What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2021-03-31 compared with 2020-03-16 · 22 added, 957 removed, 7 unchanged (99% of the section changed)

MARKET FOR REGISTRANT’S

COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our Class A common stock is listed

on the NASDAQ Global Select Market and trades under the symbol “CWCO”.

No trading market exists for our redeemable

preferred stock, which are only issued to, or purchased by, long-term employees of our company.

On January 2, 2019, April 1,

2019 and January 2, 2020, we issued a total of 26,864 shares, 10,574 shares and 28,891 shares of our common stock, respectively,

to Executive Officers under the 2008 Equity Incentive Plan.

On December 4, 2019, we issued a total of 22,034 shares of our

common stock to our Directors under the Non-Executive Directors’

Share Plan in consideration for their service on our Board

of Directors and the committees thereof.

See “ITEM 11.

EXECUTIVE COMPENSATION.”

Currently 2,023,850 Bahamian Depository

Receipts (“BDRs”) that constitute ownership of 404,770 shares of our common stock are listed and traded on the Bahamian

International Stock Exchange.

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

No trading market exists for our redeemable preferred stock, which are only issued to, or purchased by, long-term employees of our company.

On January 2, 2020, March 18, 2020 and January 4, 2021, we issued a total of 28,891 shares, 36,007 shares and 25,789 shares of our common stock, respectively, to Executive Officers under the 2008 Equity Incentive Plan.

On December 15, 2020, we issued a total of 19,712 shares of our common stock to our Directors under the Non-Executive Directors’ Share Plan in consideration for their service on our Board of Directors and the committees thereof.

See “ITEM 11.

EXECUTIVE COMPENSATION.”

Currently 2,023,850 Bahamian Depository Receipts (“BDRs”) that constitute ownership of 404,770 shares of our common stock are listed and traded on the Bahamian International Stock Exchange.

Our common shares that underlie these BDRs are held in a custodial account in The Bahamas.

are entitled to dividend payments, when declared on our common stock in proportion to the BDRs’

relative value to our common

As of March 6, 2020, we had 742 holders

of record of our common stock.

Our Board of Directors declares and approves

any and all dividends.

We have paid dividends to owners of our

common stock and redeemable preferred stock since we began declaring dividends in 1985.

However, the payment of any future cash

dividends will depend upon our earnings, financial condition, cash flows, capital requirements and other factors our Board of Directors

deems relevant in determining the amount and timing of such dividends.

Listed below, for each quarter of the

last two fiscal years, are the per share dividends declared on our issued and outstanding shares of common shares and redeemable

preferred stock.

The BDRs are entitled to dividend payments, when declared on our common stock in proportion to the BDRs’ relative value to our common stock.

As of March 26, 2021, we had 730 holders of record of our common stock.

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

We have paid dividends to owners of our common stock and redeemable preferred stock since we began declaring dividends in 1985.

However, the payment of any future cash dividends will depend upon our earnings, financial condition, cash flows, capital requirements and other factors our Board of Directors deems relevant in determining the amount and timing of such dividends.

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

First Quarter

2 unchanged sentences

Fourth Quarter

Exchange Controls and Other Limitations Affecting Security

Our Company is not subject to any governmental

laws, decrees or regulations in the Cayman Islands which restrict the export or import of capital, or that affect the remittance

of dividends, interest or other payments to non-resident holders of our securities.

The Cayman Islands does not impose any limitations

on the right of non-resident owners to hold or vote our common stock.

There are no exchange control restrictions in the Cayman

The information required by Item 201(d) of

Regulation S-K is provided under ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER

MATTERS of this Annual Report.

SELECTED FINANCIAL

Not applicable.

MANAGEMENT’S

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our water production operations and activities,

and those of our affiliate OC-BVI, are conducted at 12 plants in three countries:

the Cayman Islands, The Bahamas, and the British

Virgin Islands.

The following table sets forth the comparative combined production capacity of our retail, bulk and affiliate

operations as of December 31 of each year.

Cayman Islands

British Virgin Islands

Bali, Indonesia

(1) in millions of gallons per day.

(2) in February 2019, we completed the sale (which

was effective as of January 1, 2019) of CW-Belize to a third party.

(3) in June 2019, we sold PT Consolidated Water Bali

(“CW-Bali”) to a third party.

As a result of our acquisition of PERC in October 2019,

as of December 31, 2019 we operated 21 water treatment and reuse facilities in the United States that treat approximately

20.3 million gallons of water per day.

Cayman Islands

We have been operating our business on

Grand Cayman since 1973 and have been using reverse osmosis technology to convert seawater to potable water since 1989.

Islands have a limited natural supply of fresh water.

We have an exclusive license from the Cayman Islands government to process

potable water from seawater and then sell and distribute that water by pipeline to the Seven Mile Beach and West Bay areas of Grand

This license expired in January 2018 but as discussed in the following paragraph we continue to provide water under

the terms of this license.

Our Grand Cayman operations consist of four company-owned seawater reverse osmosis desalination plants

which provide water to approximately 6,300 retail residential and commercial customers within a government licensed area and three

government-owned seawater reverse osmosis plants which supply bulk water to the WAC.

Our pipeline system on Grand Cayman Island

covers the Seven Mile Beach and West Bay areas of Grand Cayman and consists of approximately 90 miles of potable water pipe.

Our exclusive license from the Cayman

Islands government was originally scheduled to expire in July 2010 but was extended several times by the Cayman Islands government

in order to provide the parties with additional time to negotiate the terms of a new license agreement.

The most recent 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.

to pay the royalty required under the 1990 license.

We have been informed during our retail license negotiations that the Cayman

Islands government seeks to restructure the terms of our license in a manner that could significantly reduce the operating income

and cash flows we have historically generated from our retail license.

