CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue	$	44,237,263	$	21,067,127	$	77,106,253	$	40,625,032
Cost of revenue (including related party expenses of $0 and $640,937 for the three months ended, and $0 and $1,480,369 for the six months ended, June 30, 2023 and 2022, respectively)		28,773,714		13,591,630		51,083,622		26,003,771
Gross profit		15,463,549		7,475,497		26,022,631		14,621,261
General and administrative expenses (including related party expenses of $0 and $24,231 for the three months ended, and $0 and $48,462 for the six months ended, June 30, 2023 and 2022, respectively)		5,984,915		4,926,691		12,021,577		9,792,808
Gain on asset dispositions and impairments, net		1,000		5,280		6,916		17,738
Income from operations		9,479,634		2,554,086		14,007,970		4,846,191

Other income (expense):
Interest income		86,137		110,916		199,781		291,603
Interest expense		(36,247)		(2,724)		(74,091)		(6,805)
Profit-sharing income from OC-BVI		12,150		8,100		26,325		18,225
Equity in the earnings of OC-BVI		35,272		19,551		70,830		51,317
Net gain on put/call options		—		201,000		—		276,000
Other		31,819		61,139		63,345		87,369
Other income, net		129,131		397,982		286,190		717,709
Income before income taxes		9,608,765		2,952,068		14,294,160		5,563,900
Provision for income taxes		1,940,067		10,152		2,389,552		56,425
Net income from continuing operations		7,668,698		2,941,916		11,904,608		5,507,475
Income from continuing operations attributable to non-controlling interests		137,226		232,197		300,347		473,627
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders		7,531,472		2,709,719		11,604,261		5,033,848
Total loss from discontinued operations		(207,701)		(419,833)		(466,864)		(1,027,147)
Net income attributable to Consolidated Water Co. Ltd. stockholders	$	7,323,771	$	2,289,886	$	11,137,397	$	4,006,701

Basic earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	0.48	$	0.18	$	0.74	$	0.33
Discontinued operations		(0.01)		(0.03)		(0.03)		(0.07)
Basic earnings per share	$	0.47	$	0.15	$	0.71	$	0.26

Diluted earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	0.47	$	0.18	$	0.73	$	0.33
Discontinued operations		(0.01)		(0.03)		(0.03)		(0.07)
Diluted earnings per share	$	0.46	$	0.15	$	0.70	$	0.26

Dividends declared per common and redeemable preferred shares	$	0.085	$	0.085	$	0.17	$	0.17

Weighted average number of common shares used in the determination of:
Basic earnings per share		15,736,041		15,285,523		15,729,852		15,285,523
Diluted earnings per share		15,907,440		15,436,421		15,899,923		15,435,956

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, 2022	34,383	$	20,630	15,322,875	$	9,193,725	$	89,205,159	$	61,247,699	$	8,096,976	$	167,764,189
Issue of share capital	—		—	44,783		26,870		(26,870)		—		—		—
Net income	—		—	—		—		—		3,813,626		163,121		3,976,747
Purchase of remaining non-controlling interest in PERC	—		—	368,383		221,030		1,006,248		—		(3,667,305)		(2,440,027)
Dividends declared	—		—	—		—		—		(1,342,015)		—		(1,342,015)
Stock-based compensation	—		—	—		—		463,893		—		—		463,893
Balance as of March 31, 2023	34,383		20,630	15,736,041		9,441,625		90,648,430		63,719,310		4,592,792		168,422,787
Issue of share capital	13,309		7,985	—		—		(7,985)		—		—		—
Buyback of preferred stock	(203)		(122)	—		—		(1,708)		—		—		(1,830)
Net income	—		—	—		—		—		7,323,771		137,226		7,460,997
Exercise of options	599		360	—		—		6,891		—		—		7,251
Dividends declared	—		—	—		—		—		(1,340,972)		—		(1,340,972)
Stock-based compensation	—		—	—		—		461,695		—		—		461,695
Balance as of June 30, 2023	48,088	$	28,853	15,736,041	$	9,441,625	$	91,107,323	$	69,702,109	$	4,730,018	$	175,009,928

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, 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

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)


	Six Months Ended June 30,
	2023		2022
Net cash provided by operating activities - continuing operations	$	5,569,530	$	13,874,865
Net cash used in operating activities - discontinued operations		(595,980)		(661,698)
Net cash provided by operating activities		4,973,550		13,213,167

Cash flows from investing activities
Purchase of certificate of deposit		—		(2,518,493)
Maturity of certificate of deposit		—		2,500,000
Additions to property, plant and equipment and construction in progress		(3,110,041)		(1,796,196)
Proceeds from asset dispositions		21,410		24,360
Purchase of remaining non-controlling interest in PERC		(2,440,027)		—
Net cash used in investing activities		(5,528,658)		(1,790,329)

Cash flows from financing activities
Dividends paid to common shareholders		(2,640,792)		(2,595,547)
Dividends paid to preferred shareholders		(5,845)		(4,868)
Dividends paid to non-controlling interests		—		(464,200)
Buyback of redeemable preferred stock		(1,830)		—
Proceeds received from exercise of stock options		7,251		2,696
Principal repayments on long-term debt		(54,708)		(31,144)
Net cash used in financing activities		(2,695,924)		(3,093,063)
Net increase (decrease) in cash and cash equivalents		(3,251,032)		8,329,775
Cash and cash equivalents at beginning of period		50,711,751		40,358,059
Cash and cash equivalents at beginning of period - discontinued operations		442,252		750,048
Less: cash and cash equivalents at end of period - discontinued operations		(211,272)		(344,720)
Cash and cash equivalents at end of period	$	47,691,699	$	49,093,162



Non-cash transactions:
Issuance of 13,309 and 9,295, respectively, shares of redeemable preferred stock for services rendered	$	287,922	$	133,197
Issuance of 44,783 and 41,830, respectively, shares of common stock for services rendered	$	621,811	$	521,016
Dividends declared but not paid	$	1,341,651	$	1,302,520
Issuance of 368,383 and 0, respectively, shares of common stock for the purchase of non-controlling interest in PERC	$	5,359,973	$	—
Transfers from inventory to property, plant and equipment and construction in progress	$	139,471	$	185,013
Transfers from construction in progress to property, plant and equipment	$	188,871	$	240,401
Right-of-use assets obtained in exchange for new operating lease liabilities	$	249,145	$	—
Purchase of equipment through issuance of long-term debt	$	—	$	68,422
Transfers from prepaid expenses to property, plant and equipment	$	91,123	$	—
Transfers from prepaid expenses to inventory	$	419,420	$	—

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”), DesalCo Limited (“DesalCo”), Kalaeloa Desalco LLC (“Kalaeloa Desalco”), Ocean Conversion (Cayman) Limited (“OC-Cayman”), and PERC Water Corporation ("PERC"); 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”). 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.

On January 4, 2023, as a result of CW-Holdings' exercise of a call option in October 2022, CW-Holdings purchased the remaining 39% ownership interest in PERC for $2.4 million in cash and 368,383 shares of the Company’s common stock, having a value of approximately $5.36 million based upon the opening trading price of the Company’s common stock on The Nasdaq Global Market on the date of the transaction. After giving effect to this purchase, CW-Holdings owns 100% of the outstanding capital stock of PERC.

In September 2021, Kalaeloa Desalco was formed to pursue a project encompassing the design, construction, operations and maintenance of a seawater reverse osmosis desalination plant in Oahu, Hawaii. On June 2, 2023, Kalaeloa Desalco, which is jointly owned by PERC and CW-Holdings, signed a definitive agreement with the Honolulu Board of Water Supply to design, build, operate and maintain a 1.7 million gallons per day seawater reverse osmosis desalination plant in Oahu, Hawaii.

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.~~

2023.

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.~~2022.

Table of Contents

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)~~$24,397 and ~~$1,734~~$6,988 for the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively, and ~~$164,339~~$50,176 and ~~($92,030)~~$29,034 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016, respectively,~~2022, 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 of net income and other comprehensive income (loss) which, for the Company, is comprised entirely of foreign currency translation adjustments related to CW-Bali.

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~~June 30, ~~2017~~2023 and December 31, ~~2016~~2022 include ~~a certificate~~approximately $5.1 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 June 30, 2023 and ~~Belize~~December 31, 2022 were approximately ~~$13.3~~$10.1 million and ~~$6.0~~$5.7 million, respectively.

~~Comparative amounts:~~Goodwill and intangible assets: ~~Certain amounts reported in~~Goodwill represents the ~~financial statements issued in prior periods have been reclassified herein to conform to~~excess cost of an acquired business over the ~~current period’s presentation. These reclassifications had no effect on consolidated net income.~~

~~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~~fair value 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~~liabilities of 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~~acquired business as of the date of acquisition. Goodwill and intangible assets recorded as a result of a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or upon the ~~filing~~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 for goodwill impairment testing purposes, which consist of Cayman Water, the bulk segment (which is comprised of CW-Bahamas and OC-Cayman), PERC, and the manufacturing segment (i.e., Aerex), 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 these fair values to the carrying amounts of the reporting units. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded.

As of December 31, 2022, the Company elected to assess qualitative factors to determine whether it was necessary to perform the quantitative goodwill impairment testing conducted in prior years for all goodwill reporting units other than the manufacturing reporting unit. The Company assessed relevant events and circumstances to evaluate whether it is more likely than not that the fair values of such reporting units are less than their carrying values. The events and circumstances assessed for each unit included macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, and other relevant events. Based upon this qualitative assessment the Company determined that it was more likely than not that the fair values of its Cayman Water and bulk segment reporting units exceeded their carrying values as of December 31, 2022. Based upon the Company’s negotiated, arms-length purchase of the remaining 39% equity interest in PERC from its minority shareholders for $7.8 million in January 2023, the fair value of the Company’s ~~interim financial statements~~PERC reporting unit exceeded its carrying value by 79% as of December 31, 2022.

For the year ended December 31, 2022, the Company estimated the fair value of its manufacturing reporting unit 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 ~~quarter~~calculations represented the estimated cost of capital for market participants at the time of the analysis. The Company also estimated the fair value of its manufacturing reporting unit for the year ended December 31, 2022 by applying the guideline public company method. The Company weighted the fair values estimated for its manufacturing reporting unit under each method and summed such weighted fair values to estimate the overall fair value for the reporting unit. The respective weightings the

Table of Contents

Company applied to each method for the year ended December 31, 2022 were 80% to the discounted cash flow method and 20% to the guideline public company method.

The fair value the Company estimated for its manufacturing reporting unit exceeded its carrying amount by 63% as of December 31, 2022.

The Company believes the inherent uncertainties associated with the accounting estimates and assumptions it uses for its estimates of its manufacturing reporting unit’s fair value 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 its raw materials, and have also, the Company believes, adversely affected its customers. Should interest rates rise significantly in the future the Company would likely be required to increase the discount rate it uses under the discounted cash flow method to estimate the fair value of this reporting unit, and such increased discount rate in and of itself could decrease the estimated fair value of the manufacturing reporting unit under the discounted cash flow method.

