Consolidated Water Q3 net income falls to $2.32M
Cayman Water’s new license has a 25-year term, with annual rate adjustments subject to OfReg verification and approval.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Consolidated Water Co. Ltd. (CWCO) reported third-quarter 2026 revenue of $30,922,537, versus $35,118,706 in 2025, and net income attributable to its stockholders of $2,322,270, versus $5,532,344. Gross profit was $9,818,063, compared with $12,945,909.
Cayman Water’s new retail license commenced August 1, 2026, for a 25-year term. It sets base rates, permits annual adjustments subject to OfReg verification and approval, and allows an energy-cost charge subject to an efficiency-based mechanism. On October 8, 2026, PERC entered a design-build agreement with the City of Pismo Beach for a fixed price of approximately $39.8 million, subject to adjustment. At September 30, 2026, contracts with original expected lengths greater than one year had approximately $168.2 million of unsatisfied performance obligations; CWCO expects approximately $5.8 million during the rest of 2026 and approximately $162.4 million thereafter.
Nine-month operating cash flow was $19,112,575, versus $35,932,833 in 2025; cash and equivalents were $129,150,692 as of September 30, 2026. At that date, CW-Bahamas had $23.5 million in receivables from the Water and Sewerage Corporation of The Bahamas, approximately 64% delinquent. CWCO says insufficient collection could materially affect its financial condition, results and cash flows.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- None.
Negative
- Moderate pointThird-quarter revenue was $30,922,537, versus $35,118,706 in 2025.
- Moderate pointStockholder net income was $2,322,270, versus $5,532,344 in 2025.
- Moderate pointNine-month operating cash flow was $19,112,575, versus $35,932,833 in 2025.
- Moderate pointBahamas utility receivables were $23.5 million; approximately 64% were delinquent.
Filing Explained
At September 30, 2026, common shares outstanding were 16,015,573 versus 15,945,233 at December 31, 2025, reducing existing holders’ ownership absent offsets.
This Form 10-Q reports that OC-Cayman’s North Sound and North Side plant operations-and-maintenance agreements are extended through
As of
OHLA filed a cross-complaint against PERC on
Key Figures
Key Terms
reverse osmosis technology technical
input method financial
unsatisfied performance obligations financial
rate cap adjustment mechanism regulatory
energy cost charge regulatory
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
What were CWCO’s third-quarter 2026 revenue and net income?
What does CWCO’s new Cayman Water license provide?
How much is CWCO’s Pismo Beach water facility agreement?
AI-generated analysis. How Rhea-AI works. Not financial advice.
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ___________ to ___________
Commission File Number:
(Exact name of registrant as specified in its charter)
CAYMAN ISLANDS | | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) |
| |
|
| |
| ||
| ||
| ||
| ||
N/A | ||
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes
As of November 4, 2026,
Table of Contents
TABLE OF CONTENTS
| | | |
| Description | | Page |
PART I | FINANCIAL INFORMATION | | 4 |
Item 1 | Financial Statements | | 4 |
| Condensed Consolidated Balance Sheets as of September 30, 2026 (Unaudited) and December 31, 2025 | | 4 |
| Condensed Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2026 and 2025 | | 5 |
| Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2026 and 2025 | | 6 |
| Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2026 and 2025 | | 8 |
| Notes to Condensed Consolidated Financial Statements (Unaudited) | | 9 |
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 27 |
Item 3 | Quantitative and Qualitative Disclosures about Market Risk | | 40 |
Item 4 | Controls and Procedures | | 40 |
| | | |
PART II | OTHER INFORMATION | | 41 |
Item 1 | Legal Proceedings | | 41 |
Item 1A | Risk Factors | | 41 |
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | | 43 |
Item 5 | Other Information | | 43 |
Item 6 | Exhibits | | 44 |
| | | |
SIGNATURES | | 45 | |
2
Table of Contents
Note Regarding Currency and Exchange Rates
Unless otherwise indicated, all references to “$” or “US$” are to United States dollars.
The exchange rate for conversion of Cayman Islands dollars (CI$) into US$, as determined by the Cayman Islands Monetary Authority, has been fixed since April 1974 at US$1.20 per CI$1.00.
The exchange rate for conversion of Bahamas dollars (B$) into US$, as determined by the Central Bank of The Bahamas, has been fixed since 1973 at US$1.00 per B$1.00.
The official currency of the British Virgin Islands is the US$.
3
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | |
| | | September 30, | | | December 31, |
| | | 2026 | | | 2025 |
| | (Unaudited) | | | | |
ASSETS |
| | |
| | |
Current assets |
| | |
| | |
Cash and cash equivalents | | $ | | | $ | |
Accounts receivable, net | |
| | |
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Inventory | |
| | |
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Prepaid expenses and other current assets | |
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Contract assets | |
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Current assets of discontinued operations | |
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Total current assets | | | | |
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Property, plant and equipment, net | |
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Construction in progress | |
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Inventory, noncurrent | |
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Investment in affiliates | |
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Goodwill | |
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Intangible assets, net | |
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Operating lease right-of-use assets | | | | | | |
Other assets | |
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Total assets | | $ | | | $ | |
| | | | | | |
LIABILITIES AND EQUITY | |
| | |
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Current liabilities | |
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Accounts payable, accrued expenses and other current liabilities | | $ | | | $ | |
Accrued compensation | |
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Dividends payable | |
| | |
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Current maturities of operating leases | | | | | | |
Current portion of long-term debt | | | | | | |
Contract liabilities | |
| | |
| |
Deferred revenue | | | | | | |
Current liabilities of discontinued operations | |
| | |
| |
Total current liabilities | |
| | |
| |
Long-term debt, noncurrent | | | | | | |
Deferred tax liabilities | |
| | |
| |
Noncurrent operating leases | | | | | | |
Other liabilities | |
| | |
| |
Total liabilities | |
| | |
| |
Commitments and contingencies | |
| | |
| |
Equity | |
| | |
| |
Consolidated Water Co. Ltd. stockholders' equity | |
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Redeemable preferred stock, $ | |
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Common stock, $ | |
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Additional paid-in capital | |
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Retained earnings | |
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Total Consolidated Water Co. Ltd. stockholders' equity | |
| | |
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Non-controlling interests | |
| | |
| |
Total equity | |
| | |
| |
Total liabilities and equity | | $ | | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Table of Contents
CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
| | | | | | | | | | | | |
| | Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
| | 2026 | | 2025 |
| 2026 | | 2025 | ||||
Revenue | | $ | | | $ | | | $ | | | $ | |
Cost of revenue | |
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| |
Gross profit | |
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General and administrative expenses | |
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Gain (loss) on asset dispositions, net | |
| ( | |
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| ( | |
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Income from operations | |
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Other income (expense): | |
| | |
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Interest income | |
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Interest expense | |
| ( | |
| ( | |
| ( | |
| ( |
Equity in the earnings of affiliates | |
| | |
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Other | |
| | |
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| |
Other income, net | |
| | |
| | |
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| |
Income before income taxes | |
| | |
| | |
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| |
Provision for income taxes | |
| | |
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| | |
| |
Net income from continuing operations | |
| | |
| | |
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| |
Income from continuing operations attributable to non-controlling interests | |
| | |
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| |
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders | |
| | |
| | |
| | |
| |
Net loss from discontinued operations | | | ( | | | ( | | | ( | | | ( |
Net income attributable to Consolidated Water Co. Ltd. stockholders | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Basic earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders | |
| | |
| | |
| | |
| |
Continuing operations | | $ | | | $ | | | $ | | | $ | |
Discontinued operations | | | ( | | | ( | | | ( | | | ( |
Basic earnings per share | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Diluted earnings (loss) per common share attributable to Consolidated Water Co. Ltd. common stockholders | |
| | |
| | |
| | |
| |
Continuing operations | | $ | | | $ | | | $ | | | $ | |
Discontinued operations | | | ( | | | ( | | | ( | | | ( |
Diluted earnings per share | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Dividends declared per common and redeemable preferred shares | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Weighted average number of common shares used in the determination of: | |
| | |
| | |
| | |
| |
Basic earnings per share | |
| | |
| | |
| | |
| |
Diluted earnings per share | |
| | |
| | |
| | |
| |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Table of Contents
CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | |
| | Redeemable | | | | | | | Additional | | | | | Non- | | Total | ||||||
| | preferred stock | | Common stock | | paid-in | | Retained | | controlling | | stockholders’ | ||||||||||
| | Shares | | Dollars | | Shares | | Dollars | | capital | | earnings | | interests | | equity | ||||||
Balance as of December 31, 2025 | | | | $ | | | | | $ | | | $ | | | $ | | | $ | | | $ | |
Issue of share capital |
| — |
| | — |
| |
| | |
| | ( |
| | — |
| | — |
| | — |
Conversion of preferred stock |
| ( | |
| ( |
| | |
| | |
| — | |
| — | |
| — | |
| — |
Redemption of preferred stock |
| ( | |
| ( |
| — | |
| — | |
| ( | |
| — | |
| — | |
| ( |
Net income |
| — |
| | — |
| — |
| | — |
| | — |
| | |
| | |
| | |
Dividends declared |
| — |
| | — |
| — |
| | — |
| | — |
| | ( |
| | — |
| | ( |
Stock-based compensation |
| — |
| | — |
| — |
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| | — |
| | — |
| | |
Balance as of March 31, 2026 |
| | | | |
| | | | | | | | | | | | | | | | |
Issue of share capital |
| |
| | |
| — |
| | — |
| | ( |
| | — |
| | — |
| | — |
Redemption of preferred stock | | ( | | | ( | | — | | | — | | | ( | | | — | | | — | | | ( |
Net income |
| — |
| | — |
| — |
| | — |
| | — |
| | |
| | |
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Exercise of options | | | | | | | — | | | — | | | | | | — | | | — | | | |
Dividends declared |
| — |
| | — |
| — |
| | — |
| | — |
| | ( |
| | — |
| | ( |
Stock-based compensation |
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| | — |
| | — |
| | |
Balance as of June 30, 2026 |
| | | | |
| | | | | | | | | | | | | | | | |
Conversion of preferred stock | | ( | | | ( | | | | | | | | — | | | — | | | — | | | — |
