Consolidated Water Co. Ltd. 10-Q

ITEM 1. FINANCIAL STATEMENTS ​ CONSOLIDATED WATER CO. LTD. CONDENSED CONSOLIDATED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ ​ December 31, ​ ​ 2020 ​ ​ 2019 ​ ​ (Unaudited) ​ ​ ​ ​ ASSETS ​ ​ ​ Current assets ​ ​ ​ Cash and cash equivalents ​ $ 34,956,328 ​ $ 42,902,669 ​ Accounts receivable, net ​ 26,858,584 ​ 23,229,689 ​ Inventory ​ 5,067,873 ​ 3,287,555 ​ Prepaid expenses and other current assets ​ 1,738,472 ​ 2,346,918 ​ Costs and estimated earnings in excess of billings ​ 2,202,524 ​ 1,675,781 ​ Total current assets ​ ​ 70,823,781 ​ 73,442,612 ​ Property, plant and equipment, net ​ 59,808,325 ​ 61,248,979 ​ Construction in progress ​ 399,463 ​ 1,335,597 ​ Inventory, noncurrent ​ 4,738,617 ​ 4,404,378 ​ Investment in OC-BVI ​ 1,987,878 ​ 1,903,602 ​ Goodwill ​ 13,325,013 ​ 13,325,013 ​ Land and rights of way ​ 21,126,898 ​ 24,162,523 ​ Intangible assets, net ​ 4,573,333 ​ 5,040,000 ​ Operating lease right-of-use assets ​ ​ 1,250,157 ​ ​ 4,439,212 ​ Other assets ​ 2,791,458 ​ 2,990,228 ​ Total assets ​ $ 180,824,923 ​ $ 192,292,144 ​ ​ ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND EQUITY ​ ​ ​ Current liabilities ​ ​ ​ Accounts payable, accrued expenses and other current liabilities ​ $ 3,613,387 ​ $ 3,672,142 ​ Accrued compensation ​ 1,519,911 ​ 1,821,395 ​ Dividends payable ​ 1,298,321 ​ 1,292,187 ​ Current maturities of operating leases ​ ​ 628,161 ​ ​ 755,751 ​ Current portion of long-term debt ​ ​ 42,211 ​ ​ 17,753 ​ Billings in excess of costs and estimated earnings ​ 899,942 ​ 614,386 ​ Total current liabilities ​ 8,001,933 ​ 8,173,614 ​ Long-term debt, noncurrent ​ ​ 145,822 ​ ​ 61,146 ​ Deferred tax liabilities ​ 1,384,268 ​ 1,529,035 ​ Noncurrent operating leases ​ ​ 930,072 ​ ​ 3,836,475 ​ Net liability arising from put/call options ​ ​ 745,000 ​ ​ 664,000 ​ Other liabilities ​ 75,000 ​ 75,000 ​ Total liabilities ​ 11,282,095 ​ 14,339,270 ​ Commitments and contingencies ​ ​ ​ Equity ​ ​ ​ Consolidated Water Co. Ltd. stockholders' equity ​ ​ ​ Redeemable preferred stock, $ 0.60 par value. Authorized 200,000 shares; issued and outstanding 40,237 and 33,751 shares, respectively ​ 24,142 ​ 20,251 ​ Class A common stock, $ 0.60 par value. Authorized 24,655,000 shares; issued and outstanding 15,114,506 and 15,049,608 shares, respectively ​ 9,068,704 ​ 9,029,765 ​ Class B common stock, $ 0.60 par value. Authorized 145,000 shares; none issued ​ — ​ — ​ Additional paid-in capital ​ 86,234,521 ​ 88,356,509 ​ Retained earnings ​ 65,536,646 ​ 66,352,733 ​ Total Consolidated Water Co. Ltd. stockholders' equity ​ 160,864,013 ​ 163,759,258 ​ Non-controlling interests ​ 8,678,815 ​ 14,193,616 ​ Total equity ​ 169,542,828 ​ 177,952,874 ​ Total liabilities and equity ​ $ 180,824,923 ​ $ 192,292,144 ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 4 Table of Contents CONSOLIDATED WATER CO. LTD. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, Six Months Ended June 30, ​ 2020 2019 2020 2019 Total revenue ​ $ 19,087,247 ​ $ 18,305,260 ​ $ 39,812,968 ​ $ 35,293,784 Total cost of revenue ​ 11,784,104 ​ 10,752,511 ​ 24,069,504 ​ 20,778,732 Gross profit ​ 7,303,143 ​ 7,552,749 ​ 15,743,464 ​ 14,515,052 General and administrative expenses ​ 4,861,028 ​ 4,994,992 ​ 10,014,785 ​ 9,373,026 Gain (loss) on asset dispositions and impairments, net ​ ( 3,030,420 ) ​ 397,301 ​ ( 3,030,640 ) ​ 441,070 Income (loss) from operations ​ ( 588,305 ) ​ 2,955,058 ​ 2,698,039 ​ 5,583,096 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense): ​ ​ ​ ​ Interest income ​ 109,819 ​ 140,467 ​ 246,259 ​ 290,652 Interest expense ​ ( 2,818 ) ​ ( 1,482 ) ​ ( 5,344 ) ​ ( 1,482 ) Profit-sharing income from OC-BVI ​ 14,175 ​ 2,025 ​ 24,300 ​ 8,100 Equity in the earnings (losses) of OC-BVI ​ 34,093 ​ ( 24,949 ) ​ 59,976 ​ ( 11,488 ) Net unrealized gain (loss) on put/call options ​ 80,000 ​ — ​ ( 81,000 ) ​ ( 24,000 ) Other ​ ( 390,384 ) ​ ( 65,728 ) ​ ( 229,962 ) ​ 48,641 Other income (expense), net ​ ( 155,115 ) ​ 50,333 ​ 14,229 ​ 310,423 Income (loss) before income taxes ​ ( 743,420 ) ​ 3,005,391 ​ 2,712,268 ​ 5,893,519 Provision for income taxes ​ 204,268 ​ 64,233 ​ 410,351 ​ 113,192 Net income (loss) from continuing operations ​ ( 947,688 ) ​ 2,941,158 ​ 2,301,917 ​ 5,780,327 Income from continuing operations attributable to non-controlling interests ​ 180,154 ​ 464,896 ​ 541,152 ​ 738,804 Net income (loss) from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ ( 1,127,842 ) ​ 2,476,262 ​ 1,760,765 ​ 5,041,523 Gain on sale of discontinued operations ​ ​ — ​ ​ — ​ ​ — ​ ​ 3,621,170 Total income from discontinued operations ​ ​ — ​ ​ — ​ ​ — ​ ​ 3,621,170 Net income (loss) attributable to Consolidated Water Co. Ltd. stockholders ​ $ ( 1,127,842 ) ​ $ 2,476,262 ​ $ 1,760,765 ​ $ 8,662,693 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ ​ ​ ​ Continuing operations ​ $ ( 0.07 ) ​ $ 0.16 ​ $ 0.12 ​ $ 0.34 Discontinued operations ​ ​ — ​ ​ — ​ ​ — ​ ​ 0.24 Basic earnings (loss) per share ​ $ ( 0.07 ) ​ $ 0.16 ​ $ 0.12 ​ $ 0.58 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ ​ ​ ​ Continuing operations ​ $ ( 0.07 ) ​ $ 0.16 ​ $ 0.12 ​ $ 0.33 Discontinued operations ​ ​ — ​ ​ — ​ ​ — ​ ​ 0.24 Diluted earnings (loss) per share ​ $ ( 0.07 ) ​ $ 0.16 ​ $ 0.12 ​ $ 0.57 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends declared per common and redeemable preferred shares ​ $ 0.085 ​ $ 0.085 ​ $ 0.17 ​ $ 0.17 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average number of common shares used in the determination of: ​ ​ ​ ​ Basic earnings per share ​ 15,114,506 ​ 15,020,344 ​ 15,114,506 ​ 15,020,344 Diluted earnings per share ​ 15,114,506 ​ 15,185,812 ​ 15,269,175 ​ 15,185,463 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 5 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, 2019 ​ 33,751 ​ $ 20,251 ​ 15,049,608 ​ $ 9,029,765 ​ $ 88,356,509 ​ $ 66,352,733 ​ $ 14,193,616 ​ $ 177,952,874 Issue of share capital — ​ — 64,898 ​ 38,939 ​ ( 38,939 ) ​ — ​ — ​ — Net income — ​ — — ​ — ​ — ​ 2,888,607 ​ 360,998 ​ 3,249,605 Purchase of noncontrolling interest in subsidiary — ​ — — ​ — ​ ( 2,444,047 ) ​ — ​ ( 6,055,953 ) ​ ( 8,500,000 ) Dividends declared — ​ — — ​ — ​ — ​ ( 1,289,378 ) ​ — ​ ( 1,289,378 ) Stock-based compensation — ​ — — ​ — ​ 161,406 ​ — ​ — ​ 161,406 Balance as of March 31, 2020 33,751 ​ ​ 20,251 15,114,506 ​ ​ 9,068,704 ​ ​ 86,034,929 ​ ​ 67,951,962 ​ ​ 8,498,661 ​ ​ 171,574,507 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 ​ 6 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Redeemable ​ ​ ​ ​ Additional ​ ​ Cumulative Non- Total ​ ​ preferred stock ​ Common stock ​ paid-in ​ Retained ​ translation ​ controlling ​ stockholders’ ​ Shares Dollars Shares Dollars capital earnings adjustment interests equity Balance as of December 31, 2018 ​ 34,796 ​ $ 20,878 ​ 14,982,906 ​ $ 8,989,744 ​ $ 87,211,953 ​ $ 59,298,161 ​ $ ( 549,555 ) ​ $ 8,784,722 ​ $ 163,755,903 Issue of share capital — ​ — 26,864 ​ 16,118 ​ ( 16,118 ) ​ — ​ — ​ — ​ — Buyback of preferred stock ( 1,983 ) ​ ( 1,190 ) — ​ — ​ ( 16,605 ) ​ — ​ — ​ — ​ ( 17,795 ) Net income — ​ — — ​ — ​ — ​ 6,186,431 ​ — ​ 273,908 ​ 6,460,339 Dividends declared — ​ — — ​ — ​ — ​ ( 1,280,223 ) ​ — ​ — ​ ( 1,280,223 ) Stock-based compensation — ​ — — ​ — ​ 156,062 ​ — ​ — ​ — ​ 156,062 Balance as of March 31, 2019 32,813 ​ ​ 19,688 15,009,770 ​ ​ 9,005,862 ​ ​ 87,335,292 ​ ​ 64,204,369 ​ ​ ( 549,555 ) ​ ​ 9,058,630 ​ ​ 169,074,286 Issue of share capital 7,293 ​ 4,376 10,574 ​ 6,344 ​ ( 10,720 ) ​ — ​ — ​ — ​ ​ — Buyback of preferred stock ​ ( 691 ) ​ ​ ( 415 ) ​ — ​ ​ — ​ ​ ( 5,886 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 6,301 ) Net income — ​ — — ​ — ​ — ​ 2,476,262 ​ — ​ 464,896 ​ ​ 2,941,158 Exercise of options ​ 705 ​ ​ 423 ​ — ​ ​ — ​ ​ 6,700 ​ ​ — ​ ​ — ​ ​ — ​ ​ 7,123 Dividends declared — ​ — — ​ — ​ — ​ ( 1,280,359 ) ​ — ​ — ​ ​ ( 1,280,359 ) Sale of CW-Bali ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 549,555 ​ ​ 241,282 ​ ​ 790,837 Stock-based compensation — ​ — — ​ — ​ 209,049 ​ — ​ — ​ — ​ ​ 209,049 Balance as of June 30, 2019 40,120 ​ $ 24,072 15,020,344 ​ $ 9,012,206 ​ $ 87,534,435 ​ $ 65,400,272 ​ $ — ​ $ 9,764,808 ​ $ 171,735,793 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ ​ 7 Table of Contents CONSOLIDATED WATER CO. LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ 2020 2019 Net cash provided by operating activities ​ $ 3,843,490 ​ $ 8,552,481 ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities ​ ​ Additions to property, plant and equipment and construction in progress ​ ( 710,823 ) ​ ( 1,816,397 ) Proceeds from asset dispositions ​ 450 ​ 443,500 Proceeds from sale of discontinued operations, net of cash provided ​ ​ — ​ ​ 6,706,234 Acquisition of noncontrolling interest in Aerex ​ ​ ( 8,500,000 ) ​ ​ — Collections on loans receivable ​ — ​ 734,980 Net cash provided by (used in) investing activities ​ ( 9,210,373 ) ​ 6,068,317 ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities ​ ​ Dividends paid to common shareholders ​ ( 2,564,980 ) ​ ( 2,551,153 ) Dividends paid to preferred shareholders ​ ( 5,738 ) ​ ( 5,747 ) Repurchase of redeemable preferred stock ​ — ​ ( 24,096 ) Proceeds received from exercise of stock options ​ ​ 4,418 ​ ​ 7,123 Principal repayments on long-term debt ​ ​ ( 13,158 ) ​ ​ — Net cash used in financing activities ​ ( 2,579,458 ) ​ ( 2,573,873 ) Net increase (decrease) in cash and cash equivalents ​ ( 7,946,341 ) ​ 12,046,925 Cash and cash equivalents at beginning of period ​ 42,902,669 ​ 31,337,477 Cash and cash equivalents at end of period ​ $ 34,956,328 ​ $ 43,384,402 ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents at end of period ​ $ 34,956,328 ​ $ 41,878,723 Restricted cash at end of period ​ ​ — ​ ​ 1,505,679 Cash and cash equivalents and restricted cash at end of period ​ $ 34,956,328 ​ $ 43,384,402 ​ ​ ​ ​ ​ ​ ​ Interest paid in cash ​ $ 5,344 ​ $ 1,482 ​ ​ ​ ​ ​ ​ ​ Non-cash transactions: ​ ​ ​ ​ ​ ​ Dividends declared but not paid ​ $ 1,288,154 ​ $ 1,280,139 Transfers from (to) inventory to (from) property, plant and equipment and construction in progress ​ $ ( 49,133 ) ​ $ 223,136 Transfers from construction in progress to property, plant and equipment ​ $ 1,400,811 ​ $ 6,916,301 Right-of-use assets obtained in exchange for new operating lease liabilities ​ $ 78,003 ​ $ 4,850,902 Purchase of equipment through issuance of long-term debt ​ $ 122,292 ​ $ — ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 8 Table of Contents CONSOLIDATED WATER CO. LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Principal activity Consolidated Water Co. Ltd. and its subsidiaries (collectively, the “Company”) supply potable water, treat water for reuse and provide water-related products and services to customers in the Cayman Islands, The Bahamas, the United States and the British Virgin Islands. The Company produces potable water from seawater using reverse osmosis technology and sells this water to a variety of customers, including public utilities, commercial and tourist properties, residential properties and government facilities. The Company designs, builds and sells water production and water treatment infrastructure and manages water infrastructure for commercial and governmental customers. The Company also manufactures a wide range of specialized and custom water industry related products and provides design, engineering, operating and other services applicable to commercial, municipal and industrial water production, supply and treatment. ​ 2. Accounting policies Basis of consolidation: The accompanying condensed consolidated financial statements include the accounts of the Company’s (i) wholly-owned subsidiaries, Aerex Industries, Inc. ("Aerex"), Aquilex, Inc. (“Aquilex”), Cayman Water Company Limited (“Cayman Water”), Ocean Conversion (Cayman) Limited (“OC-Cayman”), DesalCo Limited (“DesalCo”), Consolidated Water Cooperatief, U.A. (“CW-Cooperatief”), Consolidated Water U.S. Holdings, Inc. (“CW-Holdings”); and (ii) majority-owned subsidiaries Consolidated Water (Bahamas) Ltd. (“CW-Bahamas”), N.S.C. Agua, S.A. de C.V. (“NSC”), Aguas de Rosarito S.A.P.I. de C.V. (“AdR”), and PERC Water Corporation (“PERC”). The Company’s investment in its affiliate Ocean Conversion (BVI) Ltd. (“OC-BVI”) is accounted for using the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation. On January 24, 2020, as a result of CW-Holdings' exercise of a call option, CW-Holdings purchased the remaining 49 % ownership interest in Aerex for $ 8,500,000 in cash. After giving effect to this purchase, CW-Holdings owns 100 % of the outstanding capital stock of Aerex. The accompanying interim condensed consolidated financial statements are unaudited. These condensed consolidated financial statements reflect all adjustments (which are of a normal recurring nature) that, in the opinion of management, are necessary to fairly present the Company’s financial position, results of operations and cash flows as of and for the periods presented. The results of operations for these interim periods are not necessarily indicative of the operating results for future periods, including the fiscal year ending December 31, 2020. These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) relating to interim financial statements and in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted in these condensed financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. 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 (losses) arising from transactions and re-measurements were $( 370,315 ) and $( 45,666 ) for the three months ended June 30, 2020 and 2019, respectively, and $( 189,330 ) and $ 12,035 for the six months ended 9 Table of Contents June 30, 2020 and 2019, respectively, and are included in “Other income (expense) - Other” in the accompanying condensed consolidated statements of income (loss). Cash and cash equivalents: Cash and cash equivalents consist of demand deposits at banks and highly liquid deposits at banks with an original maturity of three months or less. Cash and cash equivalents as of June 30, 2020 and December 31, 2019 include $ 9.1 million and $ 12.7 million, respectively, of certificates of deposits with an original maturity of three months or less. Certain transfers from the Company’s Bahamas bank accounts to Company bank accounts in other countries require the approval of the Central Bank of The Bahamas. As of June 30, 2020, the equivalent United States dollar cash balances for deposits held in The Bahamas were approximately $ 9.8 million. Revenue recognition: Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The following table presents the Company’s revenue disaggregated by revenue source (unaudited). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, Six Months Ended June 30, ​ 2020 2019 2020 2019 Retail revenue ​ $ 5,966,296 ​ $ 6,983,515 ​ $ 13,223,728 ​ $ 13,670,175 Bulk revenue ​ 5,866,397 ​ 6,941,051 ​ 12,306,681 ​ 14,052,364 Services revenue ​ 3,476,000 ​ 90,792 ​ 6,590,813 ​ 191,369 Manufacturing revenue ​ 3,778,554 ​ 4,289,902 ​ 7,691,746 ​ 7,379,876 Total revenue ​ $ 19,087,247 ​ $ 18,305,260 ​ $ 39,812,968 ​ $ 35,293,784 ​ Retail revenue The Company produces and supplies water to end-users, including residential, commercial and governmental customers in the Cayman Islands under an exclusive retail license issued to Cayman Water by the Cayman Islands government to provide water in two of the three most populated and rapidly developing areas on Grand Cayman Island. Customers are billed on a monthly basis based on metered consumption and bills are typically collected within 30 to 35 days after the billing date. The Company recognizes revenue from water sales at the time water is supplied to the customer’s premises. The amount of water supplied is determined and invoiced based upon water meter readings performed at the end of each month. All retail water contracts are month-to-month contracts. The Company has elected the "right to invoice" practical expedient for revenue recognition on its retail water sale contracts and recognizes revenue in the amount to which the Company has a right to invoice. Bulk revenue The Company produces and supplies water to government-owned distributors in the Cayman Islands and The Bahamas. OC-Cayman provides bulk water to the Water Authority-Cayman (“WAC”), a government-owned utility and regulatory agency, under two agreements. The WAC in turn distributes such water to properties in Grand Cayman outside of Cayman Water’s retail license area. The Company sells bulk water in The Bahamas through its majority-owned subsidiary, CW-Bahamas, under two agreements with the Water and Sewerage Corporation of The Bahamas (“WSC”), which distributes such water through its own pipeline system to residential, commercial and tourist properties on the Island of New Providence. CW-Bahamas also sells water to a private resort on Bimini. 10 Table of Contents 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, through Aerex, is a custom and specialty manufacturer of water treatment-related systems and products applicable to commercial, municipal and industrial water production. Substantially all of Aerex’s customers are U.S. companies. The Company provides design, engineering, management, procurement 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 provides design, engineering, construction and management services for water treatment and reuse infrastructure through PERC. All of PERC’s customers are companies or governmental entities located in the U.S. The Company recognizes revenue for its construction and 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, material and overhead. The Company follows this method since it can make reasonably dependable estimates of the revenue and costs applicable to various stages of a contract. Under this input method, the Company records revenue and recognizes profit or loss as work on the contract progresses. The Company estimates total project costs and profit to be earned on each long-term, fixed price contract prior to commencement of work on the contract and updates these estimates as work on the contract progresses. The cumulative amount of revenue recorded on a contract at a specified point in time is that percentage of total estimated revenue that incurred costs to date comprises of estimated total contract costs. If, as work progresses, the actual contract costs exceed estimates, the profit recognized on revenue from that contract decreases. The Company recognizes the full amount of any estimated loss on a contract at the time the estimates indicate such a loss. Any costs and estimated earnings in excess of billings are classified as current assets. Billings in excess of costs and estimated earnings on uncompleted contracts are classified as current liabilities. The Company has elected the “right to invoice” practical expedient for revenue recognition on its management services agreements and recognizes revenue in the amount to which the Company has a right to invoice. Revenue recognized and amounts billed on services segment and manufacturing segment contracts in progress are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2020 ​ December 31, 2019 Revenue recognized to date on contracts in progress $ 23,805,174 ​ $ 24,041,993 Amounts billed to date on contracts in progress ​ ( 22,502,592 ) ​ ( 22,980,598 ) ​ ​ $ 1,302,582 ​ $ 1,061,395 ​ The above net balances are reflected in the accompanying consolidated balance sheet as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2020 ​ December 31, 2019 Costs and estimated earnings in excess of billings $ 2,202,524 $ 1,675,781 Billings in excess of costs and estimated earnings ​ ( 899,942 ) ​ ( 614,386 ) ​ ​ $ 1,302,582 ​ $ 1,061,395 ​ As of June 30, 2020, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 3.0 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 11 Table of Contents in the amount of approximately $ 1.4 million during the remainder of the year ending December 31, 2020 and $ 1.6 million thereafter. Practical Expedients and Exemptions The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed. ​ Comparative amounts: Certain amounts presented in the financial statements previously issued for 2019 have been reclassified to conform to the current year’s presentation. ​ ​ 3. Segment information The Company has four 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, 2020 ​ Retail Bulk Services Manufacturing Total Revenue ​ $ 5,966,296 ​ $ 5,866,397 ​ $ 3,476,000 ​ $ 3,778,554 $ 19,087,247 Cost of revenue ​ 2,769,497 ​ 3,941,309 ​ 2,631,513 ​ 2,441,785 ​ 11,784,104 Gross profit ​ 3,196,799 ​ 1,925,088 ​ 844,487 ​ 1,336,769 ​ 7,303,143 General and administrative expenses ​ 3,266,782 ​ 261,100 ​ 1,014,765 ​ 318,381 ​ 4,861,028 Loss on asset dispositions and impairments, net ​ — ​ — ​ ( 3,030,420 ) ​ — ​ ( 3,030,420 ) Income (loss) from operations ​ $ ( 69,983 ) ​ $ 1,663,988 ​ $ ( 3,200,698 ) ​ $ 1,018,388 ​ ( 588,305 ) Other expense, net ​ ​ ​ ​ ​ ​ ( 155,115 ) Loss before income taxes ​ ​ ​ ​ ​ ( 743,420 ) Provision for income taxes ​ ​ ​ ​ ​ 204,268 Net loss ​ ​ ​ ​ ​ ( 947,688 ) Income attributable to non-controlling interests ​ ​ ​ ​ ​ 180,154 Net loss attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ $ ( 1,127,842 ) ​ 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 , $ 189,723 and $ 82,340 , respectively. ​ 12 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, 2019 ​ Retail Bulk Services Manufacturing Total Revenue ​ $ 6,983,515 ​ $ 6,941,051 ​ $ 90,792 ​ $ 4,289,902 ​ $ 18,305,260 Cost of revenue ​ 2,982,758 ​ 4,768,122 ​ 45,094 ​ 2,956,537 ​ 10,752,511 Gross profit ​ 4,000,757 ​ 2,172,929 ​ 45,698 ​ 1,333,365 ​ 7,552,749 General and administrative expenses ​ 3,405,421 ​ 344,971 ​ 779,882 ​ 464,718 ​ 4,994,992 Gain on asset dispositions and impairments, net ​ 397,301 ​ — ​ — ​ — ​ 397,301 Income (loss) from operations ​ $ 992,637 ​ $ 1,827,958 ​ $ ( 734,184 ) ​ $ 868,647 ​ 2,955,058 Other income, net ​ ​ ​ ​ ​ 50,333 Income before income taxes ​ ​ ​ ​ ​ 3,005,391 Provision for income taxes ​ ​ ​ ​ ​ 64,233 Net income ​ ​ ​ ​ ​ 2,941,158 Income attributable to non-controlling interests ​ ​ ​ ​ ​ 464,896 Net income attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ $ 2,476,262 ​ Depreciation and amortization expenses for the three months ended June 30, 2019 for the retail, bulk, services and manufacturing segments were $ 615,363 , $ 976,437 , $ 1,137 and $ 215,713 , 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 ​ 2,145,903 ​ 675,115 ​ 10,014,785 Gain (loss) on asset dispositions and impairments, net ​ — ​ 200 ​ ( 3,030,840 ) ​ — ​ ( 3,030,640 ) Income (loss) from operations ​ $ 826,990 ​ $ 3,247,846 ​ $ ( 3,490,963 ) ​ $ 2,114,166 ​ 2,698,039 Other income, net ​ ​ ​ ​ ​ ​ ​ 14,229 Income before income taxes ​ ​ ​ ​ ​ 2,712,268 Provision for income taxes ​ ​ ​ ​ ​ 410,351 Net income ​ ​ ​ ​ ​ 2,301,917 Income attributable to non-controlling interests ​ ​ ​ ​ ​ 541,152 Net income attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ $ 1,760,765 ​ Depreciation and amortization expenses for the six months ended June 30, 2020 for the retail, bulk, services and manufacturing segments were $ 1,200,060 , $ 1,934,299 , $ 373,609 and $ 208,474 , respectively. 