As noted previously, based upon the Company’s estimation prepared as of December 31, 2022, the fair value of the Company’s manufacturing reporting unit exceeded its carrying value by 63%. However, if the Company determines in the future that Aerex’s discounted future cash inflows will be less than its present expectations, the Company may be required to record additional impairment losses to reduce the remaining carrying values of its manufacturing reporting unit’s goodwill and its remaining unamortized intangible assets balances, which amounted to $1,985,211 and $707,778, respectively, as of June 30, 2023. Any such impairment losses could have a material adverse impact on the Company’s consolidated results of operations.

Income taxes: The Company accounts for the income taxes arising from the operations of its United States subsidiaries under the asset and liability method. Deferred tax assets and liabilities, if any, are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to the extent any deferred tax asset may not be realized.

The Company is not presently subject to income taxes in the other countries in which it operates.

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.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Retail revenue	$	7,573,329	$	6,526,803	$	15,344,424	$	12,840,003
Bulk revenue		8,482,495		8,423,749		17,486,868		15,774,393
Services revenue		24,093,963		5,055,483		36,815,664		9,799,303
Manufacturing revenue		4,087,476		1,061,092		7,459,297		2,211,333
Total revenue	$	44,237,263	$	21,067,127	$	77,106,253	$	40,625,032

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. Receivables not collected within 45 days subject the customer to disconnection from water service.

Table of Contents

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.

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 a contract’s performance obligations as such measure best reflects the transfer of control of the promised good to the customer. Contract costs include labor, materials and subcontractor costs. 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. Due to the extended time it may take to complete many of the Company’s contracts and the scope and nature of the work required to be performed on those contracts, the estimations of total revenue and costs at completion is complicated and subject to many variables and, accordingly, are subject to changes. When adjustments in estimated total contract revenue or estimated total contract costs are required, any changes from prior estimates are recognized in the current period for the inception-to-date effect of such changes. 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.

Table of Contents

During the three months ended June 30, ~~2017,~~2023, the Company ~~accounted~~adjusted its previous estimates of the total contract costs for ~~CW-Bali as a discontinued operation in~~two of its construction contracts. These adjustments increased the services segment’s income from operations and the Company’s consolidated ~~financial statements~~net income by $1,761,753 for the three and six months ended June 30, ~~2017.~~2023. This adjustment increased diluted earnings per share by $0.11 for the three and six months ended June 30, 2023.

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:


	June 30,		December 31,
	2023		2022
Revenue recognized to date on contracts in progress	$	58,727,821	$	25,469,014
Amounts billed to date on contracts in progress		(68,535,879)		(33,407,182)
Retainage		5,072,338		2,047,969
Net contract liability	$	(4,735,720)	$	(5,890,199)

~~However,~~The above net balances are reflected in ~~October 2017, CW-Bali’s sole remaining customer filed~~the accompanying condensed consolidated balance sheets as follows:


	June 30,		December 31,
	2023		2022
Contract assets	$	8,192,770	$	2,913,722
Contract liabilities		(12,928,490)		(8,803,921)
Net contract liability	$	(4,735,720)	$	(5,890,199)

The significant increase in contract liabilities from December 31, 2022 to June 30, 2023 is primarily attributable to billings on PERC’s construction contract with Liberty (Litchfield Park Water & Sewer) Corp. (“Liberty Utilities”) for a ~~lawsuit~~water treatment facility in ~~Bali, Indonesia against CW-Bali,~~Arizona.

As of June 30, 2023, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $67.3 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 ~~President, and~~performance obligations under those contracts in the ~~Company’s Chief Financial Officer in his capacity as~~amount of approximately $45.6 million during 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~~remainder 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~~year ending December 31, 2023 and approximately ~~$4.2~~$21.7 million ~~and $1.9 million, respectively, as of the exchange rate on November 8, 2017. Management of~~thereafter. In addition, 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~~recognized revenue of ~~its investment~~approximately $7.2 million 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~~2023, that was included in the contract liability balance as of December 31, 2022.

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 ~~estimated~~recognizes revenue at the ~~future cash flows~~amount to which it has the ~~Company would receive under various scenarios from~~right to invoice for services performed.

Comparative amounts: Certain amounts presented in the ~~disposition of its investment in CW-Bali and assigned a probability~~financial statements previously issued for 2022 have been reclassified to ~~each scenario~~conform 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.current periods’ presentation.

~~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

4.3. 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

Table of Contents

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 June 30, 2023
	Retail		Bulk		Services		Manufacturing		Total
Revenue	$	7,573,329	$	8,482,495	$	24,093,963	$	4,087,476	$	44,237,263
Cost of revenue		3,433,132		5,931,735		16,248,141		3,160,706		28,773,714
Gross profit		4,140,197		2,550,760		7,845,822		926,770		15,463,549
General and administrative expenses		4,265,535		379,900		904,560		434,920		5,984,915
Gain on asset dispositions and impairments, net		—		1,000		—		—		1,000
Income (loss) from operations	$	(125,338)	$	2,171,860	$	6,941,262	$	491,850		9,479,634
Other income, net										129,131
Income before income taxes										9,608,765
Provision for income taxes										1,940,067
Net income from continuing operations										7,668,698
Income from continuing operations attributable to non-controlling interests										137,226
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders										7,531,472
Net loss from discontinued operations										(207,701)
Net income attributable to Consolidated Water Co. Ltd. stockholders									$	7,323,771

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~~June 30, ~~2017~~2023 for the retail, bulk, services and manufacturing segments were ~~$491,771, $1,274,471, $7,638,~~$593,337, $840,200, $174,084 and ~~$398,368~~$68,160, 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 )

Table of Contents


	Three Months Ended June 30, 2022
	Retail		Bulk		Services		Manufacturing		Total
Revenue	$	6,526,803	$	8,423,749	$	5,055,483	$	1,061,092	$	21,067,127
Cost of revenue		3,118,411		5,647,583		3,865,867		959,769		13,591,630
Gross profit		3,408,392		2,776,166		1,189,616		101,323		7,475,497
General and administrative expenses		3,345,109		404,072		838,040		339,470		4,926,691
Gain on asset dispositions and impairments, net		1,200		—		4,080		—		5,280
Income (loss) from operations	$	64,483	$	2,372,094	$	355,656	$	(238,147)		2,554,086
Other income, net										397,982
Income before income taxes										2,952,068
Provision for income taxes										10,152
Net income from continuing operations										2,941,916
Income attributable to non-controlling interests										232,197
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders										2,709,719
Net loss from discontinued operations										(419,833)
Net income attributable to Consolidated Water Co. Ltd. stockholders									$	2,289,886

Depreciation and amortization expenses for the three months ended ~~September~~June 30, ~~2016~~2022 for the retail, bulk, services and manufacturing segments were ~~$567,833, $811,741, $29,037~~$637,796, $704,841, $168,078 and ~~$422,230~~$70,307, respectively.


	Six Months Ended June 30, 2023
	Retail		Bulk		Services		Manufacturing		Total
Revenue	$	15,344,424	$	17,486,868	$	36,815,664	$	7,459,297	$	77,106,253
Cost of revenue		6,983,926		12,174,881		26,292,219		5,632,596		51,083,622
Gross profit		8,360,498		5,311,987		10,523,445		1,826,701		26,022,631
General and administrative expenses		8,442,642		732,875		1,993,232		852,828		12,021,577
Gain (loss) on asset dispositions and impairments, net		(7,287)		12,270		—		1,933		6,916
Income (loss) from operations	$	(89,431)	$	4,591,382	$	8,530,213	$	975,806		14,007,970
Other income, net										286,190
Income before income taxes										14,294,160
Provision for income taxes										2,389,552
Net income from continuing operations										11,904,608
Income from continuing operations attributable to non-controlling interests										300,347
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders										11,604,261
Net loss from discontinued operations										(466,864)
Net income attributable to Consolidated Water Co. Ltd. stockholders									$	11,137,397

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~~six months ended ~~September~~June 30, ~~2017~~2023 for the retail, bulk, services and manufacturing segments were ~~$1,514,069, $2,928,287, $37,295,~~$1,219,974, $1,568,329, $345,433 and ~~$1,204,313~~$136,123, respectively.

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

Table of Contents

	Six Months Ended June 30, 2022
	Retail		Bulk		Services		Manufacturing		Total
Revenue	$	12,840,003	$	15,774,393	$	9,799,303	$	2,211,333	$	40,625,032
Cost of revenue		6,172,151		10,334,702		7,515,047		1,981,871		26,003,771
Gross profit		6,667,852		5,439,691		2,284,256		229,462		14,621,261
General and administrative expenses		6,795,515		714,375		1,618,014		664,904		9,792,808
Gain on asset dispositions and impairments, net		1,200		—		16,538		—		17,738
Income (loss) from operations	$	(126,463)	$	4,725,316	$	682,780	$	(435,442)		4,846,191
Other income, net										717,709
Income before income taxes										5,563,900
Benefit from income taxes										56,425
Net income from continuing operations										5,507,475
Income from continuing operations attributable to non-controlling interests										473,627
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders										5,033,848
Net loss from discontinued operations										(1,027,147)
Net income attributable to Consolidated Water Co. Ltd. stockholders									$	4,006,701

Depreciation and amortization expenses for ~~the nine~~six months ended ~~September~~June 30, ~~2016~~2022 for the retail, bulk, services and manufacturing segments were ~~$1,714,928, $2,480,314, $87,113~~$1,253,481, $1,407,100, $327,077 and ~~$1,126,169~~$141,515, respectively.


	As of June 30, 2023
	Retail		Bulk		Services		Manufacturing		Total
Accounts receivable, net	$	2,888,718	$	16,706,287	$	9,313,767	$	1,393,866	$	30,302,638
Inventory, current and non-current	$	2,982,133	$	4,521,035	$	2,442,895	$	4,903,493	$	14,849,556
Contract assets	$	—	$	—	$	4,391,497	$	3,801,273	$	8,192,770
Property, plant and equipment, net	$	26,784,612	$	21,593,941	$	788,538	$	1,565,950	$	50,733,041
Construction in progress	$	5,798,183	$	30,388	$	—	$	61,792	$	5,890,363
Intangibles, net	$	—	$	—	$	1,837,778	$	707,778	$	2,545,556
Goodwill	$	1,170,511	$	1,948,875	$	5,320,416	$	1,985,211	$	10,425,013
Total segment assets	$	60,266,383	$	60,738,383	$	46,324,828	$	16,300,967	$	183,630,561
Assets of discontinued operations									$	21,449,715
Total assets									$	205,080,276


	As of December 31, 2022
	Retail		Bulk		Services		Manufacturing		Total
Accounts receivable, net	$	2,953,927	$	16,554,940	$	5,838,721	$	1,698,594	$	27,046,182
Inventory, current and non-current	$	2,759,659	$	4,037,684	$	—	$	3,481,486	$	10,278,829
Contract assets	$	—	$	—	$	1,249,069	$	1,664,653	$	2,913,722
Property, plant and equipment, net	$	27,697,490	$	22,510,658	$	759,409	$	1,561,988	$	52,529,545
Construction in progress	$	3,643,889	$	—	$	—	$	61,792	$	3,705,681
Intangibles, net	$	—	$	—	$	2,064,444	$	754,444	$	2,818,888
Goodwill	$	1,170,511	$	1,948,875	$	5,320,416	$	1,985,211	$	10,425,013
Total segment assets	$	65,853,789	$	56,118,243	$	36,319,078	$	13,054,971	$	171,346,081
Assets of discontinued operations									$	21,660,768
Total assets									$	193,006,849

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

Table of Contents

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 (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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders	$	7,531,472	$	2,709,719	$	11,604,261	$	5,033,848
Less: preferred stock dividends		(4,087)		(3,250)		(7,010)		(5,684)
Net income from continuing operations available to common shares in the determination of basic earnings per common share		7,527,385		2,706,469		11,597,251		5,028,164
Total loss from discontinued operations		(207,701)		(419,833)		(466,864)		(1,027,147)
Net income available to common shares in the determination of basic earnings per common share	$	7,319,684	$	2,286,636	$	11,130,387	$	4,001,017

Weighted average number of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders		15,736,041		15,285,523		15,729,852		15,285,523
Plus:
Weighted average number of preferred shares outstanding during the period		34,695		29,049		34,540		28,843
Potential dilutive effect of unexercised options and unvested stock grants		136,704		121,849		135,531		121,590
Weighted average number of shares used for determining diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders		15,907,440		15,436,421		15,899,923		15,435,956

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

5. Discontinued operations - Mexico project development

~~6. Investment in OC-BVI~~

The Company owns 50% of the outstanding voting common shares and a 43.53% equity interest in Ocean Conversion (BVI) Ltd. (“OC-BVI”). The Company also owns certain profit sharing rights in OC-BVI that raise its effective interest in the profits of OC-BVI to approximately 45%. Pursuant to a management services agreement, OC-BVI pays the Company monthly fees for certain engineering and administrative services. OC-BVI’s sole customer is the Ministry of Communications and Works of the Government of the British Virgin Islands to which it sells bulk water.

