Quarterly Report for Quarter Ending September 30, 2025 (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 2024, we elected to assess qualitative factors to determine whether it was necessary to perform the quantitative goodwill impairment testing we have conducted in prior years 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 events. 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, 2024.

In 2020, approximately 80% of Aerex's revenue, and 89% of Aerex's gross profit were generated from sales to one customer. While Aerex sells various products to this customer, Aerex's revenue from this customer had historically been derived primarily from one specialized product. In October 2020, this customer informed Aerex that, for inventory management purposes, it was suspending its purchases of the specialized product from Aerex following 2020 for a period of approximately one year. This customer informed Aerex at that time that it expected to recommence its purchases of the specialized product from Aerex beginning with the first quarter of 2022. As a result of this anticipated loss of revenue for Aerex, we updated our projections for our manufacturing reporting unit's future cash flows. Such projections assumed, in part, that Aerex's major customer would recommence its purchases from Aerex in 2022 but at a reduced aggregate amount, as compared to 2020. Based upon these updated projections, we tested our manufacturing reporting unit's goodwill for possible impairment as of December 31, 2020 using the discounted cash flow and guideline public company methods, with a weighting of 80% and 20% applied to these two methods, respectively. As a result of these impairment tests, we determined that the estimated fair value of our manufacturing reporting unit exceeded its carrying value by approximately 31% as of December 31, 2020.

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In late July 2021, this former major customer communicated to Aerex that it expected to recommence its purchases of the specialized product from Aerex in 2022 and subsequent years, but informed Aerex that such purchases would be at substantially reduced annual amounts, as compared to the amounts it had purchased from Aerex in 2020 and prior years. Our updated sales estimate for this customer based on this new information was substantially below the sales we anticipated to this customer for 2022 and subsequent years that we used in the discounted cash flow projections we prepared for purposes of testing our manufacturing reporting unit's goodwill for possible impairment as of December 31, 2020. Furthermore, Aerex's efforts to replace the revenue previously generated from this customer with revenue from existing and new customers were adversely impacted by negative economic conditions (caused in part by the COVID-19 pandemic). These negative economic conditions also increased Aerex's raw material costs, resulted in raw material shortages and extended delivery times for such materials, and adversely affected the overall financial condition of Aerex's current and prospective customers. Accordingly, in light of this new information from Aerex's former major customer, and the on-going weak economic conditions that we believed would continue through 2022, we updated our projections of future cash flows for the manufacturing reporting unit and tested its goodwill for possible impairment as of June 30, 2021 using the discounted cash flow and guideline public company methods, with a weighting of 80% and 20% applied to these two methods, respectively. Based upon this testing, we determined that the carrying value of our manufacturing reporting unit exceeded its fair value by $2.9 million, and we recorded an impairment loss to reduce our manufacturing segment's goodwill by this amount for the three months ended June 30, 2021.

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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.

On June 29, 2020, our Mexico subsidiary, AdR, received a letter from the State of Baja California (the "State") terminating AdR's contract with the State involving the construction and operation of a desalination plant in Rosarito California and accompanying aqueduct to deliver the water produced by this plant to the Mexican public water system. As a result of the cancellation of this contract, we recorded an impairment loss for rights of way acquired for the contract's proposed aqueduct of approximately ($3.0 million) in 2020.

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 comprised of estimated total contract costs. Due to the extended time it may take to complete many of our contracts and the scope and nature of the work required to be performed on those contracts, the estimations of total revenue and costs at completion are complicated and subject to many variables and, accordingly, are subject to changes. 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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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, 2024 ("2024 Form 10-K") and the information set forth under Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2024 Form 10-K.

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

Discontinued Operations - Mexico Project Development

In 2010, we began the pursuit, through our Netherlands subsidiary, Consolidated Water Cooperatief, U.A. ("CW-Cooperatief"), and our Mexico subsidiary, N.S.C. Agua, S.A. de C.V. ("NSC"), of a project (the "Project") that encompassed the construction, operation and minority ownership of a 100 million gallons per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and accompanying pipeline to deliver water to the Mexican potable water system.