Our retail license negotiations have also been impacted

by the passage of new legislation and the establishment of a new water regulatory body in the Cayman Islands.

See further discussion

of this matter at ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Material

Commitments, Expenditures and Contingencies - Cayman Water Retail License .

CW-Bahamas produces potable water from

three seawater reverse osmosis desalination plants.

Two of these plants, the Windsor plant and the Blue Hills plant, are located

in Nassau, New Providence and have a total installed capacity of 14.8 million gallons per day.

CW-Bahamas supplies water from these

plants to the WSC under long-term supply agreements.

During 2019, we supplied approximately 4.0 billion gallons (2018:

gallons) of water to the WSC from these plants.

CW-Bahamas’

third plant is located in Bimini, has a capacity of 115,000 gallons

per day, and provides potable water to the Bimini Sands Resort.

We have also sold water intermittently to the WSC from our Bimini

plant when their regular supply was unavailable.

From time to time (including presently),

CW-Bahamas has experienced delays in collecting its accounts receivable.

Representatives of the Bahamas government have informed

us that their delays in paying our accounts receivables did/do not reflect any type of dispute with us with respect to the amounts

To date, we have not been required to provide an allowance for any delinquent CW-Bahamas accounts receivable as such amounts

were eventually paid in full.

Based upon our experience, we believe that the present accounts receivable from the WSC are fully

collectible and therefore have not provided any allowance for possible non-payment of these receivables.

Such accounts receivable

balances due from The Bahamas government amounted to $18.4 million as of December 31, 2019, as compared to $17.6 million

as of December 31, 2018.

See further discussion of this matter at ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES - CW Bahamas Liquidity.

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;

the impact of the

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

Our critical accounting estimates relate

to the valuations of our (i) goodwill and intangible assets;

and (ii) long-lived assets.

Goodwill and intangible assets

Goodwill represents the excess cost over

the fair value of the assets of an acquired business.

Goodwill and intangible assets acquired in a business combination accounted

for as a purchase and determined to have an indefinite useful life are not amortized but are tested for impairment at least annually.

Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual

values and reviewed periodically for impairment.

We evaluate the possible impairment of goodwill annually as part of our reporting

process for the fourth quarter of each fiscal year.

Management identifies our reporting units, which consist of our retail, bulk,

services and manufacturing operations, and determines the carrying value of each reporting unit by assigning the assets and liabilities,

including the existing goodwill and intangible assets, to those reporting units.

We determine the fair value of each reporting

unit and compare these fair values to the carrying amounts of the reporting units.

To the extent the carrying amount of the reporting

unit exceeds the fair value of the reporting unit, an impairment loss is recorded.

For the years ended December 31,

2019 and 2018, we estimated the fair value of our reporting units by applying the discounted cash flow method, the guideline public

company method, and the mergers and acquisitions method.

The discounted cash flow method 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 years ended December 31, 2019 and 2018 through reference to the guideline companies and the

market multiples implied by guideline merger and acquisition transactions.

We weighted the fair values estimated

for each of our reporting units under each method and summed such weighted fair values to estimate the overall fair value for

each reporting unit.

The respective weightings we applied to each method as of December 31, 2019 were consistent with those

used as of December 31, 2018 and were as follows:

Manufacturing

Discounted cash flow

Guideline public company

Mergers and acquisitions

The fair values we estimated for our retail

and bulk reporting units exceeded their carrying amounts by 74% and 58%, respectively, as of December 31, 2019.

and liabilities for our services reporting unit (with the exception of our investments in land and rights of way for our Mexico

project) consist almost entirely of those for PERC, which was acquired at fair value on October 24, 2019, and therefore we

estimate the fair value of our services reporting unit closely approximates its carrying value at December 31, 2019.

Our manufacturing

reporting unit consists entirely of Aerex and the remaining 49% ownership interest of Aerex was purchased on January 24, 2020

for $8,500,000.

We considered this purchase, the manufacturing reporting unit’s results of operations for the year ended

December 31, 2019, the manufacturing reporting unit’s projected results of operations for the year ended December 31,

2020, and the amount by which the estimated fair value of the manufacturing reporting unit exceeded its carrying amount as of December 31,

2018 to determine that it is more likely than not that the fair value of our manufacturing reporting unit exceeded its carrying

amount at December 31, 2019.

The fair values we estimated for our retail, bulk and manufacturing units exceeded their carrying

amounts by 79%, 62% and 53%, respectively, as of December 31, 2018.

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

Due to this shortfall in Aerex’s results of operations, we tested Aerex’s goodwill for possible impairment

as of September 30, 2016 by estimating its fair value using the discounted cash flow method.

As a result of this impairment

testing, we determined that the carrying value of our Aerex goodwill exceeded its fair value and recorded an impairment loss of

$1,750,000 for the three months ended September 30, 2016 to reduce the carrying value of this goodwill to $6,285,211.

of our annual impairment testing of goodwill performed during the fourth quarter, in 2017 we updated our projections for Aerex’s

future cash flows, determined that the carrying value of our Aerex goodwill exceeded its fair value, and recorded an impairment

loss of $1,400,000 for the three months ended December 31, 2017 to further reduce the carrying value of this goodwill to $4,885,211.

We may be required to record additional impairment losses to reduce the carrying value of our Aerex goodwill in future periods

if we determine it likely that Aerex’s results of operations will fall short of our most recent projections of its future

In February 2019, we sold CW-Belize.

As a result of this sale, CW-Belize has been accounted for as discontinued operations in our consolidated financial statements,

and bulk segment goodwill of approximately $380,000 as of December 31, 2018 associated with CW-Belize was reclassified to

long-term assets of discontinued operations in our consolidated statements of financial condition.

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.

