What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-14 compared with 2024-08-14 · 68 added, 94 removed, 267 unchanged (38% of the section changed)

62 unchanged sentences

We design, construct, and sell desalination infrastructure through DesalCo, which serves customers in the Cayman Islands, The Bahamas, and the British Virgin Islands.

We design, construct, and sell wastewater and water reuse infrastructure in the United States through PERC.

We design, construct, and sell wastewater and water reuse infrastructure in the United States through PERC and Kalaeloa Desalco.

Aerex, is a custom and specialty manufacturer in the United States of water treatment-related systems and products applicable to commercial, municipal and industrial water production.

4 unchanged sentences

We estimate total costs to be incurred and profit to be earned on each long-term, fixed price contract prior to commencement of work on the contract and update these estimates as work on the contract progresses.

The cumulative amount of revenue recorded on a contract at a specified point in time is that percentage of total estimated revenue that incurred costs to date comprise of estimated total contract costs.

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 comprised of estimated total contract costs.

Due to the extended time it may take to complete many of our contracts and the scope and nature of the work required to be performed on those contracts, the estimations of total revenue and costs at completion are complicated and subject to many variables and, accordingly, are subject to changes.

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“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2023 Form 10-K.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Discontinued Operations – Mexico Project Development

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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.

(“Suez MA”), a subsidiary of SUEZ International, S.A.S., and NuWater S.A.P.I.

(“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.

In November 2015, the State of Baja California (the “State”) officially commenced the public tender for the Project.

A consortium (the “Consortium”) comprised of NSC and two other parties 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 incorporated a new company under the name Aguas de Rosarito S.A.P.I.

(“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, we 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”), the Government of Baja California as represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana (“CESPT”).

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At the end of the operating period, ownership of 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 comprised 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.

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.

We believed CW-Cooperatief, as a Netherlands company, had 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”).

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We are presently in the process of legally terminating/dissolving CW-Cooperatief, NSC and AdR and will continue to incur expenses for these subsidiaries while such process is completed, but such expenses are not expected to be material to our consolidated results of operations.

Our net income from discontinued operations for the three months ended June 30, 2024 was $11,607,846 and the net loss from discontinued operations for the three months ended June 30, 2023 was ($207,701), respectively.

The net income reported from discontinued operations for 2024 reflects the gain generated from the sale of the Project land and project documentation under the Settlement Agreement.

Our net losses from discontinued operations for the three months ended September 30, 2024 and 2023 were ($502,854) and ($232,994), respectively.

Consolidated Results

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stockholders for 2024 was $4,454,464 ($0.28 per share on a fully diluted basis), as compared to net income of $8,605,129 ($0.54 per share on a fully diluted basis) for 2023.

The following discussion and analysis of our consolidated results of operations and results of operations by segment for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 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 September 30, 2024 as compared to the three months ended September 30, 2023 relates only to our continuing operations.

Net income from continuing operations attributable to Consolidated Water Co.

stockholders for 2024 was $4,957,318 ($0.31 per share on a fully diluted basis), as compared to net income from continuing operations of $8,838,123 ($0.55 per share on a fully diluted basis) for 2023.

Revenue for 2024 decreased to $32,479,158 from $44,237,263 in 2023, as a result of a significant revenue decrease in the services segment, consistent revenue in the bulk and manufacturing segments and a slight revenue increase in the retail segment.

Revenue for 2024 decreased to $33,390,557 from $49,854,075 in 2023, as a result of a significant revenue decrease in the services segment and a slight revenue decrease in the manufacturing segment.

Gross profit for 2024 was $11,634,658 (35% of total revenue) as compared to $16,614,428 (33% of total revenue) for 2023.

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General and administrative (“G&A”) expenses on a consolidated basis increased to $6,955,969 for 2024 as compared to $5,872,490 for 2023.

The increase in G&A expenses for 2024 relates to additional G&A expenses of approximately $299,000 attributable to REC, which was acquired in the fourth quarter of 2023 and an increase in audit, audit related and other professional fees of approximately $293,000.

Other income, net, increased to $418,426 for 2024 as compared to $129,131 for 2023 primarily due to approximately $295,000 of additional interest income resulting from higher late payment charges to our CW-Bahamas customer on delinquent accounts receivable balances and additional interest earned on higher balances of interest earning assets.

