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North Sound Plant

Under the terms of the water production and supply agreement with the WAC that expires in January 2024, OC-Cayman operates and maintains the electrically powered North Sound plant, which is owned by the WAC, and supplies approximately 1.6 million gallons of water per day to the WAC.

Red Gate Plant

Under the terms of the water production and supply agreement with the WAC that expires in January 2024, OC-Cayman operates and maintains the electrically powered Red Gate plant, which is owned by the WAC, and supplies approximately 1.3 million gallons of water per day to the WAC.

North Side Water Works Plant

Under the terms of the water production and supply agreement with the WAC that expires in June 2019. OC-Cayman operates and maintains this electrically powered plant owned by the WAC. This plant can supply up to approximately 2.4 million gallons of water per day. OC-Cayman leases the property on which the plant is located from the WAC for a minimal annual rent for the duration of the agreement. Pursuant to a public bidding process, in February 2019 we submitted our bid to operate and maintain this plant for a period of seven years after the current contract expires and are awaiting the results of the bidding process and the decision of the WAC.

Bahamas Properties

Bimini plant

Our water production facility in South Bimini consists of a bolted steel potable water tank with a capacity of 250,000 gallons and two standard shipping containers which contain a seawater reverse osmosis production plant with a rated capacity of 115,000 gallons per day, a high service pump skid and an office. The facility is located on a parcel of land owned by South Bimini International Ltd., and we are allowed, under the terms of our agreement which expires in December 2020, to utilize the land for the term of the agreement without charge.

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Windsor plant

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Our Windsor water production facility, located in Nassau, New Providence, has a production capacity of 2.8 million gallons per day. The plant is powered by a combination of diesel engine-driven high-pressure pumps and electrical power purchased from the Bahamas Power and Light to power all other loads in the plant. The plant is contained within a 12,000 sq. ft. steel building, and a warehouse, workshop and offices contained within a 2,600 sq. ft. concrete building. The buildings are located on land owned by the WSC and our water sales agreement gives us a license to use the land throughout the term of that agreement. This water supply agreement, which expires in 2033.

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Blue Hills plant

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Our Blue Hills plant in Nassau, New Providence consists of two production facilities. The first facility was completed in July 2006, has a production capacity of 7.2 million gallons per day, and is powered by a combination of diesel engine-driven high-pressure pumps, and electrical power purchased from the Bahamas Power and Light to power all other loads in the plant. The plant is contained within a concrete and steel building with a footprint of 16,000 square feet that also contains a warehouse, workshop and offices. It is located on land owned by the WSC and our 20-year water sales agreement gives us a license to use the land throughout the term of that agreement.

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The Blue Hills plant water supply agreement was amended in January 2011 and extended through 2032. Pursuant to this amendment, we added a second production facility to increase the total production capacity of the Blue Hills plant to 12.0 million gallons per day. The second facility was completed in March of 2012 and is powered by a combination of diesel engine-driven high-pressure pumps and electrical power purchased from the Bahamas Power and Light to power all other loads in the plant. The second facility is contained within a steel building with a footprint of 10,640 square feet located adjacent to the initial production facility on land owned by the WSC.

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U.S. Properties

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Aerex owns its 30,000 square foot manufacturing facility located on 6.4 acres of land in Fort Pierce, Florida and has approximately 6,000 square feet of office space in downtown Fort Pierce under a lease that expires in June 2021.

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Our Aquilex warehouse consists of 4,100 square feet located in Sunrise, Florida that has been leased through September 2020.2025. Our Aquilex office consists of 6,500 square feet located in Coral Springs, Florida that has been leased through March 2026.

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PERC leases approximately 4,100 square feet of office space in Fountain Valley, California that serves as its corporate headquarters. This lease expires in August 2021.

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Mexico Properties

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NSC owns 20.1 hectares of land in Rosarito Beach, Baja California, Mexico which is designated for use as the plant site for the proposed desalination project to be completed by AdR.Mexico.

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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 $15,000 per month. In December 2017, NSC assigned the lease to AdR. The lease is cancellable by AdR should it ultimately not proceed with the project.​

Indonesia Property

We own a water production facility located in the Nusa Dua region of Bali, Indonesia consisting of a plant with a production capacity of 264,000 gallons per day and a potable water storage tank with a capacity of 528,000 gallons. The land on which this plant and storage tank is located is leased through October 8, 2032. 

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NSC and AdR

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Tecate Claim:

In May 2010, we acquired, through our wholly-owned Netherlands subsidiary, CW-Cooperatief a 50% interest in NSC, which 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. 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 Vegaan individual (the “individual shareholder”). In February 2012, weCW-Cooperatief paid $300,000 to enter into an agreement (the “Option Agreement”) that provided usit with an option, exercisable through February 7, 2014, to purchase the shares of

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NSC owned by the individual shareholder for a price of $1.0 million along with an immediate usufruct and 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 indirectly acquired 99.99% of the ownership of NSC. The Option Agreement contained an anti-dilution provision that required usCW-Cooperatief to transfer or otherwise cause the individual shareholder to acquire, for a total price of $1 (regardless of their par or market value), 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 (causing the individual shareholder’s 25% ownership interest in NSC to be decreased); and (ii) weCW-Cooperatief did not exercise ourits share purchase option by February 7, 2014. WeCW-Cooperatief exercised ourits option and paid the $1.0 million to the individual shareholder to purchase the Option Agreement shares in February 2014.

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In October 2015, we learned that EWG filed a lawsuit against the individual shareholder, NSC, NSA, CW-Cooperatief, other third parties, 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, among others: (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.

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. Further, on May 25, 2017, such court declaration became definitive. EWG is entitled to refile the lawsuit, but to date has not done so.

Tijuana Claim - Amparo:

In addition to the Tecate Claim, in January 2018, EWG initiated an ordinary mercantile claim (the “Tijuana Claim”) against the individual shareholder, named in the Tecate Claim, NSC and CW-Cooperatief, (with AdR being named as a third party to be called to trial) before the Tenth Civil Judge in Tijuana, Baja California for Mercantile Matters (the “Tenth Civil Judge”).

The Tijuana Claim is similar to the Tecate Claim in the petitions sought by EWG. In the Tijuana Claim,ordinary mercantile claim, EWG challenged, among other things, the transactions contemplated under the Option Agreement, and therefore, the capital investment transactions that increased the ownership interest of CW-Cooperatief in NSC to 99.99%, as a consequence of the Option Agreement. EWG requested that the court,courts, as a preliminary matter to: (a) suspend the effectiveness of the challenged transactions; (b) order certain public officials in Mexico to record the pendency of the lawsuit in the public records (including a special request to register a lien over the real estate owned by NSC); (c) appoint an inspector for NSC to oversee its commercial activities; and (d) order public officials in Mexico and credit institutions abroad to refrain from authorizing or executing any legal act related with the activities of the plaintiff, the co-defendants and the third party called to trial to avoid damages to third parties, including those with whom negotiations or any form of commercial or administrative activities, or activities of any other nature related with the “Rosarito” water desalination project, are being conducted. The Tenth Civil Judge granted, ex-parte, the preliminary relief sought by EWG, which resulted in the issuance of official writs to several governmental /publicand public entities involved with the Project,“Rosarito” water desalination project, including the registration of the pendency of the lawsuit in certain public records, similarlyrecords.

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On October 16, 2018, NSC was served with the ordinary mercantile claim. On November 7, 2018, NSC filed a legal response to the Tecate Claim.claim, vigorously opposing the claims made by EWG. In addition to such legal response, NSC filed (i) a request to submit the claim to arbitration, based on certain provisions of the by-laws of NSC, (ii) an appeal remedy against the preliminary relief, and (iii) a request for the setting of a guarantee to release the preliminary relief granted in favor of EWG.

On October 1, 2020, and following an order from a Federal Judge obtained by NSC, the Tenth Civil Judge resolved to (i) move the claim of EWG to arbitration, and (ii) suspend the corresponding ordinary mercantile procedure. Although EWG has certain remedies available to oppose to such resolution, at present NSC does not have knowledge of the filing thereof.

Notwithstanding the resolution of the Tenth Civil Judge to move to arbitration, subparagraphs a) through e) that follow describe certain separate amparo claims, an appeal and an administrative act arising from or relating to such ordinary mercantile claim, all in chronological order. Due to the current global COVID-19 pandemic, most tribunals in Mexico have suspended their activities intermittently since March 2020, with certain such tribunals restarting activities in August 2020. As such, several resolutions are pending issuance.

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a) AdR amparo claim against the preliminary relief sought by EWG.

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In April 2018, AdR filed an amparo (i.e. a constitutional appeal) against the official writs issued by the Tenth Civil Judge to two governmental entities. In May 2018, the amparo claim was amended to also request protection against additional official writs issued by the Tenth Civil Judge to two other governmental entities and one banking institution. In May 2018, the Third District Court for Amparo and Federal Trials in the State of Baja California with residence in Tijuana granted a temporary suspension of the effects and consequences of the claimed official writs issued by the Tenth Civil Judge pending a further determination by the Third District Court. Such suspension was granted definitively in July 2018, and in August 2018, a resolution determining that the claimed official writs are unconstitutional, was issued. EWG filed a remedy againstappealed such resolution, which hasand in January 2020, the Collegiate Tribunal resolving such appeal

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dismissed the amparo filed by AdR. However, such dismissal does not yet been resolved.adversely impact AdR, considering the resolution to the appeal mentioned in subparagraph b) that follows.

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On October 16, 2018,b) Appeal filed by NSC was served with the Tijuana Claim. On November 7, 2018, NSC filed a legal response to this claim, vigorously opposing the claims made by EWG. In addition to such legal response, NSC has filed (i) a request to submit the Tijuana Claim to arbitration, based on certain provisions of the by-laws of NSC, (ii) an appeal remedy against the preliminary relief sought by EWG.