Redemption of preferred stock | | ( | | | ( | | — | | | — | | | ( | | | — | | | — | | | ( |
Net income |
| — |
| | — |
| — |
| | — |
| | — |
| | |
| | |
| | |
Exercise of options | | | | | | | | | | | | | | | | — | | | — | | | |
Dividends declared |
| — |
| | — |
| — |
| | — |
| | — |
| | ( |
| | ( |
| | ( |
Stock-based compensation |
| — |
| | — |
| — |
| | — |
| | |
| | — |
| | — |
| | |
Balance as of September 30, 2026 |
| | | $ | |
| | | $ | | | $ | | | $ | | | $ | | | $ | |
6
Table of Contents
| | | | | | | | | | | | | | | | | | | | | | |
| | Redeemable | | | | | | | Additional | | | | | Non- | | Total | ||||||
| | preferred stock | | Common stock | | paid-in | | Retained | | controlling | | stockholders’ | ||||||||||
| | Shares | | Dollars | | Shares | | Dollars | | capital | | earnings | | interests | | equity | ||||||
Balance as of December 31, 2024 | | | | $ | | | | | $ | | | $ | | | $ | | | $ | | | $ | |
Issue of share capital |
| — |
| | — |
| |
| | |
| | ( |
| | — |
| | — |
| | — |
Conversion of preferred stock |
| ( | |
| ( |
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| — | |
| — | |
| — | |
| — |
Redemption of preferred stock |
| ( | |
| ( |
| — | |
| — | |
| ( | |
| — | |
| — | |
| ( |
Net income |
| — |
| | — |
| — |
| | — |
| | — |
| | |
| | |
| | |
Exercise of options | | — | | | — | | | | | | | | | | | | | | | | | |
Dividends declared |
| — |
| | — |
| — |
| | — |
| | — |
| | ( |
| | — |
| | ( |
Stock-based compensation |
| — |
| | — |
| — |
| | — |
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Balance as of March 31, 2025 |
| | | | |
| | | | | | | | | | | | | | | | |
Issue of share capital |
| |
| | |
| — |
| | — |
| | ( |
| | — |
| | — | | | — |
Redemption of preferred stock | | ( | | | ( | | — | | | — | | | ( | | | — | | | — | | | ( |
Net income |
| — |
| | — |
| — |
| | — |
| | — |
| | |
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Exercise of options | | | | | | | — | | | — | | | | | | — | | | — | | | |
Dividends declared |
| — |
| | — |
| — |
| | — |
| | — |
| | ( |
| | — | | | ( |
Stock-based compensation |
| — |
| | — |
| — |
| | — |
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| | — |
| | — | | | |
Balance as of June 30, 2025 |
| | | | |
| | | | | | | | | | | | | | | | |
Issue of share capital |
| — |
| | — |
| |
| | |
| | ( |
| | — |
| | — | | | — |
Conversion of preferred stock | | ( | | | ( | | | | | | | | — | | | — | | | — | | | — |
Redemption of preferred stock | | ( | | | ( | | — | | | — | | | ( | | | — | | | — | | | ( |
Net income |
| — |
| | — |
| — |
| | — |
| | — |
| | |
| | | | | |
Exercise of options | | | | | | | | | | | | | | | | — | | | — | | | |
Dividends declared |
| — |
| | — |
| — |
| | — |
| | — |
| | ( |
| | — | | | ( |
Stock-based compensation |
| — |
| | — |
| — |
| | — |
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| | — |
| | — | | | |
Balance as of September 30, 2025 |
| | | $ | |
| | | $ | | | $ | | | $ | | | $ | | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Table of Contents
CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | |
|
| Nine Months Ended September 30, | ||||
|
| 2026 | | 2025 | ||
Cash flows from operating activities | | | |
| | |
Net income attributable to Consolidated Water Co. Ltd. stockholders | | $ | | | $ | |
Income from continuing operations attributable to non-controlling interests | | | | | | |
Net income | | | | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| |
Foreign currency transaction adjustment - discontinued operations | | | — | | | |
Loss from discontinued operations | |
| | |
| |
Depreciation and amortization | |
| | |
| |
Deferred income tax benefit | |
| ( | |
| ( |
Provision for credit losses | | | | | | |
Amortization of operating lease right-of-use assets | | | | | | |
Compensation expense relating to stock and stock option grants | |
| | |
| |
Loss (gain) on asset dispositions, net | |
| | |
| ( |
Equity in earnings of affiliates | |
| ( | |
| ( |
Distribution of earnings from OC-BVI | |
| | |
| |
| | | | | | |
Change in: | |
| | |
| |
Accounts receivable | |
| | |
| |
Contract assets | | | | | | ( |
Inventory | |
| ( | |
| |
Prepaid expenses and other assets | |
| ( | |
| ( |
Accounts payable, accrued expenses and other current liabilities | |
| | |
| ( |
Accrued compensation | | | | | | |
Contract liabilities | | | | | | |
Operating lease liabilities | | | ( | | | ( |
Deferred revenue | | | ( | | | ( |
Other liabilities | | | ( | | | — |
Net cash provided by operating activities - continuing operations | | | | | | |
Net cash used in operating activities - discontinued operations | |
| ( | |
| ( |
Net cash provided by operating activities | | | | | | |
| | | | | | |
Cash flows from investing activities | |
| | |
| |
Additions to property, plant and equipment and construction in progress | |
| ( | |
| ( |
Proceeds from asset dispositions | |
| | |
| |
Net cash used in investing activities | | | ( | | | ( |
| | | | | | |
Cash flows from financing activities | |
| | |
| |
Dividends paid to common shareholders | |
| ( | |
| ( |
Dividends paid to preferred shareholders | |
| ( | |
| ( |
Dividends paid to non-controlling interests | | | ( | | | — |
Redemption of preferred stock | |
| ( | |
| ( |
Proceeds received from exercise of stock options | | | | | | |
Principal repayments on long-term debt | | | ( | | | ( |
Net cash used in financing activities | |
| ( | |
| ( |
Net increase in cash and cash equivalents | |
| | |
| |
Cash and cash equivalents at beginning of period | |
| | |
| |
Cash and cash equivalents at beginning of period - discontinued operations | | | | | | |
Less: cash and cash equivalents at end of period - discontinued operations | | | ( | | | ( |
Cash and cash equivalents at end of period | | $ | | | $ | |
| | | | | | |
Non-cash transactions: | | | | | | |
Dividends declared but not paid | | $ | | | $ | |
Transfers from inventory to property, plant and equipment and construction in progress | | $ | | | $ | |
Transfers from construction in progress to property, plant and equipment | | $ | | | $ | |
Right-of-use assets obtained in exchange for new operating lease liabilities | | $ | | | $ | |
Transfers from prepaid expenses to property, plant and equipment | | $ | | | $ | |
Expenditures for property, plant and equipment and construction in progress not yet paid | | $ | | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
Table of Contents
CONSOLIDATED WATER CO. LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Principal activity
Consolidated Water Co. Ltd. and its subsidiaries (collectively, the “Company”) supply potable water, treat wastewater and water for reuse, and provide water-related products and services to customers in the Cayman Islands, The Bahamas, the United States and the British Virgin Islands. The Company produces potable water from seawater using reverse osmosis technology and sells this water to a variety of customers, including public utilities, commercial and tourist properties, residential properties and government facilities. The Company designs, constructs and sells water production and water treatment infrastructure and manages water infrastructure for commercial and governmental customers. The Company also manufactures a wide range of specialized and custom water industry related products and provides design, engineering, operating and other services applicable to commercial, municipal and industrial water production, supply and treatment.
2. Accounting policies
Basis of consolidation: The accompanying condensed consolidated financial statements include the accounts of the Company’s (i) wholly-owned subsidiaries, Aerex Industries, Inc. (“Aerex”), Aquilex, Inc. (“Aquilex”), Cayman Water Company Limited (“Cayman Water”), Consolidated Water Cooperatief, U.A. (“CW-Cooperatief”), Consolidated Water U.S. Holdings, Inc. (“CW-Holdings”), DesalCo Limited (“DesalCo”), Kalaeloa Desalco LLC (“Kalaeloa Desalco”), Ocean Conversion (Cayman) Limited (“OC-Cayman”), PERC Water Corporation ("PERC") and Ramey Environmental Compliance, Inc. (“REC”); and (ii) majority-owned subsidiaries Consolidated Water (Bahamas) Ltd. (“CW-Bahamas”), N.S.C. Agua, S.A. de C.V. (“NSC”), and Aguas de Rosarito S.A.P.I. de C.V. (“AdR”). The Company’s investment in its affiliate Ocean Conversion (BVI) Ltd. (“OC-BVI”) is accounted for using the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation.
The accompanying interim condensed consolidated financial statements are unaudited. These condensed consolidated financial statements reflect all adjustments (which are of a normal recurring nature) that, in the opinion of management, are necessary to fairly present the Company’s consolidated financial position, results of operations and cash flows as of and for the periods presented. The consolidated results of operations for these interim periods are not necessarily indicative of the operating results for future periods, including the fiscal year ending December 31, 2026.
These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) relating to interim financial statements and in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted in these condensed consolidated financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
Foreign currency: The Company’s reporting currency is the United States dollar (“US$”). The functional currency of the Company and its foreign operating subsidiaries (other than NSC, AdR, and CW-Cooperatief) is the currency for each respective country. The functional currency for NSC, AdR, and CW-Cooperatief is the US$. NSC and AdR conduct business in US$ and Mexican pesos and CW-Cooperatief conducts business in US$ and euros. The exchange rates for the Cayman Islands dollar and the Bahamian dollar are fixed to the US$. The exchange rates for conversion of Mexican pesos and euros into US$ vary based upon market conditions.
Net foreign currency gains arising from transactions and re-measurements were $
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Cash and cash equivalents: Cash and cash equivalents consist of demand deposits at banks, certificates of deposit at banks with original maturity of three months or less and money market funds with brokerage firms. Cash and cash equivalents as of September 30, 2026 and December 31, 2025 include $
Certain transfers from the Company’s Bahamas bank accounts to Company bank accounts in other countries require the approval of the Central Bank of The Bahamas. The equivalent United States dollar cash balances held in The Bahamas as of September 30, 2026 and December 31, 2025 were approximately $
Goodwill and intangible assets: Goodwill represents the excess cost of an acquired business over the fair value of the assets and liabilities of the acquired business as of the date of acquisition. Goodwill and intangible assets recorded as a result of a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or upon the identification of a triggering event. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment. The Company evaluates the possible impairment of goodwill annually as part of its reporting process for the fourth quarter of each fiscal year. Management identifies the Company’s reporting units for goodwill impairment testing purposes, which consist of Cayman Water, the bulk segment (which is comprised of CW-Bahamas and OC-Cayman), PERC, REC, and the manufacturing segment (i.e., Aerex), and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. The Company determines the fair value of each reporting unit and compares these fair values to the carrying amounts of the reporting units. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded.
For the year ended December 31, 2025, the Company elected to assess qualitative factors to determine whether it was necessary to perform quantitative goodwill impairment testing for its reporting units. The Company assessed the relevant events and circumstances to evaluate whether it is more likely than not that the fair values of such reporting units were less than their carrying values. The events and circumstances assessed for each reporting unit included macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, and other relevant information. Based upon this qualitative assessment, the Company determined that it is more likely than not that the fair values of its reporting units exceeded their carrying values as of December 31, 2025.