The increase in G&A expenses for 2024 arises principally from additional G&A expenses of approximately $430,000 attributable to REC, which was acquired in the fourth quarter of 2023 and an increase in audit, audit related and other professional fees of approximately $374,000.

Other income, net, increased to $724,040 for 2024 as compared to $236,066 for 2023 primarily due to approximately $430,000 of additional interest income resulting from additional interest earned on higher balances of interest earning

assets and higher late payment charges on delinquent accounts receivable balances due from the Water and Sewerage Corporation of The Bahamas (“WSC”).

Results by Segment

Retail Segment:

The retail segment contributed $126,805 to our income from operations for 2024.

The retail segment incurred a loss from operations of ($125,338) for 2023.

The retail segment incurred a loss from operations of ($178,846) for 2024 compared to a loss from operations of ($381,142) for 2023.

Revenue generated by our retail water operations increased to $7,585,992 in 2024 from $7,216,574 in 2023 due to a 4.2% increase in the volume of water sold.

We believe the increase in the volume of water sold in 2024 resulted in part from a 5.5% increase in the number of customer accounts in our license area from June 30, 2023 to June 30, 2024.

In addition, significantly less rainfall on Grand Cayman in 2024 for the months of April and May as compared to 2023 was also a contributor to the increase in water sold from 2023 to 2024.

We believe the increase in the volume of water sold in 2024 resulted from a 4.8% increase in the number of customer accounts in our license area from September 30, 2023 to September 30, 2024.

Retail segment gross profit increased to $3,979,048 (52% of retail revenue) for 2024 from $3,844,683 (53% of retail revenue) for 2023 due to the revenue increase.

Gross profit as a percentage of revenue declined slightly in 2024 as compared to 2023 due to an increase in energy costs and repairs and maintenance expenses aggregating approximately $186,000.

Consistent with prior periods, we record all non-direct G&A expenses in our retail segment and do not allocate any of these non-direct costs to our other three business segments.

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Bulk segment revenue was $8,767,168 and $8,488,615 for 2024 and 2023, respectively.

The slight decrease in bulk revenue from 2023 to 2024 reflects a decrease in the price of energy for CW-Bahamas, which decreased the energy pass-through component of CW-Bahamas’ rates.

The slight increase in bulk revenue from 2023 to 2024 reflects the impact of OC-Cayman’s new Red Gate II contract and an amendment of its North Sound contract, both of which became effective May 1, 2024.

Gross profit for our bulk segment was $2,797,876 (32% of bulk revenue) and $2,652,778 (31% of bulk revenue) for 2024 and 2023, respectively.

Gross profit as a percentage of revenue decreased in 2024 as compared to 2023 due to a reduction in the price of energy and an increase in repairs and maintenance expenses of almost $243,000.

Gross profit as a percentage of revenue increased slightly in 2024 as compared to 2023 due to higher revenue, efficiency improvements at OC-Cayman, and decreases in electricity costs and depreciation expense that slightly offset increased maintenance and insurance expenses.

Bulk segment G&A expenses remained relatively consistent at $381,230 for 2024 as compared to $347,668 for 2023.

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We recognized approximately $2.0 million and $20 million in construction revenue for the Liberty Utilities contract in 2024 and 2023, respectively.

This contract is substantially complete and we expect final completion of this contract by the end of the third quarter of 2024.

This contract was substantially completed as of June 30, 2024.

Revenue generated under operations and maintenance contracts increased to $7,492,121 in 2024 from $5,021,081 in 2023.

The acquisition of REC effective October 2023 constituted $1,921,819 of this operations and maintenance contracts revenue increase and the remainder of the increase related to new PERC contracts.

Revenue from REC, which was acquired in October 2023, constituted $2,140,143 of this operations and maintenance contracts revenue increase and the remainder of the increase related to new PERC contracts.

Gross profit for the services segment decreased to $3,268,512 (26% of services revenue) in 2024 from $9,253,019 (31% of services revenue) in 2023 due to the decreased revenue.

G&A expenses for the services segment increased to $1,196,624 for 2024 as compared to $904,560 for 2023 primarily due to the addition of REC’s G&A expenses of approximately $299,000.

