##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K/A
(Amendment No. 2)

(Mark One)

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  |  |                                                                                         
|  |  | For the fiscal year ended December 31, 2002                                             
|  |  |                                                                                         
|  |  | OR                                                                                      
|  |  |                                                                                         
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  |  |                                                                                         
|  |  | For the transition period from _______________ to _______________                       

Commission File Number: 0-25248

CONSOLIDATED WATER CO. LTD.

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|                                                                      |  |                                     
|--------------------------------------------------------------------- |  | ------------------------------------
|CAYMAN ISLANDS                                                        |  | N/A                                 
|                                                                      |  |                                     
|(State or other jurisdiction of
incorporation or organization)        |  | (I.R.S. Employer Identification No.)
|                                                                      |  |                                     
|Trafalgar Place, West Bay Road, P.O.
Box 1114GT, Grand Cayman, B.W.I. |  | N/A                                 
|                                                                      |  |                                     
|(Address of principal executive offices)                              |  | (Zip Code)                          

Registrants Telephone number, including area code: (345) 945-4277

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

ORDINARY SHARES, PAR VALUE CI$1.00

---



Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this 10-K or any amendments to this
Form 10-K. [Not Applicable]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act. Yes o No x

The aggregate market value of common stock held by non-affiliates of the
registrant, based on the closing sales price for the registrants ordinary
shares, as reported on the Nasdaq National Market on June 25, 2003,
was $47,691,472.

As at June 25, 2003, there were
4,275,568 shares of the registrants
ordinary shares outstanding.





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TABLE OF CONTENTS



|                                                                                                                      |                                                                            |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Item 6. Selected Financial Data                                                                                      
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations                        
|Item 8. Financial Statements and Supplementary Data                                                                  
|INDEPENDENT AUDITORS REPORT                                                                                         
|CONSOLIDATED BALANCE SHEETS                                                                                          
|CONSOLIDATED STATEMENTS OF INCOME                                                                                    
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY                                                                      
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                           
|PART IV                                                                                                              
|                                                                                                                      | Item 15. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
|SIGNATURES                                                                                                           
|CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|EX-99.1 Certification of Chief Executive Officer                                                                     
|EX-99.2 Certification of Chief Financial Officer                                                                     



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
2002 FORM 10-K/A ANNUAL REPORT
TABLE OF CONTENTS

|                                                                                                                                                  |  |  |    | 
|------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|Item 6. Selected Financial Data                                                                                                                   |  |  | 1  | 
|                                                                                                                                                  |  |  |    | 
|Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations                                                     |  |  | 1  | 
|                                                                                                                                                  |  |  |    | 
|Item 8. Financial Statements and
Supplementary Data                                                                                               |  |  | 16 | 
|                                                                                                                                                  |  |  |    | 
|Item 15. Exhibits, Financial Statements
Schedules, and Reports on Form 8-K                                                                        |  |  | 39 | 
|                                                                                                                                                  |  |  |    | 
|Signatures                                                                                                                                        |  |  | 40 | 
|                                                                                                                                                  |  |  |    | 
|Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350 as Adopted Pursuant to Section 302 of the 
Sarbanes-Oxley Act of 2002 |  |  | 41 | 
|                                                                                                                                                  |  |  |    | 
|Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350 as Adopted Pursuant to Section 302 of the 
Sarbanes-Oxley Act of 2002 |  |  | 43 | 

Explanatory Note

This annual report on Form 10-K/A
is being filed to amend Item 6.Selected Financial
Data, Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Item 8. Financial Statements and
Supplementary Data. Accordingly, pursuant to Rule 12b-15 under the
Securities Act of 1934, as amended, this Form 10-K/A contains the complete text
of Item 6.Selected Financial
Data, Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Item 8. Financial Statements and
Supplementary Data. as amended.

i



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Item 6.     Selected
Financial Data

As a result of a management decision we have
voluntarily adopted accounting principles generally accepted in
the United States of America (US-GAAP) effective
January 1, 2000. Previously, annual financial statements
were prepared in accordance with International Accounting
Standards (IAS). As a result all prior periods
financial information presented in the selected financial data
have been prepared in accordance with US-GAAP.

The consolidated financial statements include the
accounts of our wholly-owned subsidiaries Belize Water Limited,
Cayman Water Company Limited and Hurricane Hide-A-Way Ltd. The
operating results of Belize Water Limited have been included in
the financial statements since the date of the acquisition on
July 21, 2000. All inter-company balances and transactions
have been eliminated.

Set forth below is selected financial data based
upon our consolidated financial statements, which does not
reflect the acquisitions completed on February 7, 2003. The
table contains information, expressed in US dollars, derived
from our audited consolidated financial statements for the
five-year period ended December 31, 2002. This selected
financial data should be read in conjunction with the more
detailed financial statements and related notes thereto
contained elsewhere in this Annual Report. The audited
consolidated
financial statements for the years ended
December 31, 1999 and 1998 and accountants reports
thereon are not included in this Annual Report.

|                                   |                               |                         |           |            |  |      |           |            |  |      |           |            |  |  |           |            |  |  |           |            | 
|---------------------------------- | ----------------------------- | ----------------------- | --------- | ---------- |  | ---- | --------- | ---------- |  | ---- | --------- | ---------- |  |  | --------- | ---------- |  |  | --------- | ---------- | 
|                                   |                               |                        
|                                   |                               | Year Ended December 31,
|                                   |                               |                        
|                                   |                               | 2002                    |           | 2001       |  | 2000 |           | 1999       |  | 1998
|                                   |                               |                         |           |            |  |      |           |            |  |     
|Statement of Income Data:          |                               |                         |           |            |  |      |           |            |  |      |           |            |  |  |           |            |  |  |           |           
|                                   | Water Sales                   |                         | $         | 12,154,689 |  |      | $         | 11,248,105 |  |      | $         | 9,795,751  |  |  | $         | 7,936,118  |  |  | $         | 7,925,232  | 
|                                   | Net Income (1)                |                         |           | 2,576,310  |  |      |           | 2,764,573  |  |      |           | 2,404,820  |  |  |           | 1,569,717  |  |  |           | 1,451,933  | 
|Balance Sheet Data:                |                               |                         |           |            |  |      |           |            |  |      |           |            |  |  |           |            |  |  |           |           
|                                   | Total Assets                  |                         |           | 25,507,637 |  |      |           | 22,721,178 |  |      |           | 21,845,672 |  |  |           | 16,431,321 |  |  |           | 15,594,021 | 
|                                   | Long Term Debt Obligation     |                         |           | 2,074,609  |  |      |           | 1,213,804  |  |      |           | 1,131,986  |  |  |           | 1,926,786  |  |  |           | 2,470,112  | 
|                                   | Long Term Purchase Obligation |                         |           |           |  |      |           |           |  |      |           |           |  |  |           |           |  |  |           | 320,141    | 
|                                   | Redeemable preferred stock    |                         |           | 23,688     |  |      |           | 30,234     |  |      |           | 40,361     |  |  |           | 49,270     |  |  |           | 52,686     | 
|Dividends Declared Per Share       |                               |                         | 0.42      |            |  |      | 0.40      |            |  |      | 0.34      |            |  |  | 0.20      |            |  |  | 0.19      |           
|Basic Earnings Per Share           |                               |                         | 0.65      |            |  |      | 0.71      |            |  |      | 0.68      |            |  |  | 0.51      |            |  |  | 0.47      |           
|Based on Number of Shares          |                               |                         | 3,969,861 |            |  |      | 3,897,969 |            |  |      | 3,532,501 |            |  |  | 3,044,293 |            |  |  | 3,055,845 |           
|Diluted Earnings Per Share         |                               |                         | 0.63      |            |  |      | 0.69      |            |  |      | 0.67      |            |  |  | 0.49      |            |  |  | 0.45      |           
|Based on Weighted Number of Shares |                               |                         | 4,087,532 |            |  |      | 3,999,691 |            |  |      | 3,616,271 |            |  |  | 3,188,048 |            |  |  | 3,191,583 |           



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|    |                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net Income represents income after a cumulative
    change in accounting principle in 1999 of $117,576 as Statement
    of Position 98-5 Reporting on the Costs of Start-Up
    Activities requires start up costs to be expensed as
    incurred rather than deferred.




Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations

Overview

Our objective is to provide water services in
areas where the supply of potable water is scarce and where the
use of RO technology to produce potable water is economically
feasible. By focusing on this market, we believe that we can
provide a superior financial return to our investors. To
increase share value and maintain dividend payouts in accordance
with current company policy, we need to expand our revenues by
developing new business opportunities both within our current
service areas, and in new areas. We need to maintain our high
operating efficiencies by adhering to our strict equipment
maintenance and water loss mitigation programs in order to
achieve gross profit margins between 40% and 45%. We further
believe that many Caribbean basin and adjacent countries, while
being water scarce, also present opportunities for operation of
our plants in limited regulatory settings which are less
restrictive than the highly regulated markets of North America,
which promotes cost effective operation of our equipment.

Our business operations and activities after our
acquisitions in February 2003, are conducted in five countries:
the Cayman Islands, Belize, Barbados, the British Virgin Islands
and the Bahamas. The recent acquisitions increase our daily
water production capacity in the Cayman Islands and the Bahamas
and expand our geographic presence to include Barbados and the
British Virgin Islands.

Operations Before and After Recent
Acquisitions

|                                      |                |                                      |  |           |   |          |  |        |     |           |  |  |                        |  |  |  |    |  |  |  |      | 
|------------------------------------- | -------------- | ------------------------------------ |  | --------- | - | -------- |  | ------ | --- | --------- |  |  | ---------------------- |  |  |  | -- |  |  |  | ---- | 
|                                      |                |                                     
|Operations Before Recent Acquisitions |                | Operations After Recent Acquisitions
|                                      |                |                                     
|Location                              |                | Plants                               |  | Capacity* |   | Location |  | Plants |     | Capacity*
|                                      |                |                                      |  |           |   |          |  |        |     |          
|                                      | Cayman Islands |                                      |  |           | 3 |          |  |        | 2.4 |           |  |  | Cayman Islands         |  |  |  | 6  |  |  |  | 5.3  | 
|                                      | Bahamas        |                                      |  |           | 1 |          |  |        | 0.1 |           |  |  | Bahamas                |  |  |  | 2  |  |  |  | 2.7  | 
|                                      | Belize         |                                      |  |           | 1 |          |  |        | 0.4 |           |  |  | Belize                 |  |  |  | 1  |  |  |  | 0.4  | 
|                                      |                |                                      |  |           |   |          |  |        |     |           |  |  | Barbados               |  |  |  | 1  |  |  |  | 1.3  | 
|                                      |                |                                      |  |           |   |          |  |        |     |           |  |  | British Virgin Islands |  |  |  | 1  |  |  |  | 1.2  | 
|                                      | Total          |                                      |  |           | 5 |          |  |        | 2.9 |           |  |  | Total                  |  |  |  | 11 |  |  |  | 10.9 | 



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|  |                                       
|- | --------------------------------------
|* | Million U.S. gallons of water per day.

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Cayman Islands

We have been operating our business on Grand
Cayman Island since 1973 and have been using RO technology to
convert seawater to potable water since 1989. There is a limited
natural supply of fresh water on the Cayman Islands. We
currently have an exclusive license from the Cayman Islands
government to process potable water from seawater and then sell
and distribute that water by pipeline to Seven Mile Beach and
West Bay, Grand Cayman. Prior to our acquisition of Ocean
Conversion (Cayman) Limited, our Cayman Islands operations
consisted of three reverse osmosis seawater conversion plants in
Grand Cayman: the Governors Harbour plant, the West Bay
plant and the Britannia plant. The combined capacity of these
plants is 2.4 million U.S. gallons per day. Our pipeline
system in the Cayman Islands covers the Seven Mile Beach and
West Bay areas of Grand Cayman and consists of approximately 65
miles of polyvinyl chloride pipe. Sales in Grand Cayman are made
within our licensed area to approximately 3,100 customers.
During 2002, we supplied approximately 523 million U.S. gallons
of water in Grand Cayman.

As a result of our recent acquisition of Ocean
Conversion (Cayman) Limited, we now operate an additional three
reverse osmosis seawater conversion plants in Grand Cayman with
a total installed capacity of 2.9 million U.S. gallons per
day. Ocean Conversion (Cayman) Limited provides water on a take
or pay basis to the Water Authority-Cayman, a government
regulatory agency, and to us under various licenses and
agreements. Revenues of Ocean Conversion (Cayman) Limited were
$6.2 million for the year ended December 31, 2002.

DesalCo Limited provides management, engineering
and construction services for desalination projects and is the
exclusive agent for sales of DWEER energy recovery systems
for desalination plants in the Caribbean basin for the next
seven years. DesalCo Limited, which is recognized by suppliers
as an original equipment manufacturer, also acts as the
purchasing agent for all companies affiliated with our company.
DesalCo Limiteds revenues were $3.4  million for the
year ended December 31, 2002.

Belize

Our Belize operation, which was acquired on
July 21, 2000, consists of one reverse osmosis seawater
conversion plant on Ambergris Caye, Belize, Central America,
which is capable of producing 420,000 U.S. gallons per day. We
sell water to one customer, Belize Water Services Limited, which
then distributes the water through its own distribution system
to residential, commercial and tourist properties on Ambergris
Caye. During 2002, we supplied approximately 113 million
U.S. gallons of water in Belize. Revenues of our wholly owned
subsidiary, Belize Water Limited, were $1.5 million for the
year ended December 31, 2002.

Bahamas

Prior to our acquisition of operational control
of Waterfields Company Limited, our Bahamas operations consisted
of one reverse osmosis seawater conversion plant in Bimini,
Bahamas. Our Bimini plant is capable of producing 115,000 U.S.
gallons per day and provides potable water to Bimini Sands
Resort and to the Bimini Beach Hotel. During 2002, we supplied
approximately five million U.S. gallons of water in the Bahamas
and revenues were $0.1 million for the year ended
December 31, 2002. We expect the demand for water from our
plant in Bimini to increase as additional phases are completed
at the Bimini Sands development.

As a result of our acquisition of Waterfields
Company Limited, we acquired an additional reverse osmosis
seawater conversion plant in the Bahamas. Waterfields produces
potable water from one reverse osmosis seawater conversion plant
in New Providence and has a total installed capacity of
2.64 million U.S. gallons per day. Waterfields Company
Limited provides water on a take or pay basis to the Water and
Sewerage Corporation of the Bahamas under a long-term build, own
and operate supply agreement. Revenues for Waterfields Company
Limited were $4 million for the year ended
December 31, 2002.

Barbados

The recently acquired Barbados operation consists
of one reverse osmosis seawater conversion plant with a capacity
of 1.3 million U.S. gallons per day which is operated by
DesalCo (Barbados) Ltd., the wholly

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owned subsidiary of DesalCo Limited. The plant
provides water to the Sandy Lane Resort, and during 2002,
supplied approximately 393 million U.S. gallons. DesalCo
(Barbados) Ltd. had revenues of $0.7 million for the year
ended December 31, 2002.


British Virgin Islands

We recently entered the market in the British
Virgin Islands when our wholly-owned subsidiary, DesalCo Limited
acquired operational control and shared management control of
Ocean Conversion (BVI) Ltd., which produces potable water
from one reverse osmosis seawater conversion plant in Tortola,
British Virgin Islands. The plant has a total installed capacity
of 1.2 million U.S. gallons per day. Ocean Conversion
(BVI) Ltd. provides water on a take or pay basis to the
Department of Water and Sewerage of the Ministry of
Communications and Works under an agreement with the Government
of the British Virgin Islands. Ocean Conversion
(BVI) Ltd.s revenues were $5.4 million for the
year ended December 31, 2002.

Our Operations Under the License in the Cayman
Islands

Our exclusive operational license was issued to
us by the Cayman Islands government under The Water (Production
and Supply) Law of 1979. The license terminates, unless further
renewed, on July 11, 2010.

Two years prior to the expiration of the license,
we have the right to negotiate with the government to extend the
license for an additional term. Unless we are in default under
the license, the government may not grant a license to any other
party without first offering the license to us on terms that are
no less favorable than those which the government offers to a
third party.

We must provide, within our licensed area, any
requested piped water service which, in the opinion of the
Executive Council of the Cayman Islands government, is
commercially feasible. Where supply is not considered
commercially feasible, we may require the potential customer to
contribute toward the capital costs of pipe laying (Advances in
Aid of Construction). We then repay these advances to the
customer, without interest, by way of a discount of 10% on
future billings for water sales until this advance in aid of
construction has been repaid. We have been installing additional
pipeline when we consider it to be commercially feasible, and
the Cayman Islands government has never objected to our
determination regarding commercial feasibility.

Under the license, we pay a royalty to the
government of 7.5% of our gross US gallon potable water sales
revenue. The base selling price of water under the license
presently varies between $8.50 and $22.74 per 1,000 U.S.
gallons, depending upon the type and location of the customer
and the monthly volume of water purchased. The license provides
for an automatic adjustment for inflation/deflation on an annual
basis, subject to temporary limited exceptions, and an automatic
adjustment for the cost of electricity on a monthly basis. The
Water Authority (Cayman), on behalf of government, reviews and
approves the calculations of the price adjustments for inflation
and electricity costs.

If we want to increase our prices for any reason
other than inflation, we have to request prior approval of the
Executive Council of the Cayman Islands government. If the
parties fail to agree, the matter is referred to arbitration.
The last price increase that we requested, other than automatic
inflation adjustments since 1990, was granted in full in June
1985.

