What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-29 compared with 2021-03-31 · 225 added, 362 removed, 800 unchanged (42% of the section changed)

2 unchanged sentences

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of December 31, 2021 and 2020

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Opinion on the Financial Statements

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

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

(the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

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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.

Evaluation of Goodwill for All Reporting Units

At December 31, 2021, the Company’s goodwill balance was $10,425,013.

As discussed in Note 2 to the consolidated financial statements, the Company evaluates the possible impairment of goodwill at least annually, or upon a triggering event, for each of its four reporting units – retail, bulk, services, and manufacturing.

The Company estimated the fair value of their 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.

The 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 reporting units by applying the guideline public company method.

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

The weighted approach applied 80% to the discounted cash flow method and 20% to the guideline public company method.

Management identified a triggering event, which required an evaluation of the fair value of goodwill recorded in the manufacturing reporting unit as of June 30, 2021.

The fair value of the manufacturing reporting unit did not exceed its carrying value as of this measurement date and, therefore, an impairment expense of $2,900,000 was recognized as of June 30, 2021.

The Company also evaluated the fair value of goodwill recorded for all four reporting units as of December 31, 2021 noting that the fair value of the reporting units exceeded its carrying value as of this measurement date and, therefore, no additional impairment was recognized.

Management’s goodwill impairment assessments for the separate reporting units involves subjective management assumptions.

These assumptions are forward-looking and are affected by shifts in the evolving market landscape.

Changes in these assumptions can have a material effect on the determination of the fair value of each reporting unit.

The most subjective and significant assumptions used in the valuing each reporting unit are the estimated discount rates, selection of guideline companies, and future operating projections.

Given the significant judgments made by management to estimate the fair value of each reporting unit, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the projections of future operating results required a high degree of auditor judgment and an increased extent of effort.

Our audit procedures to test management’s goodwill impairment evaluations included the following, among others:

● We utilized our internal valuation specialists to assess the valuation methodologies and significant assumptions discussed above.

This includes assessing the discount rates and guideline public companies.

● We evaluated the reasonableness of management’s revenue and operating projections for all reporting units by comparing the projections to the Company’s historical operating results, reviewing internal communications between management and prospective customers, and comparing to underlying source documents (if available) such as customer contracts included within the Company's backlogs.

● We recalculated and tested the estimated fair values of the Company’s reporting units.

● We assessed management's sensitivity analysis regarding the significant assumptions used in the valuation.

● We reviewed the results of our audit procedures performed throughout the course of the engagement and compared our results to the goodwill impairment analysis to verify that there is no contradictory evidence that would result in a change to the overall assumptions or conclusions reached by management.

/s/ Marcum LLP

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Cash and cash equivalents

Certificate of deposit

Accounts receivable, net

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Operating lease right-of-use assets

Net asset arising from put/call options

Long-term assets of discontinued operations

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Contract liabilities

Deferred revenue

Current liabilities of discontinued operations

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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 on asset dispositions and impairments, net

Cost of revenue ( including purchases from related parties of $ 437,857 in 2021 and $ 1,349,331 in 2020)

General and administrative expenses ( including purchases from related parties of $ 77,190 in 2021 and $ 0 in 2020)

Gain (loss) on asset dispositions and impairments, net

( 3,145,836 )

Income from operations

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Income before income taxes

Provision for income taxes

Provision (benefit) for income taxes

Net income from continuing operations

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Net income from continuing operations attributable to Consolidated Water Co.

Gain on sale of discontinued operations

Net loss from discontinued operations

( 4,902,243 )

Total loss from discontinued operations

( 2,574,079 )

Total income (loss) from discontinued operations

( 4,902,243 )

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( 5,153,552 )

PERC non-controlling interest at acquisition date

Sale of CW-Bali

Acquisitions of non-controlling interests

( 2,579,882 )

( 6,820,118 )

( 9,400,000 )

Stock-based compensation

4 unchanged sentences

Exercise of options

Purchase of noncontrolling interests in Aerex and PERC

( 2,579,882 )

( 6,820,118 )

( 9,400,000 )

Dividends declared

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Cash flows from operating activities

Net income attributable to Consolidated Water Co.

