Consolidated Water Co. Ltd. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ​ Page CONSOLIDATED WATER CO. LTD. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID No. 688 ) 44 Consolidated Balance Sheets as of December 31, 2021 and 2020 46 Consolidated Statements of Income for the Years Ended December 31, 2021 and 2020 47 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021 and 2020 48 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 49 Notes to Consolidated Financial Statements 50 ​ Schedule II, Valuation and Qualifying Accounts, is omitted because the information is included in the financial statements and notes. ​ 43 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ To the Shareholders and Board of Directors of Consolidated Water Co. Ltd. ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheet s of Consolidated Water Co. Ltd. (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”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. ​ Basis for Opinion ​ These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. ​ Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ Critical Audit Matters ​ The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. ​ 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 44 Table of Contents 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 ​ ​ ​ We have served as the Company’s auditor since 2005. ​ ​ ​ West Palm Beach, Florida ​ March 29, 2022 ​ ​ ​ 45 Table of Contents CONSOLIDATED WATER CO. LTD. ​ CONSOLIDATED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 ​ ​ ​ ​ ​ ​ ​ ASSETS ​ ​ ​ Current assets ​ ​ ​ Cash and cash equivalents ​ $ 40,358,059 ​ $ 43,794,150 Certificate of deposit ​ ​ 2,500,000 ​ ​ — Accounts receivable, net ​ 27,349,307 ​ 21,483,976 Inventory ​ 2,504,832 ​ 3,214,178 Prepaid expenses and other current assets ​ 2,558,822 ​ 2,412,282 Contract assets ​ 489,961 ​ 516,521 Current assets of discontinued operations ​ 1,173,741 ​ 1,511,099 Total current assets ​ ​ 76,934,722 ​ 72,932,206 Property, plant and equipment, net ​ 52,946,539 ​ 57,687,984 Construction in progress ​ 710,863 ​ 440,384 Inventory, noncurrent ​ 4,733,010 ​ 4,506,842 Investment in OC-BVI ​ 1,715,905 ​ 2,092,146 Goodwill ​ 10,425,013 ​ 13,325,013 Intangible assets, net ​ 3,401,666 ​ 4,148,333 Operating lease right-of-use assets ​ ​ 2,681,137 ​ ​ 1,329,561 Net asset arising from put/call options ​ ​ 128,000 ​ ​ — Other assets ​ 2,204,013 ​ 1,926,594 Long-term assets of discontinued operations ​ 21,146,186 ​ 21,166,489 Total assets ​ $ 177,027,054 ​ $ 179,555,552 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND EQUITY ​ ​ Current liabilities ​ ​ Accounts payable, accrued expenses and other current liabilities ​ $ 2,831,925 ​ $ 2,740,191 Accounts payable - related parties ​ ​ 163,947 ​ ​ 200,558 Accrued compensation ​ 1,435,542 ​ 1,434,106 Dividends payable ​ 1,320,572 ​ 1,300,022 Current maturities of operating leases ​ ​ 592,336 ​ ​ 455,788 Current portion of long-term debt ​ ​ 62,489 ​ ​ 42,211 Contract liabilities ​ 513,878 ​ 461,870 Deferred revenue ​ ​ 583,646 ​ ​ 115,936 Current liabilities of discontinued operations ​ 182,322 ​ 188,434 Total current liabilities ​ 7,686,657 ​ 6,939,116 Long-term debt, noncurrent ​ ​ 152,038 ​ ​ 126,338 Deferred tax liabilities ​ 1,236,723 ​ 1,440,809 Noncurrent operating leases ​ ​ 2,137,394 ​ ​ 982,076 Net liability arising from put/call options ​ ​ — ​ ​ 690,000 Other liabilities ​ 141,000 ​ 362,165 Long-term liabilities of discontinued operations ​ ​ 7,819 ​ ​ 2,499 Total liabilities ​ 11,361,631 ​ 10,543,003 Commitments and contingencies ​ ​ Equity ​ ​ Consolidated Water Co. Ltd. stockholders' equity ​ ​ Redeemable preferred stock, $ 0.60 par value. Authorized 200,000 shares; issued and outstanding 28,635 and 31,068 shares, respectively ​ 17,181 ​ 18,641 Class A common stock, $ 0.60 par value. Authorized 24,655,000 shares; issued and outstanding 15,243,693 and 15,143,683 shares, respectively ​ 9,146,216 ​ 9,086,210 Class B common stock, $ 0.60 par value. Authorized 145,000 shares; none issued ​ — ​ — Additional paid-in capital ​ 87,812,432 ​ 86,893,486 Retained earnings ​ 60,603,056 ​ 64,910,709 Total Consolidated Water Co. Ltd. stockholders' equity ​ 157,578,885 ​ 160,909,046 Non-controlling interests ​ 8,086,538 ​ 8,103,503 Total equity ​ 165,665,423 ​ 169,012,549 Total liabilities and equity ​ $ 177,027,054 ​ $ 179,555,552 ​ The accompanying notes are an integral part of these consolidated financial statements. 46 Table of Contents CONSOLIDATED WATER CO. LTD. ​ CONSOLIDATED STATEMENTS OF INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 Revenue ​ $ 66,863,502 ​ $ 72,628,126 Cost of revenue ( including purchases from related parties of $ 437,857 in 2021 and $ 1,349,331 in 2020) ​ 43,356,311 ​ 45,859,671 Gross profit ​ 23,507,191 ​ 26,768,455 General and administrative expenses ( including purchases from related parties of $ 77,190 in 2021 and $ 0 in 2020) ​ 18,350,359 ​ 18,434,898 Gain (loss) on asset dispositions and impairments, net ​ ( 3,145,836 ) ​ 13,997 Income from operations ​ 2,010,996 ​ 8,347,554 ​ ​ ​ ​ ​ ​ ​ Other income (expense): ​ ​ Interest income ​ 684,809 ​ 540,096 Interest expense ​ ( 10,248 ) ​ ( 9,669 ) Profit-sharing income from OC-BVI ​ 22,275 ​ 135,675 Equity in the earnings of OC-BVI ​ 55,984 ​ 371,019 Net unrealized gain (loss) on put/call options ​ 818,000 ​ ( 26,000 ) Other ​ 52,775 ​ 71,825 Other income, net ​ 1,623,595 ​ 1,082,946 Income before income taxes ​ 3,634,591 ​ 9,430,500 Provision (benefit) for income taxes ​ ( 447,982 ) ​ 86,724 Net income from continuing operations ​ 4,082,573 ​ 9,343,776 Income from continuing operations attributable to non-controlling interests ​ 632,915 ​ 730,005 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ 3,449,658 ​ 8,613,771 Total loss from discontinued operations ​ ​ ( 2,574,079 ) ​ ​ ( 4,902,243 ) Net income attributable to Consolidated Water Co. Ltd. stockholders ​ $ 875,579 ​ $ 3,711,528 ​ ​ ​ ​ ​ ​ ​ Basic earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ ​ Continuing operations ​ $ 0.23 ​ $ 0.56 Discontinued operations ​ ​ ( 0.17 ) ​ ​ ( 0.32 ) Basic earnings per share ​ $ 0.06 ​ $ 0.24 ​ ​ ​ ​ ​ ​ ​ Diluted earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ ​ Continuing operations ​ $ 0.23 ​ $ 0.56 Discontinued operations ​ ​ ( 0.17 ) ​ ​ ( 0.32 ) Diluted earnings per share ​ $ 0.06 ​ $ 0.24 ​ ​ ​ ​ ​ ​ ​ Dividends declared per common and redeemable preferred shares ​ $ 0.34 ​ $ 0.34 ​ ​ ​ ​ ​ ​ ​ Weighted average number of common shares used in the determination of: ​ ​ Basic earnings per share ​ 15,213,816 ​ 15,119,305 Diluted earnings per share ​ 15,310,145 ​ 15,223,955 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 47 Table of Contents CONSOLIDATED WATER CO. LTD. ​ CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Redeemable ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ ​ ​ ​ Total ​ ​ preferred stock ​ Common stock ​ paid-in ​ Retained ​ Non-controlling ​ stockholders’ ​ Shares Dollars Shares Dollars capital earnings interests equity Balance as of December 31, 2019 33,751 ​ $ 20,251 15,049,608 ​ $ 9,029,765 ​ $ 88,356,509 ​ $ 66,352,733 ​ $ 14,193,616 ​ $ 177,952,874 Issuance of share capital 6,123 ​ 3,674 84,610 ​ 50,766 ​ ( 54,440 ) ​ — ​ — ​ — Conversion of preferred stock ( 9,465 ) ​ ( 5,679 ) 9,465 ​ 5,679 ​ — ​ — ​ — ​ — Buyback of preferred stock ( 176 ) ​ ( 105 ) — ​ — ​ ( 1,623 ) ​ — ​ — ​ ( 1,728 ) Net income — ​ — — ​ — ​ — ​ 3,711,528 ​ 730,005 ​ 4,441,533 Exercise of options 835 ​ 500 — ​ — ​ 9,661 ​ — ​ — ​ 10,161 Dividends declared — ​ — — ​ — ​ — ​ ( 5,153,552 ) ​ — ​ ( 5,153,552 ) Acquisitions of non-controlling interests ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 2,579,882 ) ​ ​ — ​ ​ ( 6,820,118 ) ​ ​ ( 9,400,000 ) Stock-based compensation — ​ — — ​ — ​ 1,163,261 ​ — ​ — ​ 1,163,261 Balance as of December 31, 2020 31,068 ​ 18,641 15,143,683 ​ 9,086,210 ​ 86,893,486 ​ 64,910,709 ​ 8,103,503 ​ 169,012,549 Issuance of share capital 8,632 ​ 5,179 88,488 ​ 53,093 ​ ( 58,272 ) ​ — ​ — ​ — Conversion of preferred stock ( 11,522 ) ​ ( 6,913 ) 11,522 ​ 6,913 ​ — ​ — ​ — ​ — Buyback of preferred stock ( 1,649 ) ​ ( 989 ) — ​ — ​ ( 15,810 ) ​ — ​ — ​ ( 16,799 ) Net income — ​ — — ​ — ​ — ​ 875,579 ​ 632,915 ​ 1,508,494 Exercise of options 2,106 ​ 1,263 — ​ — ​ 15,796 ​ — ​ — ​ 17,059 Dividends declared — ​ — — ​ — ​ — ​ ( 5,183,232 ) ​ ( 649,880 ) ​ ( 5,833,112 ) Stock-based compensation — ​ — — ​ — ​ 977,232 ​ — ​ — ​ 977,232 Balance as of December 31, 2021 28,635 ​ $ 17,181 15,243,693 ​ $ 9,146,216 ​ $ 87,812,432 ​ $ 60,603,056 ​ $ 8,086,538 ​ $ 165,665,423 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 48 Table of Contents CONSOLIDATED WATER CO. LTD. ​ CONSOLIDATED STATEMENTS OF CASH FLOWS ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 Cash flows from operating activities ​ ​ ​ ​ Net income attributable to Consolidated Water Co. Ltd. stockholders ​ $ 875,579 ​ $ 3,711,528 Income from continuing operations attributable to non-controlling interests ​ ​ 632,915 ​ ​ 730,005 Net income ​ ​ 1,508,494 ​ ​ 4,441,533 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ Impairment loss for Mexico assets - discontinued operations ​ ​ 963,540 ​ ​ 3,351,842 Depreciation and amortization - discontinued operations ​ ​ 4,545 ​ ​ 4,545 Foreign currency transaction adjustment - discontinued operations ​ ​ 53,039 ​ ​ 3,528 Loss from discontinued operations ​ 1,552,955 ​ 1,542,328 Depreciation and amortization ​ 6,921,233 ​ 7,406,509 Deferred income tax benefit ​ ( 204,086 ) ​ ( 221,829 ) Provision for doubtful accounts ​ ​ — ​ ​ 129,107 Unrealized (gain) loss on net put/call option ​ ( 818,000 ) ​ 26,000 Compensation expense relating to stock and stock option grants ​ 977,232 ​ 1,163,261 