Table of ~~euros and Mexican pesos into US$ vary based upon market conditions.~~Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, December 31,
2020 2019
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 32,310,781 $ 42,902,669
Accounts receivable, net 25,624,783 23,229,689
Inventory 6,282,173 3,287,555
Prepaid expenses and other current assets 2,353,521 2,346,918
Costs and estimated earnings in excess of billings 1,968,324 1,675,781
Total current assets 68,539,582 73,442,612
Property, plant and equipment, net 61,239,413 61,248,979
Construction in progress 328,334 1,335,597
Inventory, non-current 4,534,074 4,404,378
Investment in OC-BVI 1,939,610 1,903,602
Goodwill 13,325,013 13,325,013
Land and rights of way held for development 24,162,523 24,162,523
Intangible assets, net 4,785,833 5,040,000
Operating lease right-of-use assets 4,043,717 4,439,212
Other assets 2,794,060 2,990,228
Total assets $ 185,692,159 $ 192,292,144

LIABILITIES AND EQUITY
Current liabilities
Accounts payable, accrued expenses and other current liabilities $ 4,364,590 $ 3,672,142
Accrued compensation 1,077,650 1,821,395
Dividends payable 1,297,703 1,292,187
Current maturities of operating leases 761,540 755,751
Current portion of long-term debt 42,211 17,753
Billings in excess of costs and estimated earnings 903,692 614,386
Total current liabilities 8,447,386 8,173,614
Long term debt 155,484 61,146
Deferred tax liabilities 1,448,306 1,529,035
Noncurrent operating leases 3,166,476 3,836,475
Net liability arising from put/call options 825,000 664,000
Other liabilities 75,000 75,000
Total liabilities 14,117,652 14,339,270
Commitments and contingencies
Equity
Consolidated Water Co. Ltd. stockholders' equity
Redeemable preferred stock, $0.60 par value. Authorized 200,000 shares; issued and outstanding 33,751 and 33,751 shares, respectively 20,251 20,251
Class A common stock, $0.60 par value. Authorized 24,655,000 shares; issued and outstanding 15,114,506 and 15,049,608 shares, respectively 9,068,704 9,029,765
Class B common stock, $0.60 par value. Authorized 145,000 shares; none issued - -
Additional paid-in capital 86,034,929 88,356,509
Retained earnings 67,951,962 66,352,733
Total Consolidated Water Co. Ltd. stockholders' equity 163,075,846 163,759,258
Non-controlling interests 8,498,661 14,193,616
Total equity 171,574,507 177,952,874
Total liabilities and equity $ 185,692,159 $ 192,292,144


		March 31,		December 31,
		2021		2020
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	42,782,527	$	43,794,150
Accounts receivable, net		24,688,432		21,483,976
Inventory		2,320,089		3,214,178
Prepaid expenses and other current assets		1,935,180		2,412,282
Contract assets		669,419		516,521
Current assets of discontinued operations		1,412,379		1,511,099
Total current assets		73,808,026		72,932,206
Property, plant and equipment, net		56,084,332		57,687,984
Construction in progress		600,021		440,384
Inventory, noncurrent		4,440,670		4,506,842
Investment in OC-BVI		1,659,501		2,092,146
Goodwill		13,325,013		13,325,013
Intangible assets, net		3,949,166		4,148,333
Operating lease right-of-use assets		2,889,508		1,329,561
Other assets		1,886,754		1,926,594
Long-term assets of discontinued operations		21,131,444		21,166,489
Total assets	$	179,774,435	$	179,555,552

LIABILITIES AND EQUITY
Current liabilities
Accounts payable, accrued expenses and other current liabilities	$	2,970,756	$	2,856,127
Accounts payable - related parties		247,008		200,558
Accrued compensation		1,218,729		1,434,106
Dividends payable		1,304,852		1,300,022
Current maturities of operating leases		462,464		455,788
Current portion of long-term debt		54,698		42,211
Contract liabilities		45,553		461,870
Current liabilities of discontinued operations		102,892		188,434
Total current liabilities		6,406,952		6,939,116
Long-term debt, noncurrent		161,439		126,338
Deferred tax liabilities		1,386,086		1,440,809
Noncurrent operating leases		2,520,367		982,076
Net liability arising from put/call options		559,000		690,000
Other liabilities		387,857		362,165
Long-term liabilities of discontinued operations		0		2,499
Total liabilities		11,421,701		10,543,003
Commitments and contingencies
Equity
Consolidated Water Co. Ltd. stockholders' equity
Redeemable preferred stock, $0.60 par value. Authorized 200,000 shares; issued and outstanding 30,106 and 31,068 shares, respectively		18,064		18,641
Class A common stock, $0.60 par value. Authorized 24,655,000 shares; issued and outstanding 15,201,475 and 15,143,683 shares, respectively		9,120,885		9,086,210
Class B common stock, $0.60 par value. Authorized 145,000 shares; none issued		0		0
Additional paid-in capital		87,028,085		86,893,486
Retained earnings		64,603,284		64,910,709
Total Consolidated Water Co. Ltd. stockholders' equity		160,770,318		160,909,046
Non-controlling interests		7,582,416		8,103,503
Total equity		168,352,734		169,012,549
Total liabilities and equity	$	179,774,435	$	179,555,552

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

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CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	Three Months Ended March 31,
	2021		2020
Total revenue	$	17,103,317	$	20,725,721
Total cost of revenue (including purchases from related parties of $155,982 in 2021 and $493,463 in 2020)		10,976,807		12,285,400
Gross profit		6,126,510		8,440,321
General and administrative expenses (including purchases from related parties of $4,429 in 2021)		4,764,486		4,695,309
Loss on asset dispositions and impairments, net		(248,933)		(220)
Income from operations		1,113,091		3,744,792

Other income (expense):
Interest income		160,364		136,440
Interest expense		(2,860)		(2,526)
Profit-sharing income from OC-BVI		6,075		10,125
Equity in the earnings of OC-BVI		15,780		25,883
Net unrealized gain (loss) on put/call options		131,000		(161,000)
Other		4,249		18,339
Other income, net		314,608		27,261
Income before income taxes		1,427,699		3,772,053
Provision (benefit) for income taxes		(2,660)		206,083
Net income from continuing operations		1,430,359		3,565,970
Income from continuing operations attributable to non-controlling interests		128,793		360,998
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders		1,301,566		3,204,972
Total loss from discontinued operations		(312,794)		(316,365)
Net income attributable to Consolidated Water Co. Ltd. stockholders	$	988,772	$	2,888,607

Basic earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	0.08	$	0.21
Discontinued operations		(0.02)		(0.02)
Basic earnings per share	$	0.06	$	0.19

Diluted earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	0.08	$	0.21
Discontinued operations		(0.02)		(0.02)
Diluted earnings per share	$	0.06	$	0.19

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

Weighted average number of common shares used in the determination of:
Basic earnings per share		15,201,458		15,114,506
Diluted earnings per share		15,356,842		15,268,884

Three Months Ended March 31,
2020 2019
Total revenue $ 20,725,721 $ 16,988,524
Total cost of revenue 12,285,400 10,026,221
Gross profit 8,440,321 6,962,303
General and administrative expenses 5,153,757 4,378,034
Gain (loss) on asset dispositions and impairments, net (220 ) 43,769
Income from operations 3,286,344 2,628,038

Other income (expense):
Interest income 136,440 150,185
Interest expense (2,526 ) -
Profit-sharing income from OC-BVI 10,125 6,075
Equity in the earnings of OC-BVI 25,883 13,461
Net unrealized loss on put/call options (161,000 ) (24,000 )
Other 160,422 114,369
Other income, net 169,344 260,090
Income before income taxes 3,455,688 2,888,128
Provision for income taxes 206,083 48,959
Net income from continuing operations 3,249,605 2,839,169
Income from continuing operations attributable to non-controlling interests 360,998 273,908
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders 2,888,607 2,565,261
Gain on sale of discontinued operations - 3,621,170
Total income from discontinued operations - 3,621,170
Net income attributable to Consolidated Water Co. Ltd. stockholders $ 2,888,607 $ 6,186,431

Basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations $ 0.19 $ 0.17
Discontinued operations - 0.24
Basic earnings per share $ 0.19 $ 0.41

Diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations $ 0.19 $ 0.17
Discontinued operations - 0.24
Diluted earnings per share $ 0.19 $ 0.41

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

Weighted average number of common shares used in the determination of:
Basic earnings per share 15,114,506 15,020,344
Diluted earnings per share 15,268,884 15,184,435

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

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CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

Redeemable
preferred stock Common stock Additional
paid-in Retained Non-controlling Total
stockholders’
Shares Dollars Shares Dollars capital earnings interests equity
Balance as of December 31, 2019 33,751 $ 20,251 15,049,608 $ 9,029,765 $ 88,356,509 $ 66,352,733 $ 14,193,616 $ 177,952,874
Issue of share capital - - 64,898 38,939 (38,939 ) - - -
Net income - - - - - 2,888,607 360,998 3,249,605
Purchase of subsidiary from noncontrolling interest - - - - (2,444,047 ) - (6,055,953 ) (8,500,000 )
Dividends declared - - - - - (1,289,378 ) - (1,289,378 )
Stock-based compensation - - - - 161,406 - - 161,406
Balance as of March 31, 2020 33,751 $ 20,251 15,114,506 $ 9,068,704 $ 86,034,929 $ 67,951,962 $ 8,498,661 $ 171,574,507


	Redeemable						Additional				Non-		Total
	preferred stock			Common stock			paid-in		Retained		controlling		stockholders’
	Shares	Dollars		Shares	Dollars		capital		earnings		interests		equity
Balance as of December 31, 2020	31,068	$	18,641	15,143,683	$	9,086,210	$	86,893,486	$	64,910,709	$	8,103,503	$	169,012,549
Issue of share capital	0		0	57,577		34,546		(34,546)		0		0		0
Conversion of preferred stock	(215)		(129)	215		129		—		—		—		—
Buyback of preferred stock	(747)		(448)	—		—		(7,065)		—		—		(7,513)
Net income	0		0	0		0		0		988,772		128,793		1,117,565
Dividends declared	0		0	0		0		0		(1,296,197)		(649,880)		(1,946,077)
Stock-based compensation	0		0	0		0		176,210		0		0		176,210
Balance as of March 31, 2021	30,106	$	18,064	15,201,475	$	9,120,885	$	87,028,085	$	64,603,284	$	7,582,416	$	168,352,734


	Redeemable						Additional				Non-		Total
	preferred stock			Common stock			paid-in		Retained		controlling		stockholders’
	Shares	Dollars		Shares	Dollars		capital		earnings		interests		equity
Balance as of December 31, 2019	33,751	$	20,251	15,049,608	$	9,029,765	$	88,356,509	$	66,352,733	$	14,193,616	$	177,952,874
Issue of share capital	0		0	64,898		38,939		(38,939)		0		0		0
Net income	0		0	0		0		0		2,888,607		360,998		3,249,605
Purchase of non-controlling interests in Aerex	—		—	—		—		(2,444,047)		—		(6,055,953)		(8,500,000)
Dividends declared	0		0	0		0		0		(1,289,378)		0		(1,289,378)
Stock-based compensation	0		0	0		0		161,406		0		0		161,406
Balance as of March 31, 2020	33,751	$	20,251	15,114,506	$	9,068,704	$	86,034,929	$	67,951,962	$	8,498,661	$	171,574,507

Redeemable
preferred stock Common stock Additional
paid-in Retained Cumulative translation Non-controlling Total
stockholders’
Shares Dollars Shares Dollars capital earnings adjustment interests equity
Balance as of December 31, 2018 34,796 $ 20,878 14,982,906 $ 8,989,744 $ 87,211,953 $ 59,298,161 $ (549,555 ) $ 8,784,722 $ 163,755,903
Issue of share capital - - 26,864 16,118 (16,118) - - - -
Buyback of preferred stock (1,983 ) (1,190 ) - - (16,605 ) - - - (17,795 )
Net income - - - - - 6,186,431 - 273,908 6,460,339
Dividends declared - - - - - (1,280,223 ) - - (1,280,223 )
Stock-based compensation - - - - 156,062 - - - 156,062
Balance as of March 31, 2019 32,813 $ 19,688 15,009,770 $ 9,005,862 $ 87,335,292 $ 64,204,369 $ (549,555 ) $ 9,058,630 $ 169,074,286

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

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CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended March 31,
	2021		2020
Net cash provided by operating activities - continuing operations	$	1,466,141	$	283,539
Net cash used in operating activities - discontinued operations		(380,001)		(572,188)
Net cash provided by (used in) operating activities		1,086,140		(288,649)

Cash flows from investing activities
Additions to property, plant and equipment and construction in progress		(292,803)		(516,331)
Proceeds from asset dispositions		41,500		450
Purchase of noncontrolling interest in Aerex		0		(8,500,000)
Net cash used in investing activities		(251,303)		(9,015,881)

Cash flows from financing activities
Dividends paid to common shareholders		(1,288,726)		(1,280,993)
Dividends paid to preferred shareholders		(2,641)		(2,869)
Dividends paid to non-controlling interests		(649,880)		—
Repurchase of redeemable preferred stock		(7,513)		0
Principal repayments on long-term debt		(10,632)		(3,496)
Net cash used in financing activities		(1,959,392)		(1,287,358)
Net decrease in cash and cash equivalents		(1,124,555)		(10,591,888)
Cash and cash equivalents at beginning of period		43,794,150		42,071,083
Cash and cash equivalents at beginning of period - discontinued operations		154,130		831,586
Less: cash and cash equivalents at end of period - discontinued operations		(41,198)		(820,275)
Cash and cash equivalents at end of period	$	42,782,527	$	31,490,506


Interest paid in cash	$	2,740	$	2,526

Non-cash transactions:
Dividends declared but not paid	$	1,296,877	$	1,290,058
Transfers from (to) inventory to (from) property, plant and equipment and construction in progress	$	75,433	$	(71,719)
Transfers from construction in progress to property, plant and equipment	$	81,599	$	1,336,271
Right-of-use assets obtained in exchange for new operating lease liabilities	$	1,716,789	$	16,383
Purchase of equipment through issuance of long-term debt	$	58,220	$	122,292

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

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~~CONSOLIDATED WATER CO. LTD.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(UNAUDITED)~~

Three Months Ended March 31,
2020 2019
Net cash provided by (used in) operating activities $ (288,649 ) $ 3,693,963

Cash flows from investing activities
Additions to property, plant and equipment and construction in progress (516,331 ) (1,336,022 )
Proceeds from asset dispositions 450 46,700
Proceeds from sale of discontinued operations, net of cash provided - 6,706,234
Acquisition of noncontrolling interest in Aerex (8,500,000 ) -
Collections on loans receivable - 364,515
Net cash provided by (used in) investing activities (9,015,881 ) 5,781,427

Cash flows from financing activities
Dividends paid to common shareholders (1,280,993 ) (1,275,151 )
Dividends paid to preferred shareholders (2,869 ) (2,958 )
Repurchase of redeemable preferred stock - (17,795 )
Principal repayments of long-term debt (3,496 ) -
Net cash used in financing activities (1,287,358 ) (1,295,904 )
Net increase (decrease) in cash and cash equivalents (10,591,888 ) 8,179,486
Cash and cash equivalents at beginning of period 42,902,669 31,337,477
Cash and cash equivalents at end of period $ 32,310,781 $ 39,516,963

Cash and cash equivalents at end of period 32,310,781 38,016,963
Restricted cash at end of period - 1,500,000
Cash and cash equivalents and restricted cash at end of period $ 32,310,781 $ 39,516,963

Interest paid in cash $ 2,526 $ -

Non-cash transactions:
Dividends declared but not paid $ 1,290,058 $ 1,280,903
Transfers from (to) inventory to (from) property, plant and equipment and construction in progress $ (71,719 ) $ 131,439
Transfers from construction in progress to property, plant and equipment $ 1,336,271 $ 6,769,561
Right-of-use assets obtained in exchange for new operating lease liabilities $ 78,003 $ 3,464,670

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

CONSOLIDATED WATER CO. LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Principal activity

Consolidated Water Co. Ltd., and its subsidiaries (collectively, the “Company”) supply potable water, treat water for reuse and provide water-related products and services to customers in the Cayman Islands, The Bahamas, the United States and the British Virgin Islands. The Company produces potable water from seawater using reverse osmosis technology and sells this water to a variety of customers, including public utilities, commercial and tourist properties, residential properties and government facilities. The Company designs, builds and sells water production and water treatment infrastructure and manages water infrastructure for commercial and governmental customers. The Company also manufactures a wide range of specialized and custom water industry related products and provides design, engineering, operating and other services applicable to commercial, municipal and industrial water production, supply and treatment.