Demand for Water in the Cayman
Islands

In the past, demand on our pipeline distribution
has varied throughout the year. However, an increase in
year-round tourism in recent years has created more uniform
demand for water throughout the year. Demand depends upon the
number of tourists visiting the Cayman Islands and the amount of
rainfall during any particular time of the year. In general, 75%
of tourists come from the United States. Our operating results
in any particular quarter are not indicative of the results to
be expected for the full year. The table below lists the

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total volume of water we supplied on a quarterly
basis for the five years ended December 31, 2002 to all of
our customers:


|               |  |      |         |                                |  |      |         |      |  |      |         |  |  |  |         |  |  |  |         | 
|-------------- |  | ---- | ------- | ------------------------------ |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- |  |  |  | ------- | 
|               |  | 2002 |         | 2001                           |  | 2000 |         | 1999 |  | 1998
|               |  |      |         |                                |  |      |         |      |  |     
|               |  |      |         |                                |  |     
|               |  |      |         | (in thousands of U.S. gallons) |  |     
|First Quarter  |  |      | 140,808 |                                |  |      | 119,115 |      |  |      | 125,869 |  |  |  | 107,031 |  |  |  | 109,255 | 
|Second Quarter |  |      | 145,392 |                                |  |      | 129,305 |      |  |      | 117,766 |  |  |  | 113,007 |  |  |  | 108,334 | 
|Third Quarter  |  |      | 118,687 |                                |  |      | 118,733 |      |  |      | 100,259 |  |  |  | 90,888  |  |  |  | 90,950  | 
|Fourth Quarter |  |      | 118,108 |                                |  |      | 106,985 |      |  |      | 107,404 |  |  |  | 90,421  |  |  |  | 92,011  | 
|               |  |      |         |                                |  |      |         |      |  |      |         |  |  |  |         |  |  |  |         | 
|Total          |  |      | 522,995 |                                |  |      | 474,138 |      |  |      | 451,298 |  |  |  | 401,347 |  |  |  | 400,550 | 
|               |  |      |         |                                |  |      |         |      |  |      |         |  |  |  |         |  |  |  |         | 

Our Operations Under the Contract in
Belize

We have entered into a contract with BWSL to
supply a minimum of 135,000 US gallons of water per day to BWSL
expiring in 2011. At the expiry of the contract, BWSL may at its
option extend the term of the agreement or purchase the plant
outright.

The base price of water supplied, and adjustments
thereto, are determined by the terms of the contract, which
provides for adjustments based upon the movement in the
government price indices specified in the contract, as well as,
monthly adjustments for changes in the cost of diesel fuel and
electricity.

We bill on a monthly basis based on metered
consumption. Receivables are due within 21 days after the
billing date. Interest of 1.5% per year is charged on any
delayed payments. As at the date of this Annual Report, BWSL is
current on its outstanding balance. We had no bad debts for our
Belize sales for the year ended December 31, 2002.

BWSL distributes our water primarily to
residential properties, small hotels, and businesses which serve
the tourist market.

Demand for Water in Belize

We believe that water sales in Belize are
cyclical, and on a similar cycle to sales in the Cayman Islands,
since both operations cater to similar tourist markets. We also
believe that water sales will be higher in the future since
sales were limited before March 2000 because the production
capacity of the water plant was lower than demand.

Our sales in Belize were restricted in August,
September and October 2001 because of several major component
failures at our San Pedro plant. We believe that we could have
sold more water during these months if our plant had been able
to operate at full capacity. We have taken action to ensure this
does not occur again by increasing our inventory of critical
spare parts.

The table below lists the total volume of water
we supplied to BWSL on a quarterly basis for the three years
ended December 31, 2002:

|               |  |                                |         |      |  |      |        |  |  |  |        |  
|-------------- |  | ------------------------------ | ------- | ---- |  | ---- | ------ |  |  |  | ------ | -
|               |  | 2002                           |         | 2001 |  | 2000
|               |  |                                |         |      |  |     
|               |  |                               
|               |  | (in thousands of U.S. gallons)
|First Quarter  |  |                                | 24,751  |      |  |      | 24,589 |  |  |  | 17,455 | *
|Second Quarter |  |                                | 30,206  |      |  |      | 26,519 |  |  |  | 20,928 | *
|Third Quarter  |  |                                | 30,028  |      |  |      | 21,404 |  |  |  | 19,507 |  
|Fourth Quarter |  |                                | 27,552  |      |  |      | 21,266 |  |  |  | 19,624 |  
|               |  |                                |         |      |  |      |        |  |  |  |        |  
|Total          |  |                                | 112,537 |      |  |      | 93,778 |  |  |  | 77,514 |  
|               |  |                                |         |      |  |      |        |  |  |  |        |  



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|  |                                                                                        
|- | ---------------------------------------------------------------------------------------
|* | Sales made pre-acquisition by Seatec Belize Ltd.
    Used only for comparison purposes.

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Our Operations Under Contract in
Bahamas

In 2000, we entered into a water supply agreement
with South Bimini International Ltd. and began supplying water
under this contract on July 11, 2001. Under our agreement
South Bimini International Ltd. is committed to pay for a
minimum of 3,000 US gallons of water per customer per month
(36,000 US gallons per customer per year) on a take or pay basis
in relation to the Bimini Sands Resort property in South Bimini
Island, Bahamas. The price of water supplied is adjusted for
inflation annually based on Bahamas government indices, and
adjusted monthly for changes in the cost of electricity.

Demand for Water in Bahamas

We have only been supplying water in Bimini for
approximately twenty-one months, to a resort property, which is
partially completed and a small 40-room hotel. Currently the
resort is comprised of 72 condominiums, and a developing
150-slip marina. By the end of 2003, we anticipate that we will
be providing water to an additional 42 condominiums. The resort
property is ultimately expected to include over 300 condominium
units, a large hotel casino, and a marina that can accommodate
twice as many boats as the existing facility. We believe that
water sales in Bimini will be cyclical. We expect that our sales
will be higher during the summer months when tourists and
fisherman arrive from the United States by boat, and when
several large angling tournaments are traditionally held in
Bimini. We expect that our sales will be lower during winter
months when the weather is not conducive to pleasure boat travel
from the United States.

The table below lists the total volume of water
we supplied to South Bimini International Ltd. on a quarterly
basis for the year ended December 31, 2002 and the six
month period ended December 31, 2001:

|               |  |                                |       |      |  |  |       | 
|-------------- |  | ------------------------------ | ----- | ---- |  |  | ----- | 
|               |  | 2002                           |       | 2001
|               |  |                                |       |     
|               |  |                               
|               |  | (in thousands of U.S. gallons)
|First Quarter  |  |                                | 751   |      |  |  |      | 
|Second Quarter |  |                                | 1,096 |      |  |  |      | 
|Third Quarter  |  |                                | 1,514 |      |  |  | 449   | 
|Fourth Quarter |  |                                | 1,123 |      |  |  | 551   | 
|               |  |                                |       |      |  |  |       | 
|Total          |  |                                | 4,484 |      |  |  | 1,000 | 
|               |  |                                |       |      |  |  |       | 

Critical Accounting Policies

The preparation of our financial statements
requires management to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues, and
expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates,
including those related to trade accounts receivable, deferred
expenditures, property, plant and equipment and intangible
assets. Our company bases its estimates on historical experience
and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions. We believe the following
critical accounting policies are the most important to the
portrayal of our financial condition and results and require
managements more significant judgments and estimates in
the preparation of our companys consolidated financial
statements.

Trade accounts receivable: We maintain allowances
for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. Management
continuously evaluates the collectibility of accounts receivable
and recorded allowances for doubtful accounts based on estimates
of the level of actual write-offs which might be experienced.
These estimates are based on, among other things, comparisons of
the relative age of accounts and consideration of actual
write-off history.

Deferred expenditures: These costs were incurred
in connection with the recent acquisitions and pending financing
transactions. Costs relating to the acquisition will be included
as part of the purchase price allocation and our company will
seek to repay our existing debt with either new debt, equity or
a hybrid financing. If we

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##### Table of Contents



do not proceed with new financing, we may be
required to expense the amounts relating to the financing
transaction.


Property, plant and equipment: Management makes
estimates for the useful life of assets and reviews its policies
from time to time. In 2001, we carried out an extensive
engineering analysis of our potable water production and
distribution equipment in Grand Cayman. As a result of the
analysis, management reassessed the useful economic lives of
certain assets. The reassessment resulted in reduced
depreciation of $197,472, or $0.05 per share on a basic and
fully diluted basis for the year ended December 31, 2001.

Intangible asset: Intangible assets recorded are
amortized over their estimated useful lives and reviewed for
impairment in accordance with SFAS No. 142. Management
tests for impairment by evaluating the remaining useful life of
an intangible asset that is being amortized each reporting
period to determine whether events and circumstances warrant a
revision to the remaining period of amortization. Impairment is
tested based on projected discounted future cash flows using a
discount rate reflecting our average cost of funds. If our
estimated projections are greater than our actual results there
may be an impairment that has not been reflected in the accounts.

Water Sales

Water sales income is comprised of retail water sales,
via pipeline, to our individual Cayman Islands customers, and bulk
water sales.

Expenses

Expenses include the cost of water sales
(direct expenses) and our indirect, or general and
administrative expenses. Direct expenses include royalty
payments to the Cayman Islands government; electricity and
chemical expenses; payments to Ocean Conversion (Cayman) Limited
relating to the operation of the Governors Harbour plant;
production equipment and facility depreciation costs; equipment
maintenance and expenses and operational staff costs. Indirect,
or general and administrative, expenses consist primarily of
salaries and employee benefits for administrative personnel,
stock compensation expenses, office lease payments, depreciation
on fixed assets used for administrative purposes and legal and
professional fees. There are no income taxes
in the Cayman Islands and we are currently exempt from taxes in
Belize. We may be liable for gross revenue tax in the Bahamas as
disclosed in Part I, Item 1, under our discussion of our
Bahamas operations.

Quarterly Results of Operations

The following table presents unaudited quarterly
results of operations for the eight quarters ended
December 31, 2002. We believe that all necessary
adjustments, consisting only of normal recurring adjustments,
have been included in the amounts stated below to present fairly
such quarterly information.

|                           |  |         |           |         |  |         |           |         |  |         |           |         |  |         |           |         |  |  |           |  |  |  |           |  |  |  |           |  |  |  |           | 
|-------------------------- |  | ------- | --------- | ------- |  | ------- | --------- | ------- |  | ------- | --------- | ------- |  | ------- | --------- | ------- |  |  | --------- |  |  |  | --------- |  |  |  | --------- |  |  |  | --------- | 
|                           |  |         |           |        
|                           |  | 2002    |           | 2001   
|                           |  |         |           |        
|                           |  | First   |           | Second  |  | Third   |           | Fourth  |  | First   |           | Second  |  | Third   |           | Fourth 
|                           |  | Quarter |           | Quarter |  | Quarter |           | Quarter |  | Quarter |           | Quarter |  | Quarter |           | Quarter
|                           |  |         |           |         |  |         |           |         |  |         |           |         |  |         |           |        
|Water Sales                |  |         | 3,168,846 |         |  |         | 3,291,929 |         |  |         | 2,915,066 |         |  |         | 2,778,847 |         |  |  | 2,909,449 |  |  |  | 3,052,742 |  |  |  | 2,706,792 |  |  |  | 2,579,121 | 
|Gross Profit               |  |         | 1,502,394 |         |  |         | 1,494,795 |         |  |         | 1,201,119 |         |  |         | 1,074,203 |         |  |  | 1,426,060 |  |  |  | 1,437,773 |  |  |  | 1,182,499 |  |  |  | 1,092,655 | 
|Net Income                 |  |         | 926,500   |         |  |         | 811,259   |         |  |         | 604,769   |         |  |         | 233,782   |         |  |  | 830,890   |  |  |  | 771,429   |  |  |  | 646,253   |  |  |  | 412,099   | 
|Diluted Earnings Per Share |  |         | .23       |         |  |         | .20       |         |  |         | .15       |         |  |         | .08       |         |  |  | .21       |  |  |  | .22       |  |  |  | .16       |  |  |  | .11       | 

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Results of operations

Year Ended
December 31, 2002 Compared to Year Ended December 31,
2001

Water
sales

Total water sales increased by 8.1% from
$11,248,105 to $12,154,689 for the years ended December 31,
2001 and 2002, respectively. Total water sales increased as a
result of several factors detailed below.

Our Cayman operation added $574,570 to water
sales, which is an increase of 5.8% over the prior year and
represents 63.4% of the total increase of water sales. The
number of U.S. gallons we sold increased by 10.3% over the prior
year. This is the result of supplying approximately
52 million U.S. gallons of water to the Hyatt Hotel and the
Britannia golf course. Our water sales to customers other than
the Hyatt Hotel and the Britannia golf course were essentially
flat when compared to the prior year, despite a 9.4% reduction
in tourist air arrivals to the Cayman Islands due to continued
air travel concerns and the downturn of the U.S. economy.

Our Belize operation added $240,323 to water
sales, which is an increase of 19.5% over the prior year and
represents 26.5% of the total increase of water sales. In June
2002, the automatic inflation adjustment decreased our Belize
water rates by an average of 0.08%. This was more than offset by
a 20.0% increase in the number of U.S. gallons sold over the
prior year. This increase occurred because during the year ended
December 31, 2001, we experienced equipment malfunctions
which temporarily reduced the production capacity of our plant
by 50%.

The addition of the Bahamas operations increased
water sales by $91,691, which is an increase of 348.2% over the
prior year and represents 10.1% of the total increase of water
sales. This was the result of a 348.4% increase in the number of
U.S. gallons sold over the prior year.

Cost of water
sales

Cost of water sales increased by 12.7% from
$6,109,117 to $6,882,177 for the years ended December 31,
2001 and 2002, respectively, while water sales revenues
increased by 8.1%.

Our Cayman operations increased cost of water
sales by $526,748, which is an increase of 9.9% over the prior
year and represents 68.1% of the total increase of cost of water
sales. Water sales revenue for our Cayman operations increased
5.8%. The cost of water sales increased as a result of direct
costs incurred to operate the Britannia plant, which was
acquired on February 1, 2002. These costs included salaries
and benefits for additional staff, equipment maintenance costs,
electricity, chemicals and insurance, which will continue now
that we operate the Britannia plant. Higher insurance costs also
increased cost of water sales due to higher premium rates from
our insurance provider, and additional insured values following
the purchase of the Britannia plant and the insurance for the
full replacement value of all our reverse osmosis desalination
plants. Some of this increase was offset after the Britannia
plant was purchased by a decrease in water purchase costs
resulting from lower volume purchases from Ocean Conversion
(Cayman). We were unable to take full advantage of the lower per
gallon production costs of the Britannia plant as it only
operated at 47.6% capacity in the eleven months that we owned
the Britannia plant due to contractual minimum purchase
requirements from Ocean Conversion (Cayman).

Our Belize operation increased cost of water
sales by $144,334, which is an increase of 20.1% over the prior
year and represents 18.7% of the total increase of cost of water
sales. Water sales revenue for our Belize operation increased
19.5%. We completed rebuilding the second diesel engine, in
accordance with the engine manufacturers preventive
maintenance recommendations, which increased our cost of water
sales. Also increasing our cost of water sales were additional
repairs and maintenance on the existing reverse osmosis
equipment. We also settled various claims for compensation made
by our customer in Belize in March 2002. These claims were the
result of our equipment failures that occurred in August and
September 2001 and a minor miscalculation in the annual
inflation adjustment formula in our contract. The miscalculation
dated back to November 1995, which was prior to our acquisition
of Belize Water Limited, and upon correction, reduced our unit
rate for water to our customer by $0.09 per 1,000 U.S.
gallons.

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The addition of the Bahamas operations increased
cost of water sales by $101,978, which is an increase of 218.7%
over the prior year and represents 13.2% of the total increase
of cost of water sales. Water sales revenue for our Bahamas
operation increased 348.2%.

Gross
profit

Gross profit margins decreased from 45.7% to
43.4% for the years ended December 31, 2001 and 2002,
respectively.

Gross profit margins for our Cayman operations
decreased from 46.5% to 44.4% for the years ended
December 31, 2001 and 2002, respectively. The primary
reasons for this decrease are (i) approximately two thirds
of the water produced by our Britannia plant was sold to the
Hyatt Hotel and Britannia golf course at a lower rate than our
standard commercial water rate, (ii) due to flat water
sales to other customers, we were only able to utilize
approximately 47.6% of the production capacity of the Britannia
plant, and (iii) we were not able to acquire water from our
lowest price source as a result of minimum water purchase
obligations that we had with Ocean Conversion (Cayman).

Gross profit margins for our Belize operations
decreased from 41.7% to 41.4% for the years ended
December 31, 2001 and 2002, respectively. The reason for
the decrease in the gross profit margins is increased cost of
water sales over prior year periods due to the settlement costs
with Belize Water Services Ltd. as discussed above and
additional repairs and maintenance on the reverse osmosis
equipment in Belize.

Gross profit margins for our Bahamas operations
increased from a negative 77.1% to a negative 25.9% for the year
ended December 31, 2002. The low gross profit margins were
due to low water sales resulting from a reduction of tourism and
a relatively higher proportion of fixed costs such as
depreciation, which we expected in the early phases of the
Bimini Sands Resort development project. Both of these are
temporary factors and are not expected to continue in the
future. Our Bahamas operation has generated positive cash flow
since January 2002.

Indirect
expenses

Indirect expenses increased by 5.8% from
$2,500,060 to $2,644,004 for the years ended December 31,
2001 and 2002, respectively. Indirect expenses were at 22.0% and
21.8% of total income for the year ended December 31, 2001
and 2002, respectively.

Our Cayman operations increased indirect expenses
by $104,328, which is an increase of 4.5% over the prior year
and represents 72.5% of the total increase of indirect expenses.
We attribute this increase to our accounting for stock
compensation costs, unanticipated professional fees relating to
our December 31, 2001 audit and Form 10-K review
together with increased insurance premiums on our commercial and
directors and officers insurance. Stock compensation costs
increased $266,773 as a result of an increase in our share price
during the last fiscal quarter. Unanticipated professional fees
relating to our December 31, 2001 audit and 10-K review
were $59,311 and our commercial and directors and officers
insurance increased by $78,503. We also had additional reporting
costs in 2002 due to increased demand for our annual report and
proxy statements. These increases were mostly offset by a
reduction in bonus costs and subscription costs compared to the
prior year.

Our Belize operations increased indirect expenses
by $34,805, which is an increase of 18.2% over the prior year
and represents 24.2% of the total increase of indirect expenses.
We had additional costs as a result of higher insurance premiums
and increased costs to repatriate funds.

The addition of the Bahamas operations as of
July 11, 2001 increased indirect expenses by $4,811, which
is an increase of 116.6% over the prior year and represents 3.3%
of the total increase of indirect expenses. These costs relate
to the administration of the Bahamas operations for a full year.

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Other income
(expense)

Other income and expense consists of income
earned from non-operational activity, interest income, and
interest expense. Until February 1, 2002, other income also
included settlement fee payments for the supply of water to the
Britannia development by the Hyatt Hotel, which had its own
water production facility.

Other income and expense decreased by 141.5% from
income of $125,645 to expense of $52,198 for the years ended
December 31, 2001 and 2002, respectively. This decrease was
a result of the February 1, 2002 termination of the dispute
settlement agreement with Cayman Hotel and Golf Inc., the owner
of Hyatt Grand Cayman Resort and Britannia golf course.

Dividends

In March 2001, we increased our per share
dividend to ordinary shareholders from $0.10 to $0.105 per
quarter and paid dividends of this amount during the year ended
December 31, 2002.

Net
income

Net income decreased by 6.8% from $2,764,573 to
$2,576,310 for the years ended December 31, 2001 and 2002,
respectively, as a result of the factors indicated above.

Year Ended
December 31, 2001 Compared To Year Ended December 31,
2000

Water
sales

Total water sales increased by 14.8% from
$9,795,751 to $11,248,105 for the years ended December 31,
2000 and 2001, respectively. Total water sales increased as a
result of several factors detailed below.

Our Cayman operation added $660,174 to water
sales, which is an increase of 7.1% over the prior year and
represents 45.5% of the total increase of water sales. Of this
increase, 70.1% was due to a 5.1% increase in the number of U.S.
gallons sold. This increase was due to a larger customer base
and increased usage by commercial, residential and government
customers, primarily Water Authority-Cayman, which experienced
temporary shortfalls in its production capacity. The remaining
29.9% of the increase was due to an increase in water rates of
approximately 2.5% in accordance with our license agreement.

Our Cayman Island average water rate for the
first nine months of 2001 was $20.54 per thousand U.S.
gallons. For the final three months of 2001, our rates were
reduced by 1.2% using the Cayman Islands Consumer Price Index
automatic adjustment formula contained in our license. Our rates
were automatically reduced by 0.39% in January 2002.

Our Belize operation added $765,847 to water
sales, which is an increase of 164.7% over the prior year and
represents 52.7% of the total increase of water sales. Virtually
all of the increase was due to an additional six months of
operations over the prior period. The number of U.S. gallons
sold in 2001 was however 21% higher than the annual figures of
the prior year due to increased demand met from an expansion of
the plant completed in March 2000.

The addition of the Bahamas operations as of
July 11, 2001 increased water sales by $26,333, which
represents 1.8% of the total increase of water sales.

Cost of water
sales

Cost of water sales increased by 12.6% from
$5,423,297 to $6,109,117 for the years ended December 31,
2000 and 2001, respectively, while our water sales revenue
increased 14.8% for the year ended December 31, 2001.

Our Cayman operations increased cost of water
sales by $171,425, which is an increase of 3.3% over the prior
year and represents 25.0% of the total increase of cost of water
sales. Water sales revenue for our Cayman operations increased
7.1%. Although cost of water sales increased, it increased at a
lower rate than

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our water sales because we benefit from
efficiency savings in our water production operation when we
produce more water.


The addition of the operations of Belize Water
Limited as of July 21, 2000 increased the cost of water
sales by $467,769, which is an increase of 186.8% over the prior
year and represents 68.2% of the total increase of cost of water
sales. Water sales revenue for our Belize operations increased
164.7% for the year ended December 31, 2002. The increase
in cost of water was due to increased water production to meet
increased sales and machinery repairs related to the August and
September 2001 equipment malfunctions, all of which were
remedied in 2002.

The addition of the Bahamas operations as of
July 11, 2001 increased cost of water sales by $46,626,
which represents 6.8% of the total increase of cost of water
sales.

Gross
profit

Gross profit margins increased from 44.6% to
45.7% for the years ended December 31, 2000 and 2001,
respectively.

Gross profit margins for our Cayman operations
increased from 44.6% to 46.5% for the years ended
December 31, 2000 and 2001, respectively, as a result of
decreased depreciation expense of approximately $197,000 from
our reassessment of the useful economic lives of certain assets
and increased plant efficiencies. These lower expenses were
offset by additional labor costs associated with plant
maintenance, increased insurance premiums and an additional six
months of intangible amortization for the Belize water supply
contract.

Gross profit margins for our Belize operations
decreased from 46.2% to 41.7% for the years ended
December 31, 2000 and 2001, respectively, as a result of
repair costs and higher electricity costs resulting from the
temporary utilization of a less efficient electric motor during
the repair period.

Gross profit margins for our Bahamas operations
was a negative 77.1%. This was due to low water sales and a
relatively higher proportion of fixed costs such as
depreciation, which we expected in the early phases of the
Bimini Sands Resort development project. Both of these are
temporary factors and are not expected to continue in the future.

Indirect
expenses

Indirect expenses increased by 21.3% from
$2,061,722 to $2,500,060 for the years ended December 31,
2000 and 2001, respectively. Indirect expenses were at 20.8% and
22.0% of total income for the years ended December 31, 2000
and 2001, respectively.

Our Cayman operations increased indirect expenses
by $276,812, which is an increase of 13.6% over the prior year
and represents 63.2% of the total increase of indirect expenses.
Of this increase, 49.0% is due to the creation of a new
executive position, Director of Special Projects.

Our acquisition of Belize Water Limited as of
July 21, 2000 increased indirect expenses by $157,400,
which is an increase of 470.9% over the prior year and
represents 35.9% of the total increase of indirect expenses.
This increase was primarily due to an additional six months of
indirect expenses over the previous period and the reallocation
of certain employee duties.

The addition of the Bahamas operations as of
July 11, 2001 increased indirect expenses by $4,126, which
represents .9% of the total increase of indirect expenses. These
costs related to the administration of the Bahamas operations.

Other
income

Other income increased by 33.5% from $94,088 to
$125,645 for the years ended December 31, 2000 and 2001,
respectively, as a result of a slight decrease in interest
income on available cash balances.

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Net
income

Net income increased by 15.0% from $2,404,820 to
$2,764,573 for the years ended December 31, 2000 and 2001,
respectively as a result of the movements indicated above.

Dividends

In December 2000, we increased our per share
dividend to ordinary shareholders from $0.08 to $0.10 per
quarter and paid dividends of this amount during the year ended
December 31, 2001.

Reassessment of
Useful Economic Lives of Property, Plant and Equipment

During the year ended December 31, 2001, we
carried out an extensive engineering analysis of our potable
water production and distribution equipment in Grand Cayman. As
a result of the analysis, management reassessed the useful
economic lives of certain assets. The reassessment resulted in
reduced depreciation of $197,472, or $.05 per share on a
basic and fully diluted basis for the year ended
December 31, 2001. The assets affected and the basis for
managements decisions are described below:

Seven Mile Beach
Distribution System

During 2001, we revised our master distribution
plan that was originally set out in 1997. In doing so, we
determined that a previously planned relocation of our
Governors Harbour reverse osmosis plant was no longer
advantageous. Therefore, the removal and relaying of pipeline to
this service area in conjunction with this relocation was no
longer needed. Furthermore we determined that certain planned
pipeline replacements were not necessary. Finally, the
government revised its plans for significant road improvements
in the service area, therefore, alleviating anticipated major
changes to our Seven Mile Beach distribution system.

As a result of the above plan reassessments, we
concluded that a pipeline with the characteristics of our Seven
Mile Beach Distribution System would have a useful economic life
of 40 years. We, therefore, extended the useful economic
life of this system from 20 to 40 years. Fourteen years
have elapsed to date.

Governors
Harbour Vapor Compression (VC) Building

As discussed above, we previously planned to
relocate our Governors Harbour plant, which would have
resulted in the removal of the VC building in which it was
housed. When we determined that the plant should remain in its
current location in 2001, we reassessed the buildings
useful life. Giving consideration to our plans to use the
building in the future, the high-quality construction and
foundation of the building, as well as the fact that it
accommodates large high-pressure pumps for the plant, we
concluded that the building had a remaining useful economic life
of 20 years from 2001. Two years have elapsed since this
useful economic life was determined.

Distribution
System Meters

Our policy is to replace customer water meters
according to manufacturer recommendations, which suggest
replacement on service years or water volume. The manufacturer
of our water meters advised us that they were extending the
guarantee for a certain model to cover higher volumes and a
longer period of time. Based on the revised guarantee, we
reassessed the useful economic lives of all such models in
service to 10 years, being the mid-point of a guaranteed
time-frame of 6 to 15 years.

Vermeer
Trencher

We own a Vermeer trencher to construct water
distribution pipelines within our franchise area. As discussed
above, we originally planned to make major changes to our
distribution system as a result of a proposed relocation of our
Governors Harbour plant and significant road improvements
planned by the government. These projects would have required
heavy utilization of this asset. Given the changes in plans
identified above and the minor projects for which the trencher
will be required, we reassessed the useful economic life to be
20 years. Four years have elapsed to date.

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West Bay Reverse
Osmosis Plant

Our West Bay reverse osmosis plant was
manufactured and installed in 1995 and expanded in 1998 with
state-of-the-art technology. At the time, we had concerns about
potential accelerated obsolescence of the equipment because of
continuing research and development in the reverse osmosis
field, and as such, the original useful economic life was
determined to be 10 years. In 2001, we concluded with
management that there were no indicators that significant
changes were pending in the industry. Given the like-new
condition of the plant, its three year history of meeting
operational requirements and expected future use, management
reassessed the remaining useful economic life of the West Bay
Plant to be 12 years at such time.

Liquidity and Capital Resources



| |         
| | --------
| | Overview

Prior to our completion of the recent
acquisitions, we generated cash primarily from our operations in
the Cayman Islands, the Bahamas and Belize and, to a lesser
extent, from the sale of our shares and through loans and credit
facilities obtained from two banks. As a result of our recent
acquisitions, we began to generate cash from our recently
acquired operations in the Cayman Islands, the British Virgin
Islands, the Bahamas and Barbados. Cash flow is affected by the
timely receipt of customer payments, by operating expenses, the
timeliness and adequacy of rate increases (excluding automatic
adjustments to our rates for inflation and electricity costs),
and various factors affecting tourism in the Cayman Islands,
Belize, the British Virgin Islands, Barbados and the Bahamas,
such as weather conditions and the economy. We use cash to fund
our operations in the Cayman Islands, Belize, the British Virgin
Islands, Barbados and the Bahamas, to fund capital projects, to
expand our infrastructure, to pay dividends, to repay principal
on our loans, to repurchase our shares when appropriate and to
take advantage of new investment opportunities which expand our
operations.



| |                     
| | --------------------
| | Operating Activities

Cash generated from operating activities for the
years ended December 31, 2001 and 2002 was $4,364,447 and
$4,115,090, respectively. We generate cash through the
utilization of our existing plants, equipment and resources in
all segments of the business, minimization of water losses and
operating

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efficiencies created by our management team.
Through our recent acquisitions, we expect our water sales to
approximately double. In addition, we believe that our
administrative staff will be able to manage all our combined
operations so that our indirect costs will not increase in
proportion to water sales. In our Bahamas operations, we
experienced positive operating cash flow of $14,397 for the year
ended December 31, 2002.


Cash generated from operating activities for the
years ended December 31, 2000 and 2001 was $3,874,453 and
$4,364,447, respectively. The negative operating cash flow in
the Bahamas operation for the year ended December 31, 2001
was $24,590.



| |                
| | ---------------
| | Working Capital

At December 31, 2002, we had a working
capital surplus of $138,401. This surplus relates mainly to the
cash we generated from our operating activities and management
of our accounts payable and other liabilities. At
December 31, 2002, 69.7% of our cash was denominated in
Belize dollars. We must obtain approval from the Central Bank of
Belize in order to purchase United States dollars for
repatriation to the Cayman Islands. Since we commenced
operations in Belize, the Central Bank of Belize has never
denied our repatriation requests.

At December 31, 2001, we had a working
capital surplus of $325,996. This surplus related to the cash
generated from our operating activities. At December 31,
2001, 72.2% of our cash was denominated in Belize dollars.



| |                     
| | --------------------
| | Investing Activities

Cash used in investing activities during the
years ended December 31, 2001 and 2002 was $1,904,237 and
$3,568,723, respectively. Cash was used in investing activities
for expenditures for new property, plant and equipment,
including $1,500,000 on the purchase of the Britannia reverse
osmosis plant in 2002. We also continued to expand our water
distribution system in the Cayman Islands by constructing
additional pipelines to service new developments within our
exclusive licensed area. During the same period in 2001, our
investing activities consisted of construction costs relating to
our new water production and distribution system in Bimini, the
Bahamas, as well as expansion costs relating to our water
distribution system in the Cayman Islands.

Cash used in investing activities during the
years ended December 31, 2000 and 2001 was $6,268,738 and
$1,904,237, respectively. Cash was used in investing activities
for expenditures for new property, plant and equipment with the
majority associated with the construction of our new water
production and distribution system in Bimini, the Bahamas. The
investment in the Bahamas operation totaled $1,085,759 in 2001
of which $307,395 relates to costs from 2000. We also continued
to expand our water distribution system in the Cayman Islands by
constructing pipelines to service several new developments
within our franchise area. During the similar period in 2000,
investing activities consisted of the purchase of our Belize
subsidiary for $3,966,979, the installation of a new energy
recovery system and the expansion of our water production plant
in West Bay, Cayman Islands, and the completion of a major
pipeline extension within our franchise area in the Cayman
Islands.



| |                     
| | --------------------
| | Financing Activities

On February 7, 2003, we utilized a credit
facility with Scotiabank (Cayman Islands) Ltd. in order to
complete our recent acquisitions and refinance our existing
debt. Cash used in financing activities for the years ended
December 31, 2001 and 2002 was $2,194,601 and $494,509,
respectively. During the year ended December 31, 2002, our
primary financing activity was a draw down of our Royal Bank of
Canada credit facility for an additional $1,500,000 in order to
finance the investment in the Britannia reverse osmosis plant,
plus an increase in our short-term bank indebtedness. We also
had proceeds from an issuance of ordinary shares to certain
directors and officers who exercised stock options. These were
offset by the payment of our quarterly dividends and principal
payments on our term loans.

13



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##### Table of Contents



Cash generated from financing activities for the
year ended December 31, 2000 was $2,622,976, compared to
cash used of $2,194,601 for the year ended December 31,
2001. During 2001, the primary financing activity was the
payment of four interim quarterly dividends totaling $0.40 per
share. This was offset by proceeds from a draw down on our
credit facility, in order to fund the Bahamas development and
the exercise of stock options. During the same period in 2000,
we received $4,962,731, net of share issue costs, from a public
issuance of ordinary shares, which was primarily used for the
purchase of the Belize subsidiary. These cash amounts were
offset by the payment of four interim quarterly dividends in
2000 totaling $0.34 per share and the repayment of both
short-term and long-term debt, including the balance due on the
Governors Harbour plant purchase pursuant to our agreement
with Ocean Conversion (Cayman) Limited.

During the year ended December 31, 2002, we
repurchased 2,184 ordinary shares from a long-term employee at
an average price of $15.05 and 702 redeemable preference shares
from a former employee at an average price of $5.47. During the
year ended December 31, 2001, we repurchased 25,000
ordinary shares under a stock repurchase program at an average
price of $10.86. During the year ended December 31, 2000,
we repurchased 79,100 ordinary shares at $6.25 per share from a
shareholder whose assets were being liquidated. All of the
shares repurchased were cancelled in accordance with Cayman
Islands law.

Material
Commitments for Capital Expenditures and
Contingencies

At December 31, 2002, we had committed
approximately $1,080,000 for capital expenditures for the
purchase, construction and site preparation of two water storage
tanks at our Governors Harbour plant. We intend to finance these
projects using cash from operations.

On February 7, 2003, we entered into a loan
agreement with Scotiabank (Cayman Islands) Ltd. to finance the
recent acquisitions and refinance our existing debt. The
facilities are comprised of the following:



| |   |                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $2 million revolving line of credit bearing
    interest at the floating base rate as established by Cayman
    Island Class A licensed banks from time to time. The
    present interest rate is 5.25%                                                                                    
|
| |  | $20 million seven-year term loan bearing
    interest at an annually adjusted floating rate of LIBOR plus
    1.5% to 3%, depending on the ratio of our consolidated debt to
    our consolidated earnings before interest, taxes and
    depreciation. The present interest rate is 4.08%.
|
| |  | $17.1 million six-month term loan bearing
    interest on the same basis as the seven-year term loan. The
    present interest rate is 4.08%.                                                                                                                                              

We have used the proceeds from these facilities
to refinance our existing debt, for working capital and to
finance our recent acquisitions.

As of February 7, 2003, we have drawn down
$28,056,126 from our Scotiabank facilities. We anticipate
drawing down approximately $8,113,020 in additional funds to
complete our acquisitions of Waterfields Company Limited. We
intend to replace a portion of this debt with other debt, equity
or hybrid financing.

We will be required to make monthly payments of
interest for all borrowings under the revolving line of credit
and quarterly payments of interest for all amounts drawn down
under the two term loans. We will be obligated to make 28 equal
quarterly payments of principal under the seven-year term loan
and all amounts borrowed under the six-month term loan must be
repaid at the maturity date for this facility.

We have collateralized all borrowings under the
three facilities by providing Scotiabank with a first lien on
all of our assets, including the capital stock we acquired in
our recent acquisitions.

The loan agreement for the three facilities
contains standard terms and conditions for similar bank loans
made in the Cayman Islands, including acceleration of the
repayment of all borrowings either upon the demand of Scotiabank
(Cayman Islands) Ltd. or in the event of default under the loan
agreement.

As part of our acquisition of Ocean Conversion
(Cayman) Limited, with the approval of Scotiabank (Cayman
Islands) Ltd., we have guaranteed the performance of Ocean
Conversion (Cayman) Limited to the Cayman Islands government,
pursuant to the water supply contract with the Water
Authority-Cayman dated April 25, 1994 as amended.