Through our former subsidiary, CW-Bali,

we built and operated a seawater reverse osmosis plant with a productive capacity of approximately 264,000 gallons per day located

in Nusa Dua, one of the primary tourist areas of Bali, Indonesia.

We recorded operating losses for CW-Bali as the sales volumes

for its plant were insufficient to cover its operating costs.

In 2017 and 2016 we determined, based upon probability-weighted

scenarios for CW-Bali’s future undiscounted cash flows, that the carrying values of CW-Bali’s long-lived assets and

our investment in CW-Bali were not recoverable.

Consequently, we recorded impairment losses of $1.6 million and $2.0 million,

in 2017 and 2016, respectively, to reduce the carrying values of these assets to their fair values.

Results of Operations

The following discussion and analysis

of our results of operations should be read in conjunction with our audited consolidated financial statements and accompanying

notes included under Part II, ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, of this Annual Report.

Year Ended December 31, 2019 Compared

to Year Ended December 31, 2018

Consolidated Results

In late December 2018, our Board of

Directors formally approved the sale of our subsidiary, CW-Belize, which was part of our bulk water operations, to Belize Water

Services Ltd.

(“BWSL”) and on February 14, 2019, we completed the sale (which was effective as of January 1,

2019) of CW-Belize to BWSL.

In accordance with U.S.

generally accepted accounting principles, the gain we realized on the sale

of CW-Belize in 2019 and CW-Belize’s results of operations for 2018 have been reflected in our consolidated results of operations

as discontinued operations.

The total income from these discontinued operations for 2019 and 2018 was $3,621,170 ($0.24 per share

on a fully diluted basis) and $1,115,825 ($0.07 per share on a fully diluted basis), respectively.

Including discontinued operations, net

income attributable to Consolidated Water Co.

stockholders for 2019 was $12,176,093 ($0.80 per share on a fully diluted basis),

as compared to $11,293,487 ($0.75 per share on a fully diluted basis) for 2018.

The following discussion and analysis of

our consolidated results of operations and our results by segment refers only to our continuing operations.

Net income from continuing operations

attributable to Consolidated Water Co.

stockholders for 2019 was $8,554,923 ($0.56 per share on a fully diluted basis), as

compared to $10,177,662 ($0.68 per share on a fully diluted basis) for 2018.

The principal reason for the drop in our net income

from 2018 to 2019 is a decrease in our aggregate income from our investments in our affiliate OC-BVI (see further discussion that

Total revenue for 2019 increased to $68,793,651

from $65,719,857 in 2018, as a result of the performance of our retail and manufacturing segments.

Gross profit for 2019 was $28,274,348

(41% of total revenue) as compared to $26,742,287 (41% of total revenue) for 2018.

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

increased to $19,348,958 for 2019 as compared to $18,709,419 for 2018 as a result of incremental expenses of approximately (i) $935,000

for employee costs arising from pay increases, higher bonuses arising from increased profitability and new hires;

(ii) $123,000

for Directors’

fees and expenses;

and (iii) $551,000 for business development.

These expense increases were partially

offset by a decrease of approximately $611,000 in amortization expenses for the intangible assets recorded in connection with

our acquisition of Aerex.

In June 2019, we completed the sales

of our CW-Bali assets and its stock for $365,000 and $25,000, respectively.

Such sales constitute most of the $445,041 gain on

asset dispositions for 2019.

Other income, net, decreased to $801,091

in 2019, as compared to $2,740,064 in 2018.

This decrease is primarily attributable to the income generated from our investment

in the profit-sharing plan of OC-BVI and our equity in the earnings of OC-BVI, which in the aggregate was almost $2.4 million

higher in 2018 than in 2019.

The decline in 2019 in this component of our other income reflects a litigation settlement payment

of almost $4.3 million received by OC-BVI from the BVI government in September 2018.

Results by Segment

Retail Segment:

The retail segment contributed $1,820,077

to our income from operations for 2019 as compared to $2,567,683 for 2018.

Revenue generated by our retail water

operations grew to $26,456,022 in 2019 from $25,621,048 in 2018.

This growth in revenue reflects a 1% increase in the volume of

water sold by Cayman Water and higher energy prices in 2019 than in 2018, which increased the energy pass through component of

our Cayman Water retail revenue by approximately $308,000.

Offsetting these increases was a lack of revenue from CW-Bali in 2019,

as compared to $153,000 in revenue from CW-Bali in 2018.

Retail segment gross profit increased

slightly as a result of the higher 2019 revenue to $14,844,857 (56% of retail revenue) for 2019 as compared to $14,609,592 (57%

of retail revenue) for 2018.

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

Retail G&A expenses increased to $13,422,821 for 2019 as compared to $12,029,646 for 2018 as a result of incremental

expenses of approximately (i) $726,000 for employee costs arising from pay increases, higher bonuses arising from increased

profitability and new hires;

(ii) $124,000 for Directors’

fees and expenses;

and (iii) $551,000 for business development.

The retail segment generated a gain on asset dispositions of

$398,041 in 2019 primarily from the sales of our CW-Bali assets and its stock.

In December 2019, a strain of coronavirus,

designated as COVID-19, surfaced in Wuhan, China.

The subsequent spread of this virus to other parts of the world has created

significant supply chain and other business interruptions and resulted in a significant decrease in air travel and cruise ship

We cannot presently determine the impact of COVID-19 on our retail business, however any resulting decline in tourism

to Grand Cayman as a result of this virus could have a material adverse impact on our retail segment’s revenue and results

of operations.

Bulk Segment:

The bulk segment contributed $7,188,007

and $8,178,862 to our income from operations for 2019 and 2018, respectively.

Bulk segment revenue was $26,986,108 and

$31,031,287 for 2019 and 2018, respectively.

