What changed in this filing

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Item 1. Financial Statements

2024-05-15 compared with 2023-11-09 · 142 added, 221 removed, 441 unchanged (45% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

Current assets

15 unchanged sentences

Accounts payable, accrued expenses and other current liabilities

Accounts payable - related parties

Accrued compensation

31 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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)

Three Months Ended March 31,

Cost of revenue

General and administrative expenses

Gain on asset dispositions and impairments, net

5 unchanged sentences

Equity in the earnings of OC-BVI

Net gain (loss) on put/call options

Other income (expense), net

Other income, net

Income before income taxes

3 unchanged sentences

Net income from continuing operations attributable to Consolidated Water Co.

Total loss from discontinued operations

( 1,533,064 )

Loss from discontinued operations

Net income attributable to Consolidated Water Co.

20 unchanged sentences

Issue of share capital

Purchase of remaining non-controlling interest in PERC

( 3,667,305 )

( 2,440,027 )

Dividends declared

( 1,342,015 )

Stock-based compensation

Balance as of March 31, 2023

Issue of share capital

Buyback of preferred stock

Exercise of options

Dividends declared

2 unchanged sentences

Stock-based compensation

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

Balance as of March 31, 2024

preferred stock

2 unchanged sentences

Issue of share capital

Conversion of preferred stock

Buyback of preferred stock

Dividends declared

( 1,303,014 )

Stock-based compensation

Balance as of March 31, 2022

Issue of share capital

Buyback of preferred stock

Exercise of options

Dividends declared

Purchase of remaining non-controlling interest in PERC

( 3,667,305 )

( 2,440,027 )

Stock-based compensation

Balance as of June 30, 2022

Conversion 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, 2022

Balance as of March 31, 2023

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,

Cash flows from operating activities

Net income attributable to Consolidated Water Co.

Income from continuing operations attributable to non-controlling interests

Adjustments to reconcile net income to net cash provided by operating activities:

Foreign currency transaction adjustment - discontinued operations

Loss from discontinued operations

Depreciation and amortization

Deferred income tax benefit

Provision for credit losses

Compensation expense relating to stock and stock option grants

Gain on asset dispositions and impairments, net

Profit-sharing and equity in earnings of OC-BVI

Distribution of earnings from OC-BVI

Accounts receivable

( 3,715,214 )

( 2,475,548 )

Contract assets

( 1,787,438 )

( 3,213,865 )

( 3,382,870 )

Prepaid expenses and other assets

Accounts payable, accrued expenses and other current liabilities

Contract liabilities

Operating lease liabilities

Deferred revenue

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

Cash flows from investing activities

Purchase of certificate of deposit

( 2,518,493 )

Maturity of certificate of deposit

Additions to property, plant and equipment and construction in progress

( 1,381,796 )

( 2,947,937 )

Proceeds from asset dispositions

8 unchanged sentences

Dividends paid to preferred shareholders

Dividends paid to non-controlling interests

( 1,102,475 )

Buyback of redeemable preferred stock

Proceeds received from exercise of stock options

Principal repayments on long-term debt

2 unchanged sentences

( 1,334,114 )

Net increase (decrease) in cash and cash equivalents

( 2,118,784 )

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

3 unchanged sentences

Non-cash transactions:

Issuance of 13,309 and 9,295 , respectively, shares of redeemable preferred stock for services rendered

Issuance of 57,384 and 44,873 , 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

2 unchanged sentences

Transfers from construction in progress to property, plant and equipment

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

Purchase of equipment through issuance of long-term debt

Transfers from prepaid expenses to property, plant and equipment

7 unchanged sentences

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.

The Company designs, builds and sells water production and water treatment infrastructure and manages water infrastructure for commercial and governmental customers.

The Company designs, constructs and sells water production and water treatment infrastructure and manages water infrastructure for commercial and governmental customers.

The Company also manufactures a wide range of specialized and custom water industry related products and provides design, engineering, operating and other services applicable to commercial, municipal and industrial water production, supply and treatment.