Loss (gain) on asset dispositions and impairments, net ​ 245,836 ​ ( 13,997 ) Profit-sharing and equity in earnings of OC-BVI ​ ( 78,259 ) ​ ( 506,694 ) Distribution of earnings from OC-BVI ​ 454,500 ​ 318,150 Impairment of goodwill ​ ​ 2,900,000 ​ ​ — ​ ​ ​ ​ ​ ​ ​ Change in: ​ ​ ​ ​ Accounts receivable and contract assets ​ ( 5,878,771 ) ​ 2,541,096 Inventory ​ 293,254 ​ ( 102,551 ) Prepaid expenses and other assets ​ ( 711,615 ) ​ ( 629,734 ) Accounts payable (including related parties), accrued expenses and other current liabilities, and contract liabilities ​ ( 112,598 ) ​ ( 480,456 ) Operating lease liabilities ​ ​ 48,593 ​ ​ — Deferred revenue ​ ​ 467,710 ​ ​ ( 1,700 ) Net cash provided by operating activities - continuing operations ​ ​ 8,587,602 ​ ​ 18,970,938 Net cash used in operating activities - discontinued operations ​ ( 1,621,292 ) ​ ( 1,635,646 ) Net cash provided by operating activities ​ ​ 6,966,310 ​ ​ 17,335,292 ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities ​ ​ Purchase of certificate of deposit ​ ​ ( 2,500,000 ) ​ ​ — Additions to property, plant and equipment and construction in progress ​ ( 1,490,012 ) ​ ( 1,728,393 ) Proceeds from asset dispositions ​ 45,560 ​ 8,638 Purchase of non-controlling interest in Aerex ​ ​ — ​ ​ ( 8,500,000 ) Purchase of non-controlling interest in PERC ​ ​ — ​ ​ ( 900,000 ) Net cash used in investing activities ​ ​ ( 3,944,452 ) ​ ​ ( 11,119,755 ) ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities ​ ​ Dividends paid to common shareholders ​ ( 5,151,667 ) ​ ( 5,133,727 ) Dividends paid to preferred shareholders ​ ( 11,015 ) ​ ( 11,990 ) Dividends paid to non-controlling interests ​ ​ ( 649,880 ) ​ ​ — Repurchase of redeemable preferred stock ​ ( 16,799 ) ​ ( 1,728 ) Proceeds received from exercise of stock options ​ ​ 17,059 ​ ​ 10,161 Principal repayments on long-term debt ​ ​ ( 49,729 ) ​ ​ ( 32,642 ) Net cash used in financing activities ​ ( 5,862,031 ) ​ ( 5,169,926 ) Net (decrease) increase in cash and cash equivalents ​ ( 2,840,173 ) ​ 1,045,611 Cash and cash equivalents at beginning of period ​ 43,794,150 ​ 42,071,083 Cash and cash equivalents at beginning of period - discontinued operations ​ ​ 154,130 ​ ​ 831,586 Less: cash and cash equivalents at end of period - discontinued operations ​ ​ ( 750,048 ) ​ ​ ( 154,130 ) Cash and cash equivalents at end of period ​ $ 40,358,059 ​ $ 43,794,150 ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 49 Table of Contents CONSOLIDATED WATER CO. LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Principal activity Consolidated Water Co. Ltd. and its subsidiaries (collectively, the “Company”) supply potable water, treat water for reuse and provide water-related products and services to customers in the Cayman Islands, The Bahamas, the United States and the British Virgin Islands. The Company produces potable water from seawater using reverse osmosis technology and sells this water to a variety of customers, including public utilities, commercial and tourist properties, residential properties and government facilities. The Company designs, builds and sells water production and water treatment infrastructure and manages water infrastructure for commercial and governmental customers. The Company also manufactures a wide range of specialized and custom water industry related products and provides design, engineering, operating and other services applicable to commercial, municipal and industrial water production, supply and treatment. ​ 2. Accounting policies Basis of preparation: The consolidated financial statements presented are prepared in accordance with the accounting principles generally accepted in the United States of America. Use of estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to estimates and assumptions include the carrying value of property, plant and equipment, intangible assets, goodwill and put/call options. Actual results could differ significantly from such estimates. Basis of consolidation: The accompanying consolidated financial statements include the accounts of the Company’s (i) wholly-owned subsidiaries, Aerex Industries, Inc. (“Aerex”), Aquilex, Inc. (“Aquilex”), Cayman Water Company Limited (“Cayman Water”), Ocean Conversion (Cayman) Limited (“OC-Cayman”), DesalCo Limited (“DesalCo”), Consolidated Water Cooperatief, U.A. (“CW-Cooperatief”), Consolidated Water U.S. Holdings, Inc. (“CW-Holdings”); and (ii) majority-owned subsidiaries Consolidated Water (Bahamas) Ltd. (“CW-Bahamas”), N.S.C. Agua, S.A. de C.V. (“NSC”), Aguas de Rosarito S.A.P.I. de C.V. (“AdR”), and PERC Water Corporation ("PERC"). The Company’s investment in its affiliate Ocean Conversion (BVI) Ltd. (“OC-BVI”) is accounted for using the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation. On January 24, 2020, as a result of CW-Holdings' exercise of a call option, CW-Holdings purchased the remaining 49 % ownership interest in Aerex for $ 8,500,000 in cash. After giving effect to this purchase, CW-Holdings owns 100 % of the outstanding capital stock of Aerex. On August 11, 2020, CW-Holdings purchased an additional 10 % of the ownership of PERC for $ 900,000 , increasing its ownership of this subsidiary to 61 % . Foreign currency: The Company’s reporting currency is the United States dollar (“US$”). The functional currency of the Company and its subsidiaries (other than NSC, AdR and CW-Cooperatief) is the currency for each respective country. The functional currency for NSC, AdR and CW-Cooperatief is the US$. NSC and AdR conduct business in US$ and Mexican pesos and CW-Cooperatief conducts business in US$ and euros. The exchange rates for the Cayman Islands dollar and the Bahamian dollar are fixed to the US$. The exchange rates for conversion of Mexican pesos and euros into US$ vary based upon market conditions. Net foreign currency gains arising from transactions and re-measurements were $ 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: Cash and cash equivalents consist of demand deposits at banks and highly liquid deposits at banks with an original maturity of three months or less. Cash and cash equivalents as of December 31, 2021 and 2020 50 Table of Contents include $ 7.4 million and $ 8.5 million, respectively, of certificates of deposits with an original maturity of three months or less. As of December 31, 2021, the Company had deposits in U.S. banks in excess of federally insured limits of approximately $ 7.8 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. As of December 31, 2021, the equivalent United States dollar cash balances for deposits held in The Bahamas were approximately $ 6.4 million. Accounts receivable and allowance for doubtful accounts: Accounts receivable are recorded at invoiced amounts based on meter readings, contractual amounts, fixed fees plus reimbursables or time and materials per contractual agreements. Trade accounts receivable also represent our unconditional right, subject only to the passage of time, to receive consideration arising from our performance under contracts with customers. Trade accounts receivable include amounts billed and billable on construction contracts, service and maintenance contracts and contracts for the sale of goods. Billed contract receivables have been invoiced to customers based on contracted amounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable balance. The Company determines the allowance for doubtful accounts based on historical write-off experience and monthly review of delinquent accounts. Past due balances are reviewed individually for collectability and disconnection. Account balances are charged off against the allowance for doubtful accounts after all means of collection have been exhausted and the potential for recovery is considered by management to be remote. Inventory: Inventory primarily includes consumables stock and spare parts stock that are valued at cost, less an allowance for obsolescence, with cost determined on the first-in, first-out basis. Inventory also includes potable water held in the Company’s reservoirs. The carrying amount of the water inventory is the lower of the average cost of producing water during the year or its net realizable value. Contract assets and liabilities : Billing practices for the Company’s contracts are governed by the contract terms of each project based upon costs incurred, achievement of milestones or predetermined schedules. Billings do not necessarily correlate with revenue recognized over time using the direct inputs method of accounting. The Company records contract assets and contract liabilities to account for these differences in timing. Contract assets, which include costs and estimated earnings in excess of billings on uncompleted contracts, arise when the Company recognizes revenue for services performed under its construction and manufacturing contracts, but the Company is not yet entitled to bill the customer under the terms of the contract. Contract liabilities, which include billings in excess of costs and estimated earnings on uncompleted contracts, represent the Company's obligation to transfer goods or services to a customer for which the Company has been paid by the customer or for which the Company has billed the customer under the terms of the contract. Revenue for future services reflected in this account are recognized, and the liability is reduced, as the Company subsequently satisfies the performance obligation under the contract. ​ Costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts are typically resolved within one year and are not considered significant financing components. The Company considers retention that is withheld on progress billings as not creating an unconditional right to payment until contractual milestones are reached (typically substantial completion). Accordingly, withheld retention is considered a component of contracts assets and liabilities until finally billed to the customer, when obligations have been satisfied and the right to receipt is subject only to the passage of time. The Company’s contract assets and liabilities are reported in a net asset or liability position on a contract-by-contract basis at the end of each reporting period. The Company classifies contract assets and liabilities related to construction and manufacturing contracts in current assets and current liabilities as they will be liquidated in the normal course of contract completion, although this may require more than one year. 51 Table of Contents Property, plant and equipment, net: Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using a straight-line method with an allowance for estimated residual values. Rates are determined based on the estimated useful lives of the assets as follows: ​ ​ ​ ​ Buildings 5 to 40 years Plant and equipment 4 to 40 years Distribution system 3 to 40 years Office furniture, fixtures and equipment 3 to 10 years Vehicles 3 to 10 years Leasehold improvements Shorter of 5 years or lease term Lab equipment 5 to 10 years ​ 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. No interest was capitalized during the years ended December 31, 2021 or 2020. Long-lived assets: Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if their carrying amounts are not recoverable through their undiscounted cash flows and measures the impairment loss based on the difference between the carrying amounts and estimated fair values. Goodwill and intangible assets: Goodwill represents the excess cost of an acquired business over the fair value of the individual assets and liabilities 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 annually or upon the identification of a triggering event. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment. The Company evaluates the possible impairment of goodwill annually as part of its reporting process for the fourth quarter of each fiscal year. Management identifies the Company’s reporting units, which consist of 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. To the extent the carrying amount of the reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded. ​ For the years ended December 31, 2021 and 2020, the Company estimated the fair value of its reporting units by applying the discounted cash flow method, which relied upon seven-year discrete projections of operating results, working capital and capital expenditures, along with a terminal value subsequent to the discrete period. These seven-year projections were based upon historical and anticipated future results, general economic and market conditions, and considered the impact of planned business and operational strategies. The discount rates for the calculations represented the estimated cost of capital for market participants at the time of each analysis. ​ The Company also estimated the fair value of each of it reporting units for the years ended December 31, 2021 and 2020 by applying the guideline public company method. ​ The Company weighted the fair values estimated for each of its reporting units under each method and summed such weighted fair values to estimate the overall fair value for each reporting unit. The respective weightings the Company 52 Table of Contents 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, 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 53 Table of Contents 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: Investments where the Company does not exercise significant influence over the operating and financial policies of the investee and holds less than 20% of the voting stock are recorded at cost. The Company uses the equity method of accounting for investments in common stock where the Company holds 20% to 50% of the voting stock of the investee and has significant influence over its operating and financial policies but does not meet the criteria for consolidation. The Company recognizes impairment losses on declines in the fair value of the stock of investees that are other than temporary. ​ Other assets: Under the terms of CW-Bahamas’ contract with the Water and Sewerage Corporation of The Bahamas (“WSC”) to supply water from its Blue Hills desalination plant, CW-Bahamas was required to reduce the amount of water lost by the public water distribution system on New Providence Island, The Bahamas, over a one-year period by 438 million gallons, a requirement CW-Bahamas met during 2007. The Company was solely responsible for the engineering, labor and materials costs incurred to 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 for these costs was $ 179,353 for the years ended December 31, 2021 and 2020. ​ Income taxes: The Company accounts for the income taxes arising from the operations of its United States subsidiaries under the asset and liability method. Deferred tax assets and liabilities, if any, are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to the extent any deferred tax asset may not be realized. ​ The Company is not presently subject to income taxes in the other countries in which it operates. ​ Revenue recognition: Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. ​ The following table presents the Company’s revenue disaggregated by revenue source. ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 Retail revenue ​ $ 22,104,953 ​ $ 22,952,370 Bulk revenue ​ 26,800,869 ​ 24,312,546 Services revenue ​ 13,884,857 ​ 12,937,859 Manufacturing revenue ​ 4,072,823 ​ 12,425,351 Total revenue ​ $ 66,863,502 ​ $ 72,628,126 ​ Retail revenue The Company produces and supplies water to end-users, including residential, commercial and governmental customers in the Cayman Islands under an exclusive retail license issued to Cayman Water by the Cayman Islands government to provide water in two of the three most populated areas on Grand Cayman Island. Customers are billed on a monthly basis based on metered consumption and bills are typically collected within 30 to 45 days after the billing date. Receivables not collected within 45 days subject the customer to disconnection from water service. In 2021 and 2020, bad debts represented less than 1 % of the Company’s total retail sales. 54 Table of Contents The Company recognizes revenue from water sales at the time water is supplied to the customer’s premises. The amount of water supplied is determined and invoiced based upon water meter readings performed at the end of each month. All retail water contracts are month-to-month contracts. The Company has elected the “right to invoice” practical expedient for revenue recognition on its retail water sale contracts and recognizes revenue in the amount to which the Company has a right to invoice. Bulk revenue The Company produces and supplies water to government-owned distributors in the Cayman Islands and The Bahamas. OC-Cayman provides bulk water to the Water Authority-Cayman (“WAC”), a government-owned utility and regulatory agency, under two agreements. The WAC in turn distributes such water to properties in Grand Cayman outside of Cayman Water’s retail license area. The Company sells bulk water in The Bahamas through its majority-owned subsidiary, CW-Bahamas, under two agreements with the Water and Sewerage Corporation of The Bahamas (“WSC”), which distributes such water through its own pipeline system to residential, commercial and tourist properties on the Island of New Providence. CW-Bahamas also 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. Services and Manufacturing revenue The Company provides design, engineering, management, procurement and construction services for desalination infrastructure through DesalCo, which serves customers in the Cayman Islands, The Bahamas and the British Virgin Islands. The Company also designs, builds, sells, operates and manages water, wastewater and water reuse infrastructure through PERC. All of PERC's customers are companies or governmental entities located in the U.S. The Company, through Aerex, is a custom and specialty manufacturer of water treatment-related systems and products applicable to commercial, municipal and industrial water production. Substantially all of Aerex’s customers are U.S. companies. The Company generates construction and services revenue from DesalCo and PERC, and generates manufacturing revenue from Aerex. 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. The Company estimates total project costs and profit to be earned on each long-term, fixed price contract prior to commencement of work on the contract and updates these estimates as work on the contract progresses. The cumulative amount of revenue recorded on a contract at a specified point in time is that percentage of total estimated revenue that incurred costs to date comprises of estimated total contract costs. If, as work progresses, the actual contract costs exceed estimates, the profit recognized on revenue from that contract decreases. The Company recognizes the full amount of any estimated loss on a contract at the time the estimates indicate such a loss. Any contract assets are classified as current assets. Contract liabilities on uncompleted contracts, if any, are classified as current liabilities. 