The decrease in bulk revenue from 2018 to 2019 is attributable to OC-Cayman, which

experienced a decline in revenue of approximately $3,919,000 as a result of the two new contracts at lower rates with the WAC

for water supplied from (1) the Red Gate and North Sound plants which commenced in February 2019 and expires in 2024

and (2) the North Side Water Works plant, which commenced in July 2019 and expires in 2026.

Gross profit for the bulk segment was

$8,379,303 (31% of bulk revenue) and $9,479,904 (31% of bulk revenue) for 2019 and 2018, respectively.

Gross profit in dollars

decreased in 2019 as compared to 2018 due to (i) an increase in depreciation expense recorded by CW-Bahamas for its Windsor

plant of approximately $566,000 that results from the refurbishment of this plant completed in late 2018;

and (ii) lower

margins earned by OC-Cayman on its new contracts (as compared to its previous contracts) with the WAC.

Bulk segment G&A expenses remained

relatively consistent at $1,238,296 for 2019 as compared to $1,301,042 for 2018.

Services Segment:

The services segment incurred losses from

operations of ($2,195,966) and ($2,622,545) for 2019 and 2018, respectively.

Services segment revenue was $1,759,446

for 2019 and $1,811,372 for 2018.

Services revenue for 2019 included $1,376,793 in revenue from PERC as a result of our acquisition

of 51% of this company in late October 2019.

Service revenue for 2018 included approximately $710,000 in revenue generated

in under a refurbishment project for OC-BVI’s plant and approximately $518,000, for pipeline installations made on Grand

Cayman for a real estate developer.

We also experienced a slight decline in 2019 in the fees we received under our management agreement

The gross profit for the services segment

was $544,253 and $308,338, for 2019 and 2018, respectively.

The improvement in gross profit for 2019 reflects the addition of

PERC to our services segment.

G&A expenses for the services segment

were $2,740,219 for 2019 as compared to $2,889,703 for 2018.

A decrease of approximately $536,000 incurred for our Mexico project

was partially offset by additional expenses from PERC of approximately $388,000.

Manufacturing Segment:

The manufacturing segment contributed

$2,558,313 to our income from operations in 2019.

The manufacturing segment incurred a loss from operations of ($147,906) in 2018.

Manufacturing revenue was $13,592,075

and $7,256,150 for 2019 and 2018, respectively.

Manufacturing revenue increased from 2018 to 2019 due to an increase in the number

of orders that resulted in expanded project production activity.

In addition, a portion of Aerex’s production capacity in

2018 was utilized in the production of various components used by its affiliates, CW-Bahamas (for the refurbishment of its Windsor

plant) and Cayman Water (for the expansion of its Abel Castillo Water Works plant).

While the revenue Aerex generated from this

work for its affiliates amounted to approximately $2 million in 2018, such intercompany sales were eliminated in consolidation

for financial reporting purposes.

Manufacturing gross profit was $4,505,935

(33% of manufacturing revenue) and $2,344,453 (32% of manufacturing revenue) for 2019 and 2018, respectively.

The increases in

manufacturing gross profit in dollars and as a percentage of revenue stem from the increase in revenue and production efficiencies.

G&A expenses for the manufacturing

segment dropped to $1,947,622 for 2019 as compared to $2,489,028 for 2018 as a result of a decrease of $611,000 in the amortization

expenses for intangible assets recorded in connection with the acquisition of Aerex.

FINANCIAL CONDITION

The significant changes in the components

of our consolidated balance sheet as of December 31, 2019 as compared to December 31, 2018 (other than the change in

our cash and cash equivalents, which is discussed later in “LIQUIDITY AND CAPITAL RESOURCES”) and the reasons for

these changes are discussed in the following paragraphs.

Accounts receivable increased by approximately

This net increase reflects (i) an increase in CW-Bahamas’

accounts receivable of approximately $800,000 due

to continued slow payment of these receivables by the WSC;

(ii) incremental accounts receivable arising from October 2019

acquisition of PERC, which totaled approximately $943,000 at December 31, 2019;

(iii) a decrease in the accounts receivable

of OC-Cayman of approximately $386,000 due to the new water supply agreements at lower rates signed in 2019 with the WAC;

(iv) a decrease of approximately $487,000 in Aerex’s accounts receivable attributable to the timing of collections.

Current inventory increased by approximately

$1.1 million as a result of incremental raw materials purchased to support Aerex’s increased production activity and inventory

purchases made to meet the spare parts inventory levels mandated by OC-Cayman’s new water supply agreements with the WAC.

Property, plant and equipment increased

by $2.4 million, and construction in progress decreased by $4.7 million primarily as a result of the commissioning of the expanded

plant capacity and storage of our Abel Castillo Water Works plant in Grand Cayman in March 2019.

Goodwill, intangible assets, other assets,

accrued compensation, billings in excess of costs and estimated earnings and deferred tax liabilities increased due to the acquisition

The increases in the operating lease right-of-use

assets and the noncurrent operating leases liabilities results from the adoption of ASU 2016-02, Leases (Topic 842), effective

January 1, 2019, which required us to recognize right-of-use assets and lease liabilities for all leases with original terms

greater than 12 months.

Accounts payable, accrued expenses and

other current liabilities decreased by approximately $898,000 primarily due to the sale of CW-Bali.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Position

Our projected liquidity requirements for

2020 include capital expenditures for our existing operations of approximately $4.7 million, approximately $3.9 million of noncancelable

purchase orders for raw materials to be used in our manufacturing operations, approximately $3.0 million to be expended for NSC's

and AdR's project development activities and approximately $1.3 million for dividends payable.

Our liquidity requirements may also

include future quarterly dividends, if such dividends are declared by our Board.

Our dividend payments amounted to approximately

$5.1 million for the year ended December 31, 2019 and approximately $5.1 million for the year ended December 31, 2018.