13 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, 2019 ​ Retail Bulk Services Manufacturing Total Revenue ​ $ 13,670,175 ​ $ 14,052,364 ​ $ 191,369 ​ $ 7,379,876 ​ $ 35,293,784 Cost of revenue ​ 5,808,362 ​ 9,722,713 ​ 167,013 ​ 5,080,644 ​ 20,778,732 Gross profit ​ 7,861,813 ​ 4,329,651 ​ 24,356 ​ 2,299,232 ​ 14,515,052 General and administrative expenses ​ 6,522,699 ​ 606,383 ​ 1,265,767 ​ 978,177 ​ 9,373,026 Gain on asset dispositions and impairments, net ​ 394,570 ​ 46,500 ​ — ​ — ​ 441,070 Income (loss) from operations ​ $ 1,733,684 ​ $ 3,769,768 ​ $ ( 1,241,411 ) ​ $ 1,321,055 ​ 5,583,096 Other income, net ​ ​ ​ ​ ​ 310,423 Income before income taxes ​ ​ ​ ​ ​ 5,893,519 Provision for income taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 113,192 Net income from continuing operations ​ ​ ​ ​ ​ 5,780,327 Income from continuing operations attributable to non-controlling interests ​ ​ ​ ​ ​ 738,804 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ 5,041,523 Net income from discontinued operations ​ ​ ​ ​ ​ 3,621,170 Net income attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ $ 8,662,693 ​ Depreciation and amortization expenses for the six months ended June 30, 2019 for the retail, bulk, services and manufacturing segments were $ 1,133,377 , $ 1,924,126 , $ 2,273 and $ 492,766 , respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of June 30, 2020 ​ Retail Bulk Services Manufacturing Total Accounts receivable, net ​ $ 2,872,089 ​ $ 20,126,330 ​ $ 1,537,453 ​ $ 2,322,712 ​ $ 26,858,584 Inventory, current and non-current ​ $ 2,758,051 ​ $ 4,138,547 ​ $ — ​ $ 2,909,892 ​ $ 9,806,490 Property, plant and equipment, net ​ $ 28,701,759 ​ $ 29,253,459 ​ $ 254,930 ​ $ 1,598,177 ​ $ 59,808,325 Construction in progress ​ $ 225,663 ​ $ 31,737 ​ $ — ​ $ 142,063 ​ $ 399,463 Intangibles, net ​ $ — ​ $ — ​ $ 3,538,889 ​ $ 1,034,444 ​ $ 4,573,333 Goodwill ​ $ 1,170,511 ​ $ 1,948,875 ​ $ 5,320,416 ​ $ 4,885,211 ​ $ 13,325,013 Land and rights of way ​ $ — ​ $ — ​ $ 21,126,898 ​ $ — ​ $ 21,126,898 Total segment assets ​ $ 52,401,338 ​ $ 72,695,342 ​ $ 37,569,235 ​ $ 18,159,008 ​ $ 180,824,923 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2019 ​ Retail Bulk Services Manufacturing Total Accounts receivable, net ​ $ 2,891,165 ​ $ 18,883,493 ​ $ 954,149 ​ $ 500,882 ​ $ 23,229,689 Inventory, current and non-current ​ $ 2,668,902 ​ $ 3,628,443 ​ $ — ​ $ 1,394,588 ​ $ 7,691,933 Property, plant and equipment, net ​ $ 29,177,718 ​ $ 30,281,647 ​ $ 168,585 ​ $ 1,621,029 ​ $ 61,248,979 Construction in progress ​ $ 396,214 ​ $ 869,792 ​ $ — ​ $ 69,591 ​ $ 1,335,597 Intangibles, net ​ $ — ​ $ — ​ $ 3,877,222 ​ $ 1,162,778 ​ $ 5,040,000 Goodwill ​ $ 1,170,511 ​ $ 1,948,875 ​ $ 5,320,416 ​ $ 4,885,211 ​ $ 13,325,013 Land and rights of way ​ $ — ​ $ — ​ $ 24,162,523 ​ $ — ​ $ 24,162,523 Total segment assets ​ $ 65,554,640 ​ $ 69,423,770 ​ $ 42,459,177 ​ $ 14,854,557 ​ $ 192,292,144 ​ ​ ​ 14 Table of Contents 4. Earnings per share Earnings per share (“EPS”) are computed on a basic and diluted basis. Basic EPS is computed by dividing net income (less preferred stock dividends) available to common stockholders by the weighted average number of common shares outstanding during the period. The computation of diluted EPS assumes the issuance of common shares for all potential common shares outstanding during the reporting period and, if dilutive, the effect of stock options as computed under the treasury stock method. The following summarizes information related to the computation of basic and diluted EPS: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, Six Months Ended June 30, ​ 2020 2019 2020 2019 Net income (loss) from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ $ ( 1,127,842 ) ​ $ 2,476,262 ​ $ 1,760,765 ​ $ 5,041,523 Less: preferred stock dividends ​ ( 3,420 ) ​ ( 3,410 ) ​ ( 6,289 ) ​ ( 6,199 ) Net income (loss) from continuing operations available to common shares in the determination of basic earnings per common share ​ ( 1,131,262 ) ​ 2,472,852 ​ 1,754,476 ​ 5,035,324 Total income from discontinued operations ​ — ​ — ​ — ​ 3,621,170 Net income (loss) available to common shares in the determination of basic earnings per common share ​ $ ( 1,131,262 ) ​ $ 2,472,852 ​ $ 1,754,476 ​ $ 8,656,494 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average number of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ 15,114,506 ​ 15,020,344 ​ 15,114,506 ​ 15,020,344 Plus: ​ ​ ​ ​ ​ ​ ​ ​ Weighted average number of preferred shares outstanding during the period ​ — ​ 34,183 ​ 34,438 ​ 33,834 Potential dilutive effect of unexercised options and unvested stock grants ​ — ​ 131,285 ​ 120,231 ​ 131,285 Weighted average number of shares used for determining diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ 15,114,506 ​ 15,185,812 ​ 15,269,175 ​ 15,185,463 ​ ​ ​ 5. NSC and AdR project development ​ In May 2010, the Company acquired, through its wholly owned Netherlands subsidiary, CW-Cooperatief, a 50 % interest in NSC, a development stage Mexican company. CW-Cooperatief subsequently purchased, through the conversion of a loan it made to NSC, additional shares that increased its ownership interest in NSC to 99.99 %. NSC was formed to pursue a project (the “Project”) that originally encompassed the construction, operation and minority ownership of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and accompanying pipelines to deliver water to the Mexican public water system. As discussed in paragraphs that follow, during 2015 the scope of the Project was defined by the State of Baja California (the “State”) to consist of a first phase consisting of a 50 million gallons per day plant and an aqueduct that connects to the Mexican public water infrastructure and a second phase consisting of an additional 50 million gallons per day of production capacity. ​ 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 be constructed. ​ 15 Table of Contents In August 2014, the State enacted new legislation to regulate Public-Private Association projects which involve the type of long-term contract between a public-sector authority and a private party required for the Project (the “APP Law”). Pursuant to this new legislation, in January 2015, NSC submitted an expression of interest for its project to the Ministry of Infrastructure and Urban Development of the State of Baja California (“SIDUE”). SIDUE accepted NSC’s expression of interest and requested that NSC submit a detailed proposal for the Project that complied with the requirements of the new legislation. NSC submitted this detailed proposal (the “APP Proposal”) to SIDUE in late March 2015. The new legislation required that such proposal be evaluated by SIDUE and submitted to the Public-Private Association Projects State Committee (the “APP Committee”) for review and authorization. ​ In response to its APP Proposal, in September 2015 NSC received a letter dated June 30, 2015 from the Director General of the Comisión Estatal del Agua de Baja California (“CEA”), the State agency with responsibility for the Project, stating that (i) the Project is in the public interest with high social benefits and is consistent with the objectives of the State development plan; and (ii) that the Project should proceed, and the required public tender should be conducted. In November 2015, the State officially commenced the tender for the Project, the scope of which the State defined as a first phase to be operational in 2019 consisting of a 50 million gallon per day plant and an aqueduct that connects to the Mexican potable water infrastructure and a second phase to be operational in 2024 consisting of an additional 50 million gallons per day of production capacity. A consortium (the “Consortium”) comprised of NSC, NuWater S.A.P.I. de C.V. (“NuWater”) and Suez Medio Ambiente México, S.A. de C.V. (“Suez MA”), a subsidiary of SUEZ International, S.A.S., submitted its tender for the Project in April 2016 and in June 2016, the State designated the Consortium as the winner of the tender process for the Project. ​ In August 2016, NSC and NuWater incorporated Newco under the name Aguas de Rosarito S.A.P.I. de C.V. (“AdR”), a special purpose company, to complete the Project and executed a shareholders agreement for AdR agreeing among other things that (i) AdR would purchase the land and other Project assets from NSC on the date that the Project begins commercial operations and (ii) AdR would enter into a Management and Technical Services Agreement with NSC effective on the first day that the Project begins commercial operations. NSC initially owned 99.6 % of the equity of AdR. In February 2018, NSC acquired the remaining 0.4 % ownership in AdR from NuWater. ​ On August 22, 2016, the Public Private Partnership Agreement for public private partnership number 002/2015, bid number SIDUE-CEA-APP-2015-002 (“APP Contract”), was executed between AdR, 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 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. ​ In December 2016, the Congress of the State of Baja California, Mexico (the “Congress”) passed Decreto #57 which, among other things, ratified and authorized the payment obligations of the corresponding public entities under the APP Contract and authorized the corresponding public entities to obtain a credit facility to guarantee their payment obligations. During 2017, following consultations between representatives of the State and the Ministry of Finance of the Federal Government of Mexico, it was determined that certain amendments to Decreto #57 were required to comply with recent changes to the Federal Financial Discipline Law for Federative Entities and Municipalities. In addition, an amendment of Decreto #57 was required to authorize the inclusion of revenue from the CESPT in the primary payment trust for the Project. These amendments were included in Decreto #168, which was approved by the Congress in December 2017. The authorization of the payment obligations of the public entities under the APP Contract and for the execution of the credit agreement to guarantee such payment obligations given in Decreto #57, as amended by Decreto #168, expired on December 31, 2018. During the congressional session held at the end of March 2019, the Congress passed Decreto #335, which renewed the authorizations for the various payment trusts, guaranties and bank credit lines required to be established for the Project by the State entities. Decreto #335 expired December 31, 2019. During the congressional session held at the end of December 2019, the Congress passed Decreto #37, which renewed the authorizations for the various payment 16 Table of Contents trusts, guaranties and bank credit lines required to be established for the Project by the State entities. Decreto #37 expired June 30, 2020. ​ Both the exchange rate for the Mexican peso relative to the dollar and general macroeconomic conditions in Mexico varied since the execution of the APP Contract. These changes adversely impacted the estimated construction, operating and financing costs for the Project. The APP Contract and the APP Law allowed for the parties to negotiate (but did not guarantee) modifications to the consideration (i.e. water tariff) under the APP Contract in the event of such significant macroeconomic condition changes. In February 2017, AdR submitted proposals to CEA requesting the definition of the mechanism required by the APP Contract to update the consideration under the APP Contract for changes in foreign exchange rates, lending rates and certain laws which have impacted the Project. On June 1, 2018, AdR and CEA executed an amendment to the APP Contract which, among other things, increased the scope of Phase 1 of the Project for including the aqueduct originally designated for Phase 2, and addressed AdR’s concerns regarding the impact on the Project for changes in the exchange rate for the peso relative to the dollar and changes in interest rates that occurred subsequent to the submission of the Consortium’s bid for the Project. As a result of this amendment to the APP Contract, the final cost of Phase 1 and the related consideration to be charged by AdR under the APP Contract would have been determined based upon the bid submitted by the Consortium, the changes set forth in the amendment to the APP Contract and the economic conditions (e.g. interest rates and currency exchange rates) in effect on the financial closing date for Phase 1. ​ In February 2018, AdR executed a subscription agreement (the “Agreement”) for the equity funding required for the Project. The Agreement calls for NSC to retain a minimum of 25% of the equity in AdR. One or more affiliates of Greenfield SPV VII, S.A.P.I. de C.V. (“Greenfield”), a Mexico company managed by an affiliate of a leading U.S. asset manager, would acquire a minimum of 55% of the equity of AdR. The Agreement also provided Suez MA with the option to purchase 20% of the equity of AdR. If Suez MA did not exercise this option, NSC would retain 35% of the equity of AdR and Greenfield will acquire 65% of the equity of AdR. The Agreement became effective when the certain conditions precedent related to the Project were met. The aggregate investment to be made by the equity partners in the Project, in the form of equity and subordinated shareholder loans, is presently estimated at approximately 20% of the total cost of Phase 1 of the Project. This Agreement was scheduled to expire on September 30, 2020. NSC expected to generate a portion of its funding for its additional future equity investment in AdR through the sale to AdR of the land it had purchased for the Project. ​ As of 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 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 considers such term to be unreasonably short due to the magnitude of the Project and the scope of supporting documentation required to be provided with respect to the non-recoverable expenses. AdR obtained an initial provisional suspension of the lapsing of such 20 day term from the court, and on August 10, 2020 the court made such suspension definitive until the completion of the amparo trial. As such, as of the filing of this report, the 20 day term for filing the list of non-recoverable expenses is suspended. ​ 17 Table of Contents 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, if necessary, 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. However, the Company cannot provide any assurances that it will be able to obtain reimbursement for any expenses or investments made with respect to the Project. ​ The Company, AdR and NSC will terminate the various agreements ancillary to the Project as a result of the termination of the APP Contract unless the State elects to assume such agreements. ​ 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 $( 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. ​ Based upon independent appraisals performed in July 2020, the fair value of the investment in land purchased for the Project exceeded its carrying value of $ 21.1 million as of June 30, 2020. ​ Included in the Company’s results of operations are general and administrative expenses from NSC and AdR, consisting of organizational, legal, accounting, engineering, consulting, and other costs relating to Project development activities. Such expenses amounted to approximately $ 304,000 and $ 779,000 for the three months ended June 30, 2020 and 2019, respectively, and approximately $ 762,000 and $ 1,263,000 for the six months ended June 30, 2020 and 2019, respectively. The assets and liabilities of NSC and AdR included in the Company’s consolidated balance sheets amounted to approximately $ 23.4 million and $ 135,000 , respectively, as of June 30, 2020 and approximately $ 29.3 million and $ 2.9 million, respectively, as of December 31, 2019. ​ Project Litigation ​ Immediately following CW-Cooperatief’s acquisition of its initial 50 % ownership in NSC, the remaining 50 % ownership interest in NSC was held by an unrelated company, Norte Sur Agua, S. de R.L. de C.V. (“NSA”). NSA subsequently transferred ownership of half of its shares in NSC to EWG Water LLC (“EWG”) and the other half of its