6 unchanged sentences

Holdings, Inc.

(“CW-Holdings”), DesalCo Limited (“DesalCo”), Kalaeloa Desalco LLC (“Kalaeloa Desalco”), Ocean Conversion (Cayman) Limited (“OC-Cayman”), and PERC Water Corporation ("PERC");

(“CW-Holdings”), DesalCo Limited (“DesalCo”), Kalaeloa Desalco LLC (“Kalaeloa Desalco”), Ocean Conversion (Cayman) Limited (“OC-Cayman”), PERC Water Corporation ("PERC") and Ramey Environmental Compliance, Inc.

and (ii) majority-owned subsidiaries Consolidated Water (Bahamas) Ltd.

4 unchanged sentences

All significant intercompany balances and transactions have been eliminated in consolidation.

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 for $ 2.4 million in cash and 368,383 shares of the Company’s common stock, having a value of approximately $ 5.36 million based upon the opening trading price of the Company’s common stock on The Nasdaq Global Market on the date of the transaction.

In January 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 for $ 2.4 million in cash, and 368,383 shares of the Company’s common stock having a value of approximately $ 5.36 million based upon the opening trading price of the Company’s common stock on The Nasdaq Global Market on the date of the transaction.

After giving effect to this purchase, CW-Holdings owns 100 % of the outstanding capital stock of PERC.

In September 2021, Kalaeloa Desalco was formed to pursue a project encompassing the design, construction, operations and maintenance of a seawater reverse osmosis desalination plant in Oahu, Hawaii.

On June 2, 2023, Kalaeloa Desalco, which is jointly owned by PERC and CW-Holdings, signed a definitive agreement with the Honolulu Board of Water Supply to design, build, operate and maintain a 1.7 million gallons per day seawater reverse osmosis desalination plant in Oahu, Hawaii.

In September 2021, Kalaeloa Desalco was formed to pursue a project in Oahu, Hawaii.

On June 2, 2023, Kalaeloa Desalco signed a definitive agreement with the Honolulu Board of Water Supply to design, construct, operate and maintain a 1.7 million gallons per day seawater reverse osmosis desalination plant in Oahu, Hawaii.

Effective October 1, 2023, the Company purchased, through its wholly-owned subsidiary PERC, a 100 % ownership interest in REC, a Colorado company that operates and maintains water and wastewater treatment facilities and provides technical services to clients throughout the Rocky Mountain and Eastern Plains Regions of Colorado.

PERC acquired REC for approximately $ 4.1 million and recorded goodwill and intangible assets from this acquisition of $ 2,436,391 and $ 1,108,390 respectively.

The accompanying interim condensed consolidated financial statements are unaudited.

2 unchanged sentences

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”).

Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted in these condensed consolidated financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading.

Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been

condensed or omitted in these condensed consolidated financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

6 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 $ 22,077 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.

Net foreign currency gains arising from transactions and re-measurements were $ 24,197 and $ 25,779 for the three months ended March 31, 2024 and 2023, 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 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.

Cash and cash equivalents as of March 31, 2024 and December 31, 2023 include approximately $ 5.2 million and $ 5.1 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 September 30, 2023 and December 31, 2022 were approximately $ 5.1 million and $ 5.7 million, respectively.

The equivalent United States dollar cash balances held in The Bahamas as of March 31, 2024 and December 31, 2023 were approximately $ 6.9 million and $ 3.0 million, respectively.

Goodwill and intangible assets:

3 unchanged sentences

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 for goodwill impairment testing purposes, which consist of Cayman Water, the bulk segment (which is comprised of CW-Bahamas and OC-Cayman), PERC, and the manufacturing segment (i.e., Aerex), 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 for goodwill impairment testing purposes, which consist of Cayman Water, the bulk segment (which is comprised of CW-Bahamas and OC-Cayman), PERC, REC, and the manufacturing segment (i.e., Aerex), 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 these fair values to the carrying amounts of the reporting units.

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 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.

The events and circumstances assessed for each unit included macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, and other relevant events.

Based upon this qualitative assessment the Company determined that it was more likely than not that the fair values of its Cayman Water and bulk segment reporting units exceeded their carrying values as of December 31, 2022.

Based upon the Company’s negotiated, arms-length purchase of the remaining 39 % equity interest in PERC from its minority shareholders for $ 7.8 million in January 2023, the fair value of the Company’s PERC reporting unit exceeded its carrying value by 79 % as of December 31, 2022.

For the year ended December 31, 2022, the Company estimated the fair value of its manufacturing reporting unit 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 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

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

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 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.

For the year ended December 31, 2023, the Company elected to assess qualitative factors to determine whether it was necessary to perform the quantitative goodwill impairment testing that was conducted in prior years for the reporting units.

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

The events and circumstances assessed for each reporting unit included macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, and other relevant events.

Based upon this qualitative assessment, the Company determined that it is more likely than not that the fair values of its reporting units exceeded their carrying values as of December 31, 2023 .

Income taxes:

2 unchanged sentences

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized

in income in the period that includes the enactment date.

A valuation allowance is provided to the extent any deferred tax asset may not be realized.

3 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Retail revenue

3 unchanged sentences

Services revenue consists of the following:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Construction revenue

9 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, recognizing this revenue from the transfer of goods or services to customers at a point in time.

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

2 unchanged sentences

The Company sells bulk water in The Bahamas through its majority-owned subsidiary, CW-Bahamas, under two agreements with the Water and Sewerage Corporation of The Bahamas (“WSC”), which distributes such water through its own pipeline system to residential, commercial and tourist properties on the island of New Providence.

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, recognizing this revenue from the transfer of goods or services to customers at a point in time.

Services and Manufacturing revenue

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 designs, constructs, 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 United States.

Effective October 2023, PERC acquired REC, a company that provides operations and maintenance and consulting services to companies and governmental entities located in the state of Colorado.

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.

2 unchanged sentences

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

The Company also generates operations and maintenance and consulting revenue from REC.

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.

9 unchanged sentences

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

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.

For the three months ended March 31, 2024 and 2023, the Company recognized $ 9,397,093 and $ 8,588,584 , respectively, of its services revenue from the transfer of goods or services to customers over time.

The remaining services revenue of $ 8,020,518 and $ 4,133,117 , respectively, was recognized from the transfer of goods or services to customers at a point in time.

For the three months ended March 31, 2024 and 2023, the Company recognized all of its manufacturing revenue from the transfer of goods or services to customers over time.

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

September 30,

Revenue recognized to date on contracts in progress

2 unchanged sentences

( 101,724,459 )

Net contract liability

( 5,890,199 )

Net contract asset

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

September 30,

Contract assets

2 unchanged sentences

( 6,237,011 )

Net contract liability

( 5,890,199 )

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 .

Net contract asset

As of March 31, 2024, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 152.3 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 $ 15.0 million during the remainder of the year ending December 31, 2024 and approximately $ 137.3 million thereafter .

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.

In addition, the Company recognized revenue of approximately $ 2.8 million in the three months ended March 31, 2024, that was included in the contract liability balance as of December 31, 2023.

Practical Expedients and Exemptions

1 unchanged sentence

Comparative amounts:

Certain amounts presented in the financial statements previously issued for 2022 have been reclassified to conform to the current periods’ presentation.

Certain amounts presented in the financial statements previously issued for 2023 have been reclassified to conform to the current period’s presentation.

Segment information

10 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, 2023

Three Months Ended March 31, 2024

Manufacturing

1 unchanged sentence

General and administrative expenses

Income (loss) from operations

Income from operations

Other income, net

6 unchanged sentences

Net income attributable to Consolidated Water Co.

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

Cost of revenue

General and administrative expenses

Gain on asset dispositions and impairments, net

Income (loss) from operations

Other expense, net

Income before income taxes

Provision for 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

Net income attributable to Consolidated Water Co.

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

Depreciation and amortization expenses for the three months ended March 31, 2024 for the retail, bulk, services and manufacturing segments were $ 640,470 , $ 716,328 , $ 251,752 and $ 66,149 , respectively.