As of December 31, 2019, we had cash

and cash equivalents of $42.9 million and working capital of $65.3 million.

In January 2020, we used $8.5 million

in cash to purchase the 49% minority equity interest in Aerex held by its former sole shareholder.

With the possible exception of the liquidity

matter relating to CW-Bahamas that is discussed in the paragraphs that follow, we are not presently aware of anything that would

lead us to believe that we will not have sufficient liquidity to meet our needs.

CW-Bahamas Liquidity

CW-Bahamas’

accounts receivable

balances due from the Water and Sewerage Corporation of The Bahamas (“WSC”) amounted to $18.4 million as of December 31,

2019 and $17.6 million as of December 31, 2018.

Approximately 76% of the December 31, 2019 accounts receivable balance

was delinquent as of that date.

The delay in collecting these accounts receivable has adversely impacted the liquidity of this

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 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 December 31, 2019, we have not provided an allowance for CW-Bahamas’

accounts receivable from the WSC.

We believe the delays we have experienced

in collecting CW-Bahamas’

receivables extended due to the impact of Hurricane Dorian, which devastated the northern Bahamas

in September 2019.

As of February 29, 2020, CW-Bahamas’

accounts receivable from the WSC totaled $18.2 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 CW-Bahamas’

accounts receivable.

Any of these events could have a material adverse impact on our results of operations, financial position

and cash flows.

Discussion of Cash Flows for the Year Ended December 31,

Our cash and cash equivalents increased

to $42,902,669 as of December 31, 2019 from $31,337,477 as of December 31, 2018.

Cash Flows from Operating Activities

Our operating activities from continuing

and discontinued operations provided cash of $15,203,658.

This net cash provided reflects net income generated for the year ended

December 31, 2019 from continuing and discontinued operations of $13,726,071 as adjusted for (i) various items included

in the determination of net income that do not affect cash flows during the year;

and (ii) changes in the other components

of working capital.

The more significant of such items and changes in working capital components included depreciation and amortization

of $7,207,647, the gain on sale of CW-Belize of $3,621,170, an increase in current inventory of $1,497,852 (primarily in the manufacturing

and bulk segments) and a net decrease in accounts payable, accrued expenses and other current liabilities of $1,193,740.

Cash Flows from Investing Activities

Net cash provided by our investing activities

was $1,485,635.

Additions to property, plant and equipment and construction in progress (primarily arising from the refurbishment

of the CW-Bahamas’

Windsor plant and the expansion of Cayman Water’s Abel Castillo Water Works plant) used $3,525,122

In October 2019, we acquired a 51% ownership in PERC for a net cash outflow (i.e.

the purchase price paid in cash

less the cash held by PERC at the acquisition date) of $3,147,438.

These cash outflows were more than offset by $734,980 in collections

on loans receivable from the WAC and $6,971,234 in cash from the sale of CW-Belize.

Cash Flows from Financing Activities

Net cash used by our financing activities

was $5,124,101, almost all of which related to the payment of dividends.

Material Commitments, Expenditures

and Contingencies

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:

Mile Beach and West Bay.

In 2019 and 2018, we generated approximately 38% and 39%, respectively, of our consolidated revenue and

53% and 54%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license.

The 1990 license was originally scheduled

to expire in July 2010 but was extended several times by the Cayman Islands government in order to provide the parties with

additional time to negotiate the terms of a new license agreement.

The most recent express extension of the license expired on

January 31, 2018.

We continue to operate under the terms of the 1990 license, providing water services to the level and quality

specified in the 1990 license and in accordance with our understanding of its legal obligations, treating those obligations set

forth in the 1990 license as operative notwithstanding the expiration of the express extension.

We continue to pay the royalty

required under the 1990 license.

In October 2016, the Government of

the Cayman Islands passed legislation which created a new utilities regulation and competition office (“OfReg”).

is an independent and accountable regulatory body with a view of protecting the rights of consumers, encouraging affordable utility

services and promoting competition.

OfReg, which began operations in January 2017, has the ability to supervise, monitor

and regulate multiple utility undertakings and markets.

Supplemental legislation was passed by the Government of the Cayman Islands

in April 2017, which transferred responsibility for economic regulation of the water utility sector and the retail license

negotiations from the WAC to OfReg in May 2017.

We began license negotiations with OfReg in July 2017 and such negotiations

are continuing.

We have been informed during our retail license negotiations, both by OfReg and its predecessor in these negotiations,

that the Cayman Islands government seeks to restructure the terms of our license in a manner that could significantly reduce the

operating income and cash flows we have historically generated from our retail license.

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 to reduce the carrying value of our retail

segment assets.

Such impairment losses could have a material adverse impact on our financial condition and results of operations.

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.

meet this minimum, we are required to pay the WSC for the difference between the minimum and actual gallons delivered at a per

gallon rate equal to the price per gallon that WSC is currently paying us under the contract.

The Blue Hills contract expires

in 2032 and requires us to deliver 63.0 million gallons of water each week.

The Windsor contract expires in 2033 and requires

us to deliver 16.8 million gallons of water each week.

NSC and AdR Project Development

In May 2010, the Company acquired,

through its wholly-owned Netherlands subsidiary, Consolidated Water Cooperatief, U.A.

(“CW-Cooperatief”), a 50% interest

(“NSC”), a development stage Mexican company.

CW-Cooperatief has since purchased, through

the conversion of a loan it made to NSC, additional shares that increased its ownership interest in NSC to 99.99%.

NSC was formed

to pursue a project (the “Project”) that originally encompassed the construction, operation and minority ownership

of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico

and accompanying pipelines to deliver water to the Mexican potable water system.

