment losses to reduce the remaining carrying values of its manufacturing reporting unit’s goodwill and its remaining unamortized intangible assets balances, which amounted to $ 1,985,211 and $ 684,444 , respectively, as of September 30, 2023.

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

9 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Retail revenue

2 unchanged sentences

Total revenue

Services revenue consists of the following:

Three Months Ended September 30,

Nine Months Ended September 30,

Construction revenue

Operations and maintenance revenue

Design and consulting revenue

Total services revenue

Retail revenue

The Company produces and supplies water to end-users, including residential, commercial and governmental customers in the Cayman Islands under an exclusive retail license issued to Cayman Water by the Cayman Islands government to provide water in two of the three most populated areas on Grand Cayman Island.

Customers are billed on a monthly basis based on metered consumption and bills are typically collected within 30 to 45 days after the billing date.

10 unchanged sentences

Services and Manufacturing revenue

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

The Company designs, builds, sells, operates and maintains, and provides consulting services related to 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 also 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, 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 construction and services revenue from DesalCo and PERC and generates manufacturing revenue from Aerex.

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 a contract’s performance obligations as such measure best reflects the transfer of control of the promised good to the customer.

Contract costs include labor, materials and subcontractor costs.

The Company generates construction, operations and maintenance, design and consulting revenue from PERC and DesalCo and generates manufacturing revenue from Aerex.

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 the total estimated costs at completion to measure progress toward satisfying a contract’s performance obligations as such measure best reflects the transfer of control of the promised good to the customer.

Contract costs include labor, materials, subcontractor costs and other expenses.

The Company follows this method since it can make reasonably dependable estimates of the revenue and costs applicable to the various stages of a contract.

Under this input method, the Company records revenue and recognizes profit or loss as work on the contract progresses.

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 Company estimates total costs to be incurred 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 comprise of estimated total contract costs.

Due to the extended time it may take to complete many of the Company’s contracts and the scope and nature of the work required to be performed on those contracts, the estimations of total revenue and costs at completion is complicated and subject to many variables and, accordingly, are subject to changes.

Due to the extended time it may take to complete many of the Company’s contracts and the scope and nature of the work required to be performed on those contracts, the estimations of total revenue and costs at completion are complicated and subject to many variables and, accordingly, are subject to changes.

When adjustments in estimated total contract revenue or estimated total contract costs are required, any changes from prior estimates are recognized in the current period for the inception-to-date effect of such changes.

2 unchanged sentences

Contract liabilities on uncompleted contracts, if any, are classified as current liabilities.

During the three months ended June 30, 2023, the Company adjusted its previous estimates of the total contract costs for two of its construction contracts.

These adjustments increased the services segment’s income from operations and the Company’s consolidated net income by $ 1 ,761,753 for the three and six months ended June 30, 2023.

This adjustment increased diluted earnings per share by $ 0.1 1 for the three and six months ended June 30, 2023.

The Company has elected the “right to invoice” practical expedient for revenue recognition on its services agreements and recognizes revenue in the amount to which the Company has a right to invoice.

During the three and nine months ended September 30, 2023, the Company adjusted its previous estimates of the total contract costs for two of its construction contracts.

These adjustments increased the services segment’s income from operations and the Company’s consolidated net income by $ 1,787,275 and $ 1,350,108 , respectively, for the three months ended September 30, 2023, and $ 3,549,028 and $ 2,680,936 for the nine months ended September 30, 2023, respectively.

This adjustment increased diluted earnings per share by $ 0.08 and $ 0.17 for the three and nine months ended September 30, 2023, respectively.

The Company has elected the “right to invoice” practical expedient for revenue recognition on its operations and maintenance, design and consulting contracts and recognizes revenue in the amount to which the Company has a right to invoice.

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

September 30,

Revenue recognized to date on contracts in progress

4 unchanged sentences

( 5,890,199 )

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

September 30,

Contract assets

4 unchanged sentences

( 5,890,199 )

The significant increase in contract liabilities from December 31, 2022 to June 30, 2023 is primarily attributable to billings on PERC’s construction contract with Liberty (Litchfield Park Water & Sewer) Corp.

(“Liberty Utilities”) for a water treatment facility in Arizona.

As of June 30, 2023, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 67.3 million in aggregate transaction price for contracts with an original expected length of greater than one year .

The significant increase in contract assets from December 31, 2022 to September 30, 2023 is primarily attributable to the construction contract with the WAC for the Red Gate plant.

As of September 30, 2023, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 189.3 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 $ 28.8 million during the remainder of the year ending December 31, 2023 and approximately $ 160.5 million thereafter .