2. Accounting policies

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

On January 24, 2020, as a result of CW-Holdings’ exercise of a call option, CW-Holdings purchased the remaining 49% ownership interest in Aerex for $8,500,000 in cash. After giving effect to this purchase, CW-Holdings owns 100% of the outstanding capital stock of Aerex.

The accompanying interim condensed consolidated financial statements are unaudited. These condensed consolidated financial statements reflect all adjustments (which are of a normal recurring nature) that, in the opinion of management, are necessary to fairly present the Company’s financial position, results of operations and cash flows as of and for the periods presented. The results of operations for these interim periods are not necessarily indicative of the operating results for future periods, including the fiscal year ending December 31, ~~2020.~~

2021.

These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) relating to interim financial statements and in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted in these condensed financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~.2020.

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

Net foreign currency gains (losses) arising from transactions and re-measurements were ~~$180,985~~($108) and ~~$57,701~~$16,843 for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, and are included in “Other income ~~(expense)~~ - Other” in the accompanying condensed consolidated statements of income.

Cash and cash equivalents: Cash and cash equivalents consist of demand deposits at banks and highly liquid deposits at banks with an original maturity of three months or less. Cash and cash equivalents as of March 31, ~~2020~~2021 and

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December 31, ~~2019~~2020 include ~~$9.0~~$8.5 million and ~~$12.7~~$8.5 million, respectively, of certificates of deposits with an original maturity of three months or less.

Certain transfers from the Company’s Bahamas bank accounts to Company bank accounts in other countries require the approval of the Central Bank of The Bahamas. As of March 31, ~~2020,~~2021, the equivalent United States dollar cash balances for deposits held in The Bahamas were approximately ~~$9.8~~$8.8 million.

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

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

	Three Months Ended March 31,
	2020		2019

					Three Months Ended March 31,
					2021		2020
Retail revenue	$	7,257,432	$	6,686,660	$	5,711,305	$	7,257,432
Bulk revenue		6,440,284		7,111,313		6,245,970		6,440,284
Services revenue		3,114,813		100,577		3,540,846		3,114,813
Manufacturing revenue		3,913,192		3,089,974		1,605,196		3,913,192
Total revenue	$	20,725,721	$	16,988,524	$	17,103,317	$	20,725,721

Retail revenue

The Company produces and supplies water to end-users, including residential, commercial and governmental customers in the Cayman Islands under an exclusive retail license issued to Cayman Water by the Cayman Islands government to provide water in two of the three most populated ~~and rapidly developing~~ areas on Grand Cayman Island. Customers are billed on a monthly basis based on metered consumption and bills are typically collected within 30 to 35 days after the billing date. Receivables not collected within 45 days subject the customer to disconnection from water service. In ~~2019~~2021 and 2020, bad debts represented less than 1% of the Company’s total retail sales.

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

Bulk revenue

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

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

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

Bimini through December 18, 2020, which generated revenue of approximately $127,000 for the year ended December 31, 2020.

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

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Services and Manufacturing revenue

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

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

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

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

The Company also provides design, engineering, construction and management services for water treatment and reuse infrastructure through PERC. All of PERC’s customers are companies or governmental entities located in the U.S.

generates manufacturing revenue from Aerex.

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

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

Revenue recognized and amounts billed on ~~services segment and manufacturing segment~~ contracts in progress are summarized as follows:



	March 31, 2021		December 31, 2020
Revenue recognized to date on contracts in progress	$	8,186,878	$	17,534,449
Amounts billed to date on contracts in progress		(7,977,023)		(17,791,928)
Retainage		414,011		312,130
Net contract asset	$	623,866	$	54,651

March 31, 2020 December 31, 2019
Revenues recognized to date on contracts in progress $ 20,029,321 $ 24,041,993
Amounts billed to date on contracts in progress (18,964,689 ) (22,980,598 )
$ 1,064,632 $ 1,061,395

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



	March 31, 2021		December 31, 2020
Contract assets	$	669,419	$	516,521
Contract liabilities		(45,553)		(461,870)
Net contract asset	$	623,866	$	54,651

March 31, 2020 December 31, 2019
Costs and estimated earnings in excess of billings $ 1,968,324 $ 1,675,781
Billings in excess of costs and estimated earnings (903,692 ) (614,386 )
$ 1,064,632 $ 1,061,395

As of March 31, ~~2020,~~2021, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately ~~$3.2~~$1.4 million in aggregate transaction price for contracts with an original expected length of greater than one year. The Company expects to earn revenue as it satisfies its performance obligations under

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those contracts in the amount of approximately ~~$1.9~~$1.0 million during the remainder of the year ending December 31, ~~2020~~2021 and ~~$1.3~~approximately $0.4 million ~~thereafter.~~thereafter.

Practical Expedients and Exemptions

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

Comparative amounts: Certain amounts presented in the financial statements previously issued for ~~2019~~2020 have been reclassified to conform to the current ~~year’s~~periods’ presentation.

3. Segment information

The Company has ~~four~~4 reportable segments: retail, bulk, services and manufacturing. The retail segment operates the water utility for the Seven Mile Beach and West Bay areas of Grand Cayman Island pursuant to an exclusive license granted by the Cayman Islands government. The bulk segment supplies potable water to government utilities in Grand Cayman and The Bahamas under long-term contracts. The services segment designs, constructs and sells water infrastructure and provides management and operating services to third parties. The manufacturing segment manufactures and services a wide range of custom and specialized water-related products applicable to commercial, municipal and industrial water production, supply and treatment. Consistent with prior periods, the Company records all non-direct general and administrative expenses in its retail business segment and does not allocate any of these non-direct expenses to its other three business segments.

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

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


	Three Months Ended March 31, 2021
	Retail		Bulk		Services		Manufacturing		Total
Revenue	$	5,711,305	$	6,245,970	$	3,540,846	$	1,605,196	$	17,103,317
Cost of revenue		2,707,994		4,155,153		2,721,928		1,391,732		10,976,807
Gross profit		3,003,311		2,090,817		818,918		213,464		6,126,510
General and administrative expenses		3,371,010		377,503		722,020		293,953		4,764,486
Gain (loss) on asset dispositions and impairments, net		(250,000)		1,500		(433)		—		(248,933)
Income (loss) from operations	$	(617,699)	$	1,714,814	$	96,465	$	(80,489)		1,113,091
Other income, net										314,608
Income before income taxes										1,427,699
Benefit from income taxes										(2,660)
Net income from continuing operations										1,430,359
Income from continuing operations attributable to non-controlling interests										128,793
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders										1,301,566
Net loss from discontinued operations										(312,794)
Net income attributable to Consolidated Water Co. Ltd. stockholders									$	988,772

Three Months Ended March 31, 2020
Retail Bulk Services Manufacturing Total
Revenue $ 7,257,432 $ 6,440,284 $ 3,114,813 $ 3,913,192 $ 20,725,721
Cost of revenue 2,986,620 4,564,580 2,273,520 2,460,680 12,285,400
Gross profit 4,270,812 1,875,704 841,293 1,452,512 8,440,321
General and administrative expenses 3,373,839 292,046 1,131,138 356,734 5,153,757
Gain (loss) on asset dispositions and impairments, net - 200 (420 ) - (220 )
Income (loss) from operations $ 896,973 $ 1,583,858 $ (290,265 ) $ 1,095,778 3,286,344
Other income, net 169,344
Income before income taxes 3,455,688
Provision for income taxes 206,083
Net income 3,249,605
Income attributable to non-controlling interests 360,998
Net income attributable to Consolidated Water Co. Ltd. stockholders $ 2,888,607

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Depreciation and amortization expenses for the three months ended March 31, 2021 for the retail, bulk, services and manufacturing segments were $634,255, $953,760, $200,495 and $75,533, respectively.


	Three Months Ended March 31, 2020
	Retail		Bulk		Services		Manufacturing		Total
Revenue	$	7,257,432	$	6,440,284	$	3,114,813	$	3,913,192	$	20,725,721
Cost of revenue		2,986,620		4,564,580		2,273,520		2,460,680		12,285,400
Gross profit		4,270,812		1,875,704		841,293		1,452,512		8,440,321
General and administrative expenses		3,373,839		292,046		672,690		356,734		4,695,309
Gain (loss) on asset dispositions and impairments, net		—		200		(420)		—		(220)
Income from operations	$	896,973	$	1,583,858	$	168,183	$	1,095,778		3,744,792
Other income, net										27,261
Income before income taxes										3,772,053
Provision for income taxes										206,083
Net income from continuing operations										3,565,970
Income attributable to non-controlling interests										360,998
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders										3,204,972
Net loss from discontinued operations										(316,365)
Net income attributable to Consolidated Water Co. Ltd. stockholders									$	2,888,607

Depreciation and amortization expenses for the three months ended March 31, 2020 for the retail, bulk, services and manufacturing segments were $604,813, $967,235, ~~$183,886~~$182,750 and $126,134, respectively.

Three Months Ended March 31, 2019
Retail Bulk Services Manufacturing Total
Revenue $ 6,686,660 $ 7,111,313 $ 100,577 $ 3,089,974 $ 16,988,524
Cost of revenue 2,825,604 4,954,591 121,919 2,124,107 10,026,221
Gross profit 3,861,056 2,156,722 (21,342 ) 965,867 6,962,303
General and administrative expenses 3,117,278 261,412 485,885 513,459 4,378,034
Gain (loss) on asset dispositions and impairments, net (2,731 ) 46,500 - - 43,769
Income (loss) from operations $ 741,047 $ 1,941,810 $ (507,227 ) $ 452,408 2,628,038
Other income, net 260,090
Income before income taxes 2,888,128
Provision for income taxes 48,959
Net income from continuing operations 2,839,169
Income from continuing operations attributable to non-controlling interests 273,908
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders 2,565,261
Total income from discontinued operations 3,621,170
Net income attributable to Consolidated Water Co. Ltd. stockholders $ 6,186,431


	As of March 31, 2021
	Retail		Bulk		Services		Manufacturing		Total
Accounts receivable, net	$	2,439,024	$	19,731,117	$	1,546,559	$	971,732	$	24,688,432
Inventory, current and non-current	$	2,785,083	$	3,632,537	$	—	$	343,139	$	6,760,759
Property, plant and equipment, net	$	27,188,029	$	26,730,578	$	563,155	$	1,602,570	$	56,084,332
Construction in progress	$	436,445	$	60,040	$	—	$	103,536	$	600,021
Intangibles, net	$	—	$	—	$	3,031,388	$	917,778	$	3,949,166
Goodwill	$	1,170,511	$	1,948,875	$	5,320,416	$	4,885,211	$	13,325,013
Total segment assets	$	61,657,813	$	69,722,252	$	15,216,541	$	10,634,006	$	157,230,612
Assets of discontinued operations									$	22,543,823
Total assets									$	179,774,435


	As of December 31, 2020
	Retail		Bulk		Services		Manufacturing		Total
Accounts receivable, net	$	2,444,455	$	17,022,813	$	1,420,609	$	596,099	$	21,483,976
Inventory, current and non-current	$	2,787,163	$	3,795,544	$	—	$	1,138,313	$	7,721,020
Property, plant and equipment, net	$	27,947,545	$	27,611,567	$	487,973	$	1,640,899	$	57,687,984
Construction in progress	$	305,110	$	31,737	$	—	$	103,537	$	440,384
Intangibles, net	$	—	$	—	$	3,200,555	$	947,778	$	4,148,333
Goodwill	$	1,170,511	$	1,948,875	$	5,320,416	$	4,885,211	$	13,325,013
Total segment assets	$	56,425,159	$	74,771,798	$	14,470,322	$	11,210,685	$	156,877,964
Assets of discontinued operations									$	22,677,588
Total assets									$	179,555,552

~~Depreciation and amortization expenses for the three months ended March 31, 2019 for the retail, bulk, services and manufacturing segments were $518,014, $947,689, $1,136 and $277,053, respectively.~~

As of March 31, 2020
Retail Bulk Services Manufacturing Total
Accounts receivable, net $ 3,237,362 $ 18,276,079 $ 1,565,697 $ 2,545,645 $ 25,624,783
Inventory, current and non-current $ 2,804,866 $ 3,784,087 $ - $ 4,227,294 $ 10,816,247
Property, plant and equipment, net $ 29,221,683 $ 30,126,797 $ 275,487 $ 1,615,446 $ 61,239,413
Construction in progress $ 170,429 $ 31,737 $ - $ 126,168 $ 328,334
Intangibles, net $ - $ - $ 3,708,055 $ 1,077,778 $ 4,785,833
Goodwill $ 1,170,511 $ 1,948,875 $ 5,320,416 $ 4,885,211 $ 13,325,013
Land and rights of way held for development $ - $ - $ 24,162,523 $ - $ 24,162,523
Total segment assets $ 54,467,510 $ 70,961,688 $ 42,742,706 $ 17,520,255 $ 185,692,159

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As of December 31, 2019
Retail Bulk Services Manufacturing Total
Accounts receivable, net $ 2,891,165 $ 18,883,493 $ 954,149 $ 500,882 $ 23,229,689
Inventory, current and non-current $ 2,668,902 $ 3,628,443 $ - $ 1,394,588 $ 7,691,933
Property, plant and equipment, net $ 29,177,718 $ 30,281,647 $ 168,585 $ 1,621,029 $ 61,248,979
Construction in progress $ 396,214 $ 869,792 $ - $ 69,591 $ 1,335,597
Intangibles, net $ - $ - $ 3,877,222 $ 1,162,778 $ 5,040,000
Goodwill $ 1,170,511 $ 1,948,875 $ 5,320,416 $ 4,885,211 $ 13,325,013
Land and rights of way held for development $ - $ - $ 24,162,523 $ - $ 24,162,523
Total segment assets $ 65,554,640 $ 69,423,770 $ 42,459,177 $ 14,854,557 $ 192,292,144

4. Earnings per share

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

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


	Three Months Ended March 31,
	2021		2020
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders	$	1,301,566	$	3,204,972
Less: preferred stock dividends		(2,559)		(2,869)
Net income from continuing operations available to common shares in the determination of basic earnings per common share		1,299,007		3,202,103
Total loss from discontinued operations		(312,794)		(316,365)
Net income available to common shares in the determination of basic earnings per common share	$	986,213	$	2,885,738

Weighted average number of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders		15,201,458		15,114,506
Plus:
Weighted average number of preferred shares outstanding during the period		30,469		33,751
Potential dilutive effect of unexercised options and unvested stock grants		124,915		120,627
Weighted average number of shares used for determining diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders		15,356,842		15,268,884

Three Months Ended March 31,
2020 2019
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders $ 2,888,607 $ 2,565,261
Less: preferred stock dividends (2,869 ) (2,789 )
Net income from continuing operations available to common shares in the determination of basic earnings per common share 2,885,738 2,562,472
Total income from discontinued operations - 3,621,170
Net income available to common shares in the determination of basic earnings per common share $ 2,885,738 $ 6,183,642

Weighted average number of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders 15,114,506 15,020,344
Plus:
Weighted average number of preferred shares outstanding during the period 33,751 33,480
Potential dilutive effect of unexercised options and unvested stock grants 120,627 130,611
Weighted average number of shares used for determining diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders 15,268,884 15,184,435

5. ~~NSC and AdR~~Discontinued operations - Mexico project development

In May 2010, the Company acquired, through its ~~wholly owned~~wholly-owned Netherlands subsidiary, CW-Cooperatief, a 50% interest in NSC, a development stage Mexican company. CW-Cooperatief has since purchased, through the conversion of a loan it made to NSC, additional shares that increased its ownership interest in NSC to 99.99%. NSC was formed to pursue a project (the “Project”) that originally encompassed the construction, operation and minority ownership of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and accompanying pipelines to deliver water to the Mexican potable water system. As discussed in 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 gallons per day plant and an aqueduct that connects to the Mexican potable water infrastructure and a second phase consisting of an additional 50 million gallons per day of production capacity.