Income taxes: The Company accounts for the income taxes arising from the operations of its United States subsidiaries under the asset and liability method. Deferred tax assets and liabilities, if any, are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to the extent any deferred tax asset may not be realized.
The Company is not presently subject to income taxes in the other countries in which it operates.
Revenue recognition: Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
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The following table presents the Company’s revenue disaggregated by revenue source.
| | | | | | | | | | | | |
| | Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
| | 2026 | | 2025 | | 2026 | | 2025 | ||||
Retail revenue | | $ | | | $ | | | $ | | | $ | |
Bulk revenue | |
| | |
| | |
| | |
| |
Services revenue | |
| | |
| | |
| | |
| |
Manufacturing revenue | |
| | |
| | |
| | |
| |
Total revenue | | $ | | | $ | | | $ | | | $ | |
Services revenue consists of the following:
| | | | | | | | | | | | |
| | Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
| | 2026 | | 2025 | | 2026 | | 2025 | ||||
Construction revenue | | $ | | | $ | | | $ | | | $ | |
Operations and maintenance revenue | |
| | |
| | |
| | |
| |
Design and consulting revenue | |
| | |
| | |
| | |
| |
Total services revenue | | $ | | | $ | | | $ | | | $ | |
Retail revenue
The Company produces and supplies water to end-users, including residential, commercial and governmental customers in the Cayman Islands under an exclusive water production and supply concession and water utility license issued to Cayman Water by the Cayman Islands government and the Utility Regulation and Competition Office (“OfReg”), respectively, to provide water in two of the three most populated areas on Grand Cayman. Customers are billed on a monthly basis based on metered consumption and bills are typically collected within
The Company recognizes revenue from retail water sales at the end of the billing cycle based on the water supplied to the customers’ premises. The amount of water supplied is determined and invoiced based upon water meter readings performed at the end of each month. All retail water contracts are month-to-month contracts. The Company has elected the “right to invoice” practical expedient for revenue recognition on its retail water sale contracts and recognizes revenue in the amount to which the Company has a right to invoice, recognizing this revenue from the transfer of goods or services to customers during the billing cycle.
Bulk revenue
The Company produces and supplies water to government-owned utilities in the Cayman Islands and The Bahamas.
OC-Cayman provides bulk water to the Water Authority-Cayman (“WAC”), a government-owned utility and regulatory agency, under three agreements. The WAC in turn distributes such water to properties in Grand Cayman outside of Cayman Water’s retail license area.
The Company sells bulk water in The Bahamas through its majority-owned subsidiary, CW-Bahamas, under three agreements with the Water and Sewerage Corporation of The Bahamas (“WSC”), which distributes such water through its own pipeline system to residential, commercial and tourist properties on the islands of New Providence and Cat Island.
The Company has elected the “right to invoice” practical expedient for revenue recognition on its bulk water sale contracts and recognizes revenue in the amount to which the Company has a right to invoice, recognizing this revenue from the transfer of goods or services to customers during the billing cycle.
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Services and Manufacturing revenue
The Company designs, constructs, sells, operates and maintains, and provides consulting services related to water, wastewater and water reuse infrastructure through PERC. All of PERC's customers are companies or governmental entities located in the United States. The Company provides operations and maintenance and consulting services to companies and governmental entities located in the state of Colorado through REC.
The Company provides design, engineering, management, procurement and construction services for desalination infrastructure through DesalCo, which serves customers in the Cayman Islands, The Bahamas and the British Virgin Islands.
The Company, through Aerex, is a custom and specialty manufacturer of systems and products applicable to commercial, municipal and industrial water production and treatment. Substantially all of Aerex’s customers are U.S. companies.
Kalaeloa Desalco has signed a contract with the Honolulu Board of Water Supply pursuant to which it presently expects to construct and operate a
The Company generates construction, operations and maintenance, design and consulting revenue from PERC and DesalCo; construction revenue from Kalaeloa Desalco; manufacturing revenue from Aerex; and operations and maintenance and consulting revenue from REC.
The Company recognizes revenue for its construction and custom/specialized manufacturing contracts (and some of its design 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. Contract costs include labor, materials, subcontractor costs and other expenses. The Company follows this method since it can make reasonably dependable estimates of the revenue and costs applicable to the various stages of a contract. Under this input method, the Company records revenue and recognizes profit or loss as work on the contract progresses. The Company estimates total costs to be incurred and profit to be earned on each long-term, fixed price contract prior to the commencement of work on the contract and updates these estimates as work on the contract progresses. The cumulative amount of revenue recorded on a contract at a specified point in time is that percentage of total estimated revenue that incurred costs to date comprise of estimated total contract costs. Due to the extended time it may take to complete many of the Company’s 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. When adjustments in estimated total contract revenue or estimated total contract costs are required, any changes from prior estimates are recognized in the current period for the inception-to-date effect of such changes. The Company recognizes the full amount of any estimated loss on a contract at the time the estimates indicate such a loss. Any contract assets are classified as current assets. Contract liabilities on uncompleted contracts are classified as current liabilities.
The Company has elected the “right to invoice” practical expedient for revenue recognition on its operations and maintenance and consulting contracts and recognizes revenue in the amount to which the Company has a right to invoice, recognizing this revenue from the transfer of goods or services to customers during the billing cycle.
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For the three and nine months ended September 30, 2026 and 2025, the Company recognized all of its manufacturing revenue from the transfer of goods or services to customers over time. The following table presents the services revenue recognized from the transfer of goods or services to customers over time and when invoiced under the right to invoice practical expedient:
| | | | | | | | | | | | |
| | Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
| | 2026 | | 2025 | | 2026 | | 2025 | ||||
Revenue recognized over time | | $ | | | $ | | | $ | | | $ | |
Revenue recognized when invoiced | |
| | |
| | |
| | |
| |
Total services revenue | | $ | | | $ | | | $ | | | $ | |
Revenue recognized and amounts billed on contracts in progress are summarized as follows:
| | | | | | |
| | September 30, | | December 31, | ||
| | 2026 | | 2025 | ||
Revenue recognized to date on contracts in progress | | $ | | | $ | |
Amounts billed to date on contracts in progress | |
| ( | |
| ( |
Retainage | | | | | | |
Net contract liability | | $ | ( | | $ | ( |
The above net balances are reflected in the accompanying condensed consolidated balance sheets as follows:
| | | | | | |
| | September 30, | | December 31, | ||
| | 2026 | | 2025 | ||
Contract assets | | $ | | | $ | |
Contract liabilities | |
| ( | |
| ( |
Net contract liability | | $ | ( | | $ | ( |
As of September 30, 2026, the Company had unsatisfied or partially unsatisfied performance obligations for contracts in progress representing approximately $
Practical Expedients and Exemptions
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.
3. Segment information
The Company has
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Frederick W. McTaggart, Chief Executive Officer and President, is the Company’s chief operating decision maker (“CODM”).
For the retail, bulk, services, and manufacturing segments, the CODM uses revenue, gross profit, and income before income taxes to assess segment performance and in deciding the allocation of resources to each segment. The CODM considers actual versus budget and current period versus prior period variances on a monthly, quarterly, and annual basis for each of these financial measures. The CODM also considers variances from the budget and the prior period for major corporate expenses (such as employee costs, insurance and professional fees) when making decisions regarding capital and resource allocation.
The accounting policies of the segments are consistent with those described in Note 2. All intercompany transactions are eliminated for segment presentation purposes. Intersegment revenue transactions are insignificant to the Company and are eliminated.
The Company’s segments are strategic business units that are managed separately because each segment sells different products and/or services, serves customers with distinctly different needs and generates different gross profit margins.
The following sets forth the Company’s income statements by segment for the three months ended September 30, 2026 and 2025.
| | | | | | | | | | | | | | | | | | |
|
| Three Months Ended September 30, 2026 | ||||||||||||||||
|
| Retail | | Bulk | | Services | | Manufacturing | | Corporate | | Total | ||||||
Revenue | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | |
Cost of revenue | |
| | |
| | |
| | |
| | |
| — | |
| |
Gross profit | |
| | |
| | |
| | |
| | |
| — | |
| |
General and administrative expenses | |
| | |
| | |
| | |
| | |
| | |
| |
Loss on asset dispositions, net | |
| ( | |
| — | |
| — | |
| ( | |
| — | |
| ( |
Income (loss) from operations | | | | | | | | | ( | | | | | | ( | |
| |
Interest income | |
| | |
| | |
| | |
| | | | | | | |
Interest expense | | | — | | | — | | | ( | | | — | | | ( | | | ( |
Income from affiliate | | | — | | | — | | | — | | | — | | | | | | |
Other | | | | | | | | | | | | | | | ( | | | |
Other income, net | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | |
| | |
| | |
| ( | |
| | | | ( | |
| |
Provision for income taxes | |
| — | |
| — | |
| | |
| | | | — | |
| |
Net income (loss) from continuing operations | |
| | |
| | |
| ( | |
| | | | ( | |
| |
Income from continuing operations attributable to non-controlling interests | |
| — | |
| | |
| — | |
| — | | | — | |
| |
Net income (loss) from continuing operations attributable to Consolidated Water Co. Ltd. stockholders | | $ | | | $ | | | $ | ( | | $ | | | $ | ( | |
| |
Net loss from discontinued operations | |
| | |
| | |
| | |
| | | | | |
| ( |
Net income attributable to Consolidated Water Co. Ltd. stockholders | |
| | |
| | |
| | |
| | | | | | $ | |
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Table of Contents
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2025 | ||||||||||||||||
| | Retail | | Bulk | | Services | | Manufacturing | | Corporate | | Total | ||||||
Revenue | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | |
Cost of revenue | |
| | |
| | |
| | |
| | |
| — | |
| |
Gross profit | |
| | |
| | |
| | |
| | |
| — | |
| |
General and administrative expenses | |
| | |
| | |
| | |
| | |
| | |
| |
Gain on asset dispositions, net | |
| | |
| — | |
| | |
| | |
| — | |
| |
Income (loss) from operations | | | | | | | | | | | | | | | ( | |
| |
Interest income | |
| | |
| | |
| | |
| | | | | | | |
Interest expense | | | — | | | — | | | ( | | | — | | | — | | | ( |
Income (loss) from affiliates | | | — | | | — | | | — | | | ( | | | | | | |
Other | | | | | | | | | | | | | | | ( | | | |
Other income (loss), net | | | | | | | | | | | | ( | | | | | | |
Income (loss) before income taxes | |
| | |
| | |
| | |
| | | | ( | |
| |
Provision for income taxes | |
| — | |
| — | |
| | |
| | | | — | |
| |
Net income (loss) from continuing operations | |
| | |
| | |
| | |
| | | | ( | |
| |
Income from continuing operations attributable to non-controlling interests | |
| — | |
| | |
| — | |
| — | | | — | |
| |
Net income (loss) from continuing operations attributable to Consolidated Water Co. Ltd. stockholders | | $ | | | $ | | | $ | | | $ | | | $ | ( | |
| |
Net loss from discontinued operations | |
| | |
| | |
| | |
| | | | | |
| ( |
Net income attributable to Consolidated Water Co. Ltd. stockholders | |
| | |
| | |
| | |
| | | | | | $ | |
The Company’s cost of revenue consists of:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2026 | ||||||||||||||||
| | Retail | | Bulk | | Services | | Manufacturing | | Corporate | | Total | ||||||
Subcontractor and other project costs | | $ | — | | $ | — | | $ | | | $ | | | $ | — | | $ | |
Employee costs | | | | | | | | | | | | | | | — | | | |
Electricity | | | | | | | | | | | | | | | — | | | |
Fuel oil | | | — | | | | | | — | | | — | | | — | | | |
Depreciation | | | | | | | | | | | | | | | — | | | |
Maintenance | | | | | | | | | | | | | | | — | | | |
Insurance | | | | | | | | | | | | — | | | — | | | |
Retail license royalties | | | | | | — | | | — | | | — | | | — | | | |
Other | | | | | | | | | | | | | | | — | | | |
| | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2025 | ||||||||||||||||
| | Retail | | Bulk | | Services | | Manufacturing | | Corporate | | Total | ||||||
Subcontractor and other project costs | | $ | — | | $ | — | | $ | | | $ | | | $ | — | | $ | |
Employee costs | | | | | | | | | | | | | | | — | | | |
Electricity | | | | | | | | | | | | | | | — | | | |
Fuel oil | | | — | | | | | | — | | | — | | | — | | | |
Depreciation | | | | | | | | | | | | | | | — | | | |
Maintenance | | | | | | | | | | | | | | | — | | | |
Insurance | | | | | | | | | | | | — | | | — | | | |
Retail license royalties | | | | | | — | | | — | | | — | | | — | | | |
Other | | | | | | | | | | | | | | | — | | | |
| | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | |
Cost of revenue segment expenses set forth in the “Other” category above primarily include chemicals and other supplies, government fees and licenses, and freight costs.
