3. Acquisition of PERC

On October 24, 2019, the Company, through its wholly-owned subsidiary, CW-Holdings, entered into a stock purchase agreement (the “Purchase Agreement”) with PERC and its various shareholders (collectively, the “Sellers”). Pursuant to the terms of the Purchase Agreement, CW-Holdings purchased a 51% ownership interest in PERC for approximately $4.1 million in cash. After giving effect to the transactions contemplated by the Purchase Agreement, CW-Holdings owns 51% of the outstanding capital stock of PERC, and three members of PERC's management and one additional shareholder (the “Remaining Shareholders”) own the remaining 49% of the outstanding capital stock of PERC. CW-Holdings also acquired from the Remaining Shareholders an option to compel the Remaining Shareholders to sell, and granted to the Remaining Shareholders an option to require CW-Holdings to purchase, the Remaining Shareholders’ 49% ownership interest in PERC at a price based upon the fair market value of PERC at the time of the exercise of the option. CW-Holdings’ option is exercisable on or after October 24, 2022 and the Remaining Shareholders’ option is exercisable on or after October 24, 2024.

PERC is a water infrastructure company headquartered in Costa Mesa, California that develops, designs, builds, and manages wastewater and water reuse infrastructure.

In connection with the Purchase Agreement, CW-Holdings, and the Remaining Shareholders entered into a shareholders' agreement, pursuant to which CW-Holdings and the Remaining Shareholders agreed to certain rights and obligations with respect to the governance of PERC.

The purchase price for PERC is summarized as follows:


Cash consideration
Purchase price (excluding working capital)	$	4,088,817
Cash acquired		(941,379)
Total cash consideration	$	3,147,438

The following table summarizes the estimated fair values of the assets and liabilities assumed at the acquisition date:


Financial assets	$	1,371,532
Costs and estimated earnings in excess of billings		20,854
Property, plant and equipment		86,287
Identifiable intangible assets		3,990,000
Deferred tax liability		(1,117,200)
Accounts payable and accrued liabilities		(1,260,722)
Working capital adjustment payable		(23,467)
Deferred revenue		(117,636)
Billings in excess of costs and estimated earnings		(760,992)
Net liability arising from put/call options		(744,000)
Total identifiable net assets		1,444,656
Non-controlling interest in PERC		(3,617,634)
Goodwill		5,320,416
	$	3,147,438

The fair value of noncontrolling interest was calculated using the discounted cash flow method. The discounted cash flow method relied upon nine-year discrete projections of operating results, working capital and capital expenditures, along with a terminal value subsequent to the discrete period. These projections were based upon historical and anticipated future results, general economic and market conditions, and considered the impact of planned business and operational strategies. The discount rates for the calculations represented the estimated cost of capital for market participants at the time of each analysis. An 8.4% discount for marketability was applied to the noncontrolling interest calculated under the discounted cash flow method. This marketability discount was calculated using an average-price put option model.

The identifiable intangible assets consisted of the following items:


	Amount		Useful life
Non-compete agreement	$	130,000	3 years
Trade name		1,300,000	15 years
Customer backlog		360,000	2 years
Facility management contracts		2,200,000	6 years
	$	3,990,000

The results of operations of PERC included in the Company’s results of operations for the period October 24, 2019 to December 31, 2019 are as follows:


Revenue	$	1,376,793
Gross profit		407,604
Amortization of intangibles, net of tax benefit		(81,200)
Net income		37,924

The following unaudited pro forma financial information presents the results of operations of the Company for the years ended December 31, 2019 and 2018, as if the acquisition of PERC had taken place on January 1, 2018. These 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, 2018, nor do they purport to be indicative of future results of operations.


	December 31,
	2019		2018

Revenue	$	77,615,958	$	76,787,893
Cost of revenue		47,162,564		47,608,703
Gross profit		30,453,394		29,179,190
General and administrative expenses		21,620,106		21,451,898
Gain (loss) on asset dispositions and impairments, net		447,681		(58,434)
Income from operations		9,280,969		7,668,858
Other income (expense), net		805,093		2,749,833
Income before income taxes		10,086,062		10,418,691
Provision for (benefit from) income taxes		72,814		(651,300)
Net income from continuing operations		10,013,248		11,069,991
Income from continuing operations attributable to non-controlling interests		1,505,068		792,092
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders		8,508,180		10,277,899
Gain on sale of discontinued operations		3,621,170		—
Net income from discontinued operations		—		1,115,825
Total income from discontinued operations		3,621,170		1,115,825
Net income attributable to Consolidated Water Co. Ltd. stockholders	$	12,129,350	$	11,393,724

Basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	0.57	$	0.69
Discontinued operations		0.24		0.07
Basic earnings per share	$	0.81	$	0.76

Diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	0.56	$	0.68
Discontinued operations		0.24		0.07
Diluted earnings per share	$	0.80	$	0.75

Weighted average number of common shares used in the determination of:
Basic earnings per share		15,025,639		14,962,760
Diluted earnings per share		15,137,076		15,074,147