CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

September 30, December 31,
2017 2016
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 46,976,764 $ 39,254,116
Accounts receivable, net 13,007,883 16,500,798
Inventory 2,291,082 2,305,879
Prepaid expenses and other current assets 2,430,570 1,096,200
Current portion of loans receivable 1,377,956 1,633,588
Costs and estimated earnings in excess of billings 1,673,460 85,211
Total current assets 67,757,715 60,875,792
Property, plant and equipment, net 50,759,258 53,084,105
Construction in progress 1,433,341 885,494
Inventory, non-current 4,408,321 4,606,088
Loans receivable 1,093,641 2,135,428
Investment in OC-BVI 3,124,910 4,086,630
Intangible assets, net 4,116,982 5,195,476
Goodwill 9,784,248 9,784,248
Land held for development 20,558,424 20,558,424
Other assets 2,803,617 2,392,843
Total assets $ 165,840,457 $ 163,604,528

LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other current liabilities $ 5,332,446 $ 4,898,908
Dividends payable 1,189,924 1,187,214
Note payable to related party 392,000 490,000
Billings in excess of costs and estimated earnings 294,156 102,966
Total current liabilities 7,208,526 6,679,088
Deferred tax liability 1,502,649 1,915,241
Other liabilities 1,160,307 904,827
Total liabilities 9,871,482 9,499,156
Commitments and contingencies
Equity
Consolidated Water Co. Ltd. stockholders' equity
Redeemable preferred stock, $0.60 par value. Authorized 200,000 shares; issued and outstanding 33,974 and 35,225 shares, respectively 20,384 21,135
Class A common stock, $0.60 par value. Authorized 24,655,000 shares; issued and outstanding 14,901,711 and 14,871,664 shares, respectively 8,941,027 8,922,998
Class B common stock, $0.60 par value. Authorized 145,000 shares; none issued - -
Additional paid-in capital 86,106,647 85,621,033
Retained earnings 52,648,399 51,589,337
Cumulative translation adjustment (549,555 ) (549,555 )
Total Consolidated Water Co. Ltd. stockholders' equity 147,166,902 145,604,948
Non-controlling interests 8,802,073 8,500,424
Total equity 155,968,975 154,105,372
Total liabilities and equity $ 165,840,457 $ 163,604,528

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue	$	25,051,705	$	16,413,146	$	65,676,737	$	50,217,987
Cost of revenue (including purchases from related parties of $685,481 and $104,813 for the three months ended, and $2,165,850 and $390,196 for the nine months ended, September 30, 2022 and 2021, respectively)		18,207,932		10,722,547		44,211,703		32,336,025
Gross profit		6,843,773		5,690,599		21,465,034		17,881,962
General and administrative expenses (including purchases from related parties of $24,231 and $24,231 for the three months ended, and $72,693 and $52,959 for the nine months ended, September 30, 2022 and 2021, respectively)		5,610,650		4,359,040		15,403,458		13,847,830
Gain (loss) on asset dispositions and impairments, net		3,499		612		21,237		(3,144,961)
Income from operations		1,236,622		1,332,171		6,082,813		889,171

Other income (expense):
Interest income		56,701		168,880		348,304		503,889
Interest expense		(2,042)		(2,216)		(8,847)		(7,714)
Profit-sharing income from OC-BVI		6,075		6,075		24,300		16,200
Equity in the earnings of OC-BVI		19,921		17,717		71,238		44,223
Net unrealized gain (loss) on put/call options		(247,000)		(54,000)		29,000		108,000
Other		(2,635)		15,712		84,734		35,292
Other income (expense), net		(168,980)		152,168		548,729		699,890
Income before income taxes		1,067,642		1,484,339		6,631,542		1,589,061
Income tax provision (benefit)		26,616		(11,230)		83,041		(20,735)
Net income from continuing operations		1,041,026		1,495,569		6,548,501		1,609,796
Income from continuing operations attributable to non-controlling interests		217,415		131,609		691,042		457,540
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders		823,611		1,363,960		5,857,459		1,152,256
Loss from discontinued operations		(505,917)		(1,078,367)		(1,533,064)		(1,542,540)
Net income (loss) attributable to Consolidated Water Co. Ltd. stockholders	$	317,694	$	285,593	$	4,324,395	$	(390,284)

Basic earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	0.05	$	0.09	$	0.38	$	0.07
Discontinued operations		(0.03)		(0.07)		(0.10)		(0.10)
Basic earnings (loss) per share	$	0.02	$	0.02	$	0.28	$	(0.03)

Diluted earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	0.05	$	0.09	$	0.38	$	0.07
Discontinued operations		(0.03)		(0.07)		(0.10)		(0.10)
Diluted earnings (loss) per share	$	0.02	$	0.02	$	0.28	$	(0.03)

Dividends declared per common and redeemable preferred shares	$	0.085	$	0.085	$	0.255	$	0.255

Weighted average number of common shares used in the determination of:
Basic earnings per share		15,290,597		15,209,432		15,287,233		15,204,220
Diluted earnings per share		15,450,276		15,351,882		15,440,261		15,345,120

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~STOCKHOLDERS’ EQUITY

(UNAUDITED)


	Redeemable						Additional				Non-		Total
	preferred stock			Common stock			paid-in		Retained		controlling		stockholders’
	Shares	Dollars		Shares	Dollars		capital		earnings		interests		equity
Balance as of December 31, 2021	28,635	$	17,181	15,243,693	$	9,146,216	$	87,812,432	$	60,603,056	$	8,086,538	$	165,665,423
Issue of share capital	—		—	41,830		25,098		(25,098)		—		—		—
Net income	—		—	—		—		—		1,716,815		241,430		1,958,245
Dividends declared	—		—	—		—		—		(1,303,014)		—		(1,303,014)
Stock-based compensation	—		—	—		—		188,985		—		—		188,985
Balance as of March 31, 2022	28,635		17,181	15,285,523		9,171,314		87,976,319		61,016,857		8,327,968		166,509,639
Issue of share capital	9,295		5,577	—		—		(5,577)		—		—		—
Net income	—		—	—		—		—		2,289,886		232,197		2,522,083
Exercise of options	309		185	—		—		2,511		—		—		2,696
Dividends declared	—		—	—		—		—		(1,301,840)		(464,200)		(1,766,040)
Stock-based compensation	—		—	—		—		205,137		—		—		205,137
Balance as of June 30, 2022	38,239		22,943	15,285,523		9,171,314		88,178,390		62,004,903		8,095,965		167,473,515
Conversion of preferred stock	(6,585)		(3,951)	6,585		3,951		—		—		—		—
Net income	—		—	—		—		—		317,694		217,415		535,109
Exercise of options	2,755		1,653	—		—		22,390		—		—		24,043
Dividends declared	—		—	—		—		—		(1,302,110)		(638,275)		(1,940,385)
Stock-based compensation	—		—	—		—		413,539		—		—		413,539
Balance as of September 30, 2022	34,409	$	20,645	15,292,108	$	9,175,265	$	88,614,319	$	61,020,487	$	7,675,105	$	166,505,821

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Retail revenues $ 5,570,654 $ 5,447,200 $ 18,111,274 $ 17,710,271
Bulk revenues 7,881,464 7,429,732 23,615,787 22,136,086
Services revenues 111,302 125,929 360,758 710,576
Manufacturing revenues 3,008,783 1,382,492 5,444,678 3,261,827
Total revenues 16,572,203 14,385,353 47,532,497 43,818,760

Cost of retail revenues 2,488,441 2,464,841 7,895,617 7,779,831
Cost of bulk revenues 5,582,401 4,922,162 15,750,402 14,345,747
Cost of services revenues 114,667 168,577 320,586 638,389
Cost of manufacturing revenues 2,078,888 910,450 3,967,945 2,366,060
Total cost of revenues 10,264,397 8,466,030 27,934,550 25,130,027
Gross profit 6,307,806 5,919,323 19,597,947 18,688,733
General and administrative expenses 4,896,323 4,528,679 14,695,184 13,925,439
Impairment loss on long-lived assets 578,480 2,000,000 1,578,480 2,000,000
Impairment of goodwill - 1,750,000 - 1,750,000
Income (loss) from operations 833,003 (2,359,356 ) 3,324,283 1,013,294

Other income (expense):
Interest income 70,741 137,806 301,813 514,532
Interest expense (1,016 ) (1,246 ) (11,178 ) (95,615 )
Profit sharing income from OC-BVI 36,450 38,475 46,575 87,075
Equity in the earnings of OC-BVI 138,913 101,301 127,955 232,523
Impairment loss on investment in OC-BVI - (875,000 ) - (925,000 )
Net unrealized gain (loss) on put/call options 171,000 (275,000 ) 323,000 (275,000 )
Other 31,206 110,968 83,791 507,183
Other income (expense), net 447,294 (762,696 ) 871,956 45,698
Income (loss) before income taxes 1,280,297 (3,122,052 ) 4,196,239 1,058,992
Provision for (benefit from) income taxes (136,447 ) (146,198 ) (412,592 ) (389,860 )
Net income (loss) 1,416,744 (2,975,854 ) 4,608,831 1,448,852
Income (loss) attributable to non-controlling interests 255,605 (1,110,522 ) 191,916 (944,790 )
Net income (loss) attributable to Consolidated Water Co. Ltd. stockholders $ 1,161,139 $ (1,865,332 ) $ 4,416,915 $ 2,393,642

Basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders $ 0.08 $ (0.13 ) $ 0.30 $ 0.16

Diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders $ 0.08 $ (0.13 ) $ 0.29 $ 0.16

Dividends declared per common share $ 0.075 $ 0.075 $ 0.225 $ 0.225

Weighted average number of common shares used in the determination of:
Basic earnings per share 14,898,246 14,815,248 14,886,738 14,803,216
Diluted earnings per share 15,072,142 14,852,967 15,054,343 14,940,635

Table of Contents


	Redeemable						Additional				Non-		Total
	preferred stock			Common stock			paid-in		Retained		controlling		stockholders’
	Shares	Dollars		Shares	Dollars		capital		earnings		interests		equity
Balance as of December 31, 2020	31,068	$	18,641	15,143,683	$	9,086,210	$	86,893,486	$	64,910,709	$	8,103,503	$	169,012,549
Issue of share capital	—		—	57,577		34,546		(34,546)		—		—		—
Conversion of preferred stock	(215)		(129)	215		129		—		—		—		—
Buyback of preferred stock	(747)		(448)	—		—		(7,065)		—		—		(7,513)
Net income	—		—	—		—		—		988,772		128,793		1,117,565
Dividends declared	—		—	—		—		—		(1,296,197)		(649,880)		(1,946,077)
Stock-based compensation	—		—	—		—		176,210		—		—		176,210
Balance as of March 31, 2021	30,106		18,064	15,201,475		9,120,885		87,028,085		64,603,284		7,582,416		168,352,734
Issue of share capital	8,632		5,179	—		—		(5,179)		—		—		—
Conversion of preferred stock	(896)		(538)	896		538		—		—		—		—
Buyback of preferred stock	(704)		(422)	—		—		(6,928)		—		—		(7,350)
Net income (loss)	—		—	—		—		—		(1,664,649)		197,138		(1,467,511)
Exercise of options	211		126	—		—		1,583		—		—		1,709
Dividends declared	—		—	—		—		—		(1,294,697)		—		(1,294,697)
Stock-based compensation	—		—	—		—		178,589		—		—		178,589
Balance as of June 30, 2021	37,349		22,409	15,202,371		9,121,423		87,196,150		61,643,938		7,779,554		165,763,474
Conversion of preferred stock	(8,328)		(4,996)	8,328		4,996		—		—		—		—
Net income	—		—	—		—		—		285,593		131,609		417,202
Exercise of options	1,895		1,137	—		—		14,213		—		—		15,350
Dividends declared	—		—	—		—		—		(1,294,870)		—		(1,294,870)
Stock-based compensation	—		—	—		—		374,793		—		—		374,793
Balance as of September 30, 2021	30,916	$	18,550	15,210,699	$	9,126,419	$	87,585,156	$	60,634,661	$	7,911,163	$	165,275,949

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~CASH FLOWS

~~(UNAUDITED~~)(UNAUDITED)


	Nine Months Ended September 30,
	2022		2021
Net cash provided by operating activities - continuing operations	$	16,926,429	$	5,285,457
Net cash used in operating activities - discontinued operations		(1,123,193)		(820,785)
Net cash provided by operating activities		15,803,236		4,464,672

Cash flows from investing activities
Purchase of certificate of deposit		(2,518,493)		(2,500,000)
Maturity of certificate of deposit		5,018,493		—
Additions to property, plant and equipment and construction in progress		(2,947,937)		(973,270)
Proceeds from asset dispositions		31,181		45,560
Net cash used in investing activities - continuing operations		(416,756)		(3,427,710)

Cash flows from financing activities
Dividends paid to common shareholders		(3,841,842)		(3,859,412)
Dividends paid to preferred shareholders		(8,154)		(8,387)
Dividends paid to non-controlling interests		(1,102,475)		(649,880)
Repurchase of redeemable preferred stock		—		(14,863)
Proceeds received from exercise of stock options		26,739		17,059
Payments on note payable		(51,564)		(35,840)
Net cash used in financing activities		(4,977,296)		(4,551,323)
Net increase (decrease) in cash and cash equivalents		10,409,184		(3,514,361)
Cash and cash equivalents at beginning of period		40,358,059		43,794,150
Cash and cash equivalents at beginning of period - discontinued operations		750,048		154,130
Less: cash and cash equivalents at end of period - discontinued operations		(432,002)		(36,326)
Cash and cash equivalents at end of period	$	51,085,289	$	40,397,593


Non-cash transactions:
Issuance of 9,295 and 8,632, respectively, shares of redeemable preferred stock for services rendered	$	133,197	$	102,203
Issuance of 41,830 and 57,577, respectively, shares of common stock for services rendered	$	521,016	$	745,468
Conversion (on a one-to-one basis) of 6,585 and 9,439, respectively, shares of redeemable preferred stock to common stock	$	3,951	$	5,663
Dividends declared but not paid	$	1,302,754	$	1,295,377
Transfers from (to) inventory to (from) property, plant and equipment and construction in progress	$	246,238	$	148,138
Net transfers from construction in progress to property, plant and equipment	$	413,416	$	166,335
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	1,852,608
Purchase of equipment through issuance of long-term debt	$	68,422	$	58,220

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income (loss) $ 1,416,744 $ (2,975,854 ) $ 4,608,831 $ 1,448,852

Other comprehensive income (loss)
Foreign currency translation adjustment - (11,208 ) - (17,042 )
Total other comprehensive loss - (11,208 ) - (17,042 )
Comprehensive income (loss) 1,416,744 (2,987,062 ) 4,608,831 1,431,810
Income (loss) attributable to non-controlling interests 255,605 (1,111,082 ) 191,916 (945,642 )
Comprehensive income (loss) attributable to Consolidated Water Co. Ltd. stockholders $ 1,161,139 $ (1,875,980 ) $ 4,416,915 $ 2,377,452

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

CONSOLIDATED WATER CO. LTD.

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(UNAUDITED)~~

Nine Months Ended September 30,
2017 2016
Net cash provided by operating activities $ 11,727,551 $ 4,516,088

Cash flows from investing activities
Maturity of certificate of deposit - 5,637,538
Additions to property, plant and equipment and construction in progress (3,016,713 ) (2,569,066 )
Proceeds from sale of equipment 18,827 547,332
Distribution of earnings from OC-BVI 1,136,250 -
Acquisition of Aerex, net of cash acquired - (7,742,853 )
Collections on loans receivable 1,297,419 1,370,142
Release of restricted cash balance - 398,744
Net cash used in investing activities (564,217 ) (2,358,163 )

Cash flows from financing activities
Dividends paid to common shareholders (3,346,477 ) (3,322,793 )
Dividends paid to non-controlling interests - (182,663 )
Dividends paid to preferred shareholders (8,665 ) (9,151 )
Issuance (repurchase) of redeemable preferred stock 12,456 (9,599 )
Proceeds received from exercise of stock options - 174,853
Issuance (repayment) of note payable to related party (490,000 ) 490,000
Issuance of note payable to related party 392,000 -
Repayments of demand loan payable - (7,000,000 )
Net cash used in financing activities (3,440,686 ) (9,859,353 )
Effect of exchange rate changes on cash - 806
Net increase (decrease) in cash and cash equivalents 7,722,648 (7,700,622 )
Cash and cash equivalents at beginning of period 39,254,116 44,792,734
Cash and cash equivalents at end of period $ 46,976,764 $ 37,092,112

Interest paid in cash $ 7,062 $ 67,689

Non-cash investing and financing activities
Issuance of 9,441 and 8,421, respectively, shares of redeemable preferred stock for services rendered $ 118,485 $ 111,410
Issuance of 17,833, and 9,964, respectively, shares of common stock for services rendered $ 203,551 $ 106,415
Conversion (on a one-to-one basis) of 12,214 and 11,558, respectively, shares of redeemable preferred stock to common stock $ 7,328 $ 6,935
Dividends declared but not paid $ 1,120,176 $ 1,114,083
Transfers from inventory to property, plant and equipment and construction in progress $ 228,549 $ 134,362
Transfers from construction in progress to property, plant and equipment $ 2,109,960 $ 1,787,580

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~CONSOLIDATED WATER CO. LTD.~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Principal activity

Consolidated Water Co. Ltd., and its subsidiaries (collectively, the “Company”) ~~use reverse osmosis technology to produce~~supply potable water, ~~from seawater. The Company processes~~treat wastewater and ~~supplies~~ water for reuse, and ~~provides~~provide water-related products and services to ~~its~~ customers in the Cayman Islands, ~~Belize, The Commonwealth of~~ The Bahamas, ~~the British Virgin Islands,~~ the United States and ~~Indonesia.~~the British Virgin Islands. The Company produces potable water from seawater using reverse osmosis technology and sells this water to a variety of customers, including public utilities, commercial and tourist properties, residential properties and government facilities. The ~~base price of~~Company designs, builds and sells water ~~supplied by the Company,~~production and ~~adjustments thereto, are determined by the terms of a retail license~~water treatment infrastructure and ~~bulk~~manages water ~~supply contracts which provide~~infrastructure for ~~adjustments based upon the movement in the government price indices specified in the license~~commercial and ~~contracts as well as monthly adjustments for changes in the cost of energy.~~governmental customers. The Company also manufactures ~~and services~~ a wide range of specialized and custom water industry related products and provides design, engineering, ~~management,~~ operating and other services applicable to commercial, municipal and industrial water production, supply and treatment.

2. Accounting policies

Basis of ~~presentation:~~consolidation: The accompanying condensed consolidated financial statements include the accounts of the Company’s (i) wholly-owned subsidiaries, Aerex Industries, Inc. (“Aerex”), Aquilex, Inc. (“Aquilex”), Cayman Water Company Limited (“Cayman Water”~~), Consolidated Water (Belize) Limited (“CW-Belize”~~), Ocean Conversion (Cayman) Limited (“OC-Cayman”), DesalCo Limited (“DesalCo”), Consolidated Water Cooperatief, U.A. (“CW-Cooperatief”), Consolidated Water U.S. Holdings, Inc. (“CW-Holdings”); and (ii) majority-owned subsidiaries Consolidated Water (Bahamas) Ltd. (“CW-Bahamas”), ~~Aerex Industries, Inc. (“Aerex”), Consolidated Water (Asia) Pte. Limited, PT Consolidated Water Bali (“CW-Bali”),~~ N.S.C. Agua, S.A. de C.V. (“NSC”) ~~and~~, Aguas de Rosarito S.A.P.I. de C.V. (“AdR”), and PERC Water Corporation ("PERC"). The Company’s investment in its affiliate Ocean Conversion (BVI) Ltd. (“OC-BVI”) is accounted for using the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying interim condensed consolidated financial statements are unaudited. These condensed consolidated financial statements reflect all adjustments (which are of a normal recurring nature) that, in the opinion of management, are necessary to fairly present the Company’s consolidated financial position, results of operations and cash flows as of and for the periods presented. The consolidated results of operations for these interim periods are not necessarily indicative of the operating results for future periods, including the fiscal year ending December 31, ~~2017.~~

2022.

These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) relating to interim financial statements and in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted in these condensed consolidated financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2021.

Foreign currency:The Company’s reporting currency is the United States dollar (“US$”). The functional currency of the Company and its foreign operating subsidiaries (other than NSC, AdR, ~~CW-Bali,~~ and CW-Cooperatief) is the currency for each respective country. The functional currency for NSC, AdR, ~~CW-Bali~~ and CW-Cooperatief is the US$. NSC and AdR conduct business in US$ and Mexican pesos and CW-Cooperatief conducts business in US$ and euros. The exchange rates for the Cayman Islands ~~dollar, the Belize~~ dollar and the Bahamian dollar are fixed to the US$. ~~CW-Cooperatief conducts business in US$ and euros, CW-Bali conducts business in US$ and Indonesian rupiahs, and NSC and AdR conduct business in US$ and Mexican pesos.~~ The exchange rates for conversion of ~~euros, rupiahs~~Mexican pesos and ~~Mexican pesos~~euros into US$ vary based upon market conditions.

Net foreign currency gains (losses) arising from transactions and re-measurements were ($~~5,612)~~8,068) and ~~$1,734~~$15,302 for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, and ~~$164,339~~$20,966 and ~~($92,030)~~$29,353 for the nine months ended September 30, ~~2017~~2022 and ~~2016, respectively,~~2021 and are included in “Other income (expense) - Other” in the accompanying condensed consolidated statements of ~~income.~~

~~Comprehensive income:~~ ~~Comprehensive~~ income (loss) ~~is defined as the change in equity during a period from transactions and other events from non-owner sources. Comprehensive income (loss) is the total~~.

Table of ~~net income and other comprehensive income (loss) which, for the Company, is comprised entirely of foreign currency translation adjustments related to CW-Bali.~~Contents

Cash and cash equivalents:Cash and cash equivalents consist of demand deposits at banks and ~~highly liquid deposits~~certificates of deposit at banks with an original maturity of three months or less. Cash and cash equivalents as of September 30, ~~2017~~2022 and December 31, ~~2016~~2021 include ~~a certificate~~approximately $7.5 million and $7.4 million, respectively, of ~~deposit~~certificates of deposits with an original maturity of three months or less.

~~Transfers~~Certain transfers from the Company’s Bahamas ~~and Belize~~ bank accounts to Company bank accounts in other countries require the approval of the Central Bank of The ~~Bahamas and Belize, respectively. As of September 30, 2017, the~~Bahamas. The equivalent United States dollar cash balances for deposits held in The Bahamas as of September 30, 2022 and ~~Belize~~December 31, 2021 were approximately ~~$13.3~~$4.7 million and ~~$6.0~~$3.9 million, respectively.

Certificate of deposit: As of December 31, 2021, the Company held a certificate of deposit in The Bahamas of $2.5 million with an original maturity of six months.

Goodwill and intangible assets: Goodwill represents the excess cost of an acquired business over the fair value of the assets and liabilities of the acquired business. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or upon the identification of a triggering event. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment. The Company evaluates the possible impairment of goodwill annually as part of its reporting process for the fourth quarter of each fiscal year. Management identifies the Company’s reporting units, which consist of retail, bulk, services, and manufacturing, and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. The Company determines the fair value of each reporting unit and compares the fair value to the carrying amount of the reporting unit. To the extent the carrying amount of the reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded.

As of December 31, 2021, the Company estimated the fair value of its reporting units by applying the discounted cash flow method, which relied upon seven-year discrete projections of operating results, working capital and capital expenditures, along with a terminal value subsequent to the discrete period. These seven-year 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.

The Company also estimated the fair value of each of its reporting units as of December 31, 2021 by applying the guideline public company method.

The Company weighted the fair values estimated for each of its reporting units under each method and summed such weighted fair values to estimate the overall fair value for each reporting unit. The respective weightings the Company applied to each method as of December 31, 2021 were 80% to the discounted cash flow method and 20% to the guideline public company method.

The fair values the Company estimated for its retail, bulk, services and manufacturing reporting units exceeded their carrying amounts by 32%, 51%, 15%, and 15% respectively, as of December 31, 2021.

Based upon its estimation prepared as of December 31, 2021, the fair value of the Company’s manufacturing reporting unit exceeded its carrying value by only 15%. If the Company determines in the future that Aerex’s discounted future cash inflows will be less than its present expectation, the Company may be required to record additional impairment losses to reduce the remaining carrying values as of September 30, 2022 of its manufacturing reporting unit’s goodwill of $1,985,211 and its remaining unamortized intangible assets balances of $777,778 recorded as a result of the acquisition of Aerex. Any such impairment losses could have a material adverse impact on the Company’s consolidated results of operations.

Revenue recognition: Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

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The following table presents the Company’s revenue disaggregated by revenue source.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Retail revenue	$	6,274,650	$	5,247,042	$	19,114,653	$	16,633,137
Bulk revenue		8,667,931		6,868,134		24,442,324		19,826,075
Services revenue		8,731,124		3,210,584		18,530,427		10,514,669
Manufacturing revenue		1,378,000		1,087,386		3,589,333		3,244,106
Total revenue	$	25,051,705	$	16,413,146	$	65,676,737	$	50,217,987

Retail revenue

The Company produces and supplies water to end-users, including residential, commercial and governmental customers in the Cayman Islands under an exclusive retail license issued to Cayman Water by the Cayman Islands government to provide water in two of the three most populated areas on Grand Cayman Island. Customers are billed on a monthly basis based on metered consumption and bills are typically collected within 30 to 45 days after the billing date.

The Company recognizes revenue from water sales at the time water is supplied to the customer’s premises. The amount of water supplied is determined and invoiced based upon water meter readings performed at the end of each month. All retail water contracts are month-to-month contracts. The Company has elected the “right to invoice” practical expedient for revenue recognition on its retail water sale contracts and recognizes revenue in the amount to which the Company has a right to invoice.

Bulk revenue

The Company produces and supplies water to government-owned utilities in the Cayman Islands and The Bahamas.

OC-Cayman provides bulk water to the Water Authority-Cayman (“WAC”), a government-owned utility and regulatory agency, under two agreements. The WAC in turn distributes such water to properties in Grand Cayman outside of Cayman Water’s retail license area.

The Company sells bulk water in The Bahamas through its majority-owned subsidiary, CW-Bahamas, under two agreements with the Water and Sewerage Corporation of The Bahamas (“WSC”), which distributes such water through its own pipeline system to residential, commercial and tourist properties on the Island of New Providence.

The Company has elected the “right to invoice” practical expedient for revenue recognition on its bulk water sale contracts and recognizes revenue in the amount to which the Company has a right to invoice.

Services and Manufacturing revenue

The Company provides design, engineering, management, procurement and construction services for desalination infrastructure through DesalCo, which serves customers in the Cayman Islands, The Bahamas and the British Virgin Islands.

The Company also designs, builds, sells, operates and manages water, wastewater and water reuse infrastructure through PERC. All of PERC's customers are companies or governmental entities located in the U.S.

The Company, through Aerex, is a custom and specialty manufacturer of systems and products applicable to commercial, municipal and industrial water production and treatment. Substantially all of Aerex’s customers are U.S. companies.

The Company generates construction and services revenue from DesalCo and PERC and generates manufacturing revenue from Aerex.

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The Company recognizes revenue for its construction and custom/specialized manufacturing contracts over time under the input method using costs incurred (which represents work performed) to date relative to total estimated costs at completion to measure progress toward satisfying its performance obligations as such measure best reflects the transfer of control of the promised good to the customer. Contract costs include labor, materials and amounts payable to subcontractors. The Company follows this method since it can make reasonably dependable estimates of the revenue and costs applicable to the various stages of a contract. Under this input method, the Company records revenue and recognizes profit or loss as work on the contract progresses. The Company estimates total project costs and profit to be earned on each long-term, fixed price contract prior to commencement of work on the contract and updates these estimates as work on the contract progresses. The cumulative amount of revenue recorded on a contract at a specified point in time is that percentage of total estimated revenue that incurred costs to date comprise of estimated total contract costs. If, as work progresses, the actual contract costs exceed estimates, the profit recognized on revenue from that contract decreases. The Company recognizes the full amount of any estimated loss on a contract at the time the estimates indicate such a loss. Any contract assets are classified as current assets. Contract liabilities on uncompleted contracts, if any, are classified as current liabilities.

The Company has elected the “right to invoice” practical expedient for revenue recognition on its services agreements and recognizes revenue in the amount to which the Company has a right to invoice.

Revenue recognized and amounts billed on contracts in progress are summarized as follows:


	September 30,		December 31
	2022		2021
Revenue recognized to date on contracts in progress	$	16,576,248	$	6,109,396
Amounts billed to date on contracts in progress		(19,694,500)		(6,370,855)
Retainage		1,023,676		237,542
Net contract liability	$	(2,094,576)	$	(23,917)

The above net balances are reflected in the accompanying condensed consolidated balance sheets as follows:


	September 30,		December 31
	2022		2021
Contract assets	$	1,658,912	$	489,961
Contract liabilities		(3,753,488)		(513,878)
Net contract liability	$	(2,094,576)	$	(23,917)

As of September 30, 2022, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $104.8 million in aggregate transaction price for contracts with an original expected length of greater than one year. The Company expects to earn revenue as it satisfies its performance obligations under those contracts in the amount of approximately $12.6 million during the remainder of the year ending December 31, 2022 and approximately $92.2 million thereafter. In addition, the Company recognized revenue of $396,000 in the nine months ended September 30, 2022, that was included in the contract liability balance as of December 31, 2021.