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The appeal remedy filed by NSC on November 7, 2018 mentioned previously, suspended the proceeding (through the posting of a guarantee by NSC) and (iii)was resolved in December 2019 and communicated to EWG in January 2020. Such resolution revoked the order of the Tenth Civil Judge whereby EWG was granted the preliminary relief.

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c) Amparo filed by EWG against the revocation of the preliminary relief.

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In January 2020, EWG filed a request fornew amparo claim against the settingresolution of the appeal remedy previously mentioned in item b). NSC has responded to this new amparo to vigorously oppose such amparo claim of EWG and to uphold the resolution of such appeal remedy. To this date, this amparo claim has not been resolved and, as such, it does not affect the revocation of the preliminary relief.

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d) Administrative cancellation of registrations before the Public Registry of Property.

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Despite the posting of a guarantee to release the preliminary relief granted in favor of EWG. Neithersought by EWG within the request for arbitration nor the mentioned appeal have been resolved.

On February 26, 2019,ordinary mercantile claim, the Tenth Civil Judge acknowledgedfailed to make the filing ofresolution effective, which would thereby rescind the previously mentioned legal response, the requestpreliminary relief granted to submit to arbitration, and the appeals remedy, granting EWGEWG.

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Consequently, on June 19, 2019 (i.e. before obtaining a period of three business days to, among others, state what it deemed convenient to its interest. However, to date, no resolution on such matters has been issued.

Further, on February 26, 2019, the Tenth Civil Judge set the requested guarantee, in the form of a security deposit in the amount of Mex. Cy. $1,000,000.00 (One million Mexican pesos), to releaserevoking the preliminary relief sought by EWG. On March 4, 2019,as mentioned previously), NSC filed before the Tenth Civil Judge, evidencePublic Registry of such security deposit, requestingProperty of Baja California a cancellation request for the provisional lien and the preventive annotation recorded against NSC’s property in the public real estate records.

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On June 24, 2019, the Public Registry of Property of Baja California issued an encumbrances cancellation resolution, approving the release of the mentioned preliminary relief. Dueprovisional lien and the preventive annotation recorded against NSC’s property in the public real estate records. Such encumbrances cancellation resolution was registered before the Public Registry of Property of Playas de Rosarito on June 25, 2019. On June 26, 2019, the Public Registry of Property of Playas de Rosarito issued a certificate of no liens with respect to the recent filingreal estate owned by NSC.

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e) Amparo filed by EWG against the administrative cancellation of registrations before the Public Registry of Property.

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In November 2019, NSC learned that EWG had filed an amparo claim before the Third District Court in Tijuana against such encumbrances cancellation resolution, and in December 2019, NSC responded to such claim, vigorously opposing it. Thereafter, NSC submitted a motion to dismiss, based on the resolution of the security deposit, as of the date hereof, the resolution on the release ofappeal remedy mentioned previously in subparagraph b) revoking the preliminary relief, previously mentioned in item (ii). The Court resolved in favor of such motion to dismiss, and thereafter certified that EWG did not file an appeal remedy against such resolution within the applicable term. Thus, the mentioned dismissal is pending.definitive.

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Notwithstanding the resolution to move to arbitration mentioned previously, CW-Cooperatief has not been officially served with the Tijuana Claim,ordinary mercantile claim, and AdR has not been notified that it has to appear for such trial. In any event, AdR is only a named a third party called to trial in this claim, and no claims arehave been made by EWG directly toagainst AdR.

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We cannot presently determine what impact the resolution of the Tijuana Claimthis litigation may ultimately have on our ability to complete the Project.

CW-Bali

In October 2017, CW-Bali’s sole remaining customer filed a lawsuit in the district court of Denpasar, Bali, Indonesia against CW-Bali, CW-Bali’s 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. In April 2018, the Denpasar court ruled that it had no authority to adjudicate the case due to a clause in the water supply agreement that requires all disputes to be handled through arbitration in Singapore. However, the customer immediately filed an appeal with respect to the Denpasar court ruling. In October 2018, the Denpasar appeals court issued its ruling which upheld the previous court’s ruling, thereby denying the customer’s appeal.

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.

On December 8, 2017, we received a favorable ruling from the Supreme Court of Belize stating that (i) the claims by the PUC in the Order and the Second Order were unlawful, null and void and of no effect; and (ii) the PUC is prohibited from taking any steps or proceedings or making any further Order in respect of the said Order. However, on February 20, 2018, the PUC filed an appeal with the Belize Court of Appeal, theconsolidated financial condition, results of which are pending.operations or cash flows.

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In February 2019, we sold 100%Table of our equity ownership in CW-Belize to Belize Water Services, Ltd.Contents

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Not applicable.

PART II

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Market Information

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Our Class A common stock is listed on the NASDAQ Global Select Market and trades under the symbol “CWCO”.

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No trading market exists for our redeemable preferred shares,stock, which are only issued to, or purchased by, long-term employees of our company and must be held by these employees for a period of four years before they vest.company.

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On January 2, 2018,2020, March 28, 201818, 2020 and January 2, 2019,4, 2021, we issued a total of 26,95828,891 shares, 13,02836,007 shares and 26,86425,789 shares of our common stock, respectively, to executive officersExecutive Officers under the 2008 Equity Incentive Plan. On December 10, 2018,15, 2020, we issued a total of 18,24219,712 shares of our common stock to our directorsDirectors under the Non-Executive Directors’ Share Plan in consideration for their service on our Board of Directors and the committees thereof. See “ITEM 11. EXECUTIVE COMPENSATION.”

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Currently 2,023,850 Bahamian Depository Receipts (“BDRs”) that constitute ownership of 404,770 shares of our common stock are listed and traded on the Bahamian International Stock Exchange. Our common shares that underlie these BDRs are held in a custodial account in The Bahamas. The BDRs are entitled to dividend payments, when declared on our common sharesstock in proportion to the BDRs’ relative value to our common shares.stock.

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Holders

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As of March 8, 2019,26, 2021, we had 770730 holders of record of our common stock.

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Dividends

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Our Board of Directors declares and approves any and all dividends.

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We have paid dividends to owners of our common sharesstock and redeemable preferred sharesstock since we began declaring dividends in 1985. However, the 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.

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Listed below, for each quarter of the last two fiscal years, are the per share dividends declared on our issued and outstanding shares of common shares and redeemable preferred shares.stock.

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Exchange Controls and Other Limitations Affecting Security Holders

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Our Company is not subject to any governmental laws, decrees or regulations in the Cayman Islands which restrict the export or import of capital, or that affect the remittance of dividends, interest or other payments to non-resident holders of

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our securities. The Cayman Islands does not impose any limitations on the right of non-resident owners to hold or vote our common stock. There are no exchange control restrictions in the Cayman Islands.

Taxation

The Cayman Islands presently impose no taxes on profit, income, distribution, capital gains, or appreciations of our Company and no taxes are currently imposed in the Cayman Islands on profit, income, capital gains, or appreciations of the holders of our securities or for of estate duty, inheritance, or capital transfer taxes. The United States and the Cayman Islands do not have an income tax treaty.

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The information required by Item 201(d) of Regulation S-K is provided under ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS of this Annual Report.

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Not applicable.

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Overview

Our primary objective is to provide water services in areas where the supply of potable water is scarce and where the use of reverse osmosis technology to produce potable water is economically feasible.

We intend to increase revenues by developing new business opportunities both within our current service areas and in new markets. We expect to maintain operating efficiencies by continuing to properly execute our water production, energy recovery, equipment maintenance and water loss mitigation programs. We believe that many water scarce countries in the Caribbean basin and other select markets present opportunities for our business model.

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Our water production operations and activities, and those of our affiliate OC-BVI, are presently conducted at 1211 plants in fourthree countries: the Cayman Islands, The Bahamas, and the British Virgin Islands and Indonesia.Islands. The following table sets forth the comparative combined production capacity of our retail and bulk segments and our affiliate operations as of December 31 of each year.

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(2) As of December 18, 2020, we ceased operations of our water production and supply business in South Bimini, The Bahamas.

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Our water treatment and reuse facilities are conducted at 27 plants in the United States. The following table sets forth the comparative combined estimated production capacity of our services segment as of December 31 of each year.

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(1) In estimated millions of gallons per day.

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Cayman Islands

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We have been operating our business on Grand Cayman since 1973 and have been using reverse osmosis technology to convert seawater to potable water since 1989. The Cayman Islands have a limited natural supply of fresh water. We previously hadhave an exclusive license from the Cayman Islands government to process potable water from seawater and then sell and distribute that water by pipeline to the Seven Mile Beach and West Bay areas of Grand Cayman. This license expired in January 2018 but as discussed in the following paragraph we continue to provide water under the terms of this prior license. Our Grand Cayman operations consist of three company owned and three government-ownedfour company-owned seawater reverse osmosis desalination plants which provide water to approximately 6,3006,900 retail residential and commercial customers within a government licensed area and three government-owned seawater reverse osmosis plants which supply bulk water sales to the Water Authority-Cayman (“WAC”), respectively.WAC. Our pipeline system on Grand Cayman Island covers the Seven Mile Beach and West Bay areas of Grand Cayman and consists of approximately 90100 miles of potable water pipe.

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Our exclusive license from the Cayman Islands government was originally scheduled to expire in July 2010 but 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 expired on January 31, 2018. We continue to provide water subsequent to January 31, 2018 on a month-to-month “good faith” basisoperate under the terms of the expired1990 license, providing water services to the level and quality specified in orderthe 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 allow forpay the continuation of negotiations for a new license without interruption to an essential service.royalty required under the 1990 license. We have been informed during our retail license negotiations that the Cayman Islands government seeks to 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. Our retail license negotiations have also been impacted by the passage of new legislation and the establishment of a new water regulatory body in the Cayman Islands. See further discussion of this matter at ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Material Commitments, Expenditures and Contingencies - – Cayman Water Retail License.

