What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-11 compared with 2025-05-12 · 127 added, 65 removed, 206 unchanged (48% of the section changed)

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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 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.

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

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

We recognize revenue for our construction and our specialized/custom manufacturing contracts over time under the input method using costs incurred (which represents work performed) to date relative to the total estimated costs at completion to measure progress toward satisfying a contract’s performance obligations, as such measure best reflects the transfer of control of the promised good to the customer.

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included under Part I, Item 1.

“Financial Statements” of this Quarterly Report and our consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for our fiscal year ended December 31, 2024 (“2024 Form 10-K”) and the

information set forth under Item 7.

“Financial Statements” of this Quarterly Report and our consolidated financial statements and accompanying notes

included in our Annual Report on Form 10-K for our fiscal year ended December 31, 2024 (“2024 Form 10-K”) and the information set forth under Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2024 Form 10-K.

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024

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.

In November 2015, the State of Baja California (the “State”) officially commenced the public tender for the Project, and in June 2016 a consortium comprised of NSC and two other parties was selected by the State as the winner of the tender process for the Project.

In November 2015, the State of Baja California (the “State”) officially commenced a public tender for the Project, and in June 2016 a consortium comprised of NSC and two other parties was selected by the State as the winner of the tender process for the Project.

NSC subsequently formed AdR to pursue the completion of the Project.

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In February 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.

In May 2024, we, through CW-Cooperatief, NSC, and AdR entered into a settlement agreement (the “Settlement Agreement”) with the State and Banco Nacional de Obras y Servicios Públicos, S.N.C., as trustee under the trust agreement

for the trust named Fondo Nacional de Infraestructura (the “Trust”).

In May 2024, we, through CW-Cooperatief, NSC, and AdR, entered into a settlement agreement (the “Settlement Agreement”) with the State and Banco Nacional de Obras y Servicios Públicos, S.N.C., as trustee under the trust agreement for the trust named Fondo Nacional de Infraestructura (the “Trust”).

Under the Settlement Agreement, CW-Cooperatief requested that ICSID discontinue the arbitration and on May 31, 2024, ICSID issued an order discontinuing the arbitration.

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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.

Our net losses from discontinued operations for the three months ended March 31, 2025 and 2024 were ($133,081) and ($467,066), respectively.

Our net loss from discontinued operations for the three months ended June 30, 2025 was ($82,556).

We generated net income from discontinued operations of $11,607,846 for the three months ended June 30, 2024 as a result of the Settlement Agreement discussed previously.

Consolidated Results

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stockholders for 2025 was $5,096,205 ($0.32 per share on a fully diluted basis), as compared to net income of $15,850,257 ($0.99 per share on a fully diluted basis) for 2024.

The following discussion and analysis of our consolidated results of operations and results of operations by segment for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 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, 2025 as compared to the three months ended June 30, 2024 relates only to our continuing operations.

Net income from continuing operations attributable to Consolidated Water Co.

stockholders for 2025 was $5,178,761 ($0.32 per share on a fully diluted basis), as compared to net income from continuing operations of $4,242,411 ($0.26 per share on a fully diluted basis) for 2024.

Revenue for 2025 decreased to $33,715,385 from $39,689,390 in 2024, as a result of a significant decrease in services segment revenue.

Revenue for 2025 increased to $33,591,079 from $32,479,158 in 2024, as a result of revenue increases in the retail and manufacturing segments.

These increases were partially offset by a decline in revenue for both the services and bulk segments.

Gross profit for 2025 was $12,831,985 (38% of total revenue) as compared to $11,620,214 (36% of total revenue) for 2024.

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General and administrative (“G&A”) expenses on a consolidated basis increased to $7,580,238 for 2025 as compared to $6,606,294 for 2024.

The increase in G&A expenses for 2025 arises principally from incremental (i) employee costs of $665,396 attributable to new hires and salary increases;

and (ii) information technology expenses of $141,592 resulting from the in-process implementation of a new billing system for our retail operations.

Other income, net, increased to $820,182 for 2025 as compared to $418,426 for 2024 primarily due to approximately $376,000 of additional interest income resulting from additional interest earned on higher balances of interest earning assets.