55 Table of Contents The Company has elected the “right to invoice” practical expedient for revenue recognition on its services agreements and recognizes revenue in the amount to which the Company has a right to invoice. Practical Expedients and Exemptions The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed. Comparative amounts: Certain amounts presented in the financial statements previously issued for 2020 have been reclassified to conform to the current year’s presentation. ​ 3. Cash and cash equivalents Cash and cash equivalents are not restricted by the terms of the Company’s bank accounts as to withdrawal or use. As of December 31, 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Bank accounts: ​ ​ United States dollar ​ $ 15,888,445 ​ $ 14,001,264 Cayman Islands dollar ​ 12,784,358 ​ 5,650,874 Bahamian dollar ​ 3,944,208 ​ 14,863,287 Bermudian dollar ​ 2,832 ​ 2,832 ​ ​ 32,619,843 ​ 34,518,257 ​ ​ ​ ​ ​ ​ ​ Short term deposits: ​ ​ United States dollar ​ 5,324,258 ​ 5,796,582 Cayman Islands dollar ​ 2,413,958 ​ 2,413,547 Bahamian dollar ​ — ​ 1,065,764 ​ ​ 7,738,216 ​ 9,275,893 Total cash and cash equivalents ​ $ 40,358,059 ​ $ 43,794,150 ​ 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. ​ 4. Accounts receivable, net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Trade accounts receivable ​ $ 27,409,029 ​ $ 21,422,782 Receivable from OC-BVI ​ 40,877 ​ 62,171 Other accounts receivable ​ 180,262 ​ 269,133 ​ ​ 27,630,168 ​ 21,754,086 Allowance for doubtful accounts ​ ( 280,861 ) ​ ( 270,110 ) Accounts receivable, net ​ $ 27,349,307 ​ $ 21,483,976 ​ 56 Table of Contents The activity for the allowance for doubtful accounts consisted of: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Opening allowance for doubtful accounts ​ $ 270,110 ​ $ 142,236 Provision for doubtful accounts ​ — ​ 129,107 Accounts written off during the year ​ — ​ ( 1,233 ) Recovery of accounts written off ​ ​ 10,751 ​ ​ — Ending allowance for doubtful accounts ​ $ 280,861 ​ $ 270,110 ​ Significant concentrations of credit risk are disclosed in Note 18. ​ 5. Inventory ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Water stock ​ $ 34,587 ​ $ 27,938 Consumables stock ​ 138,547 ​ 105,540 Spare parts stock ​ 7,064,708 ​ 7,587,542 Total inventory ​ 7,237,842 ​ 7,721,020 Less current portion ​ 2,504,832 ​ 3,214,178 Inventory (non-current) ​ $ 4,733,010 ​ $ 4,506,842 ​ ​ 6. Contracts in progress Revenue recognized and amounts billed on contracts in progress are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2021 ​ 2020 Revenue recognized to date on contracts in progress $ 6,109,396 $ 17,534,449 Amounts billed to date on contracts in progress ​ ( 6,370,855 ) ​ ( 17,791,928 ) Retainage ​ ​ 237,542 ​ ​ 312,130 Net contract asset (liability) ​ $ ( 23,917 ) ​ $ 54,651 ​ The above net balances are reflected in the accompanying consolidated balance sheet as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ 2021 ​ 2020 Contract assets ​ $ 489,961 $ 516,521 Contract liabilities ​ ​ ( 513,878 ) ​ ( 461,870 ) Net contract asset (liability) ​ ​ $ ( 23,917 ) ​ $ 54,651 ​ ​ ​ 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. The Company expects to earn revenue as it satisfies its performance obligations under those contracts in the amount of approximately $ 4.8 million during the year ending December 31, 2022 and $ 0.9 million thereafter . ​ ​ ​ ​ ​ ​ 57 Table of Contents 7. Property, plant and equipment and construction in progress ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Land ​ $ 3,316,537 ​ $ 3,566,537 Buildings ​ 23,255,925 ​ 23,250,843 Plant and equipment ​ 64,324,377 ​ 63,734,860 Distribution system ​ 39,780,272 ​ 39,149,063 Office furniture, fixtures and equipment ​ 3,051,814 ​ 3,083,811 Vehicles ​ 2,079,874 ​ 1,999,463 Leasehold improvements ​ 287,980 ​ 274,230 Lab equipment ​ 12,456 ​ 12,456 ​ ​ 136,109,235 ​ 135,071,263 Less accumulated depreciation ​ 83,162,696 ​ 77,383,279 Property, plant and equipment, net ​ $ 52,946,539 ​ $ 57,687,984 Construction in progress ​ $ 710,863 ​ $ 440,384 ​ 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. During the years ended December 31, 2021 and 2020, $ 644,224 and $ 1,653,501 , respectively, of construction in progress was placed in service. Depreciation expense was $ 5,995,213 and $ 6,335,489 for the years ended December 31, 2021 and 2020, respectively. ​ 8. Discontinued operations Mexico project development 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. Agua, S.A. de C.V. (“NSC”), of a project (the “Project”) that encompassed the construction, operation and minority ownership of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and accompanying pipelines to deliver water to the Mexican potable water system. Through a series of transactions that began in 2012, NSC purchased 20.1 hectares of land for approximately $ 21.1 million on which the proposed Project’s plant was to be constructed. ​ Following an assessment by the State of Baja, California (the “State”) of the need for such a desalination plant and the passage of enabling legislation in November 2015, the State officially commenced the required public tender for the Project. A consortium (the “Consortium”) comprised of NSC, Suez Medio Ambiente México, S.A. de C.V. (“Suez MA”), a subsidiary of SUEZ International, S.A.S., and NuWater S.A.P.I. de C.V. (“NuWater”) submitted its tender for the Project in April 2016 and in June 2016, the State designated the Consortium as the winner of the tender process for the Project. ​ In August 2016, NSC and NuWater incorporated a new company under the name Aguas de Rosarito S.A.P.I. de C.V. (“AdR”) to pursue completion of the Project and executed a shareholders agreement for AdR agreeing among other things that (i) AdR would purchase the land and other Project assets from NSC on the date that the Project begins commercial operation and (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, 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 58 Table of Contents and an aqueduct to the Mexican potable water system in Tijuana, Baja California and the second phase with a capacity of 50 million gallons per day. The first phase was to be operational within 36 months of commencing construction and the second phase was to be operational by July 2024. The APP Contract further required AdR to operate and maintain the plant and aqueduct for a period of 37 years starting from the commencement of operation of the first phase. At the end of the operating period, ownership of the plant and aqueduct would have been transferred to CEA. The APP Contract was subsequently amended by the parties in June 2018 to increase the scope of Phase 1 and to allow for changes in the water tariff due to the changes in the exchange rate for the peso, interest rates and construction costs that had and would occur from the date the APP Contract was signed to the date construction commenced. ​ On June 29, 2020, AdR received a letter (the “Letter”) from the Director General of CEA and the Director General of CESPT terminating the APP Contract. The Letter requested that AdR provide an inventory of the assets that currently comprise the “Project Works” (as defined in the APP Contract) for the purpose of acknowledging and paying the non-recoverable expenses made by AdR in connection with the Project, with such reimbursement to be calculated in accordance with the terms of the APP Contract. The applicable law requires this list of non-recoverable expenses made by AdR in connection with the Project be submitted to CEA and CESPT within 20 business days from the date of receipt of the Letter. AdR initiated an amparo claim before a federal district court in Tijuana, Baja California, to challenge the provision of the applicable law requiring submittal of the list of non-recoverable expenses within the 20 business days term, as AdR considered such term to be unreasonably short due to the magnitude of the Project and the scope of supporting documentation required to be provided with respect to the non-recoverable expenses. AdR obtained an initial provisional suspension of the lapsing of such 20-day 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. ​ 59 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ 2021 ​ ​ 2020 Cash $ 750,048 $ 154,130 Prepaid expenses and other current assets ​ ​ 82,783 ​ ​ 88,978 Value added taxes receivable (net of allowance of $ 1,279,757 and $ 316,217 , respectively) ​ ​ 340,910 ​ ​ 1,267,991 Property, plant and equipment, net ​ — ​ 5,682 Land ​ 21,126,898 ​ 21,126,898 Other assets ​ 19,288 ​ 33,909 Total assets of discontinued operations ​ $ 22,319,927 ​ $ 22,677,588 ​ ​ ​ Total liabilities of discontinued operations ​ $ 190,141 ​ $ 190,933 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2021 2020 Revenue $ — $ — Income from operations ​ ​ $ — ​ $ — Net loss from discontinued operations ​ ​ $ 2,574,079 ​ $ 4,902,243 Depreciation expense ​ ​ $ 4,545 ​ $ 4,545 ​ Project Litigation Immediately following CW-Cooperatief’s acquisition of its initial 50 % ownership in NSC, the remaining 50 % ownership interest in NSC was held by an unrelated company, Norte Sur Agua, S. de R.L. de C.V. (“NSA”). NSA subsequently transferred ownership of half of its shares in NSC to EWG Water LLC (“EWG”) and the other half of its shares in NSC to an individual (the “individual shareholder”). In February 2012, CW-Cooperatief paid $ 300,000 to enter into an agreement (the “Option Agreement”) that provided it with an option, exercisable through February 7, 2014, to purchase the shares of NSC owned by the individual shareholder for a price of $ 1.0 million along with an immediate usufruct and power of attorney to vote those shares. Such shares constituted 25 % of the ownership of NSC as of February 2012. In May 2013, NSC repaid a $ 5.7 million loan payable to CW-Cooperatief by issuing additional shares of its stock. As a result of this share issuance to CW-Cooperatief, the Company indirectly acquired 99.99 % of the ownership of NSC. The Option Agreement contained an anti-dilution provision that required CW-Cooperatief to transfer or otherwise cause the individual shareholder to acquire, for a total price of $ 1 (regardless of their par or market value), shares in NSC of an amount sufficient to maintain the individual shareholder’s 25 % ownership interest in NSC if (i) any new shares of NSC were issued subsequent to the execution of the Option Agreement (causing the individual shareholder’s 25 % ownership interest in NSC to be decreased); and (ii) CW-Cooperatief did not exercise its share purchase option by February 7, 2014 . CW- 60 Table of Contents Cooperatief exercised its option and paid the $ 1.0 million to the individual shareholder to purchase the Option Agreement shares in February 2014. ​ In January 2018, EWG initiated an ordinary mercantile claim against the individual shareholder, NSC and CW-Cooperatief, (with AdR being named as a third party to be called to trial) before the Tenth Civil Judge in Tijuana, Baja California for Mercantile Matters (the “Tenth Civil Judge”). In the ordinary mercantile claim, EWG challenged, among other things, the transactions contemplated under the Option Agreement, and therefore, the capital investment transactions that increased the ownership interest of CW-Cooperatief in NSC to 99.99 % as a consequence of the Option Agreement. EWG requested that the court, as a preliminary matter (a) suspend the effectiveness of the challenged transactions; (b) order certain public officials in Mexico to record the pendency of the lawsuit in the public records (including a special request to register a lien over the real estate owned by NSC); (c) appoint an inspector for NSC to oversee its commercial activities; and (d) order public officials in Mexico and credit institutions abroad to refrain from authorizing or executing any legal act related with the activities of the plaintiff, the co-defendants and the third party called to trial to avoid damages to third parties, including those with whom negotiations or any form of commercial or administrative activities, or activities of any other nature related with the “Rosarito” water desalination project, are being conducted. The Tenth Civil Judge granted, ex-parte, the preliminary relief sought by EWG, which resulted in the issuance of official writs to several governmental and public entities involved with the “Rosarito” water desalination project, including the registration of the pendency of the lawsuit in certain public records. ​ On October 16, 2018, NSC was served with the ordinary mercantile claim. On November 7, 2018, NSC filed a legal response to the claim, vigorously opposing the claims made by EWG. In addition to such legal response, NSC filed (i) a request to submit the claim to arbitration, based on certain provisions of the by-laws of NSC, (ii) an appeal remedy against the preliminary relief (which was resolved in December 2019, and ordered the revocation of the order of the Tenth Civil Judge granting EWG the preliminary relief), and (iii) a request for the setting of a guarantee to release the preliminary relief granted in favor of EWG. ​ On October 1, 2020 and following an order from a Federal Judge obtained by NSC, the Tenth Civil Judge resolved to (i) move the claim of EWG to arbitration, and (ii) suspend the corresponding ordinary mercantile procedure. EWG challenged such resolution, arguing that its notification was not lawful. The Tenth Civil Judge dismissed such challenge, and thereafter EWG filed a remedy against such dismissal. 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) 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. 61 Table of Contents 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. In any event, AdR is only a named third party called to trial in this claim, and no claims have been made by EWG against AdR. ​ The Company cannot presently determine what impact the resolution of this litigation may have on its consolidated financial condition, results of operations or cash flows. ​ 9. Intangible assets 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Cost ​ ​ Non-compete agreements ​ $ 530,000 ​ $ 530,000 Trade names ​ 2,700,000 ​ 2,700,000 Customer backlogs ​ 360,000 ​ 360,000 Facility management contracts ​ 2,200,000 ​ 2,200,000 ​ ​ 5,790,000 ​ 5,790,000 Accumulated amortization ​ ​ ​ Non-compete agreements ​ ( 493,889 ) ​ ( 443,889 ) Trade names ​ ( 740,000 ) ​ ( 560,000 ) Customer backlogs ​ ( 360,000 ) ​ ( 210,000 ) Facility management contracts ​ ( 794,445 ) ​ ( 427,778 ) ​ ​ ( 2,388,334 ) ​ ( 1,641,667 ) Intangible assets, net ​ $ 3,401,666 ​ $ 4,148,333 ​ Amortization of intangible assets for each of the next five years and thereafter is expected to be as follows: ​ ​ ​ ​ ​ 2022 $ 582,778 2023 ​ 546,667 2024 ​ 546,667 2025 ​ 485,554 2026 ​ 180,000 Thereafter ​ 1,060,000 ​ ​ $ 3,401,666 ​ Amortization expense was $ 746,667 and $ 891,667 for the years ended December 31, 2021 and 2020, respectively. ​ 62 Table of Contents 10. Leases 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 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 the lease commencement. These leases contain both lease and non-lease components, which the Company has elected to treat as a single lease component. The Company elected not to recognize leases that have an original lease term, including reasonably certain renewal or purchase obligations, of twelve months or less in its consolidated balance sheets for all classes of underlying assets. Lease costs for such short-term leases are expensed on a straight-line basis over the lease term. The land used by the Company to operate its seawater desalination plants in the Cayman Islands and The Bahamas 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 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. 63 Table of Contents Lease assets and liabilities The following table presents the lease-related assets and liabilities and their respective classification on the consolidated balance sheets: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2021 ​ 2020 ASSETS ​ ​ Current ​ ​ ​ Prepaid expenses and other current assets ​ $ — ​ $ 108,303 Current assets of discontinued operations ​ ​ 2,654 ​ ​ — Noncurrent ​ ​ ​ ​ Operating lease right-of-use assets ​ 2,681,137 ​ 1,329,561 Long-term assets of discontinued operations ​ ​ 16,898 ​ ​ 33,909 Total lease right-of-use assets ​ $ 2,700,689 ​ $ 1,471,773 ​ ​ ​ ​ ​ ​ ​ LIABILITIES ​ ​ Current ​ ​ ​ Current maturities of operating leases ​ $ 592,336 ​ $ 455,788 Current liabilities of discontinued operations ​ ​ 11,195 ​ ​ 29,432 Noncurrent ​ ​ ​ ​ Noncurrent operating leases ​ ​ 2,137,394 ​ ​ 982,076 Noncurrent liabilities of discontinued operations ​ 7,819 ​ 2,499 Total lease liabilities ​ $ 2,748,744 ​ $ 1,469,795 ​ ​ ​ ​ ​ ​ ​ Weighted average remaining lease term: ​ ​ Operating leases ​ 7.0 years ​ 3.4 years Operating leases - discontinued operations ​ ​ 1.6 years ​ ​ 1.1 years ​ ​ ​ ​ Weighted average discount rate: ​ ​ ​ Operating leases ​ 5.03 % ​ 4.15 % Operating leases - discontinued operations ​ ​ 4.77 % ​ ​ 3.48 % ​ The components of lease cost were as follows: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2021 ​ 2020 Operating lease costs ​ $ 656,130 ​ $ 773,756 Short-term lease costs ​ 79,606 ​ ​ 5,518 Lease costs - discontinued operations ​ ​ 31,281 ​ ​ 127,983 Total lease costs ​ $ 767,017 ​ $ 907,257 ​ ​ ​ Supplemental cash flow information related to leases is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2021 ​ 2020 ​ Cash paid for amounts included in measurement of liabilities: ​ ​ ​ ​ ​ Operating cash outflows for operating leases ​ $ 710,024 ​ $ 708,095 ​ Operating cash outflows for operating leases - discontinued operations ​ ​ 38,246 ​ ​ 127,153 ​ ​ 64 Table of Contents Future lease payments relating to the Company's operating lease liabilities from continuing operations as of December 31, 2021 were as follows: ​ ​ ​ ​ ​ Years ending December 31, Total 2022 ​ $ 665,817 2023 ​ 643,234 2024 ​ 390,629 2025 ​ 268,056 2026 ​ ​ 227,541 Thereafter ​ 1,025,239 Total future lease payments ​ 3,220,516 Less: imputed interest ​ ( 490,786 ) Total lease obligations ​ 2,729,730 Less: current obligations ​ ( 592,336 ) Noncurrent lease obligations ​ $ 2,137,394 ​ ​ ​ ​ ​ ​ ​ ​ 11. Income taxes The components of income before income taxes for the years ended December 31, 2021 and 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 Foreign (not subject to income taxes) ​ $ 5,780,692 ​ $ 6,475,693 Mexico ​ ( 1,767,915 ) ​ ( 4,903,988 ) United States ​ ( 2,952,265 ) ​ 2,956,552 ​ ​ 1,060,512 ​ 4,528,257 Less discontinued operations ​ 2,574,079 ​ 4,902,243 ​ ​ $ 3,634,591 ​ $ 9,430,500 ​ 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, ​ 2021 2020 Current: ​ ​ ​ ​ ​ ​ Federal ​ $ 202,444 ​ $ 191,322 State ​ ​ ( 895 ) ​ ​ 87,630 Foreign ​ ​ — ​ ​ — Total ​ ​ 201,549 ​ ​ 278,952 Deferred: ​ ​ ​ ​ Federal ​ ​ ( 524,733 ) ​ ​ ( 132,957 ) State ​ ​ ( 124,798 ) ​ ​ ( 59,271 ) Foreign ​ ​ — ​ ​ — Total ​ ​ ( 649,531 ) ​ ​ ( 192,228 ) Total provision (benefit) ​ $ ( 447,982 ) ​ $ 86,724 ​ 65 Table of Contents A reconciliation of the U.S. statutory federal tax rate to the effective rate for the years ended December 31, 2021 and 2020 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 U.S. statutory federal rate ​ 21.00 % 21.00 % State taxes, net of federal effect 2.72 % 4.00 % Nontaxable foreign income ( 43.36 ) % ( 17.28 ) % Research & development tax credit ( 7.39 ) % ( 11.73 ) % Permanent items ( 6.26 ) % ( 0.67 ) % Goodwill impairment ​ 20.31 % — % Valuation allowance for deferred tax assets 0.65 % 5.60 % ​ ( 12.33 ) % 0.92 % ​ The tax effects of significant items comprising the Company’s net long-term deferred tax liability as of December 31, 2021 and 2020 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Continuing Operations ​ ​ ​ ​ ​ ​ Deferred tax assets: ​ ​ Research & development tax credits ​ $ 398,413 ​ $ 613,003 Loss carry forward ​ ​ 300,545 ​ ​ — Accrued compensation ​ ​ 112,446 ​ ​ 110,092 Valuation allowances ​ ( 139,207 ) ​ ( 496,343 ) ​ ​ 672,197 ​ 226,752 Deferred tax liabilities: ​ ​ Property and equipment ​ 254,301 ​ 252,800 Intangible assets ​ 982,422 ​ 1,188,009 ​ ​ 1,236,723 ​ 1,440,809 ​ ​ ​ ​ ​ ​ ​ Net deferred tax liability ​ $ 564,526 ​ $ 1,214,057 ​ ​ ​ ​ ​ ​ ​ Discontinued Operations ​ ​ ​ ​ ​ ​ Deferred tax assets: ​ ​ ​ ​ ​ ​ Operating loss carryforwards - Mexico ​ $ 4,230,398 ​ $ 4,296,453 Land basis difference - Mexico ​ ​ 1,602,470 ​ ​ 1,262,159 Start-up costs - Mexico ​ ​ 4,693,395 ​ ​ 4,904,337 Valuation allowances ​ ​ ( 10,526,263 ) ​ ​ ( 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. ​ 12. Earnings per share Earnings per share (“EPS”) is computed on a basic and diluted basis. Basic EPS is computed by dividing net income (loss) (less preferred stock dividends) available to common stockholders by the weighted average number of common shares outstanding during the period. The computation of diluted EPS assumes the issuance of common shares for all potential common shares outstanding during the reporting period and, if dilutive, the effect of stock options as computed under the treasury stock method. 66 Table of Contents The following summarizes information related to the computation of basic and diluted EPS: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ $ 3,449,658 ​ $ 8,613,771 Less: preferred stock dividends ​ ( 10,796 ) ​ ( 11,740 ) Net income from continuing operations available to common shares in the determination of basic earnings per common share ​ 3,438,862 ​ 8,602,031 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 ​ $ 864,783 ​ $ 3,699,788 ​ ​ ​ ​ ​ ​ ​ Weighted average number of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ 15,213,816 ​ 15,119,305 Plus: ​ ​ ​ ​ Weighted average number of preferred shares outstanding during the period ​ 30,348 ​ 33,814 Potential dilutive effect of unexercised options and unvested stock grants ​ 65,981 ​ 70,836 Weighted average number of shares used for determining diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ 15,310,145 ​ 15,223,955 ​ ​ ​ 13. Dividends Interim dividends declared on Class A common stock and redeemable preferred stock for each quarter of the respective years ended December 31, 2021 and 2020 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 First Quarter ​ $ 0.085 ​ $ 0.085 Second Quarter ​ 0.085 ​ 0.085 Third Quarter ​ 0.085 ​ 0.085 Fourth Quarter ​ 0.085 ​ 0.085 ​ ​ $ 0.34 ​ $ 0.34 ​ ​ ​ 14. Segment information The Company has four reportable segments: retail, bulk, services and manufacturing. The retail segment operates the water utility for the Seven Mile Beach and West Bay areas of Grand Cayman Island pursuant to an exclusive license granted by the Cayman Islands government. The bulk segment supplies potable water to government utilities in Grand Cayman and The Bahamas under long-term contracts. The services segment designs, constructs and sells water infrastructure and provides management and operating services to third parties. The manufacturing segment manufactures and services a wide range of custom and specialized water-related products applicable to commercial, municipal and industrial water production, supply and treatment. Consistent with prior periods, the Company records all non-direct general and administrative expenses in its retail business segment and does not allocate any of these non-direct expenses to its other three business segments. The accounting policies of the segments are consistent with those described in Note 2. The Company evaluates each segment’s performance based upon its income (or loss) from operations. All intercompany transactions are eliminated for segment presentation purposes. 67 Table of Contents The Company’s segments are strategic business units that are managed separately because each segment sells different products and/or services, serves customers with distinctly different needs and generates different gross profit margins. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 ​ Retail Bulk Services Manufacturing Total Revenue ​ $ 22,104,953 ​ $ 26,800,869 ​ $ 13,884,857 ​ $ 4,072,823 $ 66,863,502 Cost of revenue ​ 11,060,937 ​ 17,759,272 ​ 10,707,243 ​ 3,828,859 ​ 43,356,311 Gross profit ​ 11,044,016 ​ 9,041,597 ​ 3,177,614 ​ 243,964 ​ 23,507,191 General and administrative expenses ​ 12,841,259 ​ 1,365,735 ​ 2,762,735 ​ 1,380,630 ​ 18,350,359 Gain (loss) on asset dispositions and impairments, net ​ ( 246,851 ) ​ 1,500 ​ ( 485 ) ​ ( 2,900,000 ) ​ ( 3,145,836 ) Income (loss) from operations ​ $ ( 2,044,094 ) ​ $ 7,677,362 ​ $ 414,394 ​ $ ( 4,036,666 ) ​ 2,010,996 Other income, net ​ ​ ​ ​ ​ ​ ​ 1,623,595 Income before income taxes ​ ​ ​ ​ ​ 3,634,591 Benefit from income taxes ​ ​ ​ ​ ​ ( 447,982 ) Net income from continuing operations ​ ​ ​ ​ ​ 4,082,573 Income from continuing operations attributable to non-controlling interests ​ ​ ​ ​ ​ 632,915 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ 3,449,658 Net loss from discontinued operations ​ ​ ​ ​ ​ ( 2,574,079 ) Net income attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ $ 875,579 ​ 68 Table of Contents Depreciation and amortization expenses for the year ended December 31, 2021 for the retail, bulk, services and manufacturing segments were $ 2,517,407 , $ 3,331,554 , $ 782,882 and $ 289,390 , respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2021 ​ Retail Bulk Services Manufacturing Total Accounts receivable, net ​ $ 2,601,619 ​ $ 21,682,951 ​ $ 1,698,797 ​ $ 1,365,940 ​ $ 27,349,307 Inventory, current and non-current ​ $ 2,787,277 ​ $ 3,860,808 ​ $ — ​ $ 589,757 ​ $ 7,237,842 Property, plant and equipment, net ​ $ 26,357,390 ​ $ 24,476,936 ​ $ 512,493 ​ $ 1,599,720 ​ $ 52,946,539 Construction in progress ​ $ 617,334 ​ $ 31,737 ​ $ — ​ $ 61,792 ​ $ 710,863 Intangibles, net ​ $ — ​ $ — ​ $ 2,553,888 ​ $ 847,778 ​ $ 3,401,666 Goodwill ​ $ 1,170,511 ​ $ 1,948,875 ​ $ 5,320,416 ​ $ 1,985,211 ​ $ 10,425,013 Total segment assets ​ $ 61,736,441 ​ $ 68,723,405 ​ $ 16,049,001 ​ $ 8,198,280 ​ $ 154,707,127 Assets of discontinued operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 22,319,927 Total assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 177,027,054 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2020 ​ Retail Bulk Services Manufacturing Total Revenue ​ $ 22,952,370 ​ $ 24,312,546 ​ $ 12,937,859 ​ $ 12,425,351 ​ $ 72,628,126 Cost of revenue ​ 11,080,814 ​ 16,959,563 ​ 9,698,214 ​ 8,121,080 ​ 45,859,671 Gross profit ​ 11,871,556 ​ 7,352,983 ​ 3,239,645 ​ 4,304,271 ​ 26,768,455 General and administrative expenses ​ 12,879,445 ​ 1,260,062 ​ 2,834,917 ​ 1,460,474 ​ 18,434,898 Gain on asset dispositions and impairments, net ​ 2,965 ​ 7,213 ​ 3,801 ​ 18 ​ 13,997 Income (loss) from operations ​ $ ( 1,004,924 ) ​ $ 6,100,134 ​ $ 408,529 ​ $ 2,843,815 ​ 8,347,554 Other income, net ​ ​ ​ ​ ​ 1,082,946 Income before income taxes ​ ​ ​ ​ ​ 9,430,500 Provision for income taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 86,724 Net income from continuing operations ​ ​ ​ ​ ​ 9,343,776 Income from continuing operations attributable to non-controlling interests ​ ​ ​ ​ ​ 730,005 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ 8,613,771 Net loss from discontinued operations ​ ​ ​ ​ ​ ( 4,902,243 ) Net income attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ $ 3,711,528 ​ 69 Table of Contents Depreciation and amortization expenses for the year ended December 31, 2020 for the retail, bulk, services and manufacturing segments were $ 2,388,781 , $ 3,869,377 , $ 762,182 and $ 386,169 , respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2020 ​ Retail Bulk Services Manufacturing Total Accounts receivable, net ​ $ 2,444,455 ​ $ 17,022,813 ​ $ 1,420,609 ​ $ 596,099 ​ $ 21,483,976 Inventory, current and non-current ​ $ 2,787,163 ​ $ 3,795,544 ​ $ — ​ $ 1,138,313 ​ $ 7,721,020 Property, plant and equipment, net ​ $ 27,947,545 ​ $ 27,611,567 ​ $ 487,973 ​ $ 1,640,899 ​ $ 57,687,984 Construction in progress ​ $ 305,110 ​ $ 31,737 ​ $ — ​ $ 103,537 ​ $ 440,384 Intangibles, net ​ $ — ​ $ — ​ $ 3,200,555 ​ $ 947,778 ​ $ 4,148,333 Goodwill ​ $ 1,170,511 ​ $ 1,948,875 ​ $ 5,320,416 ​ $ 4,885,211 ​ $ 13,325,013 Total segment assets ​ $ 56,425,159 ​ $ 74,771,798 ​ $ 14,470,322 ​ $ 11,210,685 ​ $ 156,877,964 Assets of discontinued operations ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 22,677,588 Total assets ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 179,555,552 ​ Revenues earned by major geographic region were: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2021 2020 Cayman Islands ​ $ 24,935,746 ​ $ 25,640,169 Bahamas ​ 24,031,547 ​ 21,654,153 United States ​ 17,489,851 ​ 24,918,527 Revenues earned from management services agreement with OC-BVI ​ 406,358 ​ 415,277 ​ ​ $ 66,863,502 ​ $ 72,628,126 ​ Revenues earned from major customers were: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2021 2020 Revenue earned from the Water and Sewerage Corporation ("WSC") ​ $ 24,031,547 ​ $ 21,527,487 Percentage of consolidated revenue earned from the WSC ​ 36 % ​ 30 % Revenue earned from one manufacturing segment customer ​ $ 406,073 ​ $ 9,965,041 Percentage of consolidated revenue earned from the one manufacturing segment customer ​ 1 % ​ 14 % ​ Property, plant and equipment, net by major geographic region were: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Cayman Islands ​ $ 26,687,944 ​ $ 28,474,748 The Bahamas ​ 24,004,707 ​ 26,975,427 United States ​ 2,253,888 ​ 2,237,809 ​ ​ $ 52,946,539 ​ $ 57,687,984 ​ ​ ​ 70 Table of Contents 15. Cost of revenue and general and administrative expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 Cost of revenue consist