In addition, the Company recognized revenue of approximately $ 7.2 million in the six months ended June 30, 2023, that was included in the contract liability balance as of December 31, 2022.

In addition, the Company recognized revenue of approximately $ 9.6 million in the nine months ended September 30, 2023, that was included in the contract liability balance as of December 31, 2022.

Practical Expedients and Exemptions

5 unchanged sentences

retail, bulk, services and manufacturing.

The retail segment operates the water utility for the Seven Mile Beach and West Bay areas of Grand Cayman Island pursuant to an exclusive license granted by the Cayman Islands government.

The retail segment operates the water utility for the Seven Mile Beach and West Bay areas of Grand Cayman pursuant to an exclusive license granted by the Cayman Islands government.

The bulk segment supplies potable water to government utilities in Grand Cayman and The Bahamas under long-term contracts.

1 unchanged sentence

The manufacturing segment manufactures and services a wide range of custom and specialized water-related products applicable to commercial, municipal and industrial water production, supply and treatment.

Consistent with prior periods, the Company records all non-direct general and

administrative expenses in its retail segment and does not allocate any of these non-direct expenses to its other three business segments.

Consistent with prior periods, the Company records all non-direct general and administrative expenses in its retail segment and does not allocate any of these non-direct expenses to its other three business segments.

The accounting policies of the segments are consistent with those described in Note 2.

2 unchanged sentences

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

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Manufacturing

1 unchanged sentence

General and administrative expenses

Gain on asset dispositions and impairments, net

Income (loss) from operations

7 unchanged sentences

Net income attributable to Consolidated Water Co.

Depreciation and amortization expenses for the three months ended June 30, 2023 for the retail, bulk, services and manufacturing segments were $ 593,337 , $ 840,200 , $ 174,084 and $ 68,160 , respectively.

Three Months Ended June 30, 2022

Depreciation and amortization expenses for the three months ended September 30, 2023 for the retail, bulk, services and manufacturing segments were $ 593,306 , $ 748,594 , $ 182,825 and $ 68,197 , respectively.

Three Months Ended September 30, 2022

Manufacturing

3 unchanged sentences

Income (loss) from operations

Other income, net

Other expense, net

Income before income taxes

5 unchanged sentences

Net income attributable to Consolidated Water Co.

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.

Six Months Ended June 30, 2023

Depreciation and amortization expenses for the three months ended September 30, 2022 for the retail, bulk, services and manufacturing segments were $ 567,086 , $ 707,788 , $ 175,732 and $ 71,734 , respectively.

Nine Months Ended September 30, 2023

Manufacturing

11 unchanged sentences

Net income attributable to Consolidated Water Co.

Depreciation and amortization expenses for the six months ended June 30, 2023 for the retail, bulk, services and manufacturing segments were $ 1,219,974 , $ 1,568,329 , $ 345,433 and $ 136,123 , respectively.

Six Months Ended June 30, 2022

Depreciation and amortization expenses for the nine months ended September 30, 2023 for the retail, bulk, services and manufacturing segments were $ 1,813,280 , $ 2,316,923 , $ 528,258 and $ 204,320 , respectively.

Nine Months Ended September 30, 2022

Manufacturing

5 unchanged sentences

Income before income taxes

Benefit from income taxes

Provision for income taxes

Net income from continuing operations

4 unchanged sentences

Net income attributable to Consolidated Water Co.

Depreciation and amortization expenses for 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.

As of June 30, 2023

Depreciation and amortization expenses for the nine months ended September 30, 2022 for the retail, bulk, services and manufacturing segments were $ 1,820,567 , $ 2,114,888 , $ 502,809 and $ 213,249 , respectively.

As of September 30, 2023

Manufacturing

22 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net income from continuing operations attributable to Consolidated Water Co.

20 unchanged sentences

In August 2016, NSC and NuWater incorporated a new company under the name Aguas de Rosarito S.A.P.I.

(“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.

(“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.

21 unchanged sentences

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.

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.

6 unchanged sentences

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

September 30,

Accounts receivable

Prepaid expenses and other current assets

Value added taxes receivable (net of allowance of $ 1,940,725 and $ 1,711,234 , respectively)

Total assets of discontinued operations

Total liabilities of discontinued operations

Three Months Ended June 30,

Six Months Ended June 30,

Provision for uncollected value added taxes

Three Months Ended September 30,

Nine Months Ended September 30,

Loss from discontinued operations

Depreciation expense

Mexico Project litigation

a) EWG request of precautionary measures

In January 2018, EWG Water LLC (“EWG”) initiated an ordinary mercantile claim against, among others, NSC, and CW-Cooperatief (with AdR being named as a third party to be called to trial) before the Tenth Civil Judge in Tijuana, Baja California for Mercantile Matters (the “Tenth Civil Judge”).

