##### 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 1934For the quarterly period ended March 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transaction period from _________________________ to _________________________
 Commission File Number: 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
Grand Cayman KY1-1102
Cayman Islands
    
    N/A(Address of principal executive offices)
    
    (Zip Code)
 (345) 945-4277
  þ o
   Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ
 ,




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TABLE OF CONTENTS
 Section
    
    
    
    Description
    
    PagePART I
    
    
    
    FINANCIAL INFORMATIONItem 1
    
    Financial StatementsConsolidated Balance Sheets as of March 31, 2008 (Unaudited) and December 31, 2007
    
    
    4Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2008 and 2007
    
    
    5Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2008 and 2007
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    24Item 4
    
    Controls and Procedures
    
    
    24PART II
    
    
    
    OTHER INFORMATIONItem 1A
    
    Risk Factors
    
    
    25Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 6
    
    Exhibits
    
    
    26SIGNATURE
    
    
    
    
    27Ex-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
       3




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED WATER CO. LTD.
CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    39,753,270
    
    
    $
    38,529,383Accounts receivable, net
    
    
    9,654,491
    
    
    
    9,828,529Inventory
    
    
    3,968,679
    
    
    
    3,649,991Prepaid expenses and other current assets
    
    
    999,029
    
    
    
    1,411,231Current portion of loans receivable
    
    
    904,425
    
    
    
    947,854Total current assets
    
    
    55,279,894
    
    
    
    54,366,988Property, plant and equipment, net
    
    
    59,229,878
    
    
    
    59,981,514Construction in progress
    
    
    5,181,557
    
    
    
    4,989,779Loans receivable
    
    
    2,133,350
    
    
    
    2,329,262Investment in and loan to affiliate
    
    
    16,698,741
    
    
    
    17,501,848Intangible assets, net
    
    
    2,684,735
    
    
    
    2,881,900Goodwill
    
    
    3,587,754
    
    
    
    3,587,754Other assets
    
    
    3,722,145
    
    
    
    3,691,839Total assets
    
    $
    148,518,054
    
    
    $
    149,330,884LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable and other current liabilities
    
    $
    3,258,398
    
    
    $
    4,996,728Dividends payable
    
    
    1,005,793
    
    
    
    60,719Current portion of long term debt
    
    
    1,163,368
    
    
    
    1,142,255Total current liabilities
    
    
    5,427,559
    
    
    
    6,199,702Long term debt
    
    
    22,059,459
    
    
    
    22,358,338Other liabilities
    
    
    470,510
    
    
    
    476,136Minority interest in subsidiary
    
    
    1,372,575
    
    
    
    1,392,254Total liabilities
    
    
    29,330,103
    
    
    
    30,426,430Stockholders equityControlling interests:Redeemable preferred stock, $0.60 par value. Authorized 200,000 shares;
issued and outstanding 20,270 and 21,082 shares, respectively
    
    
    12,163
    
    
    
    12,650Class A common stock, $0.60 par value. Authorized 19,655,000 shares;
issued and outstanding 14,518,860 and 14,507,486 shares, respectively
    
    
    8,711,315
    
    
    
    8,704,492Class B common stock, $0.60 par value. Authorized 145,000 shares;
none issued or outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    80,239,317
    
    
    
    79,771,093Retained earnings
    
    
    29,714,462
    
    
    
    29,853,720118,677,257
    
    
    
    118,341,955Non-controlling interests
    
    
    510,694
    
    
    
    562,499Total stockholders equity
    
    
    119,187,951
    
    
    
    118,904,454Total liabilities and stockholders equity
    
    $
    148,518,054
    
    
    $
    149,330,884
  4




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CONSOLIDATED WATER CO. LTD.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 Three Months Ended March 31,2008
    
    
    2007Retail water revenues
    
    $
    5,010,511
    
    
    $
    5,104,210Bulk water revenues
    
    
    6,167,324
    
    
    
    5,227,521Services revenues
    
    
    1,557,894
    
    
    
    2,402,879Total revenues
    
    
    12,735,729
    
    
    
    12,734,610Cost of retail revenues
    
    
    1,744,170
    
    
    
    1,763,316Cost of bulk revenues
    
    
    5,139,285
    
    
    
    3,888,962Cost of services revenues
    
    
    1,316,216
    
    
    
    1,778,977Total cost of revenues
    
    
    8,199,671
    
    
    
    7,431,255Gross profit
    
    
    4,536,058
    
    
    
    5,303,355General and administrative expenses
    
    
    2,466,592
    
    
    
    2,339,181Income from operations
    
    
    2,069,466
    
    
    