Practical Expedients and Exemptions

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.

Comparative amounts: Certain amounts ~~reported~~presented in the financial statements previously issued ~~in prior periods~~for 2021 have been reclassified ~~herein~~ to conform to the current ~~period’s~~periods’ presentation. ~~These reclassifications had no effect on consolidated net income.~~

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3. ~~CW-Bali~~

Through its subsidiary CW-Bali, the Company built a seawater reverse osmosis plant with a production capacity of approximately 790,000 gallons per day located in Nusa Dua, one of the primary tourist areas of Bali, Indonesia. The Company built this plant based upon its belief that future water shortages in this area of Bali would eventually enable it to sell all of this plant’s production. Since inception of CW-Bali’s operations in 2013, the sales volumes for its plant have not been sufficient to cover its operating costs and CW-Bali has incurred net losses. The Company’s net losses from CW-Bali for its two most recent fiscal years ended December 31, 2016 and 2015, were approximately ($2.5 million) and ($861,000), respectively. The results of CW-Bali were included in the retail segment for segment reporting purposes.

In late 2015, the Company decided to seek a strategic partner for CW-Bali to (i) purchase a major portion of its equity ownership in CW-Bali; (ii) lead CW-Bali’s sales and marketing efforts; (iii) liaise with the local water utility; and (iv) assist with CW-Bali’s on-going funding requirements. Although discussions were held and due diligence information was exchanged with potential strategic partners, the Company did not receive an offer for an investment in, a purchase of, or a joint venture for CW-Bali from any of these potential partners on terms it deemed acceptable.

On May 23, 2017, after considering CW-Bali’s historical and projected operating losses, its on-going funding requirements, the current business and economic environment in Bali and the Company’s inability to obtain a strategic partner for CW-Bali, the Company’s Board of Directors formally resolved to discontinue CW-Bali’s operations. The Company planned to cease the production of water in Bali, sell its stock in CW-Bali or CW-Bali’s net assets, and exit the Bali market at the earliest practical date, which the Company initially believed would be no later than March 31, 2018. Based upon the information available as of the date of the filing of the Company’s interim financial statements for the quarter ended June 30, 2017, the Company accounted for CW-Bali as a discontinued operation in its consolidated financial statements for the three and six months ended June 30, 2017.

However, in October 2017, CW-Bali’s sole remaining customer filed a lawsuit in Bali, Indonesia against CW-Bali, its President, and the Company’s Chief Financial Officer in his capacity as the President of CW-Bali’s Board of Commissioners (i.e. Directors) seeking compensatory damages of 57.1 billion rupiahs and punitive damages of 26 billion rupiahs as a result of the anticipated breach of this customer’s water supply agreement that will arise from CW-Bali’s planned cessation of operations. Such damages were equivalent to approximately $4.2 million and $1.9 million, respectively, as of the exchange rate on November 8, 2017. Management of the Company believes this lawsuit is without merit and will vigorously defend CW-Bali and the two other defendants. However, until this lawsuit is resolved the Company is legally prohibited from disposing of its investment in CW-Bali or any of CW-Bali’s assets. As a result of the uncertainties arising from this lawsuit, CW-Bali no longer meets the criteria for classification as a discontinued operation as the Company cannot conclude if or when a sale or disposition of CW-Bali’s assets could be considered probable.

Based upon the decision to cease CW-Bali’s operations, for the six months ended June 30, 2017 the Company estimated the future cash flows the Company would receive under various scenarios from the disposition of its investment in CW-Bali and assigned a probability to each scenario to determine an estimated fair value of its investment in CW-Bali. Based upon these probability-weighted sums, the Company recorded an impairment loss of approximately $1,000,000 for the six months ended June 30, 2017 to reduce the carrying value of its investment in CW-Bali (which includes $549,555 in cumulative translation adjustments reflected in stockholders’ equity) to its estimated fair value. During the three months ended September 30, 2017 the Company updated its estimated fair value projections for CW-Bali in light of the lawsuit filed in October 2017 and recorded an additional impairment loss of $578,480 to reduce the carrying value of its investment in Bali to its estimated fair value of approximately $378,000 as of September 30, 2017.

~~Summarized financial information for CW-Bali as of September 30, 2017 and for the three months and nine months ended September 30, 2017 and 2016 is as follows:~~

September 30, December 31,
2017 2016
(Unaudited)
Current assets $ 266,342 $ 480,979
Property, plant and equipment, net 154,501 612,568
Inventory, non-current - 47,272
Other assets - 112,324
Total assets $ 420,843 $ 1,253,143

Current liabilities $ 43,214 $ 58,521
Allowance for cumulative translation adjustment (included in Other liabilities in the condensed consolidated balance sheets) 578,480 -
Total liabilities $ 621,694 $ 58,521

Three Months ended September 30, Nine Months ended September 30,
2017 2016 2017 2016
Revenues $ 55,222 $ 24,349 $ 117,443 $ 70,760
Loss from operations $ (8,446 ) $ (133,582 ) $ (158,869 ) $ (437,525 )
Impairment loss $ (578,480 ) $ (2,000,000 ) $ (1,578,480 ) $ (2,000,000 )
Net loss $ (569,356 ) $ (1,998,349 ) $ (1,712,663 ) $ (2,120,015 )
Depreciation $ - $ 75,810 $ 47,165 $ 227,353

4. Segment information

The Company has four reportable segments: retail, bulk, services and manufacturing. The retail segment ~~consists of Cayman Water which owns and~~ operates the water utility ~~that provides potable water to~~for the Seven Mile Beach and West Bay areas of Grand Cayman Island pursuant to an exclusive license granted by the Cayman Islands ~~government and CW-Bali which sells water to resort properties in Bali, Indonesia.~~government. The bulk segment supplies potable water to government utilities in Grand Cayman and The Bahamas ~~and Belize~~ under long-term contracts. The services segment designs, constructs and sells water infrastructure and provides ~~desalination plant~~ management and operating services ~~to affiliated companies and designs, constructs and sells desalination plants~~ to third parties. The manufacturing segment manufactures and services a wide range of custom and specialized water-related products ~~and provides design, engineering, management, operating and other services~~ applicable to commercial, municipal and industrial water production, supply and treatment.

Consistent with prior periods, the Company records all non-direct general and administrative expenses in its retail business segment and does not allocate any of these non-direct expenses to its other three business segments.

The accounting policies of the segments are consistent with those described in Note 2. The Company evaluates each segment’s performance based upon its income (or loss) from operations. All intercompany transactions are eliminated for segment presentation purposes.

The Company’s segments are strategic business units that are managed separately because each segment sells different products and/or services, serves customers with distinctly different needs and generates different gross profit margins.


	Three Months Ended September 30, 2022
	Retail		Bulk		Services		Manufacturing		Total
Revenue	$	6,274,650	$	8,667,931	$	8,731,124	$	1,378,000	$	25,051,705
Cost of revenue		3,231,973		6,446,549		7,333,982		1,195,428		18,207,932
Gross profit		3,042,677		2,221,382		1,397,142		182,572		6,843,773
General and administrative expenses		3,818,459		473,534		936,708		381,949		5,610,650
Gain on asset dispositions		1,499		2,000		—		—		3,499
Income (loss) from operations	$	(774,283)	$	1,749,848	$	460,434	$	(199,377)		1,236,622
Other income (loss), net										(168,980)
Income before income taxes										1,067,642
Income tax provision										26,616
Net income from continuing operations										1,041,026
Income from continuing operations attributable to non-controlling interests										217,415
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders										823,611
Loss from discontinued operations										(505,917)
Net income attributable to Consolidated Water Co. Ltd. stockholders									$	317,694

Three Months Ended September 30, 2017
Retail Bulk Services Manufacturing Total
Revenues $ 5,570,654 $ 7,881,464 $ 111,302 $ 3,008,783 $ 16,572,203
Cost of revenues 2,488,441 5,582,401 114,667 2,078,888 10,264,397
Gross profit (loss) 3,082,213 2,299,063 (3,365 ) 929,895 6,307,806
General and administrative expenses 3,070,681 315,374 863,646 646,622 4,896,323
Impairment loss on long-lived assets 578,480 - - - 578,480
Income (loss) from operations $ (566,948 ) $ 1,983,689 $ (867,011 ) $ 283,273 833,003
Other income, net 447,294
Income before income taxes 1,280,297
Provision for (benefit from) income taxes (136,447 )
Net income 1,416,744
Income from attributable to non-controlling interests 255,605
Net income attributable to Consolidated Water Co. Ltd. stockholders $ 1,161,139

Depreciation and amortization expenses for the three months ended September 30, ~~2017~~2022 for the retail, bulk, services and manufacturing segments were ~~$491,771, $1,274,471, $7,638,~~$567,086, $707,788, $175,732 and ~~$398,368~~$71,734, respectively.

Three Months Ended September 30, 2016
Retail Bulk Services Manufacturing Total
Revenues $ 5,447,200 $ 7,429,732 $ 125,929 $ 1,382,492 $ 14,385,353
Cost of revenues 2,464,841 4,922,162 168,577 910,450 8,466,030
Gross profit (loss) 2,982,359 2,507,570 (42,648 ) 472,042 5,919,323
General and administrative expenses 2,811,262 425,000 643,660 648,757 4,528,679
Impairment loss on long-lived assets 2,000,000 - - - 2,000,000
Impairment of goodwill - - - 1,750,000 1,750,000
Income (loss) from operations $ (1,828,903 ) $ 2,082,570 $ (686,308 ) $ (1,926,715 ) (2,359,356 )
Other expense, net (762,696 )
Loss before income taxes (3,122,052 )
Provision for (benefit from) income taxes (146,198 )
Net loss (2,975,854 )
Loss attributable to non-controlling interests (1,110,522 )
Net loss attributable to Consolidated Water Co. Ltd. stockholders $ (1,865,332 )

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	Three Months Ended September 30, 2021
	Retail		Bulk		Services		Manufacturing		Total
Revenue	$	5,247,042	$	6,868,134	$	3,210,584	$	1,087,386	$	16,413,146
Cost of revenue		2,745,796		4,628,386		2,410,430		937,935		10,722,547
Gross profit		2,501,246		2,239,748		800,154		149,451		5,690,599
General and administrative expenses		3,067,696		313,420		758,540		219,384		4,359,040
Gain on asset dispositions		612		—		—		—		612
Income (loss) from operations	$	(565,838)	$	1,926,328	$	41,614	$	(69,933)		1,332,171
Other income, net										152,168
Income before income taxes										1,484,339
Income tax benefit										(11,230)
Net income from continuing operations										1,495,569
Income attributable to non-controlling interests										131,609
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders										1,363,960
Loss from discontinued operations										(1,078,367)
Net income attributable to Consolidated Water Co. Ltd. stockholders									$	285,593

Depreciation and amortization expenses for the three months ended September 30, ~~2016~~2021 for the retail, bulk, services and manufacturing segments were ~~$567,833, $811,741, $29,037~~$625,640, $761,429, $203,411 and ~~$422,230~~$70,679, respectively.


	Nine Months Ended September 30, 2022
	Retail		Bulk		Services		Manufacturing		Total
Revenue	$	19,114,653	$	24,442,324	$	18,530,427	$	3,589,333	$	65,676,737
Cost of revenue		9,404,124		16,781,251		14,849,029		3,177,299		44,211,703
Gross profit		9,710,529		7,661,073		3,681,398		412,034		21,465,034
General and administrative expenses		10,613,975		1,187,909		2,554,721		1,046,853		15,403,458
Gain on asset dispositions		2,699		2,000		16,538		—		21,237
Income (loss) from operations	$	(900,747)	$	6,475,164	$	1,143,215	$	(634,819)		6,082,813
Other income, net										548,729
Income before income taxes										6,631,542
Income tax provision										83,041
Net income from continuing operations										6,548,501
Income from continuing operations attributable to non-controlling interests										691,042
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders										5,857,459
Loss from discontinued operations										(1,533,064)
Net income attributable to Consolidated Water Co. Ltd. stockholders									$	4,324,395

Nine Months Ended September 30, 2017
Retail Bulk Services Manufacturing Total
Revenues $ 18,111,274 $ 23,615,787 $ 360,758 $ 5,444,678 $ 47,532,497
Cost of revenues 7,895,617 15,750,402 320,586 3,967,945 27,934,550
Gross profit 10,215,657 7,865,385 40,172 1,476,733 19,597,947
General and administrative expenses 9,288,941 940,105 2,498,766 1,967,372 14,695,184
Impairment loss on long-lived assets 1,578,480 - - - 1,578,480
Income (loss) from operations $ (651,764 ) $ 6,925,280 $ (2,458,594 ) $ (490,639 ) 3,324,283
Other income (expense), net 871,956
Income before income taxes 4,196,239
Provision for (benefit from) income taxes (412,592 )
Net income 4,608,831
Income from attributable to non-controlling interests 191,916
Net income attributable to Consolidated Water Co. Ltd. stockholders $ 4,416,915

Depreciation and amortization expenses for the nine months ended September 30, ~~2017~~2022 for the retail, bulk, services and manufacturing segments were ~~$1,514,069, $2,928,287, $37,295,~~$1,820,567, $2,114,888, $502,809 and ~~$1,204,313~~$213,249, respectively.

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Nine Months Ended September 30, 2016
Retail Bulk Services Manufacturing Total
Revenues $ 17,710,271 $ 22,136,086 $ 710,576 $ 3,261,827 $ 43,818,760
Cost of revenues 7,779,831 14,345,747 638,389 2,366,060 25,130,027
Gross profit 9,930,440 7,790,339 72,187 895,767 18,688,733
General and administrative expenses 8,588,529 1,302,884 2,363,392 1,670,634 13,925,439
Impairment loss on long-lived assets 2,000,000 - - - 2,000,000
Impairment of goodwill - - - 1,750,000 1,750,000
Income (loss) from operations $ (658,089 ) $ 6,487,455 $ (2,291,205 ) $ (2,524,867 ) 1,013,294
Other income (expense), net 45,698
Income before income taxes 1,058,992
Provision for (benefit from) income taxes (389,860 )
Net income 1,448,852
Loss attributable to non-controlling interests (944,790 )
Net income attributable to Consolidated Water Co. Ltd. stockholders $ 2,393,642


	Nine Months Ended September 30, 2021
	Retail		Bulk		Services		Manufacturing		Total
Revenue	$	16,633,137	$	19,826,075	$	10,514,669	$	3,244,106	$	50,217,987
Cost of revenue		8,235,699		13,170,333		8,010,767		2,919,226		32,336,025
Gross profit		8,397,438		6,655,742		2,503,902		324,880		17,881,962
General and administrative expenses		9,757,179		994,779		2,152,145		943,727		13,847,830
Gain (loss) on asset dispositions and impairments, net		(246,028)		1,500		(433)		(2,900,000)		(3,144,961)
Income (loss) from operations	$	(1,605,769)	$	5,662,463	$	351,324	$	(3,518,847)		889,171
Other income, net										699,890
Income before income taxes										1,589,061
Income tax benefit										(20,735)
Net income from continuing operations										1,609,796
Income from continuing operations attributable to non-controlling interests										457,540
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders										1,152,256
Loss from discontinued operations										(1,542,540)
Net loss attributable to Consolidated Water Co. Ltd. stockholders									$	(390,284)

Depreciation and amortization expenses for the nine months ended September 30, ~~2016~~2021 for the retail, bulk, services and manufacturing segments were ~~$1,714,928, $2,480,314, $87,113~~$1,892,848, $2,621,481, $607,906 and ~~$1,126,169~~$216,346, respectively.


	As of September 30, 2022
	Retail		Bulk		Services		Manufacturing		Total
Accounts receivable, net	$	2,512,908	$	15,491,003	$	4,948,103	$	1,400,473	$	24,352,487
Inventory, current and non-current	$	2,766,577	$	4,218,974	$	—	$	1,950,770	$	8,936,321
Property, plant and equipment, net	$	24,817,595	$	23,171,096	$	679,506	$	1,568,549	$	50,236,746
Construction in progress	$	2,557,180	$	—	$	—	$	61,792	$	2,618,972
Intangibles, net	$	—	$	—	$	2,181,388	$	777,778	$	2,959,166
Goodwill	$	1,170,511	$	1,948,875	$	5,320,416	$	1,985,211	$	10,425,013
Total segment assets	$	67,462,955	$	61,756,965	$	23,657,779	$	10,492,818	$	163,370,517
Assets of discontinued operations									$	21,640,235
Total assets									$	185,010,752


	As of December 31, 2021
	Retail		Bulk		Services		Manufacturing		Total
Accounts receivable, net	$	2,601,619	$	21,682,951	$	1,698,797	$	1,365,940	$	27,349,307
Inventory, current and non-current	$	2,787,277	$	3,860,808	$	—	$	589,757	$	7,237,842
Property, plant and equipment, net	$	26,357,390	$	24,476,936	$	512,493	$	1,599,720	$	52,946,539
Construction in progress	$	617,334	$	31,737	$	—	$	61,792	$	710,863
Intangibles, net	$	—	$	—	$	2,553,888	$	847,778	$	3,401,666
Goodwill	$	1,170,511	$	1,948,875	$	5,320,416	$	1,985,211	$	10,425,013
Total segment assets	$	61,736,441	$	68,723,405	$	16,049,001	$	8,198,280	$	154,707,127
Assets of discontinued operations									$	22,319,927
Total assets									$	177,027,054

As of September 30, 2017
Retail Bulk Services Manufacturing Total
Accounts receivable, net $ 1,855,483 $ 9,457,940 $ 1,343,756 $ 350,704 $ 13,007,883
Property plant and equipment, net $ 23,466,107 $ 25,311,839 $ 96,698 $ 1,884,614 $ 50,759,258
Construction in progress $ 195,508 $ 1,226,677 $ 3,256 $ 7,900 $ 1,433,341
Intangibles, net $ - $ 550,315 $ - $ 3,566,667 $ 4,116,982
Goodwill $ 1,170,511 $ 2,328,526 $ - $ 6,285,211 $ 9,784,248
Land held for development $ - $ - $ 20,558,424 $ - $ 20,558,424
Total segment assets $ 54,650,263 $ 72,474,419 $ 24,197,958 $ 14,517,817 $ 165,840,457

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As of December 31, 2016
Retail Bulk Services Manufacturing Total
Accounts receivable, net $ 2,646,628 $ 12,692,714 $ 629,930 $ 531,526 $ 16,500,798
Property plant and equipment, net $ 24,890,031 $ 26,124,724 $ 91,030 $ 1,978,320 $ 53,084,105
Construction in progress $ 134,392 $ 743,296 $ - $ 7,806 $ 885,494
Intangibles, net $ - $ 599,960 $ 15,516 $ 4,580,000 $ 5,195,476
Goodwill $ 1,170,511 $ 2,328,526 $ - $ 6,285,211 $ 9,784,248
Land held for development $ - $ - $ 20,558,424 $ - $ 20,558,424
Total segment assets $ 54,303,011 $ 68,663,628 $ 25,558,495 $ 15,079,394 $ 163,604,528

5.4. Earnings per share

Earnings per share (“EPS”) is computed on a basic and diluted basis. Basic EPS is computed by dividing net income (loss) (less preferred stock dividends) available to common stockholders by the weighted average number of common shares outstanding during the period. The computation of diluted EPS assumes the issuance of common shares for all potential common shares outstanding during the reporting period and, if dilutive, the effect of stock options as computed under the treasury stock method.

The following summarizes information related to the computation of basic and diluted EPS:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders	$	823,611	$	1,363,960	$	5,857,459	$	1,152,256
Less: preferred stock dividends		(2,925)		(2,628)		(8,609)		(8,362)
Net income from continuing operations available to common shares in the determination of basic earnings per common share		820,686		1,361,332		5,848,850		1,143,894
Loss from discontinued operations		(505,917)		(1,078,367)		(1,533,064)		(1,542,540)
Net income (loss) available to common shares in the determination of basic earnings per common share	$	314,769	$	282,965	$	4,315,786	$	(398,646)

Weighted average number of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders		15,290,597		15,209,432		15,287,233		15,204,220
Plus:
Weighted average number of preferred shares outstanding during the period		35,366		31,861		31,041		30,701
Potential dilutive effect of unexercised options and unvested stock grants		124,313		110,589		121,987		110,199
Weighted average number of shares used for determining diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders		15,450,276		15,351,882		15,440,261		15,345,120

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income (loss) attributable to Consolidated Water Co. Ltd. stockholders
$ 1,161,139 $ (1,865,332 ) $ 4,416,915 $ 2,393,642
Less: preferred stock dividends (2,548 ) (2,680 ) (8,571 ) (8,921 )
Net income (loss) available to common shares in the determination of basic earnings per common share $ 1,158,591 $ (1,868,012 ) $ 4,408,344 $ 2,384,721

Weighted average number of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders 14,898,246 14,815,248 14,886,738 14,803,216
Plus:
Weighted average number of preferred shares outstanding during the period 45,087 37,719 39,035 38,516
Potential dilutive effect of unexercised options and unvested stock grants 128,809 - 128,570 98,903
Weighted average number of shares used for determining diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders 15,072,142 14,852,967 15,054,343 14,940,635

~~6. Investment in OC-BVI~~5. Discontinued operations - Mexico project development

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.

~~7. NSC and AdR Project Development~~

~~In May~~ 2010, the Company ~~acquired,~~began the pursuit, through its ~~wholly-owned~~ Netherlands subsidiary, ~~CW-Cooperatief, a 50% interest in NSC, a development stage Mexican company. The Company has since purchased, through the conversion~~Consolidated Water Cooperatief, U.A. (“CW-Cooperatief”), and its Mexico subsidiary, N.S.C. Agua, S.A. de C.V. (“NSC”), of ~~a loan it made to NSC, sufficient shares to raise its ownership interest in NSC to 99.99%. NSC was formed to pursue~~ a project (the “Project”) that ~~originally~~ encompassed the construction, operation and minority ownership of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and accompanying pipelines to deliver water to the Mexican potable water system. ~~As discussed~~

Through a series of transactions that began in ~~paragraphs that follow, during 2015~~2012, NSC purchased 20.1 hectares of land for approximately $21.1 million on which the ~~scope of the Project~~proposed Project’s plant was ~~defined~~to be constructed.

Following an assessment by the State of Baja, California (the “State”) ~~to consist~~ of the need for such a ~~first phase consisting of a 50 million gallon per day~~desalination plant and ~~a pipeline that connects to~~ the ~~Mexican potable water infrastructure and a second phase consisting~~passage of ~~an additional 50 million gallons of production capacity.~~

~~Through a series of transactions completed in 2012-2014, NSC purchased 20.1 hectares for approximately $20.6 million on which the proposed Project’s plant would be constructed.~~

In November 2012, NSC entered into a lease with an effective term of 20-years from the date of full operation of the Project’s desalination plant, with the Comisión Federal de Electricidad for approximately 5,000 square meters of land on which it plans to construct the water intake and discharge works for the plant. The amounts due on this lease are payable in Mexican pesos at an amount that is currently equivalent to approximately $20,000 per month. This lease may be cancelled by NSC should NSC ultimately not proceed with the Project.

In August 2014, the State enacted new legislation to regulate Public-Private Association projects which involve the type of long-term contract between a public-sector authority and a private party that NSC is seeking to complete the Project. Pursuant to this newenabling legislation in January 2015, NSC submitted an expression of interest for its project to the Secretary of Infrastructure and Urban Development of the State of Baja California (“SIDUE”). SIDUE accepted NSC’s expression of interest and requested that NSC submit a detailed proposal for the Project that complies with requirements of the new legislation. NSC submitted this detailed proposal (the “APP Proposal”) to SIDUE in late March 2015. The new legislation required that such proposal be evaluated by SIDUE and submitted to the Public-Private Association Projects State Committee (the “APP Committee”) for review and authorization. If the Project was authorized the State would be required to conduct a public tender for the Project.

In response to its APP Proposal, in September 2015 NSC received a letter dated June 30, 2015 from the Director General of the Comisión Estatal del Agua de Baja California (“CEA”), the State agency with responsibility for the Project, stating that (i) the Project is in the public interest with high social benefits and is consistent with the objectives of the State development plan; and (ii) that the Project should proceed, and the required public tender should be conducted. In November 2015, the State officially commenced the required public tender for the Project, the scope of which the State defined as a first phase to be operational in 2019 consisting of a 50 million gallon per day plant and a pipeline that connects to the Mexican potable water infrastructure and a second phase to be operational in 2024 consisting of an additional 50 million gallons per day of production capacity.Project. A consortium (the “Consortium”) comprised of NSC, Suez Medio Ambiente México, S.A. de C.V. (“Suez MA”),

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a subsidiary of SUEZ International, S.A.S., and NuWater S.A.P.I. de C.V. ~~and Degremont S.A. de C.V. (the “Consortium”~~(“NuWater”) submitted its tender for the Project ~~on the~~in April ~~21,~~ 2016 ~~tender submission deadline date set by the State.~~

The Company has acknowledged since the inception of the Project that, due to the amount of capital the Project requires, NSC will ultimately need an equity partner or partners for the Project. Consequently, NSC’s tender to the State for the Project was based upon the following: (i) NSC will sell or otherwise transfer the land and other Project assets to a new company (“Newco”) that would build and own the Project; (ii) NSC’s potential partners would provide the majority of the equity for the Project and thereby would own the majority interest in Newco; (iii) NSC would maintain a minority ownership position in Newco; and (iv) Newco would enter into a long-term management and technical services contract for the Project with an entity partially owned by NSC or another Company subsidiary.

On June ~~15,~~ 2016, the State designated the Consortium as the winner of the tender process for the Project.

OnIn August ~~17,~~ 2016, NSC and NuWater incorporated ~~Newco~~a new company under the name Aguas de Rosarito S.A.P.I. de C.V. (“AdR”)~~, a special project company,~~ to ~~complete~~pursue completion of the Project and executed a shareholders agreement for AdR agreeing among other things that (i) AdR would purchase the land and other Project assets from NSC on the date that the Project begins commercial ~~operations~~operation and (ii) AdR would enter into a Management and Technical Services Agreement with NSC effective on the first day that the Project begins commercial ~~operations. As of September 30, 2017 and December 31, 2016,~~operation. NSC initially owned 99.6% of the equity of AdR. In February 2018, CW-Holdings acquired the remaining 0.4% ownership in AdR from NuWater.

On August 22, 2016, the Public Private Partnership Agreement for ~~public private partnership number 002/2015, contest number SIDUE-CEA-APP-2015-002 (“APP~~the Project (the “APP Contract”), was executed between AdR, ~~CEA,~~the State Water Commission of Baja, California (“CEA”), and the Government of Baja California, as represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana (“CESPT”). The APP Contract ~~requires~~required AdR to design, construct, finance and operate a seawater reverse osmosis desalination plant (and accompanying ~~aqueducts)~~aqueduct) with a capacity of up to 100 million gallons per day in two phases: the first with a capacity of 50 million gallons per day and an aqueduct to the Mexican ~~potable~~public water system in Tijuana, Baja ~~California;~~California and the second phase with a capacity of 50 million gallons per ~~day and an aqueduct to a second delivery point in Tijuana.~~day. The first phase ~~must~~was to be operational within 36 months of commencing construction and the second phase ~~must~~was to be operational by ~~the end of 2024.~~January 2025. The APP Contract further ~~requires~~required AdR to operate and maintain the plant and ~~aqueducts~~aqueduct for a period of 37 years starting from the commencement of operation of the first phase. At the end of the operating period, the plant and ~~aqueducts will be~~aqueduct would have been transferred to CEA.

The ~~total Project cost for~~APP Contract was subsequently amended by the parties in June 2018 to increase the scope of Phase 1 ~~is expected~~and to ~~be approximately 9.1 billion Mexican pesos. Annual revenues~~allow for changes in the water tariff due to the changes in the exchange rate for the peso, interest rates and construction costs that had and would occur from the ~~Project for Phase 1 are expected to be approximately 1.79 billion Mexican pesos. Water rates under~~date the APP Contract ~~are indexed~~was signed to the ~~Mexican national consumer price index over its term. Electrical energy costs incurred~~date construction commenced.

On June 29, 2020, AdR received a letter (the “Letter”) from the Director General of CEA and the Director General of CESPT terminating the APP Contract. The Letter requested that AdR provide an inventory of the assets that currently comprise the “Project Works” (as defined in the APP Contract) for the purpose of acknowledging and paying the non-recoverable expenses made by AdR in connection with the Project, with such reimbursement to ~~desalinate~~be calculated in accordance with the terms of the APP Contract. The applicable law required that this list of non-recoverable expenses made by AdR in connection with the Project be submitted to CEA and ~~deliver water are treated~~CESPT within 20 business days from the date of receipt of the Letter. AdR initiated an amparo claim before a federal district court in Tijuana, Baja California, to challenge the provision of the applicable law requiring submittal of the list of non-recoverable expenses within the 20 business days term, as AdR considered such term to be unreasonably short due to the magnitude of the Project and the scope of supporting documentation required to be provided with respect to the non-recoverable expenses. AdR obtained an initial provisional suspension of the lapsing of such 20-day term from the court, and on August 10, 2020 the court made such suspension definitive until the completion of the amparo trial. As such, the 20-day term for filing the list of non-recoverable expenses was suspended. Therefore, on August 28, 2020, AdR submitted their list of non-recoverable expenses, including those of NSC, to CEA and CESPT which was comprised of 51,144,525 United States dollars and an additional 137,333,114 Mexican pesos. In February 2021, AdR withdrew this amparo claim, and such withdrawal was accepted by the federal district court in Tijuana. To date, AdR has not received a formal response from CEA or CESPT to its submission of non-recoverable expenses.

