What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-10 compared with 2026-05-11 · 166 added, 67 removed, 169 unchanged (58% of the section changed)

10 unchanged sentences

● our relationships with the government entities and other customers we serve;

● regulatory matters, including resolution of the negotiations for the renewal of our retail license on Grand Cayman;

● regulatory matters;

● our ability to successfully enter new markets;

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Construction or manufacturing contract costs that significantly exceed our initial estimates could have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.

Material Development and Entry into a Material Agreement

Prior to the License Date (as defined below), we sold water under a license issued in July 1990 by the Cayman Islands government (the “1990 License”) that granted Cayman Water the exclusive right to provide potable water to customers within its licensed service area.

For the three months ended June 30, 2026 and 2025, the Company generated approximately 26% and 26%, respectively, of its consolidated revenue and 44% and 38%, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 License.

For the six months ended June 30, 2026 and 2025, the Company generated approximately 27% and 27%, respectively, of its consolidated revenue and 45% and 42%, respectively, of its consolidated gross profit from the retail water operations conducted under the 1990 License.

The 1990 License was originally scheduled to expire in July 2010 but was extended several times by the Cayman Islands government to provide the parties with additional time to negotiate the terms of a new license agreement.

The most recent express extension of the 1990 License expired on January 31, 2018, and from that date until February 18, 2025, Cayman Water continued to operate under the terms of the 1990 License, treating such terms as operative notwithstanding the expiration of the express extension.

On February 18, 2025, Cayman Water received a concession from the Cayman Islands government that authorized and maintained the terms of the 1990 License until a new license was negotiated and enacted.

In 2016, the Cayman Islands government passed legislation creating the Utility Regulation and Competition Office (“OfReg”), which is an independent and accountable regulatory body charged with protecting the rights of consumers, encouraging affordable utility services and promoting competition.

Supplemental legislation passed in April 2017 transferred responsibility for the economic regulation of the water utility sector, including the negotiations with the Company for a new retail license, to OfReg.

We began negotiations with OfReg in 2017, which negotiations continued until the issuance of the License (as defined below).

We have previously disclosed that OfReg and its predecessor informed us during the negotiations that the Cayman Islands government sought to restructure the terms of the license in a manner that could significantly reduce the operating income and cash flows we have historically generated from the 1990 License.

On June 18, 2026, OfReg notified Cayman Water that, at a meeting held on June 11, 2026, the OfReg Board of Directors had approved the issuance to Cayman Water of a new license (the “License”) to produce and distribute potable water within its licensed service area (the “License Area”).

The License has a stated commencement date of August 1, 2026 (the “License Date”) and, subject to its terms and conditions, continues for a period of 25 years from the License Date.

The License establishes a long-term regulatory framework for our retail water operations in the License Area following an extended period of uncertainty and negotiations with OfReg.

Subject to the terms and conditions of the License, Cayman Water has the exclusive right to produce, distribute and sell potable water within the License Area during the license term, and the License requires Cayman Water to carry on the business normally conducted by a water utility in the License Area throughout the term of the License, using its best efforts to maintain sufficient water production capacities and distribution capabilities, and to plan for, serve and extend service to applicants in the License Area, subject to the terms of the License.

The License provides that Cayman Water’s base rates, monthly meter rental fees and certain other rates and charges will be as set forth in the License.

Effective on the License Date, the base rates for water sold to consumers by Cayman Water in the License Area will be CI$16.23 per 1,000 gallons for the first 3,000 gallons supplied in any month to residential consumers, CI$21.21 per 1,000 gallons for residential consumption above 3,000 gallons, CI$19.90 per 1,000 gallons for the first 3,000 gallons supplied in any month to commercial consumers, CI$21.21 per 1,000 gallons for commercial consumption above 3,000 gallons, CI$17.77 per 1,000 gallons for the first 3,000 gallons supplied in any month to public authority consumers, CI$19.01 per 1,000 gallons for public authority consumption above 3,000 gallons and CI$13.32 per 1,000 gallons for trucked water consumers.

The License also provides for monthly meter rental fees based on meter size, as well as annual adjustments to base rates and certain fees, effective each July 1 following the License Date, in accordance with the rate cap adjustment mechanism described in the License, subject to OfReg verification and approval requirements.

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

In addition to base rates and monthly meter rental fees, the License permits Cayman Water to recover from consumers, through a separate energy cost charge, the reasonable cost of electricity used to produce and distribute water, subject to an efficiency-based mechanism that limits recovery when specific energy consumption exceeds the maximum acceptable amount set forth in the License and shares certain efficiency savings with consumers when specific energy consumption is below the target level set forth in the License.