G&A expenses for the services segment increased to $1,469,845 for 2024 as compared to $861,835 for 2023 primarily due to the addition of REC’s G&A expenses of approximately $430,000 and incremental employee expenses for PERC of almost $101,000 due to an increase in staff.

Manufacturing Segment:

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The increase in manufacturing gross profit in dollars and as a percentage of revenue results from a higher margin product mix.

G&A expenses for the manufacturing segment remained relatively consistent at $667,586 for 2024 as compared to $434,920 for 2023.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

G&A expenses for the manufacturing segment increased to $745,418 for 2024 as compared to $437,162 for 2023 due to a provision for credit losses of approximately $169,000 for 2024.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Discontinued Operations – Mexico Project Development

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and (ii) certain documentation for the Project for MXN$20,000,000.

We received the proceeds from the sale of the land and documentation in June 2024 and the MXN$596,144,000 received for the land was converted into US$31,959,685.

Our net income from discontinued operations for the six months ended June 30, 2024 was $11,140,780 and the net loss from discontinued operations for the three months ended June 30, 2023 was ($466,864), respectively.

We received the proceeds from the sale of the land and documentation in June 2024.

Our net income (loss) from discontinued operations for the nine months ended September 30, 2024 and 2023 was $10,637,926 and ($699,858), respectively.

The net income reported from discontinued operations for 2024 reflects the gain generated from the sale of the Project land and documentation under the Settlement Agreement.

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stockholders for 2024 was $26,779,069 ($1.68 per share on a fully diluted basis), as compared to net income of $19,742,526 ($1.24 per share on a fully diluted basis) for 2023.

The following discussion and analysis of our consolidated results of operations and results of operations by segment for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 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 nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 relates only to our continuing operations.

Net income from continuing operations attributable to Consolidated Water Co.

stockholders for 2024 was $16,141,143 ($1.01 per share on a fully diluted basis), as compared to a net income from continuing operations of $20,442,384 ($1.28 per share on a fully diluted basis) for 2023.

Revenue for 2024 decreased to $72,168,548 from $77,106,253 in 2023, reflecting a decrease in the services segment.

Revenue for 2024 decreased to $105,559,105 from $126,960,328 in 2023, reflecting a significant decline in revenue from our services segment.

Gross profit for 2024 was $37,132,895 (35% of total revenue) as compared to $42,637,059 (34% of total revenue) for 2023.

1 unchanged sentence

General and administrative (“G&A”) expenses on a consolidated basis increased to $20,126,292 for 2024 as compared to $17,894,067 for 2023.

The increase in G&A expenses for 2024 relates to additional G&A expenses of approximately $687,000 attributable to REC, which was acquired in the fourth quarter of 2023 and incremental audit, audit related and professional fees of approximately $348,000.

Other income, net, increased to $836,610 for 2024 from $286,190 for 2023 primarily due to approximately $515,000 of additional interest income resulting from higher late payment charges to our CW-Bahamas customer on delinquent accounts receivable balances and additional interest earned on higher balances of interest earning assets.

The increase in G&A expenses for 2024 relates to additional G&A expenses of approximately

$1,116,000 attributable to REC, which was acquired in the fourth quarter of 2023, and incremental audit, audit related and professional fees of approximately $721,000.

Other income, net, increased to $1,560,650 for 2024 from $522,256 for 2023 primarily due to $945,449 of additional interest income resulting from additional interest earned on higher balances of interest earning assets and higher late payment charges on delinquent accounts receivable balances due from the WSC.

Results by Segment

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The retail segment contributed $917,221 to our income from operations for 2024 and recorded a loss from operations of ($470,573) for 2023, respectively.

Revenue generated by our retail water operations increased to $16,806,822 in 2024 from $15,344,424 in 2023 due to an 8% increase in the volume of water sold.

We believe the increase in the volume of water sold in 2024 resulted in part from a 5.5% increase in the number of customer accounts in our license area from June 30, 2023 to June 30, 2024.

In addition, less rainfall on Grand Cayman in 2024 as compared to 2023 was also a contributor to the increase in water sold from 2023 to 2024.

Revenue generated by our retail water operations increased to $24,392,814 in 2024 from $22,560,998 in 2023 due to a 6.9% increase in the volume of water sold.

We believe the increase in the volume of water sold in 2024 resulted in part from a 4.8% increase in the number of customer accounts in our license area from September 30, 2023 to September 30, 2024

Retail segment gross profit increased to $13,564,393 (56% of retail revenue) for 2024 from $12,205,181 (54% of retail revenue) for 2023 due to the revenue increase.

Retail segment gross profit as a percentage of revenue increased in 2024 as compared to 2023 due to;

(i) the overall increase in water volume sold and (ii) the higher average rate we charged for water in 2024 due to significantly lower sales to the WAC which pays a lower rate for water compared to customers within our retail service area.

Retail segment gross profit as a percentage of revenue increased in 2024 as compared to 2023 due to the overall increase in water volume sold.

Consistent with prior periods, we record all non-direct G&A expenses in our retail segment and do not allocate any of these non-direct costs to our other three business segments.

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The decrease in bulk revenue from 2023 to 2024 reflects a decrease in the price of energy for CW-Bahamas, which decreased the energy pass-through component of CW-Bahamas’ rates.

Gross profit for our bulk segment was $5,127,334 (31% of bulk revenue) and $5,311,987 (30% of bulk revenue) for 2024 and 2023, respectively.

Gross profit as a percentage of revenue increased in 2024 as compared to 2023 due to reductions in various operating expenses, most notably chemicals.

Gross profit for our bulk segment remained consistent at $7,925,210 (31% of bulk revenue) and $7,964,765 (31% of bulk revenue) for 2024 and 2023, respectively.

Bulk segment G&A expenses remained relatively consistent at $1,088,639 for 2024 as compared to $1,080,543 for 2023.

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We recognized approximately $8.3 million and $44.1 million in construction revenue for the Liberty Utilities contract in 2024 and 2023, respectively.

This contract is substantially complete and we expect final completion of this contract by the end of the third quarter of 2024.

This contract was substantially completed as of June 30, 2024.

Revenue generated under operations and maintenance contracts increased to $21,660,396 in 2024 from $12,750,902 in 2023.

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Manufacturing gross profit was $4,162,176 (31% of manufacturing revenue) for 2024 as compared to a gross profit of $2,690,649 (22% of manufacturing revenue) for 2023.

The increase in manufacturing gross profit in dollars reflects the increase in revenue.

Gross profit as a percentage of revenue increased due to a higher margin product mix.

G&A expenses for the manufacturing segment remained relatively consistent at $1,185,288 for 2024 as compared to $852,828 for 2023.

The increase in manufacturing gross profit in dollars and as a percentage of revenue reflects the increase in revenue and a higher margin product mix.

G&A expenses for the manufacturing segment increased to $1,930,706 for 2024 as compared to $1,289,990 for 2023 primarily due to provisions for credit losses of approximately $395,000 in 2024.

FINANCIAL CONDITION

The significant changes in the components of our condensed consolidated balance sheet as of June 30, 2024 as compared to December 31, 2023 (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 $1.4 million primarily due to a $2.6 million increase in Aerex accounts receivables offset by a $1.4 million decrease in CW-Bahamas’ accounts receivable.

Current inventory decreased by approximately $1.5 million primarily due to a decrease in Aerex’s inventory due to the delivery of work orders that increased Aerex’s accounts receivable.

Prepaid expenses and other current assets decreased by approximately $1.1 million primarily due to a reduction of prepaid insurance and other expenses offset by an increase of approximately $436,000 in prepaid taxes.

Contract assets decreased by approximately $16.1 million primarily due to a $16.0 million decrease in the services segment contract assets.

Property, plant and equipment, net, decreased by approximately $1.5 million primarily due to the scheduled depreciation of fixed assets offset by new additions.

The significant changes in the components of our condensed consolidated balance sheet as of September 30, 2024 as compared to December 31, 2023 (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 $1.0 million primarily due to a $1.7 million decrease in CW-Bahamas’ accounts receivable and a decrease in retail segment accounts receivable of $706,000.

These decreases were slightly offset by an increase in Aerex’s accounts receivables.

Current inventory decreased by approximately $2.1 million primarily due to a decrease in Aerex’s inventory resulting from production activity.