14



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##### Table of Contents



As part of the acquisition of our interests in
Ocean Conversion (Cayman) Limited, we agreed to indemnify the
seller in respect of a guarantee given by the seller to the bank
of N.T. Butterfield & Son Ltd. for 100% of the borrowings of
Ocean Conversion (Cayman) Limited totaling US$2.4 million. This
borrowing is being refinanced with Scotiabank (Cayman Islands)
Ltd. and we will guarantee 100% thereof.

As part of the acquisition of our interests in
Ocean Conversion (BVI) Ltd., we agreed to indemnify the seller
in respect of a guarantee given by the seller to the bank of N.
T. Butterfield & Son Ltd. for 55% of the borrowings of Ocean
Conversion (BVI) Ltd. totaling US$1.25 million. This
borrowing is being refinanced with Scotiabank (Cayman Islands)
Ltd. and we will guarantee 50% thereof.

As a result of our pending acquisition of a
controlling interest in Waterfields Company Limited, we will be
required to provide a performance guarantee to the Water and
Sewerage Corporation of the Bahamas in relation to the water
supply contract between Waterfields Company Limited and the
Water and Sewerage Corporation.

Impact of
Inflation

Under the terms of our Cayman Islands license,
Belize, Bahamas, British Virgin Islands and Barbados water sales
agreements, there is an automatic price adjustment for inflation
on an annual basis, subject to temporary exceptions. We,
therefore, believe that the impact of inflation on our net
income, measured in consistent dollars, will not be material.

Exchange
Rates

The official exchange rate for conversion of
United States dollars into Cayman Islands dollars, as determined
by the Cayman Islands Monetary Authority, has been fixed since
1974 at U.S. $ 1.00 = CI$ 0.83.

The official exchange rate for conversion of
United States dollars into Belizean dollars, as determined by
the Central Bank of Belize, has been fixed since 1976 at U.S.$
1.00 = BZE$ 2.00.

The official fixed exchange rate for conversion
of United States dollars into Bahamian dollars as determined by
the Central Bank of The Bahamas, has been fixed since 1973 at
U.S.$ 1.00 = BAH$ 1.00.

The official fixed exchange rate for conversation
of United States dollars into Barbadian dollars as determined by
the Central Bank of Barbados has been fixed since 1975 at U.S.$
1.00 = BDS$ 2.00.

The British Virgin Islands currency is
United States dollars.

15



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##### Table of Contents






Item
8.     Financial Statements and
Supplementary Data

CONSOLIDATED WATER CO. LTD.

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                                      |  |      |    | 
|--------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                      |  | Page
|                                                                                                                      |  |     
|Independent Auditors Report                                                                                          |  |      | 17 | 
|Consolidated Balance Sheets as at
    December 31, 2002 and 2001                                                      |  |      | 18 | 
|Consolidated Statements of Income for each of the
    years ended December 31, 2002, 2001, and 2000                   |  |      | 19 | 
|Consolidated Statements of Stockholders
    Equity for each of the years ended December 31, 2002, 2001,
    and 2000 |  |      | 20 | 
|Consolidated Statements of Cash Flows for each of
    the years ended December 31, 2002, 2001, and 2000               |  |      | 21 | 
|Notes to Consolidated Financial Statements                                                                            |  |      | 22 | 

16



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##### Table of Contents






INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders

Consolidated Water Co. Ltd


We have audited the accompanying consolidated
balance sheets of Consolidated Water Co. Ltd. and subsidiaries
(the Company) as of December 31, 2002 and 2001,
and the related consolidated statements of income,
stockholders equity and cash flows for each of the years
in the three-year period ended December 31, 2002. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with the
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
aspects, the financial position of Consolidated Water Co. Ltd.
and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and cash flows for each of the three
years in the three-year period ended December 31, 2002, in
conformity with accounting principles generally accepted in the
United States of America.

/s/ KPMG Chartered Accountants

George Town, Cayman Islands

March 18, 2003 except for notes 2, 8, 10, 12 and 21
which are dated June 26, 2003


17



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.




CONSOLIDATED BALANCE SHEETS

(Expressed in United States dollars)


|                                               |                                                                                                                                                          |              |            |           |  |   |            |           | 
|---------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ---------- | --------- |  | - | ---------- | --------- | 
|                                               |                                                                                                                                                          |             
|                                               |                                                                                                                                                          | December 31,
|                                               |                                                                                                                                                          |             
|                                               |                                                                                                                                                          | 2002         |            | 2001     
|                                               |                                                                                                                                                          |              |            |          
|ASSETS                                        
|Current assets                                 |                                                                                                                                                          |              |            |           |  |   |            |          
|                                               | Cash and cash equivalents (Note 3)                                                                                                                       |              | $          | 568,304   |  |   | $          | 516,446   | 
|                                               | Accounts receivable (Note 4)                                                                                                                             |              |            | 1,406,947 |  |   |            | 1,323,156 | 
|                                               | Inventory                                                                                                                                                |              |            | 388,131   |  |   |            | 319,511   | 
|                                               | Prepaid expenses and other assets                                                                                                                        |              |            | 370,429   |  |   |            | 319,900   | 
|                                               | Deferred expenditures (Note 21)                                                                                                                          |              |            | 887,856   |  |   |            |          | 
|                                               |                                                                                                                                                          |              |            |           |  |   |            |          
|Total current assets                           |                                                                                                                                                          |              | 3,621,667  |           |  |   | 2,479,013  |          
|Property, plant and equipment(Note 5)          |                                                                                                                                                          |              | 20,253,646 |           |  |   | 18,414,935 |          
|Intangible asset(Note 6)                       |                                                                                                                                                          |              | 1,619,874  |           |  |   | 1,814,780  |          
|Investment                                     |                                                                                                                                                          |              | 12,450     |           |  |   | 12,450     |          
|                                               |                                                                                                                                                          |              |            |           |  |   |            |          
|Total assets                                   |                                                                                                                                                          | $            | 25,507,637 |           |  | $ | 22,721,178 |          
|                                               |                                                                                                                                                          |              |            |           |  |   |            |          
|LIABILITIES AND STOCKHOLDERS
    EQUITY      
|Current liabilities                            |                                                                                                                                                          |              |            |           |  |   |            |          
|                                               | Dividends payable (Note 7)                                                                                                                               |              |            | 508,444   |  |   |            | 499,383   | 
|                                               | Accounts payable and other liabilities                                                                                                                   |              |            | 1,143,850 |  |   |            | 1,087,470 | 
|                                               | Current portion of long term debt (Note 8)                                                                                                               |              |            | 518,275   |  |   |            | 355,840   | 
|                                               |                                                                                                                                                          |              |            |           |  |   |            |          
|Total current liabilities                      |                                                                                                                                                          |              | 2,170,569  |           |  |   | 1,942,693  |          
|Long term debt(Note
    8)                     |                                                                                                                                                          |              | 2,074,609  |           |  |   | 1,213,804  |          
|Security deposits                              |                                                                                                                                                          |              | 100,959    |           |  |   | 52,763     |          
|Advances in aid of construction                |                                                                                                                                                          |              | 35,276     |           |  |   | 37,494     |          
|                                               |                                                                                                                                                          |              |            |           |  |   |            |          
|Total liabilities                              |                                                                                                                                                          |              | 4,381,413  |           |  |   | 3,246,754  |          
|                                               |                                                                                                                                                          |              |            |           |  |   |            |          
|Stockholders equity                           |                                                                                                                                                          |              |            |           |  |   |            |          
|                                               | Redeemable preferred stock, $1.20 par value.
    Authorized 100,000 shares; issued and outstanding 19,740 shares
    in 2002 and 25,195 shares in 2001   |              |            | 23,688    |  |   |            | 30,234    | 
|                                               | Class A common stock, $1.20 par value.
    Authorized 9,870,000 shares; issued and outstanding 3,993,419
    shares in 2002 and 3,920,064 shares in 2001 |              |            | 4,792,103 |  |   |            | 4,704,077 | 
|                                               | Class B common stock, $1.20 par value.
    Authorized 30,000 shares; issued and outstanding nil shares for
    2002 and nil shares for 2001              |              |            |          |  |   |            |          | 
|                                               | Stock and options earned but not issued                                                                                                                  |              |            | 424,841   |  |   |            | 210,324   | 
|                                               | Additional paid-in capital                                                                                                                               |              |            | 7,354,395 |  |   |            | 6,896,753 | 
|                                               | Retained earnings                                                                                                                                        |              |            | 8,531,197 |  |   |            | 7,633,036 | 
|                                               |                                                                                                                                                          |              |            |           |  |   |            |          
|Total stockholders equity                     |                                                                                                                                                          |              | 21,126,224 |           |  |   | 19,474,424 |          
|                                               |                                                                                                                                                          |              |            |           |  |   |            |          
|Commitments (Note 14)                          |                                                                                                                                                          |              |            |           |  |   |            |          
|Total liabilities and stockholders
    equity |                                                                                                                                                          | $            | 25,507,637 |           |  | $ | 22,721,178 |          
|                                               |                                                                                                                                                          |              |            |           |  |   |            |          

The accompanying notes are an integral part of
these financial statements.

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##### Table of Contents



CONSOLIDATED WATER CO. LTD.






CONSOLIDATED STATEMENTS OF INCOME


(Expressed in United States dollars)


|                                                                           |                                      |                                 |            |           |   |      |            |           |   |   |            |           |  
|-------------------------------------------------------------------------- | ------------------------------------ | ------------------------------- | ---------- | --------- | - | ---- | ---------- | --------- | - | - | ---------- | --------- | -
|                                                                           |                                      |                                
|                                                                           |                                      | For the Year Ended December 31,
|                                                                           |                                      |                                
|                                                                           |                                      | 2002                            |            | 2001      |   | 2000
|                                                                           |                                      |                                 |            |           |   |     
|Water sales                                                                |                                      | $                               | 12,154,689 |           |   | $    | 11,248,105 |           |   | $ | 9,795,751  |          
|Cost of water sales (Note 10)                                              |                                      |                                 | (6,882,177 | )         |   |      | (6,109,117 | )         |   |   | (5,423,297 | )        
|                                                                           |                                      |                                 |            |           |   |      |            |           |   |   |            |          
|Gross profit                                                               |                                      |                                 | 5,272,512  |           |   |      | 5,138,988  |           |   |   | 4,372,454  |          
|Indirect expenses (Note 10)                                                |                                      |                                 | (2,644,004 | )         |   |      | (2,500,060 | )         |   |   | (2,061,722 | )        
|                                                                           |                                      |                                 |            |           |   |      |            |           |   |   |            |          
|Income from operations                                                     |                                      |                                 | 2,628,508  |           |   |      | 2,638,928  |           |   |   | 2,310,732  |          
|                                                                           |                                      |                                 |            |           |   |      |            |           |   |   |            |          
|Other income (expenses)                                                    |                                      |                                 |            |           |   |      |            |           |   |   |            |          
|                                                                           | Interest income                      |                                 |            | 14,711    |   |      |            | 28,584    |   |   |            | 32,314    |  
|                                                                           | Interest expense                     |                                 |            | (103,986  | ) |      |            | (99,956   | ) |   |            | (135,847  | )
|                                                                           | Other income                         |                                 |            | 37,077    |   |      |            | 197,017   |   |   |            | 197,621   |  
|                                                                           |                                      |                                 |            |           |   |      |            |           |   |   |            |          
|                                                                           |                                      |                                 | (52,198    | )         |   |      | 125,645    |           |   |   | 94,088     |          
|                                                                           |                                      |                                 |            |           |   |      |            |           |   |   |            |          
|Net income                                                                 |                                      | $                               | 2,576,310  |           |   | $    | 2,764,573  |           |   | $ | 2,404,820  |          
|                                                                           |                                      |                                 |            |           |   |      |            |           |   |   |            |          
|Basic earnings per share (Note 11)                                         |                                      | $                               | 0.65       |           |   | $    | 0.71       |           |   | $ | 0.68       |          
|                                                                           |                                      |                                 |            |           |   |      |            |           |   |   |            |          
|Diluted earnings per share (Note 11)                                       |                                      | $                               | 0.63       |           |   | $    | 0.69       |           |   | $ | 0.67       |          
|                                                                           |                                      |                                 |            |           |   |      |            |           |   |   |            |          
|Weighted average number of common shares used in
    the determination of: |                                      |                                 |            |           |   |      |            |           |   |   |            |          
|                                                                           | Basic earnings per share (Note 11)   |                                 |            | 3,969,861 |   |      |            | 3,897,969 |   |   |            | 3,532,501 |  
|                                                                           |                                      |                                 |            |           |   |      |            |           |   |   |            |          
|                                                                           | Diluted earnings per share (Note 11) |                                 |            | 4,087,532 |   |      |            | 3,999,691 |   |   |            | 3,616,271 |  
|                                                                           |                                      |                                 |            |           |   |      |            |           |   |   |            |          

The accompanying notes are an integral part of
these financial statements.

19



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.






CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY


For Each of the Three Years in the Period
Ended December 31, 2002


(Expressed in United States dollars)


|                                                                  |  |                      |         |              |  |            |         |            |  |            |           |               |  |          |           |        |  |   |          |   |  |   |           |   |  |   |            |   |  |   |            |  
|----------------------------------------------------------------- |  | -------------------- | ------- | ------------ |  | ---------- | ------- | ---------- |  | ---------- | --------- | ------------- |  | -------- | --------- | ------ |  | - | -------- | - |  | - | --------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                  |  |                      |         |              |  |            |         |            |  |            |           |               |  |         
|                                                                  |  | Redeemable Preferred |         |              |  | Stock and  |         |            |  |            |           |              
|                                                                  |  | Stock                |         | Common Stock |  | options    |         | Additional |  |            |           | Total        
|                                                                  |  |                      |         |              |  | earned but |         | Paid-in    |  | Retained   |           | Stockholders
|                                                                  |  | Shares               |         | Dollars      |  | Shares     |         | Dollars    |  | not issued |           | Capital       |  | Earnings |           | Equity
|                                                                  |  |                      |         |              |  |            |         |            |  |            |           |               |  |          |           |       
|Balance at December 31, 1999                                      |  |                      | 41,058  |              |  | $          | 49,270  |            |  |            | 3,051,715 |               |  | $        | 3,662,058 |        |  | $ | 338,006  |   |  | $ | 2,765,407 |   |  | $ | 5,301,564  |   |  | $ | 12,116,305 |  
|Public offering of ordinary shares, $7.05, net of
    issue costs |  |                      |        |              |  |            |        |            |  |            | 773,000   |               |  |          | 927,600   |        |  |   |          |   |  |   | 4,035,131 |   |  |   |            |   |  |   | 4,962,731  |  
|Issue of share capital                                            |  |                      | 3,415   |              |  |            | 4,098   |            |  |            | 106,890   |               |  |          | 128,269   |        |  |   | (81,928  | ) |  |   | 325,666   |   |  |   |           |   |  |   | 376,105    |  
|Conversion of preferred shares                                    |  |                      | (10,639 | )            |  |            | (12,767 | )          |  |            | 10,639    |               |  |          | 12,767    |        |  |   |          |   |  |   |          |   |  |   |           |   |  |   |           |  
|Redemption of preferred shares                                    |  |                      | (200    | )            |  |            | (240    | )          |  |            |          |               |  |          |          |        |  |   |          |   |  |   |          |   |  |   |           |   |  |   | (240       | )
|Repurchase and cancellation of ordinary shares                    |  |                      |        |              |  |            |        |            |  |            | (79,100   | )             |  |          | (94,920   | )      |  |   |          |   |  |   | (399,455  | ) |  |   |           |   |  |   | (494,375   | )
|Net income                                                        |  |                      |        |              |  |            |        |            |  |            |          |               |  |          |          |        |  |   |          |   |  |   |          |   |  |   | 2,404,820  |   |  |   | 2,404,820  |  
|Dividends declared                                                |  |                      |        |              |  |            |        |            |  |            |          |               |  |          |          |        |  |   |          |   |  |   |          |   |  |   | (1,262,675 | ) |  |   | (1,262,675 | )
|Issue of options and shares grants                                |  |                      |        |              |  |            |        |            |  |            |          |               |  |          |          |        |  |   | 124,772  |   |  |   |           |   |  |   |           |   |  |   | 124,772    |  
|                                                                  |  |                      |         |              |  |            |         |            |  |            |           |               |  |          |           |        |  |   |          |   |  |   |           |   |  |   |            |   |  |   |            |  
|Balance at December 31, 2000                                      |  |                      | 33,634  |              |  | $          | 40,361  |            |  |            | 3,863,144 |               |  | $        | 4,635,774 |        |  | $ | 380,850  |   |  | $ | 6,726,749 |   |  | $ | 6,443,709  |   |  | $ | 18,227,443 |  
|Issue of share capital                                            |  |                      | 5,821   |              |  |            | 6,985   |            |  |            | 67,860    |               |  |          | 81,431    |        |  |   | (340,125 | ) |  |   | 411,599   |   |  |   |           |   |  |   | 159,890    |  
|Conversion of preferred shares                                    |  |                      | (14,260 | )            |  |            | (17,112 | )          |  |            | 14,260    |               |  |          | 17,112    |        |  |   |          |   |  |   |          |   |  |   |           |   |  |   |           |  
|Repurchase and cancellation of ordinary shares                    |  |                      |        |              |  |            |        |            |  |            | (25,200   | )             |  |          | (30,240   | )      |  |   |          |   |  |   | (241,595  | ) |  |   |           |   |  |   | (271,835   | )
|Net income                                                        |  |                      |        |              |  |            |        |            |  |            |          |               |  |          |          |        |  |   |          |   |  |   |          |   |  |   | 2,764,573  |   |  |   | 2,764,573  |  
|Dividends declared                                                |  |                      |        |              |  |            |        |            |  |            |          |               |  |          |          |        |  |   |          |   |  |   |          |   |  |   | (1,575,246 | ) |  |   | (1,575,246 | )
|Issue of options and shares grants                                |  |                      |        |              |  |            |        |            |  |            |          |               |  |          |          |        |  |   | 169,599  |   |  |   |           |   |  |   |           |   |  |   | 169,599    |  
|                                                                  |  |                      |         |              |  |            |         |            |  |            |           |               |  |          |           |        |  |   |          |   |  |   |           |   |  |   |            |   |  |   |            |  
|Balance at December 31, 2001                                      |  |                      | 25,195  |              |  | $          | 30,234  |            |  |            | 3,920,064 |               |  | $        | 4,704,077 |        |  | $ | 210,324  |   |  | $ | 6,896,753 |   |  | $ | 7,633,036  |   |  | $ | 19,474,424 |  
|Issue of share capital                                            |  |                      | 3,330   |              |  |            | 3,996   |            |  |            | 67,456    |               |  |          | 80,947    |        |  |   | (227,980 | ) |  |   | 490,889   |   |  |   |           |   |  |   | 347,852    |  
|Conversion of preferred shares                                    |  |                      | (8,083  | )            |  |            | (9,700  | )          |  |            | 8,083     |               |  |          | 9,700     |        |  |   |          |   |  |   |          |   |  |   |           |   |  |   |           |  
|Redemption of preferred shares                                    |  |                      | (702    | )            |  |            | (842    | )          |  |            |          |               |  |          |          |        |  |   |          |   |  |   | (2,999    | ) |  |   |           |   |  |   | (3,841     | )
|Repurchase and cancellation of ordinary shares                    |  |                      |        |              |  |            |        |            |  |            | (2,184    | )             |  |          | (2,621    | )      |  |   |          |   |  |   | (30,248   | ) |  |   |           |   |  |   | (32,869    | )
|Net income                                                        |  |                      |        |              |  |            |        |            |  |            |          |               |  |          |          |        |  |   |          |   |  |   |          |   |  |   | 2,576,310  |   |  |   | 2,576,310  |  
|Dividends declared                                                |  |                      |        |              |  |            |        |            |  |            |          |               |  |          |          |        |  |   |          |   |  |   |          |   |  |   | (1,678,149 | ) |  |   | (1,678,149 | )
|Issue of options and shares grants                                |  |                      |        |              |  |            |        |            |  |            |          |               |  |          |          |        |  |   | 442,497  |   |  |   |           |   |  |   |           |   |  |   | 442,497    |  
|                                                                  |  |                      |         |              |  |            |         |            |  |            |           |               |  |          |           |        |  |   |          |   |  |   |           |   |  |   |            |   |  |   |            |  
|Balance at December 31, 2002                                      |  |                      | 19,740  |              |  | $          | 23,688  |            |  |            | 3,993,419 |               |  | $        | 4,792,103 |        |  | $ | 424,841  |   |  | $ | 7,354,395 |   |  | $ | 8,531,197  |   |  | $ | 21,126,224 |  
|                                                                  |  |                      |         |              |  |            |         |            |  |            |           |               |  |          |           |        |  |   |          |   |  |   |           |   |  |   |            |   |  |   |            |  