The License also contemplates statutory fee and regulatory fee charges as separate pass-through charges to consumers;

however, those fees have not yet been prescribed by the Cayman Islands Parliament.

The License contains customary regulatory provisions for Cayman Water’s water utility operations, including provisions relating to renewal, modification, assignability, revocation or suspension, accounts and financial reporting, regulatory access to information, design and construction of new works, water quality, metering, consumer protection, business continuity planning, dispute resolution and notices.

The License does not renew automatically upon expiration of its term, but Cayman Water may apply to OfReg for renewal not earlier than 36 months and not later than 24 months prior to the expiration of the term.

Neither the License nor any obligations or benefits conferred by it may be assigned or transferred in whole or in part without OfReg’s prior written consent.

The License may be modified by written consent of OfReg and Cayman Water, subject to any special conditions concerning modification set forth in the License.

The License also provides that OfReg must, immediately upon the direction of the Cabinet of the Cayman Islands, modify the License for reasons of security, public interest or health of the general population of the Cayman Islands, with or without Cayman Water’s agreement, and establishes procedures for other modifications proposed by OfReg.

The License may be revoked or suspended by OfReg upon the occurrence of specified events, including:

fundamental breach of the License;

persistent breaches of any condition attached to the License or failure to comply with applicable directives or water sector legislation;

certain insolvency events;

failure to pay specified fees or financial commitments for a continuous period in excess of three months after the relevant due date;

certain offences under the Water Sector

Regulation Act;

obtaining the License by a fraudulent, false or misleading representation or in another illegal manner;

or failure to meet demand in a reasonable manner and time, as determined by OfReg in its discretion, acting reasonably.

The License also contains provisions addressing suspension, reinstatement, revocation and, in certain circumstances following revocation or non-renewal, potential compulsory divestiture of all mechanical, electrical and other equipment and all civil engineering works or plant, including appurtenances, owned by Cayman Water and used by Cayman Water in its licensed water production and distribution operations, including completed new works.

Based on our pro forma estimates, if the base rates, energy cost charges and monthly meter rental fees contemplated by the License had been applied to Cayman Water’s historical volumes, historical energy cost and meter base, we estimate that our revenue and operating income would have been approximately $2.1 million, $1.9 million and $1.1 million lower for 2024, 2025 and the first six months of 2026, respectively, than under the prior rate structure.

These estimates are presented for illustrative purposes only;

are based on historical volumes, historical energy cost, historical meter base and other assumptions;

do not reflect statutory fee or regulatory fee charges that have not yet been prescribed;

and are not necessarily indicative of the revenue or results of operations that Cayman Water will achieve under the License.

RESULTS OF OPERATIONS

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“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2025 Form 10-K.

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

Consolidated Results

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See Note 5 of the Notes to the Condensed Consolidated Financial Statements for a discussion of our discontinued operations.

The following discussion and analysis of our consolidated results of operations and results of operations by segment for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025 relates only to our continuing operations.

The following discussion and analysis of our consolidated results of operations and results of operations by segment for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 relates only to our continuing operations.

Net income from continuing operations attributable to Consolidated Water Co.

stockholders for 2026 was $4,037,320 ($0.25 per share on a fully diluted basis), as compared to net income from continuing operations of $5,178,761 ($0.32 per share on a fully diluted basis) for 2025.

Revenue for 2026 decreased to $29,973,700 from $33,715,385 in 2025 as a result of revenue decreases in the manufacturing and retail segments, which were partially offset by revenue increases in the bulk and services segments.

Revenue for 2026 decreased to $32,870,362 from $33,591,079 in 2025 as a result of a revenue decrease in the manufacturing segment, which was partially offset by revenue increases in the retail, bulk and services segments.

Gross profit for 2026 was $10,963,389 (33% of total revenue) as compared to $12,831,985 (38% of total revenue) for 2025.

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General and administrative (“G&A”) expenses on a consolidated basis decreased to $7,243,022 for 2026 as compared to $7,580,238 for 2025.

An increase in employee costs of approximately $211,000 from 2025 to 2026 was more than offset by a decrease in professional fees and reductions in various other expenses.

Other income, net, remained relatively consistent at $739,566 for 2026 as compared to $688,891 for 2025.

The decrease was primarily due to a decrease in employee costs of approximately $206,000 from 2025 to 2026, as well as slight decreases in various other expenses.

Other income, net, decreased to $730,639 for 2026 as compared to $820,182 for 2025, primarily due to a decrease in interest earned on balances of interest-earning assets.

Results by Segment

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The retail segment generated $3,980,067 in income from operations for 2026 as compared to $3,877,491 for 2025.

