What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-16 compared with 2025-03-17 · 145 added, 184 removed, 212 unchanged (61% of the section changed)

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PERC acquired REC in November 2023 for approximately $4.1 million and recorded goodwill and intangible assets of $2,436,391 and $1,108,390, respectively, as of October 1, 2023 as a result of this acquisition.

The following table sets forth the comparative combined estimated production capacity of our subsidiary PERC as of December 31 of each year.

The following table sets forth the comparative combined estimated production capacity of our subsidiaries PERC and REC as of December 31 of each year.

Comparative Operations

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(1) In estimated millions of gallons per day.

As of December 31, 2024 and 2023, REC performed operations, maintenance, and monitoring services for 64 and 72, respectively, wastewater and water treatment plants located in the Rocky Mountain and Eastern Plains Regions of Colorado.

(2) Consists of water treatment plants for which we are the “Certified Operator in Responsible Charge” under operations and maintenance and other service agreements.

Cayman Islands

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We have an exclusive license from the Cayman Islands government to process potable water from seawater and then sell and distribute that water by pipeline to the Seven Mile Beach and West Bay areas of Grand Cayman.

Our Grand Cayman operations consist of three company-owned seawater reverse osmosis desalination plants which (as of December 31, 2024) provide water to 8,174 retail residential and commercial connections within a government licensed area and three

government-owned seawater reverse osmosis plants which supply bulk water to the WAC.

Our Grand Cayman operations consist of three company-owned seawater reverse osmosis desalination plants which (as of December 31, 2025) provide water to 8,717 retail residential and commercial connections within a government licensed area and three government-owned seawater reverse osmosis plants which supply bulk water to the WAC.

Our pipeline system on Grand Cayman Island covers the Seven Mile Beach and West Bay areas of Grand Cayman and consists of approximately 100 miles of potable water pipe.

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The most recent express extension of the license expired on January 31, 2018.

From that date to February 18, 2025, we continued to operate under the terms of the 1990 license, providing water services to the level and quality specified in the 1990 license and in accordance with our understanding of its legal obligations, treating those obligations set forth in the 1990 license as operative notwithstanding the expiration of the express extension.

We continued to pay the royalty of 7.5% required under the 1990 license.

On February 18, 2025, we received a new concession from the Cayman Islands government that authorizes and maintains the terms of our previous license until a new license is negotiated and enacted.

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

From that date to 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.

On February 18, 2025, Cayman Water received a new concession from the government that authorizes and maintains the terms of the 1990 license until a new license from OfReg is negotiated and enacted.

Negotiations between Cayman Water and OfReg for the new license remain on-going.

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

See further discussion of this matter at ITEM 7.

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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 and 2024.

For 2022, 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 all reporting units other than the manufacturing unit.

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 unit included macroeconomic conditions, industry and market conditions, cost factors, expected future results, 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 Cayman Water and bulk segment reporting units exceeded their carrying values as of December 31, 2022.

Based upon our negotiated, arms-length purchase of the remaining 39% equity interest in PERC from its minority shareholders for $7.8 million in January 2023, the fair value of our PERC reporting unit exceeded its carrying value by 79% as of December 31, 2022.

Due to the factors discussed in the following paragraphs, we elected to test the goodwill associated with our manufacturing reporting unit for possible impairment for 2022 using the quantitative tests applied in prior years.

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.

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.

In late July 2021, a major customer communicated to Aerex that its purchases of a specialized product from Aerex in 2022 and subsequent years would be at substantially reduced annual amounts, as compared to the amounts it had purchased from Aerex in prior years.

As a result, 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).

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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.

For 2022, we estimated the fair value of our manufacturing reporting unit by applying the discounted cash flow method, which relied upon seven-year discrete projections of operating results, working capital and capital expenditures, along with a terminal value subsequent to the discrete period.

These seven-year projections were based upon historical and anticipated future results, general economic and market conditions, and considered the impact of planned business and operational strategies.

The discount rates for the calculations represented the estimated cost of capital for market participants at the time of the analysis.

We also estimated the fair value of our manufacturing reporting unit for the year ended December 31, 2022 by applying the guideline public company method.

We weighted the fair values estimated for our manufacturing reporting unit under each method and summed such weighted fair values to estimate the overall fair value for the reporting unit.

The respective weightings we applied to each method for the year ended December 31, 2022 were 80% to the discounted cash flow method and 20% to the guideline public company method.