Through a series of transactions that began in 2012, NSC purchased 20.1 hectares of land for approximately $21.1 million on which the proposed Project's plant was to be constructed.

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In November 2015, the State of Baja California (the "State") officially commenced a public tender for the Project, and in June 2016 a consortium comprised of NSC and two other parties was selected by the State as the winner of the tender process for the Project. NSC subsequently formed AdR to pursue the completion of the Project.

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On August 22, 2016, the Public Private Partnership Agreement for the Project (the "APP Contract") was executed between AdR, the State Water Commission of Baja California ("CEA"), the Government of Baja California as represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana ("CESPT"). 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 100 million gallons per day in two phases: the first with a capacity of 50 million gallons per day and an aqueduct to the Mexican potable water system in Tijuana, Baja California and the second phase with a capacity of 50 million gallons per day. The first phase was to be operational within 36 months of commencing construction and the second phase was to be operational by July 2024. The APP Contract further required AdR to operate and maintain the plant and aqueduct for a period of 37 years starting from the commencement of operation of the first phase. At the end of the operating period, ownership of the plant and aqueduct would have been transferred to CEA.

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On June 29, 2020, AdR received a letter (the "Letter") from CEA and CESPT terminating the APP Contract. The Letter requested that AdR provide an inventory of the assets that comprised the "Project Works" (as defined in the APP Contract) for the purpose of acknowledging and paying the non-recoverable expenses made by AdR in connection with the Project, with such reimbursement to be calculated in accordance with the terms of the APP Contract. On August 28, 2020, AdR submitted their list of non-recoverable expenses, including those of NSC, to CEA and CESPT which was comprised of 51,144,525 United States dollars and an additional 137,333,114 Mexican pesos.

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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"). On April 16, 2021, CW-Cooperatief submitted a letter to the President of Mexico and other Mexican federal government officials alleging that the State's termination of the APP Contract constituted a breach by Mexico of its international obligations under the Treaty, entitling CW-Cooperatief to full reparation, including monetary damages. This letter invited Mexico to seek a resolution of this investment dispute through consultation and negotiation but stated that if the dispute could not be resolved in this manner, CW-Cooperatief would refer the dispute to the International Centre for the Settlement of International Disputes for arbitration, as provided for in the Treaty.

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In February 2022, CW-Cooperatief, filed a Request for Arbitration with the International Centre for Settlement of International Disputes requesting that the United Mexican States pay CW-Cooperatief damages in excess of US$51 million plus MXN$137 million (with the exact amount to be quantified in the proceedings), plus fees, costs and pre- and post-award interest.

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In May 2024, we, through CW-Cooperatief, NSC, and AdR, entered into a settlement agreement (the "Settlement Agreement") with the State and Banco Nacional de Obras y Servicios Públicos, S.N.C., as trustee under the trust agreement for the trust named Fondo Nacional de Infraestructura (the "Trust"). Under the Settlement Agreement, CW-Cooperatief requested that ICSID discontinue the arbitration and on May 31, 2024, ICSID issued an order discontinuing the arbitration. Pursuant to the Settlement Agreement, the Trust purchased the 20.1 hectares of land on which the Project's plant was to be constructed, including related rights of way (the "Land"), on an "as-is" basis, from NSC for MXN$596,144,000. The sale of the Land to the Trust was closed on June 14, 2024 at which time the MXN$596,144,000 was paid to us and converted at the prevailing exchange rate on that date into US$31,959,685.

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In connection with the Settlement Agreement on June 14, 2024, the State also paid NSC MXN$20,000,000 to purchase certain documentation owned by NSC relating to the Project.

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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.

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We are presently in the process of legally terminating/dissolving CW-Cooperatief, NSC and AdR and will continue to incur expenses for these subsidiaries until such processes are completed.

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Our net losses from discontinued operations for the three months ended September 30, 2025 and 2024 were $($37,220) and ($502,854), respectively.

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Consolidated Results

Including discontinued operations, net income attributable to Consolidated Water Co. Ltd. stockholders for 2025 was $5,532,344 ($0.34 per share on a fully diluted basis), as compared to net income of $4,454,464 ($0.28 per share on a fully diluted basis) for 2024.

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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, 2025 as compared to the three months ended September 30, 2024 relates only to our continuing operations.

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Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders for 2025 was $5,569,564 ($0.34 per share on a fully diluted basis), as compared to net income from continuing operations of $4,957,318 ($0.31 per share on a fully diluted basis) for 2024.

Revenue for 2025 increased to $35,118,706 from $33,390,557 in 2024, as a result of revenue increases in the retail, services and manufacturing segments. These increases were partially offset by a slight decline in revenue for the bulk segment. Gross profit for 2025 was $12,945,909 (37% of total revenue) as compared to $11,634,658 (35% of total revenue) for 2024. 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 $7,218,722 for 2025 as compared to $6,955,969 for 2024. The increase in G&A expenses for 2025 arises principally from incremental employee costs of approximately $193,000 attributable to new hires and salary increases.

Other income, net, remained relatively consistent at $811,227 for 2025 as compared to $724,040 for 2024.

Results by Segment

Retail Segment:

The retail segment generated $3,377,580 in income from operations for 2025 as compared to $3,200,441 for 2024.

Revenue generated by retail water operations increased to $7,770,344 in 2025 from $7,585,992 in 2024 due to a 6% increase in the volume of water sold. We believe significantly lower rainfall in 2025 on Grand Cayman as compared to 2024 and an increase in total number of customer service connections were the principal reasons for the increase in the volume of water sold in 2025. The impact of greater volume sales on retail revenue for 2025 was partially offset by a decrease in energy costs in 2025 from 2024 that decreased the energy pass-through component of Cayman Water's rates.

As a result of the revenue increase, retail segment gross profit increased in both total dollars and as a percentage of revenue to $4,323,082 (56% of retail revenue) for 2025 from $3,979,048 (52% of retail revenue) for 2024.

Retail G&A expenses increased to $952,102 for 2025 compared to $787,403 for 2024 principally due to incremental information technology expenses resulting from the ongoing implementation of a new utility billing system and an increase in employee costs attributable to salary increases.

Bulk Segment:

The bulk segment generated $2,642,709 and $2,416,646 in income from operations for 2025 and 2024, respectively.

Bulk segment revenue was $8,394,614 and $8,767,168 for 2025 and 2024, respectively. The decrease in bulk revenue from 2024 to 2025 resulted from lower diesel fuel prices, which decreased the pass-through energy component of CW-Bahamas' rates.

Gross profit for our bulk segment increased to $2,910,001 (35% of bulk revenue) for 2025 as compared to $2,797,876 (32% of bulk revenue) for 2024 due to improved plant efficiency and reductions in various operating expenses.

Bulk segment G&A expenses decreased to $267,292 for 2025 as compared to $381,230 for 2024 due to a decrease in the provision for credit losses of approximately $122,000.

Services Segment:

The services segment generated $1,911,730 and $1,798,667 in income from operations for 2025 and 2024, respectively.

Services segment revenue increased to $14,289,315 for 2025 from $12,677,837 for 2024. Construction revenue increased to $6,360,333 as compared to $4,251,237. Revenue generated under operations and maintenance contracts increased to $7,715,000 for 2025 as compared to $7,492,121 for 2024 primarily due to the amendment, effective June 2025, of an operating and maintenance contract for a US federal client which increased the scope of services we provide (and thus increased the fees we charge) under that contract. Design and consulting revenue decreased to $213,982 in 2025 from $934,479 in 2024 due to the completion in the fourth quarter of 2024 of a contract for a major plant commissioning and startup project.

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Gross profit for the services segment increased to $3,844,421 (27% of services revenue) in 2025 from $3,268,512 (26% of services revenue) in 2024 due to the overall increase in revenue.