Prepaid expenses and other current assets increased by approximately $1.6 million primarily due to an increase in prepaid insurance.

Contract assets decreased by approximately $19.6 million primarily due to a $16.5 million decrease in the services segment contract assets attributable to the completion of the Liberty Utilities and the Red Gate II projects.

Property, plant and equipment, net, decreased by approximately $2.7 million primarily due to the scheduled depreciation of fixed assets.

Operating lease right-of-use assets increased by approximately $1.2 million due to the renewal of the corporate office lease in Cayman Islands.

Accounts payable, accrued expenses and other liabilities decreased by approximately $3.5 million primarily due to a $4.8 decrease in subcontractor costs in the services segment.

Accounts payable, accrued expenses and other liabilities decreased by approximately $4.5 million primarily due to a $3.8 million decrease in subcontractor costs in the services segment.

Noncurrent operating leases increased by approximately $1.0 million due to the renewal of the corporate office lease in Cayman Islands.

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Liquidity Position

Our projected liquidity requirements for the balance of 2024 include capital expenditures for our existing operations of approximately $7.1 million, which includes approximately $2.5 million to be incurred for our new West Bay plant.

In addition, we plan to spend approximately $3.9 million during the balance of 2024 for other projects.

We paid approximately $1.6 million for dividends in July 2024.

Our projected liquidity requirements for the balance of 2024 include capital expenditures for our existing operations of approximately $3.8 million, which includes approximately $872,000 to be incurred for our new West Bay plant.

In addition, we plan to spend approximately $3.1 million during the balance of 2024 for a project in the Bahamas.

We paid approximately $1.8 million for dividends in October 2024.

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

As of June 30, 2024, we had cash and cash equivalents of $96.7 million and working capital of $131.2 million.

As of September 30, 2024, we had cash and cash equivalents of $104.9 million and working capital of $133.9 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 $25.4 million and $26.9 million as of June 30, 2024 and December 31, 2023, respectively.

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $25.1 million and $26.9 million as of September 30, 2024 and December 31, 2023, respectively.

Approximately 77% and 80% of the accounts receivable balances were delinquent as of those dates, respectively.

The delay in collecting these accounts receivable has adversely impacted the liquidity of this subsidiary.

CW-Bahamas has been unable to pay a dividend to its shareholders since August 2022 due to liquidity constraints.

From time to time (including presently), CW-Bahamas has experienced delays in collecting its accounts receivable from the WSC.

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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 June 30, 2024.

CW-Bahamas held discussions with the WSC in March 2024 and with representatives of The Bahamas Government in April 2024 during which CW-Bahamas was informed that the Government intends to substantially reduce CW-Bahamas’ accounts receivable from the WSC over the course of 2024.

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 September 30, 2024.

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 iterated these ratings in April and October 2023 and April 2024, noting that such ratings are “stable.” 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.

Moody’s has maintained these ratings through the date of its most current report issued in October 2024.

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.

If CW-Bahamas is unable to collect a sufficient portion of its delinquent accounts receivable, one or more of the following events may occur:

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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 Six Months Ended June 30, 2024

Our cash and cash equivalents increased to $96,670,206 as of June 30, 2024 from $42,621,898 as of December 31, 2023.

Discussion of Cash Flows for the Nine Months Ended September 30, 2024

Our cash and cash equivalents increased to $104,869,627 as of September 30, 2024 from $42,621,898 as of December 31, 2023.

Cash Flows from Operating Activities

Net cash provided by our operating activities was $37,257,555.

This net cash reflects the net income generated for the six months ended June 30, 2024 of $22,616,545 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 nine months ended September 30, 2024 of $27,227,793 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.

The more significant of such items and changes in working capital components included the gain from the sale of land and project documentation from discontinued operations of $12,134,766, depreciation and amortization of $3,342,337, an increase in accounts receivable of $1,672,589, a decrease in contract assets of $16,139,277, and a decrease in accounts payable, accrued expenses and other current liabilities of $3,503,625.

The more significant of such items and changes in working capital components included the gain from the sale of land and project documentation from discontinued operations of $12,134,766, depreciation and amortization of $5,020,410, a decrease in accounts receivable of $637,162, a decrease in contract assets of $19,594,696, and a decrease in accounts payable, accrued expenses and other current liabilities of $3,908,157.