~~The Company’s equity investment in OC-BVI amounted to $3,124,910 and $4,086,630 as of September 30, 2017 and December 31, 2016, respectively.~~

OC-BVI sells water produced by a desalination plant with a capacity of 720,000 gallons per day located at Bar Bay, Tortola (the “Bar Bay plant”) to the BVI government under a contract (the “Bar Bay agreement”) that was due to expire in March 2017 but was extended on February 14, 2017 for 14 years. The selling price for the water under the extension is approximately 31% lower than the price that was in effect as of December 31, 2016. Under the terms of the Bar Bay agreement, OC-BVI delivers up to 600,000 gallons of water per day to the BVI government from the Bar Bay plant on a take-or-pay basis. The Bar Bay agreement required OC-BVI to complete a storage reservoir on a BVI government site by no later than March 4, 2011. OC-BVI has not commenced construction of this storage reservoir due to the BVI government’s failure to pay (i) the full amount of invoices (including interest) for the water provided by the Bar Bay plant on a timely basis; and (ii) the remaining amount due under a court ruling relating to the Baughers Bay litigation (see discussion that follows).

~~Summarized financial information for OC-BVI is as follows:~~

September 30, December 31,
2017 2016
Current assets $ 4,115,006 $ 5,627,414
Non-current assets 3,747,753 3,963,242
Total assets $ 7,862,759 $ 9,590,656

September 30, December 31,
2017 2016
Current liabilities $ 553,252 $ 197,673
Non-current liabilities 1,340,550 1,854,900
Total liabilities $ 1,893,802 $ 2,052,573

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenues $ 578,635 $ 965,169 $ 2,071,387 $ 2,850,242
Cost of revenues 408,557 540,522 1,410,106 1,537,860
Gross profit 170,078 424,647 661,281 1,312,382
General and administrative expenses 192,492 231,750 680,349 714,483
Income (loss) from operations (22,414 ) 192,897 (19,068 ) 597,899
Other income (expense), net 351,474 62,165 362,442 (15,598 )
Net income 329,060 255,062 343,374 582,301
Income attributable to non-controlling interests 9,943 22,346 49,429 48,133
Net income attributable to controlling interests $ 319,117 $ 232,716 $ 293,945 $ 534,168

~~A reconciliation of the beginning and ending balances for the investment in OC-BVI for the nine months ended September 30, 2017 is as follows:~~

Balance as of December 31, 2016 $ 4,086,630
Profit sharing and equity from earnings of OC-BVI 174,530
Distributions received from OC-BVI (1,136,250 )
Balance as of September 30, 2017 $ 3,124,910

The Company recognized $138,913 and $101,301 for the three months ended September 30, 2017 and 2016, respectively, and $127,955 and $232,523 for the nine months ended September 30, 2017 and 2016, respectively, in earnings (losses) from its equity investment in OC-BVI. The Company recognized $36,450 and $38,475 for the three months ended September 30, 2017 and 2016, respectively, and $46,575 and $87,075 for the nine months ended September 30, 2017 and 2016, respectively, in profit sharing income from its profit sharing agreement with OC-BVI.

For the three months ended September 30, 2017 and 2016, the Company recognized approximately $111,302 and $125,930, respectively, in revenues from its management services agreement with OC-BVI. For the nine months ended September 30, 2017 and 2016, the Company recognized approximately $360,758 and $390,280, respectively, in revenues from its management services agreement with OC-BVI. Amounts receivable by OC-BVI from the Company were $20,295 and $0 as of September 30, 2017 and December 31, 2016, respectively. Amounts payable by OC-BVI to the Company were $287,635 and $54,559 as of September 30, 2017 and December 31, 2016, respectively. The Company's deferred revenues from OC-BVI, included in other current liabilities in the accompanying condensed consolidated balance sheets, were $301,373 and $0 as of September 30, 2017 and December 31, 2016, respectively. The Company’s remaining unamortized balance recorded for this management services agreement, which is reflected as an intangible asset on the Company’s condensed consolidated balance sheets, was $0 and $15,516 as of September 30, 2017 and December 31, 2016, respectively.

~~Baughers Bay Litigation~~

Through March 2010, OC-BVI supplied water to the BVI government from a plant located at Baughers Bay, Tortola, under the terms of a water supply agreement dated May 1990 (the “1990 Agreement”) with an initial seven-year term that expired in May 1999. The 1990 Agreement provided that such agreement would automatically be extended for another seven-year term unless the BVI government provided notice, at least eight months prior to such expiration, of its decision to purchase the plant from OC-BVI at the agreed upon amount under the 1990 Agreement of approximately $1.42 million. In correspondence between the parties from late 1998 through early 2000, the BVI government indicated that it intended to purchase the plant but would be amenable to negotiating a new water supply agreement and that it considered the 1990 Agreement to be in force on a monthly basis until negotiations between the BVI government and OC-BVI were concluded. Occasional discussions were held between the parties after 2000 without resolution of the matter. OC-BVI continued to supply water from the plant and expended approximately $4.7 million between 1995 and 2003 to significantly expand the production capacity of the plant beyond that contemplated in the 1990 Agreement.

In 2006, the BVI government took the position that the seven-year extension of the 1990 Agreement had been completed and that it was entitled to ownership of the Baughers Bay plant. In response, OC-BVI disputed the BVI government’s contention that the original terms of the 1990 Agreement remained in effect. During 2007, the BVI government significantly reduced its payments for the water being supplied by OC-BVI and filed a lawsuit with the Eastern Caribbean Supreme Court (the “Court”) seeking ownership of the Baughers Bay plant. OC-BVI counterclaimed to the Court that it was entitled to continued possession and operation of the Baughers Bay plant until the BVI government paid OC-BVI approximately $4.7 million, which OC-BVI believed represented the value of the Baughers Bay plant at its expanded production capacity. OC-BVI subsequently filed claims with the Court seeking payment for water sold and delivered to the BVI government through May 31, 2009 at the contract prices in effect before the BVI government asserted its purported right of ownership of the plant.

The Court ruled on this litigation in 2009, awarding ownership of the Baughers Bay plant to the BVI government without compensation to OC-BVI and awarding OC-BVI payments from the BVI government for the water supplied from the plant at rates deemed appropriate by the Court. Both OC-BVI and the BVI subsequently filed appeals with the Eastern Caribbean Court of Appeals (the “Appellate Court”) asking the Appellate Court to review certain rulings by the Court with respect to this litigation.

~~In March 2010, OC-BVI vacated the Baughers Bay plant and the BVI government assumed direct responsibility for the plant’s operations pursuant to the Court ruling.~~

In June 2012, the Appellate Court issued the final ruling with respect to the Baughers Bay litigation. This ruling upheld the previous ruling of the Court with one exception: the Appellate Court awarded OC-BVI compensation for improvements made to the plant in the amount equal to the difference between (i) the value of the Baughers Bay plant at the date OC-BVI transferred possession of the plant to the BVI government and (ii) $1.42 million (the purchase price for the Baughers Bay plant under the 1990 Agreement).

OC-BVI and the BVI government engaged a mutually approved valuation expert to complete a valuation of the Baughers Bay plant at the date it was transferred to the BVI government in accordance with the Appellate Court ruling. In June 2016, OC-BVI received the final valuation report from this valuation expert, which set forth a value for the Baughers Bay plant of $13.0 million as of the date OC-BVI transferred possession of the plant to the BVI government. Applying the valuation determined by the valuation expert to the formula set forth by the Appellate Court in its ruling, OC-BVI would be entitled to $11.58 million from the BVI government for the Baughers Bay plant. The BVI government has disagreed with the valuation methodology used by the valuation expert and the resulting valuation for the Baughers Bay plant. OC-BVI cannot presently determine if the Appellate Court will uphold the Baughers Bay plant valuation or when, or to what extent, any amount for the value of the Baughers Bay plant will be paid by the BVI government to OC-BVI. Consequently, any amount due for the Baughers Bay plant valuation will not be included in OC-BVI’s results of operations until such amount, if any, is paid by the BVI government.

~~Valuation of Investment in OC-BVI~~

The Company accounts for its investment in OC-BVI under the equity method of accounting for investments in common stock. This method requires recognition of a loss on an equity investment that is other than temporary, and indicates that a current fair value of an equity investment that is less than its carrying amount may indicate a loss in the value of the investment. While a quoted market price for OC-BVI’s stock is not available, due to the uncertainties (specifically the Baughers Bay litigation and the possible expiration without renewal of the Bar Bay agreement) associated with OC-BVI’s future cash flows, the Company tested the carrying value of its investment in OC-BVI (which exceeded the Company’s proportionate share of OC-BVI’s net assets by an amount accounted for as goodwill) for impairment in 2016 and prior years.

The Company estimated the fair value of its investment in OC-BVI through the use of the discounted cash flow method, which relied upon projections of OC-BVI’s operating results, working capital and capital expenditures. The use of this method required the Company to estimate OC-BVI’s future cash flows from its Bar Bay plant and the resolution of the Baughers Bay litigation.

The Company estimated OC-BVI’s cash flows from its Bar Bay plant by (i) identifying various possible future scenarios which included the execution of a new agreement for the Bar Bay plant as well as the termination of Bar Bay plant operations upon the scheduled expiration of the Bar Bay agreement in March 2017; (ii) estimating the cash flows associated with each possible scenario; and (iii) assigning a probability to each scenario. The Company similarly estimated the cash flows OC-BVI would receive from the BVI government in connection with the Court and Appellate Court rulings on the Baughers Bay litigation by assigning probabilities to different scenarios. The resulting probability-weighted sum represented the Company’s best estimate of future cash flows to be generated by OC-BVI.

