Quarterly Report (Form 10-Q)

Table of Contents

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

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FORM 10-Q

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(Mark One)

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

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For the quarterly period ended March 31, 2022

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OR

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

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For the transition period from ___________ to ___________

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Commission File Number: 0-25248

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CONSOLIDATED WATER CO. LTD.

(Exact name of Registrant as specified in its charter)

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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 CaymanKY1-1102
Cayman Islands	N/A
(Address of principal executive offices)	(Zip Code)

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(345) 945-4277

(Registrant's telephone number, including area code)

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

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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

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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 ☐

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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 ☐

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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.

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Large accelerated filer ☐Accelerated filer ☐

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

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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. ◻

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

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As of May 6, 2022, 15,285,523 shares of the registrant's common stock, with US$0.60 par value, were outstanding.

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Table of Contents

TABLE OF CONTENTS

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​	​	​	​
​	Description	​	Page
PART I	FINANCIAL INFORMATION		4
Item 1	Financial Statements	​	4
​	​	​	​
​	Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021	​	4
​	​	​	​
​	Condensed Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2022 and 2021	​	5
​	​	​	​
​	Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the Three Months Ended March 31, 2022 and 2021	​	6
​	​	​	​
​	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2022 and 2021	​	7
​	​	​	​
​	Notes to Condensed Consolidated Financial Statements (Unaudited)	​	8
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	​	24
Item 3	Quantitative and Qualitative Disclosures about Market Risk	​	37
Item 4	Controls and Procedures	​	37
​	​	​	​
PART II	OTHER INFORMATION	​	37
Item 1	Legal Proceedings	​	37
Item 1A	Risk Factors	​	39
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	​	42
Item 6	Exhibits	​	43
​	​	​	​
SIGNATURES	​	44

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Note Regarding Currency and Exchange Rates

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

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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.

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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.

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

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PART I - FINANCIAL INFORMATION

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ITEM 1. FINANCIAL STATEMENTS

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CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

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​	​	​	​	​	​	​	​
​	​	March 31,	​	December 31,
​		2022	​	2021
​	​	(Unaudited)	​	​	​	​
ASSETS		​			​		​
Current assets		​			​		​
Cash and cash equivalents	​	$	43,144,541	​	$	40,358,059	​
Certificate of deposit	​	​	2,518,493	​	​	2,500,000	​
Accounts receivable, net	​		27,000,827	​		27,349,307	​
Inventory	​		3,101,630	​		2,504,832	​
Prepaid expenses and other current assets	​		2,049,841	​		2,558,822	​
Contract assets	​		828,962	​		489,961	​
Current assets of discontinued operations	​		620,535	​		1,173,741	​
Total current assets	​	​	79,264,829	​		76,934,722	​
Property, plant and equipment, net	​		51,790,999	​		52,946,539	​
Construction in progress	​		1,325,856	​		710,863	​
Inventory, noncurrent	​		4,831,093	​		4,733,010	​
Investment in OC-BVI	​		1,485,096	​		1,715,905	​
Goodwill	​		10,425,013	​		10,425,013	​
Intangible assets, net	​		3,254,166	​		3,401,666	​
Operating lease right-of-use assets	​	​	2,502,069	​	​	2,681,137	​
Net asset arising from put/call options	​	​	203,000	​	​	128,000	​
Other assets	​		2,166,409	​		2,204,013	​
Long-term assets of discontinued operations	​		21,144,009	​		21,146,186	​
Total assets	​	$	178,392,539	​	$	177,027,054	​
​	​	​	​	​	​	​	​
LIABILITIES AND EQUITY	​			​			​
Current liabilities	​			​			​
Accounts payable, accrued expenses and other current liabilities	​	$	3,418,981	​	$	2,831,925	​
Accounts payable - related parties	​	​	715,549	​	​	163,947	​
Accrued compensation	​		1,138,577	​		1,435,542	​
Dividends payable	​		1,324,195	​		1,320,572	​
Current maturities of operating leases	​	​	553,613	​	​	592,336	​
Current portion of long-term debt	​	​	62,489	​	​	62,489	​
Contract liabilities	​		579,852	​		513,878	​
Deferred revenue	​	​	418,315	​	​	583,646	​
Current liabilities of discontinued operations	​		195,679	​		182,322	​
Total current liabilities	​		8,407,250	​		7,686,657	​
Long-term debt, noncurrent	​	​	137,433	​	​	152,038	​
Deferred tax liabilities	​		1,196,042	​		1,236,723	​
Noncurrent operating leases	​	​	1,995,747	​	​	2,137,394	​
Other liabilities	​		141,000	​		141,000	​
Long-term liabilities of discontinued operations	​	​	5,428	​	​	7,819	​
Total liabilities	​		11,882,900	​		11,361,631	​
Commitments and contingencies	​			​			​
Equity	​			​			​
Consolidated Water Co. Ltd. stockholders' equity	​			​			​
Redeemable preferred stock, $0.60par value. Authorized 200,000shares; issuedand outstanding 28,635and 28,635shares, respectively	​		17,181	​		17,181	​
Class A common stock, $0.60par value. Authorized 24,655,000shares; issuedand outstanding 15,285,523and 15,243,693shares, respectively	​		9,171,314	​		9,146,216	​
Class B common stock, $0.60 par value. Authorized 145,000 shares; none issued	​		-	​		-	​
Additional paid-in capital	​		87,976,319	​		87,812,432	​
Retained earnings	​		61,016,857	​		60,603,056	​
Total Consolidated Water Co. Ltd. stockholders' equity	​		158,181,671	​		157,578,885	​
Non-controlling interests	​		8,327,968	​		8,086,538	​
Total equity	​		166,509,639	​		165,665,423	​
Total liabilities and equity	​	$	178,392,539	​	$	177,027,054	​