Income from continuing operations attributable to non-controlling interests

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

Impairment loss for Mexico assets - discontinued operations

Depreciation and amortization of discontinued operations

Depreciation and amortization - discontinued operations

Foreign currency transaction adjustment - discontinued operations

Loss from discontinued operations

Gain on sale of discontinued operations

( 3,621,170 )

Depreciation and amortization

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Compensation expense relating to stock and stock option grants

Gain on asset dispositions and impairments, net

Foreign currency transaction adjustment

Loss (gain) on asset dispositions and impairments, net

Profit-sharing and equity in earnings of OC-BVI

Distribution of earnings from OC-BVI

Impairment of goodwill

Accounts receivable and contract assets

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

( 1,342,463 )

Operating lease liabilities

Deferred revenue

Net cash provided by operating activities - continuing operations

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Cash flows from investing activities

Purchase of certificate of deposit

( 2,500,000 )

Additions to property, plant and equipment and construction in progress

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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

Purchase of non-controlling interest in Aerex

( 8,500,000 )

Purchase of noncontrolling interest in PERC

Collections on loans receivable

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

Purchase of non-controlling interest in PERC

Net cash used in investing activities

( 3,944,452 )

Net cash used in investing activities - discontinued operations

Net cash provided by (used in) investing activities

( 11,119,755 )

4 unchanged sentences

Dividends paid to preferred shareholders

Dividends paid to non-controlling interests

Repurchase of redeemable preferred stock

4 unchanged sentences

( 5,169,926 )

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

( 2,840,173 )

Cash and cash equivalents at beginning of period

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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 of the Company and its 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.

NSC and AdR conduct business in US$ and Mexican pesos and CW-Cooperatief conducts business in US$ and euros.

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

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

Net foreign currency gains arising from transactions and re-measurements were $ 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.

Net foreign currency gains arising from transactions and re-measurements were $ 32,594 and $ 68,818 for the years ended December 31, 2021 and 2020, respectively, and are included in “Other income (expense) - Other” in the accompanying consolidated statements of income.

Cash and cash equivalents:

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banks in excess of federally insured limits of approximately $ 7.8 million.

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

As of December 31, 2021, the Company held cash in foreign bank accounts of approximately $ 33.1 million, which includes a $ 2.5 million certificate of deposit with an original maturity of six months.

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.

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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.

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

Additions to construction in progress are comprised of the cost of the contracted services, direct labor and materials.

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.

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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.

Goodwill represents the excess cost of an acquired business over the fair value of the individual assets and liabilities of an acquired business.

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.

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

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The Company also estimated the fair value of each of it reporting units for the years ended December 31, 2021 and 2020 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

Discounted cash flow

Guideline public company

Mergers and acquisitions

As of December 31, 2019

Manufacturing

Discounted cash flow

Guideline public company

Mergers and acquisitions

The respective weightings the Company

applied to each method for the years ended December 31, 2021 and 2020 were 80 % to the discounted cash flow method and 20 % to the guideline public company method.

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

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 .

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.

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

While the fair value the Company estimated for its manufacturing reporting unit exceeded its carrying value by 31 % as of December 31, 2020, due to new information the Company obtained in 2021, the Company was required to record an impairment loss for its manufacturing reporting unit’s goodwill in 2021, as discussed in paragraphs that follow.

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

While Aerex sells various products to this customer, Aerex’s revenue from this customer has historically been derived primarily from one specialized product.

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

This customer informed Aerex at that time that it expected to recommence its purchases of the specialized product from Aerex beginning with the first quarter of 2022.

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

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

Based upon these updated projections, the Company tested its manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020 using the discounted cash flow and guideline public company methods, with a weighting of 80 % and 20 % applied to these two methods, respectively.

As a result of these impairment tests, the Company determined that the estimated fair value of its manufacturing reporting unit exceeded its carrying value by approximately 31 % as of December 31, 2020.

In late July 2021, this former major customer communicated to Aerex that it expected to recommence its purchases of the specialized product from Aerex in 2022 and subsequent years, but informed Aerex that such purchases would be at substantially reduced annual amounts, as compared to the amounts it had purchased from Aerex in 2020 and prior years.

The Company’s updated sales estimate for this customer based on this new information was substantially below the sales the Company anticipated to this customer for 2022 and subsequent years that the Company used in the discounted cash flow projections the Company prepared for purposes of testing its manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020.