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The Bahamas

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CW-Bahamas produces potable water from threetwo seawater reverse osmosis desalination plants. Two of these plants, theThe Windsor plant and the Blue Hills plant are located in Nassau, New Providence and have a total installed capacity of 14.8 million gallons per day. CW-Bahamas supplies water from these plants to the Water and Sewerage Corporation of The Bahamas (“WSC”) under long-term build, own and operate supply agreements. During 2018,2020, we supplied approximately 3.94.2 billion gallons (2017:(2019: 4.0 billion gallons) of water to the WSC from these plants. CW-Bahamas’ third plant is located in Bimini, has a capacity of 115,000 gallons per day, and provides potable water to the Bimini Sands Resort. We have also sold water intermittently to the WSC from our Bimini plant when their regular supply was unavailable.

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From time to time (including presently), CW-Bahamas has experienced delays in collecting its accounts receivable. Representatives of the Bahamas government have informed us that their delays in paying our accounts receivables did/do not reflect any type of dispute with us with respect to the amounts owed. To date, we have not been required to provide an allowance for any delinquent CW-Bahamas accounts receivable as such amounts were eventually paid in full. Based upon our experience, we believe that the present accounts receivable from the WSC are fully collectible and therefore have not provided any allowance for possible non-payment of these receivables. Such accounts receivable balances due from The Bahamas government amounted to $17.6$16.8 million and $18.4 million as of December 31, 2018, as compared to $9.1 million as of December 31, 2017.2020 and 2019, respectively. See further discussion of this matter at ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS –- LIQUIDITY AND CAPTIALCAPITAL RESOURCES –- CW Bahamas Liquidity.

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Critical Accounting Estimates

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

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

Our critical accounting estimates relate to the valuations of our (i) goodwill and intangible assets; and (ii) long-lived assets.

Goodwill and intangible assets

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Goodwill represents the excess cost over the fair value of the assets of an acquired business. Goodwill and intangible assets acquired in a business combination accounted for as a purchase and determined to have an indefinite useful life are not

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amortized but are tested for impairment at least annually. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment. We evaluate the possible impairment of goodwill annually as part of our reporting process for the fourth quarter of each fiscal year. Management identifies our reporting units, which consist of our retail, bulk, services and manufacturing operations, and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. We determine the fair value of each reporting unit and compare these fair values to the carrying amounts of the reporting units. To the extent the carrying amount of the reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded.

For the years ended December 31, 20182020 and 2017,2019, we estimated the fair value of our reporting units by applying the discounted cash flow method, the guideline public company method, and the mergers and acquisitions method.

The discounted cash flow methodwhich relied upon seven-year discrete projections of operating results, working capital and capital expenditures, along with a terminal value subsequent to the discrete period. These seven-year projections were based upon historical and anticipated future results, general economic and market conditions, and considered the impact of planned business and operational strategies. The discount rates for the calculations represented the estimated cost of capital for market participants at the time of each analysis.

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We also estimated the fair value of each of our reporting units for the years ended December 31, 20182020 and 2017 through reference to2019 by applying the guideline companies andpublic company method. We also estimated the fair value of each of our reporting units for the year ended December 31, 2019 by referencing the market multiples implied by guideline merger and acquisition transactions.transactions (the mergers and acquisition method). We considered utilizing the mergers and acquisition method for the year ended December 31, 2020 but due to a lack of relevant meaningful mergers and acquisition activity during the year, such method was not utilized for 2020.

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We weighted the fair values estimated for each of our reporting units under each method and summed such weighted fair values to estimate the overall fair value for each reporting unit. The respective weightings we applied to each method as offor the years ended December 31, 2018 were consistent with those used as of December 31, 20172020 and 2019 were as follows:

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The fair values we estimated for our retail, bulk, services and manufacturing reporting units exceeded their carrying amounts 79%by 101%, 62%49%, 17% and 53%31%, respectively, as of December 31, 2018.2020. The fair values we estimated for our retail and bulk reporting units exceeded their carrying amounts by 121%74% and 59%58%, respectively, as of December 31, 2017.2019. The carrying amount we estimatedassets and liabilities for our services reporting unit consist almost entirely of those for PERC, which was acquired at fair value on October 24, 2019, and therefore we estimate the fair value of our services reporting unit closely approximated its carrying value at December 31, 2019. Our manufacturing reporting unit consists entirely of Aerex and the remaining 49% ownership interest of Aerex was purchased on January 24, 2020 for $8,500,000. We considered this purchase, the manufacturing reporting unit’s results of operations for the year ended December 31, 2019, the manufacturing reporting unit’s projected results of operations for the year ended December 31, 2020, and the amount by which the estimated fair value of the manufacturing reporting unit exceeded its fair value by 12%carrying amount as of December 31, 2017 and as discussed in2018 to determine that it is more likely than not that the following paragraph, we recorded an impairment loss to reduce the carryingfair value of the goodwill for this segment.our manufacturing reporting unit exceeded its carrying amount as of December 31, 2019.

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In February 2016, we acquired a 51% ownership interest in Aerex. In connection with this acquisition, we recorded goodwill of $8,035,211. Aerex’s actual results of operations for the six months in 2016 following the acquisition fell significantly short of the projected results that were included in the overall cash flow projections we utilized to determine the purchase price for Aerex and the fair values of its assets and liabilities. Due to this shortfall in Aerex’s results of operations, we 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. As part of our annual impairment testing of goodwill performed during the fourth quarter, in 2017 we updated our projections for Aerex’s future cash flows, determined that the carrying value of our Aerex goodwill exceeded its fair value, and recorded an impairment loss of $1,400,000 for the three months ended December 31, 2017 to further reduce the carrying value of this goodwill to $4,885,211.

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Approximately 80% and 68% of Aerex’s revenue, and 89% and 68% of Aerex’s gross profit, for the years ended December 31, 2020 and 2019, respectively, were generated from sales to one customer. In October 2020, this customer verbally informed Aerex that, for inventory management purposes, it was suspending its purchases from Aerex following 2020 for a period of approximately one year. This customer has verbally informed Aerex that it presently expects to recommence its purchases from Aerex beginning with the first quarter of 2022. However, we can offer no assurances that this customer will recommence its purchases from Aerex at that time. Furthermore, any such future purchases (should they occur) may not generate as much revenue and gross profit as Aerex has historically earned from this customer. We are seeking to replace the anticipated loss in revenue and gross profit from this customer by increasing sales of other products that we manufacture to new and existing customers, however, we may not be able to do so.

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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 assume, in part, that Aerex’s major customer will recommence its purchases from Aerex in 2022 but at a reduced aggregate amount, as compared to 2020 and 2019. Based upon these updated projections, we tested our manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020. As a result of this impairment testing, we determined that the estimated fair value of our manufacturing reporting unit exceeded its carrying value as of December 31, 2020. However, we may be required to record additionalan impairment lossesloss in the future to reduce the carrying value of our Aerexmanufacturing reporting unit’s goodwill in future periods ifshould we determine it likely that Aerex’s future net cash inflows will be less than our most current expectations. Any such impairment loss could have a material adverse impact on our consolidated financial condition and results of operations will fall short of our most recent projections of its future cash flows.operations.

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In February 2019, we sold CW-Belize. As a result of this sale, CW-Belize has been accounted for as discontinued operations in our consolidated financial statements, and bulk segment goodwill of approximately $381,000$380,000 as of December 31, 2018 and 2017 associated with CW-Belize has beenwas reclassified to long-term assets of discontinued operations in our consolidated statements of financial condition.

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Long-lived assets

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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 $(3.0 million) for the three months ended June 30, 2020, which is reflected in our loss from discontinued operations for the year ended December 31, 2020.

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Through our former subsidiary, CW-Bali,PT Consolidated Water Bali (“CW-Bali”), we built and presently operateoperated a seawater reverse osmosis plant with a productive capacity of approximately 264,000 gallons per day located in Nusa Dua, one of the primary tourist areas of Bali, Indonesia. Since its inception, we haveWe recorded operating losses for CW-Bali as the sales volumes for its plant have beenwere insufficient to cover its operating costs. In 2017 and 2016 we determined, based upon probability-weighted scenarios for CW-Bali’s future undiscounted cash flows, that the carrying values of CW-Bali’s long-lived assets and our investment in CW-Bali were not recoverable. WeConsequently, we recorded impairment losses of $1.6 million$(1.6 million) and $2.0 million,$(2.0 million), in 2017 and 2016, respectively, to reduce the carrying values of these assets to their fair values.

Results of Operations

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The following discussion and analysis of our results of operations should be read in conjunction with our audited consolidated financial statements and accompanying notes included under Part II, ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, of this Annual Report.

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

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Discontinued Operations – Mexico Project Development

In late December2010, 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 originally encompassed the construction, operation and minority ownership of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and accompanying pipelines to deliver water to the Mexican potable water system.

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

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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 an aqueduct 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 (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.

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

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On August 22, 2016, the Public Private Partnership Agreement for the Project (the “APP Contract”) was executed between AdR, the Comisión Estatal del Agua de Baja California (“CEA”), the Government of Directors formally approvedBaja 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.

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Both the exchange rate for the Mexican peso relative to the dollar and general macroeconomic conditions in Mexico varied since the execution of the APP Contract. These changes adversely impacted the estimated construction, operating and

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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 consideration (i.e. water tariff) under the APP Contract in the event of such significant macroeconomic

condition changes. In February 2017, AdR submitted proposals to CEA requesting the definition of the mechanism required by the APP Contract to update the consideration under the APP Contract for changes in foreign exchange rates, lending rates and certain laws which have impacted the Project. On June 1, 2018, AdR and CEA executed an amendment to the APP Contract which, among other things, increased the scope of Phase 1 of the Project by including the aqueduct originally designated for Phase 2, and addressed AdR’s concerns regarding the impact on the Project for changes in the exchange rate for the peso relative to the dollar and changes in interest rates that have occurred subsequent to the submission of the Consortium’s bid for the Project. As a result of this amendment to the APP Contract, the final cost of Phase 1 and the related consideration to be charged by AdR under the APP Contract was to be determined based upon the bid submitted by the Consortium, the changes set forth in the amendment to the APP Contract and the economic conditions (e.g. interest rates and currency exchange rates) in effect on the financial closing date for Phase 1.

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In February 2018, AdR executed a subscription agreement (the “Subscription Agreement”) for the equity funding required for the Project. The Subscription Agreement called for NSC to retain a minimum of 25% of the equity in AdR. One or more affiliates of Greenfield SPV VII, S.A.P.I. de C.V. (“Greenfield”), a Mexico company managed by an affiliate of a leading U.S. asset manager, would acquire a minimum of 55% of the equity of AdR. The Subscription Agreement also provided Suez MA with the option to purchase 20% of the equity of AdR. If Suez MA did not exercise this option, NSC would retain 35% of the equity of AdR and Greenfield will acquire 65% of the equity of AdR. The Subscription Agreement became effective when the additional conditions precedent related to the Project were met. The aggregate funding to be provided by AdR’s shareholders for the Project, in the form of equity and subordinated shareholder loans, was estimated at approximately 20% of the total cost of Phase 1 of the Project. This Subscription Agreement was scheduled to expire on September 30, 2020. NSC expected to generate a portion of its additional future equity investment in AdR through the sale to AdR of our CW-Belize subsidiary,the land it had purchased for the Project.

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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 reasoning provided in the Letter for the decision to terminate the APP Contract is that the Project (a) is not financially feasible due to increases in the construction, operating and financing costs for the Project in addition to negative changes in economic conditions (e.g. interest rates and currency exchange rates); (b) is not sustainable for CEA and CESPT given its financial unfeasibility; (c) puts pressure to increase the rates charged to customers; (d) would force the Government of the State to cover a deficit of CEA and CESPT, thus preventing the State Government from spending on investment programs or social expenditures; and (e) negatively affects the general interest. 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 requires 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 partcomprised of our bulk water51,144,525 United States dollars and an additional 137,333,114 Mexican pesos. In February 2021, AdR withdrew this claim which was accepted by the federal district court in Tijuana.

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We plan to vigorously pursue all legal remedies and courses of action available under the APP Contract and applicable law (including international treaties and agreements) with respect to any rights we may have upon termination of the APP Contract, including the reimbursement of expenses and investments. However, we cannot provide any assurances that we will be able to obtain reimbursement for any expenses or investments made with respect to the Project.

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As a result of the cancellation of the APP Contract, during the three months ended September 30, 2020, we discontinued all development activities associated with the Project and commenced active marketing efforts to sell the land NSC

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purchased for the Project. Accordingly, the assets and liabilities of CW-Cooperatief, NSC and AdR, as well as all Project development expenses and the impairment loss these subsidiaries incurred, have been reclassified from the services segment to discontinued operations to Belize Water Services Ltd. (“BWSL”) and on February 14, 2019, we completedin the sale (which was effectiveaccompanying consolidated financial statements as of January 1, 2019) of CW-Belize to BWSL. In accordance with U.S. generally accepted accounting principles, CW-Belize’s results of operationsand for 2018the years ended December 31, 2020 and 2017 have been reflected in our consolidated results of operations as discontinued operations. Net income2019. Our net losses from these discontinued operations for 2018the years ended December 31, 2020 and 20172019 of $(4,902,243) and $(2,333,255), respectively, consist of legal, accounting, engineering, administrative, consulting and other costs relating to Project development activities and, for 2020, our activities following the cancellation of the APP Contract to pursue reimbursement from the State.

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Consolidated Results

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Including discontinued operations, net income attributable to Consolidated Water Co. Ltd. stockholders for 2020 was $1,115,825$3,711,528 ($0.07 per share on a fully diluted basis) and $1,041,234 ($0.070.24 per share on a fully diluted basis), respectively.as compared to $12,176,093 ($0.80 per share on a fully diluted basis) for 2019.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

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The following discussion and analysis of our consolidated results of operations that followsand our results by segment refers only to our continuing operations.

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Consolidated Results

Net income for 2018 was $11,293,487 ($0.75 per share on a fully-diluted basis), as compared to $6,144,062 ($0.41 per share on a fully-diluted basis) for 2017. Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders for 20182020 was $10,177,662$8,613,771 ($0.680.56 per share on a fully-dilutedfully diluted basis), as compared to $5,102,828$10,888,178 ($0.340.72 per share on a fully-dilutedfully diluted basis) for 2017.2019.

The substantial rise in net income for 2018 as compared to 2017 reflects (i) an improvement in income from operations of approximately $5.7 million, due in part to impairment losses recorded in 2017 that exceeded those recorded for 2018 by almost $3 million; and (ii) the litigation settlement received by OC-BVI in September 2018 (see Note 9 of the Notes to the Consolidated Financial Statements), which is the primary reason for the incremental aggregate income (i.e. earnings and profit sharing) from this equity investment of almost $2.3 million.

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Total revenuesrevenue for 20182020 increased to $65,719,857$72,628,126 from $59,367,022$68,793,651 in 20172019, primarily as a result of higher revenues forthe addition of PERC’s revenue to our all our segments.services segment. Gross profit for 20182020 was $26,742,287$26,768,455 (37% of total revenue) as compared to $28,274,348 (41% of total revenues) as compared to $23,998,561 (40% of total revenues)revenue) for 2017.2019. For further discussion of revenuesrevenue and gross profit see the “Results by Segment” discussion and analysis that follows.

We recorded an impairment loss for CW-Bali of approximately $1.7 million in 2017 based upon the operating losses generated by this subsidiary and our projections of its future cash flows. CW-Bali did not materially impact our 2018 results of operations. We also recorded an impairment loss of approximately $1.4 million in 2017 to reduce the carrying value of the goodwill we recorded for the Aerex acquisition based upon our projections of its future cash flows at that time. Based upon our most current projections of Aerex’s future cash flows, no impairment loss for the Aerex goodwill was required for 2018.

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General and administrative expenses (“G&A”&A expenses”) expenses on a consolidated basis remained consistent at $18,709,419increased to $18,434,898 for 20182020 as compared to $18,682,399$17,001,164 for 2017.2019 due to the addition in 2020 of PERC’s G&A expenses of approximately $2.8 million, which includes approximately $564,000 of amortization expense for certain intangible assets recorded in connection with the acquisition of PERC. Serving to partially offset the incremental PERC expenses was a decrease of approximately $536,000 in business development expenses and a decrease of approximately $514,000 in amortization expense resulting from the completion of the amortization period for certain intangible assets recorded in connection with the acquisition of Aerex.

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In June 2019, we completed the sales of our CW-Bali assets and its stock for $365,000 and $25,000, respectively. Such sales constitute most of the $445,041 gain on asset dispositions for 2019.

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Other income, net, for 2018 increased to $2,740,064 for 2018$1,082,946 in 2020, as compared to $1,526,358 for 2017, due$786,552 in 2019. This increase is primarily attributable to the incremental income of almost $2.3 million generated from our investment in the profit-sharing plan of OC-BVI and our equity in the earnings of OC-BVI, which in the aggregate were approximately $446,000 higher in 2020 than in 2019 as a result of the receipt by OC-BVI in 2018 and incremental interest income2020 of approximately $283,000 arising from higher$815,648 in delinquent interest earning balances. These items more than offset the incremental expense impact of approximately $1.2 million arising from the revaluation to fair value of the put/call options associated with the Aerex acquisition.income.

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Results by Segment

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Retail Segment:

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The retail segment incurred a net loss from operations of $(1,004,924) for 2020. The retail segment contributed $2,567,683$1,820,077 to our income from operations for 2018. The retail segment generated a net loss from operations of ($671,950) for 2017, which included an impairment loss of approximately $1.7 million for CW-Bali.2019.

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RevenuesRevenue generated by our retail water operations increaseddecreased to $25,621,048$22,952,370 in 20182020 from $23,225,066$26,456,022 in 2017 due to an increase2019. The reduction in revenue reflects a 13% decrease in the volume of water sold of 8%. We believe the increase in the volume of water sold for 2018 is primarily attributable to weather conditions, as (based on information provided by Cayman Islands National Weather Service)Water due to the amount rainfall recorded forclosing of Grand Cayman for 2018 was 43.5 inches, as comparedIsland to 59.2 inches for 2017.all tourist travel in March 2020 in response to the COVID-19 pandemic and lower energy prices in 2020 than in 2019, which decreased the energy pass-through component of our Cayman Water retail revenue by approximately $861,000.

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Retail segment gross profit was $14,609,592 (57%decreased to $11,871,556 (52% of retail revenues) and $12,852,867 (55%revenue) for 2020 as compared to $14,844,857 (56% of retail revenues)revenue) for 2018 and 2017, respectively.2019 principally as a result of the drop in revenue.

We recorded an impairment loss for CW-Bali of approximately $1.7 million in 2017 based upon the operating losses generated by this subsidiary and our projections of its future cash flows. CW-Bali did not have a material impact on our 2018 retail segment results of operations.

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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 remained consistent at $12,029,646decreased to $12,879,445 for 20182020 as compared to $11,884,659$13,422,821 for 2017.2019 primarily as a result of a decrease in business development expenses of approximately $536,000.

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Bulk Segment:

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The bulk segment contributed $8,178,862$6,100,134 and $8,011,452$7,188,007 to our income from operations for 20182020 and 2017,2019, respectively.

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Bulk segment revenues were $31,031,287revenue was $24,312,546 and $28,682,113$26,986,108 for 20182020 and 2017,2019, respectively. The increasedecrease in bulk revenuessegment revenue from 20172019 to 20182020 is attributable primarily to both OC-Cayman and CW-Bahamas. OC-Cayman experienced a significant increasedecline in revenue of approximately $1,213,000 as a result of the pricestwo new contracts at lower rates with the WAC for water supplied from (1) the Red Gate and North Sound plants which commenced in February 2019 and expires in 2024 and (2) the North Side Water Works plant, which commenced in July 2019 and expires in 2026. CW-Bahamas experienced a decline in revenue of diesel fuel and electricity from 2017approximately $1.5 million due to 2018,lower energy costs, which increasedcorrespondingly decreased the energy pass-through component of our bulk water rates by approximately $2 million.CW-Bahamas’ rates.

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Gross profit for ourthe bulk segment was $9,479,904$7,352,983 (30% of bulk segment revenue) and $8,379,303 (31% of bulk revenues)segment revenue) for 2020 and $9,119,610 (32% of bulk revenues) for 2018 and 2017,2019, respectively. Bulk segment grossGross profit dollars increaseddecreased in 2020 as compared to 2019 due to repairs and maintenance for CW-Bahamas for 2020 that exceeded those incurred in 2019 and lower margins earned by OC-Cayman on its new contracts (as compared to its previous contracts) with the increase in revenues.WAC.

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Bulk segment G&A expenses increased to $1,301,042remained relatively consistent at $1,260,062 for 20182020 as compared to $1,108,158$1,238,296 for 2017 due to additional bank charges incurred by CW-Bahamas to repatriate funds to our parent company and incremental consulting fees.2019.

The water OC-Cayman sells to the WAC is produced at three seawater reverse osmosis desalination plants in Grand Cayman owned by the WAC, but designed, built and operated by OC-Cayman: the North Sound, Red Gate and North Side Water Works (“NSWW”) plants. The previous operating agreements for the North Sound and Red Gate plants expired in February 2019. In response to a public bidding process for a new operations and maintenance agreement encompassing both the North Sound and Red Gate plants, OC-Cayman submitted a bid for the new agreement.

In August 2018, the WAC accepted OC-Cayman’s bid for the new agreement, and the WAC and OC-Cayman entered into a new five-year contract commencing on February 1, 2019 for the operation of the North Sound and Red Gate plants. The terms of the new agreement are substantially consistent with those of the prior North Sound and Red Gate water supply agreements, except that (i) we have decreased the price we charge for the water supplied; and (ii) under the new agreement the WAC pays the energy costs for the operation of these plants directly to the utility company rather than paying OC-Cayman a pass-through charge for these costs. The per gallon price we charged for the water supplied under the new agreement in February 2019, excluding the effect of the pass-through energy charges, was approximately 25% less than the per gallon rate we charged in February 2018 under the prior agreements. As a result of this price reduction (and assuming comparable sales volumes), the revenues and operating income we generate from the North Sound and Red Gate plants commencing February 1, 2019 will be less than the revenues and operating income we generated from these plants under the previous agreements. In 2018, we generated approximately $5.1 million in revenues under the North Sound and Red Gate agreements, of which $3.2 million consisted of energy pass-through charges.

The current operations and maintenance agreement for the NSWW plant expires June 2019. Pursuant to a public bidding process, in February 2019 we submitted our bid to operate and maintain this plant for a period of seven years after the current contract expires and are awaiting the results of the bidding process and the decision of the WAC. We may not be selected for this new agreement. Even if we are selected to operate the NSWW plant, the rates we have proposed in our bid are less than those we presently charge, thus the revenues and operating income we would generate from a new agreement for this plant will be less than the amounts we have previously generated. In 2018, we generated approximately $2.7 million in revenues under the NSWW agreement.

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Services Segment:

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The services segment incurred lossescontributed $408,529 and $151,828 to our income from operations of ($2,622,545)for 2020 and ($3,043,528) for 2018 and 2017,2019, respectively.

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Services segment revenuesrevenue increased to $1,811,372$12,937,859 for 2018 as compared to $469,3472020 from $1,759,446 for 20172019 due to approximately $710,000the addition of $11,116,383 in revenues for 2018 forrevenue from PERC as a refurbishment project completed for OC-BVI’s Bar Bay plant and approximately $518,000result of our acquisition of a controlling interest in revenues for pipeline installations made on Grand Cayman for a real estate developer.this company in late October 2019.

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GrossThe gross profit for the services segment was $308,338 for 2018 as comparedincreased to a negative gross profit$3,239,645 (25% of ($450) for 2017. The improvement in the services segment gross profitrevenue) for 2018 is attributable to2020 from $544,253 (31% of services segment revenue) for 2019 as a result of the increase in revenues.addition of PERC.

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G&A expenses for the services segment were $2,889,703 and $3,043,078increased to $2,834,917 for 2018 and 2017, respectively. The decrease in G&A expenses2020 as compared to $392,425 for 2018 results from a decrease2019 due to the addition of approximately $127,000 in the project development expenses incurred by our Mexican subsidiaries.PERC.

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Manufacturing Segment:

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The manufacturing segment incurred lossescontributed $2,843,815 and $2,558,313 to our income from operations of ($147,906)for 2020 and ($2,019,970) for 2018 and 2017,2019, respectively.

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Manufacturing revenues were $7,256,150segment revenue was $12,425,351 and $6,990,496$13,592,075 for 20182020 and 2017,2019, respectively. Manufacturing revenuessegment revenue decreased from 2019 to 2020 due to a decrease in 2018 were impacted by Aerex’s productionorders in 2018the fourth quarter of various components to be used by our other subsidiaries CW-Bahamas (for the refurbishment of CW-Bahamas’ Windsor plant) andCayman Water (for the expansion of its Abel Castillo Water Works plant). While the revenues Aerex generated from this work for its affiliates amounted to approximately $2 million, such intercompany revenues are eliminated in consolidation for financial reporting purposes.2020.

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Manufacturing segment gross profit was $2,344,453 (32%$4,304,271 (35% of manufacturing revenues)segment revenue) and $2,026,534 (29%$4,505,935 (33% of manufacturing revenues)segment revenue) for 20182020 and 2017,2019, respectively. GrossThe increase in manufacturing segment gross profit for 2018 increased as a percentage of revenuesrevenue stems from 2017 duea mix of higher margin projects, coupled with overall higher production activity that led to a more profitable product mix.improved plant efficiency.

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G&A expenses for the manufacturing segment were $2,489,028dropped to $1,460,474 for 20182020 as compared to $2,646,504$1,947,622 for 2017. The decrease in G&A expenses for the manufacturing segment from 2017 to 2018 is attributable to2019 as a result of a decrease of approximately $184,000$514,000 in product development expenses.the amortization expenses resulting from the completion of the amortization period for certain intangible assets recorded in connection with the acquisition of Aerex.

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Approximately 80% and 68% of our manufacturing segment revenue, and 89% and 68% of our manufacturing segment gross profit, for 2020 and 2019, respectively, were generated from sales to one customer. In October 2020, this customer verbally informed Aerex that, for inventory management purposes, it was suspending its purchases from Aerex following  2020 for a period of approximately one year. This customer has verbally informed Aerex that it presently expects to recommence its purchases from Aerex beginning with the first quarter of 2022. However, we can offer no assurances that this customer will recommence its purchases from Aerex at that time. Furthermore, any such future purchases (should they occur) may not generate as much revenue and gross profit as Aerex has historically earned from this customer. We are seeking to replace this anticipated loss in revenue and gross profit by increasing sales of other products that we manufacture to new and existing customers, however, we may not be able to do so. Consequently, our manufacturing segment revenue and gross profit for 2021 may decline as compared to the two prior years.

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FINANCIAL CONDITION

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The significant changes in the components of our consolidated balance sheet as of December 31, 20182020 as compared to December 31, 20172019 (other than the change in our cash and cash equivalents, which is discussed later in “LIQUIDITY AND CAPITAL RESOURCES”) resultand the reasons for these changes are discussed in the following paragraphs.

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Accounts receivable decreased by approximately $1.5 million. This net decrease reflects a decrease in CW-Bahamas’ accounts receivable of approximately $1.6 million from increasesthe WSC and a decrease of $450,000 of retail accounts receivable due to lower water sales in Cayman Islands. The decreases were offset by an increase of approximately $414,000 in accounts receivable property, plant and equipment and construction in progress.

The increase in our accounts receivable, from approximately $14.7 million as of December 31, 2017 to approximately $24.2 million as of December 31, 2018 is attributable to an increase in CW-Bahamas’ receivablesarising from the WSCaddition of PERC.

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Prepaid expenses and other current assets increased by approximately $853,000 primarily due to the prepayment of taxes of approximately $8.5$441,000, new lease assets of approximately $65,000 as well as additional prepaid insurance of approximately $55,000.

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Contract assets decreased by approximately $1.2 million See “LIQUIDITY AND CAPITAL RESOURCES, CW-Bahamas-Liquidity” for further discussiondue to the completion of these receivables.a major project by Aerex.

Property, plant and equipment as of December 31, 2018 was approximately $9.2 million higher than the prior year end balance as a result of expenditures made to refurbish our Windsor plant in The Bahamas and, to a lesser extent, capital expenditures made for our retail operations in Grand Cayman.

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Construction in progress increaseddecreased by approximately $4.7 million$895,000 primarily due to the expansion in Grand Caymancompletion of our Abel Castillothe renovation of the North Side Water Works plant capacity and the additional of a new water storage tank for this plant.on Grand Cayman.

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LIQUIDITY AND CAPITAL RESOURCES

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Liquidity Position

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Our projected liquidity requirements for 20192021 include capital expenditures for our existing operations of approximately $6.3 million, which includes $4.0 million approximately $2.5 million to be expended for NSC's and AdR's project development activitiesthe replacement of the 26 year old West Bay seawater desalination plant in Grand Cayman and approximately $1.3 million for dividends payable. Our liquidity requirements may also include future quarterly dividends, if such dividends are declared by our Board. Our dividend payments amounted to approximately $5.1 million for the yearyears ended December 31, 2018.2020 and 2019.

In February 2019, our Board approved a $4 million revolving loan facility to Aerex with interest at the rate of 3% per annum, repayable in December 2019. In March 2019, Aerex borrowed $2.5 million under this facility.

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As of December 31, 2018,2020, we had cash and cash equivalents of approximately $31.3$43.8 million and working capital of approximately $54.5$66.0 million. Except for

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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 for 2019 and thereafter.needs.

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CW-Bahamas Liquidity

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CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $17.6$16.8 million and $18.4 million as of December 31, 2018 as compared to $9.1 million as of December 31, 2017.2020 and 2019, respectively. Approximately 75%76% of the December 31, 2018 2020

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accounts receivable balance was delinquent as of that date. The increasedelay in collecting these accounts receivable has adversely impacted the liquidity of this subsidiary.

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From time to time (including presently), CW-Bahamas has also experienced similar delays in collecting its accounts receivable from the WSC in prior years,WSC. When these delays occur, we hold discussions and at times has held accounts receivable balances from the WSC in amounts comparable to the December 31, 2018 balance. During these periods, we arranged meetings and held discussions with representatives of the WSC and The Bahamas government, to formulateand as a result, payment scheduleschedules are developed for WSC’s delinquent accounts receivable. All previous delinquent accounts receivable and such amountsfrom the WSC, including accrued interest thereon, were subsequentlyeventually paid in full. Based upon this payment history, we haveCW-Bahamas has never been required to provide an allowance for doubtful accounts for any of its accounts receivable, despite the periodic accumulation of significant delinquent balances. As of December 31, 2020, we have not provided an allowance for doubtful accounts for CW-Bahamas’ accounts receivable even though CW-Bahamas periodically has been owed substantial delinquent balances. from the WSC.

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We believe the delays we have experienced in collecting CW-Bahamas’ accounts receivables will ultimately be collectedwere extended due to the impact of Hurricane Dorian, which devastated the northern Bahamas in full based upon our history withSeptember 2019 and the severe economic impact of the COVID-19 pandemic on The Bahamas government.government’s revenue sources.

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CW-Bahamas received approximately $5.6 million in payments on its accounts receivable in January 2019 and asAs of February 28, 2019 its2021, CW-Bahamas’ accounts receivable balance from the WSC was approximately $16.1totaled $19.6 million.

On March 12, 2019, CW-Bahamas received approximately $1.4 million in payments on its accounts receivable along with correspondence from the Bahamas Ministry of Finance which acknowledged the receivable balance and stated that payment in full of all outstanding amounts is anticipated in due course.

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If CW-Bahamas continues to be unable to collect a significant portion of its delinquent accounts receivable, then in the coming months one or more of the following events may occur: (i) CW-Bahamas may not have sufficient liquidity to meet its obligations without new funding from its shareholders;obligations; (ii) we may be required to cease the recognition of revenuesrevenue on CW-Bahamas’ water supply agreements with the 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 our consolidated financial condition, results of operations, financial position and cash flows.flows.

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Resolution of CW-Belize Liquidity Issue

Transfers of funds held by our former subsidiary CW-Belize, to our parent company, which were accomplished by means of conversion of Belize dollars into U.S. dollars, required the approval of the Central Bank of Belize and were dependent on the amount of U.S. dollars available to Belize banks to execute such transfers. Weakness in the Belize economy and other factors have reduced the amount of U.S. dollars that Belize banks have available for transfer, which limited in prior years and for most of 2018 the amount of funds we were able to transfer from CW-Belize. Our repatriations of funds from CW-Belize to our parent company amounted to $458,000 and $400,000 for the years ended December 31, 2017 and 2016, respectively, significantly less than the net income and net cash flows CW-Belize generated for those years.

During the quarter ended September 30, 2018, we signed a non-binding Memorandum of Understanding (“MOU”) with Belize Water Services Ltd. (“BWSL”) with respect to the potential sale of CW-Belize to BWSL. We were not otherwise considering a sale of CW-Belize, so as an incentive for us to consider this proposed transaction, BWSL promised in the MOU to facilitate both the conversion from Belize dollars to US dollars and the subsequent repatriation of all cash balances we have on deposit in Belize. With BWSL’s assistance, we were able to repatriate approximately $2.75 million in cash from Belize to our bank accounts in the Cayman Islands during the three months ended September 30, 2018 and an additional $1.0 million during the fourth quarter of 2018.

In late December 2018, our Board of Directors formally approved the sale of CW-Belize to BWSL. We repatriated an additional $1.1 million from CW-Belize during the first week of 2019. We received the sales proceeds of $7.0 million (less $265,000 retained for indemnification obligations) upon the closing of the sale of CW-Belize in February 2019.

Discussion of Cash Flows for the Year Ended December 31, 20182020

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Our cash and cash equivalents decreasedincreased to $31,337,477$43,794,150 as of December 31, 20182020 from $45,482,966$42,071,083 as of December 31, 2017.2019.

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Cash Flows from Operating Activities

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Our operating activities from continuing operations provided cash of $7,990,397.$18,970,938. This net cash provided reflects net income generated for the year ended December 31, 2020 from continuing and discontinued operations of $11,989,274$4,441,533 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 $7,034,234,$7,406,509, a net increaseloss from discontinued operations of $(4,902,243), and a decrease in accounts receivable (primarily attributable to CW-Bahamas)and contract assets of $9,557,798, profit sharing and equity in the earnings of our OC-BVI affiliate of $2,452,355 and income from discontinued operations (CW-Belize) of $1,115,825.$2,541,096.

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Cash Flows from Investing Activities

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Net cash used inby our investing activities was $17,405,831.$11,119,755. In January 2020, we acquired the remaining 49% ownership in Aerex for $8,500,000 in cash. In August 2020, we acquired an additional 10% of PERC for $900,000. Additions to property, plant and equipment and construction in progress (primarily arising from the refurbishment of the CW-Bahamas’ Windsor plant and the expansion of Cayman Water’s Abel Castillo Water Works plant) used $16,202,520$1,728,393 in cash and $2,655,349 was expended for rights of way for our Mexico project. These cash outflows were partially offset by $1,400,448 in collections on loans receivable from the WAC.cash.

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Cash Flows from Financing Activities

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OurNet cash used by our financing activities used $5,786,004 in net cash.

We paid cash dividendswas $5,169,926, almost all of $5,092,796.

In March 2018, we repaid $392,000 of the $686,000 note payablewhich related to the former sole shareholderpayment of Aerex. In July 2018, we borrowed additional funds, increasing the outstanding balance on this note payable to $1,078,000 and extended the maturity date to June 30, 2019. In October 2018, we repaid $686,000 of this note payable and in December 2018, we repaid the remaining balance of $392,000.dividends.

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Material Commitments, Expenditures and Contingencies

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COVID-19

The worldwide coronavirus (COVID-19) pandemic, which was formally recognized by the World Health Organization on March 11, 2020, has had a profound negative impact on the economies of the countries in which we operate. Consequently,

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the COVID-19 pandemic has had, and will continue to have, a material adverse impact on our consolidated financial condition, results of operations, and cash flows.

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

Cayman Water

As preventative measures to combat the possible spread of COVID-19, the Cabinet of the Cayman Islands (“the Cabinet”) closed all Cayman Islands sea ports to international passenger arrivals effective March 13, 2020; and closed all Cayman Islands airports to international passenger arrivals effective March 22, 2020. Effective March 28, 2020, the Cabinet and Cayman Islands law enforcement enacted various ‘stay-at-home’ regulations and curfews, which closed all businesses not deemed essential by the government and required citizens to stay at home unless they were purchasing necessities or engaged in an essential errand. In May 2020, the Cabinet started the phased relaxation of the shelter-in-place regulations and on October 1, 2020, the Cayman Islands reopened its borders for residents or individuals who own property in the Cayman Islands that provide evidence of a negative COVID-19 test performed within three days prior to arrival in the Cayman Islands and agree to remain in quarantine for 14 days after arrival. No date has yet been set for the planned reopening of the Cayman Islands to tourists.

As a result of these measures taken by the Cayman Islands government, tourism in the Cayman Islands has temporarily ceased. The preventative measures taken by the Cayman Islands government in response to the COVID-19 pandemic commenced in the latter half of March 2020 and thus affected our retail sales volumes for the last nine months of the year ended December 31, 2020. Consequently, our retail sales volume for the year ended December 31, 2020 declined by approximately 13% from the year ended December 31, 2019. However, the retail sales volume for the three months ended December 31, 2020 was approximately 28% less than that for the three months ended December 31, 2019. We expect that our retail segment revenue and cash flows will continue to be materially adversely impacted until such time as tourism and the economy in the Cayman Islands fully recover from the impact and effects of the COVID-19 pandemic.

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

OC-Cayman

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

The amount of water provided by OC-Cayman to the WAC for the year ended December 31, 2020 was approximately 1% less than that provided for the year ended December 31, 2019. We cannot presently determine to what extent OC-Cayman’s future revenue will be impacted by the COVID-19 pandemic.

OC-Cayman’s operations have been designated as essential services by the Cayman Islands government. Presently, OC-Cayman’s day-to-day operations have not been materially impeded by the COVID-19 pandemic – we continue to produce and supply water to meet the requirements of our two water supply agreements with the WAC. We believe OC-Cayman has adequate spare parts and supplies in stock to continue normal operations.

CW-Bahamas

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The government of The Bahamas enacted Emergency Powers Regulations which became effective March 18, 2020 in an effort to combat the spread of COVID-19. These regulations closed all businesses not deemed essential by the government, encouraged the employees of non-essential businesses to work remotely and imposed 24 hour shelter-in-place curfew on all residents of The Bahamas other than those engaged in essential or pre-approved activities. On March 24, 2020, the government banned all international travel to The Bahamas by closing all airports and seaports. As a result of the measures taken by The Bahamas government, tourism on New Providence Island, where CW-Bahamas operates, temporarily ceased and economic activity in The Bahamas slowed dramatically. In May 2020, the Bahamian government relaxed some of the shelter-in-place regulations and in July 2020, the government of The Bahamas enacted a limited reopening of The Bahamas to air travel. However, increased travel restrictions were reimposed shortly thereafter due to an increase in COVID-19 cases. As of November 2020, shelter-in-place regulations were loosened and commercial and retail operations were permitted to open with limited capacity; additional economic activity (including the operation of restaurants and bars with outdoor and limited indoor seating) has since been permitted. Conditions for travel to The Bahamas have also been loosened and individuals that wish to travel to The Bahamas must obtain a health travel visa which will be issued upon receipt of a negative RTPCR COVID-19 test five days in advance of travel; they must submit to a mandatory COVID-19 rapid antigen test five days after arrival in The Bahamas or upon exhibiting symptoms of COVID-19 while in The Bahamas. As of March 2021, it is anticipated that a limited number of cruise ship departures from the Port of Nassau may commence in June 2021, but a date for cruise ship arrivals has not yet been set.

CW-Bahamas sells the water produced by its plants on a bulk basis to the WSC, which in turn provides water to the residences, businesses, and other end users on New Providence. Under the terms of each of its water supply agreements with the WSC, CW-Bahamas charges the WSC a fixed monthly amount, an amount each month that is based upon the amount of water supplied during the month, and pass-through energy charges, therefore CW-Bahamas’ revenue is impacted by changes in water demand and energy prices. To date, the volume of water CW-Bahamas sells to the WSC has not been adversely impacted by the COVID-19 pandemic despite the downturn in economic activity on New Providence that began in April 2020 stemming from the preventative measures taken by the government in March 2020. In addition, the adverse impact of the COVID-19 pandemic on The Bahamas government’s revenue sources may further delay the collection of CW-Bahamas’ delinquent accounts receivable from the WSC.

CW-Bahamas’ operations have been designated as essential services by the government of The Bahamas. Presently, CW-Bahamas’ day-to-day operations have not been materially impeded by the COVID-19 pandemic – we continue to produce and supply water to meet the requirements of our two water agreements with the WSC. We believe CW-Bahamas has sufficient spare parts and consumables inventories to continue normal operations.

Aerex

Presently, the COVID-19 pandemic has not materially impeded Aerex’s day-to-day operations.

Aerex presently has 14 plant employees. Should a number of these employees become ill or be required to enter quarantine as a result of COVID-19, Aerex could be required to reduce or cease its manufacturing activities, which could have a material adverse impact on our consolidated financial condition, results of operations and cash flows.

PERC

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

Approximately 75% of PERC’s revenue of $12.5 million for the year ended December 31, 2020 was generated in California under contracts with government entities. The State of California has publicly acknowledged its on-going financial difficulties as a result of the COVID-19 pandemic, and such difficulties presently, or could in the future, extend to the various counties, municipalities and other government-related entities in California, including PERC’s customers, which could adversely impact PERC’s revenue and the collection of its accounts receivable.

PERC employs state-certified water and wastewater operators to operate various water treatment facilties in California and Arizona. Should a number of these employees become ill or be required to enter quarantine as a result of COVID-19,

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PERC could have difficulty meeting its contractual and statutory obligations for operating these water treatment facilities, which could have a material adverse impact on our consolidated financial condition, results of operations and cash flows.

Cayman Water Retail License

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We sell water through our retail operations under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that granted Cayman Water the exclusive right to provide potable water to customers within its licensed service area. AsAlthough the 1990 license was not expressly extended after January 2018, we continue to supply water under the terms of the 1990 license, as further discussed below, this license expired in January 2018.the following paragraph. Pursuant to the 1990 license, Cayman Water hadhas 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 Island: Seven Mile Beach and West Bay. In 20182020 and 2017,2019, we generated approximately 39%32% and 39%38%, respectively, of our consolidated revenuesrevenue and 54%44% and 54%53%, respectively, of our consolidated gross profit from the retail water operations conducted pursuant to Cayman Water’s exclusiveunder the 1990 license.

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The 1990 license was originally scheduled to expire in July 2010 but 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 expired on January 31, 2018. We continue to provide water subsequent to January 31, 2018 on a month-to-month “good faith” basisoperate under the terms of the expired1990 license, providing water services to the level and quality specified in orderthe 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 allow forpay the continuation of negotiations for a new license without interruption to an essential service.royalty required under the 1990 license.

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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 WAC to OfReg in May 2017. We began license negotiations with OfReg in July 2017 and such negotiations are continuing. We have been informed during our retail license negotiations, both by OfReg and its predecessor in these negotiations, that the Cayman Islands government seeks to 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. We proposed to OfReg to adjust our rates in January 2019 consistent with the terms of the previous license, however OfReg has communicated that they have deferred any such adjustment until further notice.

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The Cayman Islands government could ultimatelyseek 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 expired1990 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.”

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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 losses to reduce the carrying value of our retail segment assets. Such impairment losses could have a material adverse impact on our consolidated financial condition, and 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 per day of production capacity with additional pipeline infrastructure.

Through a series of transactions completed in 2012-2014, NSC purchased 20.1 hectares of land 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 $15,000 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 (the “APP Law”). Pursuant to this new legislation, on January 4, 2015, NSC submitted an expression of interest for its project to the Ministry 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 the 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 with additional pipeline infrastructure. A consortium comprised of NSC, NuWater S.A.P.I. de C.V. (“NuWater”) and Degremont S.A. de C.V. (the “Consortium”) submitted its tender for the Project in April 2016 and in June 2016, the State designated the Consortium as the winner of tender process for the Project.

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.

In August 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 December 31, 2018 and 2017, NSC owned 99.6% of the equity of AdR.

On August 22, 2016, the Public Private Partnership Agreement for public private partnership number 002/2015, bid 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 reverse osmosis 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 July 2024. The APP Contract further requires 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, the plant and aqueduct will be transferred to CEA.

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

In December 2016, the Congress of the State of Baja California, Mexico passed Decreto #57 which, among other things, ratified and authorized the payment obligations of the corresponding public entities under the APP Contract. During 2017, 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 to comply with recent changes to the Federal Financial Discipline Law for Federative Entities and Municipalities (the “Financial Discipline Law”). In addition, it was necessary to amend Decreto #57 to authorize the inclusion of revenues from the CESPT in the primary payment trust for the Project. These amendments were included in Decreto #168, which was approved by the Congress of the State of Baja, California in December 2017. The authorization of the payment obligations of the public entities under the APP Contract given in Decreto #57, as amended by Decreto #168, expired on December 31, 2018. For the Project to proceed, the State must obtain new approvals from its Congress to establish the various payment trusts, guaranties and bank credit lines for use by the Project. While we have been informed by officials of the State that they are seeking these approvals, we cannot provide any assurances that such approvals will be obtained.

Both the exchange rate for the Mexico peso relative to the dollar and general macroeconomic conditions in Mexico have varied since the execution of the APP Contract. These changes have adversely impacted 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 consideration (i.e. water tariff) under the APP Contract in the event of such significant macroeconomic condition changes. In February 2017, AdR submitted proposals to the CEA requesting the definition of the mechanism required by the APP Contract to update the consideration under the APP Contract for changes in foreign exchange rates, lending rates and certain laws which have impacted the Project. On June 1, 2018, AdR and the CEA executed an amendment to the APP Contract which, among other things, increases the scope of Phase 1 of the Project by including the aqueduct originally designated for Phase 2, and addresses AdR’s concerns regarding the impact on the Project for changes in the exchange rate for the peso relative to the dollar and changes in interest rates that have occurred subsequent to the submission of the Consortium’s bid for the Project. As a result of this amendment to the APP Contract, the final cost of Phase 1 and the related consideration to be charged by AdR under the APP Contract will be determined based upon the bid submitted by the Consortium, the changes set forth in the amendment to the APP Contract and the economic conditions (e.g. interest rates and currency exchange rates) in effect on the financial closing date for Phase 1.

In February 2018, AdR executed a subscription agreement (the “Agreement”) for the equity funding required for the Project. The Agreement calls for NSC to retain a minimum of 25% of the equity in AdR. One or more affiliates of Greenfield SPV VII, S.A.P.I. de C.V. (“Greenfield”), a Mexico company managed by an affiliate of a leading U.S. asset manager, will acquire a minimum of 55% of the equity of AdR. The Agreement also provides Suez Medio Ambiente México, S.A. de C.V., (“Suez”) a subsidiary of SUEZ International, S.A.S., with the option to purchase 20% of the equity of AdR. If Suez does not exercise this option, NSC will retain 35% of the equity of AdR and Greenfield will acquire 65% of the equity of AdR. The Agreement will become effective when the additional conditions related to the Project are met, including but not limited to those conditions discussed previously. The aggregate funding to be provided by AdR’s shareholders for the Project, in the form of equity and subordinated shareholder loans, is presently estimated at approximately 20% of the total cost of Phase 1 of the Project. This Agreement expires on June 30, 2019, unless otherwise extended by mutual agreement of the parties.

NSC expects to generate a portion of its funding for AdR through the sale to AdR of the land it has purchased for the Project. Under the terms of the Agreement, Suez will design and construct the Project, while a joint venture company between NSC and Suez will operate the Project.

In February 2018, our subsidiary, Consolidated Water U.S. Holdings, acquired the remaining 0.4% of AdR’s equity ownership previously held by NuWater.

In June 2018, AdR and Suez executed a contract whereby Suez will serve as the engineering, construction and procurement contractor for the Project with such contract becoming effective on the effective date of the APP Contract.

The political environment in Mexico has recently experienced significant changes and the new, federal administration has made economic policy announcements focusing on austerity. While the long-term ramifications of such changes and announcements are unknown, in the short-term they have (i) caused certain rating agencies to lower Mexico’s sovereign credit rating, (ii) resulted in a decrease in the value of the Mexico peso and (iii) created uncertainty with respect to the incoming administration’s position on projects and contracts approved by previous administrations. The federal administration has a strong influence on many of the state and local governments and congresses, raising the possibility that the federal government will influence local politics, which could impact the State’s and the CEA’s ability to meet certain conditions required to make the APP Contract effective.

If AdR is ultimately unable to proceed with the Project due to a failure by any of the parties involved to meet the conditions necessary for the APP Contract to become effective, or for any other reason, the land NSC has purchased and the right of way deposits may lose their strategic importance derived from their association with 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 its right of way deposits for amounts at least equal to their carrying values as of December 31, 2018 of approximately $21.1 million and $3.0 million, respectively. Any loss on the sale of the land, or impairment losses NSC may be required to record as a result of a decrease in the (i) fair value of the land; or (ii) value of the rights of way arising from the inability to complete the Project, could have a material adverse impact on our financial condition and results of operations.

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 $2,884,000 and $3,012,000 for the years ended December 31, 2018 and 2017, respectively. The assets and liabilities of NSC and AdR included in our consolidated balance sheets amounted to approximately $26.2 million and $243,000, respectively, as of December 31, 2018 and approximately $23.1 million and $173,000 respectively, as of December 31, 2017.

Project Litigation Initiated by EWG

Tecate Claim:

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 usufruct and 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 transfer or otherwise cause the individual shareholder to acquire, for a total price of $1 (regardless of their par or market value), 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 (causing the individual shareholder’s 25% ownership interest in NSC to be decreased); 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, other third parties, 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, among others: (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.

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. Further, on May 25, 2017, such court declaration became definitive. EWG is entitled to refile the lawsuit, but to date has not done so.

Tijuana Claim - Amparo:

In addition to the Tecate Claim, in January 2018, EWG initiated an ordinary mercantile claim (the “Tijuana Claim”) against the individual shareholder named in the Tecate Claim, NSC and CW-Cooperatief, (with AdR being named as a third party to be called to trial) before the Tenth Civil Judge in Tijuana, Baja California for Mercantile Matters (the “Tenth Civil Judge”)cash flows.

The Tijuana Claim is similar to the Tecate Claim in the petitions sought by EWG. In the Tijuana Claim, EWG challenged, among other things, the transactions contemplated under the Option Agreement, and therefore, the capital investment transactions that increased the ownership interest of CW-Cooperatief in NSC to 99.99%, as a consequence of the Option Agreement. EWG requested that the court, as a preliminary matter to: (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 (including a special request to register a lien over the real estate owned by NSC); (c) appoint an inspector for NSC to oversee its commercial activities; and (d) order public officials in Mexico and credit institutions abroad to refrain from authorizing or executing any legal act related with the activities of the plaintiff, the co-defendants and the third party called to trial to avoid damages to third parties, including those with whom negotiations or any form of commercial or administrative activities, or activities of any other nature related with the “Rosarito” water desalination project, are being conducted. The Tenth Civil Judge granted, ex-parte, the preliminary relief sought by EWG, which resulted in the issuance of official writs to several governmental /public entities involved with the Project, including the registration of the pendency of the lawsuit in certain public records, similarly to the Tecate Claim.

In April 2018, AdR filed an amparo (i.e. a constitutional appeal) against the official writs issued by the Tenth Civil Judge to two governmental entities. In May 2018, the amparo claim was amended to also request protection against additional official writs issued by the Tenth Civil Judge to two other governmental entities and one banking institution. In May 2018, the Third District Court for Amparo and Federal Trials in the State of Baja California with residence in Tijuana granted a temporary suspension of the effects and consequences of the claimed official writs issued by the Tenth Civil Judge pending a further determination by the Third District Court. Such suspension was granted definitively in July 2018, and in August 2018, a resolution determining that the claimed official writs are unconstitutional, was issued. EWG filed a remedy against such resolution, which has not yet been resolved.

On October 16, 2018, NSC was served with the Tijuana Claim. On November 7, 2018, NSC filed a legal response to this claim, vigorously opposing the claims made by EWG. In addition to such legal response, NSC has filed (i) a request to submit the Tijuana Claim to arbitration, based on certain provisions of the by-laws of NSC, (ii) an appeal remedy against the preliminary relief, and (iii) a request for the setting of a guarantee to release the preliminary relief granted in favor of EWG. Neither the request for arbitration nor the mentioned appeal have been resolved.

On February 26, 2019, the Tenth Civil Judge acknowledged the filing of the mentioned legal response, the request to submit to arbitration, and the appeals remedy, granting EWG a period of three business days to, among others, state what it deemed convenient to its interest. However, to date, no resolution on such matters has been issued.

Further, on February 26, 2019, the Tenth Civil Judge set the requested guarantee, in the form of a security deposit in the amount of Mex. Cy. $1,000,000.00 (One million Mexican pesos), to release the preliminary relief sought by EWG. On March 4, 2019, NSC filed before the Tenth Civil Judge, evidence of such security deposit, requesting the release of the mentioned preliminary relief. Due to the recent filing of the security deposit, as of the date hereof, the resolution on the release of the preliminary relief is pending.

CW-Cooperatief has not been officially served with the Tijuana Claim, and AdR has not been notified that it has to appear for such trial. In any event, AdR is only named a third party called to trial, and no claims are made by EWG directly to AdR.

We cannot presently determine what impact the resolution of the Tijuana Claim may ultimately have on our ability to complete the Project.

Adoption of New 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 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 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.

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. On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. There was no impact to opening retained earnings as of January 1, 2018 as a result of the adoption of this standard.

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. In February 2018, the FASB issued ASU 2018-03,Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, that clarifies the guidance in ASU No. 2016-01 on equity securities and certain fair value option liabilities among other things. ASU 2016-01 and ASU 2018-03 are 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 and ASU 2018-03 did not have a material impact on our financial position, results of operations or cash flows.

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 did not have a material impact on our financial position, results of operations or cash flows for the year ended December 31, 2018. For the year ended December 31, 2017, the adoption resulted in a reclassification of approximately $1.5 million in cash inflows related to the distribution of earnings from OC-BVI from investing activities to operating activities in the consolidated statement of cash flows.

Effect of newly issued but not yet effective accounting standards:

In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842), which amends the guidance relating to the definition of a lease, recognition of lease assets and liabilities on the balance sheet, and the related disclosure requirements. In July 2018, the FASB issued ASU 2018-11, Leases: Targeted Improvements, which amends the new leasing guidance such that entities may elect not to restate their comparative periods in the period of adoption. In January 2018, the FASB issued ASU 2018-01,Leases (Topic 842), which provides an optional transition practical expedient for the adoption of ASU 2016-02 that, if elected, would not require an organization to reconsider their accounting for existing land easements that are not currently accounted for under the old leases standard and clarify that new or modified land easements should be evaluated under ASU 2016-02, once an entity has adopted the new standard.

In December 2018, the FASB issued ASU 2018-20,Leases (Topic 842): Narrow-Scope Improvements for Lessors,which addresses issues facing lessors when applying the leases standard such as taxes collected from lessees, certain lessor costs paid directly by lessees, and recognition of variable payments for contracts with lease and nonlease components. In March 2019, the FASB issued ASC 2019-01,Leases (Topic 842): Codification Improvements,which amends the new leasing guidance to align the application of fair value by lessors that are not manufacturers or dealers, requires lessors within the scope of Topic 942,Financial Services-Depository and Lending,to present all principal payments received under leases within investment activities on the Statement of Cash Flows, and exempts both lessees and lessors from providing certain interim disclosures in the fiscal year in which a company adopts the new leases standard.

The guidance requires lessees to recognize an asset and liability on the balance sheet for all of their lease obligations. Operating leases were previously not recognized on the balance sheet. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018 and early adoption is permitted. We will adopt the standard using the modified retrospective method for its existing leases and expects that this standard will increase lease assets and lease liabilities on the consolidated balance sheets. We intend to elect certain practical expedients and will carry forward historical conclusions related to (1) contracts that contain leases, (2) existing lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. We will also apply the practical expedient that will allow us to elect, as an accounting policy, by asset class, to include both lease and non-lease components as a single component and account for it as a lease. We will apply the short-term lease exception for lessees which will allow us to not have to apply the recognition requirements of the new leasing guidance for short-term leases and to recognize lease payments in net income on a straight-line basis over the lease term. We will also apply the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements. Based on an analysis we performed, the adoption of this new lease standard is not expected to have a material impact on our financial position, results of operations or cash flows.

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CW-Bahamas Performance Guarantees

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Our contractcontracts to supply water to the WSC from our Blue Hills plant requiresand Windsor plants require us to guarantee delivery of a minimum quantity of water per week. If WSC requires the water and we do not meet this minimum, we are required to pay the WSC for the difference between the minimum and actual gallons delivered at a per gallon rate equal to the price per gallon that WSC is currently paying us under the contract. The Blue Hills contract expires in 2032 and requires us to deliver 63.0 million gallons of water each week. The Windsor contract expires in 2033 and requires us to deliver 16.8 million gallons of water each week.

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Table of Contents

Adoption of New Accounting Standards:

Dividends​

None.

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Effect of newly issued but not yet effective accounting standards:

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In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions to the current guidance on contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We are currently evaluating the impact of the new guidance on our consolidated financial statements, however the adoption of this standard is not expected to have a material impact on our financial position, results of operations or cash flows.

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Dividends

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We have paid dividends to owners of our common sharesstock and redeemable preferred sharesstock 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.

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Dividend Reinvestment and Common Stock Purchase Plan.

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This programplan is available to our shareholders, who may reinvest all or a portion of their common cashstock 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.

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Impact of Inflation

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Under the terms of our Cayman Islands license and our water sales agreements in The Bahamas and the British Virgin Islands, our water rates are automatically adjusted for inflation on an annual basis, subject to temporary exceptions.basis. We, therefore, believe that the impact of inflation on our gross profit, measured in consistent dollars, willshould not be material. However, significant increases in items such as fuel and energy costs could create additional credit risks for us, as our customers’ ability to pay our invoices could be adversely affected by such increases.