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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

(UNAUDITED)

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​	​	​	​	​	​	​	​
​	​	Three Months Ended March 31,
​		2022		2021
Revenue	​	$	19,557,905	​	$	17,103,317	​
Cost of revenue (including purchases from related parties of $839,432 in 2022 and $155,982 in 2021)	​		12,412,141	​		10,976,807	​
Gross profit	​		7,145,764	​		6,126,510	​
General and administrative expenses (including purchases from related parties of $24,231 in 2022 and $4,429 in 2021)	​		4,866,117	​		4,764,486	​
Gain (loss) on asset dispositions and impairments, net	​		12,458	​		(248,933)	​
Income from operations	​		2,292,105	​		1,113,091	​
​	​	​	​	​	​	​	​
Other income (expense):	​			​			​
Interest income	​		180,687	​		160,364	​
Interest expense	​		(4,081)	​		(2,860)	​
Profit-sharing income from OC-BVI	​		10,125	​		6,075	​
Equity in the earnings of OC-BVI	​		31,766	​		15,780	​
Net unrealized gain on put/call options	​		75,000	​		131,000	​
Other	​		26,230	​		4,249	​
Other income, net	​		319,727	​		314,608	​
Income before income taxes	​		2,611,832	​		1,427,699	​
Income tax provision (benefit)	​		46,273	​		(2,660)	​
Net income from continuing operations	​		2,565,559	​		1,430,359	​
Income from continuing operations attributable to non-controlling interests	​		241,430	​		128,793	​
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders	​		2,324,129	​		1,301,566	​
Loss from discontinued operations	​	​	(607,314)	​	​	(312,794)	​
Net income attributable to Consolidated Water Co. Ltd. stockholders	​	$	1,716,815	​	$	988,772	​
​	​	​	​	​	​	​	​
Basic earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders	​			​			​
Continuing operations	​	$	0.15	​	$	0.08	​
Discontinued operations	​	​	(0.04)	​	​	(0.02)	​
Basic earnings per share	​	$	0.11	​	$	0.06	​
​	​	​	​	​	​	​	​
Diluted earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders	​			​			​
Continuing operations	​	$	0.15	​	$	0.08	​
Discontinued operations	​	​	(0.04)	​	​	(0.02)	​
Diluted earnings per share	​	$	0.11	​	$	0.06	​
​	​	​	​	​	​	​	​
Dividends declared per common and redeemable preferred shares	​	$	0.085	​	$	0.085	​
​	​	​	​	​	​	​	​
Weighted average number of common shares used in the determination of:	​			​			​
Basic earnings per share	​		15,285,523	​		15,201,458	​
Diluted earnings per share	​		15,435,691	​		15,356,842	​

