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Investment in OC-BVI | 9 Months Ended
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Sep. 30, 2017
Equity Method Investments and Joint Ventures [Abstract] |
Equity Method Investments Disclosure [Text Block] | 6. Investment in OC-BVI The Company owns 50% of the outstanding voting common shares and a 43.53% equity interest in Ocean Conversion (BVI) Ltd. (“OC-BVI”). The Company also owns certain profit sharing rights in OC-BVI that raise its effective interest in the profits of OC-BVI to approximately 45%. Pursuant to a management services agreement, OC-BVI pays the Company monthly fees for certain engineering and administrative services. OC-BVI’s sole customer is the Ministry of Communications and Works of the Government of the British Virgin Islands to which it sells bulk water. The Company’s equity investment in OC-BVI amounted to $3,124,910 and $4,086,630 as of September 30, 2017 and December 31, 2016, respectively. OC-BVI sells water produced by a desalination plant with a capacity of 720,000 gallons per day located at Bar Bay, Tortola (the “Bar Bay plant”) to the BVI government under a contract (the “Bar Bay agreement”) that was due to expire in March 2017 but was extended on February 14, 2017 for 14 years. The selling price for the water under the extension is approximately 31% lower than the price that was in effect as of December 31, 2016. Under the terms of the Bar Bay agreement, OC-BVI delivers up to 600,000 gallons of water per day to the BVI government from the Bar Bay plant on a take-or-pay basis. The Bar Bay agreement required OC-BVI to complete a storage reservoir on a BVI government site by no later than March 4, 2011. OC-BVI has not commenced construction of this storage reservoir due to the BVI government’s failure to pay (i) the full amount of invoices (including interest) for the water provided by the Bar Bay plant on a timely basis; and (ii) the remaining amount due under a court ruling relating to the Baughers Bay litigation (see discussion that follows). Summarized financial information for OC-BVI is as follows:
|  | September 30, |  |  | December 31, |
|  | 2017 |  |  | 2016 |
Current assets |  | $ | 4,115,006 |  |  | $ | 5,627,414 |
Non-current assets |  |  | 3,747,753 |  |  |  | 3,963,242 |
Total assets |  | $ | 7,862,759 |  |  | $ | 9,590,656 |
|  | September 30, |  |  | December 31, |
|  | 2017 |  |  | 2016 |
Current liabilities |  | $ | 553,252 |  |  | $ | 197,673 |
Non-current liabilities |  |  | 1,340,550 |  |  |  | 1,854,900 |
Total liabilities |  | $ | 1,893,802 |  |  | $ | 2,052,573 |
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
Revenues |  | $ | 578,635 |  |  | $ | 965,169 |  |  | $ | 2,071,387 |  |  | $ | 2,850,242 |
Cost of revenues |  |  | 408,557 |  |  |  | 540,522 |  |  |  | 1,410,106 |  |  |  | 1,537,860 |
Gross profit |  |  | 170,078 |  |  |  | 424,647 |  |  |  | 661,281 |  |  |  | 1,312,382 |
General and administrative expenses |  |  | 192,492 |  |  |  | 231,750 |  |  |  | 680,349 |  |  |  | 714,483 |
Income (loss) from operations |  |  | (22,414) |  |  |  | 192,897 |  |  |  | (19,068) |  |  |  | 597,899 |
Other income (expense), net |  |  | 351,474 |  |  |  | 62,165 |  |  |  | 362,442 |  |  |  | (15,598) |
Net income |  |  | 329,060 |  |  |  | 255,062 |  |  |  | 343,374 |  |  |  | 582,301 |
Income attributable to non-controlling interests |  |  | 9,943 |  |  |  | 22,346 |  |  |  | 49,429 |  |  |  | 48,133 |
Net income attributable to controlling interests |  | $ | 319,117 |  |  | $ | 232,716 |  |  | $ | 293,945 |  |  | $ | 534,168 |
A reconciliation of the beginning and ending balances for the investment in OC-BVI for the nine months ended September 30, 2017 is as follows:
Balance as of December 31, 2016 |  | $ | 4,086,630 |
Profit sharing and equity from earnings of OC-BVI |  |  | 174,530 |
Distributions received from OC-BVI |  |  | (1,136,250) |
Balance as of September 30, 2017 |  | $ | 3,124,910 |
