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Purchase of interest in Aerex Industries, Inc. | 12 Months Ended
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Dec. 31, 2017
Business Combinations [Abstract] |
Business Combination Disclosure [Text Block] | 21. Purchase of interest in Aerex Industries, Inc. On February 11, 2016 (the “Closing Date”), the Company, through its wholly-owned subsidiary, CW-Holdings, entered into a stock purchase agreement (the “Purchase Agreement”) with Aerex and Thomas Donnick, Jr. (“Donnick”), Aerex’s sole shareholder prior to the Closing Date. Pursuant to the terms of the Purchase Agreement, CW-Holdings purchased a 51% ownership interest in Aerex for an aggregate purchase price of approximately $7.7 million in cash. After giving effect to the transactions contemplated by the Purchase Agreement, CW-Holdings owns 51% of the outstanding capital stock of Aerex and Donnick owns 49% of the outstanding capital stock of Aerex. CW-Holdings also acquired from Donnick an option to compel Donnick to sell and granted to Donnick an option to require CW-Holdings to purchase, Donnick’s 49% ownership interest in Aerex at a price based upon the fair market value of Aerex at the time of the exercise of the option. The options are exercisable on or after the third anniversary of the Closing Date. In connection with the Purchase Agreement, the Company guaranteed the obligations of CW-Holdings with respect to the option granted to Donnick to require CW-Holdings to purchase Donnick’s 49% ownership interest in Aerex. Aerex is an original equipment manufacturer and service provider of a wide range of products and services applicable to municipal water treatment and industrial water and wastewater treatment. Its products include membrane separation equipment, filtration equipment, piping systems, vessels and custom fabricated components. Aerex also offers engineering, design, consulting, inspection, training and equipment maintenance services to its customers. Aerex is an American Society of Mechanical Engineers (ASME) code accredited manufacturer and maintains the ASME U and S and the National Board NB and R Certificates of Authorization. Its corporate offices and manufacturing facilities are located in Fort Pierce, Florida. In connection with the Purchase Agreement, CW-Holdings, Aerex and Donnick entered into a shareholder’s agreement pursuant to which CW-Holdings and Donnick agreed to certain rights and obligations with respect to the governance of Aerex. Immediately following the acquisition, Donnick and the Company loaned $490,000 and $510,000, respectively, to Aerex. These loans bear interest at 1% per annum and mature June 30, 2017. In February 2017, the Company and the former sole shareholder of Aerex loaned Aerex an additional $408,000 and $392,000, respectively, in the form of notes payable which mature on September 30, 2017 and bear interest at 1.04% per annum. In October 2017, the Company and the former shareholder of Aerex extended the term of the notes payable issued in February 2017 for an additional six months with a new maturity date of March 31, 2018. Additionally, the Company and the former shareholder loaned Aerex an additional $306,000 and $294,000, respectively, for a total outstanding notes payable balance with a maturity date of March 31, 2018 of $1,400,000. The purchase price for Aerex is summarized as follows:
Cash consideration |  |  |  |
Purchase price (excluding working capital) |  | $ | 7,140,000 |
Working capital adjustment |  |  | 605,179 |
Cash acquired |  |  | (2,326) |
Total cash consideration |  | $ | 7,742,853 |
The following table summarizes the estimated fair values of the assets and liabilities assumed at the acquisition date:
Financial assets |  | $ | 456,664 |
Inventory |  |  | 70,487 |
Costs and estimated earnings in excess of billings |  |  | 784,465 |
Property, plant and equipment |  |  | 2,159,401 |
Identifiable intangible assets |  |  | 5,900,000 |
Deferred tax liability |  |  | (2,451,298) |
Accounts payable and accrued liabilities |  |  | (116,893) |
Net liability arising from put/call options |  |  | (383,000) |
Total identifiable net assets |  |  | 6,419,826 |
Non-controlling interest in Aerex |  |  | (6,712,184) |
Goodwill |  |  | 8,035,211 |
|  | $ | 7,742,853 |
The identifiable intangible assets consisted of the following items:
|  | Amount |  | Useful life |
Non-compete agreement |  | $ | 400,000 |  | 5 years |
Trade name |  |  | 1,400,000 |  | 15 years |
Certifications/programs |  |  | 2,000,000 |  | 3 years |
Customer backlog |  |  | 100,000 |  | 1 year |
Customer relationships |  |  | 2,000,000 |  | 4 years |
|  | $ | 5,900,000 |  |  |
The results of operations of Aerex included in the Company’s results of operations for the period February 11, 2016 to December 31, 2016 are as follows:
|  | Year Ended December 31, 2016 |
Revenues |  | $ | 3,887,284 |
Gross profit |  |  | 796,450 |
Amortization of intangibles |  |  | (1,320,000) |
Impairment loss |  |  | (1,750,000) |
Net loss |  |  | (1,566,281) |
The Company recorded impairment losses of $1,400,000 and $1,750,000 for the years ended December 31, 2017 and 2016, respectively, to reduce the carrying value of the goodwill it recorded in connection with the Aerex acquisition. See further discussion of these impairment losses at Note 2 – Accounting Policies – Goodwill and Intangible Assets. The following unaudited pro forma financial information presents the results of operations of the Company for the years ended December 31, 2016 and 2015, as if the acquisition of Aerex had taken place on January 1, 2015. The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually occurred had the transaction taken place on January 1, 2015, or of future results of operations:
|  | Year Ended December 31, |
|  | 2016 |  | 2015 |
Revenues |  | $ | 58,381,424 |  | $ | 75,919,627 |
Cost of revenues |  |  | 33,892,238 |  |  | 47,624,001 |
Gross profit |  |  | 24,489,186 |  |  | 28,295,626 |
General and administrative expenses |  |  | 18,992,301 |  |  | 17,266,335 |
Impairment loss on long-lived assets |  |  | 2,000,000 |  |  | - |
Impairment of goodwill |  |  | 1,750,000 |  |  | - |
Income from operations |  |  | 1,746,885 |  |  | 11,029,291 |
Other income, net |  |  | 419,458 |  |  | 226,762 |
Income before income taxes |  |  | 2,166,343 |  |  | 11,256,053 |
Provision for (benefit from) income taxes |  |  | (608,970) |  |  | 1,127,911 |
Net income |  |  | 2,775,313 |  |  | 10,128,142 |
Income (loss) attributable to non-controlling interests |  |  | (1,148,675) |  |  | 1,719,425 |
Net income attributable to Consolidated Water Co. Ltd. stockholders |  | $ | 3,923,988 |  | $ | 8,408,717 |
Basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders |  | $ | 0.26 |  | $ | 0.57 |
Diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders |  | $ | 0.26 |  | $ | 0.57 |
Weighted average number of common shares used in the determination of: |  |  |  |  |  |  |
Basic earnings per share |  |  | 14,809,909 |  |  | 14,741,748 |
Diluted earnings per share |  |  | 14,944,028 |  |  | 14,827,755 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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