##### Table of Contents



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
  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 Park 
Windward Three, 4th Floor, West Bay Road 
P.O. Box 1114 GTGrand Cayman, Cayman 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
 PagePART I FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005
    
    
    1Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2006 and 2005 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005 (unaudited)
    
    
    3Notes
to the Condensed Consolidated Financial Statements (unaudited)
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    26PART II OTHER INFORMATIONItem 1A.
    
    Risk Factors
    
    
    27Item 6.
    
    Exhibits
    
    
    35SIGNATURES
    
    
    36EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.1 Section 906 Certification of CFO
  Note Regarding Exchange Rates.




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 CONSOLIDATED WATER CO. LTD.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    December 31,2006
    
    2005(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    7,313,560
    
    
    $
    11,955,589Accounts receivable, net
    
    
    9,010,283
    
    
    
    5,659,975Inventory
    
    
    2,961,770
    
    
    
    2,032,209Prepaid expenses and other current assets
    
    
    1,645,475
    
    
    
    858,870Current portion of loans receivable
    
    
    730,495
    
    
    
    669,855Total current assets
    
    
    21,661,583
    
    
    
    21,176,498Loans receivable
    
    
    3,485,507
    
    
    
    2,436,702Property, plant and equipment, net
    
    
    59,861,773
    
    
    
    32,667,615Construction
in progress, including interest of $375,000 at December 31, 2005
    
    
    2,123,255
    
    
    
    12,172,402Investment in affiliate
    
    
    11,968,236
    
    
    
    11,317,731Intangible assets
    
    
    3,867,724
    
    
    
    4,491,501Goodwill
    
    
    3,568,374
    
    
    
    3,568,374Other assets
    
    
    2,697,054
    
    
    
    534,368Total assets
    
    $
    109,233,506
    
    
    $
    88,365,191LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesDividends payable
    
    $
    866,199
    
    
    $
    828,709Accounts payable and other current liabilities
    
    
    6,210,459
    
    
    
    3,939,538Current portion of long term debt
    
    
    3,913,248
    
    
    
    3,472,330Total current liabilities
    
    
    10,989,906
    
    
    
    8,240,577Long term debt
    
    
    30,567,712
    
    
    
    19,378,212Security deposits and other liabilities
    
    
    474,686
    
    
    
    349,628Minority interest in Consolidated Water (Bahamas) Ltd.
    
    
    1,541,521
    
    
    
    833,695Total liabilities
    
    
    43,573,825
    
    
    
    28,802,112Stockholders equityRedeemable preference shares, par value $0.60 per share.
Authorized: 200,000 shares; Issued and outstanding: 24,971
shares at September 30, 2006 and 32,304 shares at December
31, 2005
    
    
    14,983
    
    
    
    19,382Ordinary
shares, par value $0.60 per share. Authorized:19,680,000 shares; Issued and outstanding: 12,395,653 shares at
September 30, 2006 and 12,181,778 shares at December 31, 2005
    
    
    7,437,392
    
    
    
    7,309,066Class B
ordinary shares, par value $0.60 per share. Authorized: 120,000 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    36,754,114
    
    
    
    35,367,037Retained earnings
    
    
    21,453,192
    
    
    
    16,867,594Total stockholders equity
    
    
    65,659,681
    
    
    
    59,563,079Total liabilities and stockholders equity
    
    $
    109,233,506
    
    
    $
    88,365,191
  1




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CONSOLIDATED WATER CO. LTD.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (UNAUDITED)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Retail water sales
    
    $
    4,135,562
    
    
    $
    3,005,984
    
    
    $
    14,053,539
    
    
    $
    9,549,318Bulk water sales
    
    
    5,128,396
    
    
    
    2,869,852
    
    
    
    13,193,179
    
    
    
    8,435,746Services revenue
    
    
    746,407
    
    
    
    328,550
    
    
    
    1,634,187
    
    
    
    829,676Total revenues
    
    
    10,010,365
    
    
    
    6,204,386
    
    
    
    28,880,905
    
    
    
    18,814,740Retail cost of sales
    
    
    1,448,270
    
    
    
    1,329,128
    
    
    
    5,024,372
    
    
    
    3,881,939Bulk cost of sales
    
    
    4,346,148
    
    
    
    2,448,101
    
    
    
    10,196,103
    
    
    
    7,023,888Services cost of sales
    
    
    407,125
    
    
    
    224,743
    
    
    
    668,773
    
    
    
    526,409Total cost of sales
    
    
    6,201,543
    
    
    
    4,001,972
    
    
    
    15,889,248
    
    
    
    11,432,236Gross profit
    
    
    3,808,822
    
    
    
    2,202,414
    
    
    
    12,991,657
    
    
    
    7,382,504General and administrative expenses
    
    
    2,323,258
    
    
    
    1,479,414
    
    
    
    6,620,425
    
    
    
    4,412,635Income from operations
    
    
    1,485,564
    
    
    
    723,000
    
    
    
    6,371,232
    
    
    
    2,969,869Other income (expense):Interest income
    
    
    46,908
    
    
    
    42,605
    
    
    
    143,472
    
    
    
    78,840Interest expense
    
    
    (732,832
    )
    
    
    (214,736
    )
    
    
    (1,177,407
    )
    
    
    (661,216
    )Other income
    
    
    143,522
    
    
    
    121,232
    
    
    
    474,351
    
    
    
    422,081Equity in earnings of affiliate
    
    
    303,878
    
    
    
    337,248
    
    
    
    1,035,431
    
    
    
    1,055,186Other income (expense), net
    
    
    (238,524
    )
    
    
    286,349
    
    
    
    475,847
    
    
    
    894,891Net income
    
    $
    1,247,040
    
    
    $
    1,009,349
    
    
    $
    6,847,079
    
    
    $
    3,864,760Basic
earnings per ordinary share
    
    $
    0.10
    
    
    $
    0.09
    
    
    $
    0.55
    
    
    $
    0.33Diluted
earnings per ordinary share
    
    $
    0.10
    
    
    $
    0.08
    
    
    $
    0.54
    
    
    $
    0.32Dividends declared per ordinary share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.18
    
    
    $
    0.18Weighted average number of ordinary
shares used in the determination of:Basic earnings per share
    
    
    12,394,582
    
    
    
    11,754,530
    
    
    
    12,387,980
    
    
    
    11,678,398Diluted earnings per share
    
    
    12,656,717
    
    
    
    12,141,924
    
    
    
    12,702,452
    
    
    
    12,082,027
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CONSOLIDATED WATER CO. LTD.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Nine Months EndedSeptember 30,2006
    
    2005Net cash flows provided by operating activities
    
    $
    6,270,345
    
    
    $
    6,362,132Cash flows provided by (used in) investing activitiesPurchase of property, plant and equipment
    
    
    (2,322,893
    )
    
    
    (3,594,627
    )Construction in progress
    
    
    (20,363,885
    )
    
    
    (6,997,106
    )Distribution of income from affiliate
    
    
    757,320
    
    
    
    1,136,250Proceeds from sale of minority interest in subsidiary
    
    
    672,136
    
    
    
    Loan to affiliate
    
    
    (800,000
    )
    
    
    (800,000
    )Collections of loans receivable
    
    
    587,555
    
    
    
    684,079Net cash used in investing activities
    
    
    (21,469,767
    )
    
    
    (9,571,404
    )Cash flows provided by (used in) financing activitiesDividends paid
    
    
    (2,261,482
    )
    
    
    (2,042,781
    )Net proceeds from issuance of 5.95% bonds
    
    
    14,790,180
    
    
    
    Proceeds from issuance of redeemable preference shares
    
    
    18,191
    
    
    
    12,213Proceeds from exercises of stock options
    
    
    1,195,707
    
    
    
    1,311,598Borrowings under line of credit
    
    
    5,659,608
    
    
    
    Line of credit repayment
    
    
    (5,659,608
    )
    
    
    Net proceeds from issuance of Series A bonds
    
    
    
    
    
    
    9,788,491Principal repayments of long term debt
    
    
    (3,185,203
    )
    
    
    (2,682,593
    )Net cash provided by financing activities
    
    
    10,557,393
    
    
    
    6,386,928Net increase (decrease) in cash and cash equivalents
    
    
    (4,642,029
    )
    
    
    3,177,656Cash and cash equivalents at beginning of period
    
    
    11,955,589
    
    
    
    9,216,908Cash and cash equivalents at end of period
    
    $
    7,313,560
    
    
    $
    12,394,564Interest paid in cash
    
    $
    1,110,420
    
    
    $
    775,079Interest received in cash
    
    $
    80,051
    
    
    $
    79,854Non-cash investing and financing activitiesNote received for plant facility sold
    
    $
    897,000
    
    
    $
    Issuance of 2,135 and 4,682, respectively, ordinary shares for services rendered
    
    
    39,044
    
    
    
    145,040Issuance of 3,587 redeemable preference shares for services rendered
    
    
    130,078
    
    
    
    Conversion
of 12,244 and 4,182 shares, in 2006 and 2005, respectively, of
redeemable preference shares to ordinary shares
    
    
    7,346
    
    
    
    2,509
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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. Basis of Presentation
     2. Stock Based Compensation
  ,
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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 2. Stock Based Compensation (continued)
   Three Months
    
    Nine MonthsEnded
    
    EndedSeptember 30, 2005
    
    September 30, 2005Net income, as reported
    
    $
    1,009,349
    
    
    $
    3,864,760Add: Stock based compensation
expense included in reported
net income
    
    
    58,683
    
    
    
    195,477Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects
    
    
    (103,178
    )
    
    
    (259,598
    )Pro forma net income
    
    $
    964,854
    
    
    $
    3,800,639Earnings per shareBasic  as reported
    
    $
    0.09
    
    
    $
    0.33Basic  pro forma
    
    $
    0.08
    
    
    $
    0.32Diluted  as reported
    
    $
    0.08
    
    
    $
    0.32Diluted  pro forma
    
    $
    0.08
    
    
    $
    0.31
  Employee Share Incentive Plan (Redeemable Preference Shares) 
 Employee Share Option Plan (Ordinary Share Options)  th t
 5




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 2. Stock Based Compensation (continued)
  Non-Executive Directors Share Plan 
 Directors and Senior Management Stock Compensation 
     Weighted AverageRemainingWeighted Average
    
    Contractual Life
    
    Aggregate IntrinsicOptions
    
    Exercise Price
    
    (Years)
    
    Value(1)Outstanding at beginning of year
    
    
    600,650
    
    
    $
    8.63Granted
    
    
    6,742
    
    
    
    19.20Exercised
    
    
    (200,820
    )
    
    
    6.04Forfeited
    
    
    (25,513
    )
    
    
    7.91Outstanding at September 30, 2006
    
    
    381,059
    
    
    $
    10.22
    
    
    1.31 years
    
    $
    5,467,594Exercisable at September 30, 2006
    
    
    331,504
    
    
    $
    10.03
    
    
    0.45 years
    
    $
    4,821,724
 (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
$24.57 in the Nasdaq Global Select Market on September 30, 2006, exceeds the exercise price
of the option.
  6




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 3. Segment Information
   RETAIL
    
    BULK
    

SERVICES
    
    TOTAL2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005For the Three Months Ended September 30,Revenue
    
    $
    4,135,562
    
    
    $
    3,005,984
    
    
    $
    5,128,396
    
    
    $
    2,869,852
    
    
    
    746,407
    
    
    $
    328,550
    
    
    $
    10,010,365
    
    
    $
    6,204,386Cost of Sales
    
    
    1,448,270
    
    
    
    1,329,128
    
    
    
    4,346,148
    
    
    
    2,448,101
    
    
    
    407,125
    
    
    
    224,743
    
    
    
    6,201,543
    
    
    
    4,001,972Net Income
    
    
    694,552
    
    
    
    371,171
    
    
    
    16,456
    
    
    
    274,197
    
    
    
    232,154
    
    
    
    86,733
    
    
    
    943,162
    
    
    
    672,101For the Nine Months Ended September 30,Revenue
    
    $
    14,053,539
    
    
    $
    9,549,318
    
    
    $
    13,193,179
    
    
    $
    8,435,746
    
    
    $
    1,634,187
    
    
    $
    829,676
    
    
    $
    28,880,905
    
    
    $
    18,814,740Cost of Sales
    
    
    5,024,372
    
    
    
    3,881,939
    
    
    
    10,196,103
    
    
    
    7,023,888
    
    
    
    668,773
    
    
    
    526,409
    
    
    
    15,889,248
    
    
    
    11,432,236Net Income
    
    
    3,481,256
    
    
    
    1,655,267
    
    
    
    1,841,759
    
    
    
    876,849
    
    
    
    488,633
    
    
    
    277,458
    
    
    
    5,811,648
    
    
    
    2,809,574As of September 30, 2006 and December 31, 2005Property, plant and
equipment, net
    
    $
    20,799,462
    
    
    $
    21,938,568
    
    
    $
    36,429,552
    
    
    $
    7,919,173
    
    
    $
    2,632,759
    
    
    $
    2,809,874
    
    
    $
    59,861,773
    
    
    $
    32,667,615Construction in
progress
    
    
    880,318
    
    
    
    166,924
    
    
    
    1,045,073
    
    
    
    12,005,478
    
    
    
    197,864
    
    
    
    
    
    
    
    2,123,255
    
    
    
    12,172,402
 4. Earnings Per Share
   7




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 4. Earnings Per Share (continued)
 Three Months EndedSeptember 30,2006
    
    2005Net income
    
    $
    1,247,040
    
    
    $
    1,009,349Less:Dividends declared and earnings attributable to
redeemable preference shares
    
    
    (4,367
    )
    
    
    (1,909
    )Net income available to holders of ordinary
shares in the determination of basic and
diluted earnings per share
    
    $
    1,242,673
    
    
    $
    1,007,440Weighted average number of ordinary shares used
in the determination of basic earnings per
ordinary share
    
    
    12,394,582
    
    
    
    11,754,530Plus:Weighted average number of redeemable
preference shares outstanding during the period
    
    
    25,970
    
    
    
    26,529Potential dilutive effect of unexercised options
    
    
    236,165
    
    
    
    360,865Weighted average number of ordinary shares used
in the determination of diluted earnings per
ordinary share
    
    
    12,656,717
    
    
    
    12,141,924
 Nine Months EndedSeptember 30,2006
    
    2005Net income
    
    $
    6,847,079
    
    
    $
    3,864,760Less:Dividends declared and earnings attributable to
redeemable preference shares
    
    
    (5,091
    )
    
    
    (6,132
    )Net income available to holders of ordinary
shares in the determination of basic and
diluted earnings per share
    
    $
    6,841,988
    
    
    $
    3,858,628Weighted average number of ordinary shares used
in the determination of basic earnings per
ordinary share
    
    
    12,387,980
    
    
    
    11,678,398Plus:Weighted average number of redeemable
preference shares outstanding during the period
    
    
    29,692
    
    
    
    25,640Potential dilutive effect of unexercised options
    
    
    284,780
    
    
    
    377,989Weighted average number of ordinary shares used
in the determination of diluted earnings per
ordinary share
    
    
    12,702,452
    
    
    
    12,082,027
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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 5. Issuance of Bonds Payable
  pari passu
  6. Related Party Transaction
  7. Impact of Recent Accounting Pronouncements
  ,
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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 7. Impact of Recent Accounting Pronouncements (continued)
  .
  .
  10




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 8. Recent Developments
 Baughers Bay Contract Dispute
       Tynes Bay, Bermuda Project
  11




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 8. Recent Developments (continued)
  CW-Bahamas Credit Facility Refinancing
     Planned Registered Offering
  12




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Sandy Lane Agreement Non-renewal
  13




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ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
   Business Overview
    Recent Developments
 Baughers Bay Contract Dispute
  14




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Tynes Bay, Bermuda Project
  15




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Sandy Lane Agreement Non-renewal
  CW-Bahamas Credit Facility Refinancing
  Planned Registered Offering
  Critical Accounting Policies
  Goodwill and other intangible assets
 16




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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
  Construction in progress:
 Trade accounts receivable
 RESULTS OF OPERATIONS
  17




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Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005
       Retail Segment:
   18




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Bulk Segment:
    Services Segment:
   Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005
    19




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Retail Segment:
    Bulk Segment:
  20




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.
  Services Segment:
   LIQUIDITY AND CAPITAL RESOURCES
 Overview
     21




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Cash Flows for the Nine Months Ended September 30, 2006
  Cash Flows from Operating Activities
  Cash Flows used in Investing Activities
  Cash Flows from Financing Activities
  Financial
Position
      Borrowings Outstanding
  Scotiabank Credit Facility
  22




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5.95% Secured Bonds
  pari passu
  CW-Bahamas
New Credit Facility Refinancing
     CW-Bahamas Series A Bonds
  23




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Material Commitments and Contingencies
     24




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Dividends
  Payment Date
    
    Record Date
    
    Payment AmountJanuary 31, 2006
April 30, 2006
July 31, 2006
October 31, 2006
    
    December 31, 2005
March 31, 2006
June 30, 2006
September 30, 2006
    
    $0.06
$0.06
$0.06
$0.06
  Impact of Inflation
  Off Balance Sheet Arrangements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Credit Risk
  Interest Rate Risk
  Foreign Exchange Risk
  25




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ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  26




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PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
 Our business faces significant risks. These risks include those described below and may include
additional risks of which we are not currently aware or which we currently do not believe are
material. If any of the events or circumstances described in the following 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, 2005 and in our other periodic
reports on Form 10-Q and Form 8-K . The
description of the risk factors set forth below updates and reflects any material changes to the risk factors disclosed in Item 1A of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2005.
 Our exclusive license to provide water to retail customers in the Cayman Islands may not be renewed
in the future.
  We rely on fixed-term water supply and/or service agreements with our bulk customers in the Cayman
Islands, Belize, Barbados and The Bahamas, which may not be renewed or may be renewed on terms less
favorable to us.
  The water supply agreement between the British Virgin Islands Water and Sewerage Department and our
affiliate, Ocean Conversion (BVI) Ltd. (or OC-BVI), is on a month-to-month basis and could be
cancelled or renegotiated on less favorable terms.
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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 do not have sole control over our affiliate, OC-BVI. A divergence of our interests and the
interests of OC-BVIs other voting shareholder may adversely affect the operations of OC-BVI and in
turn decrease the value of our investment in OC-BVI.
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The profitability of our plants is dependent upon our ability to accurately estimate the costs of
their construction and operation.
  A significant portion of our consolidated revenues are derived from two customers. A loss of, or a
less favorable relationship with either of these customers would adversely affect our results of
operations.
  If OC-BVI does not obtain a customer to purchase water to be produced at its Bar Bay plant
currently under construction, it may not be able to recover the cost of its investment in the
plant, which could adversely affect its operations and in turn decrease the value of our investment
in OC-BVI.
  Our operations are affected by tourism and are subject to seasonal fluctuations which could affect
demand for our water and impact our revenues and results of operations.
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We may have difficulty accomplishing our growth strategy within and outside of our current
operating areas.
  
    
    regulatory risks, including government relations difficulties, local regulations and currency controls;
    
    receiving and maintaining necessary permits, licenses and approvals;
    
    risks related to operating in foreign countries, including political instability, reliance on local economies,
environmental problems, shortages of materials, immigration restrictions and limited skilled labor;
    
    risks related to development of new operations, including inaccurate assessment of the demand for water, engineering
difficulties and inability to begin operations as scheduled; and
    
    risks relating to greater competition in these new territories, including the ability of our competitors to gain or
retain market share by reducing prices.
  Continued production shortfalls under our Windsor supply contract could result in further rate
decreases or cancellation of the contract.
  Our operations could be harmed by hurricanes or tropical storms.
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Contamination of our processed water may cause disruption in our services and adversely affect our
revenues.
  Potential government decisions, actions and regulations could negatively affect our operations.
  
    
    restricting foreign ownership of us;
    
    providing for the expropriation of our assets by the government;
    
    providing for nationalization of public utilities by the government;
    
    providing for different water quality standards;
    
    unilaterally changing or renegotiating our licenses and agreements;
    
    restricting the transfer of U.S. currency; or
    
    causing currency exchange fluctuations/devaluations or making changes in tax laws.
  The rates we charge our retail customers in the Cayman Islands are subject to regulation. If we are
unable to obtain government approval of our requests for rate increases, or if approved rate
increases are untimely or inadequate to cover our projected expenses, our results of operations may
be adversely affected.
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We rely on the efforts of key employees. Our failure to retain these employees could adversely
affect our results of operations.
  We are exposed to credit risk through our relationships with several customers and our affiliate.
  We are exposed to interest rate risk in several countries.
  We are exposed to the risk of variations in currency exchange rates.
  Future sales of our ordinary shares may depress the market price of our ordinary shares.
  We may not pay dividends in the future. If dividends are paid, they may be in lesser amounts than
past dividends.
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Service of process and enforcement of legal proceedings commenced against us in the United States
may be difficult to obtain.
    Low trading volume of our stock may limit your ability to sell your shares at or above the price
you pay for them.
  Competition may threaten the sustainability and growth of our current operations and impede the
expansion of our operations into new areas.
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We are subject to anti-takeover measures that may discourage, delay or prevent changes of control
of Consolidated Water.
 Classified Board of Directors.
 Option Deed.
  Restrictive covenants in our credit facilities and trust deeds could adversely affect our business
by limiting our flexibility; our failure to comply with these covenants could cause foreclosure on
our assets.
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Item 6. Exhibits
 Exhibit 
Number
    
    Exhibit Description10.1
    
    Trust Deed dated August 4, 2006 between Consolidated Water Co. Ltd.
and Dextra Bank & Trust Co. Ltd. (incorporated herein by reference
to Exhibit 10.1 filed as a part of our Form 8-K filed August 9,
2006, File No. 0-25248)10.2
    
    Subscription Agreement dated August 4, 2006 between Consolidated
Water Co. Ltd. and Scotiatrust and Merchant Bank Trinidad & Tobago
Limited (incorporated herein by reference to Exhibit 10.2 filed as a
part of our Form 8-K filed August 9, 2006, File No. 0-25248)10.3
    
    Paying Agency Agreement dated August 4, 2006 between Consolidated
Water Co. Ltd. and Scotiatrust and Merchant Bank Trinidad & Tobago
Limited. (incorporated herein by reference to Exhibit 10.3 filed as
a part of our Form 8-K filed August 9, 2006, File No. 0-25248)10.4
    
    Guarantee dated August 4, 2006 by Cayman Water Company Limited in
favor of Dextra Bank & Trust Co. Ltd. (incorporated herein by
reference to Exhibit 10.4 filed as a part of our Form 8-K filed
August 9, 2006, File No. 0-25248)10.5
    
    Deed of Second Debenture dated August 4, 2006 between Consolidated
Water Co. Ltd. and Dextra Bank & Trust Co. Ltd. (incorporated herein
by reference to Exhibit 10.5 filed as a part of our Form 8-K filed
August 9, 2006, File No. 0-25248)10.6
    
    Deed of Second Collateral Debenture dated August 4, 2006 between
Cayman Water Company Limited and Dextra Bank & Trust Co. Ltd.
(incorporated herein by reference to Exhibit 10.6 filed as a part of
our Form 8-K filed August 9, 2006, File No. 0-25248)10.7
    
    Equitable Charge of Shares dated August 4, 2006 between Consolidated
Water Co. Ltd. and Dextra Bank & Trust Co. Ltd. (incorporated herein
by reference to Exhibit 10.7 filed as a part of our Form 8-K filed
August 9, 2006, File No. 0-25248)10.8
    
    Intercreditor Deed dated August 4, 2006 among Scotiabank & Trust
(Cayman) Ltd., Dextra Bank & Trust Co. Ltd., Consolidated Water Co.
Ltd. and Cayman Water Company Limited (incorporated herein by
reference to Exhibit 10.8 filed as a part of our Form 8-K filed
August 9, 2006, File No. 0-25248)10.9
    
    Cayman Islands Collateral Charge, West Bay Beach South Property,
Block 12D, Parcel 79REM1/2 (incorporated herein by reference to
Exhibit 10.9 filed as a part of our Form 8-K filed August 9, 2006,
File No. 0-25248)10.10
    
    Cayman Islands Collateral Charge, West Bay Beach North, Block 11D,
Parcel 40 (incorporated herein by reference to Exhibit 10.10 filed
as a part of our Form 8-K filed August 9, 2006, File No. 0-25248)10.11
    
    Cayman Islands Collateral Charge, West Bay Beach North, Block 11D,
Parcel 8 (incorporated herein by reference to Exhibit 10.11 filed as
a part of our Form 8-K filed August 9, 2006, File No. 0-25248)10.12
    
    Cayman Islands Collateral Charge, West Bay North East, Block 9A,
Parcel 8 (incorporated herein by reference to Exhibit 10.12 filed as
a part of our Form 8-K filed August 9, 2006, File No. 0-25248)10.13
    
    Cayman Islands Collateral Charge, West Bay North East, Block 9A,
Parcel 469 (incorporated herein by reference to Exhibit 10.13 filed
as a part of our Form 8-K filed August 9, 2006, File No. 0-25248)10.14
    
    Loan Agreement dated as of October 4, 2006, by and between Royal
Bank of Canada and Consolidated Water (Bahamas) Ltd. (incorporated
herein by reference to Exhibit 10.1 filed as a part of our Form 8-K
filed October 6, 2006, File No. 0-25248)31.1
    
    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
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SIGNATURES
  CONSOLIDATED WATER CO.
LTD.By:

/s/ Frederick W. McTaggartFrederick W. McTaggartChief Executive Officer  36