Consolidated Water Co. Ltd. [CWCO] Filings

10-Q 1 cwco-20220930x10q.htm 10-Q

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 0-25248

CONSOLIDATED WATER CO. LTD.

(Exact name of Registrant as specified in its charter)

CAYMAN ISLANDS		98-0619652
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

Regatta Office Park
Windward Three, 4th Floor, West Bay Road
P.O. Box 1114
Grand Cayman KY1-1102
Cayman Islands		N/A
(Address of principal executive offices)		(Zip Code)

(345) 945-4277

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A common stock, $0.60 par value		CWCO		The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

As of November 9, 2022, 15,292,108 shares of the registrant’s common stock, with US$0.60 par value, were outstanding.

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TABLE OF CONTENTS


	Description	Page
PART I	FINANCIAL INFORMATION	4
Item 1	Financial Statements	4

	Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021	4

	Condensed Consolidated Statements of Income (Loss) (Unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021	5

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2022 and 2021	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3	Quantitative and Qualitative Disclosures about Market Risk	41
Item 4	Controls and Procedures	41

PART II	OTHER INFORMATION	42
Item 1A	Risk Factors	42
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 6	Exhibits	46

SIGNATURES		47

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Note Regarding Currency and Exchange Rates

Unless otherwise indicated, all references to “$” or “US$” are to United States dollars.

The exchange rate for conversion of Cayman Island dollars (CI$) into US$, as determined by the Cayman Islands Monetary Authority, has been fixed since April 1974 at US$1.20 per CI$1.00.

The exchange rate for conversion of Bahamas dollars (B$) into US$, as determined by the Central Bank of The Bahamas, has been fixed since 1973 at US$1.00 per B$1.00.

The official currency of the British Virgin Islands is the US$.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30,		December 31,
	2022		2021
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	51,085,289	$	40,358,059
Certificate of deposit		—		2,500,000
Accounts receivable, net		24,352,487		27,349,307
Inventory		4,053,662		2,504,832
Prepaid expenses and other current assets		4,696,845		2,558,822
Contract assets		1,658,912		489,961
Net asset arising from put/call options		157,000		128,000
Current assets of discontinued operations		500,661		1,173,741
Total current assets		86,504,856		77,062,722
Property, plant and equipment, net		50,236,746		52,946,539
Construction in progress		2,618,972		710,863
Inventory, noncurrent		4,882,659		4,733,010
Investment in OC-BVI		1,538,743		1,715,905
Goodwill		10,425,013		10,425,013
Intangible assets, net		2,959,166		3,401,666
Operating lease right-of-use assets		2,179,159		2,681,137
Other assets		2,525,864		2,204,013
Long-term assets of discontinued operations		21,139,574		21,146,186
Total assets	$	185,010,752	$	177,027,054

LIABILITIES AND EQUITY
Current liabilities
Accounts payable, accrued expenses and other current liabilities	$	6,332,647	$	2,831,925
Accounts payable - related parties		569,088		163,947
Accrued compensation		2,061,131		1,435,542
Dividends payable		1,377,540		1,320,572
Current maturities of operating leases		555,300		592,336
Current portion of long-term debt		85,533		62,489
Contract liabilities		3,753,488		513,878
Deferred revenue		408,534		583,646
Current liabilities of discontinued operations		237,675		182,322
Total current liabilities		15,380,936		7,686,657
Long-term debt, noncurrent		145,852		152,038
Deferred tax liabilities		1,114,809		1,236,723
Noncurrent operating leases		1,721,643		2,137,394
Other liabilities		141,000		141,000
Long-term liabilities of discontinued operations		691		7,819
Total liabilities		18,504,931		11,361,631
Commitments and contingencies
Equity
Consolidated Water Co. Ltd. stockholders' equity
Redeemable preferred stock, $0.60 par value. Authorized 200,000 shares; issued and outstanding 34,409 and 28,635 shares, respectively		20,645		17,181
Class A common stock, $0.60 par value. Authorized 24,655,000 shares; issued and outstanding 15,292,108 and 15,243,693 shares, respectively		9,175,265		9,146,216
Class B common stock, $0.60 par value. Authorized 145,000 shares; none issued		—		—
Additional paid-in capital		88,614,319		87,812,432
Retained earnings		61,020,487		60,603,056
Total Consolidated Water Co. Ltd. stockholders' equity		158,830,716		157,578,885
Non-controlling interests		7,675,105		8,086,538
Total equity		166,505,821		165,665,423
Total liabilities and equity	$	185,010,752	$	177,027,054