Revenue generated by retail water operations remained consistent at $8,660,947 for 2026 as compared to $8,638,026 for 2025 despite an overall decrease of approximately 2% in the volume of water sold from 2025 to 2026.

The impact of this drop in the volume of water sold on 2026 revenue was mitigated by (i) an increase in the rate charged to a major non-potable water customer;

and (ii) an increase in the volume of water sold to this major non-potable water customer from 2025 to 2026.

Retail segment gross profit remained relatively consistent at $4,854,977 (56% of retail revenue) for 2026 as compared to $4,862,268 (56% of retail revenue) for 2025.

Retail G&A expenses decreased to $899,499 for 2026 compared to $985,617 for 2025 primarily due to incremental information technology expenses incurred in 2025.

Bulk Segment:

The bulk segment contributed $2,871,669 and $2,141,159 to our income from operations for 2026 and 2025, respectively.

Bulk segment revenue was $9,934,060 and $8,274,816 for 2026 and 2025, respectively.

The increase in revenue for 2026 results principally from an increase in the pass-through energy rate charged by CW-Bahamas which is attributable to an increase in energy costs from 2025 to 2026.

To a lesser extent, bulk revenue increased in 2026 due to revenue earned from CW-Bahamas’ new plants on Cat Island, The Bahamas.

Gross profit for our bulk segment increased to $3,211,816 (32% of bulk revenue) for 2026 as compared to $2,535,909 (31% of bulk revenue) for 2025.

The improvement in bulk segment gross profit reflects maintenance expenses that were approximately $302,000 lower in 2026 than in 2025 and decreases in other operating expenses.

Bulk segment G&A expenses also remained relatively consistent at $340,147 for 2026 as compared to $394,750 for 2025.

OC-Cayman’s agreements with the WAC to operate and maintain the North Sound and North Side Water Works plants were originally scheduled to expire on July 1, 2026.

The agreements have been extended through March 31, 2027.

Revenue recognized under the North Sound and North Side Water Works agreements for the three months ended June 30, 2026 was $325,659 and $406,617, respectively.

Services Segment:

The services segment generated $424,436 and $1,429,454 in income from operations for 2026 and 2025.

Services segment revenue was $11,585,573 for 2026 as compared to $11,448,202 for 2025.

Construction revenue increased to $5,338,043 for 2026 as compared to $2,825,935 for 2025 due to incremental revenue generated by a project in Colorado and a project in California.

Revenue generated under operations and maintenance (“O&M”) contracts decreased to $6,044,002 in 2026 as compared to $8,255,408 in 2025 due primarily to the expiration of PERC’s contracts with two customers in the first quarter of 2026.

These contracts in the aggregate generated approximately $1.9 million in revenue in 2025.

Design and consulting revenue decreased to $203,528 for 2026 from $366,859 for 2025.

Gross profit for the services segment decreased to $1,899,027 (16% of services revenue) in 2026 from $3,391,319 (30% of services revenue) in 2025 due to the decreases in O&M and design and consulting revenue.

G&A expenses for the services segment decreased to $1,474,321 for 2026 as compared to $1,993,042 for 2025 primarily due to a decrease in headcount that lowered employee costs by approximately $322,000.

In June 2023, we (through our subsidiary Kalaeloa Desalco) executed a contract with the Honolulu Board of Water Supply (“BWS”) to construct and operate a 1.7 million gallons per day seawater reverse osmosis desalination plant in Oahu, Hawaii, and since that time we have been engaged in the design and development phase for construction of the plant.

We have achieved major project milestones under this phase of the project, including (i) successful pilot plant testing, (ii) receipt of confirmation from BWS that we are able to produce water that is a “reasonable match” to the quality of BWS’s current water supply and that we are able to produce water that causes “no detrimental impact” to the BWS water system or their customers’ assets, and (iii) completion of the plant design.

We are required to obtain federal, state, regional and local permits, licenses and other government approvals as a condition to commencing and completing construction and initiating operations.

The permitting process for a project of this scale and complexity is inherently iterative and subject to review by multiple regulatory authorities, public comment procedures and, in certain instances, interagency coordination.

During the year ended December 31, 2025, and continuing through the time of the filing of this Quarterly Report on Form 10-Q, we and BWS have experienced delays in obtaining certain required permits and related governmental approvals.

These delays have resulted in a corresponding deferral of certain project milestones and a delay in the commencement of plant construction.

Pursuant to the terms of the contract, we are entitled to extensions of time for performance should delays arise from the failure to obtain required permits or other governmental approvals, provided that we have satisfied certain contractually specified conditions, including the exercise of all reasonable efforts to obtain such permits or other governmental approvals.

