UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 0-25248

CONSOLIDATED WATER CO. LTD.

(Exact name of Registrant as specified in its charter)

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 Cayman KY1-1102
Cayman Islands		N/A
(Address of principal executive offices)		(Zip Code)

(345) 945-4277

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

As of August ~~10, 2021, 15,210,699~~5, 2022, 15,291,431 shares of the registrant’s common stock, with US$0.60 par value, were outstanding.

Table of Contents

TABLE OF CONTENTS


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

	Condensed Consolidated Balance Sheets as of June 30, ~~2021~~2022 (Unaudited) and December 31, ~~2020~~2021	4

	Condensed Consolidated Statements of Income (Loss) (Unaudited) for the Three and Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	5

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2726
Item 3	Quantitative and Qualitative Disclosures about Market Risk	4241
Item 4	Controls and Procedures	4241

PART II	OTHER INFORMATION	4341
Item 1	Legal Proceedings	4341
Item 1A	Risk Factors	4443
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	4746
Item 6	Exhibits	4846

SIGNATURES		4948

Table of Contents

Note Regarding Currency and Exchange Rates

Unless otherwise indicated, all references to “$” or “US$” are to United States dollars.

The exchange rate for conversion of Cayman Island dollars (CI$) into US$, as determined by the Cayman Islands Monetary Authority, has been fixed since April 1974 at US$1.20 per CI$1.00.

The exchange rate for conversion of Bahamas dollars (B$) into US$, as determined by the Central Bank of The Bahamas, has been fixed since 1973 at US$1.00 per B$1.00.

The official currency of the British Virgin Islands is the US$.

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS


		June 30,		December 31,	June 30,		December 31,
		2021		2020	2022		2021
	(Unaudited)				(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	41,210,143	$	43,794,150	$	49,093,162	$	40,358,059
Certificate of deposit						2,518,493		2,500,000
Accounts receivable, net		26,119,130		21,483,976		22,680,801		27,349,307
Inventory		2,500,070		3,214,178		3,565,223		2,504,832
Prepaid expenses and other current assets		3,375,644		2,412,282		3,988,445		2,558,822
Contract assets		415,633		516,521		1,098,240		489,961
Current assets of discontinued operations		1,480,101		1,511,099		413,187		1,173,741
Total current assets		75,100,721		72,932,206		83,357,551		76,934,722
Property, plant and equipment, net		54,704,193		57,687,984		50,938,339		52,946,539
Construction in progress		681,317		440,384		2,034,413		710,863
Inventory, noncurrent		4,432,645		4,506,842		4,933,103		4,733,010
Investment in OC-BVI		1,674,277		2,092,146		1,512,747		1,715,905
Goodwill		10,425,013		13,325,013		10,425,013		10,425,013
Intangible assets, net		3,756,666		4,148,333		3,106,667		3,401,666
Operating lease right-of-use assets		2,963,075		1,329,561		2,298,165		2,681,137
Net asset arising from put/call options						404,000		128,000
Other assets		1,842,420		1,926,594		2,430,208		2,204,013
Long-term assets of discontinued operations		21,130,307		21,166,489		21,141,805		21,146,186
Total assets	$	176,710,634	$	179,555,552	$	182,582,011	$	177,027,054

LIABILITIES AND EQUITY
Current liabilities
Accounts payable, accrued expenses and other current liabilities	$	2,654,942	$	2,856,127	$	4,049,709	$	2,831,925
Accounts payable - related parties		278,739		200,558		766,775		163,947
Accrued compensation		1,402,148		1,434,106		1,238,127		1,435,542
Dividends payable		1,301,025		1,300,022		1,325,011		1,320,572
Current maturities of operating leases		555,591		455,788		563,643		592,336
Current portion of long-term debt		54,698		42,211		85,533		62,489
Contract liabilities		14,581		461,870		3,225,682		513,878
Deferred revenue						344,539		583,646
Current liabilities of discontinued operations		69,602		188,434		193,062		182,322
Total current liabilities		6,331,326		6,939,116		11,792,081		7,686,657
Long-term debt, noncurrent		148,876		126,338		166,272		152,038
Deferred tax liabilities		1,332,998		1,440,809		1,155,362		1,236,723
Noncurrent operating leases		2,464,960		982,076		1,850,860		2,137,394
Net liability arising from put/call options		528,000		690,000
Other liabilities		141,000		362,165		141,000		141,000
Long-term liabilities of discontinued operations		0		2,499		2,921		7,819
Total liabilities		10,947,160		10,543,003		15,108,496		11,361,631
Commitments and contingencies
Equity
Consolidated Water Co. Ltd. stockholders' equity
Redeemable preferred stock, $0.60 par value. Authorized 200,000 shares; issued and outstanding 37,349 and 31,068 shares, respectively		22,409		18,641
Class A common stock, $0.60 par value. Authorized 24,655,000 shares; issued and outstanding 15,202,371 and 15,143,683 shares, respectively		9,121,423		9,086,210
Class B common stock, $0.60 par value. Authorized 145,000 shares; none issued		0		0
Redeemable preferred stock, $0.60 par value. Authorized 200,000 shares; issued and outstanding 38,239 and 28,635 shares, respectively						22,943		17,181
Class A common stock, $0.60 par value. Authorized 24,655,000 shares; issued and outstanding 15,285,523 and 15,243,693 shares, respectively						9,171,314		9,146,216
Class B common stock, $0.60 par value. Authorized 145,000 shares; NaN issued						0		0
Additional paid-in capital		87,196,150		86,893,486		88,178,390		87,812,432
Retained earnings		61,643,938		64,910,709		62,004,903		60,603,056
Total Consolidated Water Co. Ltd. stockholders' equity		157,983,920		160,909,046		159,377,550		157,578,885
Non-controlling interests		7,779,554		8,103,503		8,095,965		8,086,538
Total equity		165,763,474		169,012,549		167,473,515		165,665,423
Total liabilities and equity	$	176,710,634	$	179,555,552	$	182,582,011	$	177,027,054

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

Table of Contents

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Revenue	$	16,701,524	$	19,087,247	$	33,804,841	$	39,812,968	$	21,067,127	$	16,701,524	$	40,625,032	$	33,804,841
Cost of revenue (including purchases from related parties of $129,401 and $371,201 for the three months ended, and $285,383 and $864,664 for the six months ended, June 30, 2021 and 2020, respectively)		10,636,671		11,784,104		21,613,478		24,069,504
Cost of revenue (including purchases from related parties of $640,937 and $129,401 for the three months ended, and $1,480,369 and $285,383 for the six months ended, June 30, 2022 and 2021, respectively)										13,591,630		10,636,671		26,003,771		21,613,478
Gross profit		6,064,853		7,303,143		12,191,363		15,743,464		7,475,497		6,064,853		14,621,261		12,191,363
General and administrative expenses (including purchases from related parties of $24,299 and $0 for the three months ended, and $28,728 and $0 for the six months ended, June 30, 2021 and 2020, respectively)		4,724,304		4,557,613		9,488,790		9,252,922
General and administrative expenses (including purchases from related parties of $24,231 and $24,299 for the three months ended, and $48,462 and $28,728 for the six months ended, June 30, 2022 and 2021, respectively)										4,926,691		4,724,304		9,792,808		9,488,790
Gain (loss) on asset dispositions and impairments, net		(2,896,640)		5,205		(3,145,573)		4,985		5,280		(2,896,640)		17,738		(3,145,573)
Income (loss) from operations		(1,556,091)		2,750,735		(443,000)		6,495,527		2,554,086		(1,556,091)		4,846,191		(443,000)

Other income (expense):
Interest income		174,645		109,818		335,009		246,259		110,916		174,645		291,603		335,009
Interest expense		(2,638)		(2,818)		(5,498)		(5,344)		(2,724)		(2,638)		(6,805)		(5,498)
Profit-sharing income from OC-BVI		4,050		14,175		10,125		24,300		8,100		4,050		18,225		10,125
Equity in the earnings of OC-BVI		10,726		34,095		26,506		59,976		19,551		10,726		51,317		26,506
Net unrealized gain (loss) on put/call options		31,000		80,000		162,000		(81,000)
Net unrealized gain on put/call options										201,000		31,000		276,000		162,000
Other		15,331		25,687		19,580		44,027		61,139		15,331		87,369		19,580
Other income, net		233,114		260,957		547,722		288,218		397,982		233,114		717,709		547,722
Income (loss) before income taxes		(1,322,977)		3,011,692		104,722		6,783,745		2,952,068		(1,322,977)		5,563,900		104,722
Provision (benefit) for income taxes		(6,845)		204,268		(9,505)		410,351
Income tax provision (benefit)										10,152		(6,845)		56,425		(9,505)
Net income (loss) from continuing operations		(1,316,132)		2,807,424		114,227		6,373,394		2,941,916		(1,316,132)		5,507,475		114,227
Income from continuing operations attributable to non-controlling interests		197,138		180,154		325,931		541,152		232,197		197,138		473,627		325,931
Net income (loss) from continuing operations attributable to Consolidated Water Co. Ltd. stockholders		(1,513,270)		2,627,270		(211,704)		5,832,242		2,709,719		(1,513,270)		5,033,848		(211,704)
Total loss from discontinued operations		(151,379)		(3,755,112)		(464,173)		(4,071,477)
Loss from discontinued operations										(419,833)		(151,379)		(1,027,147)		(464,173)
Net income (loss) attributable to Consolidated Water Co. Ltd. stockholders	$	(1,664,649)	$	(1,127,842)	$	(675,877)	$	1,760,765	$	2,289,886	$	(1,664,649)	$	4,006,701	$	(675,877)

Basic earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	(0.10)	$	0.17	$	(0.01)	$	0.39	$	0.18	$	(0.10)	$	0.33	$	(0.01)
Discontinued operations		(0.01)		(0.24)		(0.03)		(0.27)		(0.03)		(0.01)		(0.07)		(0.03)
Basic earnings (loss) per share	$	(0.11)	$	(0.07)	$	(0.04)	$	0.12	$	0.15	$	(0.11)	$	0.26	$	(0.04)

Diluted earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	(0.10)	$	0.17	$	(0.01)	$	0.38	$	0.18	$	(0.10)	$	0.33	$	(0.01)
Discontinued operations		(0.01)		(0.24)		(0.03)		(0.26)		(0.03)		(0.01)		(0.07)		(0.03)
Diluted earnings (loss) per share	$	(0.11)	$	(0.07)	$	(0.04)	$	0.12	$	0.15	$	(0.11)	$	0.26	$	(0.04)

Dividends declared per common and redeemable preferred shares	$	0.085	$	0.085	$	0.17	$	0.17	$	0.085	$	0.085	$	0.26	$	0.26

Weighted average number of common shares used in the determination of:
Basic earnings per share		15,201,682		15,114,506		15,201,571		15,114,506		15,285,523		15,201,682		15,285,523		15,201,571
Diluted earnings per share		15,201,682		15,269,334		15,201,571		15,269,175		15,436,421		15,201,682		15,435,956		15,201,571

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

Table of Contents

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

Redeemable

Additional

Non-

Total


preferred stock

Common stock

paid-in

Retained

controlling

stockholders’


Shares

Dollars

Shares

Dollars

capital

earnings

interests

equity
Balance as of December 31, 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
Issue of share capital

8,632

5,179

—

—

(5,179)

—

—

—
Conversion of preferred stock

(896)

(538)

896

538

—

—

—

—
Buyback of preferred stock

(704)

(422)

—

—

(6,928)

—

—

(7,350)
Net income (loss)

—

—

—

—

—

(1,664,649)

197,138

(1,467,511)
Exercise of options

211

126

—

—

1,583

—

—

1,709
Dividends declared

—

—

—

—

—

(1,294,697)

—

(1,294,697)
Stock-based compensation

—

—

—

—

178,589

—

—

178,589
Balance as of June 30, 2021

37,349

$
22,409

15,202,371

$
9,121,423

$
87,196,150

$
61,643,938

$
7,779,554

$
165,763,474


	Redeemable						Additional				Non-		Total
	preferred stock			Common stock			paid-in		Retained		controlling		stockholders’
	Shares	Dollars		Shares	Dollars		capital		earnings		interests		equity
Balance as of December 31, 2021	28,635	$	17,181	15,243,693	$	9,146,216	$	87,812,432	$	60,603,056	$	8,086,538	$	165,665,423
Issue of share capital	—		—	41,830		25,098		(25,098)		—		—		—
Net income	—		—	—		—		—		1,716,815		241,430		1,958,245
Dividends declared	—		—	—		—		—		(1,303,014)		—		(1,303,014)
Stock-based compensation	—		—	—		—		188,985		—		—		188,985
Balance as of March 31, 2022	28,635		17,181	15,285,523		9,171,314		87,976,319		61,016,857		8,327,968		166,509,639
Issue of share capital	9,295		5,577	—		—		(5,577)		—		—		—
Net income	—		—	—		—		—		2,289,886		232,197		2,522,083
Exercise of options	309		185	—		—		2,511		—		—		2,696
Dividends declared	—		—	—		—		—		(1,301,840)		(464,200)		(1,766,040)
Stock-based compensation	—		—	—		—		205,137		—		—		205,137
Balance as of June 30, 2022	38,239	$	22,943	15,285,523	$	9,171,314	$	88,178,390	$	62,004,903	$	8,095,965	$	167,473,515

Table of Contents

Redeemable



Additional



Non-

Total

preferred stock

Common stock

paid-in

Retained

controlling

stockholders’


Shares

Dollars

Shares

Dollars

capital

earnings

interests

equity
Balance as of December 31, 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
Issue of share capital

6,123

3,674

—

—

(3,674)

—

—

—
Net income (loss)

—

—

—

—

—

(1,127,842)

180,154

(947,688)
Exercise of options

363

217

—

—

4,201

—

—

4,418
Dividends declared

—

—

—

—

—

(1,287,474)

—

(1,287,474)
Stock-based compensation

—

—

—

—

199,065

—

—

199,065
Balance as of June 30, 2020

40,237

$
24,142

15,114,506

$
9,068,704

$
86,234,521

$
65,536,646

$
8,678,815

$
169,542,828


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

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)

Six Months Ended June 30,

2021

2020
Net cash provided by operating activities - continuing operations

$
1,662,873

$
4,785,208
Net cash used in operating activities - discontinued operations

(603,296)

(941,718)
Net cash provided by operating activities

1,059,577

3,843,490

Cash flows from investing activities




Additions to property, plant and equipment and construction in progress

(497,296)

(710,823)
Proceeds from asset dispositions

44,860

450
Purchase of non-controlling interest in Aerex

0

(8,500,000)
Net cash used in investing activities

(452,436)

(9,210,373)

Cash flows from financing activities




Dividends paid to common shareholders

(2,584,691)

(2,564,980)
Dividends paid to preferred shareholders

(5,200)

(5,738)
Dividends paid to non-controlling interests

(649,880)

—
Repurchase of redeemable preferred stock

(14,863)

0
Proceeds received from exercise of stock options

1,709

4,418
Principal repayments on long-term debt

(23,195)

(13,158)
Net cash used in financing activities

(3,276,120)

(2,579,458)
Net decrease in cash and cash equivalents

(2,668,979)

(7,946,341)
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

(69,158)

(827,806)
Cash and cash equivalents at end of period

$
41,210,143

$
34,128,522

Interest paid in cash

$
5,498

$
5,344

Non-cash transactions:

Dividends declared but not paid

$
1,295,377

$
1,288,154
Transfers from (to) inventory to (from) property, plant and equipment and construction in progress

$
148,138

$
(49,133)
Transfers from construction in progress to property, plant and equipment

$
166,335

$
1,400,811
Right-of-use assets obtained in exchange for new operating lease liabilities

$
1,852,608

$
16,383
Purchase of equipment through issuance of long-term debt

$
58,220

$
122,292


	Six Months Ended June 30,
	2022		2021
Net cash provided by operating activities - continuing operations	$	13,874,865	$	1,662,873
Net cash used in operating activities - discontinued operations		(661,698)		(603,296)
Net cash provided by operating activities		13,213,167		1,059,577

Cash flows from investing activities
Purchase of certificate of deposit		(2,518,493)		—
Maturity of certificate of deposit		2,500,000		—
Additions to property, plant and equipment and construction in progress		(1,796,196)		(497,296)
Proceeds from asset dispositions		24,360		44,860
Net cash used in investing activities - continuing operations		(1,790,329)		(452,436)

Cash flows from financing activities
Dividends paid to common shareholders		(2,595,547)		(2,584,691)
Dividends paid to preferred shareholders		(4,868)		(5,200)
Dividends paid to non-controlling interests		(464,200)		(649,880)
Repurchase of redeemable preferred stock		—		(14,863)
Proceeds received from exercise of stock options		2,696		1,709
Payments made on note payable		(31,144)		(23,195)
Net cash used in financing activities		(3,093,063)		(3,276,120)
Net increase (decrease) in cash and cash equivalents		8,329,775		(2,668,979)
Cash and cash equivalents at beginning of period		40,358,059		43,794,150
Cash and cash equivalents at beginning of period - discontinued operations		750,048		154,130
Less: cash and cash equivalents at end of period - discontinued operations		(344,720)		(69,158)
Cash and cash equivalents at end of period	$	49,093,162	$	41,210,143


Non-cash transactions:
Issuance of 9,295 and 8,632, respectively, shares of redeemable preferred stock for services rendered	$	133,197	$	102,203
Issuance of 41,830 and 57,577, respectively, shares of common stock for services rendered	$	521,016	$	745,468
Conversion (on a one-to-one basis) of 0 and 1,111, respectively, shares of redeemable preferred stock to common stock	$	—	$	667
Dividends declared but not paid	$	1,302,520	$	1,295,377
Transfers from (to) inventory to (from) property, plant and equipment and construction in progress	$	185,013	$	148,138
Net transfers from construction in progress to property, plant and equipment	$	240,401	$	166,335
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	1,852,608
Purchase of equipment through issuance of long-term debt	$	68,422	$	58,220

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

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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 wastewater and 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"). The Company’s investment in its affiliate Ocean Conversion (BVI) Ltd. (“OC-BVI”) is accounted for using the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying interim condensed consolidated financial statements are unaudited. These condensed consolidated financial statements reflect all adjustments (which are of a normal recurring nature) that, in the opinion of management, are necessary to fairly present the Company’s consolidated financial position, results of operations and cash flows as of and for the periods presented. The consolidated results of operations for these interim periods are not necessarily indicative of the operating results for future periods, including the fiscal year ending December 31, ~~2021.~~2022.

These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) relating to interim financial statements and in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted in these condensed consolidated financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Foreign currency: The Company’s reporting currency is the United States dollar (“US$”). The functional currency of the Company and its foreign operating subsidiaries (other than NSC, AdR, and CW-Cooperatief) is the currency for each respective country. The functional currency for NSC, AdR, and CW-Cooperatief is the US$. 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 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 arising from transactions and re-measurements were ~~$14,159~~$6,988 and ~~$24,456~~$14,159 for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$14,051~~$29,034 and ~~$41,299~~$14,051 for the six months ended June 30, ~~2021~~2022 and ~~2020, respectively,~~2021, and are included in “Other income (expense) - Other” in the accompanying condensed consolidated statements of income (loss).

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Cash and cash equivalents: Cash and cash equivalents consist of demand deposits at banks and ~~highly liquid deposits~~certificates of deposit at banks with an original maturity of three months or less. Cash and cash equivalents as of June 30, ~~2021~~2022 and

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December 31, ~~2020~~2021 include approximately ~~$8.5~~$7.4 million and ~~$8.5~~$7.4 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. The equivalent United States dollar cash balances for deposits held in The Bahamas as of June 30, ~~2021~~2022, and December 31, ~~2020~~2021 were approximately ~~$7.6~~$11.5 million and ~~$15.9~~$3.9 million, respectively.

Certificate of deposit: As of June 30, 2022 and December 31, 2021, the Company held a certificate of deposit in The Bahamas of $2.5 million and $2.5 million, respectively, with an original maturity of six months.

Goodwill and intangible assets: Goodwill represents the excess cost of an acquired business over the fair value of the assets and liabilities of anthe 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.~~annually or upon the identification of a triggering event. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment. The Company evaluates the possible impairment of goodwill annually as part of its reporting process for the fourth quarter of each fiscal year. Management identifies the Company’s reporting units, which consist of ~~the~~ retail, bulk, services, and manufacturing, ~~business segments,~~ and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. The Company determines the fair value of each reporting unit and compares the fair value to the carrying amount of the reporting unit. To the extent the carrying amount of the reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded.

~~For the year ended~~As of December 31, ~~2020,~~2021, the Company estimated the fair value of its reporting units by applying the discounted cash flow method, which relied upon seven-year discrete projections of operating results, working capital and capital expenditures, along with a terminal value subsequent to the discrete period. These seven-year projections were based upon historical and anticipated future results, general economic and market conditions, and considered the impact of planned business and operational strategies. The discount rates for the calculations represented the estimated cost of capital for market participants at the time of each analysis.

The Company also estimated the fair value of each of itits reporting units ~~for the year ended~~as of December 31, ~~2020~~2021 by applying the guideline public company method.

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

As of December 31, 2020
Method

Retail

Bulk

Services

Manufacturing

Discounted cash flow

80
%
80
%
80
%
80
%
Guideline public company

20
%
20
%
20
%
20
%
Mergers and acquisitions

—
%
—
%
—
%
—
%

100
%
100
%
100
%
100
%

The fair values the Company estimated for its retail, bulk, services and manufacturing reporting units exceeded their carrying amounts by ~~101%~~32%, ~~49%~~51%, ~~17%~~15%, and ~~31%~~15% respectively, as of December 31, ~~2020.~~2021.

~~Approximately 87% and 86%~~Based upon its estimation prepared as of Aerex’s revenue, and 91% and 84% of Aerex’s gross profit, for the three and six months ended June 30, 2020, respectively, were generated from sales to 1 customer. Approximately 80% of Aerex’s revenue, and 89% of Aerex’s gross profit, for the year ended December 31, 2020 were generated from sales to this 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. This customer informed Aerex at that time that it expected to recommence its purchases from Aerex beginning with2021, the first quarter of 2022. As a result of this anticipated loss of revenue for Aerex, the Company updated its projections for its manufacturing reporting unit’s future cash flows. Such projections assumed, in part, that Aerex’s major customer would recommence its purchases from Aerex in 2022 but at a reduced aggregate amount, as compared to 2020. Based upon these updated projections, the Company tested its manufacturing reporting unit’s goodwill for possible impairment as of September 30, 2020 and December 31, 2020 using the discounted cash flow and guideline public companies methods, with a weighting of 80% and 20% applied to these two methods, respectively. As a result of these impairment tests, the Company determined that the estimated fair value of ~~our~~

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the Company’s manufacturing reporting unit exceeded its carrying value by ~~approximately 22% as of September 30, 2020 and 31% as of December 31, 2020.~~

In late July 2021, this former major customer communicated to Aerex that it expected to recommence its purchases from Aerex in 2022 and subsequent years, but informed Aerex that such purchases would be at substantially reduced annual amounts, as compared to the amounts it had purchased from Aerex in 2020 and prior years. The updated sales estimate for this customer based on this new information is substantially below the sales previously anticipated to this customer for 2022 and subsequent years thatonly 15%. If the Company used in the discounted cash flow projections prepared for purposes of testing the manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020. Aerex’s efforts to replace the revenue previously generated from this customer with revenue from existing and new customers have been adversely impacted by the continuing negative economic impacts of the COVID-19 pandemic, which have increased Aerex’s raw material costs, resulted in raw material shortages and extended delivery times for such materials and, the Company believes, also adversely affected the overall financial condition of Aerex’s current and prospective customer base. Accordingly, in light of this new information from Aerex’s former major customer, and present weak economic conditions that the Company believes will continue into 2022, the Company updated its projections of future cash flows for its manufacturing reporting unit and tested its goodwill for possible impairment as of June 30, 2021 using the discounted cash flow and guideline public company methods, with a weighting of 80% and 20% applied to these two methods, respectively. Based upon this testing, the Company determined that the carrying value of its manufacturing reporting unit exceeded its fair value by $2.9 million, and the Company recorded an impairment loss to reduce its manufacturing reporting unit’s goodwill by this amount for the three months ended June 30, 2021.

~~If it is determined~~determines in the future that Aerex’s discounted future cash inflows will be less than its present expectation, the ~~Company’s present expectations, it~~Company may be required to record additional impairment losses to reduce the remaining carrying values as of June 30, ~~2021~~2022 of ~~the~~its manufacturing reporting unit’s goodwill of $1,985,211 and ~~the~~its remaining unamortized ~~balance of its~~ intangible assets balances of ~~$894,444 associated with~~$801,111 recorded as a result of the acquisition of Aerex. Any such impairment losses could have a material adverse impact on the Company’s consolidated results of operations.

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

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Retail revenue	$	5,674,790	$	5,966,296	$	11,386,095	$	13,223,728	$	6,526,803	$	5,674,790	$	12,840,003	$	11,386,095
Bulk revenue		6,711,971		5,866,397		12,957,941		12,306,681		8,423,749		6,711,971		15,774,393		12,957,941
Services revenue		3,763,239		3,476,000		7,304,085		6,590,813		5,055,483		3,763,239		9,799,303		7,304,085
Manufacturing revenue		551,524		3,778,554		2,156,720		7,691,746		1,061,092		551,524		2,211,333		2,156,720
Total revenue	$	16,701,524	$	19,087,247	$	33,804,841	$	39,812,968	$	21,067,127	$	16,701,524	$	40,625,032	$	33,804,841

Retail revenue

The Company produces and supplies water to end-users, including residential, commercial and governmental customers in the Cayman Islands under an exclusive retail license issued to Cayman Water by the Cayman Islands government to provide water in two of the three most populated areas on Grand Cayman Island. Customers are billed on a monthly basis based on metered consumption and bills are typically collected within 30 to 3545 days after the billing date.

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

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Bulk revenue

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

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

The Company sells bulk water in The Bahamas through its majority-owned subsidiary, CW-Bahamas, under two agreements with the Water and Sewerage Corporation of The Bahamas (“WSC”), which distributes such water through its own pipeline system to residential, commercial and tourist properties on the Island of New Providence. CW-Bahamas also sold water to a private resort on Bimini through December 18, 2020, which generated revenue of approximately $29,000 and $71,000 for the three and six months ended June 30, 2020, respectively.

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

Services and Manufacturing revenue

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

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

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

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

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

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

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


					June 30,		December 31
	June 30, 2021		December 31, 2020		2022		2021
Revenue recognized to date on contracts in progress	$	6,434,715	$	17,534,449	$	10,234,946	$	6,109,396
Amounts billed to date on contracts in progress		(6,277,688)		(17,791,928)		(12,905,981)		(6,370,855)
Retainage		244,025		312,130		543,593		237,542
Net contract asset	$	401,052	$	54,651
Net contract liability					$	(2,127,442)	$	(23,917)

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


					June 30,		December 31
	June 30, 2021		December 31, 2020		2022		2021
Contract assets	$	415,633	$	516,521	$	1,098,240	$	489,961
Contract liabilities		(14,581)		(461,870)		(3,225,682)		(513,878)
Net contract asset	$	401,052	$	54,651
Net contract liability					$	(2,127,442)	$	(23,917)

As of June 30, ~~2021,~~2022, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately ~~$1.2~~$102.7 million in aggregate transaction price for contracts with an original expected length of greater than one year. The Company expects to earn revenue as it satisfies its performance obligations under those contracts in the amount of approximately ~~$0.5~~$34.3 million during the remainder of the year ending December 31, ~~2021~~2022 and approximately ~~$0.7~~$68.4 million thereafter. In addition, the Company recognized revenue of $286,000 in the six months ended June 30, 2022, that was included in the contract liability balance as of December 31, 2021.

Practical Expedients and Exemptions

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

Comparative amounts: Certain amounts presented in the financial statements previously issued for ~~2020~~2021 have been reclassified to conform to the current periods’ ~~presentation.~~presentation.

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3. Segment information

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

Depreciation and amortization expenses for the three months ended June 30, 2022 for the retail, bulk, services and manufacturing segments were $637,796, $704,841, $168,078 and $70,307, respectively.

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	Three Months Ended June 30, 2021										Three Months Ended June 30, 2021
	Retail		Bulk		Services		Manufacturing		Total		Retail		Bulk		Services		Manufacturing		Total
Revenue	$	5,674,790	$	6,711,971	$	3,763,239	$	551,524	$	16,701,524	$	5,674,790	$	6,711,971	$	3,763,239	$	551,524	$	16,701,524
Cost of revenue		2,781,909		4,386,794		2,878,409		589,559		10,636,671		2,781,909		4,386,794		2,878,409		589,559		10,636,671
Gross profit (loss)		2,892,881		2,325,177		884,830		(38,035)		6,064,853
Gross profit												2,892,881		2,325,177		884,830		(38,035)		6,064,853
General and administrative expenses		3,318,473		303,856		671,585		430,390		4,724,304		3,318,473		303,856		671,585		430,390		4,724,304
Gain (loss) on asset dispositions and impairments, net		3,360		—		—		(2,900,000)		(2,896,640)		3,360		—		—		(2,900,000)		(2,896,640)
Income (loss) from operations	$	(422,232)	$	2,021,321	$	213,245	$	(3,368,425)		(1,556,091)	$	(422,232)	$	2,021,321	$	213,245	$	(3,368,425)		(1,556,091)
Other income, net										233,114										233,114
Loss before income taxes										(1,322,977)										(1,322,977)
Benefit from income taxes										(6,845)
Income tax benefit																				(6,845)
Net loss from continuing operations										(1,316,132)										(1,316,132)
Income from continuing operations attributable to non-controlling interests										197,138
Income attributable to non-controlling interests																				197,138
Net loss from continuing operations attributable to Consolidated Water Co. Ltd. stockholders										(1,513,270)										(1,513,270)
Net loss from discontinued operations										(151,379)
Loss from discontinued operations																				(151,379)
Net loss attributable to Consolidated Water Co. Ltd. stockholders									$	(1,664,649)									$	(1,664,649)

Depreciation and amortization expenses for the three months ended June 30, 2021 for the retail, bulk, services and manufacturing segments were $632,953, $906,292, $204,000 and $70,134, respectively.


	Three Months Ended June 30, 2020										Six Months Ended June 30, 2022
	Retail		Bulk		Services		Manufacturing		Total		Retail		Bulk		Services		Manufacturing		Total
Revenue	$	5,966,296	$	5,866,397	$	3,476,000	$	3,778,554	$	19,087,247	$	12,840,003	$	15,774,393	$	9,799,303	$	2,211,333	$	40,625,032
Cost of revenue		2,769,497		3,941,309		2,631,513		2,441,785		11,784,104		6,172,151		10,334,702		7,515,047		1,981,871		26,003,771
Gross profit		3,196,799		1,925,088		844,487		1,336,769		7,303,143		6,667,852		5,439,691		2,284,256		229,462		14,621,261
General and administrative expenses		3,266,782		261,100		711,350		318,381		4,557,613		6,795,515		714,375		1,618,014		664,904		9,792,808
Gain on asset dispositions and impairments, net		—		—		5,205		—		5,205		1,200		—		16,538		—		17,738
Income (loss) from operations	$	(69,983)	$	1,663,988	$	138,342	$	1,018,388		2,750,735	$	(126,463)	$	4,725,316	$	682,780	$	(435,442)		4,846,191
Other income, net										260,957										717,709
Income before income taxes										3,011,692										5,563,900
Provision for income taxes										204,268
Income tax provision																				56,425
Net income from continuing operations										2,807,424										5,507,475
Income attributable to non-controlling interests										180,154
Income from continuing operations attributable to non-controlling interests																				473,627
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders										2,627,270										5,033,848
Net loss from discontinued operations										(3,755,112)
Net loss attributable to Consolidated Water Co. Ltd. stockholders									$	(1,127,842)
Loss from discontinued operations																				(1,027,147)
Net income attributable to Consolidated Water Co. Ltd. stockholders																			$	4,006,701

Table of Contents

~~Depreciation and amortization expenses for the three months ended June 30, 2020 for the retail, bulk, services and manufacturing segments were $595,247, $967,064, $188,586 and $82,340, respectively.~~

Six Months Ended June 30, 2021

Retail

Bulk

Services

Manufacturing

Total
Revenue

$
11,386,095

$
12,957,941

$
7,304,085

$
2,156,720

$
33,804,841
Cost of revenue

5,489,903

8,541,947

5,600,337

1,981,291

21,613,478
Gross profit

5,896,192

4,415,994

1,703,748

175,429

12,191,363
General and administrative expenses

6,689,483

681,359

1,393,605

724,343

9,488,790
Gain (loss) on asset dispositions and impairments, net

(246,640)

1,500

(433)

(2,900,000)

(3,145,573)
Income (loss) from operations

$
(1,039,931)

$
3,736,135

$
309,710

$
(3,448,914)

(443,000)
Other income, net







547,722
Income before income taxes









104,722
Benefit from income taxes









(9,505)
Net income from continuing operations









114,227
Income from continuing operations attributable to non-controlling interests









325,931
Net loss from continuing operations attributable to Consolidated Water Co. Ltd. stockholders









(211,704)
Net loss from discontinued operations









(464,173)
Net loss attributable to Consolidated Water Co. Ltd. stockholders









$
(675,877)

Depreciation and amortization expenses for the six months ended June 30, 2021 or the retail, bulk, services and manufacturing segments were $1,267,208, $1,860,052, $404,495 and $145,667, respectively.

Six Months Ended June 30, 2020

Retail

Bulk

Services

Manufacturing

Total
Revenue

$
13,223,728

$
12,306,681

$
6,590,813

$
7,691,746

$
39,812,968
Cost of revenue

5,756,117

8,505,889

4,905,033

4,902,465

24,069,504
Gross profit

7,467,611

3,800,792

1,685,780

2,789,281

15,743,464
General and administrative expenses

6,640,621

553,146

1,384,040

675,115

9,252,922
Gain on asset dispositions and impairments, net

—

200

4,785

—

4,985
Income from operations

$
826,990

$
3,247,846

$
306,525

$
2,114,166

6,495,527
Other income, net









288,218
Income before income taxes









6,783,745
Provision for income taxes

410,351
Net income from continuing operations









6,373,394
Income from continuing operations attributable to non-controlling interests









541,152
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders









5,832,242
Net loss from discontinued operations









(4,071,477)
Net income attributable to Consolidated Water Co. Ltd. stockholders









$
1,760,765

~~Table of Contents~~

Depreciation and amortization expenses for the six months ended June 30, ~~2020~~2022 for the retail, bulk, services and manufacturing segments were ~~$1,200,060, $1,934,299, $371,337~~$1,253,481, $1,407,100, $327,077 and ~~$208,474,~~$141,515, respectively.

As of June 30, 2021

Retail

Bulk

Services

Manufacturing

Total
Accounts receivable, net

$
2,328,613

$
21,501,870

$
1,548,905

$
739,742

$
26,119,130
Inventory, current and non-current

$
2,759,365

$
3,688,327

$
—

$
485,023

$
6,932,715
Property, plant and equipment, net

$
26,659,760

$
25,900,486

$
533,302

$
1,610,645

$
54,704,193
Construction in progress

$
546,043

$
31,737

$
—

$
103,537

$
681,317
Intangibles, net

$
—

$
—

$
2,862,222

$
894,444

$
3,756,666
Goodwill

$
1,170,511

$
1,948,875

$
5,320,416

$
1,985,211

$
10,425,013
Total segment assets

$
62,119,731

$
69,783,021

$
14,762,027

$
7,435,447

$
154,100,226
Assets of discontinued operations

$
22,610,408
Total assets

$
176,710,634

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


	Six Months Ended June 30, 2021
	Retail		Bulk		Services		Manufacturing		Total
Revenue	$	11,386,095	$	12,957,941	$	7,304,085	$	2,156,720	$	33,804,841
Cost of revenue		5,489,903		8,541,947		5,600,337		1,981,291		21,613,478
Gross profit		5,896,192		4,415,994		1,703,748		175,429		12,191,363
General and administrative expenses		6,689,483		681,359		1,393,605		724,343		9,488,790
Gain (loss) on asset dispositions and impairments, net		(246,640)		1,500		(433)		(2,900,000)		(3,145,573)
Income (loss) from operations	$	(1,039,931)	$	3,736,135	$	309,710	$	(3,448,914)		(443,000)
Other income, net										547,722
Income before income taxes										104,722
Income tax benefit										(9,505)
Net income from continuing operations										114,227
Income from continuing operations attributable to non-controlling interests										325,931
Net loss from continuing operations attributable to Consolidated Water Co. Ltd. stockholders										(211,704)
Loss from discontinued operations										(464,173)
Net loss attributable to Consolidated Water Co. Ltd. stockholders									$	(675,877)

Depreciation and amortization expenses for the six months ended June 30, 2021 for the retail, bulk, services and manufacturing segments were $1,267,208, $1,860,052, $404,495 and $145,667, respectively.


	As of June 30, 2022
	Retail		Bulk		Services		Manufacturing		Total
Accounts receivable, net	$	2,483,105	$	13,620,152	$	5,962,620	$	614,924	$	22,680,801
Inventory, current and non-current	$	2,736,689	$	4,339,891	$	—	$	1,421,746	$	8,498,326
Property, plant and equipment, net	$	25,397,237	$	23,308,053	$	708,496	$	1,524,553	$	50,938,339
Construction in progress	$	1,940,884	$	31,737	$	—	$	61,792	$	2,034,413
Intangibles, net	$	—	$	—	$	2,305,556	$	801,111	$	3,106,667
Goodwill	$	1,170,511	$	1,948,875	$	5,320,416	$	1,985,211	$	10,425,013
Total segment assets	$	62,530,143	$	68,320,138	$	21,643,203	$	8,533,535	$	161,027,019
Assets of discontinued operations									$	21,554,992
Total assets									$	182,582,011

Table of Contents


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

4. Earnings per share

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

~~Table of Contents~~

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Net income (loss) from continuing operations attributable to Consolidated Water Co. Ltd. stockholders	$	(1,513,270)	$	2,627,270	$	(211,704)	$	5,832,242	$	2,709,719	$	(1,513,270)	$	5,033,848	$	(211,704)
Less: preferred stock dividends		(3,175)		(3,420)		(5,734)		(6,289)		(3,250)		(3,175)		(5,684)		(5,734)
Net income (loss) from continuing operations available to common shares in the determination of basic earnings per common share		(1,516,445)		2,623,850		(217,438)		5,825,953		2,706,469		(1,516,445)		5,028,164		(217,438)
Total loss from discontinued operations		(151,379)		(3,755,112)		(464,173)		(4,071,477)
Loss from discontinued operations										(419,833)		(151,379)		(1,027,147)		(464,173)
Net income (loss) available to common shares in the determination of basic earnings per common share	$	(1,667,824)	$	(1,131,262)	$	(681,611)	$	1,754,476	$	2,286,636	$	(1,667,824)	$	4,001,017	$	(681,611)

Weighted average number of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders		15,201,682		15,114,506		15,201,571		15,114,506		15,285,523		15,201,682		15,285,523		15,201,571
Plus:
Weighted average number of preferred shares outstanding during the period		—		35,126		—		34,438		29,049		—		28,843		—
Potential dilutive effect of unexercised options and unvested stock grants		—		119,702		—		120,231		121,849		—		121,590		—
Weighted average number of shares used for determining diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders		15,201,682		15,269,334		15,201,571		15,269,175		15,436,421		15,201,682		15,435,956		15,201,571

5. Discontinued operations - Mexico project development

In ~~May~~ 2010, the Company ~~acquired,~~began the pursuit, through its ~~wholly-owned~~ Netherlands subsidiary, ~~CW-Cooperatief, a 50% interest in NSC, a development stage Mexican company. CW-Cooperatief thereafter purchased, through the conversion~~Consolidated Water Cooperatief, U.A. (“CW-Cooperatief”), and its Mexico subsidiary, N.S.C. Agua, S.A. de C.V. (“NSC”), of ~~a loan it made to NSC, additional shares that increased its ownership interest in NSC to 99.99%. NSC was formed to pursue~~ a project (the “Project”) that ~~originally~~

Table of Contents

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

Through a series of transactions that began in 2012, NSC purchased 20.1 hectares of land for approximately $21.1 million on which the proposed Project’s plant ~~would~~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. The scope of the Project was defined by the State as a first phase to be operational in 2019 consisting of a 50 million gallon per day plant and an aqueduct that 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., 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~~a new company under the name Aguas de Rosarito S.A.P.I. de C.V. (“AdR”)~~, a special purpose company,~~ to ~~complete~~pursue completion of the Project and executed a shareholders agreement for AdR agreeing among other

~~Table of Contents~~

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

On August 22, 2016, the Public Private Partnership Agreement for the Project (the “APP Contract”) was executed between AdR, the State Water Commission of Baja, California (“CEA”), and the Government of Baja California, as represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana (“CESPT”). The APP Contract 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 public 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 January 2025. 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, 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~~Contract was signed to the 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 Mexico public water system.~~

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~~required that this list of non-recoverable expenses made by AdR in connection with the Project be submitted to CEA and CESPT within 20 business days from the date of receipt of the Letter.

As a consequence of the termination of the APP Contract, the rights of way NSC and AdR acquired for the aqueduct no longer have any value due to the loss of their strategic importance derived from their incorporation in the Project. Consequently, the Company recorded an impairment loss of approximately ($3.0 million) for the three months ended 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 $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, 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 accompanying condensed financial statements.

~~Table of Contents~~

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

June 30,

December 31,

2021

2020
Cash

$
69,158

$
154,130
Prepaid expenses and other current assets

96,086

88,978
Value added taxes receivable

1,314,857

1,267,991
Property, plant and equipment, net

3,409

5,682
Land

21,126,898

21,126,898
Other assets

—

33,909
Total assets of discontinued operations

$
22,610,408

$
22,677,588




Total liabilities of discontinued operations

$
69,602

$
190,933

Three Months Ended June 30,

Six Months Ended June 30,


2021

2020

2021

2020
Revenue

$
—

$
—

$
—

$
—
Income from operations

$
—

$
—

$
—

$
—
Net loss from discontinued operations

$
151,379

$
3,755,112

$
464,173

$
4,071,477
Gain on sale of discontinued operations

$
—

$
—

$
—

$
—
Depreciation expense

$
1,137

$
1,136

$
2,273

$
2,272

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

The Company 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.

Asbelieves CW-Cooperatief, 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

Table of Contents

Kingdom of the Netherlands and the United Mexican States entered into force as of October 1, 1999 (the “Treaty”). On April 16, 2021, CW-Cooperatief submitted a letter to the President of Mexico and other Mexican federal government officials alleging that the State’s termination of the APP Contract constituted a breach by Mexico of its international obligations under the Treaty, entitling CW-Cooperatief to full reparation, including monetary damages. This letter 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. On June 29, 2021, the Mexican Ministry of Economy responded to CW-Cooperatief’s letter and proposed to hold a consultation meeting. Two such meetings were held on July 9, 2021 and August 2, 2021 on a confidential ~~basis.~~basis, without a resolution of the Company’s investment dispute.

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

CW-Cooperatief intends to pursue vigorously the relief sought in the arbitration, in addition to pursuing all other legal remedies and courses of action available under the operative contracts and applicable law with respect to their rights, damages, fees and expenses. The ~~investment dispute remains unresolved~~Company cannot provide any assurances that CW-Cooperatief will be able to ~~date.~~obtain the relief sought in the arbitration, and CW-Cooperatief will incur legal and other arbitration-related expenses that the Company expects will be material to its consolidated results of operations and cash flows.

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

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

As a result of the cancellation of the APP Contract, in 2020 the Company discontinued all development activities associated with the Project and commenced active marketing efforts to sell the land NSC purchased for the Project. Accordingly, the assets and liabilities of CW-Cooperatief, NSC and AdR, as well as all Project development expenses and the costs for legal and administrative activities to pursue reimbursement from the State of Baja California following the cancellation of the APP Contract, have been reclassified from the services segment to discontinued operations in the accompanying consolidated financial statements.

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


	June 30,		December 31,
	2022		2021
Cash	$	344,720	$	750,048
Prepaid expenses and other current assets		67,962		82,783
Value added taxes receivable (net of allowance of $1,657,871 and $1,279,757, respectively)		505		340,910
Land		21,126,898		21,126,898
Other assets		14,907		19,288
Total assets of discontinued operations	$	21,554,992	$	22,319,927

Total liabilities of discontinued operations	$	195,983	$	190,141

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue	$	—	$	—	$	—	$	—
Provision for uncollected value added taxes	$	—	$	—	$	377,326	$	—
Loss from discontinued operations	$	419,833	$	151,379	$	1,027,147	$	464,173
Depreciation expense	$	—	$	1,137	$	—	$	2,273

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~~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.

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 court, 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 “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 its notification was not lawful. The Tenth Civil Judge dismissed such challenge, and thereafter EWG filed a remedy against such ~~dismissal, which remedy has not been resolved (notwithstanding that~~dismissal. NSC appeared before the court to vigorously oppose such ~~remedy).~~remedy, and the remedy was subsequently dismissed. To date, arbitration has not been initiated by either party.

Notwithstanding the resolution of the Tenth Civil Judge to move to arbitration, subparagraphs a) and b) that follow describe certain separate amparo claims, and 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

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~~their activities intermittently since March 2020, with certain such tribunals partially restarting activities in August 2020. As such, several resolutions are pending issuance.~~

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

The appeal remedy filed by NSC on November 7, 2018, mentioned 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.

~~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 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 made public or communicated to NSC. However, from publicly available information it appears that the claim has been dismissed and, as such, the revocation of the preliminary relief is not affected.

~~c) Amparo apparently filed by EWG against a resolution of the Tenth Civil Judge.~~

In August 2021, counsel to NSC and AdR became aware, from publicly available information of Mexican Federal courts, of an amparo claim filed by EWG, against a certain resolution of the Tenth Civil Judge within the mentioned ordinary mercantile claim.

However, to date, neither NSC nor AdR have been notified of this amparo claim and, as such, it is not clear if they are parties to it. Further, no additional information on this claim, its scope or potential consequences, if any, is available. In the event that NSC and/or AdR are named parties to this claim, they plan to vigorously oppose to it.

Notwithstanding the resolution to move to arbitration mentioned previously, 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 have on its consolidated financial condition, results of operations or cash flows.~~

6. Leases

The Company leases ~~property and equipment under operating~~consist primarily of leases ~~primarily~~for office and warehouse ~~locations.~~space. 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

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appropriate. When available, the lease payments are discounted using the rate implicit in the lease; however, the Company’s current leases do not provide a readily determinable implicit rate. Therefore, the Company’s incremental borrowing rate is estimated to discount the lease payments based on information available at the lease commencement.

These leases contain both lease and non-lease components, which the Company has elected to treat as a single lease component. The Company elected not to recognize leases that have an original lease term, including reasonably certain 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.

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

AdR 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 lease is cancellable by AdR should it ultimately not proceed with the 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 June 30, 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.

Effective March 9, 2021, the Company entered into a new office lease for the existing office located in Coral Springs, Florida under similar terms compared to the prior lease. This new lease expires, 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:


	June 30,		December 31,		June 30,		December 31
	2021		2020		2022		2021
ASSETS
Current
Accounts receivable, net	$	48,593	$	—
Prepaid expenses and other current assets		8,883		108,303	$	70,350	$	—
Current assets of discontinued operations		18,417		—		—		2,654
Noncurrent
Operating lease right-of-use assets		2,963,075		1,329,561		2,298,165		2,681,137
Long-term assets of discontinued operations		—		33,909		12,517		16,898
Total lease right-of-use assets	$	3,038,968	$	1,471,773	$	2,381,032	$	2,700,689

LIABILITIES
Current
Current maturities of operating leases	$	555,591	$	455,788	$	563,643	$	592,336
Current liabilities of discontinued operations		17,471		29,432		8,394		11,195
Noncurrent
Noncurrent operating leases		2,464,960		982,076		1,850,860		2,137,394
Noncurrent liabilities of discontinued operations		—		2,499		2,921		7,819
Total lease liabilities	$	3,038,022	$	1,469,795	$	2,425,818	$	2,748,744

Weighted average remaining lease term:
Operating leases		7.2 years		3.4 years		6.8 years		7.0 years
Operating leases - discontinued operations		0.6 years		1.1 years		1.4 years		1.6 years

Weighted average discount rate:
Operating leases		4.96%		4.15%		5.06%		5.03%
Operating leases - discontinued operations		3.48%		3.48%		4.96%		4.77%

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The components of lease costs were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Operating lease costs	$	176,641	$	194,859	$	352,625	$	385,464	$	187,448	$	176,641	$	354,197	$	352,625
Short-term lease costs		25,331		1,402		29,760		5,518		25,186		25,331		50,284		29,760
Lease costs - discontinued operations		7,473		47,418		14,887		100,705		10,095		7,473		19,582		14,887
Total lease costs	$	209,445	$	243,679	$	397,272	$	491,687	$	222,729	$	209,445	$	424,063	$	397,272

Supplemental cash flow information related to leases is as follows:


	Six Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2022		2021
Cash paid for amounts included in measurement of liabilities:
Operating cash outflows for operating leases	$	356,763	$	414,353	$	402,233	$	356,763
Operating cash outflows for operating leases - discontinued operations		15,892		109,962		4,680		15,892

Future lease payments relating to the Company’s operating lease liabilities from continuing operations as of June 30, ~~2021~~2022 were as follows:


Years ending December 31,	Total			Total
2021	$	345,148
2022		694,215		$	334,997
2023		663,190	��		643,234
2024		410,464			390,629
2025		268,897			268,056
2026					227,542
Thereafter		1,235,583			1,007,876
Total future lease payments		3,617,497			2,872,334
Less: imputed interest		(596,946)			(457,831)
Total lease obligations		3,020,551			2,414,503
Less: current obligations		(555,591)			(563,643)
Noncurrent lease obligations	$	2,464,960		$	1,850,860

7. Fair value

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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

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

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

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

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

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

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value as of June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


	June 30, 2021								June 30, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Liabilities:
Assets:
Recurring
Net liability arising from put/call options	$	—	$	—	$	528,000	$	528,000
Certificate of deposit									$	—	$	2,518,493	$	—	$	2,518,493
Net asset arising from put/call options										—		—		404,000		404,000


	December 31, 2020								December 31, 2021
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Liabilities:
Assets:
Recurring
Net liability arising from put/call options	$	—	$	—	$	690,000	$	690,000
Certificate of deposit									$	—	$	2,500,000	$	—	$	2,500,000
Net asset arising from put/call options										—		—		128,000		128,000

The activity for the Level 3 ~~liability~~asset for the six months ended June 30, ~~2021:~~2022:

Net liability arising from put/call options

Balance as of December 31, 2020

$
690,000
Unrealized gain

(162,000)
Balance as of June 30, 2021

$
528,000


Net asset arising from put/call options
Balance as of December 31, 2021	$	128,000
Unrealized gain		276,000
Balance as of June 30, 2022	$	404,000

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

8.8. Contingencies

COVID-19

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driver for the Cayman Islands, ~~has~~ temporarily ceased due to closing of the country to tourist arrivals by air and

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sea ~~travel. Tourists~~travel and has yet to return to pre-pandemic levels. Tourist arrivals to The Bahamas by air and sea ~~have~~also declined significantly due to the pandemic and continue to be ~~only a small fraction of pre-pandemic numbers due~~less than prior to ~~travel restrictions within and outside of The Bahamas, as well~~ the ~~continued reluctance of people to travel internationally.~~pandemic. Overall economic activity in the United States ~~has also declined precipitously.~~was adversely affected by COVID-19.

As a result of the impact of the COVID-19 pandemic on the economies of the countries in which the Company operates, the Company ~~has~~ experienced ~~and could continue to experience,~~ decreases in consolidated revenue, net income and cash flows ~~generated~~ from operations ~~and overall liquidity~~ as compared to ~~comparable prior~~pre-pandemic periods.

~~Furthermore, a prolonged extension of the~~ The economic downturn ~~created by~~arising initially from the COVID-19 pandemic ~~could~~and furthered by the Russian invasion of Ukraine and other factors has further adversely ~~affect~~affected the Company’s supply chain and 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 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~~A continuation of the ~~COVID-19 pandemic, such impacts will likely~~current weak economic conditions could have a material adverse impact on the Company’s consolidated financial condition, results of operations and cash flows. ~~Given the uncertainty associated with the resolution~~

Table of ~~this pandemic, the Company cannot presently determine how long such adverse financial impacts may last.~~Contents

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 June 30, ~~2021~~2022 and ~~2020,~~2021, the Company generated approximately ~~34%~~31% and ~~31%~~34%, respectively, of its consolidated revenue and ~~48%~~46% and ~~44%~~48%, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 license. For the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, the Company generated approximately ~~34%~~32% and ~~33%~~34%, respectively, of its consolidated revenue and ~~48%~~46% and ~~47%~~48%, 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 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,~~consolidated financial condition or results of operations but such resolution could result in a material reduction (or the loss)

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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

As of March 31, 2022 and December 31, 2021, CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the ~~WSC~~Water and Sewerage Corporation of The Bahamas (“WSC”) amounted to ~~$21.3~~$21.2 million ~~as of June 30, 2021~~ and ~~$16.8~~$21.5 million, ~~as of December 31, 2020.~~respectively.

~~Historically,~~From time to time, CW-Bahamas has experienced delays in collecting its accounts receivable from the WSC. When these delays occur, the Company holds discussions and meetings with representatives of the WSC and The Bahamas government, and as a result, payment schedules are developed for 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

Table of ~~June 30, 2021,~~Contents

In February 2022, CW-Bahamas received correspondence from the ~~Company has not provided an allowance~~Ministry of Finance of the Government of the Bahamas that set forth a payment schedule providing for ~~doubtful~~the gradual reduction over the course of 2022 of the CW-Bahamas' delinquent accounts ~~for~~receivable due from the WSC. Such correspondence also indicated that the Government intends to return all of CW-Bahamas’ accounts receivable from the ~~WSC. The Bahamas government and~~WSC to current status.

During the ~~WSC continue to make intermittent payments on these accounts receivable, and such payments amounted to approximately $3.6 million and $5.1 million for the~~ three ~~and six~~ months ended June 30, ~~2021, respectively.~~

If2022, CW-Bahamas ~~continues to be unable to collect a significant portion of~~received approximately $16.4 million in payments on its ~~delinquent~~ accounts receivable ~~one or more~~from the WSC. As 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 forJune 30, 2022, CW-Bahamas’ accounts ~~receivable. Any of these events could have a material adverse impact on~~receivable from the ~~Company’s consolidated financial condition, results of operations, and cash flows.~~WSC had been reduced to $13.5 million.

9. Related party transactions

The Company, through PERC and the services segment, purchases engineering and technology support services from various companies with a minority shareholder in those companies who is also a minority shareholder of PERC. During the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, the Company made total purchases of services from these companies of approximately ~~$129,000~~$641,000 and ~~$371,000,~~$129,000, respectively, and approximately ~~$285,000~~$1,480,000 and ~~$865,000~~$285,000 during the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. These total purchases are included in the Company’s cost of revenue in the accompanying condensed consolidated statements of ~~income (loss).~~income.

~~On February 1, 2021,~~ PERC has entered into a sublease agreement with aone of these related ~~company commencing~~companies that commenced on March 14, 2021 and ~~ending~~ended August 31, 2021. This lease has been extended on a month-to-month basis subsequent to August 31, 2021. During the three months ended June 30, 2022 and 2021, the Company recognized approximately $24,000 and $24,000 of expense related to this lease, respectively, and approximately $48,000 and $29,000 during the six months ended June 30, ~~2021.~~2022 and 2021, respectively. This lease amount is included in the Company's general and administrative expenses in the accompanying condensed consolidated statements of ~~income (loss).~~income.

The total amount of accounts payable outstanding to these companies as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, was approximately ~~$279,000~~$767,000 and ~~$201,000,~~$164,000, respectively.

10. Impact of recent accounting standards

Adoption of ~~New Accounting Standards:~~new accounting standards:

None.

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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 the COVID-19 ~~pandemic;~~pandemic, particularly on our retail and manufacturing segments;

●	the economic, political and social ~~stability~~conditions 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; and

●	other factors, including those “Risk Factors” set forth under Part II, Item 1A. “Risk Factors” in this Quarterly Report and in our ~~2020~~2021 Annual Report on Form 10-K.

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

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

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Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of 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 our financial condition and results of operations is material.

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

Goodwill and intangible assets

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

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life are not amortized but are tested for impairment ~~at least annually.~~annually or upon the identification of a triggering event. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment. We evaluate the possible impairment of goodwill annually as part of our reporting process for the fourth quarter of each fiscal year. Management identifies our reporting units, which consist of our retail, bulk, services, and manufacturing operations, and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. We determine the fair value of each reporting unit and compare these fair values to the carrying amounts of the reporting units. To the extent the carrying amount of the reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded.

For the year ended December 31, ~~2020,~~2021, we estimated the fair value of our reporting units by applying the discounted cash flow method, which relied upon seven-year discrete projections of operating results, working capital and capital expenditures, along with a terminal value subsequent to the discrete period. These seven-year projections were based upon historical and anticipated future results, general economic and market conditions, and considered the impact of planned business and operational strategies. The discount rates for the calculations represented the estimated cost of capital for market participants at the time of each analysis.

We also estimated the fair value of each of our reporting units for the year ended December 31, ~~2020~~2021 by applying the guideline 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 (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~~for the year ended December 31, ~~2020~~2021 were ~~as follows:~~80% to the discounted cash flow method and 20% to the guideline public company method.

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The fair values we estimated for our retail, bulk, services and manufacturing reporting units exceeded their carrying amounts by ~~101%~~32%, ~~49%~~51%, ~~17%~~15% and ~~31%~~15%, respectively, as of December 31, ~~2020.~~2021.

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 our manufacturing reporting unit’s goodwill for possible impairment as of September 30, 2016 by estimating its fair value using the discounted cash flow method. As a result of this impairment testing, we determined that the carrying value of our manufacturing reporting unit’s goodwill exceeded its fair value and recorded an impairment loss of $1,750,000 for the three months ended September 30, 2016 to reduce the carrying value of this goodwill to $6,285,211. As part of our annual impairment testing of goodwill performed during the fourth quarter, in 2017 we updated our projections for Aerex’s future cash flows, determined that the carrying value of our manufacturing reporting unit’s goodwill exceeded its fair value, and recorded an impairment loss of $1,400,000 for the three months ended December 31, 2017 to further reduce the carrying value of this goodwill to $4,885,211.

~~Approximately 87% and 86% of Aerex’s revenue, and 91% and 84% of Aerex’s gross profit, for the three and six months ended June 30, 2020, respectively, were generated from sales to one customer.~~ Approximately 80% of Aerex’s revenue, and 89% of Aerex’s gross profit, for the year ended December 31, 2020 were generated from sales to ~~this~~one customer. While Aerex sells various products to this customer, Aerex’s revenue from this customer has historically been derived primarily from one specialized product. In October 2020, this customer informed Aerex that, for inventory management purposes, it was suspending its purchases of the specialized product from Aerex following 2020 for a period of approximately one year. This customer informed Aerex at that time that it expected to recommence its purchases of the specialized product from Aerex beginning with the first quarter of 2022. As a result of this anticipated loss of revenue for Aerex, we updated our projections for our manufacturing reporting unit’s future cash flows. Such projections assumed, in part, that Aerex’s major customer would recommence its purchases from Aerex in 2022 but at a reduced aggregate amount, as compared to 2020. Based upon these updated projections, we tested our manufacturing reporting unit’s goodwill for possible impairment as of ~~September 30, 2020 and~~ December 31, 2020 using the discounted cash flow and guideline public ~~companies~~company methods, with a weighting of 80% and 20% applied to these two methods, respectively. As a result of these impairment tests, we determined that the estimated fair value of our manufacturing reporting unit exceeded its carrying value by approximately ~~22% as of September 30, 2020 and~~ 31% as of December 31, 2020.

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In late July 2021, this former major customer communicated to Aerex that it expected to recommence its purchases of the specialized product from Aerex in 2022 and subsequent years, but informed Aerex that such purchases would be at substantially reduced annual amounts, as compared to the amounts it had purchased from Aerex in 2020 and prior ~~years.~~years (based upon the most recent communications from the customer, such purchases may not recommence until 2023). Our updated sales estimate for this customer based on this new information iswas substantially below the sales we anticipated to this customer for 2022 and subsequent years that we used in the discounted cash flow projections we prepared for purposes of testing our manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020. Furthermore, Aerex’s efforts to replace the revenue previously generated from this customer with revenue from existing and new customers have been adversely impacted by the continuing negative economic ~~impacts of~~conditions (caused in part by the COVID-19 ~~pandemic,~~pandemic) which have increased Aerex’s raw material costs, resulted in raw material shortages and extended delivery times for such materials, and ~~we believe,~~ also adversely affected the overall financial condition of Aerex’s current and prospective ~~customer base.~~customers. Accordingly, in light of this new information from Aerex’s former major customer, and ~~present~~the on-going weak economic conditions that we ~~believe will~~believed would continue ~~into~~through 2022, we updated our projections of future cash flows for the manufacturing reporting unit and tested its goodwill for possible impairment as of June 30, 2021 using the discounted cash flow and guideline public company methods, with a weighting of 80% and 20% applied to these two methods, respectively. Based upon this testing, we determined that the carrying value of our manufacturing reporting unit exceeded its fair value by $2.9 million, and we recorded an impairment loss to reduce our manufacturing reporting unit’s goodwill by this amount for the three months ended June 30, 2021.

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

Based upon our estimation prepared as of December 31, 2021, the fair value of our manufacturing reporting unit exceeded its carrying value by only 15%. If we determine in the future that Aerex’s discounted future cash inflows will be less than our present expectations, we may be required to record additional impairment losses to reduce the remaining carrying values as of June 30, ~~2021~~2022 of our manufacturing reporting unit’s goodwill of $1,985,211 and ~~the~~its remaining unamortized ~~balance of its~~ intangible assets balances of ~~$894,444 associated with~~$801,111 recorded as a result of the acquisition of Aerex. Any such impairment losses could have a material adverse impact on our consolidated results of operations.

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Long-lived assets

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

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

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

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were not recoverable. Consequently, we recorded impairment losses of ($1.6 million) ~~and ($2.0 million),~~ in 2017 ~~and 2016, respectively,~~ to reduce the carrying values of these assets to their fair values.

Construction and Manufacturing Contract Revenue Recognition

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

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

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

RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included under Part I, Item 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, ~~2020~~2021 (“~~2020~~2021 Form 10-K”) and the information set forth under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our ~~2020~~2021 Form 10-K.

Three Months Ended June 30, ~~2021~~2022 Compared to Three Months Ended June 30, ~~2020~~2021

Discontinued Operations – Mexico Project Development

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

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

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

In August 2016, NSC and NuWater incorporated ~~Newco~~a new company under the name Aguas de Rosarito S.A.P.I. de C.V. (“AdR”) to pursue completion of the Project and executed a shareholders agreement for AdR agreeing among other things that (i) AdR would purchase the land and other Project assets from NSC on the date that the Project begins commercial operation and

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(ii) AdR would enter into a Management and Technical Services Agreement with NSC effective on the first day that the Project begins commercial operation. NSC initially owned 99.6% of the equity of AdR. In February 2018, we acquired the remaining 0.4% ownership in AdR from NuWater.

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

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

We 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 Promotion, Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the United Mexican States entered into force as of October 1, 1999 (the “Treaty”). On April 16, 2021, CW-Cooperatief submitted a letter to the President of Mexico and other Mexican federal government officials alleging that the State’s termination of the APP Contract constituted a breach by Mexico of its international obligations under the Treaty, entitling CW-Cooperatief to full reparation, including monetary damages. This letter 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. On June 29, 2021, the Mexican Ministry of Economy responded to

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

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

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

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

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

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As a result of the cancellation of the APP Contract, ~~during the three months ended September 30,~~in 2020 we discontinued all development activities associated with the Project and commenced active marketing efforts to sell the land NSC purchased for the Project. Accordingly, the assets and liabilities of CW-Cooperatief, NSC and AdR, as well as all Project development expenses ~~the impairment loss of approximately ($3.0 million) recorded during 2020 for Project assets,~~ and the costs for our legal and administrative activities to pursue reimbursement from the State of Baja California following the cancellation of the APP ~~contract,~~Contract, have been reclassified from the services segment to discontinued operations in the accompanying ~~condensed~~ consolidated financial ~~statements as of and for the three months ended June 30, 2021 and 2020.~~statements. Our net losses from discontinued operations for the three months ended June 30, ~~2021~~2022 and ~~2020~~2021 were ($~~151,379)~~419,833) and ($~~3,755,112)~~151,379), respectively.

Consolidated Results

Including discontinued operations, net income attributable to Consolidated Water Co. Ltd. stockholders for 2022 was $2,289,886 ($0.15 per share on a fully diluted basis), as compared to a net loss of ($1,664,649) (($0.11) per share on a fully diluted basis) for 2021.

The following discussion and analysis of our consolidated results of operations and results of operations by segment for the three months ended June 30, ~~2021~~2022 as compared to the three months ended June 30, ~~2020~~2021 relates only to our continuing operations.

~~Consolidated Results~~

~~The net loss~~Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders for ~~2021~~2022 was $2,709,719 ($~~1,513,270) (($0.10)~~0.18 per share on a fully diluted basis), as compared to a net ~~income~~loss from continuing operations of ~~$2,627,270~~ ($~~0.17~~1,513,270) (($0.10) per share on a fully diluted basis) for ~~2020. The net loss for 2021 is attributable to an impairment loss recorded for our manufacturing segment of ($2,900,000), as discussed in paragraphs that follow.~~2021.

Revenue for 2022 increased to $21,067,127 from $16,701,524 in 2021, ~~decreased to $16,701,524 from $19,087,247~~reflecting revenue increases in 2020, reflecting a significant decline in manufacturing segment revenue and to a lesser extent, a drop in revenue for the retail segment. These declines were partially offset by an increase in revenue generated byall of our ~~bulk segment.~~four segments. Gross profit for ~~2021~~2022 was ~~$6,064,853 (36%~~$7,475,497 (35% of total revenue) as compared to ~~$7,303,143 (38%~~$6,064,853 (36% of total revenue) for ~~2020.~~2021. 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 remained relatively consistent at ~~$4,724,304~~$4,926,691 for ~~2021~~2022 as compared to ~~$4,557,613~~$4,724,304 for ~~2020.~~2021.

Other income, net, ~~decreased~~increased to $397,982 for 2022 as compared to $233,114 for 2021 ~~as compared to $260,957 for 2020~~primarily due to ~~(1)~~ an unrealized gain of ~~$31,000~~$201,000 recorded for the valuation of the put/call options ~~arising from~~associated with the acquisition of a majority interest in PERC, as compared to an unrealized gain recorded on these options of ~~$80,000~~$31,000 in ~~2020; and (2) a decrease in the equity earnings and profit-sharing income~~2021.

Table of $33,494 from our investment in OC-BVI. Partially offsetting the decrease in these other income amounts was an increase for 2021 in interest income of $64,827, which results from a higher balance of interest earning assets.Contents

The COVID-19 pandemic had a material adverse impact on our consolidated results of operations for the three months ended June 30, 2022 and we believe the COVID-19 pandemic will continue to adversely impact our results of operations 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 recorded income from operations of $64,483 for 2022 as compared to a loss from operations of ($422,232) for 2021.

Revenue generated by our retail water operations increased to $6,526,803 in 2022 from $5,674,790 in 2021 in part due to an 8% increase in the volume of water sold. The sales volumes for both 2022 and 2021 are significantly below the historical volumes for the retail segment prior to 2020 due to the cessation of tourism on Grand Cayman resulting from border restrictions that lasted from March 2020 through November 2021 in response to the COVID-19 pandemic. The increase in the volume of water sold in 2022 as compared to 2021 resulted from the lifting in November 2021 of travel restrictions to the Cayman Islands for vaccinated individuals, which allowed the resumption of tourism to the Cayman Islands and the reopening of many tourist properties that we serve in Grand Cayman. However, we believe it will be an extended period of time before tourism to the Cayman Islands approaches pre-pandemic levels. Retail revenue also increased due to higher energy costs which increased the energy pass-through component of our water rates and a more favorable rate mix, as much of the volume increase for the quarter was due to higher sales volumes to tourist industry related customers, which pay higher per gallon rates than other retail customers.

Retail segment gross profit increased to $3,408,392 (52% of retail revenue) for 2022 from $2,892,881 (51% of retail revenue) for 2021 due to the revenue increase.

Consistent with prior periods, we record all non-direct G&A expenses in our retail segment and do not allocate any of these non-direct costs to our other three business segments. Retail G&A expenses remained relatively consistent at $3,345,109 for 2022 as compared to $3,318,473 for 2021.

Bulk Segment:

The bulk segment contributed $2,372,094 and $2,021,321 to our income from operations for 2022 and 2021, respectively.

Bulk segment revenue was $8,423,749 and $6,711,971 for 2022 and 2021, respectively. The increase in bulk segment revenue is attributable to an increase in energy costs for CW-Bahamas, which increased the energy pass-through component of CW-Bahamas’ rates.

Gross profit for our bulk segment was $2,776,166 (33% of bulk revenue) and $2,325,177 (35% of bulk revenue) for 2022 and 2021, respectively. Gross profit in dollars increased in 2022 as compared to 2021 principally due to the revenue increase.

Bulk segment G&A expenses remained relatively consistent at $404,072 for 2022 as compared to $303,856 for 2021.

Services Segment:

The services segment income from operations was $355,656 and $213,245 for 2022 and 2021, respectively.

Services segment revenue increased to $5,055,483 for 2022 from $3,763,239 for 2021 due to increases in both plant design and construction revenue and operating and maintenance revenue.

Gross profit for the services segment was $1,189,616 (24% of services revenue) in 2022 as compared to $884,830 (24% of services revenue) for 2021.

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G&A expenses for the services segment remained relatively consistent at $838,040 for 2022 as compared to $671,585 for 2021.

Manufacturing Segment:

The manufacturing segment incurred a loss from operations of ($238,147) for 2022 as compared to a loss from operations of ($3,368,425) in 2021. The net loss from operations in 2021 included a $2.9 million impairment loss due to decline in Aerex’s projected future cash flows.

Manufacturing revenue was $1,061,092 and $551,524 for 2022 and 2021, respectively. Certain manufacturing contracts have been delayed due to current supply chain and economic conditions, which have resulted in significant product delivery delays requested by customers as well as continuing delayed shipments of raw materials and supplies to Aerex.

Manufacturing gross profit was $101,323 (10% of manufacturing revenue) for 2022 as compared to a gross loss of ($38,035) ((7)% of manufacturing revenue) for 2021. The increase in manufacturing gross profit in dollars reflects the increase in revenue. Gross profit as a percentage of revenue has remained low due to the greater impact of fixed factory overhead on this measure resulting from the revenue decrease, as we have elected not to furlough or terminate the employment of our highly-skilled manufacturing personnel in 2022 and 2021 despite the decrease in production activity.

G&A expenses for the manufacturing segment remained relatively consistent at $339,470 for 2022 as compared to $430,390 for 2021.

The results of our manufacturing segment have been adversely affected by current economic conditions including but not limited to increasing raw materials prices, rising human resources costs, tight labor markets, and extended and unexpected delays in the procurement and delivery of raw materials. We believe these economic conditions have also resulted in product order delays from Aerex’s existing and prospective customers. The current economic conditions could continue (or further deteriorate) and therefore could continue to adversely impact the future results of our manufacturing segment.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Discontinued Operations – Mexico Project Development

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

Our net loss from discontinued operations for the six months ended June 30, 2022 and 2021 was ($1,027,147) and ($464,173), respectively, and consists of the costs for our legal and administrative activities to pursue reimbursement from the State of Baja California following the cancellation of the APP Contract, and for 2022, a provision of $377,326 for potentially uncollectible value added tax refunds.

Consolidated Results

Including discontinued operations, net income attributable to Consolidated Water Co. Ltd. stockholders for 2022 was $4,006,701 ($0.26 per share on a fully diluted basis), as compared to a loss of ($675,877) (($0.04) per share on a fully diluted basis) for 2021.

The following discussion and analysis of our consolidated results of operations and results of operations by segment for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 relates only to our continuing operations.

Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders for 2022 was $5,033,848 ($0.33 per share on a fully diluted basis), as compared to net loss from continuing operations of ($211,704) (($0.01) per share on a fully diluted basis) for 2021.

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Revenue for 2022 increased to $40,625,032 from $33,804,841 in 2021, reflecting substantial revenue increases in our retail, services and bulk segments along with a minor revenue increase in our manufacturing segment. Gross profit for 2022 was $14,621,261 (36% of total revenue) as compared to $12,191,363 (36% of total revenue) for 2021. For further discussion of revenue and gross profit see the “Results by Segment” discussion and analysis that follows.

G&A expenses on a consolidated basis remained relatively consistent at $9,792,808 for 2022 as compared to $9,488,790 for 2021.

Other income, net, increased to $717,709 for 2022 as compared to $547,722 for 2021 primarily due to an unrealized gain of $276,000 recorded for the valuation of the put/call options associated with the acquisition of a majority interest in PERC, as compared to an unrealized gain recorded on these options of $162,000 in 2021.

The COVID-19 pandemic had a material adverse impact on our consolidated results of operations for the six months ended June 30, 2022 and we believe the COVID-19 pandemic will continue to adversely impact our results of operations 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 incurred a loss from operations of ($~~422,232)~~126,463) for ~~2021~~2022 as compared to a loss from operations of ($~~69,983)~~1,039,931) for ~~2020.~~2021.

Revenue generated by our retail water operations ~~decreased~~increased to ~~$5,674,790~~$12,840,003 in 2022 from $11,386,095 in 2021 ~~from $5,966,296~~ in ~~2020~~part due to ~~a 2% decrease~~an 8% increase in the volume of water sold. The sales volumes for both ~~2021~~2022 and ~~2020~~2021 are significantly below the historical volumes for the retail segment prior to 2020 due to the ~~continuing~~ cessation of tourism on Grand Cayman resulting from border restrictions ~~initiated in~~that lasted from March 2020 through November 2021 in response to the COVID-19 pandemic.

~~Table~~ The increase in the volume of ~~Contents~~water sold in 2022 as compared to 2021 resulted from the lifting in November 2021 of travel restrictions to the Cayman Islands for vaccinated individuals, which allowed the resumption of tourism to the Cayman Islands and the reopening of many tourist properties that we serve in Grand Cayman. However, we believe it will be an extended period of time before tourism to the Cayman Islands approaches pre-pandemic levels. Retail revenue also increased due to higher energy costs which increased the energy pass-through component of our water rates and a more favorable rate mix, as much of the volume increase for the quarter was due to higher sales volumes to tourist industry related customers, which pay higher per gallon rates than other retail customers.

Retail segment gross profit ~~decreased~~increased to ~~$2,892,881 (51%~~$6,667,852 (52% of retail revenue) for 2022 from $5,896,192 (52% of retail revenue) for 2021 ~~from $3,196,799 (54% of retail revenue) for 2020 as a result of~~due to the revenue ~~decline.~~increase.

Consistent with prior periods, we record all non-direct G&A expenses in our retail segment and do not allocate any of these non-direct costs to our other three business segments. Retail G&A expenses remained relatively consistent at ~~$3,318,473~~$6,795,515 for ~~2021~~2022 as compared to ~~$3,266,782~~$6,689,483 for ~~2020.~~2021.

Bulk Segment:

The bulk segment contributed ~~$2,021,321~~$4,725,316 and ~~$1,663,988~~$3,736,135 to our income from operations for ~~2021~~2022 and ~~2020,~~2021, respectively.

Bulk segment revenue was ~~$6,711,971~~$15,774,393 and ~~$5,866,397~~$12,957,941 for ~~2021~~2022 and ~~2020,~~2021, respectively. The increase in bulk segment revenue is primarily attributable to ~~a 9% increase in CW-Bahamas’ volume of water sold and~~ an increase in energy costs for CW-Bahamas, which increased the energy ~~pass through~~pass-through component of CW-Bahamas’ ~~rates.~~rates and, to a lesser extent, an increase of 4% in the volume of water sold by CW-Bahamas.

Gross profit for our bulk segment was ~~$2,325,177 (35%~~$5,439,691 (34% of bulk revenue) and ~~$1,925,088 (33%~~$4,415,994 (34% of bulk revenue) for ~~2021~~2022 and ~~2020,~~2021, respectively. Gross profit in dollars ~~and as a percentage of revenue~~ increased in ~~2021~~2022 as compared to ~~2020~~2021 principally due to the revenue increase.

Bulk segment G&A expenses remained relatively consistent at ~~$303,856~~$714,375 for ~~2021~~2022 as compared to ~~$261,100~~$681,359 for ~~2020.~~2021.

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Services Segment:

The services segment income from operations was ~~$213,245~~$682,780 and ~~$138,342~~$309,710 for ~~2021~~2022 and ~~2020,~~2021, respectively.

Services segment revenue increased to ~~$3,763,239~~$9,799,303 for 2022 from $7,304,085 for 2021 ~~from $3,476,000 for 2020~~ due to ~~an increase of approximately $926,000~~increases in both plant design and construction revenue ~~from~~and operating and maintenance ~~contracts attributable to new contracts, which served to more than offset a decline in plant construction revenue of approximately $672,000.~~revenue.

Gross profit for the services segment was ~~$884,830 (24%~~$2,284,256 (23% of services revenue) in ~~2021~~2022 as compared to ~~$844,487 (24%~~$1,703,748 (23% of services revenue) for ~~2020.~~2021.

G&A expenses for the services segment remained relatively consistent at ~~$671,585~~$1,618,014 for ~~2021~~2022 as compared to ~~$711,350~~$1,393,605 for ~~2020.~~2021.

Manufacturing Segment:

The manufacturing segment incurred a loss from operations of ($~~3,368,425)~~435,442) for ~~2021~~2022 as compared to ~~generating income~~a loss from operations of ~~$1,018,388~~($3,448,914) in ~~2020.~~2021. The net loss ~~incurred for~~from operations in 2021 ~~results from decreased revenue and an~~included a $2.9 million impairment loss ~~as discussed~~due to decline in ~~paragraphs that follow.~~

Approximately 87% and 80% of our manufacturing segment revenue, and 91% and 89% of our manufacturing segment gross profit, for the three months ended June 30, 2020 and the year ended December 31, 2020, respectively, were generated from sales to one customer. While Aerex sells various products to this customer, Aerex’s revenue from this customer has historically been derived primarily from one specialized product. In October 2020, this customer informed Aerex that, for inventory management purposes, it was suspending its purchases of the specialized product from Aerex following 2020 for a period of approximately one year. This customer informed Aerex at that time that it presently expected to recommence its purchases from Aerex beginning with the first quarter of 2022. In late July 2021 this former major customer communicated to Aerex that it expected to recommence its purchases of the specialized product from Aerex in 2022 and subsequent years, but informed Aerex that such purchases would be at substantially reduced annual amounts, as compared to both the amounts it had purchased from Aerex in 2020 and prior years and the amounts we had anticipated the customer would purchase. Our efforts to replace the revenue previously generated from this customer with revenue from existing and new customers have been adversely impacted by the continuing negative economic impacts of the COVID-19 pandemic, which have increased Aerex’s raw material costs, resulted in raw material shortages and extended delivery times for such materials and, we believe, also adversely affected the overall financial condition of Aerex’s current and prospective customer base. Accordingly, in light of this new information from Aerex’s former major customer, and present weak economic conditions that we believe will continue into 2022, we tested the carrying value of our manufacturing

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reporting unit for possible impairment as of June 30, 2021. Based upon this testing, we determined that the carrying value of our manufacturing reporting unit exceeded its fair value by $2.9 million, and we recorded an impairment loss to reduce our manufacturing reporting unit’s goodwill by this amount for the three months ended June 30, 2021.projected future cash flows.

Manufacturing revenue was ~~$551,524~~$2,211,333 and ~~$3,778,554~~$2,156,720 for 2022 and 2021, ~~and 2020,~~ respectively. ~~Manufacturing revenue decreased from 2020 to 2021~~Certain manufacturing contracts have been delayed due to ~~the loss~~significant product delivery delays requested by customers as well as continuing delayed shipments of ~~orders from Aerex’s former largest customer,~~raw materials and supplies to ~~date we have not been successful in replacing this lost revenue.~~Aerex.

Manufacturing gross profit ~~(loss)~~ was ~~($38,035) ((7)%~~$229,462 (10% of manufacturing revenue) and ~~$1,336,769 (35%~~$175,429 (8% of manufacturing revenue) for ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~decrease~~increase in manufacturing gross profit in dollars reflects the ~~decrease~~increase in revenue. Gross profit as a percentage of revenue ~~declined~~has remained relatively low due to the greater impact of fixed factory overhead on this measure resulting from the revenue decrease, as we have elected not to ~~continue~~furlough or terminate the employment of ~~all of~~ our highly-skilled manufacturing personnel in 2022 and 2021 ~~(despite~~despite the decrease in production ~~activity) based upon the expectation that production activity would increase significantly in the latter half of the year.~~activity.

G&A expenses for the manufacturing segment ~~increased to $430,390 for 2021 as compared to $318,381 for 2020. The rise in G&A expenses for 2021 results from a provision for doubtful accounts receivable of $120,000.~~

~~Six Months Ended June 30, 2021 Compared to Six Months Ended~~ ~~June 30, 2020~~

~~Discontinued Operations – Mexico Project Development~~

As previously discussed, on June 29, 2020, the State of Baja California cancelled its APP Contract with AdR for the Project. As a result of the cancellation of the APP Contract, during the three months ended 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.

Our net loss from discontinued operations of ($464,173) for 2021 consists of the costs for our legal and administrative activities to pursue reimbursement from the State of Baja California following the cancellation of the APP contract. Through the date the APP Contract was cancelled, 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 Mexico public water system. As a result of the cancellation of the APP Contract, we recorded an impairment loss of approximately ($3.0 million) for the three months ended June 30, 2020 for these rights of way. Our net loss from discontinued operations of ($4,071,447) for 2020 consists of this impairment loss and the development expenses incurred for the Project.

The following discussion and analysis of our consolidated results of operations and results of operations by segment for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 relates only to our continuing operations.

~~Consolidated Results~~

Net loss from continuing operations attributable to Consolidated Water Co. Ltd. stockholders for 2021 was ($211,704) (($0.01) per share on a fully diluted basis), as compared to net income from continuing operations of $5,832,242 ($0.38 per share on a fully diluted basis) for 2020.

Revenue for 2021 decreased to $33,804,841 from $39,812,968 in 2020, as the retail and manufacturing segments experienced significant revenue declines. Gross profit for 2021 was $12,191,363 (36% of total revenue) as compared to $15,743,464 (40% of total revenue) for 2020. For further discussion of revenue and gross profit see the “Results by Segment” discussion and analysis that follows.

~~G&A expenses on a consolidated basis~~ remained relatively consistent at ~~$9,488,790~~$664,904 for ~~2021~~2022 as compared to ~~$9,252,922~~$724,343 for ~~2020.~~2021.

Other income, net, increased to $547,722 for 2021 as compared to $288,218 for 2020 due to an unrealized gain of $162,000 recorded for the valuation of the put/call options arising from the acquisition of a majority interest in PERC, as compared to an unrealized loss recorded on these options of ($81,000) in 2020.

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The ~~COVID-19 pandemic had a material adverse impact on our consolidated~~ results of ~~operations for~~our manufacturing segment have been adversely affected by current economic conditions including but not limited to increasing raw materials prices, rising human resources costs, tight labor markets, and extended and unexpected delays in the ~~six months ended June 30, 2021,~~procurement and wedelivery of raw materials. We believe ~~the COVID-19 pandemic will~~these economic conditions have also resulted in product order delays from Aerex’s existing and prospective customers. The current economic conditions could continue (or further deteriorate) and therefore could continue to adversely impact ~~our~~the future results ~~of operations 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 incurred a loss from operations of ($1,039,931) for 2021 as compared to generating income from operations of $826,990 for 2020.~~

Revenue generated by our retail water operations decreased to $11,386,095 in 2021 from $13,223,728 in 2020 due to a 12% decrease in the volume of water sold. This sales volume decrease is due to the continuing cessation of tourism on Grand Cayman resulting from border restrictions initiated in March 2020 in response to the COVID-19 pandemic.

~~Retail segment gross profit decreased to $5,896,192 (52% of retail revenue) for 2021 from $7,467,611 (56% of retail revenue) for 2020 as a result of the revenue 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 remained consistent at $6,689,483 for 2021 as compared to $6,640,621 for 2020.

~~Bulk Segment:~~

~~The bulk segment contributed $3,736,135 and $3,247,846 to our income from operations for 2021 and 2020, respectively~~.

Bulk segment revenue was $12,957,941 and $12,306,681 for 2021 and 2020, respectively. The increase in bulk segment revenue is attributable to an increase of 7% in the volume of water sold by CW-Bahamas and an increase in energy costs for CW-Bahamas, which increased the energy pass through component of CW-Bahamas’ rates.

Gross profit for our bulk segment was $4,415,994 (34% of bulk revenue) and $3,800,792 (31% of bulk revenue) for 2021 and 2020, respectively. Gross profit in dollars and as a percentage of revenue increased in 2021 as compared to 2020 principally due to the increase in revenue and a decrease of approximately $226,000 in non energy-related operating expenses.

~~Bulk segment G&A expenses remained relatively consistent at $681,359 for 2021 as compared to $553,146 for 2020~~.

~~Services Segment:~~

~~The services segment income from operations was $309,710 and $306,525 for 2021 and 2020, respectively.~~

Services segment revenue increased to $7,304,085 for 2021 from $6,590,813 for 2020 due to an increase of approximately $2.3 million in revenue from operating and maintenance contracts attributable to new contracts, which served to more than offset a decline in plant construction revenue of approximately $1.6 million.

Gross profit for the services segment was $1,703,748 (23% of services revenue) in 2021 as compared to $1,685,780 (26% of services revenue) for 2020. The decrease in gross profit as a percentage of revenue reflects a shift in the contract mix.

~~G&A expenses for the services segment remained consistent at $1,393,605 for 2021 as compared to $1,384,040 for 2020.~~

~~Manufacturing Segment:~~

The manufacturing segment incurred a loss from operations of ($3,448,914) for 2021 as compared to generating income from operations of $2,114,166 in 2020. The loss incurred for 2021 results from decreased revenue and an impairment loss, as discussed in paragraphs that follow.

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~~Approximately 86% and 80%~~ of our manufacturing segment revenue, and 84% and 89% of our manufacturing segment gross profit, for the six months ended June 30, 2020 and the year ended December 31, 2020, respectively, were generated from sales to one customer. While Aerex sells various products to this customer, Aerex’s revenue from this customer has historically been derived from one specialized product. In October 2020, this customer informed Aerex that, for inventory management purposes, it was suspending its purchases of the specialized product from Aerex following 2020 for a period of approximately one year. This customer informed Aerex at that time that it presently expected to recommence its purchases from Aerex beginning with the first quarter of 2022. In late July 2021 this former major customer communicated to Aerex that it expected to recommence its purchases of the specialized product from Aerex in 2022 and subsequent years, but informed Aerex that such purchases would be at substantially reduced annual amounts, as compared to both the amounts it had purchased from Aerex in 2020 and prior years and the amounts we had anticipated the customer would purchase. Our efforts to replace the revenue previously generated from this customer with revenue from existing and new customers have been adversely impacted by the continuing negative economic impacts of the COVID-19 pandemic, which have increased Aerex’s raw material costs, resulted in raw material shortages and extended delivery times for such materials and, we believe, also adversely affected the overall financial condition of Aerex’s current and prospective customer base. Accordingly, in light of this new information from Aerex’s former major customer, and present weak economic conditions that we believe will continue into 2022, we tested the carrying value of our manufacturing reporting unit for possible impairment as of June 30, 2021. Based upon this testing, we determined that the carrying value of our manufacturing reporting unit exceeded its fair value by $2.9 million, and we recorded an impairment loss to reduce our manufacturing reporting unit’s goodwill by this amount for the three months ended June 30, 2021.segment.

Manufacturing revenue was $2,156,720 and $7,691,746 for 2021 and 2020, respectively. Manufacturing revenue decreased from 2020 to 2021 due to the loss of orders from Aerex’s former largest customer, and to date we have not been successful in replacing this lost revenue.

Manufacturing gross profit was $175,429 (8% of manufacturing revenue) and $2,789,281 (36% of manufacturing revenue) for 2021 and 2020, respectively. The decrease in manufacturing gross profit in dollars reflects the decrease in revenue. Gross profit as a percentage of revenue declined due to the greater impact of fixed factory overhead on this measure resulting from the revenue decrease, as we elected to continue the employment of all of our manufacturing personnel during 2021 (despite the decrease in production activity) based upon the expectation that production activity would increase significantly in the latter half of the year.

~~G&A expenses for the manufacturing segment remaining relatively consistent at $724,343 for 2021 as compared to $675,115 for 2020.~~

FINANCIAL CONDITION

The significant changes in the components of our condensed consolidated balance sheet as of June 30, ~~2021~~2022 as compared to December 31, ~~2020~~2021 (other than the change in our cash and cash equivalents, which is discussed later in “LIQUIDITY AND CAPITAL RESOURCES”) and the reasons for these changes are discussed in the following paragraphs.

Accounts receivable ~~increased~~decreased by approximately ~~$4.6 million.~~$4.7 million due to the collection by CW-Bahamas of significant delinquent receivables balances owed by the WSC. This ~~net increase reflects an increase~~decrease in CW-Bahamas’ accounts receivable ~~of approximately $4.5 million – see discussion at “CW-Bahamas Liquidity.”~~balance was partially offset by an increase in PERC’s accounts receivables.

Current inventory ~~decreased~~increased by approximately ~~$714,000~~$1.0 million primarily due to ~~a decline~~an increase in ~~orders~~Aerex’s inventory, as certain of its manufacturing contracts have been delayed, resulting in extended retention times for ~~Aerex.~~various inventory items purchased for these contracts.

Prepaid expenses and other current assets increased by approximately ~~$960,000~~$1.4 million primarily due to annual insurance premiums that were paid in June ~~2021.~~

~~Property, plant and equipment, net decreased by approximately $3.0 million due to scheduled depreciation of fixed assets.~~

Operating lease right-of-use assets increased by approximately $1.6 million, with a related increase in operating lease liabilities of approximately $1.6 million, due to a new office lease for Aquilex that began in March 2021.2022.

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Property, plant and equipment, net decreased by approximately $2.0 million due to the scheduled depreciation of fixed assets.

Construction in progress increased by approximately $1.3 million due to construction activity for Cayman Water’s replacement of its West Bay desalination plant.

Accounts payable, accrued expenses and other liabilities increased by approximately $1.2 million primarily due to an increase in subcontractor costs in the services segment.

Contract liabilities increased by $2.7 million due to billings made by the services segment in connection with PERC’s new contract to construct a wastewater treatment facility in Arizona.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Position

Our projected liquidity requirements for the balance of ~~2021~~2022 include capital expenditures for our existing operations of approximately ~~$2.9~~$10.1 million ~~(which~~which includes ~~$1.9~~$3.3 million to be incurred for the balance of 2022 for the replacement of the ~~26-year old~~ West Bay seawater desalination plant ~~in Grand Cayman)~~ and approximately $3.5 million for construction of the WAC’s new Red Gate plant. We paid approximately $1.3 million ~~for~~in dividends ~~payable.~~in July 2022. Our liquidity requirements may also include future quarterly dividends if such dividends are declared by our Board. ~~Our dividend payments amounted to approximately $3.2 million for the six months ended June 30, 2021 and approximately $5.1 million for the year ended December 31, 2020.~~

As of June 30, ~~2021,~~2022, we had cash and cash equivalents of ~~$41.2~~$49.1 million and working capital of ~~$68.8~~$71.6 million. ~~With the possible exception of the liquidity matter relating to CW-Bahamas that is discussed in the paragraphs that follow, we~~We are not presently aware of anything that would lead us to believe that we will not have sufficient liquidity to meet our needs.

CW-Bahamas Liquidity

As of March 31, 2022 and December 31, 2021, CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the Water and Sewerage Corporation of The Bahamas (“WSC”) amounted to ~~$21.3~~$21.2 million ~~as of June 30, 2021~~ and ~~$16.8~~$21.5 million, as of December 31, 2020. Approximately 78% of the June 30, 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 July 31, 2021, CW-Bahamas’ accounts receivable from the WSC totaled an all-time high of approximately $23.5 million. However, CW-Bahamas received $5.7 million in payments on these receivables during August 2021.respectively.

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

In February 2022, we received correspondence from the Ministry of ~~June 30, 2021, we have not provided an allowance~~Finance of the Government of the Bahamas that set forth a payment schedule providing for ~~doubtful~~the gradual reduction over the course of 2022 of the CW-Bahamas' delinquent accounts ~~for~~receivable due from the WSC. Such correspondence also indicated that the Government intends to return all of CW-Bahamas’ accounts receivable from the ~~WSC. The Bahamas government and~~WSC to current status.

During the ~~WSC continue to make intermittent~~three months ended June 30, 2022, CW-Bahamas received approximately $16.4 million in payments on ~~these~~its accounts receivable ~~and such payments totaled approximately $14.4 million for~~from the ~~period from January 1, 2021 through August 16, 2021.~~

~~We believe the delays we have experienced in collecting~~WSC. As of June 30, 2022, CW-Bahamas’ ~~receivables have been extended by the severe adverse impact of the COVID-19 pandemic on The Bahamas government’s revenue sources. Based upon our discussions and collection history with The Bahamas government, we believe that our~~ accounts receivable from the WSC ~~are fully collectible.~~had been reduced to $13.5 million.

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~~.

Discussion of Cash Flows for the Six Months Ended June 30, ~~2021~~2022

Our cash and cash equivalents ~~decreased~~increased to ~~$41,210,143~~$49,093,162 as of June 30, ~~2021~~2022 from ~~$43,794,150~~$40,358,059 as of December 31, ~~2020.~~2021.

Cash Flows from Operating Activities

Net cash provided by our operating activities ~~from continuing operations~~ was ~~$1,662,873.~~$13,213,167. This net cash reflects the net ~~loss generated~~income incurred for the six months ended June 30, ~~2021~~2022 of ~~($349,946)~~$4,480,328 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

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amortization of ~~$3,677,422, a loss from discontinued operations of $464,173,~~$3,129,173, an increase in billings in excess of cost and estimated earnings and accounts payable and accrued expenses of $4,335,001, a decrease in overall accounts receivable of ~~$4,764,561,~~$4,671,827 and a ~~decrease in current inventory~~provision for uncollected value added taxes of ~~$714,108 and an increase in prepaids of $1,062,782.~~$377,326.

Cash Flows from Investing Activities

Net cash used by our investing activities was ~~$452,436~~$1,790,329. Cash used was primarily ~~from~~for additions to property, plant and equipment and construction in progress.

Cash Flows from Financing Activities

Net cash used by our financing activities was ~~$3,276,120,~~$3,093,063, 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, the COVID-19 pandemic has had, and will continue to have, a material adverse impact on our consolidated financial condition, results of operations, and cash flows.

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

Cayman Water

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

In November 2021, the Cayman Islands began allowing vaccinated travelers to visit the islands without the need to quarantine. However, the testing requirements upon arrival on the islands, and the fact that families with unvaccinated children were still required to quarantine, continued to restrict the number of overseas visitors. Recently, the Cayman ~~Islands’ government announced its plan~~Islands began allowing children to ~~reopen~~take the ~~country’s borders in six phases. According~~vaccination status of their parents and eliminated the testing requirements upon arrival for vaccinated visitors. This easing of restrictions has positively impacted tourism to ~~this plan,~~ the ~~borders will not be fully reopened before January 2022, and such date is subject~~Cayman Islands. However, tourism to ~~achieving a vaccination target of 80% for the country’s population. Recent data published by the Chief Medical Officer of~~ the Cayman Islands ~~indicates that~~continues to be approximately ~~68% the country’s population has received both doses~~one-half of ~~the vaccine. It cannot presently be determined if or when the 80% target will be achieved and the borders reopened.~~

As a result of these measures taken by the Cayman Islands government, tourism in the Cayman Islands has temporarily ceased. The preventative measures taken by the Cayman Islands government in response to the COVID-19 pandemic commenced in the latter half of March 2020. Consequently, our retail sales volume for the year ended December 31, 2020 declined by approximately 13% from the year ended December 31, 2019 and our retail sales volume for the first half of 2021 declined 12% from our retail sales volume for the first half of 2020.pre-COVID-19 levels. We expect that our retail segment revenue and cash flows will continue to be materially adversely impacted until such time as tourism and the economy in the Cayman Islands fully recover from the impact and effects of the COVID-19 pandemic.

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

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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~~most of the amounts charged, and lesser amounts that vary with the volume of water supplied. Therefore, unlike Cayman Water, OC-Cayman’s revenue is not as directly affected by tourism on Grand Cayman and, due to the structure of the underlying water supply agreements, is not as acutely sensitive to declines in water demand.

The amount of water provided by OC-Cayman to the WAC for the year ended December 31, 2020 was approximately 1% less than that provided for the year ended December 31, 2019 and the first half of 2021 was 1.9% less than the first half of 2020. We cannot presently determine to what extent OC-Cayman’s future revenue will be impacted by the COVID-19 pandemic.

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

CW-Bahamas

The government of The Bahamas enacted Emergency Powers Regulations which became effective March 18, 2020 in an effort to combat the spread of COVID-19. Initially, these regulations closed all businesses not deemed essential by the government, encouraged the employees of non-essential businesses to work remotely and imposed ~~24 hour~~24-hour shelter-in-place curfew on all residents of The Bahamas other than those engaged in essential or pre-approved activities. On March 24, 2020, the government banned all international travel to The Bahamas by closing all airports and seaports. As a result of the measures taken by The Bahamas government, tourism on New Providence Island, where CW-Bahamas operates, temporarily ceased and economic activity in The Bahamas slowed dramatically. During the summer of 2020, travel restrictions were briefly lifted then reimposed. ~~Since~~In November 2020, shelter-in-place regulations ~~have been~~were loosened, and commercial and retail operations ~~have been~~were permitted to open with limited capacity although working from home iswas still ~~encouraged; additional~~encouraged. The Emergency Powers Regulations expired on November 13, 2021 and the government then enacted new rules to prevent and manage community spread of COVID-19. Restrictions on economic activity ~~(including the operation of restaurants~~have largely been lifted subject to businesses adhering to social distancing protocols, requiring customers to wear face masks and ~~bars for takeaway or outdoor seating; limited indoor seating is permitted for fully vaccinated persons only) has also been permitted.~~practicing regular sanitization. International travel to The Bahamas is permitted ~~and~~to individuals ~~that wish to travel to The Bahamas must obtain a health travel visa which will be issued upon receipt~~with proof of vaccination against COVID-19 or documentation of a negative COVID-19 test ~~five days in advance~~completed within 72 hours of ~~travel; the nature of the test depends on whether the individual travelling is fully vaccinated or not. All visitors 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. Home port cruise ship departures from the Port of Nassau commenced in June 2021 and cruise ship arrivals into The Bahamas commenced in July 2021. Cruise ships are no longer required to disclose passenger and crew vaccination status.

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~~energy prices and, ~~energy prices. To date, the~~to a lesser extent, changes in demand. The volume of water CW-Bahamas sells to the WSC has not ~~been~~ adversely impacted by the COVID-19 pandemic ~~notwithstanding~~despite the ~~downturn in~~reduced economic activity on New Providence ~~due to preventative measures taken by the government~~ in ~~March 2020~~2021, and ~~continuing thereafter~~water volume sales remain steady as economic activity has increased in various forms. In addition, the adverse impact of the COVID-19 pandemic on The Bahamas government’s revenue sources may further delay the collection of CW-Bahamas’ delinquent accounts receivable from the WSC.2022.

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.

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Aerex

Aerex presently has ~~14 plant~~12 manufacturing employees. Should a number of these employees become ill or be required to enter quarantine ~~as a result~~because 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.

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

PERC

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

Approximately ~~76%~~60% of PERC’s revenue of ~~$7.1~~$9.4 million for the six months ended June 30, ~~2021~~2022 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~~due to the COVID-19 pandemic, and such difficulties presently, or could in the future, extend to the various counties, municipalities, and other government-related entities in California, including PERC’s customers, which could adversely impact PERC’s revenue and the collection of its accounts receivable.

PERC employs state-certified water and wastewater operators to operate various water treatment facilities in California and Arizona. Should a number of these employees become ill 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 June 30, ~~2021~~2022 and ~~2020,~~2021, we generated approximately ~~34%~~31% and ~~31%~~34%, respectively, of our consolidated revenue and ~~48%~~46% and ~~44%~~48%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license. For the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, the Company generated approximately ~~34%~~32% and ~~33%~~34%, respectively, of its consolidated revenue and ~~48%~~46% and ~~47%~~48%, 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 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.

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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.”

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

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 the 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.

Adoption of New Accounting ~~Standards:~~Standards

None.

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

Dividends

●	On ~~February 1, 2021,~~January 31, 2022, we paid a dividend of $0.085 to shareholders of record on January ~~4, 2021.~~3, 2022.

●	On April ~~30, 2021,~~29, 2022, we paid a dividend of $0.085 to shareholders of record on April 1, ~~2021.~~2022.

●	On May ~~25, 2021,~~24, 2022, our Board declared a dividend of $0.085 payable on July ~~30, 2021~~29, 2022 to shareholders of record on July 1, ~~2021.~~2022.

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

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

Dividend Reinvestment and Common Stock Purchase Plan

This 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~~Therefore, the impact of inflation on

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our gross profit, measured in consistent dollars, ~~should~~historically has not bebeen material. However, we have not increased our retail water rates since January 2018 (despite the inflation that has occurred since that date) due to the lack of a resolution of our negotiations with OfReg for a new retail license. This lack of a rate increase has contributed to a decline in the gross profit generated by our retail segment. Furthermore, our manufacturing segment has been adversely impacted by recent significant increases in ~~items such as~~raw material costs and our services segment could suffer similar adverse impacts in the future. Should the current inflationary trend continue, our consolidated results of operations and cash flows could be materially adversely affected.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our exposure to market risk from December 31, ~~2020~~2021 to the end of the period covered by this report.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal 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.

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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,~~court, 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 “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 (which was resolved in December 2019, and ordered the revocation of the order of the Tenth Civil Judge granting EWG 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 its notification was not lawful. The Tenth Civil Judge dismissed such challenge, and thereafter EWG filed a remedy against such ~~dismissal, which remedy has not been resolved (notwithstanding that~~dismissal. NSC appeared before the court to vigorously oppose such ~~remedy).~~remedy, and the remedy was subsequently dismissed. To date, arbitration has not been initiated by either party.

Notwithstanding the resolution of the Tenth Civil Judge to move to EWG’s claim to arbitration and the dismissal of the remedy requested by EWG discussed in the previous paragraph, subparagraphs a) and b) that follow describe certain ~~separate~~ amparo claims, and an appeal ~~and an administrative act~~remedy 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.therefrom.

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

~~The~~ appeal remedy filed by NSC on November 7, 2018, mentioned 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.

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

~~c) Amparo apparently~~ filed by EWG against a resolution of the Tenth Civil Judge.

In ~~August~~July 2021, ~~counsel to NSC and AdR became aware, from publicly available information of Mexican Federal courts, of~~EWG filed an amparo claim ~~filed by EWG,~~ against ~~a certain~~the resolution of the Tenth Civil Judge dismissing the remedy filed by EWG against the October 1, 2020resolution within the mentioned ordinary mercantile claim.

~~However,~~ NSC filed before the corresponding amparo court a writ vigorously opposing this claim. Considering the foregoing, and that AdR was only named as a third party with interest, it was not necessary for AdR to ~~date, neither NSC nor AdR have been~~submit arguments against EWG in this claim. Further, CW-Cooperatief was not notified of this amparo claim.

Within this amparo claim, the Third District Court in Tijuana granted a suspension in favor of EWG, merely for the effect of holding in place the referral to arbitration subject matter of the October 1, 2020 resolution mentioned above. Such suspension was conditioned on the posting by EWG of a guarantee in the amount of 50,000 Mexican pesos, which was not posted. Regardless of the effects of the suspension and ~~as such, it is not clear if they are parties to it. Further, no additional information on~~the lack of the posting of a guarantee, NSC filed an appeal remedy against its granting (as described in item b) below).

Following a final hearing that took place in March 2022, a resolution dismissing this claim ~~its scope or potential consequences, if any, is available. In~~was issued and notified to NSC at the ~~event that~~beginning of April 2022. Based upon publicly available information, EWG failed to submit a remedy against such resolution within the applicable term, which expired at the end of April 2022. NSC ~~and/or AdR are named parties to~~submitted a writ requesting an official confirmation on the expiration of such term without EWG having filed a remedy. Such writ was resolved through a confirmation of the expiration

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of such term, issued near the end of May 2022. By means of such resolution, this amparo claim ~~they plan to vigorously oppose to it.~~has concluded.

~~Notwithstanding~~b) Appeal filed by NSC against the ~~resolution to move to arbitration~~suspension granted in favor of EWG.

The appeal remedy mentioned ~~previously, CW-Cooperatief has not been officially served with~~in the ~~ordinary mercantile~~second paragraph of item a) immediately above was admitted by the superior court on October 18, 2021. Considering the definitive conclusion of the amparo 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~~mentioned in item a) immediately above, in July 2022 this ~~claim, and~~appeal was resolved as having no ~~claims have been made by EWG against AdR.~~

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

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, ~~2020~~2021 as supplemented by the additional risk factors included below. If any of the events or circumstances described in the referenced risks actually occurs, our business, financial condition or results of operations could be materially adversely affected and such events or circumstances could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. These risks should be read in conjunction with the other information set forth in this Quarterly Report as well as in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 and in our other periodic reports on Form 10-Q and Form 8-K.

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

The worldwide coronavirus (COVID-19) pandemic was formally recognized by the World Health Organization on March 11, 2020. In response to this pandemic, the governments of the countries in which we operate - the Cayman Islands, The Bahamas, and the United States - implemented preventative measures to slow the spread of COVID-19, measures which have had profound adverse consequences for the economies of those countries. Tourism, a major economic driver for the Cayman Islands, ~~has~~ temporarily ceased due to closing of the country to tourist arrivals by air and sea travel. In November 2021, the Cayman Islands government eliminated certain travel restrictions for COVID-19 vaccinated travelers that allowed tourists to enter the Cayman Islands for the first time since March 2020. Our retail water revenues continue to be significantly lower than pre-pandemic levels. 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~~lower than pre-pandemic numbers due to ~~travel restrictions within and outside of The Bahamas, as well~~ the continued

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reluctance of people to travel internationally. Overall economic activity in the United States has also ~~declined precipitously.~~declined.

As a result of the impact of the COVID-19 pandemic on the economies of the countries in which we operate, we have experienced, and will continue to experience, decreases in our consolidated revenue, cash flows generated from operations, and overall liquidity as compared to comparable prior periods.

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

Although we cannot presently quantify the future financial impacts of the COVID-19 pandemic on our company, we believe such impacts will likely continue to have 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.

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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 June 30, ~~2021~~2022 and ~~2020,~~2021, we generated approximately ~~34%~~31% and ~~31%~~34%, respectively, of our consolidated revenue and ~~48%~~46% and ~~44%~~48%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license. For the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, the Company generated approximately ~~34%~~32% and ~~33%~~34%, respectively, of its consolidated revenue and ~~48%~~46% and ~~47%~~48%, 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 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 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 and results of ~~operations, and cash flows~~.

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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 $21.3 million as of June 30, 2021 and $16.8 million as of December 31, 2020. Approximately 78% of the June 30, 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 July 31, 2021, CW-Bahamas’ accounts receivable from the WSC totaled an all-time high of approximately $23.5 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 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 June 30, 2021, we have not provided an allowance for doubtful accounts for CW-Bahamas’ accounts receivable from the WSC.

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.operations.

Most of our services segment revenue is generated under ~~short term~~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 and six months ended June 30, ~~2021,~~2022, we generated revenue of approximately ~~$3.4~~$3.5 million and ~~$6.3~~$7.1 million, respectively, 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 ~~12%~~36% of PERC’s revenue for the six months ended June 30, ~~2021~~2022 was generated under O&M contracts that expire at various dates through ~~December 31, 2021.~~June 30, 2023. 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~~would be adversely affected.

If ~~Aerex’s~~the future financial performance of Aerex falls short of our most recent financial projections for this subsidiary, we may be required to record an impairment ~~loss~~losses to reduce the carrying values of the goodwill and intangible assets of 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.

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Aerex that, for inventory management purposes, it was suspending its purchases of the specialized product from Aerex following 2020 for a period of approximately one year. This customer informed Aerex at that time that it expected to recommence its purchases of the specialized product from Aerex beginning with the first quarter of 2022. As a result of this anticipated loss of revenue for Aerex, we updated our projections for our manufacturing reporting unit’s future cash flows. Such projections assumed, in part, that Aerex’s major customer would recommence its purchases from Aerex in 2022 but at a reduced aggregate amount, as compared to 2020. Based upon these updated projections, we tested our manufacturing reporting unit’s goodwill for possible impairment as of ~~September 30, 2020 and~~ December 31, 2020 using the discounted cash flow and guideline public ~~companies~~company methods, with a weighting of 80% and 20% applied to these two methods, respectively. As a result of these impairment tests, we determined that the estimated fair value of our manufacturing reporting unit exceeded its carrying value by approximately ~~22% as of September 30, 2020 and~~ 31% as of December 31, 2020.

In late July 2021, this former major customer communicated to Aerex that it expected to recommence its purchases of the specialized product from Aerex in 2022 and subsequent years, but informed Aerex that such purchases would be at substantially reduced annual amounts, as compared to the amounts it had purchased from Aerex in 2020 and prior ~~years.~~years (based upon the most recent communications from the customer, such purchases may not recommence until 2023). Our updated sales estimate for this customer based on this new information ~~is also~~was substantially below the anticipated sales to this customer for 2022 and subsequent years that we used in the discounted cash flow projections we prepared for purposes of testing our manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020. Furthermore, Aerex’s efforts to replace the revenue previously generated from this customer with revenue from existing and new customers have been adversely impacted by the continuing negative economic ~~impacts of~~conditions (caused in part by the COVID-19 ~~pandemic,~~pandemic) which have increased Aerex’s raw material costs, resulted in raw material shortages and extended delivery times for such materials, and also adversely affected the overall financial condition of Aerex’s current and prospective customer base. Accordingly, in light of this new information from Aerex’s former major customer and the on-going weak economic conditions that we believed would continue through 2022, we updated our projections of future cash flows for the manufacturing reporting unit and tested its goodwill for possible impairment as of June 30, 2021 using the discounted cash flow and guideline public company methods, with a weighting of 80% and 20% applied to these two methods, respectively. Based upon this testing, we determined that the carrying value of our manufacturing reporting unit exceeded its fair value by $2.9 million, and we recorded an impairment loss to reduce our manufacturing reporting unit’s goodwill by this amount for the three months ended June 30, 2021.

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

●

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

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

Based upon our estimation prepared as of December 31, 2021, the fair value of our manufacturing reporting unit exceeded its carrying value by only 15%. If we determine in the future that Aerex’s discounted future cash inflows will be less than our present ~~expectation,~~expectations, we may be required to record additional impairment losses to reduce the remaining carrying values as of June 30, ~~2021~~2022 of our manufacturing reporting unit’s goodwill of $1,985,211 and ~~the~~its remaining unamortized intangible assets balances of ~~$894,444~~$801,111 recorded as a result of the acquisition of Aerex. Any such impairment losses could have a material adverse impact on our consolidated results of operations.

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

As a result of the economic conditions resulting from the COVID-19 pandemic, ~~during~~ the ~~six months ended June 30, 2021,~~Russian invasion of Ukraine, and other factors, we ~~began~~are experiencing issues with our supply chain for the raw materials, components, chemicals, and capital expenditures used in our ~~manufacturing~~ operations, including rapidly increasing prices, scarcities/shortages, and longer fulfillment times and unexpected delays for our orders to suppliers. Should these economic conditions and issues continue, our operations could be adversely affected, which could have a material adverse impact on our consolidated ~~revenue,~~financial condition, results of operations and cash ~~flows,~~flows.

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

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

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

In June ~~2021,~~2022, we issued ~~8,632~~9,295 shares of preferred stock to 7074 employees for services rendered. The issuance of the preferred stock to 6466 of the employees was exempt from registration under Regulation S promulgated under the Securities

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Act of 1933 as amended (the “Securities Act”), because the shares were issued outside of the United States to non-US persons (as defined in Regulation S). The issuance to ~~six~~eight employees who are US persons was exempt under Section 4(a)(2) of the Securities Act. The US persons are knowledgeable, sophisticated and experienced in making investment decisions of this kind and received adequate information about us or had adequate access, including through their business relationship with us, to information about us.

In June ~~2021,~~2022, we also issued ~~211~~309 shares of preferred stock to ~~one employee~~two employees for cash at a price of ~~$8.10~~$8.73 per share. The issuance of the preferred stock to ~~the~~one employee was exempt from registration under Regulation S promulgated under the Securities Act because the shares were issued outside of the United States to non-US persons (as defined in Regulation S). One employee is a US person and the issuance of such shares to him was exempt under Section 4(a)(2) of the Securities Act. The US person is knowledgeable, sophisticated and experienced in making investment decisions of this kind and received adequate information about us or had adequate access, including through the employee's business relationship with us, to information about us.

ITEM 6. EXHIBITS


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

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101.CAL		XBRL Taxonomy Extension Calculation Linkbase
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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: August ~~16, 2021~~11, 2022

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


	Six Months Ended June 30, 2020
	Retail		Bulk		Services		Manufacturing		Total
Revenue	$	13,223,728	$	12,306,681	$	6,590,813	$	7,691,746	$	39,812,968
Cost of revenue		5,756,117		8,505,889		4,905,033		4,902,465		24,069,504
Gross profit		7,467,611		3,800,792		1,685,780		2,789,281		15,743,464
General and administrative expenses		6,640,621		553,146		1,384,040		675,115		9,252,922
Gain on asset dispositions and impairments, net		—		200		4,785		—		4,985
Income from operations	$	826,990	$	3,247,846	$	306,525	$	2,114,166		6,495,527
Other income, net										288,218
Income before income taxes										6,783,745
Provision for income taxes										410,351
Net income from continuing operations										6,373,394
Income from continuing operations attributable to non-controlling interests										541,152
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders										5,832,242
Net loss from discontinued operations										(4,071,477)
Net income attributable to Consolidated Water Co. Ltd. stockholders									$	1,760,765


	As of June 30, 2021
	Retail		Bulk		Services		Manufacturing		Total
Accounts receivable, net	$	2,328,613	$	21,501,870	$	1,548,905	$	739,742	$	26,119,130
Inventory, current and non-current	$	2,759,365	$	3,688,327	$	—	$	485,023	$	6,932,715
Property, plant and equipment, net	$	26,659,760	$	25,900,486	$	533,302	$	1,610,645	$	54,704,193
Construction in progress	$	546,043	$	31,737	$	—	$	103,537	$	681,317
Intangibles, net	$	—	$	—	$	2,862,222	$	894,444	$	3,756,666
Goodwill	$	1,170,511	$	1,948,875	$	5,320,416	$	1,985,211	$	10,425,013
Total segment assets	$	62,119,731	$	69,783,021	$	14,762,027	$	7,435,447	$	154,100,226
Assets of discontinued operations									$	22,610,408
Total assets									$	176,710,634