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Table of Contents
The Company’s general and administrative expenses consist of:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2026 | ||||||||||||||||
| | Retail | | Bulk | | Services | | Manufacturing | | Corporate | | Total | ||||||
Employee costs | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Professional fees | | | | | | | | | | | | | | | | | | |
Insurance | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | |
| | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2025 | ||||||||||||||||
| | Retail | | Bulk | | Services | | Manufacturing | | Corporate | | Total | ||||||
Employee costs | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Professional fees | | | | | | | | | | | | | | | | | | |
Insurance | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | |
| | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
General and administrative segment expenses set forth in the “Other” category above primarily include Board of Directors fees and expenses, maintenance, office rent, information technology costs, provisions for credit losses and investor relations costs.
The following sets forth the Company’s income statements by segment for the nine months ended September 30, 2026 and 2025.
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2026 | ||||||||||||||||
| | Retail | | Bulk | | Services | | Manufacturing | | Corporate | | Total | ||||||
Revenue | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | |
Cost of revenue | |
| | |
| | |
| | |
| | |
| — | |
| |
Gross profit | |
| | |
| | |
| | |
| | |
| — | |
| |
General and administrative expenses | |
| | |
| | |
| | |
| | |
| | |
| |
Gain (loss) on asset dispositions, net | |
| ( | |
| — | |
| | |
| ( | |
| — | |
| ( |
Income (loss) from operations | | | | | | | | | | | | | | | ( | |
| |
Interest income | |
| | |
| | |
| | |
| | | | | | | |
Interest expense | | | — | | | — | | | ( | | | — | | | ( | | | ( |
Income (loss) from affiliates | | | — | | | — | | | — | | | ( | | | | | | |
Other | | | | | | | | | | | | | | | | | | |
Other income (loss), net | | | | | | | | | | | | ( | | | | | | |
Income (loss) before income taxes | |
| | |
| | |
| | |
| | | | ( | |
| |
Provision for income taxes | |
| — | |
| — | |
| | |
| | | | — | |
| |
Net income (loss) from continuing operations | |
| | |
| | |
| | |
| | | | ( | |
| |
Income from continuing operations attributable to non-controlling interests | |
| — | |
| | |
| — | |
| — | | | — | |
| |
Net income (loss) from continuing operations attributable to Consolidated Water Co. Ltd. stockholders | | $ | | | $ | | | $ | | | $ | | | $ | ( | |
| |
Net loss from discontinued operations | |
| | |
| | |
| | |
| | | | | |
| ( |
Net income attributable to Consolidated Water Co. Ltd. stockholders | |
| | |
| | |
| | |
| | | | | | $ | |
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Table of Contents
| | | | | | | | | | | | | | | | | | |
|
| Nine Months Ended September 30, 2025 | ||||||||||||||||
| | Retail | | Bulk | | Services | | Manufacturing | | Corporate | | Total | ||||||
Revenue | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | |
Cost of revenue | |
| | |
| | |
| | |
| | |
| — | |
| |
Gross profit | |
| | |
| | |
| | |
| | |
| — | |
| |
General and administrative expenses | |
| | |
| | |
| | |
| | |
| | |
| |
Gain on asset dispositions, net | |
| | |
| — | |
| | |
| | |
| — | |
| |
Income (loss) from operations | | | | | | | | | | | | | | | ( | |
| |
Interest income | |
| | |
| | |
| | |
| | | | | | | |
Interest expense | | | — | | | — | | | ( | | | — | | | — | | | ( |
Income (loss) from affiliates | | | — | | | — | | | — | | | ( | | | | | | |
Other | | | | | | | | | | | | | | | ( | | | |
Other income (loss), net | | | | | | | | | | | | ( | | | | | | |
Income (loss) before income taxes | |
| | |
| | |
| | |
| | | | ( | |
| |
Provision for income taxes | |
| — | |
| — | |
| | |
| | | | — | |
| |
Net income (loss) from continuing operations | |
| | |
| | |
| | |
| | | | ( | |
| |
Income from continuing operations attributable to non-controlling interests | |
| — | |
| | |
| — | |
| — | | | — | |
| |
Net income (loss) from continuing operations attributable to Consolidated Water Co. Ltd. stockholders | | $ | | | $ | | | $ | | | $ | | | $ | ( | |
| |
Net loss from discontinued operations | |
| | |
| | |
| | |
| | | | | |
| ( |
Net income attributable to Consolidated Water Co. Ltd. stockholders | |
| | |
| | |
| | |
| | | | | | $ | |
The Company’s cost of revenue consists of:
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2026 | ||||||||||||||||
| | Retail | | Bulk | | Services | | Manufacturing | | Corporate | | Total | ||||||
Subcontractor and other project costs | | $ | — | | $ | | | $ | | | $ | | | $ | — | | $ | |
Employee costs | | | | | | | | | | | | | | | — | | | |
Electricity | | | | | | | | | | | | | | | — | | | |
Fuel oil | | | — | | | | | | — | | | — | | | — | | | |
Depreciation | | | | | | | | | | | | | | | — | | | |
Maintenance | | | | | | | | | | | | | | | — | | | |
Insurance | | | | | | | | | | | | — | | | — | | | |
Retail license royalties | | | | | | — | | | — | | | — | | | — | | | |
Other | | | | | | | | | | | | | | | — | | | |
| | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2025 | ||||||||||||||||
| | Retail | | Bulk | | Services | | Manufacturing | | Corporate | | Total | ||||||
Subcontractor and other project costs | | $ | — | | $ | — | | $ | | | $ | | | $ | — | | $ | |
Employee costs | | | | | | | | | | | | | | | — | | | |
Electricity | | | | | | | | | | | | | | | — | | | |
Fuel oil | | | — | | | | | | — | | | — | | | — | | | |
Depreciation | | | | | | | | | | | | | | | — | | | |
Maintenance | | | | | | | | | | | | | | | — | | | |
Insurance | | | | | | | | | | | | — | | | — | | | |
Retail license royalties | | | | | | — | | | — | | | — | | | — | | | |
Other | | | | | | | | | | | | | | | — | | | |
| | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | |
Cost of revenue segment expenses set forth in the “Other” category above primarily include chemicals and other supplies, government fees and licenses, and freight costs.
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The Company’s general and administrative expenses consist of:
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2026 | ||||||||||||||||
| | Retail | | Bulk | | Services | | Manufacturing | | Corporate | | Total | ||||||
Employee costs | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Professional fees | | | | | | | | | | | | | | | | | | |
Insurance | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | |
| | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2025 | ||||||||||||||||
| | Retail | | Bulk | | Services | | Manufacturing | | Corporate | | Total | ||||||
Employee costs | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Professional fees | | | | | | | | | | | | | | | | | | |
Insurance | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | |
| | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
General and administrative segment expenses set forth in the “Other” category above primarily include Board of Directors fees and expenses, maintenance, office rent, information technology costs, provisions for credit losses and investor relations costs.
The Company’s assets by segment are presented below.
| | | | | | | | | | | | | | | | | | |
|
| As of September 30, 2026 | ||||||||||||||||
| | Retail | | Bulk | | Services | | Manufacturing | | Corporate | | Total | ||||||
Cash and cash equivalents | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Accounts receivable, net | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Inventory, current and non-current | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | |
Contract assets | | $ | — | | $ | — | | $ | | | $ | | | $ | — | | $ | |
Property, plant and equipment, net | | $ | | | $ | | | $ | | $ | | | $ | | | $ | | |
Construction in progress | | $ | | | $ | | | $ | — | | $ | | | $ | — | | $ | |
Intangibles, net | | $ | — | | $ | — | | $ | | | $ | | | $ | — | | $ | |
Goodwill | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | |
Total segment assets | | $ | | | $ | | | $ | | $ | | | $ | | | $ | | |
Assets of discontinued operations | | | | | | | | | | | | | | | | | $ | |
Total assets | | | | | | | | | | | | | | | | | $ | |
| | | | | | | | | | | | | | | | | | |
|
| As of December 31, 2025 | ||||||||||||||||
| | Retail | | Bulk | | Services | | Manufacturing | | Corporate | | Total | ||||||
Cash and cash equivalents | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Accounts receivable, net | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Inventory, current and non-current | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | |
Contract assets | | $ | — | | $ | — | | $ | | | $ | | | $ | — | | $ | |
Property, plant and equipment, net | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Construction in progress | | $ | | | $ | | | $ | — | | $ | | | $ | — | | $ | |
Intangibles, net | | $ | — | | $ | — | | $ | | | $ | | | $ | — | | $ | |
Goodwill | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | |
Total segment assets | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Assets of discontinued operations | |
| | |
| | |
| | |
| | |
| | | $ | |
Total assets | |
| | |
| | |
| | |
| | |
| | | $ | |
4. Earnings per share
Earnings per share (“EPS”) is computed on a basic and diluted basis. Basic EPS is computed by dividing net income (less preferred stock dividends) available to common stockholders by the weighted average number of common shares outstanding during the period. The computation of diluted EPS assumes the issuance of common shares for all potential common shares outstanding during the reporting period and, if dilutive, the effect of stock options as computed under the treasury stock method.
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The following summarizes information related to the computation of basic and diluted EPS:
| | | | | | | | | | | | |
| | Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
| | 2026 | | 2025 |
| 2026 | | 2025 | ||||
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders | | $ | | | $ | | | $ | | | $ | |
Less: preferred stock dividends | |
| ( | |
| ( | |
| ( | |
| ( |
Net income from continuing operations available to common shares in the determination of basic earnings per common share | |
| | |
| | |
| | |
| |
Loss from discontinued operations | |
| ( | |
| ( | |
| ( | |
| ( |
Net income available to common shares in the determination of basic earnings per common share | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Weighted average number of common shares in the determination of basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders | |
| | |
| | |
| | |
| |
Plus: | |
| | |
| | |
| | |
| |
Weighted average number of preferred shares outstanding during the period | |
| | |
| | |
| | |
| |
Potential dilutive effect of unexercised options and unvested stock grants | |
| | |
| | |
| | |
| |
Weighted average number of shares used for determining diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders | |
| | |
| | |
| | |
| |
5. Discontinued operations - Mexico project development
In 2010, the Company began the pursuit, through its Netherlands subsidiary, CW-Cooperatief, and its Mexico subsidiary, NSC, of a project (the “Project”) that encompassed the construction, operation and minority ownership of a
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. Shortly thereafter, NSC formed its wholly owned subsidiary, AdR, to pursue the completion of the Project.
Following a public tender process for the Project in which NSC and its consortium were declared the winners, in August 2016, the Public Private Partnership Agreement for the Project (the “APP Contract”) was executed between AdR, the State Water Commission of Baja, California (“CEA”), and the Government of Baja California, as represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana (“CESPT”). The APP Contract required AdR to design, construct, finance and operate a seawater reverse osmosis desalination plant (and accompanying aqueduct) with a capacity of up to
In June 2020, AdR received a letter from CEA and CESPT terminating the APP Contract.
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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”). In February 2022, CW-Cooperatief filed a Request for Arbitration with the International Centre for Settlement of Investment Disputes (“ICSID”) requesting that the United Mexican States pay CW-Cooperatief damages in excess of US$
In May 2024, the Company, 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. Pursuant to the Settlement Agreement, the Trust purchased the
In connection with the Settlement Agreement on June 14, 2024, the State also paid NSC MXN$
As a result of the Settlement Agreement: (i) the parties have been released from all obligations owed to each other in connection with the APP Contract and the arbitration; and (ii) no party to the Settlement Agreement may institute any legal proceedings against another party thereto with respect to the matters which have been addressed by the Settlement Agreement.
Summarized financial information for the discontinued Mexico project development operation is as follows:
| | | | | | |
| | September 30, | | December 31, | ||
| | 2026 | | 2025 | ||
Cash | | $ | | | $ | |
Prepaid expenses and other current assets | | | | | | |
Total assets of discontinued operations | | $ | | | $ | |
| |
| | |
| |
Total liabilities of discontinued operations | | $ | | | $ | |
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
| | 2026 | | 2025 | | 2026 | | 2025 | ||||
Loss from discontinued operations | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
6. Leases
The Company’s leases consist principally of leases for office and warehouse space. For leases with terms greater than twelve months, the related lease liability is recorded at the present value of the lease payments over the term, and the related right-of-use asset is recorded based on the lease liability, as adjusted for applicable items. Many of these leases contain rental escalation clauses which are factored into the determination of the lease payments when appropriate. When available, the lease payments are discounted using the rate implicit in the lease; however, the Company’s current leases do not provide a readily determinable implicit rate. Therefore, the Company’s incremental borrowing rate is estimated to discount the lease payments based on information available at the lease commencement.
These leases contain both lease and non-lease components, which the Company has elected to treat as a single lease component. The Company elected not to recognize leases that have an original lease term, including reasonably certain
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renewal or purchase obligations, of twelve months or less in its condensed consolidated balance sheets for all classes of underlying assets. Lease costs for such short-term leases are expensed on a straight-line basis over the lease term.
All lease assets denominated in a foreign currency are measured using the exchange rate at the commencement of the lease. All lease liabilities denominated in a foreign currency are remeasured using the exchange rate as of the condensed consolidated balance sheet date.
Lease assets and liabilities
The following table presents the lease-related assets and liabilities and their respective classification on the condensed consolidated balance sheets:
| | | | | | |
| | September 30, | | December 31, | ||
| | 2026 | | 2025 | ||
ASSETS |
| | | | | |
Noncurrent | |
| | |
| |
Operating lease right-of-use assets | | $ | | | $ | |
Total operating lease right-of-use assets | | $ | | | $ | |
| | | | | | |
LIABILITIES | | | |
| | |
Current |
| | | | | |
Current maturities of operating leases | | $ | | | $ | |
Noncurrent | |
| | |
| |
Noncurrent operating leases | | | | | | |
Total lease liabilities | | $ | | | $ | |
| | | | | | |
Weighted average remaining lease term: | |
| | |
| |
Operating leases | |
| |
| ||
| |
| | |
| |
Weighted average discount rate: | |
| | |
| |
Operating leases | |
| |
| ||
The components of lease costs were as follows:
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
| | 2026 | | 2025 | | 2026 | | 2025 | ||||
Operating lease costs | | $ | | | $ | | | $ | | | $ | |
Short-term lease costs | |
| | | | | |
| | | | |
Lease costs - discontinued operations | | | | | | | | | | | | |
Total lease costs | | $ | | | $ | | | $ | | | $ | |
Supplemental cash flow information related to leases is as follows:
| | | | | | |
| | Nine Months Ended September 30, | ||||
| | 2026 | | 2025 | ||
Cash paid for amounts included in measurement of liabilities: |
| | | | | |
Operating cash outflows for operating leases | | $ | | | $ | |
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Future lease payments relating to the Company’s operating lease liabilities from continuing operations as of September 30, 2026, were as follows:
| | | |
Years ending December 31, | | Total | |
2026 | | $ | |
2027 | |
| |
2028 | |
| |
2029 | |
| |
2030 | | | |
Thereafter | |
| |
Total future lease payments | |
| |
Less: imputed interest | |
| ( |
Total lease obligations | |
| |
Less: current obligations | |
| ( |
Noncurrent lease obligations | | $ | |
7. Fair value
As of September 30, 2026 and December 31, 2025, the carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued expenses, accrued compensation, dividends payable and other current liabilities approximate their fair values due to the short-term maturities of these instruments. As of September 30, 2026 and December 31, 2025, the Company does not have assets and liabilities measured at fair value to present in the fair value hierarchy.
8. Commitments and contingencies
Cayman Water
Prior to the License Date (as defined later herein), Cayman Water’s retail operations 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 September 30, 2026 and 2025, the Company generated approximately
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, the Company 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 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. The Company began negotiations with OfReg in 2017, which negotiations continued until the issuance of the License (as defined later herein).
The Company had previously disclosed that OfReg and its predecessor informed the Company 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 the Company historically generated from the 1990 License.
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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 Cayman Water’s 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 were established at CI$
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 specifies statutory fee and regulatory fee charges as separate pass-through charges to consumers.
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
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
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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.
OC-Cayman
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 agreement was $
CW-Bahamas
CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $
From time to time (including presently), CW-Bahamas has experienced delays in collecting its accounts receivable from the WSC. When these delays occur, the Company holds 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, CW-Bahamas has not provided a material allowance for credit losses for its accounts receivable from the WSC as of September 30, 2026 or prior periods.
In a report dated April 30, 2026, Moody’s Investors Service (“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 the Company’s review of this Moody’s correspondence, CW-Bahamas continues 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: (i) CW-Bahamas may not have sufficient liquidity to meet its obligations; (ii) the Company may be required to cease the recognition of revenue on CW-Bahamas’ water supply agreements with the WSC; and (iii) the Company may be required to significantly increase its allowance for credit losses for CW-Bahamas’ accounts receivable. Any of these events could have a material adverse impact on the Company’s consolidated financial condition, results of operations, and cash flows.
CW-Bahamas Supply Guarantees
The contracts to supply water to the WSC from its Blue Hills, Windsor and Cat Island plants require CW-Bahamas to guarantee delivery of a minimum quantity of water per week. If the WSC requires the water and CW-Bahamas does not meet this minimum, CW-Bahamas is 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 CW-Bahamas under the contracts. The Blue Hills contract expires in 2032 and requires CW-Bahamas to deliver
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Fiscal, Regulation and Other Federal Policies
Significant changes in, and uncertainty with respect to, legislation, regulation, government policy and economic conditions could adversely affect the Company’s business. Specific legislative and regulatory proposals that could have a material impact on the Company include, but are not limited to, modifications to international trade policy (such as tariffs); public company reporting requirements; and environmental regulation.
The Company cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the U.S. and other countries, what products may be subject to such actions, or what actions may be taken by the other countries in retaliation. Accordingly, it is difficult to predict how such actions may impact the Company’s business, or the business or habits of its customers. The Company’s business operations, as well as the businesses of its customers on which it is substantially dependent, are located in countries at risk for escalating trade disputes, including the U.S. Any resulting trade wars could have a significant adverse effect on world trade and could adversely impact the Company’s consolidated financial condition, results of operations and cash flows.
Legal Proceedings
On May 25, 2021, PERC and OHLA USA, Inc., aka OHL USA Inc. (“OHLA”) entered into a written agreement for professional services (“Subcontract”), pursuant to which PERC agreed to provide certain start-up and commissioning services on the work of improvement known as the Valencia Water Reclamation Plant Advanced Water Treatment Facility in the City of Valencia (“Project”) in exchange for the initial contract price of approximately $
On October 13, 2026, OHLA filed a cross-complaint against PERC for (1) Breach of Contract; (2) Fraudulent Inducement; (3) Intentional Interference with Contractual Relations; (4) Negligence; and (5) Common Count-Money Had and Received. Each of OHLA’s causes of action in the cross-complaint arise from PERC’s separate purchase order with the Project owner to provide post-completion operation and training services. PERC denies the allegations of the cross-complaint and intends to vigorously defend itself in the lawsuit. The cross-complaint does not specify an amount of damages OHLA seeks, but rather a determination based on trial. The Company cannot presently determine the impact, if any, of the resolution of this litigation on the Company’s consolidated financial condition, results of operations or cash flows.
9. Impact of recent accounting standards
Adoption of new accounting standards:
None.
Effect of newly issued but not yet effective accounting standards:
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. 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 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 Company is currently evaluating the impact of this guidance on its financial statements.
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10. Subsequent events
The Company evaluated subsequent events through the time of the filing of this report on Form 10-Q. On October 8, 2026, PERC entered into a design-build agreement with the City of Pismo Beach, California, dated as of October 6, 2026, for the design and construction of the Central Coast Blue Advanced Water Purification Facility for a fixed design-build price of approximately $39.8 million, subject to adjustment in accordance with its terms. Other than this agreement and the litigation discussed in Note 8, the Company is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on its condensed consolidated financial statements.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our future revenue, future plans, objectives, expectations and events, assumptions and estimates. Forward-looking statements can be identified by use of the words or phrases “will,” “will likely result,” “are expected to,” “will continue,” “estimate,” “project,” “potential,” “believe,” “plan,” “anticipate,” “expect,” “intend,” or similar expressions and variations of such words. Statements that are not historical facts are based on our current expectations, beliefs, assumptions, estimates, forecasts and projections for our business and the industry and markets related to our business.
The forward-looking statements contained in this report are not guarantees of future performance and involve assumptions and certain risks and uncertainties which are difficult to predict. Actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Important factors which may affect these actual outcomes and results include, without limitation:
| ● | tourism and weather conditions in the areas we serve; |
| ● | the economic, political and social conditions of each country in which we conduct or plan to conduct business; |
| ● | our relationships with the government entities and other customers we serve; |
| ● | regulatory matters; |
| ● | our ability to successfully enter new markets; and |
| ● | other factors, including those “Risk Factors” set forth under Part II, Item 1A. “Risk Factors” in this Quarterly Report and in our 2025 Annual Report on Form 10-K. |
The forward-looking statements in this Quarterly Report speak as of its date. We expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained in this Quarterly Report to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based, except as may be required by law.
References herein to “we,” “our,” “ours” and “us” refer to Consolidated Water Co. Ltd. and its subsidiaries.
Critical Accounting Policies and Estimates
Our critical accounting policies relate to (i) the valuations of our goodwill, intangible assets and long-lived assets; and (ii) revenue recognition on our construction and manufacturing contracts.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Our actual results could differ significantly from such estimates and assumptions.
The application of our critical accounting policies involves estimates or assumptions that constitute “critical accounting estimates” for us because:
| ● | the nature of these estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and |
| ● | the impact of the estimates and assumptions on financial condition and results of operations is material. |
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Goodwill and Intangible Assets
Goodwill represents the excess cost of an acquired business over the fair value of the assets and liabilities of the acquired business as of the date of acquisition. Goodwill and intangible assets recorded as a result of a business combination and determined to have an indefinite useful life are not amortized but are tested for impairment annually or upon the identification of a triggering event. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed periodically for impairment. We evaluate the possible impairment of goodwill annually as part of our reporting process for the fourth quarter of each fiscal year. Management identifies our reporting units for goodwill impairment testing purposes, which consist of Cayman Water, the bulk segment (which is comprised of CW-Bahamas and OC-Cayman), PERC, REC, and the manufacturing segment (i.e., Aerex), and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. We determine the fair value of each reporting unit and compare these fair values to the carrying amounts of the reporting units. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment loss is recorded.
For 2025, we elected to assess qualitative factors to determine whether it was necessary to perform quantitative goodwill impairment testing for our reporting units. We assessed the relevant events and circumstances to evaluate whether it is more likely than not that the fair values of such reporting units are less than their carrying values. The events and circumstances assessed for each reporting unit included macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, and other relevant information. Based upon this qualitative assessment, we determined that it is more likely than not that the fair values of our reporting units exceeded their carrying values as of December 31, 2025.
Long-lived Assets
We review the carrying amounts of our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, we recognize an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measure the impairment loss based on the difference between the carrying amount and fair value.
Construction and Manufacturing Contract Revenue Recognition
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, 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 (and some of our design 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. Contract costs include labor, materials, subcontractor costs and other expenses. We follow this method since we can make reasonably dependable estimates of the revenue and costs applicable to the various stages of a contract. Under this input method, we record revenue and recognize profit or loss as work on the contract progresses. 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. 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. When adjustments in estimated total contract revenue or estimated total contract costs
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are required, any changes from prior estimates are recognized in the current period for the inception-to-date effect of such changes. We recognize the full amount of any estimated loss on a contract at the time the estimates indicate such a loss.
The cost estimates we prepare in connection with our construction and manufacturing contracts are subject to inherent uncertainties. Because we base our contract prices on our estimation of future construction and manufacturing costs, the profitability of our construction and manufacturing contracts is highly dependent on our ability to estimate these costs accurately, as almost all of our construction and manufacturing contracts are fixed-price contracts. The cost of materials, labor and subcontractors could increase significantly after we sign a construction or manufacturing contract, which could cause the gross profit for a contract to decline from our previous estimates, adversely affecting our recognition of revenue and gross profit for the contract. 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 September 30, 2026 and 2025, we generated approximately 27% and 22%, respectively, of our consolidated revenue and 43% and 33%, respectively, of our consolidated gross profit from our retail water operations. For the nine months ended September 30, 2026 and 2025, we generated approximately 27% and 25%, respectively, of our consolidated revenue and 44% and 39%, respectively, of our consolidated gross profit from our retail water operations.
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.
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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 were established at 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 specifies statutory fee and regulatory fee charges as separate pass-through charges to consumers.
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 $1.3 million lower for 2024, 2025 and the first seven 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, and are not necessarily indicative of the revenue or results of operations that Cayman Water will achieve under the License.
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RESULTS OF OPERATIONS
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, 2025 (“2025 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 2025 Form 10-K.
Three Months Ended September 30, 2026 Compared to Three Months Ended September 30, 2025
Consolidated Results
Including discontinued operations, net income attributable to Consolidated Water Co. Ltd. stockholders for 2026 was $2,322,270 ($0.14 per share on a fully diluted basis), as compared to net income of $5,532,344 ($0.34 per share on a fully diluted basis) for 2025. Our net losses from discontinued operations for 2026 and 2025 were ($61,627) and ($37,220), 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 three months ended September 30, 2026 as compared to the three months ended September 30, 2025 relates only to our continuing operations.
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders for 2026 was $2,383,897 ($0.15 per share on a fully diluted basis), as compared to net income from continuing operations of $5,569,564 ($0.34 per share on a fully diluted basis) for 2025.
Revenue for 2026 decreased to $30,922,537 from $35,118,706 in 2025 as a result of revenue decreases in the services and manufacturing segments, which were partially offset by revenue increases in the retail and bulk segments. Gross profit for 2026 was $9,818,063 (32% of total revenue) as compared to $12,945,909 (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 increased to $7,629,656 for 2026 as compared to $7,218,722 for 2025. The principal factor in this increase was incremental professional fees of approximately $263,000.
Other income, net, decreased to $576,468 for 2026 as compared to $811,227 for 2025, primarily due to a decrease in interest income attributable to lower average balances of interest-earning assets.
Results by Segment
Retail Segment:
The retail segment generated $3,185,737 in income from operations for 2026 as compared to $3,377,580 for 2025.
Revenue generated by retail water operations increased to $8,211,690 for 2026 as compared to $7,770,344 for 2025 principally due to an increase in electricity costs, which increased the pass-through energy rate charged to our retail customers. Retail revenue for 2026 also benefited from an increase in the rate charged to a major commercial water customer. These factors served to offset the impact on 2026 retail revenue of a decrease in retail water rates that became effective August 1, 2026 under the new retail license. The volume of water sold by our retail segment increased by approximately 1% from 2025 to 2026.
Retail segment gross profit decreased to $4,184,146 (51% of retail revenue) for 2026 as compared to $4,323,082 (56% of retail revenue) for 2025 due to the lower rates that became effective August 1, 2026 under the new retail license.
Retail G&A expenses remained consistent at $996,481 for 2026 compared to $952,102 for 2025.
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Bulk Segment:
The bulk segment contributed $2,918,160 and $2,642,709 to our income from operations for 2026 and 2025, respectively.
Bulk segment revenue was $10,138,396 and $8,394,614 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 dollars for our bulk segment increased to $3,378,980 (33% of bulk revenue) for 2026 as compared to $2,910,001 (35% of bulk revenue) due to the increased revenue. The reduction in bulk segment gross profit as a percentage of revenue from 2025 to 2026 reflects higher diesel costs and incremental maintenance expenses.
Bulk segment G&A expenses were $460,820 for 2026 as compared to $267,292 for 2025 primarily due to an increase in the provision for credit losses.
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 September 30, 2026 was $315,322 and $425,778, respectively. WAC is presently conducting a formal bid process for the granting of a new contract for the upgrade and operations and maintenance of these plants for ten years.
Services Segment:
The services segment incurred a loss from operations of ($257,819) in 2026 as compared to generating $1,911,730 in income from operations for 2025.
Services segment revenue was $9,760,608 for 2026 as compared to $14,289,315 for 2025. Construction revenue decreased to $3,483,375 for 2026 as compared to $6,360,333 for 2025 due to a decline in the number and total value of construction projects. Revenue generated under operations and maintenance (“O&M”) contracts decreased to $6,100,605 in 2026 as compared to $7,715,000 in 2025 due primarily to the expiration of PERC’s contracts with three significant customers in the first quarter of 2026. Design and consulting revenue was $176,628 for 2026 and $213,982 for 2025.
Gross profit for the services segment decreased to $1,321,583 (14% of services revenue) in 2026 from $3,844,421 (27% of services revenue) in 2025 due to the revenue decrease and a lower average gross profit percentage generated under our contracts.
G&A expenses for the services segment decreased to $1,579,402 for 2026 as compared to $1,955,186 for 2025 primarily due to lower employee costs and professional fees.
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 (the “project”). 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.
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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.
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. In September 2026, the project received approval of its Preservation Plan and Archaeological Monitoring Plan from the State Historic Preservation Division and approval from the Hawaii Department of Health for a Substantial Modification to an Existing Regulated Public Water System. These approvals were required before Kalaeloa Desalco could advance its applications for other permits and approvals. Several permits and approvals remain outstanding, including a Memorandum of Agreement from the State Historic Preservation Division. Based on the current permitting timeline, we now expect construction of the plant to begin in the first half of 2027, compared with our previous expectation of late 2026.
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.
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.
On October 8, 2026, PERC entered into a design-build agreement with the City of Pismo Beach, California for the Central Coast Blue Advanced Water Purification Facility for a fixed design-build price of approximately $39.8 million. The agreement requires Substantial Completion within 703 calendar days after commencement of services, provides for liquidated damages of $2,500 per day capped at 5% of the contract price, and may be terminated by the City for convenience, in which case PERC would be reimbursed in accordance with the contract terms for work performed.