In such claim, EWG challenged, among other things, the transactions contemplated under a certain option agreement (entered into in 2012), and therefore, the capital investment transactions occurring in May 2013 that increased the ownership interest of CW-Cooperatief in NSC to 99.99 %.

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.

Within the above-mentioned claim, the Tenth Civil Judge granted EWG certain preliminary measures against NSC, which were later overturned by an Upper Court.

In July 2023, EWG filed a motion before a local court in Playas de Rosarito, Baja California (the “Rosarito Court”) to obtain precautionary measures consisting of the securing of assets owned by NSC (particularly real estate), as a procedure prior to the commencement of an arbitration that allegedly would be initiated by EWG against NSC to claim the payment of an indemnification for damages derived from a so-called simulation of legal acts.

In the opinion of the Rosarito Court, such motion did not require notification to NSC or the presentation of counterarguments by NSC to the motion prior to securing the assets of NSC.

On July 28, 2023, the Rosarito Court issued a resolution in which it:

(i) granted the precautionary measures requested by EWG, subject to the posting of a bond in the amount of MXN$ 1,500,000 (One Million Five Hundred Thousand Mexican Pesos), and (ii) ordered that once the precautionary measures were executed, NSC would be summoned to that procedure and EWG would have three business days to prove that it initiated the arbitration.

To the Company’s knowledge, EWG has not posted the bond set by the Rosarito Court.

(i) the precautionary measures have not been enforced, (ii) no securing or attachment has been registered against the real estate of NSC;

and (iii) NSC has not been formally summoned to this procedure.

Furthermore, NSC is unaware of any arbitration commenced by EWG regarding this matter.

b) NSC amparo lawsuit

On August 16, 2023, NSC filed an amparo suit (i.e., application for constitutional relief) before the Eleventh Federal District Court in Tijuana (“Eleventh Federal Court”) against the precautionary measures granted to EWG by the Rosarito Court.

In its amparo suit, NSC also requested the Eleventh Federal Court to grant an order to put on hold said precautionary measures.

A preliminary order to stay was granted by the Eleventh Federal Court, followed by a definitive injunction, subject to the posting of a guarantee.

NSC has submitted the guarantee to the court.

The Company cannot presently determine what impact the resolution of this matter may have on its consolidated financial statements.

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

5 unchanged sentences

These leases contain both lease and non-lease components, which the Company has elected to treat as a single lease component.

The Company elected not to recognize leases that have an original lease term, including reasonably certain

renewal or purchase obligations, of twelve months or less in its condensed consolidated balance sheets for all classes of underlying assets.

The Company elected not to recognize leases that have an original lease term, including reasonably certain renewal or purchase obligations, of twelve months or less in its condensed consolidated balance sheets for all classes of underlying assets.

Lease costs for such short-term leases are expensed on a straight-line basis over the lease term.

4 unchanged sentences

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

September 30,

Prepaid expenses and other current assets

13 unchanged sentences

The components of lease costs were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Operating lease costs

3 unchanged sentences

Supplemental cash flow information related to leases is as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

Cash paid for amounts included in measurement of liabilities:

1 unchanged sentence

Operating cash outflows for operating leases - discontinued operations

Future lease payments relating to the Company’s operating lease liabilities from continuing operations as of June 30, 2023 were as follows:

Future lease payments relating to the Company’s operating lease liabilities from continuing operations as of September 30, 2023 were as follows:

Years ending December 31,

4 unchanged sentences

Noncurrent lease obligations

As of June 30, 2023 and December 31, 2022, the carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued expenses, accrued compensation, dividends payable and other current liabilities approximate their fair values due to the short-term maturities of these instruments.

As of September 30, 2023 and December 31, 2022, 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.

10 unchanged sentences

The Company reviews its fair value hierarchy classifications on a quarterly basis.

Changes in the

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

As of June 30, 2023 and December 31, 2022, the Company does not have assets and liabilities measured at fair value to present in the fair value hierarchy.

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

As of September 30, 2023 and December 31, 2022, the Company does not have assets and liabilities measured at fair value to present in the fair value hierarchy.

Contingencies

3 unchanged sentences

Seven Mile Beach and West Bay.

For the three months ended June 30, 2023 and 2022, the Company generated approximately 17 % and 31 %, respectively, of its consolidated revenue and 27 % and 46 %, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 license.

For the six months ended June 30, 2023 and 2022, the Company generated approximately 20 % and 32 %, respectively, of its consolidated revenue and 32 % and 46 %, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 license.