Cash Flows from Investing Activities

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Net cash used by our financing activities was $4,892,012, almost all of which related to the payment of dividends.

Revolving Credit Facility

In September 2022, Cayman Water entered into an agreement (the “Credit Agreement”) with Scotiabank & Trust (Cayman) Ltd.

(the “Bank”) for a revolving credit facility in an aggregate principal amount of up to $10.0 million (the “Credit Facility”).

We expect to utilize the funds obtained from the Credit Facility for general working capital purposes.

The Credit Facility matures two years following the date of the initial advance (the “Maturity Date”).

All amounts outstanding under the Credit Facility are due and payable upon the earlier of the Maturity Date, demand from the bank or the acceleration of the Credit Facility upon an event of default.

The principal balance of the Credit Facility bears interest at a rate of 2.0% plus the secured overnight financing rate (“SOFR”) as determined by the SOFR Administrator for a one-month period on the day that is two days prior to the first day of the interest period.

All interest calculations will be made based on a 360-day year.

So long as the Bank has not demanded repayment, interest will be payable monthly, commencing one month from the initial advance, with the outstanding balance due on the Maturity Date, unless the Bank agrees to renew the Credit Facility for an additional period.

Cayman Water’s obligations under the Credit Agreement are secured by a first priority lien on all its fixed and floating assets and an assignment of insurance proceeds with respect to its fixed assets.

Further, the Company has guaranteed the repayment of all of Cayman Water’s present and future debts and liabilities owed to the Bank.

The Credit Agreement requires Cayman Water to meet certain financial covenants.

Cayman Water has not yet utilized any of its available borrowings under the Credit Facility.

Material Commitments, Expenditures and Contingencies

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Seven Mile Beach and West Bay.

For the three months ended June 30, 2024 and 2023, we generated approximately 25% and 17%, respectively, of our consolidated revenue and 39% and 27%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license.

For the six months ended June 30, 2024 and 2023, we generated approximately 23% and 20%, respectively, of our consolidated revenue and 38% and 32%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license.

For the three months ended September 30, 2024 and 2023, we generated approximately 23% and 14%, respectively, of our consolidated revenue and 34% and 23%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license.

For the nine months ended September 30, 2024 and 2023, we generated approximately 23% and 18%, respectively, of our consolidated revenue and 36% and 29%, 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.

7 unchanged sentences

We began license negotiations with OfReg in July 2017 and such negotiations are continuing.

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

We have been informed during our retail license negotiations, both by OfReg and its predecessor in these negotiations, that the Cayman Islands

government seeks to restructure the terms of our license in a manner that could significantly reduce the operating income and cash flows we have historically generated from our retail license.

The Cayman Islands government could seek to grant a third party a license to service some or all of Cayman Water’s present service area.

4 unchanged sentences

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 WSC is currently paying us under the contract.

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

The Windsor contract expires in 2033 and requires us to deliver 16.8 million gallons of water each week.

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

Adoption of New Accounting Standards

15 unchanged sentences

● On April 30, 2024, we paid a dividend of $0.095 to shareholders of record on April 1, 2024.

● On May 29, 2024, our Board declared a dividend of $0.095 payable on July 31, 2024 to shareholders of record on July 1, 2024.

● On July 31, 2024, we paid a dividend of $0.095 to shareholders of record on July 1, 2024.

● On August 20, 2024, our Board declared a dividend of $0.11 payable on October 31, 2024 to shareholders of record on October 1, 2024.

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

5 unchanged sentences

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

has occurred since that date) due to the lack of a resolution of our negotiations with OfReg for a new retail license.

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

This lack of a rate increase over the long-term 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.

Should the current inflationary trend continue, our consolidated results of operations and cash flows could be materially adversely affected.

In general, our operating and maintenance contracts are adjusted annually for the impacts of inflation.

While our operations and maintenance contracts are generally adjusted for inflation on an annual basis, such adjustment for some of these contracts is limited to 3% annually.

2 unchanged sentences

Increases in fuel and energy costs and other items could create additional credit risks for us, as our customers’ ability to pay our invoices could be adversely affected by such increases.

In periods of high inflation, our consolidated results of operations and cash flows could be materially adversely affected.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

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