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We have been informed by one of our significant operations and maintenance customers that it is unlikely such customer will extend its existing contract with PERC beyond the current expiration date of this contract in March 2026. We recognized approximately $1.4 million and $474,000 in revenue and gross profit, respectively, under this contract for 2025.

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G&A expenses for the services segment increased to $1,955,186 for 2025 as compared to $1,469,845 for 2024 primarily due to incremental employee costs of $318,518 attributable to new hires and salary increases.

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Manufacturing Segment:

The manufacturing segment contributed $1,414,367 and $843,804 to our income from operations in 2025 and 2024, respectively.

Manufacturing revenue increased to $4,664,433 from $4,359,560 for 2025 and 2024, respectively, due to increased production activity.

Manufacturing gross profit was $1,868,405 (40% of manufacturing revenue) for 2025 as compared to a gross profit of $1,589,222 (36% of manufacturing revenue) for 2024. The increase in manufacturing gross profit in dollars and as a percentage of revenue results from production efficiencies and a higher margin product mix.

G&A expenses for the manufacturing segment decreased to $459,038 for 2025 as compared to $745,418 for 2024 due to a decrease in the provision for credit losses of $184,000.

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Corporate

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Corporate G&A expenses remained relatively consistent at $3,585,104 for 2025 as compared to $3,572,073 for 2024.

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Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

Discontinued Operations - Mexico Project Development

As discussed previously, on June 30, 2020 the State of Baja California cancelled its APP Contract with AdR for the Project. As a result of the cancellation of the Project, we discontinued all development activities associated with the Project, commenced marketing efforts to sell the land NSC purchased for the Project, and initiated international arbitration against the Government of Mexico to recover the costs we had incurred for the Project. In May 2024, we executed a Settlement Agreement with the State pursuant to which we discontinued the arbitration in exchange for the purchase by the State (i) of the land for the Project for MXN$596,144,000; and (ii) certain documentation for the Project for MXN$20,000,000. We received the proceeds from the sale of the land and documentation in June 2024.

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We are presently in the process of legally terminating/dissolving CW-Cooperatief, NSC and AdR and will continue to incur expenses for these subsidiaries until such processes are completed.

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Our net loss from discontinued operations for the nine months ended September 30, 2025 was ($252,857). We generated net income from discontinued operations of $10,637,926 for the nine months ended September 30, 2024 as a result of the gain generated from the sale of the Project land and documentation under the Settlement Agreement.

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Consolidated Results

Including discontinued operations, net income attributable to Consolidated Water Co. Ltd. stockholders for 2025 was $15,419,578 ($0.96 per share on a fully diluted basis), as compared to net income of $26,779,069 ($1.68 per share on a fully diluted basis) for 2024.

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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, 2025 as compared to the nine months ended September 30, 2024 relates only to our continuing operations.

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Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders for 2025 was $15,672,435 ($0.97 per share on a fully diluted basis), as compared to net income from continuing operations of $16,141,143 ($1.01 per share on a fully diluted basis) for 2024.

Revenue for 2025 decreased to $102,425,170 from $105,559,105 in 2024. Increases in revenue for the retail and manufacturing segments were more than offset by a significant decrease in the services segment revenue. Gross profit for 2025 was $38,084,181 (37% of total revenue) as compared to $37,132,895 (35% of total revenue) for 2024. For further discussion of revenue and gross profit see the "Results by Segment" discussion and analysis that follows.

G&A expenses on a consolidated basis increased to $22,522,919 for 2025 as compared to $20,126,292 for 2024. The increase in G&A expenses for 2025 arises principally from (i) incremental legal, consulting and other professional fees of approximately $642,000; (ii) added employee costs of approximately $1.2 million attributable to new hires, salary

increases and (iii) incremental information technology expenses of almost $240,000 resulting from the ongoing implementation of a new utility billing system for the retail segment.

Other income, net, increased to $2,320,300 for 2025 as compared to $1,560,650 for 2024 primarily due to approximately $669,000 of additional interest income earned on higher balances of interest earning assets.

Results by Segment

Retail Segment:

The retail segment generated $12,201,514 in income from operations for 2025 compared to $11,231,252 for 2024.

Revenue generated by our retail water operations increased to $25,819,712 in 2025 from $24,392,814 in 2024 due to a 9% increase in the volume of water sold. We believe significantly lower rainfall in 2025 on Grand Cayman as compared to 2024 and an increase in total number of customer service connections were the principal reasons for the increase in the volume of water sold in 2025. The impact of greater volume sales on retail revenue for 2025 was partially offset by a decrease in energy costs in 2025 from 2024 that decreased the energy pass-through component of Cayman Water's rates.

As a result of the revenue increase, retail segment gross profit increased in both total dollars and as a percentage of revenue to $14,890,629 (58% of retail revenue) for 2025 from $13,564,393 (56% of retail revenue) for 2024.

Retail G&A expenses increased to $2,726,531 for 2025 compared to $2,335,807 for 2024 primarily as a result of incremental information technology expenses to approximately $240,000 for the ongoing implementation of a new utility billing system.

Bulk Segment:

The bulk segment generated $7,265,414 and $6,836,571 in income from operations for 2025 and 2024, respectively.

Bulk segment revenue was $25,081,146 and $25,557,220 for 2025 and 2024, respectively. The decrease in bulk revenue from 2024 to 2025 resulted from lower diesel fuel prices, which decreased the pass-through energy component of CW-Bahamas' rates.

Gross profit for our bulk segment improved slightly to $8,273,537 (33% of bulk revenue) for 2025 as compared to $7,925,210 (31% of bulk revenue) for 2024, primarily as a result of improved plant efficiency and lower operating costs.

Bulk segment G&A expenses remained relatively consistent at $1,008,123 for 2025 as compared to $1,088,639 for 2024.

Services Segment:

The services segment generated $3,160,696 and $7,219,793 in income from operations for 2025 and 2024, respectively.

Construction revenue declined to $11,404,500 for 2025 as compared to $17,632,772 for 2024 primarily as a result of approximately $8.0 million of additional revenue generated from PERC's contract with Liberty Utilities and $1.3 million in revenue generated from the Red Gate contract in Grand Cayman in 2024. Such contracts were substantially completed by the end of the second quarter of 2024. Construction revenue recognized on the Hawaii contract also declined by $3.1 million in 2025 due to the completion of the pilot plant testing phase of the project, which has resulted in a decrease in project expenditures pending commencement of the construction phase of the project. These decreases in construction revenue were partially offset by construction revenue generated under new contracts. Revenue generated under operations and maintenance contracts increased to $23,695,704 for 2025 as compared to $21,660,396 for 2024 as a result of incremental revenue generated by both PERC and REC. Design and consulting revenue decreased to $715,581 in 2025 from $2,724,749 in 2024 due to the completion in the fourth quarter of 2024 of a contract for a major plant commissioning and startup project.

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Gross profit for the services segment decreased to $9,252,131 (26% of services revenue) in 2025 from $11,481,116 (27% of services revenue) in 2024 due to the substantial decline in construction and design and consulting revenue.

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We have been informed by one of our significant operations and maintenance customers that it is unlikely such customer will extend its existing contract with PERC beyond the current expiration date of this contract in March 2026. We recognized approximately $3.7 million and $1.2 million in revenue and gross profit, respectively, under this contract for 2025.

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G&A expenses for the services segment increased to $6,143,566 for 2025 as compared to $4,264,323 for 2024 primarily due to increases of (i) $1,036,730 in employee costs attributable to new hires and salary increases; (ii) incremental legal costs and other professional fees of $300,866; and (iii) approximately $329,000 for the provision for credit losses.

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Manufacturing Segment:

The manufacturing segment contributed $4,019,216 and $2,231,470 to our income from operations in 2025 and 2024, respectively.

Manufacturing revenue increased to $15,708,527 in 2025 from $13,591,154 for 2024 due to increased production activity.

Manufacturing gross profit was $5,667,884 (36% of manufacturing revenue) for 2025 as compared to $4,162,176 (31% of manufacturing revenue) for 2024. The increase in manufacturing gross profit in dollars and as a percentage of revenue results from increased production activity, production efficiencies and a higher margin product mix.

G&A expenses for the manufacturing segment decreased to $1,653,668 for 2025 as compared to $1,930,706 for 2024 due to a reduction of $327,000 in the provision for credit losses.

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Corporate

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Corporate G&A expenses increased to $10,991,031 for 2025 as compared to $10,506,817 for 2024 due to incremental legal, and other professional fees of approximately $353,000.

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FINANCIAL CONDITION

The significant changes in the components of our condensed consolidated balance sheet as of September 30, 2025 as compared to December 31, 2024 (other than the change in our cash and cash equivalents, which is discussed later in "LIQUIDITY AND CAPITAL RESOURCES") and the reasons for these changes are discussed in the following paragraphs.

Accounts receivable decreased by approximately $10.6 million primarily due to a $11.5 million decrease in CW-Bahamas' accounts receivable.

Current inventory decreased by approximately $4.4 million primarily due to a decrease of $4.3 million in Aerex's inventory resulting from the consumption of materials used in product production.

Contract assets increased by approximately $2.3 million primarily due to a $1.0 million increase in the manufacturing segment contract assets attributable to work started in the third quarter for one client and an increase in PERC's contract assets of approximately $2.3 million. These increases were partially offset by a decrease of approximately $1.1 million in DesalCo's contract assets due to the collection of the final payment for the design and construction of the WAC's Red Gate plant.

Property, plant and equipment, net, increased by approximately $3.1 million primarily due to the completion of the expansion of Aerex's manufacturing facility this quarter as well as specialized equipment purchased for the services segment.

Contract liabilities increased by $2.6 million due to a $3.2 million increase for the Kalaeloa Desalcoconstruction 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 would 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 2025 include capital expenditures for our existing operations of approximately $4.5 million, which includes approximately $1.3 million to be incurred during 2025 for a project in The Bahamas and $266,000 for new equipment for Aerex's manufacturing facility. We paid approximately $2.3 million for dividends in October 2025. 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, 2025, we had cash and cash equivalents of $123.6 million and working capital of $141.7 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 $16.8 million and $28.4 million as of September 30, 2025 and December 31, 2024, respectively. Approximately 66% and 81% of the accounts receivable balances were delinquent as of those dates, respectively. The delay in collecting these accounts receivable has adversely impacted the liquidity of this subsidiary.

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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, 2025.

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We continue to be in frequent contact with officials of The Bahamas government, who continue to express their intention to eliminate CW-Bahamas delinquent accounts receivable balances in the near future. However, we are unable to determine when such reduction will occur.

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In a report dated October 6, 2022, Moody's Investor Services ("Moody's") downgraded The Bahamas' long-term issuer and senior unsecured ratings to B1 from Ba3. Moody's also lowered The Bahamas' local currency ceiling to Baa3 from Baa2 and its foreign currency ceiling to Ba1 from Baa3. Moody's has maintained these ratings through the date of its most current report issued in April 2025. 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 provide a material 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, 2025

Our cash and cash equivalents increased to $123,554,648 as of September 30, 2025 from $99,350,121 as of December 31, 2024.

Cash Flows from Operating Activities

Net cash provided by our operating activities was $35,932,833. This net cash reflects the net income generated for the nine months ended September 30, 2025 of $15,890,319 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 $5,163,826, a decrease in accounts receivable of $10,290,048, a decrease in inventory of $3,610,403, an increase in contract assets of $2,261,618, and an increase in contract liabilities of $2,555,352.

Cash Flows from Investing Activities

Net cash used in our investing activities was $6,045,599 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 $5,784,451, almost all of which related to the payment of dividends.

Material Commitments, Expenditures and Contingencies

Cayman Water Retail License

We sell water through our retail operations under a license issued in July 1990 by the Cayman Islands government (the "1990 license") that granted Cayman Water the exclusive right to provide potable water to customers within its licensed service area. Pursuant to the 1990 license, Cayman Water has the exclusive right to produce potable water and distribute it by pipeline to its licensed service area, which consists of two of the three most populated areas of Grand Cayman Island: Seven Mile Beach and West Bay. For the three months ended September 30, 2025 and 2024, we generated approximately 22% and 23%, respectively, of our consolidated revenue and 33% and 34%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license. For the nine months ended September 30, 2025 and 2024, we generated approximately 25% and 23%, respectively, of our consolidated revenue and 39% and 36%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license.

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The 1990 license was originally scheduled to expire in July 2010 but was extended several times by the Cayman Islands government to provide the parties with additional time to negotiate the terms of a new license agreement. The most recent express extension of the license expired on January 31, 2018. From that date until February 18, 2025, we continued to operate under the terms of the 1990 license, treating such terms as operative notwithstanding the expiration of the express extension. We continued to pay a royalty of 7.5% of the revenue we collect as required under the 1990 license.

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

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Under the new regulatory legislation passed in October 2016, Cayman Water was required to first be granted a concession by the government before obtaining a new (or renewing the old) retail operations license. On February 18, 2025, Cayman Water received a new concession from the government that authorizes and maintains the terms of the 1990 license until a new license from OfReg is negotiated and enacted. Negotiations between Cayman Water and OfReg for the new license remain on-going.

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We have been informed during our retail license negotiations, both by OfReg and its predecessor in these negotiations, that they seek to restructure the terms of its license in a manner that could significantly reduce the operating income and cash flows we have historically generated from our retail license. We are presently unable to determine what impact the resolution of our retail license negotiations will have on our consolidated financial condition, results of operations, or cash flows but such resolution could result in a material reduction (or the loss) of the operating income and cash flows we have historically generated from our retail operations and could require us to record impairment losses to reduce the carrying

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

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CW-Bahamas Performance Guarantees

Our contracts to supply water to the WSC from our Blue Hills and Windsor plants require us to guarantee delivery of a minimum quantity of water per week. If the WSC requires the water and we do not meet this minimum, we are required to pay the WSC for the difference between the minimum and actual gallons delivered at a per gallon rate equal to the price per gallon that the WSC is currently paying us under the contract. 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.

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Adoption of New Accounting Standards

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as additional information on income taxes paid. The ASU became effective on a prospective basis for annual periods beginning after December 15, 2024. The adoption of ASU 2023-09 did not have a material impact on our consolidated financial position, results of operations or cash flows.

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.

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In January 2025, the FASB issued ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date. The ASU amends the effective date of ASU 2024-03 to clarify that all business entities are required to adopt the guidance in annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. We are currently evaluating the impact of this guidance.

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In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The ASU requires entities to begin capitalizing software costs when management authorizes and commits to funding the software project, and it is probable that the project will be completed and the software will be used for its intended purpose. The ASU is effective for annual periods beginning after December 15, 2027. Early adoption is permitted and the guidance can be applied on a prospective basis, a modified basis for in-process projects, or on a retrospective basis. The Company is currently evaluating the impact of this guidance.

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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. However, while we have received annual inflation adjustments for the rates we charge under our bulk water agreements, we were unable to increase the water rates for Cayman Water since January 2018 (despite the inflation that has occurred since that date) due to the delayed resolution of our negotiations with OfReg for a new retail license. While we believe that we are entitled to apply to OfReg for future rate adjustments under the terms of the February 18, 2025 concession agreement with the Cayman Islands government, the denial by OfReg of such application or approval of an increase that is less than the increase in our costs could adversely affect the profitability of our retail segment. 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 is presently designing and expects to construct and operate a 1.7 million gallons per day seawater reverse osmosis desalination plant in Oahu, Hawaii. Approximately 80% of the $147 million price for the construction of this plant is subject to adjustment based upon changes in inflation indices from 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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