The accompanying notes are an integral part of
these financial statements.

20



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.




CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in United States dollars)


|                                                        |                                                              |                                 |            |            |   |      |            |            |   |   |            |            |  
|------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------- | ---------- | ---------- | - | ---- | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                                        |                                                              |                                
|                                                        |                                                              | For the Year Ended December 31,
|                                                        |                                                              |                                
|                                                        |                                                              | 2002                            |            | 2001       |   | 2000
|                                                        |                                                              |                                 |            |            |   |     
|                                                        | Net income                                                   |                                 | $          | 2,576,310  |   |      | $          | 2,764,573  |   |   | $          | 2,404,820  |  
|Adjustments to reconcile net income to net
    cash     |                                                              |                                 |            |            |   |      |            |            |   |   |            |           
|                                                        | Depreciation                                                 |                                 |            | 1,269,126  |   |      |            | 1,113,041  |   |   |            | 1,071,455  |  
|                                                        | Amortization of intangible asset                             |                                 |            | 194,906    |   |      |            | 193,703    |   |   |            | 64,979     |  
|                                                        | Stock compensation on share grants                           |                                 |            | 175,330    |   |      |            | 289,174    |   |   |            | 51,579     |  
|                                                        | Loss on sale of fixed assets                                 |                                 |            |           |   |      |            | 7,702      |   |   |            |           |  
|                                                        | (Increase) decrease in accounts receivable                   |                                 |            | (83,791    | ) |      |            | 165,573    |   |   |            | (56,259    | )
|                                                        | (Increase) decrease in inventory                             |                                 |            | (68,620    | ) |      |            | (165,278   | ) |   |            | 20,043     |  
|                                                        | (Increase) decrease in prepaid expenses and other
    assets |                                 |            | (50,529    | ) |      |            | (20,401    | ) |   |            | 1,647      |  
|                                                        | Increase in accounts payable and other liabilities           |                                 |            | 56,380     |   |      |            | 19,956     |   |   |            | 320,183    |  
|                                                        | Increase in security deposits                                |                                 |            | 48,196     |   |      |            |           |   |   |            |           |  
|                                                        | Decrease in advances in aid of construction                  |                                 |            | (2,218     | ) |      |            | (3,596     | ) |   |            | (3,994     | )
|                                                        |                                                              |                                 |            |            |   |      |            |            |   |   |            |           
|Net cash provided by operating activities               |                                                              |                                 | 4,115,090  |            |   |      | 4,364,447  |            |   |   | 3,874,453  |           
|                                                        |                                                              |                                 |            |            |   |      |            |            |   |   |            |           
|Cash flows from investing activities                    |                                                              |                                 |            |            |   |      |            |            |   |   |            |           
|                                                        | Deferred expenditures                                        |                                 |            | (460,886   | ) |      |            |           |   |   |            |           |  
|                                                        | Purchase of property, plant and equipment                    |                                 |            | (3,107,837 | ) |      |            | (1,892,147 | ) |   |            | (2,301,759 | )
|                                                        | Proceeds from sale of property, plant and
    equipment      |                                 |            |           |   |      |            | 360        |   |   |            |           |  
|                                                        | Purchase of investment                                       |                                 |            |           |   |      |            | (12,450    | ) |   |            |           |  
|                                                        | Purchase of subsidiary, net of cash acquired                 |                                 |            |           |   |      |            |           |   |   |            | (3,966,979 | )
|                                                        |                                                              |                                 |            |            |   |      |            |            |   |   |            |           
|Net cash used in investing activities                   |                                                              |                                 | (3,568,723 | )          |   |      | (1,904,237 | )          |   |   | (6,268,738 | )         
|                                                        |                                                              |                                 |            |            |   |      |            |            |   |   |            |           
|Cash flows from financing activities                    |                                                              |                                 |            |            |   |      |            |            |   |   |            |           
|                                                        | Deferred expenditures                                        |                                 |            | (426,970   | ) |      |            |           |   |   |            |           |  
|                                                        | Dividends paid                                               |                                 |            | (1,669,088 | ) |      |            | (1,477,828 | ) |   |            | (1,127,295 | )
|                                                        | Proceeds from credit facility                                |                                 |            | 1,500,000  |   |      |            | 500,000    |   |   |            |           |  
|                                                        | Principal repayments of long term debt                       |                                 |            | (476,760   | ) |      |            | (281,922   | ) |   |            | (885,355   | )
|                                                        | Net proceeds from issuance of stock                          |                                 |            | 615,019    |   |      |            | 40,075     |   |   |            | 5,417,204  |  
|                                                        | Payment to acquire common stock                              |                                 |            | (32,869    | ) |      |            | (271,595   | ) |   |            | (494,375   | )
|                                                        | Payment to acquire redeemable preferred shares               |                                 |            | (3,841     | ) |      |            |           |   |   |            |           |  
|                                                        | (Decrease) increase in bank overdraft                        |                                 |            |           |   |      |            | (703,331   | ) |   |            | 32,938     |  
|                                                        | Principal payments under water purchase agreement            |                                 |            |           |   |      |            |           |   |   |            | (320,141   | )
|                                                        |                                                              |                                 |            |            |   |      |            |            |   |   |            |           
|Net cash (used in) provided by financing
    activities |                                                              |                                 | (494,509   | )          |   |      | (2,194,601 | )          |   |   | 2,622,976  |           
|                                                        |                                                              |                                 |            |            |   |      |            |            |   |   |            |           
|Net increase in cash and cash
    equivalents           |                                                              |                                 | 51,858     |            |   |      | 265,609    |            |   |   | 228,691    |           
|Cash and cash equivalents at beginning of
    year      |                                                              |                                 | 516,446    |            |   |      | 250,837    |            |   |   | 22,146     |           
|                                                        |                                                              |                                 |            |            |   |      |            |            |   |   |            |           
|Cash and cash equivalents at end of
    year            |                                                              | $                               | 568,304    |            |   | $    | 516,446    |            |   | $ | 250,837    |           
|                                                        |                                                              |                                 |            |            |   |      |            |            |   |   |            |           

The accompanying notes are an integral part of
these financial statements.

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##### Table of Contents



CONSOLIDATED WATER CO. LTD.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Principal
Activity

Consolidated Water Co. Ltd. and its wholly-owned
subsidiaries (together the Company) use reverse
osmosis technology to produce fresh water from seawater. The
Company processes and supplies water to its customers in Grand
Cayman, Cayman Islands; Ambergris Caye, Belize; and South
Bimini, Bahamas. The Companys exclusive license in Grand
Cayman allows it to process and supply water to certain areas of
Grand Cayman for a period of twenty years from July 11,
1990 in addition to having a right of first refusal on the
extension or renewal thereof. The Company has a contract with
Belize Water Services Ltd. (BWSL) of Belize,
formally known as Water and Sewerage Authority of Belize, to
supply water to BWSL in Ambergris Caye expiring in 2011. At the
expiry of the contract, BWSL may at its option extend the term
of the agreement or purchase the plant outright. In addition, on
July 11, 2001 the Company commenced supplying water under a
ten year agreement to South Bimini International Ltd., a
Bahamian company that owns and operates resort properties on
South Bimini Island, Bahamas. The base price of water supplied
by the Company, and adjustments thereto, are generally
determined by the terms of the license and contracts, which
provide for adjustments based upon the movement in the
government price indices specified in the license and contracts
respectively, as well as monthly adjustments for changes in the
cost of energy.

2.     Accounting
Policies

Basis of
preparation:The financial statements
presented are prepared in accordance with the accounting
principles generally accepted in the United States of America.

Use of estimates:The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.

The Companys significant accounting
policies are:

Basis of
consolidation:The consolidated
financial statements include the accounts of the Companys
wholly-owned subsidiaries Belize Water Limited, Hurricane
Hide-A-Way Ltd. and Cayman Water Company Limited. The operating
results of Belize Water Limited have been included in the
financial statements since the date of the acquisition being
July 21, 2000. All inter-company balances and transactions
have been eliminated. There are no operating results for
Hurricane Hide-A-Way Ltd. and Cayman Water Company Limited as
these companies have been dormant since inception and have no
assets and liabilities.

Foreign currency:The functional currency of the Company and its foreign
subsidiaries are their respective local currencies. The
consolidated operations are reported in United States dollars.
The exchange rates between the Cayman Islands dollar, the Belize
dollar and the Bahamian dollar have been fixed to the United
States dollar during all periods presented.

Monetary assets and liabilities denominated in
foreign currencies are translated at the rates of exchange
ruling at the balance sheet date. Foreign currency transactions
are translated at the rate ruling on the date of the
transaction.

Cash and cash
equivalents:Cash and cash equivalents
comprise cash at bank on call and highly liquid deposits with an
original maturity of three months or less.

Trade accounts
receivable:Trade accounts receivable
are recorded at invoiced amounts based on meter readings. The
allowance for doubtful accounts is the Companys best
estimate of the amount of probable credit losses in the
Companys existing accounts receivable balance. The Company
determines the allowance for doubtful accounts based on
historical write-off experience and monthly review of delinquent
accounts. Past

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##### Table of Contents



CONSOLIDATED WATER CO. LTD.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



2.     Accounting
Policies  (continued)


due balances are reviewed individually for
collectibility and disconnection. Account balances are charged
off against the allowance for doubtful accounts after all means
of collection have been exhausted and the potential for recovery
is considered by management to be remote.

Inventory:Inventory
primarily includes replacement spares and parts that are valued
at the lower of cost and net realizable value on a first-in,
first-out basis. Inventory also includes potable water held in
the Companys reservoirs. The value of the water inventory
is the lower of the average cost of producing and purchasing
water during the year and net realizable value.

Deferred
expenditures:Deferred expenditures
represent direct costs incurred in connection with planned
business combinations and financing transactions.

Property, plant and
equipment:Property, plant and
equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using a straight line method with an
allowance for estimated residual values. Rates are determined
based on the estimated useful lives of the assets as follows:

|                                         |  |                                                            
|---------------------------------------- |  | -----------------------------------------------------------
|Buildings                                |  | 5 to 40 years                                              
|Plant and equipment                      |  | 4 to 25 years                                              
|Distribution system                      |  | 3 to 40 years                                              
|Office furniture, fixtures and equipment |  | 3 to 10 years                                              
|Vehicles                                 |  | 3 to 10 years                                              
|Leasehold improvements                   |  | Shorter of 5 years and operating lease term
    outstanding
|Lab Equipment                            |  | 3 to 10 years                                              

Additions to property, plant and equipment are
comprised of the cost of the contracted services, direct labour
and materials. Assets under construction are recorded as
additions to property, plant and equipment upon completion of
the projects. Depreciation commences in the month of addition.

During the year ended December 31, 2001, the
Company carried out an extensive engineering analysis of its
potable water production and distribution equipment in Grand
Cayman. The Companys analysis concluded that certain
assets would not need to be replaced or relocated as early as
previously planned. As a result of these circumstances,
management considered it appropriate to reassess the estimated
useful economic life of these assets. The reassessment of the
useful economic lives of these assets resulted in decreased
depreciation expense on an annual basis in the amount of
$197,472, which increased basic and fully diluted earnings per
share by $0.05 for the year ended December 31, 2001.

Intangible asset:The Company adopted the provisions of SFAS No. 142,
Goodwill and Other Intangible Assets, as of
January 1, 2002. Goodwill and intangible assets acquired in
a purchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested for
impairment at least annually in accordance with the provisions
of SFAS No. 142. SFAS No. 142 also requires that
intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with
SFAS No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets. The adoption of SFAS No. 142
had no impact on the Companys consolidated financial
statements.

Prior to the adoption of SFAS No. 142, the
intangible asset recorded by the Company was amortized on a
straight-line over the remaining period of the contract. The
impairment of the intangible asset, if any, was measured based
on projected discounted future operating cash flows using a
discount rate reflecting the Companys average cost of
funds.

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##### Table of Contents



CONSOLIDATED WATER CO. LTD.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2.     Accounting
Policies  (continued)


Investment:Investments are recorded at cost. The Company recognizes an
impairment loss on declines in value that are other than
temporary.

Security deposits:Security deposits are received from large customers as security
for trade receivables.

Advances in aid of
construction:The Company recognizes a
liability when advances are received from condominium developers
in the licensed area to help defray the capital expenditure
costs of the Company. These advances do not represent loans to
the Company and are interest free. However, the Company allows a
discount of ten percent on future supplies of water to these
developments until the aggregate discounts allowed are
equivalent to advances received. Discounts are charged against
advances received.

Shares repurchased:Under Cayman Islands law, ordinary shares repurchased must be
cancelled upon redemption. The Companys issued share
capital is reduced by the par value of those shares, with the
difference being adjusted to additional paid in capital.

Stock and stock option incentive
plans:The Company issues stock under
incentive plans that form part of employees and non-executive
Directors remuneration and grants options to purchase
ordinary shares as part of remuneration for certain long-serving
employees and the executive officers.

The Company applies the intrinsic-value-based
method of accounting prescribed by APB Opinion No. 25
Accounting for Stock Issued to Employees, and
related interpretations to account for its fixed-plan stock
options. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the
underlying stock exceeds the exercise price. SFAS No. 123
Accounting for Stock-Based Compensation established
accounting and disclosure requirements using a fair-valued-based
method of accounting for stock-based employee compensation
plans. As allowed by SFAS No. 123, the Company continues to
apply the intrinsic-value method of accounting described above
and has adopted the disclosure requirements of SFAS
No. 123. The following table illustrates the effect on net
income if the fair-value-based method has been applied to all
outstanding and unvested awards in each period.

|                                                                                                                    |                       |      |           |      |  |      |           |      |  |   |           |      | 
|------------------------------------------------------------------------------------------------------------------- | --------------------- | ---- | --------- | ---- |  | ---- | --------- | ---- |  | - | --------- | ---- | 
|                                                                                                                    |                       | 2002 |           | 2001 |  | 2000
|                                                                                                                    |                       |      |           |      |  |     
|Net income, as reported                                                                                             |                       | $    | 2,576,310 |      |  | $    | 2,764,573 |      |  | $ | 2,404,820 |     
|Add stock-based employee compensation expense
    included in reporting net income                                  |                       |      | 442,497   |      |  |      | 169,599   |      |  |   | 124,772   |     
|Deduct total stock-based employee compensation
    expense determined under fair-value-based method for all rewards |                       |      | (622,702  | )    |  |      | (645,290  | )    |  |   | (417,837  | )   
|                                                                                                                    |                       |      |           |      |  |      |           |      |  |   |           |     
|Pro forma net income                                                                                                |                       | $    | 2,396,105 |      |  | $    | 2,288,882 |      |  | $ | 2,111,755 |     
|                                                                                                                    |                       |      |           |      |  |      |           |      |  |   |           |     
|Earnings per share:                                                                                                 |                       |      |           |      |  |      |           |      |  |   |           |     
|                                                                                                                    | Basic  as reported   |      | $         | 0.65 |  |      | $         | 0.71 |  |   | $         | 0.68 | 
|                                                                                                                    | Basic  pro forma     |      | $         | 0.60 |  |      | $         | 0.59 |  |   | $         | 0.59 | 
|                                                                                                                    | Diluted  as reported |      | $         | 0.63 |  |      | $         | 0.69 |  |   | $         | 0.67 | 
|                                                                                                                    | Diluted  pro forma   |      | $         | 0.58 |  |      | $         | 0.57 |  |   | $         | 0.58 | 

The cost of stock options granted to employees is
recorded in stockholders equity and is expensed to the consolidated
statements of income based on the vesting period of the options. On issue of options, proceeds up to the par value of the stock
issued are credited to ordinary share capital; any proceeds in
excess of the par value of the stock issued are credited to
additional paid in capital in the period in which the options
are exercised.