Manufacturing Segment:
The manufacturing segment generated $308,720 and $1,414,367 in income from operations for 2026 and 2025.
Manufacturing revenue decreased to $2,811,843 for 2026, as compared to $4,664,433 for 2025. The decrease in manufacturing revenue for 2026 resulted from a decrease in the total dollar amount of contracts completed and in progress. 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 $933,354 (33% of manufacturing revenue) for 2026 as compared to $1,868,405 (40% of manufacturing revenue) for 2025 due to the decrease in revenue.
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G&A expenses for the manufacturing segment remained relatively consistent at $524,577 for 2026 as compared to $459,038 for 2025.
Corporate Segment:
Corporate G&A expenses increased to $4,068,376 for 2026 as compared to $3,585,104 for 2025 due to slight increases in various expense categories.
Nine Months Ended September 30, 2026 Compared to Nine Months Ended September 30, 2025
Consolidated Results
Including discontinued operations, net income attributable to Consolidated Water Co. Ltd. stockholders for 2026 was $10,031,445 ($0.62 per share on a fully diluted basis), as compared to net income of $15,419,578 ($0.96 per share on a fully diluted basis) for 2025. Our net losses from discontinued operations for 2026 and 2025 were ($210,243) and ($252,857), 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 nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025 relates only to our continuing operations.
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders for 2026 was $10,241,688 ($0.64 per share on a fully diluted basis), as compared to net income from continuing operations of $15,672,435 ($0.97 per share on a fully diluted basis) for 2025.
Revenue for 2026 decreased to $93,766,599 from $102,425,170 in 2025 primarily due to revenue decreases in the manufacturing and services segments. Gross profit for 2026 was $31,697,465 (34% of total revenue) as compared to $38,084,181 (37% of total revenue) for 2025. 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 remained consistent at $22,291,746 for 2026 as compared to $22,522,919 for 2025.
Other income, net, decreased to $2,046,673 for 2026 as compared to $2,320,300 for 2025, primarily due to a decrease in interest earned on the average balances of interest-earning assets.
Results by Segment
Retail Segment:
The retail segment generated $11,121,344 in income from operations for 2026 as compared to $12,201,514 for 2025.
Revenue generated by retail water operations decreased slightly to $25,449,695 in 2026 from $25,819,712 in 2025 due to a 4.1% 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 decrease in revenue and increased energy and operating costs, retail segment gross profit decreased in total dollars and as a percentage of revenue to $13,974,024 (55% of retail revenue) for 2026 as compared to $14,890,629 (58% of retail revenue) for 2025.
Retail G&A expenses remained consistent at $2,798,587 for 2026 as compared to $2,726,531 for 2025.
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Bulk Segment:
The bulk segment contributed $8,394,389 and $7,265,414 to our income from operations for 2026 and 2025, respectively.
Bulk segment revenue was $28,817,225 and $25,081,146 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 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 $9,599,579 (33% of bulk revenue) for 2026 as compared to $8,273,537 (33% of bulk revenue) for 2025 due to the increased revenue.
Bulk segment G&A expenses remained relatively consistent at $1,205,190 for 2026 as compared to $1,008,123 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 nine months ended September 30, 2026 was $924,923 and $1,226,801, respectively. WAC is presently conducting a formal bid process for the granting of a new contract for the upgrade and operations and maintenance of these plants for ten years.
Services Segment:
The services segment generated $1,224,358 and $3,160,696 in income from operations for 2026 and 2025.
Services segment revenue decreased to $32,597,525 for 2026 from $35,815,785 for 2025. Construction revenue was relatively consistent at $10,922,555 for 2026 as compared to $11,404,500 for 2025. Revenue generated under O&M contracts decreased to $21,033,065 in 2026 as compared to $23,695,704 in 2025 due to the expiration of contracts with three significant customers of PERC. Design and consulting revenue remained relatively consistent at $641,905 for 2026 as compared to $715,581 for 2025.
Gross profit for the services segment decreased to $6,044,798 (19% of services revenue) in 2026 from $9,252,131 (26% of services revenue) in 2025 due to the decrease in O&M revenue and lower margins earned on construction projects.
G&A expenses for the services segment decreased to $4,839,719 for 2026 as compared to $6,143,566 for 2025 primarily due to decreases in employee costs and professional fees; and the completion of the amortization of certain intangible assets associated with the acquisition of REC.
In June 2023, we (through our subsidiary Kalaeloa Desalco) executed a contract with the Honolulu Board of Water Supply to construct and operate a 1.7 million gallons per day seawater reverse osmosis desalination plant in Oahu, Hawaii. 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
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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.
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. In September 2026, the project received approval of its Preservation Plan and Archaeological Monitoring Plan from the State Historic Preservation Division and approval from the Hawaii Department of Health for a Substantial Modification to an Existing Regulated Public Water System. These approvals were required before Kalaeloa Desalco could advance its applications for other permits and approvals. Several permits and approvals remain outstanding, including a Memorandum of Agreement from the State Historic Preservation Division. Based on the current permitting timeline, we now expect construction of the plant to begin in the first half of 2027, compared with our previous expectation of late 2026.
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.
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.
On October 8, 2026, PERC entered into a design-build agreement with the City of Pismo Beach, California for the Central Coast Blue Advanced Water Purification Facility for a fixed design-build price of approximately $39.8 million. The agreement requires Substantial Completion within 703 calendar days after commencement of services, provides for liquidated damages of $2,500 per day capped at 5% of the contract price, and may be terminated by the City for convenience, in which case PERC would be reimbursed in accordance with the contract terms for work performed.
Manufacturing Segment:
The manufacturing segment generated $449,450 and $4,019,216 in income from operations for 2026 and 2025.
Manufacturing revenue decreased to $6,902,154 for 2026, as compared to $15,708,527 for 2025. The decrease in manufacturing revenue for 2026 resulted from a decrease in the total dollar amount of contracts completed and in progress. 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 $2,079,064 (30% of manufacturing revenue) for 2026 as compared to $5,667,884 (36% of manufacturing revenue) for 2025 due to the decrease in revenue.
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G&A expenses for the manufacturing segment remained relatively consistent at $1,529,557 for 2026 as compared to $1,653,668 for 2025.
Corporate Segment:
Corporate G&A expenses increased to $11,918,693 for 2026 as compared to $10,991,031 for 2025 primarily due to increases in professional fees and directors’ fees and expenses.
FINANCIAL CONDITION
The significant changes in the components of our condensed consolidated balance sheet as of September 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.
Current inventory increased by approximately $2.2 million primarily due to an increase in PERC’s inventory of $1.9 million attributable to materials purchased for a construction contract.
Property, plant and equipment, net, increased by approximately $3.5 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 $2.4 million, primarily due to a $6.3 million transfer of the Cat Island plants to property, plant and equipment, offset by a $2.7 million increase for work underway on a new Cayman Islands reservoir.
Contract liabilities increased by approximately $2.7 million due to a $2.6 million increase for the Kalaeloa Desalco construction project.
LIQUIDITY AND CAPITAL RESOURCES
Certain transfers from our bank accounts in The Bahamas to our bank accounts in other countries require the approval of the Central Bank of The Bahamas.
The Cayman Islands does not have a tax treaty with the United States. Consequently, should we be required or elect to transfer any profits generated by our U.S. subsidiaries to our parent company in the Cayman Islands, we will be required to pay a withholding tax of 30% on the amount of any such funds transferred.
Liquidity Position
Our projected liquidity requirements for the balance of 2026 include capital expenditures for our existing operations of approximately $1.5 million. We paid approximately $2.3 million for dividends in October 2026. Our liquidity requirements may also include future quarterly dividends, if such dividends are declared by our Board.
As of September 30, 2026, we had cash and cash equivalents of $129.2 million and working capital of $145.1 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 $23.5 million and $20.7 million as of September 30, 2026 and December 31, 2025, respectively. Approximately 64% and 71% 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.
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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 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 September 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 April 30, 2026, Moody’s Investors Service (“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.
If CW-Bahamas is unable to collect a sufficient portion of its delinquent accounts receivable, one or more of the following events may occur: (i) CW-Bahamas may not have sufficient liquidity to meet its obligations; (ii) we may be required to cease the recognition of revenue on CW-Bahamas’ water supply agreements with the WSC; and (iii) we may be required to significantly increase our allowance for credit losses for CW-Bahamas’ accounts receivable. 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 Nine Months Ended September 30, 2026
Our cash and cash equivalents increased to $129,150,692 as of September 30, 2026 from $123,788,390 as of December 31, 2025.
Cash Flows from Operating Activities
Net cash provided by our operating activities was $19,112,575. This net cash reflects the net income generated for the nine months ended September 30, 2026 of $10,509,567 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 $5,285,623, an increase in inventory of $2,841,831, an increase in accounts payable, accrued expenses and other current liabilities of $1,012,600 and an increase in contract liabilities of $2,682,764.
Cash Flows from Investing Activities
Net cash used in our investing activities was $6,070,739 primarily for additions to property, plant and equipment and construction in progress.
Cash Flows from Financing Activities
Net cash used by our financing activities was $7,587,815, almost all of which related to the payment of dividends.
Material Commitments, Expenditures and Contingencies
CW-Bahamas Supply Guarantees
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. 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 contracts. 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. 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.
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Legal Proceedings
On May 25, 2021, PERC and OHLA USA, Inc., aka OHL USA Inc. (“OHLA”) entered into a written agreement for professional services (“Subcontract”), pursuant to which PERC agreed to provide certain start-up and commissioning services on the work of improvement known as the Valencia Water Reclamation Plant Advanced Water Treatment Facility in the City of Valencia (“Project”) in exchange for the initial contract price of approximately $495,000. After commencing work on the Project pursuant to the Subcontract in May 2021, PERC performed additional work beyond the original Subcontract scope through 2024 pursuant to written direction and approval from OHLA. This direction was done via formal change orders as well as email directives from OHLA. In total, PERC performed $3,049,299 in directed OHLA work, but has been paid $2,426,537 from OHLA, leaving an unpaid balance of $622,762. Accordingly, on February 13, 2025, PERC filed a lawsuit in Los Angeles County Superior Court against OHLA, its sureties, and the project owner for: (1) Breach of Contract; (2) Reasonable Value; (3) Enforcement of Stop Payment Notice; and (4) Recovery on Payment Bond.
On October 13, 2026, OHLA filed a cross-complaint against PERC for (1) Breach of Contract; (2) Fraudulent Inducement; (3) Intentional Interference with Contractual Relations; (4) Negligence; and (5) Common Count-Money Had and Received. Each of OHLA’s causes of action in the cross-complaint arise from PERC’s separate purchase order with the Project owner to provide post-completion operation and training services. PERC denies the allegations of the cross-complaint and intends to vigorously defend itself in the lawsuit. The cross-complaint does not specify an amount of damages OHLA seeks, but rather a determination based on trial. We cannot presently determine the impact, if any, of the resolution of this litigation on our consolidated financial condition, results of operations or cash flows.
Adoption of New Accounting Standards
None.
Effect of Newly Issued but not yet Effective Accounting Standards
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. 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 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.
Dividends
| ● | On January 30, 2026, we paid a dividend of $0.14 to shareholders of record on January 2, 2026. |
| ● | On April 30, 2026, we paid a dividend of $0.14 to shareholders of record on April 1, 2026. |
| ● | On July 31, 2026, we paid a dividend of $0.14 to shareholders of record on July 1, 2026. |
| ● | On August 18, 2026, our Board declared a dividend of $0.14 payable on October 30, 2026, to shareholders of record on October 1, 2026, which was paid as scheduled. |
We have paid dividends to owners of our common stock and redeemable preferred stock since we began declaring dividends in 1985. Our payment of any future cash dividends will depend upon our earnings, financial condition, cash flows, capital requirements and other factors our Board of Directors deems relevant in determining the amount and timing of such dividends.
Dividend Reinvestment and Common Stock Purchase Plan
This plan is available to our shareholders, who may reinvest all or a portion of their common stock dividends into shares of common stock at prevailing market prices and may also invest optional cash payments to purchase additional shares at prevailing market prices as part of this plan.
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Impact of Inflation
Under the terms of our bulk water sales agreements in the Cayman Islands, The Bahamas and the British Virgin Islands, our water rates are automatically adjusted for inflation on an annual basis. Therefore, the impact of inflation on our gross profit from these revenue sources, measured in consistent dollars, historically has not been material. 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.
While our operations and maintenance contracts are generally adjusted for inflation on an annual basis, such adjustment for many of these contracts is capped at 3% annually.
Kalaeloa Desalco has signed a contract with the Honolulu Board of Water Supply pursuant to which it presently expects to construct and operate a 1.7 million gallons per day seawater reverse osmosis desalination plant in Oahu, Hawaii. Approximately 80% of the approximate $148 million price for the construction of this plant is subject to adjustment based upon changes in inflation indices from September 29, 2022 (the date that was 120 days after the original proposal was submitted) until the date that the notice to proceed with construction is issued by the client.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk from December 31, 2025 to the end of the period covered by this report.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission (the “SEC”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial and accounting officer), as appropriate, to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the possible controls and procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.
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Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 25, 2021, PERC and OHLA USA, Inc., aka OHL USA Inc. (“OHLA”) entered into a written agreement for professional services (“Subcontract”), pursuant to which PERC agreed to provide certain start-up and commissioning services on the work of improvement known as the Valencia Water Reclamation Plant Advanced Water Treatment Facility in the City of Valencia (“Project”) in exchange for the initial contract price of approximately $495,000. After commencing work on the Project pursuant to the Subcontract in May 2021, PERC performed additional work beyond the original Subcontract scope through 2024 pursuant to written direction and approval from OHLA. This direction was done via formal change orders as well as email directives from OHLA. In total, PERC performed $3,049,299 in directed OHLA work, but has been paid $2,426,537 from OHLA, leaving an unpaid balance of $622,762. Accordingly, on February 13, 2025, PERC filed a lawsuit in Los Angeles County Superior Court against OHLA, its sureties, and the project owner for: (1) Breach of Contract; (2) Reasonable Value; (3) Enforcement of Stop Payment Notice; and (4) Recovery on Payment Bond.
On October 13, 2026, OHLA filed a cross-complaint against PERC for (1) Breach of Contract; (2) Fraudulent Inducement; (3) Intentional Interference with Contractual Relations; (4) Negligence; and (5) Common Count-Money Had and Received. Each of OHLA’s causes of action in the cross-complaint arise from PERC’s separate purchase order with the Project owner to provide post-completion operation and training services. PERC denies the allegations of the cross-complaint and intends to vigorously defend itself in the lawsuit. The cross-complaint does not specify an amount of damages OHLA seeks, but rather a determination based on trial. We cannot presently determine the impact, if any, of the resolution of this litigation on our consolidated financial condition, results of operations or cash flows.
ITEM 1A. RISK FACTORS
Our business faces significant risks. These risks include those disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 as updated and supplemented by the risk factors included below. The risk factors below regarding the License supersede the risk factor in that Annual Report regarding the renegotiation of Cayman Water’s retail license. If any of the events or circumstances described in the referenced risks actually occurs, our business, financial condition or results of operations could be materially adversely affected and such events or circumstances could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. These risks should be read in conjunction with the other information set forth in this Quarterly Report as well as in our Annual Report on Form 10-K for the year ended December 31, 2025 and our other filings with the Securities and Exchange Commission.
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Periodically, our Bahamas subsidiary experiences substantial delays in the collection of its accounts receivable. As a result, our Bahamas subsidiary could have insufficient liquidity to continue operations, and our consolidated financial results could be materially adversely affected.
CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $23.5 million as of September 30, 2026. Approximately 64% of this September 30, 2026 accounts receivable balance was delinquent as of that date. 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 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 September 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 April 30, 2026, Moody’s Investors Service (“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.
If CW-Bahamas is unable to collect a significant portion of its delinquent accounts receivable, one or more of the following events may occur: (i) CW-Bahamas may not have sufficient liquidity to meet its obligations; (ii) we may be required to cease the recognition of revenue on CW-Bahamas’ water supply agreements with the WSC; and (iii) we may be required to significantly increase our allowance for credit losses for CW-Bahamas’ accounts receivable. Any of these events could have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.
The profitability of our contracts is dependent upon our ability to accurately estimate construction and operating costs.
The cost estimates we prepare in connection with the construction and operation of our water plants, the water infrastructure we construct and sell to third parties, and our manufacturing contracts, are subject to inherent uncertainties. Additionally, the terms of our water supply contracts may require us to guarantee the price of water on a per unit basis, subject to certain annual inflation and monthly energy cost adjustments, and to assume the risk that the costs associated with producing this water may be greater than anticipated. Because we base our contract prices in part on our estimation of future construction, manufacturing and operating costs, the profitability of our plants and our manufacturing and operations and maintenance contracts is dependent on our ability to estimate these costs accurately. The cost of materials and services and the cost of the delivery of such services may increase significantly after we submit our bid for a contract, which could cause the gross profit for a contract to be less than we anticipated when the bid was made. The profit margins we initially expect to generate from an operations and maintenance contract could be further reduced if future operating costs for that contract exceed our estimates of such costs. Any construction, manufacturing, and operating costs for our contracts that significantly exceed our initial estimates could have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.
The License has reduced, and may continue to reduce, the revenue and operating income we generate from our retail operations, and our retail profitability depends on future OfReg rate determinations and our compliance with the License.
Effective August 1, 2026, Cayman Water sells water under the License issued by OfReg, which established base rates that are lower than those under the 1990 License. Cayman Water’s retail operations generated approximately 27% of our consolidated revenue and 44% of our consolidated gross profit for the nine months ended September 30, 2026. Based on
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our pro forma estimates, application of the License rate structure to historical volumes would have reduced our revenue by approximately $2.1 million for 2024 and $1.9 million for 2025 and $1.3 million for the period from January 1, 2026 to July 31, 2026. Future adjustments to base rates are subject to OfReg verification and approval, and recovery of energy costs is subject to an efficiency-based mechanism. OfReg may modify the License in specified circumstances, with or without our agreement, and may revoke or suspend the License upon specified events. Any of these factors could have a material adverse effect on our consolidated financial condition, results of operations and cash flows and could require us to record impairment losses on our retail segment assets.
Delays in obtaining permits and approvals for the Kalaeloa desalination plant have deferred, and may further defer, construction, revenue and cash flows from the project and could expose us to contractual remedies.
Kalaeloa Desalco must obtain federal, state and local permits and approvals before it can begin and complete construction of the 1.7 million gallons per day seawater reverse osmosis plant in Oahu, Hawaii. Permitting delays have deferred project milestones, and we now expect construction to begin in the first half of 2027 rather than late 2026. Several permits and approvals remain outstanding, including a Memorandum of Agreement from the State Historic Preservation Division. If schedule extensions from BWS are insufficient, BWS may attempt to assess liquidated damages, withhold milestone payments or terminate the contract, and cost increases during the delay may not be fully recovered. Any of these developments could have a material adverse effect on our consolidated results of operations and cash flows.
Our fixed-price design-build contracts, including PERC’s agreement with the City of Pismo Beach, expose us to cost overruns, performance requirements and liquidated damages.
In October 2026, PERC agreed to design and build the Central Coast Blue Advanced Water Purification Facility for the City of Pismo Beach, California for a fixed price of approximately $39.8 million. PERC must achieve Substantial Completion within 703 calendar days after commencement of services and will owe liquidated damages of $2,500 per day, up to 5% of the contract price, if Substantial Completion is late. PERC’s aggregate liability under the agreement is capped at $14.0 million, and the City may terminate the agreement for convenience. If our costs exceed our estimates or we fail to meet schedule or performance requirements, our consolidated results of operations and cash flows could be materially adversely affected.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter, we issued 797 shares of preferred stock to 11 employees upon the exercise of stock options for cash at a price of $25.13 per share, for a total consideration of $20,029. The issuance of the preferred stock to five of these employees was exempt from registration under Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”), because the shares were issued outside the United States to non-U.S. persons (as defined in Regulation S). The issuance to the other six employees, who are U.S. persons, was exempt under Section 4(a)(2) of the Securities Act. These U.S. persons are knowledgeable, sophisticated, and experienced in making investment decisions of this kind and received adequate information about us or had adequate access to such information, including through their business relationship with us.
ITEM 5. OTHER INFORMATION
During the quarter ended September 30, 2026, no directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) of the Company adopted or terminated any “
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ITEM 6. EXHIBITS
| | |
Exhibit | | Exhibit Description |
31.1 | | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
31.2 | | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
32.1 | | Section 1350 Certification of Chief Executive Officer |
32.2 | | Section 1350 Certification of Chief Financial Officer |
101.INS | | XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | | XBRL Taxonomy Extension Schema |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
101.LAB | | XBRL Taxonomy Extension Label Linkbase |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
104 | | Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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CONSOLIDATED WATER CO. LTD. | ||
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By: | /s/ Frederick W. McTaggart |
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| Frederick W. McTaggart |
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| Chief Executive Officer |
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| (Principal Executive Officer) |
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By: | /s/ David W. Sasnett |
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| David W. Sasnett |
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| Executive Vice President & Chief Financial Officer |
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| (Principal Financial and Accounting Officer) |
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Date: November 9, 2026 | ||
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