Aerex’s efforts to replace the revenue previously generated from this customer with revenue from existing and new customers have been adversely impacted by continuing negative economic conditions, which have increased Aerex’s raw material costs, resulted in raw material shortages and extended delivery times for such materials and, the Company believes, also adversely affected the overall financial condition of Aerex’s current and prospective customer base.

Accordingly, in light of this new information from Aerex’s former major customer, and present weak economic conditions that the Company believes will continue into 2022, the Company updated its projections of future cash flows for the manufacturing reporting unit and tested its goodwill for possible impairment as of June 30, 2021 using the discounted cash flow and guideline public company methods, with a weighting of 80 % and 20 % applied to these two methods, respectively.

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

Based upon its most recent estimation prepared as of December 31, 2021, the fair value of the Company’s manufacturing reporting unit exceeded its carrying value by only 15 %.

If the Company determines in the future that Aerex’s discounted future cash inflows will be less than its present expectation, the Company may be required to record additional impairment losses to reduce the remaining carrying values as of December 31, 2021 of its manufacturing reporting unit’s goodwill of $ 1,985,211 and its remaining unamortized intangible assets balances of $ 847,778 recorded as a result of the acquisition of Aerex.

Any such impairment losses could have a material adverse impact on the Company’s consolidated results of operations.

Based upon its most recent estimation prepared as of December 31, 2021, the fair value of the Company’s services reporting unit exceeded its carrying value by only 15 %.

If the Company determines in the future that PERC’s discounted future cash inflows will be less than its present expectation, the Company may be required to record impairment losses to reduce the carrying values as of December 31, 2021 of its services reporting unit’s goodwill of $ 5,320,416 and its

remaining unamortized intangible assets balances of $ 2,553,888 recorded as a result of the acquisition of PERC.

Any such impairment losses could have a material adverse impact on the Company’s consolidated results of operations.

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.

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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.

The Company was solely responsible for the engineering, labor and materials costs incurred to reduce the amount of 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, 2021 and 2020.

Accumulated amortization for these costs was approximately $ 2.7 million and $ 2.5 million as of December 31, 2021 and 2020, respectively.

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

Amortization expense for these costs was $ 179,353 for the years ended December 31, 2021 and 2020.

Income taxes:

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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.

CW-Bahamas also sold water to a private resort on Bimini through December 18, 2020, which generated revenue of approximately $ 127,000 for the year ended December 31, 2020.

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

1 unchanged sentence

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.

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

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

1 unchanged sentence

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.

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

The Company recognizes revenue for its construction and its specialized/custom manufacturing contracts over time under the input method using costs incurred (which represents work performed) to date relative to total estimated costs at completion to measure progress toward satisfying its performance obligations as such measure best reflects the transfer of control of the promised good to the customer.

Contract costs include labor, materials and amounts payable to subcontractors.

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

Under this input method, the Company records revenue and recognizes profit or loss as work on the contract progresses.

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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:

As of December 31, 2021 and 2020, the equivalent United States dollars of the Company’s cash and cash equivalents, including those accounts denominated in currencies other than the U.S.

dollar, are as follows:

Bank accounts:

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Accounts written off during the year

Recovery of accounts written off

Ending allowance for doubtful accounts

11 unchanged sentences

( 17,791,928 )

Net contract asset

Net contract asset (liability)

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

1 unchanged sentence

Contract liabilities

Net contract asset

Net contract asset (liability)

As of December 31, 2021 , the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 5.7 million in aggregate transaction price for contracts with an original expected length of greater than one year.

9 unchanged sentences

Construction in progress

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

As of December 31, 2021, the Company had outstanding capital commitments of approximately $ 2.7 million.

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, 2021 and 2020, $ 644,224 and $ 1,653,501 , respectively, of construction in progress was placed in service.

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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.

In 2010, the Company began the pursuit, through its Netherlands subsidiary, Consolidated Water Cooperatief, U.A.

(“CW-Cooperatief”), and its Mexico subsidiary, N.S.C.

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

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

Following an assessment by the State of Baja, California (the “State”) of the need for such a desalination plant and the passage of enabling legislation in November 2015, the State officially commenced the required public tender for the Project.

A consortium (the “Consortium”) comprised of NSC, Suez Medio Ambiente México, S.A.

(“Suez MA”), a subsidiary of SUEZ International, S.A.S., and NuWater S.A.P.I.

(“NuWater”) submitted its tender for the Project in April 2016 and in June 2016, the State designated the Consortium as the winner of the tender process for the Project.

In August 2016, NSC and NuWater incorporated a new company under the name Aguas de Rosarito S.A.P.I.

(“AdR”) to pursue completion of the Project and executed a shareholders agreement for AdR agreeing among other things that (i) AdR would purchase the land and other Project assets from NSC on the date that the Project begins commercial operation and (ii) AdR would enter into a Management and Technical Services Agreement with NSC effective on the first day that the Project begins commercial operation.

NSC initially owned 99.6 % of the equity of AdR.

In February 2018, 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”).

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

The APP Contract required AdR to design, construct, finance and operate a seawater reverse osmosis desalination plant (and accompanying aqueduct) with a capacity of up to 100 million gallons per day in two phases:

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

and an aqueduct to the Mexican potable water system in Tijuana, Baja California and the second phase with a capacity of 50 million gallons per day.

The first phase was to be operational within 36 months of commencing construction and the second phase was to be operational by July 2024.

The APP Contract further required AdR to operate and maintain the plant and aqueduct for a period of 37 years starting from the commencement of operation of the first phase.

At the end of the operating period, 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 expired June 30, 2020.

Both the exchange rate for the Mexican peso relative to the dollar and general macroeconomic conditions in Mexico varied since the execution of the APP Contract.

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

The APP Contract and the APP Law allowed for the parties to negotiate (but did not guarantee) modifications to the consideration (i.e.

water tariff) under the APP Contract in the event of such significant

macroeconomic condition changes.

In February 2017, AdR submitted proposals to CEA requesting the definition of the mechanism required by the APP Contract to update the consideration under the APP Contract for changes in foreign exchange rates, lending rates and certain laws which have impacted the Project.

On June 1, 2018, AdR and CEA executed an amendment to the APP Contract which, among other things, increased the scope of Phase 1 of the Project for including the aqueduct originally designated for Phase 2, and addressed AdR’s concerns regarding the impact on the Project for changes in the exchange rate for the peso relative to the dollar and changes in interest rates that occurred subsequent to the submission of the Consortium’s bid for the Project.

As a result of this amendment to the APP Contract, the final cost of Phase 1 and the related consideration to be charged by AdR under the APP Contract would have been determined based upon the bid submitted by the Consortium, the changes set forth in the amendment to the APP Contract and the economic conditions (e.g.

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

In February 2018, AdR executed a subscription agreement (the “Agreement”) for the equity funding required for the Project.

The Agreement calls for NSC to retain a minimum of 25% of the equity in AdR.

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

(“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.

At the end of the operating period, ownership of the plant and aqueduct would have been transferred to CEA.

The APP Contract was subsequently amended by the parties in June 2018 to increase the scope of Phase 1 and to allow for changes in the water tariff due to the changes in the exchange rate for the peso, interest rates and construction costs that had and would occur from the date the APP Contract was signed to the date construction commenced.

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

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

interest rates and currency exchange rates);

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

(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:

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

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

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

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

In February 2021, AdR withdrew this amparo claim, and such withdrawal was accepted by the federal district court in Tijuana.

To date, AdR has not received a response from CEA or CESPT to its submission of non-recoverable expenses.

The Company believes CW-Cooperatief, as a Netherlands company, has certain rights relating to its investments in NSC and AdR under the Agreement on Promotion, Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the United Mexican States entered into force as of October 1, 1999 (the “Treaty”).

On April 16, 2021, CW-Cooperatief submitted a letter to the President of Mexico and other Mexican federal government officials alleging that the State’s termination of the APP Contract constituted a breach by Mexico of its international obligations under the Treaty, entitling CW-Cooperatief to full reparation, including monetary damages.

This letter invites Mexico to seek a resolution of this investment dispute through consultation and negotiation, but states that if the dispute cannot be resolved in this manner, CW-Cooperatief elects to refer the dispute to the International Centre for the Settlement of International Disputes for arbitration, as provided for in the Treaty.