As discussed in paragraphs that follow, during

2015 the scope of the Project was defined by the State of Baja California (the “State”) to consist of a first phase

consisting of a 50 million gallon per day plant and an aqueduct that connects to the Mexican potable water infrastructure and

a second phase consisting of an additional 50 million gallons per day of production capacity.

Through a series of transactions completed

in 2012-2014, NSC purchased 20.1 hectares of land for approximately $20.6 million on which the proposed Project’s plant

would be constructed.

In November 2012, NSC entered into

a lease with an effective term of 20 years from the date of full operation of the desalination plant with the Comisión

Federal de Electricidad for approximately 5,000 square meters of land on which it plans to construct the water intake and discharge

works for the plant.

The amounts due on this lease are payable in Mexican pesos at an amount that is currently equivalent to approximately

$30,000 every two months.

This lease may be cancelled by NSC should NSC ultimately not proceed with the Project.

In August 2014, the State enacted

new legislation to regulate Public-Private Association projects which involve the type of long-term contract between a public-sector

authority and a private party that NSC is seeking to complete the Project (the “APP Law”).

Pursuant to this new legislation,

on January 4, 2015, NSC submitted an expression of interest for its project to the Ministry of Infrastructure and Urban Development

of the State of Baja California (“SIDUE”).

SIDUE accepted NSC’s expression of interest and requested that NSC

submit a detailed proposal for the Project that complies with the requirements of the new legislation.

NSC submitted this detailed

proposal (the “APP Proposal”) to SIDUE in late March 2015.

The new legislation required that such proposal be

evaluated by SIDUE and submitted to the Public-Private Association Projects State Committee (the “APP Committee”)

for review and authorization.

If the Project was authorized the State would be required to conduct a public tender for the Project.

In response to its APP Proposal, in September 2015

NSC received a letter dated June 30, 2015 from the Director General of the Comisión Estatal del Agua de Baja California

(“CEA”), the State agency with responsibility for the Project, stating that (i) the Project is in the public

interest with high social benefits and is consistent with the objectives of the State development plan;

and (ii) that the

Project 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.

(“NuWater”) and Suez Medio Ambiente México, S.A.

MA”), a subsidiary of SUEZ International, S.A.S., submitted its tender for the Project in April 2016 and in June 2016,

the State designated the Consortium as the winner of the tender process for the Project.

Due to the amount of capital the Project

requires, NSC will ultimately need an equity partner or partners for the Project.

Consequently, NSC’s tender to the State

for the Project was based upon the following:

(i) NSC will sell or otherwise transfer the land and other Project assets to

a new company (“Newco”) that would build and own the Project;

(ii) NSC’s potential partners would provide

the majority of the equity for the Project and thereby would own the majority interest in Newco;

(iii) NSC would maintain

a minority ownership position in Newco;

and (iv) Newco would enter into a long-term management and technical services contract

for the Project with an entity partially owned by NSC or another Company subsidiary.

In August 2016, NSC and NuWater incorporated

Newco under the name Aguas de Rosarito S.A.P.I.

(“AdR”), a special purpose company, to complete the Project

and executed a shareholders agreement for AdR agreeing among other things that (i) AdR would purchase the land and other

Project assets from NSC on the date that the Project begins commercial operation and (ii) AdR would enter into a Management

and Technical Services Agreement with NSC effective on the first day that the Project begins commercial operation.

NSC initially

owned 99.6% of the equity of AdR.

In February 2018, NSC acquired the remaining 0.4% ownership in AdR from NuWater.

On August 22, 2016, the Public Private

Partnership Agreement for public private partnership number 002/2015, bid number SIDUE-CEA-APP-2015-002 (“APP Contract”),

was executed between AdR, the CEA, the Government of Baja California represented by the Secretary of Planning and Finance and

the Public Utilities Commission of Tijuana (“CESPT”).

The APP Contract requires AdR to design, construct, finance

and operate a seawater reverse osmosis desalination plant (and accompanying aqueduct) with a capacity of up to 100 million gallons

per day in two phases:

the first with a capacity of 50 million gallons per day and an aqueduct to the Mexican potable water system

in Tijuana, Baja California and the second phase with a capacity of 50 million gallons per day.

The first phase must be operational

within 36 months of commencing construction and the second phase must be operational by January 2025.

The APP Contract further

requires AdR to operate and maintain the plant and aqueduct for a period of 37 years starting from the commencement of operation

of the first phase.

At the end of the operating period, the plant and aqueduct will be transferred to the CEA.

The APP Contract does not become effective

until the following remaining open conditions, among others, have been met:

the State has established

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

AdR has obtained

all rights of way required for the aqueduct;

all debt financing

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

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.

following consultations between representatives of the State of Baja California and the Ministry of Finance of the Federal Government

of Mexico, it was determined that certain amendments to Decreto #57 were required to comply with recent changes to the Federal

Financial Discipline Law for Federative Entities and Municipalities.

In addition, it was necessary to amend Decreto #57 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 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.

expired December 31, 2019.

During the congressional session held at the end of December 2019, the Congress passed Decreto

#37, which renewed the authorizations for the various payment trusts, guaranties and bank credit lines required to be established

for the Project by the State entities.

Decreto #37 expires June 30, 2020.

However, the expiration of Decreto #37 will not

result in a termination of the APP Contract and/or the Project, as a new authorization may be issued by Congress .

Following its issuance, the following

legal proceedings were initiated against Decreto #335:

trial filed by a certain congressman and his alternate in April 2019 .

Given that neither AdR nor NSC are parties to this

action, based on publicly available information the Company understands that in April 2019, a congressman of the Congress

and his alternate filed this claim, stating that there are no interested third parties in this trial.

Both the provisional and

definitive suspensions of the effects of Decreto #335 requested by claimants, were denied by the Sixth District Court in Mexicali.

As such, the effects of Decreto #335 have not been suspended.

