Consolidated Water Co. Ltd. 10-Q

ITEM 1. FINANCIAL STATEMENTS ​ CONSOLIDATED WATER CO. LTD. CONDENSED CONSOLIDATED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ 2022 ​ 2021 ​ ​ (Unaudited) ​ ​ ​ ​ ASSETS ​ ​ ​ Current assets ​ ​ ​ Cash and cash equivalents ​ $ 51,085,289 ​ $ 40,358,059 ​ Certificate of deposit ​ ​ — ​ ​ 2,500,000 ​ Accounts receivable, net ​ 24,352,487 ​ 27,349,307 ​ Inventory ​ 4,053,662 ​ 2,504,832 ​ Prepaid expenses and other current assets ​ 4,696,845 ​ 2,558,822 ​ Contract assets ​ 1,658,912 ​ 489,961 ​ Net asset arising from put/call options ​ ​ 157,000 ​ ​ 128,000 ​ Current assets of discontinued operations ​ 500,661 ​ 1,173,741 ​ Total current assets ​ ​ 86,504,856 ​ 77,062,722 ​ Property, plant and equipment, net ​ 50,236,746 ​ 52,946,539 ​ Construction in progress ​ 2,618,972 ​ 710,863 ​ Inventory, noncurrent ​ 4,882,659 ​ 4,733,010 ​ Investment in OC-BVI ​ 1,538,743 ​ 1,715,905 ​ Goodwill ​ 10,425,013 ​ 10,425,013 ​ Intangible assets, net ​ 2,959,166 ​ 3,401,666 ​ Operating lease right-of-use assets ​ ​ 2,179,159 ​ ​ 2,681,137 ​ Other assets ​ 2,525,864 ​ 2,204,013 ​ Long-term assets of discontinued operations ​ 21,139,574 ​ 21,146,186 ​ Total assets ​ $ 185,010,752 ​ $ 177,027,054 ​ ​ ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND EQUITY ​ ​ ​ Current liabilities ​ ​ ​ Accounts payable, accrued expenses and other current liabilities ​ $ 6,332,647 ​ $ 2,831,925 ​ Accounts payable - related parties ​ ​ 569,088 ​ ​ 163,947 ​ Accrued compensation ​ 2,061,131 ​ 1,435,542 ​ Dividends payable ​ 1,377,540 ​ 1,320,572 ​ Current maturities of operating leases ​ ​ 555,300 ​ ​ 592,336 ​ Current portion of long-term debt ​ ​ 85,533 ​ ​ 62,489 ​ Contract liabilities ​ 3,753,488 ​ 513,878 ​ Deferred revenue ​ ​ 408,534 ​ ​ 583,646 ​ Current liabilities of discontinued operations ​ 237,675 ​ 182,322 ​ Total current liabilities ​ 15,380,936 ​ 7,686,657 ​ Long-term debt, noncurrent ​ ​ 145,852 ​ ​ 152,038 ​ Deferred tax liabilities ​ 1,114,809 ​ 1,236,723 ​ Noncurrent operating leases ​ ​ 1,721,643 ​ ​ 2,137,394 ​ Other liabilities ​ 141,000 ​ 141,000 ​ Long-term liabilities of discontinued operations ​ ​ 691 ​ ​ 7,819 ​ Total liabilities ​ 18,504,931 ​ 11,361,631 ​ Commitments and contingencies ​ ​ ​ Equity ​ ​ ​ Consolidated Water Co. Ltd. stockholders' equity ​ ​ ​ Redeemable preferred stock, $ 0.60 par value. Authorized 200,000 shares; issued and outstanding 34,409 and 28,635 shares, respectively ​ 20,645 ​ 17,181 ​ Class A common stock, $ 0.60 par value. Authorized 24,655,000 shares; issued and outstanding 15,292,108 and 15,243,693 shares, respectively ​ 9,175,265 ​ 9,146,216 ​ Class B common stock, $ 0.60 par value. Authorized 145,000 shares; none issued ​ — ​ — ​ Additional paid-in capital ​ 88,614,319 ​ 87,812,432 ​ Retained earnings ​ 61,020,487 ​ 60,603,056 ​ Total Consolidated Water Co. Ltd. stockholders' equity ​ 158,830,716 ​ 157,578,885 ​ Non-controlling interests ​ 7,675,105 ​ 8,086,538 ​ Total equity ​ 166,505,821 ​ 165,665,423 ​ Total liabilities and equity ​ $ 185,010,752 ​ $ 177,027,054 ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents CONSOLIDATED WATER CO. LTD. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, Nine Months Ended September 30, ​ 2022 2021 2022 2021 Revenue ​ $ 25,051,705 ​ $ 16,413,146 ​ $ 65,676,737 ​ $ 50,217,987 Cost of revenue (including purchases from related parties of $ 685,481 and $ 104,813 for the three months ended, and $ 2,165,850 and $ 390,196 for the nine months ended, September 30, 2022 and 2021, respectively) ​ 18,207,932 ​ 10,722,547 ​ 44,211,703 ​ 32,336,025 Gross profit ​ 6,843,773 ​ 5,690,599 ​ 21,465,034 ​ 17,881,962 General and administrative expenses (including purchases from related parties of $ 24,231 and $ 24,231 for the three months ended, and $ 72,693 and $ 52,959 for the nine months ended, September 30, 2022 and 2021, respectively) ​ 5,610,650 ​ 4,359,040 ​ 15,403,458 ​ 13,847,830 Gain (loss) on asset dispositions and impairments, net ​ 3,499 ​ 612 ​ 21,237 ​ ( 3,144,961 ) Income from operations ​ 1,236,622 ​ 1,332,171 ​ 6,082,813 ​ 889,171 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense): ​ ​ ​ ​ Interest income ​ 56,701 ​ 168,880 ​ 348,304 ​ 503,889 Interest expense ​ ( 2,042 ) ​ ( 2,216 ) ​ ( 8,847 ) ​ ( 7,714 ) Profit-sharing income from OC-BVI ​ 6,075 ​ 6,075 ​ 24,300 ​ 16,200 Equity in the earnings of OC-BVI ​ 19,921 ​ 17,717 ​ 71,238 ​ 44,223 Net unrealized gain (loss) on put/call options ​ ( 247,000 ) ​ ( 54,000 ) ​ 29,000 ​ 108,000 Other ​ ( 2,635 ) ​ 15,712 ​ 84,734 ​ 35,292 Other income (expense), net ​ ( 168,980 ) ​ 152,168 ​ 548,729 ​ 699,890 Income before income taxes ​ 1,067,642 ​ 1,484,339 ​ 6,631,542 ​ 1,589,061 Income tax provision (benefit) ​ 26,616 ​ ( 11,230 ) ​ 83,041 ​ ( 20,735 ) Net income from continuing operations ​ 1,041,026 ​ 1,495,569 ​ 6,548,501 ​ 1,609,796 Income from continuing operations attributable to non-controlling interests ​ 217,415 ​ 131,609 ​ 691,042 ​ 457,540 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ 823,611 ​ 1,363,960 ​ 5,857,459 ​ 1,152,256 Loss from discontinued operations ​ ​ ( 505,917 ) ​ ​ ( 1,078,367 ) ​ ​ ( 1,533,064 ) ​ ​ ( 1,542,540 ) Net income (loss) attributable to Consolidated Water Co. Ltd. stockholders ​ $ 317,694 ​ $ 285,593 ​ $ 4,324,395 ​ $ ( 390,284 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ ​ ​ ​ Continuing operations ​ $ 0.05 ​ $ 0.09 ​ $ 0.38 ​ $ 0.07 Discontinued operations ​ ​ ( 0.03 ) ​ ​ ( 0.07 ) ​ ​ ( 0.10 ) ​ ​ ( 0.10 ) Basic earnings (loss) per share ​ $ 0.02 ​ $ 0.02 ​ $ 0.28 ​ $ ( 0.03 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ ​ ​ ​ Continuing operations ​ $ 0.05 ​ $ 0.09 ​ $ 0.38 ​ $ 0.07 Discontinued operations ​ ​ ( 0.03 ) ​ ​ ( 0.07 ) ​ ​ ( 0.10 ) ​ ​ ( 0.10 ) Diluted earnings (loss) per share ​ $ 0.02 ​ $ 0.02 ​ $ 0.28 ​ $ ( 0.03 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends declared per common and redeemable preferred shares ​ $ 0.085 ​ $ 0.085 ​ $ 0.255 ​ $ 0.255 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average number of common shares used in the determination of: ​ ​ ​ ​ Basic earnings per share ​ 15,290,597 ​ 15,209,432 ​ 15,287,233 ​ 15,204,220 Diluted earnings per share ​ 15,450,276 ​ 15,351,882 ​ 15,440,261 ​ 15,345,120 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 5 Table of Contents CONSOLIDATED WATER CO. LTD. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Redeemable ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Non- ​ Total ​ preferred stock Common stock paid-in Retained controlling stockholders’ ​ Shares Dollars Shares Dollars capital earnings interests equity Balance as of December 31, 2021 ​ 28,635 ​ $ 17,181 ​ 15,243,693 ​ $ 9,146,216 ​ $ 87,812,432 ​ $ 60,603,056 ​ $ 8,086,538 ​ $ 165,665,423 Issue of share capital — ​ — 41,830 ​ 25,098 ​ ( 25,098 ) ​ — ​ — ​ — Net income — ​ — — ​ — ​ — ​ 1,716,815 ​ 241,430 ​ 1,958,245 Dividends declared — ​ — — ​ — ​ — ​ ( 1,303,014 ) ​ — ​ ( 1,303,014 ) Stock-based compensation — ​ — — ​ — ​ 188,985 ​ — ​ — ​ 188,985 Balance as of March 31, 2022 28,635 ​ ​ 17,181 15,285,523 ​ ​ 9,171,314 ​ ​ 87,976,319 ​ ​ 61,016,857 ​ ​ 8,327,968 ​ ​ 166,509,639 Issue of share capital 9,295 ​ 5,577 — ​ — ​ ( 5,577 ) ​ — ​ — ​ — Net income — ​ — — ​ — ​ — ​ 2,289,886 ​ 232,197 ​ 2,522,083 Exercise of options ​ 309 ​ ​ 185 ​ — ​ ​ — ​ ​ 2,511 ​ ​ — ​ ​ — ​ ​ 2,696 Dividends declared — ​ — — ​ — ​ — ​ ( 1,301,840 ) ​ ( 464,200 ) ​ ( 1,766,040 ) Stock-based compensation — ​ — — ​ — ​ 205,137 ​ — ​ — ​ 205,137 Balance as of June 30, 2022 38,239 ​ ​ 22,943 15,285,523 ​ ​ 9,171,314 ​ ​ 88,178,390 ​ ​ 62,004,903 ​ ​ 8,095,965 ​ ​ 167,473,515 Conversion of preferred stock ​ ( 6,585 ) ​ ​ ( 3,951 ) ​ 6,585 ​ ​ 3,951 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Net income — ​ — — ​ — ​ — ​ 317,694 ​ 217,415 ​ 535,109 Exercise of options ​ 2,755 ​ ​ 1,653 ​ — ​ ​ — ​ ​ 22,390 ​ ​ — ​ ​ — ​ ​ 24,043 Dividends declared — ​ — — ​ — ​ — ​ ( 1,302,110 ) ​ ( 638,275 ) ​ ( 1,940,385 ) Stock-based compensation — ​ — — ​ — ​ 413,539 ​ — ​ — ​ 413,539 Balance as of September 30, 2022 34,409 ​ $ 20,645 15,292,108 ​ $ 9,175,265 ​ $ 88,614,319 ​ $ 61,020,487 ​ $ 7,675,105 ​ $ 166,505,821 ​ 6 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Redeemable ​ ​ ​ ​ Additional ​ ​ Non- Total ​ ​ preferred stock ​ Common stock ​ paid-in ​ Retained ​ controlling ​ stockholders’ ​ Shares Dollars Shares Dollars capital earnings interests equity Balance as of December 31, 2020 ​ 31,068 ​ $ 18,641 ​ 15,143,683 ​ $ 9,086,210 ​ $ 86,893,486 ​ $ 64,910,709 ​ $ 8,103,503 ​ $ 169,012,549 Issue of share capital — ​ — 57,577 ​ 34,546 ​ ( 34,546 ) ​ — ​ — ​ — Conversion of preferred stock ( 215 ) ​ ( 129 ) 215 ​ 129 ​ — ​ — ​ — ​ — Buyback of preferred stock ( 747 ) ​ ( 448 ) — ​ — ​ ( 7,065 ) ​ — ​ — ​ ( 7,513 ) Net income — ​ — — ​ — ​ — ​ 988,772 ​ 128,793 ​ 1,117,565 Dividends declared — ​ — — ​ — ​ — ​ ( 1,296,197 ) ​ ( 649,880 ) ​ ( 1,946,077 ) Stock-based compensation — ​ — — ​ — ​ 176,210 ​ — ​ — ​ 176,210 Balance as of March 31, 2021 30,106 ​ ​ 18,064 15,201,475 ​ ​ 9,120,885 ​ ​ 87,028,085 ​ ​ 64,603,284 ​ ​ 7,582,416 ​ ​ 168,352,734 Issue of share capital 8,632 ​ 5,179 — ​ — ​ ( 5,179 ) ​ — ​ — ​ ​ — Conversion of preferred stock ( 896 ) ​ ( 538 ) 896 ​ 538 ​ — ​ — ​ — ​ — Buyback of preferred stock ​ ( 704 ) ​ ​ ( 422 ) ​ — ​ ​ — ​ ​ ( 6,928 ) ​ ​ — ​ ​ — ​ ​ ( 7,350 ) Net income (loss) — ​ — — ​ — ​ — ​ ( 1,664,649 ) ​ 197,138 ​ ​ ( 1,467,511 ) Exercise of options ​ 211 ​ ​ 126 ​ — ​ ​ — ​ ​ 1,583 ​ ​ — ​ ​ — ​ ​ 1,709 Dividends declared — ​ — — ​ — ​ — ​ ( 1,294,697 ) ​ — ​ ​ ( 1,294,697 ) Stock-based compensation — ​ — — ​ — ​ 178,589 ​ — ​ — ​ ​ 178,589 Balance as of June 30, 2021 37,349 ​ ​ 22,409 15,202,371 ​ ​ 9,121,423 ​ ​ 87,196,150 ​ ​ 61,643,938 ​ ​ 7,779,554 ​ ​ 165,763,474 Conversion of preferred stock ​ ( 8,328 ) ​ ​ ( 4,996 ) ​ 8,328 ​ ​ 4,996 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Net income — ​ — — ​ — ​ — ​ 285,593 ​ 131,609 ​ ​ 417,202 Exercise of options ​ 1,895 ​ ​ 1,137 ​ — ​ ​ — ​ ​ 14,213 ​ ​ — ​ ​ — ​ ​ 15,350 Dividends declared — ​ — — ​ — ​ — ​ ( 1,294,870 ) ​ — ​ ​ ( 1,294,870 ) Stock-based compensation — ​ — — ​ — ​ 374,793 ​ — ​ — ​ ​ 374,793 Balance as of September 30, 2021 30,916 ​ $ 18,550 15,210,699 ​ $ 9,126,419 ​ $ 87,585,156 ​ $ 60,634,661 ​ $ 7,911,163 ​ $ 165,275,949 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ ​ 7 Table of Contents CONSOLIDATED WATER CO. LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ 2022 2021 Net cash provided by operating activities - continuing operations ​ $ 16,926,429 ​ $ 5,285,457 Net cash used in operating activities - discontinued operations ​ ( 1,123,193 ) ​ ( 820,785 ) Net cash provided by operating activities ​ ​ 15,803,236 ​ ​ 4,464,672 ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities ​ ​ Purchase of certificate of deposit ​ ​ ( 2,518,493 ) ​ ​ ( 2,500,000 ) Maturity of certificate of deposit ​ 5,018,493 ​ — Additions to property, plant and equipment and construction in progress ​ ( 2,947,937 ) ​ ( 973,270 ) Proceeds from asset dispositions ​ ​ 31,181 ​ ​ 45,560 Net cash used in investing activities - continuing operations ​ ( 416,756 ) ​ ( 3,427,710 ) ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities ​ ​ ​ ​ Dividends paid to common shareholders ​ ( 3,841,842 ) ​ ( 3,859,412 ) Dividends paid to