On June 29, 2021, the Mexican Ministry of Economy responded to CW-Cooperatief’s letter and proposed to hold a consultation meeting.

Two such meetings were held on July 9, 2021 and August 2, 2021 on a confidential basis, without a resolution of the Company’s investment dispute.

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

CW-Cooperatief intends to pursue vigorously the relief sought in the arbitration, in addition to pursuing all other legal remedies and courses of action available under the operative contracts and applicable law with respect to their rights, damages, fees and expenses.

The Company cannot provide any assurances that CW-Cooperatief will be able to obtain the relief sought in the arbitration, and CW-Cooperatief will incur legal and other arbitration-related expenses that the Company expects will be material to its consolidated results of operations and cash flows.

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

As a result of the cancellation of the APP Contract, in 2020 the Company discontinued all development activities associated with the Project and commenced active marketing efforts to sell the land NSC purchased for the Project.

Accordingly, the assets and liabilities of CW-Cooperatief, NSC and AdR, as well as all Project development expenses, the impairment loss of approximately ($ 3.0 million) recorded during 2020 for Project assets, and the costs for legal and administrative activities to pursue reimbursement from the State of Baja California following the cancellation of the APP Contract, have been reclassified from the services segment to discontinued operations in the accompanying consolidated financial statements.

The Company’s net losses from discontinued operations for the years ended December 31, 2021 and 2020 were ($ 2,574,079 ) and ($ 4,902,243 ), respectively.

The Company’s net loss from discontinued operations for 2021 and 2020 also includes provisions of $ 963,540 and $ 316,217 , respectively, for potentially uncollectible value added taxes paid that are reimbursable/receivable from the Mexican federal government.

The Company recorded the 2021 provision as a result of the Mexican government’s rejection of its most recent request for repayment of these value added taxes paid.

The Company believes it is legally entitled to be repaid for these value added taxes and has engaged a firm to assist it in collecting these amounts from the Mexican government.

However, the Company ultimately may not be able to obtain such payment from the Mexican government and therefore may be required in the future to record another provision to write off the remaining balance of these receivables, which amounted to $ 340,910 as of December 31, 2021.

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

Prepaid expenses and other current assets

Value added taxes receivable

Value added taxes receivable (net of allowance of $ 1,279,757 and $ 316,217 , respectively)

Property, plant and equipment, net

Land and rights of way

Total assets of discontinued operations

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Net loss from discontinued operations

Gain on sale of discontinued operations

Depreciation expense

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

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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);

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.

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 court, as a preliminary matter (a) suspend the effectiveness of the challenged transactions;

(b) order certain public officials in Mexico to record the pendency of the lawsuit in the public records (including a special request to register a lien over the real estate owned by NSC);

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On November 7, 2018, NSC filed a legal response to the claim, vigorously opposing the claims made by EWG.

In addition to such legal response, NSC filed (i) a request to submit the claim to arbitration, based on certain provisions of the by-laws of NSC, (ii) an appeal remedy against the preliminary relief (which was resolved in December 2019, and ordered the revocation of the order of the Tenth Civil Judge granting EWG the preliminary relief), and (iii) a request for the setting of a guarantee to release the preliminary relief granted in favor of EWG.

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

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.

EWG challenged such resolution, arguing that its notification was not lawful.

The Tenth Civil Judge dismissed such challenge, and thereafter EWG filed a remedy against such dismissal.

NSC appeared before the court to vigorously oppose such remedy, which has been dismissed.

To date, the referral to arbitration has not occurred and, as such, the procedure is currently suspended.

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

Due to the global COVID-19 pandemic, most tribunals in Mexico suspended their activities intermittently since March 2020, with certain such tribunals partially restarting on different dates and with different special rules.

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.

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

In July 2021, EWG filed an amparo claim against the resolution of the Tenth Civil Judge dismissing the remedy filed by EWG against the October 1, 2020 resolution within the mentioned ordinary mercantile claim.

NSC has filed before the corresponding amparo court a writ vigorously opposing this claim.

Considering the foregoing, and that AdR was only named as a third party with interest, it is unnecessary for it to submit arguments against EWG in this claim.

Further, CW-Cooperatief has not been notified of this amparo claim.