shares in NSC to an individual (the “individual shareholder”). In February 2012, CW-Cooperatief paid $ 300,000 to enter into an agreement (the “Option Agreement”) that provided it with an option, exercisable through February 7, 2014, to purchase the shares of NSC owned by the individual shareholder for a price of $ 1.0 million along with an immediate usufruct and power of attorney to vote those shares. Such shares constituted 25 % of the ownership of NSC as of February 2012. In May 2013, NSC repaid a $ 5.7 million loan payable to CW-Cooperatief by issuing additional shares of its stock. As a result of this share issuance to CW-Cooperatief, the Company indirectly acquired 99.99 % of the ownership of NSC. The Option Agreement contained an anti-dilution provision that required CW-Cooperatief to transfer or otherwise cause the individual shareholder to acquire, for a total price of $ 1 (regardless of their par or market value), shares in NSC of an amount sufficient to maintain the individual shareholder’s 25 % ownership interest in NSC if (i) any new shares of NSC were issued subsequent to the execution of the Option Agreement (causing the individual shareholder’s 25 % ownership interest in NSC to be decreased); and (ii) CW-Cooperatief did not exercise its share purchase option by February 7, 2014 . CW-Cooperatief exercised its option and paid the $ 1.0 million to the individual shareholder to purchase the Option Agreement shares in February 2014. ​ In January 2018, EWG initiated an ordinary mercantile claim against the individual shareholder, NSC and CW-Cooperatief, (with AdR being named as a third party to be called to trial) before the Tenth Civil Judge in Tijuana, Baja California for Mercantile Matters (the “Tenth Civil Judge”). The paragraphs that follow include a description of such litigation, while subparagraphs a) through f) that follow describe certain separate amparo claims, an appeal and an administrative act arising from or relating to such ordinary mercantile claim, all in chronological order. Due to the current global COVID-19 pandemic, most tribunals in Mexico suspended their activities since March, with certain such tribunals restarting activities in August. As such, several resolutions are pending issuance. 18 Table of Contents - In the ordinary mercantile claim, EWG challenged, among other things, the transactions contemplated under the Option Agreement, and therefore, the capital investment transactions that increased the ownership interest of CW-Cooperatief in NSC to 99.99% as a consequence of the Option Agreement. EWG requested that the courts, as a preliminary matter (a) suspend the effectiveness of the challenged transactions; (b) order certain public officials in Mexico to record the pendency of the lawsuit in the public records (including a special request to register a lien over the real estate owned by NSC); (c) appoint an inspector for NSC to oversee its commercial activities; and (d) order public officials in Mexico and credit institutions abroad to refrain from authorizing or executing any legal act related with the activities of the plaintiff, the co-defendants and the third party called to trial to avoid damages to third parties, including those with whom negotiations or any form of commercial or administrative activities, or activities of any other nature related with the “Rosarito” water desalination project, are being conducted. The Tenth Civil Judge granted, ex-parte, the preliminary relief sought by EWG, which resulted in the issuance of official writs to several governmental and public entities involved with the Project, including the registration of the pendency of the lawsuit in certain public records. a) AdR amparo claim against the preliminary relief sought by EWG. ​ In April 2018, AdR filed an amparo against the official writs issued by the Tenth Civil Judge to two governmental entities. In May 2018, the amparo claim was amended to also request protection against additional official writs issued by the Tenth Civil Judge to two other governmental entities and one banking institution. In May 2018, the Third District Court for Amparo and Federal Trials in the State of Baja California with residence in Tijuana granted a temporary suspension of the effects and consequences of the claimed official writs issued by the Tenth Civil Judge pending a further determination by the Third District Court. Such suspension was granted definitively in July 2018, and in August 2018, a resolution determining that the claimed official writs are unconstitutional, was issued. EWG appealed such resolution, and in January 2020, the Collegiate Tribunal resolving such appeal dismissed the amparo filed by AdR. However, such dismissal does not adversely impact AdR, considering the resolution to the appeal mentioned in subparagraph b) that follows. - 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. b) Appeal filed by NSC against the preliminary relief sought by EWG. ​ The appeal remedy mentioned previously in item (ii) suspended the proceeding (through the posting of a guarantee by NSC) and was resolved in December 2019 and communicated to EWG in January 2020. Such resolution revoked the order of the Tenth Civil Judge whereby EWG was granted the preliminary relief. ​ c) Amparo filed by EWG against the revocation of the preliminary relief. ​ In January 2020, EWG filed a new amparo claim against the resolution of the appeal remedy previously mentioned in item (ii). NSC has responded to this new amparo to vigorously oppose such amparo claim of EWG and to uphold the resolution of such appeal remedy. To this date, this amparo claim has not been resolved and, as such, it does not affect the revocation of the preliminary relief. - On February 26, 2019, the Tenth Civil Judge acknowledged NSC’s filing of the legal response to the ordinary mercantile claim, its request to submit to arbitration, and the appeal remedy previously mentioned in item (ii), granting EWG a period of three business days to, among others, state what it deemed convenient to its interest. ​ 19 Table of Contents - Further, on February 26, 2019, the Tenth Civil Judge set the guarantee requested in NSC’s November 7, 2018 legal response, in the form of a security deposit in the amount of 1,000,000 Mexican pesos, to release the preliminary relief sought by EWG. On March 4, 2019, NSC filed before the Tenth Civil Judge evidence of such security deposit, requesting the release of the mentioned preliminary relief. ​ - Irrespective of the resolution revoking the preliminary relief previously granted in favor of EWG (due to the filing of the security deposit by NSC) and the pendency of the appeal remedy filed by EWG against such revocation, on April 12, 2019, the Tenth Civil Judge granted EWG the opportunity to file a counter guarantee in the amount of 1,500,000 Mexican pesos to maintain the ex-parte preliminary relief granted in its favor. With respect to this matter, the Tenth Civil Judge issued a resolution on April 26, 2019 allowing such counter guarantee to be filed in the form of a security deposit or in any other form allowed by the law, without extending the term initially granted for the filing of the counter guarantee. ​ - NSC has vigorously opposed the resolution of the Tenth Civil Judge allowing the filing of a counter guarantee through the filing of a revocation remedy. To date, such appeal remedy has not been resolved. ​ - Further, on April 12, 2019, the Tenth Civil Judge ruled that the request for arbitration filed on November 7, 2018 was not applicable under Mexican law. ​ d) Amparo filed by NSC against the resolution rejecting submission to arbitration. ​ On May 17, 2019, NSC filed an amparo claim against the April 12, 2019 ruling. Such amparo claim was resolved on October 31, 2019, ordering the Tenth Civil Judge to issue a new resolution on the request to submit the claim to arbitration. EWG filed an appeal remedy opposing such order for the issuance of a new resolution, and NSC has filed pleadings to uphold the order for the issuance of a new resolution challenged by EWG. In March 2020, such appeal remedy was resolved in favor of NSC, as the order to the Tenth Civil Judge for issuing a new resolution was confirmed. ​ While such order requires the Tenth Civil Judge to issue a new resolution on the matter of arbitration, this order does not necessarily imply that the Tenth Civil Judge shall rule to move to arbitration. However, if the new resolution is unfavorable for NSC, NSC is prepared to vigorously oppose such resolution. ​ e) Administrative cancellation of registrations before the Public Registry of Property. ​ Despite the posting of the previously mentioned 1,000,000 Mexican pesos guarantee in February 26, 2019 to release the preliminary relief sought by EWG within the ordinary mercantile claim, the Tenth Civil Judge failed to make the resolution effective, which would thereby rescind the previously mentioned preliminary relief granted to EWG. ​ Consequently, on June 19, 2019 (i.e. before obtaining a resolution revoking the preliminary relief as mentioned previously), NSC filed before the Public Registry of Property of Baja California a cancellation request for the provisional lien and the preventive annotation recorded against NSC’s property in the public real estate records. ​ On June 24, 2019, the Public Registry of Property of Baja California issued an encumbrances cancellation resolution, approving the release of the provisional lien and the preventive annotation recorded against NSC’s property in the public real estate records. Such encumbrances cancellation resolution was registered before the Public Registry of Property of Playas de Rosarito on June 25, 2019. On June 26, 2019, the Public Registry of Property of Playas de Rosarito issued a certificate of no liens with respect to the real estate owned by NSC. ​ 20 Table of Contents f) Amparo filed by EWG against the administrative cancellation of registrations before the Public Registry of Property . ​ In November 2019, NSC learned that EWG had filed an amparo claim before the Third District Court in Tijuana against such encumbrances cancellation resolution, and in December 2019, NSC responded to such claim, vigorously opposing it. Thereafter, NSC submitted a motion to dismiss, based on the resolution of the appeal remedy mentioned previously in subparagraph b) revoking the preliminary relief, previously mentioned in item (ii). The Court resolved in favor of such motion to dismiss. However, EWG may file an appeal remedy against such resolution. - On June 27, 2019, the Tenth Civil Judge acknowledged the posting, by EWG, of a bond policy as the counter guarantee allowed pursuant to the Tenth Civil Judge’s ruling on April 26, 2019. NSC plans to vigorously oppose the filing of such bond policy upon continuation of the proceedings, following the suspension granted as a result of the filing of the appeal remedy previously mentioned in subparagraph b). ​ - CW-Cooperatief has not been officially served with the ordinary mercantile claim, and AdR has not been notified that it has to appear for such trial. In any event, AdR is only a named third party called to trial in this claim, and no claims have been made by EWG against AdR. The Company cannot presently determine what impact the resolution of this litigation may have on its consolidated financial condition, results of operations or cash flows. ​ 6. Leases The Company leases property and equipment under operating leases, primarily land, office and warehouse locations. For leases with terms greater than twelve months, the related asset and obligation are recorded at the present value of lease payments over the term. Many of these leases contain rental escalation clauses which are factored into the determination of lease payments when appropriate. When available, the lease payments are discounted using the rate implicit in the lease; however, the current leases entered into do not provide a readily determinable implicit rate. Therefore, the Company’s incremental borrowing rate is estimated to discount the lease payments based on information available at 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 consolidated balance sheets for all classes of underlying assets. Lease costs for such short-term leases are expensed on a straight-line basis over the lease term. The land used by the Company to operate its seawater desalination plants in the Cayman Islands and The Bahamas are owned by the Company or leased to the Company for immaterial annual amounts and are not included in the lease amounts presented on the 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 amounts due on this lease are payable in Mexican pesos at an amount that is currently equivalent to approximately $ 26,000 every two months. The lease is cancellable by AdR should it ultimately not proceed with the Project. 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 amounts as of June 30, 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 consolidated balance sheet date. 21 Table of Contents Effective May 1, 2019, the Company executed a new lease for its office located in the Cayman Islands under terms comparable to the prior lease. This new lease expires April 30, 2024. 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, 2020 December 31, 2019 ASSETS ​ ​ Current ​ ​ ​ Prepaid expenses and other current assets ​ $ 317,029 ​ $ 36,097 Noncurrent ​ ​ ​ Operating lease right-of-use assets ​ 1,250,157 ​ 4,439,212 Total lease right-of-use assets ​ $ 1,567,186 ​ $ 4,475,309 ​ ​ ​ ​ ​ ​ ​ LIABILITIES ​ ​ Current ​ ​ ​ Current maturities of operating leases ​ $ 628,161 ​ $ 755,751 Noncurrent ​ ​ ​ Noncurrent operating leases ​ 930,072 ​ 3,836,475 Total lease liabilities ​ $ 1,558,233 ​ $ 4,592,226 ​ ​ ​ ​ ​ ​ ​ Weighted average remaining lease term: ​ ​ Operating leases ​ 3.2 years ​ 17.8 years ​ ​ ​ ​ Weighted average discount rate: ​ ​ ​ Operating leases ​ 4.33 % ​ 4.59 % ​ The components of lease costs were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, Six Months Ended June 30, ​ ​ ​ 2020 ​ 2019 ​ 2020 ​ 2019 ​ Operating lease costs ​ $ 242,277 ​ $ 128,096 ​ $ 486,169 ​ $ 349,227 ​ Short-term lease costs ​ 1,402 ​ ​ 4,078 ​ 5,518 ​ ​ 8,035 ​ Total lease costs ​ $ 243,679 ​ $ 132,174 ​ $ 491,687 ​ $ 357,262 ​ ​ Supplemental cash flow information related to leases is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ ​ 2020 ​ 2019 ​ Cash paid for amounts included in measurement of liabilities: ​ ​ ​ ​ ​ Operating cash outflows for operating leases ​ $ 524,315 ​ $ 490,491 ​ ​ 22 Table of Contents Future lease payments relating to the Company’s operating lease liabilities as of June 30, 2020 were as follows: ​ ​ ​ ​ ​ Years ending December 31, Total Remainder of 2020 ​ $ 390,600 2021 ​ 474,261 2022 ​ 342,770 2023 ​ 341,579 2024 ​ ​ 122,366 Thereafter ​ — Total future lease payments ​ 1,671,576 Less: imputed interest ​ ( 113,343 ) Total lease obligations ​ 1,558,233 Less: current obligations ​ ( 628,161 ) Noncurrent lease obligations ​ $ 930,072 ​ ​ 7. Fair value As of June 30, 2020 and December 31, 2019, the carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued expenses, accrued compensation, dividends payable and other current liabilities approximate their fair values due to the short-term maturities of these instruments. Under US GAAP, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. US GAAP guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company reviews its fair value hierarchy classifications on a quarterly basis. Changes in the 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, 2020 and December 31, 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2020 ​ Level 1 Level 2 Level 3 Total Liabilities: ​ ​ ​ ​ ​ Recurring ​ ​ ​ ​ ​ Net liability arising from put/call options ​ $ — ​ $ — ​ $ 745,000 ​ $ 745,000 ​ 23 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ Level 1 Level 2 Level 3 Total Liabilities: ​ ​ ​ ​ ​ Recurring ​ ​ ​ ​ ​ Net liability arising from put/call options ​ $ — ​ $ — ​ $ 664,000 ​ $ 664,000 ​ The activity for the Level 3 liability for the six months ended June 30, 2020: ​ ​ ​ ​ ​ Net liability arising from put/call options ​ ​ Balance as of December 31, 2019 ​ $ 664,000 Unrealized loss ​ 81,000 Balance as of June 30, 2020 ​ $ 745,000 ​ Put/call options are reported at fair value as either assets or liabilities in the condensed consolidated balance sheets. These fair values are calculated using discounted cash flow analysis valuation techniques that incorporate unobservable inputs, such as future cash flows, weighted-average cost of capital and expected future volatility. The inputs to these valuations are considered Level 3 inputs. ​ ​ 8 . Contingencies COVID-19 The worldwide coronavirus (COVID-19) pandemic was formally recognized by the World Health Organization on March 11, 2020. In response to this pandemic, the governments of the countries in which the Company operates - the Cayman Islands, The Bahamas, and the United States - implemented preventative measures to slow the spread of COVID-19, measures which have had profound adverse consequences for the economies of those countries. Tourism, a major economic driver for the Cayman Islands and The Bahamas, has temporarily ceased in those countries due to closing of these countries to air and sea travel. Overall economic activity in the United States has declined precipitously. 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, the following adverse effects: ● decreases in consolidated revenue, cash flows generated from operations, and overall liquidity as compared to comparable prior periods; and ● a deterioration in the aging of accounts receivable, with a resulting increase in the portion of accounts that ultimately prove to be uncollectible, necessitating an increase in the provisions and allowances for doubtful accounts. Furthermore, a prolonged extension of the economic downturn created by the COVID-19 pandemic could adversely affect the markets for the Company’s products and services. Such adverse market effects could adversely impact the Company’s expected future cash flows from its four reporting units and could require the Company to record impairment losses to reduce the carrying values of one or more of these reporting units due to a decline in their fair values. Although the Company cannot presently quantify the future financial impacts of the COVID-19 pandemic, such impacts will likely have a material adverse impact on the Company’s consolidated financial condition, results of operations, and cash flows. Given the uncertainty associated with the resolution of this pandemic, the Company cannot presently determine how long such adverse financial impacts may last. Cayman Water The Company sells water through its retail operations under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that granted Cayman Water the exclusive right to provide potable water to customers within its licensed service area. Although the 1990 license was not expressly extended after January 2018, the Company 24 Table of Contents 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, 2020 and 2019, the Company generated approximately 31 % and 38 %, respectively, of its consolidated revenue and 44 % and 53 %, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 license. For the six months ended June 30, 2020 and 2019, the Company generated approximately 33 % and 39 %, respectively, of its consolidated revenue and 47 % and 55 %, 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 economic regulation of the water utility sector and the negotiations with the Company for a new retail license from the WAC to OfReg in May 2017. The Company began license negotiations with OfReg in July 2017 and such negotiations are continuing. The Company has been informed during its retail license negotiations, both by OfReg and its predecessor in these negotiations, that the Cayman Islands government seeks to restructure the terms of its license in a manner that could significantly reduce the operating income and cash flows the Company has historically generated from its retail license. The Company is presently unable to determine what impact the resolution of its retail license negotiations will have on its cash flows, financial condition or results of operations but such resolution could result in a material reduction (or the loss) of the operating income and cash flows the Company has historically generated from Cayman Water’s retail operations and could require the Company to record impairment losses to reduce the carrying values of its retail segment assets. Such impairment losses could have a material adverse impact on the Company’s consolidated financial condition and results of operations. CW-Bahamas CW-Bahamas’ accounts receivable balances due from the WSC amounted to $ 19.9 million as of June 30, 2020 and $ 18.4 million as of December 31, 2019. Historically, CW-Bahamas has experienced delays in collecting its accounts receivable from the WSC. When these delays occur, the Company holds discussions and meetings with representatives of the WSC and The Bahamas government, and as a result, payment schedules are developed for WSC’s delinquent accounts receivable. All previous delinquent accounts receivable from the WSC were eventually paid in full. Based upon this payment history, CW-Bahamas has never been required to provide an allowance for doubtful accounts for any of its accounts receivable, despite the periodic accumulation of significant delinquent balances. As of June 30, 2020, the Company had 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) the Company may be required to cease the recognition of revenue on CW-Bahamas’ water supply agreements with the WSC; and (iii) the Company may be required to provide an allowance for doubtful accounts for CW-Bahamas’ accounts 25 Table of Contents receivable. Any of these events could have a material adverse impact on the Company’s consolidated financial condition, results of operations, and cash flows. ​ 9. Discontinued operations - CW-Belize On February 14, 2019, the Company completed the sale of its former subsidiary, Consolidated Water (Belize) Limited ("CW-Belize") to Belize Water Services Ltd. (“BWSL”) effective January 1, 2019. After adjustments, the final price for CW-Belize was approximately $ 7.0 million. Pursuant to the sale and purchase agreement, BWSL initially paid the Company $ 6.735 million of the purchase price and approximately $ 265,000 was withheld to cover indemnification obligations of the Company under the agreement. The remaining $ 265,000 of the purchase price was paid by BWSL in August 2019. As a result of the sale of CW-Belize, the Company realized a gain of $ 3,621,170 , which is reported as gain on sale of discontinued operations in the accompanying consolidated statement of operations for the six months ended June 30, 2019. ​ 10. Impact of recent accounting standards Adoption of New Accounting Standards: None. Effect of newly issued but not yet effective accounting standards: In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions to the current guidance on contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating the impact of the new guidance on the consolidated financial statements, however the adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations or cash flows. ​ 11. Subsequent events The Company evaluated subsequent events through the time of the filing of this report on Form 10-Q. On August 11, 2020, the Company acquired an additional 10 % of PERC for $ 900,000 , raising its ownership interest in this subsidiary to 61 %. 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ 26 Table of Contents