preferred shareholders ​ ​ ( 8,154 ) ​ ​ ( 8,387 ) Dividends paid to non-controlling interests ​ ( 1,102,475 ) ​ ( 649,880 ) Repurchase of redeemable preferred stock ​ ​ — ​ ​ ( 14,863 ) Proceeds received from exercise of stock options ​ 26,739 ​ 17,059 Payments on note payable ​ ​ ( 51,564 ) ​ ​ ( 35,840 ) Net cash used in financing activities ​ ( 4,977,296 ) ​ ( 4,551,323 ) Net increase (decrease) in cash and cash equivalents ​ 10,409,184 ​ ( 3,514,361 ) Cash and cash equivalents at beginning of period ​ 40,358,059 ​ 43,794,150 Cash and cash equivalents at beginning of period - discontinued operations ​ ​ 750,048 ​ ​ 154,130 Less: cash and cash equivalents at end of period - discontinued operations ​ ​ ( 432,002 ) ​ ​ ( 36,326 ) Cash and cash equivalents at end of period ​ $ 51,085,289 ​ $ 40,397,593 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-cash transactions: ​ ​ ​ ​ ​ ​ Issuance of 9,295 and 8,632 , respectively, shares of redeemable preferred stock for services rendered ​ $ 133,197 ​ $ 102,203 Issuance of 41,830 and 57,577 , respectively, shares of common stock for services rendered ​ $ 521,016 ​ $ 745,468 Conversion (on a one-to-one basis) of 6,585 and 9,439 , respectively, shares of redeemable preferred stock to common stock ​ $ 3,951 ​ $ 5,663 Dividends declared but not paid ​ $ 1,302,754 ​ $ 1,295,377 Transfers from (to) inventory to (from) property, plant and equipment and construction in progress ​ $ 246,238 ​ $ 148,138 Net transfers from construction in progress to property, plant and equipment ​ $ 413,416 ​ $ 166,335 Right-of-use assets obtained in exchange for new operating lease liabilities ​ $ — ​ $ 1,852,608 Purchase of equipment through issuance of long-term debt ​ $ 68,422 ​ $ 58,220 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ ​ 8 Table of Contents CONSOLIDATED WATER CO. LTD. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Principal activity Consolidated Water Co. Ltd. and its subsidiaries (collectively, the “Company”) supply potable water, treat wastewater and water for reuse, and provide water-related products and services to customers in the Cayman Islands, The Bahamas, the United States and the British Virgin Islands. The Company produces potable water from seawater using reverse osmosis technology and sells this water to a variety of customers, including public utilities, commercial and tourist properties, residential properties and government facilities. The Company designs, builds and sells water production and water treatment infrastructure and manages water infrastructure for commercial and governmental customers. The Company also manufactures a wide range of specialized and custom water industry related products and provides design, engineering, operating and other services applicable to commercial, municipal and industrial water production, supply and treatment. ​ 2. Accounting policies Basis of consolidation: The accompanying condensed consolidated financial statements include the accounts of the Company’s (i) wholly-owned subsidiaries, Aerex Industries, Inc. (“Aerex”), Aquilex, Inc. (“Aquilex”), Cayman Water Company Limited (“Cayman Water”), Ocean Conversion (Cayman) Limited (“OC-Cayman”), DesalCo Limited (“DesalCo”), Consolidated Water Cooperatief, U.A. (“CW-Cooperatief”), Consolidated Water U.S. Holdings, Inc. (“CW-Holdings”); and (ii) majority-owned subsidiaries Consolidated Water (Bahamas) Ltd. (“CW-Bahamas”), N.S.C. Agua, S.A. de C.V. (“NSC”), Aguas de Rosarito S.A.P.I. de C.V. (“AdR”), and PERC Water Corporation ("PERC"). The Company’s investment in its affiliate Ocean Conversion (BVI) Ltd. (“OC-BVI”) is accounted for using the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying interim condensed consolidated financial statements are unaudited. These condensed consolidated financial statements reflect all adjustments (which are of a normal recurring nature) that, in the opinion of management, are necessary to fairly present the Company’s consolidated financial position, results of operations and cash flows as of and for the periods presented. The consolidated results of operations for these interim periods are not necessarily indicative of the operating results for future periods, including the fiscal year ending December 31, 2022. These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) relating to interim financial statements and in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted in these condensed consolidated financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Foreign currency: The Company’s reporting currency is the United States dollar (“US$”). The functional currency of the Company and its foreign operating subsidiaries (other than NSC, AdR, and CW-Cooperatief) is the currency for each respective country. The functional currency for NSC, AdR, and CW-Cooperatief is the US$. NSC and AdR conduct business in US$ and Mexican pesos and CW-Cooperatief conducts business in US$ and euros. The exchange rates for the Cayman Islands dollar and the Bahamian dollar are fixed to the US$. The exchange rates for conversion of Mexican pesos and euros into US$ vary based upon market conditions. Net foreign currency gains (losses) arising from transactions and re-measurements were ($ 8,068 ) and $ 15,302 for the three months ended September 30, 2022 and 2021, respectively, and $ 20,966 and $ 29,353 for the nine months ended September 30, 2022 and 2021 and are included in “Other income (expense) - Other” in the accompanying condensed consolidated statements of income (loss). 9 Table of Contents Cash and cash equivalents: Cash and cash equivalents consist of demand deposits at banks and certificates of deposit at banks with an original maturity of three months or less. Cash and cash equivalents as of September 30, 2022 and December 31, 2021 include approximately $ 7.5 million and $ 7.4 million, respectively, of certificates of deposits with an original maturity of three months or less. Certain transfers from the Company’s Bahamas bank accounts to Company bank accounts in other countries require the approval of the Central Bank of The Bahamas. The equivalent United States dollar cash balances for deposits held in The Bahamas as of September 30, 2022 and December 31, 2021 were approximately $ 4.7 million and $ 3.9 million, respectively. Certificate of deposit: As of December 31, 2021, the Company held a certificate of deposit in The Bahamas of $ 2.5 million with an original maturity of six months. Goodwill and intangible assets: Goodwill represents the excess cost of an acquired business over the fair value of the assets and liabilities of the acquired business. Goodwill and intangible assets acquired in a business combination 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. ​ As of December 31, 2021, 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 its reporting units as of December 31, 2021 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 applied to each method as of December 31, 2021 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. ​ Based upon its 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 September 30, 2022 of its manufacturing reporting unit’s goodwill of $ 1,985,211 and its remaining unamortized intangible assets balances of $ 777,778 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. 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. 10 Table of Contents The following table presents the Company’s revenue disaggregated by revenue source. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, Nine Months Ended September 30, ​ 2022 2021 2022 2021 Retail revenue ​ $ 6,274,650 ​ $ 5,247,042 ​ $ 19,114,653 ​ $ 16,633,137 Bulk revenue ​ 8,667,931 ​ 6,868,134 ​ 24,442,324 ​ 19,826,075 Services revenue ​ 8,731,124 ​ 3,210,584 ​ 18,530,427 ​ 10,514,669 Manufacturing revenue ​ 1,378,000 ​ 1,087,386 ​ 3,589,333 ​ 3,244,106 Total revenue ​ $ 25,051,705 ​ $ 16,413,146 ​ $ 65,676,737 ​ $ 50,217,987 ​ 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. 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 utilities 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. 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 systems and products applicable to commercial, municipal and industrial water production and treatment. 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. 11 Table of Contents The Company recognizes revenue for its construction and custom/specialized 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 comprise of estimated total contract costs. If, as work progresses, the actual contract costs exceed estimates, the profit recognized on revenue from that contract decreases. The Company recognizes the full amount of any estimated loss on a contract at the time the estimates indicate such a loss. Any contract assets are classified as current assets. Contract liabilities on uncompleted contracts, if any, are classified as current liabilities. The Company has elected the “right to invoice” practical expedient for revenue recognition on its services agreements and recognizes revenue in the amount to which the Company has a right to invoice. Revenue recognized and amounts billed on contracts in progress are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31 ​ ​ ​ 2022 ​ 2021 ​ Revenue recognized to date on contracts in progress $ 16,576,248 ​ $ 6,109,396 ​ Amounts billed to date on contracts in progress ​ ( 19,694,500 ) ​ ( 6,370,855 ) ​ Retainage ​ ​ 1,023,676 ​ ​ 237,542 ​ Net contract liability ​ $ ( 2,094,576 ) ​ $ ( 23,917 ) ​ ​ The above net balances are reflected in the accompanying condensed consolidated balance sheets as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31 ​ ​ ​ 2022 ​ 2021 ​ Contract assets $ 1,658,912 $ 489,961 ​ Contract liabilities ​ ( 3,753,488 ) ​ ( 513,878 ) ​ Net contract liability ​ $ ( 2,094,576 ) ​ $ ( 23,917 ) ​ ​ As of September 30, 2022 , the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 104.8 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 $ 12.6 million during the remainder of the year ending December 31, 2022 and approximately $ 92.2 million thereafter . In addition, the Company recognized revenue of $ 396,000 in the nine months ended September 30, 2022, that was included in the contract liability balance as of December 31, 2021. 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 2021 have been reclassified to conform to the current periods’ presentation. ​ ​ 12 Table of Contents 3. Segment information The Company has four reportable segments: retail, bulk, services and manufacturing. The retail segment operates the water utility for the Seven Mile Beach and West Bay areas of Grand Cayman Island pursuant to an exclusive license granted by the Cayman Islands government. The bulk segment supplies potable water to government utilities in Grand Cayman and The Bahamas under long-term contracts. The services segment designs, constructs and sells water infrastructure and provides management and operating services to third parties. The manufacturing segment manufactures and services a wide range of custom and specialized water-related products applicable to commercial, municipal and industrial water production, supply and treatment. Consistent with prior periods, the Company records all non-direct general and administrative expenses in its retail business segment and does not allocate any of these non-direct expenses to its other three business segments. The accounting policies of the segments are consistent with those described in Note 2. The Company evaluates each segment’s performance based upon its income (or loss) from operations. All intercompany transactions are eliminated for segment presentation purposes. The Company’s segments are strategic business units that are managed separately because each segment sells different products and/or services, serves customers with distinctly different needs and generates different gross profit margins. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2022 ​ Retail Bulk Services Manufacturing Total Revenue ​ $ 6,274,650 ​ $ 8,667,931 ​ $ 8,731,124 ​ $ 1,378,000 $ 25,051,705 Cost of revenue ​ 3,231,973 ​ 6,446,549 ​ 7,333,982 ​ 1,195,428 ​ 18,207,932 Gross profit ​ 3,042,677 ​ 2,221,382 ​ 1,397,142 ​ 182,572 ​ 6,843,773 General and administrative expenses ​ 3,818,459 ​ 473,534 ​ 936,708 ​ 381,949 ​ 5,610,650 Gain on asset dispositions ​ 1,499 ​ 2,000 ​ — ​ — ​ 3,499 Income (loss) from operations ​ $ ( 774,283 ) ​ $ 1,749,848 ​ $ 460,434 ​ $ ( 199,377 ) ​ 1,236,622 Other income (loss), net ​ ​ ​ ​ ​ ​ ( 168,980 ) Income before income taxes ​ ​ ​ ​ ​ 1,067,642 Income tax provision ​ ​ ​ ​ ​ 26,616 Net income from continuing operations ​ ​ ​ ​ ​ 1,041,026 Income from continuing operations attributable to non-controlling interests ​ ​ ​ ​ ​ 217,415 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ 823,611 Loss from discontinued operations ​ ​ ​ ​ ​ ( 505,917 ) Net income attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ $ 317,694 ​ Depreciation and amortization expenses for the three months ended September 30, 2022 for the retail, bulk, services and manufacturing segments were $ 567,086 , $ 707,788 , $ 175,732 and $ 71,734 , respectively. ​ 13 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2021 ​ Retail Bulk Services Manufacturing Total Revenue ​ $ 5,247,042 ​ $ 6,868,134 ​ $ 3,210,584 ​ $ 1,087,386 ​ $ 16,413,146 Cost of revenue ​ 2,745,796 ​ 4,628,386 ​ 2,410,430 ​ 937,935 ​ 10,722,547 Gross profit ​ 2,501,246 ​ 2,239,748 ​ 800,154 ​ 149,451 ​ 5,690,599 General and administrative expenses ​ 3,067,696 ​ 313,420 ​ 758,540 ​ 219,384 ​ 4,359,040 Gain on asset dispositions ​ 612 ​ — ​ — ​ — ​ 612 Income (loss) from operations ​ $ ( 565,838 ) ​ $ 1,926,328 ​ $ 41,614 ​ $ ( 69,933 ) ​ 1,332,171 Other income, net ​ ​ ​ ​ ​ 152,168 Income before income taxes ​ ​ ​ ​ ​ 1,484,339 Income tax benefit ​ ​ ​ ​ ​ ( 11,230 ) Net income from continuing operations ​ ​ ​ ​ ​ 1,495,569 Income attributable to non-controlling interests ​ ​ ​ ​ ​ 131,609 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ 1,363,960 Loss from discontinued operations ​ ​ ​ ​ ​ ( 1,078,367 ) Net income attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ $ 285,593 ​ Depreciation and amortization expenses for the three months ended September 30, 2021 for the retail, bulk, services and manufacturing segments were $ 625,640 , $ 761,429 , $ 203,411 and $ 70,679 , respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2022 ​ Retail Bulk Services Manufacturing Total Revenue ​ $ 19,114,653 ​ $ 24,442,324 ​ $ 18,530,427 ​ $ 3,589,333 $ 65,676,737 Cost of revenue ​ 9,404,124 ​ 16,781,251 ​ 14,849,029 ​ 3,177,299 ​ 44,211,703 Gross profit ​ 9,710,529 ​ 7,661,073 ​ 3,681,398 ​ 412,034 ​ 21,465,034 General and administrative expenses ​ 10,613,975 ​ 1,187,909 ​ 2,554,721 ​ 1,046,853 ​ 15,403,458 Gain on asset dispositions ​ 2,699 ​ 2,000 ​ 16,538 ​ — ​ 21,237 Income (loss) from operations ​ $ ( 900,747 ) ​ $ 6,475,164 ​ $ 1,143,215 ​ $ ( 634,819 ) ​ 6,082,813 Other income, net ​ ​ ​ ​ ​ ​ ​ 548,729 Income before income taxes ​ ​ ​ ​ ​ 6,631,542 Income tax provision ​ ​ ​ ​ ​ 83,041 Net income from continuing operations ​ ​ ​ ​ ​ 6,548,501 Income from continuing operations attributable to non-controlling interests ​ ​ ​ ​ ​ 691,042 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ 5,857,459 Loss from discontinued operations ​ ​ ​ ​ ​ ( 1,533,064 ) Net income attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ $ 4,324,395 ​ Depreciation and amortization expenses for the nine months ended September 30, 2022 for the retail, bulk, services and manufacturing segments were $ 1,820,567 , $ 2,114,888 , $ 502,809 and $ 213,249 , respectively. 14 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2021 ​ Retail Bulk Services Manufacturing Total Revenue ​ $ 16,633,137 ​ $ 19,826,075 ​ $ 10,514,669 ​ $ 3,244,106 ​ $ 50,217,987 Cost of revenue ​ 8,235,699 ​ 13,170,333 ​ 8,010,767 ​ 2,919,226 ​ 32,336,025 Gross profit ​ 8,397,438 ​ 6,655,742 ​ 2,503,902 ​ 324,880 ​ 17,881,962 General and administrative expenses ​ 9,757,179 ​ 994,779 ​ 2,152,145 ​ 943,727 ​ 13,847,830 Gain (loss) on asset dispositions and impairments, net ​ ( 246,028 ) ​ 1,500 ​ ( 433 ) ​ ( 2,900,000 ) ​ ( 3,144,961 ) Income (loss) from operations ​ $ ( 1,605,769 ) ​ $ 5,662,463 ​ $ 351,324 ​ $ ( 3,518,847 ) ​ 889,171 Other income, net ​ ​ ​ ​ ​ 699,890 Income before income taxes ​ ​ ​ ​ ​ 1,589,061 Income tax benefit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 20,735 ) Net income from continuing operations ​ ​ ​ ​ ​ 1,609,796 Income from continuing operations attributable to non-controlling interests ​ ​ ​ ​ ​ 457,540 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ 1,152,256 Loss from discontinued operations ​ ​ ​ ​ ​ ( 1,542,540 ) Net loss attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ $ ( 390,284 ) ​ Depreciation and amortization expenses for the nine months ended September 30, 2021 for the retail, bulk, services and manufacturing segments were $ 1,892,848 , $ 2,621,481 , $ 607,906 and $ 216,346 , respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of September 30, 2022 ​ Retail Bulk Services Manufacturing Total Accounts receivable, net ​ $ 2,512,908 ​ $ 15,491,003 ​ $ 4,948,103 ​ $ 1,400,473 ​ $ 24,352,487 Inventory, current and non-current ​ $ 2,766,577 ​ $ 4,218,974 ​ $ — ​ $ 1,950,770 ​ $ 8,936,321 Property, plant and equipment, net ​ $ 24,817,595 ​ $ 23,171,096 ​ $ 679,506 ​ $ 1,568,549 ​ $ 50,236,746 Construction in progress ​ $ 2,557,180 ​ $ — ​ $ — ​ $ 61,792 ​ $ 2,618,972 Intangibles, net ​ $ — ​ $ — ​ $ 2,181,388 ​ $ 777,778 ​ $ 2,959,166 Goodwill ​ $ 1,170,511 ​ $ 1,948,875 ​ $ 5,320,416 ​ $ 1,985,211 ​ $ 10,425,013 Total segment assets ​ $ 67,462,955 ​ $ 61,756,965 ​ $ 23,657,779 ​ $ 10,492,818 ​ $ 163,370,517 Assets of discontinued operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 21,640,235 Total assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 185,010,752 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ 15 Table of Contents ​ 4. 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. The following summarizes information related to the computation of basic and diluted EPS: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ 2022 2021 2022 2021 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ $ 823,611 ​ $ 1,363,960 ​ $ 5,857,459 ​ $ 1,152,256 Less: preferred stock dividends ​ ( 2,925 ) ​ ( 2,628 ) ​ ( 8,609 ) ​ ( 8,362 ) Net income from continuing operations available to common shares in the determination of basic earnings per common share ​ 820,686 ​ 1,361,332 ​ 5,848,850 ​ 1,143,894 Loss from discontinued operations ​ ( 505,917 ) ​ ( 1,078,367 ) ​ ( 1,533,064 ) ​ ( 1,542,540 ) Net income (loss) available to common shares in the determination of basic earnings per common share ​ $ 314,769 ​ $ 282,965 ​ $ 4,315,786 ​ $ ( 398,646 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average number of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ 15,290,597 ​ 15,209,432 ​ 15,287,233 ​ 15,204,220 Plus: ​ ​ ​ ​ ​ ​ ​ ​ Weighted average number of preferred shares outstanding during the period ​ 35,366 ​ 31,861 ​ 31,041 ​ 30,701 Potential dilutive effect of unexercised options and unvested stock grants ​ 124,313 ​ 110,589 ​ 121,987 ​ 110,199 Weighted average number of shares used for determining diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ 15,450,276 ​ 15,351,882 ​ 15,440,261 ​ 15,345,120 ​ ​ ​ 5. 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”), 16 Table of Contents 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”), and the Government of Baja California, as represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana (“CESPT”). The APP Contract required AdR to design, construct, finance and operate a seawater reverse osmosis desalination plant (and accompanying aqueduct) with a capacity of up to 100 million gallons per day in two phases: the first with a capacity of 50 million gallons per day and an aqueduct to the Mexican public water system in Tijuana, Baja California and the second phase with a capacity of 50 million gallons per day. The first phase was to be operational within 36 months of commencing construction and the second phase was to be operational by January 2025. The APP Contract further required AdR to operate and maintain the plant and aqueduct for a period of 37 years starting from the commencement of operation of the first phase. At the end of the operating period, the plant and aqueduct would have been transferred to CEA. 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 required that 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 formal 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 invited Mexico to seek a resolution of this investment dispute through consultation and negotiation, but stated 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. ​ 17 Table of Contents ​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 its 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. During July 2022, the State initiated discussions with the Company to potentially resolve the issues related to the cancellation by the government of the Rosarito desalination plant contract as well as potentially addressing the State’s acute water shortage issues. The Company cannot presently determine the outcome of the discussions and the Company has not terminated its efforts to obtain relief through the international arbitration process as a result of these discussions. ​ The Company cannot provide any assurances that it will be able to obtain reimbursement for any expenses or investments made with respect to the Project. ​ As a result of the cancellation of the APP Contract, in 2020 the Company discontinued all development activities associated with the Project and commenced active marketing efforts to sell the land NSC purchased for the Project. Accordingly, the assets and liabilities of CW-Cooperatief, NSC and AdR, as well as all Project development expenses 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 classified as discontinued operations in the accompanying consolidated financial statements. ​ Summarized financial information for the discontinued Mexico project development operation is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ ​ 2022 ​ 2021 Cash $ 432,002 $ 750,048 Prepaid expenses and other current assets ​ ​ 67,882 ​ ​ 82,783 Value added taxes receivable (net of allowance of $ 1,657,871 and $ 1,279,757 , respectively) ​ ​ 777 ​ ​ 340,910 Land ​ 21,126,898 ​ 21,126,898 Other assets ​ 12,676 ​ 19,288 Total assets of discontinued operations ​ $ 21,640,235 ​ $ 22,319,927 ​ ​ ​ Total liabilities of discontinued operations ​ $ 238,366 ​ $ 190,141 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ 2022 2021 ​ 2022 2021 Revenue $ — $ — $ — $ — Provision for uncollected value added taxes ​ $ — ​ $ 641,810 ​ $ 377,326 ​ $ 650,897 Loss from discontinued operations ​ $ 505,917 ​ $ 1,078,367 ​ $ 1,533,064 ​ $ 1,542,540 Depreciation expense ​ $ — ​ $ 1,136 ​ $ — ​ $ 3,409 ​ ​ 6. Leases The Company leases consist primarily of leases for office and warehouse space. 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 18 Table of Contents 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 condensed 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 condensed 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 condensed consolidated balance sheet date. Lease assets and liabilities The following table presents the lease-related assets and liabilities and their respective classification on the condensed consolidated balance sheets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31 ​ ​ ​ 2022 ​ 2021 ​ ASSETS ​ ​ ​ ​ Current ​ ​ ​ ​ Prepaid expenses and other current assets ​ $ 53,097 ​ $ — ​ Current assets of discontinued operations ​ ​ — ​ ​ 2,654 ​ Noncurrent ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ 2,179,159 ​ 2,681,137 ​ Long-term assets of discontinued operations ​ ​ 10,286 ​ ​ 16,898 ​ Total lease right-of-use assets ​ $ 2,242,542 ​ $ 2,700,689 ​ ​ ​ ​ ​ ​ ​ ​ ​ LIABILITIES ​ ​ Current ​ ​ ​ ​ Current maturities of operating leases ​ $ 555,300 ​ $ 592,336 ​ Current liabilities of discontinued operations ​ ​ 8,058 ​ ​ 11,195 ​ Noncurrent ​ ​ ​ ​ ​ Noncurrent operating leases ​ ​ 1,721,643 ​ ​ 2,137,394 ​ Noncurrent liabilities of discontinued operations ​ 691 ​ 7,819 ​ Total lease liabilities ​ $ 2,285,692 ​ $ 2,748,744 ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average remaining lease term: ​ ​ ​ Operating leases ​ 6.7 years ​ 7.0 years ​ Operating leases - discontinued operations ​ ​ 1.1 years ​ ​ 1.6 years ​ ​ ​ ​ ​ ​ ​ Weighted average discount rate: ​ ​ ​ ​ ​ Operating leases ​ 5.08 % ​ 5.03 % ​ Operating leases - discontinued operations ​ ​ 4.96 % ​ ​ 4.77 % ​ ​ 19 Table of Contents The components of lease costs were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ ​ 2022 ​ 2021 ​ ​ 2022 ​ 2021 Operating lease costs ​ $ 168,910 ​ $ 165,899 ​ ​ $ 523,107 ​ $ 518,524 Short-term lease costs ​ 25,345 ​ ​ 24,781 ​ ​ 75,629 ​ ​ 54,541 Lease costs - discontinued operations ​ ​ 10,185 ​ ​ 7,684 ​ ​ ​ 29,767 ​ ​ 22,571 Total lease costs ​ $ 204,440 ​ $ 198,364 ​ ​ $ 628,503 ​ $ 595,636 ​ Supplemental cash flow information related to leases is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ ​ 2022 ​ 2021 Cash paid for amounts included in measurement of liabilities: ​ ​ ​ ​ Operating cash outflows for operating leases ​ $ 582,044 ​ $ 541,054 Operating cash outflows for operating leases - discontinued operations ​ ​ 6,923 ​ ​ 24,007 ​ Future lease payments relating to the Company’s operating lease liabilities from continuing operations as of September 30, 2022 were as follows: ​ ​ ​ ​ ​ Years ending December 31, Total 2022 ​ $ 167,692 2023 ​ 643,233 2024 ​ 390,630 2025 ​ 268,056 2026 ​ ​ 227,542 Thereafter ​ 1,007,877 Total future lease payments ​ 2,705,030 Less: imputed interest ​ ( 428,087 ) Total lease obligations ​ 2,276,943 Less: current obligations ​ ( 555,300 ) Noncurrent lease obligations ​ $ 1,721,643 ​ ​ 7. Fair value As of September 30, 2022 and December 31, 2021, 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 20 Table of Contents 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 September 30, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ Level 1 Level 2 Level 3 Total Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recurring ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificate of deposit ​ $ — ​ $ — ​ $ — ​ $ — Net asset arising from put/call options ​ ​ — ​ ​ — ​ ​ 157,000 ​ ​ 157,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ The activity for the Level 3 asset for the nine months ended September 30, 2022: ​ ​ ​ ​ ​ Net asset arising from put/call options ​ ​ Balance as of December 31, 2021 ​ $ 128,000 Unrealized gain ​ 29,000 Balance as of September 30, 2022 ​ $ 157,000 ​ The put/call options are reported at fair value at their net asset or liability balance in the condensed consolidated balance sheets. The underlying asset and liability fair values are calculated using discounted cash flow analysis valuation techniques that incorporate unobservable inputs, such as future cash flows, weighted-average cost of capital, and expected future volatility. The inputs to these valuations are considered Level 3 inputs. ​ ​ 8 . Contingencies COVID-19 ​ The worldwide coronavirus (COVID-19) pandemic was formally recognized by the World Health Organization on March 11, 2020. In response to this pandemic, the governments of the countries in which the Company operates - the Cayman Islands, The Bahamas, and the United States - implemented preventative measures to slow the spread of COVID-19, measures which had profound adverse consequences for the economies of those countries. Tourism, a major economic 21 Table of Contents 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. Overall economic activity in the United States was adversely affected by COVID-19. As a result of the impact of the COVID-19 pandemic on the economies of the countries in which the Company operates, the Company experienced decreases in consolidated revenue, net income and cash flows from operations as compared to pre-pandemic periods. The economic downturn arising initially from the COVID-19 pandemic and furthered by the Russian invasion of Ukraine and other factors has further adversely affected the Company’s supply chain and the markets for the Company’s products and services. A continuation of the current weak economic conditions could have a material adverse impact on the Company’s consolidated financial condition, results of operations and cash flows. 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. For the three months ended September 30, 2022 and 2021, the Company generated approximately 25 % and 32 %, respectively, of its consolidated revenue and 44 % and 44 %, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 license. For the nine months ended September 30, 2022 and 2021, the Company generated approximately 29 % and 33 %, respectively, of its consolidated revenue and 45 % and 47 %, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 license. The 1990 license was originally scheduled to expire in July 2010 but was extended several times by the Cayman Islands government in order to provide the parties with additional time to negotiate the terms of a new license agreement. The most recent express extension of the 1990 license expired on January 31, 2018. The Company continues to operate under the terms of the 1990 license, providing water services to the level and quality specified in the 1990 license and in accordance with its understanding of its legal obligations, treating those obligations set forth in the 1990 license as operative notwithstanding the expiration of the express extension. The Company continues to pay the royalty required under the 1990 license. In October 2016, the Government of the Cayman Islands passed legislation which created a new utilities regulation and competition office (“OfReg”). OfReg is an independent and accountable regulatory body with a view of protecting the rights of consumers, encouraging affordable utility services and promoting competition. OfReg, which began operations in January 2017, has the ability to supervise, monitor and regulate multiple utility undertakings and markets. Supplemental legislation was passed by the Government of the Cayman Islands in April 2017, which transferred responsibility for 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 consolidated 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. 22 Table of Contents CW-Bahamas ​ As December 31, 2021, CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the Water and Sewerage Corporation of The Bahamas (“WSC”) amounted to $ 21.5 million. From time to time, 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. ​ In February 2022, CW-Bahamas received correspondence from the Ministry of Finance of the Government of the Bahamas that set forth a payment schedule providing for the gradual reduction over the course of 2022 of the CW-Bahamas' delinquent accounts receivable due from the WSC. Such correspondence also indicated that the Government intends to return all of CW-Bahamas’ accounts receivable from the WSC to current status. ​ As of September 30, 2022, CW-Bahamas’ accounts receivable from the WSC amounted to $ 15.2 million. ​ In its latest report dated October 6, 2022, Moody’s Investor Services (“Moody’s) downgraded the Government of The Bahamas’ long-term issuer and senior unsecured ratings to B1 from Ba3. Moody’s also lowered The Bahamas’ local currency ceiling to Baa3 from Baa2 and its foreign currency ceiling to Ba1 from Baa. Based upon its review of this Moody’s report, the Company continues to believe no allowance for doubtful accounts is required for CW-Bahamas’ accounts receivable from the WSC. ​ 9. Related party transactions The Company, through PERC and the services segment, purchases engineering and technology support services from various companies with a minority shareholder in those companies who is also a minority shareholder of PERC. During the three months ended September 30, 2022 and 2021, the Company made total purchases of services from these companies of approximately $ 685,000 and $ 105,000 , respectively, and approximately $ 2,166,000 and $ 390,000 during the nine months ended September 30, 2022 and 2021, respectively. These total purchases are included in the Company’s cost of revenue in the accompanying condensed consolidated statements of income (loss). ​ PERC has entered into a sublease agreement with one of these related companies that commenced on March 14, 2021 and ended August 31, 2021. This lease has been extended on a month-to-month basis subsequent to August 31, 2021. During the three months ended September 30, 2022 and 2021, the Company recognized approximately $ 24,000 and $ 24,000 of expense related to this lease, respectively, and approximately $ 73,000 and $ 53,000 during the nine months ended September 30, 2022 and 2021, respectively. This lease expense is included in the Company's general and administrative expenses in the accompanying condensed consolidated statements of income (loss). ​ The total amount of accounts payable outstanding to these companies as of September 30, 2022 and December 31, 2021, was approximately $ 569,000 and $ 164,000 , respectively. ​ 10. Impact of recent accounting standards Adoption of new accounting standards: None. Effect of newly issued but not yet effective accounting standards: None. ​ 23 Table of Contents 11. Subsequent events In October 2022, the Company exercised its option to purchase the shares constituting the remaining 39 % minority interest in PERC at a price to be determined by an independent valuation, which is currently in-process. ​ The Company evaluated subsequent events through the time of the filing of this report on Form 10-Q. Other than as disclosed in these condensed consolidated financial statements, the Company is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on its condensed consolidated financial statements. ​ ​ 24 Table of Contents