We believe that we have complied in all material respects with the contractual prerequisites necessary to obtain relief in respect of such delays.

BWS has granted change orders to Kalaeloa Desalco to reflect the impact of delays in the project schedule.

However, Kalaeloa Desalco may require additional change orders from BWS for pending governmental approvals to further extend the completion date of the plant construction and until such formal change orders, amendments or written confirmations are executed, there can be no assurance as to the timing, scope or terms of any such extensions, or if such extensions will be granted at all.

The ultimate duration and economic burden of the permitting process remain subject to factors outside of our control, including the workload and resource constraints of applicable regulatory authorities, the timing and outcome of required public processes, the resolution of technical comments or requests for supplemental information and the potential for administrative or judicial challenges.

To the extent that Kalaeloa Desalco does not receive the anticipated extensions of time, or if the extensions granted are insufficient to accommodate the full period of delay, Kalaeloa Desalco could be exposed to contractual remedies available to the BWS, which may include the assessment of liquidated damages, the withholding of milestone payments, or termination of the contract.

At the time of the filing of this Quarterly Report on Form 10-Q, Kalaeloa Desalco is continuing to advance the permitting process, respond to regulatory inquiries and coordinate with the BWS to mitigate project schedule impacts.

Kalaeloa Desalco also is evaluating potential adjustments to sequencing and procurement activities designed to reduce the effect of the delays on the overall project economics.

In July 2026, Kalaeloa Desalco received a Limited Notice to Proceed from BWS, authorizing the procurement of various long-lead equipment for the Kalaeloa seawater reverse osmosis desalination facility.

The Limited Notice to Proceed releases approximately $6 million in project funds, enabling Kalaeloa Desalco to procure critical long-lead equipment.

Although we do not currently expect the permitting delays to result in a material adverse effect on our consolidated financial position, the deferral of construction activities has shifted anticipated revenue recognition and associated cash flows related to the Hawaii desalination plant project into future periods.

We will continue to assess the impact of these developments on our estimates of total project costs, timing of performance obligations and variable consideration, and will update our disclosures as appropriate in future periodic or current reports.

Manufacturing Segment:

The manufacturing segment generated $478,497 and $1,511,937 in income from operations for 2026 and 2025.

Manufacturing revenue decreased to $2,689,782 for 2026, as compared to $5,230,035 for 2025.

The decrease in manufacturing revenue for 2026 resulted from a decrease in the total dollar amount of purchase orders.

We believe, based

on current projections, that manufacturing revenue for the full 2026 fiscal year will be less than the manufacturing revenue generated for the 2025 fiscal year.

Manufacturing gross profit decreased to $997,569 (37% of manufacturing revenue) for 2026 as compared to $2,042,489 (39% of manufacturing revenue) for 2025 due to the decrease in revenue.

G&A expenses for the manufacturing segment remained relatively consistent at $519,072 for 2026 as compared to $530,552 for 2025.

Corporate Segment:

Corporate G&A expenses increased to $4,009,983 for 2026 as compared to $3,676,277 for 2025 due to slight increases in various expense categories.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

Consolidated Results

Including discontinued operations, net income attributable to Consolidated Water Co.

stockholders for 2026 was $7,709,175 ($0.48 per share on a fully diluted basis), as compared to net income of $9,887,234 ($0.62 per share on a fully diluted basis) for 2025.

Our net losses from discontinued operations for 2026 and 2025 were ($148,616) and ($215,637), respectively.

See Note 5 of the Notes to the Condensed Consolidated Financial Statements for a discussion of our discontinued operations.

The following discussion and analysis of our consolidated results of operations and results of operations by segment for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 relates only to our continuing operations.

Net income from continuing operations attributable to Consolidated Water Co.

stockholders for 2026 was $7,857,791 ($0.49 per share on a fully diluted basis), as compared to net income from continuing operations of $10,102,871 ($0.63 per share on a fully diluted basis) for 2025.

Revenue for 2026 decreased to $62,844,062 from $67,306,464 in 2025 due to revenue decreases in the manufacturing segment and, to a lesser extent, the retail segment.

Gross profit for 2026 was $21,879,402 (35% of total revenue) as compared to $25,138,272 (37% of total revenue) for 2025.

For further discussion of revenue and gross profit see the “Results by Segment” discussion and analysis that follows.

General and administrative (“G&A”) expenses on a consolidated basis decreased to $14,662,090 for 2026 as compared to $15,304,197 for 2025 due to decreases in professional fees, amortization expense and the provision for credit losses.

Other income, net, decreased to $1,470,205 for 2026 as compared to $1,509,073 for 2025, primarily due to a decrease in interest earned on balances of interest-earning assets, offset by an increase in equity in earnings of affiliates.