    2,964,174Other income (expense):Interest income
    
    
    452,690
    
    
    
    448,804Interest expense
    
    
    (446,558
    )
    
    
    (480,928
    )Other income
    
    
    19,855
    
    
    
    203,331Equity in earnings (loss) of affiliate
    
    
    (493,070
    )
    
    
    459,123Other income (expense), net
    
    
    (467,083
    )
    
    
    630,330Income before non-controlling and minority interests
    
    
    1,602,383
    
    
    
    3,594,504Income (loss) attributable to non-controlling and minority interests
    
    
    (71,484
    )
    
    
    7,026Net income
    
    $
    1,673,867
    
    
    $
    3,587,478Basic earnings per common share
    
    $
    0.12
    
    
    $
    0.25Diluted earnings per common share
    
    $
    0.12
    
    
    $
    0.25Dividends declared per common share
    
    $
    0.13
    
    
    $
    0.065Weighted average number of common shares used in the determination of:Basic earnings per share
    
    
    14,507,897
    
    
    
    14,141,620Diluted earnings per share
    
    
    14,532,303
    
    
    
    14,377,695
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CONSOLIDATED WATER CO. LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Three Months Ended March 31,2008
    
    
    2007Net cash flows provided by operating activities
    
    $
    3,118,722
    
    
    $
    1,902,805Cash flows provided by (used in) investing activitiesPurchases of property, plant and equipment and construction in progress
    
    
    (1,202,395
    )
    
    
    (1,915,190
    )Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    430,629Distribution of income from affiliate
    
    
    
    
    
    
    189,375Collections on loans receivable
    
    
    489,341
    
    
    
    183,490Net cash provided by (used in) investing activities
    
    
    (713,054
    )
    
    
    (1,111,696
    )Cash flows provided by (used in) financing activitiesDividends paid
    
    
    (868,052
    )
    
    
    (849,005
    )Proceeds from exercises of stock options
    
    
    
    
    
    
    2,237,773Principal repayments of long term debt
    
    
    (313,729
    )
    
    
    (350,645
    )Net cash provided by (used in) financing activities
    
    
    (1,181,781
    )
    
    
    1,038,123Net increase in cash and cash equivalents
    
    
    1,223,887
    
    
    
    1,829,232Cash and cash equivalents at beginning of period
    
    
    38,529,383
    
    
    
    37,310,699Cash and cash equivalents at end of period
    
    $
    39,753,270
    
    
    $
    39,139,931Interest paid in cash
    
    $
    399,791
    
    
    $
    606,909Interest received in cash
    
    $
    391,996
    
    
    $
    476,192Non-cash investing and financing activitiesConversion of 812 (2007: 1,014) redeemable preferred shares
into 812 (2007: 1,014) common shares
    
    $
    487
    
    
    $
    608Issuance of 10,562 (2007: 4,664) common shares to senior management for
services rendered
    
    $
    266,461
    
    
    $
    114,305
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CONSOLIDATED WATER CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. Basis of presentation
     7




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2. Stock based compensation
    Share-Based Payments
    Weighted AverageRemainingWeighted Average
    
    
    Contractual Life
    
    
    
    
    
    
    Aggregate IntrinsicOptions
    
    
    Exercise Price
    
    
    (Years)
    
    
    
    
    
    
    Value (1)Outstanding at beginning of period
    
    
    21,465
    
    
    $
    19.50Granted
    
    
    101,655
    
    
    
    29.27Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding as of March 31, 2008
    
    
    123,120
    
    
    $
    27.56
    
    
    
    4.21
    
    
    years
    
    $
    84,450Exercisable as of March 31, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    years
    
    $
    
 
 (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
$22.03 in the NASDAQ Global Select Market on March 31, 2008, exceeds the exercise price of
the option. 
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3. Segment information
  Three Months Ended March 31, 2008Retail
    
    
    Bulk
    
    
    Services
    
    
    TotalRevenues
    
    $
    5,010,511
    
    
    $
    6,167,324
    
    
    $
    1,557,894
    
    
    $
    12,735,729Cost of revenues
    
    
    1,744,170
    
    
    
    5,139,285
    
    
    
    1,316,216
    
    
    
    8,199,671Gross profit
    
    
    3,266,341
    
    
    
    1,028,039
    
    
    
    241,678
    
    
    
    4,536,058General and administrative expenses
    
    
    2,039,853
    
    
    
    376,186
    
    
    
    50,553
    
    
    
    2,466,592Income from operations
    
    
    1,226,488
    
    
    
    651,853
    
    
    
    191,125
    
    
    
    2,069,466Other income (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (467,083
    )Income before non-controlling and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,602,383Income (loss) attributable to non-controlling and
minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,484
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,673,867As of March 31, 2008Property plant and equipment, net
    
    $
    23,212,707
    
    
    $
    33,831,795
    
    
    $
    2,185,376
    
    
    $
    59,229,878Construction in progress
    
    
    3,080,446
    
    
    
    2,101,111
    
    
    
    
    
    
    
    5,181,557Total assets
    
    
    89,334,605
    
    
    
    55,304,688
    
    
    
    3,878,761
    
    
    
    148,518,054
 Three Months Ended March 31, 2007Retail
    
    
    Bulk
    
    
    Services
    
    
    TotalRevenues
    
    $
    5,104,210
    
    
    $
    5,227,521
    
    
    $
    2,402,879
    
    
    $
    12,734,610Cost 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 and administrative expenses
    
    
    1,959,593
    
    
    
    341,767
    
    
    
    37,821
    
    
    
    2,339,181Income from operations
    
    
    1,381,301
    
    
    
    996,792
    
    
    
    586,081
    
    
    
    2,964,174Other income (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    630,330Income before non-controlling and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,594,504Income (loss) attributable to non-controlling and
minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,026Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,587,478As of March 31, 2007Property 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
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4. Earnings per share
   Three Months Ended March 31,2008
    
    
    2007Net income
    
    $
    1,673,867
    
    
    $
    3,587,478Less:Dividends declared and earnings attributable to preferred shares
    
    
    (2,612
    )
    
    
    (1,853
    )Net income available to holders of common shares in the determination of
basic and diluted earnings per share
    
    $
    1,671,255
    
    
    $
    3,585,625Weighted average number of common shares used in the determination of
basic earnings per common share
    
    
    14,507,897
    
    
    
    14,141,620Plus:Weighted average number of preferred shares outstanding during the period
    
    
    20,904
    
    
    
    24,206Potential dilutive effect of unexercised options
    
    
    3,502
    
    
    
    211,869Weighted average number of common shares used in the determination of
diluted earnings per common share
    
    
    14,532,303
    
    
    
    14,377,695
 5. Consolidated Water (Bermuda) Limited
     10




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6. Impact of recent accounting pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
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7. Investment in and loan to affiliate
  March 31,
    
    
    December 31,2008
    
    
    2007Equity investment
    
    $
    14,073,741
    
    
    $
    14,626,848Loan receivable  plant construction
    
    
    2,625,000
    
    
    
    2,875,000$
    16,698,741
    
    
    $
    17,501,848
  Baughers Bay plant dispute:
      12




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Bar Bay plant:
  13




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8. Litigation
   
 ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Cautionary Note Regarding Forward-Looking Statements
     Critical Accounting Policies
  Use of estimates:
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Trade accounts receivable:
 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
    
    Shorter of 5 years or operating lease term outstandingLab equipment
    
    5 to 10 years
  Construction in progress:
 Goodwill and other intangible assets:
 Revenue and cost of sales:
   Plant construction revenues and costs of plant construction:
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Consolidation: Consolidated Financial Statements Consolidation of Variable Interest Entities
 RESULTS OF OPERATIONS
 
 Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
 Consolidated Results
    OC-BVI Contract Dispute
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Results by Segment
 Retail Segment:
     Bulk Segment:
      17




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Services Segment:
    LIQUIDITY AND CAPITAL RESOURCES
 Overview
     Cash Flows for the Three Months Ended March 31, 2008
  Cash Flows from Operating Activities
  Cash Flows used in Investing Activities
  Cash Flows from Financing Activities
  Financial Position
  18




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Borrowings Outstanding
  5.95% Secured Bonds
   CW-Bahamas Series A Bonds
  CW-Bahamas Credit Facility
    Material Commitments, Expenditures and Contingencies
 OC-BVI Contract Dispute
  19




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Revenue
Recognition
 
    
    Persuasive evidence of an arrangement exists.
    
    Delivery has occurred or services have been rendered.
    
    The sellers price to the buyer is fixed and determinable; and
    
    Collectibility is reasonably assured.
    21




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CW-Bahamas Performance Bonds
  CW-Bermuda Financing
   22




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Frank Sound Contract
  Dividends
    Dividend Reinvestment and Common Stock Purchase Plan
  23




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Impact of Inflation
  
 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
  24




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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, 2007 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, 2007
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.
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If OC-BVI does not obtain a contract with the BVI Government to sell water to be produced at its
Bar Bay plant, 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.
  
 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
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SIGNATURE
  CONSOLIDATED WATER CO. LTD.By:
    /s/ Frederick W. McTaggartFrederick W. McTaggartChief Executive Officer  27