Three Months Ended March 31, 2023

Manufacturing

2 unchanged sentences

Gain (loss) on asset dispositions and impairments, net

Income (loss) from operations

Other income, net

Income before income taxes

Provision for 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

Net income attributable to Consolidated Water Co.

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

Cost of revenue

General and administrative expenses

Gain on asset dispositions and impairments, net

Income (loss) from operations

Income from operations

Other income, net

2 unchanged sentences

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

( 1,533,064 )

Net income attributable to Consolidated Water Co.

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

Depreciation and amortization expenses for the three months ended March 31, 2023 for the retail, bulk, services and manufacturing segments were $ 626,637 , $ 728,129 , $ 171,349 and $ 67,963 , respectively.

As of March 31, 2024

Manufacturing

22 unchanged sentences

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

( 1,533,064 )

Loss from discontinued operations

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

6 unchanged sentences

Discontinued operations - Mexico project development

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 gallons 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.

In 2010, the Company began the pursuit, through its Netherlands subsidiary, CW-Cooperatief, and its Mexico subsidiary, NSC, of a project (the “Project”) that encompassed the construction, operation and minority ownership of a 100 million gallons 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.

3 unchanged sentences

(“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”) 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.

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

plus MXN$ 137 million (with the exact amount to be quantified in the proceedings), plus fees, costs and pre- and post-award interest.

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.

4 unchanged sentences

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 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 classified as discontinued operations in the accompanying condensed consolidated financial statements.

Accordingly, the assets and liabilities of CW-Cooperatief, NSC and AdR, as well as the costs for legal and administrative activities to pursue reimbursement from the State of Baja California following the cancellation of the APP Contract, are classified as discontinued operations in the accompanying condensed consolidated financial statements.

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

September 30,

Accounts receivable

Prepaid expenses and other current assets

1 unchanged sentence

Total liabilities of discontinued operations

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Loss from discontinued operations

2 unchanged sentences

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 January 2018, EWG Water LLC (“EWG”) initiated an ordinary mercantile claim against, among others, N.S.C.

(“NSC”) and Consolidated Water Cooperatief, U.A.

(“CW-Cooperatief”) (with Aguas de Rosarito S.A.P.I.

(“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.

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.

2 unchanged sentences

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;

(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, EWG would have three business days, counted from the posting of the bond, to initiate and prove to the Rosarito Court that it initiated the arbitration.

To the Company’s knowledge EWG has not posted the bond.

Consequently, NSC has not been summoned to an arbitration procedure.

As EWG has apparently 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.

As stated previously, 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.

On August 16, 2023, NSC filed an amparo suit (i.e.

application for constitutional relief) before the Eleventh Federal District Court in Tijuana (“Federal District Court in Tijuana”) against the precautionary measures granted to EWG by the Rosarito Court.

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

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

NSC has submitted the guarantee to the court.

NSC subsequently filed an extension of the amparo suit introducing new arguments aiming to strengthen NSC´s position.

The amparo extension was admitted through a resolution published on November 7, 2023.

The Federal District Court in Tijuana has not been able to summon EWG on this amparo suit, as it has not been able to determine or obtain an address for such summons.

As such, the Federal District Court in Tijuana has requested various authorities to provide information on any domicile where EWG can be summoned.

The responses of some authorities are in process of being received by the Federal District Court in Tijuana.

NSC is waiting until all the authorities provide their official response to determine if there is a viable alternative for summoning EWG.

NSC offered certain evidence consisting of the docket of amparo file number 74/2020, which was processed by the Twelfth Civil District Court in Tijuana.

The Amparo Law provides that any documentary evidence offered by the parties shall be issued without any cost.

Therefore, NSC requested the Court to grant the expedition of said copies for free.

However, this request was denied by the Federal District Court in Tijuana.

Therefore, NSC filed an appeal for review against said decision, which was admitted by the Federal District Court in Tijuana and sent to the Second Collegiate Circuit Court in Tijuana, acting as Court of Appeals, which confirmed the admission of the appeal remedy through a resolution published on January 26, 2024.

The judgment is still pending resolution.

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

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

The land used by the Company to operate its seawater desalination plants in the Cayman Islands and The Bahamas is owned by the Company or leased to the Company for immaterial annual amounts and is not included in the lease amounts presented in the condensed consolidated balance sheets.

All lease assets denominated in a foreign currency are measured using the exchange rate at the commencement of the lease.

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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

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Operating leases

Operating leases - discontinued operations

Weighted average discount rate:

Operating leases

Operating leases - discontinued operations

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 from continuing operations as of September 30, 2023 were as follows:

Future lease payments relating to the Company’s operating lease liabilities from continuing operations as of March 31, 2024 were as follows:

Years ending December 31,

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Noncurrent lease obligations

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.

As of March 31, 2024 and December 31, 2023, 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.

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.

As of March 31, 2024 and December 31, 2023, the Company does not have assets and liabilities measured at fair value to present in the fair value hierarchy.

Contingencies

The Company sells water through its Cayman Water 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.

Although the 1990 license has not been 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:

Seven Mile Beach and West Bay.

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.

For the three months ended March 31, 2024 and 2023, the Company generated approximately 22 % and 24 %, respectively, of its consolidated revenue and 37 % and 40 %, 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.

The most recent express extension of the 1990 license expired on January 31, 2018.

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

The Company continues to pay a royalty of 7.5 % of the revenue that Cayman Water collects as required under the 1990 license.

In October 2016, the Government of the Cayman Islands passed legislation which created a new utilities regulation and competition office (“OfReg”).

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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 (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.

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $ 25.6 million and $ 26.9 million as of March 31, 2024 and December 31, 2023, respectively.

Approximately 79 % and 80 % 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.

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

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

All previous delinquent accounts receivable from the WSC, including accrued interest thereon, were eventually paid in full.

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 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.

Based upon this payment history, CW-Bahamas has not provided a material allowance for credit losses for its accounts receivable from the WSC as of March 31, 2024.

CW-Bahamas held discussions with the WSC in March 2024 and with representatives of The Bahamas Government in April 2024 during which CW-Bahamas was informed that the Government intends to substantially reduce CW-Bahamas’ accounts receivable from the WSC over the course of 2024.

In a report dated October 6, 2022, Moody’s Investor Services (“Moody’s”) downgraded 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 that no allowance for doubtful accounts is required for CW-Bahamas’ accounts receivable from the WSC.

Moody’s iterated these ratings in April and October 2023 and April 2024, noting that such ratings are “stable.”

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

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(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.

and (iii) the Company may be required to provide an additional allowance for credit losses 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.

Related party transactions

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 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.

PERC entered into a sublease agreement with one of these formerly affiliated companies that commenced on March 14, 2021 and ended August 31, 2021.

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

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.

The total amount of accounts payable outstanding to these companies as of December 31, 2022, was approximately $ 404,000 .

Impact of recent accounting standards

Adoption of new accounting standards:

Financial Accounting Standard Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments, and related amendments, introduces new guidance which makes substantive changes to the accounting for credit losses.

This guidance introduces the current expected credit losses (“CECL”) model which applies to financial assets subject to credit losses and measured at amortized cost, as well as certain off-balance sheet credit exposures.

The CECL model requires an entity to estimate credit losses expected over the life of an exposure, considering information about historical events, current conditions, and reasonable and supportable forecasts and is generally expected to result in earlier recognition of credit losses.

The Company adopted this guidance as of January 1, 2023 using the modified retrospective approach.

The impact of this adoption was not material to the Company’s consolidated financial statements.

Effect of newly issued but not yet effective accounting standards:

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment’s profit or loss.

This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources.

The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently evaluating the impact of this guidance.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid.

The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently evaluating the impact of this guidance.

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.

Other than as disclosed in these condensed consolidated financial statements, the Company is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on its condensed consolidated financial statements.

The Company is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on its condensed consolidated financial statements.

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