Results by Segment

Retail Segment:

The retail segment generated $7,935,607 in income from operations for 2026 as compared to $8,823,934 for 2025.

Revenue generated by retail water operations decreased to $17,238,005 in 2026 from $18,049,368 in 2025 due to a 6.3% decrease in the volume of water sold.

The decrease in the volume of water sold in 2026 as compared to 2025 is attributable to significantly greater rainfall on Grand Cayman in 2026, as 2025 rainfall was well below historical norms.

As a result of the revenue decrease, retail segment gross profit decreased in both total dollars and as a percentage of revenue to $4,934,901 (58% of retail revenue) for 2026 as compared to $5,705,279 (61% of retail revenue) for 2025.

Retail G&A expenses increased to $902,607 for 2026 compared to $788,812 for 2025 primarily as a result of incremental employee costs of just over $74,000.

As a result of the decrease in revenue, retail segment gross profit decreased in total dollars and as a percentage of revenue to $9,789,878 (57% of retail revenue) for 2026 as compared to $10,567,547 (59% of retail revenue) for 2025.

Retail G&A expenses remained consistent at $1,802,106 for 2026 as compared to $1,774,429 for 2025.

Bulk Segment:

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Bulk segment revenue was $18,678,829 and $16,686,532 for 2026 and 2025, respectively.

The slight increase in revenue for 2026 is attributable principally to revenue earned by CW-Bahamas on the contract for its new plant on Cat Island.

Gross profit for our bulk segment was relatively consistent at $3,008,783 (34% of bulk revenue) for 2026 and $2,827,627 (34% of bulk revenue) for 2025.

Bulk segment G&A expenses also remained relatively consistent at $404,223 for 2026 as compared to $346,081 for 2025.

OC-Cayman’s agreements with the WAC for their North Sound and North Side Water Works plants expire on July 1, 2026.

We believe we will receive an extension of these agreements for sufficient time to allow the WAC to complete a formal tender process for the granting of new long-term agreements for these plants.

S ervices Segment:

The services segment generated $1,057,741 in income from operations for 2026 as compared to a loss from operations of ($180,488) for 2025.

The increase in revenue for 2026 results principally from an increase in the pass-through energy rate charged by CW-Bahamas which is attributable to an increase in energy costs from 2025 to 2026.

To a lesser extent, bulk revenue increased for 2026 due to revenue earned by CW-Bahamas from its new plants on Cat Island, The Bahamas.

Gross profit for our bulk segment increased to $6,220,599 (33% of bulk revenue) for 2026 from $5,363,536 (32% of bulk revenue) for 2025.

The improvement in bulk segment gross profit reflects insurance expense for CW-Bahamas that was approximately $226,000 lower in 2026 than in 2025.

Bulk segment G&A expenses also remained consistent at $744,370 for 2026 as compared to $740,831 for 2025.

OC-Cayman’s agreements with the WAC to operate and maintain the North Sound and North Side Water Works plants were originally scheduled to expire on July 1, 2026.

The agreements have been extended through March 31, 2027.

Revenue recognized under the North Sound and North Side Water Works agreements for the six months ended June 30, 2026 was $609,601 and $801,023, respectively.

Services Segment:

The services segment generated $1,482,177 and $1,248,966 in income from operations for 2026 and 2025.

Services segment revenue increased to $22,836,917 for 2026 from $21,526,470 for 2025.

Construction revenue remained relatively consistent at $2,101,137 for 2026 as compared to $2,218,230 for 2025.

Revenue generated under operations and maintenance (“O&M”) contracts increased to $8,888,458 in 2026 as compared to $7,725,298 in 2025.

One of PERC’s significant O&M contracts expired at the end of March 2026.

However, prior to this contract’s expiration the customer contracted for certain additional construction work and maintenance services that were completed in 2026.

These additional services amounted to $494,332 of the increase in O&M revenue from 2025 to 2026.

We recognized approximately $2,540,432 and $1,035,547 in revenue and gross profit, respectively, under this contract in 2026 and approximately $1,032,060 and $213,597 in revenue and gross profit, respectively, under this contract in 2025.

remainder of the increase in O&M revenue was attributable to a new contract obtained by PERC for a municipal customer in California.

Design and consulting revenue increased to $261,749 for 2026 from $134,740 for 2025.

Gross profit for the services segment increased to $2,824,188 (25% of services revenue) in 2026 from $2,016,391 (20% of services revenue) in 2025 due to the increase in O&M revenue.

G&A expenses for the services segment decreased to $1,785,996 for 2026 as compared to $2,195,338 for 2025 primarily due to a decrease in the provision for credit losses.

Construction revenue increased to $7,439,180 for 2026 as compared to $5,044,167 for 2025 due to incremental revenue generated by a project in Colorado and a project in California.

Revenue generated under O&M contracts decreased to $14,932,460 in 2026 as compared to $15,980,704 in 2025 due to the expiration of contracts with two significant customers of PERC.

Design and consulting revenue decreased to $465,277 for 2026 from $501,599 for 2025.

Gross profit for the services segment decreased to $4,723,215 (21% of services revenue) in 2026 from $5,407,710 (25% of services revenue) in 2025 due to the decrease in O&M revenue.

G&A expenses for the services segment decreased to $3,260,317 for 2026 as compared to $4,188,380 for 2025 primarily due to a decreases in (i) the provision for credit losses;

(ii) professional fees;

and (iii) the completion of the amortization of certain intangible assets associated with the acquisition of REC.

We have achieved major project milestones under this phase of the project, (i) including successful pilot plant testing, (ii) receipt of confirmation from BWS that we are able to produce water that is a “reasonable match” to the quality of BWS’s current water supply and that we are able to produce water that causes “no detrimental impact” to the BWS water system or their customers’ assets, and (iii) completion of the plant design.

We are required to obtain federal, state, regional and local permits, licenses and other government approvals as a condition to commencing and completing construction and initiating operations.

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Kalaeloa Desalco also is evaluating potential adjustments to sequencing and procurement activities designed to reduce the effect of the delays on the overall project economics.

The Limited Notice to Proceed releases approximately $6 million in project funds, enabling Kalaeloa Desalco to procure critical long-lead equipment.

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Manufacturing Segment:

The manufacturing segment incurred a loss from operations of ($337,767) in 2026 as compared to generating $1,092,912 in income from operations in 2025.

The manufacturing segment generated $140,730 and $2,604,849 in income from operations for 2026 and 2025.

Manufacturing revenue decreased to $4,090,311 for 2026, as compared to $11,044,094 for 2025.

The decrease in manufacturing revenue for 2026 resulted from a decrease in the total dollar amount of new purchase orders and, to a lesser extent, the timing of the receipt and the commencement of work on these new orders.

The decrease in manufacturing revenue for 2026 resulted from a decrease in the total dollar amount of new purchase orders.

We believe, based on current projections, that manufacturing revenue for the full 2026 fiscal year will be less than the manufacturing revenue generated for the 2025 fiscal year.

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Corporate Segment:

Corporate G&A expenses remained relatively consistent at $3,840,334 for 2026 as compared to $3,729,650 for 2025.

Corporate G&A expenses increased to $7,850,317 for 2026 as compared to $7,405,927 for 2025 due to an increase in directors’ fees and expenses and smaller increases in various other expenses.

FINANCIAL CONDITION

The significant changes in the components of our condensed consolidated balance sheet as of March 31, 2026 as compared to December 31, 2025 (other than the change in our cash and cash equivalents, which is discussed later in “LIQUIDITY AND CAPITAL RESOURCES”) and the reasons for these changes are discussed in the following paragraphs.

Accounts receivable increased by approximately $3.5 million primarily due to the $3.2 million increase in CW-Bahamas’ accounts receivable.

Contract assets decreased by approximately $2.0 million primarily due to a $1.1 million decrease in Aerex’s contract assets arising from reduced production activity and an $870,000 decrease in PERC’s contract assets.

Property, plant and equipment, net, increased by approximately $1.6 million primarily due to a transfer from construction in progress upon the completion of one of the CW-Bahamas’ Cat Island plants.

Construction in progress decreased by approximately $1.6 million, primarily due to the transfer for the Cat Island plant.

Contract liabilities increased by $1.3 million due to an $874,000 increase in PERC and a $567,000 increase in the Kalaeloa Desalco construction project.

The significant changes in the components of our condensed consolidated balance sheet as of June 30, 2026 as compared to December 31, 2025 (other than the change in our cash and cash equivalents, which is discussed later in “LIQUIDITY AND CAPITAL RESOURCES”) and the reasons for these changes are discussed in the following paragraphs.

Accounts receivable decreased by approximately $4.1 million primarily due to the $1.9 million decrease in CW-Bahamas’ accounts receivable and a $1.7 million decrease in PERC accounts receivable.

Property, plant and equipment, net, increased by approximately $4.3 million primarily due to a transfer from construction in progress upon the completion of the CW-Bahamas’ Cat Island plants.

Construction in progress decreased by approximately $2.6 million, primarily due to a $5.3 million transfer of the Cat Island plants to property, plant and equipment, offset by a $2.3 million increase for work underway on a Cayman Islands project.