For the three months ended September 30, 2023 and 2022, the Company generated approximately 14 % and 25 %, respectively, of its consolidated revenue and 23 % and 44 %, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 license.

For the nine months ended September 30, 2023 and 2022, the Company generated approximately 18 % and 29 %, respectively, of its consolidated revenue and 29 % and 45 %, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 license.

The 1990 license was originally scheduled to expire in July 2010 but was extended several times by the Cayman Islands government in order to provide the parties with additional time to negotiate the terms of a new license agreement.

10 unchanged sentences

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 $ 16.4 million and $ 16.3 million as of June 30, 2023 and December 31, 2022.

Approximately 64 % of these accounts receivable balances were delinquent as of both of those dates.

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $ 23.2 million and $ 16.3 million as of September 30, 2023 and December 31, 2022, respectively.

Approximately 76 % and 65 % of the accounts receivable balances were delinquent as of those dates, respectively.

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

2 unchanged sentences

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.

CW-Bahamas has received correspondence from the Ministry of Finance of the Government of The Bahamas that stated the Government intends to return all of CW-Bahamas’ accounts receivable from the WSC to current status.

CW-Bahamas recently held discussions with the Ministry of Finance of the Government of The Bahamas which stated that the Government intends to return all of CW-Bahamas’ accounts receivable from the WSC to current status.

In a report dated October 6, 2022, Moody’s Investor Services (“Moody’s”) downgraded the Government of The Bahamas’ long-term issuer and senior unsecured ratings to B1 from Ba3.

Moody’s also lowered The Bahamas’ local currency ceiling to Baa3 from Baa2 and its foreign currency ceiling to Ba1 from Baa3.

Moody’s iterated these ratings in April 2023, noting that such ratings are “stable.” Based upon its review of this Moody’s correspondence, the Company continues to believe no allowance for doubtful accounts is required for CW-Bahamas’ accounts receivable from the WSC.

Moody’s iterated these ratings in April 2023, noting that such ratings are “stable.” Based upon its review of this Moody’s correspondence, the Company continues to believe that no allowance for doubtful accounts is required for CW-Bahamas’ accounts receivable from the WSC.

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

4 unchanged sentences

Related party transactions

The Company, through PERC and the services segment, purchased engineering and technology support services from various companies formerly affiliated with PERC, as a minority shareholder in these companies was also a minority shareholder of PERC.

The Company, through PERC, purchased engineering and technology support services from various companies formerly affiliated with PERC, as a minority shareholder in these companies was also a minority shareholder of PERC.

On January 4, 2023, as a result of CW-Holdings' exercise of a call option in October 2022, CW-Holdings purchased the remaining 39 % ownership interest in PERC.

After giving effect to this purchase, CW-Holdings owns 100 % of the outstanding capital stock of PERC and, consequently, transactions with the formerly affiliated companies no longer constitute related party transactions.

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

During the three and nine months ended September 30, 2022, the Company made total purchases of services from these companies of approximately $ 685,000 and $ 2,166,000 , respectively.

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

1 unchanged sentence

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

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

During the three and nine months ended September 30, 2022, the Company recognized approximately $ 24,000 and $ 73,000 , respectively, of expense related to this lease.

This lease expense is included in the Company's general and administrative expenses in the accompanying condensed consolidated statements of income.

9 unchanged sentences

Subsequent events

On November 2, 2023 (the “Closing Date”), the Company, through its wholly-owned indirect subsidiary, PERC, entered into a stock purchase agreement (the “Purchase Agreement”) with Linda Ramey and Robert W.

Ramey (collectively, the “Sellers”).

Pursuant to the terms of the Purchase Agreement, effective as of October 1, 2023 (the “Effective Date”), PERC purchased a 100 % ownership interest in Ramey Environmental Compliance, Inc., a Colorado company (“REC”), for an aggregate purchase price of approximately $ 4,200,000 .

Of the total purchase price, (a) approximately $ 3,850,000 was paid on the Closing Date and (b) $ 350,000 will be paid on the earlier of (i) the second anniversary of the Effective Date and (ii) the expiration of the “Term” (as defined in the respective employment agreements between REC and the Sellers), provided that neither of the employment agreements between REC and the sellers has been terminated by REC for “Cause” (as defined in the employment agreements) or by the Sellers without “Good Reason” (as defined in the employment agreements) before the expiration of the “Term” (as defined in the employment agreements).

The Company has not yet completed its initial accounting for this business combination related to its opening balance sheet as of the date of these financial statements.

REC operates and maintains water and wastewater treatment facilities and provides technical services to clients throughout the Rocky Mountain and Eastern Plains Regions of Colorado.

REC is headquartered in Frederick, Colorado.

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

1 unchanged sentence

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