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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)

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Redeemable

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Additional

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​

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Non-

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Total

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preferred stock

Common stock

paid-in

Retained

controlling

stockholders'

​

Shares

Dollars

Shares

Dollars

capital

earnings

interests

equity

Balance as of December 31, 2021

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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

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(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

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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

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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)

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​	​	​	​	​	​	​
​		Three Months Ended March 31,
​		2022		2021
Net cash provided by operating activities - continuing operations	​	$	4,876,817	​	$	1,466,141
Net cash used in operating activities - discontinued operations	​		(254,763)	​		(380,001)
Net cash provided by operating activities	​	​	4,622,054	​	​	1,086,140
​	​	​	​	​	​	​
Cash flows from investing activities	​			​
Purchase of certificate of deposit	​	​	(2,518,493)	​	​	-
Maturity of certificate of deposit	​		2,500,000	​		-
Additions to property, plant and equipment and construction in progress	​		(727,925)	​		(292,803)
Proceeds from asset dispositions	​	​	11,043	​	​	41,500
Net cash used in investing activities - continuing operations	​		(735,375)	​		(251,303)
​	​	​	​	​	​	​
Cash flows from financing activities	​		​	​		​
Dividends paid to common shareholders	​		(1,296,957)	​		(1,288,726)
Dividends paid to preferred shareholders	​	​	(2,434)	​	​	(2,641)
Dividends paid to non-controlling interests	​		-	​		(649,880)
Repurchase of redeemable preferred stock	​	​	-	​	​	(7,513)
Payments made on note payable	​	​	(14,605)	​	​	(10,632)
Net cash used in financing activities	​		(1,313,996)	​		(1,959,392)
Net increase (decrease) in cash and cash equivalents	​		2,572,683	​		(1,124,555)
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	​	​	(536,249)	​	​	(41,198)
Cash and cash equivalents at end of period	​	$	43,144,541	​	$	42,782,527
​	​	​	​	​	​	​
​	​	​	​	​	​	​
Interest paid in cash	​	$	4,081	​	$	2,740
​	​	​	​	​	​	​
Non-cash transactions:	​	​	​	​	​	​
Dividends declared but not paid	​	$	1,301,704	​	$	1,296,877
Transfers from (to) inventory to (from) property, plant and equipment and construction in progress	​	$	97,284	​	$	75,433
Transfers from construction in progress to property, plant and equipment	​	$	167,065	​	$	81,599
Right-of-use assets obtained in exchange for new operating lease liabilities	​	$	-	​	$	1,716,789
Purchase of equipment through issuance of long-term debt	​	$	-	​	$	58,220

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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.

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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 $22,046 and ($108) for the three months ended March 31, 2022 and 2021, respectively, and are included in "Other income (expense) - Other" in the accompanying condensed 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 March 31, 2022 and

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December 31, 2021 include approximately $7.4 million and $7.4 million, respectively, of certificates of deposits with an original maturity of three months or less.

As of March 31, 2022, the Company held a $2.5 million certificate of deposit with an original maturity of six months.

Certain transfers from the Company's Bahamas bank accounts to Company bank accounts in other countries require the approval of the Central Bank of The Bahamas. The equivalent United States dollar cash balances for deposits held in The Bahamas as of March 31, 2022 and December 31, 2021 were approximately $8.4 million and $6.4 million, respectively.

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 most recent estimation prepared as of December 31, 2021, the fair value of the Company's manufacturing reporting unit exceeded its carrying value by only 15%. If the Company determines in the future that Aerex's discounted future cash inflows will be less than its present expectation, the Company may be required to record additional impairment losses to reduce the remaining carrying values as of March 31, 2022 of its manufacturing reporting unit's goodwill of $1,985,211 and its remaining unamortized intangible assets balances of $824,445 recorded as a result of the acquisition of Aerex. Any such impairment losses could have a material adverse impact on the Company's consolidated results of operations.

Based upon its most recent estimation prepared as of December 31, 2021, the fair value of the Company's services reporting unit exceeded its carrying value by only 15%. If the Company determines in the future that PERC's discounted future cash inflows will be less than its present expectation, the Company may be required to record impairment losses to reduce the carrying values as of March 31, 2022 of its services reporting unit's goodwill of $5,320,416 and its remaining unamortized intangible assets balances of $2,429,721 recorded as a result of the acquisition of PERC. Any such impairment losses could have a material adverse impact on the Company's consolidated results of operations.

​

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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.

​

​	​	​	​	​	​	​	​
​	​	Three Months Ended March 31,
​		2022		2021
Retail revenue	​	$	6,313,200	​	$	5,711,305	​
Bulk revenue	​		7,350,644	​		6,245,970	​
Services revenue	​		4,743,820	​		3,540,846	​
Manufacturing revenue	​		1,150,241	​		1,605,196	​
Total revenue	​	$	19,557,905	​	$	17,103,317	​

​

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.

10

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

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

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:

​	​	​	​	​	​	​	​
​	​	March 31,	​	December 31	​
​	​	2022	​	2021	​
Revenue recognized to date on contracts in progress		$	8,073,714	​	$	6,109,396	​
Amounts billed to date on contracts in progress	​		(8,071,419)	​		(6,370,855)	​
Retainage	​	​	246,815	​	​	237,542	​
Net contract asset (liability)	​	$	249,110	​	$	(23,917)	​

​

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

​	​	​	​	​	​	​	​
​	​	March 31,	​	December 31	​
​	​	2022	​	2021	​
Contract assets		$	828,962		$	489,961	​
Contract liabilities	​		(579,852)	​		(513,878)	​
Net contract asset (liability)	​	$	249,110	​	$	(23,917)	​

​

As of March 31, 2022, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $9.5million 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 $5.8million during the remainder of the yearending December 31, 2022 and approximately $3.7million thereafter.

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 March 31, 2022

​

Retail

Bulk

Services

Manufacturing

Total

Revenue

​

$

6,313,200

​

$

7,350,644

​

$

4,743,820

​

$

1,150,241

$

19,557,905

Cost of revenue

​

3,053,740

​

4,687,119

​

3,649,180

​

1,022,102

​

12,412,141

Gross profit

​

3,259,460

​

2,663,525

​

1,094,640

​

128,139

​

7,145,764

General and administrative expenses

​

3,450,406

​

310,303

​

779,974

​

325,434

​

4,866,117

Gain on asset dispositions and impairments, net

​

-

​

-

​

12,458

​

-

​

12,458

Income (loss) from operations

​

$

(190,946)

​

$

2,353,222

​

$

327,124

​

$

(197,295)

​

2,292,105

Other income, net

​

​

​

​

​

​

319,727

Income before income taxes

​

​

​

​

​

2,611,832

Income tax provision

​

​

​

​

​

46,273

Net income from continuing operations

​

​

​

​

​

2,565,559

Income from continuing operations attributable to non-controlling interests

​

​

​

​

​

241,430

Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders

​

​

​

​

​

2,324,129

Loss from discontinued operations

​

​

​

​

​

(607,314)

Net income attributable to Consolidated Water Co. Ltd. stockholders

​

​

​

​

​

$

1,716,815

​

Depreciation and amortization expenses for the three months ended March 31, 2022 for the retail, bulk, services and manufacturing segments were $615,685, $702,259, $158,999 and $71,208, respectively.

​

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​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Three Months Ended March 31, 2021

​

Retail

Bulk

Services

Manufacturing

Total

Revenue

​

$

5,711,305

​

$

6,245,970

​

$

3,540,846

​

$

1,605,196

​

$

17,103,317

Cost of revenue

​

2,707,994

​

4,155,153

​

2,721,928

​

1,391,732

​

10,976,807

Gross profit

​

3,003,311

​

2,090,817

​

818,918

​

213,464

​

6,126,510

General and administrative expenses

​

3,371,010

​

377,503

​

722,020

​

293,953

​

4,764,486

Gain (loss) on asset dispositions and impairments, net

​

(250,000)

​

1,500

​

(433)

​

-

​

(248,933)

Income (loss) from operations

​

$

(617,699)

​

$

1,714,814

​

$

96,465

​

$

(80,489)

​

1,113,091

Other income, net

​

​

​

​

​

314,608

Income before income taxes

​

​

​

​

​

1,427,699

Income tax (benefit)

​

​

​

​

​

(2,660)

Net income from continuing operations

​

​

​

​

​

1,430,359

Income attributable to non-controlling interests

​

​

​

​

​

128,793

Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders

​

​

​

​

​

1,301,566

Loss from discontinued operations

​

​

​

​

​

(312,794)

Net income attributable to Consolidated Water Co. Ltd. stockholders

​

​

​

​

​

$

988,772

​

Depreciation and amortization expenses for the three months ended March 31, 2021 for the retail, bulk, services and manufacturing segments were $634,255, $953,760, $200,495 and $75,533, respectively.

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		As of March 31, 2022
​		Retail		Bulk		Services		Manufacturing		Total
Accounts receivable, net	​	$	2,594,892	​	$	21,491,345	​	$	2,850,700	​	$	63,890	​	$	27,000,827
Inventory, current and non-current	​	$	2,678,139	​	$	4,181,135	​	$	-	​	$	1,073,449	​	$	7,932,723
Property, plant and equipment, net	​	$	25,850,047	​	$	23,896,511	​	$	479,218	​	$	1,565,223	​	$	51,790,999
Construction in progress	​	$	1,232,327	​	$	31,737	​	$	-	​	$	61,792	​	$	1,325,856
Intangibles, net	​	$	-	​	$	-	​	$	2,429,721	​	$	824,445	​	$	3,254,166
Goodwill	​	$	1,170,511	​	$	1,948,875	​	$	5,320,416	​	$	1,985,211	​	$	10,425,013
Total segment assets	​	$	61,240,723	​	$	70,647,191	​	$	17,045,216	​	$	7,694,865	​	$	156,627,995
Assets of discontinued operations	​	​	​	​	​	​	​	​	​	​	​	​	​	$	21,764,544
Total assets	​	​	​	​	​	​	​	​	​	​	​	​	​	$	178,392,539

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		As of December 31, 2021
​		Retail		Bulk		Services		Manufacturing		Total
Accounts receivable, net	​	$	2,601,619	​	$	21,682,951	​	$	1,698,797	​	$	1,365,940	​	$	27,349,307
Inventory, current and non-current	​	$	2,787,277	​	$	3,860,808	​	$	-	​	$	589,757	​	$	7,237,842
Property, plant and equipment, net	​	$	26,357,390	​	$	24,476,936	​	$	512,493	​	$	1,599,720	​	$	52,946,539
Construction in progress	​	$	617,334	​	$	31,737	​	$	-	​	$	61,792	​	$	710,863
Intangibles, net	​	$	-	​	$	-	​	$	2,553,888	​	$	847,778	​	$	3,401,666
Goodwill	​	$	1,170,511	​	$	1,948,875	​	$	5,320,416	​	$	1,985,211	​	$	10,425,013
Total segment assets	​	$	61,736,441	​	$	68,723,405	​	$	16,049,001	​	$	8,198,280	​	$	154,707,127
Assets of discontinued operations	​		​	​		​	​		​	​		​	​	$	22,319,927
Total assets	​		​	​		​	​		​	​		​	​	$	177,027,054