Within this amparo claim, the Third District Court in Tijuana granted a suspension in favor of EWG, merely for the effect of holding in place the referral to arbitration subject matter of the October 1, 2020 resolution mentioned above.

Such suspension was conditioned on the posting by EWG of a guarantee in the amount of 50,000 Mexican pesos, which has not been posted.

Regardless of the effects of the suspension and the lack of the posting of a guarantee, NSC has filed an appeal remedy against its granting.

To date, and following a final hearing that took place in March 2022, a resolution to this claim is pending issuance.

b) Appeal filed by NSC against the suspension granted in favor of EWG.

The appeal remedy mentioned in the second paragraph of item a) immediately above was admitted by the superior court on October 18, 2021 and has yet to be resolved.

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.

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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 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 Company’s purchase transactions for Aerex and PERC identified certain intangible assets.

The remaining intangible assets and their respective useful lives are as follows:

non-compete agreements ( 3 and 5 years ), trade names ( 15 years ), customer backlog ( 2 years ), and facility management contracts ( 6 years ).

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

Non-compete agreements

Certifications/programs

Customer backlogs

Customer relationships

Facility management contracts

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Non-compete agreements

Certifications/programs

( 2,000,000 )

Customer backlogs

Customer relationships

( 2,000,000 )

( 1,958,333 )

Facility management contracts

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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.

Amortization expense was $ 746,667 and $ 891,667 for the years ended December 31, 2021 and 2020, 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.

For leases with terms greater than twelve months, the related asset and obligation are recorded at the present value of the lease payments over the term.

Many of these leases contain rental escalation clauses which are factored into the determination of the lease payments when appropriate.

When available, the lease payments are discounted using the rate implicit in the lease;

however, the Company’s current leases 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.

Therefore, the Company’s incremental borrowing rate is estimated to discount the lease payments based on information available at the lease commencement.

These leases contain both lease and non-lease components, which the Company has elected to treat as a single lease component.

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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.

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.

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

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.

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

This new lease expires, including all renewal options, on March 8, 2031.

Lease assets and liabilities

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United States

Less gain on sale of discontinued operations

( 2,952,265 )

Less discontinued operations

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

The Company’s provision (benefit) for income taxes for the years ended December 31, 2021 and 2020, which related to U.S.

operations, consisted of the following:

Year Ended December 31,

Total provision

Total provision (benefit)

A reconciliation of the U.S.

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Permanent items

Goodwill impairment

Valuation allowance for deferred tax assets

3 unchanged sentences

Research & development tax credits

Loss carry forward

Accrued compensation

12 unchanged sentences

( 10,462,949 )

As of December 31, 2021, continuing operations has a federal net loss carryforward of $ 1.2 million and a state net loss carryforward of $ 1.1 million, both of which have an indefinite expiration date.

Discontinued operations has a net loss carryforward of $ 14.1 million that will begin to expire, if unused, in various amounts between 2022 and 2041.

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.

Earnings per share (“EPS”) is computed on a basic and diluted basis.

Basic EPS is computed by dividing net income (loss) (less preferred stock dividends) available to common stockholders by the weighted average number of common shares outstanding during the period.

The computation of diluted EPS assumes the issuance of common shares for all potential common shares outstanding during the reporting period and, if dilutive, the effect of stock options as computed under the treasury stock method.

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

Total income (loss) from discontinued operations

Total loss from discontinued operations

( 2,574,079 )

( 4,902,243 )

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

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General and administrative expenses

Gain on asset dispositions and impairments, net

Gain (loss) on asset dispositions and impairments, net

( 2,900,000 )

( 3,145,836 )

Income (loss) from operations

( 2,044,094 )

( 4,036,666 )

Other income, net

Income before income taxes

Provision for income taxes

Benefit from income taxes

Net income from continuing operations

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Gain on asset dispositions and impairments, net

Income from operations

Income (loss) from operations

( 1,004,924 )

Other income, net

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Net income from continuing operations attributable to Consolidated Water Co.

Net income from discontinued operations

Net loss from discontinued operations

( 4,902,243 )

Net income attributable to Consolidated Water Co.

101 unchanged sentences

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 non-performance-based stock grant rights, which are issued on January 1 of each year, vest in one-third increments at the end of each year over a three-year period.