24



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



2.     Accounting
Policies  (continued)


Water sales and cost of water
sales:Customers are billed monthly
based on meter readings performed at or near each month end and
in accordance with agreements which stipulate minimum monthly
charges for water service. An accrual, where necessary, is made
for water delivered but unbilled at year end when readings are
not performed at the year end date. The accrual is matched with
the direct costs of producing, purchasing and delivering water.

Repairs and
maintenance:All repair and
maintenance costs are expensed as incurred.

Reclassifications:The Company has included amounts accrued under the non-executive
Directors share plan and directors and senior management stock
compensation plans in stockholders equity. In prior years,
these amounts had been recorded as a current liability, however,
management determined it more appropriate to reflect these amounts in
stockholders equity based on the nature of the amounts and the related
plans. The effect of this reclassification was an increase in
stockholders equity and a decrease in current liabilities of
$424,841 and $210,324 at December 31, 2002 and 2001,
respectively. There is no impact on earnings per share since the
Company had always included these amounts in the statements of
operations and its determination of earnings per share.

Certain of prior years figures have been reclassed to
conform to the current years presentation.

3.     Cash and Cash
Equivalents

Cash and cash equivalents are not restricted as
to withdrawal or use. At December 31, 2002, the equivalent
of $395,897 (2001: $372,688) is denominated in Belize dollars.
The Company has a guarantee from the Government of Belize to
repatriate any and all of the Belize Water Limited earnings in
United States dollars.

4.     Accounts
Receivable

Accounts receivable comprise receivables from
customers and are shown net of an allowance for doubtful
accounts of $12,000 (2001: $12,000). Significant concentrations
of credit risk are disclosed in Note 18.

5.     Property,
Plant and Equipment

|                                         |  |              |            |      |  |   |            |  
|---------------------------------------- |  | ------------ | ---------- | ---- |  | - | ---------- | -
|                                         |  |             
|                                         |  | December 31,
|                                         |  |             
|                                         |  | 2002         |            | 2001
|                                         |  |              |            |     
|Cost:                                    |  |              |            |      |  |   |            |  
|Land                                     |  | $            | 475,679    |      |  | $ | 475,679    |  
|Buildings                                |  |              | 2,211,200  |      |  |   | 2,147,417  |  
|Plant and equipment                      |  |              | 11,288,460 |      |  |   | 9,531,739  |  
|Distribution system                      |  |              | 13,237,043 |      |  |   | 13,007,223 |  
|Office furniture, fixtures and equipment |  |              | 715,539    |      |  |   | 675,450    |  
|Vehicles                                 |  |              | 607,230    |      |  |   | 580,213    |  
|Leasehold improvements                   |  |              | 39,480     |      |  |   | 39,480     |  
|Lab equipment                            |  |              | 41,035     |      |  |   | 37,909     |  
|Assets under construction                |  |              | 1,202,058  |      |  |   | 284,906    |  
|                                         |  |              |            |      |  |   |            |  
|                                         |  |              | 29,817,724 |      |  |   | 26,780,016 |  
|Accumulated depreciation                 |  |              | (9,564,078 | )    |  |   | (8,365,081 | )
|                                         |  |              |            |      |  |   |            |  
|Net book value                           |  | $            | 20,253,646 |      |  | $ | 18,414,935 |  
|                                         |  |              |            |      |  |   |            |  

At December 31, 2002, the Company had
outstanding capital commitments of $1,080,000 (2001:
$1,620,000). It is the Companys policy to maintain
adequate insurance for loss or damage to all fixed assets that
in managements assessment may be susceptible to loss. The
Company does not insure the costs of its underground
distribution system which total $9,806,663 (2001: $9,471,931) or
plant and equipment insured by third parties with a total cost
of $3,633,997 (2001: $3,633,997).

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##### Table of Contents



CONSOLIDATED WATER CO. LTD.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

6.     Intangible
Asset

On July 21, 2000, the Company acquired all
of the issued and outstanding capital stock of Seatec Belize
Ltd., a company organized under the laws of Belize, for a total
purchase price, less cash and cash equivalents acquired, of
$3,966,979. Of this amount, $2,073,462 was attributed to the
water purveyor contract (the contract) that the
acquired company had with Belize Water Services Ltd. Seatec
Belize Ltd., now renamed Belize Water Limited, owns and operates
a reverse osmosis plant in Ambergris Caye, Belize. This
acquisition was accounted for by the purchase method and the
intangible asset is being amortized on a straight line basis
over the remaining period of the contract, which expires in
April 2011.

|                         |  |              |           |      |  |   |           |  
|------------------------ |  | ------------ | --------- | ---- |  | - | --------- | -
|                         |  |             
|                         |  | December 31,
|                         |  |             
|                         |  | 2002         |           | 2001
|                         |  |              |           |     
|Intangible asset         |  | $            | 2,073,462 |      |  | $ | 2,073,462 |  
|Accumulated amortisation |  |              | (453,588  | )    |  |   | (258,682  | )
|                         |  |              |           |      |  |   |           |  
|Net book value           |  | $            | 1,619,874 |      |  | $ | 1,814,780 |  
|                         |  |              |           |      |  |   |           |  

Amortization for each of the next five years is
estimated to be $195,000 per year.

7.     Dividends

Quarterly interim dividends were declared in
respect of Class A common stock and preference shares as
follows:

|             |  |      |       |      |  |      |      |  |  |   |      | 
|------------ |  | ---- | ----- | ---- |  | ---- | ---- |  |  | - | ---- | 
|             |  | 2002 |       | 2001 |  | 2000
|             |  |      |       |      |  |     
|March 31     |  | $    | 0.105 |      |  | $    | 0.10 |  |  | $ | 0.08 | 
|June 30      |  | $    | 0.105 |      |  | $    | 0.10 |  |  | $ | 0.08 | 
|September 30 |  | $    | 0.105 |      |  | $    | 0.10 |  |  | $ | 0.08 | 
|December 31  |  | $    | 0.105 |      |  | $    | 0.10 |  |  | $ | 0.10 | 

Interim dividends for the first three quarters
were paid during each respective year. The interim dividend for
the fourth quarter was declared by the Board of Directors in
October of each respective year. These quarterly interim
dividends are subject to no further ratification and
consequently the fourth quarter interim dividends have been
recorded as a liability in each respective year. Included in
dividends payable at December 31, 2002 are unclaimed
dividends of $85,671 (2001: $100,160).

8.     Long Term
Debt

|                                                                                                                                                                    |  |              |           |      |  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | ---- |  | - | --------- | -
|                                                                                                                                                                    |  |             
|                                                                                                                                                                    |  | December 31,
|                                                                                                                                                                    |  |             
|                                                                                                                                                                    |  | 2002         |           | 2001
|                                                                                                                                                                    |  |              |           |     
|European Investment Bank loan bearing interest at
    3.36%, repayable in semi annual installments, due June 20,
    2006                                           |  | $            | 905,384   |      |  | $ | 1,132,144 |  
|Royal Bank of Canada loan bearing interest at six
    month LIBOR plus 1.5%, repayable in semi annual installments of
    $62,500 plus interest, due April 27, 2005 |  |              | 312,500   |      |  |   | 437,500   |  
|Royal Bank of Canada loan bearing interest at
    monthly LIBOR plus 1.5%, repayable in monthly installments of
    $12,500 plus interest, due February 2, 2007     |  |              | 1,375,000 |      |  |   |          |  
|                                                                                                                                                                    |  |              |           |      |  |   |           |  
|Total long term debt                                                                                                                                                |  |              | 2,592,884 |      |  |   | 1,569,644 |  
|Less current portion                                                                                                                                                |  |              | (518,275  | )    |  |   | (355,840  | )
|                                                                                                                                                                    |  |              |           |      |  |   |           |  
|Long term debt, excluding current portion                                                                                                                           |  | $            | 2,074,609 |      |  | $ | 1,213,804 |  
|                                                                                                                                                                    |  |              |           |      |  |   |           |  

26



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



8.     Long Term
Debt   (continued)


At December 31, 2002, the total lending
facility made available by the Royal Bank of Canada comprised:
a) a revolving line of credit with a limit of $1,000,000,
bearing interest at New York Prime plus 1%, which is convertible
in $100,000 increments into a monthly revolving LIBOR note,
bearing interest at LIBOR plus 1.5%, and b) term loans with
a limit of $3,500,000, bearing interest at LIBOR plus 1.5%. Any
amounts drawn down under the line of credit and any term loans
are collateralised by a fixed and floating charge of $3,000,000.
The fixed charge covers land owned by the Company and the
floating charge covers all other assets of the Company, except a
reverse osmosis plant charged in connection with the water
purchase agreement.

The European Investment Bank loan is guaranteed
by the Overseas Development Administration (ODA) of
the Foreign and Commonwealth Office of the Government of the
United Kingdom. The Government of the Cayman Islands has, for a
fee of 1% per annum, provided a counter guarantee to the ODA.
The Company, with the approval of the Royal Bank of Canada has
agreed to secure the counter guarantee by a second charge over
all assets of the Company.

The above loans and other credit facilities are
subject to certain restrictive covenants, the most restrictive of
which are as follows:

Royal Bank of
Canada loan:



| |                                                                           
| | --------------------------------------------------------------------------
| | (a) The Companys debt to equity ratio shall not exceed 0.85;             
|
| | (b) The Company must maintain a debt-servicing ratio of not
less than 1.25

European
Investment Bank loan:



| |     |                                                                                                                                                                                                                                           
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The Company shall not take any shareholding in
    any company without the prior written consent of the bank, and
    shall not grant any loans or advances except for granting credit
    to its employees such as it customarily grants.



| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | In event of default, the bank may
    immediately withdraw any remaining credit, and demand immediate
    repayment of all amounts outstanding.
|
| | During the year ended 2002 and for the years
    ended December 31, 2001 and 2000, the Company was in
    compliance with these covenants.     

The aggregate capital repayment obligations
over the next five years are as follows:

|     |  |   |           | 
|---- |  | - | --------- | 
|2003 |  | $ | 518,276   | 
|2004 |  |   | 530,286   | 
|2005 |  |   | 480,564   | 
|2006 |  |   | 288,758   | 
|2007 |  |   | 150,000   | 
|     |  |   |           | 
|     |  | $ | 1,967,884 | 
|     |  |   |           | 

9.     Share Capital
and Additional Paid in Capital

Redeemable preferred stock (preference
shares) is issued under the Companys Employee Share
Incentive Plan as discussed in Note 15 and carries the same
voting and dividend rights as ordinary shares of common stock
(ordinary share). Preference shares vest over four
years and convert to common stock on a share for share basis on
the fourth anniversary of each grant date. Preference shares are
only redeemable with the Companys agreement. Upon
liquidation preference shares rank in preference to the ordinary
shares to the extent of the par value of the preference shares
and any related additional paid in capital.

The Company has a Class B stock
option plan designed to deter coercive takeover tactics.
Pursuant to this plan, holders of ordinary shares and preference
shares were granted options which entitle them to purchase 1/100
of a share of Class B stock at an exercise
price of $37.50 if a person or group acquires or commences a
tender offer for 20% or more of the Companys ordinary
shares. Option holders (other than the acquiring person or
group) will also be entitled to buy, for the $37.50 exercise
price, ordinary shares with a then market value of $75.00 in the
event a person or group actually acquires 20% or more of the
Companys ordinary shares. Options may be redeemed at $0.01
under certain circumstances. 30,000 of the Companys
authorized but unissued ordinary shares have been reserved for
issue as Class B stock. The
Class B stock ranks pari passu with ordinary
shares for dividend and voting rights. No
Class B stock options have been exercised or
redeemed up to December 31, 2002.

27



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

10.     Expenses

|                                                |  |                                 |           |      |  |      |           |  |  |   |           | 
|----------------------------------------------- |  | ------------------------------- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                                |  |                                
|                                                |  | For the Year Ended December 31,
|                                                |  |                                
|                                                |  | 2002                            |           | 2001 |  | 2000
|                                                |  |                                 |           |      |  |     
|Cost of water sales comprise the
    following: |  |                                 |           |      |  |      |           |  |  |   |           | 
|Water purchases                                 |  | $                               | 1,952,331 |      |  | $    | 2,074,759 |  |  | $ | 2,062,582 | 
|Depreciation                                    |  |                                 | 1,175,349 |      |  |      | 1,018,541 |  |  |   | 992,410   | 
|Amortisation of intangible asset (Note 6)       |  |                                 | 194,906   |      |  |      | 193,703   |  |  |   | 64,979    | 
|Employee costs                                  |  |                                 | 1,042,192 |      |  |      | 939,976   |  |  |   | 741,789   | 
|Fuel oil                                        |  |                                 | 179,275   |      |  |      | 91,842    |  |  |   | 81,102    | 
|Royalties (Note 14)                             |  |                                 | 737,064   |      |  |      | 694,351   |  |  |   | 641,428   | 
|Electricity                                     |  |                                 | 710,168   |      |  |      | 534,919   |  |  |   | 316,135   | 
|Insurance                                       |  |                                 | 124,404   |      |  |      | 89,808    |  |  |   | 64,160    | 
|Other direct costs                              |  |                                 | 766,488   |      |  |      | 471,218   |  |  |   | 458,712   | 
|                                                |  |                                 |           |      |  |      |           |  |  |   |           | 
|                                                |  | $                               | 6,882,177 |      |  | $    | 6,109,117 |  |  | $ | 5,423,297 | 
|                                                |  |                                 |           |      |  |      |           |  |  |   |           | 
|Indirect expenses comprise the
    following:   |  |                                 |           |      |  |      |           |  |  |   |           | 
|Employee costs                                  |  |                                 | 1,427,182 |      |  |      | 1,299,877 |  |  |   | 1,045,244 | 
|Depreciation                                    |  |                                 | 93,777    |      |  |      | 94,500    |  |  |   | 79,045    | 
|Professional fees                               |  |                                 | 278,433   |      |  |      | 280,297   |  |  |   | 275,589   | 
|Insurance                                       |  |                                 | 141,650   |      |  |      | 89,328    |  |  |   | 34,829    | 
|Directors fees and expenses                    |  |                                 | 157,877   |      |  |      | 107,184   |  |  |   | 104,149   | 
|Other indirect costs                            |  |                                 | 545,085   |      |  |      | 628,874   |  |  |   | 522,866   | 
|                                                |  |                                 |           |      |  |      |           |  |  |   |           | 
|                                                |  | $                               | 2,644,004 |      |  | $    | 2,500,060 |  |  | $ | 2,061,722 | 
|                                                |  |                                 |           |      |  |      |           |  |  |   |           | 

28



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

11.     Earnings Per
Share

Basic earnings per share is calculated by
dividing the net profit attributable to common stockholders by
the weighted average number of ordinary shares in issue during
the year.

The net income, weighted average number of
ordinary shares and potential ordinary shares figures used in
the determination of the basic and diluted earnings per ordinary
share are summarized as follows:

|                                                                                                                 |  |      |           |      |  |      |           |   |  |   |           |  
|---------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                                                                                                 |  | 2002 |           | 2001 |  | 2000
|                                                                                                                 |  |      |           |      |  |     
|Net income                                                                                                       |  | $    | 2,576,310 |      |  | $    | 2,764,573 |   |  | $ | 2,404,820 |  
|Less:                                                                                                            |  |      |           |      |  |      |           |   |  |   |           |  
|Dividends declared and earnings attributable on
    preference shares                                            |  |      | (8,913    | )    |  |      | (10,794   | ) |  |   | (14,220   | )
|                                                                                                                 |  |      |           |      |  |      |           |   |  |   |           |  
|Net income available to holders of ordinary
    shares in the determination of basic earnings per ordinary share |  | $    | 2,567,397 |      |  | $    | 2,753,779 |   |  | $ | 2,390,600 |  
|                                                                                                                 |  |      |           |      |  |      |           |   |  |   |           |  
|Weighted average number of ordinary shares in the
    determination of basic earnings per ordinary share         |  |      | 3,969,861 |      |  |      | 3,897,969 |   |  |   | 3,532,501 |  
|Plus:                                                                                                            |  |      |           |      |  |      |           |   |  |   |           |  
|Weighted average number of preference shares
    outstanding during the year                                     |  |      | 23,801    |      |  |      | 31,213    |   |  |   | 37,145    |  
|Potential dilutive effect of unexercised options
    and warrants                                                |  |      | 93,870    |      |  |      | 70,509    |   |  |   | 46,625    |  
|                                                                                                                 |  |      |           |      |  |      |           |   |  |   |           |  
|Weighted average number of shares used for
    determining diluted earnings per ordinary share                   |  |      | 4,087,532 |      |  |      | 3,999,691 |   |  |   | 3,616,271 |  
|                                                                                                                 |  |      |           |      |  |      |           |   |  |   |           |  

12.     Segmented
Information

The supply of water to the Cayman Islands, Belize
and Bahamas are considered by management as separate business
segments. The basis of measurement of segment information is
similar to that adopted for the financial statements.

Water sales from Belize Water Limited for the
three years ending December 31, 2002 were earned from one
customer.

