What changed in this filing

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Item 1. Financial Statements

2022-08-10 compared with 2022-05-04 · 213 added, 149 removed, 484 unchanged (43% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

March 31, 2022 December 31, 2021

UTILITY PLANT:

June 30, 2022 December 31, 2021

PROPERTY, PLANT AND EQUIPMENT:

Land $ 1,456 $ 1,338

Depreciable property, plant and equipment 322,086 313,700

Construction work-in-progress 67,108 53,511

Other 697 697

Construction work-in-process 59,023 53,511

Less accumulated depreciation ( 119,619 ) ( 113,380 )

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Restricted cash 1,925 806

Other noncurrent assets 34 10

Right-of -use asset - finance lease 1,749 —

Other noncurrent assets 34 10

Total other assets 22,319 19,221

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Common stock, $ 0.01 par value, 60,000,000 shares authorized;

22,832,263 and 22,832,013 shares issued as of March 31, 2022 and December 31, 2021, respectively.

Treasury stock, 182,445 and 182,445 shares at March 31, 2022 and December 31, 2021, respectively.

22,939,811 and 22,832,013 shares issued as of June 30, 2022 and December 31, 2021, respectively.

Treasury stock, 223,202 and 182,445 shares at June 30, 2022 and December 31, 2021, respectively.

Paid in capital 29,635 29,803

3 unchanged sentences

See accompanying notes to the condensed consolidated financial statements

Table of Contents PART I—FINANCIAL INFORMATION

GLOBAL WATER RESOURCES, INC.

1 unchanged sentence

(in thousands, except share and per share amounts)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Water services $ 5,682 $ 5,250 $ 10,030 $ 9,236

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Total other expense ( 505 ) 284 ( 636 ) ( 1,021 )

INCOME (LOSS) BEFORE INCOME TAXES 1,232 ( 262 )

INCOME BEFORE INCOME TAXES 1,957 2,623 3,189 2,361

INCOME TAX BENEFIT (EXPENSE) 150 ( 641 ) ( 193 ) ( 596 )

NET INCOME (LOSS) $ 889 $ ( 217 )

Basic earnings (loss) per common share $ 0.04 $ ( 0.01 )

Diluted earnings (loss) per common share $ 0.04 $ ( 0.01 )

NET INCOME $ 2,107 $ 1,982 $ 2,996 $ 1,765

Basic earnings per common share $ 0.09 $ 0.09 $ 0.13 $ 0.08

Diluted earnings per common share $ 0.09 $ 0.09 $ 0.13 $ 0.08

Dividends declared per common share $ 0.07 $ 0.07 $ 0.15 $ 0.15

3 unchanged sentences

See accompanying notes to the condensed consolidated financial statements

Table of Contents PART I—FINANCIAL INFORMATION

GLOBAL WATER RESOURCES, INC.

9 unchanged sentences

Stock compensation — — — — 271 — 271

Net income (loss) — — — — — ( 217 ) ( 217 )

Net income — — — — — ( 217 ) ( 217 )

BALANCE - March 31, 2021 22,691,105 $ 227 ( 103,109 ) $ ( 1 ) $ 30,583 $ ( 217 ) $ 30,592

Dividend declared $ 0.07 per share

— — — — 330 ( 1,982 ) ( 1,652 )

Issuance of common stock 54,163 — — — — — —

Treasury stock — — ( 24,599 ) — 4 — 4

Stock option exercise 2,875 — — — — — —

Stock compensation — — — — 38 — 38

Net income — — — — — 1,982 1,982

BALANCE - June 30, 2021 22,748,143 $ 227 ( 127,708 ) $ ( 1 ) $ 30,955 $ ( 217 ) $ 30,964

BALANCE - December 31, 2021 22,832,013 $ 228 ( 182,445 ) $ ( 2 ) $ 29,803 $ — $ 30,029

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BALANCE - March 31, 2022 22,832,263 $ 228 ( 182,445 ) $ ( 2 ) $ 29,414 $ — $ 29,640

Dividend declared $ 0.07 per share

— — — — 433 ( 2,107 ) ( 1,674 )

Issuance of common stock 107,548 — — — — — —

Treasury stock — — ( 40,756 ) — ( 257 ) — ( 257 )

Stock option exercise — — — — — — —

Stock compensation — — — — 45 — 45

Net income — — — — — 2,107 2,107

BALANCE - June 30, 2022 22,939,811 $ 228 ( 223,201 ) $ ( 2 ) $ 29,635 $ — $ 29,861

See accompanying notes to the condensed consolidated financial statements

Table of Contents PART I—FINANCIAL INFORMATION

GLOBAL WATER RESOURCES, INC.

1 unchanged sentence

(Unaudited, in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) $ 889 $ ( 217 )

Net income $ 2,996 $ 1,765

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

1 unchanged sentence

Depreciation and amortization 4,770 4,634

Right of use amortization 26 —

Amortization of deferred debt issuance costs and discounts 22 22

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Cash paid for acquisitions, net of cash acquired ( 121 ) ( 5 )

Other cash flows from investing activities ( 24 ) —

Net cash used in investing activities ( 14,783 ) ( 6,413 )

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Principal payments under capital lease ( 28 ) ( 67 )

Refunds of advances for construction ( 91 ) —

Loan repayments ( 233 ) —

Repayments of bond ( 1,917 ) —

Net cash (used) provided by financing activities ( 3,820 ) ( 1,591 )

INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH ( 1,502 ) 838

DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH ( 6,727 ) ( 640 )

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period 13,443 21,305

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Supplemental disclosure of cash flow information:

March 31, 2022 March 31, 2021

June 30, 2022 June 30, 2021

Cash and cash equivalents $ 4,791 $ 19,349

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The condensed consolidated financial statements of Global Water Resources, Inc.

(the “Company”, “GWRI”, “we”, “us”, or “our”) and related disclosures as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 are unaudited.

(the “Company”, “GWRI”, “we”, “us”, or “our”) and related disclosures as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021 are unaudited.

The December 31, 2021 condensed consolidated balance sheet data was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.

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In our opinion, these financial statements include all normal and recurring adjustments necessary for the fair statement of the results for the interim period.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year, due to the seasonality of our business.

The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year, due to the seasonality of our business.