The number of non-performance-based stock grant rights issued on January

1, 2021 and 2020 were 26,403 and 23,458 , respectively.

These stock grant rights vest in one-third increments over the three-year periods ending December 31, 2023 and 2022, respectively.

The total number of vested shares issued under prior years’ non-performance stock grant rights totaled 25,789 and 28,891 in the years ended December 31, 2021 and 2020, respectively.

For the years ended December 31, 2021 and 2020, the Company recognized $ 306,250 and $ 344,940 in stock-based compensation expense, respectively, related to the incremental vesting of the non-performance stock grant rights.

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.

A total of 18,419 stock grant rights were earned as of December 31, 2021 based upon the Company’s actual financial performance relative to the cumulative financial performance targets for the three-year period ended December 31, 2021, and the Company recognized $ 214,765 in stock-based compensation for the year ended December 31, 2021 related to these grants.

The shares associated with these grants will be issued in 2022.

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.

A total of 31,788 stock grant rights 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 were issued in 2021.

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December 31, 2021

Net liability arising from put/call options

Certificate of deposit

Net asset arising from put/call options

December 31, 2020

1 unchanged sentence

The activity for the Level 3 asset for the year ended December 31, 2021:

Net liability arising from put/call options

Net (liability)/asset arising from put/call options

Balance as of December 31, 2020

Unrealized loss

Unrealized gain

Balance as of December 31, 2021

8 unchanged sentences

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.

Tourism, a major economic driver for the Cayman Islands, temporarily ceased due to closing of the country to tourist arrivals by air and sea travel and has yet to return to pre-pandemic levels.

Tourist arrivals to The Bahamas by air and sea also declined significantly due to the pandemic and continue to be less than pre-pandemic numbers due to the continued reluctance of people to travel internationally.

Overall economic activity in the United States has also 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, net income and overall liquidity as compared to pre-pandemic periods.

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

Such adverse market effects could further 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 continue to 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.

3 unchanged sentences

Seven Mile Beach and West Bay.

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.

In 2021 and 2020, the Company generated approximately 33 % and 32 %, respectively, of its consolidated revenue and 47 % and 44 %, 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.

5 unchanged sentences

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.

Supplemental legislation was passed by the Government of the Cayman Islands in April 2017, which transferred responsibility for the economic regulation of the water utility sector and the negotiations with the Company for a new retail license from the WAC to OfReg in May 2017.

The Company began license negotiations with OfReg in July 2017 and such negotiations are ongoing.

2 unchanged sentences

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.

CW-Bahamas’ accounts receivable balances (including accrued interest) due from the WSC amounted to $ 21.5 million and $ 16.8 million as of December 31, 2021 and 2020.

From time to time (including presently), 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.

All previous delinquent accounts receivable from the WSC, including accrued interest thereon, were eventually paid in full.

Based upon this payment history, CW-Bahamas has never been required to provide an allowance for doubtful accounts for any of its accounts receivable, despite the periodic accumulation of significant delinquent balances.

As of December 31, 2021, the Company has not provided an allowance for doubtful accounts for CW-Bahamas’ accounts receivable from the WSC.

The Bahamas government and the WSC continue to make intermittent payments on these accounts receivable, and such payments amounted to approximately $ 22.9 million for the year ended December 31, 2021.

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:

3 unchanged sentences

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 .

During the years ended December 31, 2021 and 2020, the Company made total purchases of services of approximately $ 438,000 and $ 1,349,000

from these companies, respectively.

These total purchases are included in the Company’s cost of revenue in the accompanying consolidated statements of income .

On February 1, 2021, PERC entered into a sublease agreement with a related company commencing March 14, 2021 and ending August 31, 2021.

This lease has been extended on a month-to-month basis subsequent to August 31, 2021.

During the year ended December 31, 2021, the Company recognized approximately $ 77,000 of expense related to this lease.

This lease amount is included in the Company's general and administrative expenses in the accompanying consolidated statements of income.

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

7 unchanged sentences

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

Purchase of equipment through issuance of long term debt

Purchases of equipment through issuance of long-term debt

Impact of recent accounting standards

4 unchanged sentences

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.

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 consolidated financial position, results of operations or cash flows.

Subsequent events

3 unchanged sentences

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