On July 31, 2019, this proceeding was dismissed.

However, according

to publicly available information, on August 15, 2019, the claimants appealed this dismissal.

As neither AdR nor NSC are

parties to this Amparo trial, they are not parties to that appeal.

Based upon publicly available information, on February 6,

2020, the Sixth Collegiate Tribunal of the Fifteenth Circuit dismissed such appeal.

trial filed in May 2019 by certain individuals that allegedly form part of Consejo Coordinador Empresarial (a private local

business association).

This claim challenged the constitutionality and therefore, the validity of Decreto #335.

May 2019, an initial resolution dismissing the claim was issued by the First District Court in Tijuana.

The claimants in

this proceeding appealed this dismissal, and the appeal was resolved in the claimants’

favor by a superior court, therefore

forcing the admission of this amparo claim by the First District Court in Tijuana.

Both the provisional and definitive suspensions

of the effects of Decreto #335 requested by claimants were denied by the First District Court in Tijuana.

On October 1, 2019,

AdR appeared before the First District Court, to vigorously oppose this claim.

On January 3, 2020, the First District Court

in Tijuana dismissed this claim On January 15, 2020, claimants appealed such dismissal, and such appeal has not been yet

( c) Constitutionality

challenge (Acción de Inconstitucionalidad) filed by certain congresspersons in May 2019 .

Based on publicly available

information, the Company understands that in May 2019, certain congresspersons filed this constitutionality challenge against

Decreto #335.

This challenge has yet to be resolved.

Both the exchange rate for the Mexican

peso relative to the dollar and general macroeconomic conditions in Mexico have varied since the execution of the APP Contract.

These changes have adversely impacted the estimated construction, operating and financing costs for the Project.

The APP Contract

and the APP Law allow for the parties to negotiate (but do not guarantee) modifications to the consideration (i.e.

water tariff)

under the APP Contract in the event of such significant macroeconomic condition changes.

In February 2017, AdR submitted

proposals to the CEA requesting the definition of the mechanism required by the APP Contract to update the consideration under

the APP Contract for changes in foreign exchange rates, lending rates and certain laws which have impacted the Project.

2018, AdR and the CEA executed an amendment to the APP Contract which, among other things, increases the scope of Phase 1 of the

Project by including the aqueduct originally designated for Phase 2, and addresses AdR’s concerns regarding the impact on

the Project for changes in the exchange rate for the peso relative to the dollar and changes in interest rates that have occurred

subsequent to the submission of the Consortium’s bid for the Project.

As a result of this amendment to the APP Contract,

the final cost of Phase 1 and the related consideration to be charged by AdR under the APP Contract will be determined based upon

the bid submitted by the Consortium, the changes set forth in the amendment to the APP Contract and the economic conditions (e.g.

interest rates and currency exchange rates) in effect on the financial closing date for Phase 1.

In February 2018, AdR executed a

subscription agreement (the “Agreement”) for the equity funding required for the Project.

The Agreement calls for

NSC to retain a minimum of 25% of the equity in AdR.

One or more affiliates of Greenfield SPV VII, S.A.P.I.

(“Greenfield”),

a Mexico company managed by an affiliate of a leading U.S.

asset manager, will acquire a minimum of 55% of the equity of AdR.

The Agreement also provides Suez MA with the option to purchase 20% of the equity of AdR.

If Suez MA does not exercise this option,

NSC will retain 35% of the equity of AdR and Greenfield will acquire 65% of the equity of AdR.

The Agreement will become effective

when the additional conditions related to the Project are met, including but not limited to those conditions discussed previously.

The aggregate funding to be provided by AdR’s shareholders for the Project, in the form of equity and subordinated shareholder

loans, is presently estimated at approximately 20% of the total cost of Phase 1 of the Project.

This Agreement was originally

scheduled to expire on June 30, 2019 but has been extended to April 30, 2020..

NSC expects to generate a portion of its

funding for AdR through the sale to AdR of the land it has purchased for the Project.

Under the terms of the Agreement, Suez MA

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

In June 2018, AdR and Suez MA executed

a contract whereby Suez MA will serve as the engineering, procurement and construction contractor for the Project with such contract

becoming effective on the effective date of the APP Contract.

If AdR is ultimately unable to proceed

with the Project due to a failure by any of the parties involved to meet the conditions necessary for the APP Contract to become

effective, or for any other reason, the land NSC has purchased and the rights of way deposits it has made may lose their strategic

importance derived from their association with the Project and consequently may decline in value.

If AdR does not proceed with

the Project, NSC may ultimately be unable to sell this land or recoup its rights of way payments for amounts at least equal to

their carrying values as of December 31, 2019 of approximately $24.2 million.

Any loss on the sale of the land, or impairment

losses NSC may be required to record as a result of a decrease in the (i) fair value of the land;

or (ii) value of the

rights of way arising from an inability to complete the Project, could have a material adverse impact on our financial condition

and results of operations.

Included in the Company’s results

of operations are general and administrative expenses from NSC and AdR, consisting of organizational, legal, accounting, engineering,

consulting and other costs relating to Project development activities.

Such expenses amounted to approximately $2,348,000 and

$2,884,000 for the year ended December 31, 2019 and 2018, respectively.

The assets and liabilities of NSC and AdR included

in the Company’s consolidated balance sheets amounted to approximately $29.3 million and $2.9 million, respectively, as

of December 31, 2019 and approximately $26.2 million and $243,000 respectively, as of December 31, 2018.

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.

(“NSA”).

NSA subsequently transferred ownership of half of its shares in NSC to

EWG Water LLC (“EWG”) and the other half of its shares in NSC to an individual (the “individual shareholder”).

In February 2012, CW-Cooperatief paid $300,000 to enter into an agreement (the “Option Agreement”) that provided it

with an option, exercisable through February 7, 2014, to purchase the shares of NSC owned by the individual shareholder for

a price of $1.0 million along with an immediate usufruct and power of attorney to vote those shares.

Such shares constituted 25%

of the ownership of NSC as of February 2012.

In May 2013, NSC repaid a $5.7 million loan payable to CW-Cooperatief by

issuing additional shares of its stock.

As a result of this share issuance to CW-Cooperatief, we acquired 99.99% of the ownership

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.

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);

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,

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.

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

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.

filed by NSC against the preliminary relief sought by EWG.

The appeal remedy previously mentioned

in item (ii) suspended the proceeding (through the posting of a guarantee by NSC), and was resolved in December 2019 and communicated

to EWG in January 2020.

Such resolution revoked the order of the Tenth Civil Judge whereby EWG was granted the preliminary

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 the filing of the legal response to the ordinary mercantile claim, its request to submit to arbitration, and the appeal remedy previously mentioned in item (ii) granting EWG a period of three business days to, among others, state what it deemed convenient to its interest.

Further, on 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.

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 such remedy has not yet been resolved.

However, NSC has filed pleadings to uphold the order for the issuance

of a new resolution challenged by EWG.

In any event, the order for the

Tenth Civil Judge to issue a new resolution on the request to submit the claim to arbitration 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 her resolution effective, which would thereby rescind the previously

mentioned preliminary relief granted to EWG.

Consequently, on June 19,

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.

June 26, 2019, the Public Registry of Property of Playas de Rosarito issued a certificate of no liens with respect to the

real estate owned by NSC.

f) Amparo filed by EWG against

the administrative cancellation of registrations before the Public Registry of Property.

In November 2019, NSC learned

that EWG had filed an amparo claim before the Third District Court in Tijuana against such encumbrances cancellation resolution,

and in December 2019, NSC responded to such procedure to vigorously oppose the claim of EWG.

Thereafter, NSC submitted a motion

to dismiss, based on the resolution of the appeal remedy revoking the preliminary relief, previously mentioned in item (ii).

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 item (ii).

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.

We cannot presently determine what impact the resolution of

this litigation may ultimately have on our ability to complete the Project.

Adoption of New Accounting Standards:

In February 2016, the FASB issued

ASU 2016-02, Leases (Topic 842), which amends the guidance relating to the definition of a lease, recognition of lease

assets and liabilities on the balance sheet, and the related disclosure requirements.

In July 2018, the FASB issued ASU 2018-11,

Targeted Improvements , which amends the new leasing guidance such that entities may elect not to restate their

comparative periods in the period of adoption.

In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842) , which

provides an optional transition practical expedient for the adoption of ASU 2016-02 that, if elected, would not require an organization

to reconsider their accounting for existing land easements that are not currently accounted for under the old leases standard

and clarify that new or modified land easements should be evaluated under ASU 2016-02, once an entity has adopted the new standard.

The guidance requires lessees to recognize

an asset and liability on the balance sheet for all of their lease obligations.

Operating leases were previously not recognized

on the balance sheet.

ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018 and early adoption

is permitted.

The Company adopted the standard using the modified retrospective method for its existing leases and the standard

created lease assets and lease liabilities on the consolidated balance sheets.

On January 1, 2019, the Company elected

certain practical expedients and carried forward historical conclusions related to (1) contracts that contain leases, (2) existing

lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases.

also applied the practical expedient that allows the Company to elect, as an accounting policy, by asset class, to include both

lease and non-lease components as a single component and account for it as a lease.

The Company applied the short-term lease exception

for lessees which allows the Company to not have to apply the recognition requirements of the new leasing guidance for short-term

leases and to recognize lease payments in net income on a straight-line basis over the lease term.

The Company also applied the

practical expedient related to land easements, allowing it to carry forward its accounting treatment for land easements on existing

Based on an analysis the Company has performed, the adoption of this new lease standard did not have a material impact

on the Company’s financial position, results of operations or cash flows.

Effect of newly issued but not yet effective accounting

On January 31,

2019, we paid a dividend of $0.085 to shareholders of record on January 2, 2019.

2019, we paid a dividend of $0.085 to shareholders of record on April 1, 2019.

2019, we paid a dividend of $0.085 to shareholders of record on July 1, 2019.

On October 31,

2019, we paid a dividend of $0.085 to shareholders of record on October 1, 2019.

On January 31,

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

On February 11,

2020, our Board declared a dividend of $0.085 payable on April 30, 2020 to shareholders of record on April 1, 2020

We have paid dividends to owners of our

common stock and redeemable preferred stock since we began declaring dividends in 1985.

Our payment of any future cash dividends

will depend upon our earnings, financial condition, cash flows, capital requirements and other factors our Board of Directors deems

relevant in determining the amount and timing of such dividends.

Dividend Reinvestment and Common Stock

Purchase Plan

This plan is available to our shareholders,

who may reinvest all or a portion of their common stock dividends into shares of common stock at prevailing market prices and may

also invest optional cash payments to purchase additional shares at prevailing market prices as part of this plan.

Impact of Inflation

Under the terms of our Cayman Islands

license and our water sales agreements in The Bahamas and the British Virgin Islands, our water rates are automatically adjusted

for inflation on an annual basis.

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

dollars, should not be material.

However, significant increases in items such as fuel and energy costs could create additional

credit risks for us, as our customers’

ability to pay our invoices could be adversely affected by such increases.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT

Exchange Controls and Other Limitations Affecting Security Holders

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

our securities.

The Cayman Islands does not impose any limitations on the right of non-resident owners to hold or vote our common stock.

There are no exchange control restrictions in the Cayman Islands.

The information required by Item 201(d) of Regulation S-K is provided under ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS of this Annual Report.

SELECTED FINANCIAL DATA

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity