Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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.

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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:

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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:

Goodwill and Intangible Assets

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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

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.

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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.

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.

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.

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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.

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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.

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.

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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.

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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.

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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.

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.

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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.

G&A expenses for the manufacturing segment remained relatively consistent at $524,577 for 2026 as compared to $459,038 for 2025.

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Corporate Segment:

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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.

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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.

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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.

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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.

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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.

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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.

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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

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.

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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.

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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.

G&A expenses for the manufacturing segment remained relatively consistent at $1,529,557 for 2026 as compared to $1,653,668 for 2025.

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Corporate Segment:

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

Legal Proceedings

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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.

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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.

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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.

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Dividends

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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.

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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.

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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.

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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.

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

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