The identification of the possible scenarios for the Bar Bay plant agreement and the Baughers Bay litigation, the projections of cash flows for each scenario, and the assignment of relative probabilities to each scenario all represented significant estimates made by the Company. While the Company used its best judgment in identifying these possible scenarios, estimating the expected cash flows for these scenarios and assigning relative probabilities to each scenario, these estimates were by their nature highly subjective and were also subject to material change by the Company’s management over time based upon new information or changes in circumstances.

After updating its probability-weighted estimates of OC-BVI’s future cash flows and its resulting estimate of the fair value of its investment in OC-BVI, the Company recorded impairment losses of approximately $875,000 and $925,000 for the three and nine months ended September 30, 2016, respectively, to reduce the carrying value of its investment in OC-BVI.

As a result of the extension of the Bar Bay agreement, no impairment losses were necessary in 2017 for the Company’s investment in OC-BVI. As of September 30, 2017, the amount of the Company’s proportionate share (43.53%) of OC-BVI’s net assets exceeded the carrying value of the Company’s investment in OC-BVI by approximately $30,000.

~~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~~gallons 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”), 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

Table of Contents

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 expects~~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 ~~raise~~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 would 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 ~~peso denominated debt financing through~~Ministry of Economy responded to CW-Cooperatief’s letter and proposed to hold a ~~consortium led~~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.

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.

Table of Contents

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 their 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 the Company has incurred and will continue to incur legal and other arbitration-related expenses that are material to 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 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 condensed consolidated financial statements.

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


		June 30,		December 31,
		2023		2022

Cash	$	211,272	$	442,252
Accounts receivable		12,675		12,675
Prepaid expenses and other current assets		95,489		75,826
Value added taxes receivable (net of allowance of $1,940,725 and $1,711,234, respectively)		991		727
Land		21,126,898		21,126,898
Other assets		2,390		2,390
Total assets of discontinued operations	$	21,449,715	$	21,660,768

Total liabilities of discontinued operations	$	280,695	$	389,884


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue	$	—	$	—	$	—	$	—
Provision for uncollected value added taxes	$	—	$	—	$	—	$	377,326
Loss from discontinued operations	$	207,701	$	419,833	$	466,864	$	1,027,147
Depreciation expense	$	—	$	—	$	—	$	—

6. Leases

The Company’s 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 of Mexico, it was determined that certain amendments to Decreto #57 were required in order to comply with recent changes to~~lease payments when appropriate. When available, the ~~Federal Fiscal Discipline Law. In addition, during~~lease payments are discounted using 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 CESPTrate implicit in the ~~primary payment trust for~~lease; however, the ~~Project.~~ 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 ~~amendments are included in Decreto #95~~leases contain both lease and non-lease components, which ~~is currently under consideration by~~ the ~~Congress of the State of Baja California.~~Company has elected to treat as a single lease component. The Company ~~cannot say with any certainty whether~~elected not to recognize leases that have an original lease term, including reasonably certain

Table of Contents

renewal 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.~~

Aspurchase obligations, of ~~September 30, 2017, AdR has paid approximately $665,000 for deposits on,~~twelve months or ~~purchases of, rights of way for the Phase 1 aqueduct, which are included~~less 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.

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~~for all classes of ~~September 30, 2017 and approximately $22.3 million and $221,000 respectively, as of December 31, 2016.~~underlying assets. Lease costs for such short-term leases are expensed on a straight-line basis over the lease term.

~~EWG Litigation~~

~~Immediately following CW-Cooperatief’s acquisition of its initial 50% ownership in NSC, the remaining 50% ownership interest in NSC was held~~The land used 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~~operate its seawater desalination plants in the ~~shares of NSC~~Cayman Islands and The Bahamas is owned by the ~~individual shareholder~~Company or leased to the Company for immaterial annual amounts and is not included in the lease amounts presented in the condensed consolidated balance sheets.

All lease assets denominated in a ~~price of $1.0 million along with an immediate power of attorney to vote those shares. Such shares constituted 25%~~foreign currency are measured using the exchange rate at the commencement of the ~~ownership of NSC~~lease. All lease liabilities denominated in a foreign currency are remeasured using the exchange rate as of ~~February 2012. In May 2013, NSC repaid a $5.7 million loan payable~~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:


	June 30,		December 31,
	2023		2022
ASSETS
Current
Prepaid expenses and other current assets	$	273,357	$	35,624
Current assets of discontinued operations		3,231		7,979
Noncurrent
Operating lease right-of-use assets		1,785,865		2,058,384
Total lease right-of-use assets	$	2,062,453	$	2,101,987

LIABILITIES
Current
Current maturities of operating leases	$	547,297	$	546,851
Current liabilities of discontinued operations		3,039		7,361
Noncurrent
Noncurrent operating leases		1,552,708		1,590,542
Total lease liabilities	$	2,103,044	$	2,144,754

Weighted average remaining lease term:
Operating leases		6.2 years		6.6 years
Operating leases - discontinued operations		0.3 years		0.8 years

Weighted average discount rate:
Operating leases		5.42%		5.11%
Operating leases - discontinued operations		4.96%		4.96%

The components of lease costs were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Operating lease costs	$	192,951	$	187,448	$	363,329	$	354,197
Short-term lease costs		25,457		25,186		50,803		50,284
Lease costs - discontinued operations		8,643		10,095		19,429		19,582
Total lease costs	$	227,051	$	222,729	$	433,561	$	424,063

Table of Contents

Supplemental cash flow information related 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 subsequentleases is as follows:

Future lease payments relating to the ~~execution~~Company’s operating lease liabilities from continuing operations as 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.June 30, 2023 were as follows:


Years ending December 31,	Total
2023	$	350,900
2024		482,694
2025		361,961
2026		274,959
2027		229,416
Thereafter		778,460
Total future lease payments		2,478,390
Less: imputed interest		(378,385)
Total lease obligations		2,100,005
Less: current obligations		(547,297)
Noncurrent lease obligations	$	1,552,708

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.

8.7. Fair value ~~measurements~~

As of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, 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 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

Table of Contents

observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. ~~The following table presents~~

As of June 30, 2023 and December 31, 2022, the ~~Company’s fair value hierarchy for~~Company does not have assets and liabilities measured at fair value ~~as of September 30, 2017 and December 31, 2016:~~

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

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

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

~~(1) In connection with the Company’s acquisition of 51% of Aerex~~to present 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 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 net liability arising from the put/call options is included in other liabilities in the accompanying condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016. hierarchy.

8. Contingencies

Cayman Water

The Company sells water through its Cayman Water 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~~June 30, ~~2017~~2023 and ~~2016,~~2022, the Company generated approximately ~~33%~~17% and ~~38%~~31%, respectively, of its consolidated ~~revenues~~revenue and ~~48%~~27% and ~~52%~~46%, 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~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, the Company generated approximately ~~38%~~20% and ~~40%~~32%, respectively, of its consolidated ~~revenues~~revenue and ~~52%~~32% and ~~55%~~46%, respectively, of 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 express extension of the 1990 license ~~expires~~expired on January 31, 2018.

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 a royalty of 7.5% of the revenue that Cayman Water collects as 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.

Table of Contents

~~CW-Belize~~CW-Bahamas

~~By Statutory Instrument No. 81~~CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $16.4 million and $16.3 million as of ~~2009,~~June 30, 2023 and December 31, 2022. Approximately 64% of these accounts receivable balances were delinquent as of both of those dates.

From time to time, CW-Bahamas has experienced delays in collecting its accounts receivable from the ~~Minister of Public Utilities~~WSC. When these delays occur, the Company holds discussions and meetings with representatives of the WSC and The Bahamas 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~~and 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 complaintresult, payment schedules are developed for WSC’s delinquent accounts receivable. All previous delinquent accounts receivable from the ~~PUC alleging that CW-Belize was operating without a license under~~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 ~~terms~~periodic accumulation of significant delinquent balances.

CW-Bahamas has received correspondence from the Ministry of Finance of the ~~Water Industry Act. CW-Belize applied for this license in December 2010. On July 29, 2011,~~Government of The Bahamas that stated the ~~PUC issued~~Government intends to return all of CW-Bahamas’ accounts receivable from the ~~San Pedro Public Water Supply Quality~~WSC to current status.

In a report dated October 6, 2022, Moody’s Investor Services (“Moody’s”) downgraded the Government of The Bahamas’ long-term issuer and ~~Security Complaint Order (the “Second Order”) which among other things requires that (i) CW-Belize~~senior unsecured ratings to B1 from Ba3. Moody’s also lowered The Bahamas’ local currency ceiling to Baa3 from Baa2 and its ~~customer jointly make~~foreign currency ceiling to Ba1 from Baa3. Moody’s iterated these ratings in April 2023, noting that such ratings are “stable.” Based upon its review of this Moody’s correspondence, the Company continues to believe no allowance for doubtful accounts is required for CW-Bahamas’ accounts receivable from the WSC.

If CW-Bahamas is unable to collect a ~~submission to the responsible Minister requesting that the area surrounding CW-Belize’s seawater abstraction wells be designated a forest reserve~~sufficient portion of its delinquent accounts receivable, one or ~~national park and be designated a Controlled Area under section 58~~more of the ~~Water Industry Act;~~following events may occur: (i) CW-Bahamas may not have sufficient liquidity to meet its obligations; (ii) ~~CW-Belize submit an operations manual for CW-Belize’s desalination plant~~the Company may be required to cease 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 maximumrecognition 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 hearingrevenue 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~~WSC; and Sewerage Corporation of The Bahamas ("WSC") for its Blue Hills and Windsor plants require CW-Bahamas to guarantee delivery of a minimum quantity of water per week. If CW-Bahamas does not meet these minimums, it will(iii) the Company may be required to ~~pay the WSC~~provide an allowance for ~~the difference between the minimum and actual gallons delivered at~~doubtful accounts for CW-Bahamas’ accounts receivable. Any of these events could have 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.

~~Aerex Put/Call Options~~

~~In connection with~~material adverse impact on the Company’s ~~acquisition~~consolidated financial condition, results of ~~51%~~operations, and cash flows.

9. Related party transactions

The Company, through PERC and the services segment, purchased engineering and technology support services from various companies formerly affiliated with PERC, as a minority shareholder in these companies was also a minority shareholder of ~~Aerex~~PERC. On January 4, 2023, as a result of CW-Holdings' exercise of a call option in ~~February 2016,~~October 2022, CW-Holdings purchased 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%~~39% ownership interest in ~~Aerex at a price based upon the fair market value of Aerex at the time~~PERC. After giving effect to this purchase, CW-Holdings owns 100% of the ~~exercise~~outstanding capital stock of PERC and, consequently, transactions with the ~~option. The options are exercisable on or after~~formerly affiliated companies no longer constitute related party transactions. During the ~~third anniversary~~three and six months ended June 30, 2022, the Company made total purchases of ~~the February 2016 acquisition date. The fair value of the net liability arising~~services from these ~~put/call options was $357,000~~companies of approximately $641,000 and ~~$680,000 as of September 30, 2017 and December 31, 2016, respectively, and is~~$1,480,000, 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.

PERC entered into a sublease agreement with one of these formerly affiliated companies that commenced on March 14, 2021 and ended August 31, 2021. This lease was extended on a month-to-month basis subsequent to August 31, 2021. During the three and six months ended June 30, 2022, the Company recognized approximately $24,000 and $48,000, respectively, of expense related to this lease. This lease expense is included in the Company's general and administrative expenses in the accompanying condensed consolidated statements of income.

The total amount of accounts payable outstanding to these companies as of December 31, 2022, was approximately $404,000.

Table of Contents

10. Impact of recent accounting standards

Adoption of new accounting standards:

~~In July 2015, the FASB issued ASU 2015-11,~~Financial Accounting Standard Update (“ASU”) 2016-13, ~~Inventory (Topic 330): Simplifying the~~ Measurement of ~~Inventory~~Credit Losses on Financial Instruments, ~~. ASU 2015-11~~and related amendments, introduces new guidance which makes substantive changes to the accounting for credit losses. This guidance introduces the current expected credit losses (“CECL”) model which applies to ~~all inventory that is~~financial assets subject to credit losses and measured ~~using first-in, first-out or average cost.~~at amortized cost, as well as certain off-balance sheet credit exposures. The ~~guidance~~CECL model requires an entity to ~~measure inventory at~~estimate credit losses expected over the ~~lower~~life of ~~cost or net realizable value. ASU 2015-11~~an exposure, considering information about historical events, current conditions, and reasonable and supportable forecasts and is ~~effective prospectively for fiscal years, and for interim periods within those years, beginning after December 15, 2016. Early application is permitted.~~generally expected to result in earlier recognition of credit losses. The Company adopted this guidance as of January 1, 2023 using the modified retrospective approach. The impact of this adoption ~~of ASU 2015-11 did~~was not ~~have a~~ material ~~impact on~~to the Company’s consolidated financial ~~position, results of operations or cash flows.~~statements.

~~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.

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 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.

~~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

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.~~statements.

Table of Contents

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~~economic, political and social conditions of ~~the U.S. and other countries~~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~~2022 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 Policies and Estimates

Our critical accounting policies relate to (i) the valuations of our goodwill, intangible assets and long-lived assets; and (ii) revenue recognition on our construction and manufacturing contracts.

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~~The application of our critical accounting policies involve estimates or assumptions that constitute “critical accounting estimates” for us because:

●

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

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

~~Valuation of Investment in OC-BVI~~

We account for 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, 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.

Goodwill and ~~intangible assets~~Intangible Assets

Goodwill represents the excess cost of an acquired business over the fair value of the assets and liabilities of anthe acquired ~~business.~~business as of the date of acquisition. Goodwill and intangible assets ~~acquired in~~recorded as a result of a business combination ~~accounted for as a purchase~~ and

Table of Contents

determined to have an indefinite useful 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 for goodwill impairment testing purposes, which consist of Cayman Water, the bulk segment (which is comprised of CW-Bahamas and OC-Cayman), PERC, and the manufacturing segment (i.e., Aerex), 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~~a reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded.

For 2022, we ~~are required~~elected to assess qualitative factors to determine whether it was necessary to perform the ~~second step~~quantitative goodwill impairment testing we have conducted in prior years for all goodwill reporting units other than the manufacturing unit. We assessed the relevant events and circumstances to evaluate whether it is more likely than not that the fair values of such reporting units are less than their carrying values. The events and circumstances assessed for each unit included macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, and other relevant events. Based upon this qualitative assessment we determined that it is more likely than not that the fair values of our Cayman Water and bulk segment reporting units exceeded their carrying values as of December 31, 2022. Based upon our negotiated, arms-length purchase 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 allocatingremaining 39% equity interest in PERC from its minority shareholders for $7.8 million in January 2023, the fair value of ~~the~~our PERC reporting unit exceeded its carrying value by 79% as of December 31, 2022.

Due to ~~all~~ the ~~assets (recognized and unrecognized) and liabilities of~~factors discussed in the following paragraphs, we elected to test the goodwill associated with our manufacturing reporting unit for possible impairment using the quantitative tests applied in ~~a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value~~prior years.

Approximately 80% of ~~the reporting unit’s goodwill. If the implied fair value is less than its carrying amount, the impairment loss is recorded.~~

~~For~~Aerex’s revenue, and 89% of Aerex’s gross profit, for the year ended December 31, ~~2016,~~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.

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 were adversely impacted by the negative economic conditions (caused in part by the COVID-19 pandemic). These negative economic conditions also increased Aerex’s raw material costs, resulted in raw material shortages and extended delivery times for such materials, and 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

Table of Contents

reporting unit exceeded its fair value by $2.9 million, and we recorded an impairment loss to reduce our manufacturing segment’s goodwill by this amount for the three months ended June 30, 2021.

For 2022, we estimated the fair value of our manufacturing reporting ~~units~~unit 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~~the 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 manufacturing reporting ~~units~~unit for the year ended December 31, ~~2016 through reference to~~2022 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 manufacturing reporting ~~units~~unit under each method and summed such weighted fair values to estimate the overall fair value for ~~each~~the reporting unit. The respective weightings we applied to each method for the year ended December 31, 2022 were 80% to the discounted cash flow method and 20% to the guideline public company method.

The fair value we estimated for our manufacturing reporting unit exceeded its carrying amount by 63% as of December 31, ~~2016 were as follows:~~2022.

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 believe the inherent uncertainties associated with the accounting estimates and assumptions we ~~estimated~~use for our ~~retail, bulk and~~estimates of our manufacturing ~~units exceeded their carrying amounts by 123%, 41%, and 26%, respectively, as of December 31, 2016.~~

~~We also performed an analysis reconciling~~reporting unit’s fair value have increased due to the ~~conclusions of value for our reporting units to our market capitalization at December 31, 2016. This reconciliation~~current, less predictable economic conditions, which have resulted in ~~no implied control premium for our Company.~~

Our manufacturing unit consists of the operations of Aerex, a company in which we acquired a 51% ownership interest in February 2016. In connection with this acquisition we recorded goodwill of $8,035,211. Aerex’s actual results of operationsincreasing raw material prices, extended and unexpected delays in the ~~months following~~procurement and delivery of our ~~acquisition fell~~raw materials, and have also, we believe, adversely affected our customers. Should interest rates rise significantly ~~short of the projected results that were included~~ in the ~~overall~~future we would likely be required to increase the discount rate we use under the discounted cash flow ~~projections~~method we ~~utilized~~use to ~~determine the purchase price for Aerex and~~estimate the fair ~~values~~value of ~~its assets~~this reporting unit, and ~~liabilities. Due to this shortfall~~such increased discount rate in ~~Aerex’s results~~and 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~~itself could decrease the estimated fair value ~~using~~of our manufacturing reporting unit under the discounted cash flow method.

As ~~a result~~noted previously, based upon our estimation prepared as of ~~this impairment testing, we determined that~~December 31, 2022, the ~~carrying~~fair value of our ~~Aerex goodwill~~manufacturing reporting unit 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~~by 63%. However, 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 of our ~~Aerex~~manufacturing reporting unit’s goodwill ~~in future periods if we determine it likely that Aerex’s~~and its remaining unamortized intangible assets balances, which amounted to $1,985,211 and $707,778, respectively, as of June 30, 2023. 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~~

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.

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.

Table of Contents

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 a contract’s performance obligations as such measure best reflects the transfer of control of the promised good to the customer. Contract costs include labor, materials and subcontractor costs. 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. Due to the extended time it may take to complete many of our contracts and the scope and nature of the work required to be performed on those contracts, the estimations of total revenue and costs at completion is complicated and subject to many variables and, accordingly, are subject to changes. When adjustments in estimated total contract revenue or estimated total contract costs are required, any changes from prior estimates are recognized in the current period for the inception-to-date effect of such changes. 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 on 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~~2022 (“~~2016~~2022 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~~2022 Form 10-K.

Three Months Ended ~~September~~June 30, ~~2017~~2023 Compared to Three Months Ended ~~September~~June 30, ~~2016~~2022

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 gallons 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.

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

Table of Contents

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 would 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 our investment dispute.

Table of Contents

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 have incurred and will continue to incur legal and other arbitration-related expenses that are 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 the costs for our legal and administrative activities to pursue reimbursement from the State of Baja California following the cancellation of the APP Contract, are classified as discontinued operations in the accompanying consolidated financial statements. Our net losses from discontinued operations for 2023 and 2022 were ($207,701) and ($419,833), respectively.

Consolidated Results

~~Net~~Including discontinued operations, net income attributable to Consolidated Water Co. Ltd. stockholders for ~~2017~~2023 was ~~$1,161,139~~$7,323,771 ($~~0.08~~0.46 per share on a ~~fully-diluted~~fully diluted basis), as compared to net ~~loss~~income of $2,289,886 ($~~1,865,332) (($0.13)~~0.15 per share on a ~~fully-diluted~~fully diluted basis) for ~~2016.~~2022.

~~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 June 30, 2023 as compared to ~~$14,385,353~~the three months ended June 30, 2022 relates only to our continuing operations.

Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders for ~~2016~~2023 was $7,531,472 ($0.47 per share on a fully diluted basis), as compared to a ~~result~~net income from continuing operations of ~~higher revenues~~$2,709,719 ($0.18 per share on a fully diluted basis) for ~~the retail, bulk and manufacturing~~2022.

Revenue for 2023 increased to $44,237,263 from $21,067,127 in 2022, reflecting revenue increases in all four of our segments. Gross profit for ~~2017~~2023 was ~~$6,307,806 (38%~~$15,463,549 (35% of total ~~revenues)~~revenue) as compared to ~~$5,919,323 (41%~~$7,475,497 (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.2022. 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 $5,984,915 for ~~2017 and 2016, respectively. Consolidated~~2023 as compared to $4,926,691 for 2022. The most significant increase in G&A expenses for 2023 relates to employee costs, which increased by $850,535 from ~~2016~~2022 to ~~2017~~2023 due to ~~incremental (i) employee costs of approximately $170,000 reflecting an increase in~~pay raises, new hires, increased stock compensation ~~rates;~~expense, and ~~(ii) professional fees of approximately $208,000, the majority of which relates to our Mexico project development activities.~~

higher bonus accruals.

Other income, ~~(expense),~~ net, decreased to $129,131 for ~~2017 was $447,294,~~2023 as compared to ~~($762,696)~~$397,982 for ~~2016. The improvement~~2022 in ~~2017 in this net component of our consolidated statement of income arises principally from (i)~~part due to an unrealized gain recorded in 2022 of ~~$171,000 in 2017 on~~$201,000 for the ~~net~~valuation of the put/call ~~option~~options associated with the initial acquisition of ~~Aerex as compared to an unrealized loss~~a controlling interest in ~~2016 on this net put/~~PERC. We exercised our call option in the fourth quarter of ~~($275,000);~~2022 and ~~(ii)~~acquired the ~~impairment loss~~remaining 39% of ~~($875,000) recorded~~PERC in ~~2016 for our investment in OC-BVI.~~January 2023.

Table of Contents

Results by Segment

Retail ~~Segment~~

Segment:

The retail segment ~~generated losses~~recorded a loss from operations of ($~~566,948) and ($1,828,903) in 2017 and 2016, respectively. Such losses are primarily attributable~~125,338) for 2023 as compared to ~~impairment losses recorded~~income from operations of $64,483 for ~~CW-Bali, as discussed in the paragraphs that follow.~~2022.

~~Revenues~~Revenue generated by our retail water operations ~~were $5,570,654~~increased to $7,573,329 in ~~2017 as compared~~2023 from $6,526,803 in 2022 due to ~~$5,447,200~~a 14% increase in ~~2016. The~~the volume of water ~~sold by~~sold. This sales volume increase reflects increased tourist activity on Grand Cayman as tourism on the ~~retail segment~~island in 2022 was lower than historical levels due to the lingering impact of the COVID-19 pandemic. Retail revenue also increased by ~~almost 6% from 2016~~approximately $355,000 due to ~~2017.~~

higher energy costs which increased the energy pass-through component of our retail water rates.

Retail segment gross profit ~~was $3,082,213~~increased to $4,140,197 (55% of retail ~~revenues) and 2,982,359 (55%~~revenue) for 2023 from $3,408,392 (52% of retail ~~revenues)~~revenue) for ~~2017 and 2016, respectively. The slight decline in retail gross profit as a percentage of revenues from 2016~~2022 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 $4,265,535 for ~~2017 and 2016 were $3,070,681 and $2,811,262~~2023 as compared to $3,345,109 for ~~2017 and 2016, respectively.~~2022. The most significant increase in ~~retail~~ G&A expenses ~~from 2016~~for 2023 relates to ~~2017 is primarily~~employee costs, which increased by $693,398 due to ~~incremental employee costs of~~pay raises, increased stock compensation expense and higher bonus accruals. Professional fees also increased by approximately ~~$179,000.~~$72,000 from 2022 to 2023.

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~~$2,171,860 and ~~$2,082,570~~$2,372,094 to our income from operations for ~~2017~~2023 and ~~2016,~~2022, respectively.

Bulk segment ~~revenues were $7,881,464~~revenue was $8,482,495 and ~~$7,429,732~~$8,423,749 for ~~2017~~2023 and ~~2016,~~2022, respectively. The ~~increase in bulk revenues from 2016 to 2017 is primarily attributable to our Bahamas operations, which generated approximately $442,000 in incremental revenues due to a significant~~impact of an 8% increase in the ~~prices~~volume of ~~diesel fuel and electricity from 2016 to 2017,~~water sold in 2023 on bulk segment revenue was offset by a decrease in the price of energy for CW-Bahamas, which ~~increased~~decreased 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%~~$2,550,760 (30% of bulk ~~revenues)~~revenue) and ~~$2,507,570 (34%~~$2,776,166 (33% of bulk ~~revenues)~~revenue) for ~~2017~~2023 and ~~2016,~~2022, respectively. ~~The decrease in the bulk segment gross~~Gross profit ~~in dollars and~~ as a percentage of ~~revenues~~revenue decreased in ~~2017 resulted from a charge~~2023 as compared to 2022 due to incremental chemicals, repairs and maintenance, and other miscellaneous operating expenses of approximately ~~$430,000 relating to the refurbishment of a fixed asset used in our Bahamas operations.~~

$342,000.

Bulk segment G&A expenses ~~decreased to $315,374~~remained consistent $379,900 for ~~2017~~2023 as compared to ~~$425,000~~$404,072 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.2022.

Services ~~Segment~~

Segment:

The services segment contributed $6,941,262 and $355,656 to our income from operations for 2023 and 2022, respectively.

Services segment revenue increased to $24,093,963 for 2023 from $5,055,483 for 2022. Plant design and construction revenue increased to $18,521,650 in 2023 from $1,272,753 in 2022 with this increase resulting from PERC’s progress on its contract with Liberty Utilities for the construction of a water treatment plant in Goodyear, Arizona. We recognized approximately $17.6 million in revenue for the Liberty Utilities contract in 2023. Revenue generated under operations and maintenance contracts was $3,920,613 and $3,542,021 in 2023 and 2022, respectively.

Gross profit for the services segment was $7,845,822 (33% of services revenue) in 2023 as compared to $1,189,616 (24% of services revenue) for 2022. During 2023, we adjusted our previous estimates of the total costs to be incurred ~~losses~~for the Liberty Utilities contract and one other construction contract. These changes in accounting estimates resulted in an increase in the services segment’s revenue, gross profit and income from operations of ~~($867,011)~~$1,761,753 for 2023 under the input method we use to account for construction contracts and ~~($686,308) for 2017 and 2016, respectively.~~

~~Services segment revenues remained relatively consistent at $111,302 for 2017 as compared to $125,929 for 2016.~~

~~Gross profit (loss) for our services segment~~ was ~~($3,365) and ($42,648) for 2017 and 2016, respectively. The slight decrease~~the primary factor in the ~~service segment’s~~increase in gross ~~loss~~profit as a percentage of services revenue from ~~2016~~2022 to ~~2017 is attributable to lower engineering expenses.~~

2023.

G&A expenses for the services segment increased to ~~$863,646~~$904,560 for ~~2017~~2023 as compared to ~~$643,660~~$838,040 for ~~2016. This~~2022 principally due to an increase ~~reflects G&A expenses for our Mexico project development activities incurred by NSC and AdR for 2017 that exceeded those incurred for 2016 by approximately $257,000.~~in employee costs.

Table of Contents

Manufacturing ~~Segment~~

Segment:

The manufacturing segment contributed ~~$283,273~~$491,850 to our income from operations for ~~2017,~~2023 as compared to ~~generating~~ a loss incurred from operations of ($~~1,926,715)~~238,147) in ~~2016.~~

2022.

Manufacturing ~~revenues~~revenue was $4,087,476 and $1,061,092 for 2023 and 2022, respectively. The growth in manufacturing revenue for 2023 reflects increased ~~to $3,008,783 in 2017 from $1,382,492 in 2016~~production activity due to ~~an increase~~improvement in the ~~average dollar value~~supply chain and economic conditions in 2022 that resulted in 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%~~$926,770 (23% of ~~revenues) and $472,042 (34%~~manufacturing revenue) for 2023 as compared to a gross profit of ~~revenues)~~$101,323 (10% of manufacturing revenue) for ~~2017 and 2016, respectively.~~2022. The increase in manufacturing gross profit in dollars reflects the increase in revenue. Gross profit ~~for 2017~~as a percentage of revenue increased ~~in dollars from 2016~~ due to ~~higher revenues.~~

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

G&A expenses for the manufacturing segment ~~were $646,622 and $2,398,757~~remained relatively consistent at $434,920 for ~~2017 and 2016, respectively. Manufacturing G&A expenses decreased in 2017 from 2016 due~~2023 as compared to ~~the goodwill impairment charge of $1,750,000 recorded~~$339,470 for ~~this segment in 2016.~~2022.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2023 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~ 2022

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 six months ended June 30, 2023 and 2022 was ($466,864) and ($1,027,147), 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.

Consolidated Results

~~Net~~Including discontinued operations, net income attributable to Consolidated Water Co. Ltd. stockholders for ~~2017~~2023 was ~~$4,416,915~~$11,137,397 ($~~0.29~~0.70 per share on a fully diluted basis), as compared to ~~$2,393,642~~a net income of $4,006,701 ($~~0.16~~0.26 per share on a ~~fully-diluted~~fully diluted basis) for ~~2016.~~2022.

~~Total revenues~~The following discussion and analysis of our consolidated results of operations and results of operations by segment for ~~2017~~the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 relates only to our continuing operations.

Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders for 2023 was $11,604,261 ($0.73 per share on a fully diluted basis), as compared to a net income from continuing operations of $5,033,848 ($0.33 per share on a fully diluted basis) for 2022.

Revenue for 2023 increased to ~~$47,532,497~~$77,106,253 from ~~$43,818,760~~$40,625,032 in ~~2016 due to higher revenues for~~2022, reflecting revenue increases in all four of our ~~retail, bulk and manufacturing~~ segments. Gross profit for ~~2017~~2023 was ~~$19,597,947 (41%~~$26,022,631 (34% of total ~~revenues)~~revenue) as compared to ~~$18,688,733 (43%~~$14,621,261 (36% of total ~~revenues)~~revenue) for ~~2016 as the gross profit for our retail, bulk and manufacturing segments increased from 2016 to 2017.~~2022. 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&A”) expenses on a consolidated basis ~~were $14,695,184 and $13,925,439~~increased to $12,021,577 for ~~2017 and 2016, respectively.~~2023 as compared to $9,792,808 for 2022. The ~~rise~~most significant increase in ~~consolidated~~ G&A expenses ~~from 2016~~for 2023 relates to ~~2017 is primarily attributable (i) incremental~~ employee costs, which increased

Table of ~~approximately $488,000 arising~~Contents

by $1,796,104 from ~~a statutory retirement payment, an increase in~~2022 to 2023 due to pay raises, new hires, increased stock compensation, ~~rates;~~ and ~~(ii) an increase in the project development expenses incurred~~higher bonus accruals. Professional fees also increased by ~~Aerex of approximately $204,000.~~

$190,699 from 2022 to 2023.

Other income, net, decreased to $286,190 for ~~2017 was $871,956,~~2023 as compared to ~~$45,698~~$717,709 for ~~2016. The improvement~~2022 in ~~2017 in this net component of our consolidated statement of income reflects (i)~~part due to an unrealized gain recorded in 2022 of ~~$323,000 in 2017 on~~$276,000 for the ~~net~~valuation of the put/call ~~option~~options associated with the initial acquisition of ~~Aerex as compared to an unrealized loss~~a controlling interest in ~~2016 on this net put/~~PERC. We exercised our call option in the fourth quarter of ~~($275,000);~~2022 and ~~(ii)~~acquired the ~~impairment loss~~remaining 39% of ~~($925,000) recorded~~PERC in ~~2016 for our investment~~January 2023. We also generated approximately $92,000 less interest income in ~~OC-BVI.~~2023 due to a decrease in CW-Bahamas’ average interest earning accounts receivable balances.

Results by Segment

Retail ~~Segment~~

Segment:

The retail segment ~~generated losses~~recorded a loss from operations of ($~~651,764) and~~89,431) for 2023 as compared to a loss from operations of ($~~658,089) in 2017 and 2016, respectively. Such losses are primarily attributable to impairment losses recorded~~126,463) for ~~CW-Bali, as discussed in paragraphs that follow.~~2022.

~~Revenues~~Revenue generated by our retail water operations increased ~~slightly~~ to ~~$18,111,274~~$15,344,424 in ~~2017~~2023 from ~~$17,710,271~~$12,840,003 in ~~2016, as~~2022 due to a ~~result of a 4%~~17% increase in the volume of water sold.

The volume of water sold in the Cayman Water license area increased by 15% and the remaining 2% increase in the volume of water sold was due to water sales made by Cayman Water directly to the WAC in January and February of 2023. The sales volume increase reflects increased tourist activity on Grand Cayman, as tourism on the island in 2022 was lower than historical levels due to the lingering impact of the COVID-19 pandemic. Retail revenue also increased by approximately $807,000 due to higher energy costs which increased the energy pass-through component of our retail water rates.

Retail segment gross profit ~~remained relatively consistent at $10,215,657 (56%~~increased to $8,360,498 (54% of retail ~~revenues) and $9,930,440 (56%~~revenue) for 2023 from $6,667,852 (52% of retail ~~revenues)~~revenue) for ~~2017 and 2016, respectively.~~

2022 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 $8,442,642 for ~~2017 and 2016 were $9,288,941 and $8,588,529~~2023 as compared to $6,795,515 for ~~2017 and 2016, respectively.~~2022. The most significant increase in ~~retail~~ G&A expenses ~~from 2016~~for 2023 relates to ~~2017 is primarily~~employee costs, which increased by $1,270,981 due to ~~(i) incremental employee costs of~~pay raises, increased stock compensation expense and higher bonus accruals. Professional fees also increased by approximately ~~$491,000 arising~~$134,000 from ~~a statutory retirement payment and an increase in compensation rates; and (ii) incremental professional fees of approximately $250,000.~~2022 to 2023.

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~~$4,591,382 and ~~$6,487,455~~$4,725,316 to our income from operations for ~~2017~~2023 and ~~2016,~~2022, respectively.

Bulk segment ~~revenues were $23,615,787~~revenue was $17,486,868 and ~~$22,136,086~~$15,774,393 for ~~2017~~2023 and ~~2016,~~2022, 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~~9% increase in the ~~prices~~volume of ~~diesel fuel and electricity from 2016 to 2017, which increased the energy component of our bulk~~ water ~~rates in The Bahamas.~~

sold.

Gross profit for our bulk segment was ~~$7,865,385 (33%~~$5,311,987 (30% of bulk ~~revenues)~~revenue) and ~~$7,790,339 (35%~~$5,439,691 (34% of bulk ~~revenues)~~revenue) for ~~2017~~2023 and ~~2016,~~2022, respectively. Gross profit as a percentage of ~~revenues~~revenue decreased in ~~2017~~2023 as compared to ~~2016~~2022 due to ~~higher energy prices, as energy expense for our bulk operations was~~incremental chemicals, repairs and maintenance and other miscellaneous operating expenses of approximately $1,256,000 more in 2017 than in 2016, 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.

$639,000.

Bulk segment G&A expenses ~~decreased to $940,105~~remained consistent at $732,875 for ~~2017~~2023 as compared to ~~$1,302,884~~$714,375 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.2022.

Services ~~Segment~~

Segment:

The services segment contributed $8,530,213 and $682,780 to our income from operations for 2023 and 2022, respectively.

Services segment revenue increased to $36,815,664 for 2023 from $9,799,303 for 2022. Plant design and construction revenue increased to $26,145,390 in 2023 from $2,321,556 in 2022 with this increase resulting from PERC’s progress on its contract with Liberty Utilities for the construction of a water treatment plant in Goodyear, Arizona. We recognized approximately $24.1 million in revenue for the Liberty Utilities contract in 2023. Revenue generated under operations and maintenance contracts was $7,482,326 and $7,118,150 in 2023 and 2022, respectively.

Table of Contents

Gross profit for the services segment was $10,523,445 (29% of services revenue) in 2023 as compared to $2,284,256 (23% of services revenue) for 2022. During 2023, we adjusted our previous estimates of the total costs to be incurred ~~losses~~for the Liberty Utilities contract and one other construction contract. These changes in accounting estimates resulted in an increase in the services segment’s revenue, gross profit and income from operations of ~~($2,458,594)~~$1,761,753 for 2023 under the input method we use to account for construction contracts 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~~was the primary factor in ~~revenues~~the increase 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~~as a percentage of services revenue from ~~2016~~2022 to ~~2017 on lower revenues.~~

2023.

G&A expenses for the services segment ~~remained relatively consistent at $2,498,766~~increased to $1,993,232 for 2023 as compared to $1,618,014 for 2022 principally due to an increase of approximately $393,000 in employee costs attributable to pay raises, new hires and ~~$2,363,392 for 2017 and 2016, respectively.~~increased bonus accruals.

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 contributed $975,806 to our income from operations for 2023 as compared to a loss incurred ~~losses~~ from operations of ($~~490,639) and ($2,524,867) for 2017 and 2016, respectively.~~

435,442) in 2022.

Manufacturing ~~revenues were $5,444,678~~revenue was $7,459,297 and ~~$3,261,827~~$2,211,333 for ~~2017~~2023 and ~~2016,~~2022, respectively. The growth in manufacturing revenue for 2023 reflects increased production activity due to improvement in the supply chain and economic conditions in 2022 that resulted in significant product delivery delays requested by customers as well as continuing delayed shipments of raw materials and supplies to Aerex.

Manufacturing gross profit was $1,826,701 (24% of manufacturing revenue) for 2023 as compared to a gross profit of $229,462 (10% of manufacturing revenue) for 2022. 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 increased due to the ~~acquisition~~lesser impact of ~~Aerex~~fixed factory overhead on ~~February 11, 2016 and an~~this measure resulting from the revenue increase, as we elected not to furlough or terminate the employment of our highly skilled manufacturing personnel in 2022 despite 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~~decrease in ~~dollars from 2016 due to the incremental revenues.~~

production activity.

G&A expenses for the manufacturing segment ~~were $1,967,372 and $3,420,634. Manufacturing G&A expenses decreased in 2017 from 2016~~increased to $852,828 for 2023 as compared to $664,904 for 2022 principally due to an increase of approximately $117,000 in employee costs attributable to pay raises, new hires and increased bonus accruals.

FINANCIAL CONDITION

The significant changes in the ~~goodwill impairment charge~~components of ~~$1,750,000 recorded~~our condensed consolidated balance sheet as of June 30, 2023 as compared to December 31, 2022 (other than the change in our cash and cash equivalents, which is discussed later in “LIQUIDITY AND CAPITAL RESOURCES”) and the reasons for ~~this segment~~these changes are discussed in ~~2016. Excluding this impairment charge, manufacturing G&A~~the following paragraphs.

Accounts receivable increased ~~from 2017~~by approximately $3.3 million primarily due to ~~2016~~an increase in PERC’s accounts receivable relating to the Liberty Utilities project.

Current inventory increased by approximately $4.1 million primarily due to an increase of $2.4 million in PERC’s inventory as a result of anthe Liberty Utilities and other projects and a $1.4 million increase ofin Aerex’s inventory due to current projects.

Contract assets increased by approximately ~~$204,000 in project development expenses incurred~~$5.3 million primarily due to Aerex's manufacturing projects and the Red Gate plant construction for ~~2017.~~the WAC.

~~FINANCIAL CONDITION~~

~~Accounts receivable~~Property, plant and equipment, net decreased by approximately ~~$3.5~~$1.8 million ~~from December 31, 2016~~due to ~~September 30, 2017~~the scheduled depreciation of fixed assets.

Construction in progress increased by approximately $2.2 million primarily 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 $1.7 million primarily due to a $2.4 million increase in subcontractor costs for PERC’s contract with Liberty Utilities and taxes payable offset by a $1.4 million decrease in ~~the accounts receivables for CW-Bahamas~~Aerex’s accrued payables.

Table of ~~approximately $3.0 million. We believe, based upon prior payment history, that our accounts receivable balances will be collected in full. Prepaid expenses and other current assets~~Contents

Contract liabilities increased by ~~approximately $1.3~~$4.1 million primarily due to ~~prepaid insurance premiums. Costs~~billings made by the services segment in connection with PERC’s contract with Liberty Utilities and ~~estimated earnings in excess of~~to a lesser extent billings ~~increased~~made by ~~approximately $1.6 million from December 31, 2016 to September 30, 2017 due to~~ Aerex.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Position

Our projected liquidity requirements for ~~2017~~the balance of 2023 include capital expenditures for our existing operations of approximately ~~$2.8~~$7.6 million, ~~dividends payable~~which includes approximately $600,000 to be incurred for the replacement of ~~approximately $1.1 million~~the West Bay seawater desalination plant and approximately ~~$1.9~~$4.3 million ~~to be expended~~ for ~~NSC’s and AdR’s project development activities.~~construction of the WAC’s new Red Gate plant. We paid approximately $2.6 million in dividends in 2023. Our liquidity requirements ~~for 2017~~ may ~~also~~ include ~~further~~future quarterly dividends if such dividends are declared by our ~~Board of Directors. Our dividend payments amounted to approximately $4.6 million for the year ended December 31, 2016 and approximately $3.4 million for the nine months ended September 30, 2017.~~

In February 2016, we purchased 51% of the equity ownership of Aerex, a U.S. original equipment manufacturer and service provider of a wide range of products and services applicable 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 for 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.

Board.

As of ~~September~~June 30, ~~2017,~~2023, we had cash and cash equivalents of ~~approximately $47.0~~$47.7 million and working capital of ~~approximately $60.5~~$75.5 million. We

With the exception of the liquidity matter relating to CW-Bahamas that is discussed in the paragraphs that follow, 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’ accounts receivable balance (which include accrued interest) due from the WSC amounted to $16.4 million and $16.3 million as of June 30, 2023 and December 31, 2022, respectively. Approximately 64% of these accounts receivable balances were delinquent as of both of those dates.

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 ~~CW-Belize Liquidity Considerations~~

~~Transfers from our bank accounts in~~meetings with representatives of the WSC and The Bahamas government, and ~~Belize~~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 ~~our bank~~provide an allowance for doubtful accounts ~~in other countries require~~for any of its accounts receivable, despite the ~~approval~~periodic accumulation of significant delinquent balances. As of June 30, 2023, we have not provided an allowance for doubtful accounts for CW-Bahamas’ accounts receivable from the WSC.

We have received correspondence from the Ministry of Finance of the ~~Central Banks~~Government of the Bahamas that stated the Government intends to return all of CW-Bahamas’ accounts receivable from the WSC to current status.

In a report dated October 6, 2022, Moody’s Investor Services (“Moody’s”) downgraded the Government of The ~~Bahamas~~Bahamas’ long-term issuer and ~~Belize, respectively. As~~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 Baa3. Moody’s iterated these ratings in April 2023, noting that such ratings are “stable.” Based upon our review of ~~September 30, 2017,~~this Moody’s correspondence, we continue to believe no allowance for doubtful accounts is required for CW-Bahamas’ accounts receivable from the ~~equivalent United States dollar cash balances for our bank account deposits in The Bahamas and Belize were approximately $13.3 million and $6.0 million, respectively.~~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~~Six Months Ended ~~September~~June 30, ~~2017~~
2023
Our cash and cash equivalents ~~increased~~decreased to ~~$47.0 million~~$47,691,699 as of ~~September~~June 30, ~~2017~~2023 from ~~$39.3 million~~$50,711,751 as of December 31, ~~2016.~~
2022.
Cash Flows from Operating Activities
~~Our~~Net cash provided by our operating activities ~~provided cash of approximately $11.7 million.~~was $4,973,550. This net cash ~~amount~~ reflects the net income generated for the ~~nine~~six months ended June 30, 2023 of ~~approximately $4.6 million~~$11,437,744 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~~$3,269,859, an increase in accounts receivable ~~and costs and estimated earnings in excess~~ of ~~billings of approximately $2.0 million,~~$3,259,462, an increase in ~~prepaids and other~~contract assets of ~~$2.0 million~~$5,279,048, an increase in inventory of $4,290,778, and an ~~impairment loss~~increase in contract liabilities of ~~$1.6 million to reduce the carrying value of our investment in CW-Bali.~~
30
$4,124,569.
Cash Flows from Investing Activities

Table of Contents

Net cash used inby our investing activities was ~~approximately $564,000. Additions~~$5,528,658. On January 4, 2023, we purchased the remaining 39% ownership interest in PERC for $2,440,027 and 368,383 shares of the Company’s common stock. We also used $3,110,041 for additions to property, plant and equipment and construction in ~~progress was approximately $3.0 million which was partially offset by a $1.1 million distribution of earnings from OC-BVI and approximately $1.3 million collections on our loan receivable.~~

progress.

Cash Flows from Financing Activities

~~Our~~Net cash used by our financing activities ~~used approximately $3.4~~was $2,695,924, 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 any of its available borrowings under the Credit Facility.

Material Commitments, Expenditures and Contingencies

~~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 discussed in ~~July 2010 but has since been extended while negotiations for a new license take place.~~the following paragraphs. 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~~June 30, ~~2017~~2023 and ~~2016,~~2022, we generated approximately ~~33%~~17% and ~~38%~~31%, respectively, of our consolidated ~~revenues~~revenue and ~~48%~~27% and ~~52%~~46%, 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~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, we generated approximately ~~38%~~20% and ~~40%~~32%, respectively, of our consolidated ~~revenues~~revenue and ~~52%~~32% and ~~55%~~46%, respectively, of our 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 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 a royalty of 7.5% of the revenue we collect as required under the 1990 license.

Table of Contents

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 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~~retail segment assets. Such impairment losses could have a material adverse impact on our consolidated financial condition, results of ~~operations will fall short~~operation and cash flows.

CW-Bahamas Performance Guarantees

Our contracts to supply water to the WSC from our Blue Hills and Windsor plants require us to guarantee delivery of ~~our most recent projections~~a minimum quantity of ~~its future cash flows.~~

~~CW-Belize~~

~~By Statutory Instrument No. 81 of 2009,~~water per week. If the ~~Minister of Public Utilities of~~WSC requires the ~~government of Belize published an order,~~water and we do not meet this minimum, we are required to pay the ~~Public Utility Provider Class Declaration Order, 2009 (the “Order”), which as of May 1, 2009 designated CW-Belize as~~WSC for the difference between the minimum and actual gallons delivered at a ~~public utility provider~~per gallon rate equal to the price per gallon that WSC is currently paying us under the ~~laws~~contract. The Blue Hills contract expires in 2032 and requires us to deliver 63.0 million gallons of ~~Belize. With this designation, the Public Utilities Commission~~water each week. The Windsor contract expires in 2033 and requires us to deliver 16.8 million gallons of ~~Belize (the “PUC”~~water each week.

Adoption of New Accounting Standards

Financial Accounting Standard Update (“ASU”) ~~has the authority to set the rates charged by CW-Belize~~ 2016-13, Measurement of Credit Losses on Financial Instruments, 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”)related amendments, introduces new guidance which ~~among other things requires that (i) CW-Belize and its customer jointly make a submission~~makes substantive changes 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 manualaccounting 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) capcredit losses. This guidance introduces 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 equipmentexpected credit losses (“CECL”) model 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 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~~financial assets subject to credit losses and measured ~~using first-in, first-out or average cost.~~at amortized cost, as well as certain off-balance sheet credit exposures. The ~~guidance~~CECL model requires an entity to ~~measure inventory at~~estimate credit losses expected over the ~~lower~~life of ~~cost or net realizable value. ASU 2015-11~~an exposure, considering information about historical events, current conditions, and reasonable and supportable forecasts and is ~~effective prospectively for fiscal years, and for interim periods within those years, beginning after December 15, 2016. Early application is permitted. The adoption~~generally expected to result in earlier recognition of ~~ASU 2015-11 did not have a material impact on our financial position, results~~credit losses. We adopted this guidance as 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 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 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.~~2023 using the modified retrospective approach. The impact of this adoption ~~of ASU 2016-07 did~~was not ~~have a~~ material ~~impact on~~to our consolidated financial ~~position, results of operations or cash flows.~~statements.

~~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 our financial position, results of operations or cash flows.

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,~~2023, we paid a dividend of ~~$0.075~~$0.085 to shareholders of record on January ~~2, 2017.~~3, 2023.

●

On ~~May 1, 2017,~~April 28, 2023, we paid a dividend of ~~$0.075~~$0.085 to shareholders of record on April 3, ~~2017.~~2023.

●

On ~~July 31, 2017, we paid~~May 24, 2023, our Board declared a dividend of ~~$0.075~~$0.085 payable on July 31, 2023 to shareholders of record on July 3, ~~2017~~

~~On August 15, 2017, our Board declared a dividend of $0.075 payable on October 31, 2017 to shareholders of record on October 2, 2017.~~2023.

Table of Contents

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 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. In general, our operating and maintenance contracts are adjusted annually for the impacts of inflation.

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.

36
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~~2022 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.

37

38

Table of Contents

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~~2022 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~~2022 and in our other periodic reports on Form 10-Q and Form 8-K.
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 discussed in the following paragraphs. 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~~June 30, ~~2017~~2023 and ~~2016,~~2022, we generated approximately ~~33%~~17% and ~~38%~~31%, respectively, of our consolidated ~~revenues~~revenue and ~~48%~~27% and ~~52%~~46%, 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~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, we generated approximately ~~38%~~20% and ~~40%~~32%, respectively, of our consolidated ~~revenues~~revenue and ~~52%~~32% and ~~55%~~46%, respectively, of our 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 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 a royalty of 7.5% of the revenue we collect as 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 economic regulation of the water utility sector and the negotiations with us for a new retail license from the ~~Water Authority-Cayman~~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.~~
~~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.

39
39

Table of Contents

WePeriodically, our Bahamas subsidiary experiences substantial delays in the collection of its accounts receivable. As a result, our Bahamas subsidiary could have paid $21.4 million for land, right of ways and equipment and incurred development expenses of approximately $22.6 million to date for a possible project in Mexico. We expect to expend significant additional funds in 2017insufficient liquidity to continue operations, and our consolidated results of operations could be materially adversely affected.

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to ~~pursue~~$16.4 million as of June 30, 2023. Approximately 64% of this ~~project. However,~~June 30, 2023 accounts receivable balance was delinquent as of that date. The delay in collecting these accounts receivable has adversely impacted the liquidity of this subsidiary.

From time to time (including presently), CW-Bahamas has experienced delays in collecting its accounts receivable from the WSC. When these delays occur, we ~~may not be successful~~hold discussions and 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 ~~completing~~full. Based upon this ~~project.~~

~~We own a 99.99% interest in N.S.C. Agua, S.A. de C.V. (“NSC”), a development stage Mexico company formed~~payment history, CW-Bahamas has never been required to ~~pursue a project encompassing~~provide an allowance for doubtful accounts for any of its accounts receivable, despite the ~~construction, operation and minority ownership~~periodic accumulation 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”).significant delinquent balances. As of ~~September~~June 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~~2023, we have ~~conducted, which include conducting~~not provided an ~~equipment piloting plant and water data collection program at~~allowance for doubtful accounts for CW-Bahamas’ accounts receivable from 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.WSC.

In ~~August 2014, the State of Baja California (the “State”~~a report dated October 6, 2022, Moody’s Investor Services (“Moody’s”) 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”),downgraded the Government of ~~Baja California represented by the Secretary of Planning~~The Bahamas’ long-term issuer and ~~Finance~~senior unsecured ratings to B1 from Ba3. Moody’s also lowered The Bahamas’ local currency ceiling to Baa3 from Baa2 and ~~the Public Utilities Commission of Tijuana (“CESPT”). The APP Contract requires AdR~~its foreign currency ceiling to ~~design, construct, finance and operate a seawater desalination plant (and accompanying aqueducts) with a capacity of up to 100 million gallons per day~~Ba1 from Baa3. Moody’s iterated these ratings 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.April 2023, noting that such ratings are “stable.”

~~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.~~

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~~CW-Bahamas 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~~collect a significant portion of its delinquent accounts receivable, one 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 salemore of the ~~land, or impairment loss NSC~~following events may occur: (i) CW-Bahamas may not have sufficient liquidity to meet its obligations; (ii) we may be required to ~~record as a result~~cease the recognition of ~~a decrease in~~revenue on CW-Bahamas’ water supply agreements with the ~~fair value~~WSC; and (iii) we may be required to provide an allowance for doubtful accounts for CW-Bahamas’ accounts receivable. Any of these events could have a material adverse impact on ~~the Company’s~~our consolidated financial condition, results of ~~operations.~~operations, and cash flows.

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 segment.

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 ~~acquisition.~~

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 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.

Table of Contents

shortages and extended delivery times for such materials, and 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 segment’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.

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 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.

Based upon our estimation prepared as of December 31, 2022, the fair value of our manufacturing reporting unit exceeded its carrying value ~~of this goodwill to $6,285,211. We~~by 63%. 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 of our ~~Aerex~~manufacturing segment’s goodwill ~~in future periods if we determine it likely that Aerex’s results~~and its remaining unamortized intangible assets balances, which amounted to $1,985,211 and $707,778, respectively, as of ~~operations will fall short of our most recent projections of its future cash flows. Such~~June 30, 2023. Any such impairment losses could have a material adverse impact on our consolidated results of operations.

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

As a result of the recent economic conditions, we have experienced 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.

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

Table of Contents

exceed our initial estimates could have a material adverse impact our consolidated financial condition, results of operations, and cash flows.

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

In ~~July 2017,~~June 2023, we issued ~~1,340~~13,309 shares of preferred stock to 1188 employees for ~~cash at a price of $8.35 per share.~~services rendered. The issuance of the preferred stock to ~~six~~64 of the 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~~The issuance to 24 employees who 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 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~~their business relationship with us, to information about us.

In June 2023, we also issued 599 shares of preferred stock to three employees for cash at a price of $12.10 per share. The issuance of the preferred stock to the employees was exempt from registration under Regulation S promulgated under the Securities Act because the shares were issued outside of the United States to non-US persons (as defined in Regulation S).

ITEM 6. EXHIBITS

~~Exhibit~~

Exhibit
Number

Exhibit Description
10.1

Agreement dated May 11, 2022 between PERC Water Corporation and Liberty (Litchfield Park Water & Sewer) Corp.
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

Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL ~~Taxonomy Definition Linkbase~~
~~101.LAB~~ tags are embedded within the Inline XBRL ~~Taxonomy Label Linkbase~~
~~101.PRE~~ ~~XBRL Taxonomy Presentation Linkbase~~document.

42

42

Table of Contents

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: August 10, 2023

~~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~~June 30, ~~2017~~2023 (Unaudited) and December 31, ~~2016~~2022	4

	Condensed Consolidated Statements of Income (Unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022	5

	Condensed Consolidated Statements of ~~Comprehensive Income~~Stockholders’ Equity (Unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022	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 38
Item 4	Controls and Procedures	37 38

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

SIGNATURES		43

	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		Agreement dated May 11, 2022 between PERC Water Corporation and Liberty (Litchfield Park Water & Sewer) Corp.
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		Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL ~~Taxonomy Definition Linkbase~~

~~101.LAB~~		tags are embedded within the Inline XBRL ~~Taxonomy Label Linkbase~~

~~101.PRE~~		~~XBRL Taxonomy Presentation Linkbase~~document.


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: August 10, 2023

Six Months Ended June 30,

Cash paid for amounts included in measurement of liabilities:

Operating cash outflows for operating leases

Operating cash outflows for operating leases - discontinued operations