The Company recognized $138,913 and $101,301 for the three months ended September 30, 2017 and 2016, respectively, and $127,955 and $232,523 for the nine months ended September 30, 2017 and 2016, respectively, in earnings (losses) from its equity investment in OC-BVI. The Company recognized $36,450 and $38,475 for the three months ended September 30, 2017 and 2016, respectively, and $46,575 and $87,075 for the nine months ended September 30, 2017 and 2016, respectively, in profit sharing income from its profit sharing agreement with OC-BVI. For the three months ended September 30, 2017 and 2016, the Company recognized approximately $111,302 and $125,930, respectively, in revenues from its management services agreement with OC-BVI. For the nine months ended September 30, 2017 and 2016, the Company recognized approximately $360,758 and $390,280, respectively, in revenues from its management services agreement with OC-BVI. Amounts receivable by OC-BVI from the Company were $20,295 and $0 as of September 30, 2017 and December 31, 2016, respectively. Amounts payable by OC-BVI to the Company were $287,635 and $54,559 as of September 30, 2017 and December 31, 2016, respectively. The Company's deferred revenues from OC-BVI, included in other current liabilities in the accompanying condensed consolidated balance sheets, were $301,373 and $0 as of September 30, 2017 and December 31, 2016, respectively. The Company’s remaining unamortized balance recorded for this management services agreement, which is reflected as an intangible asset on the Company’s condensed consolidated balance sheets, was $0 and $15,516 as of September 30, 2017 and December 31, 2016, respectively. Baughers Bay Litigation Through March 2010, OC-BVI supplied water to the BVI government from a plant located at Baughers Bay, Tortola, under the terms of a water supply agreement dated May 1990 (the “1990 Agreement”) with an initial seven-year term that expired in May 1999. The 1990 Agreement provided that such agreement would automatically be extended for another seven-year term unless the BVI government provided notice, at least eight months prior to such expiration, of its decision to purchase the plant from OC-BVI at the agreed upon amount under the 1990 Agreement of approximately $1.42 million. In correspondence between the parties from late 1998 through early 2000, the BVI government indicated that it intended to purchase the plant but would be amenable to negotiating a new water supply agreement and that it considered the 1990 Agreement to be in force on a monthly basis until negotiations between the BVI government and OC-BVI were concluded. Occasional discussions were held between the parties after 2000 without resolution of the matter. OC-BVI continued to supply water from the plant and expended approximately $4.7 million between 1995 and 2003 to significantly expand the production capacity of the plant beyond that contemplated in the 1990 Agreement. In 2006, the BVI government took the position that the seven-year extension of the 1990 Agreement had been completed and that it was entitled to ownership of the Baughers Bay plant. In response, OC-BVI disputed the BVI government’s contention that the original terms of the 1990 Agreement remained in effect. During 2007, the BVI government significantly reduced its payments for the water being supplied by OC-BVI and filed a lawsuit with the Eastern Caribbean Supreme Court (the “Court”) seeking ownership of the Baughers Bay plant. OC-BVI counterclaimed to the Court that it was entitled to continued possession and operation of the Baughers Bay plant until the BVI government paid OC-BVI approximately $4.7 million, which OC-BVI believed represented the value of the Baughers Bay plant at its expanded production capacity. OC-BVI subsequently filed claims with the Court seeking payment for water sold and delivered to the BVI government through May 31, 2009 at the contract prices in effect before the BVI government asserted its purported right of ownership of the plant. The Court ruled on this litigation in 2009, awarding ownership of the Baughers Bay plant to the BVI government without compensation to OC-BVI and awarding OC-BVI payments from the BVI government for the water supplied from the plant at rates deemed appropriate by the Court. Both OC-BVI and the BVI subsequently filed appeals with the Eastern Caribbean Court of Appeals (the “Appellate Court”) asking the Appellate Court to review certain rulings by the Court with respect to this litigation. In March 2010, OC-BVI vacated the Baughers Bay plant and the BVI government assumed direct responsibility for the plant’s operations pursuant to the Court ruling. In June 2012, the Appellate Court issued the final ruling with respect to the Baughers Bay litigation. This ruling upheld the previous ruling of the Court with one exception: the Appellate Court awarded OC-BVI compensation for improvements made to the plant in the amount equal to the difference between (i) the value of the Baughers Bay plant at the date OC-BVI transferred possession of the plant to the BVI government and (ii) $1.42 million (the purchase price for the Baughers Bay plant under the 1990 Agreement). OC-BVI and the BVI government engaged a mutually approved valuation expert to complete a valuation of the Baughers Bay plant at the date it was transferred to the BVI government in accordance with the Appellate Court ruling. In June 2016, OC-BVI received the final valuation report from this valuation expert, which set forth a value for the Baughers Bay plant of $13.0 million as of the date OC-BVI transferred possession of the plant to the BVI government. Applying the valuation determined by the valuation expert to the formula set forth by the Appellate Court in its ruling, OC-BVI would be entitled to $11.58 million from the BVI government for the Baughers Bay plant. The BVI government has disagreed with the valuation methodology used by the valuation expert and the resulting valuation for the Baughers Bay plant. OC-BVI cannot presently determine if the Appellate Court will uphold the Baughers Bay plant valuation or when, or to what extent, any amount for the value of the Baughers Bay plant will be paid by the BVI government to OC-BVI. Consequently, any amount due for the Baughers Bay plant valuation will not be included in OC-BVI’s results of operations until such amount, if any, is paid by the BVI government. Valuation of Investment in OC-BVI The Company accounts for its investment in OC-BVI under the equity method of accounting for investments in common stock. This method requires recognition of a loss on an equity investment that is other than temporary, and indicates that a current fair value of an equity investment that is less than its carrying amount may indicate a loss in the value of the investment. While a quoted market price for OC-BVI’s stock is not available, due to the uncertainties (specifically the Baughers Bay litigation and the possible expiration without renewal of the Bar Bay agreement) associated with OC-BVI’s future cash flows, the Company tested the carrying value of its investment in OC-BVI (which exceeded the Company’s proportionate share of OC-BVI’s net assets by an amount accounted for as goodwill) for impairment in 2016 and prior years. The Company estimated the fair value of its investment in OC-BVI through the use of the discounted cash flow method, which relied upon projections of OC-BVI’s operating results, working capital and capital expenditures. The use of this method required the Company to estimate OC-BVI’s future cash flows from its Bar Bay plant and the resolution of the Baughers Bay litigation. The Company estimated OC-BVI’s cash flows from its Bar Bay plant by (i) identifying various possible future scenarios which included the execution of a new agreement for the Bar Bay plant as well as the termination of Bar Bay plant operations upon the scheduled expiration of the Bar Bay agreement in March 2017; (ii) estimating the cash flows associated with each possible scenario; and (iii) assigning a probability to each scenario. The Company similarly estimated the cash flows OC-BVI would receive from the BVI government in connection with the Court and Appellate Court rulings on the Baughers Bay litigation by assigning probabilities to different scenarios. The resulting probability-weighted sum represented the Company’s best estimate of future cash flows to be generated by OC-BVI. The identification of the possible scenarios for the Bar Bay plant agreement and the Baughers Bay litigation, the projections of cash flows for each scenario, and the assignment of relative probabilities to each scenario all represented significant estimates made by the Company. While the Company used its best judgment in identifying these possible scenarios, estimating the expected cash flows for these scenarios and assigning relative probabilities to each scenario, these estimates were by their nature highly subjective and were also subject to material change by the Company’s management over time based upon new information or changes in circumstances. After updating its probability-weighted estimates of OC-BVI’s future cash flows and its resulting estimate of the fair value of its investment in OC-BVI, the Company recorded impairment losses of approximately $875,000 and $925,000 for the three and nine months ended September 30, 2016, respectively, to reduce the carrying value of its investment in OC-BVI. As a result of the extension of the Bar Bay agreement, no impairment losses were necessary in 2017 for the Company’s investment in OC-BVI. As of September 30, 2017, the amount of the Company’s proportionate share (43.53%) of OC-BVI’s net assets exceeded the carrying value of the Company’s investment in OC-BVI by approximately $30,000.

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI http://asc.fasb.org/topic&trid=2196965 + Details
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