What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-10 compared with 2022-05-04 · 211 added, 134 removed, 308 unchanged (53% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations .

The following management’s discussion and analysis of Global Water Resources, Inc.’s (the “Company”, “GWRI”, “we”, or “us”) financial condition and results of operations relates to the three months ended March 31, 2022 and should be read together with the condensed consolidated financial statements and accompanying notes included herein, as well as our audited annual financial statements and associated management’s discussion, which are available within our Annual Report on Form 10-K for the year ended December 31, 2021 available on our Company’s profile on the Securities and Exchange Commission (“SEC”) website, www.sec.gov.

The following management’s discussion and analysis of Global Water Resources, Inc.’s (the “Company”, “GWRI”, “we”, or “us”) financial condition and results of operations relates to the three and six months ended June 30, 2022 and should be read together with the condensed consolidated financial statements and accompanying notes included herein, as well as our audited annual financial statements and associated management’s discussion, which are available within our Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 10-K") available on our Company’s profile on the Securities and Exchange Commission (“SEC”) website, www.sec.gov.

Cautionary Statement Regarding Forward-Looking Statements

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These forward-looking statements include, but are not limited to, statements about our strategies;

expectations about future business plans, prospective performance, and opportunities, including potential acquisitions, such as the acquisition of Farmers Water Company and the expected future benefit;

expectations about future business plans, prospective performance, and opportunities;

future financial performance;

regulatory and Arizona Corporation Commission ("ACC") proceedings and approvals, including the outcome and timing of our rate case application and the anticipated timing of any resulting phase-in of new rates;

regulatory and Arizona Corporation Commission ("ACC") proceedings and approvals, such as the anticipated benefits resulting from Rate Decision No.

78644, including our expected collective revenue increase due to new water and wastewater rates and benefits from consolidation of rates;

our contemplated Private Letter Ruling request in connection with our recent rate case and possible further action that may be taken by the ACC following such request;

acquisition plans and our ability to complete additional acquisitions, including the anticipated acquisition of Farmers Water Co.

and the expected timing and future benefits, such as expected increases in active water service connections, annual revenue and miles of CC&N service area;

population and growth projections;

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operating expenses;

market trends, including those in the markets in which we operate;

trends relating to our industry, market, population growth, and housing permits;

plans and expectations for capital expenditures;

cash flows and uses of cash;

amount and timing of capital expenditures;

depreciation and amortization;

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the impact of accounting changes and other pronouncements;

and the anticipated impacts from the COVID-19 pandemic on the Company, including to our business operations, results of operations, cash flows, and financial position, and our future responses to the COVID-19 pandemic.

the anticipated impacts from the COVID-19 pandemic on the Company, including to our business operations, results of operations, cash flows, and financial position;

and our future responses to the COVID-19 pandemic.

Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not, or the times at or by which, such performance or results will be achieved.

Investors are cautioned not to place undue reliance on forward-looking information.

A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC, as updated from time to time in our subsequent filings with the SEC.

A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under “Risk Factors” in Part I, Item 1A in the 2021 10-K filed with the SEC, as updated from time to time in our subsequent filings with the SEC.

Additional risks and uncertainties include, but are not limited to, whether all conditions precedent in the definitive agreement to acquire Farmers Water Company will be satisfied, including the receipt of ACC approval, and other risks to consummation of the acquisition, including circumstances that could give rise to the termination of the definitive agreement and the risk that the transaction will not be consummated without undue delay, cost or expense, or at all;

and whether the Internal Revenue Service (“IRS”) will rule in favor of us in connection with the contemplated Private Letter Ruling request.

Although the forward-looking statements are based upon what management believes to be reasonable assumptions, investors cannot be assured that actual results will be consistent with these forward-looking statements, and the differences may be material.

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Further, we continue to monitor the impact of COVID-19 pandemic on our business and operations, including how it will impact our customers, employees, suppliers, vendors, and business partners.

While the COVID-19 pandemic did not have a material effect on our business operations, results of operations, cash flows, and financial position for the three months ended March 31, 2022, we are unable to predict the ultimate extent to which our business operations, results of operations, cash flows, and financial position will be impacted by the COVID-19 pandemic.

While the COVID-19 pandemic did not have a material effect on our business operations, results of operations, cash flows, and financial position for the three months ended June 30, 2022, we are unable to predict the ultimate extent to which our business operations, results of operations, cash flows, and financial position will be impacted by the COVID-19 pandemic.

The degree to which the COVID-19 pandemic impacts our business operations, results of operations, cash flows, and financial position will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted.

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and how quickly and to what extent normal economic and operating conditions can resume.

As of March 31, 2022, the COVID-19 pandemic did not have a material impact on uncollectible accounts.

As of June 30, 2022, the COVID-19 pandemic did not have a material impact on uncollectible accounts.

Our current results and financial condition discussed herein may not be indicative of future operating results and trends.

Refer to “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional risks we face due to the COVID-19 pandemic.

Refer to “Risk Factors” included in Part I, Item 1A of the 2021 10-K for additional risks we face due to the COVID-19 pandemic.

Business Outlook

2021 and the first quarter of 2022 continued the trend of positive growth in new connections.

2021 and the first two quarters of 2022 continued the trend of positive growth in new connections.

According to the 2020 U.S.

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and had a population of 4.8 million, an increase of 14% over the 4.2 million people reported in the 2010 Census.

Metropolitan Phoenix continues to grow due to its low-cost housing, excellent weather, large and growing universities, a diverse employment base, and low taxes.

Metropolitan Phoenix continues to grow due to its comparatively affordable housing, excellent weather, large and growing universities, a diverse employment base, and low taxes.

The Employment and Population Statistics Department of the State of Arizona predicts that the Phoenix metropolitan area will have a population of 5.7 million people by 2030 and 6.5 million by 2040.

During the three months ended March 31, 2022, Arizona’s employment rate increased by 3.7%, ranking the state in the top 20 nationally for job growth.

During the three months ended June 30, 2022, Arizona’s employment rate increased by 3.6%, ranking the state in the top twenty nationally for job growth.

According to the W.P.

Carey School of Business Greater Phoenix Blue Chip Real Estate Consensus Panel (the “Greater Phoenix Blue Chip Panel”), the single-family housing market experienced a period of very rapid growth in 2021 with approximately 31,000 building permits issued.

Strong underlying demand and an extreme shortage of existing inventory pushed prices up rapidly.

The Greater Phoenix Blue Chip Panel expects this to continue but at a slower pace as lack of product and affordability issues slow demand.

We believe that our utilities and service areas are directly in the anticipated path of growth primarily in the Phoenix metropolitan area.

Market data indicates that our service areas currently incorporate a large portion of the final platted lots, partially finished lots, and finished lots in the Phoenix metropolitan area.

Management believes that we are well-positioned to benefit from the near-term growth in the Phoenix metropolitan area due to the availability of lots and existing infrastructure in place within our services areas.

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• access to and quality of water supply.

The COVID-19 pandemic may impact the degree to which these factors affect our financial condition and results of operations as discussed above under "COVID-19 Update."

We are subject to economic regulation by the state regulator, the ACC.

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An increase or decrease in our active service connections will affect our revenues and variable expenses in a corresponding manner.

Our total service connections, including both active service connections and connections to vacant homes, increased 4,900 connections, or 9.7% (8.3% annualized growth), from a total of 50,403 as of March 31, 2021 to 55,303 as of March 31, 2022.

This increase was due primarily due to organic growth in our service areas combined with the acquisition of Global Water - Las Quintas Serenas Water Company, Inc.

("Las Quintas") in November 2021 which contributed 1,249 connections through March 31, 2022.

As of March 31, 2022, active service connections increased by 4,850 connections, or 9.7% (8.4% annualized growth), to 55,012 compared to 50,162 active service connections as of March 31, 2021, primarily due to organic growth in our service areas combined with the acquisition of Las Quintas.

Our total service connections, including both active service connections and connections to vacant homes, increased 4,519 connections, or 8.8% (7.2% annualized growth), from a total of 51,615 as of June 30, 2021, to 56,134 as of June 30, 2022.

This increase was primarily due to organic growth in our service areas combined with the acquisition of Global Water - Las Quintas Serenas Water Company, Inc.

("Las Quintas") in November 2021, which contributed 1,257 connections through June 30, 2022.

As of June 30, 2022, active service connections increased 4,500, or 8.8% (7.2% annualized growth), to 55,814 compared to 51,314 active service connections as of June 30, 2021, primarily due to organic growth in our service areas combined with the acquisition of Las Quintas.

Approximately 90.9% of the 55,814 active service connections are serviced by our Global Water - Santa Cruz Water Company, Inc.

(“Santa Cruz”) and Global Water - Palo Verde Utilities Company, Inc.

(“Palo Verde”) utilities as of March 31, 2022.

(“Palo Verde”) utilities as of June 30, 2022.

The graph below presents the historical change in active and total connections for our ongoing operations over the past five years.

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a fixed fee and a consumption or volumetric fee.

For our water utilities, the fixed fee, or “basic service charge,” provides access to water for residential usage and has generally been set at a level to produce 50% of total revenue.

For our water utilities, the fixed fee, or “basic service charge,” provides access to water for residential usage and has generally been set at a level to produce approximately 50% of total revenue.

The volumetric fee is based on the total volume of water supplied to a given customer after the minimum number of gallons, if any, covered by the basic service charge, multiplied by a price per gallon set by a tariff approved by the ACC.

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

Refer to “—Rate Case Activity” and "—Corporate Transactions —Rate Case" for additional information.

Refer to “—Rate Case Activity” for additional information.

Our water and wastewater operations are also subject to extensive United States federal, state, and local laws and regulations governing the protection of the environment, health and safety, the quality of the water we deliver to our customers, water allocation rights, and the manner in which we collect, treat, and discharge wastewater.

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We currently rely predominantly (and are likely to continue to rely) on the pumping of groundwater and the generation and delivery of recycled water for non-potable uses to meet future demands in our service areas.

At present, groundwater (and recycled water derived from groundwater) is the primary water supply available to us.

At present, groundwater (and recycled water derived from groundwater) is the primary water supply

available to us.

In addition, regulatory restrictions on the use of groundwater and the development of groundwater wells, lack of available water rights, drought, overuse of local or regional sources of water, protection of threatened species or habitats, or other factors, including climate change, may limit the availability of ground or surface water.

Rate Case Activity

n July 9, 2012, we filed rate applications with the ACC to adjust the revenue requirements for seven utilities.

In August 2013, we entered into a settlement agreement with the 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 before it could take effect.

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

74364, approving the settlement agreement.

The collective rate increase included a 9.5% return on common equity which contributed to a 15% increase over revenue in 2011.

For our utilities, adjusting for the condemnation of the operations and assets of Valencia and the sale of Willow Valley, the settlement provided for a collective aggregate 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 Federal Tax Cuts and Jobs Act (the "TCJA"), refer to "—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;

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.

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 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

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

76901, which set forth the reductions in revenue for our Santa Cruz, Palo Verde, Greater Tonopah and Northern Scottsdale utilities due to the TCJA.

Rate Decision No.

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

Refer to “— Corporate Transactions — ACC Tax Docket” for details regarding Rate Decision No.

Refer to “— Corporate Transactions — ACC Rate Case” for additional information.

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.

Refer to Note 2 – “Regulatory Decision and Related Accounting and Policy Changes” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this form 10-Q for additional information.

ICFA Treatment

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We receive fees from the landowner/developer for undertaking these obligations that typically are a negotiated amount per planned equivalent dwelling unit for the specified development or parcel of land.

Payments are generally due to us from the landowner/developer based on progress of the development, with a portion due upon signing of the agreement, a portion due upon completion of certain milestones and the final payment due upon

final plat approval or sale of the subdivision.

The payments are non-refundable.

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For rate-making purposes, a utility plant funded by AIAC and CIAC is excluded from rate base.

The taxability of AIAC and CIAC was changed with the enactment of the TCJA.

The taxability of AIAC and CIAC was changed with the enactment of the Federal Tax Cuts and Jobs Act (the "TCJA").

Previously, the majority of AIAC and CIAC that we collected were not taxable;

however, with the enactment of the TCJA, they are taxable going forward.

however, with the enactment of the TCJA, they were taxable going forward.

On November 27, 2018, the ACC ruled that the utility may require that the contributor pay a gross-up to the utility consisting of 55% of the income tax expense with the utility covering the remaining 45% of the income tax expense.

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

Effective January 1, 2021, CIAC and AIAC for regulated water and sewage disposal facility companies is excluded from income under IRC 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.

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

76901, which set forth the reductions in revenue for our Santa Cruz, Palo Verde, Greater Tonopah, and Northern Scottsdale utilities due to lower corporate tax rates under the TCJA.

76901, which set forth the reductions in revenue for our Santa Cruz, Palo Verde, Greater Tonopah and Northern Scottsdale utilities due to the lower corporate tax rates under the TCJA.

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 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 phased-in rates refunded in 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 " — Rate Case Activity" 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 CIAC and AIAC (which became taxable for our regulated utilities under the TCJA).

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and 5) require Class A and B utilities to self-pay the taxes associated with hook-up fee contributions but permit using a portion of the hook-up fees to fund these taxes.

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

Effective January 1, 2021, contributions made in aid of construction and advances made in aid of construction for regulated water and sewage disposal facility companies were excluded from income under IRC Section 118.

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.

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

The Company's utilities 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 ("IRC") Section 118.

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 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 of CC&N service area in Sahuarita, Arizona.

Acquisition of Rincon Water Company, Inc.

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Based on the information described above and in accordance with the applicable literature, management has concluded that we are currently organized and operated as one operating and reportable segment.

Comparison of Results of Operations for the Three Months Ended March 31, 2022 and 2021

The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021 (in thousands, except per share amounts):

For the Three Months Ended March 31,

Comparison of Results of Operations for the Three Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021 (in thousands, except per share amounts):

For the Three Months Ended June 30,

Revenues $ 11,707 $ 10,944

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Operating income 2,462 2,339

Total other income/(expense) (505) 284

Income before income taxes 1,957 2,623

Income tax expense 150 (641)

Net income $ 2,107 $ 1,982

Basic earnings per common share $ 0.09 $ 0.09

Diluted earnings per common share $ 0.09 $ 0.09

Revenues – The following table summarizes our revenues for the three months ended June 30, 2022 and 2021 (in thousands):

For the Three Months Ended June 30,

Water services $ 5,682 $ 5,250

Wastewater and recycled water services 6,020 5,676

Unregulated revenues 5 18

Total revenues $ 11,707 $ 10,944

Total revenues increased $0.8 million, or 7.0%, to $11.7 million for the three months ended June 30, 2022 compared to $10.9 million for the three months ended June 30, 2021.

The increase in revenue was primarily driven by the 8.8% increase in active service connections due to organic growth and new connections associated with the acquisition of Las Quintas in November 2021.

Water Services – Water services revenue increased $0.4 million, or 8.2%, to $5.7 million for the three months ended June 30, 2022 compared to $5.3 million for the three months ended June 30, 2021.

The increase in water services revenues was primarily related to growth in connections.

Water services revenue based on consumption increased $0.1 million, or 5.6%, to $2.8 million for the three months ended June 30, 2022 compared to $2.7 million for the three months ended June 30, 2021.

The increase was primarily driven by increases in commercial and residential consumption for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Active water connections increased 11.1% to 29,627 as of June 30, 2022 from 26,678 as of June 30, 2021, was primarily due to organic growth in our service areas combined with new connections associated with the acquisition of Las Quintas.

Water consumption increased 8.1% to 1.1 billion gallons for the three months ended June 30, 2022 from 989 million gallons for the three months ended June 30, 2021.

The increase in consumption was primarily related to increased connections.

Water services revenue associated with the basic service charge, excluding miscellaneous charges, increased $0.3 million, or 10.5%, to $2.7 million for the three months ended June 30, 2022 from $2.4 million for the three months ended June 30, 2021.

The increase was primarily driven by an increase in active service connections which included organic growth combined with new connections associated with the acquisition of Las Quintas.

Wastewater and Recycled Water Services – Wastewater and recycled water services revenue increased $0.3 million, or 6.1%, to $6.0 million for the three months ended June 30, 2022 compared to $5.7 million for the three months ended June 30, 2021.

The increase in wastewater and recycled water services revenue was primarily driven by an increase in wastewater services revenue.

The increase in wastewater services revenue reflects the increase in active wastewater connections, which increased 6.3% to 26,187 as of June 30, 2022, from 24,636 as of June 30, 2021.

Recycled water services revenue, which is based on the number of gallons delivered, was $0.4 million for both the three months ended June 30, 2022 and 2021.

The volume of recycled water delivered for both the three months ended June 30, 2022 and 2021 was 258 million gallons.

Operating Expenses – The following table summarizes our operating expenses for the three months ended June 30, 2022 and 2021 (in thousands):

For the Three Months Ended June 30,

Operations and maintenance $ 2,942 $ 2,480

General and administrative 3,876 3,717

Depreciation and amortization 2,427 2,408

Total operating expenses $ 9,245 $ 8,605

Operations and Maintenance – Operations and maintenance costs, consisting of personnel costs, production costs (primarily chemicals and purchased power), maintenance costs, and property tax, increased $0.5 million, or 18.6%, to $2.9 million for the three months ended June 30, 2022 compared to $2.5 million for the three months ended June 30, 2021.

Personnel and related expenses increased $0.2 million, or 28.4%, to $0.9 million for the three months ended June 30, 2022 compared to $0.7 million for the three months ended June 30, 2021.

The increase was primarily driven by increased salaries and wages expense and medical insurance due to an increase in head count.

Repairs and maintenance expenses increased $0.1 million to $0.2 million for the three months ended June 30, 2022 compared to $0.1 million for the same period in 2021.

The increase was primarily related to maintenance costs for plant equipment.

General and Administrative – General and administrative costs include the day-to-day expenses of office operation, personnel costs, legal and other professional fees, insurance, rent, and regulatory fees.

These costs increased $0.2 million, or 4.3%, to $3.9 million for the three months ended June 30, 2022 compared to $3.7 million for the three months ended June 30, 2021.

Professional fees increased $0.2 million to $0.7 million for the three months ended June 30, 2022 compared to $0.5 million for the three months ended June 30, 2021.

The increase was primarily attributable to legal fees incurred relating to our rate case, capital raise transaction, and for acquisition related matters for the three months ended June 30, 2022.

Depreciation and amortization - Depreciation and amortization expense increased slightly by less than $0.1 million, or 0.8%, at $2.4 million for both the three months ended June 30, 2022 and 2021, and was primarily related to depreciation of fixed assets.

Other Income/Expense – Other expense totaled $0.5 million for the three months ended June 30, 2022, compared to other income of $0.3 million for the three months ended June 30, 2021.

The $0.8 million decrease was primarily attributable to the non-recurring income recognized in the three months ended June 30, 2021 related to the sale of a wireless communication tower in addition to a decrease in interest expense of $0.3 million for the three months ended June 30, 2022 compared to the same period in 2021.

This was partially offset by higher income of $0.4 million related to the Buckeye growth premiums received for the three months ended June 30, 2022 compared to the same period in 2021.

Income Tax Expense – Income tax expense decreased $0.8 million to $0.2 million for the three months ended June 30, 2022 compared to tax expense of $0.6 million for the three months ended June 30, 2021.

The decrease was primarily driven by the reversal of approximately $0.7 million related to Rate Case Decision No.

Net Income – Net income totaled $2.1 million for the three months ended June 30, 2022 compared to $2.0 million for the three months ended June 30, 2021.

Comparison of Results of Operations for the Six Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021 (in thousands, except per share amounts):

For the Six Months Ended June 30,

Revenues $ 21,736 $ 20,202

Operating expenses 17,911 16,820

Operating income 3,825 3,382

Total other expense (636) (1,021)

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Diluted earnings per common share $ 0.13 $ 0.08

Revenues – The following table summarizes our revenues for the three months ended March 31, 2022 and 2021 (in thousands):

For the Three Months Ended March 31,

Revenues – The following table summarizes our revenues for the six months ended June 30, 2022 and 2021 (in thousands):

For the Six Months Ended June 30,

Water services $ 10,030 $ 9,236

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Total revenues $ 21,736 $ 20,202

Total revenues increased $0.8 million, or 8.3%, to $10.0 million for the three months ended March 31, 2022 compared to $9.3 million for the three months ended March 31, 2021.

The increase in revenue was primarily driven by organic growth combined with new connections associated with the acquisition of Las Quintas in 2021 which together reflects the 9.7% increase in active service connections year-over-year.

Water Services – Water services revenue increased $0.4 million, or 9.1%, to $4.3 million for the three months ended March 31, 2022 compared to $4.0 million for the three months ended March 31, 2021.

The increase in water services revenues was primarily related to increased consumption and growth in connections.

Water services revenue based on consumption slightly increased by less than $0.1 million, or 1.5%, to $1.6 million for the three months ended March 31, 2022 compared to $1.5 million for the three months ended 2021.

Active water connections increased 11.9% to 29,210 as of March 31, 2022 from 26,094 as of March 31, 2021, primarily due to organic growth in our service areas combined with new connections associated with the acquisition of Las Quintas.

Water consumption slightly increased by 9 million gallons, or 1.4%, from 625 million gallons for the three months ended March 31, 2021 to 634 million gallons for the three months ended March 31, 2022.

The increase in consumption was primarily related to the increase in connections including the new connections associated with our acquisition of Las Quintas.

Water services revenue associated with the basic service charge, excluding miscellaneous charges, increased $0.3 million, or 11.3%, to $2.7 million for the three months ended March 31, 2022 compared to $2.4 million for the three months ended March 31, 2021.

Total revenues increased $1.5 million, or 7.6%, to $21.7 million for the six months ended June 30, 2022 compared to $20.2 million for the six months ended June 30, 2021.

The increase in revenue reflects the 8.8% increase in active service connections due to organic growth, combined with new connections associated with the acquisition of Las Quintas and increases in consumption.

Water Services – Water services revenue increased $0.8 million, or 8.6%, to $10.0 million for the six months ended June 30, 2022 compared to $9.2 million for the six months ended June 30, 2021.

The increase in water services revenues was primarily related to growth in connections.

Water services revenue based on consumption increased by $0.2 million, or 4.4%, to $4.4 million for the six months ended June 30, 2022 compared to $4.2 million for the six months ended June 30, 2021.

This increase was primarily driven by increases in commercial and residential consumption as well as growth in connections.

Active water connections increased 11.1% to 29,627 as of June 30, 2022 from 26,678 as of June 30, 2021, primarily due to organic growth in our service areas combined with new connections associated with the acquisition of Las Quintas.

Water consumption increased by 91 million gallons, or 5.6%, to 1.7 billion gallons for the six months ended June 30, 2022 compared to 1.6 billion for the six months ended June 30, 2021.

The increase was primarily related to the increases in commercial and construction consumption as well as growth in connections partially offset by lower consumption from irrigation resulting from higher precipitation.

Water services revenue associated with the basic service charge, excluding miscellaneous charges, increased $0.5 million, or 10.6%, to $5.3 million for the six months ended June 30, 2022 compared to $4.8 million for the six months ended June 30, 2021.

The increase was primarily due to the increase in active service connections, which included organic growth combined with new connections associated with the acquisition of Las Quintas.

Wastewater and Recycled Water Services – Wastewater and recycled water services revenue increased $0.4 million, or 8.4%, to 5.7 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The increase in wastewater and recycled water services revenue was driven by a $0.4 million increase in wastewater services revenue.

The increase in wastewater services revenue reflects the increase in active wastewater connections, which increased 7.2% to 25,802 as of March 31, 2022, from 24,068 as of March 31, 2021.

Recycled water services revenue, which is based on the number of gallons delivered, increased $5,000, or 3.4%, but remained consistent at $0.2 million for both the three months ended March 31, 2022 and March 31, 2021.

Wastewater and Recycled Water Services – Wastewater and recycled water services revenue increased $0.8 million, or 7.2%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

The increase in wastewater services revenue reflects the increase in active wastewater connections, which increased 6.3% to 26,187 as of June 30, 2022, from 24,636 as of June 30, 2021.

Recycled water services revenue, which is based on the number of gallons delivered, increased 1.3%, but remained consistent at $0.6 million for both the six months ended June 30, 2022 and 2021.

The increase in recycled water services revenue was primarily driven by the increase in number of gallons consumed.

The volume of recycled water delivered increased 3 million gallons, or 2.7%, to 97 million gallons for the three months ended March 31, 2022 compared to 94 million gallons for the three months ended March 31, 2021.

Operating Expenses – The following table summarizes our operating expenses for the three months ended March 31, 2022 and 2021 (in thousands):

For the Three Months Ended March 31,

The volume of recycled water delivered increased 3 million gallons, or 0.8%, to 355 million gallons for the six months ended June 30, 2022 compared to 352 million gallons for the six months ended June 30, 2021.

Operating Expenses – The following table summarizes our operating expenses for the six months ended June 30, 2022 and 2021 (in thousands):

For the Six Months Ended June 30,

Operations and maintenance $ 5,485 $ 4,979

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Total operating expenses $ 17,911 $ 16,820

Operations and Maintenance – Operations and maintenance costs, consisting of personnel costs, production costs (primarily chemicals and purchased power), maintenance costs, and property tax, remained constant at $2.5 million for both the three months ended March 31, 2022 and 2021.

Property tax expense increased by less than $0.1 million to $0.7 million for the three months ended March 31, 2022 compared to $0.6 million for the three months ended March 31, 2021.

Operations and Maintenance – Operations and maintenance costs, consisting of personnel costs, production costs (primarily chemicals and purchased power), maintenance costs, and property tax, increased $0.5 million, or 10.2%, to $5.5 million for the six months ended June 30, 2022 compared to $5.0 million for the six months ended June 30, 2021.

Property tax expense increased $0.1 million but remained constant at $1.3 million for both the six months ended June 30, 2022 and 2021.

Property taxes are calculated using a centrally valued property calculation, which derives property values based upon three-year historical average revenues.

As revenues increase, we expect property taxes to also increase.

Total personnel and related expenses increased $0.1 million, or 8.3%, to $1.7 million for the six months ended June 30, 2022 compared to $1.5 million for the six months ended June 30, 2021, primarily due to increased salary and wages expense and medical benefits expense due to an increase in head count.

Utilities and related expense increased $0.1 million, or 8.9%, to $1.1 million for the six months ended June 30, 2022 from $1.0 million for the six months ended June 30, 2021.

The increase was primarily related to increased electric utility consumed for operations, which aligned with the increase in revenue.

These costs increased $0.3 million, or 8.3%, to $3.8 million for the three months ended March 31, 2022 compared to $3.5 million for the three months ended March 31, 2021.

Professional fees expenses increased $0.2 million, or 46.5%, to $0.6 million for the three months ended March 31, 2022 from $0.4 million for the three months ended March 31, 2021.

The increase was primarily related to legal fees incurred relating to acquisition matters, and the ongoing rate case, among other miscellaneous corporate matters.

Depreciation and amortization - Depreciation and amortization expense increased $0.1 million, or 5.3%, to $2.3 million for the three months ended March 31, 2022, from $2.2 million for the three months ended March 31, 2021.

These costs increased $0.4 million, or 6.2%, to $7.7 million for the six months ended June 30, 2022 compared to $7.2 million for the six months ended June 30, 2021.

Personnel and related expenses increased $0.4 million, or 14.9%, to $3.0 million for the six months ended June 30, 2022 compared to $2.6 million for the six months ended June 30, 2021.

The increase was primarily related to increases in salaries and wages for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Professional fees expenses increased $0.5 million, or 50.5%, to $1.4 million for the six months ended June 30, 2022 from $0.9 million for the six months ended June 30, 2021.

The increase was primarily related to legal fees incurred relating to our rate case, capital raise transaction, and acquisitions related matters for the six months ended June 30, 2022.

Board compensation expenses decreased $0.3 million to $0.1 million for the six months ended June 30, 2022 compared to $0.4 million for the six months ended June 30, 2021.

The decrease was primarily driven by the decrease in stock price for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Depreciation and amortization - Depreciation and amortization expense increased approximately $0.2 million, or 2.9%, to $4.8 million for the six months ended June 30, 2022, from $4.6 million for the six months ended June 30, 2021.

The increase was primarily driven by increased depreciation due to the increase in fixed assets.

Other Income/(Expense) – Other expense totaled $0.1 million for the three months ended March 31, 2022 compared to other expense of $1.3 million for the three months ended March 31, 2021.

The $1.2 million improvement in other expense was primarily attributed to $1.1 million in Buckeye growth premium.

Income Tax Benefit (Expense) – Income tax expense increased $0.4 million to $0.3 million for the three months ended March 31, 2022 compared to a tax benefit of less than $0.1 million for the three months ended March 31, 2021.

The increase was driven by an increase in pretax income.

Net Income (Loss) – Net income totaled $0.9 million for the three months ended March 31, 2022 compared to net loss of $0.2 million for the three months ended March 31, 2021.

The $1.1 million increase was primarily attributed to the increased operating income driven by connection growth as well as the decrease in total other expense due to the increased Buckeye growth premium in the quarter ended March 31, 2022 compared to the three months ended March 31, 2021.

Other Income/Expense – Other expense totaled $0.6 million for the six months ended June 30, 2022 compared to other expense of $1.0 million for the six months ended June 30, 2021.

The $0.4 million improvement in other expense was primarily driven by the decrease in interest expense combined with $1.5 million of income recognized on the sale of a wireless communication tower during the six months ended June 30, 2021, partially offset by higher income of $1.4 million related to the Buckeye growth premiums received for the six months ended June 30, 2022 compared to six months ended June 30, 2021.

Income Tax Expense – Income tax expense decreased $0.4 million to $0.2 million for the six months ended June 30, 2022 compared to $0.6 million for the six months ended June 30, 2021.

The decrease was primarily driven by the reversal of approximately $0.7 million related to Rate Case Decision No.

Net Income – Net income totaled $3.0 million for the six months ended June 30, 2022 compared to net income of $1.8 million for the six months ended June 30, 2021.

The $1.2 million increase was primarily attributed to the $0.4 million improvement in total other expense coupled with the $0.4 million increase in operating income and the decrease in income tax expense for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Outstanding Share Data

As of May 4, 2022, there were 22,649,492 shares of our common stock outstanding and stock-based awards to acquire an additional 784,627 shares of our common stock outstanding.

As of August 10, 2022, there were 23,866,609 shares of our common stock outstanding and stock based awards to acquire an additional 755,695 shares of our common stock outstanding.

Liquidity and Capital Resources

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Such recovery will take place over an extended period of time because recovery through rate increases is subject to regulatory lag.

As of March 31, 2022, we have no notable near-term cash expenditures, other than the principal payments for our Series B senior secured notes in the amounts of $1.9 million due in June 2022 and $1.9 million due in December 2022.

While specific facts and circumstances could change, we believe that we have sufficient cash on hand, the ability to draw on our $10.0 million revolver, and will be able to generate sufficient cash flows to meet our operating cash flow requirements and capital expenditure plan, as well as remain in compliance with our debt covenants.

As of June 30, 2022, we have no notable near-term cash expenditures, other than the principal payments for our Series B senior secured notes in the amount of $1.9 million due in December 2022 and $1.9 million due in June 2023.

While specific facts and circumstances could change, we believe that we have sufficient cash on hand, the ability to draw on our $15.0 million revolving line of credit (which reflects the increased borrowing amount under this recently amended facility as discussed below), and will be able to generate sufficient cash flows to meet our operating cash flow requirements and capital expenditure plan, as well as remain in compliance with our debt covenants, for the next twelve months and beyond.

In March 2014, we initiated a dividend program to declare and pay a monthly dividend.

On November 30, 2021, we announced a monthly dividend increase from $0.02434 per share ($0.29208 per share annually) to $0.02458 per share ($0.29496 per share annually).

Although we expect monthly dividends will be declared and paid for the foreseeable future, the declaration of any dividends is at the discretion of our board of directors and is subject to legal requirements and debt service ratio covenant requirements (refer to “—Senior Secured Notes" and "—Revolving Credit Line").

Cash from Operating Activities

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Our future cash flows from operating activities will be affected by economic utility regulation, infrastructure investment, growth in service connections, customer usage of water, compliance with environmental health and safety standards, production costs, weather, and seasonality.

For the three months ended March 31, 2022, our net cash provided by operating activities totaled $5.4 million compared to $4.8 million for the three months ended March 31, 2021.

The $0.6 million increase in cash from operating activities was primarily driven by the $1.1 million of income recognized on the Buckeye growth premium received in the quarter ended March 31, 2022 offset by less than $0.1 million decrease in other noncurrent liabilities relating to HUF funds transferred to CIAC.

For the six months ended June 30, 2022, our net cash provided by operating activities totaled $11.9 million compared to $7.4 million for the six months ended June 30, 2021.

The $4.5 million increase in cash from operating activities was primarily driven by the increases in accounts payable and other current and noncurrent liabilities relating to CIAC from developers for the six months ended June 30, 2022 compared to June 30, 2021.

Cash from Investing Activities

Our net cash used in investing activities totaled $6.3 million for the three months ended March 31, 2022 compared to $3.3 million for the three months ended March 31, 2021.

The $3.0 million increase in cash used in investing activities was primarily driven by an increase in capital expenditures of $2.9 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Our net cash used in investing activities totaled $14.8 million for the six months ended June 30, 2022 compared to $6.4 million for the six months ended June 30, 2021.

The $8.4 million increase in cash used in investing activities was primarily driven by an increase in capital expenditures of $8.2 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

We continue to invest capital prudently in our existing, core service areas where we are able to deploy our Total Water Management model as this includes any required maintenance capital expenditures and the construction of new water and wastewater treatment and delivery facilities.

Our projected capital expenditures and other investments are subject to periodic review and revision to reflect changes in economic conditions and other factors.

Although we currently plan for capital expenditures in the second half of the year to continue in amounts comparable to the first half of the year, we may reduce capital expenditures to correspond with any decreases in demand for housing in our service areas.

Cash from Financing Activities

Our net cash used in financing activities totaled $0.6 million for the three months ended March 31, 2022 compared to $0.7 million in cash used in financing activities for the three months ended March 31, 2021.

This change was primarily driven by loan and capital lease repayments of approximately $0.3 million for the three months ended March 31, 2022 compared to less than $0.1 million for the three months ended March 31, 2021.

Our net cash used in financing activities totaled $3.8 million for the six months ended June 30, 2022 compared to $1.6 million in cash used in financing activities for the six months ended June 30, 2021.

This change was primarily driven by the $1.9 million principal payment for our Series B senior secured notes for the six months ended June 30, 2022, for which there was no comparable payment for the six months ended June 30, 2021.

Senior Secured Notes

On June 24, 2016, we issued two series of senior secured notes with a total principal balance of $115.0 million at a blended interest rate of 4.55%.

Series A carries a principal balance of $28.8 million and bears an interest rate of 4.38% over a twelve-

year term, with the principal payment due on June 15, 2028.

Series A carries a principal balance of $28.8 million and bears an interest rate of 4.38% over a twelve-year term, with the principal payment due on June 15, 2028.

Series B carries a principal balance of $86.3 million and bears an interest rate of 4.58% over a 20-year term.

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The senior secured notes also contain a provision limiting the payment of dividends if the Company falls below a debt service ratio of 1.25.

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

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

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.

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

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.

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

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 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.

On April 30, 2021, the Northern Trust Loan Agreement was amended to, among other things, extend the maturity date from April 30, 2022 to April 30, 2024.

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 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" ” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information.

Similar to the senior secured notes, 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.

The Northern Trust Loan Agreement also contains a provision limiting the payment of dividends if the Company falls below a debt service ratio of 1.25.

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

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

Additionally, the Northern Trust Loan Agreement contains certain restrictive covenants that limit, among other things, the Company’s ability to:

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Refer to Note 11 — "Debt" of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information.

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

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

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

Financing Activity

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 purchases shares of common stock in the offering.

Contractual Obligations

There have been no material changes in our reported contractual obligations from those disclosed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Contractual Obligations” in the 2021 10-K.

Insurance Coverage

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Accordingly, changes in the estimates, assumptions, and other judgments applied to these accounting policies could have a significant impact on our financial condition and results of operations as reflected in our financial statements.

There have been no significant changes to our critical accounting policies from those disclosed under “Managements’ Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies, Judgments, and Estimates” in our most recent Annual Report on Form 10-K filed with the SEC on March 4, 2021.

There have been no significant changes to our critical accounting policies from those disclosed under “Managements’ Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies, Judgments, and Estimates” in the 2021 10-K.

Off Balance Sheet Arrangements

As of March 31, 2022 and December 31, 2021, we did not have any off-balance sheet arrangements.

As of June 30, 2022 and December 31, 2021, we did not have any off-balance sheet arrangements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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 2. Management’s Discussion and Analysis