​

​

4. Earnings per share

Earnings per share ("EPS") is computed on a basic and diluted basis. Basic EPS is computed by dividing net income (loss) (less preferred stock dividends) available to common stockholders by the weighted average number of common shares outstanding during the period. The computation of diluted EPS assumes the issuance of common shares for all potential

13

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common shares outstanding during the reporting period and, if dilutive, the effect of stock options as computed under the treasury stock method.

The following summarizes information related to the computation of basic and diluted EPS:

​

​	​	​	​	​	​	​	​
​	​	Three Months Ended March 31,
​		2022		2021
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders	​	$	2,324,129	​	$	1,301,566	​
Less: preferred stock dividends	​		(2,434)	​		(2,559)	​
Net income from continuing operations available to common shares in the determination of basic earnings per common share	​		2,321,695	​		1,299,007	​
Loss from discontinued operations	​		(607,314)	​		(312,794)	​
Net income available to common shares in the determination of basic earnings per common share	​	$	1,714,381	​	$	986,213	​
​	​	​	​	​	​	​	​
Weighted average number of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders	​		15,285,523	​		15,201,458	​
Plus:	​		​	​		​	​
Weighted average number of preferred shares outstanding during the period	​		28,635	​		30,469	​
Potential dilutive effect of unexercised options and unvested stock grants	​		121,533	​		124,915	​
Weighted average number of shares used for determining diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders	​		15,435,691	​		15,356,842	​

​

​

​

5. Discontinued operations - Mexico project development

​

In 2010, the Company began the pursuit, through its Netherlands subsidiary, Consolidated Water Cooperatief, U.A. ("CW-Cooperatief"), and its Mexico subsidiary, N.S.C. Agua, S.A. de C.V. ("NSC"), of a project (the "Project") that encompassed the construction, operation and minority ownership of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and accompanying pipelines to deliver water to the Mexican potable water system.

​

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

​

Following an assessment by the State of Baja, California (the "State") of the need for such a desalination plant and the passage of enabling legislation in November 2015, the State officially commenced the required public tender for the Project. A consortium (the "Consortium") comprised of NSC, Suez Medio Ambiente México, S.A. de C.V. ("Suez MA"), a subsidiary of SUEZ International, S.A.S., and NuWater S.A.P.I. de C.V. ("NuWater") submitted its tender for the Project in April 2016 and in June 2016, the State designated the Consortium as the winner of the tender process for the Project.

​

In August 2016, NSC and NuWater incorporated a new company under the name Aguas de Rosarito S.A.P.I. de C.V. ("AdR") to pursue completion of the Project and executed a shareholders agreement for AdR agreeing among other things that (i) AdR would purchase the land and other Project assets from NSC on the date that the Project begins commercial operation and (ii) AdR would enter into a Management and Technical Services Agreement with NSC effective on the first day that the Project begins commercial operation. NSC initially owned 99.6% of the equity of AdR. In February 2018, CW-Holdings acquired the remaining 0.4% ownership in AdR from NuWater.

​

On August 22, 2016, the Public Private Partnership Agreement for the Project (the "APP Contract") was executed between AdR, the State Water Commission of Baja, California ("CEA"), and the Government of Baja California, as represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana ("CESPT"). The APP Contract required AdR to design, construct, finance and operate a seawater reverse osmosis desalination plant (and accompanying

14

Table of Contents

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 invites Mexico to seek a resolution of this investment dispute through consultation and negotiation, but states that if the dispute cannot be resolved in this manner, CW-Cooperatief elects to refer the dispute to the International Centre for the Settlement of International Disputes for arbitration, as provided for in the Treaty. On June 29, 2021, the Mexican Ministry of Economy responded to CW-Cooperatief's letter and proposed to hold a consultation meeting. Two such meetings were held on July 9, 2021 and August 2, 2021 on a confidential basis, without a resolution of the Company's investment dispute.

​

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

CW-Cooperatief intends to pursue vigorously the relief sought in the arbitration, in addition to pursuing all other legal remedies and courses of action available under the operative contracts and applicable law with respect to their rights, damages, fees and expenses. The Company cannot provide any assurances that CW-Cooperatief will be able to obtain the relief sought in the arbitration, and CW-Cooperatief will incur legal and other arbitration-related expenses that the Company expects will be material to its consolidated results of operations and cash flows.

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

​

15

Table of Contents

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

​

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

​	​	​	​	​	​	​
​	​	March 31,	​	December 31,
​	​	2022	​	2021
Cash		$	536,249		$	750,048
Prepaid expenses and other current assets	​	​	82,062	​	​	82,783
Value added taxes receivable (net of allowance of $1,657,083 and $1,279,757, respectively)	​	​	2,224	​	​	340,910
Land	​		21,126,898	​		21,126,898
Other assets	​		17,111	​		19,288
Total assets of discontinued operations	​	$	21,764,544	​	$	22,319,927
​	​			​
Total liabilities of discontinued operations	​	$	201,107	​	$	190,141

​

​	​	​	​	​	​	​	​
​	​	Three Months Ended March 31,	​
​		2022		2021	​
Revenue		$	-		$	-
Provision for uncollected value added taxes	​	$	377,326	​	$	-	​
Loss from discontinued operations	​	$	607,314	​	$	312,794	​
Depreciation expense	​	$	-	​	$	1,136	​

​

Project Litigation

​

Immediately following CW-Cooperatief's acquisition of its initial 50% ownership in NSC, the remaining 50% ownership interest in NSC was held by an unrelated company, Norte Sur Agua, S. de R.L. de C.V. ("NSA"). NSA subsequently transferred ownership of half of its shares in NSC to EWG Water LLC ("EWG") and the other half of its shares in NSC to an individual (the "individual shareholder"). In February 2012, CW-Cooperatief paid $300,000 to enter into an agreement (the "Option Agreement") that provided it with an option, exercisable through February 7, 2014, to purchase the shares of NSC owned by the individual shareholder for a price of $1.0 million along with an immediate usufruct and power of attorney to vote those shares. Such shares constituted 25% of the ownership of NSC as of February 2012. In May 2013, NSC repaid a $5.7 million loan payable to CW-Cooperatief by issuing additional shares of its stock. As a result of this share issuance to CW-Cooperatief, the Company indirectly acquired 99.99% of the ownership of NSC. The Option Agreement contained an anti-dilution provision that required CW-Cooperatief to transfer or otherwise cause the individual shareholder to acquire, for a total price of $1 (regardless of their par or market value), shares in NSC of an amount sufficient to maintain the individual shareholder's 25% ownership interest in NSC if (i) any new shares of NSC were issued subsequent to the execution of the Option Agreement (causing the individual shareholder's 25% ownership interest in NSC to be decreased); and (ii) CW-Cooperatief did not exercise its share purchase option by February 7, 2014. CW-Cooperatief exercised its option and paid the $1.0 million to the individual shareholder to purchase the Option Agreement shares in February 2014.

​

In January 2018, EWG initiated an ordinary mercantile claim against the individual shareholder, NSC and CW-Cooperatief, (with AdR being named as a third party to be called to trial) before the Tenth Civil Judge in Tijuana, Baja California for Mercantile Matters (the "Tenth Civil Judge"). In the ordinary mercantile claim, EWG challenged, among other things, the transactions contemplated under the Option Agreement, and therefore, the capital investment transactions that increased the ownership interest of CW-Cooperatief in NSC to 99.99% as a consequence of the Option Agreement. EWG requested that the court, as a preliminary matter (a) suspend the effectiveness of the challenged transactions; (b) order certain public officials in Mexico to record the pendency of the lawsuit in the public records (including a special

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request to register a lien over the real estate owned by NSC); (c) appoint an inspector for NSC to oversee its commercial activities; and (d) order public officials in Mexico and credit institutions abroad to refrain from authorizing or executing any legal act related with the activities of the plaintiff, the co-defendants and the third party called to trial to avoid damages to third parties, including those with whom negotiations or any form of commercial or administrative activities, or activities of any other nature related with the "Rosarito" water desalination project, are being conducted. The Tenth Civil Judge granted, ex-parte, the preliminary relief sought by EWG, which resulted in the issuance of official writs to several governmental and public entities involved with the "Rosarito" water desalination project, including the registration of the pendency of the lawsuit in certain public records.

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On October 16, 2018, NSC was served with the ordinary mercantile claim. On November 7, 2018, NSC filed a legal response to the claim, vigorously opposing the claims made by EWG. In addition to such legal response, NSC filed (i) a request to submit the claim to arbitration, based on certain provisions of the by-laws of NSC, (ii) an appeal remedy against the preliminary relief (which was resolved in December 2019, and ordered the revocation of the order of the Tenth Civil Judge granting EWG the preliminary relief), and (iii) a request for the setting of a guarantee to release the preliminary relief granted in favor of EWG.

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On October 1, 2020, and following an order from a Federal Judge obtained by NSC, the Tenth Civil Judge resolved to (i) move the claim of EWG to arbitration, and (ii) suspend the corresponding ordinary mercantile procedure. EWG challenged such resolution, arguing that its notification was not lawful. The Tenth Civil Judge dismissed such challenge, and thereafter EWG filed a remedy against such dismissal. NSC appeared before the court to vigorously oppose such remedy, which has been dismissed. To date, the referral to arbitration has not occurred and, as such, the procedure is currently suspended.

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Notwithstanding the resolution of the Tenth Civil Judge to move to arbitration, subparagraphs a) and b) that follow describe certain separate amparo claims, and appeal remedies arising from or relating to such ordinary mercantile claim and amparo claims, all in chronological order. Due to the current global COVID-19 pandemic, most tribunals in Mexico suspended their activities intermittently since March 2020, with certain such tribunals partially restarting on different dates and with different special rules. As such, several resolutions are pending issuance.

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

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In July 2021, EWG filed an amparo claim against the resolution of the Tenth Civil Judge dismissing the remedy filed by EWG against the October 1, 2020resolution within the mentioned ordinary mercantile claim. NSC has filed before the corresponding amparo court a writ vigorously opposing this claim. Considering the foregoing, and that AdR was only named as a third party with interest, it is unnecessary for it to submit arguments against EWG in this claim. Further, CW-Cooperatief has not been notified of this amparo claim.

Within this amparo claim, the Third District Court in Tijuana granted a suspension in favor of EWG, merely for the effect of holding in place the referral to arbitration subject matter of the October 1, 2020 resolution mentioned above. Such suspension was conditioned on the posting by EWG of a guarantee in the amount of 50,000 Mexican pesos, which has not been posted. Regardless of the effects of the suspension and the lack of the posting of a guarantee, NSC has filed an appeal remedy against its granting.

Following a final hearing that took place in March 2022, a resolution dismissing this claim was issued and notified to NSC at the beginning of April 2022. From the publicly available information, it would seem that EWG failed to submit a remedy against such resolution within the applicable term, which expired at the end of April 2022. NSC has submitted a writ requesting an official confirmation on the expiration of such term without EWG having filed a remedy.

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

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