What changed in this filing

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Item 1A. Risk Factors

2025-03-17 compared with 2024-03-27 · 27 added, 20 removed, 139 unchanged (25% of the section changed)

2 unchanged sentences

Each of these risks, as well as other risks and uncertainties not presently known to us or that we currently deem immaterial, could adversely affect our business, results of operations, cash flows and financial condition, and cause the value of our common stock to decline, which may result in the loss of part, or all, of your investment.

Our exclusive license to provide water to retail customers in the Cayman Islands has not been expressly extended and we are presently unable to predict the outcome of our on-going negotiations relating to this license.

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.

Although the 1990 license has not been expressly extended after January 2018, we continue to supply water under the terms of the 1990 license, as discussed in the following paragraphs.

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:

3 unchanged sentences

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

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

From that date through 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 a royalty of 7.5% of the revenue we collected 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”).

1 unchanged sentence

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

Supplemental 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 negotiations with us for a new retail license from the WAC to OfReg

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

We have been informed during our retail license negotiations, both by OfReg and its predecessor in these negotiations, that the Cayman Islands government seeks 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.

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 values of our retail segment assets.

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.

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

We are presently unable to determine what impact the resolution of our retail license negotiations with OfReg 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 values of our retail segment assets.

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

8 unchanged sentences

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.

In a report dated October 6, 2022, Moody’s Investor Services (“Moody’s”) downgraded the Government of The Bahamas’ long-term issuer and senior unsecured ratings to B1 from Ba3.

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 iterated these ratings in April and October 2023, noting that such ratings are “stable.”

Moody’s has maintained these ratings through the date of its most current report issued in October 2024.

If CW-Bahamas is unable to collect a significant portion of its delinquent accounts receivable, one or more of the following events may occur:

7 unchanged sentences

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 contract, which could cause the gross profit for a contract to be less than we anticipated when the bid was made.

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 our consolidated financial condition, results of operations, and cash flows.

Certain of PERC’s contracts with its customers may be terminated at any time at the customer’s convenience or with relatively short advance notice.

Certain of PERC’s contracts with its customers, including the contract with the Board of Water Supply of the City of Honolulu, Hawaii, may be terminated at any time at the customer’s convenience or with relatively short advance notice.

The termination of any of these contracts prior to their full performance may result in us realizing less than the full consideration payable under the contract and may negatively impact our financial results.

13 unchanged sentences

A downturn in tourism or greater than expected rainfall in the locations we serve could adversely impact our results of operations and cash flows.

During the COVID-19 pandemic, the resulting cessation of tourism to the Cayman Islands through August 2022 significantly reduced demand for our water.

During the COVID-19 pandemic, the resulting cessation of tourism to the Cayman Islands through August 2022 significantly reduced the demand for our water.

Performance shortfalls under any of our bulk supply contracts could result in penalties or cancellation of the contract.

6 unchanged sentences

Damage to our customers’ properties and the adverse impact on tourism could result in a decrease in water demand.

A natural disaster could also disrupt the delivery of equipment and supplies,

including electricity, necessary to our operations.

A natural disaster could also disrupt the delivery of equipment and supplies, including electricity, necessary to our operations.

These and other possible effects of natural disasters could have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.

4 unchanged sentences

An inability by us to substitute feed water from an uncontaminated water source or to adequately treat the contaminated plant feed water or our processed water in a cost-effective manner may have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.

Our internal controls over financial reporting were not considered to be effective as of December 31, 2024, and our independent auditors may not be able to certify as to their effectiveness in the future, which could adversely affect our business results and operations.

A material weakness was identified in our internal control over financial reporting as of December 31, 2024.

The material weakness related to insufficient information technology general controls designed to monitor direct changes to databases within two accounting systems during the period January 1, 2024 through October 31, 2024.

Although we have taken actions to remediate this weakness, we cannot conclude that our remediation effort has been successful until such time as we have completed sufficient testing of the remediation process and the accompanying internal controls and procedures that rely on the information technology general controls.

We cannot assure you that our remediation efforts will be successful or that other material weaknesses and control deficiencies will not be discovered in the future.

If we identify any other material weaknesses in our internal control over financial reporting, it may cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

Potential government decisions, actions and regulations could negatively affect our operations.

6 unchanged sentences

● unilaterally changing or renegotiating our license and agreements;

● restricting the importation or use, and/or imposing tariffs on certain goods and materials from foreign countries;

● restricting the transfer of U.S.

36 unchanged sentences

We are exposed to credit risk through our relationships with several customers.

We are subject to credit risk posed by possible defaults in payment by our bulk water customers in the Cayman Islands, The Bahamas and the British Virgin Islands.

We are also subject to credit risk posed by possible defaults in payment by our customers in the United States.

We are subject to credit risk posed by possible defaults in payment by our customers in the Cayman Islands, The Bahamas, the United States, and the British Virgin Islands.

Adverse economic conditions affecting, or financial difficulties of, those parties could impair their ability to pay us or cause them to delay payment.

We depend on these parties to pay us on a timely basis.

outstanding accounts receivable are not covered by collateral or credit insurance.

Our outstanding accounts receivable are not covered by collateral or credit insurance.

Any delay or default in payment could adversely affect our consolidated financial condition, results of operations, and cash flows.

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As a result, it may be difficult for investors to execute service of process within the United States upon us and such other persons, or to enforce judgments obtained against such persons in United States courts, and bring any action, including actions predicated upon the civil liability provisions of the United States securities laws.

In addition, it may be difficult for investors to enforce, in original actions brought in courts or jurisdictions located outside of the United States, rights predicated upon the United States securities laws.

In addition, it may be difficult for investors to enforce, in original actions

brought in courts or jurisdictions located outside of the United States, rights predicated upon the United States securities laws.

Based on the advice of our Cayman Islands legal counsel, we believe no reciprocal statutory enforcement of foreign judgments exists between the United States and the Cayman Islands, and that foreign judgments originating from the United States are not directly enforceable in the Cayman Islands.

5 unchanged sentences

The average daily trading volume of our common stock in 2024 was approximately 118,000 shares, a much lower trading volume than that of many other companies listed on the NASDAQ Global Select Market.

A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the market of willing buyers and

sellers of our common stock at any given time.

A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the market of willing buyers and sellers of our common stock at any given time.

This presence in turn depends on the individual decisions of investors and general economic and market conditions over which we have no control.

1 unchanged sentence

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 1A. Risk Factors