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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  0-25248
 CONSOLIDATED WATER CO. LTD.
  CAYMAN ISLANDS
    
    N/A(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 Regatta Office ParkWindward Three, 4thFloor, West Bay RoadP.O. Box 1114Grand Cayman KY1-1102Cayman Islands
    
    N/A(Address of principal executive offices)
    
    (Zip Code)
 (345) 945-4277
  x o
  o x o
  o x
 ,




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TABLE OF CONTENTS
 Section
    
    Description
    
    PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2007 (unaudited) and December 31, 2006
    
    
    1Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2007 and 2006      (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006      (unaudited)
    
    
    3Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 4.
    
    Controls and Procedures
    
    
    20PART II
    
    OTHER INFORMATIONItem 1A.
    
    Risk Factors
    
    
    21Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 6.
    
    Exhibits
    
    
    22SIGNATURE
    
    
    
    
    23Ex-31.1 Section 302 Certification of CEOEx-31.2 Section 302 Certification of CFOEx-32.1 Section 906 Certification of CEOEx-32.2 Section 906 Certification of CFO




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NOTE REGARDING CURRENCY AND EXCHANGE RATES




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    39,139,931
    
    
    $
    37,310,699Accounts receivable, net
    
    
    7,963,443
    
    
    
    6,231,718Inventory
    
    
    3,454,516
    
    
    
    2,794,892Prepaid expenses and other current assets
    
    
    982,425
    
    
    
    1,099,619Current portion of loans receivable
    
    
    735,632
    
    
    
    735,632Total current assets
    
    
    52,275,947
    
    
    
    48,172,560Loans receivable
    
    
    1,514,158
    
    
    
    1,697,648Property, plant and equipment and construction in progress, net
    
    
    63,224,482
    
    
    
    63,568,369Investment in and loan to affiliate
    
    
    15,855,559
    
    
    
    15,457,880Other assets
    
    
    10,307,380
    
    
    
    10,064,886Total assets
    
    $
    143,177,526
    
    
    $
    138,961,343LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable and other current liabilities
    
    $
    6,163,691
    
    
    $
    6,468,290Current portion of long term debt
    
    
    1,081,190
    
    
    
    1,154,067Total current liabilities
    
    
    7,244,881
    
    
    
    7,622,357Long term debt
    
    
    23,222,825
    
    
    
    23,500,593Other liabilities
    
    
    492,363
    
    
    
    497,985Minority interest in subsidiary
    
    
    1,509,053
    
    
    
    1,495,753Total liabilities
    
    
    32,469,122
    
    
    
    33,116,688Stockholders equityControlling interests:Redeemable
preferred stock, $0.60 par value. Authorized 200,000 shares;issued and outstanding 23,957 shares and
24,971 shares, respectively
    
    
    14,375
    
    
    
    14,983Class A common stock, $0.60 par value. Authorized 19,680,000
shares; issued and outstanding 14,362,450 shares and
14,132,860 shares, respectively
    
    
    8,617,470
    
    
    
    8,479,716Class B common stock, $0.60 par value. Authorized 120,000
shares; none issued or outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    78,145,473
    
    
    
    76,071,710Retained earnings
    
    
    23,931,086
    
    
    
    21,278,246110,708,404
    
    
    
    105,844,655Noncontrolling interests
    
    
    
    
    
    
    Total stockholders equity
    
    
    110,708,404
    
    
    
    105,844,655Total liabilities and stockholders equity
    
    $
    143,177,526
    
    
    $
    138,961,343
  1




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CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 Three Months Ended March 31,2007
    
    
    2006Retail revenues
    
    $
    5,104,210
    
    
    $
    5,054,149Bulk revenues
    
    
    5,227,521
    
    
    
    3,748,855Services revenues
    
    
    2,402,879
    
    
    
    440,560Total revenues
    
    
    12,734,610
    
    
    
    9,243,564Cost of retail revenues
    
    
    1,763,316
    
    
    
    1,449,393Cost of bulk revenues
    
    
    3,888,962
    
    
    
    2,917,097Cost of services revenues
    
    
    1,778,977
    
    
    
    103,726Total cost of revenues
    
    
    7,431,255
    
    
    
    4,470,216Gross profit
    
    
    5,303,355
    
    
    
    4,773,348General and administrative expenses
    
    
    2,346,207
    
    
    
    2,123,340Income from operations
    
    
    2,957,148
    
    
    
    2,650,008Other income (expense):Interest income
    
    
    448,804
    
    
    
    28,705Interest expense
    
    
    (480,928
    )
    
    
    (214,972
    )Other income
    
    
    203,331
    
    
    
    198,281Equity in earnings of affiliate
    
    
    459,123
    
    
    
    415,989Other income, net
    
    
    630,330
    
    
    
    428,003Income before noncontrolling interests
    
    
    3,587,478
    
    
    
    3,078,011Income attributable to noncontrolling interests
    
    
    
    
    
    
    Net income
    
    $
    3,587,478
    
    
    $
    3,078,011Basic earnings per common share
    
    $
    0.25
    
    
    $
    0.25Diluted earnings per common share
    
    $
    0.25
    
    
    $
    0.24Dividends declared per common share
    
    $
    0.065
    
    
    $
    0.06Weighted average number of common shares used
in the determination of:Basic earnings per share
    
    
    14,141,620
    
    
    
    12,216,870Diluted earnings per share
    
    
    14,377,695
    
    
    
    12,599,001
  2




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CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Three Months Ended March 31,2007
    
    
    2006Net cash flows provided by operating activities
    
    $
    1,902,805
    
    
    $
    1,073,669Cash flows provided by (used in) investing activitiesPurchase of property, plant and equipment and construction in progress
    
    
    (1,915,190
    )
    
    
    (8,030,432
    )Proceeds from sale of property, plant and equipment
    
    
    430,629
    
    
    
    Distribution of income from affiliate
    
    
    189,375
    
    
    
    757,500Loan to affiliate
    
    
    
    
    
    
    (800,000
    )Collections on loans receivable
    
    
    183,490
    
    
    
    222,312Net cash used in investing activities
    
    
    (1,111,696
    )
    
    
    (7,850,620
    )Cash flows provided by (used in) financing activitiesDividends paid
    
    
    (849,005
    )
    
    
    (707,792
    )Proceeds from exercises of stock options
    
    
    2,237,773
    
    
    
    1,165,298Principal repayments of long term debt
    
    
    (350,645
    )
    
    
    (816,149
    )Net cash provided by (used in) financing activities
    
    
    1,038,123
    
    
    
    (358,643
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,829,232
    
    
    
    (7,135,594
    )Cash and cash equivalents at beginning of period
    
    
    37,310,699
    
    
    
    11,955,589Cash and cash equivalents at end of period
    
    $
    39,139,931
    
    
    $
    4,819,995Interest paid in cash (net of capitalized interest of $nil and
$375,000 in 2007 and 2006, respectively)
    
    $
    606,909
    
    
    $
    196,881Interest received in cash
    
    $
    476,192
    
    
    $
    19,660Non-cash investing and financing activitiesConversion of 1,014 redeemable preferred shares to common shares
    
    $
    608
    
    
    $
    Sale of
water facility to Water Authority-Cayman for loan-receivable
    
    $
    
    
    
    $
    897,000
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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. Basis of presentation
     2. Accounting policies
 Plant construction revenue and cost of plant construction revenue:
  4




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 2. Accounting policies (continued)
 Basis of consolidation: Consolidated Financial Statements Consolidation of Variable Interest Entities
 3.
Stock based compensation
     Weighted AverageRemainingWeighted Average
    
    
    Contractual Life
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    (Years)
    
    

Intrinsic Value (1)Outstanding at beginning of year
    
    
    374,759
    
    
    $
    10.26Granted
    
    
    
    
    
    
    Exercised
    
    
    (223,542
    )
    
    
    9.99Forfeited
    
    
    
    
    
    
    Outstanding at March 31, 2007
    
    
    151,217
    
    
    $
    10.66
    
    
    0.35 years
    
    $
    1,972,966Exercisable at March 31, 2007
    
    
    110,962
    
    
    $
    10.03
    
    
    0.02 years
    
    $
    1,518,515
 (1)
    
    The intrinsic value of a stock option represents the amount by which the fair value
of the underlying stock, measured by reference to the closing price of the ordinary shares of
$23.71 in the NASDAQ Global Select Market on March 31, 2007, exceeds the exercise price of the
option.
   5




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 4. Segment information
  For the Three Months Ended March 31, 2007Retail
    
    
    Bulk
    
    

Services
    
    
    TotalTotal revenues
    
    $
    5,104,210
    
    
    $
    5,227,521
    
    
    $
    2,402,879
    
    
    $
    12,734,610Total cost of revenues
    
    
    1,763,316
    
    
    
    3,888,962
    
    
    
    1,778,977
    
    
    
    7,431,255Gross profit
    
    
    3,340,894
    
    
    
    1,338,559
    
    
    
    623,902
    
    
    
    5,303,355General & administrative expenses
    
    
    1,925,323
    
    
    
    383,063
    
    
    
    37,821
    
    
    
    2,346,207Income from operations
    
    
    1,415,571
    
    
    
    955,496
    
    
    
    586,081
    
    
    
    2,957,148Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    630,330Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,587,478As of March 31, 2007:Property plant and equipment, net
    
    $
    20,450,779
    
    
    $
    36,530,224
    
    
    $
    2,486,446
    
    
    $
    59,467,449Construction in progress
    
    
    2,988,764
    
    
    
    565,275
    
    
    
    202,994
    
    
    
    3,757,033Total assets
    
    
    85,742,864
    
    
    
    52,145,900
    
    
    
    5,288,762
    
    
    
    143,177,526
 For the Three Months Ended March 31, 2006Retail
    
    
    Bulk
    
    

Services
    
    
    TotalTotal revenues
    
    $
    5,054,149
    
    
    $
    3,748,855
    
    
    $
    440,560
    
    
    $
    9,243,564Total cost of revenues
    
    
    1,449,393
    
    
    
    2,917,097
    
    
    
    103,726
    
    
    
    4,470,216Gross profit
    
    
    3,604,756
    
    
    
    831,758
    
    
    
    336,834
    
    
    
    4,773,348General & administrative expenses
    
    
    1,783,919
    
    
    
    322,226
    
    
    
    17,195
    
    
    
    2,123,340Income from operations
    
    
    1,820,837
    
    
    
    509,532
    
    
    
    319,639
    
    
    
    2,650,008Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    428,003Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,078,011As of March 31, 2006:Property plant and equipment, net
    
    $
    21,882,008
    
    
    $
    7,621,818
    
    
    $
    2,736,354
    
    
    $
    32,240,180Construction in progress
    
    
    296,428
    
    
    
    18,838,561
    
    
    
    15,782
    
    
    
    19,150,771Total assets
    
    
    57,989,833
    
    
    
    29,384,689
    
    
    
    3,946,901
    
    
    
    91,321,423
 5. Earnings per share
  6




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 5. Earnings per share (continued)
  Three Months Ended March 31,2007
    
    
    2006Net income
    
    $
    3,587,478
    
    
    $
    3,078,011Less:Dividends declared and earnings attributable to
preferred shares
    
    
    (1,853
    )
    
    
    (3,161
    )Net income available to holders of common
shares in the determination of basic and
diluted earnings per share
    
    $
    3,585,625
    
    
    $
    3,074,850Weighted average number of common shares used
in the determination of basic earnings per
common share
    
    
    14,141,620
    
    
    
    12,216,870Plus:Weighted average number of preferred shares
outstanding during the period
    
    
    24,206
    
    
    
    31,949Potential dilutive effect of unexercised options
    
    
    211,869
    
    
    
    350,182Weighted average number of common shares used
in the determination of diluted earnings per
common share
    
    
    14,377,695
    
    
    
    12,599,001
 6. Consolidated Water (Bermuda) Limited
    7




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 7.
Impact of recent accounting pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 8. Investment in and loan to affiliate
  March 31,
    
    
    December 31,2007
    
    
    2006Equity investment
    
    $
    12,855,559
    
    
    $
    12,457,880Loan receivable  plant construction
    
    
    3,000,000
    
    
    
    3,000,000$
    15,855,559
    
    
    $
    15,457,880
     8




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 8. Investment in and loan to affiliate (continued)
     9. Litigation
  9




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Cautionary Note Regarding Forward-Looking Statements
     Recent Developments
 OC-BVI Contract Dispute
    10




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Tynes Bay, Bermuda Project
  Sandy Lane Agreement Non-renewal
  11




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Critical Accounting Policies
  Goodwill
and other intangible assets:
 Property,
plant and equipment:
 Buildings
    
    5 to 40 yearsPlant and equipment
    
    4 to 40 yearsDistribution system
    
    3 to 40 yearsOffice furniture, fixtures and equipment
    
    3 to 10 yearsVehicles
    
    3 to 10 yearsLeasehold improvements
    
    Lesser of 5 years or operating lease termLab equipment
    
    5 to 10 years
  12




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Construction in progress:
 Trade
accounts receivable:
 Plant
construction revenue and cost of plant construction revenue:
  Consolidation: Consolidated Financial Statements Consolidation of Variable Interest Entities
 RESULTS OF OPERATIONS
  13




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Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
 Consolidated Results
     Results by Segment
 Retail Segment:
    Bulk Segment:
  14




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Services Segment:
    LIQUIDITY AND CAPITAL RESOURCES
 Overview
   15




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Cash Flows for the Three Months Ended March 31, 2007
  Cash Flows from Operating Activities
  Cash Flows used in Investing Activities
  Cash Flows from Financing Activities
  Financial Position
     16




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Borrowings Outstanding
  5.95% Secured Bonds
    Consolidated Water (Bahamas) Limited (CW-Bahamas) Series A Bonds
  CW-Bahamas Credit Facility
  17




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Material Commitments, Expenditures and Contingencies
    18




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Dividends
    Dividend Reinvestment and Common Stock Purchase Plan
  Impact of Inflation
  19




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Credit Risk
  Interest Rate Risk
  Foreign Exchange Risk
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  20




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PART II  OTHER INFORMATION
 
 ITEM 1A.
    
    RISK FACTORS
 Our business faces significant risks. These risks include those disclosed in Item 1A of our Annual
Report on Form 10-K for the fiscal year ended December 31, 2006 as supplemented by the additional
risk factors included below. If any of the events or circumstances described in the referenced risks
actually occur, 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, 2006
and in our other periodic reports on Form 10-Q and Form 8-K .
 The water supply agreement between the British Virgin Islands Water and Sewerage Department
and our affiliate, OC-BVI, is on a month-to-month basis and could be cancelled or renegotiated on
less favorable terms.
   The British Virgin Islands government has asserted a purported right of ownership of OC-BVIs
Baughers Bay plant. If this right is found to be enforceable and is exercised by the government,
OC-BVI will lose ownership of the Baughers Bay plant.
  We account for our projects using percentage-of-completion, therefore variations of actual results
from our assumptions may reduce our profitability.
  21




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ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   
 ITEM 6.
    
    EXHIBITS
 ExhibitNumber
    
    
    Exhibit Description31.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of the Company31.2
    
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of the Company32.1
    
    
    Section 1350 Certification of Chief Executive Officer of the Company32.2
    
    
    Section 1350 Certification of Chief Financial Officer of the Company
 22




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SIGNATURES
  CONSOLIDATED WATER CO. LTD.By:
    /s/ Frederick W. McTaggartFrederick W. McTaggart
Chief Executive Officer  23