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 ) 42-43 Consolidated Balance Sheets as of December 31, 2023 and 2022 44 Consolidated Statements of Income for the Years Ended December 31, 2023 and 2022 45 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2023 and 2022 46 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022 47 Notes to Consolidated Financial Statements 48 ​ Schedule II, Valuation and Qualifying Accounts, is omitted because the information is included in the financial statements and notes. ​ 41 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 sheets of Consolidated Water Co. Ltd. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, 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. ​ Revenue Recognition - Estimated Costs to Complete ​ As described in Note 2 to the consolidated financial statements, the Company recognizes revenue for its construction and custom/specialized manufacturing contracts over time under the input method using costs incurred to date relative to the total estimated costs at completion to measure progress toward satisfying a contract's performance obligations as such measure best reflects the transfer of control of the promised good to the customer. The cost estimation process for these contracts is based on the knowledge and experience of the Company's project managers, engineers, and financial professionals. Changes in job performance, job conditions and management's assessment of expected variable 42 Table of Contents consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and the Company's revenue recognition. ​ We identified the estimated costs to complete on these revenue contracts as a critical audit matter. The determination of the total estimated cost and progress toward completion requires management to make significant estimates and assumptions. Total estimated costs to complete projects include various contracts costs that include labor, materials and subcontractor costs. Due to the extended time it may take to complete many of the Company’s contracts and the scope and nature of the work required to be performed on those contracts, the estimations of total revenue and costs at completion is complicated and subject to many variables and, accordingly, are subject to changes. Changes in these estimates can have a significant impact on the revenue recognized each period. Auditing these estimates involved especially challenging auditor judgment in evaluating the reasonableness of management's assumptions and estimates over the duration of these contracts. ​ The primary procedures we performed to address this critical audit matter included: ​ ● We obtained an understanding and evaluated the design and implementation of the internal controls over management's process related to estimated costs to complete, including controls over management's review of: (i) the development of project budgets and key cost inputs, (ii) the ongoing assessment and revisions to project budgets, and (iii) the ongoing review of project status, including the nature of activities to complete open projects. ​ ● Evaluating management’s ability to generate reasonable estimated costs to complete through performing a retrospective review of budget to actual variances. ​ ● Assessing the reasonableness of the estimated costs to complete by evaluating the reasonableness of projects budgets and the nature of costs required to complete the project. Evaluation consists of investigating significant differences or unexpected results that take into consideration known changes in client operations, industry, and/or business conditions. ​ ● Assessing the accuracy and the occurrence of the actual cost amount used in the percentage of completion by testing a sample of project costs incurred to date. ​ ● Evaluating the reasonableness of project status by performing site visits and performing inquiries of project managers to assess the nature and costs of activities required to complete the project. ​ ● Assessing the reasonableness of changes in estimated costs to complete by comparing project profitability estimates in the current period to historical estimates and actual performance including during the period under audit and subsequent to the period end and investigating reasons for changes in expected costs and project margins. ​ ​ ​ ​ ​ ​ /s/ Marcum LLP ​ ​ ​ We have served as the Company’s auditor since 2005. ​ ​ ​ West Palm Beach, Florida ​ March 27, 2024 ​ ​ ​ 43 Table of Contents CONSOLIDATED WATER CO. LTD. ​ CONSOLIDATED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 ASSETS ​ ​ ​ Current assets ​ ​ ​ Cash and cash equivalents ​ $ 42,621,898 ​ $ 50,711,751 Accounts receivable, net ​ 38,226,891 ​ 27,046,182 Inventory ​ 6,044,642 ​ 5,727,842 Prepaid expenses and other current assets ​ 4,056,370 ​ 5,643,279 Contract assets ​ 21,553,057 ​ 2,913,722 Current assets of discontinued operations ​ 211,517 ​ 531,480 Total current assets ​ ​ 112,714,375 ​ 92,574,256 Property, plant and equipment, net ​ 55,882,521 ​ 52,529,545 Construction in progress ​ 495,471 ​ 3,705,681 Inventory, noncurrent ​ 5,045,771 ​ 4,550,987 Investment in OC-BVI ​ 1,412,158 ​ 1,545,430 Goodwill ​ 12,861,404 ​ 10,425,013 Intangible assets, net ​ 3,353,185 ​ 2,818,888 Operating lease right-of-use assets ​ ​ 2,135,446 ​ ​ 2,058,384 Other assets ​ 3,407,973 ​ 1,669,377 Long-term assets of discontinued operations ​ 21,129,288 ​ 21,129,288 Total assets ​ $ 218,437,592 ​ $ 193,006,849 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND EQUITY ​ ​ Current liabilities ​ ​ Accounts payable, accrued expenses and other current liabilities ​ $ 11,604,369 ​ $ 8,438,315 Accounts payable - related parties ​ ​ — ​ ​ 403,839 Accrued compensation ​ 3,160,030 ​ 2,267,583 Dividends payable ​ 1,572,655 ​ 1,375,403 Current maturities of operating leases ​ ​ 456,865 ​ ​ 546,851 Current portion of long-term debt ​ ​ 192,034 ​ ​ 114,964 Contract liabilities ​ 6,237,011 ​ 8,803,921 Deferred revenue ​ ​ 317,017 ​ ​ 315,825 Current liabilities of discontinued operations ​ 364,665 ​ 389,884 Total current liabilities ​ 23,904,646 ​ 22,656,585 Long-term debt, noncurrent ​ ​ 191,190 ​ ​ 216,117 Deferred tax liabilities ​ 530,780 ​ 560,306 Noncurrent operating leases ​ ​ 1,827,302 ​ ​ 1,590,542 Other liabilities ​ 153,000 ​ 219,110 Long-term liabilities of discontinued operations ​ ​ — ​ ​ — Total liabilities ​ 26,606,918 ​ 25,242,660 Commitments and contingencies ​ ​ Equity ​ ​ Consolidated Water Co. Ltd. stockholders' equity ​ ​ Redeemable preferred stock, $ 0.60 par value. Authorized 200,000 shares; issued and outstanding 44,297 and 34,383 shares, respectively ​ 26,578 ​ 20,630 Class A common stock, $ 0.60 par value. Authorized 24,655,000 shares; issued and outstanding 15,771,545 and 15,322,875 shares, respectively ​ 9,462,927 ​ 9,193,725 Class B common stock, $ 0.60 par value. Authorized 145,000 shares; none issued ​ — ​ — Additional paid-in capital ​ 92,188,887 ​ 89,205,159 Retained earnings ​ 85,148,820 ​ 61,247,699 Total Consolidated Water Co. Ltd. stockholders' equity ​ 186,827,212 ​ 159,667,213 Non-controlling interests ​ 5,003,462 ​ 8,096,976 Total equity ​ 191,830,674 ​ 167,764,189 Total liabilities and equity ​ $ 218,437,592 ​ $ 193,006,849 ​ The accompanying notes are an integral part of these consolidated financial statements. 44 Table of Contents CONSOLIDATED WATER CO. LTD. ​ CONSOLIDATED STATEMENTS OF INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 Revenue ​ $ 180,211,233 ​ $ 94,104,972 Cost of revenue ( including related party expense of $ 0 and $2,694,810 in 2023 and 2022) ​ 118,284,128 ​ 63,749,849 Gross profit ​ 61,927,105 ​ 30,355,123 General and administrative expenses ( including related party expense of $ 0 and $96,924 in 2023 and 2022) ​ 24,752,366 ​ 21,070,234 Loss on asset dispositions and impairments, net ​ ( 7,112 ) ​ ( 12,704 ) Income from operations ​ 37,167,627 ​ 9,272,185 ​ ​ ​ ​ ​ ​ ​ Other income (expense): ​ ​ Interest income ​ 696,408 ​ 447,186 Interest expense ​ ( 145,284 ) ​ ( 46,545 ) Profit-sharing income from OC-BVI ​ 46,575 ​ 26,325 Equity in the earnings of OC-BVI ​ 123,153 ​ 75,900 Loss on put/call options ​ — ​ ( 128,000 ) Other ​ 107,461 ​ 89,944 Other income, net ​ 828,313 ​ 464,810 Income before income taxes ​ 37,995,940 ​ 9,736,995 Provision for income taxes ​ 6,750,014 ​ 396,739 Net income from continuing operations ​ 31,245,926 ​ 9,340,256 Income from continuing operations attributable to non-controlling interests ​ 573,791 ​ 1,112,913 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ 30,672,135 ​ 8,227,343 Loss from discontinued operations ​ ​ ( 1,086,744 ) ​ ​ ( 2,371,049 ) Net income attributable to Consolidated Water Co. Ltd. stockholders ​ $ 29,585,391 ​ $ 5,856,294 ​ ​ ​ ​ ​ ​ ​ Basic earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ ​ Continuing operations ​ $ 1.95 ​ $ 0.54 Discontinued operations ​ ​ ( 0.07 ) ​ ​ ( 0.16 ) Basic earnings per share ​ $ 1.88 ​ $ 0.38 ​ ​ ​ ​ ​ ​ ​ Diluted earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ ​ Continuing operations ​ $ 1.93 ​ $ 0.54 Discontinued operations ​ ​ ( 0.07 ) ​ ​ ( 0.16 ) Diluted earnings per share ​ $ 1.86 ​ $ 0.38 ​ ​ ​ ​ ​ ​ ​ Dividends declared per common and redeemable preferred shares ​ $ 0.36 ​ $ 0.34 ​ ​ ​ ​ ​ ​ ​ Weighted average number of common shares used in the determination of: ​ ​ Basic earnings per share ​ 15,739,056 ​ 15,290,509 Diluted earnings per share ​ 15,865,897 ​ 15,401,653 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 45 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, 2021 28,635 ​ $ 17,181 15,243,693 ​ $ 9,146,216 ​ $ 87,812,432 ​ $ 60,603,056 ​ $ 8,086,538 ​ $ 165,665,423 Issuance of share capital 9,295 ​ 5,577 72,597 ​ 43,558 ​ ( 49,135 ) ​ — ​ — ​ — Conversion of preferred stock ( 6,585 ) ​ ( 3,951 ) 6,585 ​ 3,951 ​ — ​ — ​ — ​ — Buyback of preferred stock ( 26 ) ​ ( 15 ) — ​ — ​ ( 211 ) ​ — ​ — ​ ( 226 ) Net income — ​ — — ​ — ​ — ​ 5,856,294 ​ 1,112,913 ​ 6,969,207 Exercise of options 3,064 ​ 1,838 — ​ — ​ 24,901 ​ — ​ — ​ 26,739 Dividends declared — ​ — — ​ — ​ — ​ ( 5,211,651 ) ​ ( 1,102,475 ) ​ ( 6,314,126 ) Stock-based compensation — ​ — — ​ — ​ 1,417,172 ​ — ​ — ​ 1,417,172 Balance as of December 31, 2022 34,383 ​ 20,630 15,322,875 ​ 9,193,725 ​ 89,205,159 ​ 61,247,699 ​ 8,096,976 ​ 167,764,189 Issuance of share capital 13,309 ​ 7,985 68,864 ​ 41,319 ​ ( 49,304 ) ​ — ​ — ​ — Conversion of preferred stock ( 8,848 ) ​ ( 5,309 ) 8,848 ​ 5,309 ​ — ​ — ​ — ​ — Buyback of preferred stock ( 203 ) ​ ( 122 ) — ​ — ​ ( 1,708 ) ​ — ​ — ​ ( 1,830 ) Net income — ​ — — ​ — ​ — ​ 29,585,391 ​ 573,791 ​ 30,159,182 Purchase of remaining non-controlling interest in PERC ​ — ​ ​ ​ ​ 368,383 ​ ​ 221,030 ​ ​ 1,006,248 ​ ​ ​ ​ ​ ( 3,667,305 ) ​ ​ ( 2,440,027 ) Exercise of options 5,656 ​ 3,394 2,575 ​ 1,544 ​ 94,826 ​ — ​ — ​ 99,764 Dividends declared — ​ — — ​ — ​ — ​ ( 5,684,270 ) ​ — ​ ( 5,684,270 ) Stock-based compensation — ​ — — ​ — ​ 1,933,666 ​ — ​ — ​ 1,933,666 Balance as of December 31, 2023 44,297 ​ $ 26,578 15,771,545 ​ $ 9,462,927 ​ $ 92,188,887 ​ $ 85,148,820 ​ $ 5,003,462 ​ $ 191,830,674 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 46 Table of Contents CONSOLIDATED WATER CO. LTD. ​ CONSOLIDATED STATEMENTS OF CASH FLOWS ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 Cash flows from operating activities ​ ​ ​ ​ Net income attributable to Consolidated Water Co. Ltd. stockholders ​ $ 29,585,391 ​ $ 5,856,294 Income from continuing operations attributable to non-controlling interests ​ ​ 573,791 ​ ​ 1,112,913 Net income ​ ​ 30,159,182 ​ ​ 6,969,207 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ Impairment loss for Mexico assets - discontinued operations ​ ​ — ​ ​ 377,326 Foreign currency transaction adjustment - discontinued operations ​ ​ ( 2,003 ) ​ ​ ( 102,507 ) Loss from discontinued operations ​ 1,088,747 ​ 2,096,230 Depreciation and amortization ​ 6,576,454 ​ 6,187,308 Deferred income tax benefit ​ ( 524,999 ) ​ ( 4,220 ) Provision for credit losses ​ ​ 408,489 ​ ​ — Loss on net put/call option ​ — ​ 128,000 Compensation expense relating to stock and stock option grants ​ 1,933,666 ​ 1,417,172 Gain on asset dispositions and impairments, net ​ 7,112 ​ 12,704 Profit-sharing and equity in earnings of OC-BVI ​ ( 169,728 ) ​ ( 102,225 ) Distribution of earnings from OC-BVI ​ 303,000 ​ 272,700 ​ ​ ​ ​ ​ ​ ​ Change in: ​ ​ ​ ​ Accounts receivable ​ ( 10,970,521 ) ​ 303,125 Contract assets ​ ​ ( 18,639,335 ) ​ ​ ( 2,423,761 ) Inventory ​ ( 891,405 ) ​ ( 3,387,011 ) Prepaid expenses and other assets ​ ( 755,391 ) ​ ( 3,365,747 ) Accounts payable (including related parties), accrued expenses and other current liabilities ​ 3,161,386 ​ 6,756,433 Contract liabilities ​ ​ ( 2,566,910 ) ​ ​ 8,290,043 Operating lease liabilities ​ ​ ( 5,205 ) ​ ​ ( 5,208 ) Deferred revenue ​ ​ 1,192 ​ ​ ( 267,821 ) Net cash provided by operating activities - continuing operations ​ ​ 9,113,731 ​ ​ 23,151,748 Net cash used in operating activities - discontinued operations ​ ( 1,142,969 ) ​ ( 1,819,943 ) Net cash provided by operating activities ​ ​ 7,970,762 ​ ​ 21,331,805 ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities ​ ​ Purchase of certificate of deposit ​ ​ — ​ ​ ( 2,518,493 ) Maturity of certificate of deposit ​ ​ — ​ ​ 5,018,493 Additions to property, plant and equipment and construction in progress ​ ( 5,047,884 ) ​ ( 7,542,761 ) Proceeds from asset dispositions ​ 20,808 ​ 61,725 Purchase of remaining non-controlling interest in PERC ​ ​ ( 2,440,027 ) ​ ​ — Acquisition of REC, net of cash acquired ​ ​ ( 3,419,916 ) ​ ​ — Net cash used in investing activities ​ ​ ( 10,887,019 ) ​ ​ ( 4,981,036 ) ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities ​ ​ Dividends paid to common shareholders ​ ( 5,472,790 ) ​ ( 5,145,742 ) Dividends paid to preferred shareholders ​ ( 14,228 ) ​ ( 11,078 ) Dividends paid to non-controlling interests ​ ​ — ​ ​ ( 1,102,475 ) Buyback of redeemable preferred stock ​ ( 1,830 ) ​ ( 226 ) Proceeds received from exercise of stock options ​ ​ 99,764 ​ ​ 26,739 Principal repayments on long-term debt ​ ​ ( 135,481 ) ​ ​ ( 72,091 ) Net cash used in financing activities ​ ( 5,524,565 ) ​ ( 6,304,873 ) Net increase (decrease) in cash and cash equivalents ​ ( 8,440,822 ) ​ 10,045,896 Cash and cash equivalents at beginning of period ​ 50,711,751 ​ 40,358,059 Cash and cash equivalents at beginning of period - discontinued operations ​ ​ 442,252 ​ ​ 750,048 Less: cash and cash equivalents at end of period - discontinued operations ​ ​ ( 91,283 ) ​ ​ ( 442,252 ) Cash and cash equivalents at end of period ​ $ 42,621,898 ​ $ 50,711,751 ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 47 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 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 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 revenue 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 revenue recognition on construction and manufacturing contracts. 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”), Consolidated Water Cooperatief, U.A. (“CW-Cooperatief”), Consolidated Water U.S. Holdings, Inc. (“CW-Holdings”), DesalCo Limited (“DesalCo”), Kalaeloa Desalco LLC (“Kalaeloa Desalco”), Ocean Conversion (Cayman) Limited (“OC-Cayman”), PERC Water Corporation ("PERC") and Ramey Environmental Compliance, Inc. (“REC”); and (ii) majority-owned subsidiaries Consolidated Water (Bahamas) Ltd. (“CW-Bahamas”), N.S.C. Agua, S.A. de C.V. (“NSC”), and Aguas de Rosarito S.A.P.I. de C.V. (“AdR”). 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. In January 2023, as a result of CW-Holdings' exercise of a call option in October 2022, CW-Holdings purchased the remaining 39 % ownership interest in PERC for $ 2.4 million in cash, and 368,383 shares of the Company’s common stock having a value of approximately $ 5.36 million based upon the opening trading price of the Company’s common stock on The Nasdaq Global Market on the date of the transaction. After giving effect to this purchase, CW-Holdings owns 100 % of the outstanding capital stock of PERC. In September 2021, Kalaeloa Desalco was formed to pursue a project in Oahu, Hawaii. On June 2, 2023, Kalaeloa Desalco signed a definitive agreement with the Honolulu Board of Water Supply to design, build, operate and maintain a 1.7 million gallons per day seawater reverse osmosis desalination plant in Oahu, Hawaii. Effective October 1, 2023, the Company purchased, through its wholly-owned subsidiary PERC, a 100 % ownership interest in Ramey Environmental Compliance, Inc., a Colorado company that operates and maintains water and wastewater treatment facilities and provides technical services to clients throughout the Rocky Mountain and Eastern Plains Regions of Colorado. PERC acquired REC in November 2023 for approximately $ 4.1 million and recorded goodwill and intangible assets from this acquisition of $ 2,436,391 and $ 1,108,390 respectively. 48 Table of Contents 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 arising from transactions and re-measurements were $ 84,678 and $ 41,750 for the years ended December 31, 2023 and 2022, respectively, and are included in “Other income - Other” in the accompanying consolidated statements of income. 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 December 31, 2023 and 2022 include $ 5.1 million and $ 5.0 million, respectively, of certificates of deposit with an original maturity of three months or less. As of December 31, 2023, the Company had deposits in U.S. banks in excess of federally insured limits of approximately $ 16.9 million. As of December 31, 2023, the Company held cash in foreign bank accounts of approximately $ 24.2 million. Certain transfers from the Company’s Bahamas bank accounts to Company bank accounts in other countries require the approval of the Central Bank of The Bahamas. The equivalent United States dollar cash balances for deposits held in The Bahamas as of December 31, 2023 and 2022 were approximately $ 3.0 million and $ 5.7 million, respectively. Accounts receivable: 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. Allowance for credit losses : The allowance for credit losses is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable and contract assets balances. The Company determines the current expected credit losses based on historical loss experience, current conditions, and reasonable and supportable forecasts. The Company also considers the nature of the financial asset, the credit quality of the counterparty, and other relevant factors. Past due balances are reviewed individually for collectability. Account balances are charged off against the allowance for credit losses after all means of collection have been exhausted and the potential for recovery is considered by management to be remote. Inventory: Inventory primarily consists of 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 (i) raw materials purchased for specific manufacturing contracts that are valued at cost on the first-in, first-out basis; and (ii) potable water held in the Company’s reservoirs that is valued at 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, which is recognized over time using the input method based on cost incurred. 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 49 Table of Contents 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 is recognized, and the liability is reduced, as the Company subsequently satisfies the performance obligation under the contract. ​ Costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts are typically resolved within one year and are not considered significant financing components. The Company considers retention that is withheld on progress billings as not creating an unconditional right to payment until contractual milestones are reached (typically substantial completion). Accordingly, withheld retention is considered a component of contracts assets and liabilities until finally billed to the customer, when obligations have been satisfied and the right to receipt is subject only to the passage of time. The Company’s contract assets and liabilities are reported in a net asset or liability position on a contract-by-contract basis at the end of each reporting period. The Company classifies contract assets and liabilities related to construction and manufacturing contracts in current assets and current liabilities as they will be liquidated in the normal course of contract completion, although this may require more than one year. Property, plant and equipment, net: Property, plant and equipment is stated at cost less accumulated depreciation. 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, 2023 or 2022. 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. 50 Table of Contents 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 as of the date of acquisition. Goodwill and intangible assets recorded as a result of 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 for goodwill impairment testing purposes, which consist of Cayman Water, the bulk segment (which is comprised of CW-Bahamas and OC-Cayman), PERC, and the manufacturing segment (i.e., Aerex), 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 these fair values to the carrying amounts of the reporting units. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded. ​ For the year ended December 31, 2023, the Company elected to assess qualitative factors to determine whether it was necessary to perform the quantitative goodwill impairment testing that was conducted in prior years for the reporting units. The Company assessed the relevant events and circumstances to evaluate whether it is more likely than not that the fair values of such reporting units are less than their carrying values. The events and circumstances assessed for each reporting unit included macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, and other relevant events. Based upon this qualitative assessment, the Company determined that it is more likely than not that the fair values of its reporting units exceeded their carrying values as of December 31, 2023. For the year ended December 31, 2022, the Company elected to assess qualitative factors to determine whether it was necessary to perform the quantitative goodwill impairment testing conducted in prior years for all reporting units other than the manufacturing reporting unit. The Company assessed relevant events and circumstances to evaluate whether it is more likely than not that the fair values of such reporting units are less than their carrying values. The events and circumstances assessed for each reporting unit included macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, and other relevant events. Based upon this qualitative assessment the Company determined that it was more likely than not that the fair values of its Cayman Water and bulk segment reporting units exceeded their carrying values as of December 31, 2022. Based upon the Company’s negotiated, arms-length purchase of the remaining 39 % equity interest in PERC from its minority shareholders for $ 7.8 million in January 2023, the fair value of the Company’s PERC reporting unit exceeded its carrying value by 79 % as of December 31, 2022. ​ Due to the factors discussed in the following paragraphs, the Company elected to test the goodwill associated with its manufacturing reporting unit for possible impairment for 2022 using the quantitative tests applied in prior years. ​ 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 had 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 51 Table of Contents anticipated sales to this customer for 2022 and subsequent years that the Company used in the discounted cash flow projections it prepared for purposes of testing its Manufacturing reporting unit’s goodwill for possible impairment as of December 31, 2020. Furthermore, Aerex’s efforts to replace the revenue previously generated from this customer with revenue from existing and new customers were adversely impacted by the negative economic conditions (caused in part by the COVID-19 pandemic). These negative economic conditions also increased Aerex’s raw material costs, resulted in raw material shortages and extended delivery times for such materials, and adversely affected the overall financial condition of Aerex’s current and prospective customers. Accordingly, in light of this new information from Aerex’s former major customer, and the on-going weak economic conditions that the Company believed would continue through 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 segment’s goodwill by this amount for the three months ended June 30, 2021. For the year ended December 31, 2022, the Company estimated the fair value of its manufacturing reporting unit 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 its manufacturing reporting unit for the year ended December 31, 2022 by applying the guideline public company method. The Company weighted the fair values estimated for its manufacturing reporting unit under each method and summed such weighted fair values to estimate the overall fair value for the reporting unit. The respective weightings the Company applied to each method for the year ended December 31, 2022 were 80 % to the discounted cash flow method and 20 % to the guideline public company method. ​ The fair value the Company estimated for its manufacturing reporting unit exceeded its carrying amount by 63 % as of December 31, 2022. ​ 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, 2023 and 2022. Accumulated amortization for these costs was approximately $ 3.1 million and $ 2.9 million as of December 31, 2023 and 2022, respectively. Amortization expense for these costs was $ 179,353 for the years ended December 31, 2023 and 2022. ​ 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 52 Table of Contents 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, ​ 2023 2022 Retail revenue ​ $ 30,158,051 ​ $ 25,954,013 Bulk revenue ​ 34,595,058 ​ 32,991,066 Services revenue ​ 97,966,650 ​ 28,835,428 Manufacturing revenue ​ 17,491,474 ​ 6,324,465 Total revenue ​ $ 180,211,233 ​ $ 94,104,972 ​ Services revenue consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 Construction revenue ​ $ 77,306,704 ​ $ 11,616,274 Operations and maintenance revenue ​ 19,368,365 ​ 14,152,158 Design and consulting revenue ​ 1,291,581 ​ 3,066,996 Total services revenue ​ $ 97,966,650 ​ $ 28,835,428 ​ 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. 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. ​ 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, recognizing this revenue from the transfer of goods or services to customers at a point in time. 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. 53 Table of Contents 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, recognizing this revenue from the transfer of goods or services to customers at a point in time. Services and Manufacturing revenue The Company designs, builds, sells, operates and maintains, and provides consulting services related to water, wastewater and water reuse infrastructure through PERC. All of PERC's customers are companies or governmental entities located in the United States. Effective October 2023, PERC acquired REC, a company that provides operations and maintenance and consulting services to companies and governmental entities located in the United States. The Company also 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, 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, operations and maintenance, design and consulting revenue from PERC and DesalCo and generates manufacturing revenue from Aerex. The Company also generates operations and maintenance and consulting revenue from REC. 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 the total estimated costs at completion to measure progress toward satisfying a contract’s performance obligations as such measure best reflects the transfer of control of the promised good to the customer. Contract costs include labor, materials, subcontractor costs and other expenses. 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 costs to be incurred 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. Due to the extended time it may take to complete many of the Company’s contracts and the scope and nature of the work required to be performed on those contracts, the estimations of total revenue and costs at completion are complicated and subject to many variables and, accordingly, are subject to changes. When adjustments in estimated total contract revenue or estimated total contract costs are required, any changes from prior estimates are recognized in the current period for the inception-to-date effect of such changes. 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. During the year ended December 31, 2023, the Company adjusted its prior year estimates of the total contract costs for two of its construction contracts. These changes in accounting estimates resulted in an increase in the services segment’s income from operations and the Company’s consolidated net income by $ 2,356,439 and $ 1,750,750 , respectively, for the year ended December 31, 2023. This adjustment increased basic and diluted earnings per share by $ 0.11 for the year ended December 31, 2023. The Company has elected the “right to invoice” practical expedient for revenue recognition on its operations and maintenance, design and consulting contracts and recognizes revenue in the amount to which the Company has a right to invoice, recognizing this revenue from the transfer of goods or services to customers at a point in time. ​ 54 Table of Contents During the years ended December 31, 2023 and 2022, the Company recognized $ 77,411,792 and $ 14,146,271 , respectively, of its services revenue from the transfer of goods or services to customers over time. The remaining services revenue of $ 20,554,858 and $ 14,689,157 , respectively, was recognized from the transfer of goods or services to customers at a point in time. During the years ended December 31, 2023 and 2022, the Company recognized all of its manufacturing revenue from the transfer of goods or services to customers over time. 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 2022 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, 2023 and 2022, 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, ​ 2023 2022 Bank accounts: ​ ​ United States dollar ​ $ 15,857,612 ​ $ 24,573,161 Cayman Islands dollar ​ 11,826,102 ​ 14,956,162 Bahamian dollar ​ 3,025,898 ​ 5,698,100 ​ ​ 30,709,612 ​ 45,227,423 ​ ​ ​ ​ ​ ​ ​ Short-term deposits: ​ ​ United States dollar ​ 8,861,606 ​ 2,476,370 Cayman Islands dollar ​ 3,050,680 ​ 3,007,958 ​ ​ 11,912,286 ​ 5,484,328 Total cash and cash equivalents ​ $ 42,621,898 ​ $ 50,711,751 ​ 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, ​ 2023 2022 Trade accounts receivable ​ $ 38,446,554 ​ $ 27,163,719 Receivable from OC-BVI ​ 41,129 ​ 37,293 Other accounts receivable ​ 322,609 ​ 28,384 ​ ​ 38,810,292 ​ 27,229,396 Allowance for credit losses ​ ( 583,401 ) ​ ( 183,214 ) Accounts receivable, net ​ $ 38,226,891 ​ $ 27,046,182 ​ 55 Table of Contents The activity for the allowance for credit losses consisted of: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Opening allowance for credit losses ​ $ 183,214 ​ $ 183,020 Provision for credit losses ​ 408,489 ​ — Accounts written off during the year ​ ( 9,215 ) ​ ( 726 ) Recovery of accounts written off ​ ​ 913 ​ ​ 920 Ending allowance for credit losses ​ $ 583,401 ​ $ 183,214 ​ Significant concentrations of credit risk are disclosed in Note 18. ​ 5. Inventory ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Spare parts stock ​ $ 7,747,455 ​ $ 6,514,333 Raw materials ​ ​ 3,135,357 ​ ​ 3,481,486 Consumables stock ​ 166,935 ​ 246,355 Water stock ​ ​ 40,666 ​ ​ 36,655 Total inventory ​ 11,090,413 ​ 10,278,829 Less current portion ​ 6,044,642 ​ 5,727,842 Inventory (non-current) ​ $ 5,045,771 ​ $ 4,550,987 ​ ​ 6. Contracts in progress Revenue recognized and amounts billed on contracts in progress are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ 2023 ​ 2022 Revenue recognized to date on contracts in progress ​ $ 108,952,682 $ 25,469,014 Amounts billed to date on contracts in progress ​ ​ ( 101,724,459 ) ​ ( 33,407,182 ) Retainage ​ ​ ​ 8,087,823 ​ ​ 2,047,969 Net contract asset/(liability) ​ ​ $ 15,316,046 ​ $ ( 5,890,199 ) ​ The above net balances are reflected in the accompanying consolidated balance sheet as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ 2023 ​ 2022 Contract assets ​ $ 21,553,057 $ 2,913,722 Contract liabilities ​ ​ ( 6,237,011 ) ​ ( 8,803,921 ) Net contract asset/(liability) ​ ​ $ 15,316,046 ​ $ ( 5,890,199 ) ​ ​ ​ The significant increase in contract assets from December 31, 2022 to December 31, 2023 is attributable to the construction contract with the WAC for the Red Gate plant in Grand Cayman and the construction contract with Liberty Utilities for a water treatment facility in Arizona. ​ During the year ended December 31, 2023, the Company adjusted its prior year estimates of the total contract costs for two of its construction contracts. These changes in accounting estimates resulted in an increase in the services segment’s income from operations and the Company’s consolidated net income by $ 2,356,439 and $ 1,750,750 , respectively, for the year ended December 31, 2023. This adjustment increased basic and diluted earnings per share by $ 0.11 for the year ended December 31, 2023. ​ 56 Table of Contents As of December 31, 2023, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $ 162.2 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 $ 22.2 million during the year ending December 31, 2024 and $ 140 million thereafter. In addition, the Company recognized revenue of approximately $ 8.7 million in the year ended December 31, 2023, that was included in the contract liability balance as of December 31, 2022. ​ ​ ​ ​ ​ ​ 7. Property, plant and equipment and construction in progress ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Land ​ $ 6,488,400 ​ $ 6,488,400 Buildings ​ 26,044,551 ​ 23,280,880 Plant and equipment ​ 66,000,977 ​ 64,532,994 Distribution system ​ 39,546,175 ​ 39,544,395 Office furniture, fixtures and equipment ​ 3,338,760 ​ 3,109,546 Vehicles ​ 3,433,561 ​ 2,525,576 Leasehold improvements ​ 306,545 ​ 287,980 Lab equipment ​ 12,456 ​ 12,456 ​ ​ 145,171,425 ​ 139,782,227 Less accumulated depreciation ​ 89,288,904 ​ 87,252,682 Property, plant and equipment, net ​ $ 55,882,521 ​ $ 52,529,545 Construction in progress ​ $ 495,471 ​ $ 3,705,681 ​ As of December 31, 2023, the Company had outstanding capital commitments of approximately $ 455,000 . The Company maintains insurance for loss or damage to all fixed assets that it deems susceptible to loss. During the years ended December 31, 2023 and 2022, $ 7,093,158 and $ 297,723 , respectively, of construction in progress was placed in service. Depreciation expense was $ 5,823,008 and $ 5,425,177 for the years ended December 31, 2023 and 2022 , 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. ​ 57 Table of Contents 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 would 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 the Company has incurred and will continue to incur legal and other arbitration-related expenses that are material to its consolidated results of operations and cash flows. 58 Table of Contents ​ 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 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. ​ The Company’s net losses from discontinued operations for the years ended December 31, 2023 and 2022 were ($ 1,086,744 ) and ($ 2,371,049 ), respectively. ​ Summarized financial information for the discontinued Mexico project development operation is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ 2023 ​ ​ 2022 ​ ​ ​ ​ ​ Cash $ 91,283 $ 442,252 Accounts receivable ​ ​ — ​ ​ 12,675 Prepaid expenses and other current assets ​ ​ 120,234 ​ ​ 76,553 Land ​ 21,126,898 ​ 21,126,898 Other assets ​ 2,390 ​ 2,390 Total assets of discontinued operations ​ $ 21,340,805 ​ $ 21,660,768 ​ ​ ​ Total liabilities of discontinued operations ​ $ 364,665 ​ $ 389,884 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 2022 Revenue $ — $ — Loss from discontinued operations ​ $ 1,086,744 ​ $ 2,371,049 Depreciation expense ​ $ — ​ $ — ​ Mexico Project litigation a) EWG request of precautionary measures In January 2018, EWG Water LLC (“EWG”) initiated an ordinary mercantile claim against, among others, N.S.C. Agua, S.A. de C.V. (“NSC”) and Consolidated Water Cooperatief, U.A. (“CW-Cooperatief”) (with Aguas de Rosarito S.A.P.I. de C.V. (“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 such claim, EWG challenged, among other things, the transactions contemplated under a certain option agreement (entered into in 2012), and therefore, the capital investment transactions occurring in May 2013 that increased the ownership interest of CW-Cooperatief in NSC to 99.99 %. 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. Within the above-mentioned claim, the Tenth Civil Judge granted EWG certain preliminary measures against NSC, which were later overturned by an Upper Court. ​ 59 Table of Contents In July 2023, EWG filed a motion before a local court in Playas de Rosarito, Baja California (the “Rosarito Court”) to obtain precautionary measures consisting of the securing of assets owned by NSC (particularly real estate), as a procedure prior to the commencement of an arbitration that allegedly would be initiated by EWG against NSC to claim the payment of an indemnification for damages derived from a so-called simulation of legal acts. In the opinion of the Rosarito Court, such motion did not require notification to NSC or the presentation of counterarguments by NSC to the motion prior to securing the assets of NSC. ​ On July 28, 2023, the Rosarito Court issued a resolution in which it: (i) granted the precautionary measures requested by EWG, subject to the posting of a bond in the amount of MXN$ 1,500,000 (One Million Five Hundred Thousand Mexican Pesos), and (ii) ordered that once the precautionary measures were executed, EWG would have three business days counted as from the posting of the bond, to initiate and prove to the Rosarito Court that it initiated the arbitration. To the Company’s knowledge EWG has not posted the bond. Consequently, NSC has not been summoned to an arbitration procedure. ​ As EWG has apparently not posted the bond set by the Rosarito Court (i) the precautionary measures have not been enforced, (ii) no securing or attachment has been registered against the real estate of NSC; and (iii) NSC has not been formally summoned to this procedure. As stated previously, NSC is unaware of any arbitration commenced by EWG regarding this matter. ​ b) NSC amparo lawsuit On August 16, 2023, NSC filed an amparo suit (i.e. application for constitutional relief) before the Eleventh Federal District Court in Tijuana (“Federal District Court in Tijuana”) against the precautionary measures granted to EWG by the Rosarito Court. ​ In its amparo suit, NSC also requested the Federal District Court in Tijuana to grant an order to put on hold said precautionary measures. A preliminary order to stay was granted by the Federal District Court in Tijuana, followed by a definitive injunction, subject to the posting of a guarantee. NSC has submitted the guarantee to the court. ​ NSC subsequently filed an extension of the amparo suit introducing new arguments aiming to strengthen NSC´s position. The amparo extension was admitted through a resolution published on November 7, 2023. ​ The Federal District Court in Tijuana has not been able to summon EWG on this amparo suit, as it has not been able to determine nor obtain information on an address where EWG can be summoned. As such, the Federal District Court in Tijuana has requested various authorities to provide information on any domicile where EWG can be summoned. ​ The responses of some authorities are in process of being received by the Federal District Court in Tijuana. NSC is waiting until all the authorities provide their official response to determine if there is a viable alternative for summoning EWG. ​ NSC offered certain evidence consisting of the docket of amparo file number 74/2020, which was processed by the Twelfth Civil District Court in Tijuana. The Amparo Law provides that any documentary evidence offered by the parties shall be issued without any cost. Therefore, NSC requested the Court to grant the expedition of said copies for free. ​ However, this request was denied by the Federal District Court in Tijuana. Therefore, NSC filed an appeal for review against said decision, which was admitted by the Federal District Court in Tijuana and sent to the Second Collegiate Circuit Court in Tijuana, acting as Court of Appeals, which confirmed the admission of the appeal remedy through a resolution published on January 26, 2024. The judgment is still pending resolution. ​ The Company cannot presently determine what impact the resolution of this matter may have on its consolidated financial statements. ​ 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: trade names ( 15 years ) and facility management contracts ( 6 years ). 60 Table of Contents Effective October 2023, the Company purchased a 100% ownership interest in REC. The purchase transaction identified certain intangible assets with a fair value of $ 1,108,390 and useful lives as follows: non-compete ( 5 years ), trade name ( 15 years ) and customer relationships ( 15 years ). The costs and accumulated amortization for these assets were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Cost ​ ​ Non-compete agreements ​ $ 268,590 ​ $ — Trade names ​ 3,096,900 ​ 2,700,000 Customer relationships ​ ​ 442,900 ​ ​ — Facility management contracts ​ 2,200,000 ​ 2,200,000 ​ ​ 6,008,390 ​ 4,900,000 Accumulated amortization ​ ​ ​ Non-compete agreements ​ ( 13,430 ) ​ — Trade names ​ ( 1,106,615 ) ​ ( 920,000 ) Customer relationships ​ ​ ( 7,382 ) ​ ​ — Facility management contracts ​ ( 1,527,778 ) ​ ( 1,161,112 ) ​ ​ ( 2,655,205 ) ​ ( 2,081,112 ) Intangible assets, net ​ $ 3,353,185 ​ $ 2,818,888 ​ Amortization of intangible assets for each of the next five years and thereafter is expected to be as follows: ​ ​ ​ ​ ​ 2024 $ 656,371 2025 ​ 595,260 2026 ​ 289,705 2027 ​ 289,705 2028 ​ 276,275 Thereafter ​ 1,245,869 ​ ​ $ 3,353,185 ​ Amortization expense was $ 574,093 and $ 582,778 for the years ended December 31, 2023 and 2022, respectively. ​ 10. Leases The Company’s 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 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. 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. 61 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, ​ December 31, ​ ​ 2023 ​ 2022 ASSETS ​ ​ ​ Current ​ ​ ​ Prepaid expenses and other current assets ​ $ 110,541 ​ $ 35,624 Current assets of discontinued operations ​ ​ — ​ ​ 7,979 Noncurrent ​ ​ ​ ​ Operating lease right-of-use assets ​ 2,135,446 ​ 2,058,384 Total lease right-of-use assets ​ $ 2,245,987 ​ $ 2,101,987 ​ ​ ​ ​ ​ ​ ​ LIABILITIES ​ ​ Current ​ ​ ​ Current maturities of operating leases ​ $ 456,865 ​ $ 546,851 Current liabilities of discontinued operations ​ ​ — ​ ​ 7,361 Noncurrent ​ ​ ​ ​ Noncurrent operating leases ​ ​ 1,827,302 ​ ​ 1,590,542 Total lease liabilities ​ $ 2,284,167 ​ $ 2,144,754 ​ ​ ​ ​ ​ ​ ​ Weighted average remaining lease term: ​ ​ Operating leases ​ 6.1 years ​ 6.6 years Operating leases - discontinued operations ​ ​ 0.0 years ​ ​ 0.8 years ​ ​ ​ ​ ​ Weighted average discount rate: ​ ​ ​ ​ Operating leases ​ 5.67 % ​ 5.11 % Operating leases - discontinued operations ​ ​ 0.00 % ​ ​ 4.96 % ​ The components of lease costs were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2023 ​ 2022 Operating lease costs ​ ​ $ 751,261 ​ $ 692,404 Short-term lease costs ​ ​ 217,640 ​ ​ 100,975 Lease costs - discontinued operations ​ ​ ​ 45,979 ​ ​ 40,021 Total lease costs ​ ​ $ 1,014,880 ​ $ 833,400 ​ Supplemental cash flow information related to leases is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 ​ 2022 Cash paid for amounts included in measurement of liabilities: ​ ​ ​ ​ Operating cash outflows for operating leases ​ $ 760,847 ​ $ 742,696 Operating cash outflows for operating leases - discontinued operations ​ ​ 11,337 ​ ​ 9,590 ​ 62 Table of Contents Future lease payments relating to the Company's operating lease liabilities from continuing operations as of December 31, 2023 are as follows: ​ ​ ​ ​ ​ Years ending December 31, Total 2024 ​ $ 580,780 2025 ​ 462,990 2026 ​ 379,019 2027 ​ 336,597 2028 ​ ​ 341,687 Thereafter ​ 639,928 Total future lease payments ​ 2,741,001 Less: imputed interest ​ ( 456,834 ) Total lease obligations ​ 2,284,167 Less: current obligations ​ ( 456,865 ) Noncurrent lease obligations ​ $ 1,827,302 ​ ​ ​ ​ ​ ​ ​ ​ 11. Income taxes The components of income before income taxes for the years ended December 31, 2023 and 2022 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 Foreign (not subject to income taxes) ​ $ 10,002,233 ​ $ 6,958,583 Mexico ​ ( 742,367 ) ​ ( 987,279 ) United States ​ 27,649,330 ​ 1,394,642 ​ ​ 36,909,196 ​ 7,365,946 Discontinued operations ​ 1,086,744 ​ 2,371,049 ​ ​ $ 37,995,940 ​ $ 9,736,995 ​ The Company’s provision for (benefit from) income taxes for the years ended December 31, 2023 and 2022, which related to U.S. operations, consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 Current: ​ ​ ​ ​ ​ ​ Federal ​ $ 5,611,360 ​ $ 430,116 State ​ ​ 1,663,653 ​ ​ ( 29,157 ) Foreign ​ ​ — ​ ​ — Total current income tax expense (benefit) ​ ​ 7,275,013 ​ ​ 400,959 Deferred: ​ ​ ​ ​ Federal ​ ​ ( 276,070 ) ​ ​ ( 184,469 ) State ​ ​ ( 248,929 ) ​ ​ 180,249 Foreign ​ ​ — ​ ​ — Total deferred income tax expense (benefit) ​ ​ ( 524,999 ) ​ ​ ( 4,220 ) Total provision for (benefit from) income taxes ​ $ 6,750,014 ​ $ 396,739 ​ 63 Table of Contents A reconciliation of the U.S. statutory federal tax rate to the effective rate for the years ended December 31, 2023 and 2022 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 U.S. statutory federal rate ​ 21.00 % 21.00 % State taxes, net of federal effect 2.88 % 8.88 % Foreign rate differential ( 5.71 ) % ( 25.57 ) % Research and development tax credit — % ( 1.92 ) % Permanent items ( 0.32 ) % ( 0.70 ) % Change in valuation allowance ( 0.08 ) % 2.38 % ​ 17.77 % 4.07 % ​ The tax effects of significant items comprising the Company’s net long-term deferred tax liability as of December 31, 2023 and 2022 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Continuing Operations ​ ​ ​ ​ ​ ​ Deferred tax assets: ​ ​ Research and development credit carryforwards ​ $ — ​ $ 58,069 Net operating loss carryforwards ​ ​ 130,911 ​ ​ 443,076 Accruals and reserves ​ ​ 146,057 ​ ​ 82,503 Operating lease liabilities ​ ​ 501,397 ​ ​ 412,840 Capitalized research expenditures ​ ​ 326,178 ​ ​ — Others ​ ​ 29,094 ​ ​ — Valuation allowances ​ — ​ ( 29,036 ) ​ ​ 1,133,637 ​ 967,452 Deferred tax liabilities: ​ ​ Property and equipment ​ 325,473 ​ 293,195 Intangible assets ​ 847,450 ​ 821,723 Operating lease right-of-use assets ​ 491,494 ​ 412,840 ​ ​ 1,664,417 ​ 1,527,758 ​ ​ ​ ​ ​ ​ ​ Net deferred tax liabilities ​ $ ( 530,780 ) ​ $ ( 560,306 ) ​ ​ ​ ​ ​ ​ ​ Discontinued Operations ​ ​ ​ ​ ​ ​ Deferred tax assets: ​ ​ ​ ​ ​ ​ Operating loss carryforwards - Mexico ​ $ 5,844,847 ​ $ 5,378,177 Land basis difference - Mexico ​ ​ 2,818,663 ​ ​ 2,163,681 Start-up costs - Mexico ​ ​ 7,015,484 ​ ​ 4,274,858 Valuation allowances ​ ​ ( 15,678,994 ) ​ ​ ( 11,816,716 ) ​ ​ $ — ​ $ — ​ As of December 31, 2023, continuing operations has a federal net loss carryforward of $ 0.6 million and a state net loss carryforward of $ 0.3 million, both of which have an indefinite expiration date. Discontinued operations has a net loss carryforward of $ 19.5 million that will begin to expire, if unused, in various amounts between 2024 and 2033. 12. Earnings per share Earnings per share (“EPS”) is computed on a basic and diluted basis. Basic EPS is computed by dividing net income (less preferred stock dividends) available to common stockholders by the weighted average number of common shares outstanding during the period. The computation of diluted EPS assumes the issuance of common shares for all potential 64 Table of Contents common shares outstanding during the reporting period and, if dilutive, the effect of stock options as computed under the treasury stock method. ​ The following summarizes information related to the computation of basic and diluted EPS: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ $ 30,672,135 ​ $ 8,227,343 Less: preferred stock dividends ​ ( 15,513 ) ​ ( 11,532 ) Net income from continuing operations available to common shares in the determination of basic earnings per common share ​ 30,656,622 ​ 8,215,811 Loss from discontinued operations ​ ( 1,086,744 ) ​ ( 2,371,049 ) Net income available to common shares in the determination of basic earnings per common share ​ $ 29,569,878 ​ $ 5,844,762 ​ ​ ​ ​ ​ ​ ​ Weighted average number of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ 15,739,056 ​ 15,290,509 Plus: ​ ​ ​ ​ Weighted average number of preferred shares outstanding during the period ​ 39,885 ​ 31,885 Potential dilutive effect of unexercised options and unvested stock grants ​ 86,956 ​ 79,259 Weighted average number of shares used for determining diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders ​ 15,865,897 ​ 15,401,653 ​ ​ ​ 13. Dividends Interim dividends declared on Class A common stock and redeemable preferred stock for each quarter of the respective years ended December 31, 2023 and 2022 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 First Quarter ​ $ 0.085 ​ $ 0.085 Second Quarter ​ 0.085 ​ 0.085 Third Quarter ​ 0.095 ​ 0.085 Fourth Quarter ​ 0.095 ​ 0.085 ​ ​ $ 0.36 ​ $ 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 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 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. 65 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, 2023 ​ Retail Bulk Services Manufacturing Total Revenue ​ $ 30,158,051 ​ $ 34,595,058 ​ $ 97,966,650 ​ $ 17,491,474 $ 180,211,233 Cost of revenue ​ 13,891,229 ​ 24,128,132 ​ 66,797,762 ​ 13,467,005 ​ 118,284,128 Gross profit ​ 16,266,822 ​ 10,466,926 ​ 31,168,888 ​ 4,024,469 ​ 61,927,105 General and administrative expenses ​ 16,905,010 ​ 1,737,264 ​ 4,271,808 ​ 1,838,284 ​ 24,752,366 Gain (loss) on asset dispositions and impairments, net ​ ( 22,065 ) ​ 12,720 ​ — ​ 2,233 ​ ( 7,112 ) Income (loss) from operations ​ $ ( 660,253 ) ​ $ 8,742,382 ​ $ 26,897,080 ​ $ 2,188,418 ​ 37,167,627 Other income, net ​ ​ ​ ​ ​ ​ ​ 828,313 Income before income taxes ​ ​ ​ ​ ​ 37,995,940 Provision for income taxes ​ ​ ​ ​ ​ 6,750,014 Net income from continuing operations ​ ​ ​ ​ ​ 31,245,926 Income from continuing operations attributable to non-controlling interests ​ ​ ​ ​ ​ 573,791 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ 30,672,135 Loss from discontinued operations ​ ​ ​ ​ ​ ( 1,086,744 ) Net income attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ $ 29,585,391 ​ Depreciation and amortization expenses for the year ended December 31, 2023 for the retail, bulk, services and manufacturing segments were $ 2,484,845 , $ 3,032,902 , $ 785,347 and $ 273,360 , respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2023 ​ Retail Bulk Services Manufacturing Total Accounts receivable, net ​ $ 3,425,948 ​ $ 26,965,126 ​ $ 6,802,780 ​ $ 1,033,037 ​ $ 38,226,891 Inventory, current and non-current ​ $ 3,041,460 ​ $ 4,858,324 ​ $ 55,272 ​ $ 3,135,357 ​ $ 11,090,413 Contract assets ​ $ — ​ $ — ​ $ 17,715,872 ​ $ 3,837,185 ​ $ 21,553,057 Property, plant and equipment, net ​ $ 32,809,487 ​ $ 20,370,056 ​ $ 1,143,884 ​ $ 1,559,094 ​ $ 55,882,521 Construction in progress ​ $ 380,436 ​ $ — ​ $ — ​ $ 115,035 ​ $ 495,471 Intangibles, net ​ $ — ​ $ — ​ $ 2,692,074 ​ $ 661,111 ​ $ 3,353,185 Goodwill ​ $ 1,170,511 ​ $ 1,948,875 ​ $ 7,756,807 ​ $ 1,985,211 ​ $ 12,861,404 Total segment assets ​ $ 58,774,647 ​ $ 63,956,725 ​ $ 58,476,773 ​ $ 15,888,642 ​ $ 197,096,787 Assets of discontinued operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 21,340,805 Total assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 218,437,592 ​ 66 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2022 ​ Retail Bulk Services Manufacturing Total Revenue ​ $ 25,954,013 ​ $ 32,991,066 ​ $ 28,835,428 ​ $ 6,324,465 ​ $ 94,104,972 Cost of revenue ​ 12,548,763 ​ 23,032,212 ​ 22,973,634 ​ 5,195,240 ​ 63,749,849 Gross profit ​ 13,405,250 ​ 9,958,854 ​ 5,861,794 ​ 1,129,225 ​ 30,355,123 General and administrative expenses ​ 14,552,866 ​ 1,570,732 ​ 3,461,294 ​ 1,485,342 ​ 21,070,234 Gain (loss) on asset dispositions and impairments, net ​ ( 39,397 ) ​ 5,607 ​ 23,717 ​ ( 2,631 ) ​ ( 12,704 ) Income (loss) from operations ​ $ ( 1,187,013 ) ​ $ 8,393,729 ​ $ 2,424,217 ​ $ ( 358,748 ) ​ 9,272,185 Other income, net ​ ​ ​ ​ ​ 464,810 Income before income taxes ​ ​ ​ ​ ​ 9,736,995 Provision for income taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 396,739 Net income from continuing operations ​ ​ ​ ​ ​ 9,340,256 Income from continuing operations attributable to non-controlling interests ​ ​ ​ ​ ​ 1,112,913 Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ 8,227,343 Loss from discontinued operations ​ ​ ​ ​ ​ ( 2,371,049 ) Net income attributable to Consolidated Water Co. Ltd. stockholders ​ ​ ​ ​ ​ $ 5,856,294 ​ Depreciation and amortization expenses for the year ended December 31, 2022 for the retail, bulk, services and manufacturing segments were $ 2,391,603 , $ 2,836,794 , $ 674,508 and $ 284,403 , respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2022 ​ Retail Bulk Services Manufacturing Total Accounts receivable, net ​ $ 2,953,927 ​ $ 16,554,940 ​ $ 5,838,721 ​ $ 1,698,594 ​ $ 27,046,182 Inventory, current and non-current ​ $ 2,759,659 ​ $ 4,037,684 ​ $ — ​ $ 3,481,486 ​ $ 10,278,829 Contract assets ​ $ — ​ $ — ​ $ 1,249,069 ​ $ 1,664,653 ​ $ 2,913,722 Property, plant and equipment, net ​ $ 27,697,490 ​ $ 22,510,658 ​ $ 759,409 ​ $ 1,561,988 ​ $ 52,529,545 Construction in progress ​ $ 3,643,889 ​ $ — ​ $ — ​ $ 61,792 ​ $ 3,705,681 Intangibles, net ​ $ — ​ $ — ​ $ 2,064,444 ​ $ 754,444 ​ $ 2,818,888 Goodwill ​ $ 1,170,511 ​ $ 1,948,875 ​ $ 5,320,416 ​ $ 1,985,211 ​ $ 10,425,013 Total segment assets ​ $ 65,853,789 ​ $ 56,118,243 ​ $ 36,319,078 ​ $ 13,054,971 ​ $ 171,346,081 Assets of discontinued operations ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 21,660,768 Total assets ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 193,006,849 ​ Revenue earned by major geographic region was: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2023 2022 Cayman Islands ​ $ 41,728,340 ​ $ 30,375,985 The Bahamas ​ 31,221,633 ​ 29,943,615 United States ​ 106,768,621 ​ 33,338,466 Revenue earned from management services agreement with OC-BVI ​ 492,639 ​ 446,906 ​ ​ $ 180,211,233 ​ $ 94,104,972 ​ 67 Table of Contents Revenue earned from major customers was: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2023 2022 Revenue earned from the WSC ​ $ 31,221,633 ​ $ 29,943,615 Percentage of consolidated revenue earned from the WSC ​ 17 % ​ 32 % Revenue earned from one service segment customer ​ $ 64,149,170 ​ $ 11,805,752 Percentage of consolidated revenue earned from the one service segment customer ​ 36 % ​ 13 % ​ Property, plant and equipment, net by major geographic region was: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Cayman Islands ​ $ 32,902,949 ​ $ 28,068,156 The Bahamas ​ 20,039,049 ​ 22,031,690 United States ​ 2,940,523 ​ 2,429,699 ​ ​ $ 55,882,521 ​ $ 52,529,545 ​ ​ ​ 15. Cost of revenue and general and administrative expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 Cost of revenue consist of: ​ ​ ​ ​ ​ ​ Subcontractor and other project costs ​ $ 64,806,072 ​ $ 17,847,124 Employee costs ​ 18,935,014 ​ 14,036,117 Electricity ​ 9,502,666 ​ 6,975,129 Fuel oil ​ 9,024,836 ​ 10,203,690 Depreciation ​ 5,632,998 ​ 5,261,463 Maintenance ​ 2,992,872 ​ 2,786,258 Insurance ​ 2,061,497 ​ 1,782,333 Retail license royalties ​ 1,842,924 ​ 1,590,250 Other ​ 3,485,249 ​ 3,267,485 ​ ​ $ 118,284,128 ​ $ 63,749,849 ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 ​ 2022 General and administrative expenses consist of: ​ ​ Employee costs ​ $ 13,690,152 ​ $ 11,209,635 Professional fees ​ 2,012,092 ​ 1,760,279 Insurance ​ 1,903,856 ​ 2,067,625 Directors’ fees and expenses ​ 980,759 ​ 991,592 Office rent ​ ​ 882,686 ​ ​ 793,380 Amortization of intangible assets ​ 574,093 ​ 582,778 Investor relations ​ ​ 534,979 ​ ​ 354,158 Business development expenses ​ ​ 578,086 ​ ​ 395,660 Provision for credit losses ​ ​ 408,489 ​ ​ — Computer supplies, software licenses ​ ​ 387,335 ​ ​ 322,310 Bank charges ​ ​ 341,263 ​ ​ 490,237 Depreciation ​ 190,010 ​ 163,714 Other ​ 2,268,566 ​ 1,938,866 ​ ​ $ 24,752,366 ​ $ 21,070,234 ​ ​ ​ 68 Table of Contents 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 the Company’s Employee Share Incentive Plan. Once an individual becomes eligible for this plan, they are awarded shares of preferred stock in the month of June following their date of eligibility for the plan (the “grant date”) and in June of each subsequent year of the individual's employment for as long as the individual remains employed with the Company. If the employee remains 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 employee receives 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 date. Each employee’s option to purchase shares of preferred stock must be exercised within 30 days of the grant date, which is the 90 th 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, 2023 and 2022 totaled 13,309 and 9,295 , respectively, and an equal number of preferred stock options were granted in each of these years. Employee Share Option Plan (Common Stock Options) The Company has an employee stock option plan for four 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 40 th 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 30 th day after the fourth anniversary of the grant date. Options granted under this plan during the years ended December 31, 2023 and 2022 totaled 3,010 and 3,665 , 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 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. 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 $ 703,289 and $ 386,260 for the years ended December 31, 2023 and 2022, respectively, and is included in general and administrative expenses in the accompanying consolidated statements of income. 69 Table of Contents The significant weighted average assumptions for the years ended December 31, 2023 and 2022 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 Risk free interest rate 5.06 % 1.64 % Expected option life (years) 1.0 1.2 ​ Expected volatility 42.42 % 47.15 % Expected dividend yield 1.60 % 2.35 % ​ A summary of the Company’s stock option activity for the year ended December 31, 2023 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ Weighted ​ Average ​ ​ ​ ​ ​ ​ ​ Average ​ Remaining ​ Aggregate ​ ​ ​ ​ Exercise ​ Contractual ​ Intrinsic ​ Options Price Life (Years) Value (1) Outstanding at beginning of period 11,740 ​ $ 13.59 ​ Granted 16,319 ​ 13.62 ​ Exercised ( 8,231 ) ​ 12.12 ​ Forfeited/expired ( 7,653 ) ​ 11.28 ​ Outstanding as of December 31, 2023 12,175 ​ $ 16.08 2.29 years $ 237,705 Exercisable as of December 31, 2023 — ​ $ — — 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 $ 35.60 on the Nasdaq Global Select Market on December 31, 2023, exceeds the exercise price of the option. As of December 31, 2023, 12,175 non-vested options were outstanding, with weighted average exercise price of $ 16.08 , and average remaining contractual life of 2.29 years. The total remaining unrecognized compensation costs related to unvested stock-based arrangements were $ 14,867 as of December 31, 2023 and are expected to be recognized over a weighted average period of 2.29 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, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 Options granted with an exercise price below market price on the date of grant: ​ ​ Employees — preferred stock ​ $ 12.21 ​ $ 5.58 Overall weighted average ​ 12.21 ​ 5.58 ​ ​ ​ ​ ​ ​ ​ Options granted with an exercise price at market price on the date of grant: ​ ​ Management employees ​ $ — ​ $ — Employees — common stock ​ 8.29 ​ 4.32 Overall weighted average ​ 8.29 ​ 4.32 ​ ​ ​ ​ ​ ​ ​ 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 ​ $ 104,559 ​ $ 17,158 ​ 70 Table of Contents Senior Management Long-Term Incentive Compensation ​ The Board of Directors has established the long-term incentive compensation for the Company’s senior management to better align the interests of its senior management with those of its shareholders. The 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 3, 2023 and 2022 were 29,508 and 32,265 , respectively. These stock grant rights vest in one-third increments over the three-year periods ending December 31, 2025 and 2024, respectively. The total number of vested shares issued under prior years’ non-performance stock grant rights totaled 25,986 and 23,411 in the years ended December 31, 2023 and 2022, respectively. For the years ended December 31, 2023 and 2022, the Company recognized $ 366,058 and $325,270 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. The Company recognized $ 522,925 and $ 335,964 in stock-based compensation for the year ended December 31, 2023 and 2022, respectively, related to these grants. A total of 26,742 stock grant rights were earned as of December 31, 2023 based upon the Company’s actual financial performance relative to the cumulative financial performance targets for the three-year period ended December 31, 2023 The shares associated with these grants will be issued in 2024. A total of 13,797 stock grant rights were earned as of December 31, 2022 based upon the Company’s actual financial performance relative to the cumulative financial performance targets for the three -year period ended December 31, 2022. The shares associated with these grants were issued in 2023. ​ Non-Executive Directors’ Share Plan This stock grant plan provides part of the 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, 2023 and 2022 totaled 22,831 and 30,767 shares, respectively. The Company recognized stock-based compensation for these share grants of $ 341,394 and $ 369,678 for the years ended December 31, 2023 and 2022, respectively. ​ 17. Retirement benefits Retirement plans are offered to all employees in California, Florida, Colorado, the Cayman Islands and The 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’s expense for these plans was $ 771,616 and $ 624,798 for the years ended December 31, 2023 and 2022, 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 a material allowance for these receivables. 71 Table of Contents 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. Fair values: As of December 31, 2023 and 2022, 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. As of December 31, 2023 and 2022, the Company does not have assets and liabilities measured at fair value to present in the fair value hierarchy. ​ ​ ​ 19. Commitments and contingencies Commitments The Company has entered into employment agreements with certain executives, which expire through December 31, 2026 and provide for, among other things, base annual salaries in an aggregate amount of approximately $ 5.5 million, performance bonuses and various employee benefits. The Company has purchase obligations totaling approximately $ 16.6 million through December 31, 2024. 72 Table of Contents Contingencies Cayman Water The Company sells water through its Cayman Water 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 has not been 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 2023 and 2022, the Company generated approximately 17 % and 27 %, respectively, of its consolidated revenue and 26 % and 44 %, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 license. ​ The 1990 license was originally scheduled to expire in July 2010 but was extended several times by the Cayman Islands government in order to provide the parties with additional time to negotiate the terms of a new license agreement. 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 of 7.5% of the revenue that Cayman Water collects as 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. CW-Bahamas CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $ 26.9 million and $ 16.3 million as of December 31, 2023 and 2022. Approximately 80 % and 65 % of the accounts receivable balances were delinquent as of those dates, respectively. 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 not provided for a material allowance for credit losses for its accounts receivable from the WSC as of December 31, 2023. ​ 73 Table of Contents CW-Bahamas held discussions with the WSC in March 2024 during which the WSC stated that the Government intends to substantially reduce CW-Bahamas’ accounts receivable from the WSC over the course of 2024. ​ In a 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 Baa3. Moody’s iterated these ratings in April and October 2023, noting that such ratings are “stable.” ​ If CW-Bahamas is unable to collect a sufficient 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 additional allowance for credit losses 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, purchased engineering and technology support services from various companies formerly affiliated with PERC, as a minority shareholder in these companies was also a minority shareholder of PERC. On January 4, 2023, as a result of CW-Holdings' exercise of a call option in October 2022, CW-Holdings purchased the remaining 39 % ownership interest in PERC. After giving effect to this purchase, CW-Holdings owns 100 % of the outstanding capital stock of PERC and, consequently, transactions with the formerly affiliated companies no longer constitute related party transactions. During the year ended December 31, 2022, the Company made total purchases of services from these companies of approximately $ 2,695,000 . These total purchases are included in the Company’s cost of revenue in the accompanying consolidated statements of income. ​ PERC entered into a sublease agreement with one of these formerly affiliated companies that commenced on March 14, 2021 and ended August 31, 2021. This lease was extended on a month-to-month basis subsequent to August 31, 2021. During the year ended December 31, 2022, the Company recognized approximately $ 97,000 of expense related to this lease. This lease expense 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, 2022, was approximately $ 404,000 . ​ ​ ​ ​ 21. Supplemental disclosure of cash flow information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 Interest paid in cash ​ $ 21,417 ​ $ 14,797 Income taxes paid in cash ​ $ 4,920,912 ​ $ 211,000 ​ ​ ​ ​ ​ ​ ​ Non-cash transactions: ​ ​ ​ Issuance of 13,309 and 9,295 , respectively, shares of redeemable preferred stock for services rendered ​ $ 323,275 ​ $ 133,197 Issuance of 68,864 and 72,597 , respectively, shares of common stock for services rendered ​ $ 1,015,177 ​ $ 877,298 Conversion (on a one-to-one basis) of 8,848 and 6,585 , respectively, shares of redeemable preferred stock to common stock ​ $ 5,309 ​ $ 3,951 Dividends declared but not paid ​ $ 1,502,506 ​ $ 1,305,367 Issuance of 368,383 and 0, respectively, shares of common stock for the purchase of non-controlling interest in PERC ​ $ 5,359,973 ​ $ — Transfers from inventory to property, plant and equipment and construction in progress ​ $ 317,853 ​ $ 346,024 Transfers from construction in progress to property, plant and equipment ​ $ 7,093,158 ​ $ 297,723 Right-of-use assets obtained in exchange for new operating lease liabilities ​ $ 745,078 ​ $ — Purchase of equipment through issuance of long-term debt ​ $ — ​ $ 188,645 ​ ​ 74 Table of Contents ​ 22. Impact of recent accounting standards Adoption of new accounting standards: Financial Accounting Standard Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments, and related amendments, introduces new guidance which makes substantive changes to the accounting for credit losses. This guidance introduces the current expected credit losses (“CECL”) model which applies to financial assets subject to credit losses and measured at amortized cost, as well as certain off-balance sheet credit exposures. The CECL model requires an entity to estimate credit losses expected over the life of an exposure, considering information about historical events, current conditions, and reasonable and supportable forecasts and is generally expected to result in earlier recognition of credit losses. The Company adopted this guidance as of January 1, 2023 using the modified retrospective approach. The impact of this adoption was not material to the Company’s consolidated financial statements. Effect of newly issued but not yet effective accounting standards: ​ In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this guidance. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this guidance. ​ 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. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ​ None. ​