CWCO 10-K & 10-Q changes, risk factors and insider trading

We sell water through our retail operations under a license issued in Julythe 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. In 2025, 2024, 2023, and 2022,2023, we generated approximately 24%,26%, 17%24% and 27%,17%, respectively, of our consolidated revenue and 38%,39%, 26%38% and 44%,26%, 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 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 thosesuch obligations set forth in the 1990 licenseterms 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.

Under the new regulatory legislation passed in October 2016, Cayman Water mustwas 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 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. We are presently unable to determine what impact the resolution of our retail license negotiations with OfReg will have on our cash flows,consolidated financial condition orcondition, 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’ 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 this December 31, 2024the accounts receivable balancebalances waswere delinquent as of thatthose date.dates, respectively. As of February 28, 2026, this receivable amounted to $22.6 million, of which 75% was delinquent. 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 the government of The Bahamas government, and as a result, payment schedules are developed for WSC’s delinquent accounts receivable.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, 2024.2025, or prior periods.

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 OctoberApril 2024.2025. 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.

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, 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.

One bulk water customer, the WSC, accounted for approximately 22% of our consolidated revenue for 2024.2025. If, for financial or other reasons, the WSC does not comply with the terms of our water supply agreementsagreements, our consolidated financial condition, results of operations, and cash flows could be materially adversely affected.

Demand for our water in the Cayman Islands and The Bahamas is affected by variations in the level of tourism and local weather, primarily rainfall. Tourism in our service areas is affected by the economies of the tourists’ home countries, primarily the United States and Europe, terrorist activity and perceived threats thereof, global health concerns such as COVID-19, and increased costs of fuel and airfare. In the Cayman Islands, we normally sell more water during the first and second quarters of the year, when the number of tourists is greater and local rainfall is less than in the third and fourth quarters. 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 the demand for our water.water and our retail segment’s profitability.

A natural disaster could cause major damage to our equipment and properties and the properties of our customers, including the large tourist properties in our areas of operation. For example, in January 2020, Grand Cayman experienced an earthquake which damaged three of our eight potable water storage tanks. Any future disaster could cause us to lose use of our equipment and properties and incur additional repair costs. 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. 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.

We are incorporated under the laws of the Cayman Islands and most of our assets are located outside of the United States. In addition, as of March 9, 2026, six of our 1315 Directors and Officers reside outside the United States. 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.

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

Our exclusive license from the Cayman Islands government 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 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 thosesuch obligations set forth in the 1990 licenseterms as operative notwithstanding the expiration of the express extension. We continued to pay thea royalty of 7.5% of the revenue we collect as required under the 1990 license. On February 18, 2025, weCayman Water received a new concession from the Cayman Islands government that authorizes and maintains the terms of ourthe previous1990 license until a new license from OfReg is negotiated and enacted. WeNegotiations 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. See further discussion of this matter at ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Material Commitments, Expenditures and Contingencies –between Cayman Water Retailand License.OfReg for the new license remain on-going.

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

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 wastewaterwastewater, water reuse, and water reuseproduction infrastructure in the United States through PERC and Kalaeloa Desalco. Aerex is a custom and specialty manufacturer in the United States of water treatment-relatedwater-related systems and products applicable to commercial, municipal and industrial water production.production and treatment.

We recognize revenue for our construction and our specialized/custom manufacturing contracts (and some of our design contracts) over time under the input method using costs incurred (which represents work performed) to date relative to the total estimated costs at completion to measure progress toward satisfying a contract’s performance obligations, as such measure best reflects the transfer of control of the promised good to the customer. Contract costs include labor, materials, subcontractor costs and other expenses. We follow this method since we can make reasonably dependable estimates of the revenue and costs applicable to the various stages of a contract. Under this input method, we record revenue and recognize profit or loss as work on the contract progresses. We estimate total costs to be incurred and profit to be earned on each long-term, fixed price contract prior to commencement of work on the contract and update these estimates as work on the contract progresses. The cumulative amount of revenue recorded on a contract at a specified point in time is that percentage of total estimated revenue that incurred costs to date comprised of estimated total contract costs. Due to the extended time it may take to complete many of our contracts and the scope and nature of the work required to be performed on those contracts, the estimations of total revenue and costs at completion are complicated and subject to many variables and, accordingly, are subject to changes. When adjustments in estimated total contract revenue or estimated total contract costs are required, any changes from prior estimates are recognized in the current period for the inception-to-date effect of such changes. We recognize the full amount of any estimated loss on a contract at the time the estimates indicate such a loss.

In November 2015, the State of Baja California (the “State”) officially commenced thea public tender for the Project.Project, Aand in June 2016 a consortium (the “Consortium”) comprised of NSC and two other parties submittedwas itsselected tender for the Project in April 2016 and in June 2016,by the State designated the Consortium 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 JulyJanuary 2024.2025. 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. 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 wasamounted comprised ofto 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 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 notcannot 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 (“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.

OnIn May 29, 2024, we, through CW-Cooperatief, NSC, and AdRAdR, entered into a settlement agreement (the “Settlement Agreement”) with the State and Banco Nacional de Obras y Servicios Públicos, S.N.C., as trustee under the trust agreement for the trust named Fondo Nacional de Infraestructura (the “Trust”). Under the Settlement Agreement, CW-Cooperatief requested that ICSID discontinue the arbitration and on May 31, 2024, ICSID issued an order discontinuing the arbitration. Pursuant to the Settlement Agreement, the Trust purchased the 20.1 hectares of land on which the Project’s plant was to be constructed, including related rights of way (the “Land”), on an “as-is” basis, from NSC for MXN$596,144,000. The sale of the Land to the Trust was closed on June 14, 2024 at which time the MXN$596,144,000 was paid to us and converted at the prevailing exchange rate on that date into US$31,959,685.

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

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.

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, 2025 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, 2025 and in our other periodicfilings reportswith onthe Form 10-QSecurities and FormExchange 8-K.Commission.

CW-Bahamas’ accounts receivable balances (which include accrued interest) due from the WSC amounted to $23.9$18.8 million as of MarchJune 31,30, 2026. Approximately 75%64% of this MarchJune 31,30, 2026 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 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 MarchJune 31,30, 2026, or prior periods.

In a report dated OctoberApril 6,30, 2022,2026, Moody’s Investor Services (“Moody’s”) downgradedupgraded The Bahamas’ long-term issuer and senior unsecured ratings to B1Ba3 from Ba3.B1. Moody’s also loweredraised The Bahamas’ local currency ceiling to Baa3Baa2 from Baa2Baa3 and its foreign currency ceiling to Ba1Baa3 from Baa3. Moody’s has maintained these ratings through the date of its most current report issued in April 2025.Ba1. Based upon our review of this Moody’s correspondence, we continue to believe that no material allowance for credit losses is required for CW-Bahamas’ accounts receivable from the WSC.

Three Months Ended MarchJune 31,30, 2026 Compared to Three Months Ended MarchJune 31,30, 2025

The following discussion and analysis of our consolidated results of operations and results of operations by segment for the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025 relates only to our continuing operations.

Revenue for 2026 decreased to $29,973,700$32,870,362 from $33,715,385$33,591,079 in 2025 as a result of a revenue decreasesdecrease in the manufacturing and retail segments,segment, which werewas partially offset by revenue increases in the retail, bulk and services segments. Gross profit for 2026 was $10,916,013$10,963,389 (36%33% of total revenue) as compared to $12,306,287$12,831,985 (37%38% of total revenue) for 2025. For further discussion of revenue and gross profit see the “Results by Segment” discussion and analysis that follows.

General and administrative (“G&A”) expenses on a consolidated basis decreased to $7,419,068$7,243,022 for 2026 as compared to $7,723,959$7,580,238 for 2025. AnThe increasedecrease was primarily due to a decrease in employee costs of approximately $211,000$206,000 from 2025 to 20262026, wasas morewell thanas offsetslight by a decrease in professional fees and reductionsdecreases in various other expenses.

Other income, net, remaineddecreased relativelyto consistent at $739,566$730,639 for 2026 as compared to $688,891$820,182 for 2025.2025, primarily due to a decrease in interest earned on balances of interest-earning assets.

As a result of the revenue decrease, retailRetail segment gross profit decreasedremained inrelatively bothconsistent totalat dollars and as a percentage of revenue to $4,934,901$4,854,977 (58%56% of retail revenue) for 2026 as compared to $5,705,279$4,862,268 (61%56% of retail revenue) for 2025.

Retail G&A expenses increaseddecreased to $902,607$899,499 for 2026 compared to $788,812$985,617 for 2025 primarily asdue a result ofto incremental employeeinformation coststechnology ofexpenses justincurred overin $74,000.2025.

Bulk segment revenue was $8,744,769$9,934,060 and $8,411,716$8,274,816 for 2026 and 2025, respectively. The slight increase in revenue for 2026 results principally from an increase in the pass-through energy rate charged by CW-Bahamas which is attributable principallyto an increase in energy costs from 2025 to 2026. To a lesser extent, bulk revenue increased in 2026 due to revenue earned byfrom CW-Bahamas on the contract for itsCW-Bahamas’ new plantplants on Cat Island.Island, The Bahamas.

OC-Cayman’s agreements with the WAC forto theiroperate and maintain the North Sound and North Side Water Works plants were originally scheduled to expire on July 1, 2026. WeThe believeagreements wehave willbeen receiveextended anthrough extensionMarch of31, these2027. Revenue recognized under the North Sound and North Side Water Works agreements for sufficient time to allow the WACthree tomonths completeended aJune formal30, tender2026 processwas for$325,659 theand granting$406,617, of new long-term agreements for these plants.respectively.

The services segment generated $1,057,741$424,436 and $1,429,454 in income from operations for 2026 as compared to a loss from operations of ($180,488) forand 2025.

Gross profit for the services segment increaseddecreased to $2,824,188$1,899,027 (25%16% of services revenue) in 2026 from $2,016,391$3,391,319 (20%30% of services revenue) in 2025 due to the increasedecreases in O&M and design and consulting revenue.

G&A expenses for the services segment decreased to $1,785,996$1,474,321 for 2026 as compared to $2,195,338$1,993,042 for 2025 primarily due to a decrease in theheadcount provisionthat forlowered creditemployee losses.costs by approximately $322,000.

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, including (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.

At the time of the filing of this Quarterly Report on Form 10-Q, Kalaeloa Desalco is continuing to advance the permitting process, respond to regulatory inquiries and coordinate with the BWS to mitigate project schedule impacts. Kalaeloa Desalco also is evaluating potential adjustments to sequencing and procurement activities designed to reduce the effect of the delays on the overall project economics. AlthoughIn weJuly do2026, notKalaeloa currentlyDesalco expectreceived a Limited Notice to Proceed from BWS, authorizing the permittingprocurement delaysof various long-lead equipment for the Kalaeloa seawater reverse osmosis desalination facility. The Limited Notice to resultProceed releases approximately $6 million in aproject materialfunds, adverseenabling effectKalaeloa on our consolidated financial position, the deferral of construction activities has shifted anticipated revenue recognition and associated cash flows relatedDesalco to theprocure Hawaiicritical desalinationlong-lead 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.equipment.

The manufacturing segment incurredgenerated a$478,497 lossand from operations of ($337,767) in 2026 as compared to generating $1,092,912$1,511,937 in income from operations infor 2026 and 2025.

Manufacturing revenue decreased to $1,400,529$2,689,782 for 2026, as compared to $5,814,059$5,230,035 for 2025. The decrease in manufacturing revenue for 2026 resulted from a decrease in the total dollar amount of new purchase orders and, to a lesser extent, the timing of the receipt and the commencement of work on these new orders. We believe, based on current projections, that manufacturing revenue for the full 2026 fiscal year will be less than the manufacturing revenue generated for the 2025 fiscal year.

G&A expenses for the manufacturing segment decreasedremained torelatively $485,908consistent at $519,072 for 2026 as compared to $664,078$530,552 for 2025 due primarily to a decrease in the provision for credit losses.2025.

Corporate G&A expenses remainedincreased relativelyto consistent at $3,840,334$4,009,983 for 2026 as compared to $3,729,650$3,676,277 for 2025.2025 due to slight increases in various expense categories.