Results by Segment

Retail Segment:

The retail segment generated $3,877,491 in income from operations for 2025 as compared to $3,723,917 for 2024.

Revenue generated by retail water operations increased to $8,638,026 in 2025 from $8,181,884 in 2024 due to a 7% increase in the volume of water sold.

We believe significantly lower rainfall amounts on Grand Cayman in 2025 as compared to 2024 was the principal reason for the increase in the volume of water sold in 2025.

As a result of the revenue increase, retail segment gross profit increased in both total dollars and as a percentage of revenue to $4,862,268 (56% of retail revenue) for 2025 from $4,511,751 (55% of retail revenue) for 2024.

Retail G&A expenses increased to $985,617 for 2025 compared to $781,706 for 2024 principally due to information technology expenses of $141,592 resulting from the in-process implementation of a new billing system.

Bulk Segment:

The bulk segment generated $2,141,159 and $1,987,230 in income from operations for 2025 and 2024, respectively.

Bulk segment revenue was $8,274,816 and $8,447,958 for 2025 and 2024, respectively.

The decrease in bulk revenue from 2024 to 2025 resulted from lower diesel fuel prices, which decreased the pass-through energy component of CW-Bahamas’ rates.

Gross profit for our bulk segment increased to $2,535,909 (31% of bulk revenue) for 2025 as compared to $2,350,498 (28% of bulk revenue) for 2024 due to improved plant efficiency and slight reductions in various operating expenses.

Bulk segment G&A expenses remained relatively consistent at $394,750 for 2025 as compared to $363,268 for 2024.

S ervices Segment:

The services segment generated $1,429,454 and $2,270,308 in income from operations for 2025 and 2024, respectively.

Services segment revenue decreased to $11,448,202 for 2025 from $11,922,469 for 2024.

Construction revenue declined to $2,825,935 as compared to $4,004,072 for 2024 as a result of a $1.0 million decrease in revenue recognized for the Hawaii project due to the completion of the pilot plant testing phase of the project, which resulted in a decrease in project expenditures pending commencement of the construction phase of the project.

Revenue generated under operations and maintenance contracts increased to $8,255,408 for 2025 as compared to $7,068,922 for 2024 as a result of incremental revenue generated by both PERC and REC.

Design and consulting revenue decreased to $366,859 in 2025 from $849,475 in 2024.

Gross profit for the services segment decreased to $3,391,319 (30% of services revenue) in 2025 from $3,463,932 (29% of services revenue) in 2024 due to the overall decline in revenue.

During 2025, we adjusted our previous estimate of the total costs to be incurred for one construction contract.

This change in accounting estimate resulted in an increase in the services segment’s revenue, gross profit and income from operations of $167,904 for 2025 under the input method we use to account for construction contracts.

G&A expenses for the services segment increased to $1,993,042 for 2025 as compared to $1,196,624 for 2024 primarily due to incremental employee costs of $649,976 attributable to new hires and salary increases and a net increase of $108,286 in the provision for credit losses.

Manufacturing Segment:

The manufacturing segment contributed $1,511,937 and $626,447 to our income from operations in 2025 and 2024, respectively.

Manufacturing revenue increased to $5,230,035 from $3,926,847 for 2025 and 2024, respectively, due to increased production activity.

Manufacturing gross profit was $2,042,489 (39% of manufacturing revenue) for 2025 as compared to a gross profit of $1,294,033 (33% of manufacturing revenue) for 2024.

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

In addition, d uring 2025 we adjusted our previous estimates of the total costs to be incurred for two manufacturing contracts.

These changes in accounting estimates resulted in an increase in the manufacturing segment’s revenue, gross profit and income from operations of $445,150 for 2025 under the input method we use to account for manufacturing contracts.

G&A expenses for the manufacturing segment decreased slightly to $530,552 for 2025 as compared to $667,586 for 2024.

Corporate G&A expenses remained relatively consistent at $3,676,277 for 2025 as compared to $3,597,110 for 2024.

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

Discontinued Operations – Mexico Project Development

As discussed previously, on June 30, 2020 the State of Baja California cancelled its APP Contract with AdR for the Project.

As a result of the cancellation of the Project, we discontinued all development activities associated with the Project, commenced marketing efforts to sell the land NSC purchased for the Project, and initiated international arbitration against the Government of Mexico to recover the costs we had incurred for the Project.

In May 2024, we executed a Settlement Agreement with the State pursuant to which we discontinued the arbitration in exchange for the purchase by the State (i) of the land for the Project for MXN$596,144,000;

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.

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.

Our net loss from discontinued operations for the six months ended June 30, 2025 was ($215,637).

We generated net income from discontinued operations of $11,140,780 for the six months ended June 30, 2024 as a result of the Settlement Agreement discussed previously.

Consolidated Results

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

stockholders for 2025 was $9,887,234 ($0.62 per share on a fully diluted basis), as compared to net income of $22,324,605 ($1.40 per share on a fully diluted basis) for 2024.

The following discussion and analysis of our consolidated results of operations and results of operations by segment for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024 relates only to our continuing operations.

Net income from continuing operations attributable to Consolidated Water Co.

stockholders for 2025 was $10,102,871 ($0.63 per share on a fully diluted basis), as compared to net income from continuing operations of $11,183,825 ($0.70 per share on a fully diluted basis) for 2024.

Revenue for 2025 decreased to $67,306,464 from $72,168,548 in 2024.

Increases in revenue for the retail and manufacturing segments were more than offset by a significant decrease in the services segment revenue.

Gross profit for 2025 was $25,138,272 (37% of total revenue) as compared to $25,498,237 (35% of total revenue) for 2024.

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

G&A expenses on a consolidated basis increased to $15,304,197 for 2025 as compared to $13,170,323 for 2024.

The increase in G&A expenses for 2025 arises principally from (i) incremental legal costs and other professional fees totaling $537,215 (which includes $139,000 in costs related to a legal settlement);

(ii) added employee costs of $356,909 attributable to new hires, salary increases and a retirement payment of $158,000 made to a former executive;

(ii) added employee costs of $1.0 million attributable to new hires, salary increases and a retirement payment of $158,000 made to a former executive;

and (iii) a net increase of approximately $171,000 in the provision for credit losses.

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Revenue generated by our retail water operations increased to $18,049,368 in 2025 from $16,806,822 in 2024 due to a 10% increase in the volume of water sold.

We believe significantly lower rainfall amounts in 2025 on Grand Cayman as compared to 2024 was the principal reason for the increase in the volume of water sold in 2025.

As a result of the revenue increase, retail segment gross profit increased in both total dollars and as a percentage of revenue to $10,567,547 (59% of retail revenue) for 2025 from $9,585,345 (57% of retail revenue) for 2024.

Retail G&A expenses remained relatively consistent at $788,812 for 2025 as compared to $766,698 for 2024.

Retail G&A expenses increased to $1,774,429 for 2025 compared to $1,548,404 for 2024 due to approximately $142,000 incurred for the in-process implementation of a new billing system.

Bulk Segment:

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Bulk segment revenue was $16,686,532 and $16,790,052 for 2025 and 2024, respectively.

The slight increase in bulk revenue from 2024 to 2025 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.

The increase in revenue from both of these contracts offsets a decrease in revenue for CW-Bahamas resulting from lower energy prices, which decreased the pass-through energy component of CW-Bahamas rates.

Consistent with the increase in revenue, gross profit for our bulk segment increased slightly to $2,827,627 (34% of bulk revenue) for 2025 as compared to $2,776,836 (33% of bulk revenue) for 2024.

The decrease in bulk revenue from 2024 to 2025 resulted from lower diesel fuel prices, which decreased the pass-through energy component of CW-Bahamas’ rates.

Gross profit for our bulk segment improved slightly to $5,363,536 (32% of bulk revenue) for 2025 as compared to $5,127,334 (31% of bulk revenue) for 2024, primarily as a result of improved plant efficiency and lower operating costs.

Bulk segment G&A expenses remained relatively consistent at $740,831 for 2025 as compared to $707,409 for 2024.

S ervices Segment:

The services segment incurred a loss from operations of ($180,488) for 2025, as compared to generating income from operations of $3,150,818 for 2025.

The services segment generated $1,248,966 and $5,421,126 in income from operations for 2025 and 2024, respectively.

Services segment revenue decreased to $21,526,470 for 2025 from $29,340,080 for 2024.

Construction revenue declined to $2,218,230 for 2025 as compared to $9,203,662 for 2024.

Construction revenue for 2024 was significantly greater due to $4.8 million of additional revenue generated from PERC’s contract with Liberty Utilities.

Such contract was substantially completed in the second quarter of 2024.

Construction revenue declined to $5,044,167 for 2025 as compared to $13,381,536 for 2024 primarily as a result of $6.2 million of additional revenue generated from PERC’s contract with Liberty Utilities and $1.1 million in additional revenue generated from the Red Gate contract in 2024.

Such contracts were substantially completed in the second quarter of 2024.

Construction revenue recognized on the Hawaii contract also declined by $2.1 million in 2025 due to the completion of the pilot plant testing phase of the project, which resulted in a decrease in project expenditures pending commencement of the construction phase of the project.

These decreases in construction revenue were partially offset by construction revenue generated under new contracts.

Revenue generated under operations and maintenance contracts increased to $15,980,704 for 2025 as compared to $14,168,275 for 2024 as a result of incremental revenue generated by both PERC and REC.

Gross profit for the services segment decreased to $2,016,391 (20% of services revenue) in 2025 from $4,748,672 (27% of services revenue) in 2024 due to the substantial decline in construction revenue.

G&A expenses for the services segment increased to $2,195,338 for 2025 as compared to $1,597,854 for 2024 primarily due to incremental legal costs and other professional fees of $251,713 (which includes $139,000 in costs related to a legal settlement) and a net increase of approximately $183,000 in the provision for credit losses.

Design and consulting revenue decreased to $501,599 in 2025 from $1,790,269 in 2024 due to the completion of a large consulting contract in December 2024 that generated $1.3 million in the six months ended June 30, 2024.

Gross profit for the services segment decreased to $5,407,710 (25% of services revenue) in 2025 from $8,212,604 (28% of services revenue) in 2024 due to the substantial decline in construction and design and consulting revenue.

During 2025, we adjusted our previous estimate of the total costs to be incurred for one construction contract.

G&A expenses for the services segment increased to $4,188,380 for 2025 as compared to $2,794,478 for 2024 primarily due to an increase of $718,212 of added employee costs attributable to new hires, salary increases, incremental legal costs and other professional fees of $267,098 (which includes $139,000 in costs related to a legal settlement) and a net increase of approximately $291,000 in the provision for credit losses.

Manufacturing Segment:

The manufacturing segment contributed $2,604,849 and $1,387,666 to our income from operations in 2025 and 2024, respectively.

Manufacturing revenue increased to $5,814,059 from $5,304,747 for 2025 and 2024, respectively, due to increased production activity.

Manufacturing gross profit was $1,756,990 (30% of manufacturing revenue) for 2025 as compared to a gross profit of $1,278,921 (24% of manufacturing revenue) for 2024.

Manufacturing revenue increased to $11,044,094 in 2025 from $9,231,594 for 2024 due to increased production activity.

Manufacturing gross profit was $3,799,479 (34% of manufacturing revenue) for 2025 as compared to $2,572,954 (28% of manufacturing revenue) for 2024.

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

In addition, d uring 2025 we adjusted our previous estimates of the total costs to be incurred for two manufacturing contracts.

G&A expenses for the manufacturing segment remained relatively consistent at $1,194,630 for 2025 as compared to $1,185,288 for 2024.

Corporate G&A expenses increased to $3,729,650 for 2025 as compared to $3,337,634 for 2024 due to approximately $205,000 in incremental employee costs arising from pay raises and a retirement payment of $158,000 made to a former executive and incremental legal costs and other professional fees of $177,431.

Corporate G&A expenses increased to $7,405,927 for 2025 as compared to $6,934,744 for 2024 due to a retirement payment of approximately $158,000 made to a former executive and incremental legal, audit and other professional fees of approximately $232,000.

FINANCIAL CONDITION

The significant changes in the components of our condensed consolidated balance sheet as of March 31, 2025 as compared to December 31, 2024 (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 $3.4 million primarily due to a $2.9 million decrease in CW-Bahamas’ accounts receivable as well as decreases in the services and manufacturing segments accounts receivable of $618,603 and $434,779, respectively.

These decreases were offset by an increase in the retail segment accounts receivable of $495,835.

Current inventory decreased by approximately $1.8 million primarily due to a decrease of $2.6 million in Aerex’s inventory resulting from production activity, which was partially offset by an increase in PERC’s current inventory of $658,848.

Prepaid expenses and other current assets decreased by approximately $980,000 primarily due to a decrease in prepaid insurance.

Contract assets increased by approximately $5.0 million primarily due to a $4.9 million increase in the manufacturing segment contract assets attributable to work started in the first quarter for one major client.

Property, plant and equipment, net, increased by approximately $1.1 million primarily due to the expansion of the new West Bay plant in Cayman Islands.

Contract liabilities increased by $3.3 million primarily due to one PERC construction project.

The significant changes in the components of our condensed consolidated balance sheet as of June 30, 2025 as compared to December 31, 2024 (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 $2.4 million primarily due to a $1.5 million increase in the manufacturing segment accounts receivable as well as an increase in the CW-Bahamas accounts receivable of approximately $876,000.

Current inventory decreased by approximately $2.8 million primarily due to a decrease of $3.7 million in Aerex’s inventory resulting from increased production activity, which was partially offset by an increase in PERC’s current inventory of approximately $905,000.

Prepaid expenses and other current assets decreased by approximately $1.6 million primarily due to the amortization of prepaid insurance premiums.

Contract assets increased by approximately $1.3 million primarily due to a $1.9 million increase in the manufacturing segment contract assets attributable to work started in the first quarter for one major client and an increase in PERC’s contract assets of approximately $419,000.

These increases were partially offset by a decrease of approximately $1.1 million in DesalCo’s contract assets due to the collection of the final payment on the Red Gate plant.

Property, plant and equipment, net, increased by approximately $1.3 million primarily due to the expansion of the new West Bay plant in Cayman Islands as well as a specialized equipment truck purchased for the services segment.

Construction in progress increased by approximately $1.4 million primarily due to $1.8 million spent on the expansion of the Aerex manufacturing facility and $1.1 million spent on CW-Bahamas’ plant construction on Cat Island.

These increases were offset by a reduction of $1.4 million due to the additional capitalization of the expansion of the West Bay plant.

Accounts payable, accrued expenses and other liabilities increased by approximately $3.7 million primarily due to $3.4 million increase in CW-Bahamas accounts payable.

Contract liabilities increased by $3.8 million primarily due to the Kalaeloa Desalco construction project.

LIQUIDITY AND CAPITAL RESOURCES

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Consequently, should we be required (or elect) to transfer any profits generated by our U.S.

subsidiaries from U.S.

operations to our company in the Cayman Islands, we would be required to pay a withholding tax of 30% on the amount of any such funds transferred.

subsidiaries to our parent company in the Cayman Islands, we would be required to pay a withholding tax of 30% on the amount of any such funds transferred.

Liquidity Position

Our projected liquidity requirements for 2025 include capital expenditures for our existing operations of approximately $9.1 million, which includes approximately $800,000 to be incurred during 2025 for a project in The Bahamas and $1.2 million for the expansion of Aerex's manufacturing facility.

We paid approximately $1.8 million for dividends in April 2025.

Our projected liquidity requirements for the balance of 2025 include capital expenditures for our existing operations of approximately $8.5 million, which includes approximately $1.5 million to be incurred during 2025 for a project in The Bahamas and $700,000 for the expansion of Aerex's manufacturing facility.

We paid approximately $2.3 million for dividends in July 2025.

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

As of March 31, 2025, we had cash and cash equivalents of $107.9 million and working capital of $136.2 million.

As of June 30, 2025, we had cash and cash equivalents of $112.2 million and working capital of $137.4 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 $25.5 million and $28.4 million as of March 31, 2025 and December 31, 2024, respectively.

Approximately 78% and 81% of

the accounts receivable balances were delinquent as of those dates, respectively.

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $29.3 million and $28.4 million as of June 30, 2025 and December 31, 2024, respectively.

Approximately 81% 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.

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

When these delays occur, we hold discussions and meetings with representatives of the WSC and The Bahamas government.

When these delays occur, we hold discussions and meetings with representatives of the WSC and the government of The Bahamas.

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, 2025.

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, 2025.

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

however, we cannot provide any assurance as to when such reduction will occur.

However, we are unable to determine when 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.

Moody’s has maintained these ratings through the date of its most

current report issued in April 2025.

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, 2025

Our cash and cash equivalents increased to $107,852,232 as of March 31, 2025 from $99,350,121 as of December 31, 2024.

Discussion of Cash Flows for the Six Months Ended June 30, 2025

Our cash and cash equivalents increased to $112,246,599 as of June 30, 2025 from $99,350,121 as of December 31, 2024.

Cash Flows from Operating Activities

Net cash provided by our operating activities was $20,523,005.

This net cash reflects the net income generated for the three months ended March 31, 2025 of $4,956,456 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, 2025 of $10,182,039 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 depreciation and amortization of $1,692,546, a decrease in accounts receivable of $3,075,968, an increase in contract assets of $5,047,425 and an increase in contract liabilities of $3,275,143.

The more significant of such items and changes in working capital components included depreciation and amortization of $3,400,039, an increase in accounts receivable of $2,752,672, an increase in contract assets of $1,288,787, an increase in contract liabilities of $3,772,012 and an increase in accounts payable, accrued expenses and other current liabilities of $3,074,188.

Cash Flows from Investing Activities

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Seven Mile Beach and West Bay.

For the three months ended March 31, 2025 and 2024, we generated approximately 28% and 22%, respectively, of our consolidated revenue and 46% and 37%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license.

For the three months ended June 30, 2025 and 2024, we generated approximately 26% and 25%, respectively, of our consolidated revenue and 38% and 39%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license.

For the six months ended June 30, 2025 and 2024, we generated approximately 27% and 23%, respectively, of our consolidated revenue and 42% and 38%, 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, providing water services to the level and quality specified in the 1990 license and in accordance with our understanding of its legal obligations, treating those obligations set forth in the 1990 license as operative notwithstanding the expiration of the express extension.

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”).

OfReg is an independent and accountable regulatory body with a view of protecting the rights of consumers, encouraging affordable utility services and promoting competition.

OfReg, which began operations in January 2017, has the ability to supervise, monitor and regulate multiple utility undertakings and markets.

Supplemental legislation was passed by the Government of the Cayman Islands in April 2017, which transferred responsibility for economic regulation of the water utility sector and the retail license negotiations from the WAC to OfReg in May 2017.

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 they seek 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.

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 is negotiated and enacted.

Negotiations between Cayman Water and OfReg for the new license have recently recommenced.

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

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 .

9 unchanged sentences

The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid.

The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024.

Early adoption is permitted.

The ASU became effective on a prospective basis for annual periods beginning after December 15, 2024.

The adoption of ASU 2023-09 did not have a material impact on our consolidated financial position, results of operations or cash flows.

11 unchanged sentences

● On April 30, 2025, we paid a dividend of $0.11 to shareholders of record on April 1, 2025.

● On May 28, 2025, our Board declared a dividend of $0.14 payable on July 31, 2025 to shareholders of record on July 1, 2025.

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

8 unchanged sentences

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.

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.

Kalaeloa Desalco has signed a definitive agreement with the Honolulu Board of Water Supply to design, construct, operate and maintain a 1.7 million gallons per day seawater reverse osmosis desalination plant in Oahu, Hawaii.

Approximately 80% of the $147 million price for the construction of this plant is subject to adjustment based upon changes in inflation indices from the date the contract was executed to the date construction begins.

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

Kalaeloa Desalco has signed a contract with the Honolulu Board of Water Supply pursuant to which it is presently designing and expects to construct and operate a 1.7 million gallons per day seawater reverse osmosis desalination plant in Oahu, Hawaii.

Approximately 80% of the $147 million price for the construction of this plant is subject to adjustment based upon changes in inflation indices from the date the contract was signed to the date construction begins.

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.

3 unchanged sentences

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