The Company prepares its financial statements in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC").

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The City of Buckeye is obligated to pay the Company a growth premium equal to $ 3,000 for each new water meter installed within Valencia’s prior service areas in the City of Buckeye, for a 20 -year period ending December 31, 2034, subject to a maximum payout of $ 45.0 million over the term of the agreement.

The Company received growth premium of $ 1.1 million and less than $ 0.1 million for the three months ended March 31, 2022 and 2021.

The Company received growth premiums of $ 0.5 million and $ 0.2 million for the three months ended June 30, 2022 and 2021, respectively, and $ 1.6 million and $ 0.2 million for the six months ended June 30, 2022 and 2021, respectively.

The increase was due to increased meter connections in the area over the prior year period.

Arizona Corporation Commission (the “ACC”) Tax Docket

The Company had a regulatory asset of $ 2.8 million and $ 2.3 million at March 31, 2022 and December 31, 2021, respectively, and regulatory liabilities of $ 0.8 million at March 31, 2022 and December 31, 2021, respectively, related to the Federal Tax Cuts and Jobs Act (the "TCJA") signed into law on December 22, 2017.

Under ASC 740, Income Taxes , the tax effects of changes in tax laws must be recognized in the period in which the law is enacted.

The Company had a regulatory asset of $ 3.3 million and $ 2.3 million at June 30, 2022 and December 31, 2021, respectively, and regulatory liabilities of $ 0.8 million at June 30, 2022 and December 31, 2021, respectively, related to the Federal Tax Cuts and Jobs Act (the "TCJA") signed into law on December 22, 2017.

Under Accounting Standards Codification ("ASC") 740, Income Taxes , the tax effects of changes in tax laws must be recognized in the period in which the law is enacted.

ASC 740 also requires deferred income tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled.

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Rate Decision No.

76901 adopted a phase-in approach for the reductions to match the phase-in of our revenue requirement under Rate Decision No.

76901 adopted a phase-in approach for the reductions to match the phase-in of our revenue requirement under Decision No.

74364 enacted in February 2014.

In 2021, the final year of the phase-in, the aggregate annual reductions in revenue for our Santa Cruz, Palo Verde, Greater Tonopah, and Northern Scottsdale utilities was approximately $ 415,000 ,

$ 669,000 , $ 16,000 , and $ 5,000 , respectively.

The ACC also approved a carrying cost of 4.25 % on regulatory liabilities resulting from the difference of the fully phased-in rates to be applied in 2021 versus the years leading up to 2021 (i.e., 2018 through 2020).

In 2021, the final year of the phase-in, the aggregate annual reductions in

revenue for our Santa Cruz, Palo Verde, Greater Tonopah, and Northern Scottsdale utilities was approximately $ 415,000 , $ 669,000 , $ 16,000 , and $ 5,000 , respectively.

The ACC also approved a carrying cost of 4.25 % on regulatory liabilities resulting from the difference of the fully phased-in rates applied in 2021 versus the phased-in rates refunded in the years leading up to 2021 (i.e., 2018 through 2020).

Rate Decision No.

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On July 18, 2019, the Company made a filing proposing these items be deferred to the next rate case.

Refer to " — Corporate Transactions — ACC Rate Case" for additional information regarding the Company's next rate case.

On July 27, 2022, the ACC issued Rate Decision No.

78644, which approved an adjustor mechanism for income taxes.

The adjustor mechanism permits the Company to flow through potential changes to state and federal income tax rates as well as refund or collect funds related to TCJA.

The Company expects any remaining TCJA recovery to be addressed through the income tax adjustor.

Refer to Note 2 — "Regulatory Decision and Related Accounting and Policy Changes" for additional information regarding the Company's recently approved rate case.

On November 27, 2018, February 20, 2019, February 28, 2019, and January 23, 2020, the ACC adopted orders relating to the funding for income taxes on contributions in aid of construction (“CIAC”) and advances in aid of construction (“AIAC”) (which became taxable for our regulated utilities under the TCJA).

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The Company's utilities have adopted the hybrid sharing method for income tax on CIAC and AIAC.

Effective January 1, 2021, CIAC and AIAC for regulated water and sewage disposal facility companies were excluded from income under Internal Revenue Code Section 118.

Due to the 2021 IRC Section 118 amendment, the Company refunded $ 1.4 million in developer taxes paid for contributions made after December 31, 2020.

For more details regarding the ruling, refer to "— Corporate Transactions — ACC Tax Docket."

ACC Rate Case

On August 28, 2020, 12 of our 18 regulated utilities each filed a rate case application with the ACC for water, wastewater, and recycled water rates, which proposed a collective revenue requirement increase of $ 4.6 million (relative to expected revenues in 2021, which is the final year of the rate phase-in from the last rate case) based on a 2019 test year.

On August 2, 2021, we filed rejoinder testimony with the ACC updating our collective revenue increase to approximately $ 3.0 million.

An evidentiary hearing was conducted beginning August 9, 2021.

Certain of our utilities, including Santa Cruz and Palo Verde, have also requested that the rate increases be phased in over three years, beginning January 1, 2022.

A final decision is not expected until the second quarter of 2022;

therefore, any phase-in did not begin as requested on January 1, 2022 and may be shorter or longer than three years, if a revenue increase is approved.

We also requested the consolidation of water and/or wastewater rates for our Red Rock, Santa Cruz, Palo Verde, Picacho Water, and Picacho Utilities located in Pinal County.

Of our utilities filing a rate case, these utilities make up approximately 96 % of the Company's active service connections;

provide or will provide water, wastewater, and recycled water services;

and are expected to create economies of scale that are beneficial to all customers if consolidated.

There can be no assurance, however, that the ACC will approve the requested rate increase or any increase or the consolidation of water and wastewater rates described above, and the ACC could take other actions as a result of the rate case.

Further, it is possible that the ACC may determine to decrease future rates.

There can also be no assurance as to the timing of when an approved rate increase (if any) would go into effect.

Revolving Credit Line

On April 30, 2020, the Company entered into an agreement with The Northern Trust Company, an Illinois banking corporation, for a two -year revolving line of credit up to $ 10.0 million with an initial maturity date of April 30, 2022.

This credit facility, which may be used to refinance existing indebtedness, to acquire assets to use in and/or expand the Company’s business, and for general corporate purposes, bears an interest rate equal to the London Interbank Offered Rate (LIBOR) plus 2.00 % and has no unused line fee.

On November 15, 2021, the Infrastructure Investment and Jobs Act was signed into law and became Public Law No.

117-58, which excludes AIAC and CIAC for regulated water and sewage disposal facility companies from income under Internal Revenue Code ("IRC") Section 118, effective January 1, 2021.

Revolving Line of Credit

On April 30, 2020, the Company entered into an agreement with The Northern Trust Company, an Illinois banking corporation, for a two-year revolving line of credit initially up to $ 10.0 million with an initial maturity date of April 30, 2022.

This credit facility, which may be used to refinance existing indebtedness, to acquire assets to use in and/or expand the Company’s business, and for general corporate purposes, initially bore an interest rate equal to the London Interbank Offered Rate (LIBOR) plus 2.00 % and has no unused line fee.

This credit facility replaced the previous revolving line of credit with MidFirst Bank, which was terminated in April 2020.

As of March 31, 2022, we had no outstanding borrowings under this credit line.

On April 30, 2021, the Company and The Northern Trust Company entered into an amendment to the loan agreement pursuant to which, among other things, the maturity date for the Company’s revolving line of credit was extended to April 30, 2024.

Recent Events

As of June 30, 2022, we had no outstanding borrowings under this credit line.

On April 30, 2021, the Company and The Northern Trust Company entered into an amendment to the loan agreement pursuant to which, among other things, the maturity date for the revolving line of credit was extended to April 30, 2024.

On July 26, 2022, the Company and Northern Trust entered into the second amendment (the "Second Modification Agreement") to the Northern Trust Loan Agreement.

Pursuant to the Second Modification Agreement, the terms and conditions set forth in the Northern Trust Loan Agreement were further amended to, among other things, (i) extend the scheduled maturity date from April 30, 2024 to July 1, 2024;

(ii) increase the maximum principal amount available for borrowing under the revolving line of credit from $ 10.0 million to $ 15.0 million;

and (iii) replace the LIBOR interest rate provisions with provisions based on the Secured Overnight Financing Rate (SOFR).

Acquisition of Rincon Water Company, Inc.

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The acquisition added an additional 18 connections and approximately 0.5 square miles of service area at the time of acquisition to the assets of Santa Cruz.

Definitive Agreement to Acquire Farmers Water Company

On April 14, 2022, the Company signed a definitive agreement to acquire Farmers Water Company, an operator of a water utility with service area in Pima County, Arizona, subject to customary closing conditions and ACC approval.

The acquisition, if completed, is expected to add approximately 3,300 active water service connections, approximately $ 1.5 million in annual revenue, and 21.1 square miles Certificate of Convenience & Necessity ("CC&N") service area in Sahuarita, Arizona.

Significant Accounting Policies

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Diluted earnings per share is based upon the weighted average number of common shares, including both outstanding shares and shares potentially issuable in connection with stock options and restricted stock awards granted.

As of March 31, 2022, the Company had 563,213 options outstanding to acquire an equivalent number of shares of GWRI common stock.

The 320,321 options outstanding from the 2017 option grant equated to 128,375 common share equivalents, which were included within the calculation of diluted earnings per share for the three months ended March 31, 2022.

The 242,892 options outstanding from the 2019 option grant equated to 51,431 common share equivalents, which were included within the calculation of diluted earnings per share for the three months ended March 31, 2022.

As of March 31, 2022, there were 74,164 and 147,250 restricted stock awards outstanding from the 2020 grant and 2021 grant.

The 74,164 restricted stock awards outstanding from the 2020 grant equated to 57,566 common share equivalents for the three months ended March 31, 2022, respectively, which were included within the calculation of diluted earnings per share for the three months ended March 31, 2022.

The 147,250 restricted stock awards outstanding from the 2021 grant equated to 14,646 common share equivalents for the three months ended March 31, 2022, which were included within the calculation of diluted earnings per share for the three months ended March 31, 2022.

As of March 31, 2021, the Company had 623,351 options outstanding to acquire an equivalent number of shares of GWRI common stock.

For the three months ended March 31, 2021, the 623,351 options outstanding were not included within the dilutive earnings per share calculation as the Company incurred losses in this period and to do so would be antidilutive.

As of March 31, 2021, the 128,327 restricted stock awards outstanding from the 2020 grant were not included within the calculation of diluted earnings per share as the Company incurred losses in this period and to do so would be antidilutive.

As of June 30, 2022, the Company had 563,213 options outstanding to acquire an equivalent number of shares of GWRI common stock.

The 320,321 options outstanding from the 2017 option grant equated to 111,566 and 120,323 common share equivalents for the three and six months ended June 30, 2022, respectively, which were included within the calculation of diluted earnings per share for the three and six months ended June 30, 2022.

The remaining 242,892 options outstanding from the 2019 option grant equated to 37,726 and 44,869 common share equivalents for the three and six months ended June 30, 2022, respectively, which were included within the calculation of diluted earnings per share for the three and six months ended June 30, 2022.

As of June 30, 2022, there were 15,000 and 97,867 restricted stock awards outstanding from the 2020 grant and 2021 grant, respectively.

The 15,000 restricted stock awards outstanding from the 2020 grant equated to 31,439 and 43,091 common share equivalents for the three and six months ended June 30, 2022, respectively, which were included within the calculation of diluted earnings per share for the three and six months ended June 30, 2022.

The 97,867 restricted stock awards outstanding from the 2021 grant for the three and six months ended June 30, 2022 were not included within the dilutive earnings per share calculation, as to do so would be antidilutive.

As of June 30, 2021, the Company had 620,476 options outstanding to acquire an equivalent number of shares of GWRI common stock.

The 381,496 options outstanding from the 2017 option grant equated to 166,348 and 163,707 common share equivalents for the three and six months ended June 30, 2021, respectively, which were included within the calculation of diluted earnings per share for the three and six months ended June 30, 2021.

The remaining 238,980 options outstanding from the 2019 option grant equated to 55,232 and 53,414 common share equivalents for the three and six months ended June 30, 2021, respectively, which were included within the calculation of diluted earnings per share for the three and six months ended June 30, 2021.

As of June 30, 2021, there were 74,164 restricted stock awards outstanding from the 2020 grant.

The 74,164 restricted stock awards outstanding equated to 53,658 and 63,507 common share equivalents for the three and six months ended June 30, 2021, respectively, which were included within the calculation of diluted earnings per share for the three and six months ended June 30, 2021.

As of June 30, 2021, there were 164,650 restricted stock awards outstanding from the 2021 grant, which were not included within the calculation of diluted earnings per share for the three and six months ended June 30, 2021, as to do so would be antidilutive.

Refer to Note 13 – “Deferred Compensation Awards” for additional information regarding the option and restricted stock grants.

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In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (Topic 350) ("ASU 2018-15").

ASU 2018-15 amends ASC 350 to include in its scope implementation costs of a Cloud Computing Arrangement ("CCA") that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered

a service contract.

ASU 2018-15 amends ASC 350 to include in its scope implementation costs of a Cloud Computing Arrangement ("CCA") that is a service contract and clarifies that a

customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract.

The Company implemented Topic 350 on January 1, 2021.

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REGULATORY DECISION AND RELATED ACCOUNTING AND POLICY CHANGES

Our regulated utilities and certain other balances are subject to regulation by the ACC and meet the requirements for regulatory accounting found within ASC 980, Regulated Operations .

Our regulated utilities and certain other balances are subject to regulation by the ACC and meet the requirements for regulatory accounting found within ASC 980, Regulated Operations ("ASC 980").

In accordance with ASC 980, rates charged to utility customers are intended to recover the costs of the provision of service plus a reasonable return in the same period.

Changes to the rates are made through formal rate applications with the ACC, which we have done for all of our operating utilities as described below.

On July 9, 2012, we filed formal rate applications with the ACC to adjust the revenue requirements for seven utilities representing a collective rate increase of approximately 28 % over 2011 revenue levels.

In August 2013, the Company entered into a settlement agreement with ACC Staff, the Residential Utility Consumers Office, the City of Maricopa, and other parties to the rate case.

The settlement required approval by the ACC’s Commissioners before it could take effect.

In February 2014, the rate case proceedings were completed and the ACC issued Rate Decision No.

74364, effectively approving the settlement agreement.

The rulings of the decision include, but are not limited to, the following:

For the Company’s utilities, adjusting for the condemnation of the operations and assets of Valencia and sale of Willow Valley Water Co., Inc.

("Willow Valley"), which occurred in 2015 and 2016, respectively, a collective revenue requirement increase of $ 3.6 million based on 2011 test year service connections, phased-in over time, with the first increase in January 2015 as follows (in thousands, not updated for the TCJA, refer to Note 1 — "Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements — Corporate Transactions— ACC Tax Docket" for further details):

On August 28, 2020, 12 of the Company's 18 regulated utilities each filed a rate case application with the ACC for water, wastewater, and recycled water rates, based on a 2019 test year.

In addition to a rate increase, the Company requested, among other things, the consolidation of water and/or wastewater rates for certain of its utilities, including its Red Rock, Santa Cruz, Palo Verde, Picacho Water, and Picacho Utilities located in Pinal County.

Of the Company’s utilities filing a rate case, these utilities make up approximately 96% of the Company's active service connections.

On July 27, 2022, the ACC issued Rate Decision No.

78644 relating to the Company's recent rate case.

Pursuant to Rate Decision No.

78644, the ACC approved, among other things, a collective annual revenue requirement increase of approximately $ 2.2 million, (including the acquisition premiums discussed below) based on 2019 test year service connections, and phased-in over approximately two years, as follows:

Incremental Cumulative

2015 $ 1,083 $ 1,083

2016 887 1,970

2017 335 2,305

2018 335 2,640

2019 335 2,975

2020 335 3,310

2021 335 3,645

• Full reversal of the imputation of CIAC balances associated with funds previously received under infrastructure coordination and financing agreements ("ICFAs"), as required in the Company’s last rate case.

The reversal restored rate base or future rate base and had a significant impact of restoring shareholder equity on the balance sheet.

• The Company has agreed to not enter into any new ICFAs.

Existing ICFAs will remain in place, but a portion of future payments to be received under the ICFAs will be considered as hook-up fees, which are accounted for as CIAC once expended on plant.

• A 9.5 % return on common equity was adopted.

August 1, 2022 $ 1,457,462 $ 1,457,462

January 1, 2023 $ 675,814 $ 2,133,277

January 1, 2024 $ 98,585 $ 2,231,861

The phase-in of additional revenues was determined using a 2019 test year.

To the extent that the number of active service connections has increased and continues to increase from 2019 levels, the additional revenues may be greater than the amounts set forth above.

On the other hand, if active connections decrease or the Company experiences declining usage per customer, the Company may not realize all of the anticipated revenues.

The ACC also approved;

(i) the consolidation of water and/or wastewater rates to create economies of scale that are beneficial to all customers when rates are consolidated.;

(ii) acquisition premiums relating to the Company’s acquisitions of its Red Rock and Turner Ranches utilities, which increase the rate base for such utilities and result in an increase in the annual collective revenue requirement included in the table above;

(iii) the Company’s ability to annually adjust rates to flow through changes in property tax expense and/or changes in income tax expense, without the necessity of a rate case proceeding;

and (iv) a sustainable water surcharge, which will allow semiannual surcharges to be added to customer bills based on verified costs of new water resources.

Finally, Rate Decision No.

78644 requires the Company to work with ACC staff and the Residential Utility Consumer Office to prepare a Private Letter Ruling request to the Internal Revenue Service (“IRS”) to clarify whether the failure to eliminate the deferred taxes attributable to assets condemned in a transaction governed by Section 1033 of the IRC would violate the normalization provisions of Section 168(i)(9) of the Code.

If the IRS accepts the request and issues its ruling, a copy must be provided to the ACC.

Within 90 days after providing the ruling to the ACC, ACC Staff shall prepare, for ACC consideration, a memorandum and proposed order regarding guidance issued within the Private Letter Ruling.

This may result in further action by the ACC, which we are unable to predict due to the uncertainties involved, that could have an adverse impact on our financial condition, results of operations and cash flows.

Certain accounting implications related to Rate Case Decision No.

78644 were recognized and recorded as of June 30, 2022, and are as follows:

• Reclass Red Rock Water, Red Rock Wastewater, and Turner Ranches acquisition premiums of approximately $ 0.8 million from goodwill to regulatory assets to be included in rate base.

The premiums are to be amortized over 25 years.

• Reversal of the 2017 TCJA tax reform regulatory liability of approximately $ 0.8 million, which was recorded as a reduction to income tax expense for approximately $ 0.7 million, and as a reduction to interest expense for approximately $ 0.1 million.

• Write-off of approximately $ 0.3 million in capitalized rate case costs.

On September 20, 2018, the ACC issued Rate Decision No.

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Refer to Note 1 — "Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements — Corporate Transactions — ACC Tax Docket" for details regarding Rate Decision No.

On August 28, 2020, 12 of our 18 regulated utilities each filed a rate case application with the ACC for water, wastewater, and recycled water rates, as well as the consolidation of water and/or wastewater rates for certain of the utilities using the twelve

months ending December 31, 2019 as the test year for the rate case.

Refer to Note 1 — "Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements — Corporate Transactions— ACC Rate Case" for additional information.

The following provides additional discussion on accounting and policy changes resulting from Rate Decision No.

74364 enacted in February 2014.

Infrastructure Coordination and Financing Agreements – ICFAs are agreements with developers and homebuilders whereby GWRI, the indirect parent of the operating utilities, provides services to plan, coordinate, and finance the water and wastewater infrastructure that would otherwise be required to be performed or subcontracted by the developer or homebuilder.

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The Company will record 30 % of the funds received, up until the HUF liability is fully funded, as deferred revenue, which is to be recognized as revenue once the obligations specified within the ICFA are met, including construction of sufficient operating capacity to serve the customers for which revenue was deferred.

As of March 31, 2022 and December 31, 2021, ICFA deferred revenue recorded on the consolidated balance sheet totaled $ 20.1 million and $ 19.0 million, respectively, which represents deferred revenue recorded for ICFA funds received on contracts.

As of June 30, 2022 and December 31, 2021, ICFA deferred revenue recorded on the consolidated balance sheet totaled $ 20.9 million and $ 19.0 million, respectively, which represents deferred revenue recorded for ICFA funds received on contracts.

Intangible assets / Regulatory liability – Pursuant to Rate Decision No.

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The recognition of amortization expense will be partially offset by a corresponding reduction of the regulatory liability.

As of March 31, 2022, regulatory liability recorded on the consolidated balance sheet totaled $ 7.4 million, of which $ 5.9 million relates to the offset of intangible assets related to ICFA contracts obtained in connection with our Santa Cruz, Palo Verde, and Sonoran acquisitions, and the remaining $ 1.5 million relates to the TCJA rate reduction mandated by the ACC pursuant to Rate Decision No.

As of June 30, 2022, regulatory liability recorded on the consolidated balance sheet totaled $ 6.6 million, of which $ 5.9 million relates to the offset of intangible assets related to ICFA contracts obtained in connection with our Santa Cruz, Palo Verde, and Sonoran acquisitions, and the remaining $ 0.7 million relates to the TCJA rate reduction mandated by the ACC pursuant to Rate Decision No.

REVENUE RECOGNITION

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The Company applies judgment, based principally on historical payment experience, in estimating its customers' ability to pay.

The Company has elected to present sales taxes on a net basis and as such, sales taxes are included in Accounts Payable and Accrued Liabilities until remitted to the taxing authorities.

Total revenues do not include sales tax as we consider ourselves a pass-through conduit for collecting and remitting sales taxes.

Unregulated Revenue

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Disaggregated Revenues

For the three months ended March 31, 2022 and 2021, disaggregated revenues from contracts with customers by major source and customer class are as follows (in thousands):

Three Months Ended March 31,

For the three and six months ended June 30, 2022 and 2021, disaggregated revenues from contracts with customers by major source and customer class are as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

REGULATED REVENUE

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Our contract assets and liabilities consist of the following (in thousands):

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

CONTRACT ASSETS

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Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods.

Contracted revenue expected to be recognized in future periods was approximately $ 20.1 million and $ 19.0 million at March 31, 2022 and December 31, 2021, respectively.

Contracted revenue expected to be recognized in future periods was approximately $ 20.9 million and $ 19.0 million at June 30, 2022 and December 31, 2021, respectively.

Deferred revenue - ICFA is recognized as revenue once the obligations specified within the applicable ICFA are met, including construction of sufficient operating capacity to serve the customers for which revenue was deferred.

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The lease does not provide an implicit borrowing rate (“IBR”), and as such, we used an estimate IBR of 2.39 % which was based on The Treasury High Quality Market Corporate Bond Yield Curve.

The right-of-use ("ROU") asset recorded represents the Company’s right to use an underlying asset for the lease term and lease liability represents the Company’s obligation to make lease payments arising from the lease.

On September 28, 2021, the Company entered into a new five-year corporate office lease agreement with a commencement date of May 1, 2022.

Refer to Note 15 – “Commitments and Contingencies” for additional information regarding the components of the lease agreement.

The right-of-use ("ROU") asset recorded represents the Company’s right to use an underlying asset for the lease term and ROU lease liability represents the Company’s obligation to make lease payments arising from the lease.

Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As of March 31, 2022, ROU assets and liabilities totaled $ 50,409 and $ 50,334 , respectively.

As of March 31, 2022, the Company has not entered into any operating leases.

Refer to Note 15 — "Commitments and Contingencies" for additional information.

Right-of-use assets at June 30, 2022 and December 31, 2021 consist of the following (in thousands):

June 30, 2022 December 31, 2021

Financing Lease $ 107 $ —

Operating Lease 1,642 —

Total $ 1,749 $ —

Lease liabilities at June 30, 2022 and December 31, 2021 consist of the following (in thousands):

June 30, 2022 December 31, 2021

Financing Lease $ 88 $ —

Operating Lease 1,354 —

Total $ 1,442 $ —

PROPERTY, PLANT AND EQUIPMENT

Property, plant, and equipment at March 31, 2022 and December 31, 2021 consist of the following (in thousands):

March 31, 2022 December 31, 2021

Property, plant, and equipment at June 30, 2022 and December 31, 2021 consist of the following (in thousands):

June 30, 2022 December 31, 2021

Plant, equipment, and water and sewer lines $ 319,418 $ 311,041

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ACCOUNTS RECEIVABLE

Accounts receivable as of March 31, 2022 and December 31, 2021 consist of the following (in thousands):

March 31, 2022 December 31, 2021

Accounts receivable as of June 30, 2022 and December 31, 2021 consist of the following (in thousands):

June 30, 2022 December 31, 2021

Billed receivables $ 2,431 $ 2,126

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GOODWILL AND INTANGIBLE ASSETS

As of March 31, 2022, the goodwill balance of $ 5.8 million related to the Turner, Red Rock, Mirabell, Francesca, Tortolita, Lyn Lee, Las Quintas Serenas, Rincon and Twin Hawks.

The goodwill balance decreased from $ 5.8 million at March 31, 2022 to $ 5.1 million at June 30, 2022.

The balance is related to the Turner, Red Rock, Mirabell, Francesca, Tortolita, Lyn Lee, Las Quintas Serenas, Rincon and Twin Hawks acquisitions.

June 30, 2022, the Company reclassed approximately $ 0.8 million to regulatory assets related to acquisition premiums approved in Rate Case Decision 78644 (refer to Note 2 - "Regulatory Decision and Related Accounting and Policy Changes" for additional information).

There were no indicators of impairment identified as a result of the Company's review of events and circumstances related to its goodwill subsequent to the acquisitions.

Based on our annual impairment testing completed on February 14, 2022, no impairment was recorded.

Intangible Assets

As of March 31, 2022 and December 31, 2021, intangible assets consisted of the following (in thousands):

March 31, 2022 December 31, 2021

As of June 30, 2022 and December 31, 2021, intangible assets consisted of the following (in thousands):

June 30, 2022 December 31, 2021

Amount Accumulated

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Total intangible assets $ 27,148 $ ( 16,889 ) $ 10,259 $ 27,128 $ ( 16,789 ) $ 10,339

A Certificate of Convenience & Necessity ("CC&N") is a permit issued by the ACC allowing a public service corporation to serve a specified area, and preventing other public service corporations from offering the same services within the specified area.

A CC&N is a permit issued by the ACC allowing a public service corporation to serve a specified area, and preventing other public service corporations from offering the same services within the specified area.

The CP Water CC&N intangible asset was acquired through the acquisition of CP Water Company in 2006.

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Due to the uncertainty of the timing of when cash will be received under ICFA agreements and contract rights, we cannot reliably estimate when the remaining intangible assets' amortization will be recorded.

There was no amortization recorded for these balances for both the three months ended March 31, 2022 and 2021.

Amortization in the amount of $ 0.1 million was recorded for both the three and six months ended June 30, 2022, compared to $ 0.5 million recorded for both the three and six months ended June 30, 2021 .

TRANSACTIONS WITH RELATED PARTIES

The Company provides medical benefits to our employees through our participation in a pooled plan sponsored by an affiliate of a significant shareholder and director of the Company.

Medical claims paid to the plan were approximately $ 0.1 million and $ 0.2 million for the three months ended March 31, 2022 and 2021, respectively.

Medical claims paid to the plan were approximately $ 0.2 million for both the three months ended June 30, 2022 and 2021.

Medical claims paid to the plan were approximately $ 0.3 million for both the six months ended June 30, 2022 and 2021.

Refer to Note 16 — "Subsequent Events — Public Offering of Common Stock" for additional information regarding other related party disclosures.

ACCRUED EXPENSES

Accrued expenses at March 31, 2022 and December 31, 2021 consist of the following (in thousands):

March 31, 2022 December 31, 2021

Accrued expenses at June 30, 2022 and December 31, 2021 consist of the following (in thousands):

June 30, 2022 December 31, 2021

Deferred compensation $ 819 $ 1,211

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• Level 3 - Unobservable inputs developed using the Company's estimates and assumptions, which reflect those that the Company believes market participants would use.

Financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 were as follows (in thousands):

March 31, 2022 December 31, 2021

Financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021 were as follows (in thousands):

June 30, 2022 December 31, 2021

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

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(1) HUF Funds - restricted cash and Certificate of Deposit - Restricted are presented on the Restricted cash line item of the Company's consolidated balance sheets and are valued at amortized cost, which approximates fair value.

The increase is primarily driven by additional funds received in growth areas of several utilities.

(2) Demand Deposit is presented on the Cash and cash equivalents line item of the Company's consolidated balance sheets and is valued at amortized cost, which approximates fair value.

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year of the first meter installation, total new accounts per year, years to complete full build out, and discount rate.

The outstanding balances and maturity dates for short-term (including the current portion of long-term debt) and long-term debt as of March 31, 2022 and December 31, 2021 are as follows (in thousands):

March 31, 2022 December 31, 2021

The outstanding balances and maturity dates for short-term (including the current portion of long-term debt) and long-term debt as of June 30, 2022 and December 31, 2021 are as follows (in thousands):

June 30, 2022 December 31, 2021

Short-term Long-term Short-term Long-term

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The senior secured notes are collateralized by a security interest in the Company’s equity interest in its subsidiaries, including all payments representing profits and qualifying distributions.

Debt issuance costs totaled $ 0.5 million as of March 31, 2022 and December 31, 2021, respectively.

Debt issuance costs totaled $ 0.5 million as of both June 30, 2022 and December 31, 2021.

The senior secured notes require the Company to maintain a debt service coverage ratio of consolidated EBITDA to consolidated debt service of at least 1.10 to 1.00.

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The debt service ratio increases to 1.25 for any fiscal quarter during the period from and after June 30, 2024.

As of March 31, 2022, the Company was in compliance with its financial debt covenants.

Revolving Credit Line

On April 30, 2020, the Company entered into an agreement with The Northern Trust Company, an Illinois banking corporation (the “Northern Trust Loan Agreement”), for a two-year revolving line of credit up to $ 10.0 million with a maturity date of April 30, 2022.

As of June 30, 2022, the Company was in compliance with its financial debt covenants.

Revolving Line of Credit

On April 30, 2020, the Company entered into an agreement with The Northern Trust Company, an Illinois banking corporation (the “Northern Trust Loan Agreement”), for a two-year revolving line of credit initially up to $ 10.0 million with an initial maturity date of April 30, 2022.

This credit facility, which may be used to refinance existing indebtedness, to acquire assets to use in and/or expand the Company’s business, and for general corporate purposes, initially bore an interest rate equal to LIBOR plus 2.00 % and has no unused line fee.

This credit facility replaced the previous revolving line of credit with MidFirst Bank, which was terminated in April 2020.

On April 30, 2021, the Company and The Northern Trust Company entered into an amendment to the Northern Trust Loan Agreement pursuant to which, among other things, the maturity date for the Company's revolving credit line was extended from April 30, 2022 to April 30, 2024.

As of March 31, 2022, the Company had no outstanding borrowings under this credit line.

There were $ 15 ,000 and $ 17 ,000 unamortized debt issuance costs as of March 31, 2022 and December 31, 2021, respectively.

On April 30, 2021, the Company and The Northern Trust Company entered into an amendment to the Northern Trust Loan Agreement pursuant to which, among other things, the maturity date for the Company's revolving line of credit was extended from April 30, 2022 to April 30, 2024.

As of June 30, 2022, the Company had no outstanding borrowings under this credit line.

There were $ 14,000 and $ 17,000 unamortized debt issuance costs as of June 30, 2022 and December 31, 2021, respectively.

The Northern Trust Loan Agreement requires the Company to maintain a debt service coverage ratio of consolidated EBITDA to consolidated debt service of at least 1.10 to 1.00.

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However, for the quarter ending June 30, 2021 through the quarter ending March 31, 2024, the debt service ratio drops to 1.20 .

As of March 31, 2022, the Company was in compliance with its financial debt covenants.

At March 31, 2022, the remaining aggregate annual maturities of debt and minimum lease payments under capital lease obligations for the years ended December 31 are as follows (in thousands):

Debt Capital Lease Obligations

Remaining nine months of 2022 $ 3,833 $ 100

As of June 30, 2022, the Company was in compliance with its financial debt covenants.

On July 26, 2022, the Company and The Northern Trust Company entered into a second amendment to the loan agreement, which, among other things, further extended the maturity date for the revolving line of credit to July 1, 2024, increased the maximum principal amount available for borrowing to $ 15.0 million and replaced the LIBOR interest rate provisions.

Refer to Note 1 — "Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements " for additional information regarding the revolving credit line amendment.

At June 30, 2022, the remaining aggregate annual maturities of debt and minimum lease payments under capital lease obligations for the years ended December 31 are as follows (in thousands):

Debt Capital Lease

Remaining six months of 2022 $ 1,917 $ 66

2023 3,833 106

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Total $ 111,166 $ 266

During the three months ended March 31, 2022, the Company recorded tax expense of $ 0.3 million on pre-tax income of $ 1.2 million compared to a tax benefit of less than $ 0.1 million on pre-tax loss of $ 0.3 million for the three months ended March 31, 2021.

During the three months ended June 30, 2022, the Company recorded a tax benefit of $ 0.2 million.

The tax expense calculated on pre-tax income of $ 2.0 million for the three months ended June 30, 2022 was $ 0.5 million, offset by approximately $ 0.7 million from the reversal of the regulatory liability related to Rate Decision No.

78622 (refer to Note 2 — "Regulatory Decision and Related Accounting and Policy Changes" for additional information).

Tax expense of $ 0.6 million was recorded on pre-tax income of $ 2.6 million for the three months ended June 30, 2021.

During the six months ended June 30, 2022, the Company recorded a tax expense of $ 0.2 million.

The tax expense calculated on pre-tax income of $ 3.2 million for the six months ended June 30, 2022, was approximately $ 0.9 million, offset by approximately $ 0.7 million from the reversal of the regulatory liability.

Tax expense of $ 0.6 million was recorded on pre-tax income of $ 2.4 million for the six months ended June 30, 2021.

The income tax provision was computed based on the Company’s estimated effective tax rate and forecasted income expected for the full year, including the impact of any unusual, infrequent, or non-recurring items.

The Company's effective tax rate decreased during the three months ended March 31, 2022 due to the exercise and vesting of stock-based compensation in 2021, resulting in windfall tax benefits.

The Company's effective tax rate decreased during the three and six months ended June 30, 2022 due to the exercise and vesting of stock-based compensation in 2021, resulting in windfall tax benefits.

DEFERRED COMPENSATION AWARDS

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2017 stock option grant

Stock-based compensation expense of $ 0 and $ 65 ,000 was recorded for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, there are 320,321 options outstanding and no options were exercised or forfeited during the three months ended March 31, 2022.

Stock-based compensation expense of zero and $ 67 ,000 was recorded for the three months ended June 30, 2022 and 2021, respectively, and zero and $ 131 ,000 was recorded for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, there were 320,321 options outstanding and no options were exercised or forfeited during the three months ended June 30, 2022.

2019 stock option grant

Stock-based compensation expense of $ 45 ,000 and $ 47 ,000 was recorded for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, 250 options have been exercised and no options have been forfeited with 242,892 options outstanding during the three months ended March 31, 2022.

Stock-based compensation expense of $ 45 ,000 and $ 48 ,000 was recorded for the three months ended June 30, 2022 and 2021, respectively, and $ 90 ,000 and $ 95 ,000 was recorded for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, there were 242,892 options outstanding and no options were exercised or forfeited during the three months ended June 30, 2022.

Phantom stock/Restricted stock units compensation

The following table details total awards granted and the number of units outstanding as of March 31, 2022 along with the amounts paid to holders of the phantom stock units ("PSUs") and/or restricted stock units ("RSUs") for the three months ended March 31, 2022 and 2021 (in thousands, except unit amounts):

Amounts Paid For the Three Months Ended March 31,

The following table details total awards granted and the number of units outstanding as of June 30, 2022 along with the amounts paid to holders of the phantom stock units ("PSUs") and/or restricted stock units ("RSUs") for the three and six months ended June 30, 2022 and 2021 (in thousands, except unit amounts):

Amounts Paid For the Three Months Ended June 30, Amounts Paid For the Six Months Ended June 30,

Grant Date Units Granted Units Outstanding 2022 2021 2022 2021

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27,403 15,618 37 38 74 38

22,262 20,407 30 — 30 —

Total 135,243 41,498 97 114 210 221

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Stock appreciation rights compensation

The following table details the recipients of the stock appreciation rights (“SARs”) awards, the grant date, units granted, exercise price, outstanding units as of March 31, 2022 and amounts paid during the three months ended March 31, 2022 and 2021 (in thousands, except unit and per unit amounts):

Amounts Paid For the Three Months Ended March 31,

The following table details the recipients of the stock appreciation rights (“SARs”) awards, the grant date, units granted, exercise price, outstanding units as of June 30, 2022 and amounts paid during the three and six months ended June 30, 2022 and 2021 (in thousands, except unit and per unit amounts):

Amounts Paid For the Three Months Ended June 30, Amounts Paid For the Six Months Ended June 30,

Recipients Grant Date Units Granted Exercise Price Units Outstanding 2022 2021 2022 2021

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(6) The exercise price was determined to be the fair market value of one share of GWRI stock on the grant date of March 12, 2018.

For the three months ended March 31, 2022 and 2021, the Company recorded approximately $ 0.1 million and $ 0.3 million of compensation expense related to the PSUs/RSUs and SARs, respectively.

Based on GWRI’s closing share price on March 31, 2022 (the last trading date of the quarter), deferred compensation expense to be recognized over future periods is estimated for the years ending December 31 as follows (in thousands):

Remaining nine months of 2022 $ 291 $ —

For the three months ended June 30, 2022 and 2021, the Company recorded approximately $ 0.2 million of negative compensation expense and $ 0.4 million of compensation expense related to the PSUs/RSUs and SARs, respectively.

For the six months ended June 30, 2022 and 2021, the Company recorded approximately $ 0.1 million of negative compensation expense and $ 0.7 million of compensation expense related to the PSUs/RSUs and SARs, respectively.

These are liability awards, so when the stock price decreases, cumulative compensation expense is reduced, which can lead to negative compensation in a given period.

Based on GWRI’s closing share price on June 30, 2022 (the last trading date of the quarter), deferred compensation expense to be recognized over future periods is estimated for the years ending December 31 as follows (in thousands):

Remaining six months of 2022 $ 163 $ —

Total $ 490 $ —

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The Company assumes that forfeitures will be minimal and recognizes forfeitures as they occur, which results in a reduction in compensation expense.

During the three months ended March 31, 2022, no RSA was issued.

For the three months ended March 31, 2022 and 2021, the Company recorded approximately $ 0.3 million and $ 0.2 million of compensation expense related to the RSAs, respectively.

The following table summarizes the RSA transactions as of the three months ended March 31, 2022:

During the three and six months ended June 30, 2022, no RSAs were issued.

For the three and six months ended June 30, 2022, the Company recorded approximately $ 0.3 million and $ 0.7 million of compensation expense related to the RSAs, respectively.

For the three and six months ended June 30, 2021, the Company recorded approximately $ 0.3 million and $ 0.5 million of compensation expense related to the grant and partial vesting of RSAs.

The following table summarizes the RSA transactions as of the three months ended June 30, 2022:

Number of RSAs Weighted Average Fair Value

Nonvested stock units at beginning of period 223,538 $ 14.88

Stock units vested and issued 107,548 13.92

Granted 83,500 14.02

Forfeited 2,825 16.59

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SUPPLEMENTAL CASH FLOW INFORMATION

The following is supplemental cash flow information for the three months ended March 31, 2022 and 2021 (in thousands):

For the Three Months Ended March 31,

The following is supplemental cash flow information for the six months ended June 30, 2022 and 2021 (in thousands):

For the Six Months Ended June 30,

Supplemental cash flow information:

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As such, the Company's monthly rent expense increased to approximately $ 16,000 .

Rent expense arising from the operating leases totaled approximately $ 55 ,000 and $ 44 ,000 for the three months ended March 31, 2022 and 2021, respectively.

Rent expense arising from the operating leases totaled approximately $ 71 ,000 and $ 48 ,000 for the three months ended June 30, 2022 and 2021, respectively, and $ 127 ,000 and $ 93 ,000 for the six months ended June 30, 2022 and 2021, respectively.

We entered into a new five-year corporate office lease agreement with a commencement date of May 1, 2022.

The new monthly rent expense will increase to $ 23,750 for each full calendar month commencing on May 1, 2022 through April 30, 2025 and $ 41,572 for each calendar month commencing on May 1, 2025 through April 30, 2027.

The new monthly rent expense increased to $ 23,750 for each full calendar month commencing on May 1, 2022 through April 30, 2025 and will increase to $ 41,572 for each calendar month commencing on May 1, 2025 through April 30, 2027.

On March 1, 2022 we amended the terms of the lease to incorporate construction of tenant improvements.

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SUBSEQUENT EVENTS

The Company has evaluated subsequent events through May 4, 2022, which is the date the financial statements was available to be issued and also the filing date.

There are no other subsequent events that require adjustment of, or disclosure in, the financial statements for the three months ended March 31, 2022 except for the following:

Definitive Agreement to Acquire Farmers Water Company

On April 14, 2022 the Company signed a definitive agreement to acquire Farmers Water Company, an operator of a water utility with service area in Pima County, Arizona, subject to customary closing conditions and ACC approval.

The acquisition, if completed, would add approximately 3,300 active water service connections and approximately 21.5 square miles of service area.

The Company has evaluated subsequent events through August 10, 2022, which is the date the financial statements was available to be issued and also the filing date.

There are no other subsequent events that require disclosure, except for the following:

Public Offering of Common Stock

On August 1, 2022, the Company completed a public offering of 1,150,000 shares of common stock at $ 13.50 per share, which includes 150,000 shares issued and sold to the underwriter following the exercise in full of its option to purchase additional shares of common stock.

The gross proceeds to the Company from the offering were approximately $ 15.5 million before deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

Certain directors and/or their affiliates purchased an aggregate of the 652,000 shares of common stock offered at the public offering price.

Rate Case Approval of Consolidation

On July 27, 2022, the ACC issued Rate Decision No.

78644 relating to the Company's recent rate case.

Pursuant to Rate Decision No.

78644, the ACC approved the consolidation of certain water utility companies and certain wastewater utility companies.

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