of: ​ ​ ​ ​ ​ ​ Electricity ​ $ 5,698,148 ​ $ 5,389,361 Depreciation ​ 5,855,073 ​ 6,202,012 Fuel oil ​ 5,742,056 ​ 4,157,393 Employee costs ​ 12,439,042 ​ 11,465,514 Maintenance ​ 2,092,776 ​ 2,859,262 Retail license royalties ​ 1,418,820 ​ 1,489,862 Insurance ​ 1,625,862 ​ 1,491,799 Materials ​ 1,952,764 ​ 5,786,698 Other ​ 6,531,770 ​ 7,017,770 ​ ​ $ 43,356,311 ​ $ 45,859,671 ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2021 ​ 2020 General and administrative expenses consist of: ​ ​ Employee costs ​ $ 9,562,125 ​ $ 10,086,588 Insurance ​ 1,813,026 ​ 1,436,957 Professional fees ​ 1,506,423 ​ 1,488,948 Directors’ fees and expenses ​ 851,775 ​ 865,555 Depreciation ​ 140,140 ​ 133,477 Amortization of intangible assets ​ 746,667 ​ 891,667 Other ​ 3,730,203 ​ 3,531,706 ​ ​ $ 18,350,359 ​ $ 18,434,898 ​ ​ ​ 16. Stock-based compensation The Company has the following stock compensation plans that form part of its employees’ and Directors’ remuneration: Employee Share Incentive Plan (Preferred Stock) Employees (i.e. other than Directors and Officers), after four consecutive years of employment, become eligible to receive shares of the Company’s preferred stock for $nil consideration under its Employee Share Incentive Plan. Once an individual becomes eligible, these shares of preferred stock are awarded each subsequent year of the individual's employment (the grant date) for as long as the individual remains employed with the Company. If these employees remain with the Company through the fourth anniversary of a grant date, the preferred stock can be converted into shares of the Company’s common stock on a one for one basis. In addition, at the time the preferred stock is granted, the employees receive options to purchase an equal number of shares of preferred stock at a discount to the average trading price of the Company’s common stock for the first seven days of the October immediately preceding the date of the preferred stock grant. If these options are exercised, the shares of preferred stock obtained may also be converted to shares of common stock if the employee remains with the Company through the fourth anniversary of a grant (or option exercise) date. Each employee’s option to purchase shares of preferred stock must be exercised within 30 days of the grant date, which is the 90th day after the date of the independent registered public accountants’ audit opinion on the Company’s consolidated financial statements. Shares of preferred stock not subsequently converted to shares of common stock are redeemable only at the discretion of the Company. Shares of preferred stock granted under this plan during the years ended December 31, 2021 and 2020 totaled 8,632 and 6,123 , respectively, and an equal number of preferred stock options was granted in each of these years. 71 Table of Contents Employee Share Option Plan (Common Stock Options) The Company has an employee stock option plan for certain long-serving employees of the Company. Under the plan, these employees are granted in each calendar year, as long as the employee is a participant in the Employee Share Incentive Plan, options to purchase common shares. The price at which the option may be exercised is the closing market price on the grant date, which is the 40th day after the date of the Company’s Annual Shareholder Meeting. The number of options each employee is granted is equal to five times the sum of (i) the number of shares of preferred stock that employee receives for $nil consideration and (ii) the number of preferred stock options that employee exercises in that given year. Options may be exercised during the period commencing on the fourth anniversary of the grant date and ending on the thirtieth day after the fourth anniversary of the grant date. Options granted under this plan during the years ended December 31, 2021 and 2020 totaled 3,400 and 2,100 , respectively. The fair value of each option award is estimated on the date of grant using a Black-Scholes option-pricing model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate stock option exercises and forfeitures within its valuation model. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. 2008 Equity Incentive Plan On May 14, 2008, the Company’s stockholders approved the 2008 Equity Incentive Plan (the “2008 Plan”) and reserved 1,500,000 shares of the Company’s Class A common shares for issuance under this plan. All Directors, executives and key employees of the Company or its affiliates are eligible for participation in the 2008 Plan which provides for the issuance of options, restricted stock and stock equivalents at the discretion of the Board. Non-Executive Directors’ Share Plan This stock grant plan provides part of Directors’ remuneration. Under this plan, non-Executive Directors receive a combination of cash and common stock for their participation in Board meetings. The number of shares of common stock granted is calculated based upon the market price of the Company’s common stock on October 1 of the year preceding the grant. Common stock granted under this plan during the years ended December 31, 2021 and 2020 totaled 30,911 and 19,712 shares, respectively. The Company recognized stock-based compensation for these share grants of $ 319,002 and $ 318,991 for the years ended December 31, 2021 and 2020, respectively. The Company measures and recognizes compensation expense at fair value for all share-based payments, including stock options. Stock-based compensation for the Employee Share Incentive Plan, Employee Share Option Plan and the 2008 Equity Incentive Plan totaled $ 137,215 and $ 125,487 for the years ended December 31, 2021 and 2020, respectively, and is included in general and administrative expenses in the accompanying consolidated statements of income. The significant weighted average assumptions for the years ended December 31, 2021 and 2020 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 Risk free interest rate 0.20 % 0.17 % Expected option life (years) 1.2 1.1 ​ Expected volatility 31.92 % 51.19 % Expected dividend yield 2.87 % 2.42 % ​ 72 Table of Contents A summary of the Company’s stock option activity for the year ended December 31, 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ Weighted ​ Average ​ ​ ​ ​ ​ ​ ​ Average ​ Remaining ​ Aggregate ​ ​ ​ ​ Exercise ​ Contractual ​ Intrinsic ​ Options Price Life (Years) Value (1) Outstanding at beginning of period 10,030 ​ $ 12.98 ​ Granted 12,032 ​ 9.33 ​ Exercised ( 2,106 ) ​ 8.10 ​ Forfeited/expired ( 9,466 ) ​ 9.44 ​ Outstanding as of December 31, 2021 10,490 ​ $ 12.98 2.30 years $ — Exercisable as of December 31, 2021 — ​ $ — — years $ — (1) The intrinsic value of a stock option represents the amount by which the fair value of the underlying stock, measured by reference to the closing price of the common shares of $ 10.64 on the Nasdaq Global Select Market on December 31, 2021, exceeds the exercise price of the option. As of December 31, 2021, 10,490 non-vested options were outstanding, with weighted average exercise price of $ 12.98 , and average remaining contractual life of 2.30 years. The total remaining unrecognized compensation costs related to unvested stock-based arrangements were $ 16,554 as of December 31, 2021 and are expected to be recognized over a weighted average period of 2.30 years. As of December 31, 2021, unrecognized compensation costs relating to redeemable preferred stock rights outstanding were $ 147,074 and are expected to be recognized over a weighted average period of 1.17 years. The following table summarizes the weighted average fair value of options at the date of grant and the intrinsic value of options exercised during the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 Options granted with an exercise price below market price on the date of grant: ​ ​ Employees — preferred stock ​ $ 3.71 ​ $ 2.70 Overall weighted average ​ 3.71 ​ 2.70 ​ ​ ​ ​ ​ ​ ​ Options granted with an exercise price at market price on the date of grant: ​ ​ Management employees ​ $ — ​ $ — Employees — common stock ​ 2.89 ​ 2.45 Overall weighted average ​ 2.89 ​ 2.45 ​ ​ ​ ​ ​ ​ ​ Options granted with an exercise price above market price on the date of grant: ​ ​ Management employees ​ $ — ​ $ — Employees — preferred stock ​ — ​ — Overall weighted average ​ — ​ — ​ ​ ​ ​ ​ ​ ​ Total intrinsic value of options exercised ​ $ 7,876 ​ $ 3,891 ​ Executive Long-Term Incentive Compensation The Board of Directors approved changes to the long-term incentive compensation for the Company’s Executive Officers effective for 2015 and thereafter to better align the interests of its Executive Officers with those of its shareholders. The revised long-term compensation plan includes a combination of performance and non-performance-based grants of common stock from the shares of Company stock provided for issuance under the 2008 Equity Incentive Plan. The non-performance-based stock 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 73 Table of Contents 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 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 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. ​ 17. Retirement benefits Retirement plans are offered to all employees in California, Florida, Cayman Islands and Bahamas. The plans are administered by third parties and are defined contribution plans pursuant to which the Company matches participating employees’ contributions up to certain amounts. The Company matches contributions of up to 5 % of a maximum salary amount of $ 104,400 for Cayman Islands employees, fully matches all contributions made by employees in the Bahamas, and matches contributions of up to 6 % of salary for Florida employees. For California employees, the Company matches contribution amounts up to 2 % of the employee's salary and matches 25 % of contributions above this 2 % threshold, up to 10 % of the employee’s salary. The Company’s expense for these plans was $ 584,278 and $ 576,096 for the years ended December 31, 2021 and 2020, respectively. ​ 18. Financial instruments Credit risk: The Company is not exposed to significant credit risk on its retail customer accounts as its policy is to cease supply of water to customers’ accounts that are more than 45 days overdue. The Company’s exposure to credit risk is concentrated on receivables from its bulk water, services, and manufacturing customers. The Company considers these receivables fully collectible and therefore has not recorded an allowance for these receivables. Interest rate risk: The Company is not subject to significant interest-rate risk arising from fluctuations in interest rates. Foreign exchange risk: All relevant foreign currencies other than the Mexican peso and the euro have been fixed to the dollar for more than 20 years and as a result, the Company does not employ a hedging strategy against exchange rate risk associated with the reporting in dollars. If any of these fixed exchange rates becomes a floating exchange rate or if any of the foreign currencies in which the Company conducts business depreciate significantly against the dollar, the Company’s consolidated results of operations could be adversely affected. 