LIQUIDITY AND CAPITAL RESOURCES

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Our projected liquidity requirements for the balance of 2026 include capital expenditures for our existing operations of approximately $4.8 million.

We paid approximately $2.3 million for dividends in April 2026.

We paid approximately $2.3 million for dividends in July 2026.

Our liquidity requirements may also include future quarterly dividends, if such dividends are declared by our Board.

As of March 31, 2026, we had cash and cash equivalents of $126.3 million and working capital of $144.3 million.

As of June 30, 2026, we had cash and cash equivalents of $132.6 million and working capital of $144.6 million.

With the exception of the liquidity matter relating to CW-Bahamas that is discussed in the paragraphs that follow, we are not presently aware of anything that would lead us to believe that we will not have sufficient liquidity to meet our needs.

CW-Bahamas Liquidity

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $23.9 million and $20.7 million as of March 31, 2026 and December 31, 2025, respectively.

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $18.8 million and $20.7 million as of June 30, 2026 and December 31, 2025, respectively.

Approximately 64% and 71% of the accounts receivable balances were delinquent as of those dates, respectively.

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All previous delinquent accounts receivable from the WSC, including accrued interest thereon, were eventually paid in full.

Based upon this payment history, we have not provided for a material allowance for credit losses for CW-Bahamas’ accounts receivable from the WSC as of March 31, 2026, or prior periods.

Based upon this payment history, we have not provided for a material allowance for credit losses for CW-Bahamas’ accounts receivable from the WSC as of June 30, 2026, or prior periods.

We continue to be in frequent contact with officials of The Bahamas government, who continue to express their intention to significantly reduce CW-Bahamas’ delinquent accounts receivable balances.

However, we are unable to determine when or if such reduction will occur.

In a report dated October 6, 2022, Moody’s Investor Services (“Moody’s”) downgraded The Bahamas’ long-term issuer and senior unsecured ratings to B1 from Ba3.

Moody’s also lowered The Bahamas’ local currency ceiling to Baa3 from Baa2 and its foreign currency ceiling to Ba1 from Baa3.

Moody’s has maintained these ratings through the date of its most current report issued in April 2025.

In a report dated April 30, 2026, Moody’s Investor Services (“Moody’s”) upgraded The Bahamas’ long-term issuer and senior unsecured ratings to Ba3 from B1.

Moody’s also raised The Bahamas’ local currency ceiling to Baa2 from Baa3

and its foreign currency ceiling to Baa3 from Ba1.

Based upon our review of this Moody’s correspondence, we continue to believe that no material allowance for credit losses is required for CW-Bahamas’ accounts receivable from the WSC.

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Any of these events could have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.

Discussion of Cash Flows for the Three Months Ended March 31, 2026

Our cash and cash equivalents increased to $126,331,873 as of March 31, 2026 from $123,788,390 as of December 31, 2025.

Discussion of Cash Flows for the Six Months Ended June 30, 2026

Our cash and cash equivalents increased to $132,629,006 as of June 30, 2026 from $123,788,390 as of December 31, 2025.

Cash Flows from Operating Activities

Net cash provided by our operating activities was $18,571,275.

This net cash reflects the net income generated for the three months ended March 31, 2026 of $3,933,564 as adjusted for (i) various items included in the determination of net income that do not affect cash flows during the year;

This net cash reflects the net income generated for the six months ended June 30, 2026 of $8,035,569 as adjusted for (i) various items included in the determination of net income that do not affect cash flows during the year;

and (ii) changes in the other components of working capital.

Significant adjustments included depreciation and amortization of $1,754,705, an increase in accounts receivable of $3,453,459, a decrease in prepaid expenses and other assets of $1,564,843, a decrease in contract assets of $1,996,967, and an increase in contract liabilities of $1,346,535.

Significant adjustments included depreciation and amortization of $3,532,983, a decrease in accounts receivable of $4,173,373, a decrease in prepaid expenses and other assets of $890,957, and an increase in accounts payable, accrued expenses and other current liabilities of $1,409,231.

Cash Flows from Investing Activities

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Material Commitments, Expenditures and Contingencies

Cayman Water Retail License

We sell water through our retail operations under a license issued in July 1990 by the Cayman Islands government (the “1990 license”) that granted Cayman Water the exclusive right to provide potable water to customers within its licensed service area.

Pursuant to the 1990 license, Cayman Water has the exclusive right to produce potable water and distribute it by pipeline to its licensed service area, which consists of two of the three most populated areas of Grand Cayman Island:

Seven Mile Beach and West Bay.

For the three months ended March 31, 2026 and 2025, we generated approximately 29% and 28%, respectively, of our consolidated revenue and 45% and 46%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license.

The 1990 license was originally scheduled to expire in July 2010 but was extended several times by the Cayman Islands government to provide the parties with additional time to negotiate the terms of a new license agreement.

The most recent express extension of the license expired on January 31, 2018.

From that date until February 18, 2025, we continued to operate under the terms of the 1990 license, treating such terms as operative notwithstanding the expiration of the express extension.

We continued to pay a royalty of 7.5% of the revenue we collect as required under the 1990 license.

In October 2016, the Government of the Cayman Islands passed legislation which created a new utilities regulation and competition office (“OfReg”) and in April 2017 passed supplemental legislation which transferred responsibility for economic regulation of the water utility sector and the negotiations with us for a new retail license to OfReg.

Under the new regulatory legislation passed in October 2016, Cayman Water was required to first be granted a concession by the government before obtaining a new (or renewing the old) retail operations license.

On February 18, 2025, Cayman Water received a new concession from the government that authorizes and maintains the terms of the 1990 license until a new license from OfReg is negotiated and enacted.

Negotiations between Cayman Water and OfReg for the new license remain on-going.

We have been informed during our retail license negotiations, both by OfReg and its predecessor in these negotiations, that they seek to restructure the terms of its license in a manner that could significantly reduce the operating income and cash flows we have historically generated from our retail license.

We are presently unable to determine what impact the resolution of our retail license negotiations will have on our consolidated financial condition, results of operations, or cash flows but such resolution could result in a material reduction (or the loss) of the operating income and cash flows we have historically generated from our retail operations and could require us to record impairment losses to reduce the carrying values of our retail segment assets.

Such impairment losses could have a material adverse impact on our consolidated financial condition and results of operations .

CW-Bahamas Supply Guarantees

Our contracts to supply water to the WSC from our Blue Hills and Windsor plants require us to guarantee delivery of a minimum quantity of water per week.

If the WSC requires the water and we do not meet this minimum, we are required to pay the WSC for the difference between the minimum and actual gallons delivered at a per gallon rate equal to the price per gallon that the WSC is currently paying us under the contract.

Our contracts to supply water to the WSC from our Blue Hills, Windsor and Cat Island plants require us to guarantee delivery of a minimum quantity of water per week.

The Blue Hills contract expires in 2032 and requires us to deliver 63.0 million gallons of water each week.

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We have been in compliance with the performance guarantees under these contracts for all periods since the inception of the contracts.

The Cat Island contract expires in 2041 and requires the two plants located in Bennett’s Harbour and New Bight to deliver 504,000 gallons of water each week per plant.

Adoption of New Accounting Standards

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The ASU requires public companies to disclose, in the notes to financial statements, specific information about certain costs and expenses at each interim and annual reporting period.

The amended ASU is effective on a prospective basis for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

The ASU is effective on a prospective basis for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

We are currently evaluating the impact of this guidance on our financial statements.

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● On April 30, 2026, we paid a dividend of $0.14 to shareholders of record on April 1, 2026.

● On June 2, 2026, our Board declared a dividend of $0.14 payable on July 31, 2026 to shareholders of record on July 1, 2026.

We have paid dividends to owners of our common stock and redeemable preferred stock since we began declaring dividends in 1985.

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Therefore, the impact of inflation on our gross profit from these revenue sources, measured in consistent dollars, historically has not been material.

However, while we have received annual inflation adjustments for the rates we charge under our bulk water agreements, we have not applied to increase the water rates for Cayman Water since January 2018 (despite the inflation that has occurred since that date) due to the delayed resolution of our negotiations with OfReg for a new retail license.

While we believe that we are entitled to apply to OfReg for future rate adjustments under the terms of the February 18, 2025 concession agreement with the Cayman Islands government, the denial by OfReg of such application or approval of an increase that is less than the increase in our costs could adversely affect the profitability of our retail segment.

We had not increased the water rates for Cayman Water since January 2018 (despite the inflation that has occurred since that date) due to the pendency of our negotiations with OfReg for a new retail license.

Under the License issued by OfReg in June 2026 and effective as of the License Date of August 1, 2026, Cayman Water’s base rates are subject to annual adjustment beginning each July 1 following the License Date in accordance with the rate cap adjustment mechanism described in the License, subject to OfReg verification and approval requirements.

Denial by OfReg of any requested rate adjustment, or approval of an adjustment that is less than the increase in our costs, could adversely affect the profitability of our retail segment.

Furthermore, our manufacturing segment has in the past been adversely impacted by significant increases in raw material costs, and our manufacturing and services segments could suffer similar adverse impacts in the future.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis