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Item 8. Financial Statements and Supplementary Data

2021-03-31 compared with 2020-03-16 · 882 added, 1576 removed, 280 unchanged (90% of the section changed)

STATEMENTS AND SUPPLEMENTARY DATA

TO CONSOLIDATED FINANCIAL STATEMENTS

of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2019 and 2018

Statements of Income for the Years Ended December 31, 2019 and 2018

Statements of Stockholders’

Equity for the Years Ended December 31, 2019 and 2018

Statements of Cash Flows for the Years Ended December 31, 2019 and 2018

to Consolidated Financial Statements

II, Valuation and Qualifying Accounts, is omitted because the information is included in the financial statements and notes.

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED WATER CO.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Income for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

Notes to Consolidated Financial Statements

Schedule II, Valuation and Qualifying Accounts, is omitted because the information is included in the financial statements and notes.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Consolidated Water Co.

Opinion on the Financial Statements

have audited the accompanying consolidated balance sheets of Consolidated Water Co., Ltd .

(the “Company”) as

of December 31, 2019 and 2018, the related consolidated statements of income , stockholders’

equity and cash

flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the

“financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial

position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the

two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States

We also have audited, in accordance with

the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control

over financial reporting as of December 31, 2019 , based on the criteria established in Internal Control - Integrated Framework

issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated March 13, 2020 ,

expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Adoption of New Accounting Standard

As discussed in Note 12 to the consolidated

financial statements, the Company changed its method of accounting for leases due to the adoption of ASU No.

2016-02, Leases (Topic

842), as amended, effective January 1, 2019, using the modified retrospective approach.

We have audited the accompanying consolidated balance sheets of Consolidated Water Co.

(the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility

of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit s .

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance

with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the

We conducted our audit s in accordance

with the standards of the PCAOB.

Those standards require that we plan and perform the audit s to obtain reasonable assurance

about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit s included

performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,

and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding

the amounts and disclosures in the financial statements.

Our audit s also included evaluating the accounting principles used

and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

that our audit s provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2005.

Fort Lauderdale, Florida

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Mexico Project

As described in Note 8 to the consolidated financial statements, on June 29, 2020 the Mexico subsidiary, AdR, received a letter from the State of Baja California (the “State”) terminating AdR’s contract with the State involving the construction and operation of a desalination plant in Rosarito California and accompanying aqueduct to deliver the water produced by this plant to the Mexican public water system.

We identified the evaluation of the remaining assets and liabilities and overall presentation and disclosure of that subsidiary as discontinued operations, as a critical audit matter.

The principal consideration for our determination that the termination of the Mexico project is a critical audit matter was due to the extent of audit effort required in the evaluation of the overall adjustments, potential contract cancellation penalties and presentation and disclosure requirements.

Our audit procedures related to the termination of the Mexico project included, among others:

● Proper classification and presentation of discontinued operations

● Examination of the carrying value of all associated assets and liabilities

● Completeness, accuracy and validity of losses recognized and

● Evaluation of the terms of related contract(s) for any cancellation penalties

Aerex significant customer

As described in Note 2 to the consolidated financial statements, one of Aerex’s major customers, experienced project delays, which resulted in them, suspending their orders during the fourth quarter of 2020, for a period of approximately one year.

We identified the reduction in sales order, from this significant customer, as a critical audit matter.

The principal consideration for our determination relates to impact on the evaluation of the projections used in the goodwill impairment assessment associated with Aerex.

Inherent in the projections are significant management estimates, which when subjected to audit, require a high degree of judgement and increased effort including the involvement of valuation specialists.

In particular, the Company’s estimate was particular to key assumptions including future purchases, should they occur, and the associated gross profit earned from this customer.

Our audit procedures related to the Company’s determination of the Aerex projections used in the goodwill analysis, among others, included examination and reasonableness testing of the projections and assumptions used in the valuation analysis for testing the impairment of the goodwill.

Additionally, the customer’s reputation and business operations, as well as the Company’s business standing with the customer, was evaluated for any impact on the projections.

/s/ Marcum LLP

We have served as the Company’s auditor since 2005.

West Palm Beach, Florida

March 31, 2021

BALANCE SHEETS

CONSOLIDATED WATER CO.

CONSOLIDATED BALANCE SHEETS

Current assets

and cash equivalents

Accounts receivable,

Prepaid expenses

and other current assets

Current portion

of loans receivable

Costs and estimated

earnings in excess of billings

assets of discontinued operations

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Contract assets

Current assets of discontinued operations

Total current assets

1 unchanged sentence

Construction in progress

Inventory, non-current

Inventory, noncurrent

Investment in OC-BVI

Land and rights of way held for development

Intangible assets, net

Operating lease right-of-use assets

Long-term assets

of discontinued operations

$ 192,292,144

$ 172,515,598

Long-term assets of discontinued operations

LIABILITIES AND EQUITY

Current liabilities

Accounts payable,

accrued expenses and other current liabilities

Accounts payable, accrued expenses and other current liabilities

Accounts payable - related parties

Accrued compensation

Dividends payable

Current maturities

of operating leases

Current portion

of long-term debt

Billings in excess

of costs and estimated earnings

liabilities of discontinued operations

Current maturities of operating leases

Current portion of long-term debt

Contract liabilities

Current liabilities of discontinued operations

Total current liabilities

Long term debt

Long-term debt, noncurrent

Deferred tax liabilities

2 unchanged sentences

Other liabilities

Long-term liabilities of discontinued operations

Total liabilities

1 unchanged sentence

Consolidated Water Co.

stockholders'

Redeemable preferred

stock, $0.60 par value.

stockholders' equity

Redeemable preferred stock, $ 0.60 par value.

Authorized 200,000 shares;

issued and outstanding 31,068 and 33,751 shares, respectively

Class A common

stock, $0.60 par value.

Class A common stock, $ 0.60 par value.

Authorized 24,655,000 shares;

issued and outstanding 15,143,683 and 15,049,608 shares, respectively

Class B common

stock, $0.60 par value.

Class B common stock, $ 0.60 par value.

Authorized 145,000 shares;

Additional paid-in

Additional paid-in capital

Retained earnings

translation adjustment

Total Consolidated Water Co.

stockholders'

Non-controlling

Total liabilities

$ 192,292,144

$ 172,515,598

The accompanying

notes are an integral part of these consolidated financial statements.

STATEMENTS OF INCOME

Ended December 31,

stockholders' equity

Non-controlling interests

Total liabilities and equity

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

CONSOLIDATED WATER CO.

CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31,

Total revenue

Total cost of revenue (including purchases from related parties of $ 1,349,331 in 2020 and $ 10,295 in 2019)

General and administrative expenses

Gain (loss) on asset

dispositions and impairments, net

Gain on asset dispositions and impairments, net

Income from operations

Other income (expense):

1 unchanged sentence

Interest expense

Profit-sharing

income from OC-BVI

Equity in the earnings

Net unrealized

gain (loss) on put/call options

Profit-sharing income from OC-BVI

Equity in the earnings of OC-BVI

Net unrealized gain (loss) on put/call options

Other income, net

Income before income taxes

Provision for

(benefit from) income taxes

Net income from continuing operations

continuing operations attributable to non-controlling interests

Provision for income taxes

Net income from continuing operations

attributable to Consolidated Water Co.

Income from continuing operations attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

Gain on sale of discontinued operations

from discontinued operations

attributable to Consolidated Water Co.

Basic earnings per common share

attributable to Consolidated Water Co.

Net loss from discontinued operations

( 4,902,243 )

( 2,333,255 )

Total income (loss) from discontinued operations

( 4,902,243 )

Net income attributable to Consolidated Water Co.

Basic earnings (loss) per common share attributable to Consolidated Water Co.

common stockholders

Continuing operations

Discontinued operations

Basic earnings per share

Diluted earnings per common share

attributable to Consolidated Water Co.

Diluted earnings (loss) per common share attributable to Consolidated Water Co.

common stockholders

Continuing operations

Discontinued operations

Diluted earnings per share

declared per common and redeemable preferred shares

Weighted average number of common shares used in the

determination of:

Basic earnings

Diluted earnings

The accompanying

notes are an integral part of these consolidated financial statements.

Dividends declared per common and redeemable preferred shares

Weighted average number of common shares used in the determination of:

Basic earnings per share

Diluted earnings per share

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

CONSOLIDATED WATER CO.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

preferred stock

Non-controlling

stockholders’

of December 31, 2017

Issuance of stock

Conversion of preferred

stockholders’

Balance as of December 31, 2018

Issuance of share capital

Conversion of preferred stock

Buyback of preferred stock

1 unchanged sentence

Dividends declared

( 5,121,521 )

PERC non-controlling interest at acquisition date

Sale of CW-Bali

Stock-based compensation

Balance as of December 31, 2019

Issuance of stock

Conversion of preferred

Issuance of share capital

Conversion of preferred stock

Buyback of preferred stock

Exercise of options

PERC non-controlling interest

at acquisition date

Sale of CW-Bali

Purchase of noncontrolling interests in Aerex and PERC

( 2,579,882 )

( 6,820,118 )

( 9,400,000 )

Dividends declared

( 5,153,552 )

Stock-based compensation

Balance as of December 31, 2020

The accompanying notes are an integral

part of these consolidated financial statements.

CONSOLIDATED WATER

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

CONSOLIDATED WATER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

2 unchanged sentences

Adjustments to reconcile net income to net cash provided by operating activities:

Income from discontinued operations

Impairment loss for Mexico assets - discontinued operations

Depreciation and amortization of discontinued operations

Foreign currency transaction adjustment - discontinued operations

Loss from discontinued operations

Gain on sale of discontinued operations

( 3,621,170 )

Depreciation and amortization

Deferred income tax benefit

Provision for doubtful accounts

Unrealized (gain) loss on net put/call option

Compensation expense relating to stock and stock option grants

Loss (gain) on asset dispositions and impairments, net

Gain on asset dispositions and impairments, net

Foreign currency transaction adjustment

1 unchanged sentence

Distribution of earnings from OC-BVI

Accounts receivable and costs and estimated earnings in excess of billings

Accounts receivable and contract assets

( 1,357,032 )

Prepaid expenses and other assets

Accounts payable, accrued expenses and other current liabilities, and billings in excess of costs and estimated earnings

Accounts payable (including related parties), accrued expenses and other current liabilities, and contract liabilities

( 1,342,463 )

Net cash provided by operating activities - continuing operations

Net cash provided by operating activities - discontinued operations

Net cash used in operating activities - discontinued operations

( 1,635,646 )

( 2,215,736 )

Net cash provided by operating activities

1 unchanged sentence

Additions to property, plant and equipment and construction in progress

( 1,728,393 )

( 3,525,122 )

Proceeds from asset dispositions

Proceeds from sale of discontinued operations, net of cash provided

Purchase of noncontrolling interest in Aerex

( 8,500,000 )

Acquisition of PERC, net of cash acquired

( 3,147,438 )

Purchase of noncontrolling interest in PERC

Collections on loans receivable

Payment for land and right of way held for development

Net cash provided by (used in) investing activities - continuing operations

( 11,119,755 )

Net cash used in investing activities - discontinued operations

Net cash provided by (used in) investing activities

( 11,119,755 )

Cash flows from financing activities

Dividends paid to common shareholders

( 5,133,727 )

( 5,097,602 )

Dividends paid to preferred shareholders

1 unchanged sentence

Proceeds received from exercise of stock options

Issuance of note payable to related party

Payments made on note payable to related party

Principal repayments on long-term debt

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

( 5,169,926 )

( 5,124,101 )

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at beginning of period - discontinued operations

cash and cash equivalents at end of period - discontinued operations

Cash and cash equivalents at end of period

The accompanying notes are an integral

part of these consolidated financial statements.

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

CONSOLIDATED WATER CO.

2 unchanged sentences

Consolidated Water Co.

Ltd., and its subsidiaries

(collectively, the “Company”) supply 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.

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.

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.

Accounting policies

of preparation:

The consolidated financial statements presented are prepared in accordance with the accounting principles

generally accepted in the United States of America.

of estimates:

The preparation of consolidated financial statements in conformity with accounting principles generally

accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts

of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements

and the reported amounts of revenues and expenses during the reporting period.

Significant items subject to estimates and assumptions

include the carrying value of property, plant and equipment, intangible assets, goodwill and put/call options.

Actual results could

differ significantly from such estimates.

of consolidation:

The accompanying condensed consolidated financial statements include the accounts of the Company’s

(i) wholly-owned subsidiaries, Aquilex, Inc., 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.

Basis of preparation:

The consolidated financial statements presented are prepared in accordance with the accounting principles generally accepted in the United States of America.

Use of estimates:

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Significant items subject to estimates and assumptions include the carrying value of property, plant and equipment, intangible assets, goodwill and put/call options.

Actual results could differ significantly from such estimates.

Basis of consolidation:

The accompanying 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”), Aerex Industries, Inc.

(“Aerex”), N.S.C.

(“NSC”), Aguas de Rosarito S.A.P.I.

(“AdR”), PERC Water Corporation (“PERC”) and PT

Consolidated Water Bali (“CW-Bali”).

The Company’s investment in its affiliate Ocean Conversion (BVI) Ltd.

(“OC-BVI”)

is accounted for using the equity method of accounting.

All significant intercompany balances and transactions have been eliminated

in consolidation.

The 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, CW-Cooperatief and CW-Bali) is the currency

for each respective country.

The functional currency for NSC, AdR, CW-Cooperatief and CW-Bali is the US$.

NSC and AdR conduct

business in US$ and Mexican pesos, CW-Cooperatief conducts business in US$ and euros, and CW-Bali conducts business in US$ and

Indonesian rupiahs.

The exchange rates for the Cayman Islands dollar, the Belize dollar and the Bahamian dollar are fixed to the

The exchange rates for conversion of Mexican pesos, euros and rupiahs into US$ vary based upon market conditions.

Net foreign currency gains arising from

transactions and re-measurements were $35,352 and $8,089 for the year ended December 31, 2019 and 2018, respectively, and

are included in “Other income (expense) - Other”

in the accompanying condensed consolidated statements of income.

(“CW-Holdings”);

and (ii) majority-owned subsidiaries Consolidated Water (Bahamas) Ltd.

(“CW-Bahamas”), N.S.C.

(“NSC”), Aguas de Rosarito S.A.P.I.

(“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.

On August 11, 2020, CW-Holdings purchased an additional 10 % of the ownership of PERC for $ 900,000 , increasing its ownership of this subsidiary to 61 % .

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 peso and CW-Cooperatief conducts business in US$ and euros.

The exchange rates for the Cayman Islands dollar and the Bahamian dollar are fixed to the US$.

The exchange rates for conversion of Mexican pesos and euros into US$ vary based upon market conditions.

Net foreign currency gains arising from transactions and re-measurements were $ 68,818 and $ 71,923 for the year ended December 31, 2020 and 2019, respectively, and are included in “Other income (expense) - Other” in the accompanying consolidated statements of income.

Cash and cash equivalents:

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 December 31, 2019 and December 31, 2018 include $12.7 million and $8.4

million, respectively, of certificates of deposits with an original maturity of three months or less.

As of December 31, 2019, the Company

had deposits in U.S.

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 December 31, 2020 and 2019

include $ 8.5 million and $ 12.7 million, respectively, of certificates of deposits with an original maturity of three months or less.

As of December 31, 2020, the Company had deposits in U.S.

banks in excess of federally insured limits of approximately $ 10.3 million.

As of December 31, 2019,

the Company held cash in foreign bank accounts of approximately $36.0 million.

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.

of December 31, 2019, the equivalent United States dollar cash balances for deposits held in The Bahamas were approximately

$7.4 million.

receivable and allowance for doubtful accounts:

Accounts receivable are recorded at invoiced amounts based on meter

readings or minimum take-or-pay amounts per contractual agreements.

The allowance for doubtful accounts is the Company’s

best estimate of the amount of probable credit losses in the Company’s existing accounts receivable balance.

determines the allowance for doubtful accounts based on historical write-off experience and monthly review of delinquent accounts.

As of December 31, 2020, the Company held cash in foreign bank accounts of approximately $ 32.8 million.

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 December 31, 2020, the equivalent United States dollar cash balances for deposits held in The Bahamas were approximately $ 15.9 million.

Accounts receivable and allowance for doubtful accounts:

Accounts receivable are recorded at invoiced amounts based on meter readings, contractual amounts, fixed fees plus reimbursables or time and materials per contractual agreements.

Trade accounts receivable also represent our unconditional right, subject only to the passage of time, to receive consideration arising from our performance under contracts with customers.

Trade accounts receivable include amounts billed and billable on construction contracts, service and maintenance contracts and contracts for the sale of goods.

Billed contract receivables have been invoiced to customers based on contracted amounts.

The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable balance.

The Company determines the allowance for doubtful accounts based on historical write-off experience and monthly review of delinquent accounts.

Past due balances are reviewed individually for collectability and disconnection.

Account balances are charged off against the

allowance for doubtful accounts after all means of collection have been exhausted and the potential for recovery is considered

by management to be remote.

Inventory primarily includes consumables stock and spare parts stock that are valued at cost, less an allowance for

obsolescence, with cost determined on the first-in, first-out basis.

Inventory also includes potable water held in the Company’s

The carrying amount of the water inventory is the lower of the average cost of producing water during the year or

its net realizable value.

Loans receivable relate to notes receivable from customers arising from the construction and sale of water

infrastructure.

The allowance for loan losses, if any, is the Company’s best estimate of the amount of probable credit losses

in the Company’s existing loans and is determined on an individual loan basis.

and estimated earnings in excess of billings:

Costs and estimated earnings in excess of billings represent revenue

recognized in excess of amounts billed on the respective uncompleted construction and manufacturing contracts.

in excess of costs and estimated earnings:

Billing in excess of costs and estimated earnings represent amounts billed

in excess of revenue recognized on the respective uncompleted construction and manufacturing contracts.

plant and equipment, net:

Account balances are charged off against the allowance for doubtful accounts after all means of collection have been exhausted and the potential for recovery is considered by management to be remote.

Inventory primarily includes consumables stock and spare parts stock that are valued at cost, less an allowance for obsolescence, with cost determined on the first-in, first-out basis.

Inventory also includes potable water held in the Company’s reservoirs.

The carrying amount of the water inventory is the lower of the average cost of producing water during the year or its net realizable value.

Contract assets and liabilities :

Billing practices for the Company’s contracts are governed by the contract terms of each project based upon costs incurred, achievement of milestones or predetermined schedules.

Billings do not necessarily correlate with revenue recognized over time using the direct inputs method of accounting.

The Company records contract assets and contract liabilities to account for these differences in timing.

Contract assets, which include costs and estimated earnings in excess of billings on uncompleted contracts, arise when the Company recognizes revenue for services performed under its construction and manufacturing contracts, but the Company is not yet entitled to bill the customer under the terms of the contract.

Contract liabilities, which include billings in excess of costs and estimated earnings on uncompleted contracts, represent the Company's obligation to transfer goods or services to a customer for which the Company has been paid by the customer or for which the Company has billed the customer under the terms of the contract.

Revenue for future services reflected in this account are recognized, and the liability is reduced, as the Company subsequently satisfies the performance obligation under the contract.

Costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts are typically resolved within one year and are not considered significant financing components.

The Company considers retention that is withheld on progress billings as not creating an unconditional right to payment until contractual milestones are reached (typically substantial completion).

Accordingly, withheld retention is considered a component of contracts assets and liabilities until finally billed to the customer, when obligations have been satisfied and the right to receipt is subject only to the passage of time.

The Company’s contract assets and liabilities are reported in a net asset or liability position on a contract-by-contract basis at the end of each reporting period.

The Company classifies contract assets and liabilities related to construction and manufacturing contracts in current assets and current liabilities as they will be liquidated in the normal course of contract completion, although this may require more than one year.

Property, plant and equipment, net:

Property, plant and equipment is stated at cost less accumulated depreciation.

is calculated using a straight-line method with an allowance for estimated residual values.

Rates are determined based on the estimated

useful lives of the assets as follows:

Depreciation is calculated using a straight-line method with an allowance for estimated residual values.

Rates are determined based on the estimated useful lives of the assets as follows:

5 to 40 years

3 unchanged sentences

3 to 40 years

Office furniture,

fixtures and equipment

Office furniture, fixtures and equipment

3 to 10 years

4 unchanged sentences

5 to 10 years

Additions to property, plant and equipment

are comprised of the cost of the contracted services, direct labor and materials.

Assets under construction are recorded as additions

to property, plant and equipment upon completion of the projects.

Additions to property, plant and equipment are comprised of the cost of the contracted services, direct labor and materials.

Assets under construction are recorded as additions to property, plant and equipment upon completion of the projects.

Depreciation commences in the month the asset is placed in service.

Interest costs directly attributable to

the acquisition and construction of qualifying assets, which are assets that necessarily take a substantial amount of time to

be ready for their intended use, are added to the cost of those assets until such time as the assets are substantially ready for

Interest costs directly attributable to the acquisition and construction of qualifying assets, which are assets that necessarily take a substantial amount of time to be ready for their intended use, are added to the cost of those assets until such time as the assets are substantially ready for use.

No interest was capitalized during the years ended December 31, 2020 or 2019.

Long-lived assets are reviewed 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.

long-lived assets to be held and used, the Company recognizes an impairment loss only if their carrying amounts are not recoverable

through their undiscounted cash flows and measures the impairment loss based on the difference between the carrying amounts and

estimated fair values.

and intangible assets:

Long-lived assets:

Long-lived assets are reviewed 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, the Company recognizes an impairment loss only if their carrying amounts are not recoverable through their undiscounted cash flows and measures the impairment loss based on the difference between the carrying amounts and estimated fair values.

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.

The Company evaluates the possible impairment of goodwill annually as part of its reporting process for the fourth quarter of

each fiscal year.

Management identifies the Company’s reporting units, which consist of the retail, bulk, and manufacturing

business segments, and determines the carrying value of each reporting unit by assigning the assets and liabilities, including

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

The Company determines the fair value of each reporting

unit and compares the fair value to the carrying amount of the reporting unit.

To the extent the carrying amount of the reporting

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

For the years ended December 31,

2019 and 2018, the Company estimated the fair value of its 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.

The Company also estimated the fair value

of each of its 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.

The Company weighted the fair values estimated

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

each reporting unit.

The respective weightings the Company applied to each method as of December 31, 2019 were consistent

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

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.

The Company evaluates the possible impairment of goodwill annually as part of its reporting process for the fourth quarter of each fiscal year.

Management identifies the Company’s reporting units, which consist of the retail, bulk, and manufacturing business segments, and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units.

The Company determines the fair value of each reporting unit and compares the fair value to the carrying amount of the reporting unit.

To the extent the carrying amount of the reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded.

For the years ended December 31, 2020 and 2019, the Company estimated the fair value of its reporting units by applying the discounted cash flow method, which relied upon seven-year discrete projections of operating results, working capital and capital expenditures, along with a terminal value subsequent to the discrete period.

These seven-year projections were based upon historical and anticipated future results, general economic and market conditions, and considered the impact of planned business and operational strategies.

The discount rates for the calculations represented the estimated cost of capital for market participants at the time of each analysis.

The Company also estimated the fair value of each of it reporting units for the years ended December 31, 2020 and 2019 by applying the guideline public company method.

The Company also estimated the fair value of each of its reporting units for the year ended December 31, 2019 by referencing the market multiples implied by guideline merger and acquisition transactions (the mergers and acquisition method).

The Company considered utilizing the mergers and acquisition method for the year ended December 31, 2020 but due to a lack of relevant meaningful mergers and acquisition activity during the year, such method was not utilized for 2020.

The Company weighted the fair values estimated for each of its reporting units under each method and summed such weighted fair values to estimate the overall fair value for each reporting unit.

The respective weightings the Company applied to each method for the years ended December 31 were as follows:

As of December 31, 2020

Manufacturing

2 unchanged sentences

Mergers and acquisitions

The fair values the Company estimated

for its retail and bulk reporting units exceeded their carrying amounts by 74% and 58%, respectively, as of December 31,

The assets and liabilities for the Company’s services reporting unit (with the exception of investments in land and

rights of way related to AdR) consist almost entirely of those for PERC, which was acquired on October 24, 2019, and therefore

the Company estimates the fair value of its services reporting unit closely approximates its carrying value at December 31,

The Company’s 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.

The Company considered this purchase, the manufacturing reporting

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

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

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

amount at December 31, 2019..

The fair values the Company estimated for its retail, bulk and manufacturing units exceeded their

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

On February 11, 2016, the Company

acquired 51% ownership interest in Aerex.

As of December 31, 2019

Manufacturing

Discounted cash flow

Guideline public company

Mergers and acquisitions

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

The fair values the Company estimated for its retail and bulk reporting units exceeded their carrying amounts by 74 % and 58 %, respectively, as of December 31, 2019.

The assets and liabilities for the Companys’ services reporting unit consist almost entirely of those for PERC, which was acquired on October 24, 2019, and therefore the Company estimated that the fair value of its services reporting unit closely approximated its carrying value as of December 31, 2019.

The Company’s 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 .

The Company considered this purchase, the manufacturing reporting unit’s results of operations for the year ended December 31, 2019, its projected results of operations for the year ending December 31, 2020, and the amount by which its estimated fair value exceeded its carrying amount as of December 31, 2018 to determine that it is more likely than not that the fair value of the manufacturing reporting unit exceeded its carrying amount as of December 31, 2019.

On February 11, 2016, the Company acquired 51 % ownership interest in Aerex.

In connection with this acquisition the Company 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

for this period that were included in the cash flow projections the Company utilized to determine the purchase price for Aerex

and the fair values of its assets and liabilities.

Due to this shortfall in Aerex’s results of operations, the Company 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, the Company determined that the carrying value of the Aerex goodwill

exceeded its fair value and recorded an impairment loss of $1,750,000 for the three months ended September 30, 2016, included

in loss on long-lived asset dispositions and impairments, net in the accompanying consolidated statements of income, to reduce

the carrying value of this goodwill to $6,285,211.

As part of the Company’s annual impairment testing of goodwill performed

during the fourth quarter, in 2017 the Company updated its projections for Aerex’s future cash flows, determined that the

carrying value of the Aerex goodwill exceeded its fair value, and recorded an impairment loss of $1,400,000 for the three months

ended December 31, 2017, which is included in loss on long-lived asset dispositions and impairments, net in the accompanying

consolidated statements of income, to further reduce the carrying value of the goodwill to $4,885,211.

The Company may be required

to record additional impairment losses to reduce the carrying value of this goodwill in future periods if the Company determines

it likely that Aerex’s results of operations will fall short of its most recent projections of its future cash flows.

In February 2019, the Company sold

its former Belize subsidiary (see Note 13) As a result of this sale, this former subsidiary has been accounted for as discontinued

operations in the consolidated financial statements, and bulk segment goodwill of approximately $380,000 as of December 31,

2018 associated with this former subsidiary was reclassified to long-term assets of discontinued operations in the consolidated

statements of financial condition.

Investments where the Company does not exercise significant influence over the operating and financial policies of

the investee and holds less than 20% of the voting stock are recorded at cost.

The Company uses the equity method of accounting

for investments in common stock where the Company holds 20% to 50% of the voting stock of the investee and has significant influence

over its operating and financial policies but does not meet the criteria for consolidation.

The Company recognizes impairment

losses on declines in the fair value of the stock of investees that are other than temporary.

Under the terms of CW-Bahamas’

contract with the Water and Sewerage Corporation of The Bahamas (“WSC”)

to supply water from its Blue Hills desalination plant, CW-Bahamas was required to reduce the amount of water lost by the public

water distribution system on New Providence Island, The Bahamas, over a one-year period by 438 million gallons, a requirement

CW-Bahamas met during 2007.

The Company was solely responsible for the engineering, labor and materials costs incurred to affect

the reduction in lost water, which were capitalized and are being amortized on a straight-line basis over the original remaining

life of the Blue Hills contract.

Such costs are included in other assets and aggregated approximately $3.5 million as of December 31,

2019 and 2018.

Accumulated amortization for these costs was approximately $2.4 million and $2.2 million as of December 31,

2019 and 2018, respectively.

Aerex’s actual results of operations for the six months in 2016 following the acquisition fell significantly short of the projected results for this period that were included in the cash flow projections the Company utilized to determine the purchase price for Aerex and the fair values of its assets and liabilities.

Due to this shortfall in Aerex’s results of operations, the Company 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, the Company determined that the carrying value of the Aerex goodwill exceeded its fair value and recorded an impairment loss of $ 1,750,000 for the three months ended September 30, 2016, included in loss on long-lived asset dispositions and impairments, net in the accompanying consolidated statements of income, to reduce the carrying value of this goodwill to $ 6,285,211 .

As part of the Company’s annual impairment testing of goodwill performed during the fourth quarter, in 2017 the Company updated its projections for Aerex’s future cash flows, determined that the carrying value of the Aerex goodwill exceeded its fair value, and recorded an impairment loss of $ 1,400,000 for the three months ended December 31, 2017, which is included in loss on long-lived asset dispositions and impairments, net in the accompanying consolidated statements of income, to further reduce the carrying value of the goodwill to $ 4,885,211 .

Approximately 80 % and 68 % of Aerex’s revenue, and 89 % and 68 % of Aerex’s gross profit, for the years ended December 31, 2020 and 2019, respectively, were generated from sales to one customer.

In October 2020, this customer verbally informed Aerex that, for inventory management purposes, it was suspending its purchases from Aerex following 2020 for a period of approximately one year.

This customer has verbally informed Aerex that it presently expects to recommence its purchases from Aerex beginning with the first quarter of 2022.

However, the Company can offer no assurances that this customer will recommence its purchases from Aerex at that time.

Furthermore, any such future purchases (should they occur) may not generate as much revenue and gross profit as Aerex has historically earned from this customer.

The Company is seeking to replace the anticipated loss in revenue and gross profit from this customer by increasing sales of other products that it manufactures to new and existing customers, however, it may not be able to do so.

As a result of this anticipated loss of revenue for Aerex, the Company updated its projections for the manufacturing reporting unit’s future cash flows.

Such projections assume, in part, that Aerex’s major customer will recommence its purchases from Aerex in 2022 but at a reduced aggregate amount, as compared to 2020 and 2019.

Based upon these updated projections, the Company tested its manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020.

As a result of this impairment testing, it determined that the estimated fair value of the manufacturing reporting unit exceeded its carrying value as of December 31, 2020.

However, the Company may be required to record an impairment loss in the future to reduce the carrying value of the manufacturing reporting unit’s goodwill should it be determined that Aerex’s future net cash inflows will be less than the Company’s most current expectations.

Any such impairment loss could have a material adverse impact on its consolidated financial condition and results of operations.

In February 2019, the Company sold its former Belize subsidiary (see Note 8) As a result of this sale, this former subsidiary has been accounted for as discontinued operations in the consolidated financial statements, and bulk segment goodwill of approximately $ 380,000 as of December 31, 2018 associated with this former subsidiary was reclassified to long-term assets of discontinued operations in the consolidated statements of financial condition.

Investments where the Company does not exercise significant influence over the operating and financial policies of the investee and holds less than 20% of the voting stock are recorded at cost.

The Company uses the equity method of accounting for investments in common stock where the Company holds 20% to 50% of the voting stock of the investee and has significant influence over its operating and financial policies but does not meet the criteria for consolidation.

The Company recognizes impairment losses on declines in the fair value of the stock of investees that are other than temporary.

Other assets:

Under the terms of CW-Bahamas’ contract with the Water and Sewerage Corporation of The Bahamas (“WSC”) to supply water from its Blue Hills desalination plant, CW-Bahamas was required to reduce the amount of water lost by the public water distribution system on New Providence Island, The Bahamas, over a one-year period by 438 million gallons, a requirement CW-Bahamas met during 2007.

The Company was solely responsible for the engineering, labor and materials costs incurred to affect the reduction in lost water, which were capitalized and are being amortized on a straight-line basis over the original remaining life of the Blue Hills contract.

Such costs are included in other assets and aggregated approximately $ 3.5 million as of December 31, 2020 and 2019.

Accumulated amortization for these costs was approximately $ 2.5 million and $ 2.4 million as of December 31, 2020 and 2019, respectively.

Amortization expense was $ 179,353 for the years ended December 31, 2020 and 2019.

The Company accounts for the income taxes arising from the operations of its United States and Mexico subsidiaries

under the asset and liability method.

Deferred tax assets and liabilities, if any, are recognized for the future tax consequences

attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective

tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax

rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes

the enactment date.

Income taxes:

The Company accounts for the income taxes arising from the operations of its United States subsidiaries under the asset and liability method.

Deferred tax assets and liabilities, if any, are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

A valuation allowance is provided to the extent any deferred tax asset may not be realized.

The Company is not presently subject to

income taxes in the other countries in which it operates.

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.

Ended December 31,

The Company is not presently subject to income taxes in the other countries in which it operates.

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.

Year Ended December 31,

Retail revenue

3 unchanged sentences

Retail revenue

The Company produces and supplies water

to end-users, including residential, commercial and governmental customers in the Cayman Islands under an exclusive retail license

issued to Cayman Water by the Cayman Islands government to provide water in two of the three most populated and rapidly developing

areas on Grand Cayman Island.

Customers are billed on a monthly basis based on metered consumption and bills are typically collected

within 30 to 35 days after the billing date.

Receivables not collected within 45 days subject the customer to disconnection from

water service.

In 2019 and 2018, bad debts represented less than 1% of the Company’s total retail sales.

The Company recognizes revenue from water

sales at the time water is supplied to the customer’s premises.

The amount of water supplied is determined and invoiced

based upon water meter readings performed at the end of each month.

The Company produces and supplies water to end-users, including residential, commercial and governmental customers in the Cayman Islands under an exclusive retail license issued to Cayman Water by the Cayman Islands government to provide water in two of the three most populated areas on Grand Cayman Island.

Customers are billed on a monthly basis based on metered consumption and bills are typically collected within 30 to 35 days after the billing date.

Receivables not collected within 45 days subject the customer to disconnection from water service.

In 2020 and 2019, bad debts represented less than 1 % of the Company’s total retail sales.

The Company recognizes revenue from water sales at the time water is supplied to the customer’s premises.

The amount of water supplied is determined and invoiced based upon water meter readings performed at the end of each month.

All retail water contracts are month-to-month contracts.

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.

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 various 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, to 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

The Company also sells water to a private resort on Bimini.

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.

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.

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 sold water to a private resort on Bimini through December 18, 2020, which generated revenue of approximately $127,000 and $237,000 for the years ended December 31, 2020 and 2019, respectively.

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

Services and Manufacturing revenue

The Company, 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.

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 services and manufacturing

construction revenue 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.

Company follows this method since it can make reasonably dependable estimates of the revenue and costs applicable to various stages

of a contract.

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

The Company also develops, builds, sells, operates and manages water, wastewater and water reuse infrastructure through PERC.

All of PERC's customers are companies or governmental entities located in the U.S.

The Company, through Aerex, is a custom and specialty manufacturer of water treatment-related systems and products applicable to commercial, municipal and industrial water production.

Substantially all of Aerex’s customers are U.S.

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

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 amounts payable to subcontractors.

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.

in excess of costs and estimated earnings on uncompleted contracts, if any, are classified as current liabilities.

The Company has elected the “right

to invoice”

practical expedient for revenue recognition on its management services agreements and recognizes revenue in

the amount to which the Company has a right to invoice.

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 contract assets are classified as current assets.

Contract liabilities on uncompleted contracts, if any, are classified as current liabilities.

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

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.

Certain amounts presented in the financial statements previously issued for 2018 have been reclassified to

conform to the current year’s presentation.

Acquisition of PERC

On October 24, 2019, the Company,

through its wholly-owned subsidiary, CW-Holdings, entered into a stock purchase agreement (the “Purchase Agreement”)

with PERC and its various shareholders (collectively, the “Sellers”).

Pursuant to the terms of the Purchase Agreement,

CW-Holdings purchased a 51% ownership interest in PERC for approximately $4.1 million in cash.

After giving effect to the transactions

contemplated by the Purchase Agreement, CW-Holdings owns 51% of the outstanding capital stock of PERC, and three members of PERC’s

management and one additional shareholder (the “Remaining Shareholders”) own the remaining 49% of the outstanding

capital stock of PERC.

CW-Holdings also acquired from the Remaining Shareholders an option to compel the Remaining Shareholders

to sell, and granted to the Remaining Shareholders an option to require CW-Holdings to purchase, the Remaining Shareholders’

49% ownership interest in PERC at a price based upon the fair market value of PERC at the time of the exercise of the option.

CW-Holdings’

option is exercisable on or after October 24, 2022 and the Remaining Shareholders’

option is exercisable

on or after October 24, 2024.

PERC is a water infrastructure company

headquartered in Costa Mesa, California that develops, designs, builds, and manages wastewater and water reuse infrastructure.

In connection with the Purchase Agreement,

CW-Holdings, and the Remaining Shareholders entered into a shareholders’

agreement, pursuant to which CW-Holdings and the

Remaining Shareholders agreed to certain rights and obligations with respect to the governance of PERC.

The purchase price for PERC is summarized as follows:

Cash consideration

Purchase price (excluding

working capital)

Cash acquired

Total cash consideration

The following table summarizes the estimated fair values of

the assets and liabilities assumed at the acquisition date:

Financial assets

Costs and estimated earnings in excess of billings

Property, plant and equipment

Identifiable intangible assets

Deferred tax liability

Accounts payable and accrued liabilities

Working capital adjustment payable

Deferred revenue

Billings in excess of costs and estimated earnings

Net liability arising

from put/call options

Total identifiable net assets

Non-controlling interest in PERC

The fair value of noncontrolling interest

was calculated using the discounted cash flow method.

The discounted cash flow method relied upon nine-year discrete projections

of operating results, working capital and capital expenditures, along with a terminal value subsequent to the discrete period.

These 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.

An 8.4% discount for marketability was applied to the noncontrolling

interest calculated under the discounted cash flow method.

This marketability discount was calculated using an average-price put

option model.

The identifiable intangible assets consisted of the following

Non-compete agreement

Customer backlog

Facility management contracts

The results of operations of PERC included

in the Company’s results of operations for the period October 24, 2019 to December 31, 2019 are as follows:

Amortization of intangibles, net of tax benefit

The following unaudited pro forma financial

information presents the results of operations of the Company for the years ended December 31, 2019 and 2018, as if the acquisition

of PERC had taken place on January 1, 2018.

These pro forma results have been prepared for comparative purposes only and

do not purport to be indicative of the results of operations which would have actually occurred had the transaction taken place

on January 1, 2018, nor do they purport to be indicative of future results of operations.

Cost of revenue

General and administrative expenses

Gain (loss) on asset

dispositions and impairments, net

Income from operations

Other income (expense),

Income before income taxes

Provision for (benefit

from) income taxes

Net income from continuing operations

Income from continuing

operations attributable to non-controlling interests

Net income from continuing operations attributable

to Consolidated Water Co.

Gain on sale of discontinued operations

Net income from

discontinued operations

Total income from

discontinued operations

Net income attributable

to Consolidated Water Co.

Basic earnings per common share attributable

to Consolidated Water Co.

common stockholders

Continuing operations

Discontinued operations

Basic earnings

Diluted earnings per common share attributable

to Consolidated Water Co.

common stockholders

Continuing operations

Discontinued operations

Diluted earnings

Weighted average number of common shares used

in the determination of:

Basic earnings

Diluted earnings

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.

Cash and cash equivalents

Cash and cash equivalents are not restricted

by the terms of the Company’s bank accounts as to withdrawal or use.

As of December 31, 2019 and 2018, the equivalent

United States dollars are denominated in the following currencies:

Cash and cash equivalents are not restricted by the terms of the Company’s bank accounts as to withdrawal or use.

As of December 31, 2020 and 2019, the equivalent United States dollars are denominated in the following currencies:

Bank accounts:

2 unchanged sentences

Bahamian dollar

Belize dollar

Bermudian dollar

4 unchanged sentences

Total cash and cash equivalents

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.

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.

Accounts receivable, net

4 unchanged sentences

Accounts receivable, net

The activity for the allowance for doubtful accounts consisted

The activity for the allowance for doubtful accounts consisted of:

Opening allowance for doubtful accounts

2 unchanged sentences

Ending allowance for doubtful accounts

Significant concentrations of credit risk

are disclosed in Note 21.

Significant concentrations of credit risk are disclosed in Note 18.

Consumables stock

4 unchanged sentences

Contracts in progress

Revenue recognized and amounts billed

on contracts in progress are summarized as follows:

Revenues recognized to date on contracts

Amounts billed to date on contracts

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

Revenue recognized to date on contracts in progress

Amounts billed to date on contracts in progress

( 17,791,928 )

The above net balances are reflected in

the accompanying consolidated balance sheet as follows:

Costs and estimated earnings in excess

Billings in excess of costs and

estimated earnings

( 15,078,830 )

Net contract asset

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

Contract assets

Contract liabilities

Net contract asset

As of December 31, 2020 , the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 2.0 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 in the amount of approximately $ 1.7 million during the year ending December 31, 2021 and $ 0.3 million thereafter .

Property, plant and equipment and construction in progress

5 unchanged sentences

Less accumulated depreciation

Property, plant and equipment,

Property, plant and equipment, net

Construction in progress

As of December 31, 2019, the Company

had outstanding capital commitments of $226,526.

The Company maintains insurance for loss or damage to all fixed assets that it

deems susceptible to loss.

The Company does not insure its underground distribution system as the Company considers the possibility

of material loss or damage to this system to be remote.

During the years ended December 31, 2019 and 2018, $7,755,375 and

$14,398,624, respectively, of construction in progress was placed in service.

Depreciation expense was $6,186,627 and $5,514,881

for the years ended December 31, 2019 and 2018, respectively.

Investment in OC-BVI

The Company owns 50% of the outstanding

voting common shares and a 43.53% equity interest in the profits of Ocean Conversion (BVI) Ltd.

(“OC-BVI”).

also owns certain profit-sharing rights in OC-BVI that raise its effective interest in the profits of OC-BVI to approximately

Pursuant to a management services agreement, OC-BVI pays the Company monthly fees for certain engineering and administrative

OC-BVI’s sole customer is the Ministry of Communications and Works of the Government of the British Virgin Islands

(the “Ministry”) to which it sells bulk water.

The Company’s equity investment

in OC-BVI amounted to $1,903,602 and $2,584,987 as of December 31, 2019 and December 31, 2018, respectively.

Summarized financial information for OC-BVI

is as follows:

Current assets

Non-current assets

Current liabilities

Non-current liabilities

Total liabilities

Ended December 31,

Cost of revenue

General and administrative expenses

Gain on long-lived asset disposition

Income from operations

Other income (expense), net

Income attributable to non-controlling

Net income attributable to controlling

A reconciliation of the beginning and ending balances for the

investment in OC-BVI for the year ended December 31, 2019:

Balance as of December 31, 2018

Profit-sharing and equity from earnings of OC-BVI

Distributions received from OC-BVI

Balance as of December 31, 2019

The Company recognized $44,765 and $1,798,280

in earnings from its equity investment in OC-BVI for the years ended December 31, 2019 and 2018, respectively.

recognized $16,200 and $654,075 in profit-sharing income from its profit-sharing agreement with OC-BVI for the years ended December 31,

2019 and 2018, respectively.

For the years ended December 31, 2019

and 2018, the Company recognized $382,653 and $445,188, respectively, in revenues from its management services agreement with OC-BVI.

The Company also recognized approximately $710,000 in revenues for the year ended December 31, 2018 for the refurbishment

of OC-BVI’s Bar Bay plant.

Amounts payable by OC-BVI to the Company were $10,808 and $46,746 as of December 31, 2019

and 2018, respectively.

Resolution of Baughers Bay Litigation

Through March 2010, OC-BVI supplied

water to the BVI government from a plant located at Baughers Bay, Tortola, under the terms of a water supply agreement dated May 1990

(the “1990 Agreement”) with an initial seven-year term that expired in May 1999.

The 1990 Agreement provided

that such agreement would automatically be extended for another seven-year term unless the BVI government provided notice, at

least eight months prior to such expiration, of its decision to purchase the plant from OC-BVI at the agreed upon amount under

the 1990 Agreement of approximately $1.42 million.

In correspondence between the parties from late 1998 through early 2000, the

BVI government indicated that it intended to purchase the plant but would be amenable to negotiating a new water supply agreement

and that it considered the 1990 Agreement to be in force on a monthly basis until negotiations between the BVI government and

OC-BVI were concluded.

OC-BVI continued to supply water from the plant and expended approximately $4.7 million between 1995 and

2003 to significantly expand the production capacity of the plant beyond that contemplated in the 1990 Agreement.

In 2006, the BVI government took the position

that the seven-year extension of the 1990 Agreement had been completed and that it was entitled to ownership of the Baughers Bay

plant and during 2007, the BVI government-initiated litigation seeking ownership of the Baughers Bay plant.

OC-BVI counterclaimed

that it was entitled to continued possession and operation of the Baughers Bay plant until the BVI government paid OC-BVI approximately

$4.7 million, which OC-BVI believed represented the value of the Baughers Bay plant at its expanded production capacity.

As a result of the final ruling made by

the Appellate Court on this litigation in 2009, the BVI Government was awarded ownership of the Baughers Bay plant but OC-BVI

was awarded compensation for improvements made to the plant in the amount equal to the difference between (i) the value of

the Baughers Bay plant at the date OC-BVI transferred possession of the plant to the BVI government and (ii) $1.42 million

(the purchase price for the Baughers Bay plant under the 1990 Agreement).

In August 2018, OC-BVI and the BVI

government entered into a settlement agreement for the Baughers Bay plant litigation with an agreed upon value for the plant of

$4,432,834, which resulted in a net payment (i.e.

after legal and other expenses) to OC-BVI in September 2018 of $4,271,409.

Such amount is included in other income, net in OC-BVI’s 2018 consolidated results of operations.

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

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.

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 Project’s desalination plant, with the

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

intake and discharge works for the plant.

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

equivalent to approximately $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 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 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 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, 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 for the execution of the credit agreement to

guarantee 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.

As of December 31, 2020, the Company had outstanding capital commitments of $ 29,145 .

The Company maintains insurance for loss or damage to all fixed assets that it deems susceptible to loss.

The Company does not insure its underground distribution system as the Company considers the possibility of material loss or damage to this system to be remote.

During the years ended December 31, 2020 and 2019, $ 1,653,501 and $ 7,755,375 , respectively , of construction in progress was placed in service.

Depreciation expense was $ 6,335,489 and $ 5,510,336 for the years ended December 31, 2020 and 2019, respectively.

Discontinued operations

Mexico 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 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 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.

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.

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.

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

(“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.

(“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, CW-Holdings acquired the remaining 0.4 % ownership in AdR from NuWater.

On August 22, 2016, the Public Private Partnership Agreement for the Project (the “APP Contract”) was executed between AdR, 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 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 Court 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

challenge (Acción de Inconstitucionalidad) against Decreto #335, filed by certain congresspersons in May 2019 .

Based on publicly available information, the Company understands that in May 2019, certain congresspersons filed this constitutionality

challenge against Decreto #335.

This challenge has yet to be resolved.

Both the exchange rate for the Mexican

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

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

The APP Contract

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

water tariff)

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

In February 2017, AdR submitted

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

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

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 for 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.

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 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.

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.

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

If Suez MA does not exercise this option,

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

The Agreement will become effective

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

The aggregate investment to be made by the equity partners in the Project, in the form of equity and subordinated shareholder loans,

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

This Agreement was originally scheduled

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

In June 2018, AdR and Suez MA executed

a contract whereby Suez MA will serve as the engineering, procurement and construction contractor for 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 deposits 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 the inability to complete the Project could have a material adverse impact on the Company’s 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.

(“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.

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

On June 29, 2020, AdR received a letter (the “Letter”) from the Director General of CEA and the Director General of CESPT terminating the APP Contract.

The reasoning provided in the Letter for the decision to terminate the APP Contract is that the Project (a) is not financially feasible due to increases in the construction, operating and financing costs for the Project in addition to negative changes in economic conditions (e.g.

interest rates and currency exchange rates);

(b) is not sustainable for CEA and CESPT given its financial unfeasibility;

(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.

As a consequence of the termination of the APP Contract, the rights of way NSC and AdR acquired for the aqueduct no longer have any value due to the loss of their strategic importance derived from their incorporation in the Project.

Consequently, the Company recorded an impairment loss of approximately $( 3.0 million) for the three months ended June 30, 2020 to write off its investment in these rights of way.

The Company also recorded adjustments during the three months ended June 30, 2020 of $ 2.6 million and $ 2.2 million to reduce its operating lease right-of-use assets and operating lease liabilities, respectively, due to the planned cancellation (or transfer to the State) of a long-term land lease associated with the Project.

As a result of the cancellation of the APP Contract, during the three months ended September 30, 2020 the Company discontinued all project development activities associated with the Project and engaged a real estate broker and commenced active marketing efforts to sell the land NSC purchased for the Project.

