Consolidated Water Co. Ltd

ITEM 1A. RISK FACTORS

Our business faces significant risks. These risks include those disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 as supplemented by the additional risk factors included below. If any of the events or circumstances described in the referenced risks actually occurs, our business, financial condition or results of operations could be materially adversely affected and such events or circumstances could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. These risks should be read in conjunction with the other information set forth in this Quarterly Report as well as in our Annual Report on Form 10-K for the year ended December 31, 2024 and in our other periodic reports on Form 10-Q and Form 8-K.

Our exclusive license to provide water to retail customers in the Cayman Islands is presently under renegotiation with OfReg, the Cayman Islands government utility regulatory authority, and we are presently unable to predict the outcome of these on-going negotiations.

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 March 31June 30, 2025 and 2024, we generated approximately 26% and 25%, respectively, of our consolidated revenue and 38% and 39%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license. For the six months ended June 30, 2025 and 2024, we generated approximately 287% and 223%, respectively, of our consolidated revenue and 462% and 378%, respectively, of our consolidated gross profit from the retail water operations conducted under the 1990 license.

The 1990 license was originally scheduled to expire in July 2010 but was extended several times by the Cayman Islands government in order 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 through February 18, 2025, we

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continued to operate under the terms of the 1990 license, providing water services to the level and quality specified in the 1990 license and in accordance with our understanding of its legal obligations, treating those obligations set forth in the 1990 license as otreating such terms as operative notwithstanding the expiration of the express extension. We continued to pay a royalty of 7.5% of the revenue we collected 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). OfReg is an and independent and accou April 2017 passed supplementable regul legislatory body with a view of protecting the rights of ion which transferred responsibility for the econsumers, encouraging affordableomic regulation of the water utility services,ctor and promoting competithe negotiation. OfReg, which began operations in January 2017, has the abilitys with us for a new retail license to supervise, monitor andOfReg.

Under the new regulate multiple utility undertakings and markets. Supplemental legislatory legislation passed in October 2016, Cayman Water was required to first be granted a concession was passed by the Ggovernment of tbefore obtaining a new (or renewing the Cayman Islands in April 2017, which transferredold) retail operations license. On February 18, 2025, Cayman Water responsibility for eceived a new conomic regulatcession offrom the water utility sectorgovernment that authorizes and the negotiatiomaintains with us for a new retathe terms of the 1990 license until a new license from the WAC to OfReg in May 2017. We began license ns negotiated and enacted. Negotiations with OfReg in July 2017between Cayman Water and such negotiations areOfReg for the new license remain on-going. 

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

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 government that authorizes and maintains the terms of the 1990 license until a new license from OfReg is negotiated and enacted.

We are presentl We are presently unable to determine what impact the resolution of our retail license negotiations with OfReg will have on our cash flows,onsolidated financial condition or r, 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.

Periodically, our Bahamas subsidiary experiences substantial delays in the collection of its accounts receivable. As a result, our Bahamas subsidiary could have insufficient liquidity to continue operations, and our consolidated financial results could be materially adversely affected.

CW-Bahamas accounts receivable balances (which include accrued interest) due from the WSC amounted to $25.59.3 million as of March 31June 30, 2025. Approximately 7881% of this March 31June 30, 2025 accounts receivable balance was delinquent as of that date. The delay in collecting these accounts receivable has adversely impacted the liquidity of this subsidiary.

From time to time (including presently), CW-Bahamas has experienced delays in collecting its accounts receivable from the WSC. When these delays occur, we hold discussions and meetings with representatives of the WSC and Tthe Bahamas government of The Bahamas. All previous delinquent accounts receivable from the WSC, including accrued interest thereon, were eventually paid in full. Based upon this payment history, we have not provided for a material allowance for credit losses for CW-Bahamas accounts receivable from the WSC as of March 31June 30, 2025.

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

If CW-Bahamas is unable to collect a significant portion of its delinquent accounts receivable, one or more of the following events may occur: (i) CW-Bahamas may not have sufficient liquidity to meet its obligations; (ii) we may be required to cease the recognition of revenue on CW-Bahamas water supply agreements with the WSC; and (iii) we may be required to 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.

The profitability of our contracts is dependent upon our ability to accurately estimate construction and operating costs.

The cost estimates we prepare in connection with the construction and operation of our water plants, the water infrastructure we construct and sell to third parties, and our manufacturing contracts, are subject to inherent uncertainties. Additionally, the terms of our water supply contracts may require us to guarantee the price of water on a per unit basis,

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subject to certain annual inflation and monthly energy cost adjustments, and to assume the risk that the costs associated with producing this water may be greater than anticipated. Because we base our contract prices in part on our estimation of future construction, manufacturing and operating costs, the profitability of our plants and our manufacturing and operations and maintenance contracts is dependent on our ability to estimate these costs accurately. The cost of materials and services and the cost of the delivery of such services may increase significantly after we submit our bid for a contract, which could cause the gross profit for a contract to be less than we anticipated when the bid was made. The profit margins we initially expect to generate from an operations and maintenance contract could be further reduced if future operating costs for that contract exceed our estimates of such costs. Any construction, manufacturing, and operating costs for our contracts that significantly exceed our initial estimates could have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.

Substantial changes to fiscal, regulation and other federal policies could adversely affect our business, financial condition, operating results and cash flows.

Significant changes in, and uncertainty with respect to, legislation, regulation, government policy and economic conditions could adversely affect our business. Specific legislative and regulatory proposals that could have a material impact on us include, but are not limited to, modifications to international trade policy (such as tariffs); public company reporting requirements; and environmental regulation.

We cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the U.S. and other countries, what products may be subject to such actions, or what actions may be taken by the other countries in retaliation. Accordingly, it is difficult to predict how such actions may impact our business, or the business or habits of our customers. Our business operations, as well as the businesses of our customers on which we are substantially dependent, are located in countries at risk for escalating trade disputes, including the U.S. Any resulting trade wars could have a significant adverse effect on world trade and could adversely impact our consolidated financial condition, results of operations and cash flows.