The Company believes CW-Cooperatief, as a ~~pass-through charge~~Netherlands company, has certain rights relating to ~~CEA, subject~~its investments in NSC and AdR under the Agreement on Promotion, Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the United Mexican States entered into force as of October 1, 1999 (the “Treaty”). On April 16, 2021, CW-Cooperatief submitted a letter to ~~efficiency guarantees. AdR~~the President of Mexico and other Mexican federal government officials alleging that the State’s termination of the APP Contract constituted a breach by Mexico of its international obligations under the Treaty, entitling CW-Cooperatief to full reparation, including monetary damages. This letter invited Mexico to seek a resolution of this investment dispute through consultation and negotiation, but stated that if the dispute cannot be resolved in this manner, CW-Cooperatief elects to refer the dispute to the International Centre for the Settlement of International Disputes for arbitration, as provided for in the Treaty. On June 29, 2021, the Mexican Ministry of Economy responded to CW-Cooperatief’s letter and proposed to hold a consultation meeting. Two such meetings were held on July 9, 2021 and August 2, 2021 on a confidential basis, without a resolution of the Company’s investment dispute.

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On February 9, 2022, CW-Cooperatief, filed a Request for Arbitration with the International Centre for Settlement of International Disputes requesting that the United Mexican States pay CW-Cooperatief damages in excess of US$51 million plus MXN$137 million (with the exact amount to be quantified in the proceedings), plus fees, costs and pre- and post-award interest.

CW-Cooperatief intends to pursue vigorously the relief sought in the arbitration, in addition to pursuing all other legal remedies and courses of action available under the operative contracts and applicable law with respect to its rights, damages, fees and expenses. The Company cannot provide any assurances that CW-Cooperatief will be able to obtain the relief sought in the arbitration, and CW-Cooperatief will incur legal and other arbitration-related expenses that the Company expects will be material to ~~raise Mexican peso denominated debt financing through a consortium led~~its consolidated results of operations and cash flows.

During July 2022, the State initiated discussions with the Company to potentially resolve the issues related to the cancellation by the ~~North American Development Bank, which also provided financial advisory services~~government of the Rosarito desalination plant contract as well as potentially addressing the State’s acute water shortage issues. The Company cannot presently determine the outcome of the discussions and the Company has not terminated its efforts to obtain relief through the international arbitration process as a result of these discussions.

The Company cannot provide any assurances that it will be able to obtain reimbursement for any expenses or investments made with respect to the ~~Consortium through~~Project.

As a result of the ~~bidding process and contract negotiations.~~

~~The~~cancellation of the APP Contract, ~~does not become effective until~~in 2020 the ~~following conditions are met:~~

~~the State has established and registered various payment trusts, guaranties and bank credit lines for specific use by the Project;~~

~~the CEA has obtained the rights~~Company discontinued all development activities associated with the Project and commenced active marketing efforts to sell the land NSC purchased for the Project. Accordingly, the assets and liabilities of CW-Cooperatief, NSC and AdR, as well as all Project development expenses and the costs for legal and administrative activities to pursue reimbursement from ~~the relevant federal authority to take and desalinate seawater and distribute it for municipal use;~~

~~various agreements between the CEA, the payment trusts and the CESPT have been executed;~~

~~AdR has obtained all rights of ways required for the Phase 1 aqueduct;~~

~~AdR has obtained permission from the relevant federal authority to discharge the residual water from the Project’s desalination plant; and~~

~~all equity and debt financing agreements necessary to provide the funding to AdR for the first phase of the Project have been executed.~~

~~On December 30, 2016, the Congress of~~ the State of Baja California ~~Mexico passed Decreto #57 which, among other things, ratified and authorized~~following the ~~execution~~cancellation of the APP ~~Contract. Earlier this year, following consultations between representatives~~Contract, have been classified as discontinued operations in the accompanying consolidated financial statements.

Summarized financial information for the discontinued Mexico project development operation is as follows:


	September 30,		December 31,
	2022		2021
Cash	$	432,002	$	750,048
Prepaid expenses and other current assets		67,882		82,783
Value added taxes receivable (net of allowance of $1,657,871 and $1,279,757, respectively)		777		340,910
Land		21,126,898		21,126,898
Other assets		12,676		19,288
Total assets of discontinued operations	$	21,640,235	$	22,319,927

Total liabilities of discontinued operations	$	238,366	$	190,141


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue	$	—	$	—	$	—	$	—
Provision for uncollected value added taxes	$	—	$	641,810	$	377,326	$	650,897
Loss from discontinued operations	$	505,917	$	1,078,367	$	1,533,064	$	1,542,540
Depreciation expense	$	—	$	1,136	$	—	$	3,409

6. Leases

The Company leases consist primarily of leases for office and warehouse space. For leases with terms greater than twelve months, the related asset and obligation are recorded at the present value of the ~~State~~lease payments over the term. Many of ~~Baja California and~~these leases contain rental escalation clauses which are factored into the ~~Ministry of Finance~~determination of the ~~Federal Government~~lease payments when appropriate. When available, the lease payments are discounted using the rate implicit in the lease; however, the

Table of ~~Mexico, it was determined~~Contents

Company’s current leases do not provide a readily determinable implicit rate. Therefore, the Company’s incremental borrowing rate is estimated to discount the lease payments based on information available at the lease commencement.

These leases contain both lease and non-lease components, which the Company has elected to treat as a single lease component. The Company elected not to recognize leases that have an original lease term, including reasonably certain ~~amendments~~renewal or purchase obligations, of twelve months or less in its condensed consolidated balance sheets for all classes of underlying assets. Lease costs for such short-term leases are expensed on a straight-line basis over the lease term.

The land used by the Company to ~~Decreto #57 were required~~operate its seawater desalination plants in ~~order to comply with recent changes~~the Cayman Islands and The Bahamas is owned by the Company or leased to the ~~Federal Fiscal Discipline Law. In addition, during~~Company for immaterial annual amounts and are not included in the ~~course~~lease amounts presented in the condensed consolidated balance sheets.

All lease assets denominated in a foreign currency are measured using the exchange rate at the commencement of ~~its recent due diligence~~the lease. All lease liabilities denominated in a foreign currency are remeasured using the exchange rate as of the condensed consolidated balance sheet date.

Lease assets and liabilities

The following table presents the lease-related assets and liabilities and their respective classification on the condensed consolidated balance sheets:


	September 30,		December 31
	2022		2021
ASSETS
Current
Prepaid expenses and other current assets	$	53,097	$	—
Current assets of discontinued operations		—		2,654
Noncurrent
Operating lease right-of-use assets		2,179,159		2,681,137
Long-term assets of discontinued operations		10,286		16,898
Total lease right-of-use assets	$	2,242,542	$	2,700,689

LIABILITIES
Current
Current maturities of operating leases	$	555,300	$	592,336
Current liabilities of discontinued operations		8,058		11,195
Noncurrent
Noncurrent operating leases		1,721,643		2,137,394
Noncurrent liabilities of discontinued operations		691		7,819
Total lease liabilities	$	2,285,692	$	2,748,744

Weighted average remaining lease term:
Operating leases		6.7 years		7.0 years
Operating leases - discontinued operations		1.1 years		1.6 years

Weighted average discount rate:
Operating leases		5.08%		5.03%
Operating leases - discontinued operations		4.96%		4.77%

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The components of lease costs were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Operating lease costs	$	168,910	$	165,899	$	523,107	$	518,524
Short-term lease costs		25,345		24,781		75,629		54,541
Lease costs - discontinued operations		10,185		7,684		29,767		22,571
Total lease costs	$	204,440	$	198,364	$	628,503	$	595,636

Supplemental cash flow information related to leases is as follows:

Future lease payments relating to the ~~potential financing~~Company’s operating lease liabilities from continuing operations as of the Project, the North American Development Bank requested that the State of Baja California amend Decreto #57 to authorize the inclusion of revenues from the CESPT in the primary payment trust for the Project. These amendments are included in Decreto #95 which is currently under consideration by the Congress of the State of Baja California. The Company cannot say with any certainty whether or not Decreto #95 will be approved by the Congress. In the event that Decreto #95 is ultimately not approved, the Company may not be able to obtain the debt financing required to complete the Project.September 30, 2022 were as follows:


Years ending December 31,	Total
2022	$	167,692
2023		643,233
2024		390,630
2025		268,056
2026		227,542
Thereafter		1,007,877
Total future lease payments		2,705,030
Less: imputed interest		(428,087)
Total lease obligations		2,276,943
Less: current obligations		(555,300)
Noncurrent lease obligations	$	1,721,643

7. Fair value

As of September 30, 2017, AdR has paid approximately $665,000 for deposits on, or purchases of, rights of way for the Phase 1 aqueduct, which are included in other assets on the Company’s condensed consolidated balance sheet.

Both the exchange rate for the Mexico peso relative to the dollar and general macroeconomic conditions in Mexico have varied since the U.S. Presidential election in November 2016. These changes could adversely impact the estimated construction, operating, and financing costs for the Project. The APP Contract and its underlying legislation allow for the parties to negotiate (but do not guarantee) modifications to the water tariff in the event of such significant macroeconomic condition changes. On February 10, 2017, AdR submitted proposals to the CEA requesting an increase to the water tariff to compensate for changes in foreign exchange rates, lending rates and certain changes in law which have impacted the Project. If AdR is unable to obtain this requested increase in the water tariff, it may be unable to obtain the debt and equity financing required for the Project. The Company is currently unable to determine whether or not such water tariff increase will be approved.

If AdR is ultimately unable to proceed with the Project, the land NSC has purchased and the right of way deposits may lose their strategic importance as the site for the Project and consequently may decline in value. If AdR does not proceed with the Project, NSC may ultimately be unable to sell this land or recoup their right of way deposits for an amount at least equal to its current carrying value of approximately $21.2 million ($20.56 million for the land and $665,000 for the right of way deposits), and any loss on sale of the land, or impairment loss NSC may be required to record as a result of a decrease in the fair value could have a material adverse impact on the Company’s results of operations.

Included in the Company’s results of operations are general and administrative expenses from NSC and AdR, consisting of organizational, legal, accounting, engineering, consulting and other costs relating to Project development activities. Such expenses amounted to approximately $864,000 and $606,000 for the three months ended September 30, 2017 and 2016, respectively, and $2,469,000 and $2,248,000 for the nine months ended September 30, 2017 and 2016, respectively. The assets and liabilities of NSC and AdR included in the Company’s condensed consolidated balance sheets amounted to approximately $22.8 million and $371,000, respectively, as of September 30, 2017 and approximately $22.3 million and $221,000 respectively, as of December 31, 2016.

~~EWG Litigation~~

Immediately following CW-Cooperatief’s acquisition of its initial 50% ownership in NSC, the remaining 50% ownership interest in NSC was held by an unrelated company, Norte Sur Agua, S. de R.L. de C.V. (“NSA”). NSA subsequently transferred ownership of half of its shares in NSC to EWG Water LLC (“EWG”) and the other half of its shares in NSC to Alejandro de la Vega (the “individual shareholder”). In February 2012, the Company paid $300,000 to enter into an agreement (the “Option Agreement”) that provided it with an option, exercisable through February 7, 2014, to purchase the shares of NSC owned by the individual shareholder for a price of $1.0 million along with an immediate power of attorney to vote those shares. Such shares constituted 25% of the ownership of NSC as of February 2012. In May 2013, NSC repaid a $5.7 million loan payable to CW-Cooperatief by issuing additional shares of its stock. As a result of this share issuance to CW-Cooperatief, the Company acquired 99.99% of the ownership of NSC. The Option Agreement contained an anti-dilution provision that required the Company to issue new shares in NSC of an amount sufficient to maintain the individual shareholder’s 25% ownership interest in NSC if (i) any new shares of NSC were issued subsequent to the execution of the Option Agreement; and (ii) the Company did not exercise its share purchase option by February 7, 2014. The Company exercised its option and paid the $1.0 million to the individual shareholder to purchase the Option Agreement shares in February 2014.

In October 2015, the Company learned that EWG filed a lawsuit against the individual shareholder, NSC, NSA, CW-Cooperatief, Ricardo del Monte Nunez, Carlos Eduardo Ahumada Arruit, Luis de Angitia Becerra, and the Public Registry of Commerce of Tijuana, Baja California in the Civil Court located in Tecate, Baja California, Mexico.

In this lawsuit, EWG challenged, among other things, the capital investment transactions that increased the Company’s ownership interest in NSC to 99.99%. EWG requested that the court, as a preliminary matter: (a) suspend the effectiveness of the challenged transactions; (b) order public officials in Mexico to record the pendency of the lawsuit in the public records; and (c) appoint an inspector for NSA and NSC to oversee its commercial activities. The court granted, ex-parte, the preliminary relief sought by EWG, which resulted in the placement of inscriptions for the lawsuit on NSC’s public records.

EWG also sought an order directing, among other things: (i) NSA, NSC and CW-Cooperatief to refrain from carrying out any transactions with respect to the Project; and (ii) NSA, NSC and CW-Cooperatief, and the partners thereof, to refrain from transferring any interests in NSA, NSC and CW-Cooperatief.

On April 5, 2016, NSC filed a motion for reconsideration with the Tecate, Mexico court asking, among other things, that the court; (i) reverse its order to record the pendency of the lawsuit in the public records; (ii) cancel the appointment of the inspector; and (iii) allow NSC to provide a counter-guarantee to suspend the effects of the court’s order regarding the challenged transactions. On April 26, 2016, the Tecate, Mexico court issued an interlocutory judgment (i) ordering the cancellation of the inscriptions on NSC’s public records; and (ii) rejecting NSC’s motion for cancellation of the appointment of the inspector.

~~On April 26, 2016, NSC filed a full answer to EWG’s claims rejecting every claim made by EWG. The court’s response on this matter is pending.~~

On May 17, 2016, NSC filed a claim with the Third District Court in Matters of Amparo and Federal Trials in the City of Tijuana, Baja California (the “Amparo Court”) challenging the Tecate, Mexico court ex-parte order which appointed an inspector over NSC’s commercial activities. On July 29, 2016, the Amparo Court found that such appointment is unconstitutional and reversed the Tecate, Mexico court’s appointment of an inspector.

On September 6, 2016, the Tecate, Mexico court issued a decree granting the counter-guaranty requested by NSC. Such counter-guaranty was fixed in the amount of 300,000 Mexican pesos and was given to the court on October 13, 2016 at which time all remaining ex-parte restrictions on NSC related to the challenged transactions were suspended.

On May 2, 2017, the Tecate, Mexico court declared that the initial filing of this lawsuit had expired due to EWG’s lack of activity with respect to certain actions required to proceed to trial. However, EWG can appeal the expiration or refile the lawsuit.

~~8. Fair value measurements~~

~~As of September 30, 2017~~2022 and December 31, ~~2016,~~2021, the carrying amounts of ~~cash and~~ cash equivalents, accounts receivable, accounts payable, accrued expenses, accrued compensation, dividends payable and other current liabilities ~~the notes payable to related party and dividends payable~~ approximate their fair values due to the short-term maturities of these instruments. ~~Management considers that the carrying amounts for loans receivable as of September 30, 2017 and December 31, 2016 approximate their fair value as their interest rates approximate market rates.~~

Under US GAAP, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. US GAAP guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s

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assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company reviews its fair value hierarchy classifications on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value as of September 30, ~~2017~~2022 and December 31, ~~2016:~~2021:

September 30, 2017
Level 1 Level 2 Level 3 Total
Liabilities:
Recurring
Net liability arising from put/call options $ - $ - $ 357,000 $ 357,000


	September 30, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Recurring
Certificate of deposit	$	—	$	—	$	—	$	—
Net asset arising from put/call options		—		—		157,000		157,000

December 31, 2016
Level 1 Level 2 Level 3 Total
Liabilities:
Recurring
Net liability arising from put/call options $ - $ - $ 680,000 $ 680,000


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Recurring
Certificate of deposit	$	—	$	2,500,000	$	—	$	2,500,000
Net asset arising from put/call options		—		—		128,000		128,000

The activity for the Level 3 ~~liability~~asset for the nine months ended September 30, ~~2017:~~2022:

Net liability arising from put/call options⁽¹⁾
Balance as of December 31, 2016 $ 680,000
Unrealized gain (323,000 )
Balance as of September 30, 2017 $ 357,000


Net asset arising from put/call options
Balance as of December 31, 2021	$	128,000
Unrealized gain		29,000
Balance as of September 30, 2022	$	157,000

(1) In connection with the Company’s acquisition of 51% of Aerex in February 2016, the Company acquired from Aerex’s former sole shareholder an option to compel such shareholder to sell, and granted to such shareholder an option to require the Company to purchase, the shareholder’s remaining 49% ownership interest in AerexThe put/call options are reported at ~~a price based upon the~~ fair value ~~of Aerex~~ at ~~the time of the exercise of the option. The options are exercisable on~~their net asset or ~~after the third anniversary of the February 2016 acquisition date. The net~~ liability ~~arising from the put/call options is included in other liabilities~~balance in the ~~accompanying~~ condensed consolidated balance ~~sheets~~sheets. The underlying asset and liability fair values are calculated using discounted cash flow analysis valuation techniques that incorporate unobservable inputs, such as future cash flows, weighted-average cost of ~~September 30, 2017~~capital, and ~~December 31, 2016.~~ expected future volatility. The inputs to these valuations are considered Level 3 inputs.

8. Contingencies

COVID-19

The worldwide coronavirus (COVID-19) pandemic was formally recognized by the World Health Organization on March 11, 2020. In response to this pandemic, the governments of the countries in which the Company operates - the Cayman Islands, The Bahamas, and the United States - implemented preventative measures to slow the spread of COVID-19, measures which had profound adverse consequences for the economies of those countries. Tourism, a major economic

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driver for the Cayman Islands, temporarily ceased due to closing of the country to tourist arrivals by air and sea travel and has yet to return to pre-pandemic levels. Tourist arrivals to The Bahamas by air and sea also declined significantly due to the pandemic. Overall economic activity in the United States was adversely affected by COVID-19.

~~9. Contingencies~~

As a result of the impact of the COVID-19 pandemic on the economies of the countries in which the Company operates, the Company experienced decreases in consolidated revenue, net income and cash flows from operations as compared to pre-pandemic periods. The economic downturn arising initially from the COVID-19 pandemic and furthered by the Russian invasion of Ukraine and other factors has further adversely affected the Company’s supply chain and the markets for the Company’s products and services. A continuation of the current weak economic conditions could have a material adverse impact on the Company’s consolidated financial condition, results of operations and cash flows.

Cayman Water

The Company sells water through its retail operations under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that ~~grants~~granted Cayman Water the exclusive right to provide potable water to customers within its licensed service area. ~~As discussed below, this~~Although the 1990 license was ~~set~~not expressly extended after January 2018, the Company continues to ~~expire~~supply water under the terms of the 1990 license, as further discussed in ~~July 2010 but has since been extended while negotiations for a new license take place.~~the following paragraph. Pursuant to the 1990 license, Cayman Water has the exclusive right to produce potable water and distribute it by pipeline to its licensed service area, which consists of two of the three most populated areas of Grand Cayman ~~the~~Island: Seven Mile Beach and West ~~Bay areas.~~Bay. For the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, the Company generated approximately ~~33%~~25% and ~~38%~~32%, respectively, of its consolidated ~~revenues~~revenue and ~~48%~~44% and ~~52%~~44%, respectively, of its consolidated gross profit from the retail water operations conducted ~~pursuant to Cayman Water’s exclusive~~under the 1990 license. For the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, the Company generated approximately ~~38%~~29% and ~~40%~~33%, respectively, of its consolidated ~~revenues~~revenue and ~~52%~~45% and ~~55%~~47%, respectively, of its consolidated gross profit from the retail water operations conducted ~~pursuant to Cayman Water’s exclusive~~under the 1990 license.

The Company continues to operate under the terms of the 1990 license, providing water services to the level and quality specified in the 1990 license and in accordance with its understanding of its legal obligations, treating those obligations set forth in the 1990 license as operative notwithstanding the expiration of the express extension. The Company continues to pay the royalty required under the 1990 license.

In October 2016, the Government of the Cayman Islands passed legislation which created a new utilities regulation and competition office (“OfReg”). OfReg is an independent and accountable regulatory body with a view of protecting the rights of consumers, encouraging affordable utility services and promoting competition. OfReg, which began operations in January 2017, has the ability to supervise, monitor and regulate multiple utility undertakings and markets. Supplemental legislation was passed by the Government of the Cayman Islands in April 2017, which transferred responsibility for the economic regulation of the water utility sector ~~from~~and the ~~Water Authority-Cayman (the “WAC”) to OfReg. In July 2017,~~negotiations with the Company ~~began negotiating with OfReg~~ for a new retail license ~~in the Cayman Islands and such negotiations are continuing.~~

Under its present license, Cayman Water pays a royalty to the government of 7.5% of its gross retail water sales revenues (excluding energy cost adjustments). The selling prices of water sold to its customers are determined by the license and vary depending upon the type and location of the customer and the monthly volume of water purchased. The license provides for an automatic adjustment for inflation or deflation on an annual basis, subject to temporary limited exceptions, and an automatic adjustment for the cost of electricity on a monthly basis. The WAC, on behalf of the government, previously reviewed and confirmed the calculations of the price adjustments for inflation and electricity costs. On July 7, 2017, the Company was advised by OfReg that regulatory responsibility for the water utility sector had been transferred from the WAC to OfReg ~~effective~~in May ~~22,~~2017. The Company began license negotiations with OfReg in July 2017 and ~~that effective immediately all reviews~~such negotiations are ongoing. The Company has been informed during its retail license negotiations, both by OfReg and ~~confirmations of calculations of the price adjustments for inflation and electricity costs will be performed by OfReg. If Cayman Water wants to adjust~~ its ~~prices for any reason other than inflation or electricity costs, Cayman Water has to request prior approval from the Cabinet of~~predecessor in these negotiations, that the Cayman Islands ~~government. Disputes regarding price adjustments would be referred~~government seeks to ~~arbitration.~~

~~The Cayman Islands government~~restructure the terms of its license in a manner that could ~~ultimately offer a third party a license to service some or all of Cayman Water’s present service area. However, as set forth in~~significantly reduce the ~~existing license, “~~the Governor hereby agrees that upon the expiry of the term of this Licence or any extension thereof, he will not grant a licence or franchise to any other person or company for the processing, distribution, saleoperating income and ~~supply of water within the Licence Area without having first offered such a licence or franchise to~~cash flows the Company ~~on terms no less favourable than the terms offered to such other person or company.”~~

has historically generated from its retail license.

The Company is presently unable to determine what impact the resolution of its retail license negotiations will have on its ~~cash flows,~~consolidated financial condition or results of operations but such resolution could result in a material reduction (or the loss) of the operating income and cash flows the Company has historically generated from ~~its~~Cayman Water’s retail operations and could require the Company to record an impairment ~~loss~~losses to reduce the carrying ~~value~~values of its ~~goodwill.~~retail segment assets. Such impairment ~~loss~~losses could have a material adverse impact on the Company’s consolidated financial condition and results of operations.

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~~CW-Belize~~CW-Bahamas

By Statutory Instrument No. 81 of 2009, the Minister of Public Utilities of the government of Belize published an order, the Public Utility Provider Class Declaration Order, 2009 (the “Order”), which as of May 1, 2009 designated CW-Belize as a public utility provider under the laws of Belize. With this designation, the Public Utilities Commission of Belize (the “PUC”) has the authority to set the rates charged by CW-Belize and to otherwise regulate its activities. On November 1, 2010, CW-Belize received a formal complaintAs December 31, 2021, CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the PUC alleging that CW-Belize was operating without a license under the terms of the Water Industry Act. CW-Belize applied for this license in December 2010. On July 29, 2011, the PUC issued the San Pedro Public Water Supply Quality and Security Complaint Order (the “Second Order”) which among other things requires that (i) CW-Belize and its customer jointly make a submission to the responsible Minister requesting that the area surrounding CW-Belize’s seawater abstraction wells be designated a forest reserve or national park and be designated a Controlled Area under section 58 of the Water Industry Act; (ii) CW-Belize submit an operations manual for CW-Belize’s desalination plant to the PUC for approval; (iii) CW-Belize and its customer modify the water supply agreement between the parties to (a) include new water quality parameters included in the Order and (b) cap the current exclusive water supply arrangement in the agreement at a maximum of 450,000 gallons per day; (iv) CW-Belize keep a minimum number of replacement seawater RO membranes in stock at all times; and (v) CW-Belize take possession of and reimburse the PUC for certain equipment which the PUC purchased from a third-party in late 2010. CW-Belize has applied for declaratory judgment and has been granted a temporary injunction to stay the enforcement of the Second Order by the PUC until such time as the Belize courts could hear the matter. The initial hearing on this matter was conducted on October 30 and 31, 2012 with an additional hearing on November 29, 2012. The ruling on this case is pending. The Company is presently unable to determine what impact the Order and the Second Order will have on its financial condition, results of operations or cash flows.

~~CW-Bahamas~~

~~CW-Bahamas’ water supply agreements with~~ the Water and Sewerage Corporation of The Bahamas ~~("WSC"~~(“WSC”) amounted to $21.5 million.

From time to time, CW-Bahamas has experienced delays in collecting its accounts receivable from the WSC. When these delays occur, the Company holds discussions and meetings with representatives of the WSC and The Bahamas government, and as a result, payment schedules are developed for ~~its Blue Hills and Windsor plants require~~WSC’s delinquent accounts receivable. All previous delinquent accounts receivable from the WSC, including accrued interest thereon, were eventually paid in full. Based upon this payment history, CW-Bahamas ~~to guarantee delivery of a minimum quantity of water per week. If CW-Bahamas does not meet these minimums, it will be~~has never been required to ~~pay~~provide an allowance for doubtful accounts for any of its accounts receivable, despite the periodic accumulation of significant delinquent balances.

In February 2022, CW-Bahamas received correspondence from the Ministry of Finance of the Government of the Bahamas that set forth a payment schedule providing for the gradual reduction over the course of 2022 of the CW-Bahamas' delinquent accounts receivable due from the WSC. Such correspondence also indicated that the Government intends to return all of CW-Bahamas’ accounts receivable from the WSC ~~for the difference between the minimum and actual gallons delivered at a per gallon rate equal~~ to the price per gallon that WSC is currently paying under the respective agreement. The Blue Hills and Windsor agreements require CW-Bahamas to deliver 63.0 million gallons and 16.8 million gallons of water each week, respectively.current status.

~~Aerex Put/Call Options~~

In connection with the Company’s acquisition of 51% of Aerex in February 2016, the Company acquired from Aerex’s former sole shareholder an option to compel such shareholder to sell, and granted to such shareholder an option to require the Company to purchase, the shareholder’s remaining 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 February 2016 acquisition date. The fair value of the net liability arising from these put/call options was $357,000 and $680,000 asAs of September 30, ~~2017~~2022, CW-Bahamas’ accounts receivable from the WSC amounted to $15.2 million.

In its latest report dated October 6, 2022, Moody’s Investor Services (“Moody’s) downgraded the Government of The Bahamas’ long-term issuer and ~~December 31, 2016,~~senior unsecured ratings to B1 from Ba3. Moody’s also lowered The Bahamas’ local currency ceiling to Baa3 from Baa2 and its foreign currency ceiling to Ba1 from Baa. Based upon its review of this Moody’s report, the Company continues to believe no allowance for doubtful accounts is required for CW-Bahamas’ accounts receivable from the WSC.

9. Related party transactions

The Company, through PERC and the services segment, purchases engineering and technology support services from various companies with a minority shareholder in those companies who is also a minority shareholder of PERC. During the three months ended September 30, 2022 and 2021, the Company made total purchases of services from these companies of approximately $685,000 and $105,000, respectively, and isapproximately $2,166,000 and $390,000 during the nine months ended September 30, 2022 and 2021, respectively. These total purchases are included in ~~other liabilities~~the Company’s cost of revenue in the accompanying condensed consolidated ~~balance sheets.~~statements of income (loss).

PERC has entered into a sublease agreement with one of these related companies that commenced on March 14, 2021 and ended August 31, 2021. This lease has been extended on a month-to-month basis subsequent to August 31, 2021. During the three months ended September 30, 2022 and 2021, the Company recognized approximately $24,000 and $24,000 of expense related to this lease, respectively, and approximately $73,000 and $53,000 during the nine months ended September 30, 2022 and 2021, respectively. This lease expense is included in the Company's general and administrative expenses in the accompanying condensed consolidated statements of income (loss).

The total amount of accounts payable outstanding to these companies as of September 30, 2022 and December 31, 2021, was approximately $569,000 and $164,000, respectively.

10. Impact of recent accounting standards

Adoption of new accounting standards:

~~In July 2015, the FASB issued ASU 2015-11,~~~~Inventory (Topic 330): Simplifying the Measurement of Inventory~~. ASU 2015-11 applies to all inventory that is measured using first-in, first-out or average cost. The guidance requires an entity to measure inventory at the lower of cost or net realizable value. ASU 2015-11 is effective prospectively for fiscal years, and for interim periods within those years, beginning after December 15, 2016. Early application is permitted. The adoption of ASU 2015-11 did not have a material impact on the Company’s financial position, results of operations or cash flows.

~~In November 2015, the FASB issued ASU 2015-17,~~~~Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes~~. ASU 2015-17 requires net deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet and eliminates the classification between current and noncurrent amounts. ASU No. 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. The adoption of ASU 2015-17 did not have a material impact on the Company’s financial position, results of operations or cash flows.

~~In March 2016, the FASB issued ASU 2016-07,~~~~Investments- Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting,~~ which eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. ASU 2016-07 will be effective for the Company’s fiscal year beginning January 1, 2017 and subsequent interim periods. The adoption of ASU 2016-07 did not have a material impact on the Company’s financial position, results of operations or cash flows.

~~In March 2016, the FASB issued ASU 2016-09, C~~~~ompensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,~~ which simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of ASU 2016-09 did not have a material impact on the Company’s financial position, results of operations or cash flows.

None.

Effect of newly issued but not yet effective accounting standards:

None.

~~In May 2014, the FASB issued ASU 2014-09,~~~~Revenue from Contracts with Customers~~. ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 prescribes a five-step framework in accounting for revenues from contracts within its scope, including (a) identification of the contract, (b) identification of the performance obligations under the contract, (c) determination of the transaction price, (d) allocation of the transaction price to the identified performance obligations and (e) recognition of revenues as the identified performance obligations are satisfied. ASU 2014-09 also prescribes additional disclosures and financial statement presentations. ASU 2014-09 may be adopted retrospectively or under a modified retrospective method where the cumulative effect is recognized at the date of initial application. This amendment was originally effective January 1, 2017. In August 2015, the FASB issued ASU 2015-14,~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date~~~~, which defers the effective date by one year to January 1, 2018. Early application is permitted but not before January 1, 2017.~~

~~In March 2016, the FASB issued ASU 2016-08,~~~~Principal versus Agent Considerations (Reporting Revenue Gross versus Net~~), that amends the principal versus agent guidance in ASU 2014-09. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer. ASU 2016-08 also provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services.

~~In April 2016, the FASB issued ASU 2016-10,~~~~Identifying Performance Obligations and Licensing,~~ ~~that amends the revenue guidance in ASU 2014-09 on identifying performance obligations and accounting for licenses~~Table of intellectual property. ASU 2016-10 changed the FASB's previous proposals on renewals of right-to-use licenses and contractual restrictions. The effective date of the standard for the Company will coincide with ASU 2014-09 during the first quarter 2018.Contents

~~In May 2016, the FASB issued ASU 2016-11,~~Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting. ASU 2016-11 rescinds several SEC Staff Announcements that are codified in Topic 605, including, among other items, guidance relating to accounting for shipping and handling fees and freight services.

~~In May 2016, the FASB issued ASU 2016-12,~~~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,~~ which clarifies implementation guidance around collectability, sales taxes collected from customers, noncash considerations, contract modifications at transition, and completed contracts at transition.

~~In December 2016, the FASB issued ASU 2016-20,~~~~Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers~~, which amended the guidance on performance obligation disclosures and makes technical corrections and improvements to the new revenue standard. The standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and permits early adoption on a limited basis. The update permits the use of either the retrospective or cumulative effect transition method.

The effective dates of ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, and ASU 2016-20 are the same as ASU 2015-14 discussed above. The Company intends to elect the modified retrospective method to all active contracts on the date of initial application, which will involve applying the guidance retrospectively only to the most current period presented in the financial statements and recognizing the cumulative effect of initially applying the guidance as an adjustment to the January 1, 2018 opening balance of retained earnings at the date of initial application. Based on an analysis the Company has performed, the adoption of ASC 606,~~Revenue from Contracts with Customers~~ ~~will not have a material impact on the Company’s financial position, results of operations or cash flows.~~

~~In January 2016, the FASB issued ASU 2016-01,~~~~Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,~~ which provides guidance for the recognition, measurement, presentation and disclosure of financial assets and financial liabilities. ASU 2016-01 is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2017 and, for most provisions, is effective using the cumulative-effect transition approach. Early application is permitted for certain provisions. The adoption of ASU 2016-01 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

~~In February 2016, the FASB issued ASU 2016-02,~~~~Leases (Topic 842)~~, which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets. The accounting guidance for lessors will remain relatively largely unchanged. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the effect the adoption of this amendment will have on the Company’s consolidated financial statements. The Company expects that the adoption of the new lease standard will have a material impact on the Company’s condensed consolidated balance sheet due to the recognition of right-of-use assets and lease liabilities principally for certain leases currently accounted for as operating leases.

~~In August 2016, the FASB issued ASU 2016-15,~~~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~, which clarifies how certain cash receipts and payments are presented in the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 and early adoption is permitted. The adoption of ASU 2016-15 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

~~In January 2017, the FASB issued ASU 2017-04,~~~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~, which removes Step 2 of the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 should be applied on a prospective basis and is effective for annual periods beginning January 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of ASU 2017-04 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

11. Subsequent events

In October 2022, the Company exercised its option to purchase the shares constituting the remaining 39% minority interest in PERC at a price to be determined by an independent valuation, which is currently in-process.

The ~~Company’s management~~Company evaluated subsequent events through the time of the filing of this report on Form 10-Q. Other than as disclosed in these condensed consolidated financial statements, the ~~Company’s management~~Company is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on its condensed consolidated financial statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our future ~~revenues,~~revenue, future plans, objectives, expectations and events, assumptions and estimates. Forward-looking statements can be identified by use of the words or phrases “will,” “will likely result,” “are expected to,” “will continue,” “estimate,” “project,” “potential,” “believe,” “plan,” “anticipate,” “expect,” “intend,” or similar expressions and variations of such words. Statements that are not historical facts are based on our current expectations, beliefs, assumptions, estimates, forecasts and projections for our business and the industry and markets related to our business.

The forward-looking statements contained in this report are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Important factors which may affect these actual outcomes and results include, without limitation:

●

tourism and weather conditions in the areas we serve;

●

the ~~economies~~impacts of the ~~U.S.~~COVID-19 pandemic, particularly on our retail and ~~other countries~~manufacturing segments;

●	the economic, political and social conditions of each country in which we conduct or plan to conduct business;

●

our relationships with the ~~governments~~government entities and other customers we serve;

●

regulatory matters, including resolution of the negotiations for the renewal of our retail license on Grand Cayman;

●

our ability to successfully enter new ~~markets, including Mexico~~markets; and ~~the United States; and~~

●

other factors, including those “Risk Factors” set forth under Part II, Item 1A. “Risk Factors” in this Quarterly Report and in our ~~2016~~2021 Annual Report on Form 10-K.

The forward-looking statements in this Quarterly Report speak as of its date. We expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained in this Quarterly Report to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based, except as may be required by law.

References herein to “we,” “our,” “ours” and “us” refer to Consolidated Water Co. Ltd. and its subsidiaries.

Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of ~~revenues~~revenue and expenses during the reporting period. Our actual results could differ significantly from such estimates and assumptions.

Certain of our accounting estimates or assumptions constitute “critical accounting estimates” for us because:

●

the impact of the estimates and assumptions on our financial condition and results of operations is material.

Our critical accounting estimates relate to (i) the valuations of our ~~(i) equity investment in our affiliate OC-BVI; (ii)~~ goodwill, intangible assets and ~~intangible~~long-lived assets; and ~~(iii) long-lived assets.~~

~~Valuation of Investment in OC-BVI~~

~~We account for~~(ii) revenue recognition on our ~~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,~~construction 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, we tested the carrying value of our investment in OC-BVI (which exceeded our proportionate share of OC-BVI’s net assets by an amount accounted for as goodwill) for impairment in 2016 and prior years.

We estimated the fair value of our 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 us to estimate OC-BVI’s future cash flows from its Bar Bay plant and the resolution of the Baughers Bay litigation.

We 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. We similarly estimated the cash flows OC-BVI would receive from the BVI government in connection with the final court rulings on the Baughers Bay litigation (which were issued in 2012) by assigning probabilities to different scenarios. The resulting probability-weighted sum represented our 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 us. While we used our 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 our management over time based upon new information or changes in circumstances.

After updating our probability-weighted estimates of OC-BVI’s future cash flows and our resulting estimate of the fair value of our investment in OC-BVI, we recorded impairment losses for our investment in OC-BVI for 2016 and other prior years. Such impairment losses amounted to $875,000 and $925,000 for the three and nine months ended September 30, 2016, respectively, and $925,000 for the year ended December 31, 2016.

In February 2017, the BVI government executed a 14-year extension to water supply agreement for OC-BVI’s Bar Bay plant. Based upon the execution of this extension, we believe further impairment losses to reduce the carrying value of our investment in OC-BVI will not be required unless the BVI government fails to comply with the terms of the Bar Bay extension or a presently unforeseen event occurs that would impact the future cash flows we expect OC-BVI to generate.

manufacturing contracts.

Goodwill and intangible assets

Goodwill represents the excess cost of an acquired business over the fair value of the assets and liabilities of anthe acquired business. Goodwill and intangible assets acquired in a business combination ~~accounted for as a purchase~~ and determined to have an indefinite useful

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life are not amortized but are tested for impairment ~~at least annually.~~annually or upon the identification of a triggering event. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment. We evaluate the possible impairment of goodwill annually as part of our reporting process for the fourth quarter of each fiscal year. Management identifies our reporting units, which consist of our retail, bulk, services, and manufacturing operations, and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. We determine the fair value of each reporting unit and compare these fair values to the carrying amounts of the reporting units. To the extent the carrying amount of the reporting unit exceeds the fair value of the reporting unit, ~~we are required to perform the second step of the impairment test, as this is~~ an indication that the reporting unit’s goodwill may be impaired. In this step, we compare the implied fair value of each reporting unit’s goodwill with the carrying amount of such goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit’s goodwill. If the implied fair value is less than its carrying amount, the impairment loss is recorded.

For the year ended December 31, ~~2016,~~2021, we estimated the fair value of our reporting units by applying the discounted cash flow method, ~~the guideline public company method, and the mergers and acquisitions method.~~

~~The discounted cash flow method~~which relied upon seven-year discrete projections of operating results, working capital and capital expenditures, along with a terminal value subsequent to the discrete period. These seven-year 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. In preparing these seven-year projections for our retail unit we (i) identified possible outcomes of our on-going negotiations with the Cayman Islands government for the renewal of our retail license; (ii) estimated the cash flows associated with each possible outcome; and (iii) assigned a probability to each outcome and associated estimated cash flows. The weighted average estimated cash flows were then summed to determine the overall fair value of the retail unit under this method. The possible outcomes used for the discounted cash flow method for the retail unit included the implementation of a rate of return on invested capital model methodology for determining water rates proposed by Cayman Islands government representatives for the new retail license.

We also estimated the fair value of each of our reporting units for the year ended December 31, ~~2016 through reference to~~2021 by applying the ~~quoted market prices for our Company and~~ guideline ~~companies and the market multiples implied by guideline merger and acquisition transactions.~~public company method.

We weighted the fair values estimated for each of our reporting units under each method and summed such weighted fair values to estimate the overall fair value for each reporting unit. The respective weightings we applied to each method ~~as of~~for the year ended December 31, ~~2016~~2021 were ~~as follows:~~80% to the discounted cash flow method and 20% to the guideline public company method.

Method Retail Bulk Manufacturing
Discounted cash flow 80 % 80 % 80 %
Guideline public company 10 % 10 % 10 %
Mergers and acquisitions 10 % 10 % 10 %
100 % 100 % 100 %

The fair values we estimated for our retail, bulk, services and manufacturing reporting units exceeded their carrying amounts by ~~123%~~32%, ~~41%~~51%, 15% and ~~26%~~15%, respectively, as of December 31, ~~2016.~~2021.

We also performed an analysis reconciling the conclusions of value for our reporting units to our market capitalization at December 31, 2016. This reconciliation resulted in no implied control premium for our Company.

~~Our manufacturing unit consists of the operations of Aerex, a company in which~~In February 2016, we acquired a 51% ownership interest in ~~February 2016.~~Aerex, our manufacturing subsidiary. In connection with this acquisition, we recorded goodwill of $8,035,211. Aerex’s actual results of operations for the six months in ~~the months~~2016 following ~~our~~the acquisition fell significantly short of the projected results that were included in the ~~overall~~ cash flow projections we utilized to determine the purchase price for Aerex and the fair values of its assets and liabilities. Due to this shortfall in Aerex’s results of operations, we ~~updated~~tested our ~~projections for Aerex’s future cash flows and tested Aerex’s~~manufacturing reporting unit’s goodwill for possible impairment as of September 30, 2016 by estimating its fair value using the discounted cash flow method. As a result of this impairment testing, we determined that the carrying value of our ~~Aerex~~manufacturing reporting unit’s goodwill exceeded its fair value and recorded an impairment loss of $1,750,000 for the three months ended September 30, 2016 to reduce the carrying value of this goodwill to $6,285,211. As part of our annual impairment testing of goodwill performed during the fourth quarter, in 2017 we updated our projections for Aerex’s future cash flows, determined that the carrying value of our manufacturing reporting unit’s goodwill exceeded its fair value, and recorded an impairment loss of $1,400,000 for the three months ended December 31, 2017 to further reduce the carrying value of this goodwill to $4,885,211.

Approximately 80% of Aerex’s revenue, and 89% of Aerex’s gross profit, for the year ended December 31, 2020 were generated from sales to one customer. While Aerex sells various products to this customer, Aerex’s revenue from this customer has historically been derived primarily from one specialized product. In October 2020, this customer informed Aerex that, for inventory management purposes, it was suspending its purchases of the specialized product from Aerex following 2020 for a period of approximately one year. This customer informed Aerex at that time that it expected to recommence its purchases of the specialized product from Aerex beginning with the first quarter of 2022. As a result of this anticipated loss of revenue for Aerex, we updated our projections for our manufacturing reporting unit’s future cash flows. Such projections assumed, in part, that Aerex’s major customer would recommence its purchases from Aerex in 2022 but at a reduced aggregate amount, as compared to 2020. Based upon these updated projections, we tested our manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020 using the discounted cash flow and guideline public company methods, with a weighting of 80% and 20% applied to these two methods, respectively. As a result of these impairment tests, we determined that the estimated fair value of our manufacturing reporting unit exceeded its carrying value by approximately 31% as of December 31, 2020.

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In late July 2021, this former major customer communicated to Aerex that it expected to recommence its purchases of the specialized product from Aerex in 2022 and subsequent years, but informed Aerex that such purchases would be at substantially reduced annual amounts, as compared to the amounts it had purchased from Aerex in 2020 and prior years. Our updated sales estimate for this customer based on this new information was substantially below the sales we anticipated to this customer for 2022 and subsequent years that we used in the discounted cash flow projections we prepared for purposes of testing our manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020. Furthermore, Aerex’s efforts to replace the revenue previously generated from this customer with revenue from existing and new customers have been adversely impacted by the continuing negative economic conditions (caused in part by the COVID-19 pandemic) which have increased Aerex’s raw material costs, resulted in raw material shortages and extended delivery times for such materials, and also adversely affected the overall financial condition of Aerex’s current and prospective customers. Accordingly, in light of this new information from Aerex’s former major customer, and the on-going weak economic conditions that we believed would continue through 2022, we updated our projections of future cash flows for the manufacturing reporting unit and tested its goodwill for possible impairment as of June 30, 2021 using the discounted cash flow and guideline public company methods, with a weighting of 80% and 20% applied to these two methods, respectively. Based upon this testing, we determined that the carrying value of our manufacturing reporting unit exceeded its fair value by $2.9 million, and we recorded an impairment loss to reduce our manufacturing reporting unit’s goodwill by this amount for the three months ended June 30, 2021.

We believe the inherent uncertainties associated with the accounting estimates and assumptions we use for our estimates of our reporting units’ fair values have increased due to the current, less predictable economic conditions, which have resulted in increasing raw material prices, extended and unexpected delays in the procurement and delivery of our raw materials, and have also, we believe, adversely affected our customers. Should interest rates rise significantly in the future we would likely be required to increase the discount rate we use under the discounted cash flow method we use to estimate the fair values of our reporting units, and such increased discount rate in and of itself could decrease the estimated fair value of our reporting units under the discounted cash flow method.

Based upon our estimation prepared as of December 31, 2021, the fair value of our manufacturing reporting unit exceeded its carrying value by only 15%. If we determine in the future that Aerex’s discounted future cash inflows will be less than our present expectations, we may be required to record additional impairment losses to reduce the remaining carrying ~~value~~values as of September 30, 2022 of our ~~Aerex~~manufacturing reporting unit’s goodwill ~~in future periods if we determine it likely that Aerex’s~~of $1,985,211 and its remaining unamortized intangible assets balances of $777,778 recorded as a result of the acquisition of Aerex. Any such impairment losses could have a material adverse impact on our consolidated results of ~~operations will fall short of our most recent projections of its future cash flows.~~

operations.

Long-lived assets

We review the carrying amounts of our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, we recognize an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measure the impairment loss based on the difference between the carrying amount and fair value.

On June 29, 2020, our Mexico subsidiary, AdR, received a letter from the State of Baja California (the “State”) terminating AdR’s contract with the State involving the construction and operation of a desalination plant in Rosarito California and accompanying aqueduct to deliver the water produced by this plant to the Mexican public water system. As a result of the cancellation of this contract, we recorded an impairment loss for rights of way acquired for the contract’s proposed aqueduct of approximately ($3.0 million) in 2020.

Through our former subsidiary, PT Consolidated Water Bali (“CW-Bali”), we built and operated a seawater reverse osmosis plant with a productive capacity of approximately 264,000 gallons per day located in Nusa Dua, one of the primary tourist areas of Bali, Indonesia. We recorded operating losses for CW-Bali as the sales volumes for its plant were insufficient to cover its operating costs. In 2017 we determined, based upon probability-weighted scenarios for CW-Bali’s future undiscounted cash flows, that the carrying values of CW-Bali’s long-lived assets and our investment in CW-Bali

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were not recoverable. Consequently, we recorded impairment losses of ($1.6 million) in 2017 to reduce the carrying values of these assets to their fair values.

Construction and Manufacturing Contract Revenue Recognition

We design, construct, and sell desalination infrastructure through DesalCo, which serves customers in the Cayman Islands, The Bahamas, and the British Virgin Islands. We design, construct, and sell wastewater and water reuse infrastructure in the U.S. through PERC. Aerex, is a custom and specialty manufacturer in the U.S. of water treatment-related systems and products applicable to commercial, municipal and industrial water production.

We recognize revenue for our construction and our specialized/custom manufacturing contracts over time under the input method using costs incurred (which represents work performed) to date relative to total estimated costs at completion to measure progress toward satisfying its performance obligations as such measure best reflects the transfer of control of the promised good to the customer. Contract costs include labor, materials and amounts payable to subcontractors. We follow this method since we can make reasonably dependable estimates of the revenue and costs applicable to the various stages of a contract. Under this input method, we record revenue and recognize profit or loss as work on the contract progresses. We estimate total project or manufacturing costs and profit to be earned on each long-term, fixed price contract prior to commencement of work on the contract and update these estimates as work on the contract progresses. The cumulative amount of revenue recorded on a contract at a specified point in time is that percentage of total estimated revenue that incurred costs to date comprises of estimated total contract costs. If, as work progresses, the actual contract costs exceed estimates, the profit recognized on revenue from that contract decreases. We recognize the full amount of any estimated loss on a contract at the time the estimates indicate such a loss.

The cost estimates we prepare in connection with our construction and manufacturing contracts are subject to inherent uncertainties. Because we base our contract prices on our estimation of future construction and manufacturing costs, the profitability of our construction and manufacturing contracts is highly dependent on our ability to estimate these costs accurately, as almost all of our construction and manufacturing contracts are fixed-price contracts. The cost of materials, labor and subcontractors could increase significantly after we sign a construction or manufacturing contract, which could cause the gross profit for a contract to decline from our previous estimates, adversely affecting our recognition of revenue and gross profit for the contract. Construction or manufacturing contract costs that significantly exceed our initial estimates could have a material adverse impact our consolidated financial condition, results of operations, and cash flows.

RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included under Part I, Item 11. “Financial Statements” of this Quarterly Report and our consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for our fiscal year ended December 31, ~~2016~~2021 (“~~2016~~2021 Form 10-K”) and the information set forth under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our ~~2016~~2021 Form 10-K.

Three Months Ended September 30, ~~2017~~2022 Compared to Three Months Ended September 30, ~~2016~~2021

Discontinued Operations – Mexico Project Development

In 2010, we began the pursuit, through our Netherlands subsidiary, Consolidated Water Cooperatief, U.A. (“CW-Cooperatief”), and our Mexico subsidiary, N.S.C. Agua, S.A. de C.V. (“NSC”), of a project (the “Project”) that encompassed the construction, operation and minority ownership of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and accompanying pipelines to deliver water to the Mexican potable water system.

Through a series of transactions that began in 2012, NSC purchased 20.1 hectares of land for approximately $21.1 million on which the proposed Project’s plant was to be constructed.

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Following an assessment by the State of Baja, California (the “State”) of the need for such a desalination plant and the passage of enabling legislation in November 2015, the State officially commenced the required public tender for the Project. A consortium (the “Consortium”) comprised of NSC, Suez Medio Ambiente México, S.A. de C.V. (“Suez MA”), a subsidiary of SUEZ International, S.A.S., and NuWater S.A.P.I. de C.V. (“NuWater”) submitted its tender for the Project in April 2016 and in June 2016, the State designated the Consortium as the winner of the tender process for the Project.

In August 2016, NSC and NuWater incorporated a new company under the name Aguas de Rosarito S.A.P.I. de C.V. (“AdR”) to pursue completion of the Project and executed a shareholders agreement for AdR agreeing among other things that (i) AdR would purchase the land and other Project assets from NSC on the date that the Project begins commercial operation and (ii) AdR would enter into a Management and Technical Services Agreement with NSC effective on the first day that the Project begins commercial operation. NSC initially owned 99.6% of the equity of AdR. In February 2018, we acquired the remaining 0.4% ownership in AdR from NuWater.

On August 22, 2016, the Public Private Partnership Agreement for the Project (the “APP Contract”) was executed between AdR, the State Water Commission of Baja California (“CEA”), the Government of Baja California as represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana (“CESPT”). The APP Contract required AdR to design, construct, finance and operate a seawater reverse osmosis desalination plant (and accompanying aqueduct) with a capacity of up to 100 million gallons per day in two phases: the first with a capacity of 50 million gallons per day and an aqueduct to the Mexican potable water system in Tijuana, Baja California and the second phase with a capacity of 50 million gallons per day. The first phase was to be operational within 36 months of commencing construction and the second phase was to be operational by July 2024. The APP Contract further required AdR to operate and maintain the plant and aqueduct for a period of 37 years starting from the commencement of operation of the first phase. At the end of the operating period, ownership of the plant and aqueduct would have been transferred to CEA. The APP Contract was subsequently amended by the parties in June 2018 to increase the scope of Phase 1 and to allow for changes in the water tariff due to the changes in the exchange rate for the peso, interest rates and construction costs that had and would occur from the date the APP Contract was signed to the date construction commenced.

On June 29, 2020, AdR received a letter (the “Letter”) from the Director General of CEA and the Director General of CESPT terminating the APP Contract. The Letter requested that AdR provide an inventory of the assets that currently comprise the “Project Works” (as defined in the APP Contract) for the purpose of acknowledging and paying the non-recoverable expenses made by AdR in connection with the Project, with such reimbursement to be calculated in accordance with the terms of the APP Contract. The applicable law required that this list of non-recoverable expenses made by AdR in connection with the Project be submitted to CEA and CESPT within 20 business days from the date of receipt of the Letter. AdR initiated an amparo claim before a federal district court in Tijuana, Baja California, to challenge the provision of the applicable law requiring submittal of the list of non-recoverable expenses within the 20 business days term, as AdR considered such term to be unreasonably short due to the magnitude of the Project and the scope of supporting documentation required to be provided with respect to the non-recoverable expenses. AdR obtained an initial provisional suspension of the lapsing of such 20-day term from the court, and on August 10, 2020 the court made such suspension definitive until the completion of the amparo trial. As such, the 20-day term for filing the list of non-recoverable expenses was suspended. Therefore, on August 28, 2020, AdR submitted their list of non-recoverable expenses, including those of NSC, to CEA and CESPT which was comprised of 51,144,525 United States dollars and an additional 137,333,114 Mexican pesos. In February 2021, AdR withdrew this amparo claim, and such withdrawal was accepted by the federal district court in Tijuana. To date, AdR has not received a formal response from CEA or CESPT to its submission of non-recoverable expenses.

We believe CW-Cooperatief, as a Netherlands company, has certain rights relating to its investments in NSC and AdR under the Agreement on Promotion, Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the United Mexican States entered into force as of October 1, 1999 (the “Treaty”). On April 16, 2021, CW-Cooperatief submitted a letter to the President of Mexico and other Mexican federal government officials alleging that the State’s termination of the APP Contract constituted a breach by Mexico of its international obligations under the Treaty, entitling CW-Cooperatief to full reparation, including monetary damages. This letter invited Mexico to seek a resolution of this investment dispute through consultation and negotiation, but stated that if the dispute cannot be resolved in this manner, CW-Cooperatief elects to refer the dispute to the International Centre for the Settlement of International Disputes for arbitration, as provided for in the Treaty. On June 29, 2021, the Mexican Ministry of Economy responded to

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CW-Cooperatief’s letter and proposed to hold a consultation meeting. Two such meetings were held on July 9, 2021 and August 2, 2021 on a confidential basis, without a resolution of our investment dispute.

CW-Cooperatief intends to pursue vigorously the relief sought in the arbitration, in addition to pursuing all other legal remedies and courses of action available under the operative contracts and applicable law with respect to its rights, damages, fees and expenses. We cannot provide any assurances that CW Cooperatief will be able to obtain the relief sought in the arbitration, and we will incur legal and other arbitration-related expenses that we expect will be material to our consolidated results of operations and cash flows.

During July 2022, the State initiated discussions with us to potentially resolve the issues related to the cancellation by the government of the Rosarito desalination plant contract as well as potentially addressing the State’s acute water shortage issues. We cannot presently determine the outcome of the discussions and we have not terminated our efforts to obtain relief through the international arbitration process as a result of these discussions.

We cannot provide any assurances that we will be able to obtain reimbursement for any expenses or investments made with respect to the Project.

As a result of the cancellation of the APP Contract, in 2020 we discontinued all development activities associated with the Project and commenced active marketing efforts to sell the land NSC purchased for the Project. Accordingly, the assets and liabilities of CW-Cooperatief, NSC and AdR, as well as all Project development expenses and the costs for our legal and administrative activities to pursue reimbursement from the State of Baja California following the cancellation of the APP Contract, have been reclassified from the services segment to discontinued operations in the accompanying consolidated financial statements. Our net losses from discontinued operations for the three months ended September 30, 2022 and 2021 were ($505,917) and ($1,078,367), respectively.

Consolidated Results

~~Net~~Including discontinued operations, net income attributable to Consolidated Water Co. Ltd. stockholders for ~~2017~~2022 was ~~$1,161,139~~$317,694 ($~~0.08~~0.02 per share on a ~~fully-diluted~~fully diluted basis), as compared to a net ~~loss~~income of $285,593 ($~~1,865,332) (($0.13)~~0.02 per share on a ~~fully-diluted~~fully diluted basis) for ~~2016.~~2021.

~~Total revenues~~The following discussion and analysis of our consolidated results of operations and results of operations by segment for ~~2017 increased to $16,572,203~~the three months ended September 30, 2022 as compared to ~~$14,385,353~~the three months ended September 30, 2021 relates only to our continuing operations.

Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders for ~~2016~~2022 was $823,611 ($0.05 per share on a fully diluted basis), as compared to a ~~result~~net income from continuing operations of ~~higher revenues~~$1,363,960 ($0.09 per share on a fully diluted basis) for ~~the retail, bulk and manufacturing~~2021.

Revenue for 2022 increased to $25,051,705 from $16,413,146 in 2021, reflecting revenue increases in all four of our segments. Gross profit for ~~2017~~2022 was ~~$6,307,806 (38%~~$6,843,773 (27% of total ~~revenues)~~revenue) as compared to ~~$5,919,323 (41%~~$5,690,599 (35% of total ~~revenues)~~revenue) for 2016. The increase in gross profit dollars for 2017 from 2016 results from higher revenues. The decrease in gross profit as a percentage of revenues from 2016 to 2017 is primarily attributable to a decrease in the gross profit percentages generated by the manufacturing and bulk segments.2021. For further discussion of ~~revenues~~revenue and gross profit ~~for 2017~~ see the “~~Results~~“Results by ~~Segment~~”Segment” discussion and analysis that follows.

General and administrative (“G&A”) expenses on a consolidated basis ~~were $4,896,323 and $4,528,679~~increased to $5,610,650 for ~~2017 and 2016, respectively. Consolidated~~2022 as compared to $4,359,040 for 2021. The most significant increase in G&A expenses for 2022 relates to increased bonus accruals of $573,381 arising from ~~2016~~the improved financial performance of the Company. Other components of the G&A expenses increase relate to ~~2017~~(i) other employee costs, which increased by $207,895 due to ~~incremental (i) employee costs of approximately $170,000 reflecting an increase in compensation rates;~~salary increases and new hires; (ii) professional and legal fees, which increased by $134,154; and (iii) incremental bank fees of approximately ~~$208,000,~~$120,000

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arising from the ~~majority~~transfer of ~~which relates~~funds from CW-Bahamas to our ~~Mexico project development activities.~~

parent company in the Cayman Islands. The rise in G&A for 2022 is also due in part to inflationary factors which have increased many of our G&A expenses.

Other income ~~(expense)~~(loss), net, decreased to ($168,980) for ~~2017 was $447,294,~~2022 as compared to ~~($762,696)~~$152,168 for ~~2016. The improvement in 2017 in this net component of our consolidated statement of income arises principally from (i)~~2021 primarily due to an unrealized ~~gain~~loss of ~~$171,000 in 2017 on~~($247,000) recorded for the ~~net~~valuation of the put/call ~~option~~options associated with the acquisition of ~~Aerex~~PERC, as compared to an unrealized loss ~~in 2016~~recorded on ~~this net put/call option~~these options of ($~~275,000);~~54,000) in 2021. In addition, interest income decreased by approximately $112,000 for 2022 as compared to 2021 primarily due to the decrease in CW-Bahamas’ accounts receivable balance.

The COVID-19 pandemic had a adverse impact on our consolidated results of operations for the three months ended September 30, 2022 and ~~(ii)~~we believe the ~~impairment loss~~COVID-19 pandemic will continue to adversely impact our results of ~~($875,000) recorded~~operations in ~~2016 for our investment in OC-BVI.~~future periods. See further discussion herein and at “LIQUIDITY AND CAPITAL RESOURCES – Material Commitments, Expenditures and Contingencies – COVID-19.”

Results by Segment

Retail ~~Segment~~

Segment:

The retail segment ~~generated losses~~recorded a loss from operations of ($~~566,948) and~~774,283) for 2022 as compared to a loss from operations of ($~~1,828,903) in 2017 and 2016, respectively. Such losses are primarily attributable to impairment losses recorded~~565,838) for ~~CW-Bali, as discussed in the paragraphs that follow.~~2021.

~~Revenues~~Revenue generated by our retail water operations increased to $6,274,650 in 2022 from $5,247,042 in 2021 in part due to a 14% increase in the volume of water sold. The sales volumes for both 2022 and 2021 were ~~$5,570,654~~below the historical volumes for the retail segment prior to 2020 due to the cessation of tourism on Grand Cayman resulting from border restrictions that lasted from March 2020 through November 2021 in ~~2017 as compared~~response to ~~$5,447,200~~the COVID-19 pandemic. The increase in ~~2016. The~~the volume of water sold byin 2022 as compared to 2021 resulted from the lifting in November 2021 of travel restrictions to the Cayman Islands for vaccinated individuals, which allowed the resumption of tourism to the Cayman Islands and the reopening of many tourist properties that we serve in Grand Cayman. Retail revenue also increased due to higher energy costs which increased the energy pass-through component of our water rates and a more favorable rate mix, as much of the volume increase for the quarter was due to higher sales volumes to tourist industry related businesses, which in general purchase higher volumes and therefore pay higher per gallon rates than other retail ~~segment increased by almost 6% from 2016 to 2017.~~

customers.

Retail segment gross profit ~~was $3,082,213 (55%~~increased to $3,042,677 (48% of retail ~~revenues) and 2,982,359 (55%~~revenue) for 2022 from $2,501,246 (48% of retail ~~revenues)~~revenue) for ~~2017 and 2016, respectively. The slight decline in retail gross profit as a percentage of revenues from 2016~~2021 due to ~~2017 is attributable to incremental energy, engineering and laboratory costs for 2017 aggregating approximately $166,000.~~

the revenue increase.

Consistent with prior periods, we record all non-direct G&A expenses in our retail segment and do not allocate any of these non-direct costs to our other three business segments. Retail G&A expenses increased to $3,818,459 for ~~2017 and 2016 were $3,070,681 and $2,811,262~~2022 as compared to $3,067,696 for ~~2017 and 2016, respectively.~~2021. The most significant increase in ~~retail~~ G&A expenses for 2022 relates increased bonus accruals of $560,881 arising from ~~2016~~the improved financial performance of the Company. Other components of the G&A expenses increase relate to ~~2017 is primarily~~(i) other employee costs, which increased by $98,349 due to ~~incremental employee costs of approximately $179,000.~~salary increases; and (ii) professional and legal fees, which increased by $72,766.

Through our subsidiary CW-Bali, we built a seawater reverse osmosis plant with a production capacity of approximately 790,000 gallons per day located in Nusa Dua, one of the primary tourist areas of Bali, Indonesia. We built this plant based upon our belief that future water shortages in this area of Bali would eventually enable us to sell all of this plant’s production. However, since inception of CW-Bali’s operations in 2013, the sales volumes for its plant have not been sufficient to cover its operating costs and CW-Bali has incurred net losses. Our net losses from CW-Bali for our two most recent fiscal years ended December 31, 2016 and 2015 were approximately ($2.5 million) and ($861,000), respectively.

In late 2015, we decided to seek a strategic partner for CW-Bali to (i) purchase a major portion of its equity ownership; (ii) lead CW-Bali’s sales and marketing efforts; (iii) liaise with the local water utility; and (iv) assist with CW-Bali’s on-going funding requirements. Although discussions were held and due diligence information was exchanged with potential strategic partners, we did not receive an offer for an investment in, a purchase of, or a joint venture for CW-Bali from any of these potential partners on terms we deemed acceptable. During the three months ended September 30, 2016, we reassessed the prospects for CW-Bali in light of its results to date, current circumstances and uncertainties impacting the business, and expected future funding requirements and tested its long-lived assets for possible impairment. As a result of this testing we recorded an impairment loss of $2.0 million for the three months ended September 30, 2016 to reduce the carrying value of our long-lived CW-Bali assets to their estimated fair value.

However, in October 2017, CW-Bali’s sole remaining customer filed a lawsuit in Bali, Indonesia against CW-Bali, our President, and our Chief Financial Officer in his capacity as the President of CW-Bali’s Board of Commissioners (i.e. Directors) seeking compensatory damages of 57.1 billion rupiahs and punitive damages of 26 billion rupiahs as a result of the anticipated breach of this customer’s water supply agreement that will arise from CW-Bali’s planned cessation of operations. Such damages were equivalent to approximately $4.2 million and $1.9 million, respectively, as of the exchange rate on November 8, 2017. We believe this lawsuit is without merit and will vigorously defend CW-Bali and the two other defendants. However, until this lawsuit is resolved we are legally prohibited from disposing of our investment in CW-Bali or any of CW-Bali’s assets.

Based upon the decision to cease CW-Bali’s operations, for the six months ended June 30, 2017 we estimated the future cash flows we would receive under various scenarios from the disposition of its investment in CW-Bali and assigned a probability to each scenario to determine an estimated fair value of its investment in CW-Bali. Based upon these probability-weighted sums, we recorded an impairment loss of approximately $1,000,000 for the six months ended June 30, 2017 to reduce the carrying value of its investment in CW-Bali (which includes $549,555 in cumulative translation adjustments reflected in stockholders’ equity) to its estimated fair value. During the three months ended September 30, 2017, we updated our estimated fair value projections for CW-Bali in light of the lawsuit filed in October 2017 and recorded an additional impairment loss of $578,480 to reduce the carrying value of our investment in Bali to its estimated fair value of approximately $378,000 as of September 30, 2017.

The results of operations for the retail segment for the three months ended September 30, 2017 include sales for CW-Bali of $55,222 and a net loss from operations for CW-Bali of ($8,466), excluding the ($578,480) impairment loss discussed above. The results of operations for the retail segment for the three months ended September 30, 2016 include sales for CW-Bali of $24,329 and a net loss from operations for CW-Bali of ($133,582), excluding the ($2,000,000) impairment loss discussed above.

Bulk ~~Segment~~

Segment:

The bulk segment contributed ~~$1,983,689~~$1,749,848 and ~~$2,082,570~~$1,926,328 to our income from operations for ~~2017~~2022 and ~~2016,~~2021, respectively.

Bulk segment ~~revenues were $7,881,464~~revenue was $8,667,931 and ~~$7,429,732~~$6,868,134 for ~~2017~~2022 and ~~2016,~~2021, respectively. The increase in bulk ~~revenues from 2016 to 2017~~segment revenue is ~~primarily~~ attributable to ~~our Bahamas operations, which generated approximately $442,000 in incremental revenues due to a significant~~an increase in ~~the prices of diesel fuel and electricity from 2016 to 2017,~~energy costs for CW-Bahamas, which increased the energy pass-through component of ~~our bulk water rates in The Bahamas.~~

CW-Bahamas’ rates.

Gross profit for our bulk segment was ~~$2,299,063 (29%~~$2,221,382 (26% of bulk ~~revenues)~~revenue) and ~~$2,507,570 (34%~~$2,239,748 (33% of bulk ~~revenues)~~revenue) for ~~2017~~2022 and ~~2016,~~2021, respectively. ~~The decrease~~Gross profit decreased in ~~the bulk segment gross profit in dollars~~2022 as compared to 2021 principally due to incremental repairs and ~~as a percentage of revenues in 2017 resulted from a charge~~maintenance and supplies expenses for CW-Bahamas of approximately ~~$430,000 relating to the refurbishment~~$361.000.

Table of ~~a fixed asset used in our Bahamas operations.~~Contents

Bulk segment G&A expenses ~~decreased~~increased to ~~$315,374~~$473,534 for ~~2017~~2022 as compared to ~~$425,000~~$313,420 for ~~2016. This decrease reflects~~2021 primarily.as a result of incremental bank ~~charges incurred~~fees of approximately $120,000 attributable to ~~transfer funds~~cash transfers from ~~our Bahamas operations~~CW-Bahamas to our ~~Cayman headquarters that were significantly lower for 2017 than for 2016 due to a decrease~~parent company in the ~~amount of funds transferred.~~Cayman Islands.

Services ~~Segment~~

Segment:

The services segment ~~incurred losses~~income from operations ~~of ($867,011)~~was $460,434 and ~~($686,308)~~$41,614 for ~~2017~~2022 and ~~2016,~~2021, respectively.

Services segment ~~revenues remained relatively consistent at $111,302~~revenue increased to $8,731,124 for ~~2017~~2022 from $3,210,584 for 2021 due to increases in both plant design and construction revenue and operating and maintenance revenue, with most of the revenue increase resulting from PERC’s progress on its contract with Liberty Utilities for the construction of a water treatment plant in Goodyear, Arizona.

Gross profit for the services segment was $1,397,142 (16% of services revenue) in 2022 as compared to ~~$125,929~~$800,154 (25% of services revenue) for ~~2016.~~

~~Gross~~2021. The increase in gross profit ~~(loss) for our services segment was ($3,365) and ($42,648) for 2017 and 2016, respectively.~~dollars results from the increased revenue. The ~~slight~~ decrease in gross profit as a percentage of revenue from 2021 to 2022 results from the ~~service segment’s~~relatively lower gross ~~loss~~profit percentage earned on PERC’s contract with Liberty Utilities compared to that earned from ~~2016 to 2017 is attributable to lower engineering expenses.~~

PERC’s operating and maintenance contracts.

G&A expenses for the services segment increased to ~~$863,646~~$936,708 for ~~2017~~2022 as compared to ~~$643,660~~$758,540 for ~~2016. This increase reflects G&A expenses for our Mexico project development activities incurred by NSC~~2021 as a result of higher employee costs and ~~AdR for 2017 that exceeded those incurred for 2016 by approximately $257,000.~~

~~Manufacturing Segment~~increased insurance expense.

Manufacturing Segment:

The manufacturing segment ~~contributed $283,273 to our income from operations for 2017, as compared to generating~~incurred a loss from operations of ($~~1,926,715)~~199,377) for 2022 as compared to a loss from operations of ($69,933) in ~~2016.~~

2021.

Manufacturing ~~revenues increased to $3,008,783 in 2017 from $1,382,492 in 2016~~revenue was $1,378,000 and $1,087,386 for 2022 and 2021, respectively. Certain manufacturing contracts have been delayed due to ~~an increase~~current supply chain and economic conditions, which have resulted in ~~the average dollar value~~significant product delivery delays requested by customers as well as continuing delayed shipments of ~~manufacturing contracts.~~

raw materials and supplies to Aerex.

Manufacturing ~~segment~~ gross profit was ~~$929,895 (31%~~$182,572 (13% of ~~revenues) and $472,042 (34%~~manufacturing revenue) for 2022 as compared to a gross profit of ~~revenues)~~$149,451 (14% of manufacturing revenue) for ~~2017 and 2016, respectively.~~2021. The increase in manufacturing gross profit in dollars reflects the increase in revenue. Gross profit ~~for 2017 increased in dollars from 2016~~as a percentage of revenue has remained low due to ~~higher revenues.~~

the greater impact of fixed factory overhead on this measure resulting from the revenue decrease, as we have elected not to furlough or terminate the employment of our highly skilled manufacturing personnel in 2022 and 2021 despite the decrease in production activity.

G&A expenses for the manufacturing segment were ~~$646,622~~$381,949 for 2022 as compared to $219,384 for 2021.

The results of our manufacturing segment have been adversely affected by current economic conditions including but not limited to increasing raw materials prices, rising human resources costs, tight labor markets, and ~~$2,398,757 for 2017~~extended and ~~2016, respectively. Manufacturing G&A expenses decreased~~unexpected delays in ~~2017~~the procurement and delivery of raw materials. We believe these economic conditions have also resulted in product order delays from ~~2016 due~~Aerex’s existing and prospective customers. The current economic conditions could continue (or further deteriorate) and therefore could continue to adversely impact the ~~goodwill impairment charge~~future results of ~~$1,750,000 recorded for this segment in 2016.~~our manufacturing segment.

Nine Months Ended September 30, ~~2017~~2022 Compared to Nine Months Ended September 30, ~~2016~~ 2021

Discontinued Operations – Mexico Project Development

As previously discussed, on June 29, 2020, the State of Baja California cancelled its APP Contract with AdR for the Project. As a result of the cancellation of the APP Contract, during the three months ended June 30, 2020, we discontinued all development activities associated with the Project and commenced active marketing efforts to sell the land NSC purchased for the Project.

Our net loss from discontinued operations for the nine months ended September 30, 2022 and 2021 was ($1,533,064) and ($1,542,540), respectively, and consists of the costs for our legal and administrative activities to pursue reimbursement from the State of Baja California following the cancellation of the APP Contract, and for 2022, a provision of $377,326 for potentially uncollectible value added tax refunds.

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Consolidated Results

~~Net~~Including discontinued operations, net income attributable to Consolidated Water Co. Ltd. stockholders for ~~2017~~2022 was ~~$4,416,915~~$4,324,395 ($~~0.29~~0.28 per share on a fully diluted basis), as compared to ~~$2,393,642~~a loss of ($~~0.16~~390,284) ( ($0.03) per share on a ~~fully-diluted~~fully diluted basis) for ~~2016.~~2021.

~~Total revenues~~The following discussion and analysis of our consolidated results of operations and results of operations by segment for ~~2017~~the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 relates only to our continuing operations.

Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders for 2022 was $5,857,459 ($0.38 per share on a fully diluted basis), as compared to net income from continuing operations of $1,152,256 ($0.07 per share on a fully diluted basis) for 2021.

Revenue for 2022 increased to ~~$47,532,497~~$65,676,737 from ~~$43,818,760~~$50,217,987 in ~~2016 due to higher revenues for~~2021, reflecting substantial revenue increases in our retail, services and bulk ~~and~~segments along with a minor revenue increase in our manufacturing ~~segments.~~segment. Gross profit for ~~2017~~2022 was ~~$19,597,947 (41%~~$21,465,034 (33% of total ~~revenues)~~revenue) as compared to ~~$18,688,733 (43%~~$17,881,962 (36% of total ~~revenues)~~revenue) for ~~2016 as the gross profit for our retail, bulk and manufacturing segments increased from 2016 to 2017.~~2021. For further discussion of ~~revenues~~revenue and gross profit ~~for 2017~~ see the “~~Results~~“Results by ~~Segment~~”Segment” discussion and analysis that follows.

G&A expenses on a consolidated basis ~~were $14,695,184~~increased to $15,403,458 for 2022 as compared to $13,847,830 for 2021. The most significant increase in G&A expenses for 2022 relates to increased bonus accruals of $405,682 arising from the improved financial performance of the Company. Other components of the 2022 G&A expenses increase relate to (i) other employee costs, which increased by $160,030 due to salary increases and ~~$13,925,439 for 2017~~new hires; (ii) professional and ~~2016, respectively.~~legal fees, which increased by $201,606; (iii) insurance expense, which increased by $249,247 due to higher premiums; (iv) incremental business development expenses of $175,699; (v) incremental bank fees of approximately $86,000 arising from the transfer of funds from CW-Bahamas to our parent company in the Cayman Islands; and (vi) directors fees, which increased by $102,559. The rise in ~~consolidated~~ G&A ~~expenses from 2016~~for 2022 is also due in part to ~~2017 is primarily attributable (i) incremental employee costs~~inflationary factors which have increased many of approximately $488,000 arising from a statutory retirement payment, an increase in compensation rates; and (ii) an increase in the project development expenses incurred by Aerex of approximately $204,000.

our G&A expenses.

Other income, net, decreased to $548,729 for ~~2017 was $871,956,~~2022 as compared to ~~$45,698~~$699,890 for ~~2016. The improvement in 2017 in this net component of our consolidated statement of income reflects (i)~~2021 primarily due to an unrealized gain of ~~$323,000 in 2017 on~~$29,000 recorded for the ~~net~~valuation of the put/call ~~option~~options associated with the acquisition of ~~Aerex~~a majority interest in PERC, as compared to an unrealized ~~loss~~gain recorded on these options of $108,000 in ~~2016~~2021. In addition, interest income decreased by approximately $156,000 for 2022 as compared to 2021 primarily due to the decrease in CW-Bahamas’ accounts receivable balance.

The COVID-19 pandemic had a material adverse impact on ~~this net put/call option~~our consolidated results of ~~($275,000);~~operations for the nine months ended September 30, 2022, and ~~(ii)~~we believe the ~~impairment loss~~COVID-19 pandemic will continue to adversely impact our results of ~~($925,000) recorded~~operations in ~~2016 for our investment in OC-BVI.~~future periods. See further discussion herein and at “LIQUIDITY AND CAPITAL RESOURCES – Material Commitments, Expenditures and Contingencies – COVID-19.”

Results by Segment

Retail ~~Segment~~

Segment:

The retail segment ~~generated losses~~incurred a loss from operations of ($~~651,764) and~~900,747) for 2022 as compared to a loss from operations of ($~~658,089) in 2017 and 2016, respectively. Such losses are primarily attributable to impairment losses recorded~~1,605,769) for ~~CW-Bali, as discussed in paragraphs that follow.~~2021.

~~Revenues~~Revenue generated by our retail water operations increased ~~slightly~~ to ~~$18,111,274~~$19,114,653 in ~~2017~~2022 from ~~$17,710,271~~$16,633,137 in ~~2016, as~~2021 in part due to a ~~result of a 4%~~10% increase in the volume of water sold. The sales volumes for both 2022 and 2021 were below the historical volumes for the retail segment prior to 2020 due to the cessation of tourism on Grand Cayman resulting from border restrictions that lasted from March 2020 through November 2021 in response to the COVID-19 pandemic. The increase in the volume of water sold in 2022 as compared to 2021 resulted from the lifting in November 2021 of travel restrictions to the Cayman Islands for vaccinated individuals, which allowed the resumption of tourism to the Cayman Islands and the reopening of many tourist properties that we serve in Grand Cayman. Retail revenue also increased due to higher energy costs which increased the energy pass-through component of our water rates and a more favorable rate mix, as much of

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the volume increase for the quarter was due to higher sales volumes to tourist industry related businesses, which in general purchase higher volumes and therefore pay higher per gallon rates than other retail customers.

Retail segment gross profit ~~remained relatively consistent at $10,215,657 (56%~~increased to $9,710,529 (51% of retail ~~revenues) and $9,930,440 (56%~~revenue) for 2022 from $8,397,438 (50% of retail ~~revenues)~~revenue) for ~~2017 and 2016, respectively.~~

2021 due to the revenue increase.

Consistent with prior periods, we record all non-direct G&A expenses in our retail segment and do not allocate any of these non-direct costs to our other three business segments. Retail G&A expenses increased to $10,613,975 for ~~2017 and 2016 were $9,288,941 and $8,588,529~~2022 as compared to $9,757,179 for ~~2017 and 2016, respectively.~~2021. The ~~increase~~more significant increases in ~~retail~~ G&A expenses ~~from 2016~~for 2022 relate to ~~2017 is~~(i) employee costs, which increased by $188,769 primarily due to ~~(i)~~increased bonus accruals, and to a lesser extent salary increases; (ii) professional and legal fees, which increased by $103,765: (iii) insurance expense, which increased by $123,636 due to higher premiums; (iv) incremental ~~employee costs~~business development expenses of ~~approximately $491,000 arising from a statutory retirement payment~~$175,699; and ~~an increase in compensation rates; and (ii) incremental professional~~(v) directors fees, ~~of approximately $250,000.~~which increased by $86,196.

In late 2015, we decided to seek a strategic partner for CW-Bali to (i) purchase a major portion of its equity ownership; (ii) lead CW-Bali’s sales and marketing efforts; (iii) liaise with the local water utility; and (iv) assist with CW-Bali’s on-going funding requirements. Although discussions were held and due diligence information was exchanged with potential strategic partners, we did not receive an offer for an investment in, a purchase of, or a joint venture for CW-Bali from any of these potential partners on terms we deemed acceptable. During the three months ended September 30, 2016, we reassessed the prospects for CW-Bali in light of its results to date, current circumstances and uncertainties impacting the business, and expected future funding requirements and tested its long-lived assets for possible impairment. As a result of this testing we recorded an impairment loss of $2.0 million for the nine months ended September 30, 2016 to reduce the carrying value of our long-lived CW-Bali assets to their estimated fair value.

The results of operations for the retail segment for the nine months ended September 30, 2017 include sales for CW-Bali of $117,443 and a net loss from operations for CW-Bali of ($158,869), excluding the ($1,578,480) impairment losses discussed above. The results of operations for the retail segment for the nine months ended September 30, 2016 include sales for CW-Bali of $70,760 and a net loss from operations for CW-Bali of ($437,525), excluding the ($2,000,000) impairment loss discussed above.

Bulk ~~Segment~~

Segment:

The bulk segment contributed ~~$6,925,280~~$6,475,164 and ~~$6,487,455~~$5,662,463 to our income from operations for ~~2017~~2022 and ~~2016,~~2021, respectively.

Bulk segment ~~revenues were $23,615,787~~revenue was $24,442,324 and ~~$22,136,086~~$19,826,075 for ~~2017~~2022 and ~~2016,~~2021, respectively. The increase in bulk ~~revenues from 2016 to 2017~~segment revenue is primarily attributable to ~~our Bahamas operations, which generated approximately $1,534,000 in incremental revenues due to a significant~~an increase in ~~the prices of diesel fuel and electricity from 2016 to 2017,~~energy costs for CW-Bahamas, which increased the energy pass-through component of ~~our bulk~~CW-Bahamas’ rates and, to a lesser extent, an increase of 4% in the volume of water ~~rates in The Bahamas.~~

sold by CW-Bahamas.

Gross profit for our bulk segment was ~~$7,865,385 (33%~~$7,661,073 (31% of bulk ~~revenues)~~revenue) and ~~$7,790,339 (35%~~$6,655,742 (34% of bulk ~~revenues)~~revenue) for ~~2017~~2022 and ~~2016,~~2021, respectively. Gross profit in dollars increased in 2022 as compared to 2021 principally due to the revenue increase.

Bulk segment G&A expenses remained relatively consistent at $1,187,909 for 2022 as compared to $994,779 for 2021.

Services Segment:

The services segment income from operations was $1,143,215 and $351,324 for 2022 and 2021, respectively.

Services segment revenue increased to $18,530,427 for 2022 from $10,514,669 for 2021 due to increases in both plant design and construction revenue and operating and maintenance revenue, with most of the revenue increase resulting from PERC’s progress on its contract with Liberty Utilities for the construction of a water treatment plant in Goodyear, Arizona.

Gross profit for the services segment was $3,681,398 (20% of services revenue) in 2022 as compared to $2,503,902 (24% of services revenue) for 2021. The increase in gross profit dollars resulted from the increased revenue. The decrease in gross profit as a percentage of ~~revenues decreased in 2017 as~~revenue from 2021 to 2022 resulted from the relatively lower gross profit percentage earned on PERC’s contract with Liberty Utilities compared to ~~2016 due to higher energy prices, as energy expense for our bulk operations was approximately $1,256,000 more in 2017 than in 2016,~~that earned from PERC’s operating and ~~as a result of a 9% decrease (excluding energy pass through adjustments) in the price of water sold by our Windsor plant in the Bahamas that became effective at the beginning of 2017.~~

Bulk segment G&A expenses decreased to $940,105 for 2017 as compared to $1,302,884 for 2016. This decrease reflects bank charges incurred to transfer funds from our Bahamas operations to our Cayman headquarters that were significantly lower for 2017 than for 2016 due to a decrease in the amount of funds transferred.

~~Services Segment~~

~~The services segment incurred losses from operations of ($2,458,594) and ($2,291,205) for 2017 and 2016, respectively.~~

Services segment revenues decreased to $360,758 for 2017 as compared to $710,576 for 2016 as we generated $320,296 in revenues in 2016 under our contract with the Water Authority - Cayman to refurbish their North Sound plant.

~~Gross profit for our services segment was $40,172 and $72,187 for 2017 and 2016, respectively. The service segment’s gross profit decreased from 2016 to 2017 on lower revenues.~~

maintenance contracts.

G&A expenses for the services segment ~~remained relatively consistent at $2,498,766~~increased to $2,554,721 for 2022 as compared to $2,152,145 for 2021. as a result of (i) higher employee costs attributable to increased bonus accruals, new hires and ~~$2,363,392 for 2017~~pay raises; and ~~2016, respectively.~~(ii) increased insurance expense.

Manufacturing ~~Segment~~

Our manufacturing segment consists of Aerex, a company in which we acquired a 51% ownership interest as of February 11, 2016. Consequently, the results of our manufacturing segment for 2017 are not entirely comparable to those reported for 2016, as 2017 reflects a full nine months of Aerex’s operations whereas 2016 reflects Aerex’s operations for shorter period that began February 11, 2016 and ended on September 30, 2016.

Segment:

The manufacturing segment incurred ~~losses~~a loss from operations of ($~~490,639) and~~634,819) for 2022 as compared to a loss from operations of ($~~2,524,867) for 2017 and 2016, respectively.~~

3,518,847) in 2021. The net loss from operations in 2021 included a $2.9 million impairment loss due to decline in Aerex’s projected future cash flows.

Manufacturing ~~revenues were $5,444,678~~revenue was $3,589,333 and ~~$3,261,827~~$3,244,106 for ~~2017~~2022 and ~~2016,~~2021, respectively. Certain manufacturing contracts have been delayed due to significant product delivery delays requested by customers as well as continuing delayed shipments of raw materials and supplies to Aerex.

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Manufacturing gross profit was $412,034 (11% of manufacturing revenue) and $324,880 (10% of manufacturing revenue) for 2022 and 2021, respectively. The increase in ~~revenues from 2016 to 2017~~manufacturing gross profit in dollars reflects the ~~additional period~~increase in revenue. Gross profit as a percentage of ~~manufacturing activity in 2017 as compared to 2016~~revenue has remained relatively low due to the ~~acquisition~~greater impact of ~~Aerex~~fixed factory overhead on ~~February 11, 2016~~this measure resulting from the revenue decrease, as we have elected not to furlough or terminate the employment of our highly skilled manufacturing personnel in 2022 and ~~an increase~~2021 despite the decrease in ~~the average dollar value of manufacturing contracts.~~

Manufacturing segment gross profit was $1,476,733 (27% of revenues) and $895,767 (27% of revenues) for 2017 and 2016, respectively. Gross profit for 2017 increased in dollars from 2016 due to the incremental revenues.

production activity.

G&A expenses for the manufacturing segment ~~were $1,967,372~~remained relatively consistent at $1,046,853 for 2022 as compared to $943,727 for 2021.

The results of our manufacturing segment have been adversely affected by current economic conditions including but not limited to increasing raw materials prices, rising human resources costs, tight labor markets, and ~~$3,420,634. Manufacturing G&A expenses decreased~~extended and unexpected delays in ~~2017~~the procurement and delivery of raw materials. We believe these economic conditions have also resulted in product order delays from ~~2016 due~~Aerex’s existing and prospective customers. The current economic conditions could continue (or further deteriorate) and therefore could continue to adversely impact the ~~goodwill impairment charge~~future results of ~~$1,750,000 recorded for this segment in 2016. Excluding this impairment charge,~~our manufacturing ~~G&A increased from 2017 to 2016 as a result of an increase of approximately $204,000 in project development expenses incurred for 2017.~~segment.

FINANCIAL CONDITION

The significant changes in the components of our condensed consolidated balance sheet as of September 30, 2022 as compared to December 31, 2021 (other than the change in our cash and cash equivalents, which is discussed later in “LIQUIDITY AND CAPITAL RESOURCES”) and the reasons for these changes are discussed in the following paragraphs.

Accounts receivable decreased by approximately ~~$3.5~~$3.0 million ~~from December 31, 2016~~due to ~~September 30, 2017~~the collection by CW-Bahamas of significant delinquent receivables balances owed by the WSC. This decrease in CW-Bahamas’ accounts receivable balance was partially offset by an increase in PERC’s accounts receivables.

Current inventory increased by approximately $1.5 million primarily due to ~~a decrease~~an increase in ~~the accounts receivables~~Aerex’s inventory, as certain of its manufacturing contracts have been delayed, resulting in extended retention times for ~~CW-Bahamas of approximately $3.0 million. We believe, based upon prior payment history, that our accounts receivable balances will be collected in full.~~ various inventory items purchased for these contracts.

Prepaid expenses and other current assets increased by approximately ~~$1.3~~$2.1 million primarily due to ~~prepaid~~approximately $1.0 million in advance payments to contractors, approximately $646,000 in annual insurance ~~premiums. Costs~~premiums principally paid in June 2022 and ~~estimated earnings in excess~~approximately $340,000 for the cost of ~~billings~~PERC’s construction bond for the Liberty Utilities project.

Contract assets increased by approximately ~~$1.6~~$1.2 million ~~from December 31, 2016 to September 30, 2017~~primarily due to ~~Aerex.~~Aerex's manufacturing projects.

Property, plant and equipment, net decreased by approximately $2.7 million due to the scheduled depreciation of fixed assets.

Construction in progress increased by approximately $1.9 million due to construction activity for Cayman Water’s replacement of its West Bay desalination plant.

Accounts payable, accrued expenses and other liabilities increased by approximately $3.5 million primarily due to an increase in subcontractor costs for PERC’s contract with Liberty Utilities.

Contract liabilities increased by $3.2 million due to billings made by the services segment in connection with PERC’s new contract with Liberty Utilities to construct a wastewater treatment facility in Arizona.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Position

Our projected liquidity requirements for ~~2017~~the balance of 2022 include capital expenditures for our existing operations of approximately ~~$2.8~~$6.0 million ~~dividends payable~~which includes approximately $837,000 to be incurred for the balance of ~~approximately $1.1 million~~2022 for the replacement of the West Bay seawater desalination plant and approximately ~~$1.9~~$2.4 million ~~to be expended~~ for ~~NSC’s and AdR’s project development activities.~~construction of the WAC’s

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new Red Gate plant. We paid approximately $1.4 million in dividends in October 2022. Our liquidity requirements ~~for 2017~~ may ~~also~~ include ~~further~~future quarterly dividends if such dividends are declared by our ~~Board of Directors.~~ Board.

Our ~~dividend payments amounted~~future liquidity requirements also will include the funds necessary to ~~approximately $4.6 million for~~purchase the ~~year ended December 31, 2016 and approximately $3.4 million for the nine months ended September 30, 2017.~~

~~In February 2016,~~39% minority interest in PERC, as in October 2022 we ~~purchased 51% of the equity ownership of Aerex,~~exercised our option to purchase these shares at a ~~U.S. original equipment manufacturer and service provider of a wide range of products and services applicable~~price to industrial, commercial and municipal water treatment, for $7.7 million in cash. Immediately following our acquisition of Aerex, we and the former sole shareholder of Aerex loaned Aerex $510,000 and $490,000, respectively, in the form of notes payable which were scheduled to mature on June 30, 2017 and bore interest at 1% per annum. These notes payable were repaid in April 2017. In February 2017, we and the former sole shareholder of Aerex loaned Aerex $408,000 and $392,000, respectively, in the form of notes payable which mature on September 30, 2017 and bear interest at 1% per annum. In October 2017, we and the former shareholder of Aerex extended the term of the notes payable issued in February 2017 forbe determined by an additional 6 months with a new maturity date of March 31, 2018. Additionally, we 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.

independent valuation.

As of September 30, ~~2017,~~2022, we had cash and cash equivalents of ~~approximately $47.0~~$51.1 million and working capital of ~~approximately $60.5~~$71.1 million. We are not presently aware of anything that would lead us to believe that we will not have sufficient liquidity to meet our needs.

CW-Bahamas Liquidity

~~CW-Bahamas~~As of December 31, 2021, CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the Water and ~~CW-Belize Liquidity Considerations~~

~~Transfers from our bank accounts in The Bahamas and Belize to our bank accounts in other countries require the approval of the Central Banks~~Sewerage Corporation of The Bahamas (“WSC”) amounted to $21.5 million.

From time to time, CW-Bahamas has experienced delays in collecting its accounts receivable from the WSC. When these delays occur, we hold discussions and ~~Belize, respectively.~~ meetings with representatives of the WSC and The Bahamas government, and as a result, payment schedules are developed for WSC’s delinquent accounts receivable. All previous delinquent accounts receivable from the WSC, including accrued interest thereon, were eventually paid in full. Based upon this payment history, CW-Bahamas has never been required to provide an allowance for doubtful accounts for any of its accounts receivable, despite the periodic accumulation of significant delinquent balances.

In February 2022, we received correspondence from the Ministry of Finance of the Government of the Bahamas that set forth a payment schedule providing for the gradual reduction over the course of 2022 of the CW-Bahamas' delinquent accounts receivable due from the WSC. Such correspondence also indicated that the Government intends to return all of CW-Bahamas’ accounts receivable from the WSC to current status.

As of September 30, ~~2017,~~2022, CW-Bahamas’ accounts receivable from the ~~equivalent United States dollar cash balances~~WSC amounted to $15.2 million.

In its latest report dated October 6, 2022, Moody’s Investor Services (“Moody’s) downgraded the Government of The Bahamas’ long-term issuer and senior unsecured ratings to B1 from Ba3. Moody’s also lowered The Bahamas’ local currency ceiling to Baa3 from Baa2 and its foreign currency ceiling to Ba1 from Baa. Based upon our review of this Moody’s report, we continue to believe no allowance for ~~our bank account deposits in The Bahamas and Belize were approximately $13.3 million and $6.0 million, respectively.~~doubtful accounts is required for CW-Bahamas’ accounts receivable from the WSC.

Weakness in the Belize economy and other factors have reduced the amount of U.S. dollars that Belize banks can transfer outside the country, which has limited the amount of U.S. dollars we are presently able to transfer from Belize. We cannot presently determine when conditions in Belize will improve or when we will have an improved ability to transfer funds from CW-Belize.

Discussion of Cash Flows for the Nine Months Ended September 30, ~~2017~~

2022

Our cash and cash equivalents increased to ~~$47.0 million~~$51,085,289 as of September 30, ~~2017~~2022 from ~~$39.3 million~~$40,358,059 as of December 31, ~~2016.~~

2021.

Cash Flows from Operating Activities

~~Our~~Net cash provided by our operating activities ~~provided cash of approximately $11.7 million.~~was $15,803,236. This net cash ~~amount~~ reflects the net income ~~generated~~incurred for the nine months ended September 30, 2022 of ~~approximately $4.6 million~~$5,015,437 as adjusted for (i) various items included in the determination of net income that do not affect cash flows during the year; and (ii) changes in the other components of working capital. The more significant of such items and changes in working capital components included depreciation and amortization of ~~approximately $5.7 million, a net decrease~~$4,651,513, an increase in ~~accounts receivable and costs~~billings in excess of cost and estimated earnings ~~in excess~~and accounts payable and accrued expenses of ~~billings of approximately $2.0 million,~~$7,771,062, an increase in ~~prepaids~~prepaid expenses and other current assets of ~~$2.0 million~~$2,663,516, a decrease in overall accounts receivable of $1,851,369 and ~~an impairment loss~~a provision for uncollected value added taxes of ~~$1.6 million to reduce the carrying value of our investment in CW-Bali.~~

$377,326.

Cash Flows from Investing Activities

Net cash used inby our investing activities was ~~approximately $564,000. Additions~~$416,756, primarily for additions to property, plant and equipment and construction in ~~progress was approximately $3.0~~progress. We did not renew our CW-Bahamas $2.5 million ~~which was partially offset by a $1.1 million distribution~~certificate of ~~earnings from OC-BVI and approximately $1.3 million collections on our loan receivable.~~deposit.

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Cash Flows from Financing Activities

~~Our~~Net cash used by our financing activities ~~used approximately $3.4~~was $4,977,296, almost all of which related to the payment of dividends.

Revolving Credit Facility

In September 2022, Cayman Water entered into an agreement (the “Credit Agreement”) with Scotiabank & Trust (Cayman) Ltd. (the “Bank”) for a revolving credit facility in an aggregate principal amount of up to $10.0 million ~~in net cash as we paid dividends of approximately $3.4 million. In February 2017, we also~~(the “Credit Facility”). We expect to utilize the funds obtained ~~a $392,000 note payable from Aerex’s prior sole stockholder that matures on September 30, 2017 and also repaid the original loan of $490,000~~ from the ~~same stockholder in April 2017.~~Credit Facility for general working capital purposes.

The Credit Facility matures two years following the date of the initial advance (the “Maturity Date”). All amounts outstanding under the Credit Facility are due and payable upon the earlier of the Maturity Date, demand from the bank or the acceleration of the Credit Facility upon an event of default.

The principal balance of the Credit Facility bears interest at a rate of 2.0% plus the secured overnight financing rate (“SOFR”) as determined by the SOFR Administrator for a one-month period on the day that is two days prior to the first day of the interest period. All interest calculations will be made based on a 360-day year. So long as the Bank has not demanded repayment, interest will be payable monthly, commencing one month from the initial advance, with the outstanding balance due on the Maturity Date, unless the Bank agrees to renew the Credit Facility for an additional period.

Cayman Water’s obligations under the Credit Agreement are secured by a first priority lien on all its fixed and floating assets and an assignment of insurance proceeds with respect to its fixed assets. Further, the Company has guaranteed the repayment of all of Cayman Water’s present and future debts and liabilities owed to the Bank.

The Credit Agreement requires Cayman Water to meet certain financial covenants.

Cayman Water has not yet utilized its available borrowings under the Credit Facility.

Material Commitments, Expenditures and Contingencies

COVID-19

The worldwide coronavirus (COVID-19) pandemic, which was formally recognized by the World Health Organization on March 11, 2020, has had a profound negative impact on the economies of the countries in which we operate. Consequently, the COVID-19 pandemic has had, and will continue to have, an adverse impact on our consolidated financial condition, results of operations, and cash flows.

A discussion of the current effects of the COVID-19 pandemic on each of our operating subsidiaries is provided in the following paragraphs. However, its future effects on our company could differ materially from the information we are providing herein.

Cayman Water

As preventative measures to combat the possible spread of COVID-19, the Cabinet of the Cayman Islands (“the Cabinet”) closed all of Cayman Islands’ seaports to international passenger arrivals effective March 13, 2020; and closed all Cayman Islands airports to international passenger arrivals effective March 22, 2020. Effective March 28, 2020, the Cabinet and Cayman Islands law enforcement enacted various ‘stay-at-home’ regulations and curfews, which closed all businesses not deemed essential by the government and required citizens to stay at home unless they were purchasing necessities or engaged in an essential errand. In May 2020, the Cabinet started the phased relaxation of the shelter-in-place regulations and on October 1, 2020, the Cayman Islands reopened its borders for residents or individuals who own property in the Cayman Islands that provide evidence of a negative COVID-19 test performed within three days prior to arrival in the Cayman Islands and agree to remain in quarantine for 14 days after arrival. In July 2021, this quarantine period was reduced to five days for fully vaccinated travelers who can provide proof of vaccination from Cayman Islands government approved sources.

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In November 2021, the Cayman Islands began allowing vaccinated travelers to visit the islands without the need to quarantine. However, the testing requirements upon arrival on the islands, and the fact that families with unvaccinated children were still required to quarantine, continued to restrict the number of overseas visitors.

Effective August 24, 2022, the COVID-19 restrictions for entry to the Cayman Islands were lifted by the government of the Cayman Islands. This easing of restrictions has positively impacted tourism to the Cayman Islands. However, tourism to the Cayman Islands continues to be below pre-COVID-19 levels. We expect that our retail segment revenue and cash flows will continue to be adversely impacted until such time as tourism and the economy in the Cayman Islands fully recover from the impact and effects of the COVID-19 pandemic.

Cayman Water’s operations have been designated as essential services by the Cayman Islands government. Presently, the day-to-day operations of Cayman Water’s water production facilities and distribution network have not been materially impeded by the COVID-19 pandemic – we continue to produce and supply water to meet the demand for water in our retail license area. We believe Cayman Water has adequate spare parts and supplies in stock to continue normal operations.

OC-Cayman

Although it operates on Grand Cayman - and therefore is also affected by the preventative measures enacted by government that have been discussed previously - OC-Cayman sells water on a bulk basis to the WAC, which in turn provides this water to areas of Grand Cayman that are more residential, and less tourist related, than the license area served by Cayman Water. The monthly amounts OC-Cayman charges the WAC for water supplied under its water supply agreements consist of fixed amounts that constitute most of the amounts charged, and lesser amounts that vary with the volume of water supplied. Therefore, unlike Cayman Water, OC-Cayman’s revenue is not as directly affected by tourism on Grand Cayman and, due to the structure of the underlying water supply agreements, is not as acutely sensitive to declines in water demand.

OC-Cayman’s operations have been designated as essential services by the Cayman Islands government. Presently, OC-Cayman’s day-to-day operations have not been materially impeded by the COVID-19 pandemic – we continue to produce and supply water to meet the requirements of our two water supply agreements with the WAC. We believe OC-Cayman has adequate spare parts and supplies in stock to continue normal operations. However, OC-Cayman’s operations could be adversely affected should a significant number of its operations personnel be required to miss work due to illness.

CW-Bahamas

The government of The Bahamas enacted Emergency Powers Regulations which became effective March 18, 2020 in an effort to combat the spread of COVID-19. Initially, these regulations closed all businesses not deemed essential by the government, encouraged the employees of non-essential businesses to work remotely and imposed 24-hour shelter-in-place curfew on all residents of The Bahamas other than those engaged in essential or pre-approved activities. On March 24, 2020, the government banned all international travel to The Bahamas by closing all airports and seaports. As a result of the measures taken by The Bahamas government, tourism on New Providence Island, where CW-Bahamas operates, temporarily ceased and economic activity in The Bahamas slowed dramatically. During the summer of 2020, travel restrictions were briefly lifted then reimposed. In November 2020, shelter-in-place regulations were loosened, and commercial and retail operations were permitted to open with limited capacity although working from home was still encouraged. The Emergency Powers Regulations expired on November 13, 2021 and the government then enacted new rules to prevent and manage community spread of COVID-19. Most of such rules have since been lifted and there are no longer significant restrictions on economic activity. Home port cruise ship departures from the Port of Nassau commenced in June 2021 and cruise ship arrivals into The Bahamas commenced in July 2021.

Effective September 20, 2022, all COVID-related travel restrictions to The Bahamas were eliminated by the Bahamian government.

CW-Bahamas sells the water produced by its plants on a bulk basis to the WSC, which in turn provides water to the residences, businesses, and other end users on New Providence. Under the terms of each of its water supply agreements with the WSC, CW-Bahamas charges the WSC (i) a fixed monthly amount; (ii) an amount each month that is based upon the amount of water supplied during the month; and (iii) pass-through energy charges, therefore CW-Bahamas’ revenue is impacted by changes in energy prices and, to a lesser extent, changes in demand. The volume of water CW-Bahamas sells

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to the WSC was not adversely impacted by the COVID-19 pandemic despite the reduced economic activity on New Providence in 2021, and water volume sales remain steady as economic activity has increased in 2022.

CW-Bahamas’ day-to-day operations were not materially impeded by the COVID-19 pandemic – we continue to produce and supply water to meet the requirements of our two water agreements with the WSC. We believe CW-Bahamas has sufficient spare parts and consumables inventories to continue normal operations.

Aerex

Aerex presently has 15 manufacturing employees. Should a number of these employees become ill, Aerex could be required to reduce or cease its manufacturing activities, which could have a material adverse impact on our consolidated financial condition, results of operations and cash flows.

As a result of current economic conditions (resulting in part from the COVID-19 pandemic), in late March 2021 Aerex began experiencing issues with its supply chain for the raw materials and components used in its manufacturing operations, including higher prices, scarcities/shortages, and longer fulfillment times for its orders to suppliers. These conditions, and a decline in projected future sales to Aerex’s former largest customer, required us to record an impairment loss of ($2.9 million) for the three months ended June 30, 2021 to reduce the carrying value of our manufacturing reporting unit’s goodwill. While these economic conditions and issues continue, Aerex could have difficulty completing its orders from its customers and obtaining new business, which could have a material adverse impact on our consolidated revenue, results of operations and cash flows, and could require us to record additional impairment losses to reduce the carrying value of the goodwill recorded for our manufacturing reporting unit. Any such impairment losses could have a material adverse impact on our consolidated financial condition and results of operations.

PERC

PERC’s operations are considered essential services by the states in which it operates. Presently, the COVID-19 pandemic has not materially impeded PERC’s day-to-day operations.

Approximately 46% of PERC’s revenue of $17.8 million for the nine months ended September 30, 2022 was generated in California under contracts with government entities. The State of California has publicly acknowledged on-going difficulties due to the COVID-19 pandemic, and such difficulties presently, or could in the future, extend to the various counties, municipalities, and other government-related entities in California, including PERC’s customers, which could adversely impact PERC’s revenue and the collection of its accounts receivable.

PERC employs state-certified water and wastewater operators to operate various water treatment facilities in California and Arizona. Should a number of these employees become ill as a result of COVID-19, PERC could have difficulty meeting its contractual and statutory obligations for operating these water treatment facilities, which could have a material adverse impact on our consolidated financial condition, results of operations and cash flows.

~~Renewal of~~Cayman Water Retail License

We sell water through our retail operations under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that ~~grants~~granted Cayman Water the exclusive right to provide potable water to customers within its licensed service area. ~~As discussed below, this~~Although the 1990 license was ~~set~~not expressly extended after January 2018, we continue to ~~expire~~supply water under the terms of the 1990 license, as further discussed in ~~July 2010 but has since been extended while negotiations for a new license take place.~~the following paragraph. Pursuant to the 1990 license, Cayman Water has the exclusive right to produce potable water and distribute it by pipeline to its licensed service area, which consists of two of the three most populated areas of Grand Cayman ~~the~~Island: Seven Mile Beach and West ~~Bay areas.~~Bay. For the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, we generated approximately ~~33%~~25% and ~~38%~~32%, respectively, of our consolidated ~~revenues~~revenue and ~~48%~~44% and ~~52%~~44%, respectively, of our consolidated gross profit from the retail water operations conducted ~~pursuant to Cayman Water’s exclusive~~under the 1990 license. For the nine months ended September 30, ~~2017~~2022 and ~~2016, we~~2021, the Company generated approximately ~~38%~~29% and ~~40%~~33%, respectively, of ~~our~~its consolidated ~~revenues~~revenue and ~~52%~~45% and ~~55%~~47%, respectively, of ~~our~~its consolidated gross profit from the retail water operations conducted ~~pursuant to Cayman Water’s exclusive~~under the 1990 license.

The 1990 license was originally scheduled to expire in July 2010 but ~~has been~~was extended several times by the Cayman Islands government ~~in order~~ to provide the parties with additional time to negotiate the terms of a new license agreement. The most recent

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express extension of the license ~~expires~~expired on January 31, 2018. We continue to operate under the terms of the 1990 license, providing water services to the level and quality specified in the 1990 license and in accordance with our understanding of its legal obligations, treating those obligations set forth in the 1990 license as operative notwithstanding the expiration of the express extension. We continue to pay the royalty required under the 1990 license.

In October 2016, the Government of the Cayman Islands passed legislation which created a new utilities regulation and competition office (“OfReg”). OfReg is an independent and accountable regulatory body with a view of protecting the rights of consumers, encouraging affordable utility services and promoting competition. OfReg, which began operations in January 2017, has the ability to supervise, monitor and regulate multiple utility undertakings and markets. Supplemental legislation was passed by the Government of the Cayman Islands in April 2017, which transferred responsibility for the economic regulation of the water utility sector and the retail license negotiations from the ~~Water Authority-Cayman (the “WAC”)~~WAC to ~~OfReg. In July 2017, we~~OfReg in May 2017. We began license negotiations with OfReg ~~for a new retail license~~ in ~~the Cayman Islands~~July 2017 and such negotiations are continuing.

~~Under its present~~ We have been informed during our retail license Cayman Water pays a royalty to the government of 7.5% of its gross retail water sales revenues (excluding energy cost adjustments). The selling prices of water sold to its customers are determined by the license and vary depending upon the type and location of the customer and the monthly volume of water purchased. The license provides for an automatic adjustment for inflation or deflation on an annual basis, subject to temporary limited exceptions, and an automatic adjustment for the cost of electricity on a monthly basis. The WAC, on behalf of the government, previously reviewed and confirmed the calculations of the price adjustments for inflation and electricity costs. On July 7, 2017, we were advisednegotiations, both by OfReg ~~that regulatory responsibility for the water utility sector had been transferred from the WAC to OfReg effective May 22, 2017,~~ and ~~that effective immediately all reviews and confirmations of calculations of the price adjustments for inflation and electricity costs will be performed by OfReg. If Cayman Water wants to adjust~~ its ~~prices for any reason other than inflation or electricity costs, Cayman Water has to request prior approval of the Cabinet of~~predecessor in these negotiations, that the Cayman Islands ~~government. Disputes regarding price adjustments would be referred~~government seeks to ~~arbitration.~~restructure the terms of our license in a manner that could significantly reduce the operating income and cash flows we have historically generated from our retail license.

The Cayman Islands government could ~~ultimately offer~~seek to grant a third party a license to service some or all of Cayman Water’s present service area. However, as set forth in the ~~existing~~1990 license, “the Governor hereby agrees that upon the expiry of the term of this Licence or any extension thereof, he will not grant a licence or franchise to any other person or company for the processing, distribution, sale and supply of water within the Licence Area without having first offered such a licence or franchise to the Company on terms no less favourable than the terms offered to such other person or company.”

We are presently unable to determine what impact the resolution of our retail license negotiations will have on our cash flows, financial condition or results of operations but such resolution could result in a material reduction (or the loss) of the operating income and cash flows we have historically generated from our retail operations and could require us to record ~~an impairment loss to reduce the carrying value of our goodwill. Such impairment loss could have a material adverse impact on our results of operations.~~

~~NSC and AdR Project Development~~

In May 2010, we acquired, through our wholly-owned Netherlands subsidiary, Consolidated Water Cooperatief, U.A., (“CW-Cooperatief”) a 50% interest in N.S.C. Agua, S.A. de C.V. (“NSC”), a development stage Mexican company. We have since purchased, through the conversion of a loan we made to NSC, sufficient shares to raise our ownership interest in NSC to 99.99%. NSC was formed to pursue a project (the “Project”) encompassing the construction, operation and minority ownership of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and accompanying pipelines to deliver water to the Mexican potable water system. As discussed in the paragraphs that follow, during 2015 the scope of the Project was defined by the State of Baja California (the “State”) to consist of a first phase consisting of a 50 million gallon per day plant and a pipeline that connects to the Mexican potable water infrastructure and a second phase consisting of an additional 50 million gallons of production capacity.

~~Through a series of transactions completed in 2012-2014, NSC purchased 20.1 hectares for approximately $20.6 million on which the proposed Project’s plant would be constructed.~~

In November 2012, NSC entered into a lease with an effective term of 20 years from the date of full operation of the desalination plant with the Comisión Federal de Electricidad for approximately 5,000 square meters of land on which it plans to construct the water intake and discharge works for the plant. The amounts due on this lease are payable in Mexican pesos at an amount that is currently equivalent to approximately $20,000 per month. This lease may be cancelled by NSC should NSC ultimately not proceed with the Project.

In August 2014, the State enacted new legislation to regulate Public-Private Association projects which involve the type of long-term contract between a public-sector authority and a private party that NSC is seeking to complete the Project. Pursuant to this new legislation, on January 4, 2015, NSC submitted an expression of interest for its project to the Secretary of Infrastructure and Urban Development of the State of Baja California (“SIDUE”). SIDUE accepted NSC’s expression of interest and requested that NSC submit a detailed proposal for the Project that complies with requirements of the new legislation. NSC submitted this detailed proposal (the “APP Proposal”) to SIDUE in late March 2015. The new legislation required that such proposal be evaluated by SIDUE and submitted to the Public-Private Association Projects State Committee (the “APP Committee”) for review and authorization. If the Project was authorized the State would be required to conduct a public tender for the Project.

In response to its APP Proposal, in September 2015 NSC received a letter dated June 30, 2015 from the Director General of the Comisión Estatal del Agua de Baja California (“CEA”), the State agency with responsibility for the Project, stating that (i) the Project is in the public interest with high social benefits and is consistent with the objectives of the State development plan; and (ii) that the Project and accompanying required public tender process should be conducted. In November 2015, the State officially commenced the tender for the Project, the scope of which the State has defined as a first phase to be operational in 2019 consisting of a 50 million gallon per day plant and a pipeline that connects to the Mexican potable water infrastructure and a second phase to be operational in 2024 consisting of an additional 50 million gallons per day of production capacity. A consortium comprised of NSC, NuWater S.A.P.I. de C.V. and Degremont S.A. de C.V. (the “Consortium”) submitted its tender for the Project on the April 21, 2016 tender submission deadline date set by the State.

We have acknowledged since the inception of the Project that, due to the amount of capital the Project requires, NSC will ultimately need an equity partner or partners for the Project. Consequently, NSC’s tender to the State for the Project was based upon the following: (i) NSC will sell or otherwise transfer the land and other Project assets to a new company (“Newco”) that would build and own the Project; (ii) NSC’s potential partners would provide the majority of the equity for the Project and thereby would own the majority interest in Newco; (iii) NSC would maintain a minority ownership position in Newco; and (iv) Newco would enter into a long-term management and technical services contract for the Project with an entity partially owned by NSC or another Company subsidiary.

~~On June 15, 2016, the State designated the Consortium as the winner of tender process for the Project.~~

On August 17, 2016, NSC and NuWater incorporated Newco under the name Aguas de Rosarito S.A.P.I. de C.V. (“AdR”), a special purpose company, to complete the Project and executed a shareholders agreement for AdR agreeing among other things that (i) AdR would purchase the land and other Project assets from NSC on the date that the Project begins commercial operation and (ii) AdR would enter into a Management and Technical Services Agreement with NSC effective on the first day that the Project begins commercial operation. As of September 30, 2017 and December 31, 2016, NSC owned 99.6% of AdR.

On August 22, 2016, the Public Private Partnership Agreement for public private partnership number 002/2015, contest number SIDUE-CEA-APP-2015-002 (“APP Contract”), was executed between AdR, CEA, the Government of Baja California represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana (“CESPT”). The APP Contract requires AdR to design, construct, finance and operate a seawater desalination plant (and accompanying aqueducts) with a capacity of up to 100 million gallons per day in two phases: the first with a capacity of 50 million gallons per day and an aqueduct to the Mexican potable water system in Tijuana, Baja California; and the second phase with a capacity of 50 million gallons per day and an aqueduct to a second delivery point in Tijuana. The first phase must be operational within 36 months of commencing construction and the second phase must be operational by the end of 2024. The APP Contract further requires AdR to operate and maintain the plant and aqueducts for a period of 37 years starting from the commencement of operation of the first phase. At the end of the operating period, the plant and aqueducts will be transferred to CEA.

The total Project cost for Phase 1 is expected to be approximately 9.1 billion Mexican pesos. Annual revenues from the Project for Phase 1 are expected to be approximately 1.79 billion Mexican pesos. Water rates under the APP Contract are indexed to the Mexican national consumer price index over its term. Electrical energy costs incurred by AdR to desalinate and deliver water are treated as a pass-through charge to CEA, subject to efficiency guarantees. AdR expects to raise Mexican peso denominated debt financing through a consortium led by the North American Development Bank, which also provided financial advisory services to the Consortium through the bidding process and contract negotiations.

~~The APP Contract does not become effective until the following conditions are met:~~

~~the State has established and registered various payment trusts, guaranties and bank credit lines for specific use by the Project;~~

~~the CEA has obtained the rights from the relevant federal authority to take and desalinate seawater and distribute it for municipal use;~~

~~various agreements between the CEA, the payment trusts and the CESPT have been executed;~~

~~AdR has obtained all rights of ways required for the Phase 1 aqueduct;~~

~~AdR has obtained permission from the relevant federal authority to discharge the residual water from the Project’s desalination plant; and~~

~~all equity and debt financing agreements necessary to provide the funding to AdR for the first phase of the Project have been executed.~~

On December 30, 2016, the Congress of the State of Baja California, Mexico passed Decreto #57 which, among other things, ratified and authorized the execution of the APP Contract. Earlier this year, following consultations between representatives of the State of Baja California and the Ministry of Finance of the Federal Government of Mexico, it was determined that certain amendments to Decreto #57 were required in order to comply with recent changes to the Federal Fiscal Discipline Law. In addition, during the course of its recent due diligence related to the potential financing of the Project, the North American Development Bank requested that the State of Baja California amend Decreto #57 to authorize the inclusion of revenues from the CESPT in the primary payment trust for the Project. These amendments are included in Decreto #95 which is currently under consideration by the Congress of the State of Baja California. We cannot say with any certainty whether or not Decreto #95 will be approved by the Congress. In the event that Decreto #95 is ultimately not approved, we may not be able to obtain the debt financing required to complete the Project.

As of September 30, 2017, AdR has paid approximately $665,000 for deposits on, or purchases of, rights of way for the Phase 1 aqueduct, which are included in other assets on our condensed consolidated balance sheet.

Both the exchange rate for the Mexico peso relative to the dollar and general macroeconomic conditions in Mexico have varied since the U.S. Presidential election in November 2016. These changes could adversely impact the estimated construction, operating, and financing costs for the Project. The APP Contract and the APP Law allow for the parties to negotiate (but do not guarantee) modifications to the water tariff in the event of such significant macroeconomic condition changes. On February 10, 2017, AdR submitted proposals to the CEA requesting an increase to the water tariff to compensate for changes in foreign exchange rates, lending rates and certain changes in law which have impacted the Project. If AdR is unable to obtain this requested increase in the water tariff, it may be unable to obtain the debt and equity financing required for the Project. We are currently unable to determine whether or not such water tariff increase will be approved.

Included in our results of operations are general and administrative expenses from NSC and AdR, consisting of organizational, legal, accounting, engineering, consulting and other costs relating to Project development activities. Such expenses amounted to approximately $864,000 and $606,000 for the three months ended September 30, 2017 and 2016, respectively, and $2,469,000 and $2,248,000 for the nine months ended September 30, 2017 and 2016, respectively. The assets and liabilities of NSC and AdR included in the Company’s condensed consolidated balance sheets amounted to approximately $22.8 million and $371,000, respectively, as of September 30, 2017 and approximately $22.3 million and $221,000 respectively, as of December 31, 2016.

~~EWG Litigation~~

Immediately following CW-Cooperatief’s acquisition of its initial 50% ownership in NSC, the remaining 50% ownership interest in NSC was held by an unrelated company, Norte Sur Agua, S. de R.L. de C.V. (“NSA”). NSA subsequently transferred ownership of half of its shares in NSC to EWG Water LLC (“EWG”) and the other half of its shares in NSC to Alejandro de la Vega (the “individual shareholder”). In February 2012, we paid $300,000 to enter into an agreement (the “Option Agreement”) that provided us with an option, exercisable through February 7, 2014, to purchase the shares of NSC owned by the individual shareholder for a price of $1.0 million along with an immediate power of attorney to vote those shares. Such shares constituted 25% of the ownership of NSC as of February 2012. In May 2013, NSC repaid a $5.7 million loan payable to CW-Cooperatief by issuing additional shares of its stock. As a result of this share issuance to CW-Cooperatief, we acquired 99.99% of the ownership of NSC. The Option Agreement contained an anti-dilution provision that required us to issue new shares in NSC of an amount sufficient to maintain the individual shareholder’s 25% ownership interest in NSC if (i) any new shares of NSC were issued subsequent to the execution of the Option Agreement; and (ii) we did not exercise our share purchase option by February 7, 2014. We exercised our option and paid the $1.0 million to the individual shareholder to purchase the Option Agreement shares in February 2014.

In October 2015, we learned that EWG has filed a lawsuit against the individual shareholder, NSC, NSA, CW-Cooperatief, Ricardo del Monte Nunez, Carlos Eduardo Ahumada Arruit, Luis de Angitia Becerra, and the Public Registry of Commerce of Tijuana, Baja California in the Civil Court located in Tecate, Baja California, Mexico.

In this lawsuit, EWG challenged, among other things, the capital investment transactions that increased our ownership interest in NSC to 99.99%. EWG requested that the court, as a preliminary matter: (a) suspend of the effectiveness of the challenged transactions; (b) order of public officials in Mexico to record the pendency of the lawsuit in the public records; and (c) appoint an inspector for NSA and NSC to oversee its commercial activities. The court granted, ex-parte, the preliminary relief sought by EWG, which resulted in the placement of inscriptions for the lawsuit on NSC’s public records.

~~On April 26, 2016, NSC filed a full answer to EWG’s claims, rejecting every claim made by EWG. The court’s response on this matter is pending.~~

On May 17, 2016, NSC filed a claim with the Third District Court in Matters of Amparo and Federal Trials in the City of Tijuana, Baja California (the “Amparo Court”) challenging the Tecate, Mexico Court ex-parte order which appointed an inspector over NSC’s commercial activities. On July 29, 2016, the Amparo Court found that such appointment is unconstitutional and reversed the Tecate, Mexico court’s appointment of an inspector.

~~Aerex~~

Aerex’s actual results of operations in the months following our acquisition of the company on February 11, 2016 fell significantly short of the projected results that were included in the overall cash flow projections we utilized to determine the purchase price for Aerex and the fair values of its assets and liabilities. Due to this shortfall in Aerex’s results of operations, we updated our projections for Aerex’s future cash flows and tested Aerex’s goodwill for possible impairment as of September 30, 2016 by estimating its fair value using the discounted cash flow method. As a result of this impairment testing, we determined that the carrying value of our Aerex goodwill exceeded its fair value, and recorded an impairment loss of $1,750,000 for the three months ended September 30, 2016 to reduce the carrying value of this goodwill to $6,285,211. We may be required to record additional impairment losses to reduce the carrying value of our ~~Aerex goodwill in future periods if we determine it likely that Aerex’s results of operations will fall short of our most recent projections of its future cash flows.~~

~~CW-Belize~~

By Statutory Instrument No. 81 of 2009, the Minister of Public Utilities of the government of Belize published an order, the Public Utility Provider Class Declaration Order, 2009 (the “Order”), which as of May 1, 2009 designated CW-Belize as a public utility provider under the laws of Belize. With this designation, the Public Utilities Commission of Belize (the “PUC”) has the authority to set the rates charged by CW-Belize and to otherwise regulate its activities. On November 1, 2010, CW-Belize received a formal complaint from the PUC alleging that CW-Belize was operating without a license under the terms of the Water Industry Act. CW-Belize applied for this license in December 2010. On July 29, 2011, the PUC issued the San Pedro Public Water Supply Quality and Security Complaint Order (the “Second Order”) which among other things requires that (i) CW-Belize and its customer jointly make a submission to the responsible Minister requesting that the area surrounding CW-Belize’s seawater abstraction wells be designated a forest reserve or national park and be designated a Controlled Area under section 58 of the Water Industry Act, (ii) CW-Belize submit an operations manual for CW-Belize’s desalination plant to the PUC for approval, (iii) CW-Belize and its customer modify the water supply agreement between the parties to (a) include new water quality parameters included in the Order and (b) cap the current exclusive water supply arrangement in the agreement at a maximum of 450,000 gallons per day, (iv) CW-Belize keep a minimum number of replacement seawater RO membranes in stock at all times and (v) CW-Belize take possession of and reimburse the PUC for certain equipment which the PUC purchased from a third-party in late 2010. CW-Belize has applied for declaratory judgment and has been granted a temporary injunction to stay the enforcement of the Second Order by the PUC until such time as the Belize courtsretail segment assets. Such impairment losses could hear the matter. The initial hearing on this matter was conducted on October 30 and 31, 2012 with an additional hearing on November 29, 2012. The ruling on this case is pending. We are presently unable to determine what impact the Order and the Second Order will have on our results of operations, financial position or cash flows.

~~Adoption of new accounting standards:~~

~~In July 2015, the FASB issued ASU 2015-11,~~~~Inventory (Topic 330): Simplifying the Measurement of Inventory~~. ASU 2015-11 applies to all inventory that is measured using first-in, first-out or average cost. The guidance requires an entity to measure inventory at the lower of cost or net realizable value. ASU 2015-11 is effective prospectively for fiscal years, and for interim periods within those years, beginning after December 15, 2016. Early application is permitted. The adoption of ASU 2015-11 did not have a material adverse impact on our consolidated financial ~~position,~~condition, results of ~~operations or~~operation and cash ~~flows.~~flows.

~~In November 2015, the FASB issued ASU 2015-17,~~~~Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes~~CW-Bahamas Performance Guarantees. ASU 2015-17 requires net deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet and eliminates the classification between current and noncurrent amounts ASU No. 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. The adoption of ASU 2015-17 did not have a material impact on our financial position, results of operations or cash flows.

~~In March 2016, the FASB issued ASU 2016-07,~~~~Investments- Equity Method and Joint Ventures (Topic 323): Simplifying the Transition~~Our contracts to supply water to the ~~Equity Method~~WSC from our Blue Hills and Windsor plants require us to guarantee delivery of ~~Accounting,~~ ~~which eliminates~~a minimum quantity of water per week. If the ~~requirement~~WSC requires the water and we do not meet this minimum, we are required to ~~apply~~pay the ~~equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. ASU 2016-07 will be effective~~WSC for the ~~Company’s fiscal year beginning January 1, 2017~~difference between the minimum and ~~subsequent interim periods. The adoption of ASU 2016-07 did not have~~actual gallons delivered at a ~~material impact on our financial position, results of operations or cash flows.~~

~~In March 2016, the FASB issued ASU 2016-09, C~~~~ompensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,~~ ~~which simplifies several aspects related~~per gallon rate equal to the ~~accounting for share-based payment transactions, including~~price per gallon that WSC is currently paying us under the ~~accounting for income taxes, statutory tax withholding requirements~~contract. The Blue Hills contract expires in 2032 and ~~classification on the statement~~requires us to deliver 63.0 million gallons of ~~cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016,~~water each week. The Windsor contract expires in 2033 and ~~interim periods within those annual periods. The adoption~~requires us to deliver 16.8 million gallons of ~~ASU 2016-09 did not have a material impact on our financial position, results~~water each week.

Adoption of ~~operations or cash flows.~~New Accounting Standards

None.

Effect of ~~newly issued~~Newly Issued but not yet ~~effective accounting standards:~~

~~In May 2014, the FASB issued ASU 2014-09,~~~~Revenue from Contracts with Customers~~. ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 prescribes a five-step framework in accounting for revenues from contracts within its scope, including (a) identification of the contract, (b) identification of the performance obligations under the contract, (c) determination of the transaction price, (d) allocation of the transaction price to the identified performance obligations and (e) recognition of revenues as the identified performance obligations are satisfied. ASU 2014-09 also prescribes additional disclosures and financial statement presentations. ASU 2014-09 may be adopted retrospectively or under a modified retrospective method where the cumulative effect is recognized at the date of initial application. This amendment was originally effective January 1, 2017. In August 2015, the FASB issued ASU 2015-14,~~Revenue from Contracts with Customers (Topic 606): Deferral of the~~ Effective ~~Date~~~~, which defers the effective date by one year to January 1, 2018. Early application is permitted but not before January 1, 2017.~~

~~In April 2016, the FASB issued ASU 2016-10,~~~~Identifying Performance Obligations and Licensing,~~ that amends the revenue guidance in ASU 2014-09 on identifying performance obligations and accounting for licenses of intellectual property. ASU 2016-10 changed the FASB's previous proposals on renewals of right-to-use licenses and contractual restrictions. The effective date of the standard for us will coincide with ASU 2014-09 during the first quarter 2018.

~~In May 2016, the FASB issued ASU 2016-11,~~~~Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of~~ Accounting Standards ~~Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting~~. ASU 2016-11 rescinds several SEC Staff Announcements that are codified in Topic 605, including, among other items, guidance relating to accounting for shipping and handling fees and freight services.

None.

The effective dates of ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, and ASU 2016-20 are the same as ASU 2015-14 discussed above. We intend to elect the modified retrospective method to all active contracts on the date of initial application. This will involve applying the guidance retrospectively only to the most current period presented in the financial statements and recognizing the cumulative effect of initially applying the guidance as an adjustment to the January 1, 2018 opening balance of retained earnings at the date of initial application. Based on an analysis we have performed, the adoption of ASC 606,~~Revenue from Contracts with Customers~~ ~~will not have a material impact on our financial position, results of operations or cash flows.~~

~~In January 2016, the FASB issued ASU 2016-01,~~~~Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,~~ which provides guidance for the recognition, measurement, presentation and disclosure of financial assets and financial liabilities. ASU 2016-01 is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2017 and, for most provisions, is effective using the cumulative-effect transition approach. Early application is permitted for certain provisions. We currently are evaluating the effect the adoption of this amendment will have on our consolidated financial statements. The adoption of ASU 2016-01 is not expected to have a material impact on our financial position, results of operations or cash flows.

~~In February 2016, the FASB issued ASU 2016-02,~~~~Leases (Topic 842)~~, which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets. The accounting guidance for lessors will remain relatively largely unchanged. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. We currently are evaluating the effect the adoption of this amendment will have on our consolidated financial statements. We expect that the adoption of the new lease standard will have a material impact on our condensed consolidated balance sheet due to the recognition of right-of-use assets and lease liabilities principally for certain leases currently accounted for as operating leases.

~~In August 2016, the FASB issued ASU 2016-15,~~~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~, which clarifies how certain cash receipts and payments are presented in the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 and early adoption is permitted. We currently are evaluating the effect the adoption of this amendment will have on our consolidated financial statements. The adoption of ASU 2016-15 is not expected to have a material impact on our financial position, results of operations or cash flows.

~~In January 2017, the FASB issued ASU 2017-04,~~~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~, which removes Step 2 of the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 should be applied on a prospective basis and is effective for annual periods beginning January 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of ASU 2017-04 is not expected to have a material impact on our financial position, results of operations or cash flows.

Dividends

●

On January 31, ~~2017,~~2022, we paid a dividend of ~~$0.075~~$0.085 to shareholders of record on January ~~2, 2017.~~3, 2022.

●

On ~~May 1, 2017,~~April 29, 2022, we paid a dividend of ~~$0.075~~$0.085 to shareholders of record on April ~~3, 2017.~~1, 2022.

●

On July ~~31, 2017,~~29, 2022, we paid a dividend of ~~$0.075~~$0.085 to shareholders of record on July ~~3, 2017~~1, 2022

●

On ~~August 15, 2017,~~September 1, 2022, our Board declared a dividend of ~~$0.075~~$0.085 payable on October 31, ~~2017~~2022 to shareholders of record on October ~~2, 2017.~~3, 2022.

We have paid dividends to owners of our common ~~shares~~stock and redeemable preferred ~~shares~~stock since we began declaring dividends in 1985. Our payment of any future cash dividends will depend upon our earnings, financial condition, cash

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flows, capital requirements and other factors our Board of Directors deems relevant in determining the amount and timing of such dividends.

Dividend Reinvestment and Common Stock Purchase Plan.

This ~~program~~plan is available to our shareholders, who may reinvest all or a portion of their common ~~cash~~stock dividends into shares of common stock at prevailing market prices and may also invest optional cash payments to purchase additional shares at prevailing market prices as part of this ~~program.~~plan.

Impact of Inflation

Under the terms of our Cayman Islands license and our water sales agreements in The Bahamas ~~Belize~~ and the British Virgin Islands, our water rates are automatically adjusted for inflation on an annual ~~basis, subject to temporary exceptions. We, therefore, believe that~~basis. Therefore, the impact of inflation on our gross profit, measured in consistent dollars, ~~will~~historically has not bebeen material. However, we have not increased our retail water rates since January 2018 (despite the inflation that has occurred since that date) due to the lack of a resolution of our negotiations with OfReg for a new retail license. This lack of a rate increase has contributed to a decline in the gross profit generated by our retail segment. Furthermore, our manufacturing segment has been adversely impacted by recent significant increases in ~~items such as~~raw material costs and our services segment could suffer similar adverse impacts in the future. Should the current inflationary trend continue, our consolidated results of operations and cash flows could be materially adversely affected.

Increases in fuel and energy costs and other items could create additional credit risks for us, as our customers’ ability to pay our invoices could be adversely affected by such increases.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk from December 31, ~~2016~~2021 to the end of the period covered by this report.

ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, with the participation of its principal executive officer and principal financial and accounting officer, the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial and accounting officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal ~~Controls~~
Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II -– OTHER INFORMATION

~~ITEM 1. LEGAL PROCEEDINGS~~
~~CW-Bali~~
On October 20, 2017, a customer of CW-Bali filed a lawsuit in the Denpasar District Court, Bali, Indonesia against CW-Bali, its President and the Company’s Chief Financial Officer in his capacity as the President of CW-Bali’s Board of Commissioners (i.e. Directors) seeking compensatory damages of 57.1 billion rupiahs and punitive damages of 26 billion rupiahs as a result of the anticipatory breach of this customer’s water supply agreement arising from CW-Bali’s planned cessation of operations. Such damages were equivalent to approximately $4.2 million and $1.9 million, respectively, as of the exchange rate on November 8, 2017. We believe this lawsuit is without merit and will vigorously defend CW-Bali and the other two defendants. However, until this lawsuit is resolved we are legally prohibited from disposing of our investment in CW-Bali or any of CW-Bali’s assets.
~~CW-Belize~~
By Statutory Instrument No. 81 of 2009, the Minister of Public Utilities of the government of Belize published an order, the Public Utility Provider Class Declaration Order, 2009 (the “Order”), which as of May 1, 2009 designated CW-Belize as a public utility provider under the laws of Belize. With this designation, the Public Utilities Commission of Belize (the “PUC”) has the authority to set the rates charged by CW-Belize and to otherwise regulate its activities. On November 1, 2010, CW-Belize received a formal complaint from the PUC alleging that CW-Belize was operating without a license under the terms of the Water Industry Act. CW-Belize applied for this license in December 2010. On July 29, 2011, the PUC issued the San Pedro Public Water Supply Quality and Security Complaint Order (the “Second Order”) which among other things requires that (i) CW-Belize and its customer jointly make a submission to the responsible Minister requesting that the area surrounding CW-Belize’s seawater abstraction wells be designated a forest reserve or national park and be designated a Controlled Area under section 58 of the Water Industry Act, (ii) CW-Belize submit an operations manual for CW-Belize’s desalination plant to the PUC for approval, (iii) CW-Belize and its customer modify the water supply agreement between the parties to (a) include new water quality parameters included in the Order and (b) cap the current exclusive water supply arrangement in the agreement at a maximum of 450,000 gallons per day, (iv) CW-Belize keep a minimum number of replacement seawater RO membranes in stock at all times and (v) CW-Belize take possession of and reimburse the PUC for certain equipment which the PUC purchased from a third-party in late 2010. CW-Belize has applied for declaratory judgment and has been granted a temporary injunction to stay the enforcement of the Second Order by the PUC until such time as the Belize courts could hear the matter. The initial hearing on this matter was conducted on October 30 and 31, 2012 with an additional hearing on November 29, 2012. The ruling on this case is pending. We are presently unable to determine what impact the Order and the Second Order will have on our financial condition, results of operations or cash flows.
~~EWG Litigation~~
In May 2010, we acquired, through our wholly-owned Netherlands subsidiary, Consolidated Water Cooperatief, U.A., (“CW-Cooperatief”) a 50% interest in N.S.C. Agua, S.A. de C.V. (“NSC”), a development stage Mexican company. We have since purchased, through the conversion of a loan we made to NSC, sufficient shares to raise our ownership interest in NSC to 99.99%. NSC was formed to pursue a project encompassing the construction, operation and minority ownership of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and an accompanying pipeline to deliver water to the Mexican potable water system (the “Project”).
Immediately following CW-Cooperatief’s acquisition of its initial 50% ownership in NSC, the remaining 50% ownership interest in NSC was held by an unrelated company, Norte Sur Agua, S. de R.L. de C.V. (“NSA”). NSA subsequently transferred ownership of half of its shares in NSC to EWG Water LLC (“EWG”) and the other half of its shares in NSC to Alejandro de la Vega (the “individual shareholder”). In February 2012, we paid $300,000 to enter into an agreement (the “Option Agreement”) that provided us with an option, exercisable through February 7, 2014, to purchase the shares of NSC owned by the individual shareholder for a price of $1.0 million along with an immediate power of attorney to vote those shares. Such shares constituted 25% of the ownership of NSC as of February 2012. In May 2013, NSC repaid a $5.7 million loan payable to CW-Cooperatief by issuing additional shares of its stock. As a result of this share issuance to CW-Cooperatief, we acquired 99.99% of the ownership of NSC. The Option Agreement contained an anti-dilution provision that required us to issue new shares in NSC of an amount sufficient to maintain the individual shareholder’s 25% ownership interest in NSC if (i) any new shares of NSC were issued subsequent to the execution of the Option Agreement; and (ii) we did not exercise our share purchase option by February 7, 2014. We exercised our option and paid the $1.0 million to the individual shareholder to purchase the Option Agreement shares in February 2014.
In October 2015, we learned that EWG filed a lawsuit against the individual shareholder, NSC, NSA, CW-Cooperatief, Ricardo del Monte Nunez, Carlos Eduardo Ahumada Arruit, Luis de Angitia Becerra, and the Public Registry of Commerce of Tijuana, Baja California in the Civil Court located in Tecate, Baja California, Mexico.
In this lawsuit, EWG challenged, among other things, the capital investment transactions that increased our ownership interest in NSC to 99.99%. EWG requested that the court, as a preliminary matter: (a) suspend the effectiveness of the challenged transactions; (b) order public officials in Mexico to record the pendency of the lawsuit in the public records; and (c) appoint an inspector for NSA and NSC to oversee its commercial activities. The Court granted, ex-parte, the preliminary relief sought by EWG, which resulted in the placement of inscriptions for the lawsuit on NSC’s public records.
EWG also sought an order directing, among other things: (i) NSA, NSC and CW-Cooperatief to refrain from carrying out any transactions with respect to the Project; and (ii) NSA, NSC and CW-Cooperatief, and the partners thereof, to refrain from transferring any interests in NSA, NSC and CW-Cooperatief.
38
On April 5, 2016, NSC filed a motion for reconsideration with the Tecate, Mexico Court asking, among other things, that the Court; (i) reverse its order to record the pendency of the lawsuit in the public records; (ii) cancel the appointment of the inspector; and (iii) allow NSC to provide a counter-guarantee to suspend the effects of the Court’s order regarding the challenged transactions. On April 26, 2016, the Tecate, Mexico Court issued an interlocutory judgment (i) ordering the cancellation of the inscriptions on NSC’s public records; and (ii) rejecting NSC’s motion for cancellation of the appointment of the inspector.
~~On April 26, 2016, NSC filed a full answer to EWG’s claims, rejecting every claim made by EWG. The Court’s response on this matter is pending.~~
On May 17, 2016, we filed a claim with the Third District Court in Matters of Amparo and Federal Trials in the City of Tijuana, Baja California (the “Amparo Court”) challenging the Tecate, Mexico Court ex-parte order which appointed an inspector over NSC’s commercial activities. On July 29, 2016, the Amparo Court found that such appointment is unconstitutional and reversed the Tecate, Mexico Court’s appointment of an inspector.
On September 6, 2016, the Tecate, Mexico Court issued a decree granting the counter-guaranty requested by NSC. Such counter-guaranty was fixed in the amount of MXP 300,000.00 Mexican pesos and was given to the Court on October 13, 2016 at which time all remaining ex-parte restrictions on NSC related to the challenged transactions were suspended.
On May 2, 2017, the Tecate, Mexico court declared that the initial filing of this lawsuit had expired due to EWG’s lack of activity with respect to certain actions required to proceed to trial. However, EWG can appeal the expiration or refile the lawsuit.
ITEM 1A. RISK FACTORS
Our business faces significant risks. These risks include those disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2021 as supplemented by the additional risk factors included below. If any of the events or circumstances described in the referenced risks actually occurs, our business, financial condition or results of operations could be materially adversely affected and such events or circumstances could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. These risks should be read in conjunction with the other information set forth in this Quarterly Report as well as in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 and in our other periodic reports on Form 10-Q and Form 8-K.
The COVID-19 pandemic will likely continue to have a material adverse impact on our financial performance and financial condition in the future, to an extent and for a period of time that cannot presently be determined.
The worldwide coronavirus (COVID-19) pandemic was formally recognized by the World Health Organization on March 11, 2020. In response to this pandemic, the governments of the countries in which we operate - the Cayman Islands, The Bahamas, and the United States - implemented preventative measures to slow the spread of COVID-19, measures which have had profound adverse consequences for the economies of those countries. Tourism, a major economic driver for the Cayman Islands, temporarily ceased due to closing of the country to tourist arrivals by air and sea travel. In November 2021, the Cayman Islands government eliminated certain travel restrictions for COVID-19 vaccinated travelers that allowed tourists to enter the Cayman Islands for the first time since March 2020. Our retail water revenues continue to be significantly lower than pre-pandemic levels. Tourist arrivals to The Bahamas by air and sea declined significantly due to the pandemic. Overall economic activity in the United States has also declined.
As a result of the impact of the COVID-19 pandemic on the economies of the countries in which we operate, we have experienced, and will continue to experience, decreases in our consolidated revenue, cash flows generated from operations, and overall liquidity as compared to comparable prior periods.
Furthermore, the COVID-19 pandemic has adversely impacted our customers. Such adverse impacts, should they continue for a prolonged period, could require us to reassess the expected future cash flows from our four reporting units and could require us to record impairment losses to reduce the carrying values of one or more of these reporting units due to a decline in their fair values.
Although we cannot presently quantify the future financial impacts of the COVID-19 pandemic on our company, we believe such impacts will likely continue to have an adverse impact on our consolidated financial condition, results of operations, and cash flows. Given the uncertainty associated with the resolution of this pandemic, we cannot presently determine how long such adverse financial impacts may last.
Our exclusive license to provide water to retail customers in the Cayman Islands ~~may~~has not ~~be renewed in~~been expressly extended and we are presently unable to predict the ~~future.~~outcome of our on-going negotiations relating to this license.

~~In the Cayman Islands, we provide~~We sell water tothrough our retail ~~customers~~operations under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that ~~grants our subsidiary,~~granted Cayman Water the exclusive right to provide potable water to ~~retail~~ customers within ~~our~~its licensed service area. Although the 1990 license was not expressly extended after January 2018, we continue to supply water under the terms of the 1990 license, as further discussed in the following paragraph. Pursuant to the 1990 license, ~~we have~~Cayman Water has the exclusive right to produce potable water and distribute it by pipeline to ~~our~~its licensed service area, which consists of two of the three most populated areas of Grand Cayman ~~the~~Island: Seven Mile Beach and West ~~Bay areas.~~Bay. For the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, we generated approximately ~~33%~~25% and ~~38%~~32%, respectively, of our consolidated ~~revenues~~revenue and ~~48%~~44% and ~~52%~~44%, respectively, of our consolidated gross profit from the retail water operations conducted ~~pursuant to Cayman Water’s exclusive~~under the 1990 license. For the nine months ended September 30, ~~2017~~2022 and ~~2016, we~~2021, the Company generated approximately ~~38%~~29% and ~~40%~~33%, respectively, of ~~our~~its consolidated ~~revenues~~revenue and ~~52%~~45% and ~~55%~~47%, respectively, of ~~our~~its consolidated gross profit from the retail water operations conducted ~~pursuant to Cayman Water’s exclusive~~under the 1990 license.

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The 1990 license was originally scheduled to expire in July 2010 but ~~has been~~was extended several times by the Cayman Islands government in order to provide the parties with additional time to negotiate the terms of a new license agreement. The most recent express extension of the license ~~expires~~expired on January 31, 2018. We continue to operate under the terms of the 1990 license, providing water services to the level and quality specified in the 1990 license and in accordance with our understanding of its legal obligations, treating those obligations set forth in the 1990 license as operative notwithstanding the expiration of the express extension. We continue to pay the royalty required under the 1990 license.

In October 2016, the Government of the Cayman Islands passed legislation which created a new utilities regulation and competition office (“OfReg”). OfReg is an independent and accountable regulatory body with a view of protecting the rights of consumers, encouraging affordable utility services, and promoting competition. OfReg, which began operations in January 2017, has the ability to supervise, monitor and regulate multiple utility undertakings and markets. Supplemental legislation was passed by the Government of the Cayman Islands in April 2017, which transferred responsibility for the economic regulation of the water utility sector and the negotiations with us for a new retail license from the Water Authority-Cayman to ~~OfReg. In July 2017, we~~OfReg in May 2017. We began license negotiations with OfReg ~~for a new retail license~~ in ~~the Cayman Islands~~July 2017 and such negotiations are ~~continuing.~~

~~The~~ongoing. We have been informed during our retail license negotiations, both by OfReg and its predecessor in these negotiations, that the Cayman Islands government ~~could ultimately offer a third party a license~~seeks to ~~service some or all of Cayman Water’s present service area. However, as set forth in the existing license, “~~the Governor hereby agrees that upon the expiry of the term of this Licence or any extension thereof, he will not grant a licence or franchise to any other person or company for the processing, distribution, sale and supply of water within the Licence Area without having first offered such a licence or franchise to the Company on terms no less favourable thanrestructure the terms ~~offered~~of our license in a manner that could significantly reduce the operating income and cash flows we have historically generated from our retail license.

We are presently unable to ~~such other person or company.”~~

~~The~~determine what impact the resolution of ~~these~~our retail license negotiations will have on our cash flows, financial condition or results of operations but such resolution could result in a material reduction (or the loss) of the operating income and cash flows we have historically generated from our retail ~~license~~operations and could require us to record an impairment ~~loss~~losses to reduce the carrying ~~value~~values of our ~~goodwill.~~retail segment assets. Such impairment ~~loss~~losses could have a material adverse impact on our consolidated financial condition and results of operations.

~~We have paid $21.4 million for land, right~~Most of ~~ways and equipment and incurred development expenses~~our services segment revenue is generated under short-term contracts. An inability to obtain extensions of ~~approximately $22.6 million~~these contracts or to ~~date for a possible project in Mexico. We expect~~obtain new contracts to ~~expend significant additional funds in 2017 to continue to pursue this project. However, we may~~replace the revenue that is lost from contracts that are not ~~be successful in completing this project.~~extended could adversely impact our financial results.

~~We own a 99.99% interest in N.S.C. Agua, S.A. de C.V.~~PERC, our principal services segment subsidiary, generates most of its revenue from contracts (“~~NSC”~~O&M contracts”), a development stage Mexico company formed to pursue a project encompassing the construction, operation and minority ownership of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and an accompanying pipeline to deliver water to the Mexican potable water system (the “Project”). As of September 30, 2017, our condensed consolidated balance sheet includes purchases for the Project of approximately $21.4 million for land, right of ways and equipment. The project development activities we have conducted, which include conducting an equipment piloting plant and water data collection program at the proposed feed water source, completing various engineering studies and obtaining various governmental permits, have resulted in additional developmental expenses totaling $22.6 million from 2010 through September 30, 2017.

In August 2014, the State of Baja California (the “State”) enacted new legislation to regulate Public-Private Association projects which involve the type of long-term contract between a public-sector authority and a private party that NSC is seeking to complete the Project. Pursuant to this new legislation, in January 2015, NSC submitted an expression of interest for its project to the Secretary of Infrastructure and Urban Development of the State of Baja California (“SIDUE”). SIDUE accepted NSC’s expression of interest and requested that NSC submit a detailed proposal for the Project that complied with requirements of the new legislation. NSC submitted this detailed proposal (the “APP Proposal”) to SIDUE in late March 2015. The new legislation required that such proposal be evaluated by SIDUE and submitted to the Public-Private Association Projects State Committee (the “APP Committee”) for review and authorization. If the Project was authorized the State would be required to conduct a public tender for the Project.

In response to our APP Proposal, in September 2015 NSC received a letter dated June 30, 2015 from the Director General of the Comisión Estatal del Agua de Baja California (“CEA”), the State agency with responsibility for the Project that stated (i) the Project is in the public interest with high social benefits and is consistent with the objectives of the State development plan; and (ii) that the Project and accompanying required public tender process should be conducted. In November 2015, the State officially commenced the tender for the Project, the scope of which the State defined as a first phase to be operational in 2019 consisting of a 50 million gallon per day plant and a pipeline that connects to the Mexican potable water infrastructure and a second phase to be operational in 2024 consisting of an additional 50 million gallons per day of production capacity. A consortium comprised of NSC, NuWater S.A.P.I. de C.V. and Degremont S.A. de C.V. (the “Consortium”) submitted its tender for the Project on the April 21, 2016 tender submission deadline date set by the State.

~~On June 15, 2016, the State designated the Consortium as the winner of tender process for the Project.~~

On August 17, 2016, NSC and NuWater incorporated Newco under the name Aguas de Rosarito S.A.P.I. de C.V. (“AdR”), a special purpose company, to complete the Project and executed a shareholders agreement agreeing among other things that: (i) AdR would purchase the land and other Project assets from NSC on the date that the Project begins commercial operation and (ii) AdR would enter into a Management and Technical Services Agreement with NSC effective on the first day that the Project begins commercial operation. As of September 30, 2017 and December 31, 2016, NSC owned 99.6% of AdR.

On August 22, 2016, the Public Private Partnership Agreement for public private partnership number 002/2015, contest number SIDUE-CEA-APP-2015-002 (“APP Contract”), was executed between AdR, the State Water Commission of Baja California (“CEA”), the Government of Baja California represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana (“CESPT”). The APP Contract requires AdR to design, construct, finance and operate a seawater desalination plant (and accompanying aqueducts) with a capacity of up to 100 million gallons per day in two phases: the first with a capacity of 50 million gallons per day and an aqueduct to the Mexican potable water system in Tijuana, Baja California; and the second phase with a capacity of 50 million gallons per day and an aqueduct to a second delivery point in Tijuana. The first phase must be operational within 36 months of commencing construction and the second phase must be operational by the end of 2024. The APP Contract further requires AdR to operate and maintain water treatment and reuse facilities owned by third parties. For the ~~plant~~three and ~~aqueducts for a period~~nine months ended September 30, 2022, we generated revenue of 37approximately $3.3 million and $10.4 million, respectively, under these O&M contracts. PERC’s O&M contracts have terms ranging from one to five years, ~~starting from~~with varying renewal options exercisable solely at the ~~commencement of operation~~discretion of the ~~first phase. At the end~~customer. Approximately 32% of ~~the operating period, the plant and aqueducts will be transferred to CEA.~~

~~The APP Contract does not become effective until the following conditions are met:~~

~~the State has established and registered various payment trusts, guaranties and bank credit lines for specific use by the Project;~~

~~the CEA has obtained the rights from the relevant federal authority to take and desalinate seawater and distribute it for municipal use;~~

~~various agreements between the CEA, the payment trusts and the CESPT have been executed;~~

~~AdR has obtained all rights of ways required for the Phase 1 aqueduct;~~

~~AdR has obtained permission from the relevant federal authority to discharge the residual water from the Project’s desalination plant; and~~

~~all equity and debt financing agreements necessary to provide the funding to AdR for the first phase of the Project have been executed.~~

On December 30, 2016, the Congress of the State of Baja California, Mexico passed Decreto #57 which, among other things, ratified and authorized the execution of the APP Contract. Earlier this year, following consultations between representatives of the State of Baja California and the Ministry of Finance of the Federal Government of Mexico, it was determined that certain amendments to Decreto #57 were required in order to comply with recent changes to the Federal Fiscal Discipline Law. In addition, during the course of its recent due diligence related to the potential financing of the Project, the North American Development Bank requested that the State of Baja California amend Decreto #57 to authorize the inclusion of revenues from the CESPT in the primary payment trustPERC’s revenue for the Project. These amendments are included in Decreto #95 which is currently under consideration by the Congress of the State of Baja California. We cannot say with any certainty whether or not Decreto #95 will be approved by the Congress. In the event that Decreto #95 is ultimately not approved, we may not be able to obtain the debt financing required to complete the Project.

~~As of~~nine months ended September 30, ~~2017, AdR has paid approximately $665,000 for deposits on, or purchases of, rights of way for the Phase 1 aqueduct, which~~2022 was generated under O&M contracts that expire at various dates through December 31, 2023. If we are ~~included in other assets on our condensed consolidated balance sheet.~~

Both the exchange rate for the Mexico peso relative to the dollar and general macroeconomic conditions in Mexico have varied since the U.S. Presidential election in November 2016. These changes could adversely impact the estimated construction, operating, and financing costs for the Project. The APP Contract and the APP Law allow for the parties to negotiate (but do not guarantee) modifications to the water tariff in the event of such significant macroeconomic condition changes. In February 2017, AdR submitted proposals to the CEA requesting an increase to the water tariff to compensate for changes in foreign exchange rates, lending rates and certain changes in law which have impacted the Project. If AdR is unable to obtain ~~this requested increase in the water tariff, it may be~~extensions of these expiring O&M contracts or are unable to ~~obtain~~replace the ~~debt and equity financing required for the Project. We are currently unable to determine whether or not such water tariff increase will be approved.~~

~~If AdR is ultimately unable to proceed~~revenue lost from contracts that expire with the Project, the land NSC has purchased and the right of way deposits may lose their strategic importance as the site for the Project and consequently may decline in value. If AdR does not proceed with the Project, NSC may ultimately be unable to sell this land or recoup their right of way deposits for an amount at least equal to its current carrying value of approximately $21.2 million ($20.56 million for the land and $665,000 for the right of way deposits), and any loss on sale of the land, or impairment loss NSC may be required to record as a result of a decrease in the fair value could have a material adverse impact on the Company’srevenue from new O&M contracts, our consolidated financial condition, results of ~~operations.~~operations, and cash flows would be adversely affected.

EWG Water LLC (“EWG”), a minority shareholder in NSC, has filed a lawsuit against NSC, CW-Cooperatief, the Public Registry of Commerce of Tijuana, Baja California, and other parties in the Civil Court located in Tecate, Baja California, Mexico.

In this lawsuit, EWG challenged, among other things, the capital investment transactions that increased our ownership interest in NSC to 99.99%. EWG requested that the court, as a preliminary matter: (a) suspend the effectiveness of the challenged transactions; (b) order public officials in Mexico to record the pendency of the lawsuit in the public records; and (c) appoint an inspector for NSC to oversee its commercial activities. The court granted, ex-parte, the preliminary relief sought by EWG, which resulted in the placement of inscriptions for the lawsuit on NSC’s public records.

~~This litigation could adversely impact our efforts to complete the Project.~~

If the future financial performance of Aerex falls short of our ~~recently acquired~~most recent financial projections for this subsidiary, ~~Aerex does not improve,~~ we may be required to record ~~further~~ impairment losses to reduce the carrying ~~value~~values of the goodwill ~~arising~~and intangible assets of our manufacturing reporting unit.

customer has historically been derived primarily from one specialized product. In ~~February 2016, we acquired~~October 2020, this customer informed Aerex that, for inventory management purposes, it was suspending its purchases of the specialized product from Aerex following 2020 for a ~~51% ownership interest in Aerex. In connection~~period of approximately one year. This customer informed Aerex at that time that it expected to recommence its purchases of the specialized product from Aerex beginning with ~~this acquisition, we recorded initial goodwill~~the first quarter of ~~$8,035,211. Aerex’s actual results of operations in the months following our acquisition~~2022. As a result of this ~~company fell significantly short~~anticipated loss of ~~the projected results that were included in the overall cash flow projections we utilized to determine the purchase price~~revenue for Aerex, ~~and the fair values of its assets and liabilities. Due to this shortfall in Aerex’s results of operations,~~ we updated our projections for ~~Aerex’s~~our manufacturing reporting unit’s future cash ~~flows and~~flows. Such projections assumed, in part, that Aerex’s major customer would recommence its purchases from Aerex in 2022 but at a reduced aggregate amount, as compared to 2020. Based upon these updated projections, we tested ~~Aerex’s~~our manufacturing reporting unit’s goodwill for possible impairment as of ~~September 30, 2016 by estimating its fair value~~December 31, 2020 using the discounted cash flow ~~method.~~and guideline public company methods, with a weighting of 80% and 20% applied to these two methods, respectively. As

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a result of these impairment tests, we determined that the estimated fair value of our manufacturing reporting unit exceeded its carrying value by approximately 31% as of December 31, 2020.

In late July 2021, this former major customer communicated to Aerex that it expected to recommence its purchases of the specialized product from Aerex in 2022 and subsequent years, but informed Aerex that such purchases would be at substantially reduced annual amounts, as compared to the amounts it had purchased from Aerex in 2020 and prior years. Our updated sales estimate for this customer based on this new information was substantially below the anticipated sales to this customer for 2022 and subsequent years that we used in the discounted cash flow projections we prepared for purposes of testing our manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020. Furthermore, Aerex’s efforts to replace the revenue previously generated from this customer with revenue from existing and new customers have been adversely impacted by the continuing negative economic conditions (caused in part by the COVID-19 pandemic) which have increased Aerex’s raw material costs, resulted in raw material shortages and extended delivery times for such materials, and also adversely affected the overall financial condition of Aerex’s current and prospective customer base. Accordingly, in light of this new information from Aerex’s former major customer and the on-going weak economic conditions that we believed would continue through 2022, we updated our projections of future cash flows for the manufacturing reporting unit and tested its goodwill for possible impairment as of June 30, 2021 using the discounted cash flow and guideline public company methods, with a weighting of 80% and 20% applied to these two methods, respectively. Based upon this testing, we determined that the carrying value of our ~~Aerex goodwill~~manufacturing reporting unit exceeded its fair value by $2.9 million, and we recorded an impairment loss ~~of $1,750,000~~to reduce our manufacturing reporting unit’s goodwill by this amount for the three months ended ~~September~~June 30, ~~2016~~2021.

The accounting estimates and assumptions we employ to ~~reduce~~estimate the fair values of our manufacturing and reporting units constitute “critical accounting estimates” for us because:

●

the nature of these estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change (for example, should interest rates rise significantly in the future we would likely be required to increase the discount rate we use under the discounted cash flow method we use to estimate the fair values of our reporting units, and such increased discount rate in and of itself could decrease the estimated fair value of our reporting units under the discounted cash flow method); and

●	the impact of the estimates and assumptions on financial condition and results of operations is material.

Based upon our estimation prepared as of December 31, 2021, the fair value of our manufacturing reporting unit exceeded its carrying value ~~of this goodwill to $6,285,211. We~~by only 15%. If we determine in the future that Aerex’s discounted future cash inflows will be less than our present expectations, we may be required to record additional impairment losses to reduce the remaining carrying ~~value~~values as of September 30, 2022 of our ~~Aerex~~manufacturing reporting unit’s goodwill ~~in future periods if we determine it likely that Aerex’s results~~ of ~~operations will fall short~~$1,985,211 and its remaining unamortized intangible assets balances of ~~our most recent projections~~$777,778 recorded as a result of ~~its future cash flows. Such~~the acquisition of Aerex. Any such impairment losses could have a material adverse impact on our consolidated results of operations.

Current economic conditions are adversely impacting the supply chain for our operations and could have a material adverse impact on our financial results.

As a result of the economic conditions resulting from the COVID-19 pandemic, the Russian invasion of Ukraine, and other factors, we are experiencing issues with our supply chain for the raw materials, components, chemicals, and capital expenditures used in our operations, including rapidly increasing prices, scarcities/shortages, and longer fulfillment times and unexpected delays for our orders to suppliers. Should these economic conditions and issues continue, our operations could be adversely affected, which could have a material adverse impact on our consolidated financial condition, results of operations and cash flows.

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The profitability of our contracts is dependent upon our ability to accurately estimate construction and operating costs.

The cost estimates we prepare in connection with the construction and operation of our water plants, the water infrastructure we construct and sell to third parties, and our manufacturing contracts, are subject to inherent uncertainties. Additionally, the terms of our water supply contracts may require us to guarantee the price of water on a per unit basis, subject to certain annual inflation and monthly energy cost adjustments, and to assume the risk that the costs associated with producing this water may be greater than anticipated. Because we base our contract prices in part on our estimation of future construction, manufacturing and operating costs, the profitability of our plants and our manufacturing and management contracts is dependent on our ability to estimate these costs accurately. The cost of materials and services and the cost of the delivery of such services may increase significantly after we submit our bid for contract, which could cause the gross profit for a contract to be less than we anticipated when the bid was made. The profit margins we initially expect to generate from a management contract could be further reduced if future operating costs for that contract exceed our estimates of such costs. Any construction, manufacturing, and operating costs for our contracts that significantly exceed our initial estimates could adversely impact our consolidated financial condition, results of operations, and cash flows.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In July ~~2017,~~2022, we issued ~~1,340~~2,755 shares of preferred stock to 1120 employees for cash at a price of ~~$8.35~~$8.73 per share. The issuance of the preferred stock to ~~six of the~~sixteen employees was exempt from registration under Regulation S promulgated under the Securities Act ~~of 1933, as amended (the “Securities Act”)~~ because the shares were issued outside of the United States to non-US persons (as defined in Regulation S). ~~Five of the~~Four employees are US persons and the issuance of such shares to them was exempt under Section 4(a)(2) of the Securities Act. The US persons ~~are~~is knowledgeable, sophisticated and experienced in making investment decisions of this kind and received adequate information about us or had adequate access, including through the ~~employee’s~~employee's business relationship with us, to information about us.

ITEM 6. EXHIBITS

~~Exhibit~~

Exhibit
Number

Exhibit Description
10.1*

Procurement of and Operating Agreement for a Sea Water Desalination Plant at Red Gate Water Works, Grand Cayman, Cayman Islands, using the Reverse Osmosis Process (2021), effective as of May 10, 2022, by and between The Water Authority of the Cayman Islands and Ocean Conversion (Cayman) Limited
31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2

~~31.2~~
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1

~~32.1~~
Section 1350 Certification of Chief Executive Officer
32.2

~~32.2~~
Section 1350 Certification of Chief Financial Officer
101.INS

~~101.INS~~
XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH

XBRL Taxonomy Extension Schema
~~101.SCH~~
101.CAL

XBRL Taxonomy ~~Schema~~Extension Calculation Linkbase
101.DEF

XBRL Taxonomy Extension Definition Document
~~101.CAL~~
101.LAB

XBRL Taxonomy ~~Calculation~~Extension Label Linkbase
101.PRE

XBRL Taxonomy Extension Presentation Linkbase
~~101.DEF~~
104

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42
* Portions of the exhibit have been omitted pursuant to Item 601 of Regulation S-K, as such information both (i) is not material and (ii) would be competitively harmful if publicly disclosed, and will be furnished on a supplemental basis to the Securities and Exchange Commission upon request.

46

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CONSOLIDATED WATER CO. LTD.
By:
/s/ Frederick W. McTaggart
Frederick W. McTaggart
Chief Executive Officer
(Principal Executive Officer)
By:
/s/ David W. Sasnett
David W. Sasnett
Executive Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: November 14, 2022

~~Date: November 9, 2017~~

CAYMAN ISLANDS		98-0619652
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

Regatta Office Park
Windward Three, 4th Floor, West Bay Road
P.O. Box 1114
Grand CaymanKY1-1102
Cayman Islands		N/A
(Address of principal executive offices)		(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A common stock, $0.60 par value		CWCO		The Nasdaq Global Select Market

	~~Description~~	~~Page~~
	Description	Page
PART I	FINANCIAL INFORMATION	4
Item 1	Financial Statements	4

	Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2022 (Unaudited) and December 31, ~~2016~~2021	4

	Condensed Consolidated Statements of Income (Loss) (Unaudited) for the Three and Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021	5

	Condensed Consolidated Statements of ~~Comprehensive Income~~Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021	7 8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8 9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22 25
Item 3	Quantitative and Qualitative Disclosures about Market Risk	37 41
Item 4	Controls and Procedures	37 41

PART II	OTHER INFORMATION	38 42
Item 11A	~~Legal Proceedings~~Risk Factors	38 42
~~Item 1A~~	~~Risk Factors~~	39
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	42 46
Item 6	Exhibits	42 46

SIGNATURES		43 47

	September 30,			December 31,
	2017			2016
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	46,976,764		$	39,254,116
Accounts receivable, net		13,007,883			16,500,798
Inventory		2,291,082			2,305,879
Prepaid expenses and other current assets		2,430,570			1,096,200
Current portion of loans receivable		1,377,956			1,633,588
Costs and estimated earnings in excess of billings		1,673,460			85,211
Total current assets		67,757,715			60,875,792
Property, plant and equipment, net		50,759,258			53,084,105
Construction in progress		1,433,341			885,494
Inventory, non-current		4,408,321			4,606,088
Loans receivable		1,093,641			2,135,428
Investment in OC-BVI		3,124,910			4,086,630
Intangible assets, net		4,116,982			5,195,476
Goodwill		9,784,248			9,784,248
Land held for development		20,558,424			20,558,424
Other assets		2,803,617			2,392,843
Total assets	$	165,840,457		$	163,604,528

LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other current liabilities	$	5,332,446		$	4,898,908
Dividends payable		1,189,924			1,187,214
Note payable to related party		392,000			490,000
Billings in excess of costs and estimated earnings		294,156			102,966
Total current liabilities		7,208,526			6,679,088
Deferred tax liability		1,502,649			1,915,241
Other liabilities		1,160,307			904,827
Total liabilities		9,871,482			9,499,156
Commitments and contingencies
Equity
Consolidated Water Co. Ltd. stockholders' equity
Redeemable preferred stock, $0.60 par value. Authorized 200,000 shares; issued and outstanding 33,974 and 35,225 shares, respectively		20,384			21,135
Class A common stock, $0.60 par value. Authorized 24,655,000 shares; issued and outstanding 14,901,711 and 14,871,664 shares, respectively		8,941,027			8,922,998
Class B common stock, $0.60 par value. Authorized 145,000 shares; none issued		-			-
Additional paid-in capital		86,106,647			85,621,033
Retained earnings		52,648,399			51,589,337
Cumulative translation adjustment		(549,555	)		(549,555	)
Total Consolidated Water Co. Ltd. stockholders' equity		147,166,902			145,604,948
Non-controlling interests		8,802,073			8,500,424
Total equity		155,968,975			154,105,372
Total liabilities and equity	$	165,840,457		$	163,604,528

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Retail revenues	$	5,570,654		$	5,447,200		$	18,111,274		$	17,710,271
Bulk revenues		7,881,464			7,429,732			23,615,787			22,136,086
Services revenues		111,302			125,929			360,758			710,576
Manufacturing revenues		3,008,783			1,382,492			5,444,678			3,261,827
Total revenues		16,572,203			14,385,353			47,532,497			43,818,760

Cost of retail revenues		2,488,441			2,464,841			7,895,617			7,779,831
Cost of bulk revenues		5,582,401			4,922,162			15,750,402			14,345,747
Cost of services revenues		114,667			168,577			320,586			638,389
Cost of manufacturing revenues		2,078,888			910,450			3,967,945			2,366,060
Total cost of revenues		10,264,397			8,466,030			27,934,550			25,130,027
Gross profit		6,307,806			5,919,323			19,597,947			18,688,733
General and administrative expenses		4,896,323			4,528,679			14,695,184			13,925,439
Impairment loss on long-lived assets		578,480			2,000,000			1,578,480			2,000,000
Impairment of goodwill		-			1,750,000			-			1,750,000
Income (loss) from operations		833,003			(2,359,356	)		3,324,283			1,013,294

Other income (expense):
Interest income		70,741			137,806			301,813			514,532
Interest expense		(1,016	)		(1,246	)		(11,178	)		(95,615	)
Profit sharing income from OC-BVI		36,450			38,475			46,575			87,075
Equity in the earnings of OC-BVI		138,913			101,301			127,955			232,523
Impairment loss on investment in OC-BVI		-			(875,000	)		-			(925,000	)
Net unrealized gain (loss) on put/call options		171,000			(275,000	)		323,000			(275,000	)
Other		31,206			110,968			83,791			507,183
Other income (expense), net		447,294			(762,696	)		871,956			45,698
Income (loss) before income taxes		1,280,297			(3,122,052	)		4,196,239			1,058,992
Provision for (benefit from) income taxes		(136,447	)		(146,198	)		(412,592	)		(389,860	)
Net income (loss)		1,416,744			(2,975,854	)		4,608,831			1,448,852
Income (loss) attributable to non-controlling interests		255,605			(1,110,522	)		191,916			(944,790	)
Net income (loss) attributable to Consolidated Water Co. Ltd. stockholders	$	1,161,139		$	(1,865,332	)	$	4,416,915		$	2,393,642

Basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders	$	0.08		$	(0.13	)	$	0.30		$	0.16

Diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders	$	0.08		$	(0.13	)	$	0.29		$	0.16

Dividends declared per common share	$	0.075		$	0.075		$	0.225		$	0.225

Weighted average number of common shares used in the determination of:
Basic earnings per share		14,898,246			14,815,248			14,886,738			14,803,216
Diluted earnings per share		15,072,142			14,852,967			15,054,343			14,940,635

	Three Months Ended September 30, 2017
	Retail			Bulk		Services			Manufacturing		Total
Revenues	$	5,570,654		$	7,881,464	$	111,302		$	3,008,783	$	16,572,203
Cost of revenues		2,488,441			5,582,401		114,667			2,078,888		10,264,397
Gross profit (loss)		3,082,213			2,299,063		(3,365	)		929,895		6,307,806
General and administrative expenses		3,070,681			315,374		863,646			646,622		4,896,323
Impairment loss on long-lived assets		578,480			-		-			-		578,480
Income (loss) from operations	$	(566,948	)	$	1,983,689	$	(867,011	)	$	283,273		833,003
Other income, net												447,294
Income before income taxes												1,280,297
Provision for (benefit from) income taxes												(136,447	)
Net income												1,416,744
Income from attributable to non-controlling interests												255,605
Net income attributable to Consolidated Water Co. Ltd. stockholders											$	1,161,139

	Three Months Ended September 30, 2016
	Retail			Bulk		Services			Manufacturing			Total
Revenues	$	5,447,200		$	7,429,732	$	125,929		$	1,382,492		$	14,385,353
Cost of revenues		2,464,841			4,922,162		168,577			910,450			8,466,030
Gross profit (loss)		2,982,359			2,507,570		(42,648	)		472,042			5,919,323
General and administrative expenses		2,811,262			425,000		643,660			648,757			4,528,679
Impairment loss on long-lived assets		2,000,000			-		-			-			2,000,000
Impairment of goodwill		-			-		-			1,750,000			1,750,000
Income (loss) from operations	$	(1,828,903	)	$	2,082,570	$	(686,308	)	$	(1,926,715	)		(2,359,356	)
Other expense, net													(762,696	)
Loss before income taxes													(3,122,052	)
Provision for (benefit from) income taxes													(146,198	)
Net loss													(2,975,854	)
Loss attributable to non-controlling interests													(1,110,522	)
Net loss attributable to Consolidated Water Co. Ltd. stockholders												$	(1,865,332	)

	Nine Months Ended September 30, 2017
	Retail			Bulk		Services			Manufacturing			Total
Revenues	$	18,111,274		$	23,615,787	$	360,758		$	5,444,678		$	47,532,497
Cost of revenues		7,895,617			15,750,402		320,586			3,967,945			27,934,550
Gross profit		10,215,657			7,865,385		40,172			1,476,733			19,597,947
General and administrative expenses		9,288,941			940,105		2,498,766			1,967,372			14,695,184
Impairment loss on long-lived assets		1,578,480			-		-			-			1,578,480
Income (loss) from operations	$	(651,764	)	$	6,925,280	$	(2,458,594	)	$	(490,639	)		3,324,283
Other income (expense), net													871,956
Income before income taxes													4,196,239
Provision for (benefit from) income taxes													(412,592	)
Net income													4,608,831
Income from attributable to non-controlling interests													191,916
Net income attributable to Consolidated Water Co. Ltd. stockholders												$	4,416,915

	Nine Months Ended September 30, 2016
	Retail			Bulk		Services			Manufacturing			Total
Revenues	$	17,710,271		$	22,136,086	$	710,576		$	3,261,827		$	43,818,760
Cost of revenues		7,779,831			14,345,747		638,389			2,366,060			25,130,027
Gross profit		9,930,440			7,790,339		72,187			895,767			18,688,733
General and administrative expenses		8,588,529			1,302,884		2,363,392			1,670,634			13,925,439
Impairment loss on long-lived assets		2,000,000			-		-			-			2,000,000
Impairment of goodwill		-			-		-			1,750,000			1,750,000
Income (loss) from operations	$	(658,089	)	$	6,487,455	$	(2,291,205	)	$	(2,524,867	)		1,013,294
Other income (expense), net													45,698
Income before income taxes													1,058,992
Provision for (benefit from) income taxes													(389,860	)
Net income													1,448,852
Loss attributable to non-controlling interests													(944,790	)
Net income attributable to Consolidated Water Co. Ltd. stockholders												$	2,393,642

	As of September 30, 2017
	Retail		Bulk		Services		Manufacturing		Total
Accounts receivable, net	$	1,855,483	$	9,457,940	$	1,343,756	$	350,704	$	13,007,883
Property plant and equipment, net	$	23,466,107	$	25,311,839	$	96,698	$	1,884,614	$	50,759,258
Construction in progress	$	195,508	$	1,226,677	$	3,256	$	7,900	$	1,433,341
Intangibles, net	$	-	$	550,315	$	-	$	3,566,667	$	4,116,982
Goodwill	$	1,170,511	$	2,328,526	$	-	$	6,285,211	$	9,784,248
Land held for development	$	-	$	-	$	20,558,424	$	-	$	20,558,424
Total segment assets	$	54,650,263	$	72,474,419	$	24,197,958	$	14,517,817	$	165,840,457

	As of December 31, 2016
	Retail		Bulk		Services		Manufacturing		Total
Accounts receivable, net	$	2,646,628	$	12,692,714	$	629,930	$	531,526	$	16,500,798
Property plant and equipment, net	$	24,890,031	$	26,124,724	$	91,030	$	1,978,320	$	53,084,105
Construction in progress	$	134,392	$	743,296	$	-	$	7,806	$	885,494
Intangibles, net	$	-	$	599,960	$	15,516	$	4,580,000	$	5,195,476
Goodwill	$	1,170,511	$	2,328,526	$	-	$	6,285,211	$	9,784,248
Land held for development	$	-	$	-	$	20,558,424	$	-	$	20,558,424
Total segment assets	$	54,303,011	$	68,663,628	$	25,558,495	$	15,079,394	$	163,604,528

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

	September 30, 2017
	Level 1		Level 2		Level 3		Total
Liabilities:
Recurring
Net liability arising from put/call options	$	-	$	-	$	357,000	$	357,000

	December 31, 2016
	Level 1		Level 2		Level 3		Total
Liabilities:
Recurring
Net liability arising from put/call options	$	-	$	-	$	680,000	$	680,000

Method	Retail			Bulk			Manufacturing
Discounted cash flow		80	%		80	%		80	%
Guideline public company		10	%		10	%		10	%
Mergers and acquisitions		10	%		10	%		10	%
		100	%		100	%		100	%

~~Exhibit~~
Exhibit Number		Exhibit Description
10.1*		Procurement of and Operating Agreement for a Sea Water Desalination Plant at Red Gate Water Works, Grand Cayman, Cayman Islands, using the Reverse Osmosis Process (2021), effective as of May 10, 2022, by and between The Water Authority of the Cayman Islands and Ocean Conversion (Cayman) Limited
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2
~~31.2~~		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1
~~32.1~~		Section 1350 Certification of Chief Executive Officer
32.2
~~32.2~~		Section 1350 Certification of Chief Financial Officer
101.INS
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101.SCH		XBRL Taxonomy Extension Schema
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CONSOLIDATED WATER CO. LTD.

By:	/s/ Frederick W. McTaggart
	Frederick W. McTaggart
	Chief Executive Officer
	(Principal Executive Officer)

By:	/s/ David W. Sasnett
	David W. Sasnett
	Executive Vice President & Chief Financial Officer
	(Principal Financial and Accounting Officer)

Date: November 14, 2022

Nine Months Ended September 30,

Cash paid for amounts included in measurement of liabilities:

Operating cash outflows for operating leases

Operating cash outflows for operating leases - discontinued operations