Accordingly, the assets and liabilities of CW-Cooperatief, NSC and AdR, as well as all Project development expenses and the impairment loss incurred by the Company, have been reclassified from the services segment to discontinued operations in the accompanying consolidated financial statements as of and for the year ended December 31, 2020 and 2019.

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

Prepaid expenses and other current assets

Value added taxes receivable

Property, plant and equipment, net

Land and rights of way

Total assets of discontinued operations

Total liabilities of discontinued operations

Year Ended December 31,

Income from operations

Net loss from discontinued operations

Gain on sale of discontinued operations

Depreciation expense

AdR initiated an amparo claim before a federal district court in Tijuana, Baja California, to challenge the provision of the applicable law requiring submittal of the list of non-recoverable expenses within the 20 business days term, as AdR considered such term to be unreasonably short due to the magnitude of the Project and the scope of supporting documentation required to be provided with respect to the non-recoverable expenses.

AdR obtained an initial provisional suspension of the lapsing of such 20 day term from the court, and on August 10, 2020 the court made such suspension definitive until the completion of the amparo trial.

As such, the 20 day term for filing the list of non-recoverable expenses was suspended.

Therefore, on August 28, 2020, AdR submitted, in due time and form, its list of non-recoverable expenses, including those of NSC, to CEA and CESPT which was comprised of 51,144,525 United States dollars and an additional 137,333,114 Mexican pesos.

In February 2021, AdR withdrew this claim which was accepted by the federal district court in Tijuana.

The Company, AdR and NSC plan to vigorously pursue all legal remedies and courses of action available under the APP Contract and applicable law (including international treaties and agreements) with respect to any rights they may have upon termination of the APP Contract, including the reimbursement of expenses and investments.

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.

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, 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);

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 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.

CW-Cooperatief exercised its option and paid the $ 1.0 million to the individual shareholder to purchase the Option Agreement shares in February 2014.

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

In the ordinary mercantile claim, EWG challenged, among other things, the transactions contemplated under the Option Agreement, and therefore, the capital investment transactions that increased the ownership interest of CW-Cooperatief in NSC to 99.99 % as a consequence of the Option Agreement.

EWG requested that the courts, as a preliminary matter;

(a) suspend the effectiveness of the challenged transactions;

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.

The Tenth Civil Judge granted, ex-parte, the preliminary relief sought by EWG, which resulted in the issuance of official writs to several governmental and public entities involved with the “Rosarito” water desalination project, including the registration of the pendency of the lawsuit in certain public records.

On October 16, 2018, NSC was served with the ordinary mercantile claim.

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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 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

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.

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.

2019, the Public Registry of Property of Playas de Rosarito issued a certificate of no liens with respect to the real estate owned

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.

On October 1, 2020, and following an order from a Federal Judge obtained by NSC, the Tenth Civil Judge resolved to (i) move the claim of EWG to arbitration, and (ii) suspend the corresponding ordinary mercantile procedure.

Although EWG has certain remedies available to oppose to such resolution, at present NSC does not have knowledge of the filing thereof.

Notwithstanding the resolution of the Tenth Civil Judge to move to arbitration, subparagraphs a) through e) that follow describe certain separate amparo claims, an appeal and an administrative act arising from or relating to such ordinary mercantile claim, all in chronological order.

Due to the current global COVID-19 pandemic, most tribunals in Mexico have suspended their activities intermittently since March 2020, with certain such tribunals restarting activities in August 2020.

As such, several resolutions are pending issuance.

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

In April 2018, AdR filed an amparo against the official writs issued by the Tenth Civil Judge to two governmental entities.

In May 2018, the amparo claim was amended to also request protection against additional official writs issued by the Tenth Civil Judge to two other governmental entities and one banking institution.

In May 2018, the Third District Court for Amparo and Federal Trials in the State of Baja California with residence in Tijuana granted a temporary suspension of the effects and consequences of the claimed official writs issued by the Tenth Civil Judge pending a further determination by the Third District Court.

Such suspension was granted definitively in July 2018, and in August 2018, a resolution determining that the claimed official writs are unconstitutional, was issued.

EWG appealed such resolution, and in January 2020, the Collegiate Tribunal resolving such appeal dismissed the amparo filed by AdR.

However, such dismissal does not adversely impact AdR, considering the resolution to the appeal mentioned in subparagraph b) that follows.

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

The appeal remedy filed by NSC on November 7, 2018 mentioned previously, suspended the proceeding (through the posting of a guarantee by NSC) and was resolved in December 2019 and communicated to EWG in January 2020.

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

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 b).

NSC has responded to this new amparo to vigorously oppose such amparo claim of EWG and to uphold the resolution of such appeal remedy.

To this date, this amparo claim has not been resolved and, as such, it does not affect the revocation of the preliminary relief.

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

Despite the posting of a guarantee 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.

e) 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, and thereafter certified that EWG did not file an appeal remedy against such resolution within the applicable term.

Thus, the mentioned dismissal is definitive.

Notwithstanding the resolution to move to arbitration mentioned previously, CW-Cooperatief has not been officially served with the ordinary mercantile claim, and AdR has not been notified that it has to appear for such trial.

In any event, AdR is only a named third party called to trial in this claim, and no claims have been made by EWG against AdR.

The Company cannot presently determine what impact the resolution

of the claim may ultimately have on its ability to complete the Project.

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.

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 year ended December 31, 2019.

Through its subsidiary, CW-Bali, the Company built a seawater reverse osmosis desalination plant located in Nusa Dua, one of the primary tourist areas of Bali, Indonesia.

CW-Bali’s sales volumes were never sufficient to cover its operating costs and CW-Bali incurred net losses each year since commencing operations in 2013.

In June 2019, the Company sold its CW-Bali assets and stock for $ 365,000 and $ 25,000 , respectively.

Such sales are included in gain on asset dispositions and impairments, net in the accompanying consolidated statement of income for the year ended December 31, 2019.

Intangible assets

In February 2016, the Company purchased

a 51% ownership interest in Aerex Industries, Inc.

The purchase transaction identified certain intangible assets with a fair

value of $5,900,000 and useful lives as follows:

Non-Compete (5 years), Trade name (15 years), Certifications/programs (3 years),

Customer backlog (1 year), and Customer relationships (4 years).

In October 2019, the Company purchased

a 51% ownership interest in PERC Water Corporation.

The purchase transaction identified certain intangible assets with a fair

value of $3,990,000 and useful lives as follows:

Non-Compete (3 years), Trade name (15 years), Customer backlog (2 years), and

Facility management contracts (6 years).

The costs and accumulated amortization

for these assets were as follows:

In February 2016, the Company purchased a 51 % ownership interest in Aerex Industries, Inc.

The purchase transaction identified certain intangible assets with a fair value of $ 5,900,000 and useful lives as follows:

non-compete ( 5 years), trade name ( 15 years), certifications/programs ( 3 years), customer backlog ( 1 year), and customer relationships ( 4 years).

In January 2020, the Company acquired the remaining 49 % ownership interest in Aerex.

In October 2019, the Company purchased a 51 % ownership interest in PERC Water Corporation.

The purchase transaction identified certain intangible assets with a fair value of $ 3,990,000 and useful lives as follows:

non-compete ( 3 years), trade name ( 15 years), customer backlog ( 2 years), and facility management contracts ( 6 years).

In August 2020, the Company purchased an additional 10 % of the ownership of PERC, increasing its ownership of this subsidiary to 61 % .

The costs and accumulated amortization for these assets were as follows:

Non-compete agreements

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Certifications/programs

( 2,000,000 )

Customer backlogs

Customer relationships

( 2,000,000 )

( 1,958,333 )

Facility management contracts

( 5,741,667 )

( 4,850,000 )

Intangible assets, net

Amortization of intangible assets for each of the next five

years and thereafter is expected to be as follows:

Amortization expense was $841,667 and

$1,340,000 for the years ended December 31, 2019 and 2018, respectively.

As of January 1, 2019, the Company

adopted ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use ("ROU") asset and lease

liability for all leases.

ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities

represent the Company's obligation to make lease payments arising from the lease.

The Company implemented this new accounting

standard using the modified retrospective method for its existing leases, which did not cause any adjustments to prior year financial

The Company elected the package of transition

practical expedients available for existing contracts, which allowed it to carry forward its historical assessments of whether

contracts are or contain leases, lease classification and determination of initial direct costs.

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 recognized

on a straight-line basis in net income over the lease term.

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.

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 has entered into a lease

for land to be used in the Project with an initial effective term of 20-years from the date of full operation of the Rosarito

seawater desalination 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.

Amortization of intangible assets for each of the next five years and thereafter is expected to be as follows:

Amortization expense was $ 891,667 and $ 841,667 for the years ended years ended December 31, 2020 and 2019, respectively.

The Company leases property and equipment under operating leases, primarily 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 Company’s current leases do not provide a readily determinable implicit rate.

Therefore, the Company’s incremental borrowing rate is estimated to discount the lease payments based on information available at 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 lease is cancellable by AdR should it ultimately not proceed with the Project.

All lease assets denominated in a foreign currency are measured using the exchange rate at commencement of the lease or the adoption

of ASU 2016-02, whichever is later.

All lease liabilities denominated in a foreign currency are remeasured using the exchange

rate as of December 31, 2019.

Effective May 1, 2019,

the Company executed a new lease for its office located in the Cayman Islands under similar terms compared to the prior lease.

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 December 31, 2020 do not include this lease.

All lease assets denominated in a foreign currency are measured using the exchange rate at the commencement of the lease.

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

Effective May 1, 2019, the Company executed a new lease for its office located in the Cayman Islands under similar terms compared 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 location on the consolidated balance sheets:

Prepaid expenses

and other current assets

lease right-of-use assets

Current maturities of operating

operating leases

lease liabilities

Weighted average remaining

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

Prepaid expenses and other current assets

Current assets of discontinued operations

Operating lease right-of-use assets

Long-term assets of discontinued operations

Total lease right-of-use assets

Current maturities of operating leases

Current liabilities of discontinued operations

Noncurrent operating leases

Noncurrent liabilities of discontinued operations

Total lease liabilities

Weighted average remaining lease term:

Operating leases

Weighted average discount

Operating leases - discontinued operations

Weighted average discount rate:

Operating leases

The components of lease

cost were as follows:

December 31, 2019

Operating lease

Total rental expense for

the year ended December 31, 2018 was $870,833 and is included within general and administrative expenses in the accompanying

consolidated statement of income.

Supplemental cash flow information related to

leases is as follows:

December 31, 2019

Cash paid for amounts included

in measurement of liabilities:

Operating cash

flows from operating leases

Future lease payments relating

to the Company's operating lease liabilities as of December 31, 2019 were as follows:

ending December 31,

Operating leases - discontinued operations

The components of lease cost were as follows:

Year Ended December 31,

Operating lease costs

Short-term lease costs

Lease costs - discontinued operations

Total lease costs

Supplemental cash flow information related to leases is as follows:

Year Ended December 31,

Cash paid for amounts included in measurement of liabilities:

Operating cash outflows for operating leases

Operating cash outflows for operating leases - discontinued operations

Future lease payments relating to the Company's operating lease liabilities from continuing operations as of December 31, 2020 were as follows:

Years ending December 31,

Total future lease payments

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current obligations

lease obligations

Discontinued operations

During the quarter ended September 30,

2018, the Company signed a non-binding Memorandum of Understanding (“MOU”) with Belize Water Services Ltd.

(“BWSL”)

with respect to the potential sale of its wholly owned subsidiary, Consolidated Water (Belize) Limited (“CW-Belize”),

The Company was not otherwise considering a sale of CW-Belize, so as an incentive for the Company to consider this proposed

transaction, BWSL promised in the MOU to facilitate both the conversion from Belize dollars to U.S.

dollars and the subsequent

repatriation of all cash balances CW-Belize had on deposit in Belize.

Transfers of funds held by CW-Belize to its parent company,

which were accomplished by means of conversion of Belize dollars into U.S.

dollars, required the approval of the Central Bank of

Belize and were dependent on the amount of U.S.

dollars available to Belize banks to execute such transfers.

Weakness in the Belize

economy and other factors have reduced the amount of U.S.

dollars that Belize banks have available for transfer, which limited

for most of 2018 and in prior years the amount of funds the Company was able to transfer from CW-Belize.

Repatriations of

funds from CW-Belize to its parent company amounted to $458,000 and $400,000 for the years ended December 31, 2017 and 2016,

respectively, significantly less than the net income and net cash flows CW-Belize generated for those years.

With BWSL’s

assistance, the Company was able to repatriate approximately $2.75 million in cash from Belize to its bank accounts in the Cayman

Islands during the three months ended September 30, 2018 and an additional $1.0 million during the fourth quarter of 2018.

In late December 2018,

the Company’s Board of Directors formally approved the sale of CW-Belize to BWSL, and the Company repatriated an additional

$1.1 million from CW-Belize during the first week of 2019.

On February 14, 2019,

the Company closed the transaction and completed the sale of CW-Belize to 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.

Summarized financial information

for CW-Belize is as follows:

Current assets

Property, plant and equipment,

Inventory, non-current

Intangible assets

Total assets of discontinued

Total liabilities of discontinued

Ended December 31,

Income from operations

Gain on sale of discontinued

The components of income

before income taxes for the years ended December 31, 2019 and 2018 are as follows:

Ended December 31,

Foreign (not subject to income

Noncurrent lease obligations

The components of income before income taxes for the years ended December 31, 2020 and 2019 are as follows:

Year Ended December 31,

Foreign (not subject to income taxes)

( 4,903,988 )

( 2,458,210 )

United States

Less gain on sale of discontinued operations

( 3,621,170 )

Less discontinued operations

The Company's provision

for (benefit from) income taxes for the years ended December 31, 2019 and 2018, which related to U.S.

operations, consisted

of the following:

Ended December 31,

The Company’s provision for income taxes for the years ended December 31, 2020 and 2019, which related to U.S.

operations, consisted of the following:

Year Ended December 31,

Total provision

A reconciliation of the

statutory federal tax rate to the effective benefit rate for the U.S.

loss before income taxes for the years ended December 31,

2019 and 2018 is as follows:

Ended December 31,

A reconciliation of the U.S.

statutory federal tax rate to the effective rate for the years ended December 31, 2020 and 2019 is as follows:

Year Ended December 31,

statutory federal rate

3 unchanged sentences

Permanent items

Valuation allowance for deferred tax

The tax effects of significant

items comprising the Company's net long-term deferred tax liability as of December 31, 2019 and 2018 were as follows:

Valuation allowance for deferred tax assets

The tax effects of significant items comprising the Company’s net long-term deferred tax liability as of December 31, 2020 and 2019 were as follows:

Continuing Operations

Deferred tax assets:

loss carryforwards - Mexico

Land basis difference

Start-up costs - Mexico

development tax credits - U.S.

Research & development tax credits

Accrued compensation

Valuation allowances

3 unchanged sentences

Net deferred tax liability

of December 31, 2019, the Company had a net loss carryforward related to its Mexico operations of approximately $11.4 million

that will begin to expire in 2020 if unused.

The deferred tax asset is included in the consolidated balance sheet as prepaid

expenses and other current assets as of December 31, 2019.

Discontinued Operations

Deferred tax assets:

Operating loss carryforwards - Mexico

Land basis difference - Mexico

Start-up costs - Mexico

Valuation allowances

( 10,462,949 )

( 9,200,650 )

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:

Ended December 31,

from continuing operations attributable to Consolidated Water Co.

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:

Year Ended December 31,

Net income from continuing operations attributable to Consolidated Water Co.

preferred stock dividends

Net income from continuing

operations available to common shares in the determination of basic earnings per common share

Total income from discontinued

Net income available to

common shares in the determination of basic earnings per common share

Weighted average number

of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co.

Weighted average number

of preferred shares outstanding during the period

Potential dilutive effect

of unexercised options and unvested stock grants

Weighted average number

of shares used for determining diluted earnings per common share attributable to Consolidated Water Co.

Net income from continuing operations available to common shares in the determination of basic earnings per common share

Total income (loss) from discontinued operations

( 4,902,243 )

Net income available to common shares in the determination of basic earnings per common share

Weighted average number of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co.

common stockholders

Interim dividends declared

on Class A common stock and redeemable preferred stock for each quarter of the respective years ended December 31, 2019

and 2018 were as follows:

Weighted average number of preferred shares outstanding during the period

Potential dilutive effect of unexercised options and unvested stock grants

Weighted average number of shares used for determining diluted earnings per common share attributable to Consolidated Water Co.

common stockholders

Interim dividends declared on Class A common stock and redeemable preferred stock for each quarter of the respective years ended December 31, 2020 and 2019 were as follows:

First Quarter

1 unchanged sentence

Third Quarter

Fourth Quarter

Segment information

1 unchanged sentence

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 from operations.

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.

Ended December 31, 2019

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.

Year Ended December 31, 2020

Manufacturing

and administrative expenses

on asset dispositions and impairments, net

(loss) from operations

before income taxes

for income taxes

income from continuing operations

from continuing operations attributable to non-controlling interests

income from continuing operations attributable to Consolidated Water Co.

income from discontinued operations

income attributable to Consolidated Water Co.

Depreciation and amortization

expenses for the year ended December 31, 2019 for the retail, bulk, services and manufacturing segments were $2,364,994,

$3,795,320, $125,306 and $922,027, respectively.

of December 31, 2019

Cost of revenue

General and administrative expenses

Gain on asset dispositions and impairments, net

Income (loss) from operations

( 1,004,924 )

Other income, net

Income before income taxes

Provision for income taxes

Net income from continuing operations

Income from continuing operations attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

Net loss from discontinued operations

( 4,902,243 )

Net income attributable to Consolidated Water Co.

Depreciation and amortization expenses for the year ended December 31, 2020 for the retail, bulk, services and manufacturing segments were $ 2,388,781 , $ 3,869,377 , $ 762,182 and $ 386,169 , respectively.

As of December 31, 2020

Manufacturing

receivable, net

plant and equipment, net

and rights of way held for development

segment assets

Ended December 31, 2018

Accounts receivable, net

Inventory, current and non-current

Property, plant and equipment, net

Construction in progress

Intangibles, net

Total segment assets

Assets of discontinued operations

Year Ended December 31, 2019

Manufacturing

and administrative expenses

on asset dispositions and impairments, net

(loss) from operations

before income taxes

from income taxes

income from continuing operations

from continuing operations attributable to non-controlling interests

income from continuing operations attributable to Consolidated Water Co.

income from discontinued operations

income attributable to Consolidated Water Co.

Depreciation and amortization

expenses for the year ended December 31, 2018 for the retail, bulk, services and manufacturing segments were $2,019,462,

$3,387,592, $28,386 and $1,598,794, respectively.

of December 31, 2018

Cost of revenue

General and administrative expenses

Gain on asset dispositions and impairments, net

Income from operations

Other income, net

Income before income taxes

Provision for income taxes

Net income from continuing operations

Income from continuing operations attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

Net income from discontinued operations

Net income attributable to Consolidated Water Co.

Depreciation and amortization expenses for the year ended December 31, 2019 for the retail, bulk, services and manufacturing segments were $ 2,364,994 , $ 3,795,320 , $ 120,761 and $ 922,027 , respectively.

As of December 31, 2019

Manufacturing

receivable, net

plant and equipment, net

and rights of way held for development

segment assets

of discontinued operations

Accounts receivable, net

Inventory, current and non-current

Property, plant and equipment, net

Construction in progress

Intangibles, net

Total segment assets

Assets of discontinued operations

Revenues earned by major geographic region were:

ended December 31,

Year ended December 31,

Cayman Islands

United States

Revenues earned from management

services agreement with OC-BVI

Revenues earned from management services agreement with OC-BVI

Revenues earned from major customers were:

2 unchanged sentences

Percentage of consolidated revenue earned from the WSC

Revenue earned from the Water Authority - Cayman ("WAC")

Percentage of consolidated revenue earned from the WAC

Revenue earned from one manufacturing segment customer

Percentage of consolidated revenue earned from the one manufacturing segment customer

Property, plant and equipment, net by major geographic

Property, plant and equipment, net by major geographic region were:

Cayman Islands

United States

All other countries

Cost of revenues and general and administrative

Ended December 31,

Cost of revenues consist

Cost of revenue and general and administrative expenses

Year Ended December 31,

Cost of revenue consist of:

Employee costs

Cost of plant sales

Retail license royalties

3 unchanged sentences

Professional fees

Directors’

fees and expenses

NSC project expenses

Directors’ fees and expenses

Amortization of intangible assets

Stock-based compensation

The Company has the following

stock compensation plans that form part of its employees’

and Directors’

remuneration:

Employee Share Incentive

Plan (Preferred Stock)

The Company has the following stock compensation plans that form part of its employees’ and Directors’ remuneration:

Employee Share Incentive Plan (Preferred Stock)

Employees (i.e.

other than Directors and

Officers), after four consecutive years of employment, become eligible to receive shares of the Company’s preferred stock

for $nil consideration under its Employee Share Incentive Plan.

Once an individual becomes eligible, these shares of preferred

stock are awarded each subsequent year of the individual’s employment (the grant date) for as long as the individual remains

employed with the Company.

If these employees remain with the Company through the fourth anniversary of a grant date, the preferred

stock can be converted into shares of the Company’s common stock on a one for one basis.

In addition, at the time the preferred

stock is granted, the employees receive options to purchase an equal number of shares of preferred stock at a discount to the

average trading price of the Company’s common stock for the first seven days of the October immediately preceding the

date of the preferred stock grant.

If these options are exercised, the shares of preferred stock obtained may also be converted

to shares of common stock if the employee remains with the Company through the fourth anniversary of a grant (or option exercise)

Each employee’s option to purchase shares of preferred stock must be exercised within 30 days of the grant date, which

is the 90th day after the date of the independent registered public accountants’

audit opinion on the Company’s consolidated

financial statements.

Shares of preferred stock not subsequently converted to shares of common stock are redeemable only at the

discretion of the Company.

Shares of preferred stock granted under this plan during the years ended December 31, 2019 and

2018 totaled 7,293 and 7,409, respectively, and an equal number of preferred stock options was granted in each of these years.

Employee Share Option

Plan (Common Stock Options)

The Company has an employee

stock option plan for certain long-serving employees of the Company.

Under the plan, these employees are granted in each calendar

year, as long as the employee is a participant in the Employee Share Incentive Plan, options to purchase common shares.

at which the option may be exercised will be the closing market price on the grant date, which is the 40th day after the date

of the Company’s Annual Shareholder Meeting.

The number of options each employee is granted is equal to five times the sum

of (i) the number of shares of preferred stock that employee receives for $nil consideration and (ii) the number of

preferred stock options that employee exercises in that given year.

Options may be exercised during the period commencing on the

fourth anniversary of the grant date and ending on the thirtieth day after the fourth anniversary of the grant date.

Options granted

under this plan during the years ended December 31, 2019 and 2018 totaled 2,575 and 2,750, respectively.

The fair value of each option

award is estimated on the date of grant using a Black-Scholes option-pricing model that uses the assumptions noted in the table

Expected volatilities are based on historical volatilities of the Company’s common stock.

The Company uses historical

data to estimate option exercise and post-vesting termination behavior.

The expected term of options granted is based on historical

data and represents the period of time that options granted are expected to be outstanding.

The Company uses historical data to

estimate stock option exercises and forfeitures within its valuation model.

The risk-free interest rate for the expected term

of the option is based on the U.S.

other than Directors and Officers), after four consecutive years of employment, become eligible to receive shares of the Company’s preferred stock for $nil consideration under its Employee Share Incentive Plan.

Once an individual becomes eligible, these shares of preferred stock are awarded each subsequent year of the individual's employment (the grant date) for as long as the individual remains employed with the Company.

If these employees remain with the Company through the fourth anniversary of a grant date, the preferred stock can be converted into shares of the Company’s common stock on a one for one basis.

In addition, at the time the preferred stock is granted, the employees receive options to purchase an equal number of shares of preferred stock at a discount to the average trading price of the Company’s common stock for the first seven days of the October immediately preceding the date of the preferred stock grant.

If these options are exercised, the shares of preferred stock obtained may also be converted to shares of common stock if the employee remains with the Company through the fourth anniversary of a grant (or option exercise) date.

Each employee’s option to purchase shares of preferred stock must be exercised within 30 days of the grant date, which is the 90th day after the date of the independent registered public accountants’ audit opinion on the Company’s consolidated financial statements.

Shares of preferred stock not subsequently converted to shares of common stock are redeemable only at the discretion of the Company.

Shares of preferred stock granted under this plan during the years ended December 31, 2020 and 2019 totaled 6,123 and 7,293 , respectively, and an equal number of preferred stock options was granted in each of these years.

Employee Share Option Plan (Common Stock Options)

The Company has an employee stock option plan for certain long-serving employees of the Company.

Under the plan, these employees are granted in each calendar year, as long as the employee is a participant in the Employee Share Incentive Plan, options to purchase common shares.

The price at which the option may be exercised is the closing market price on the grant date, which is the 40th day after the date of the Company’s Annual Shareholder Meeting.

The number of options each employee is granted is equal to five times the sum of (i) the number of shares of preferred stock that employee receives for $nil consideration and (ii) the number of preferred stock options that employee exercises in that given year.

Options may be exercised during the period commencing on the fourth anniversary of the grant date and ending on the thirtieth day after the fourth anniversary of the grant date.

Options granted under this plan during the years ended December 31, 2020 and 2019 totaled 2,100 and 2,575 , respectively.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option-pricing model that uses the assumptions noted in the table below.

Expected volatilities are based on historical volatilities of the Company’s common stock.

The Company uses historical data to estimate option exercise and post-vesting termination behavior.

The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding.

The Company uses historical data to estimate stock option exercises and forfeitures within its valuation model.

The risk-free interest rate for the expected term of the option is based on the U.S.

Treasury yield curve in effect at the time of the grant.

2008 Equity Incentive Plan

On May 14, 2008, the

Company’s stockholders approved the 2008 Equity Incentive Plan (the “2008 Plan”) and reserved 1,500,000 shares

of the Company’s Class A common shares for issuance under this plan.

All Directors, executives and key employees of

the Company or its affiliates are eligible for participation in the 2008 Plan which provides for the issuance of options, restricted

stock and stock equivalents at the discretion of the Board.

Non-Executive Directors’

This stock grant plan provides

part of Directors’

remuneration.

Under this plan, non-Executive Directors receive a combination of cash and common stock

for their participation in Board meetings.

The number of shares of common stock granted is calculated based upon the market price

of the Company’s common stock on October 1 of the year preceding the grant.

Common stock granted under this plan during

the years ended December 31, 2019 and 2018 totaled 22,034 and 18,242 shares, respectively.

The Company recognized stock-based

compensation for these share grants of $322,036 and $236,691 for the years ended December 31, 2019 and 2018, respectively.

The Company measures and

recognizes compensation expense at fair value for all share-based payments, including stock options.

Stock-based compensation

for the Employee Share Incentive Plan, Employee Share Option Plan and the 2008 Equity Incentive Plan totaled $142,632 and $137,191

for the years ended December 31, 2019 and 2018, respectively, and is included in general and administrative expenses in the

accompanying consolidated statements of income.

The significant weighted

average assumptions for the years ended December 31, 2019 and 2018 were as follows:

Risk free interest

On May 14, 2008, the Company’s stockholders approved the 2008 Equity Incentive Plan (the “2008 Plan”) and reserved 1,500,000 shares of the Company’s Class A common shares for issuance under this plan.

All Directors, executives and key employees of the Company or its affiliates are eligible for participation in the 2008 Plan which provides for the issuance of options, restricted stock and stock equivalents at the discretion of the Board.

Non-Executive Directors’ Share Plan

This stock grant plan provides part of Directors’ remuneration.

Under this plan, non-Executive Directors receive a combination of cash and common stock for their participation in Board meetings.

The number of shares of common stock granted is calculated based upon the market price of the Company’s common stock on October 1 of the year preceding the grant.

Common stock granted under this plan during the years ended December 31, 2020 and 2019 totaled 19,712 and 22,034 shares, respectively.

The Company recognized stock-based compensation for these share grants of $ 318,991 and $ 322,036 for the years ended December 31, 2020 and 2019, respectively.

The Company measures and recognizes compensation expense at fair value for all share-based payments, including stock options.

Stock-based compensation for the Employee Share Incentive Plan, Employee Share Option Plan and the 2008 Equity Incentive Plan totaled $ 125,487 and $ 142,632 for the years ended December 31, 2020 and 2019, respectively, and is included in general and administrative expenses in the accompanying consolidated statements of income.

The significant weighted average assumptions for the years ended December 31, 2020 and 2019 were as follows:

Risk free interest rate

Expected option life (years)

1 unchanged sentence

Expected dividend yield

A summary of the Company’s stock option

activity for the year ended December 31, 2019 is as follows:

at beginning of period

A summary of the Company’s stock option activity for the year ended December 31, 2020 is as follows:

Outstanding at beginning of period

Forfeited/expired

1 unchanged sentence

Exercisable as of December 31, 2020

intrinsic value of a stock option represents the amount by which the fair value of the underlying stock, measured by reference

to the closing price of the common shares of $16.30 on the Nasdaq Global Select Market on December 31, 2019, exceeds

the exercise price of the option.

As of December 31,

2019, 10,650 non-vested options were outstanding, with weighted average exercise price of $13.08, and average remaining contractual

life of 2.04 years.

The total remaining unrecognized compensation costs related to unvested stock-based arrangements were

$16,715 as of December 31, 2019 and are expected to be recognized over a weighted average period of 2.04 years.

As of December 31,

2019, unrecognized compensation costs relating to redeemable preferred stock rights outstanding were $153,481 and are expected

to be recognized over a weighted average period of 1.15 years.

The following table summarizes

the weighted average fair value of options at the date of grant and the intrinsic value of options exercised during the years

ended December 31, 2019 and 2018:

Options granted with an

exercise price below market price on the date of grant:

Employees —

preferred stock

(1) The intrinsic value of a stock option represents the amount by which the fair value of the underlying stock, measured by reference to the closing price of the common shares of $ 12.05 on the Nasdaq Global Select Market on December 31, 2020, exceeds the exercise price of the option.

As of December 31, 2020, 10,030 non-vested options were outstanding, with weighted average exercise price of $ 12.98 , and average remaining contractual life of 2.07 years.

The total remaining unrecognized compensation costs related to unvested stock-based arrangements were $ 14,427 as of December 31, 2020 and are expected to be recognized over a weighted average period of 2.07 years.

As of December 31, 2020, unrecognized compensation costs relating to redeemable preferred stock rights outstanding were $ 142,328 and are expected to be recognized over a weighted average period of 1.15 years.

The following table summarizes the weighted average fair value of options at the date of grant and the intrinsic value of options exercised during the years ended December 31, 2020 and 2019:

Options granted with an exercise price below market price on the date of grant:

Employees — preferred stock

Overall weighted average

Options granted with an

exercise price at market price on the date of grant:

Options granted with an exercise price at market price on the date of grant:

Management employees

Employees —

Employees — common stock

Overall weighted average

Options granted with an

exercise price above market price on the date of grant:

Options granted with an exercise price above market price on the date of grant:

Management employees

Employees —

Employees — preferred stock

Overall weighted average

Total intrinsic value of

options exercised

Total intrinsic value of options exercised

Executive Long-Term Incentive Compensation

The Board of Directors approved changes

to the long-term incentive compensation for the Company’s Executive Officers effective for 2015 and thereafter to better

align the interests of its Executive Officers with those of its shareholders.

The revised long-term compensation plan includes

a combination of performance and non-performance-based grants of common stock from the shares of Company stock provided for issuance

under the 2008 Equity Incentive Plan.

The non-performance-based stock grants

vest in one-third increments at the end of each year over a three-year period.

Non-performance-based stock grants under this plan

totaled 28,891 and 26,864 for the years ended December 31, 2019 and 2018, respectively and the shares associated with these

grants were issued in 2020 and 2019, respectively.

The Company recognized $337,032 and $317,991 in stock-based compensation expense

related to these non-performance stock grants for the years ended December 31, 2019 and 2018, respectively.

The performance-based grants may be earned

at the end of each year based upon the Company’s three-year cumulative financial performance relative to three-year cumulative

financial performance targets.

A total of 35,993 common stock grants were

earned as of December 31, 2019 based upon the Company’s actual financial performance relative to the cumulative financial

performance targets for the three-year period ended December 31, 2019, and the Company recognized $390,524 in stock-based

compensation for the year ended December 31, 2019 related to these grants.

The shares associated with these grants will be

issued in 2020.

A total of 10,574 common stock grants were

earned as of December 31, 2018 based upon the Company’s actual financial performance relative to the cumulative financial

performance targets for the three-year period ended December 31, 2018, and the Company recognized $158,263 in stock-based

compensation for the year ended December 31, 2018 related to these grants.

The shares associated with these grants were issued

The Board of Directors approved changes to the long-term incentive compensation for the Company’s Executive Officers effective for 2015 and thereafter to better align the interests of its Executive Officers with those of its shareholders.

The revised long-term compensation plan includes a combination of performance and non-performance-based grants of common stock from the shares of Company stock provided for issuance under the 2008 Equity Incentive Plan.

The non-performance-based stock grants vest in one-third increments at the end of each year over a three -year period.

Non-performance-based stock grants under this plan totaled 25,789 and 28,891 for the years ended December 31, 2020

and 2019, respectively and the shares associated with these grants were issued in 2021 and 2020, respectively.

The Company recognized $ 344,940 and $ 337,032 in stock-based compensation expense related to these non-performance stock grants for the years ended December 31, 2020 and 2019, respectively.

The performance-based grants may be earned at the end of each year based upon the Company's three -year cumulative financial performance relative to three -year cumulative financial performance targets.

A total of 31,788 common stock grants were earned as of December 31, 2020 based upon the Company’s actual financial performance relative to the cumulative financial performance targets for the three -year period ended December 31, 2020, and the Company recognized $ 373,843 in stock-based compensation for the year ended December 31, 2020 related to these grants.

The shares associated with these grants will be issued in 2021.

A total of 36,007 common stock grants were earned as of December 31, 2019 based upon the Company’s actual financial performance relative to the cumulative financial performance targets for the three -year period ended December 31, 2019, and the Company recognized $ 390,524 in stock-based compensation for the year ended December 31, 2019 related to these grants.

The shares associated with these grants were issued in 2020.

Retirement benefits

Retirement plans are offered

to all employees in California, Florida, Cayman Islands and Bahamas.

The plans are administered by third parties and are defined

contribution plans, pursuant to which the Company matches participating employees’

contributions up to certain amounts.

The Company matches contributions of up to 5% of a maximum salary amount of $104,400 for Cayman Islands employees, fully matches

all contributions made by employees in the Bahamas, and matches contributions of up to 6% of salary for Florida employees.

California employees the Company matches contribution amounts equal to 2% or less of the employee’s salary and matches 25%

of contributions above this 2% threshold, up to 10% of the employee’s salary.

The Company’s expense for these plans

was $450,732 and $408,128 for the years ended December 31, 2019 and 2018, respectively.

Retirement plans are offered to all employees in California, Florida, Cayman Islands and Bahamas.

The plans are administered by third parties and are defined contribution plans pursuant to which the Company matches participating employees’ contributions up to certain amounts.

The Company matches contributions of up to 5 % of a maximum salary amount of $ 104,400 for Cayman Islands employees, fully matches all contributions made by employees in the Bahamas, and matches contributions of up to 6 % of salary for Florida employees.

For California employees, the Company matches contribution amounts up to 2 % of the employee's salary and matches 25 % of contributions above this 2 % threshold, up to 10 % of the employee’s salary.

The Company’s expense for these plans was $ 576,096 and $ 450,732 for the years ended December 31, 2020 and 2019, respectively.

Financial instruments

The Company is not exposed

to significant credit risk on its retail customer accounts as its policy is to cease supply of water to customers’

that are more than 45 days overdue.

The Company’s exposure to credit risk is concentrated on receivables from its bulk water,

services, and manufacturing customers.

The Company considers these receivables fully collectible and therefore has not recorded

an allowance for these receivables.

The Company is not exposed to significant credit risk on its retail customer accounts as its policy is to cease supply of water to customers’ accounts that are more than 45 days overdue.

The Company’s exposure to credit risk is concentrated on receivables from its bulk water, services, and manufacturing customers.

The Company considers these receivables fully collectible and therefore has not recorded an allowance for these receivables.

Interest rate risk:

The Company is not subject

to significant interest-rate risk arising from fluctuations in interest rates.

The Company is not subject to significant interest-rate risk arising from fluctuations in interest rates.

Foreign exchange risk:

All relevant foreign currencies

other than the Mexican peso and the euro have been fixed to the dollar for more than 20 years and as a result, the Company does

not employ a hedging strategy against exchange rate risk associated with the reporting in dollars.

If any of these fixed exchange

rates becomes a floating exchange rate or if any of the foreign currencies in which the Company conducts business depreciate significantly

against the dollar, the Company’s consolidated results of operations could be adversely affected.

As of December 31, 2019 and 2018,

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.

concluded that the carrying amounts for loans receivable as of December 31, 2018 approximated their fair value as the stated

interest rates approximated market rates.

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

All relevant foreign currencies other than the Mexican peso and the euro have been fixed to the dollar for more than 20 years and as a result, the Company does not employ a hedging strategy against exchange rate risk associated with the reporting in dollars.

If any of these fixed exchange rates becomes a floating exchange rate or if any of the foreign currencies in which the Company conducts business depreciate significantly against the dollar, the Company’s consolidated results of operations could be adversely affected.

As of December 31, 2020 and 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;

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.

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 December 31, 2019 and 2018:

liability arising from put/call options

asset arising from put/call options

The activity for the Level 3 liability for the year ended December 31,

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 December 31, 2020 and 2019:

December 31, 2020

Net liability arising from put/call options

Balance as of December 31, 2018

Unrealized gain

Balance as of

December 31, 2019

Net liability arising from put/call options

The activity for the Level 3 asset for the year ended December 31, 2020:

Net asset arising from put/call options

Net liability arising from put/call options

Balance as of December 31, 2019

Unrealized loss

Balance as of

December 31, 2019

net asset arising from the put/call options is included in other assets in the accompanying consolidated balance sheets as

of December 31, 2018.

Through its subsidiary, CW-Bali, the Company

built a seawater reverse osmosis desalination plant located in Nusa Dua, one of the primary tourist areas of Bali, Indonesia.

CW-Bali’s sales volumes were never sufficient to cover its operating costs and CW-Bali incurred net losses each year since

commencing operations in 2013.

The Company’s net loss from CW-Bali for the year ended December 31, 2018 was approximately

In June 2019, the Company sold its

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

Such sales are included in gain on asset dispositions and impairments,

net in the accompanying consolidated statement of income for the year ended December 31, 2019.

Balance as of December 31, 2020

Put/call options are reported at fair value as either assets or liabilities in the 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.

Commitments and contingencies

The Company has entered into employment

agreements with certain executives, which expire through December 31, 2022 and provide for, among other things, base annual

salaries in an aggregate amount of approximately $5.5 million, performance bonuses and various employee benefits.

The Company has purchase obligations totaling

approximately $5.5 million through July 31, 2021.

The Company has entered into employment agreements with certain executives, which expire through December 31, 2023 and provide for, among other things, base annual salaries in an aggregate amount of approximately $ 4.7 million, performance bonuses and various employee benefits.

The Company has purchase obligations totaling approximately $ 1.8 million through December 31, 2021.

Contingencies

CW-Bahamas’

accounts receivable

balances due from the WSC amounted to $18.4 million as of December 31, 2019 and $17.6 million as of December 31, 2018.

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 December 31, 2019, the Company has not provided an allowance

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 CW-Bahamas’

accounts receivable.

Any of these events could have a material adverse impact on the Company’s results

of operations, financial position and cash flows.

The Company sells water through its retail

operations under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that granted

Cayman Water the exclusive right to provide potable water to customers within its licensed service area.

Although the 1990 license

was not expressly extended after January 2018, the Company continues to supply water under the terms of the 1990 license,

as further discussed in the following paragraph.

Pursuant to the 1990 license, Cayman Water has the exclusive right to produce

potable water and distribute it by pipeline to its licensed service area, which consists of two of the three most populated areas

of Grand Cayman Island:

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.

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

Furthermore, a prolonged extension of the economic downturn created by the COVID-19 pandemic could adversely affect the markets for the Company’s products and services.

Such adverse market effects could adversely impact the Company’s expected future cash flows from its four 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.

The Company sells water through its retail operations under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that granted Cayman Water the exclusive right to provide potable water to customers within its licensed service area.

Although the 1990 license was not expressly extended after January 2018, the Company continues to supply water under the terms of the 1990 license, as further discussed in the following paragraph.

Pursuant to the 1990 license, Cayman Water has the exclusive right to produce potable water and distribute it by pipeline to its licensed service area, which consists of two of the three most populated areas of Grand Cayman Island:

Seven Mile Beach and West Bay.

In 2019 and 2018, the Company generated approximately 39% and 39%, respectively,

of its consolidated revenue and 53% and 54%, 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”).

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.

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 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

financial condition and results of operations.

In 2020 and 2019, we generated approximately 32 % and 38 %, respectively, of our consolidated revenue and 44 % and 53 %, 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 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 ongoing.

The Company has been informed during its retail license negotiations, both by OfReg and its predecessor in these negotiations, that the Cayman Islands government seeks to restructure the terms of its license in a manner that could significantly reduce the operating income and cash flows the Company has historically generated from its retail license.

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

Such impairment losses could have a material adverse impact on the Company’s consolidated financial condition and results of operations.

CW-Bahamas’ accounts receivable balances (including accrued interest) due from the WSC amounted to $ 16.8 million and $ 18.4 million as of December 31, 2020 and 2019, respectively.

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 December 31, 2020, the Company has 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 receivable.

Any of these events could have a material adverse impact on the Company’s consolidated financial condition, results of operations, and cash flows.

Acquisition of PERC

On October 24, 2019, the Company, through its wholly-owned subsidiary, CW-Holdings, entered into a stock purchase agreement (the “Purchase Agreement”) with PERC and its various shareholders (collectively, the “Sellers”).

Pursuant to the terms of the Purchase Agreement, CW-Holdings purchased a 51 % ownership interest in PERC for approximately $ 4.1 million in cash.

After giving effect to the transactions contemplated by the Purchase Agreement, CW-Holdings owned 51 % of the outstanding capital stock of PERC, and three members of PERC's management and one additional shareholder (the “Remaining Shareholders”) owned the remaining 49 % of the outstanding capital stock of PERC.

In August 2020, CW-Holdings acquired an additional 10 % of PERC for $ 900,000 increasing the Company’s ownership to 61 % of the outstanding capital stock of PERC.

The remaining 39 % is still owned by three members of PERC's management and one additional shareholder.

CW-Holdings also acquired from the Remaining Shareholders an option to compel the Remaining Shareholders to sell, and granted to the Remaining Shareholders an option to require CW-Holdings to purchase, the Remaining Shareholders’ 39 % ownership interest in PERC at a price based upon the fair market value of PERC at the time of the exercise of the option.

CW-Holdings’ option is exercisable on or after October 24, 2022 and the Remaining Shareholders’ option is exercisable on or after October 24, 2024.

PERC is a water infrastructure company headquartered in Fountain Valley, California that develops, designs, builds, and manages wastewater and water reuse infrastructure.

In connection with the Purchase Agreement, CW-Holdings, and the Remaining Shareholders entered into a shareholders' agreement, pursuant to which CW-Holdings and the Remaining Shareholders agreed to certain rights and obligations with respect to the governance of PERC.

The purchase price for PERC is summarized as follows:

Cash consideration

Purchase price (excluding working capital)

Cash acquired

Total cash consideration

The following table summarizes the estimated fair values of the assets and liabilities assumed at the acquisition date:

Financial assets

Contract assets

Property, plant and equipment

Identifiable intangible assets

Deferred tax liability

( 1,117,200 )

Accounts payable and accrued liabilities

( 1,260,722 )

Working capital adjustment payable

Deferred revenue

Contract liabilities

Net liability arising from put/call options

Total identifiable net assets

Non-controlling interest in PERC

( 3,617,634 )

The fair value of noncontrolling interest was calculated using the discounted cash flow method.

The discounted cash flow method relied upon nine-year discrete projections of operating results, working capital and capital expenditures, along with a terminal value subsequent to the discrete period.

These 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.

An 8.4 % discount for marketability was applied to the noncontrolling interest calculated under the discounted cash flow method.

This marketability discount was calculated using an average-price put option model.

The identifiable intangible assets consisted of the following items:

Non-compete agreement

Customer backlog

Facility management contracts

The results of operations of PERC included in the Company’s results of operations for the period October 24, 2019 to December 31, 2019 are as follows:

Amortization of intangibles, net of tax benefit

The following unaudited pro forma financial information presents the results of operations of the Company for the year ended December 31, 2019, as if the acquisition of PERC had taken place on January 1, 2019.

These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually occurred had the transaction taken place on January 1, 2019, nor do they purport to be indicative of future results of operations.

Cost of revenue

General and administrative expenses

Gain (loss) on asset dispositions and impairments, net

Income from operations

Other income (expense), net

Income before income taxes

Provision for (benefit from) income taxes

Net income from continuing operations

Income from continuing operations attributable to non-controlling interests

Net income from continuing operations attributable to Consolidated Water Co.

Gain on sale of discontinued operations

Net income from discontinued operations

Total income from discontinued operations

Net income attributable to Consolidated Water Co.

Basic earnings per common share attributable to Consolidated Water Co.

common stockholders

Continuing operations

Discontinued operations

Basic earnings per share

Diluted earnings per common share attributable to Consolidated Water Co.

common stockholders

Continuing operations

Discontinued operations

Diluted earnings per share

Weighted average number of common shares used in the determination of:

Basic earnings per share

Diluted earnings per share

Related party transactions

The Company, through PERC and the services segment, purchases engineering and technology support services from various companies with a minority shareholder who is also a minority shareholder of PERC.

During the years ended December 31, 2020 and 2019, the Company made total purchases of services of approximately $ 1,349,000 and $ 10,000 from these companies, respectively.

These total purchases are included in the Company’s cost of revenues in the

accompanying consolidated statements of income .

The total amount of accounts payable outstanding to these companies as of December 31, 2020 and 2019, was approximately $ 201,000 and $ 57,000 , respectively.

Supplemental disclosure of cash flow information

Ended December 31,

Year Ended December 31,

Interest paid in cash

1 unchanged sentence

Dividends declared but not paid

Transfers from inventory to property, plant

and equipment and construction in progress

Transfers from construction in progress to property,

plant and equipment

Transfers from other assets to construction

Right-of-use assets obtained in exchange for

new operating lease liabilities

Transfers from inventory to property, plant and equipment and construction in progress

Transfers from construction in progress to property, plant and equipment

Right-of-use assets obtained in exchange for new operating lease liabilities

Purchase of equipment through issuance of long term debt

Impact of recent accounting standards

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, Leases:

Targeted Improvements , which amends the new leasing guidance such that entities may elect

not to restate their comparative periods in the period of adoption.

In January 2018, the FASB issued ASU 2018-01, Leases

(Topic 842) , which provides an optional transition practical expedient for the adoption of ASU 2016-02 that, if elected, would

not require an organization to reconsider their accounting for existing land easements that are not currently accounted for under

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

has adopted the new standard.

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.

The Company 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.

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 agreements.

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

Adoption of New Accounting Standards:

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.

Subsequent events

The Company evaluated subsequent events

through the time of the filing of its Annual Report on Form 10-K.

As previously reported, in February 2016,

the Company, through its wholly-owned subsidiary, CW-Holdings, entered into a stock purchase agreement (the “Purchase Agreement”)

with Aerex and Thomas Donnick, Jr.

(“Donnick”).

Pursuant to the terms of the Purchase Agreement, CW-Holdings

purchased a 51% ownership interest in Aerex for an aggregate purchase price of approximately $7.7 million.

CW-Holdings also acquired

from Donnick an option (the “Call Option”) to compel Donnick to sell, and granted to Donnick an option to require

CW-Holdings to purchase, his 49% ownership interest in Aerex to CW-Holdings at a price based upon the fair market value of Aerex

at the time of the exercise of the Call Option.

On January 24, 2020, as a result of

CW-Holdings’

exercise of the Call Option, CW-Holdings purchased from Donnick his remaining 49% ownership interest in Aerex

for an aggregate purchase price of $8,500,000.

The purchase price was based upon the fair market value of 49% of Aerex as agreed

to between CW-Holdings and Donnick.

After giving effect to the purchase, CW-Holdings owns 100% of the outstanding capital stock

Other than as disclosed in these 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 consolidated financial statements.

CHANGES IN AND DISAGREEMENTS

WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The Company evaluated subsequent events through the time of the filing of its Annual Report on Form 10-K.

Other than as disclosed in these 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 consolidated financial statements.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data