Through a series of transactions ~~completed~~that began in ~~2012-2014,~~2012, NSC purchased 20.1 hectares of land for approximately ~~$20.6~~$21.1 million on which the proposed Project’s plant would be constructed.

~~In 2012, NSC entered into a lease, with~~Following an effective term of 20-years from the date of full operation of the Project’s desalination plant, with the Comisión Federal de Electricidad for approximately 5,000 square meters of land on which it plans to construct the water intake and discharge works for the plant. The amounts due on this lease are payable in Mexican pesos at an amount that is currently equivalent to approximately $26,000 every two months. This lease may be cancelledassessment 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 required for the Project (the “APP Law”). Pursuant to this new legislation, in January 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”~~(the “State”)~~. SIDUE accepted NSC’s expression of interest and requested that NSC submit a detailed proposal for the Project that complied 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~~need for such proposal be evaluated by SIDUE and submitted to the Public-Private Association Projects State Committee (the “APP Committee”) for review and authorization. If the Project was authorized the State would be required to conduct a ~~public tender for the Project.~~

In response to its APP Proposal, in September 2015 NSC received a letter dated June 30, 2015 from the Director General of the Comisión Estatal del Agua de Baja California (“CEA”), the State agency with responsibility for the Project, stating that (i) the Project is in the public interest with high social benefits and is consistent with the objectives of the State development plan; and (ii) that the Project should proceed,desalination plant and the ~~required public tender should be conducted. In~~passage of enabling legislation in November 2015, the State officially commenced the tender for the ~~Project, the~~Project. The scope of ~~which~~the Project was defined by 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~~connected 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, NuWater S.A.P.I. de C.V. (“NuWater”) and Suez Medio Ambiente México, S.A. de C.V. (“Suez MA”), a subsidiary of SUEZ International, S.A.S., 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.

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.

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things that (i) AdR would purchase the land and other Project assets from NSC on the date that the Project begins commercial operations and (ii) AdR would enter into a Management and Technical Services Agreement with NSC effective on the first day that the Project begins commercial operations. NSC initially owned 99.6% of the equity of AdR. In February 2018, ~~NSC~~CW-Holdings acquired the remaining 0.4% ownership in AdR from NuWater.

On August 22, 2016, the Public Private Partnership Agreement for ~~public private partnership number 002/2015, bid number SIDUE-CEA-APP-2015-002 (“APP~~the Project (the “APP Contract”), was executed between AdR, the ~~CEA,~~State Water Commsiion of Baja, California (“CEA”), the Government of Baja California, as represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana (“CESPT”). The APP Contract ~~requires~~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~~public water system in Tijuana, Baja California and the second phase with a capacity of 50 million gallons per day. The first phase ~~must~~was to be operational within 36 months of commencing construction and the second phase ~~must~~was to be operational by January 2025. The APP Contract further ~~requires~~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, the plant and aqueduct ~~will be~~would have been transferred to ~~the~~ CEA.

The APP Contract ~~does not become effective until the following open conditions, among others, have been met:~~

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

~~AdR has obtained all rights of way required for the aqueduct; and~~

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

In December 2016, the Congress of the State of Baja California, Mexico (the “Congress”) passed Decreto #57 which, among other things, ratified and authorized the payment obligations of the corresponding public entities under the APP Contract and authorized the corresponding public entities to obtain a credit facility to guarantee their payment obligations. 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. In addition, an amendment of Decreto #57 was required to authorize the inclusion of revenue from the CESPT in the primary payment trust for the Project. These amendments were included in Decreto #168, which was approved by the Congress in December 2017. The authorization of the payment obligations of the public entities under the APP Contract and for the execution of the credit agreement to guarantee such payment obligations given in Decreto #57, as amended by Decreto #168, expired on December 31, 2018. During the congressional session held at the end of March 2019, the Congress passed Decreto #335, which renewed the authorizations for the various payment trusts, guaranties and bank credit lines required to be established for the Project by the State entities. Decreto #335 expired December 31, 2019. During the congressional session held at the end of December 2019, the Congress passed Decreto #37, which renewed the authorizations for the various payment trusts, guaranties and bank credit lines required to be established for the Project by the State entities. Decreto #37 expires June 30, 2020. However, the expiration of Decreto #37 will not result in a termination of the APP Contract and/or the Project, as a new authorization may be issued by Congress.

~~Following its issuance, the following legal proceedings were initiated against Decreto #335:~~

~~(a) Amparo trial filed by a certain congressman and his alternate in April 2019.~~Given that neither AdR nor NSC are parties to this action, based on publicly available information the Company understands that in April 2019, a congressman of the Congress and his alternate filed this claim, stating that there are no interested third parties in this trial. Both the provisional and definitive suspensions of the effects of Decreto #335 requested by claimants, were denied by the Sixth District Court in Mexicali. As such, the effects of Decreto #335 have not been suspended. On July 31, 2019, this proceeding was dismissed. However, accordingJune 2018 to publicly available information, on August 15, 2019, the claimants appealed this dismissal. As neither AdR nor NSC are parties to this Amparo trial, they are not parties to that appeal. Based upon publicly available information, on February 6, 2020, the Sixth Collegiate Tribunal of the Fifteenth Judicial Circuit dismissed such appeal.

~~(b) Amparo trial filed in May 2019 by certain individuals that allegedly form part of Consejo Coordinador Empresarial (a private local business association).~~ This claim challenged the constitutionality and therefore, the validity of Decreto #335. In May 2019, an initial resolution dismissing the claim was issued by the First District Court in Tijuana. The claimants in this proceeding appealed this dismissal, and the appeal was resolved in the claimants’ favor by a superior court, therefore forcing the admission of this amparo claim by the First District Court in Tijuana. Both the provisional and definitive suspensions of the effects of Decreto #335 requested by claimants were denied by the First District Court in Tijuana. On October 1, 2019, AdR appeared before the First District Court, to vigorously oppose this claim. On January 3, 2020, the First District Court in Tijuana dismissed this claim. On January 15, 2020, claimants appealed such dismissal, and such appeal has not been yet resolved.

~~(c)~~ ~~Constitutionality challenge (Acción de Inconstitucionalidad) against Decreto #335, filed by certain congresspersons in May 2019~~. Based on publicly available information, the Company understands that in May 2019, certain congresspersons filed this constitutionality challenge against Decreto #335. This challenge has yet to be resolved.

Both the exchange rate for the Mexican 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, increasesincrease the scope of Phase 1 ofand to allow for changes in the ~~Project for including~~water tariff due to 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~~interest rates and construction costs that had and would occur from the date the APP contract was signed to the ~~dollar and changes in interest rates that have occurred subsequent~~date construction commenced.

Through June 30, 2020, NSC had paid approximately $3.0 million to acquire rights of way for the aqueduct to be constructed for the Project to deliver water to the ~~submission~~Mexico public water system.

On June 29, 2020, AdR received a letter (the “Letter”) from the Director General of CEA and the ~~Consortium’s bid~~Director General of CESPT terminating the APP Contract. The reasoning provided in the Letter for the ~~Project. As a result of this amendment~~decision to terminate the APP Contract is that the ~~final cost of Phase 1 and the related consideration~~Project (a) is not financially feasible due to ~~be charged by AdR under the APP Contract will be determined based upon the bid submitted by the Consortium, the changes set forth~~increases in the ~~amendment~~construction, operating and financing costs for the Project in addition to ~~the APP Contract and the~~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 ~~effect on~~ the ~~financial closing date for Phase 1.~~

~~In February 2018, AdR executed a subscription agreement (the “Agreement”)~~APP Contract) for the ~~equity funding required for~~purpose of acknowledging and paying 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 MA with the option to purchase 20% of the equity of AdR. If Suez MA 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 conditions precedent related to the Project are met, including but not limited to those conditions discussed previously. The aggregate investment to benon-recoverable expenses made by ~~the equity partners~~AdR in 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 was originally scheduled to expire on June 30, 2019 but has been extended to September 30, 2020.

~~In June 2018, AdR and Suez MA executed a contract whereby Suez MA will serve as the engineering, procurement and construction contractor for~~connection with the Project, with such ~~contract becoming effective on~~reimbursement to be calculated in accordance with the ~~effective date~~terms of the APP Contract.

If The applicable law requires this list of non-recoverable expenses made by AdR ~~is ultimately unable to proceed~~in connection with the Project ~~due~~be submitted to ~~a failure by any~~CEA and CESPT within 20 business days from the date of receipt of the ~~parties involved to meet~~Letter.

As a consequence of the ~~conditions necessary for~~termination of the APP Contract, ~~to become effective, or for any other reason, the land NSC has purchased and~~ the rights of way ~~deposits it has made may lose~~NSC and AdR acquired for the aqueduct no longer have any value due to the loss of their strategic importance derived from their ~~association with~~incorporation in the ~~Project and consequently may decline in value. If AdR does not proceed with~~Project. Consequently, the ~~Project, NSC may ultimately be unable to sell this land or recoup its rights of way deposits for amounts at least equal to their carrying values as of March 31, 2020~~Company recorded an impairment loss of approximately $24.2 million. 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 the Company’s consolidated financial condition and results of operations.

Included in the Company’s results of operations are general and administrative expenses from NSC and AdR, consisting of organizational, legal, accounting, engineering, consulting and other costs relating to Project development activities. Such expenses amounted to approximately $458,000 and $484,000$(3.0 million) for the three months ended ~~March 31,~~June 30, 2020 to write off its investment in these rights of way. The Company also recorded adjustments during the three months ended June 30, 2020 of $2.6 million and ~~2019, respectively. The~~$2.2 million to reduce its operating lease right-of-use assets and operating lease liabilities, respectively, due to the planned cancellation (or transfer to the State) of a long-term land lease associated with the Project.

As a result of the cancellation of the APP Contract, during the three months ended September 30, 2020 the Company discontinued all project development activities associated with the Project and engaged a real estate broker and commenced active marketing efforts to sell the land NSC purchased for the Project. Accordingly, the assets and liabilities of CW-Cooperatief, NSC and AdR, ~~included~~as well as all Project development expenses and the impairment loss incurred by the Company, have been reclassified from the services segment to discontinued operations in the ~~Company’s consolidated balance sheets amounted~~accompanying condensed financial statements.

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


		March 31,		December 31,
		2021		2020
Cash	$	41,198	$	154,130
Prepaid expenses and other current assets		115,174		88,978
Value added taxes receivable		1,256,007		1,267,991
Property, plant and equipment, net		4,546		5,682
Land and rights of way		21,126,898		21,126,898
Other assets		—		33,909
Total assets of discontinued operations	$	22,543,823	$	22,677,588

Total liabilities of discontinued operations	$	102,892	$	190,933


	Three Months Ended March 31,
	2021		2020
Revenue	$	—	$	—
Income from operations	$	—	$	—
Net loss from discontinued operations	$	(312,794)	$	(316,365)
Gain on sale of discontinued operations	$	—	$	—
Depreciation expense	$	1,136	$	1,136

AdR initiated an amparo claim before a federal district court in Tijuana, Baja California, to ~~approximately $29.0 million~~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 ~~$2.3 million, respectively,~~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, in due time and form, its list of non-recoverable expenses, including those of NSC, to CEA and CESPT which was comprised of 51,144,525 United States dollars and an additional 137,333,114 Mexican pesos. In February 2021, AdR withdrew this amparo claim, and such withdrawal was accepted by the federal district court in Tijuana. To date, AdR has not received a response from CEA or CESPT to its submission of non-recoverable expenses.

The Company, AdR and NSC 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 they may have upon termination of the APP Contract, including the reimbursement of expenses and investments.

As a Netherlands company, CW-Cooperatief, believes it has certain rights relating to its investments in NSC and AdR under the Agreement on Promotion, Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the United Mexican States entered into force as of ~~March 31, 2020~~October 1, 1999 (the “Treaty”). On April 16, 2021, CW-Cooperatief submitted a letter to the President of Mexico and ~~approximately $29.3 million~~other Mexican federal government officials alleging that the State’s termination of the APP Contract constituted a breach by Mexico of its international obligations under the Treaty, entitling CW-Cooperatief to full reparation, including monetary damages. This letter invites Mexico to seek a resolution of this investment dispute through consultation and ~~$2.9 million, respectively,~~negotiation, but states that if the dispute cannot be resolved in this manner, CW-Cooperatief elects to refer the dispute to the International Centre for the Settlement of International Disputes for arbitration, as provided for in the Treaty. To date, CW-Cooperatief has not received a response to this letter.

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

The Company, AdR and NSC will terminate the various agreements ancillary to the Project as a result of ~~December 31, 2019.~~the termination of the APP Contract unless the State elects to assume such agreements.

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Project Litigation

Immediately following CW-Cooperatief’s acquisition of its initial 50% ownership in NSC, the remaining 50% ownership interest in NSC was held by an unrelated company, Norte Sur Agua, S. de R.L. de C.V. (“NSA”). NSA subsequently transferred ownership of half of its shares in NSC to EWG Water LLC (“EWG”) and the other half of its shares in NSC to an individual (the “individual shareholder”). In February 2012, CW-Cooperatief paid $300,000 to enter into an agreement (the “Option Agreement”) that provided it with an option, exercisable through February 7, 2014, to purchase the shares of NSC owned by the individual shareholder for a price of $1.0 million along with an immediate 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, the Company indirectly acquired 99.99% of the ownership of NSC. The Option Agreement contained an anti-dilution provision that required CW-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) CW-Cooperatief did not exercise its share purchase option by February 7, 2014. CW-Cooperatief exercised its option and paid the $1.0 million to the individual shareholder to purchase the Option Agreement shares in February 2014.

In January 2018, EWG initiated an ordinary mercantile claim against the individual shareholder, 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”). In the 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 courts, as a preliminary matter (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 ~~paragraphs~~Tenth Civil Judge granted, ex-parte, the preliminary relief sought by EWG, which resulted in the issuance of official writs to several governmental and public entities involved with the “Rosarito” water desalination project, including the registration of the pendency of the lawsuit in certain public records.

On October 16, 2018, NSC was served with the ordinary mercantile claim. On November 7, 2018, NSC filed a legal response to the 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. EWG challenged such resolution, arguing that ~~follow include~~its notification was not lawful. The Tenth Civil Judge dismissed such challenge, and thereafter EWG filed a ~~description~~remedy against such dismissal, which remedy has not been resolved (notwithstanding that NSC appeared to vigorously oppose such remedy).

In the 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 Due to 99.99% as a consequence of the Option Agreement. EWG requested that the courts, as a preliminary matter (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 current global COVID-19 pandemic, most tribunals in Mexico have suspended their activities intermittently since March 2020, with certain such tribunals restarting 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 and public entities involved with the Project, including the registration of the pendency of the lawsuit in certain public records.