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

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CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue	$	25,051,705	$	16,413,146	$	65,676,737	$	50,217,987
Cost of revenue (including purchases from related parties of $685,481 and $104,813 for the three months ended, and $2,165,850 and $390,196 for the nine months ended, September 30, 2022 and 2021, respectively)		18,207,932		10,722,547		44,211,703		32,336,025
Gross profit		6,843,773		5,690,599		21,465,034		17,881,962
General and administrative expenses (including purchases from related parties of $24,231 and $24,231 for the three months ended, and $72,693 and $52,959 for the nine months ended, September 30, 2022 and 2021, respectively)		5,610,650		4,359,040		15,403,458		13,847,830
Gain (loss) on asset dispositions and impairments, net		3,499		612		21,237		(3,144,961)
Income from operations		1,236,622		1,332,171		6,082,813		889,171

Other income (expense):
Interest income		56,701		168,880		348,304		503,889
Interest expense		(2,042)		(2,216)		(8,847)		(7,714)
Profit-sharing income from OC-BVI		6,075		6,075		24,300		16,200
Equity in the earnings of OC-BVI		19,921		17,717		71,238		44,223
Net unrealized gain (loss) on put/call options		(247,000)		(54,000)		29,000		108,000
Other		(2,635)		15,712		84,734		35,292
Other income (expense), net		(168,980)		152,168		548,729		699,890
Income before income taxes		1,067,642		1,484,339		6,631,542		1,589,061
Income tax provision (benefit)		26,616		(11,230)		83,041		(20,735)
Net income from continuing operations		1,041,026		1,495,569		6,548,501		1,609,796
Income from continuing operations attributable to non-controlling interests		217,415		131,609		691,042		457,540
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders		823,611		1,363,960		5,857,459		1,152,256
Loss from discontinued operations		(505,917)		(1,078,367)		(1,533,064)		(1,542,540)
Net income (loss) attributable to Consolidated Water Co. Ltd. stockholders	$	317,694	$	285,593	$	4,324,395	$	(390,284)

Basic earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	0.05	$	0.09	$	0.38	$	0.07
Discontinued operations		(0.03)		(0.07)		(0.10)		(0.10)
Basic earnings (loss) per share	$	0.02	$	0.02	$	0.28	$	(0.03)

Diluted earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders
Continuing operations	$	0.05	$	0.09	$	0.38	$	0.07
Discontinued operations		(0.03)		(0.07)		(0.10)		(0.10)
Diluted earnings (loss) per share	$	0.02	$	0.02	$	0.28	$	(0.03)

Dividends declared per common and redeemable preferred shares	$	0.085	$	0.085	$	0.255	$	0.255

Weighted average number of common shares used in the determination of:
Basic earnings per share		15,290,597		15,209,432		15,287,233		15,204,220
Diluted earnings per share		15,450,276		15,351,882		15,440,261		15,345,120

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

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CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)


	Redeemable						Additional				Non-		Total
	preferred stock			Common stock			paid-in		Retained		controlling		stockholders’
	Shares	Dollars		Shares	Dollars		capital		earnings		interests		equity
Balance as of December 31, 2021	28,635	$	17,181	15,243,693	$	9,146,216	$	87,812,432	$	60,603,056	$	8,086,538	$	165,665,423
Issue of share capital	—		—	41,830		25,098		(25,098)		—		—		—
Net income	—		—	—		—		—		1,716,815		241,430		1,958,245
Dividends declared	—		—	—		—		—		(1,303,014)		—		(1,303,014)
Stock-based compensation	—		—	—		—		188,985		—		—		188,985
Balance as of March 31, 2022	28,635		17,181	15,285,523		9,171,314		87,976,319		61,016,857		8,327,968		166,509,639
Issue of share capital	9,295		5,577	—		—		(5,577)		—		—		—
Net income	—		—	—		—		—		2,289,886		232,197		2,522,083
Exercise of options	309		185	—		—		2,511		—		—		2,696
Dividends declared	—		—	—		—		—		(1,301,840)		(464,200)		(1,766,040)
Stock-based compensation	—		—	—		—		205,137		—		—		205,137
Balance as of June 30, 2022	38,239		22,943	15,285,523		9,171,314		88,178,390		62,004,903		8,095,965		167,473,515
Conversion of preferred stock	(6,585)		(3,951)	6,585		3,951		—		—		—		—
Net income	—		—	—		—		—		317,694		217,415		535,109
Exercise of options	2,755		1,653	—		—		22,390		—		—		24,043
Dividends declared	—		—	—		—		—		(1,302,110)		(638,275)		(1,940,385)
Stock-based compensation	—		—	—		—		413,539		—		—		413,539
Balance as of September 30, 2022	34,409	$	20,645	15,292,108	$	9,175,265	$	88,614,319	$	61,020,487	$	7,675,105	$	166,505,821