74 Table of Contents Fair values: As of December 31, 2021 and 2020, the carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued expenses, accrued compensation, dividends payable and other current liabilities approximate their fair values due to the short-term maturities of these instruments. Under US GAAP, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. US GAAP guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company reviews its fair value hierarchy classifications on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value as of December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recurring ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificate of deposit ​ $ — ​ $ 2,500,000 ​ $ — ​ $ 2,500,000 Net asset arising from put/call options ​ ​ — ​ ​ — ​ ​ 128,000 ​ ​ 128,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Level 1 Level 2 Level 3 Total Liabilities: ​ ​ ​ ​ ​ Recurring ​ ​ ​ ​ ​ Net liability arising from put/call options ​ $ — ​ $ — ​ $ ( 690,000 ) ​ $ ( 690,000 ) ​ The activity for the Level 3 asset for the year ended December 31, 2021: ​ ​ ​ ​ ​ Net (liability)/asset arising from put/call options ​ ​ Balance as of December 31, 2020 ​ $ ( 690,000 ) Unrealized gain ​ 818,000 Balance as of December 31, 2021 ​ $ 128,000 ​ 75 Table of Contents Put/call options are reported at fair value as either assets or liabilities in the consolidated balance sheets. These fair values are calculated using discounted cash flow analysis valuation techniques that incorporate unobservable inputs, such as future cash flows, weighted-average cost of capital, and expected future volatility. The inputs to these valuations are considered Level 3 inputs. ​ ​ ​ 19. Commitments and contingencies Commitments The Company has entered into employment agreements with certain executives, which expire through December 31, 2024 and provide for, among other things, base annual salaries in an aggregate amount of approximately $ 3.9 million, performance bonuses and various employee benefits. The Company has purchase obligations totaling approximately $ 5.1 million through December 31, 2022. Contingencies COVID-19 The worldwide coronavirus (COVID-19) pandemic was formally recognized by the World Health Organization on March 11, 2020. In response to this pandemic, the governments of the countries in which the Company operates - the Cayman Islands, The Bahamas, and the United States - implemented preventative measures to slow the spread of COVID-19, measures which have had profound adverse consequences for the economies of those countries. Tourism, a major economic driver for the Cayman Islands, 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. Cayman Water The Company sells water through its retail operations under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that granted Cayman Water the exclusive right to provide potable water to customers within its licensed service area. Although the 1990 license was not expressly extended after January 2018, the Company continues to supply water under the terms of the 1990 license, as further discussed in the following paragraph. Pursuant to the 1990 license, Cayman Water has the exclusive right to produce potable water and distribute it by pipeline to its licensed service area, which consists of two of the three most populated areas of Grand Cayman Island: Seven Mile Beach and West Bay. 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. ​ 76 Table of Contents The 1990 license was originally scheduled to expire in July 2010 but was extended several times by the Cayman Islands government in order to provide the parties with additional time to negotiate the terms of a new license agreement. The most recent express extension of the 1990 license expired on January 31, 2018. The Company continues to operate under the terms of the 1990 license, providing water services to the level and quality specified in the 1990 license and in accordance with its understanding of its legal obligations, treating those obligations set forth in the 1990 license as operative notwithstanding the expiration of the express extension. The Company continues to pay the royalty required under the 1990 license. In October 2016, the Government of the Cayman Islands passed legislation which created a new utilities regulation and competition office (“OfReg”). OfReg is an independent and accountable regulatory body with a view of protecting the rights of consumers, encouraging affordable utility services and promoting competition. OfReg, which began operations in January 2017, has the ability to supervise, monitor and regulate multiple utility undertakings and markets. Supplemental legislation was passed by the Government of the Cayman Islands in April 2017, which transferred responsibility for the economic regulation of the water utility sector and the negotiations with the Company for a new retail license from the WAC to OfReg in May 2017. The Company began license negotiations with OfReg in July 2017 and such negotiations are ongoing. The Company has been informed during its retail license negotiations, both by OfReg and its predecessor in these negotiations, that the Cayman Islands government seeks to restructure the terms of its license in a manner that could significantly reduce the operating income and cash flows the Company has historically generated from its retail license. The Company is presently unable to determine what impact the resolution of its retail license negotiations will have on its cash flows, financial condition or results of operations but such resolution could result in a material reduction (or the loss) of the operating income and cash flows the Company has historically generated from Cayman Water’s retail operations and could require the Company to record impairment losses to reduce the carrying values of its retail segment assets. Such impairment losses could have a material adverse impact on the Company’s consolidated financial condition and results of operations. CW-Bahamas CW-Bahamas’ accounts receivable balances (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, 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: (i) CW-Bahamas may not have sufficient liquidity to meet its obligations; (ii) the Company may be required to cease the recognition of revenue on CW-Bahamas’ water supply agreements with the WSC; and (iii) the Company may be required to provide an allowance for doubtful accounts for CW-Bahamas’ accounts receivable. Any of these events could have a material adverse impact on the Company’s consolidated financial condition, results of operations, and cash flows. ​ ​ 20. 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, 2021 and 2020, the Company made total purchases of services of approximately $ 438,000 and $ 1,349,000 77 Table of Contents 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. ​ ​ ​ ​ 21. Supplemental disclosure of cash flow information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 Interest paid in cash ​ $ 10,248 ​ $ 9,669 ​ ​ ​ ​ ​ ​ ​ Non-cash transactions: ​ ​ ​ Dividends declared but not paid ​ $ 1,298,148 ​ $ 1,289,854 Transfers from inventory to property, plant and equipment and construction in progress ​ $ 189,924 ​ $ 73,464 Transfers from construction in progress to property, plant and equipment ​ $ 644,224 ​ $ 1,653,501 Right-of-use assets obtained in exchange for new operating lease liabilities ​ $ 1,852,608 ​ $ 299,992 Purchases of equipment through issuance of long-term debt ​ $ 95,707 ​ $ 122,292 ​ ​ ​ 22. Impact of recent accounting standards Adoption of New Accounting Standards: None. Effect of newly issued but not yet effective accounting standards: In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions to the current guidance on contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating the impact of the new guidance on the consolidated financial statements, however the adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows. ​ 23. Subsequent events The Company evaluated subsequent events through the time of the filing of its Annual Report on Form 10-K. Other than as disclosed in these consolidated financial statements, the Company is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on its consolidated financial statements. ​ ​ 78 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ​ None. ​