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

In April 2018, AdR filed an amparo 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~~2020. As such, several resolutions are unconstitutional, was issued. EWG appealed such resolution, and in January 2020, the Collegiate Tribunal resolving such appeal dismissed the amparo filed by AdR. However, such dismissal does not adversely impact AdR, considering the resolution to the appeal mentioned in subparagraph b) that follows.pending issuance.

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b)a) Appeal filed by NSC against the preliminary relief sought by EWG.

The appeal remedy filed by NSC on November 7, 2018, mentioned previously, ~~in item (ii)~~ suspended the proceeding (through the posting of a guarantee by NSC) and 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.

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

In January 2020, EWG filed a new amparo claim against the resolution of the appeal remedy previously mentioned in ~~item (ii)~~subparagraph a). 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, the resolution to this amparo claim has not been ~~resolved~~issued (notwithstanding that a final hearing within such procedure was held) and, as such, it does not affect the revocation of the preliminary relief.

On February 26, 2019, the Tenth Civil Judge acknowledged NSC’s filing of the legal response to the ordinary mercantile claim, its request to submit to arbitration, and the appeal remedy previously mentioned in item (ii), granting EWG a period of three business days to, among others, state what it deemed convenient to its interest.

Further, on February 26, 2019, the Tenth Civil Judge set the guarantee requested in NSC’s November 7, 2018 legal response, in the form of a security deposit in the amount of 1,000,000 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.

~~Irrespective of~~Notwithstanding the resolution revoking the preliminary relief previously granted in favor of EWG (due to the filing of the security deposit by NSC) and the pendency of the appeal remedy filed by EWG against such revocation, on April 12, 2019, the Tenth Civil Judge granted EWG the opportunity to file a counter guarantee in the amount of 1,500,000 Mexican pesos to maintain the ex-parte preliminary relief granted in its favor. With respect to this matter, the Tenth Civil Judge issued a resolution on April 26, 2019 allowing such counter guarantee to be filed in the form of a security deposit or in any other form allowed by the law, without extending the term initially granted for the filing of the counter guarantee.

NSC has vigorously opposed the resolution of the Tenth Civil Judge allowing the filing of a counter guarantee through the filing of a revocation remedy. To date, such appeal remedy has not been resolved.

~~Further, on April 12, 2019, the Tenth Civil Judge ruled that the request for arbitration filed on November 7, 2018 was not applicable under Mexican law.~~

~~d) Amparo filed by NSC against the resolution rejecting submission to arbitration.~~

On May 17, 2019, NSC filed an amparo claim against the April 12, 2019 ruling. Such amparo claim was resolved on October 31, 2019, ordering the Tenth Civil Judge to issue a new resolution on the request to submit the claim to arbitration. EWG filed an appeal remedy opposing such order for the issuance of a new resolution, and NSC has filed pleadings to uphold the order for the issuance of a new resolution challenged by EWG. In March 2020, such appeal remedy was resolved in favor of NSC, as the order to the Tenth Civil Judge for issuing a new resolution was confirmed.

~~While such order requires the Tenth Civil Judge to issue a new resolution on the matter of arbitration, this order does not necessarily imply that the Tenth Civil Judge shall rule~~ to move to ~~arbitration. However, if the new resolution is unfavorable for NSC, NSC is prepared to vigorously oppose such resolution.~~

~~e) Administrative cancellation of registrations before the Public Registry of Property.~~

~~Despite the posting of the~~arbitration mentioned previously, ~~mentioned 1,000,000 Mexican pesos guarantee in February 26, 2019 to release the preliminary relief sought by EWG within~~CW-Cooperatief has not been officially served with the ordinary mercantile claim, ~~the Tenth Civil Judge failed~~and AdR has not been notified that it has to ~~make the resolution effective, which would thereby rescind the previously mentioned preliminary relief granted~~appear for such trial. In any event, AdR is only a named third party called to ~~EWG.~~

Consequently, on June 19, 2019 (i.e. before obtaining a resolution revoking the preliminary relief as mentioned previously), NSC filed before the Public Registry of Property of Baja California a cancellation request for the provisional lientrial in this claim, and ~~the preventive annotation recorded against NSC’s property in the public real estate records.~~

On June 24, 2019, the Public Registry of Property of Baja California issued an encumbrances cancellation resolution, approving the release of the provisional 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 real estate owned by NSC.~~

~~f) Amparo filed~~claims have been made by EWG against ~~the administrative cancellation of registrations before the Public Registry of Property~~.AdR.

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 appeal 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. However, EWG may file an appeal remedy against such resolution.

On June 27, 2019, the Tenth Civil Judge acknowledged the posting, by EWG, of a bond policy as the counter guarantee allowed pursuant to the Tenth Civil Judge’s ruling on April 26, 2019. NSC plans to vigorously oppose the filing of such bond policy upon continuation of the proceedings, following the suspension granted as a result of the filing of the appeal remedy previously mentioned in subparagraph b).

CW-Cooperatief has not been officially served with the 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 third party called to trial in this claim, and no claims have been made by EWG against AdR.

The Company cannot presently determine what impact the resolution of this litigation may ~~ultimately~~ have on its ~~ability to complete the Project.~~consolidated financial condition, results of operations or cash flows.

6. Leases

The Company leases property and equipment under operating leases, primarily ~~land,~~ office and warehouse locations. For leases with terms greater than twelve months, the related asset and obligation are recorded at the present value of the lease payments over the term. Many of these leases contain rental escalation clauses which are factored into the determination of the lease payments when appropriate. When available, the lease payments are discounted using the rate implicit in the lease; however, the Company’s current leases ~~entered into~~ do not provide a readily determinable implicit rate. Therefore, the Company’s incremental borrowing rate is estimated to discount the lease payments based on information available at the lease commencement.

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

The land used by the Company to operate its seawater desalination plants in the Cayman Islands and The Bahamas ~~are~~is owned by the Company or leased to the Company for immaterial annual amounts and are not included in the lease amounts presented on the condensed consolidated balance sheets.

AdR ~~has~~ entered into a lease for land to be used in the Project with an initial effective term of 20-years from the date of full operation of its proposed seawater desalination plant. The ~~amounts due on this lease are payable in Mexican pesos at an amount that is currently equivalent to approximately $26,000 every two months. The~~ lease is cancellable by AdR should it ultimately not proceed with the ~~project.~~ Project. On June 29, 2020, AdR was notified that the APP Contract was terminated. As a result, the Company, AdR and NSC expect to terminate the various agreements ancillary to the Project or to transfer them to the State, including this land lease for the Project. As such, the lease right-of-use asset and lease liability amounts as of March 31, 2021 and December 31, 2020 do not include this lease.

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

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Effective ~~May 1, 2019,~~March 9, 2021, the Company ~~executed~~entered into a new office lease for ~~its~~the existing office located in ~~the Cayman Islands~~Coral Springs, Florida under similar terms ~~comparable~~compared to the prior lease. This new lease expires, ~~April 30, 2024.~~including all renewal options, on March 8, 2031.

Lease assets and liabilities

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

	March 31, 2020			December 31, 2019

								March 31,		December 31,
								2021		2020
ASSETS
Current
Prepaid expenses and other current assets	$	321,173		$	36,097		$	93,323	$	108,303
Current assets of discontinued operations								26,197		—
Noncurrent
Operating lease right-of-use assets		4,043,717			4,439,212			2,889,508		1,329,561
Long-term assets of discontinued operations								—		33,909
Total lease right-of-use assets	$	4,364,890		$	4,475,309		$	3,009,028	$	1,471,773


LIABILITIES
Current
Current maturities of operating leases	$	761,540		$	755,751		$	462,464	$	455,788
Current liabilities of discontinued operations								24,669		29,432
Noncurrent
Noncurrent operating leases		3,166,476			3,836,475			2,520,367		982,076
Noncurrent liabilities of discontinued operations								—		2,499
Total lease liabilities	$	3,928,016		$	4,592,226		$	3,007,500	$	1,469,795


Weighted average remaining lease term:
Operating leases		16.8 years			17.8 years			7.5 years		3.4 years

Operating leases - discontinued operations								0.9 years		1.1 years

Weighted average discount rate:
Operating leases		4.56	%		4.59	%		4.92%		4.15%
Operating leases - discontinued operations								3.48%		3.48%

The components of lease costs were as follows:

	Three Months Ended March 31,
	2020		2019

					Three Months Ended March 31,
					2021		2020
Operating lease costs	$	243,892	$	221,131	$	175,984	$	190,605
Short-term lease costs		4,116		3,957		4,429		4,116
Lease costs - discontinued operations						7,414		53,287
Total lease costs	$	248,008	$	225,088	$	187,827	$	248,008

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Supplemental cash flow information related to leases is as follows:


	Three Months Ended March 31,
	2021		2020
Cash paid for amounts included in measurement of liabilities:
Operating cash outflows for operating leases	$	191,526	$	231,879
Operating cash outflows for operating leases - discontinued operations		7,820		45,779

Three Months Ended March 31,
Cash paid for amounts included in measurement of liabilities: 2020 2019
Cash payments for operating leases $ 277,658 $ 218,080

Future lease payments relating to the ~~Company's~~Company’s operating lease liabilities as of March 31, ~~2020~~2021 were as follows:


Years ending December 31,	Total
2021	$	443,802
2022		622,610
2023		627,033
2024		410,464
2025		268,897
Thereafter		1,150,273
Total future lease payments		3,523,079
Less: imputed interest		(540,248)
Total lease obligations		2,982,831
Less: current obligations		(462,464)
Noncurrent lease obligations	$	2,520,367

Years ending December 31, Total
Remainder of 2020 $ 718,069
2021 627,269
2022 496,328
2023 495,188
2024 275,135
Thereafter 2,868,204
Total future lease payments 5,480,193
Less: Imputed interest (1,552,177 )
Total lease obligations 3,928,016
Less: Current obligations (761,540 )
Noncurrent lease obligations $ 3,166,476

7. Fair value

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued expenses, accrued compensation, dividends payable and other current liabilities approximate their fair values due to the short-term maturities of these instruments.

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

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

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

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

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company reviews its fair value hierarchy classifications on a quarterly basis. Changes in the

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observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value as of March 31, ~~2020~~2021 and December 31, ~~2019:~~2020:

	March 31, 2020
	Level 1		Level 2		Level 3		Total

									March 31, 2021
									Level 1		Level 2		Level 3		Total
Liabilities:
Recurring
Net liability arising from put/call options	$	-	$	-	$	825,000	$	825,000	$	—	$	—	$	559,000	$	559,000

	December 31, 2019
	Level 1		Level 2		Level 3		Total

									December 31, 2020
									Level 1		Level 2		Level 3		Total
Liabilities:
Recurring
Net liability arising from put/call options	$	-	$	-	$	664,000	$	664,000	$	—	$	—	$	690,000	$	690,000

The activity for the Level 3 liability for the three months ended March 31, ~~2020:~~2021:

Net liability arising from put/call options
Balance as of December 31, 2019 $ 664,000
Unrealized loss 161,000
Balance as of March 31, 2020 $ 825,000


Net liability arising from put/call options
Balance as of December 31, 2020	$	690,000
Unrealized gain		(131,000)
Balance as of March 31, 2021	$	559,000

Put/call options are reported at fair value as either assets or liabilities in the condensed consolidated balance sheets. These fair values are calculated using discounted cash flow analysis valuation techniques that incorporate unobservable inputs, such as future cash flows, weighted-average cost of capital and expected future volatility. The inputs tofor these valuations are considered Level 3 inputs.

8. Contingencies

COVID-19

declined.

As a result of the ~~effects~~impact of the COVID-19 pandemic on the economies of the countries in which the Company operates, the ~~future impacts of COVID-19 on the~~ Company has experienced, and could ~~include (but would not necessarily be limited to):~~

~~decreases in consolidated revenue, cash flows generated from operations, and overall liquidity as compared to comparable prior periods; and~~

a deterioration in the aging of accounts receivable, with a resulting increase in the portion of accounts that ultimately prove to be uncollectible, necessitating an increase in the provisions and allowances for doubtful accounts.

continue to experience decreases in consolidated revenue, cash flows generated from operations, and overall liquidity as compared to comparable prior periods.

Furthermore, a prolonged extension of the economic downturn created by the COVID-19 pandemic could adversely affect the markets for the Company’s products and services. Such adverse market effects could adversely impact the Company’s expected future cash flows from its ~~four~~4 reporting units and could require the Company to record impairment losses to reduce the carrying values of one or more of these reporting units due to a decline in their fair values.

Although the Company cannot presently quantify the future financial impacts of the COVID-19 pandemic, such impacts will likely have a material adverse impact on the Company’s consolidated financial condition, results of operations, and

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cash flows. Given the uncertainty associated with the resolution of this pandemic, the Company cannot presently determine how long such adverse financial impacts may last.

Cayman Water

The Company sells water through its retail operations under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that granted Cayman Water the exclusive right to provide potable water to customers within its licensed service area. Although the 1990 license was not expressly extended after January 2018, the Company continues to supply water under the terms of the 1990 license, as further discussed in the following paragraph. Pursuant to the 1990 license, Cayman Water has the exclusive right to produce potable water and distribute it by pipeline to its licensed service area, which consists of two of the three most populated areas of Grand Cayman Island: Seven Mile Beach and West Bay. For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, the Company generated approximately ~~35%~~33% and ~~39%~~35%, respectively, of its consolidated revenue and ~~51%~~49% and ~~56%~~51%, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 license.

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

In October 2016, the Government of the Cayman Islands passed legislation which created a new utilities regulation and competition office (“OfReg”). OfReg is an independent and accountable regulatory body with a view of protecting the rights of consumers, encouraging affordable utility services and promoting competition. OfReg, which began operations in January 2017, has the ability to supervise, monitor and regulate multiple utility undertakings and markets. Supplemental legislation was passed by the Government of the Cayman Islands in April 2017, which transferred responsibility for the economic regulation of the water utility sector and the negotiations with the Company for a new retail license from the WAC to OfReg in May 2017. The Company began license negotiations with OfReg in July 2017 and such negotiations are ~~continuing.~~ongoing. The Company has been informed during its retail license negotiations, both by OfReg and its predecessor in these negotiations, that the Cayman Islands government seeks to restructure the terms of its license in a manner that could significantly reduce the operating income and cash flows the Company has historically generated from its retail license.

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

CW-Bahamas

2020.

Historically, CW-Bahamas has experienced delays in collecting its accounts receivable from the WSC. When these delays occur, the Company holds discussions and meetings with representatives of the WSC and The Bahamas government, and as a result, payment schedules are developed for WSC’s delinquent accounts receivable. All previous delinquent accounts receivable from the WSC were eventually paid in full. Based upon this payment history, CW-Bahamas has never been required to provide an allowance for doubtful accounts for any of its accounts receivable, despite the periodic accumulation of significant delinquent balances. As of March 31, ~~2020,~~2021, the Company ~~had~~has not provided an allowance for doubtful accounts for CW-Bahamas’ accounts receivable from the WSC.

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If CW-Bahamas continues to be unable to collect a significant portion of its delinquent accounts receivable, one or more of the following events may occur: (i) CW-Bahamas may not have sufficient liquidity to meet its obligations; (ii) the Company may be required to cease the recognition of revenue on CW-Bahamas’ water supply agreements with the WSC; and (iii) the Company may be required to provide an allowance for doubtful accounts for CW-Bahamas’ accounts receivable. Any of these events could have a material adverse impact on the Company’s consolidated financial condition, results of operations, and cash flows.

9. ~~Discontinued operations - CW-Belize~~Related party transactions

~~On February 14, 2019,~~The Company, through PERC and the ~~Company completed the sale~~services segment, purchases engineering and technology support services from various companies with a minority shareholder who is also a minority shareholder of its former subsidiary, Consolidated Water (Belize) Limited (“CW-Belize”) to Belize Water Services Ltd. (“BWSL”) effective January 1, 2019. After adjustments, the final price for CW-Belize was approximately $7.0 million. Pursuant to the sale and purchase agreement, BWSL initially paid the Company $6.735 million of the purchase price and approximately $265,000 was withheld to cover indemnification obligations of the Company under the agreement. The remaining $265,000 of the purchase price was paid by BWSL in August 2019. As a result of the sale of CW-Belize, the Company realized a gain of $3,621,170, which is reported as gain on sale of discontinued operations in the accompanying consolidated statement of operations forPERC. During the three months ended March 31, ~~2019.~~2021 and 2020, the Company made total purchases of services of approximately $156,000 and $493,000 from these companies, respectively. These total purchases are included in the Company’s cost of revenue in the accompanying condensed consolidated statements of income.

On February 1, 2021, PERC entered into a sublease agreement with a related company commencing March 14, 2021 and ending August 31, 2021. During the three months ended March 31, 2021, the Company recognized approximately $4,000 of expense related to this lease. This lease amount is included in the Company's general and administrative expenses in the accompanying condensed consolidated statements of income.

The total amount of accounts payable outstanding to these companies as of March 31, 2021 and December 31, 2020, was approximately $247,000 and $201,000, respectively.

10. Impact of recent accounting standards

Adoption of New Accounting Standards:

None.

Effect of newly issued but not yet effective accounting standards:

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. The Company is currently evaluating the impact of the new guidance on the consolidated financial statements, however the adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

~~None.~~

11. Subsequent events

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

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

Cautionary Note Regarding Forward-Looking Statements

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

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

●

tourism and weather conditions in the areas we serve;

●

the impacts of ~~COVID-19;~~the COVID-19 pandemic;

●

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

●

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

●

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

●

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

●

other factors, including those “Risk Factors” set forth under Part II, Item 1A. “Risk Factors” in this Quarterly Report and in our ~~2019~~2020 Annual Report on Form ~~10-K~~10-K.

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

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

Critical Accounting Estimates

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

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

●

the nature of these estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and

●

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

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

Goodwill and intangible assets

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 amortized but are tested for impairment at least annually. Intangible assets with estimable useful lives are amortized over

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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 year ended December 31, ~~2019~~2020 we estimated the fair value of our reporting units by applying the discounted cash flow method, ~~the guideline public company method, and the mergers and acquisitions method.~~

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

We also estimated the fair value of each of our reporting units for the year ended December 31, ~~2019 through reference to~~2020 by applying the guideline ~~companies and~~public company method. We have, in years prior to 2020, also estimated the fair value of each of our reporting units 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.

We weighted the fair values estimated for each of our reporting units under each method and summed such weighted fair values to estimate the overall fair value for each reporting unit. The respective weightings we applied to each method as of December 31, ~~2019 were consistent with those used as of December 31, 2018 and~~2020 were as follows:


										As of December 31, 2020
Method	Retail			Bulk			Manufacturing			Retail		Bulk		Services		Manufacturing
Discounted cash flow		80	%		80	%		80	%	80	%	80	%	80	%	80	%
Guideline public company		10	%		10	%		10	%	20	%	20	%	20	%	20	%
Mergers and acquisitions		10	%		10	%		10	%	—	%	—	%	—	%	—	%
		100	%		100	%		100	%
										100	%	100	%	100	%	100	%

The fair values we estimated for our retail, bulk, services and ~~bulk~~manufacturing reporting units exceeded their carrying amounts by ~~74%~~101%, 49%, 17% and ~~58%,~~31% respectively, as of December 31, 2019. The assets and liabilities for our services reporting unit (with the exception of our investments in land and rights of way for our Mexico project) consist almost entirely of those for PERC, which was acquired at fair value on October 24, 2019, and therefore we estimated that 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 carrying amount as of December 31, 2018 to determine that it is more likely than not that the fair value of our manufacturing reporting unit exceeded its carrying amount at December 31, 2019.

2020.

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 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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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.

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. Based upon these updated projections we tested our manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020 using the discounted cash flow method. As a result of this impairment testing, we determined that the estimated fair value of our manufacturing reporting unit exceeded its carrying value by approximately 31% as of December 31, 2020. However, we may be required to record ~~additional~~an impairment ~~losses~~loss in the future to reduce the carrying value of our ~~Aerex~~manufacturing reporting unit’s goodwill ~~in future periods if~~should we determine ~~it likely~~ that Aerex’s ~~results of operations~~future net cash inflows will ~~fall short of~~be less than our most ~~recent projections of its future cash flows.~~

~~In February 2019, we sold CW-Belize. As~~current expectations. Any such impairment loss could have a ~~result of this sale, CW-Belize has been accounted for as discontinued operations in~~material adverse impact on our consolidated financial statements, and bulk segment goodwill of approximately $380,000 as of December 31, 2018 associated with CW-Belize was reclassified to long-term assets of discontinued operations in our consolidated statements of financial condition and ~~included in the calculation~~results of ~~our gain on sale of discontinued operations of $3.6 million for the three months ended March 31, 2019.~~

operations.

Long-lived assets

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

On June 29, 2020, our Mexico subsidiary, AdR, received a letter from the State of Baja California (the “State”) terminating AdR’s contract with the State involving the construction and operation of a desalination plant in Rosarito California and accompanying aqueduct to deliver the water produced by this plant to the Mexican public water system. As a result of the cancellation of this contract, we recorded an impairment loss for rights of way acquired for the contract’s proposed aqueduct of $(3.0 million) for the three months ended June 30, 2020.

Through our former subsidiary, PT Consolidated Water Bali (“CW-Bali”), we built and operated a seawater reverse osmosis plant with a productive capacity of approximately 264,000 gallons per day located in Nusa Dua, one of the primary tourist areas of Bali, Indonesia. We recorded operating losses for CW-Bali as the sales volumes for its plant were insufficient to cover its operating costs. In 2017 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. Consequently, 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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included under Part I, Item 1. “Financial Statements” of this Quarterly Report and our consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for our fiscal year ended December 31, ~~2019~~2020 (“~~2019~~2020 Form 10-K”) and the information set forth under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our ~~2019~~2020 Form 10-K.

Three Months Ended March 31, ~~2020~~2021 Compared to Three Months Ended March 31, ~~2019~~2020

Discontinued Operations – Mexico Project Development

In ~~late December~~2010, we began the pursuit, through our Netherlands subsidiary, Consolidated Water Cooperatief, U.A. (“CW-Cooperatief”), and our Mexico subsidiary, N.S.C. Agua, S.A. de C.V. (“NSC”), of a project (the “Project”) that encompassed the construction, operation and minority ownership of a 100 million gallon per day seawater reverse osmosis

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desalination plant to be located in northern Baja California, Mexico and accompanying pipelines to deliver water to the Mexican potable water system.

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

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

In August 2016, NSC and NuWater incorporated 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 Board~~we acquired the remaining 0.4% ownership in AdR from NuWater.

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

On June 29, 2020, AdR received a letter (the “Letter”) from the Director General of CEA and the Director General of CESPT terminating the APP Contract. The 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 ~~part~~comprised of ~~our bulk water operations,~~51,144,525 United States dollars and an additional 137,333,114 Mexican pesos. In February 2021, AdR withdrew this

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amparo claim, and such withdrawal was accepted by the federal district court in Tijuana. To date, AdR has not received a response from CEA or CESPT to ~~BWSL~~its submission of non-recoverable expenses.

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.

We believe, CW-Cooperatief, as a Netherlands company, has certain rights relating to its investments in NSC and AdR under the Agreement on ~~February 14, 2019, we completed~~Promotion, Encouragement and Reciprocal Protection of Investments between the ~~sale (which was effective~~Kingdom of the Netherlands and the United Mexican States entered into force as of ~~January~~October 1, ~~2019)~~1999 (the “Treaty”). On April 16, 2021, CW-Cooperatief submitted a letter to the President of ~~CW-Belize~~Mexico and other Mexican federal government officials alleging that the State’s termination of the APP Contract constituted a breach by Mexico of its international obligations under the Treaty, entitling CW-Cooperatief to ~~BWSL. In accordance~~full reparation, including monetary damages. This letter invites Mexico to seek a resolution of this investment dispute through consultation and negotiation, but states that if the dispute cannot be resolved in this manner, CW-Cooperatief elects to refer the dispute to the International Centre for the Settlement of International Disputes for arbitration, as provided for in the Treaty. To date, CW-Cooperatief has not received a response to this letter.

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

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 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 in the accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2021 and 2020. Our net losses from discontinued operations for the three months ended March 31, 2021 and 2020 of ($312,794) and ($316,365), respectively, consist of legal, accounting, ~~principles,~~engineering, administrative, consulting and other costs relating to Project development activities and, for 2021, our activities following the ~~gain we realized on~~cancellation of the ~~sale~~APP Contract to pursue reimbursement from the State of ~~CW-Belize in 2019 of $3,621,170 ($0.24 per share on a fully diluted basis) is reflected in our 2019 consolidated results of operations as discontinued operations.~~Baja California.

The following discussion and analysis of our ~~Consolidated Results~~consolidated results of operations and ~~Results~~results of operations by ~~Segment refers~~segment for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 relates only to our continuing operations.

Consolidated Results

Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders for ~~2020~~2021 was ~~$2,888,607~~$1,301,566 ($~~0.19~~0.08 per share on a fully diluted basis), as compared to ~~$2,565,261~~net income from continuing operations of $3,204,972 ($~~0.17~~0.21 per share on a fully diluted basis) for ~~2019.~~

2020.

Total revenue for 2021 decreased to $17,103,317 from $20,725,721 in 2020, ~~increased to $20,725,721 from $16,988,524 in 2019,~~ as ~~a result of~~ the ~~performance of our~~ retail and manufacturing segments ~~and the addition of PERC’s~~experienced significant revenue ~~to our services segment.~~declines. Gross profit for ~~2020~~2021 was ~~$8,440,321 (41%~~$6,126,510 (36% of total revenue) as compared to ~~$6,962,303~~$8,440,321 (41% of total revenue) for ~~2019.~~2020. For further discussion of revenue and gross profit see the “Results by Segment” discussion and analysis that follows.

General and administrative (“G&A”) expenses on a consolidated basis ~~increased to $5,153,757~~remained relatively consisted at $4,764,486 for ~~2020~~2021 as compared to ~~$4,378,034~~$4,695,309 for ~~2019~~2020.

Other income, net, increased to $314,608 for 2021 as compared to $27,261 for 2020 due to an unrealized gain of $131,000 recorded for the valuation of the put/call options arising from the acquisition of a ~~result~~majority interest in PERC, as compared to an unrealized loss recorded on these options of ~~incremental expenses of approximately $689,000 attributable to the addition of PERC.~~$(161,000) in 2020.

~~We believe the~~The COVID-19 pandemic ~~will likely have~~had a material adverse impact on our ~~future~~ consolidated results of ~~operations.~~operations for the three months ended March 31, 2021 and we believe the COVID-19 pandemic will continue to adversely impact our results of operations

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in future periods. See further discussion herein and at “LIQUIDITY AND CAPITAL RESOURCES – Material Commitments, Expenditures and Contingencies –COVID-19.”

Results by Segment

Retail Segment:

The retail segment ~~contributed $896,973 and $741,047~~incurred a loss from operations of ($617,699) for 2021 as compared to ~~our~~generating income from operations of $896,973 for ~~2020 and 2019, respectively.~~

2020.

Revenue generated by our retail water operations ~~rose~~decreased to $5,711,305 in 2021 from $7,257,432 in 2020 ~~from $6,686,660 in 2019~~ due to a ~~10% increase~~20% decrease in the volume of water sold. ~~We believe~~This sales volume decrease is due to the ~~primary factor for this volume increase was drought-like conditions on Grand Cayman. Rainfall~~temporary cessation of tourism on Grand Cayman ~~for~~resulting from the ~~first three months~~closing of all Cayman Islands airports and seaports in March 2020 ~~was only 12% of~~in response to the ~~amount of rainfall for the same period in 2019, and 12% of the 30-year historical average for rainfall for the first three months of the year.~~

COVID-19 pandemic.

Retail segment gross profit ~~increased~~decreased to $3,003,311 (53% of retail revenue) for 2021 from $4,270,812 (59% of retail revenue) for 2020 ~~from $3,861,056 (58% of retail revenue) for 2019~~ as a result of the revenue ~~growth.~~

decline.

Consistent with prior periods, we record all non-direct G&A expenses in our retail segment and do not allocate any of these non-direct costs to our other three business segments. Retail G&A expenses ~~increased~~remained consistent at $3,371,010 for 2021 as compared to $3,373,839 for ~~2020 as compared to $3,117,278 for 2019 due to incremental employee costs arising from additional employees and annual salary increases.~~

2020.

Bulk Segment:

The bulk segment contributed ~~$1,583,858~~$1,714,814 and ~~$1,941,810~~$1,583,858 to our income from operations for 2021 and 2020, ~~and 2019,~~ respectively.

Bulk segment revenue was $6,245,970 and $6,440,284 for 2021 and ~~$7,111,313 for~~ 2020, ~~and 2019,~~ respectively. The decrease in bulk segment revenue ~~from 2019 to 2020~~ is attributable to ~~OC-Cayman, which experienced~~ a ~~decline~~decrease in CW-Bahamas’ revenue of approximately ~~$793,000 as a result~~$166,000 for 2021 due to lower energy costs, which correspondingly decreased the energy pass-through component of the two new contracts (at lower rates) with the Water Authority-Cayman (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’ rates.

Gross profit for our bulk segment was $2,090,817 (33% of bulk revenue) and $1,875,704 (29% of bulk revenue) for 2021 and ~~$2,156,722 (30% of bulk revenue) for~~ 2020, ~~and 2019,~~ respectively. Gross profit in dollars ~~decreased~~and as a percentage of revenue increased in ~~2020~~2021 as compared to ~~2019~~2020 principally due to ~~lower margins earned by OC-Cayman on its new contracts (as compared to its previous contracts) with the WAC.~~

a decrease in operating expenses (primarily repairs and maintenance costs) for CW-Bahamas of approximately $188,000.

Bulk segment G&A expenses remained relatively consistent at ~~$292,046~~$377,503 for ~~2020~~2021 as compared to ~~$261,412~~$292,046 for ~~2019.~~

2020.

Services Segment:

The services segment ~~incurred losses~~income from operations of ~~($290,265)~~$96,465 and ~~($507,227)~~$168,183 for 2021 and 2020, ~~and 2019,~~ respectively.

Services segment revenue increased to $3,540,846 for 2021 from $3,114,813 for 2020 ~~from $100,577 for 2019~~ due to ~~the addition~~an increase of ~~$3,001,073~~approximately $1.3 million in revenue from ~~PERC as~~operating and maintenance contracts attributable to new contracts, which served to more than offset a ~~result~~decline in plant construction revenue of ~~our acquisition of 51% of this company in late October 2019.~~

approximately $913,000.

Gross profit for the services segment ~~improved~~was $818,918 (23% of services revenue) in 2021 as compared to $841,293 (27% of services revenue) for 2020. The decrease in ~~2020~~gross profit as a ~~result~~percentage of revenue reflects a shift in the ~~addition of PERC. The services segment incurred a gross loss of ($21,342) for 2019.~~

contract mix.

G&A expenses for the services segment ~~increased to $1,131,138~~remained consistent at $722,020 for ~~2020~~2021 as compared to ~~$485,885~~$672,690 for ~~2019 due to the addition of PERC.~~

2020.

Manufacturing Segment:

The manufacturing segment ~~contributed $1,095,778~~incurred a loss from operations of ($80,489) for 2021 as compared to ~~our~~generating income from operations of $1,095,778 in ~~2020 as compared to $452,408 in 2019.~~

2020.

Manufacturing revenue was $1,605,196 and $3,913,192 for 2021 and ~~$3,089,974 for~~ 2020, ~~and 2019,~~ respectively. Manufacturing revenue ~~increased~~decreased from ~~2019~~2020 to ~~2020~~2021 due to ~~an increase in~~ the ~~number~~loss of orders ~~that resulted in expanded project production activity.~~from Aerex’s former largest customer.

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Manufacturing gross profit was $213,464 (13% of manufacturing revenue) and $1,452,512 (37% of manufacturing revenue) for 2021 and ~~$965,867 (31% of manufacturing revenue) for~~ 2020, ~~and 2019,~~ respectively. The ~~increase~~decrease in manufacturing gross profit in dollars ~~and~~reflects the decrease in revenue. Gross profit as a percentage of revenue ~~stems~~declined due to the greater impact of fixed factory overhead on this measure resulting from ~~a higher margin projects mix, coupled with overall higher production activity that led to improved plant efficiency.~~

the revenue decrease.

G&A expenses for the manufacturing segment dropped to ~~$356,734~~$293,953 for ~~2020~~2021 as compared to ~~$513,459~~$356,734 for ~~2019 as~~2020.

Approximately 86% and 80% of Aerex’s revenue, and 78% and 89% of Aerex’s gross profit, for the three months ended March 31, 2020 and the year ended December 31, 2020, respectively, were generated from sales to one customer. In October 2020, this customer informed Aerex that, for inventory management purposes, it was suspending its purchases from Aerex following 2020 for a ~~result~~period of ~~a decrease in~~approximately one year and Aerex did not generate any revenue from this customer during the ~~amortization expenses for intangible assets recorded in connection~~three months ended March 31, 2021. This customer has informed Aerex that it presently expects to recommence its purchases from Aerex beginning with the ~~acquisition~~first quarter of ~~Aerex.~~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. Consequently, our manufacturing segment revenue and gross profit for 2021 may decline as compared to the two prior years.

FINANCIAL CONDITION

The significant changes in the components of our condensed consolidated balance sheet as of March 31, ~~2020~~2021 as compared to December 31, ~~2019~~2020 (other than the change in our cash and cash equivalents, which is discussed later in “LIQUIDITY AND CAPITAL RESOURCES”) and the reasons for these changes are discussed in the following paragraphs.

Accounts receivable increased by approximately ~~$2.4~~$3.2 million. This net increase reflects an increase in ~~Aerex’s~~CW-Bahamas’ accounts receivable of approximately ~~$2.0~~$2.7 million – see discussion at “CW-Bahamas Liquidity.”

Current inventory decreased by $894,089 primarily due to a decline in orders for Aerex.

Property, plant and equipment, net decreased by $1.6 million due to ~~an extension~~scheduled depreciation of invoice due dates (unrelated to COVID-19) for Aerex’s largest customer along with an increase of $580,000 in accounts receivable of PERC. These increases were partially offset by a decrease in CW-Bahamas’ accounts receivable of $595,000.fixed assets.

~~Current inventory~~Operating lease right-of -use assets increased by approximately ~~$3.0~~$1.6 million, ~~primarily as~~with a ~~result~~related increase in operating lease liabilities of ~~incremental raw materials purchased to support Aerex’s increased production activity.~~

~~Construction in progress decreased by~~ approximately ~~$1.0~~$1.5 million, ~~primarily~~ due to ~~the completion of the renovation of the North Side Water Works plant on Grand Cayman.~~a new office lease for Aquilex that began in March 2021.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Position

Our projected liquidity requirements for the balance of ~~2020~~2021 include capital expenditures for our existing operations of approximately ~~$4.1~~$6.0 million, ~~approximately $3.0~~which includes $3.9 million ~~to be expended~~ for ~~NSC's and AdR's project development activities~~the 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 ~~$1.3~~$1.9 million for the three months ended March 31, ~~2020~~2021 and approximately $5.1 million for the year ended December 31, ~~2019.~~

2020.

As of March 31, ~~2020,~~2021, we had cash and cash equivalents of ~~$32.3~~$42.8 million and working capital of ~~$60.1~~$67.4 million. With the possible 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.

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CW-Bahamas Liquidity

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the Water and Sewerage Corporation of The Bahamas (“WSC”) amounted to ~~$17.8~~$19.5 million as of March 31, ~~2020~~2021 and ~~$18.4~~$16.8 million as of December 31, ~~2019.~~2020. Approximately ~~75%~~78% of the March 31, ~~2020~~2021 accounts receivable balance was delinquent as of that date. The delay in collecting these accounts receivable has adversely impacted the liquidity of this subsidiary. As of April 30, ~~2020,~~2021, CW-Bahamas’ accounts receivable from the WSC totaled an all-time high of approximately ~~$16.0 million.~~$21.7 million

~~Historically,~~From time to time (including presently), CW-Bahamas has experienced delays in collecting its accounts receivable from the WSC. When these delays occur, we hold discussions and meetings with representatives of the WSC and The Bahamas government, and as a result, payment schedules are developed for WSC’s delinquent accounts receivable. All previous delinquent accounts receivable from the WSC, including accrued interest thereon, were eventually paid in full. Based upon this payment history, CW-Bahamas has never been required to provide an allowance for doubtful accounts for any of its accounts receivable, despite the periodic accumulation of significant delinquent balances. As of March 31, ~~2020,~~2021, we have not provided an allowance for doubtful accounts for CW-Bahamas’ accounts receivable from the WSC.

We believe the delays we have experienced in collecting CW-Bahamas’ receivables ~~were~~have been extended ~~due to~~by the severe adverse impact of ~~Hurricane Dorian, which devastated~~ the ~~northern Bahamas in September 2019. In addition, the economic impact of~~ COVID-19 pandemic on The Bahamas government’s revenue sources ~~may further delay the~~. Based upon our discussions and collection ~~of CW-Bahamas’ delinquent~~history with The Bahamas government, we believe that our accounts receivable from the ~~WSC.~~WSC are fully collectible.

If CW-Bahamas continues to be unable to collect a significant portion of its delinquent accounts receivable, one or more of the following events may occur: (i) CW-Bahamas may not have sufficient liquidity to meet its obligations; (ii) we may be required to cease the recognition of revenue 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, and cash ~~flows.~~flows.

Discussion of Cash Flows for the Three Months Ended March 31, ~~2020~~

2021

Our cash and cash equivalents decreased to ~~$32,310,781~~$42,782,527 as of March 31, ~~2020~~2021 from ~~$42,902,669~~$43,794,150 as of December 31, ~~2019.~~

2020.

Cash Flows from Operating Activities

Net cash ~~used in~~provided by our operating activities from continuing operations was ~~$288,649.~~$1,466,141. This net cash ~~used~~ reflects net income generated for the three months ended March 31, ~~2020~~2021 of ~~$3,249,605~~$1,117,565 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 ~~$1,882,068,~~$1,864,043, a loss from discontinued operations of $312,794, an increase in accounts receivable of ~~$2,395,094~~$3,244,456 and an ~~increase~~decrease in current inventory of ~~$2,922,899 (primarily in the manufacturing segment).~~

$818,656.

Cash Flows from Investing Activities

Net cash used by our investing activities was ~~$9,015,881. In January 2020, we acquired the remaining 49% ownership in Aerex for $8,500,000 in cash. Additions~~$251,303 primarily from additions to property, plant and equipment and construction in ~~progress used $516,331 in cash.~~

progress.

Cash Flows from Financing Activities

Net cash used by our financing activities was ~~$1,287,358,~~$1,959,392, almost all of which related to the payment of dividends.

Material Commitments, Expenditures and Contingencies

COVID-19

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

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the COVID-19 pandemic has had, and will ~~likely~~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 ~~are~~were purchasing necessities or engaged in an essential errand. In May 2020, the Cabinet ~~relaxed some~~started the phased relaxation of the shelter-in-place regulations and ~~set September~~on October 1, 2020, asthe 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 ~~date for the~~ reopening of the Cayman ~~Islands’ sea and air borders.~~

Islands to tourists.

As a result of these measures taken by the Cayman Islands government, tourism in the Cayman Islands has temporarily ~~ceased and economic activity on Grand Cayman has slowed dramatically.~~ceased. The preventative measures taken by the Cayman Islands government in response to the COVID-19 ~~did not commence until~~pandemic commenced in the latter half of March ~~2020 and thus had a limited effect on~~2020. Consequently, our retail sales ~~volumes~~volume for the ~~three months~~year ended ~~March~~December 31, ~~2020. However,~~2020 declined by approximately 13% from the ~~demand for water provided by~~year ended December 31, 2019 and our retail ~~distribution network decreased by almost 13%~~sales volume for ~~April 2020 as compared both to March 2020 and April 2019. Consequently, we expect that~~the first quarter of 2021 declined 20% from our retail ~~water~~ sales ~~for three months ending June 30, 2020 will fall short of both the retail water sales we generated~~volume for the ~~three months ended March 31, 2020 and the three months ended June 30, 2019.~~first quarter of 2020. We expect that our retail ~~water sales~~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 ~~COVID-19.~~

The Cayman Islands government has requested Cayman Water to temporarily suspend until further notice all disconnections for non-payment of its water services to ensure that all residents continue to have access to potable water during the COVID-19 pandemic, and to give customers that may experience financial hardship additional time to make their payments. We are complying with this request. We have closed our customer service office to comply with the government’s shelter-in-place regulations and consequently our customers can no longer pay their bills by visiting our office. Postal service on Grand Cayman was suspended from late March through April 2020, which prevented us from invoicing our customers in the customary manner. We have been required to employ alternative methods (including electronic mail and phone text messaging) to deliver our retail water invoices to our customers. The closure of the post office also inhibited our customers from paying us as they could not mail their payments. Given these circumstances we expect the balances of Cayman Water’s total accounts receivable and its delinquent accounts receivable to increase from historical norms in future periods, and as a result a significant portion of these receivables may ultimately prove to be uncollectible, necessitating an increase in our allowance for doubtful accounts.

While we cannot presently quantify the financial impact of the anticipated decrease in Cayman Water’s revenue and the anticipated increase in its uncollectible accounts receivable, such factors could have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.

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 for the remainder of 2020.~~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.

~~Rainfall during the first four months of 2020 on Grand Cayman was significantly less than the 30-year average and the same four months of 2019. As a result of the lower rainfall, the volume~~The amount of water provided by OC-Cayman to the WAC ~~in April~~for the year ended December 31, 2020 ~~did not vary significantly from~~was approximately 1% less than that provided ~~in March 2020 and increased by 2.5% from April~~for the year ended December 31, 2019. We cannot presently determine as to what extent OC-Cayman’s future revenue will be impacted by ~~COVID-19.~~

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 for the remainder~~operations.

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CW-Bahamas

The government of The Bahamas enacted Emergency Powers Regulations which became effective March 18, 2020 in an effort to combat the spread of COVID-19. 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 ~~these~~the measures taken by The Bahamas government, tourism on New Providence Island, where CW-Bahamas operates, ~~has~~ temporarily ceased and economic activity in The Bahamas ~~has~~ slowed dramatically. In May 2020, the Bahamian government relaxed some of the shelter-in-place regulations ~~but has yet to set dates for~~and in July 2020, the government of The Bahamas enacted a limited reopening of The Bahamas to ~~passenger flights~~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 RT-PCR 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. It is anticipated that a limited number of cruise ship ~~arrivals.~~

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. ~~The~~To date, the volume of water CW-Bahamas ~~sold~~sells to the WSC ~~did~~has not ~~vary significantly from March 2020 to April 2020,~~been adversely impacted by the COVID-19 pandemic despite the downturn in economic activity on New Providence that began in April 2020 ~~that stems~~stemming from the preventative measures taken by the government in March 2020. However, we believe that at some point in the coming months, if the current economic conditions in The Bahamas do not improve, CW-Bahamas will experience a decrease in the demand for its water, with a resulting decline in its revenue. In addition, the ~~economic~~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 for~~operations.

Aerex

To date, the ~~remainder of 2020.~~

~~Aerex~~

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

One specific product generated approximately 86% and 68% of Aerex’s sales for the three months ended March 31, 2020 and the year ended December 31, 2019, respectively. Aerex relies on one raw material supplier for the major component used in the manufacture of this product. Due to its relatively high cost and supplier manufacturing constraints, Aerex orders this component in increments based upon its production schedule. Shipments from the supplier of this component have at times fallen behind since the advent of COVID-19. Any disruption in the supply chain for this component or for the other raw materials used by Aerex due to COVID-19 (or other reasons) could have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.

Aerex presently has 1514 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.

As a result of current economic conditions (resulting in part from the COVID-19 pandemic), in late March 2021 Aerex began experiencing issues with its supply chain for the raw materials and components used in its manufacturing operations, including higher prices, scarcities/shortages, and longer fulfillment times for its orders to suppliers. Should these economic conditions and issues continue, Aerex could have difficulty completing its orders from its customers, which could have a material adverse impact on our consolidated revenue, results of operations and cash flows, and could require us to record an impairment loss to reduce the carrying value of the goodwill recorded for our manufacturing segment. Any such impairment loss could have a material adverse impact on our consolidated financial condition and results of operations.

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PERC

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

Approximately ~~51%~~70% of PERC’s revenue of ~~$3.0~~$3.4 million for the three months ended March 31, ~~2020~~2021 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 ~~future~~ revenue and the collection of its accounts receivable.

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

Cayman Water Retail License

We sell water through our retail operations under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that granted Cayman Water the exclusive right to provide potable water to customers within its licensed service area. Although the 1990 license was not expressly extended after January 2018, we continue to supply water under the terms of the 1990 license, as further discussed in the following paragraph. Pursuant to the 1990 license, Cayman Water has the exclusive right to produce potable water and distribute it by pipeline to its licensed service area, which consists of two of the three most populated areas of Grand Cayman Island: Seven Mile Beach and West Bay. For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, we generated approximately ~~35%~~33% and ~~39%~~35%, respectively, of our consolidated revenue and ~~51%~~49% and ~~56%~~51%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license.

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

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

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

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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, results of operation and cash ~~flows.~~flows.

CW-Bahamas Performance Guarantees

Our contracts to supply water to the WSC from our Blue Hills and Windsor plants require us to guarantee delivery of 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.

~~NSC and AdR Project Development~~

In 2010, the Company acquired, through its 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. CW-Cooperatief has since purchased, through the conversion of a loan it made to NSC, additional shares that increased its ownership interest in NSC to 99.99%. NSC was formed to pursue a project (the “Project”) that originally encompassed the construction, operation and minority ownership of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and accompanying pipelines to deliver water to the Mexican potable water system. As discussed in 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 gallons per day plant and an aqueduct that connects to the Mexican potable water infrastructure and a second phase consisting of an additional 50 million gallons per day of production capacity.

~~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 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 $26,000 every two months. 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 complied 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 should proceed, and the required public tender should be conducted. In November 2015, the State officially commenced the tender for the Project, the scope of which the State defined as a first phase to be operational in 2019 consisting of a 50 million gallon per day plant and 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, NuWater S.A.P.I. de C.V. (“NuWater”) and Suez Medio Ambiente México, S.A. de C.V. (“Suez MA”), a subsidiary of SUEZ International, S.A.S., submitted its tender for the Project in April 2016 and in June 2016, the State designated the Consortium as the winner of the tender process for the Project.

In August 2016, NSC and NuWater incorporated 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. NSC initially owned 99.6% of the equity of AdR. In February 2018, NSC acquired the remaining 0.4% ownership in AdR from NuWater.

On August 22, 2016, the Public Private Partnership Agreement for public private partnership number 002/2015, bid number SIDUE-CEA-APP-2015-002 (“APP Contract”), was executed between AdR, the CEA, the Government of Baja California as represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana (“CESPT”). The APP Contract requires 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 must be operational within 36 months of commencing construction and the second phase must be operational by January 2025. 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 the CEA.

~~The APP Contract does not become effective until the following open conditions, among others, have been met:~~

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

~~AdR has obtained all rights of way required for the aqueduct; and~~

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

In December 2016, the Congress of the State of Baja California, Mexico (“Congress”) passed Decreto #57 which, among other things, ratified and authorized the payment obligations of the corresponding public entities under the APP Contract and authorized the corresponding public entities to obtain a credit facility to guarantee their payment obligations. 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. In addition, an amendment of Decreto #57 was required to authorize the inclusion of revenue from the CESPT in the primary payment trust for the Project. These amendments were included in Decreto #168, which was approved by the Congress in December 2017. The authorization of the payment obligations of the public entities under the APP Contract and for the execution of the credit agreement to guarantee such payment obligations given in Decreto #57, as amended by Decreto #168, expired on December 31, 2018. During the congressional session held at the end of March 2019, the Congress passed Decreto #335, which renewed the authorizations for the various payment trusts, guaranties and bank credit lines required to be established for the Project by the State entities. Decreto #335 expired December 31, 2019. During the congressional session held at the end of December 2019, the Congress passed Decreto #37, which renewed the authorizations for the various payment trusts, guaranties and bank credit lines required to be established for the Project by the State entities. Decreto #37 expires June 30, 2020. However, the expiration of Decreto #37 will not result in a termination of the APP Contract and/or the Project, as a new authorization may be issued by Congress.

~~Following its issuance, the following legal proceedings were initiated against Decreto #335:~~

~~(a) Amparo trial filed by a certain congressman and his alternate in April 2019~~. Given that neither AdR nor NSC are parties to this action, based on publicly available information the Company understands that in April 2019, a congressman of the Congress and his alternate filed this claim, stating that there are no interested third parties in this trial. Both the provisional and definitive suspensions of the effects of Decreto #335 requested by claimants, were denied by the Sixth District Court in Mexicali. As such, the effects of Decreto #335 have not been suspended. On July 31, 2019, this proceeding was dismissed. However, according to publicly available information, on August 15, 2019, the claimants appealed this dismissal. As neither AdR nor NSC are parties to this Amparo trial, they are not parties to that appeal. Based upon publicly available information, on February 6, 2020, the Sixth Collegiate Tribunal of the Fifteenth Judicial Circuit dismissed such appeal.

~~(c) Constitutionality challenge (Acción de Inconstitucionalidad) filed by certain congresspersons in May 2019~~. Based on publicly available information, the Company understands that in May 2019, certain congresspersons filed this constitutionality challenge against Decreto #335. This challenge has yet to be resolved.

Both the exchange rate for the Mexican 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 MA with the option to purchase 20% of the equity of AdR. If Suez MA 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 was originally scheduled to expire on June 30, 2019 but has been extended to September 30, 2020.

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 MA will design and construct the Project, while a joint venture company between NSC and Suez MA will operate the Project.

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

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 rights of way deposits it has made 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 rights of way payments for amounts at least equal to their carrying values as of December 31, 2019 of approximately $24.2 million. 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 an inability to complete the Project, could have a material adverse impact on our consolidated financial condition and results of operations.

Included in the Company’s consolidated 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 $458,000 and $484,000 for the three months ended March 31, 2020 and 2019, respectively. The assets and liabilities of NSC and AdR included in the Company’s consolidated balance sheets amounted to approximately $29.0 million and $2.3 million, respectively, as of March 31, 2020 and approximately $29.3 million and $2.9 million, respectively, as of December 31, 2019.

~~Project Litigation~~

Immediately following CW-Cooperatief’s acquisition of its initial 50% ownership in NSC, the remaining 50% ownership interest in NSC was held by an unrelated company, Norte Sur Agua, S. de R.L. de C.V. (“NSA”). NSA subsequently transferred ownership of half of its shares in NSC to EWG Water LLC (“EWG”) and the other half of its shares in NSC to an individual (the “individual shareholder”). In February 2012, CW-Cooperatief paid $300,000 to enter into an agreement (the “Option Agreement”) that provided it with an option, exercisable through February 7, 2014, to purchase the shares of NSC owned by the individual shareholder for a price of $1.0 million along with an immediate 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 CW-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) CW-Cooperatief did not exercise its share purchase option by February 7, 2014. CW-Cooperatief exercised its option and paid the $1.0 million to the individual shareholder to purchase the Option Agreement shares in February 2014.

In the 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 courts, as a preliminary matter (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 and public entities involved with the Project, including the registration of the pendency of the lawsuit in certain public records.

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

In April 2018, AdR filed an amparo 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 appealed such resolution, and in January 2020, the Collegiate Tribunal resolving such appeal dismissed the amparo filed by AdR. However, such dismissal does not adversely impact AdR, considering the resolution to the appeal mentioned in subparagraph b) that follows.

~~b) Appeal filed by NSC against the preliminary relief sought by EWG.~~

The appeal remedy previously mentioned in item (ii) suspended the proceeding (through the posting of a guarantee by NSC), and 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.

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

In January 2020, EWG filed a new amparo claim against the resolution of the appeal remedy previously mentioned in item (ii). 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.

On February 26, 2019, the Tenth Civil Judge acknowledged NSC’s filing of the legal response to the ordinary mercantile claim, its request to submit to arbitration, and the appeal remedy previously mentioned in item (ii) granting EWG a period of three business days to, among others, state what it deemed convenient to its interest.

Irrespective of the resolution revoking the preliminary relief previously granted in favor of EWG (due to the filing of the security deposit by NSC) and the pendency of the appeal remedy filed by EWG against such revocation, on April 12, 2019, the Tenth Civil Judge granted EWG the opportunity to file a counter guarantee in the amount of 1,500,000 Mexican pesos to maintain the ex-parte preliminary relief granted in its favor. With respect to this matter, the Tenth Civil Judge issued a resolution on April 26, 2019 allowing such counter guarantee to be filed in the form of a security deposit or in any other form allowed by the law, without extending the term initially granted for the filing of the counter guarantee.

~~Further, on April 12, 2019, the Tenth Civil Judge ruled that the request for arbitration filed on November 7, 2018 was not applicable under Mexican law.~~

~~d) Amparo filed by NSC against the resolution rejecting submission to arbitration.~~

While such order requires the Tenth Civil Judge to issue a new resolution on the matter of arbitration, this order does not necessarily imply that the Tenth Civil Judge shall rule to move to arbitration. However, if the new resolution is unfavorable for NSC, NSC is prepared to vigorously oppose such resolution.

~~e) Administrative cancellation of registrations before the Public Registry of Property.~~

Despite the posting of the previously mentioned 1,000,000 Mexican pesos guarantee in February 26, 2019 to release the preliminary relief sought by EWG within the ordinary mercantile claim, the Tenth Civil Judge failed to make the resolution effective, which would thereby rescind the previously mentioned preliminary relief granted to EWG.

Consequently, on June 19, 2019 (i.e. before obtaining a resolution revoking the preliminary relief as mentioned previously), NSC filed before the Public Registry of Property 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.

On June 24, 2019, the Public Registry of Property of Baja California issued an encumbrances cancellation resolution, approving the release of the provisional 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 real estate owned by NSC.

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

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 appeal remedy previously mentioned in subparagraph b) revoking the preliminary relief, previously mentioned in item (ii). The Court resolved in favor of such motion to dismiss. However, EWG may file an appeal remedy against such resolution.

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

Adoption of New Accounting Standards:

None.

Effect of newly issued but not yet effective accounting standards:

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.

~~None.~~

Dividends

●	On February 1, 2021, we paid a dividend of $0.085 to shareholders of record on January 4, 2021.

●	On April 30, 2021, we paid a dividend of $0.085 to shareholders of record on April 1, 2021.

~~Dividends~~

~~On January 31, 2020, we paid a dividend of $0.085 to shareholders of record on January 2, 2020.~~

~~On February 11, 2020, our Board declared a dividend of $0.085 payable on April 30, 2020 to shareholders of record on April 1, 2020.~~

We have paid dividends to owners of our common stock and redeemable preferred stock since we began declaring dividends in 1985. Our payment of any future cash dividends will depend upon our earnings, financial condition, cash flows, capital requirements and other factors our Board of Directors deems relevant in determining the amount and timing of such dividends.

Dividend Reinvestment and Common Stock Purchase Plan

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

Impact of Inflation

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. We, therefore, believe that the impact of inflation on our gross profit, measured in consistent dollars, should 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our exposure to market risk from December 31, ~~2019~~2020 to the end of the period covered by this report.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, with the participation of its principal executive officer and principal financial and accounting officer, the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial and accounting officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal ~~Controls~~

Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

NSC and AdR

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 an individual (the “individual shareholder”). In February 2012, CW-Cooperatief paid $300,000 to enter into an agreement (the “Option Agreement”) that provided it with an option, exercisable through February 7, 2014, to purchase the shares of NSC owned by the individual shareholder for a price of $1.0 million along with an immediate 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 CW-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) CW-Cooperatief did not exercise its share purchase option by February 7, 2014. CW-Cooperatief exercised its option and paid the $1.0 million to the individual shareholder to purchase the Option Agreement shares in February 2014.

Notwithstanding the resolution of ~~such litigation, while~~the Tenth Civil Judge to move to arbitration, subparagraphs a) ~~through f)~~and b) 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.

In the 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 courts, as a preliminary matter (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 and public entities involved with the Project, including the registration of the pendency of the lawsuit in certain public records.

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

In April 2018, AdR filed an amparo 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 appealed such resolution, and in January 2020, the Collegiate Tribunal resolving such appeal dismissed the amparo filed by AdR. However, such dismissal does not adversely impact AdR, considering the resolution to the appeal mentioned in subparagraph b) that follows.

b) Appeal filed by NSC against the preliminary relief sought by EWG.

The appeal remedy ~~previously~~filed by NSC on November 7, 2018, mentioned ~~in item (ii)~~previously, suspended the proceeding (through the posting of a guarantee by NSC) and 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.

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

On February 26, 2019, the Tenth Civil Judge acknowledged NSC’s the filing of the legal response to the ordinary mercantile claim, its request to submit to arbitration, and the appeal remedy previously mentioned in item (ii) granting EWG a period of three business days to, among others, state what it deemed convenient to its interest.

~~Further, on April 12, 2019, the Tenth Civil Judge ruled that the request for arbitration filed on November 7, 2018 was not applicable under Mexican law.~~

~~d) Amparo filed by NSC against the resolution rejecting submission to arbitration.~~

~~e) Administrative cancellation of registrations before the Public Registry of Property.~~

~~f) Amparo filed~~claims have been made by EWG against ~~the administrative cancellation of registrations before the Public Registry of Property.~~AdR.

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 appeal remedy previously mentioned in subparagraph b) revoking the preliminary relief, previously mentioned in item (ii). The Court resolved in favor of such motion to dismiss. However, EWG may file an appeal remedy against such resolution.

We cannot presently determine what impact the resolution of this litigation may ultimately have on our ~~ability to complete the Project~~consolidated financial condition, results of operations or cash flows.

ITEM 1A. RISK FACTORS

Our business faces significant risks. These risks include those disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020 as supplemented by the additional risk factors included below. If any of the events or circumstances described in the referenced risks actually occurs, our business, financial condition or results of operations could be materially adversely affected and such events or circumstances could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. These risks should be read in conjunction with the other information set forth in this Quarterly Report as well as in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and in our other periodic reports on Form 10-Q and Form 8-K.

The COVID-19 pandemic will likely continue to have a material adverse impact on our financial performance and financial condition in the future, to an extent and for a period of time that cannot presently be determined.

The worldwide coronavirus (COVID-19) pandemic was formally recognized by the World Health Organization on March 11, 2020. In response to this pandemic, the governments of the countries in which we operate - the Cayman Islands, The Bahamas, and the United States - implemented preventative measures to slow the spread of COVID-19, measures which have had profound adverse consequences for the economies of those countries. Tourism, a major economic driver for ~~The~~the Cayman Islands, ~~and The Bahamas,~~ has temporarily ceased ~~in those countries~~ due to closing of ~~these countries~~the country to tourist arrivals by air and sea travel. Tourists arrivals to The Bahamas by air and sea have declined significantly due to the pandemic and continue to be only a small fraction of pre-pandemic numbers due to travel restrictions within and outside of The Bahamas, as well the continued reluctance of people to travel internationally. Overall economic activity in the United States has also declined precipitously.

As a result of the ~~effects~~impact of the COVID-19 pandemic on the economies of the countries in which we operate, we ~~believe the future impacts of COVID-19 on~~have experienced, and will continue to experience, decreases in our ~~company will include (but will not necessarily be limited to):~~

~~decreases in our consolidated revenue, cash flows generated from operations, and overall liquidity as compared to comparable prior periods; and~~

a deterioration in the aging of our accounts receivable, with a resulting increase in the portion of our accounts that ultimately prove to be uncollectible, necessitating an increase in our provisions and allowances for doubtful accounts.

consolidated revenue, cash flows generated from operations, and overall liquidity as compared to comparable prior periods.

Furthermore, ~~a prolonged extension of~~ the economic downturn created by the COVID-19 ~~period could~~pandemic is adversely ~~impact the markets for~~impacting our ~~products and services.~~customers. Such adverse ~~market~~ impacts, should they continue for a prolonged period of time, could require us to reassess ~~its~~the expected future cash flows from our four reporting units and could require us to record impairment losses to reduce the carrying values of one or more of these reporting units due to a decline in their fair values.

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Although we cannot presently quantify the future financial impacts of the COVID-19 pandemic on our company, we believe such impacts will likely continue to have a material adverse impact on our consolidated financial condition, results of operations, and cash flows. Given the uncertainty associated with the resolution of this pandemic, we cannot presently determine how long such adverse financial impacts may last.

Our exclusive license to provide water to retail customers in the Cayman Islands has not been expressly extended and we are presently unable to predict the outcome of our on-going negotiations relating to this license.

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

In October 2016, the Government of the Cayman Islands passed legislation which created a new utilities regulation and competition office (“OfReg”). OfReg is an independent and accountable regulatory body with a view of protecting the rights of consumers, encouraging affordable utility services, and promoting competition. OfReg, which began operations in January 2017, has the ability to supervise, monitor and regulate multiple utility undertakings and markets. Supplemental legislation was passed by the Government of the Cayman Islands in April 2017, which transferred responsibility for the economic regulation of the water utility sector and the negotiations with us for a new retail license from the Water Authority-Cayman to OfReg in May 2017. We began license negotiations with OfReg in July 2017 and such negotiations are ~~continuing.~~ongoing. 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 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 impairment losses to reduce the carrying values of our retail segment assets. Such impairment losses could have a material adverse impact on our consolidated financial condition, results of operations, and cash ~~flows.~~flows.

~~We have paid $24.2 million for land, rights of way and equipment and incurred development expenses of approximately $~~31.5 million to date for a possible project in Mexico. We expect to expend significant additional funds for the balance of 2020 to continue to pursue this project. However, we may not be successful in completing this project.

We own 99.99% of NSC, a development stage Mexico company formed to pursue a project encompassing the construction, operation and minority ownership of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and an accompanying pipeline to deliver water to the Mexican potable water system (the “Project”). As of March 31, 2020, our consolidated balance sheet includes purchases for the Project of approximately $24.2 million for land, rights of way and equipment. The Project development activities we have conducted, which include conducting an equipment piloting plant and water data collection program at the proposed feed water source, completing various engineering studies and obtaining various governmental permits, pursuing debt and equity funding, and maintaining a corporate presence in Mexico have resulted in additional developmental expenses totaling $31.5 million from the inception of our efforts on this project in 2010 through March 31, 2020.

In August 2014, the State of Baja California (the “State”) enacted new legislation to regulate Public-Private Association projects which involve the type of long-term contract between a public-sector authority and a private party that we are seeking to complete the Project (the “APP Law”). Pursuant to this new legislation, in November 2015 the State officially commenced a tender process for the Project, the scope of which the State defined as a first phase to be operational in 2019 consisting of a 50 million gallon per day plant and a pipeline that connects to the Mexican potable water infrastructure and a second phase to be operational in 2024 consisting of an additional 50 million gallons per day of production capacity. Our consortium (“Consortium”) which included our subsidiary NSC and Suez Medio Ambiente México, S.A. de C.V., (“Suez MA”), a subsidiary of SUEZ International, S.A.S. submitted its tender for the Project in April 2016 and in June 2016, the State designated our Consortium as the winner of the tender process for the Project.

In August 2016, NSC incorporated 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.

On August 22, 2016, the Public Private Partnership Agreement for the Project (“APP Contract”), was executed between AdR, the Comisión Estatal del Agua de Baja California (“CEA”), the Government of Baja California represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana (“CESPT”). The APP Contract requires AdR to design, construct, finance and operate a seawater 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 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 aqueducts for a period of 37 years starting from the commencement of operation of the first phase. At the end of the operating period, the plant and aqueducts will be transferred to CEA. In February 2017, AdR submitted proposals to the CEA requesting the definition of a mechanism in 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 MA with the option to purchase 20% of the equity of AdR. If Suez MA 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 conditions precedent related to the Project are met. The aggregate investment to be made by the equity partners in 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 was originally scheduled to expire on June 30, 2019 but has been extended to September 30, 2020.

~~The APP Contract does not become effective until the following open conditions, among others, have been met:~~

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

~~AdR has obtained all rights of way required for the aqueduct; and~~

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

Since the signing of the APP Contract, the Congress of the State of Baja California, Mexico (the “Congress”) has faced several legal challenges, some of which remain unresolved, to the legal Decretos (decrees) they have passed to ratify and authorize the payment obligations of the corresponding public entities under the APP Contract and to authorize the corresponding public entities to obtain a credit facility to guarantee their payment obligations. The resolution of these legal challenges could adversely impact our ability to complete the Project. In addition, NSC has been sued by its minority shareholder in a court in Tijuana, Mexico and this litigation could delay or adversely impact the Project.

If AdR is ultimately unable to proceed with the Project due to (i) the legal challenges to the Decretos; (ii) the litigation initiated by NSC’s minority shareholder: (iii) failure by any of the parties involved to meet the conditions necessary for the APP Contract to become effective; or (iv) any other reason, the land NSC has purchased and the rights of way payments it has made 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 rights of way deposits for amounts at least equal to their aggregate carrying values as of December 31, 2019 of approximately $24.2 million. 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 an inability to complete the Project could have a material adverse impact on our consolidated financial condition and results of operations.

Periodically, our Bahamas subsidiary experiences substantial delays in the collection of its accounts receivable. As a result, our Bahamas subsidiary could have insufficient liquidity to continue operations, and our consolidated results of operations could be materially adversely affected.

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to ~~$17.8~~$19.5 million as of March 31, ~~2020~~2021 and ~~$18.4~~$16.8 million as of December 31, ~~2019.~~2020. Approximately ~~75%~~78% of the March 31, ~~2020~~2021 accounts receivable balance was delinquent as of that date. The delay in collecting these accounts receivable has adversely impacted the liquidity of this subsidiary.

As of April 30, 2021, CW-Bahamas’ accounts receivable from the WSC totaled an all-time high of approximately $21.7 million.

Historically, CW-Bahamas has experienced delays in collecting its accounts receivable from the WSC. When these delays occur, we hold discussions and meetings with representatives of the WSC and The Bahamas government, and as a result, payment schedules are developed for WSC’s delinquent accounts receivable. All previous delinquent accounts receivable

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from the WSC were eventually paid in full. Based upon this payment history, CW-Bahamas has never been required to provide an allowance for doubtful accounts for any of its accounts receivable, despite the periodic accumulation of significant delinquent balances. As of March 31, ~~2020,~~2021, we have not provided an allowance for doubtful accounts for CW-Bahamas’ accounts receivable from the WSC.

~~We believe the delays we have experienced in collecting CW-Bahamas’ receivables may be further extended by the impact of COVID-19 on the economy of The Bahamas.~~

If CW-Bahamas continues to be unable to collect a significant portion of its delinquent accounts receivable, one or more of the following events may occur: (i) CW-Bahamas may not have sufficient liquidity to meet its obligations; (ii) we may be required to cease the recognition of revenue 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, and cash flows.

Most of our services segment revenue is generated under short term contracts. An inability to obtain extensions of these contracts or to obtain new contracts to replace the revenue that is lost from contracts that are not extended could adversely impact our financial results.

PERC, our principal services segment subsidiary, generates most of its revenue from contracts (“O&M contracts”) to operate and maintain water treatment and reuse facilities owned by third parties. For the three months ended March 31, 2021, we generated revenue of approximately $2.9 million under these O&M contracts. PERC’s O&M contracts have terms ranging from one to five years, with varying renewal options exercisable solely at the discretion of the customer. Approximately 20% of PERC’s revenue for the three months ended March 31, 2021 was generated under O&M contracts that expire at various dates through December 31, 2021. If we are unable to obtain extensions of these expiring O&M contracts, or are unable to replace the revenue lost from contracts that expire with revenue from new O&M contracts, our consolidated financial condition, results of operations, and cash flows could be adversely affected.

If Aerex’s future financial performance falls short of our most recent financial projections for this subsidiary, we may be required to record an impairment loss to reduce the carrying value of the goodwill recorded for our manufacturing reporting unit.

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

Approximately 86% and 80% of Aerex’s revenue, and 78% and 89% of Aerex’s gross profit, for the three months ended March 31, 2020 and for the year ended December 31, 2020, respectively, were generated from sales to one customer. In October 2020, this customer informed Aerex that, for inventory management purposes, it was suspending its purchases from Aerex following 2020 for a period of approximately one year and Aerex did not generate any revenue from this customer during the three months ended March 31, 2021. This customer has 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. Consequently, our manufacturing segment revenue and gross profit for 2021 may decline as compared to the two prior years.

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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. Based upon these updated projections, we tested our manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020 using the discounted cash flow method. As a result of this impairment testing, we determined that the estimated fair value of our manufacturing reporting unit exceeded its carrying value by approximately 31% as of December 31, 2020. However, we may be required to record an impairment loss in the future to reduce the carrying value of our manufacturing reporting unit’s goodwill should we determine 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.

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

As a result of the economic conditions resulting from the COVID-19 pandemic, during the three months ended March 31, 2021 Aerex began experiencing issues with its supply chain for the raw materials and components used in its manufacturing operations, including higher prices, scarcities/shortages, and longer fulfillment times for its orders to suppliers. Should these economic conditions and issues continue, Aerex could have difficulty completing its orders from its customers, which could have a material adverse impact on our consolidated revenue, results of operations and cash flows, and could require us to record an impairment loss to reduce the carrying value of the goodwill recorded for our manufacturing segment. Any such impairment loss could have a material adverse impact on our consolidated financial condition and results of operations.

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

There were no unregistered sales of equity securities during the three months ended March 31, ~~2020.~~2021.

ITEM 6. EXHIBITS

~~Exhibit~~ ~~Number~~		~~Exhibit Description~~
~~31.1~~ Exhibit Number		Exhibit Description
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1		Section 1350 Certification of Chief Executive Officer
32.2		Section 1350 Certification of Chief Financial Officer
101.INS		XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition ~~Linkbase~~Document
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase
104		Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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SIGNATURES

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


CONSOLIDATED WATER CO. LTD.

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

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

Date: May ~~15, 2020~~17, 2021

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



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

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

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

	Condensed Consolidated Balance Sheets as of March 31, ~~2020~~2021 (Unaudited) and December 31, ~~2019~~2020	4

	Condensed Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020	5

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3	Quantitative and Qualitative Disclosures about Market Risk	34
Item 4	Controls and Procedures	34 35

PART II	OTHER INFORMATION	35 36
Item 1	Legal Proceedings	35 36
Item 1A	Risk Factors	40 37
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	43 40
Item 6	Exhibits	43 40

SIGNATURES		44 41

	March 31,		December 31,
	2020		2019
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	32,310,781	$	42,902,669
Accounts receivable, net		25,624,783		23,229,689
Inventory		6,282,173		3,287,555
Prepaid expenses and other current assets		2,353,521		2,346,918
Costs and estimated earnings in excess of billings		1,968,324		1,675,781
Total current assets		68,539,582		73,442,612
Property, plant and equipment, net		61,239,413		61,248,979
Construction in progress		328,334		1,335,597
Inventory, non-current		4,534,074		4,404,378
Investment in OC-BVI		1,939,610		1,903,602
Goodwill		13,325,013		13,325,013
Land and rights of way held for development		24,162,523		24,162,523
Intangible assets, net		4,785,833		5,040,000
Operating lease right-of-use assets		4,043,717		4,439,212
Other assets		2,794,060		2,990,228
Total assets	$	185,692,159	$	192,292,144

LIABILITIES AND EQUITY
Current liabilities
Accounts payable, accrued expenses and other current liabilities	$	4,364,590	$	3,672,142
Accrued compensation		1,077,650		1,821,395
Dividends payable		1,297,703		1,292,187
Current maturities of operating leases		761,540		755,751
Current portion of long-term debt		42,211		17,753
Billings in excess of costs and estimated earnings		903,692		614,386
Total current liabilities		8,447,386		8,173,614
Long term debt		155,484		61,146
Deferred tax liabilities		1,448,306		1,529,035
Noncurrent operating leases		3,166,476		3,836,475
Net liability arising from put/call options		825,000		664,000
Other liabilities		75,000		75,000
Total liabilities		14,117,652		14,339,270
Commitments and contingencies
Equity
Consolidated Water Co. Ltd. stockholders' equity
Redeemable preferred stock, $0.60 par value. Authorized 200,000 shares; issued and outstanding 33,751 and 33,751 shares, respectively		20,251		20,251
Class A common stock, $0.60 par value. Authorized 24,655,000 shares; issued and outstanding 15,114,506 and 15,049,608 shares, respectively		9,068,704		9,029,765
Class B common stock, $0.60 par value. Authorized 145,000 shares; none issued		-		-
Additional paid-in capital		86,034,929		88,356,509
Retained earnings		67,951,962		66,352,733
Total Consolidated Water Co. Ltd. stockholders' equity		163,075,846		163,759,258
Non-controlling interests		8,498,661		14,193,616
Total equity		171,574,507		177,952,874
Total liabilities and equity	$	185,692,159	$	192,292,144

	Redeemable preferred stock				Common stock				Additional paid-in			Retained			Non-controlling			Total stockholders’
	Shares		Dollars		Shares		Dollars		capital			earnings			interests			equity
Balance as of December 31, 2019		33,751	$	20,251		15,049,608	$	9,029,765	$	88,356,509		$	66,352,733		$	14,193,616		$	177,952,874
Issue of share capital		-		-		64,898		38,939		(38,939	)		-			-			-
Net income		-		-		-		-		-			2,888,607			360,998			3,249,605
Purchase of subsidiary from noncontrolling interest		-		-		-		-		(2,444,047	)		-			(6,055,953	)		(8,500,000	)
Dividends declared		-		-		-		-		-			(1,289,378	)		-			(1,289,378	)
Stock-based compensation		-		-		-		-		161,406			-			-			161,406
Balance as of March 31, 2020		33,751	$	20,251		15,114,506	$	9,068,704	$	86,034,929		$	67,951,962		$	8,498,661		$	171,574,507

	March 31, 2020			December 31, 2019
Revenues recognized to date on contracts in progress	$	20,029,321		$	24,041,993
Amounts billed to date on contracts in progress		(18,964,689	)		(22,980,598	)
	$	1,064,632		$	1,061,395

	Three Months Ended March 31, 2020
	Retail		Bulk		Services			Manufacturing		Total
Revenue	$	7,257,432	$	6,440,284	$	3,114,813		$	3,913,192	$	20,725,721
Cost of revenue		2,986,620		4,564,580		2,273,520			2,460,680		12,285,400
Gross profit		4,270,812		1,875,704		841,293			1,452,512		8,440,321
General and administrative expenses		3,373,839		292,046		1,131,138			356,734		5,153,757
Gain (loss) on asset dispositions and impairments, net		-		200		(420	)		-		(220	)
Income (loss) from operations	$	896,973	$	1,583,858	$	(290,265	)	$	1,095,778		3,286,344
Other income, net											169,344
Income before income taxes											3,455,688
Provision for income taxes											206,083
Net income											3,249,605
Income attributable to non-controlling interests											360,998
Net income attributable to Consolidated Water Co. Ltd. stockholders										$	2,888,607

	Three Months Ended March 31, 2019
	Retail			Bulk		Services			Manufacturing		Total
Revenue	$	6,686,660		$	7,111,313	$	100,577		$	3,089,974	$	16,988,524
Cost of revenue		2,825,604			4,954,591		121,919			2,124,107		10,026,221
Gross profit		3,861,056			2,156,722		(21,342	)		965,867		6,962,303
General and administrative expenses		3,117,278			261,412		485,885			513,459		4,378,034
Gain (loss) on asset dispositions and impairments, net		(2,731	)		46,500		-			-		43,769
Income (loss) from operations	$	741,047		$	1,941,810	$	(507,227	)	$	452,408		2,628,038
Other income, net												260,090
Income before income taxes												2,888,128
Provision for income taxes												48,959
Net income from continuing operations												2,839,169
Income from continuing operations attributable to non-controlling interests												273,908
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders												2,565,261
Total income from discontinued operations												3,621,170
Net income attributable to Consolidated Water Co. Ltd. stockholders											$	6,186,431

	As of March 31, 2020
	Retail		Bulk		Services		Manufacturing		Total
Accounts receivable, net	$	3,237,362	$	18,276,079	$	1,565,697	$	2,545,645	$	25,624,783
Inventory, current and non-current	$	2,804,866	$	3,784,087	$	-	$	4,227,294	$	10,816,247
Property, plant and equipment, net	$	29,221,683	$	30,126,797	$	275,487	$	1,615,446	$	61,239,413
Construction in progress	$	170,429	$	31,737	$	-	$	126,168	$	328,334
Intangibles, net	$	-	$	-	$	3,708,055	$	1,077,778	$	4,785,833
Goodwill	$	1,170,511	$	1,948,875	$	5,320,416	$	4,885,211	$	13,325,013
Land and rights of way held for development	$	-	$	-	$	24,162,523	$	-	$	24,162,523
Total segment assets	$	54,467,510	$	70,961,688	$	42,742,706	$	17,520,255	$	185,692,159

	As of December 31, 2019
	Retail		Bulk		Services		Manufacturing		Total
Accounts receivable, net	$	2,891,165	$	18,883,493	$	954,149	$	500,882	$	23,229,689
Inventory, current and non-current	$	2,668,902	$	3,628,443	$	-	$	1,394,588	$	7,691,933
Property, plant and equipment, net	$	29,177,718	$	30,281,647	$	168,585	$	1,621,029	$	61,248,979
Construction in progress	$	396,214	$	869,792	$	-	$	69,591	$	1,335,597
Intangibles, net	$	-	$	-	$	3,877,222	$	1,162,778	$	5,040,000
Goodwill	$	1,170,511	$	1,948,875	$	5,320,416	$	4,885,211	$	13,325,013
Land and rights of way held for development	$	-	$	-	$	24,162,523	$	-	$	24,162,523
Total segment assets	$	65,554,640	$	69,423,770	$	42,459,177	$	14,854,557	$	192,292,144

	Three Months Ended March 31,
Cash paid for amounts included in measurement of liabilities:	2020		2019
Cash payments for operating leases	$	277,658	$	218,080

Years ending December 31,	Total
Remainder of 2020	$	718,069
2021		627,269
2022		496,328
2023		495,188
2024		275,135
Thereafter		2,868,204
Total future lease payments		5,480,193
Less: Imputed interest		(1,552,177	)
Total lease obligations		3,928,016
Less: Current obligations		(761,540	)
Noncurrent lease obligations	$	3,166,476