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	Redeemable						Additional				Non-		Total
	preferred stock			Common stock			paid-in		Retained		controlling		stockholders’
	Shares	Dollars		Shares	Dollars		capital		earnings		interests		equity
Balance as of December 31, 2020	31,068	$	18,641	15,143,683	$	9,086,210	$	86,893,486	$	64,910,709	$	8,103,503	$	169,012,549
Issue of share capital	—		—	57,577		34,546		(34,546)		—		—		—
Conversion of preferred stock	(215)		(129)	215		129		—		—		—		—
Buyback of preferred stock	(747)		(448)	—		—		(7,065)		—		—		(7,513)
Net income	—		—	—		—		—		988,772		128,793		1,117,565
Dividends declared	—		—	—		—		—		(1,296,197)		(649,880)		(1,946,077)
Stock-based compensation	—		—	—		—		176,210		—		—		176,210
Balance as of March 31, 2021	30,106		18,064	15,201,475		9,120,885		87,028,085		64,603,284		7,582,416		168,352,734
Issue of share capital	8,632		5,179	—		—		(5,179)		—		—		—
Conversion of preferred stock	(896)		(538)	896		538		—		—		—		—
Buyback of preferred stock	(704)		(422)	—		—		(6,928)		—		—		(7,350)
Net income (loss)	—		—	—		—		—		(1,664,649)		197,138		(1,467,511)
Exercise of options	211		126	—		—		1,583		—		—		1,709
Dividends declared	—		—	—		—		—		(1,294,697)		—		(1,294,697)
Stock-based compensation	—		—	—		—		178,589		—		—		178,589
Balance as of June 30, 2021	37,349		22,409	15,202,371		9,121,423		87,196,150		61,643,938		7,779,554		165,763,474
Conversion of preferred stock	(8,328)		(4,996)	8,328		4,996		—		—		—		—
Net income	—		—	—		—		—		285,593		131,609		417,202
Exercise of options	1,895		1,137	—		—		14,213		—		—		15,350
Dividends declared	—		—	—		—		—		(1,294,870)		—		(1,294,870)
Stock-based compensation	—		—	—		—		374,793		—		—		374,793
Balance as of September 30, 2021	30,916	$	18,550	15,210,699	$	9,126,419	$	87,585,156	$	60,634,661	$	7,911,163	$	165,275,949

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

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CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
	2022		2021
Net cash provided by operating activities - continuing operations	$	16,926,429	$	5,285,457
Net cash used in operating activities - discontinued operations		(1,123,193)		(820,785)
Net cash provided by operating activities		15,803,236		4,464,672

Cash flows from investing activities
Purchase of certificate of deposit		(2,518,493)		(2,500,000)
Maturity of certificate of deposit		5,018,493		—
Additions to property, plant and equipment and construction in progress		(2,947,937)		(973,270)
Proceeds from asset dispositions		31,181		45,560
Net cash used in investing activities - continuing operations		(416,756)		(3,427,710)

Cash flows from financing activities
Dividends paid to common shareholders		(3,841,842)		(3,859,412)
Dividends paid to preferred shareholders		(8,154)		(8,387)
Dividends paid to non-controlling interests		(1,102,475)		(649,880)
Repurchase of redeemable preferred stock		—		(14,863)
Proceeds received from exercise of stock options		26,739		17,059
Payments on note payable		(51,564)		(35,840)
Net cash used in financing activities		(4,977,296)		(4,551,323)
Net increase (decrease) in cash and cash equivalents		10,409,184		(3,514,361)
Cash and cash equivalents at beginning of period		40,358,059		43,794,150
Cash and cash equivalents at beginning of period - discontinued operations		750,048		154,130
Less: cash and cash equivalents at end of period - discontinued operations		(432,002)		(36,326)
Cash and cash equivalents at end of period	$	51,085,289	$	40,397,593


Non-cash transactions:
Issuance of 9,295 and 8,632, respectively, shares of redeemable preferred stock for services rendered	$	133,197	$	102,203
Issuance of 41,830 and 57,577, respectively, shares of common stock for services rendered	$	521,016	$	745,468
Conversion (on a one-to-one basis) of 6,585 and 9,439, respectively, shares of redeemable preferred stock to common stock	$	3,951	$	5,663
Dividends declared but not paid	$	1,302,754	$	1,295,377
Transfers from (to) inventory to (from) property, plant and equipment and construction in progress	$	246,238	$	148,138
Net transfers from construction in progress to property, plant and equipment	$	413,416	$	166,335
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	1,852,608
Purchase of equipment through issuance of long-term debt	$	68,422	$	58,220

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

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CONSOLIDATED WATER CO. LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Principal activity

Consolidated Water Co. Ltd. and its subsidiaries (collectively, the “Company”) supply potable water, treat wastewater and water for reuse, and provide water-related products and services to customers in the Cayman Islands, The Bahamas, the United States and the British Virgin Islands. The Company produces potable water from seawater using reverse osmosis technology and sells this water to a variety of customers, including public utilities, commercial and tourist properties, residential properties and government facilities. The Company designs, builds and sells water production and water treatment infrastructure and manages water infrastructure for commercial and governmental customers. The Company also manufactures a wide range of specialized and custom water industry related products and provides design, engineering, operating and other services applicable to commercial, municipal and industrial water production, supply and treatment.

2. Accounting policies

Basis of consolidation: The accompanying condensed consolidated financial statements include the accounts of the Company’s (i) wholly-owned subsidiaries, Aerex Industries, Inc. (“Aerex”), Aquilex, Inc. (“Aquilex”), Cayman Water Company Limited (“Cayman Water”), Ocean Conversion (Cayman) Limited (“OC-Cayman”), DesalCo Limited (“DesalCo”), Consolidated Water Cooperatief, U.A. (“CW-Cooperatief”), Consolidated Water U.S. Holdings, Inc. (“CW-Holdings”); and (ii) majority-owned subsidiaries Consolidated Water (Bahamas) Ltd. (“CW-Bahamas”), N.S.C. Agua, S.A. de C.V. (“NSC”), Aguas de Rosarito S.A.P.I. de C.V. (“AdR”), and PERC Water Corporation ("PERC"). The Company’s investment in its affiliate Ocean Conversion (BVI) Ltd. (“OC-BVI”) is accounted for using the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying interim condensed consolidated financial statements are unaudited. These condensed consolidated financial statements reflect all adjustments (which are of a normal recurring nature) that, in the opinion of management, are necessary to fairly present the Company’s consolidated financial position, results of operations and cash flows as of and for the periods presented. The consolidated results of operations for these interim periods are not necessarily indicative of the operating results for future periods, including the fiscal year ending December 31, 2022.

These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) relating to interim financial statements and in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted in these condensed consolidated financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Foreign currency: The Company’s reporting currency is the United States dollar (“US$”). The functional currency of the Company and its foreign operating subsidiaries (other than NSC, AdR, and CW-Cooperatief) is the currency for each respective country. The functional currency for NSC, AdR, and CW-Cooperatief is the US$. NSC and AdR conduct business in US$ and Mexican pesos and CW-Cooperatief conducts business in US$ and euros. The exchange rates for the Cayman Islands dollar and the Bahamian dollar are fixed to the US$. The exchange rates for conversion of Mexican pesos and euros into US$ vary based upon market conditions.

Net foreign currency gains (losses) arising from transactions and re-measurements were ($8,068) and $15,302 for the three months ended September 30, 2022 and 2021, respectively, and $20,966 and $29,353 for the nine months ended September 30, 2022 and 2021 and are included in “Other income (expense) - Other” in the accompanying condensed consolidated statements of income (loss).

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Cash and cash equivalents: Cash and cash equivalents consist of demand deposits at banks and certificates of deposit at banks with an original maturity of three months or less. Cash and cash equivalents as of September 30, 2022 and December 31, 2021 include approximately $7.5 million and $7.4 million, respectively, of certificates of deposits with an original maturity of three months or less.

Certain transfers from the Company’s Bahamas bank accounts to Company bank accounts in other countries require the approval of the Central Bank of The Bahamas. The equivalent United States dollar cash balances for deposits held in The Bahamas as of September 30, 2022 and December 31, 2021 were approximately $4.7 million and $3.9 million, respectively.

Certificate of deposit: As of December 31, 2021, the Company held a certificate of deposit in The Bahamas of $2.5 million with an original maturity of six months.

Goodwill and intangible assets: Goodwill represents the excess cost of an acquired business over the fair value of the assets and liabilities of the acquired business. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or upon the identification of a triggering event. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment. The Company evaluates the possible impairment of goodwill annually as part of its reporting process for the fourth quarter of each fiscal year. Management identifies the Company’s reporting units, which consist of retail, bulk, services, and manufacturing, and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. The Company determines the fair value of each reporting unit and compares the fair value to the carrying amount of the reporting unit. To the extent the carrying amount of the reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded.

As of December 31, 2021, the Company estimated the fair value of its reporting units by applying the discounted cash flow method, which relied upon seven-year discrete projections of operating results, working capital and capital expenditures, along with a terminal value subsequent to the discrete period. These seven-year projections were based upon historical and anticipated future results, general economic and market conditions, and considered the impact of planned business and operational strategies. The discount rates for the calculations represented the estimated cost of capital for market participants at the time of each analysis.

The Company also estimated the fair value of each of its reporting units as of December 31, 2021 by applying the guideline public company method.

The Company weighted the fair values estimated for each of its reporting units under each method and summed such weighted fair values to estimate the overall fair value for each reporting unit. The respective weightings the Company applied to each method as of December 31, 2021 were 80% to the discounted cash flow method and 20% to the guideline public company method.

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

Based upon its estimation prepared as of December 31, 2021, the fair value of the Company’s manufacturing reporting unit exceeded its carrying value by only 15%. If the Company determines in the future that Aerex’s discounted future cash inflows will be less than its present expectation, the Company may be required to record additional impairment losses to reduce the remaining carrying values as of September 30, 2022 of its manufacturing reporting unit’s goodwill of $1,985,211 and its remaining unamortized intangible assets balances of $777,778 recorded as a result of the acquisition of Aerex. Any such impairment losses could have a material adverse impact on the Company’s consolidated results of operations.

Revenue recognition: Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

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The following table presents the Company’s revenue disaggregated by revenue source.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Retail revenue	$	6,274,650	$	5,247,042	$	19,114,653	$	16,633,137
Bulk revenue		8,667,931		6,868,134		24,442,324		19,826,075
Services revenue		8,731,124		3,210,584		18,530,427		10,514,669
Manufacturing revenue		1,378,000		1,087,386		3,589,333		3,244,106
Total revenue	$	25,051,705	$	16,413,146	$	65,676,737	$	50,217,987

Retail revenue

The Company produces and supplies water to end-users, including residential, commercial and governmental customers in the Cayman Islands under an exclusive retail license issued to Cayman Water by the Cayman Islands government to provide water in two of the three most populated areas on Grand Cayman Island. Customers are billed on a monthly basis based on metered consumption and bills are typically collected within 30 to 45 days after the billing date.

The Company recognizes revenue from water sales at the time water is supplied to the customer’s premises. The amount of water supplied is determined and invoiced based upon water meter readings performed at the end of each month. All retail water contracts are month-to-month contracts. The Company has elected the “right to invoice” practical expedient for revenue recognition on its retail water sale contracts and recognizes revenue in the amount to which the Company has a right to invoice.

Bulk revenue

The Company produces and supplies water to government-owned utilities in the Cayman Islands and The Bahamas.

OC-Cayman provides bulk water to the Water Authority-Cayman (“WAC”), a government-owned utility and regulatory agency, under two agreements. The WAC in turn distributes such water to properties in Grand Cayman outside of Cayman Water’s retail license area.

The Company sells bulk water in The Bahamas through its majority-owned subsidiary, CW-Bahamas, under two agreements with the Water and Sewerage Corporation of The Bahamas (“WSC”), which distributes such water through its own pipeline system to residential, commercial and tourist properties on the Island of New Providence.

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

Services and Manufacturing revenue

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

The Company also designs, builds, sells, operates and manages water, wastewater and water reuse infrastructure through PERC. All of PERC's customers are companies or governmental entities located in the U.S.

The Company, through Aerex, is a custom and specialty manufacturer of systems and products applicable to commercial, municipal and industrial water production and treatment. Substantially all of Aerex’s customers are U.S. companies.

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

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The Company recognizes revenue for its construction and custom/specialized manufacturing contracts over time under the input method using costs incurred (which represents work performed) to date relative to total estimated costs at completion to measure progress toward satisfying its performance obligations as such measure best reflects the transfer of control of the promised good to the customer. Contract costs include labor, materials and amounts payable to subcontractors. The Company follows this method since it can make reasonably dependable estimates of the revenue and costs applicable to the various stages of a contract. Under this input method, the Company records revenue and recognizes profit or loss as work on the contract progresses. The Company estimates total project costs and profit to be earned on each long-term, fixed price contract prior to commencement of work on the contract and updates these estimates as work on the contract progresses. The cumulative amount of revenue recorded on a contract at a specified point in time is that percentage of total estimated revenue that incurred costs to date comprise of estimated total contract costs. If, as work progresses, the actual contract costs exceed estimates, the profit recognized on revenue from that contract decreases. The Company recognizes the full amount of any estimated loss on a contract at the time the estimates indicate such a loss. Any contract assets are classified as current assets. Contract liabilities on uncompleted contracts, if any, are classified as current liabilities.

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

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


	September 30,		December 31
	2022		2021
Revenue recognized to date on contracts in progress	$	16,576,248	$	6,109,396
Amounts billed to date on contracts in progress		(19,694,500)		(6,370,855)
Retainage		1,023,676		237,542
Net contract liability	$	(2,094,576)	$	(23,917)

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


	September 30,		December 31
	2022		2021
Contract assets	$	1,658,912	$	489,961
Contract liabilities		(3,753,488)		(513,878)
Net contract liability	$	(2,094,576)	$	(23,917)

As of September 30, 2022, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $104.8 million in aggregate transaction price for contracts with an original expected length of greater than one year. The Company expects to earn revenue as it satisfies its performance obligations under those contracts in the amount of approximately $12.6 million during the remainder of the year ending December 31, 2022 and approximately $92.2 million thereafter. In addition, the Company recognized revenue of $396,000 in the nine months ended September 30, 2022, that was included in the contract liability balance as of December 31, 2021.

Practical Expedients and Exemptions

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.

Comparative amounts: Certain amounts presented in the financial statements previously issued for 2021 have been reclassified to conform to the current periods’ presentation.

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3. Segment information

The Company has four reportable segments: retail, bulk, services and manufacturing. The retail segment operates the water utility for the Seven Mile Beach and West Bay areas of Grand Cayman Island pursuant to an exclusive license granted by the Cayman Islands government. The bulk segment supplies potable water to government utilities in Grand Cayman and The Bahamas under long-term contracts. The services segment designs, constructs and sells water infrastructure and provides management and operating services to third parties. The manufacturing segment manufactures and services a wide range of custom and specialized water-related products applicable to commercial, municipal and industrial water production, supply and treatment. Consistent with prior periods, the Company records all non-direct general and administrative expenses in its retail business segment and does not allocate any of these non-direct expenses to its other three business segments.

The accounting policies of the segments are consistent with those described in Note 2. The Company evaluates each segment’s performance based upon its income (or loss) from operations. All intercompany transactions are eliminated for segment presentation purposes.

The Company’s segments are strategic business units that are managed separately because each segment sells different products and/or services, serves customers with distinctly different needs and generates different gross profit margins.


	Three Months Ended September 30, 2022
	Retail		Bulk		Services		Manufacturing		Total
Revenue	$	6,274,650	$	8,667,931	$	8,731,124	$	1,378,000	$	25,051,705
Cost of revenue		3,231,973		6,446,549		7,333,982		1,195,428		18,207,932
Gross profit		3,042,677		2,221,382		1,397,142