29



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

12.     Segmented
Information  (continued)




|                                                 |              |                                               |            |           |           |   |            |             |  |   |            |           |  |      |           |         |      |   |           |         |  |   |           |        |  |      |           |        |      |   |           |        |  |   |         |   |  |   |            |           |  |   |            |           |  |   |            |           | 
|------------------------------------------------ | ------------ | --------------------------------------------- | ---------- | --------- | --------- | - | ---------- | ----------- |  | - | ---------- | --------- |  | ---- | --------- | ------- | ---- | - | --------- | ------- |  | - | --------- | ------ |  | ---- | --------- | ------ | ---- | - | --------- | ------ |  | - | ------- | - |  | - | ---------- | --------- |  | - | ---------- | --------- |  | - | ---------- | --------- | 
|                                                 |              |                                              
|                                                 |              | As at December 31 and for the Year then Ended |           
|                                                 |              |                                               |           
|                                                 |              |                                               |            |           |           |   |            |            
|                                                 |              | Cayman Islands                                |            |           | Belize(*) |   |            | Bahamas(**) |  |   | Total      |          
|                                                 |              |                                               |            |           |           |   |            |             |  |   |            |          
|                                                 |              | 2002                                          |            |           | 2001      |   |            | 2000        |  |   | 2002       |           |  | 2001 |           |         | 2000 |   |           | 2002    |  |   | 2001      |        |  | 2000 |           |        | 2002 |   |           | 2001   |  |   | 2000    |  
|                                                 |              |                                               |            |           |           |   |            |             |  |   |            |           |  |      |           |         |      |   |           |         |  |   |           |        |  |      |           |        |      |   |           |        |  |   |         |  
|Water sales                                      |              | $                                             | 10,565,567 |           |           | $ | 9,990,997  |             |  | $ | 9,330,823  |           |  | $    | 1,471,098 |         |      | $ | 1,230,775 |         |  | $ | 464,928   |        |  | $    | 118,024   |        |      | $ | 26,333    |        |  | $ |        |   |  | $ | 12,154,689 |           |  | $ | 11,248,105 |           |  | $ | 9,795,751  |          
|Other income (expenses)                          |              |                                               | (60,492    | )         |           |   | 96,739     |             |  |   | 94,088     |           |  |      | 8,290     |         |      |   | 28,463    |         |  |   |          |        |  |      | 4         |        |      |   | 443       |        |  |   |        |   |  |   | (52,198    | )         |  |   | 125,645    |           |  |   | 94,088     |          
|Cost of water sales                              |              |                                               | 5,871,118  |           |           |   | 5,344,370  |             |  |   | 5,172,945  |           |  |      | 862,455   |         |      |   | 718,121   |         |  |   | 250,352   |        |  |      | 148,604   |        |      |   | 46,626    |        |  |   |        |   |  |   | 6,882,177  |           |  |   | 6,109,117  |           |  |   | 5,423,297  |          
|Indirect expenses                                |              |                                               | 2,409,440  |           |           |   | 2,305,112  |             |  |   | 2,028,300  |           |  |      | 225,627   |         |      |   | 190,822   |         |  |   | 33,422    |        |  |      | 8,937     |        |      |   | 4,126     |        |  |   |        |   |  |   | 2,644,004  |           |  |   | 2,500,060  |           |  |   | 2,061,722  |          
|Cost of water sales and direct expenses include: |              |                                               |            |           |           |   |            |             |  |   |            |           |  |      |           |         |      |   |           |         |  |   |           |        |  |      |           |        |      |   |           |        |  |   |         |   |  |   |            |          
|                                                 | Depreciation |                                               |            | 1,043,397 |           |   |            | 932,029     |  |   |            | 1,009,420 |  |      |           | 180,105 |      |   |           | 160,825 |  |   |           | 62,035 |  |      |           | 45,624 |      |   |           | 20,187 |  |   |         |  |  |   |            | 1,269,126 |  |   |            | 1,113,041 |  |   |            | 1,071,455 | 
|Net income (loss)                                |              |                                               | 2,224,517  |           |           |   | 2,438,254  |             |  |   | 2,223,666  |           |  |      | 391,306   |         |      |   | 350,295   |         |  |   | 181,154   |        |  |      | (39,513   | )      |      |   | (23,976   | )      |  |   |        |   |  |   | 2,576,310  |           |  |   | 2,764,573  |           |  |   | 2,404,820  |          
|Property, plant and equipment                    |              |                                               | 17,698,944 |           |           |   | 15,770,560 |             |  |   | 15,735,330 |           |  |      | 1,440,673 |         |      |   | 1,541,795 |         |  |   | 1,601,166 |        |  |      | 1,114,029 |        |      |   | 1,102,580 |        |  |   | 307,395 |   |  |   | 20,253,646 |           |  |   | 18,414,935 |           |  |   | 17,643,891 |          
|Total assets                                     |              |                                               | 22,214,167 |           |           |   | 21,595,627 |             |  |   | 19,421,195 |           |  |      | 2,160,107 |         |      |   | 2,310,772 |         |  |   | 2,117,082 |        |  |      | 1,133,363 |        |      |   | 1,125,551 |        |  |   | 307,395 |   |  |   | 25,507,637 |           |  |   | 22,721,178 |           |  |   | 21,845,672 |          






---



|    |                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------
|(*) | The Company acquired 100% of the outstanding
    shares in Belize Water Limited and began operations on
    July 21, 2000.



|     |                                                                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(**) | On December 18, 2000, the Company entered
    into a water supply agreement with South Bimini International
    Ltd. Operations began on July 11, 2001.

30



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##### Table of Contents



13.     Related Party
Transactions

A professional service firm, of which a Director
is a partner, provided professional services during the year
ended December 31, 2002 for which it charged $225,400
(2001: $275; 2000: $12,916).

14.     Commitments

The Company has committed to purchase a 13.5%
equity interest in Waterfields Company Limited, a Bahamian
company, from Bacardi and Company Ltd. for approximately
BAH$1.4 million. Completion of this purchase is subject to
the fulfillment of certain conditions, including the receipt of
government approvals and the commitment of at least 51% of
Waterfields shareholders to sell their shares to the
Company. In furtherance of this purchase agreement, on
December 20, 2002, the Company made a tender offer of
BAH$690 per share to the remaining shareholders of Waterfields.
This tender offer, which is contingent on completion of the
share purchase agreement with Bacardi and Company Ltd., closed
on January 31, 2003, by which time the Company had received
acceptances from another 64.7% of Waterfields shareholders.

The Company has committed to sell 165,000
Class C shares in Ocean Conversion (BVI) Ltd., a
British Virgin Islands company, to Sage Water Holdings
(BVI) Ltd. for approximately US$2.1 million. The
Company acquired these shares on February 7, 2003 as
disclosed in Note 22.

The Company is party to a water purchase
agreement with Ocean Conversion (Cayman) Limited
(OCL) under which an annual minimum amount of water
is required to be purchased. At December 31, 2002, accounts
payable includes $208,556 (2001: $192,340) outstanding under the
agreement. Water purchases for the three years ended
December 31, 2002 are disclosed in Note 10.

From the acquisition date of Belize Water Limited
in the year ended December 31, 2000, the Company has been
under contract to supply a minimum of 135,000 US Gallons of
water per day to BWSL of Belize. The price of water is adjusted
annually based on government indices. Water sales under this
contract for the three years ended December 31, 2002
comprise total sales as disclosed in Note 12.

The Company is obligated to supply water, where
feasible, to customers in the Cayman Islands within its licence
area in accordance with the terms of the licence. Royalties are
paid to the Government of the Cayman Islands at the rate of 7.5%
of gross water sales.

The Company has committed to lease premises in
the Cayman Islands for a period of one year from
February 1, 2003 to January 31, 2004 at approximately
$82,000 per annum.

15.     Stock
Compensation

The Company operates various stock compensation
plans that form part of employees remuneration. Stock
compensation expense of $442,497 (2001: $169,599; 2000:
$124,772) is recorded in accordance with APB Opinion No. 25
and included within employee costs. Had compensation cost for
the Companys stock based compensation plans been
determined based on the fair value at the grant dates for awards
under those

31



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



15.     Stock
Compensation  (continued)


plans consistent with the method of
SFAS 123, the Companys net income and earnings per
share would have been reduced to the pro forma amounts below:

|                                                      |  |                                 |           |      |  |      |           |  |  |   |           | 
|----------------------------------------------------- |  | ------------------------------- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                                      |  |                                
|                                                      |  | For the Year Ended December 31,
|                                                      |  |                                
|                                                      |  | 2002                            |           | 2001 |  | 2000
|                                                      |  |                                 |           |      |  |     
|Net income  As reported                              |  | $                               | 2,576,310 |      |  | $    | 2,764,573 |  |  | $ | 2,404,820 | 
|Net income  Pro Forma                                |  | $                               | 2,396,105 |      |  | $    | 2,288,882 |  |  | $ | 2,111,755 | 
|Basic earnings per ordinary share  As
    reported   |  | $                               | 0.65      |      |  | $    | 0.71      |  |  | $ | 0.68      | 
|Basic earnings per ordinary share  Pro
    Forma     |  | $                               | 0.60      |      |  | $    | 0.59      |  |  | $ | 0.59      | 
|Diluted earnings per ordinary share 
    As reported |  | $                               | 0.63      |      |  | $    | 0.69      |  |  | $ | 0.67      | 
|Diluted earnings per ordinary share 
    Pro Forma   |  | $                               | 0.58      |      |  | $    | 0.57      |  |  | $ | 0.58      | 

In calculating the fair value for these options
under SFAS 123 the Black-Scholes model was used with the
following weighted average assumptions:

Options granted with an exercise price below
market price on the date of grant:

|                        |  |      |            |      |  |      |            |   |  |   |           |  
|----------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | --------- | -
|                        |  | 2002 |            | 2001 |  | 2000
|                        |  |      |            |      |  |     
|Exercise price          |  | $    | 12.17      |      |  | $    | 10.55      |   |  | $ | 6.70      |  
|Grant date market value |  | $    | 14.71      |      |  | $    | 10.97      |   |  | $ | 6.97      |  
|Risk free interest rate |  |      | 2.24       | %    |  |      | 3.93       | % |  |   | 6.56      | %
|Expected life           |  |      | 3.23 years |      |  |      | 3.21 years |   |  |   | 3.0 years |  
|Expected volatility     |  |      | 42.91      | %    |  |      | 52.79      | % |  |   | 62.64     | %
|Expected dividend yield |  |      | 2.85       | %    |  |      | 3.67       | % |  |   | 4.59      | %

Options granted with an exercise price above
market price on the date of grant:

|                        |  |      |   |      |  |      |   |  |  |   |           |  
|----------------------- |  | ---- | - | ---- |  | ---- | - |  |  | - | --------- | -
|                        |  | 2002 |   | 2001 |  | 2000
|                        |  |      |   |      |  |     
|Exercise price          |  |      |  |      |  |      |  |  |  | $ | 7.10      |  
|Grant date market value |  |      |  |      |  |      |  |  |  | $ | 7.00      |  
|Risk free interest rate |  |      |  |      |  |      |  |  |  |   | 5.0       | %
|Expected life           |  |      |  |      |  |      |  |  |  |   | 3.2 years |  
|Expected volatility     |  |      |  |      |  |      |  |  |  |   | 62.57     | %
|Expected dividend yield |  |      |  |      |  |      |  |  |  |   | 4.57      | %



| |                                                      
| | -----------------------------------------------------
| | Employee Share Incentive Plan (Preference
    shares)

The Company awards preference shares for $nil
consideration under the Employee Share Incentive Plan as part of
compensation for eligible employee services, excluding Directors
and Executive Officers, that require future services as a
condition to the delivery of the ordinary shares. In addition
options are granted to purchase preference shares at a fixed
price, determined annually, which will typically represent a
discount to the market value of the ordinary shares. In
consideration for preference shares, the Company issues ordinary
shares on a share for share basis. Under the plan the conversion
is conditional on the grantees satisfying requirements
outlined in the award agreements. Preference shares are only
redeemable with the Companys agreement.

32



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



15.     Stock
Compensation  (continued)


The details of preferred shares and preferred
share options granted and exercised under the Employee Share
Incentive Plan is as follows:

|                        |  |         |      |         |  |        |       |           |  |         |      |  |  |  |       |  |  |  |       | 
|----------------------- |  | ------- | ---- | ------- |  | ------ | ----- | --------- |  | ------- | ---- |  |  |  | ----- |  |  |  | ----- | 
|                        |  | Year of |      |         |  | Strike |       | Options   |  | Options
|                        |  | Grant   |      | Granted |  | Price  |       | Exercised |  | Expired
|                        |  |         |      |         |  |        |       |           |  |        
|Preferred shares        |  |         | 2000 |         |  |        | 2,279 |           |  | $       | nil  |  |  |  | N/A   |  |  |  | N/A   | 
|                        |  |         | 2001 |         |  |        | 3,963 |           |  | $       | nil  |  |  |  | N/A   |  |  |  | N/A   | 
|                        |  |         | 2002 |         |  |        | 2,713 |           |  | $       | nil  |  |  |  | N/A   |  |  |  | N/A   | 
|Preferred share options |  |         | 2000 |         |  |        | 2,279 |           |  | $       | 5.47 |  |  |  | 1,136 |  |  |  | 1,143 | 
|                        |  |         | 2001 |         |  |        | 3,963 |           |  | $       | 5.32 |  |  |  | 1,858 |  |  |  | 2,105 | 
|                        |  |         | 2002 |         |  |        | 2,713 |           |  | $       | 8.13 |  |  |  | 617   |  |  |  | 2,096 | 

Each employees option to purchase preferred
shares must be exercised within 40 days of the annual
general meeting of the Company following the date of grant.

Employee
Share Option Plan (Ordinary Stock Options)

In 2001, the Company introduced an employee stock
option plan for certain long-serving employees of the Company.
Under the plan these employees are granted in each calendar
year, as long as the employee is a participant in the Employee
Share Incentive Plan, options to purchase ordinary shares. The
price at which the option may be exercised will be the closing
market price on the grant date, which is 40 days after the
date of the Companys annual general meeting. The number of
options each employee is granted is equal to five times the sum
of (i) the number of preference shares which that employee
receives for $nil consideration and (ii) the number of
preference share options which that employee exercises in that
given year. Options may be exercised during the period
commencing on the fourth anniversary of the grant date and
ending on the thirtieth day after the fourth anniversary of the
grant date.

Non-Executive
Directors Share Plan

In 1999, the Company introduced a stock grant
plan, which forms part of Directors remuneration. Under
the plan Directors receive a combination of cash and ordinary
shares in consideration of remuneration for their participation
in Board meetings. All Directors are eligible except Executive
Officers, who are covered by individual employment contracts and
the Government elected board member. Ordinary shares granted are
calculated with reference to a strike price that is set by the
Board of Directors on October 1 of the year preceding the
grant. Stock granted during the year ended December 31,
2002 totaled 6,305 shares (2001: 7,860) at a strike price of
$10.70 (2001: $7.25).

Directors and
senior management stock compensation

Certain members of senior management are entitled
to receive, as part of the compensation for their services to
the Company, options to purchase ordinary shares. One other
director was granted options as remuneration for services
rendered to the Company during the year ended December 31,
2001. In addition, another member of senior management is
entitled to receive, as part of compensation for services to the
Company, ordinary shares of the Company. As at December 31,
2002, 2,405 shares (2001: 3,172) were due to this employee.

Non-employee

As part of an agreement for market
representation, the Company issued options to purchase ordinary
shares to an investment company for $nil consideration. These
options had an expiry date of one year

33



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



15.     Stock
Compensation  (continued)


commencing on the termination of the agreement,
which management formally terminated on April 3, 2002. The
fair value of these options was determined by management to be
$30,000, based on the fair value of the services to be received.
The Company also issued warrants in conjunction with a private
placement in 1995. These warrants were exercised in full in
January and February 2000.

The following table summarizes information about
the Companys stock option plans as of December 31,
2002, 2001 and 2000, and changes during the years ended on those
dates.

|                                           |  |        |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |      | 
|------------------------------------------ |  | ------ | ------- | -------- |  | ------ | ----- | -------- |  | ------ | ------- | -------- |  | - | ----- |  |  |  | ------- | - |  | - | ---- | 
|                                           |  |        |         |          |  |       
|                                           |  | 2002   |         | 2001     |  | 2000  
|                                           |  |        |         |          |  |       
|                                           |  |        |         | Exercise |  |        |       | Exercise |  |        |         | Exercise
|                                           |  | Number |         | Price    |  | Number |       | Price    |  | Number |         | Price   
|                                           |  |        |         |          |  |        |       |          |  |        |         |         
|Outstanding at beginning of year           |  |        | 341,136 |          |  | $      | 8.59  |          |  |        | 243,045 |          |  | $ | 5.73  |  |  |  | 127,786 |   |  | $ | 4.58 | 
|Granted                                    |  |        | 114,086 |          |  | $      | 12.17 |          |  |        | 162,054 |          |  | $ | 10.55 |  |  |  | 117,538 |   |  | $ | 6.98 | 
|Exercised                                  |  |        | (58,596 | )        |  | $      | 5.94  |          |  |        | (61,858 | )        |  | $ | 2.58  |  |  |  | (1,136  | ) |  | $ | 5.47 | 
|Forfeited                                  |  |        | (2,096  | )        |  | $      | 8.14  |          |  |        | (2,105  | )        |  | $ | 5.32  |  |  |  | (1,143  | ) |  | $ | 5.47 | 
|                                           |  |        |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |      | 
|Outstanding and exercisable at end of year |  |        | 394,530 |          |  | $      | 10.02 |          |  |        | 341,136 |          |  | $ | 8.59  |  |  |  | 243,045 |   |  | $ | 5.73 | 
|                                           |  |        |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |         |   |  |   |      | 

The following summarizes the weighted average
grant-date fair value of options granted during the year:

|                                                                                    |  |                    |      |      |  |      |      |  |  |   |      | 
|----------------------------------------------------------------------------------- |  | ------------------ | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                                                                    |  |                   
|                                                                                    |  | For the Year Ended
|                                                                                    |  | December 31,      
|                                                                                    |  |                   
|                                                                                    |  | 2002               |      | 2001 |  | 2000
|                                                                                    |  |                    |      |      |  |     
|Options granted with an exercise price below
    market price on the date grant:    |  |                    |      |      |  |      |      |  |  |   |      | 
|Senior management                                                                   |  | $                  | 4.93 |      |  | $    | 3.78 |  |  |   |     | 
|Non executive Director                                                              |  |                    |     |      |  | $    | 3.89 |  |  | $ | 2.69 | 
|Employees  preferred shares                                                        |  | $                  | 5.72 |      |  | $    | 3.88 |  |  | $ | 2.66 | 
|Employees  ordinary share options                                                  |  | $                  | 4.41 |      |  | $    | 3.08 |  |  |   |     | 
|Overall weighted average                                                            |  | $                  | 4.89 |      |  | $    | 3.71 |  |  | $ | 2.69 | 
|Options granted with an exercise price above
    market price on the date of grant: |  |                    |      |      |  |      |      |  |  |   |      | 
|Senior management                                                                   |  |                    |     |      |  |      |     |  |  | $ | 2.57 | 

Summary of Options Outstanding at
December 31, 2002

At December 31, 2002, the range of exercise
prices on outstanding options was $6.75  $14.69.
Accordingly the following information is presented on options
outstanding, which are all exercisable, at December 31,
2002:

|                                                       |  |               |            |                 |  |   |            | 
|------------------------------------------------------ |  | ------------- | ---------- | --------------- |  | - | ---------- | 
|                                                       |  | Exercise      |            | Exercise Prices
|                                                       |  | Prices from   |            | from           
|                                                       |  | $6.75  $9.20 |            | $10.84  $14.69
|                                                       |  |               |            |                
|Number of options outstanding at
    December 31, 2002 |  |               | 147,671    |                 |  |   | 246,859    | 
|Weighted average exercise price                        |  | $             | 7.51       |                 |  | $ | 11.52      | 
|Weighted average remaining contractual life            |  |               | 1.13 years |                 |  |   | 2.64 years | 

34



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



15.     Stock
Compensation  (continued)


The weighted average fair value per share under
SFAS 123 for shares issued during the year below market price on
the date of grant follows:

|                              |  |        |        |          |  |        |       |          |  |        |        |          |  |   |      |  |  |  |       |  |  |   |      | 
|----------------------------- |  | ------ | ------ | -------- |  | ------ | ----- | -------- |  | ------ | ------ | -------- |  | - | ---- |  |  |  | ----- |  |  | - | ---- | 
|                              |  |        |        |          |  |       
|                              |  | 2002   |        | 2001     |  | 2000  
|                              |  |        |        |          |  |       
|                              |  |        |        | Weighted |  |        |       | Weighted |  |        |        | Weighted
|                              |  |        |        | Average  |  |        |       | Average  |  |        |        | Average 
|                              |  |        |        | Exercise |  |        |       | Exercise |  |        |        | Exercise
|                              |  | Number |        | Price    |  | Number |       | Price    |  | Number |        | Price   
|                              |  |        |        |          |  |        |       |          |  |        |        |         
|Employee Share Incentive Plan |  |        | 2,713  |          |  | $      | 13.88 |          |  |        | 3,963  |          |  | $ | 9.00 |  |  |  | 2,279 |  |  | $ | 7.00 | 
|Directors Share Plan          |  |        | 6,056  |          |  | $      | 10.70 |          |  |        | 7,860  |          |  | $ | 7.25 |  |  |  | 6,889 |  |  | $ | 7.13 | 
|Senior management             |  |        | 3,172  |          |  | $      | 9.55  |          |  |        |       |          |  |   |     |  |  |  |      |  |  |   |     | 
|Overall weighted average      |  |        | 11,941 |          |  | $      | 11.12 |          |  |        | 11,456 |          |  | $ | 7.86 |  |  |  | 9,168 |  |  | $ | 7.09 | 

16.     Taxation

Under current laws of the Cayman Islands, there
are no income, estate, corporation, capital gains or other taxes
payable by the Company. The Company has received a tax exemption
with respect to its Belize operations. The exemption expires in
2006 and is renewable in accordance with the provisions of the
BWSL contract. Services to the customer in the Bahamas are
provided by the Company, which is a Cayman Islands company that
is not subject to taxation in the Commonwealth of the Bahamas.

17.     Pension
Benefits

A staff pension plan is offered to all employees.
The plan is administered by the Cayman Islands Chamber of
Commerce and is a defined contribution plan whereby the Company
matches the contribution of the first 5% of each participating
employees salary. The total amount recognized as an
expense under the plan during the year ended December 31,
2002 was $70,210 (2001: $63,740; 2000: $67,760).

18.     Financial
Instruments

Credit
Risk:

The Company is not exposed to significant credit
risk on the vast majority of customer accounts as the policy is
to cease supply of water to customers accounts that are
more than 45 days overdue. The Companys exposure to
credit risk is concentrated on receivables from one customer in
Belize. The balance from this customer is current as at
December 31, 2002 and management does not anticipate any
losses on this concentration.

Interest Rate
Risk:

The interest rates and terms of the
Companys loans are presented in Note 8 of these financial
statements. The Company is subject to interest rate risk to the
extent that LIBOR changes.

Foreign
Exchange Risk:

All relevant foreign currencies have fixed
exchange rates to the United States dollar as detailed under the
foreign currency accounting policy note. If any of these fixed
exchange rates become floating exchange rates, the
Companys results of operations could be adversely affected.

35



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



18.     Financial
Instruments   (continued)


Fair
Values:

At December 31, 2002 and 2001, the carrying
amounts of cash and cash equivalents, accounts receivable,
accounts payable and other liabilities and dividends payable
approximate fair values due to the short term maturities of
these assets and liabilities. The Directors consider that the
carrying amount for long term debt due to Royal Bank of Canada
approximates fair value. The fair value for long term debt due
to European Investment Bank is approximately $840,720 (2001:
$1,041,000) although this does not necessarily indicate that the
Company could extinguish this debt for an amount lower than the
carrying value. Fair value of this long term debt for which no
market value is readily available is determined by the Company
using predetermined future cash flows discounted at an estimated
current incremental rate of borrowing for a similar liability.
In establishing an estimated incremental rate, the Company has
evaluated the existing transactions, as well as comparable
industry and economic data and other relevant factors such as
pending transactions, subsequent events and the amount the
Company would have to pay a credit worthy third party to assume
the liability, with the creditors legal consent.

19.     Non-Cash
Transactions

The Company made the following non-cash
transactions:

|                                                                                                         |  |      |         |      |  |      |         |  |  |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | -
|                                                                                                         |  | 2002 |         | 2001 |  | 2000
|                                                                                                         |  |      |         |      |  |     
|Redemption of preference shares and issue of
    replacement ordinary shares at $nil consideration       |  | $    | 9,700   |      |  | $    | 17,112  |  |  | $ | 12,767  |  
|                                                                                                         |  |      |         |      |  |      |         |  |  |   |         |  
|Preference shares issued to employees at $nil
    consideration (Note 15)                                |  | $    | 3,256   |      |  | $    | 4,756   |  |  | $ | 2,735   |  
|Redemption of preference shares at $nil
    consideration                                                |  |      |        |      |  |      |        |  |  |   | (240    | )
|Ordinary shares issued under the Non-executive
    Directors Share Plan at $nil consideration (Note 15)  |  |      | 66,600  |      |  |      | 56,998  |  |  |   | 49,084  |  
|Ordinary shares issued under senior management
    employment agreements at $nil consideration (Note 15) |  |      | 30,303  |      |  |      |        |  |  |   |        |  
|Additional paid in capital from exercise of stock
    options                                            |  |      | 75,171  |      |  |      | 227,420 |  |  |   |        |  
|                                                                                                         |  |      |         |      |  |      |         |  |  |   |         |  
|                                                                                                         |  | $    | 175,330 |      |  | $    | 289,174 |  |  | $ | 51,579  |  
|                                                                                                         |  |      |         |      |  |      |         |  |  |   |         |  
|Reduction in ordinary shares and additional paid
    in capital from cancellation of shares repurchased  |  | $    | 36,710  |      |  | $    | 271,595 |  |  | $ | 494,375 |  
|                                                                                                         |  |      |         |      |  |      |         |  |  |   |         |  
|Dividends declared but not paid (Note 7)                                                                 |  | $    | 508,444 |      |  | $    | 499,383 |  |  | $ | 401,965 |  
|                                                                                                         |  |      |         |      |  |      |         |  |  |   |         |  

20.     Impact of
Recent Issued Accounting Standards

The Financial Accounting Standards Board issued
four standards and one interpretation that affect the Company. A
summary of these standards and interpretation is given below:

In June 2001, the FASB issued SFAS No. 143,
Accounting for Assets Retirement Obligations. SFAS
No. 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the
retirement of tangible long-lived assets that result from the
acquisition, construction, development and/or normal use of the
assets. The Company also records a corresponding asset that is
depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the
obligation will be adjusted at the end of each period to reflect
the passage of time and changes in the estimated future cash
flows underlying the obligation. The

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##### Table of Contents



CONSOLIDATED WATER CO. LTD.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



20.     Impact of
Recent Issued Accounting Standards  
(continued)


Company is required to adopt SFAS No. 143 on
January 1, 2003. The Company adopted SFAS No. 143
early during the year ended December 31, 2001. The adoption
did not have a material effect on the Companys financial
statements.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13 and Technical
Corrections. SFAS No. 145 amends existing guidance on
reporting gains and losses from extinguishment of debt to
prohibit the classification of the gain or loss as
extraordinary, as the use of such extinguishments have become
part of the risk management strategy of many companies. SFAS
No. 145 also amends FASB Statement No. 13 to require
sale-leaseback accounting for certain lease modifications that
have economic effects similar to sale-leaseback transactions.
The provisions of the Statement related to the rescission of
Statement No. 4 is applied in fiscal years beginning after
May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the Statement related to Statement
No. 13 were effective for transactions occurring after
May 15, 2002, with early application encouraged. The
adoption of SFAS No. 145 is not expected to have a material
effect on the Companys financial statements.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies EITF Issue 94-3
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity. The
provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with
early application encouraged. The adoption of SFAS No. 146
is not expected to have a material effect on the Companys
financial statements.

In November 2002, the FASB issued Interpretation
No. 45 Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, as interpretation of FASB Statements
No. 5, 57 and 107 and a rescission of FASB Interpretation
No. 34. This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is
required to recognized, at inception of a guarantee, a liability
for the fair value of the obligation undertaken. The disclosure
requirements are effective for financial statements of interim
or annual periods ending after December 15, 2002. The
initial recognitions and measurement provisions of the
Interpretation are applicable to guarantees issued or modified
after December 31, 2002 and are not expected to have a
material effect on the Companys financial statements.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment
of FASB Statements No. 123. This Statement amends
FASB Statement No. 123 Accounting for Stock-Based
Compensation, to provide alternative methods of transition
for voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition
the Statement amends the disclosure requirements of Statement
No. 123 to require prominent disclosures in both annual and
interim financial statements. Certain of the disclosure
modifications are required for fiscal years ending after
December 15, 2002 and are included in the notes to these
consolidated financial statements.

21.     Deferred
Expenditures

Costs associated with the acquisitions disclosed in
note 22 and the financing thereof have been capitalized in the
amounts of $426,970
and $460,886,
respectively, as these transactions had not closed at the balance sheet date. Acquisition
related costs are taken into account in the purchase price allocation
upon the completion of transactions and financing costs are amortized
over the term of the related debt.

22.     Subsequent
Events

The following events occurred subsequent to
December 31, 2002:

On February 7, 2003, the Company purchased
interests in the following companies: DesalCo Limited, its
wholly owned subsidiary DesalCo (Barbados) Limited, Ocean
Conversion (Cayman) Limited, Ocean Conversion (BVI) Ltd.
and Waterfields Company Limited. The purchase has provided the
Company with a desalination facility management and engineering
services firm, as well as facilities and contracts to supply

37



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##### Table of Contents



CONSOLIDATED WATER CO. LTD.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



22.     Subsequent
Events  (continued)


additional potable water services in the Cayman
Islands, the Bahamas, Barbados and the British Virgin Islands.
The total consideration under the purchase agreements was
$27,800,000, comprised of $25,500,000 in cash and 185,714
ordinary shares of the Company.

The following table summarizes the unaudited
condensed balance sheets of the acquired entities as of
December 31, 2002:

|                               |  |             |           |             |  |             |           |             |  |   |           |   |  |   |           |  
|------------------------------ |  | ----------- | --------- | ----------- |  | ----------- | --------- | ----------- |  | - | --------- | - |  | - | --------- | -
|                               |  |             |           | Ocean       |  |             |           |            
|                               |  |             |           | Conversion  |  | Waterfields |           | Ocean      
|                               |  | DesalCo     |           | (Cayman)    |  | Company     |           | Conversion 
|                               |  | Limited     |           | Limited     |  | Limited     |           | (BVI) Ltd. 
|                               |  |             |           |             |  |             |           |            
|                               |  | (Unaudited) |           | (Unaudited) |  | (Unaudited) |           | (Unaudited)
|Current assets                 |  | $           | 1,798,068 |             |  | $           | 3,023,479 |             |  | $ | 1,912,344 |   |  | $ | 3,867,233 |  
|Property, plant and equipment  |  |             | 14,849    |             |  |             | 1,234,962 |             |  |   | 7,764,895 |   |  |   | 3,608,175 |  
|Other non-current assets       |  |             | 1,571,131 |             |  |             | 4,313,291 |             |  |   |          |   |  |   |          |  
|Total assets                   |  |             | 3,384,048 |             |  |             | 8,571,732 |             |  |   | 9,677,239 |   |  |   | 7,475,408 |  
|Current liabilities            |  |             | 174,924   |             |  |             | 2,712,862 |             |  |   | 246,985   |   |  |   | 1,636,007 |  
|Long term debt and liabilities |  |             |          |             |  |             | 1,180,000 |             |  |   | 1,884,293 |   |  |   | 1,739,379 |  
|                               |  |             |           |             |  |             |           |             |  |   |           |   |  |   |           |  
|Total liabilities assumed      |  |             | 174,924   |             |  |             | 3,892,862 |             |  |   | 2,131,278 |   |  |   | 3,375,386 |  
|Net assets                     |  | $           | 3,209,124 |             |  | $           | 4,678,870 |             |  | $ | 7,545,961 |   |  | $ | 4,100,002 |  
|                               |  |             |           |             |  |             |           |             |  |   |           |   |  |   |           |  
|% of equity acquired           |  |             | 100       | %           |  |             | 100       | %           |  |   | 12.7      | % |  |   | 56.5      | %
|% of voting shares acquired    |  |             | 100       | %           |  |             | 100       | %           |  |   | 12.7      | % |  |   | 50.0      | %

In order to finance the purchase, the Company
entered into a credit facility with Scotiabank (Cayman Islands)
Ltd. for a term loan of $20,000,000, an operating line of credit
of $2,000,000 and a bridge financing loan of $17,100,000.
Scotiabank was given a fixed and floating charge on all assets
for $22,000,000. In conjunction with the receipt of this
financing, the Royal Bank of Canada credit facilities were
extinguished, the loans were fully repaid and the fixed and
floating charges held by the bank were released. The second
charge held by the Government of the Cayman Islands, as
described in Note 8, was cancelled and replaced with a
$1,000,000 letter of credit from Scotiabank.

The Company also cancelled the remaining term of
the water purchase agreement with Ocean Conversion (Cayman)
Limited as a result of the purchase.

The Government of the Cayman Islands amended the
Companys license to remove a five percent restriction on
share ownership and transfer. As part of the amended license,
the Company is required to comply with certain aesthetic quality
improvements in the water supplied to the customers in the
Cayman Islands. Management estimates that the capital cost of
complying with the new water quality requirements in accordance
with the amended license will amount to approximately $500,000.

38



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PART IV






|         |                                                                      
|-------- | ---------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statements Schedules,
    and Reports on Form 8-K

(a) 1. Financial Statements

The financial statements found in ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA for the year
ended December 31, 2002 is incorporated herein by reference.

2. Financial Statement Schedules

None

3. Exhibits

|        |      |                     |  |                                                                                              
|------- | ---- | ------------------- |  | ---------------------------------------------------------------------------------------------
|Exhibit |      |                    
|Number  |      | Exhibit Description
|        |      |                    
|        | 99.1 |                     |  | Chief Executive Officer Certification under
    Section 906 of the Sarbanes-Oxley Act of 2002
|       
|        | 99.2 |                     |  | Chief Financial Officer Certification under
    Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                     |  |                                                                                                               
|-------------------- |  | --------------------------------------------------------------------------------------------------------------
|                     |  | CONSOLIDATED WATER CO. LTD.                                                                                   
|                    
|                     |  | By: /s/  Frederick McTaggartFrederick McTaggart
President, Chief Operating Officer
and Chief Financial Officer
|                    
|Dated: June 26, 2003 |  |                                                                                                               

40



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##### Table of Contents






CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Consolidated Water Co. Ltd. (the
Company) on Form 10-K/A for the year ended December 31, 2002, as filed with
the Securities and Exchange Commission on the date hereof, I, Jeffrey M.
Parker, the Chief Executive Officer of the Company, certify, pursuant to and
for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, that:

1.     I have reviewed this annual report on Form 10-K/A of the Company;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based
on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the Evaluation Date); and



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.     The registrants other certifying officer and I have disclosed, based
on our most recent evaluation,to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability
to record, process, summarize and report financial data and have
identified for the registrants auditors any material weakness in
internal controls; and

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| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and

6.     The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                    |  |                                                                                 
|------------------- |  | --------------------------------------------------------------------------------
|Date: June 26, 2003 |  | By: /s/ Jeffrey M. Parker
Name: Jeffrey M. Parker
Title: Chief Executive Officer

42



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##### Table of Contents






CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Consolidated Water Co. Ltd. (the
Company) on Form 10-K/A for the year ended December 31, 2002, as filed with
the Securities and Exchange Commission on the date hereof, I, Frederick
McTaggart, the Chief Financial Officer of the Company, certify, pursuant to and
for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, that:

1.     I have reviewed this annual report on Form 10-K/A of the Company;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based
on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
|
| | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability
to record, process, summarize and report financial data and have
identified for the registrants auditors any material weakness in
internal controls; and

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| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                    |  |                                                                                     
|------------------- |  | ------------------------------------------------------------------------------------
|Date: June 26, 2003 |  |                                                                                     
|                   
|                    |  | By: /s/ Frederick McTaggart
Name: Frederick McTaggart
Title: Chief Financial Officer

44