The fair value we estimated for our manufacturing reporting unit exceeded its carrying amount by 63% as of December 31, 2022.

Long-lived Assets

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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.

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 and water reuse infrastructure in the United States through PERC and Kalaeloa Desalco.

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

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

Contract costs include labor, materials, subcontractor costs and other

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.

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

In November 2015, the State of Baja California (the “State”) officially commenced the public tender for the Project.

A consortium (the “Consortium”) comprised of NSC and two other parties submitted its tender for the Project in April 2016 and in June 2016, the State designated the Consortium as the winner of the tender process for the Project.

In August 2016, NSC incorporated a new company under the name Aguas de Rosarito S.A.P.I.

(“AdR”) to pursue completion of the Project and executed a shareholders agreement for AdR agreeing among other things that (i) AdR would purchase the land and other Project assets from NSC on the date that the Project begins commercial operation and (ii) AdR would enter into a Management and Technical Services Agreement with NSC effective on the first day that the Project begins commercial operation.

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”).

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.

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”), and the Government of Baja California as represented by the Secretary of Planning and Finance and the Public Utilities Commission of Tijuana (“CESPT”).

The APP Contract required AdR to design, construct, finance and operate a seawater reverse osmosis desalination plant (and accompanying aqueduct) with a capacity of up to 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 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 January 2025.

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.

On June 29, 2020, AdR received a letter (the “Letter”) from the Director General of CEA and the Director General of CESPT terminating the APP Contract.

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.

We believed 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 August 28, 2020, AdR submitted their list of non-recoverable expenses, including those of NSC, to CEA and CESPT which amounted to 51,144,525 United States dollars and an additional 137,333,114 Mexican pesos.

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.

On June 29, 2021, the Mexican Ministry of Economy responded to CW-Cooperatief’s letter and proposed to hold a consultation meeting.

Two such meetings were held on July 9, 2021 and August 2, 2021 on a confidential basis, without a resolution of our investment dispute.

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.

On May 29, 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”).

This letter invited Mexico to seek a resolution of this investment dispute through consultation and negotiation but stated that if the dispute cannot 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.

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

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

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

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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.

We are presently in the process of legally terminating/dissolving CW-Cooperatief, NSC and AdR and will continue to incur expenses for these subsidiaries while such process is completed, but such expenses are not expected to be material to our consolidated results of operations.

AdR was officially terminated/dissolved in the first quarter of 2026.

We are presently in the process of legally terminating/dissolving CW-Cooperatief and NSC and expect to complete this process by mid-2026.

Our net income (loss) from discontinued operations for 2025 and 2024 was ($290,635) and $10,355,184, respectively.

The net income reported from discontinued operations for 2024 reflects the gain generated from the sale of the Project land and documentation under the Settlement Agreement.

Consolidated Results

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stockholders for 2025 was $18,627,308 ($1.16 per share on a fully diluted basis), as compared to $17,882,370 ($1.12 per share on a fully diluted basis) for 2024.

Revenue for 2024 decreased to $133,966,633 from $180,211,233 in 2023, due to a significant decrease in revenue from our services segment.

Revenue for 2025 decreased to $132,073,368 from $133,966,633 in 2024, due to decreases in the revenue from our services and bulk segments.

Gross profit for 2025 was $48,378,810 (37% of total revenue) as compared to $45,624,448 (34% of total revenue) for 2024.

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General and administrative expenses (“G&A expenses”) on a consolidated basis increased to $30,116,328 for 2025 as compared to $27,537,436 for 2024.

The principal factors for the increase in G&A expenses for 2024 relates to additional G&A expenses of approximately $1,321,000 attributable to REC, which was acquired in the fourth quarter of 2023, and incremental audit, legal and audit related and other professional fees of approximately $1,357,000.

Other income, net, increased to $2,393,676 in 2024, as compared to $828,313 in 2023 primarily due to $1,397,782 of additional interest income resulting from additional interest earned on higher balances of interest earning assets and higher late payment charges on delinquent accounts receivable balances due from the WSC.

The principal factors for the increase in G&A expenses for 2025 were incremental (i) employee costs of almost $1.3 million arising from new hires, pay increases and increased benefits costs;

(ii) legal and professional fees of approximately $503,000;

and (iii) information technology expenses of approximately $334,000 incurred for the implementation of a new retail billing system.

Other income, net, increased to $3,024,944 in 2025, as compared to $2,393,676 in 2024 primarily due to $575,850 of additional interest income earned on higher balances of interest earning assets.

Results by Segment

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The retail segment generated $15,300,161 of income from operations for 2025 as compared to $14,280,948 for 2024.

Revenue generated by our retail water operations increased to $31,741,343 in 2024 from $30,158,051 in 2023 due to a 4.5% increase in the volume of water sold.

We believe the increase in the volume of water sold in 2024 resulted in part from a 4.3% increase in the number of customer accounts in our license area from December 31, 2023 to December 31, 2024.

Retail segment gross profit increased to $17,542,255 (55% of retail revenue) for 2024 as compared to $16,266,822 (54% of retail revenue) for 2023 due to the revenue increase.

Retail segment gross profit as a percentage of revenue increased slightly in 2024 as compared to 2023 due to the overall increase in water volume sold.

Retail G&A expenses remained relatively consistent at $3,263,593 for 2024 as compared to $2,978,164 for 2023.

Revenue generated by our retail water operations increased to $33,587,952 in 2025 from $31,741,343 in 2024 due to an 8.3% increase in the volume of water sold.

The amount of water Cayman Water sold in 2025 (1.09 billion gallons) was the highest in our history.

We believe this volume increase in water sold resulted from significantly lower rainfall on Grand Cayman (which was 40% below the 30-year average and 45% lower than 2024) and a 6.6% increase in the number of customer accounts in our license area from December 31, 2024 to December 31, 2025.

As a result of the revenue increase, retail segment gross profit increased in both total dollars and as a percentage of revenue to $18,994,259 (57% of retail revenue) for 2025 as compared to $17,542,255 (55% of retail revenue) for 2024.

Retail G&A expenses increased to $3,734,676 for 2025 as compared to $3,263,593 for 2024 due to incremental technology expenses of approximately $334,000 resulting from the ongoing implementation of a new billing system.

Bulk Segment:

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Gross profit for our bulk segment was $11,011,110 (33% of bulk revenue) and $10,313,027 (31% of bulk revenue) for 2025 and 2024, respectively.

Gross profit as a percentage of revenue increased slightly in 2024 as compared to 2023 due to higher revenue, efficiency improvements at OC-Cayman, and decreases in electricity and fuel costs and depreciation expense that more than offset increased maintenance and insurance expenses.

Gross profit as a percentage of revenue increased slightly in 2025 as compared to 2024 due to improved plant efficiency and reductions in various operating expenses.

Bulk segment G&A expenses remained relatively consistent at $1,614,759 for 2025 as compared to $1,564,975 for 2024.

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Services segment revenue decreased to $46,312,325 for 2025 compared to $50,956,489 for 2024.

Construction revenue was $17,637,432 in 2024 as compared to $77,306,704 in 2023.

We recognized approximately $8.5 million and $64 million in construction revenue for the Liberty Utilities contract for the construction of a water treatment plant in Goodyear, Arizona in 2024 and 2023, respectively.

This contract was completed in mid-2024.

Revenue generated under operations and maintenance contracts increased to $29,307,405 in 2024 from $19,368,365 in 2023.

Revenue from REC, which was acquired in October 2023, constituted $6,069,342 of this operations and maintenance contracts revenue increase and the remainder of the increase related to new PERC contracts.

Design and consulting revenue increased to approximately $4.0 million in 2024 from approximately $1.3 million in 2023.

The gross profit for the services segment decreased to $12,444,954 (24% of services revenue) in 2024 as compared to $31,168,888 (32% of services revenue) for 2023 due to the decrease in construction revenue.

G&A expenses for the services segment increased to $6,055,409 for 2024 as compared to $4,271,808 for 2023 primarily due to incremental G&A expenses of REC (which was acquired in the fourth quarter of 2023) of approximately $1,321,000.

Construction revenue declined to $13,470,641 in 2025 as compared to $18,602,919 in 2024, as we recognized $8.2 million of additional revenue from PERC’s contract with Liberty Utilities and $1.3 million in revenue from the Red Gate contract in Grand Cayman in 2024.

These contracts were substantially completed in mid-2024.

Construction revenue recognized on the Hawaii contract also declined by $2.9 million in 2025 due to the completion of the pilot plant testing 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 $32,075,046 in 2025 from $29,307,405 in 2024 due to incremental revenue generated by both PERC and REC.

Design and consulting revenue decreased to approximately $767,000 in 2025 from approximately $3.0 million in 2024 due to the completion in the fourth quarter of 2024 of a contract for a major plant commissioning and startup project.

The gross profit for the services segment decreased to $11,862,481 (26% of services revenue) in 2025 as compared to $12,444,954 (24% of services revenue) for 2024 due to the decrease in construction and design and consulting revenue.

We have been informed by one of our significant operations and maintenance customers that it will not extend its existing contract with PERC beyond its expiration date in March 2026.

We recognized approximately $5.5 million and $1.8 million in revenue and gross profit, respectively, under this contract in 2025.

G&A expenses for the services segment increased to $7,885,756 for 2025 as compared to $6,055,409 for 2024 primarily due to incremental employee costs of $1,181,678 attributable to new hires and salary increases and an increase of $301,173 in the provision for credit losses for the services segment.

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, and 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, (i) including 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 Annual Report on Form 10-K, 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.

Based on ongoing discussions with representatives of the BWS and its advisors, we currently expect that appropriate extensions of time will be granted to Kalaeloa Desalco to reflect the impact of the permitting delays on the project schedule.

However, until 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.

At the time of the filing of this Annual Report on Form 10-K, Kalaeloa Desalco is continuing to advance the permitting process, respond to regulatory inquiries and coordinate with the BWS to mitigate schedule impacts.

Kalaeloa Desalco also is evaluating potential adjustments to sequencing and procurement activities designed to reduce the effect of the delays on the overall project economics.

Although we do not currently expect the permitting delays to result in a material adverse effect on our consolidated financial position, the deferral of construction activities has shifted anticipated revenue recognition and associated cash flows related to the Hawaii desalination plant project into future periods.

We will continue to assess the impact of these developments on our estimates of total project costs, timing of performance obligations and variable consideration, and will update our disclosures as appropriate in future periodic or current reports.

Manufacturing Segment:

The manufacturing segment contributed $4,413,201 and $2,867,405 to our income from operations in 2025 and 2024, respectively.

Manufacturing revenue remained relatively consistent at $17,595,414 and $17,491,474 for 2024 and 2023, respectively.

Manufacturing revenue increased to $18,691,784 for 2025 as compared to $17,595,414 for 2024.

Manufacturing gross profit was $6,510,960 (35% of manufacturing revenue) for 2025 as compared to a gross profit of $5,324,212 (30% of manufacturing revenue) for 2024.

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

G&A expenses for the manufacturing segment increased to $2,456,807 for 2024 as compared to $1,838,284 for 2023 principally due to an increase in the provision for credit losses of approximately $336,000 in 2024.

Corporate G&A expenses increased slightly to $14,196,652 for 2024 as compared to $13,926,846 for 2023.

This increase reflects almost $1.2 million incremental audit, consulting and legal fees arising primarily from the Company’s change in S.E.C.

filing status from a small reporting company to an accelerated filer.

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 $2,102,759 for 2025 as compared to $2,456,807 for 2024 due to a decrease in the provision for credit losses for the manufacturing segment of approximately $359,000 in 2025.

Corporate G&A expenses increased to $14,778,378 for 2025 as compared to $14,196,652 for 2024 as a result of approximately $291,000 in incremental professional fees and smaller increases in various other expense accounts.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

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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.

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;

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We received the proceeds from the sale of the land and documentation in June 2024.

Our net losses from discontinued operations for 2023 and 2022 were ($1,086,744) and ($2,371,049), respectively.

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.

Our net income (loss) from discontinued operations for 2024 and 2023 was $10,355,184 and ($1,086,744), respectively.

The net income reported from discontinued operations for 2024 reflects the gain generated from the sale of the Project land and documentation under the Settlement Agreement.

Consolidated Results

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stockholders for 2024 was $17,882,370 ($1.12 per share on a fully diluted basis), as compared to $30,672,135 ($1.93 per share on a fully diluted basis) for 2023.

Revenue for 2023 increased to $180,211,233 from $94,104,972 in 2022, as all four segments experienced revenue increases.

Revenue for 2024 decreased to $133,966,633 from $180,211,233 in 2023, due to a significant decrease in revenue from our services segment.

Gross profit for 2024 was $45,624,448 (34% of total revenue) as compared to $61,927,105 (34% of total revenue) for 2023.

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General and administrative expenses (“G&A expenses”) on a consolidated basis increased to $27,537,436 for 2024 as compared to $24,752,366 for 2023.

The most significant increase in G&A expenses for 2023 related to employee costs, which increased by $2,480,517 from 2022 to 2023 due to increased stock compensation, higher bonus accruals, pay raises and new hires.

Professional fees also increased by $251,813 from 2022 to 2023.

The remainder of the G&A increase was attributable to increases across a variety of categories including the provision for credit losses of $408,489.

Other income, net, increased to $828,313 in 2023, as compared to $464,810 in 2022 due to an increase in interest income of approximately $249,000 primarily due to a higher balance of interest earning assets, and an increase of approximately $68,000 in the equity in earnings of and profit-sharing income from our affiliate, OC-BVI, and an unrealized loss recorded in 2022 of $128,000 for the valuation of the put/call options associated with the initial acquisition of a controlling interest in PERC.

We exercised our call option in the fourth quarter of 2022 and acquired the remaining 39% of PERC in January 2023.

Results by Segment

Retail Segment:

The retail segment generated $13,266,942 in income from operations for 2023 compared to $10,756,282 for 2022.

Revenue generated by our retail water operations increased to $30,158,051 in 2023 from $25,954,013 in 2022 principally due to a 15% increase in the volume of water sold.

The volume of water sold in the Cayman Water license area increased by 14% and the remaining 1% increase in the volume of water sold was due to water sales made by Cayman Water directly to the WAC in the first quarter of 2023.

The sales volume increase reflects increased tourist activity on Grand Cayman, as tourism on the island in 2022 was lower than historical levels due to the lingering impact of the COVID-19 pandemic.

Retail revenue also increased by approximately $1,014,639 due to higher energy costs which increased the energy pass-through component of our retail water rates.

The retail segment generated $14,280,948 of income from operations for 2024 as compared to $13,266,942 for 2023.

Revenue generated by our retail water operations increased to $31,741,343 in 2024 from $30,158,051 in 2023 due to a 4.5% increase in the volume of water sold.

We believe the increase in the volume of water sold in 2024 resulted in part

from a 4.3% increase in the number of customer accounts in our license area from December 31, 2023 to December 31, 2024.

Retail segment gross profit increased to $17,542,255 (55% of retail revenue) for 2024 as compared to $16,266,822 (54% of retail revenue) for 2023 due to the revenue increase.

Retail G&A expenses increased to $2,978,164 for 2023 as compared to $2,609,571 for 2022 primarily due to an increase in employee costs of approximately $164,000 due to pay raises and new hires.

Retail segment gross profit as a percentage of revenue increased slightly in 2024 as compared to 2023 due to the overall increase in water volume sold.

Retail G&A expenses remained relatively consistent at $3,263,593 for 2024 as compared to $2,978,164 for 2023.

Bulk Segment:

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Bulk segment revenue was $33,673,387 and $34,595,058 for 2024 and 2023, respectively.

The increase in bulk segment revenue from 2022 to 2023 was attributable to a 6% increase in water volume and an increase in energy costs for CW-Bahamas, which increased the energy pass-through component of CW-Bahamas’ rates.

Gross profit for the bulk segment was $10,466,926 (30% of bulk revenue) and $9,958,854 (30% of bulk revenue) for 2023 and 2022, respectively.

Gross profit in dollars increased in 2023 as compared to 2022 principally due to the increase in revenue.

Bulk segment G&A expenses increased to $1,737,264 for 2023 as compared to $1,570,732 for 2022 due to relatively small increases in a variety of expense categories.

The decrease in bulk revenue from 2023 to 2024 reflects a decrease in the price of energy for CW-Bahamas, which decreased the energy pass-through component of CW-Bahamas’ rates.

Gross profit for our bulk segment was $10,313,027 (31% of bulk revenue) and $10,466,926 (30% of bulk revenue) for 2024 and 2023, respectively.

Bulk segment G&A expenses remained relatively consistent at $1,564,975 for 2024 as compared to $1,737,264 for 2023.

Services Segment:

The services segment contributed $6,392,259 and $26,897,080 to our income from operations for 2024 and 2023, respectively.

Services segment revenue increased to $97,966,650 for 2023 compared to $28,835,428 for 2022.

Construction revenue increased to $77,306,704 in 2023 from $11,616,274 in 2022 with this increase resulting from (i) PERC’s progress on its contract with Liberty Utilities for the construction of a water treatment plant in Goodyear, Arizona;

and (ii) progress on our contract with the WAC for the construction of its Red Gate plant.

We recognized approximately $64.0 million in revenue for the Liberty Utilities contract in 2023.

Revenue generated under operations and maintenance contracts was $19,368,365 and $14,152,158 in 2023 and 2022, respectively.

The increase in operations and maintenance revenue from 2022 to 2023 is attributable to new contracts and increased revenue on existing contracts.

Design and consulting revenue generated by the services segment was $1,291,581 and $3,066,996 in 2023 and 2022, respectively.

The decrease in design and consulting revenue from 2022 to 2023 is attributable to the work performed in 2022 on the design contract for the Liberty Utilities plant currently under construction.

The gross profit for the services segment was $31,168,888 (32% of services revenue) in 2023 as compared to $5,861,794 (20% of services revenue) for 2022.

Gross profit increased from 2022 to 2023 due to the increase in revenue.

The increase in gross profit as a percentage of revenue from 2022 to 2023 reflects improved margins on both our construction and operations and maintenance activities.

During 2023, we adjusted our prior year estimates of the total costs to be incurred for the Liberty Utilities contract and one other construction contract.

These changes in accounting estimates arose as a result of actual construction costs and efficiencies that differed favorably from our previous expectations.

These changes in accounting estimates resulted in an increase in the services segment’s revenue, gross profit and income from operations of $2,356,439 for 2023 under the input method we use to account for construction contracts and were a contributing factor in the increase in gross profit as a percentage of services revenue from 2022 to 2023.

This adjustment increased basic and diluted earnings per share by $0.11 for the year ended December 31, 2023.

G&A expenses for the services segment increased to $4,271,808 for 2023 as compared to $3,461,294 for 2022 principally due to an increase of approximately $384,000 in employee costs attributable to pay raises, new hires and increased bonus accruals and the addition of approximately $366,000 in G&A expenses from REC as a result of our acquisition of this company effective October 1, 2023.

Services segment revenue decreased to $50,956,489 for 2024 compared to $97,966,650 for 2023.

Construction revenue was $18,602,919 in 2024 as compared to $77,306,704 in 2023.

This contract was completed in mid-2024.

Revenue generated under operations and maintenance contracts increased to $29,307,405 in 2024 from $19,368,365 in 2023.

Design and consulting revenue increased to approximately $3.0 million in 2024 from approximately $1.3 million in 2023.

Manufacturing Segment:

The manufacturing segment contributed $2,188,418 to our income from operations for 2023 as compared to incurring an operating loss of ($358,748) for 2022.

Manufacturing segment revenue was $17,491,474 and $6,324,465 for 2023 and 2022, respectively.

The growth in manufacturing revenue for 2023 reflected increased production activity due to relief in supply chain and economic conditions that had resulted in significant product delivery delays in 2022.

Manufacturing segment gross profit was $4,024,469 (23% of manufacturing revenue) and $1,129,225 (18% of manufacturing revenue) for 2023 and 2022, respectively.

The increase in manufacturing gross profit in dollars reflected the increase in revenue.

Gross profit as a percentage of revenue increased due to increased revenue and the resulting reduced impact of fixed factory overhead on this financial measure.

G&A expenses for the manufacturing segment increased to $1,838,284 for 2023 as compared to $1,485,342 for 2022 principally due to an increase of approximately $129,000 in employee costs attributable to pay raises, new hires and increased bonus accruals.

Corporate G&A expenses increased to $13,926,846 in 2023 as compared to $11,943,295 in 2022.

Primarily as a result of an increase in employee costs of almost $1.6 million.

This increase in employee costs is attributable to pay raises as well as increased stock compensation and bonus accruals arising from the Company’s improved financial results from 2022 to 2023.

The manufacturing segment contributed $2,867,405 and $2,188,418 to our income from operations in 2024 and 2023, respectively.

Manufacturing revenue remained relatively consistent at $17,595,414 and $17,491,474 for 2024 and 2023, respectively.

Manufacturing gross profit was $5,324,212 (30% of manufacturing revenue) for 2024 as compared to a gross profit of $4,024,469 (23% of manufacturing revenue) for 2023.

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

G&A expenses for the manufacturing segment increased to $2,456,807 for 2024 as compared to $1,838,284 for 2023 principally due to an increase in the provision for credit losses for the manufacturing segment of approximately $336,000 in 2024.

Corporate G&A expenses increased slightly to $14,196,652 for 2024 as compared to $13,926,846 for 2023.

This increase reflects almost $1.2 million incremental audit, consulting and legal fees arising primarily from the Company’s change in S.E.C.

filing status from a small reporting company to an accelerated filer.

FINANCIAL CONDITION

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

Accounts receivable increased by approximately $1.4 million primarily due to an increase in CW-Bahamas’ accounts receivable.

Current inventory increased by $2.9 million primarily due to an increase in Aerex’s inventory arising from production activity.

Contract assets decreased by approximately $17.1 million primarily due to a $16.5 million decrease in the services segment contract assets attributable to the completion of the Liberty Utilities and the Red Gate II projects.

Property, plant and equipment, net, decreased by approximately $3.5 million due to the scheduled depreciation of fixed assets.

Construction in progress increased by approximately $4.6 million primarily due to $2.1 million spent on the CW-Bahamas Cat Island plant construction and $1.7 million spent on the new West Bay plant in Cayman Islands.

Operating lease right-of-use assets increased by approximately $1.1 million due to the renewal of the corporate office lease in Cayman Islands.

Accounts payable, accrued expenses and other current liabilities decreased by approximately $2.5 million primarily due to a $4.9 million decrease in subcontractor and other project costs payable for the services segment.

This decrease was offset by an increase in Aerex’s accounts payable of approximately $1.4 million as well as an increase in CW-Bahamas’ accrued expenses and purchase orders of approximately $1.2 million.

Contract liabilities increased by approximately $2.9 million primarily due to a $2.6 million increase in the services segment in connection with Kalaeloa Desalco’s contract with the Board of Water Supply of the City and County of Honolulu, Hawaii.

Accounts receivable decreased by approximately $6.8 million, primarily due to a $7.6 million decrease in CW-Bahamas’ accounts receivable.

Current inventory decreased by $5.2 million, primarily due to a decrease of $5.1 million in Aerex’s inventory resulting from the consumption of materials used in product production.

Contract assets decreased by approximately $1.2 million, primarily due to a $1.1 million decrease in Aerex’s contract assets.

Property, plant and equipment, net, increased by approximately $2.7 million, primarily due to the completion of the expansion of Aerex’s manufacturing facility, transfers from construction in progress relating to the new West Bay plant, and the purchase of specialized equipment for the services segment, partially offset by the scheduled depreciation of fixed assets.

Construction in progress increased by approximately $1.6 million, primarily due to $3.2 million spent on the CW-Bahamas Cat Island plant construction, partially offset by a decrease of $1.7 million resulting from the additional capitalization of completed and in-use components of the West Bay plant expansion in Grand Cayman.

Contract liabilities increased by approximately $2.4 million, primarily due to the Kalaeloa Desalco construction project.

LIQUIDITY AND CAPITAL RESOURCES

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

subsidiaries from U.S.

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

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

Liquidity Position

Our projected liquidity requirements for 2025 include capital expenditures for our existing operations of approximately $10.3 million, which includes $926,000 to be incurred in 2025 for our new West Bay plant and $1.8 million for the expansion of Aerex’s manufacturing facility.

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

Our projected liquidity requirements for 2026 include capital expenditures for our existing operations of approximately $11.1 million, which includes approximately $1.0 million to be incurred during the first half of 2026 for a project in the Bahamas.

We paid approximately $2.3 million in dividends in January 2026.

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

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CW-Bahamas Liquidity

CW-Bahamas’ accounts receivable balance (which include accrued interest) due from the WSC amounted to $28.4 million as of December 31, 2024.

Approximately 81% of the December 31, 2024 accounts receivable balance was delinquent as of that date.

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $20.7 million and $28.4 million as of December 31, 2025 and 2024.

Approximately 71% and 81% of the accounts receivable balances were delinquent as of those dates, respectively.

As of February 28, 2026, this receivable amounted to $22.6 million, of which 75% was delinquent.

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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 Bahamas government, and as a result, payment schedules are developed for WSC’s delinquent accounts receivable.

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 December 31, 2024.

CW-Bahamas held discussions with the WSC in March 2024 and with representatives of The Bahamas Government in April 2024 during which CW-Bahamas was informed that the Government intended to substantially reduce CW-Bahamas’ accounts receivable from the WSC before the end of 2024.

This anticipated substantial reduction in CW-Bahamas accounts receivable did not occur over the course of 2024.

We continue to be in frequent contact with officials of the Bahamas government, who continue to express their intention to significantly reduce CW-Bahamas accounts receivable balances in the near future, however we cannot provide any assurance as to when such reduction will occur.

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 December 31, 2025, or prior periods.

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

However, we are unable to determine when or if such reduction will occur.

In a report dated 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 October 2024.

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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(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;

(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.

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and (ii) changes in the other components of working capital.

The more significant of such items and changes in working capital components included the gain from the sale of land and project documentation from discontinued operations of $12,134,766, depreciation and amortization of $6,691,658, an increase in accounts receivable of $1,796,919 attributable principally to CW-Bahamas, a decrease in contract assets of $17,082,814 due primarily to the Red Gate and Liberty Utilities construction contracts, an increase in contract liabilities of $2,889,643 and a decrease in accounts payable, accrued expenses and other current liabilities of $2,370,274.

The more significant of such items and changes in working capital components includes depreciation and amortization of $6,903,438, a decrease in accounts receivable of $6,519,621 attributable principally to CW-Bahamas, a decrease in inventory of $4,240,636 and an increase in contract liabilities of $2,401,980.

Cash Flows from Investing Activities

Net cash provided by our investing activities was $26,961,421 primarily due to the sale of land and project documentation from discontinued operations in Mexico.

Cash used for additions to property, plant and equipment and construction in progress was $6,696,580.

Net cash used in our investing activities was $8,439,222 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 $6,712,154, almost all of which related to the payment of dividends.

Net cash used in our financing activities was $8,950,163, almost all of which related to the payment of dividends.

Material Commitments, Expenditures and Contingencies

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The most recent express extension of the license expired on January 31, 2018.

From that date until February 18, 2025, we continued to operate under the terms of the 1990 license, providing water services to the level and quality specified in the 1990 license and in accordance with our understanding of its legal obligations, treating those obligations set forth in the 1990 license as operative notwithstanding the expiration of the express extension.

From that date until February 18, 2025, we continued to operate under the terms of the 1990 license, treating such terms as operative notwithstanding the expiration of the express extension.

We continued to pay a royalty of 7.5% of the revenue we collect as required under the 1990 license.

In October 2016, the Government of the Cayman Islands passed legislation which created a new utilities regulation and competition office (“OfReg”).

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

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

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

We began license negotiations with OfReg in July 2017 and such negotiations are continuing.

Under the new regulatory legislation passed in October 2016, Cayman Water must first be granted a concession by the government before obtaining a new (or renewing the old) retail operations license.

On February 18, 2025, Cayman Water received a new concession from the government that authorizes and maintains the terms of the 1990 license until a new license is negotiated and enacted.

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

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

Under the new regulatory legislation passed in October 2016, Cayman Water was required to first be granted a concession by the government before obtaining a new (or renewing the old) retail operations license.

On February 18, 2025, Cayman Water received a new concession from the government that authorizes and maintains the terms of the 1990 license until a new license from OfReg is negotiated and enacted.

Negotiations between Cayman Water and OfReg for the new license remain on-going.

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 .

CW-Bahamas Performance Guarantees

CW-Bahamas Supply 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.

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Adoption of New Accounting Standards

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment’s profit or loss.

This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources.

The adoption of ASU 2023-07 did not have a material impact on our consolidated financial position, results of operations or cash flows.

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 Company adopted the standard as of December 31, 2025, including a recast of 2024 and 2023 information, by including additional required disclosures within the Notes to the Consolidated Financial Statements.

See Note 11—Income Taxes for further details.

There was no impact on our consolidated financial position, results of operations or cash flows.

Effect of Newly Issued but not yet Effective Accounting Standards

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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.

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.

The amended 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.

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

Early adoption is permitted.

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

● On January 31, 2025, we paid a dividend of $0.11 to shareholders of record on January 2, 2025.

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Impact of Inflation

Under the terms of our Cayman Islands license and 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.

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 have not increased the retail water rates for Cayman Water since January 2018 (despite the inflation that has occurred since that date) due to the lack of a resolution of our negotiations with OfReg for a new retail license.

This lack of a rate increase over the long-term could adversely affect the profitability of our retail segment.

However, while we have received annual inflation adjustments for the rates we charge under our bulk water agreements, we have not applied 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.

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

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

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

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

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

Approximately 80% of the $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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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis