##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transaction period from  to
 Commission File Number: 0-25248
 CONSOLIDATED WATER CO. LTD.
  CAYMAN ISLANDS
    
    N/A(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)Regatta Office ParkWindward Three, 4th Floor, West Bay RoadP.O. Box 1114Grand Cayman, KY1-1102, Cayman Islands
    
    N/A(Address of principal executive offices)
    
    (Zip Code)
 (345) 945-4277
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class:
    
    Name of each exchange on which registered:Common Stock, $.60 Par Value
    
    The NASDAQ Stock Market LLC (NASDAQ Global
Select Market)
 Securities registered pursuant to Section 12(g) of the Act: None
 o þ
 o þ
 þ o
   Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ
  ,
 DOCUMENTS INCORPORATED BY REFERENCE: None




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##### 



TABLE OF CONTENTS
 Section
    
    Description
    
    PageCautionary Note Regarding Forward-Looking StatementsPART IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    16Item 1B.
    
    Unresolved Staff Comments
    
    
    24Item 2.
    
    Properties
    
    
    24Item 3.
    
    Legal Proceedings
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    27PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    28Item 6.
    
    Selected Financial Data
    
    
    31Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    31Item 7A.
    
    Quantitative and Qualitative Disclosure about Market Risk
    
    
    47Item 8.
    
    Financial Statements and Supplementary Data
    
    
    49Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    89Item 9A.
    
    Controls and Procedures
    
    
    89PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    90Item 11.
    
    Executive Compensation
    
    
    97Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    112Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    115Item 14.
    
    Principal Accounting Fees and Services
    
    
    116PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    117SIGNATURES
    
    
    
    118EX-10.11EX-10.12EX-18EX-21.1EX-23.1EX-23.2EX-31.1EX-31.2EX-32.1EX-32.2




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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
     Note Regarding Currency and Exchange Rates.




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PART I
 
 ITEM 1.
    
    BUSINESS
 Overview
  
    
    Retail Water Operations.We produce and supply water to end-users, including
residential, commercial and government customers in the Cayman Islands under an exclusive
retail license issued by the government to provide water in two of the most populated and
rapidly developing areas in the Cayman Islands. In 2008, our retail water operations
generated approximately 34% of our consolidated revenues.
    
    Bulk Water Operations.We produce and supply water to government-owned distributors in
the Cayman Islands, Belize and the Bahamas. In 2008, our bulk water operations generated
approximately 46% of our consolidated revenues.
    
    Services Operations.We provide engineering and management services for desalination
projects, including designing and constructing desalination plants and managing and
operating desalination plants owned by other companies. In 2008, our services operations
generated approximately 20% of our consolidated revenues.
    
    Affiliate Operations.Our affiliate, Ocean Conversion (BVI) Ltd. (OC-BVI), produces
and supplies bulk water to the British Virgin Islands Water and Sewerage Department. We
account for our interests in OC-BVI using the equity method of accounting and do not
consolidate OC-BVIs operating results in our financial statements. Our affiliate,
Consolidated Water (Bermuda) Limited, is presently constructing a plant in two phases to be
sold to the Bermuda government. The first phase of this plant was completed and began
operating at the end of 2008 and we expect that the second phase will be completed during
the first half of 2009. We expect to manage this plant on behalf of the Bermuda government
for a period of not less than 12 months from completion of its construction.
  Location
    
    Plants
    
    
    Capacity(1)Cayman Islands
    
    
    6
    
    
    
    7.8Bahamas
    
    
    3
    
    
    
    10.4Belize
    
    
    1
    
    
    
    0.6British Virgin Islands
    
    
    3
    
    
    
    2.4
    (2)Bermuda
    
    
    1
    
    
    
    0.6Total
    
    
    14
    
    
    
    21.8
 
 (1)
    
    In millions of U.S. gallons per day.(2)
    
    Owned and operated by OC-BVI. Strategy
  
    
    little or no naturally occurring fresh water;
 1




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
    
    limited regulations and taxes allowing for higher returns;
    
    a large proportion of tourist properties, which historically have generated higher
volume sales than residential properties; and
    
    growing population and tourism levels.
    Maximizing the benefits of our exclusive retail license on Grand Cayman.
  Expanding our existing operations in the Cayman Islands, Belize and The Bahamas.
  Penetrating new markets where there is demand for potable water and where we believe
production would be profitable.
  Broadening our existing and future operations into complementary services.
 Our Company
  
 
    
    Cayman Water Company Limited (Cayman Water).In 1998, we established Cayman Water,
which operates under an exclusive retail license granted by the Cayman Islands government
to provide water to customers within a prescribed service area on Grand Cayman that
includes the Seven Mile Beach and West Bay areas, two of the three most populated areas in
the Cayman Islands. The only non-government owned
 2




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public water utility on Grand Cayman, Cayman Water owns and operates three desalination
plants on Grand Cayman.
    
    Ocean Conversion (Cayman) Limited (OC-Cayman).We acquired OC-Cayman which provides
bulk water under various licenses and agreements to the Water Authority-Cayman, a
government-owned utility and regulatory agency, which distributes the water to properties
located outside our exclusive retail license service area in Grand Cayman. OC-Cayman
operates three desalination plants owned by the Water Authority-Cayman.
    
    Consolidated Water (Bahamas) Limited
(CW-Bahamas).We own a 90.9% equity
interest in CW-Bahamas, which provides bulk water
under long-term contracts to the Water and Sewerage Corporation of The Bahamas, a
government agency. CW-Bahamas operates our largest desalination plant. CW-Bahamas pays fees to two of our other subsidiaries for certain
administrative services.
    
    Consolidated Water (Belize) Limited (CW-Belize).In 2000, we acquired CW-Belize,
(formerly Belize Water Limited), which has an exclusive contract to provide bulk water to
Belize Water Services Ltd., a water distributor that serves residential, commercial and
tourist properties in Ambergris Caye, Belize.
    
    Aquilex, Inc.In 2005, we established Aquilex, Inc., a United States company, which
provides financial, engineering and supply chain management support services to our
subsidiaries and affiliates.
    
    Ocean Conversion (BVI) Ltd. (OC-BVI). We own 50% of the voting stock of our
affiliate, OC-BVI, a British Virgin Islands company, which sells bulk water on a
month-to-month basis to the Government of The British Virgin Islands Water and Sewage
Department. We own an overall 43.5% equity interest in OC-BVIs profits and certain profit
sharing rights that raise our effective interest in OC-BVIs profits to approximately 45%.
OC-BVI also pays fees for certain engineering and administrative services.
    
    DesalCo Limited (DesalCo).We acquired DesalCo, a Cayman Islands company, which
provides management, engineering and construction services for desalination projects.
 
    
    Consolidated Water (Bermuda) Limited (CW-Bermuda).In January 2007, our affiliate,
Consolidated Water (Bermuda) Limited (CW-Bermuda) entered into a design, build and sale
agreement with the Government of Bermuda for a desalination plant to be built in two phases
at Tynes Bay along the northern coast of Bermuda. Under the agreement, CW-Bermuda, will
construct the plant and operate it for a minimum of 12 months after its commissioning. We
have entered into a management services agreement with CW-Bermuda for the design,
construction and operation of the Tynes Bay plant, under which we receive fees for direct
services, purchasing activities and proprietary technology. We are loaning CW-Bermuda the
funds to construct the plant and we will manage the plants
operations on its behalf. The first phase of
the construction of the Tynes Bay plant was completed in late 2008 and we expect the second
phase to be completed by mid 2009. Although we own only 40% of the common shares of
CW-Bermuda, we consolidate its results in our consolidated financial statements as we are its
primary financial beneficiary.
 Our Operations
   Retail Water Operations
 3




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Facilities
   4




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Customers
     Retail Water Customer Connections and Volume of Water Sold
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Number of Customer Connections
    
    
    4,600
    
    
    
    4,600
    
    
    
    4,300
    
    
    
    3,800
    
    
    
    3,600Volume of Water Sold (U.S. Gallons, In Thousands):Commercial
    
    
    534,614
    
    
    
    554,087
    
    
    
    562,702
    
    
    
    427,439
    
    
    
    451,609Residential
    
    
    211,090
    
    
    
    202,988
    
    
    
    173,665
    
    
    
    157,924
    
    
    
    122,699Government
    
    
    25,967
    
    
    
    45,623
    
    
    
    12,789
    
    
    
    8,929
    
    
    
    7,584Total
    
    
    771,671
    
    
    
    802,698
    
    
    
    749,156
    
    
    
    594,292
    
    
    
    581,892
  5




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Retail Water Demand and Average Sales Prices
  Retail Water Total Volume by Quarter
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004First Quarter
    
    
    203,899
    
    
    
    215,044
    
    
    
    207,572
    
    
    
    145,295
    
    
    
    174,983Second Quarter
    
    
    213,679
    
    
    
    219,191
    
    
    
    211,772
    
    
    
    158,474
    
    
    
    174,454Third Quarter
    
    
    194,971
    
    
    
    187,796
    
    
    
    174,490
    
    
    
    136,784
    
    
    
    122,557Fourth Quarter
    
    
    159,122
    
    
    
    180,667
    
    
    
    155,322
    
    
    
    153,739
    
    
    
    109,898Total
    
    
    771,671
    
    
    
    802,698
    
    
    
    749,156
    
    
    
    594,292
    
    
    
    581,892
  Retail Water Average Sales Prices
 2008
    
    
    2007
    
    
    2006Average Sales Price Per 1,000 U.S. Gallons
    
    $
    28.99
    
    
    $
    27.69
    
    
    $
    27.48
 6




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Bulk Water Operations
  Bulk Water Operations in the Cayman Islands
  Facilities
  Customers
     Bulk Water Operations in Belize
 7




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Facilities
   Customers
    Bulk Water Operations in The Bahamas
  Facilities
    8




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Customers
   
    
    extend the term for an additional five years at a reduced rate specified in the
agreement;
    
    exercise a right of first refusal to purchase any materials, equipment and facilities
that CW-Bahamas intends to remove from the site, and negotiate a purchase price with
CW-Bahamas; or
 
    
    require CW-Bahamas to remove all materials, equipment and facilities from the site.
   
    
    extend the term for an additional five years at a reduced rate specified in the
agreement;
    
    exercise a right of first refusal to purchase any materials, equipment and facilities
that CW-Bahamas intends to remove from the site, and negotiate a purchase price with
CW-Bahamas; or
 
    
    require CW-Bahamas to remove all materials, equipment and facilities from the site.
 9




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##### Table of Contents



Bulk Water Demand and Average Sales Prices
  Bulk Water Total Volume By Quarter
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004First Quarter
    
    
    1,066,238
    
    
    
    1,101,720
    
    
    
    585,297
    
    
    
    441,498
    
    
    
    438,851Second Quarter
    
    
    1,088,372
    
    
    
    1,079,858
    
    
    
    684,452
    
    
    
    456,625
    
    
    
    458,455Third Quarter
    
    
    1,046,255
    
    
    
    1,070,677
    
    
    
    1,040,096
    
    
    
    442,404
    
    
    
    424,665Fourth Quarter
    
    
    1,043,686
    
    
    
    1,112,370
    
    
    
    1,044,701
    
    
    
    506,892
    
    
    
    424,434Total
    
    
    4,244,551
    
    
    
    4,364,625
    
    
    
    3,354,546
    
    
    
    1,847,419
    
    
    
    1,746,405
  Bulk Water Average Sales Prices
 2008
    
    
    2007
    
    
    2006Average Sales Price Per 1,000 U.S. Gallons
    
    $
    7.10
    
    
    $
    5.57
    
    
    $
    5.99
 Services Operations
  Engineering and Management Services Operations
   Affiliate Operations
    10




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Customer
  Facilities
   Reverse Osmosis Technology
   Raw Materials and Sources of Supply
  11




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Seasonal Variations in Our Business
  Government Regulations, Custom Duties and Taxes
  The Cayman Islands
   
    
    We do not pay import duty or taxes on reverse osmosis membranes, electric pumps and
motors and chemicals, but we do pay duty at the rate of 10% of the cost, including
insurance and transportation to the Cayman Islands, of other plant and associated materials
and equipment to manufacture or supply water in the Seven Mile Beach or West Bay areas; and
    
    OC-Cayman pays all customs duties up to 10% with respect to materials and supplies
imported for the Red Gate plant and is reimbursed amounts in excess of this percentage by
the Water Authority-Cayman. OC-Cayman pays full customs duties in respect of all other
plants that it operates for the Water Authority-Cayman.
  12




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The Bahamas
   Belize
   The British Virgin Islands
   Market and Service Area
 13




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.
     14




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Competition
 Cayman Islands.
 Belize.
 The Bahamas.
 British Virgin Islands.
  Environmental Matters
 Cayman Islands.
 15




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Belize, The Bahamas, British Virgin Islands.
  Employees
  Available Information
   th
 
 ITEM 1A. RISK FACTORS
  16




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Our exclusive license to provide water to retail customers in the Cayman Islands may not be renewed
in the future.
  We rely on fixed-term water supply and/or service agreements with our bulk customers in the Cayman
Islands, Belize and The Bahamas, which may not be renewed or may be
renewed on terms less favorable
to us.
  The British Virgin Islands government has asserted a purported right of ownership of OC-BVIs
Baughers Bay plant. If this right is found to be enforceable and is exercised by the government,
OC-BVI will lose ownership of the Baughers Bay plant.
    17




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We do not have sole control over our affiliate, OC-BVI. A divergence of our interests and the
interests of OC-BVIs other voting shareholder may adversely affect the operations of OC-BVI and,
in turn, decrease the value of our investment in OC-BVI.
  The profitability of our plants is dependent upon our ability to accurately estimate the costs of
their construction and operation.
  18




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A significant portion of our consolidated revenues are derived from two customers. A loss of, or a
less favorable relationship with, either of these customers would adversely affect our results of
operations.
  If OC-BVI does not obtain a definitive contract with the BVI government to sell water to be
produced at its Bar Bay plant, it may not be able to recover the cost of its investment in the
plant, which could adversely affect its operations and in turn decrease the value of our investment
in OC-BVI.
  Our operations are affected by tourism and are subject to seasonal fluctuations which could affect
demand for our water and impact our revenues and results of operations.
  We may have difficulty accomplishing our growth strategy within and outside of our current
operating areas
  
    
    regulatory risks, including government relations difficulties, local regulations and
currency controls;
    
    receiving and maintaining necessary permits, licenses and approvals;
    
    risks related to operating in foreign countries, including political instability,
reliance on local economies, environmental problems, shortages of materials, immigration
restrictions and limited skilled labor;
    
    risks related to development of new operations, including inaccurate assessment of the
demand for water, engineering difficulties and inability to begin operations as scheduled;
and
 
    
    risks relating to greater competition in these new territories, including the ability
of our competitors to gain or retain market share by reducing prices.
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Production shortfalls under any of our bulk supply contracts could result in penalties or
cancellation of the contract.
  20




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Our operations could be harmed by hurricanes or tropical storms.
  Contamination of our processed water may cause disruption in our services and adversely affect our
revenues
  Potential government decisions, actions and regulations could negatively affect our operations.
  
    
    restricting foreign ownership of us;
    
    providing for the expropriation of our assets by the government;
    
    providing for nationalization of public utilities by the government;
    
    providing for different water quality standards;
 
    
    unilaterally changing or renegotiating our licenses and agreements;
    
    restricting the transfer of U.S. currency; or
 
    
    causing currency exchange fluctuations/devaluations or making changes in tax laws.
  The rates we charge our retail customers in the Cayman Islands are subject to regulation. If we are
unable to obtain government approval of our requests for rate increases, or if approved rate
increases are untimely or inadequate to cover our projected expenses, our results of operations may
be adversely affected.
  21




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We rely on the efforts of key employees. Our failure to retain these employees could adversely
affect our results of operations.
  We are exposed to credit risk through our relationships with several customers and our affiliate.
  We are exposed to the risk of variations in currency exchange rates.
  We may enter new markets in the future in which we do not have a contractual commitment for our
products or existing customers.
  Future sales of our common shares may depress the market price of our common shares
  We may not pay dividends in the future. If dividends are paid, they may be in lesser amounts than
past dividends
  22




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Service of process and enforcement of legal proceedings commenced against us in the United States
may be difficult to obtain.
    Low trading volume of our stock may limit your ability to sell your shares at or above the price
you pay for them.
  Competition may threaten the sustainability and growth of our current operations and impede the
expansion of our operations into new areas.
  23




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We are subject to anti-takeover measures that may discourage, delay or prevent changes of control
of Consolidated Water Co. Ltd.
 Classified Board of Directors
 Option Deed
  Restrictive covenants in our credit facilities and trust deeds could adversely affect our business
by limiting our flexibility; our failure to comply with these covenants could cause foreclosure on
our assets.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
 Cayman Island Properties
 Governors Harbour Plant
   24




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West Bay Plant
  Britannia Plant
  Distribution System
  Leased Properties
  OC-Cayman Properties
  Red Gate Road Plant
  Lower Valley Plant
   25




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North Sound Plant
  Belize Properties
  Bahamas Properties
    U.S. Property
  
 ITEM 3.
    
    LEGAL PROCEEDINGS
 26




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ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  27




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 Market Information
  High
    
    LowFirst Quarter 2008
    
    $
    28.78
    
    
    $
    18.00Second Quarter 2008
    
    
    24.95
    
    
    
    15.92Third Quarter 2008
    
    
    23.20
    
    
    
    16.00Fourth Quarter 2008
    
    
    15.12
    
    
    
    8.64First Quarter 2007
    
    $
    27.75
    
    
    $
    23.71Second Quarter 2007
    
    
    30.03
    
    
    
    23.61Third Quarter 2007
    
    
    36.10
    
    
    
    27.70Fourth Quarter 2007
    
    
    34.38
    
    
    
    24.60
       28




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29




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Holders
  Dividends
    First Quarter 2008
    
    $
    0.1300
    
    Per ShareSecond Quarter 2008
    
    
    0.0650
    
    Per ShareThird Quarter 2008
    
    
    0.0650
    
    Per ShareFourth Quarter 2008
    
    
    0.0650
    
    Per ShareFirst Quarter 2007
    
    $
    0.0650
    
    Per ShareSecond Quarter 2007
    
    
    0.0650
    
    Per ShareThird Quarter 2007
    
    
    0.0650
    
    Per ShareFourth Quarter 2007
    
    
    
    
    Per Share
 Exchange Controls and Other Limitations Affecting Security Holders
  Taxation
    30




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ITEM 6.
    
    SELECTED FINANCIAL DATA
  Year Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Statement of Income Data:Revenue
    
    $
    65,678,959
    
    
    $
    54,076,865
    
    
    $
    42,607,330
    
    
    $
    28,365,680
    
    
    $
    24,789,502Net Income
    
    
    7,209,716
    
    
    
    11,387,651
    
    
    
    7,521,126
    
    
    
    5,514,258
    
    
    
    6,197,383Balance Sheet Data:Total Assets
    
    
    154,656,574
    
    
    
    149,330,884
    
    
    
    138,961,343
    
    
    
    88,365,191
    
    
    
    70,825,049Long Term Debt Obligations
    
    
    22,358,340
    
    
    
    23,500,593
    
    
    
    24,654,660
    
    
    
    19,378,212
    
    
    
    12,856,226Redeemable Preferred Stock
    
    
    10,420
    
    
    
    12,650
    
    
    
    14,983
    
    
    
    19,382
    
    
    
    16,705Dividends Declared Per Share
    
    $
    0.325
    
    
    $
    0.195
    
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.23Basic Earnings Per Share
    
    $
    0.50
    
    
    $
    0.79
    
    
    $
    0.60
    
    
    $
    0.47
    
    
    $
    0.54Weighted Average Number of Shares
    
    
    14,519,847
    
    
    
    14,404,732
    
    
    
    12,440,195
    
    
    
    11,767,573
    
    
    
    11,474,264Diluted Earnings Per Share
    
    $
    0.50
    
    
    $
    0.79
    
    
    $
    0.59
    
    
    $
    0.45
    
    
    $
    0.53Weighted Average Number of Shares
    
    
    14,538,971
    
    
    
    14,495,364
    
    
    
    12,737,486
    
    
    
    12,161,407
    
    
    
    11,759,010
 
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
    Comparative Operations2008
    
    
    2007Location
    
    Plants
    
    
    Capacity(1)
    
    
    Location
    
    
    Plants
    
    
    Capacity(1)Cayman Islands
    
    
    6
    
    
    
    7.8
    
    
    Cayman Islands
    
    
    6
    
    
    
    7.6Bahamas
    
    
    3
    
    
    
    10.4
    
    
    Bahamas
    
    
    3
    
    
    
    10.4Belize
    
    
    1
    
    
    
    0.6
    
    
    Belize
    
    
    1
    
    
    
    0.6British Virgin Islands
    
    
    3
    
    
    
    2.4
    (2)
    
    British Virgin Islands
    
    
    2
    
    
    
    1.7
    (2)Bermuda
    
    
    1
    
    
    
    0.6
    
    
    Bermuda
    
    
    
    
    
    
    Total
    
    
    14
    
    
    
    21.8
    
    
    Total
    
    
    12
    
    
    
    20.3
 31




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(1)
    
    In millions of U.S. gallons per day.(2)
    
    Owned and operated by our affiliate OC-BVI. The 2007 capacity does not include OC-BVIs
700,000 U.S. gallons per day plant at Bar Bay, Tortola that was operationally ready in
December 2008 and began generating revenues in January 2009. Cayman Islands
  Bahamas
  Belize
  British Virgin Islands
  Bermuda
  32




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##### Table of Contents



Critical Accounting Estimates
   
    
    the nature of these estimates or assumptions is material due to the levels of
subjectivity and judgment necessary to account for highly uncertain matters or the
susceptibility of such matters to change; and
    
    the impact of the estimates and assumptions on financial condition and results of
operations is material.
  Valuation of Equity Investment in Affiliate
   33




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##### Table of Contents



Goodwill and other intangible assets.
 Plant construction revenue and cost of plant construction revenue.
  34




---



##### Table of Contents



Quarterly Results of Operations
  Year Ended December 31, 2008First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterTotal
revenues (1)
    
    $
    14,291,562
    
    
    $
    17,842,585
    
    
    $
    17,204,593
    
    
    $
    16,340,219Gross profit
    
    
    4,536,058
    
    
    
    4,907,175
    
    
    
    4,625,261
    
    
    
    4,565,349Net income
    
    
    1,673,867
    
    
    
    1,979,623
    
    
    
    1,780,017
    
    
    
    1,776,209Diluted earnings per share
    
    
    0.12
    
    
    
    0.14
    
    
    
    0.12
    
    
    
    0.12
 Year Ended December 31, 2007First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterTotal
revenues (1)
    
    $
    13,991,106
    
    
    $
    13,105,877
    
    
    $
    13,145,719
    
    
    $
    13,834,163Gross profit
    
    
    5,303,355
    
    
    
    4,484,296
    
    
    
    4,320,275
    
    
    
    4,576,300Net income
    
    
    3,587,478
    
    
    
    2,621,537
    
    
    
    2,509,164
    
    
    
    2,669,472Diluted earnings per share
    
    
    0.25
    
    
    
    0.18
    
    
    
    0.17
    
    
    
    0.18
 
 (1)
    
    During the fourth quarter of 2008 we reclassified to revenues certain amounts charged
to our customers for increases in energy costs. Such amounts had previously been reflected
in our consolidated results of operations as a reduction of the energy component of our
cost of revenues (see Note 2 of Notes to Consolidated Financial Statements). The
impact of these reclassifications on the amounts of revenue previously reported in our
Quarterly Reports on Form 10-Q is as follows: Year Ended December 31, 2008First
    
    
    Second
    
    
    ThirdQuarter
    
    
    Quarter
    
    
    QuarterRevenues, as reported
    
    $
    12,735,729
    
    
    $
    16,037,848
    
    
    $
    15,221,783Reclassification of energy recovery
    
    
    1,555,833
    
    
    
    1,804,737
    
    
    
    1,982,810Revenues, as adjusted
    
    $
    14,291,562
    
    
    $
    17,842,585
    
    
    $
    17,204,593
 Year Ended December 31, 2007First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterRevenues, as reported
    
    $
    12,734,610
    
    
    $
    11,964,380
    
    
    $
    11,919,463
    
    
    $
    12,531,394Reclassification of energy recovery
    
    
    1,256,496
    
    
    
    1,141,497
    
    
    
    1,226,256
    
    
    
    1,302,769Revenues, as adjusted
    
    $
    13,991,106
    
    
    $
    13,105,877
    
    
    $
    13,145,719
    
    
    $
    13,834,163
  35




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##### Table of Contents



Results of Operations
  Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 Consolidated Results
     OC-BVI Contract Dispute
 Results by Segment
 Retail Segment:
   36




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##### Table of Contents



Bulk Segment:
     37




---



##### Table of Contents



Services Segment:
     Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 Consolidated Results
     Results by Segment
 Retail Segment:
   38




---



##### Table of Contents



Bulk Segment:
       Services Segment:
  39




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Overview
     Cash Flows for the Year Ended December 31, 2008
  Cash Flows from Operating Activities
  Cash Flows Used in Investing Activities
  Cash
Flows Used in Financing Activities
  40




---



##### Table of Contents



Financial Position
     41




---



##### Table of Contents



Borrowings Outstanding
  5.95% Secured Bonds
   CW-Bahamas Series A Bonds
  CW-Bahamas Credit Facility
   42




---



##### Table of Contents



Material Commitments, Expenditures and Contingencies
 OC-BVI Contract Dispute
       43




---



##### Table of Contents



Revenue
Recognition
 
    
    Persuasive evidence of an arrangement exists.
    
    Delivery has occurred or services have been rendered.
    
    The sellers price to the buyer is fixed and determinable; and
    
    Collectibility is reasonably assured.
  44




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##### Table of Contents



Material Expenditures and Commitments
  Total
    
    
    2009
    
    
    2010-2012
    
    
    2013-2015
    
    

2016
andThereafterSecured 5.95% bonds (1)(2)
    
    $
    16,306,309
    
    
    $
    2,104,040
    
    
    $
    6,312,120
    
    
    $
    7,890,150
    
    
    $
    Series A bonds (1)
    
    
    14,875,000
    
    
    
    750,000
    
    
    
    2,250,000
    
    
    
    11,875,000
    
    
    
    Employment agreements
    
    
    2,158,050
    
    
    
    1,141,650
    
    
    
    1,016,400
    
    
    
    
    
    
    
    Operating leases
    
    
    699,213
    
    
    
    312,624
    
    
    
    386,589
    
    
    
    
    
    
    
    Other
    
    
    306,810
    
    
    
    196,810
    
    
    
    60,000
    
    
    
    
    
    
    
    50,000
 
 (1)
    
    Includes interest costs to be incurred.(2)
    
    Secured 5.95% bonds are shown gross of discount.  45




---



##### Table of Contents



CW-Bahamas Liquidity
     CW-Bahamas Performance Bonds
  CW-Bermuda Financing
  46




---



##### Table of Contents



Frank Sound Contract
  CW- Belize
  Dividends
       Dividend Reinvestment and Common Stock Purchase Plan .
  Impact of Inflation
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Credit Risk
  47




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##### Table of Contents



Interest Rate Risk
  Foreign Exchange Risk
  48




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##### Table of Contents



ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 PageCONSOLIDATED WATER CO. LTD.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
    
    49Report
of Independent Registered Public Accounting Firm
    
    50Consolidated
Balance Sheets as of December 31, 2008 and 2007
    
    51Consolidated
Statements of Income for the Years Ended December 31, 2008, 2007
and 2006
    
    52Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2008, 2007
and 2006
    
    53Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008,
2007 and 2006
    
    54Notes
to Consolidated Financial Statements
    
    55OCEAN CONVERSION (BVI) LTDINDEX TO CONSOLIDATED FINANCIAL STATEMENTSReport
of Independent Registered Public Accounting Firm
    
    77Consolidated
Balance Sheets as of December 31, 2008 and 2007
    
    78Consolidated
Statements of Operations for the Years Ended December 31, 2008, 2007
and 2006
    
    79Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2008,
2007 and 2006
    
    80Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008,
2007 and 2006
    
    81Notes
to Consolidated Financial Statements
    
    82
 49




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      /s/ Rachlin LLP
 
 50




---



##### Table of Contents



CONSOLIDATED
WATER CO. LTD.
 
 CONSOLIDATED
BALANCE SHEETS
  December 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    36,261,345
    
    
    $
    38,529,383Accounts receivable, net
    
    
    13,911,312
    
    
    
    9,828,529Inventory
    
    
    1,617,484
    
    
    
    1,381,225Prepaid expenses and other current assets
    
    
    1,444,445
    
    
    
    1,411,231Current portion of loans receivable
    
    
    768,803
    
    
    
    947,854Total current assets
    
    
    54,003,389
    
    
    
    52,098,222Property, plant and equipment, net
    
    
    58,937,980
    
    
    
    59,981,514Construction in progress
    
    
    6,157,958
    
    
    
    4,989,779Costs and estimated earnings in excess of billings  construction project
    
    
    7,377,554
    
    
    
    Inventory (non-current)
    
    
    2,971,949
    
    
    
    2,268,766Loans receivable
    
    
    1,560,420
    
    
    
    2,329,262Investment in and loan to OC-BVI
    
    
    14,371,312
    
    
    
    17,501,848Intangible assets, net
    
    
    2,144,162
    
    
    
    2,881,900Goodwill
    
    
    3,587,754
    
    
    
    3,587,754Other assets
    
    
    3,544,096
    
    
    
    3,691,839Total assets
    
    $
    154,656,574
    
    
    $
    149,330,884LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable and other current liabilities
    
    $
    7,310,327
    
    
    $
    4,996,728Dividends payable
    
    
    1,006,414
    
    
    
    60,719Current portion of long term debt
    
    
    1,229,071
    
    
    
    1,142,255Total current liabilities
    
    
    9,545,812
    
    
    
    6,199,702Long term debt
    
    
    21,129,269
    
    
    
    22,358,338Other liabilities
    
    
    430,717
    
    
    
    476,136Minority interest in subsidiary
    
    
    1,353,177
    
    
    
    1,392,254Total liabilities
    
    
    32,458,975
    
    
    
    30,426,430Stockholders equityControlling interests:Redeemable preferred stock, $0.60 par value. Authorized 200,000
shares;issued and outstanding 17,366 and 21,082 shares, respectively
    
    
    10,420
    
    
    
    12,650Class A common stock, $0.60 par value. Authorized 24,655,000 shares;issued and outstanding 14,529,360 and 14,507,486 shares,
respectively
    
    
    8,717,616
    
    
    
    8,704,492Class B common stock, $0.60 par value. Authorized 145,000 shares;none issued or outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    80,461,942
    
    
    
    79,771,093Retained earnings
    
    
    32,340,077
    
    
    
    29,853,720121,530,055
    
    
    
    118,341,955Non-controlling interests
    
    
    667,544
    
    
    
    562,499Total stockholders equity
    
    
    122,197,599
    
    
    
    118,904,454Total liabilities and stockholders equity
    
    $
    154,656,574
    
    
    $
    149,330,884
  51




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CONSOLIDATED WATER CO. LTD.
 
 CONSOLIDATED STATEMENTS OF INCOME
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Retail water revenues
    
    $
    22,369,806
    
    
    $
    22,225,765
    
    
    $
    20,589,187Bulk water revenues
    
    
    30,121,536
    
    
    
    24,320,392
    
    
    
    20,095,870Services revenues
    
    
    13,187,617
    
    
    
    7,530,708
    
    
    
    1,922,273Total revenues
    
    
    65,678,959
    
    
    
    54,076,865
    
    
    
    42,607,330Cost of retail revenues
    
    
    10,566,747
    
    
    
    9,930,936
    
    
    
    9,221,610Cost of bulk revenues
    
    
    25,557,832
    
    
    
    20,078,758
    
    
    
    16,671,122Cost of services revenues
    
    
    10,920,537
    
    
    
    5,382,945
    
    
    
    1,100,792Total cost of revenues
    
    
    47,045,116
    
    
    
    35,392,639
    
    
    
    26,993,524Gross profit
    
    
    18,633,843
    
    
    
    18,684,226
    
    
    
    15,613,806General and administrative expenses
    
    
    8,789,185
    
    
    
    9,478,308
    
    
    
    8,432,073Income from operations
    
    
    9,844,658
    
    
    
    9,205,918
    
    
    
    7,181,733Other income (expense):Interest income
    
    
    1,393,691
    
    
    
    1,911,303
    
    
    
    304,945Interest expense
    
    
    (1,755,969
    )
    
    
    (1,856,277
    )
    
    
    (1,886,518
    )Profit sharing in income from OC-BVI
    
    
    
    
    
    
    651,981
    
    
    
    507,849Other income
    
    
    138,915
    
    
    
    263,912
    
    
    
    241,338Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (240,728
    )Equity in earnings (loss) of OC-BVI
    
    
    (2,345,612
    )
    
    
    1,662,613
    
    
    
    1,402,249Other income (expense), net
    
    
    (2,568,975
    )
    
    
    2,633,532
    
    
    
    329,135Income before non-controlling and minority interests
    
    
    7,275,683
    
    
    
    11,839,450
    
    
    
    7,510,868Income (loss) attributable to non-controlling and minority interests
    
    
    65,967
    
    
    
    451,799
    
    
    
    (10,258
    )Net income
    
    $
    7,209,716
    
    
    $
    11,387,651
    
    
    $
    7,521,126Basic earnings per common share
    
    $
    0.50
    
    
    $
    0.79
    
    
    $
    0.60Diluted earnings per common share
    
    $
    0.50
    
    
    $
    0.79
    
    
    $
    0.59Dividends declared per common share
    
    $
    0.325
    
    
    $
    0.195
    
    
    $
    0.24Weighted average number of common shares used in the determination of:Basic earnings per share
    
    
    14,519,847
    
    
    
    14,404,732
    
    
    
    12,440,195Diluted earnings per share
    
    
    14,538,971
    
    
    
    14,495,364
    
    
    
    12,737,486
  52




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CONSOLIDATED WATER CO. LTD.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
  Redeemable
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    Totalpreferred stock
    
    
    Common stock
    
    
    paid-in
    
    
    Retained
    
    
    Non-controlling
    
    
    stockholdersShares
    
    
    Dollars
    
    
    Shares
    
    
    Dollars
    
    
    capital
    
    
    earnings
    
    
    interest
    
    
    equityBalance as of December 31,
2005
    
    
    32,304
    
    
    $
    19,382
    
    
    
    12,181,778
    
    
    $
    7,309,066
    
    
    $
    35,367,037
    
    
    $
    16,867,594
    
    
    $
    
    
    
    $
    59,563,079Public offering of common
shares, net of issuance costs
    
    
    
    
    
    
    
    
    
    
    1,725,000
    
    
    
    1,035,000
    
    
    
    39,104,899
    
    
    
    
    
    
    
    
    
    
    
    40,139,899Issue of share capital
    
    
    (12,244
    )
    
    
    (7,346
    )
    
    
    12,244
    
    
    
    7,346
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of preferred shares
    
    
    4,911
    
    
    
    2,947
    
    
    
    213,838
    
    
    
    128,304
    
    
    
    1,458,606
    
    
    
    
    
    
    
    
    
    
    
    1,589,857Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,521,126
    
    
    
    
    
    
    
    7,521,126Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,110,474
    )
    
    
    
    
    
    
    (3,110,474
    )Issue of options and share
grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141,168
    
    
    
    
    
    
    
    
    
    
    
    141,168Balance as of December 31,
2006
    
    
    24,971
    
    
    
    14,983
    
    
    
    14,132,860
    
    
    
    8,479,716
    
    
    
    76,071,710
    
    
    
    21,278,246
    
    
    
    
    
    
    
    105,844,655Conversion of preferred shares
    
    
    (5,698
    )
    
    
    (3,418
    )
    
    
    5,698
    
    
    
    3,418
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issue of share capital
    
    
    1,809
    
    
    
    1,085
    
    
    
    368,928
    
    
    
    221,358
    
    
    
    3,666,117
    
    
    
    
    
    
    
    
    
    
    
    3,888,560Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,387,651
    
    
    
    
    
    
    
    11,387,651Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,812,177
    )
    
    
    
    
    
    
    (2,812,177
    )Issue of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,266
    
    
    
    
    
    
    
    
    
    
    
    33,266Capital contributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,200
    
    
    
    7,200Net income of
non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    555,299
    
    
    
    555,299Balance as of December 31,
2007
    
    
    21,082
    
    
    
    12,650
    
    
    
    14,507,486
    
    
    
    8,704,492
    
    
    
    79,771,093
    
    
    
    29,853,720
    
    
    
    562,499
    
    
    
    118,904,454Issue of share capital
    
    
    1,735
    
    
    
    1,041
    
    
    
    16,423
    
    
    
    9,853
    
    
    
    447,995
    
    
    
    
    
    
    
    
    
    
    
    458,889Conversion of preferred shares
    
    
    (5,451
    )
    
    
    (3,271
    )
    
    
    5,451
    
    
    
    3,271
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,209,716
    
    
    
    
    
    
    
    7,209,716Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,723,359
    )
    
    
    
    
    
    
    (4,723,359
    )Issue of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    242,854
    
    
    
    
    
    
    
    
    
    
    
    242,854Net income of
non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105,045
    
    
    
    105,045Balance as of December 31,
2008
    
    
    17,366
    
    
    $
    10,420
    
    
    
    14,529,360
    
    
    $
    8,717,616
    
    
    $
    80,461,942
    
    
    $
    32,340,077
    
    
    $
    667,544
    
    
    $
    122,197,599
  53




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CONSOLIDATED WATER CO. LTD.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Cash flows provided by operating activitiesNet income
    
    $
    7,209,716
    
    
    $
    11,387,651
    
    
    $
    7,521,126Add (deduct) items not affecting cashDepreciation and amortization
    
    
    6,582,499
    
    
    
    5,921,871
    
    
    
    4,777,868Stock compensation on share and option grants
    
    
    445,285
    
    
    
    125,843
    
    
    
    372,425Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    240,728Net (profit)/loss on disposal of fixed assets
    
    
    285,206
    
    
    
    (807,781
    )
    
    
    433,834Equity in loss (earnings) of OC-BVI
    
    
    2,505,536
    
    
    
    (2,253,619
    )
    
    
    (1,910,098
    )Minority interest (recovery)
    
    
    (39,077
    )
    
    
    (103,499
    )
    
    
    (10,258
    )Expense attributable to non-controlling interests
    
    
    105,045
    
    
    
    562,499
    
    
    
    Increase in
accounts receivable and costs and estimated earnings in excess of
billings
    
    
    (11,460,337
    )
    
    
    (3,734,635
    )
    
    
    (571,743
    )(Increase) in inventory
    
    
    (939,442
    )
    
    
    (855,099
    )
    
    
    (762,683
    )(Increase)
decrease in prepaid expenses and other assets
    
    
    640,994
    
    
    
    (906,700
    )
    
    
    (336,626
    )(Decrease) increase in accounts payable and other liabilities
    
    
    2,524,638
    
    
    
    (123,921
    )
    
    
    1,819,452Net cash provided by operating activities
    
    
    7,860,063
    
    
    
    9,212,610
    
    
    
    11,574,025Cash flows provided by (used in) investing activitiesAdditions to property, plant and equipment and
construction in progress
    
    
    (6,640,135
    )
    
    
    (7,756,533
    )
    
    
    (25,887,620
    )Distribution of income from affiliate
    
    
    
    
    
    
    222,475
    
    
    
    757,500Proceeds from sale of minority interest in subsidiary, net
    
    
    
    
    
    
    
    
    
    
    652,756Loans to affiliate
    
    
    
    
    
    
    
    
    
    
    (2,200,000
    )Collections of loans receivable
    
    
    1,572,893
    
    
    
    1,019,163
    
    
    
    770,276Net cash provided by (used in) investing activities
    
    
    (5,067,242
    )
    
    
    (6,514,895
    )
    
    
    (25,907,088
    )Cash flows provided by (used in) financing activitiesDividends paid
    
    
    (3,777,664
    )
    
    
    (3,721,538
    )
    
    
    (3,110,473
    )Net proceeds from issuance of common shares
    
    
    
    
    
    
    
    
    
    
    40,139,899Net proceeds from issuance of 5.95% bonds
    
    
    
    
    
    
    
    
    
    
    14,445,720Proceeds from issuance of redeemable preference shares
    
    
    
    
    
    
    9,564
    
    
    
    18,191Proceeds from exercises of stock options
    
    
    
    
    
    
    3,535,042
    
    
    
    1,244,280Borrowings under line of credit
    
    
    
    
    
    
    
    
    
    
    5,659,608Line of credit repayment
    
    
    
    
    
    
    
    
    
    
    (5,659,608
    )Principal repayments of long term debt
    
    
    (1,283,195
    )
    
    
    (1,302,099
    )
    
    
    (13,049,444
    )Net cash provided by (used in) financing activities
    
    
    (5,060,859
    )
    
    
    (1,479,031
    )
    
    
    39,688,173Net (decrease)/increase in cash and cash equivalents
    
    
    (2,268,038
    )
    
    
    1,218,684
    
    
    
    25,355,110Cash and cash equivalents at beginning of year
    
    
    38,529,383
    
    
    
    37,310,699
    
    
    
    11,955,589Cash and cash equivalents at end of year
    
    $
    36,261,345
    
    
    $
    38,529,383
    
    
    $
    37,310,699Supplemental disclosure of cash flow informationInterest paid in cash (net of capitalized interest of $nil, $nil
and $375,000 in 2008, 2007 and 2006, respectively)
    
    $
    1,570,878
    
    
    $
    1,845,426
    
    
    $
    1,427,908
  54




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CONSOLIDATED WATER CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Principal activity
  2. Accounting policies
 Basis of preparation:
 Use of estimates:
 Basis of consolidation:
 Foreign currency:
  Cash and cash equivalents:
 Trade accounts receivable and allowance for doubtful accounts:
 55




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##### Table of Contents



Inventory:
 Loans receivable:
 Property, plant and equipment:
 Buildings
    
    5 to 40 yearsPlant and equipment
    
    4 to 40 yearsDistribution system
    
    3 to 40 yearsOffice furniture, fixtures and equipment
    
    3 to 10 yearsVehicles
    
    3 to 10 yearsLeasehold improvements
    
    Shorter of 5 years or operating
lease term outstandingLab equipment
    
    5 to 10 years
  Construction in progress :
 Goodwill and intangible assets:
 56




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##### Table of Contents



Investments:
 Other assets:
 Other liabilities:
 Income taxes:
   Stock and stock option incentive plans:
   57




---



##### Table of Contents



Plant construction revenue and cost of plant construction revenue:
 Revenue:
 Reclassifications:
 Year Ended December 31,2007
    
    
    2006Revenues, as reported
    
    $
    49,149,847
    
    
    $
    38,229,208Reclassification of energy recovery
    
    
    4,927,018
    
    
    
    4,378,122Revenues, as adjusted
    
    $
    54,076,865
    
    
    $
    42,607,330
 Year Ended December 31,2007
    
    
    2006Cost of
revenues, as reported
    
    $
    30,465,621
    
    
    $
    22,615,402Reclassification of energy recovery
    
    
    4,927,018
    
    
    
    4,378,122Cost of
revenues, as adjusted
    
    $
    35,392,639
    
    
    $
    26,993,524
  Comparative amounts:
 58




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##### Table of Contents



3. Cash and cash equivalents
  December 31,2008
    
    
    2007Bank accountsUnited States dollar
    
    $
    1,368,077
    
    
    $
    1,387,158Cayman Islands dollar
    
    
    2,080,811
    
    
    
    3,079,161Bahamian dollar
    
    
    3,159,781
    
    
    
    534Belize dollar
    
    
    701,253
    
    
    
    452,827Barbadian dollar
    
    
    217,826
    
    
    
    554,594Bermudian dollar
    
    
    768,895
    
    
    
    344,2468,296,643
    
    
    
    5,818,520Short term depositsUnited States dollar
    
    
    23,824,358
    
    
    
    30,000,000Call Deposit  United States dollar
    
    
    4,140,344
    
    
    
    2,710,86327,964,702
    
    
    
    32,710,863Total cash and cash equivalents
    
    $
    36,261,345
    
    
    $
    38,529,383
 4. Accounts receivable
 December 31,2008
    
    
    2007Trade accounts receivable
    
    $
    12,414,380
    
    
    $
    8,397,990Revenues earned in excess of amounts billed
    
    
    826,776
    
    
    
    988,394Receivable from affiliate
    
    
    439,010
    
    
    
    660,156Other accounts receivable
    
    
    346,578
    
    
    
    146,86014,026,744
    
    
    
    10,193,400Allowance for doubtful accounts
    
    
    (115,432
    )
    
    
    (364,871
    )$
    13,911,312
    
    
    $
    9,828,529
  December 31,2008
    
    
    2007Opening allowance for doubtful accounts
    
    $
    364,871
    
    
    $
    162,121Provision for doubtful accounts
    
    
    (249,439
    )
    
    
    278,092Accounts written off during the year
    
    
    
    
    
    
    (75,342
    )Ending allowance for doubtful accounts
    
    $
    115,432
    
    
    $
    364,871
  5. Inventory
 December 31,2008
    
    
    2007Water stock
    
    $
    38,627
    
    
    $
    41,933Consumables stock
    
    
    716,428
    
    
    
    482,482Spare parts stock
    
    
    3,834,378
    
    
    
    3,125,576Total inventory
    
    
    4,589,433
    
    
    
    3,649,991Less current portion
    
    
    1,617,484
    
    
    
    1,381,225Inventory (non-current)
    
    $
    2,971,949
    
    
    $
    2,268,766
 59




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##### Table of Contents



6. Loans receivable
 December 31,2008
    
    
    2007Due from the Water Authority-Cayman:Original loan of $1,216,000, non-interest
bearing, in monthly installments of $14,476
to November 30, 2008. Loan secured by Red
Gate plant, machinery and equipment
    
    $
    
    
    
    $
    159,238Due from the Water Authority-Cayman: Two
loans originally aggregating $1,738,000,
bearing interest at 5% per annum,
receivable in combined monthly installments
of principal and interest of $24,565 to
March 2014, and secured by North Sound
Road, machinery and equipment
    
    
    1,358,651
    
    
    
    1,579,467Due from the Water Authority-Cayman: Two
non-interest bearing loans originally
aggregating $3,129,000, receivable in
monthly installments of $37,250 to November
2009, and secured by North Sound Road
plant, machinery and equipment
    
    
    560,862
    
    
    
    856,750Due from the Water Authority-Cayman: Two
loans originally aggregating $897,000,
bearing interest at 5% per annum,
receivable in combined monthly installments
of principal and interest of $12,678 to
January 2013, and secured by Lower Valley
plant, machinery and equipment
    
    
    409,710
    
    
    
    681,661Total loans receivable
    
    
    2,329,223
    
    
    
    3,277,116Less current portion
    
    
    768,803
    
    
    
    947,854Loans receivable, excluding current portion
    
    $
    1,560,420
    
    
    $
    2,329,262
 7. Property, plant and equipment and construction in progress
 December 31,2008
    
    
    2007Land
    
    $
    2,515,810
    
    
    $
    2,515,810Buildings
    
    
    13,164,488
    
    
    
    11,861,214Plant and equipment
    
    
    47,109,425
    
    
    
    44,723,010Distribution system
    
    
    20,335,700
    
    
    
    19,743,075Office furniture, fixtures and equipment
    
    
    2,003,088
    
    
    
    1,817,214Vehicles
    
    
    1,079,398
    
    
    
    1,026,566Leasehold improvements
    
    
    202,592
    
    
    
    202,592Lab equipment
    
    
    28,890
    
    
    
    28,85586,439,391
    
    
    
    81,918,336Less accumulated depreciation
    
    
    27,501,411
    
    
    
    21,936,822Property, plant and equipment, net
    
    $
    58,937,980
    
    
    $
    59,981,514Construction in progress
    
    $
    6,157,958
    
    
    $
    4,989,779
  60




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##### Table of Contents



8. Investment in and loan to OC-BVI
     December 31,2008
    
    
    2007Current assets
    
    $
    15,073,265
    
    
    $
    8,366,227Non-current assets
    
    
    11,463,739
    
    
    
    11,574,429Total assets
    
    $
    26,537,004
    
    
    $
    19,940,656
 December 31,2008
    
    
    2007Current liabilities
    
    $
    16,933,449
    
    
    $
    2,697,453Non-current liabilities
    
    
    3,224,384
    
    
    
    5,500,256Total liabilities
    
    $
    20,157,833
    
    
    $
    8,197,709
 Year Ended December 31,2008
    
    
    2007Water sales
    
    $
    137,666
    
    
    $
    9,326,435Cost of water sales
    
    $
    4,160,394
    
    
    $
    3,280,833Income (loss) from operations
    
    $
    (5,069,040
    )
    
    $
    3,559,324Net income (loss)
    
    $
    (5,236,276
    )
    
    $
    3,914,000
 61




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##### Table of Contents



December 31,2008
    
    
    2007Equity investment (including profit sharing rights)
    
    $
    12,121,312
    
    
    $
    14,626,848Loan receivable  Bar Bay plant construction
    
    
    2,250,000
    
    
    
    2,875,000$
    14,371,312
    
    
    $
    17,501,848
  Baughers Bay dispute:
     62




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##### Table of Contents



9. Consolidated Water (Bermuda) Limited
  63




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##### Table of Contents



10. Intangible assets
  (a)
    
    The Company attributed $856,356 to an intangible asset which represents the fair value of a
Management Services Agreement which has no expiration term. Management of the Company has
determined that this intangible asset has an indefinite life and therefore it is not being
amortized.(b)
    
    The Company attributed $337,149 to an intangible asset, the DWEER Distribution Agreement
between DesalCo Limited and DWEER Technology Limited, which expires on October 31, 2009. Under
this agreement, DesalCo Limited was granted an exclusive right, within certain geographical
areas in the Caribbean, Central and South America, to distribute certain patented equipment
which can increase the operational efficiency of reverse osmosis seawater desalination plants.
The estimated fair value attributable to the intangible asset of the DWEER Distribution
Agreement is being amortized over the term of the underlying agreement and has a weighted
average remaining useful life of 0.9 years.(c)
    
    The Company attributed $4,385,496 to intangible assets, which represents the fair value of
three Water Production and Supply Agreements between Ocean Conversion (Cayman) Limited and the
Government of the Cayman Islands, dated April 25, 1994, June 18, 1997 and December 31, 2001.
Under these agreements, Ocean Conversion (Cayman) Limited built reverse osmosis seawater
desalination plants for the Government of the Cayman Islands. Ocean Conversion (Cayman)
Limited operates the plants until the expiration of the agreement term, as extended, at which
time the plant operations will be transferred to the Government of the Cayman Islands for no
consideration. The carrying amounts attributable to the intangible assets of the Water
Production and Supply Agreements are being amortized over the term of the agreements, which
are approximately 6, 3 and 7 years, respectively, and have a weighted average remaining useful
life of 0.9 years.(d)
    
    On September 17, 2003, the Company signed an agreement with its Belize customer for the
provision of water from a seawater desalination plant for an initial term of 23 years. The new
agreement was effective on June 1, 2004 after certain conditions precedent were met or waived.
The carrying amount of the Belize Water Production
 64




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##### Table of Contents



and Supply Agreement is being amortized over the term of the agreement and has a weighted
average remaining useful life of 17.1 years.
 December 31,2008
    
    
    2007CostNon-amortizable intangible asset management service agreement
    
    $
    856,356
    
    
    $
    856,356Amortizable intangible assets DWEER distribution agreement
    
    
    337,149
    
    
    
    337,149Cayman water production and supply agreements
    
    
    4,385,496
    
    
    
    4,385,496Belize water production and supply agreement
    
    
    1,522,419
    
    
    
    1,522,4197,101,420
    
    
    
    7,101,420Accumulated amortizationDWEER distribution agreement
    
    
    (292,065
    )
    
    
    (242,702
    )Cayman water production and supply agreements
    
    
    (4,272,271
    )
    
    
    (3,650,088
    )Belize water production and supply agreement
    
    
    (392,922
    )
    
    
    (326,730
    )(4,957,259
    )
    
    
    (4,219,520
    )Intangible assets, net
    
    $
    2,144,162
    
    
    $
    2,881,900
  2009
    
    $
    224,5012010
    
    
    66,1922011
    
    
    66,1922012
    
    
    66,1922013
    
    
    66,192Thereafter
    
    
    798,536
 11. Goodwill
   12. Dividends
  2008
    
    
    2007
    
    
    2006First Quarter
    
    $
    0.130
    
    
    $
    0.065
    
    
    $
    0.060Second Quarter
    
    
    0.065
    
    
    
    0.065
    
    
    
    0.060Third Quarter
    
    
    0.065
    
    
    
    0.065
    
    
    
    0.060Fourth Quarter
    
    
    0.065
    
    
    
    
    
    
    
    0.060
 65




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##### Table of Contents



13. Long term debt
 December
31,2008
    
    

2007Fixed rate bonds bearing interest at a rate
of 5.95%; repayable in quarterly installments
of $526,010; secured through an
inter-creditor agreement with the Republic
Bank & Trust by substantially all of the
Companys assets. Redeemable in full at any
time after August 4, 2009 at a premium of
1.5% of the outstanding principal and accrued
interest on the bonds on the date of
redemption.
    
    $
    12,987,799
    
    
    $
    14,270,995Series A bonds bearing interest at the annual
fixed rate of 7.5%, payable quarterly;
maturing on June 30, 2015.
    
    
    10,000,000
    
    
    
    10,000,000Total long term debt
    
    
    22,987,799
    
    
    
    24,270,995Less discount
    
    
    629,459
    
    
    
    770,402Less current portion
    
    
    1,229,071
    
    
    
    1,142,255Long term debt, excluding current portion
    
    $
    21,129,269
    
    
    $
    22,358,338
       66




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##### Table of Contents



2009
    
    $
    1,361,2652010
    
    
    1,444,0862011
    
    
    1,531,9452012
    
    
    1,625,1502013
    
    
    1,724,025Thereafter
    
    
    15,301,328$
    22,987,799
 14. Share capital and additional paid-in capital and stock split
    15. Cost of Revenues and General and Administrative Expenses
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Cost of revenues consist of:Water purchases
    
    $
    
    
    
    $
    52,020
    
    
    $
    167,839Depreciation
    
    
    5,380,061
    
    
    
    4,581,375
    
    
    
    3,490,929Amortization of intangible assets
    
    
    737,737
    
    
    
    788,659
    
    
    
    820,943Employee costs
    
    
    4,230,387
    
    
    
    3,866,813
    
    
    
    3,383,892Fuel oil
    
    
    9,279,123
    
    
    
    6,404,945
    
    
    
    4,565,862Royalties
    
    
    1,367,369
    
    
    
    1,407,367
    
    
    
    1,256,257Electricity
    
    
    10,352,763
    
    
    
    8,688,021
    
    
    
    7,396,433Insurance
    
    
    1,131,826
    
    
    
    1,243,136
    
    
    
    840,201Maintenance
    
    
    2,284,690
    
    
    
    2,339,341
    
    
    
    3,135,004Cost of plant sales
    
    
    9,949,693
    
    
    
    4,547,122
    
    
    
    Other
    
    
    2,331,467
    
    
    
    1,473,840
    
    
    
    1,936,164$
    47,045,116
    
    
    $
    35,392,639
    
    
    $
    26,993,524General and administrative expenses consist of:Employee costs
    
    $
    3,941,357
    
    
    $
    4,316,922
    
    
    $
    3,680,386Depreciation
    
    
    308,699
    
    
    
    316,574
    
    
    
    282,267Professional fees
    
    
    774,095
    
    
    
    1,173,090
    
    
    
    1,172,685Insurance
    
    
    863,239
    
    
    
    696,953
    
    
    
    537,011Directors fees and expenses
    
    
    715,591
    
    
    
    761,443
    
    
    
    622,750Maintenance
    
    
    48,686
    
    
    
    56,959
    
    
    
    105,909Other
    
    
    2,137,518
    
    
    
    2,156,367
    
    
    
    2,031,065$
    8,789,185
    
    
    $
    9,478,308
    
    
    $
    8,432,073
 67




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##### Table of Contents



16. Earnings per share
   2008
    
    
    2007
    
    
    2006Net income
    
    $
    7,209,716
    
    
    $
    11,387,651
    
    
    $
    7,521,126Less: Dividends paid and earnings attributable on preferred
shares
    
    
    (4,696
    )
    
    
    (5,509
    )
    
    
    (6,461
    )Net income available to common shares in the determination
of basic earnings per common share
    
    $
    7,205,020
    
    
    $
    11,382,142
    
    
    $
    7,514,665Weighted average number of common shares in the
determination of basic earnings per common share
    
    
    14,519,847
    
    
    
    14,404,732
    
    
    
    12,440,195Plus:Weighted average number of preferred shares outstanding
during the year
    
    
    19,124
    
    
    
    22,488
    
    
    
    28,502Potential dilutive effect of unexercised options
    
    
    
    
    
    
    68,144
    
    
    
    268,789Weighted average number of shares used for determining
diluted earnings percommon share
    
    
    14,538,971
    
    
    
    14,495,364
    
    
    
    12,737,486
 17. Segment information
 As of and for the year ended December 31, 2008Retail
    
    
    Bulk
    
    
    Services
    
    
    TotalRevenues
    
    $
    22,369,806
    
    
    $
    30,121,536
    
    
    $
    13,187,617
    
    
    $
    65,678,959Cost of revenues
    
    
    10,566,747
    
    
    
    25,557,832
    
    
    
    10,920,537
    
    
    
    47,045,116Gross profit
    
    
    11,803,059
    
    
    
    4,563,704
    
    
    
    2,267,080
    
    
    
    18,633,843General and administrative expenses
    
    
    7,150,449
    
    
    
    1,379,597
    
    
    
    259,139
    
    
    
    8,789,185Income from operations
    
    
    4,652,610
    
    
    
    3,184,107
    
    
    
    2,007,941
    
    
    
    9,844,658Other income (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,568,975
    )Income before non-controlling and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,275,683Income (loss) attributable to non-controlling and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,967Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,209,716As of December 31, 2008:Property plant and equipment, net
    
    $
    22,526,675
    
    
    $
    34,607,482
    
    
    $
    1,803,823
    
    
    $
    58,937,980Construction in progress
    
    
    5,305,733
    
    
    
    852,225
    
    
    
    
    
    
    
    6,157,958Total assets
    
    
    82,965,267
    
    
    
    66,567,564
    
    
    
    5,123,743
    
    
    
    154,656,574
 68




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As of and for the year ended December 31, 2007Retail
    
    
    Bulk
    
    
    Services
    
    
    TotalRevenues
    
    $
    22,225,765
    
    
    $
    24,320,392
    
    
    $
    7,530,708
    
    
    $
    54,076,865Cost of revenues
    
    
    9,930,936
    
    
    
    20,078,758
    
    
    
    5,382,945
    
    
    
    35,392,639Gross profit
    
    
    12,294,829
    
    
    
    4,241,634
    
    
    
    2,147,763
    
    
    
    18,684,226General and administrative expenses
    
    
    7,822,592
    
    
    
    1,437,896
    
    
    
    217,820
    
    
    
    9,478,308Income from operations
    
    
    4,472,237
    
    
    
    2,803,738
    
    
    
    1,929,943
    
    
    
    9,205,918Other income (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,633,532Income before non-controlling and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,839,450Income (loss) attributable to non-controlling and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    451,799Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    11,387,651As of December 31, 2007:Property plant and equipment, net
    
    $
    23,102,174
    
    
    $
    34,619,902
    
    
    $
    2,259,438
    
    
    $
    59,981,514Construction in progress
    
    
    3,273,108
    
    
    
    1,716,671
    
    
    
    
    
    
    
    4,989,779Total assets
    
    
    89,064,139
    
    
    
    54,585,753
    
    
    
    5,680,992
    
    
    
    149,330,884
 As of and for the year ended December 31, 2006Retail
    
    
    Bulk
    
    
    Services
    
    
    TotalRevenues
    
    $
    20,589,187
    
    
    $
    20,095,870
    
    
    $
    1,922,273
    
    
    $
    42,607,330Cost of revenues
    
    
    9,221,610
    
    
    
    16,671,122
    
    
    
    1,100,792
    
    
    
    26,993,524Gross profit
    
    
    11,367,577
    
    
    
    3,424,748
    
    
    
    821,481
    
    
    
    15,613,806General and administrative expenses
    
    
    7,086,511
    
    
    
    1,232,435
    
    
    
    113,127
    
    
    
    8,432,073Income from operations
    
    
    4,281,066
    
    
    
    2,192,313
    
    
    
    708,354
    
    
    
    7,181,733Other income (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    329,135Income before non-controlling and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,510,868Income (loss) attributable to non-controlling and minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,258
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,521,126As of December 31, 2006:Property plant and equipment, net
    
    $
    20,812,109
    
    
    $
    36,850,558
    
    
    $
    2,566,691
    
    
    $
    60,229,358Construction in progress
    
    
    1,990,079
    
    
    
    1,121,762
    
    
    
    227,170.00
    
    
    
    3,339,011Total assets
    
    
    97,097,587
    
    
    
    36,075,509
    
    
    
    5,788,247
    
    
    
    138,961,343
 69




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##### Table of Contents



18. Related party transactions
 TM
   19. Commitments and contingencies
   70




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##### Table of Contents



2009
    
    $
    312,6242010
    
    
    314,6342011
    
    
    71,9552012
    
    
    
            71




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##### Table of Contents



20. Stock Based Compensation
  Employee Share Incentive Plan (Preferred Shares)
  Employee Share Option Plan (Common Stock Options)
  Non-Executive Directors Share Plan
  2008 Equity Incentive Plan
    72




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##### Table of Contents



2008
    
    
    2007
    
    
    2006Risk free interest rate
    
    
    2.87
    %
    
    
    4.82
    %
    
    
    5.05
    %Expected option life
    
    3.5 years
    
    2.0 years
    
    2.9 yearsExpected volatility
    
    
    57.16
    %
    
    
    37.44
    %
    
    
    33.66
    %Expected dividend yield
    
    
    1.51
    %
    
    
    0.91
    %
    
    
    0.90
    %
  Weighted AverageRemainingWeighted Average
    
    
    Contractual Life
    
    
    Aggregate IntrinsicOptions
    
    
    Exercise Price
    
    
    (Years)
    
    
    Value (1)Outstanding at beginning of year
    
    
    21,465
    
    
    $
    19.20Granted
    
    
    104,584
    
    
    
    29.04Exercised
    
    
    (6,160
    )
    
    
    10.55Forfeited
    
    
    (1,774
    )
    
    
    23.62Outstanding at end of year
    
    
    118,115
    
    
    $
    28.30
    
    
    3.66 years
    
    $
    Exercisable at end of year
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 
 (1)
    
    The intrinsic value of a stock option represents the amount by which the fair value of the
underlying stock, measured by reference to the closing price of the common shares of $12.50 in
the Nasdaq Global Select Market on December 31, 2008, exceeds the exercise price of the
option.   2008
    
    
    2007
    
    
    2006Options granted with an exercise price
below market price on the date of grant:Employees  preferred share options
    
    $
    
    
    
    $
    6.65
    
    
    $
    15.93Overall weighted average
    
    $
    
    
    
    $
    6.65
    
    
    $
    15.93Options granted with an exercise price at
market price on the date of grant:Management employees
    
    $
    
    
    
    $
    
    
    
    $
    Employees  common share options
    
    $
    6.82
    
    
    $
    10.49
    
    
    $
    8.08Overall weighted average
    
    $
    6.82
    
    
    $
    10.49
    
    
    $
    8.08Options granted with an exercise price
above market price on the date of grant:Management employees
    
    $
    4.43
    
    
    $
    
    
    
    $
    Employees  preferred share options
    
    $
    0.02
    
    
    $
    
    
    
    $
    Overall weighted average
    
    $
    4.35
    
    
    $
    
    
    
    $
    Total intrinsic value of options exercised
    
    $
    12,012
    
    
    $
    5,082,472
    
    
    $
    4,252,174
 73




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##### Table of Contents



21. Pension benefits
  22. Financial instruments
 Credit risk:
  Interest rate risk:
  Foreign exchange risk:
  Fair values:
  23. Non cash transactions:
  2008
    
    
    2007
    
    
    2006Note received for plant facility sold
    
    $
    
    
    
    $
    1,738,000
    
    
    $
    897,000Issuance of 11,450, 11,346 and 2,135
respectively, of common shares for
services rendered
    
    
    286,462
    
    
    
    251,377
    
    
    
    43,326Issuance of 1,774, 2,600 and 3,587,
respectively, of redeemable
preferred shares for services
rendered
    
    
    30,158
    
    
    
    47,856
    
    
    
    130,078Conversion of 5,451, 5,698 and
12,244, respectively of redeemable
preferred shares to common shares
    
    
    3,271
    
    
    
    3,419
    
    
    
    7,346Dividends declared but not paid
    
    
    945,695
    
    
    
    
    
    
    
    849,470
 74




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##### Table of Contents



24. Impact of recent accounting standards pronouncements
 Adoption of New Accounting Standards :
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements ( ),
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Effect of Newly Issued But Not Yet Effective Accounting Standards :
 Business Combinations .
 Non-controlling Interests in Consolidated Financial
Statements.
 75




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76




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     /s/ Rachlin LLP
 
 77




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##### Table of Contents



OCEAN CONVERSION (BVI) LTD.
 
 CONSOLIDATED BALANCE SHEETS
 DECEMBER 31, 2008 and 2007
  December 31,2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    748,566
    
    
    $
    102,163Accounts receivable
    
    
    14,029,143
    
    
    
    8,177,090Inventory
    
    
    259,467
    
    
    
    29,513Prepaid expenses and other assets
    
    
    36,089
    
    
    
    57,461Total current assets
    
    
    15,073,265
    
    
    
    8,366,227Property, plant and equipment, net
    
    
    10,202,457
    
    
    
    10,297,970Construction in progress
    
    
    208,662
    
    
    
    196,113Inventory (non-current)
    
    
    410,120
    
    
    
    437,846Other assets
    
    
    642,500
    
    
    
    642,500Total assets
    
    $
    26,537,004
    
    
    $
    19,940,656LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable and other liabilities
    
    $
    1,789,256
    
    
    $
    2,072,453Current portion of long term debt
    
    
    2,250,000
    
    
    
    625,000Deferred revenue
    
    
    12,894,193
    
    
    
    Total current liabilities
    
    
    16,933,449
    
    
    
    2,697,453Long term debt
    
    
    
    
    
    
    2,250,000Profit sharing obligation
    
    
    3,209,756
    
    
    
    3,250,256Minority interest in JVD Ocean Desalination Ltd.
    
    
    14,628
    
    
    
    Total liabilities
    
    
    20,157,833
    
    
    
    8,197,709CommitmentsStockholders equityClass A voting shares, $1 par value.
Authorized 600,000 shares: issued and
outstanding 555,000 shares
    
    
    555,000
    
    
    
    555,000Class B voting shares, $1 par value.
Authorized 600,000 shares: issued and
outstanding 555,000 shares
    
    
    555,000
    
    
    
    555,000Class C non-voting shares, $1 par value.
Authorized 600,000 shares: issued and
outstanding 165,000 shares
    
    
    165,000
    
    
    
    165,000Additional paid-in capital
    
    
    225,659
    
    
    
    225,659Retained earnings
    
    
    4,878,512
    
    
    
    10,242,288Total stockholders equity
    
    
    6,379,171
    
    
    
    11,742,947Total liabilities and stockholders equity
    
    $
    26,537,004
    
    
    $
    19,940,656
 The accompanying notes are
an integral part of these consolidated financial statements. 78




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##### Table of Contents



OCEAN CONVERSION (BVI) LTD.
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 YEARS ENDED DECEMBER 31, 2008, 2007 and 2006
  2008
    
    
    2007
    
    
    2006Water sales
    
    $
    137,666
    
    
    $
    9,326,435
    
    
    $
    8,370,045Cost of water sales
    
    
    4,160,394
    
    
    
    3,280,833
    
    
    
    3,574,002Gross profit (loss)
    
    
    (4,022,728
    )
    
    
    6,045,602
    
    
    
    4,796,043General and administrative expenses
    
    
    1,046,312
    
    
    
    2,486,278
    
    
    
    1,873,726Income (loss) from operations
    
    
    (5,069,040
    )
    
    
    3,559,324
    
    
    
    2,922,317Other income (expense)Interest income
    
    
    7,480
    
    
    
    579,373
    
    
    
    363,420Interest expense
    
    
    (160,827
    )
    
    
    (259,038
    )
    
    
    (114,065
    )Other income
    
    
    739
    
    
    
    565
    
    
    
    (152,608
    )
    
    
    320,900
    
    
    
    249,355Income (loss) before minority interest
    
    
    (5,221,648
    )
    
    
    3,880,224
    
    
    
    3,171,672Minority interest income (expense)
    
    
    (14,628
    )
    
    
    33,776
    
    
    
    (512
    )Net income (loss)
    
    $
    (5,236,276
    )
    
    $
    3,914,000
    
    
    $
    3,171,160
 The accompanying notes are
an integral part of these consolidated financial statements. 79




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##### Table of Contents



OCEAN CONVERSION (BVI) LTD.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 YEARS ENDED DECEMBER 31, 2006, 2007 and 2008
  Additional
    
    
    
    
    
    
    TotalCommon stock
    
    
    paid-in
    
    
    Retained
    
    
    stockholdersShares
    
    
    Dollars
    
    
    capital
    
    
    earnings
    
    
    equityBalance as of December 31, 2005
    
    
    1,275,000
    
    
    $
    1,275,000
    
    
    $
    225,659
    
    
    $
    4,750,878
    
    
    $
    6,251,537Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,171,160
    
    
    
    3,171,160Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,275,000
    )
    
    
    (1,275,000
    )Balance as of December 31, 2006
    
    
    1,275,000
    
    
    
    1,275,000
    
    
    
    225,659
    
    
    
    6,647,038
    
    
    
    8,147,697Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,914,000
    
    
    
    3,914,000Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (318,750
    )
    
    
    (318,750
    )Balance as of December 31, 2007
    
    
    1,275,000
    
    
    
    1,275,000
    
    
    
    225,659
    
    
    
    10,242,288
    
    
    
    11,742,947Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,236,276
    )
    
    
    (5,236,276
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (127,500
    )
    
    
    (127,500
    )Balance as of December 31, 2008
    
    
    1,275,000
    
    
    $
    1,275,000
    
    
    $
    225,659
    
    
    $
    4,878,512
    
    
    $
    6,379,171
 The accompanying notes are
an integral part of these consolidated financial statements. 80




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##### Table of Contents



OCEAN CONVERSION (BVI) LTD.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 YEARS ENDED DECEMBER 31, 2008, 2007 and 2006
  2008
    
    
    2007
    
    
    2006Cash flows from operating activitiesNet income (loss)
    
    $
    (5,236,276
    )
    
    $
    3,914,000
    
    
    $
    3,171,160Add(deduct) items not affecting cashDepreciation
    
    
    251,708
    
    
    
    399,442
    
    
    
    403,255Amortization of bank fees
    
    
    
    
    
    
    
    
    
    
    3,837Profit sharing
    
    
    
    
    
    
    1,240,094
    
    
    
    1,007,697Minority interest
    
    
    14,628
    
    
    
    (33,776
    )
    
    
    512(Increase) decrease in accounts receivable
    
    
    (5,852,053
    )
    
    
    (5,770,794
    )
    
    
    1,012,626(Increase) decrease in inventory
    
    
    (202,228
    )
    
    
    (42,137
    )
    
    
    (80,874
    )(Increase) decrease in other assets
    
    
    21,372
    
    
    
    (671,996
    )
    
    
    (3,248
    )Increase (decrease) in accounts payable and accrued liabilities
    
    
    (283,197
    )
    
    
    595,269
    
    
    
    363,090Increase in deferred revenue
    
    
    12,894,193
    
    
    
    
    
    
    
    Net cash provided by (used in) operating activities
    
    
    1,608,147
    
    
    
    (369,898
    )
    
    
    5,878,055Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (156,195
    )
    
    
    (28,232
    )
    
    
    (132,590
    )Expenditures for construction in progress
    
    
    (12,549
    )
    
    
    (307,812
    )
    
    
    (4,201,934
    )Net cash provided by (used in) investing activities
    
    
    (168,744
    )
    
    
    (336,044
    )
    
    
    (4,334,524
    )Cash flows from financing activitiesProfit sharing rights paid
    
    
    (40,500
    )
    
    
    (101,250
    )
    
    
    (405,000
    )Proceeds from long term debt
    
    
    
    
    
    
    
    
    
    
    800,000Principal repayments of long term debt
    
    
    (625,000
    )
    
    
    (125,000
    )
    
    
    (255,000
    )Dividends paid
    
    
    (127,500
    )
    
    
    (318,750
    )
    
    
    (1,275,000
    )Net cash provided by (used in) in financing activities
    
    
    (793,000
    )
    
    
    (545,000
    )
    
    
    (1,135,000
    )Net increase (decrease) in cash and cash equivalents
    
    
    646,403
    
    
    
    (1,250,942
    )
    
    
    408,531Cash and cash equivalents at the beginning of the year
    
    
    102,163
    
    
    
    1,353,105
    
    
    
    944,574Cash and cash equivalents at the end of the year
    
    $
    748,566
    
    
    $
    102,163
    
    
    $
    1,353,105Interest paid in cash
    
    $
    245,000
    
    
    $
    154,314
    
    
    $
    17,851
 The accompanying notes are
an integral part of these consolidated financial statements. 81




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##### Table of Contents



OCEAN CONVERSION (BVI) LTD.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Principal activity
    2. Accounting policies
 Basis of preparation:
 Basis of consolidation:
 Use of estimates:
 Cash and cash equivalents:
 Trade accounts receivable:
 Interest income:
 Inventory:
 82




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##### Table of Contents



Impairment of long-lived assets:
 Property, plant and equipment:
 Plant and equipment
    
    4 to 40 yearsOffice furniture, fixtures and equipment
    
    3 to 10 yearsVehicles
    
    3 to 10 yearsLab equipment
    
    3 to 10 years
  Construction
in progress:
 Water sales:
 Reclassifications:
 Year Ended December 31,2007
    
    
    2006Revenue, as reported
    
    $
    8,955,491
    
    
    $
    8,047,783Reclassification of energy recovery
    
    
    370,944
    
    
    
    322,262Revenue, as adjusted
    
    $
    9,326,435
    
    
    $
    8,370,045
 Comparative amounts:
 3. Dispute with BVI government
 83




---



##### Table of Contents



84




---



##### Table of Contents



Change in Revenue Recognition Policy
 Revenue
Recognition,
 4. Inventory
  December 31,2008
    
    
    2007Consumables stock
    
    $
    89,984
    
    
    $
    83,490Spare parts stock
    
    
    579,603
    
    
    
    383,869Total inventory
    
    
    669,587
    
    
    
    467,359Less current portion
    
    
    259,467
    
    
    
    29,513Inventory (non-current)
    
    $
    410,120
    
    
    $
    437,846
 5. Property, plant and equipment and construction in progress
  December 31,2008
    
    
    2007Plant and equipment
    
    $
    9,569,107
    
    
    $
    9,545,707Office furniture, fixtures and equipment
    
    
    61,363
    
    
    
    61,363Vehicles
    
    
    71,600
    
    
    
    71,600Tools and Test Equipment
    
    
    18,431
    
    
    
    18,4319,720,501
    
    
    
    9,697,101Accumulated depreciation
    
    
    (7,390,066
    )
    
    
    (7,138,358
    )Property, plant and equipment, net of Bar Bay plant and equipment
    
    
    2,330,435
    
    
    
    2,558,743Bar Bay plant and equipment
    
    
    7,872,022
    
    
    
    7,739,227Property, plant and equipment, net
    
    $
    10,202,457
    
    
    $
    10,297,970Construction in progress
    
    $
    208,662
    
    
    $
    196,113
 85




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##### Table of Contents



6. Long term debt
 December 31,2008
    
    
    2007CWCO loan bearing interest at three
month LIBOR plus 3.5% (4.935% as of
December 31, 2008) per annum, with
interest calculated daily and payable
quarterly. The loan is payable in eight
(8) quarterly principal payments of
$125,000 commencing on August 31, 2007,
plus a final principal payment of
$2,000,000 due on August 31, 2009, plus
quarterly payments of accrued interest
    
    $
    2,250,000
    
    
    $
    2,875,000Total long term debt
    
    
    2,250,000
    
    
    
    2,875,000Less current portion
    
    
    (2,250,000
    )
    
    
    (625,000
    )Long term debt, excluding current portion
    
    $
    
    
    
    $
    2,250,000
  7. Commitments
   86




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##### Table of Contents



2009
    
    $
    33,0752010
    
    
    33,0752011
    
    
    33,0752012
    
    
    33,0752013
    
    
    33,075Thereafter
    
    
    291,449
  8. Expenses
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Cost of
water sales consist of the following:Fuel oil
    
    $
    892,442
    
    
    $
    990,188
    
    
    $
    658,938Electricity
    
    
    1,653,487
    
    
    
    702,400
    
    
    
    1,142,396Maintenance
    
    
    358,190
    
    
    
    278,673
    
    
    
    558,653Depreciation
    
    
    250,603
    
    
    
    398,336
    
    
    
    402,150Employee costs
    
    
    501,894
    
    
    
    469,759
    
    
    
    446,126Insurance
    
    
    131,165
    
    
    
    80,529
    
    
    
    78,822Other direct costs
    
    
    372,613
    
    
    
    360,948
    
    
    
    286,917$
    4,160,394
    
    
    $
    3,280,833
    
    
    $
    3,574,002General and administrative expenses
consist of the following:Profit sharing
    
    $
    
    
    
    $
    1,240,094
    
    
    $
    1,007,698Management fees
    
    
    725,895
    
    
    
    713,119
    
    
    
    620,448Directors fees and expenses
    
    
    27,789
    
    
    
    63,711
    
    
    
    65,456Professional fees
    
    
    120,600
    
    
    
    266,366
    
    
    
    33,418Employee costs
    
    
    52,718
    
    
    
    50,431
    
    
    
    50,622Maintenance costs
    
    
    145
    
    
    
    1,265
    
    
    
    160Depreciation
    
    
    1,105
    
    
    
    1,105
    
    
    
    1,105Other indirect costs
    
    
    118,060
    
    
    
    150,187
    
    
    
    94,819$
    1,046,312
    
    
    $
    2,486,278
    
    
    $
    1,873,726
 9. Related party transactions
  87




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##### Table of Contents



10. Profit sharing obligation
 December 31,2008
    
    
    2007Opening balance
    
    $
    3,250,256
    
    
    $
    2,111,412Additions
    
    
    
    
    
    
    1,240,094Distributions
    
    
    (40,500
    )
    
    
    (101,250
    )Ending balance
    
    $
    3,209,756
    
    
    $
    3,250,256
    11. Taxation
  12. Pension plan
  13. Financial instruments
 Credit risk:
  Interest rate risk:
  Fair values:
  88




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Internal Control Over Financial Reporting
  MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  
    
    pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the Company;
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Companys assets that could have a material effect
on the financial statements.
  89




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Internal Control-Integrated
Framework
       
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Our Directors and Executive Officers
  Name
    
    Age
    
    PositionJeffrey M. Parker
    
    
    64
    
    
    Director, Chairman of the Board of DirectorsFrederick W. McTaggart
    
    
    46
    
    
    Director, President, Chief Executive OfficerDavid W. Sasnett
    
    
    52
    
    
    Director, Executive Vice President & Chief Financial
OfficerGregory S. McTaggart
    
    
    45
    
    
    Vice President of Cayman OperationsRobert B. Morrison
    
    
    55
    
    
    Vice President of Purchasing and Information TechnologyGerard J. Pereira
    
    
    38
    
    
    Vice President of Sales and MarketingRamjeet Jerrybandan
    
    
    41
    
    
    Vice President of Overseas OperationsWilliam T. Andrews
    
    
    60
    
    
    DirectorBrian E. Butler *
    
    
    59
    
    
    DirectorSteven A. Carr *
    
    
    58
    
    
    DirectorCarson K. Ebanks *
    
    
    53
    
    
    DirectorRichard L. Finlay *
    
    
    50
    
    
    DirectorClarence B. Flowers, Jr. *
    
    
    53
    
    
    DirectorWilmer F. Pergande *
    
    
    69
    
    
    DirectorLeonard J. Sokolow *
    
    
    52
    
    
    DirectorRaymond Whittaker *
    
    
    55
    
    
    Director
 
 *
    
    The Board of Directors has determined that each of such persons is an independent director
under the corporate governance rules of The NASDAQ Stock Market LLC (NASDAQ). Jeffrey M. Parker de facto
 90




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Frederick W. McTaggart
 David W. Sasnett
 Gregory S. McTaggart
 Robert B. Morrison
 Gerard J. Pereira
 Ramjeet Jerrybandan
 William T. Andrews
 91




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##### Table of Contents



Brian E. Butler
 Steven A. Carr
 Carson K. Ebanks
 Richard L. Finlay
 Clarence B. Flowers, Jr.
 Wilmer F. Pergande
 92




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##### Table of Contents



Leonard J. Sokolow
 Raymond Whittaker
 93




---



##### Table of Contents



Composition of the Board of Directors
  Group 1
    
    Group 2
    
    Group 3William T. Andrews
    
    Carson K. Ebanks
    
    Wilmer F. PergandeBrian E. Butler
    
    Richard L. Finlay
    
    Raymond WhittakerSteven A. Carr
    
    Clarence B. Flowers, Jr.
    
    David W. SasnettFrederick W. McTaggart
    
    Leonard J. SokolowJeffrey M. Parker
   Governance of the Company
     Committees of the Board of Directors
  Executive Committee
  94




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Compensation Committee
    Audit Committee
    Nominations Committee
   95




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96




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Section 16(a) Beneficial Ownership Reporting Compliance
  
 ITEM 11. EXECUTIVE COMPENSATION
 COMPENSATION DISCUSSION & ANALYSIS
  Overview of Compensation Program
  Compensation Philosophy and Objectives
   Setting Executive Compensation
   97




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Role of Chief Executive Officer in Compensation Decisions
  2008 Executive Compensation Components
  
    
    base salary;
    
    equity-based compensation;
    
    incentive-based compensation;
    
    retirement and other benefits; and
    
    perquisites and other personal benefits.
 Base Salary
   98




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Equity-Based Compensation
    Incentive-Based Compensation
 Annual Bonus.
    99




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Equity Incentives.
      100




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
    
    the options vest one-third per year over three years beginning on the first anniversary of
the date of grant;
    
    the options expire with regard to vested shares three years from the applicable vesting
date; and
    
    under certain circumstances, the options are forfeited with regard to unvested shares upon
separation from the Company.
  
    
    stock options align the interests of executives with those of our shareholders, support a
pay-for-performance culture, foster employee stock ownership, and focus our management team
on increasing value for our shareholders;
    
    stock options are performance based (i.e., all of the value received by the recipient from
a stock option is based on the growth of the stock price above the option price); and
    
    the vesting terms for stock options create incentive for increases in shareholder value
over a longer term and encourages executive retention.
 Pension Plan
    
    
    Receive a cash payout if the employees retirement savings is less than $6,000;
    
    Transfer the retirement savings to a life annuity for investment by a life insurance
company and payment of a regular income stream to the employee for the remainder of the
employees life (and the employees spouses life if the employee is married at the time of
retirement); or
    
    Transfer the retirement savings to a Retirement Savings Arrangement account with an
approved provider or bank and receive regular income payments until the account is depleted.
 101




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Perquisites and Other Personal Benefits
  Termination-Based Compensation
 Termination
  i.
    
    the death of the Named Executive Officer;ii.
    
    the Named Executive Officer being adjudicated bankrupt;iii.
    
    the Named Executive Officer giving six months notice of termination; andiv.
    
    the Named Executive Officer being unable to discharge his duties due to physical or mental
illness for a period of more than 60 days.
    Severance
  102




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Change in Control
  
    
    Incentives to remain with us despite uncertainties while a transaction is under
consideration or pending; and
 
    
    Assurance of compensation for terminated employees after a Change in Control.
   Compensation Committee Report
   
 103




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ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION
 Summary Compensation Table
  Stock
    
    Option
    
    Non-EquityName and Principal
    
    
    
    
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    Incentive Plan
    
    All Other
    
    TotalPosition
    
    Year
    
    ($)
    
    ($) (1)
    
    ($) (2)
    
    ($(3)
    
    Compensation($) (4)
    
    Compensation($) (5)
    
    ($)Frederick W. McTaggartChief Executive Officer
    
    
    2008
    
    
    
    375,000
    
    
    
    115,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,360
    
    
    
    500,3602007
    
    
    
    230,000
    
    
    
    312,508
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,600
    
    
    
    549,1082006
    
    
    
    223,416
    
    
    
    175,379
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,600
    
    
    
    405,395David W. Sasnett (6)Executive VP & Chief
    
    
    2008
    
    
    
    221,000
    
    
    
    50,000
    
    
    
    30,000
    
    
    
    93,941
    
    
    
    
    
    
    
    10,200
    
    
    
    405,141Financial Officer
    
    
    2007
    
    
    
    202,500
    
    
    
    50,625
    
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    9,000
    
    
    
    302,1252006
    
    
    
    155,000
    
    
    
    67,500
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    8,400
    
    
    
    250,900Ramjeet JerrybandanVP Overseas Operations
    
    
    2008
    
    
    
    132,750
    
    
    
    45,000
    
    
    
    
    
    
    
    74,899
    
    
    
    
    
    
    
    13,800
    
    
    
    266,4492007
    
    
    
    122,570
    
    
    
    49,028
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,600
    
    
    
    175,1982006
    
    
    
    102,000
    
    
    
    24,644
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,600
    
    
    
    130,244Gregory S.
McTaggartVP Cayman
Operations
    
    
    2008
    
    
    
    132,750
    
    
    
    30,000
    
    
    
    
    
    
    
    74,899
    
    
    
    
    
    
    
    8,750
    
    
    
    246,3992007
    
    
    
    128,750
    
    
    
    51,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,100
    
    
    
    186,3502006
    
    
    
    125,000
    
    
    
    35,816
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,100
    
    
    
    166,916Gerard J. Pereira
VP Sales and Marketing
    
    
    2008
    
    
    
    132,750
    
    
    
    26,550
    
    
    
    
    
    
    
    56,174
    
    
    
    
    
    
    
    13,800
    
    
    
    229,2742007
    
    
    
    122,750
    
    
    
    49,028
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,600
    
    
    
    175,3782006
    
    
    
    99,167
    
    
    
    36,914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,600
    
    
    
    139,681
 
 (1)
    
    Bonus amounts have been determined pursuant to the bonus terms outlined in our Named
Executive Officers respective employment agreements.(2)
    
    Under the terms of Mr. Sasnetts employment agreement effective for 2007, he was entitled to
receive the equivalent in value of $40,000 of our common shares annually. Such shares vest
quarterly in increments of 12.5% over a two-year period beginning on the date of grant.(3)
    
    There were no option awards during 2006 and 2007 to Named Executive Officers. Options
amounts have been determined pursuant to the option terms outlined in our Named Executive
Officers respective employment agreements.(4)
    
    There was no non-equity incentive plan compensation during 2006, 2007 and 2008 to Named
Executive Officers.(5)
    
    Represents (i) pension plan contributions of $3,600 for each of Frederick W. and Gregory S.
McTaggart, Ramjeet Jerrybandan and Gerard Pereira, (ii) car allowance of $10,200, $9,000 and
$8,400 for Mr. Sasnett for 2008, 2007 and 2006, respectively; (iii) car allowance of $10,200
for Mr. Jerrybandan and Mr. Pereira for 2008; (iv) the cost to us in the amount of $5,150,
$2,500 and $2,500 for the automobile used by Gregory S. McTaggart for 2008, 2007 and 2006,
respectively; and (v) the cost to us in the amount of $6,760, $3,000 and $3,000 for the
automobile used by Frederick W. McTaggart for 2008, 2007 and 2006, respectively.(6)
    
    Mr. Sasnett assumed the position of Chief Financial Officer effective June 3, 2006. The 2006
information presented herein represents annualized compensation amounts paid for the period
from June 2, 2006 to December 31, 2006. 104




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##### Table of Contents



Employment Agreements
 Frederick W. McTaggart-President and Chief Executive Officer
 st
 st
    David W. Sasnett-Executive Vice President & Chief Financial Officer
   105




---



##### Table of Contents



Gregory S. McTaggart-Vice President of Cayman Operations
     Ramjeet Jerrybandan-Vice President of Overseas Operations
   106




---



##### Table of Contents



Gerard J. Pereira-Vice President of Sales and Marketing
      107




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##### Table of Contents



Grants of Plan-Based Awards
  Number ofSecurities
    
    
    
    
    
    
    Grant DateUnderlying
    
    
    
    
    
    
    Fair ValueOptions
    
    
    Exercise
    
    
    of OptionName
    
    Grant Date
    
    
    Expiration Date
    
    
    Granted
    
    
    Price
    
    
    Award (1)Frederick W. McTaggart
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    David W. Sasnett
    
    
    5/14/2008
    
    
    
    1/1/2014
    (2)
    
    
    22,200
    
    
    $
    30.40
    
    
    $
    15.45Ramjeet Jerrybandan
    
    
    5/14/2008
    
    
    
    1/1/2014
    (2)
    
    
    17,700
    
    
    $
    30.40
    
    
    $
    15.45Gregory S. McTaggart
    
    
    5/14/2008
    
    
    
    1/1/2014
    (2)
    
    
    17,700
    
    
    $
    30.40
    
    
    $
    15.45Gerard J. Pereira
    
    
    5/14/2008
    
    
    
    1/1/2014
    (2)
    
    
    13,275
    
    
    $
    30.40
    
    
    $
    15.45
  (2)
    
    These options vest in equal tranches on each of January 1, 2009, 2010 and 2011 and
expire three years from the applicable vesting date.
 Outstanding Equity Awards at Fiscal Year-End
  Number of SecuritiesUnderlying Unexercised
    
    
    Option
    
    
    Option
    
    
    OptionOptions at Fiscal Year End
    
    
    Exercise
    
    
    Grant
    
    
    ExpirationName
    
    Exercisable
    
    
    Unexercisable
    
    
    Price
    
    
    Date
    
    
    DateFrederick W. McTaggart
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    David W. Sasnett
    
    
    7,400
    
    
    
    14,800
    (1)
    
    $
    30.40
    
    
    
    5/14/2008
    
    
    
    1/1/2014
    (2)Ramjeet Jerrybandan
    
    
    5,900
    
    
    
    11,800
    (1)
    
    $
    30.40
    
    
    
    5/14/2008
    
    
    
    1/1/2014
    (2)Gregory S. McTaggart
    
    
    5,900
    
    
    
    11,800
    (1)
    
    $
    30.40
    
    
    
    5/14/2008
    
    
    
    1/1/2014
    (2)Gerard J. Pereira
    
    
    4,425
    
    
    
    8,850
    (1)
    
    $
    30.40
    
    
    
    5/14/2008
    
    
    
    1/1/2014
    (2)
 
  108




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Option Exercises and Stock Vested
  Option Awards
    
    
    Stock AwardsNumber ofShares
    
    
    
    
    
    
    Number ofAcquired on
    
    
    Value Realized
    
    
    Shares Acquired
    
    
    Value RealizedName
    
    Exercise (#)
    
    
    on Exercise ($)
    
    
    on Vesting (#)
    
    
    on Vesting ($)Frederick W. McTaggart
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    David W. Sasnett
    
    
    
    
    
    
    
    
    
    
    1,268
    
    
    
    22,846Ramjeet Jerrybandan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gregory S. McTaggart
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gerard J. Pereira
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Pension Benefits
  Non-Qualified Deferred Compensation
  Potential Payments Upon Termination or Change of Control
  Termination
  
    
    the death of the Named Executive Officer;
    
    the Named Executive Officer being adjudicated bankrupt;
    
    the Named Executive Officer giving six months notice of termination; and
    
    the Named Executive Officer being unable to discharge his duties due to physical or mental
illness for a period of more than 60 days.
    109




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Medical
    
    
    Pension Fund
    
    
    TotalSalary
    
    
    Insurance
    
    
    Contribution
    
    
    CompensationName
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)Frederick W. McTaggart
    
    
    2,000
    
    
    
    28,526
    
    
    
    7,200
    
    
    
    37,726David W. Sasnett
    
    
    1,000
    
    
    
    22,080
    
    
    
    
    
    
    
    23,080Ramjeet Jerrybandan
    
    
    2,000
    
    
    
    9,656
    
    
    
    7,200
    
    
    
    18,856Gregory S. McTaggart
    
    
    2,000
    
    
    
    9,529
    
    
    
    7,200
    
    
    
    18,729Gerard J. Pereira
    
    
    2,000
    
    
    
    28,526
    
    
    
    7,200
    
    
    
    37,726
  Severance
  Change in Control
  
    
    Incentives to remain with us despite uncertainties while a transaction is under
consideration or pending; and
    
    Assurance of compensation for terminated employees after a Change in Control.
   110




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Director Compensation
  FeesEarned or
    
    
    StockPaid in Cash
    
    
    Awards
    
    
    TotalName
    
    ($)
    
    
    ($)(1)
    
    
    ($)Jeffrey M. Parker
    
    
    39,140
    
    
    
    
    
    
    
    39,140Frederick W. McTaggart
    
    
    
    
    
    
    
    
    
    
    David W. Sasnett
    
    
    
    
    
    
    
    
    
    
    William T. Andrews
    
    
    27,600
    
    
    
    6,409
    
    
    
    34,009Brian E. Butler *
    
    
    29,400
    
    
    
    7,310
    
    
    
    36,710Steven A. Carr *
    
    
    36,700
    
    
    
    10,150
    
    
    
    46,850Carson K. Ebanks *
    
    
    20,200
    
    
    
    4,338
    
    
    
    24,538Richard L. Finlay *
    
    
    44,050
    
    
    
    11,788
    
    
    
    55,838Clarence B. Flowers, Jr. *
    
    
    28,000
    
    
    
    6,866
    
    
    
    34,866Wilmer F. Pergande *
    
    
    36,400
    
    
    
    9,251
    
    
    
    45,651Leonard J. Sokolow *
    
    
    48,950
    
    
    
    12,245
    
    
    
    61,195Raymond Whittaker *
    
    
    33,200
    
    
    
    8,140
    
    
    
    41,340
 
 *
    
    The Board of Directors has determined that each of such persons is an independent director
under the corporate governance rules of NASDAQ.(1)
    
    Represents the grant date fair value computed in accordance with SFAS No. 123(R). Director Compensation Policy
      111




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Compensation Committee Interlocks and Insider Participation in Compensation Decisions
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS
MATTERS
  
    
    each person or entity that we know beneficially owns more than 5% of our common shares or
redeemable preference shares;
    
    each of our directors;
    
    our Chief Executive Officer and our Chief Financial Officer during the year ended December
31, 2008, and the three other most highly compensated executive officers who were serving as
executive officers on December 31, 2008; and
    
    all of our executive officers and directors as a group.
 Identity of
    
    Amount
    
    
    PercentageTitle of Class
    
    Person or Group
    
    Owned
    
    
    of ClassCommon Shares
    
    Pictet Asset Management SA (1)
    
    
    1,635,600
    
    
    
    11.26
    %Common Shares
    
    Invesco PowerShares Capital Management
    
    
    886,894
    
    
    
    6.10
    %LLC (2)Common Shares
    
    Thomson, Horstmann, & Bryant, Inc. (3)
    
    
    757,050
    
    
    
    5.21
    %Common Shares
    
    Jeffrey M. Parker,
    
    
    464,064
    
    
    
    3.19
    %Director, Chairman of theBoard of Directors (4)Common Shares
    
    Frederick W. McTaggart,
    
    
    116,257
    
    
    
    *Director, President andChief Executive OfficerCommon Shares
    
    David W. Sasnett,
    
    
    11,616
    
    
    
    *Director, Executive Vice President andChief Financial Officer (5)
 112




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##### Table of Contents



Identity of
    
    Amount
    
    
    PercentageTitle of Class
    
    Person or Group
    
    Owned
    
    
    of ClassCommon Shares
    
    Gregory S. McTaggart,
    
    
    112,972
    
    
    
    *Vice President of CaymanOperations (6)Common Shares
    
    Ramjeet Jerrybandan
    
    
    8,255
    
    
    
    *Vice President of Overseas Operations (7)Common Shares
    
    Gerard J. Pereira
    
    
    12,203
    
    
    
    *Vice President of Sales and Marketing (8)Common Shares
    
    William T. Andrews,
    
    
    3,088
    
    
    
    *DirectorCommon Shares
    
    Brian E. Butler,
    
    
    43,744
    
    
    
    *DirectorCommon Shares
    
    Steven A. Carr,
    
    
    73,549
    
    
    
    *Director (9)Common Shares
    
    Carson K. Ebanks,
    
    
    749
    
    
    
    *DirectorCommon Shares
    
    Richard L. Finlay,
    
    
    13,212
    
    
    
    *DirectorCommon Shares
    
    Clarence B. Flowers, Jr.,
    
    
    14,582
    
    
    
    *DirectorCommon Shares
    
    Wilmer F. Pergande,
    
    
    14,869
    
    
    
    *DirectorCommon Shares
    
    Leonard J. Sokolow,
    
    
    1608
    
    
    
    *Director (10)Common Shares
    
    Raymond Whittaker,
    
    
    12,352
    
    
    
    *DirectorCommon Shares
    
    Directors and Executive
    
    
    903,120
    
    
    
    6.21
    %Officers as a Group (11)Redeemable
    
    Marinus Barendsen,
    
    
    1,300
    
    
    
    7.49
    %Preference Shares
    
    Former General Manager, CW-BahamasRedeemable
    
    Robert Morrison
    
    
    1,215
    
    
    
    7.00
    %Preference Shares
    
    Vice President of Purchasing and ITRedeemable
    
    Gerard Pereira
    
    
    1,187
    
    
    
    6.84
    %Preference Shares
    
    Vice President of Sales and MarketingRedeemable
    
    Kenneth Crowley
    
    
    1,081
    
    
    
    6.22
    %Preference Shares
    
    Special Projects Engineer
 113




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##### Table of Contents



Identity of
    
    Amount
    
    
    PercentageTitle of Class
    
    Person or Group
    
    Owned
    
    
    of ClassRedeemable
    
    Gregory S. McTaggart,
    
    
    1,063
    
    
    
    6.12
    %Preference Shares
    
    Vice President of Cayman Operations
 
 *
    
    Indicates less than 1%**
    
    Unless otherwise indicated, to our knowledge, the persons named in the table above have sole
voting and investment power with respect to the shares listed. In computing the number of
shares beneficially owned by a person and the percentage ownership of that person, shares
issuable under stock options exercisable within 60 days after March 10, 2009 are deemed
outstanding for that person but are not deemed outstanding for computing the percentage of
ownership of any other person.(1)
    
    On February 11, 2009, Pictet Asset Management SA filed an amended Schedule 13G (Schedule
13G) with Securities and Exchange Commission. The Schedule 13G states that Pictet Asset
Management SA has sole voting power over 1,635,600 common shares and sole dispositive power
over 1,635,600 shares. The address of Pictet Asset Management SA is 60 Route des Acacias,
Geneva 73, Switzerland, CH-12 11.(2)
    
    On February 17, 2009, Invesco Ltd., on its own behalf and on behalf of its subsidiary,
Invesco PowerShares Capital Management LLC, filed an amended Schedule 13G (Schedule 13G)
with the Securities and Exchange Commission. The Schedule 13G states that on its own behalf
and on behalf of its subsidiary, Invesco PowerShares Capital Management LLC has sole voting
power over 886,894 common shares and sole dispositive power over 886,894 shares. The address
of Invesco PowerShares Capital Management LLC is 301 West Roosevelt Road, Wheaton, IL 60187.(3)
    
    On February 13, 2009 Thomson Horstmann & Bryant, Inc. filed an amended Schedule 13G
(Schedule 13G) with the Securities and Exchange Commission. The Schedule 13G states that
Thomson Horstmann & Bryant, Inc. has sole voting power over 757,050 common shares and sole
dispositive power over 757,050 shares. The address of the Thomson Horstmann & Bryant, Inc. is
Park 80 West, Plaza One, Saddle Brook, NJ 07663.(4)
    
    Of the 464,064 common shares owned by Mr. Parker, all are owned by the Parker Settlement
Trust (the Trust). Mr. Parker disclaims beneficial ownership of the shares owned by the
Trust. Of the shares owned by the Trust, 215,430 have been pledged.(5)
    
    Of the 11,616 common shares beneficially owned by Mr. Sasnett, 7,400 are issuable upon
exercise of stock options within 60 days of March 10, 2009.(6)
    
    Of the 112,972 common shares beneficially owned by Mr. Gregory S. McTaggart, 5,900 are
issuable upon exercise of stock options within 60 days of March 10, 2009.(7)
    
    Of the 8,255 common shares beneficially owned by Mr. Jerrybandan, 5,900 are issuable upon
exercise of stock options within 60 days of March 10, 2009.(8)
    
    Of the 7,778 common shares beneficially owned by Mr. Pereira, 6,778 have shared investment
power and 4,425 are issuable upon exercise of stock options within 60 days of March 10, 2009.(9)
    
    Of the 73,549 common shares beneficially owned by Mr. Carr, 70,000 are in a trust, for which
Mr. Carr indirectly owns the shares as co-trustee. Of the shares owned by the trust, all have
been pledged.(10)
    
    Of the 1,608 common shares beneficially owned by Mr. Sokolow, all have shared investment
power.(11)
    
    Of the 903,120 common shares owned by the Directors and executive officers as a group, 8,386
have shared investment power, 534,064 are indirectly owned, 23,625 are issuable upon exercise
of stock options 114




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##### Table of Contents



within 60 days of March 10, 2009, 464,064 have been disclaimed as beneficially owned and
215,430 are pledged. Equity Compensation Plan Information
  
    
    all compensation plans previously approved by our security holders; and
    
    all compensation plans not previously approved by our security holders.
 Number of securitiesNumber of
    
    
    
    
    
    remaining available forsecurities
    
    
    
    
    
    future issuance underto be issued upon
    
    Weighted-average
    
    equity compensationexercise of
    
    exercise price of
    
    plans (excludingoutstanding options,
    
    outstanding options,
    
    securities reflected inwarrants and rights
    
    warrants and rights
    
    column (a))Plan category
    
    (a)**
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    118,115
    
    
    $
    28.30
    
    
    
    *Equity compensation
plans not approved
by security holders
    
    
    
    
    
    $
    
    
    
    
    *Total
    
    
    118,115
    
    
    $
    28.30
    
    
    
    *
 
 *
    
    Our equity compensation plans do not have any limits on the amount of shares reserved for
issuance under the plans.**
    
    All of the 118,115 shares are issuable pursuant to our Employee Share Option Plan, and our
Senior Management share option program. See Note 20 to the Notes to Consolidated Financial
Statements. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 Transactions With Related Persons
 TM
  115




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  2008
    
    
    2007Audit
    
    $
    325,800
    
    
    $
    444,130Audit-Related
    
    
    
    
    
    
    Tax
    
    
    6,000
    
    
    
    6,000All Other
    
    
    
    
    
    
    Total
    
    
    331,800
    
    
    
    450,130
     116




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
        117




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##### Table of Contents



SIGNATURES
  CONSOLIDATED WATER CO. LTD.By:
    /s/ Jeffrey M. ParkerJeffrey M. ParkerChairman of the Board of Directors   Signature
    
    Title
    
    DateBy:
    /s/ Jeffrey M. Parker

Jeffrey M. Parker
    
    Chairman of the Board of Directors
    
    March 16, 2009By:
    /s/ Frederick W. McTaggart

Frederick W. McTaggart
    
    Director, Chief Executive Officer
and President (Principal
Executive Officer)
    
    March 16, 2009By:
    /s/ David W. Sasnett

David W. Sasnett
    
    Director, Executive Vice
President & Chief Financial
Officer (Principal Financial and
Accounting Officer)
    
    March 16, 2009By:
    /s/ William T. Andrews

William T. Andrews
    
    Director
    
    March 16, 2009By:
    /s/ Brian E. Butler

Brian E. Butler
    
    Director
    
    March 16, 2009By:
    /s/ Steven A. Carr

Steven A. Carr
    
    Director
    
    March 16, 2009By:
    /s/ Carson K. Ebanks

Carson K. Ebanks
    
    Director
    
    March 16, 2009By:
    /s/ Richard L. Finlay

Richard L. Finlay
    
    Director
    
    March 16, 2009By:
    /s/ Clarence B. Flowers, Jr.

Clarence B. Flowers, Jr.
    
    Director
    
    March 16, 2009By:
    /s/ Wilmer F. Pergande

Wilmer F. Pergande
    
    Director
    
    March 16, 2009By:
    /s/ Leonard J. Sokolow

Leonard J. Sokolow
    
    Director
    
    March 16, 2009By:
    /s/ Raymond Whittaker

Raymond Whittaker
    
    Director
    
    March 16, 2009
 118




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##### Table of Contents



CONSOLIDATED
WATER CO. LTD.
 INDEX TO EXHIBITS FILED WITH 10-K
 Number
    
    Exhibit Description2.1.1
    
    
    Share Sale Agreement dated October 4, 2002 among Consolidated
Water Co. Ltd. and William T. Andrews and Margaret D. Andrews
(incorporated herein by reference to Exhibit 2.1 filed as a part
of our Form 8-K dated February 13, 2003, Commission File No.
0-25248)2.1.2
    
    
    Agreement to Amend Share Sale Agreement dated November 29, 2002
between the Company and William T. Andrews and Margaret D. Andrews
(incorporated herein by reference to Exhibit 2.2 filed as a part
of our Form 8-K dated February 13, 2003, Commission File No.
0-25248)2.1.3
    
    
    Second Agreement to Amend Share Sale Agreement dated December 30,
2002 between the Company and William T. Andrews and Margaret D.
Andrews (incorporated herein by reference to Exhibit 2.3 filed as
a part of our Form 8-K dated February 13, 2003, Commission File
No. 0-25248)2.1.4
    
    
    Third Agreement to Amend Share Sale Agreement dated January 31,
2003 between the Company and William T. Andrews and Margaret D.
Andrews (incorporated herein by reference to Exhibit 2.4 filed as
a part of our Form 8-K dated February 13, 2003, Commission File
No. 0-25248)2.1.5
    
    
    Share Sale Agreement dated October 4, 2002 among Consolidated
Water Co. Ltd., North American Mortgage & Finance Corporation and
Transcontinental Finance Corporation Ltd. (incorporated herein by
reference to Exhibit 2.5 filed as a part of our Form 8-K dated
February 13, 2003, Commission File No. 0-25248)2.2.1
    
    
    Agreement to Amend Share Sale Agreement dated November 29, 2002
among the Company North-American Mortgage & Finance Corporation
and Transcontinental Finance Corporation Limited (incorporated
herein by reference to Exhibit 2.6 filed as a part of our Form 8-K
dated February 13, 2003, Commission File No. 0-25248)2.2.2
    
    
    Second Agreement to Amend Share Sale Agreement dated December 30,
2002 among the Company North-American Mortgage & Finance
Corporation and Transcontinental Finance Corporation Limited
(incorporated herein by reference to Exhibit 2.7 filed as a part
of our Form 8-K dated February 13, 2003, Commission File No.
0-25248)2.2.3
    
    
    Third Agreement to Amend Share Sale Agreement dated January 31,
2003 among the Company North-American Mortgage & Finance
Corporation and Transcontinental Finance Corporation Limited
(incorporated herein by reference to Exhibit 2.8 filed as a part
of our Form 8-K dated February 13, 2003, Commission File No.
0-25248)2.3.1
    
    
    Agreement dated October 8, 2002 between Consolidated Water Co.
Ltd. and Sage Water Holdings (BVI) Limited (incorporated herein by
reference to Exhibit 2.9 filed as a part of our Form 8-K dated
February 13, 2003, Commission File No. 0-25248)2.3.2
    
    
    Amending Agreement dated November 15, 2002 between the Company and
Sage Water Holdings (BVI) Limited (incorporated herein by
reference to Exhibit 2.10 filed as a part of our Form 8-K dated
February 13, 2003, Commission File No. 0-25248)2.3.3
    
    
    Second Amending Agreement dated December 18, 2002 between the
Company and Sage Water Holdings (BVI) Limited (incorporated herein
by reference to Exhibit 2.11 filed as a part of our Form 8-K dated
February 13, 2003, Commission File No. 0-25248)2.3.4
    
    
    Third Amending Agreement dated January 28, 2003 between the
Company and Sage Water Holdings (BVI) Limited (incorporated herein
by reference to Exhibit 2.12 filed as a part of our Form 8-K dated
February 13, 2003, Commission File No. 0-25248)2.4
    
    
    Share Sale Agreement dated December 16, 2002 between Consolidated
Water Co. Ltd. and Bacardi & Co. Ltd. (incorporated herein by
reference to Exhibit 2.14 filed as a part of our Form 8-K dated
February 13, 2003, Commission File No. 0-25248)




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##### Table of Contents



Number
    
    Exhibit Description2.5
    
    
    Registration Rights Agreement dated February 7, 2003 between
Consolidated Water Co. Ltd. and North American Mortgage & Finance
Corporation (incorporated herein by reference to Exhibit 2.15
filed as a part of our Form 8-K dated February 13, 2003,
Commission File No. 0-25248)3.1
    
    
    Amended and Restated Memorandum of Association of Consolidated
Water Co. Ltd. dated May 14, 2008 (incorporated by reference to
Exhibit 3.1 filed as part of our Form 8-K filed October 12, 2006,
Commission File No. 0-25248)3.2
    
    
    Amended and Restated Articles of Association of Consolidated Water
Co. Ltd. dated May 10, 2006 (incorporated by reference to Exhibit
4.2 filed as part of our Form F-3 filed October 12, 2006,
Commission File No. 333-137970)3.3
    
    
    Amendment to Articles of Association of Consolidated Water Co.
Ltd. dated May 11, 2007 (incorporated by reference to Exhibit 3.1
filed as part of our Form 8-K filed May 14, 2007, Commission File
No. 0-25248)4.1
    
    
    Option Deed, dated August 6, 1997, between Cayman Water Company
Limited and American Stock Transfer & Trust Company (incorporated
herein by reference to the exhibit filed on our Form 6-K, dated
August 7, 1997, Commission File No. 0-25248)4.2
    
    
    Deed of Amendment of Option Deed dated August 8, 2005
(incorporated herein by reference to Exhibit 4.2 filed as a part
of our Form 8-K dated August 11, 2005, Commission File No.
0-25248)4.3
    
    
    Second Deed of Amendment of Option Deed, dated September 27, 2005
(incorporated herein by reference to the exhibit filed as a part
of our Form 8-K dated October 3, 2005, Commission File No.
0-25248)4.4
    
    
    Third Deed of Amendment to Option Deed, dated May 30, 2007
(incorporated herein by reference to Exhibit 4.3 filed as part of
our Form 8-K filed June 1, 2007, Commission File No. 0-25248)10.1.1
    
    
    License Agreement dated July 11, 1990 between Cayman Water Company
Limited and the Government of the Cayman Islands (incorporated
herein by reference to the exhibit filed as a part of our Form
20-F dated December 7, 1994, Commission File No. 0-25248)10.1.2
    
    
    First Amendment to License Agreement dated September 18, 1990
between Cayman Water Company Limited and the Government of the
Cayman Islands. (incorporated herein by reference to the exhibit
filed as a part of our Form 20-F dated December 7, 1994,
Commission File No. 0-25248)10.1.3
    
    
    Second Amendment to License Agreement dated February 14, 1991
between Cayman Water Company Limited and the Government of the
Cayman Islands. (incorporated herein by reference to the exhibit
filed as a part of our Form 20-F dated December 7, 1994,
Commission File No. 0-25248)10.1.4
    
    
    Third Amendment to a License to Produce Potable Water dated August
15, 2001 between Consolidated Water Co. Ltd. by the Government of
the Cayman Islands (incorporated herein by reference to Exhibit
10.4 filed as a part of our Form 10-K for the fiscal year ended
December 31, 2001, Commission File No. 0-25248)10.1.5
    
    
    Fourth Amendment to a License to Produce Potable Water dated
February 1, 2003 between Consolidated Water Co. Ltd. by the
Government of the Cayman Islands (incorporated herein by reference
to Exhibit 10.5 filed as a part of our Form 10-K for the fiscal
year ended December 31, 2002, Commission File No. 0-25248)10.2
    
    
    Agreement dated December 19, 2002 between Consolidated Water Co.
Ltd. (formerly Cayman Water Company Limited) and Safe Haven Ltd.
(incorporated herein by reference to Exhibit 10.6 filed as a part
of our Form 10-K for the fiscal year ended December 31, 2002,
Commission File No. 0-25248)10.3
    
    
    Water Supply Agreement dated December 18, 2000 between
Consolidated Water Co. Ltd. and South Bimini International Ltd.
(incorporated herein by reference to Exhibit 10.2 filed as a part
of our Form 10-K for the fiscal year ended December 31, 2000,
Commission File No. 0-25248)




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##### Table of Contents



Number
    
    Exhibit Description10.4*
    
    
    Employment contract dated September 30, 2003 between Peter Ribbins
and Consolidated Water Co. Ltd. (incorporated herein by reference
to Exhibit 10.12 filed as a part of our Form 10-K for the fiscal
year ended December 31, 2003, Commission File No. 0-25248)10.5.1*
    
    
    Employment contract dated December 5, 2003 between Jeffrey Parker
and Consolidated Water Co. Ltd. (incorporated herein by reference
to Exhibit 10.16 filed as a part of our Form 10-K for the fiscal
year ended December 31, 2003, Commission File No. 0-25248)10.5.2*
    
    
    Amendment of Engagement Agreement dated September 14, 2007 between
Jeffrey Parker and Consolidated Water Co. Ltd. (incorporated
herein by reference to Exhibit 10.1 to our Form 8-K filed
September 19, 2007, Commission File No. 0-25248)10.6.1*
    
    
    Employment contract dated December 5, 2003 between Frederick
McTaggart and Consolidated Water Co. Ltd. (incorporated herein by
reference to Exhibit 10.18 filed as a part of our Form 10-K for
the fiscal year ended December 31, 2003, Commission File No.
0-25248)10.6.2*
    
    
    Amendment of Engagement Agreement dated September 14, 2007 between
Frederick W. McTaggart and Consolidated Water Co. Ltd.
(incorporated herein by reference to Exhibit 10.2 to our Form 8-K
filed September 19, 2007, commission File No. 0-25248)10.7.1*
    
    
    Engagement Agreement dated May 22, 2006 between David Sasnett and
Consolidated Water Co. Ltd. (incorporated herein by reference to
Exhibit 10.1 filed as part of our Form 8-K filed May 26, 2006,
Commission File No. 0-25248)10.7.2*
    
    
    Amended and restated Engagement Agreement dated March 29, 2007
between David Sasnett and Consolidated Water Co. Ltd.
(incorporated herein by reference to Exhibit 10.1 filed as part of
our Form 8-K filed April 14, 2007, Commission File No. 0-25248)10.7.3*
    
    
    Engagement Agreement dated January 15, 2008 between David Sasnett
and Consolidated Water Co. Ltd. (incorporated herein by reference
to Exhibit 10.1 filed as part of our Form 8-K filed January 22,
2008, Commission File No. 0-25248)10.8*
    
    
    Employment contract dated January 18, 2005 between Gregory
McTaggart and Consolidated Water Co. Ltd. (incorporated herein by
reference to Exhibit 10.55 filed as a part of our Form 8-K dated
January 14, 2005, Commission File No. 0-25248)10.9*
    
    
    Employment contract dated January 14, 2005 between Gerard Pereira
and Consolidated Water Co. Ltd. (incorporated herein by reference
to Exhibit 10.57 filed as a part of our Form 8-K dated January 14,
2005, Commission File No. 0-25248)10.10*
    
    
    Employment contract dated January 17, 2005 between Robert Morrison
and Consolidated Water Co. Ltd. (incorporated herein by reference
to Exhibit 10.56 filed as a part of our Form 8-K dated January 14,
2005, Commission File No. 0-25248)10.11*
    
    
    Employment contract dated January 14, 2008 between Ramjeet
Jerrybandan and Consolidated Water Co. Ltd.10.12*
    
    
    Employment contract dated January 16, 2008 between Gerard Pereira
and Consolidated Water Co. Ltd.10.13
    
    
    Consultancy Agreement dated January 1, 2006 between Mr. Wilmer F.
Pergande and Consolidated Water Co. Ltd. (incorporated herein by
reference to Exhibit 10.64 filed as a part of our Form 10-K for
the fiscal year ended December 31, 2005, Commission File No.
0-25248)10.14
    
    
    Consulting Agreement dated November 17, 1998 between Cayman Water
Company Limited and R.J. Falkner & Company, Inc. (incorporated
herein by reference to Exhibit 10.30 filed as part of our
Registration Statement on Form F-2 dated May 17, 2000, Commission
File No. 333-35356)10.15
    
    
    Specimen Service Agreement between Cayman Water Company Limited
and consumers (incorporated herein by reference to the exhibit
filed as part of our Registration Statement on Form F-1 dated
March 26, 1996)




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##### Table of Contents



Number
    
    Exhibit Description10.16*
    
    
    Summary Share Grant Plan for Directors (incorporated herein by
reference to Exhibit 10.24 filed as part of our Registration
Statement on Form F-2 dated May 17, 2000, Commission File No.
333-35356)10.17*
    
    
    Employee Share Option Plan (incorporated herein by reference to
Exhibit 10.26 filed as a part of our Form 10-K for the fiscal year
ended December 31, 2001, Commission File No. 0-25248)10.18*
    
    
    2008 Equity Incentive Plan (incorporated by reference to Exhibit
10.1 filled as part of our Form 10-Q for the fiscal quarter ended
September 30, 2008, Commission File No. 0-25248)10.19
    
    
    Purchase and Sale Agreement, dated December 10, 2001, among
Consolidated Water Co. Ltd., Cayman Hotel and Golf Inc., Ellesmere
Britannia Limited and Hyatt Britannia Corporation Ltd.
(incorporated herein by reference to Exhibit 10.30 filed as part
of our Form 10-K for the fiscal year ended December 31, 2001,
Commission File No. 0-25248)10.20
    
    
    Agreement dated February 1, 2002 between Consolidated Water Co.
Ltd. and Cayman Hotel and Golf Inc. (incorporated herein by
reference to Exhibit 10.52 filed as a part of our Form 10-K for
the fiscal year ended December 31, 2001, Commission File No.
0-25248)10.21
    
    
    Agreement dated July 24, 1995 between Cayman Water Company Limited
and Galleon Beach Resort Limited (incorporated herein by reference
to Exhibit 10.33 filed as part of our Registration Statement on
Form F-2 dated May 17, 2000, Commission File No. 333-35356)10.22
    
    
    Agreement dated February 9, 1994 between Cayman Water Company
Limited and Widar Ltd. (incorporated herein by reference to
Exhibit 10.33 filed as part of our Registration Statement on Form
F-2 dated May 17, 2000, Commission File No. 333-35356)10.23
    
    
    Lease of Part dated October 13, 2000 between Consolidated Water
Co. Ltd. and Colmar Ltd. (incorporated herein by reference to
Exhibit 10.49 filed as a part of our Form 10-K for the year ended
December 31, 2000, Commission File No. 0-25248)10.24
    
    
    Lease of Part dated March 1, 2003 between Consolidated Water Co.
Ltd. and Colmar Ltd. (incorporated herein by reference to Exhibit
10.32 filed as a part of our Form 10-K for the fiscal year ended
December 31, 2003, Commission File No. 0-25248)10.25
    
    
    Lease of Part dated July 1, 2003 between Consolidated Water Co.
Ltd. and Colmar Ltd. (incorporated herein by reference to Exhibit
10.33 filed as a part of our Form 10-K for the fiscal year ended
December 31, 2003, Commission File No. 0-25248)10.26
    
    
    Lease dated December 10, 2001 between Cayman Hotel and Golf Inc.
and Consolidated Water Co. Ltd. (incorporated herein by reference
to Exhibit 10.52 filed as a part of our Form 10-K for the fiscal
year ended December 31, 2001, Commission File No. 0-25248)10.27.1
    
    
    Lease dated April 27, 1993 signed July 18, 2001 between Government
of Belize and Belize Water Limited (incorporated herein by
reference to Exhibit 10.53 filed as a part of our Form 10-K for
the fiscal year ended December 31, 2001, Commission File No.
0-25248)10.27.2
    
    
    Amended lease dated April 27, 1993 signed January 2, 2004 between
Government of Belize and Belize Water Limited (incorporated herein
by reference to Exhibit 10.36 filed as a part of our Form 10-K for
the fiscal year ended December 31, 2003, Commission File No.
0-25248)10.28
    
    
    Loan Agreement dated February 7, 2003 between Consolidated Water
Co. Ltd. and Scotiabank (Cayman Islands) Ltd. (incorporated herein
by reference to Exhibit 10.1 filed as a part of our Form 8-K dated
February 13, 2003, Commission File No. 0-25248)10.29.1
    
    
    Distributorship Agreement dated September 24, 2002 between DWEER
Technology Ltd. and DesalCo Limited (incorporated herein by
reference to Exhibit 10.58 filed as a part of our Form 10-K for
the fiscal year ended December 31, 2002, Commission File No.
0-25248)




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##### Table of Contents



Number
    
    Exhibit Description10.29.2
    
    
    Amendment to the Distributorship Agreement dated September 24,
2002 between DWEER Technologies Ltd. and DesalCo Limited
(incorporated herein by reference to Exhibit 10.43 filed as a part
of our Form 10-K for the fiscal year ended December 31, 2003,
Commission File No. 0-25248)10.30.1
    
    
    Distributorship Agreement dated February 26, 2004 between Calder
AG and DesalCo Limited (incorporated herein by reference to
Exhibit 10.44 filed as a part of our Form 10-K for the fiscal year
ended December 31, 2003, Commission File No. 0-25248)10.30.2
    
    
    First Amendment to the Distributorship Agreement dated August 30,
2005 among Calder AG, DesalCo Limited and DWEER Technologies Ltd. (incorporated herein by reference to Exhibit 10.27.2 filed as part of our
Form 10-K for the fiscal year ended December 31, 2007, Commission File No. 0-25248)10.30.3
    
    
    Amended and Restated Distributorship Agreement dated August 30,
2005 between Calder AG and DesalCo Limited (incorporated herein by reference to Exhibit 10.27.3 filed as part of our Form 10-K
for the fiscal year ended December 31, 2007, Commission File No. 0-25248)10.31
    
    
    Loan Agreement dated May 25, 2005 between Ocean Conversion (BVI),
Ltd. and Consolidated Water Co. Ltd. (incorporated herein by
reference to Exhibit 99.1 filed as a part of our Form 8-K dated
June 1, 2005, Commission File No. 0-25248)10.32
    
    
    Trust Deed dated August 4, 2006 between Consolidated Water Co.
Ltd. and Dextra Bank & Trust Co. Ltd. (incorporated herein by
reference to Exhibit 10.1 filed as a part of our Form 8-K filed
August 9, 2006, File No. 0-25248)10.33
    
    
    Subscription Agreement dated August 4, 2006 between Consolidated
Water Co. Ltd. and Scotiatrust and Merchant Bank Trinidad & Tobago
Limited (incorporated herein by reference to Exhibit 10.2 filed as
a part of our Form 8-K filed August 9, 2006, File No. 0-25248)10.34
    
    
    Deed of Second Debenture dated August 4, 2006 between Consolidated
Water Co. Ltd. and Dextra Bank & Trust Co. Ltd. (incorporated
herein by reference to Exhibit 10.5 filed as a part of our Form
8-K filed August 9, 2006, File No. 0-25248)10.35
    
    
    Deed of Second Collateral Debenture dated August 4, 2006 between
Cayman Water Company Limited and Dextra Bank & Trust Co. Ltd.
(incorporated herein by reference to Exhibit 10.6 filed as a part
of our Form 8-K filed August 9, 2006, File No. 0-25248)10.36
    
    
    Equitable Charge of Shares dated August 4, 2006 between
Consolidated Water Co. Ltd. and Dextra Bank & Trust Co. Ltd.
(incorporated herein by reference to Exhibit 10.7 filed as a part
of our Form 8-K filed August 9, 2006, File No. 0-25248)10.37
    
    
    Intercreditor Deed dated August 4, 2006 among Scotiabank & Trust
(Cayman) Ltd., Dextra Bank & Trust Co. Ltd., Consolidated Water
Co. Ltd. and Cayman Water Company Limited (incorporated herein by
reference to Exhibit 10.8 filed as a part of our Form 8-K filed
August 9, 2006, File No. 0-25248)10.38
    
    
    Cayman Islands Collateral Charge, West Bay Beach South Property,
Block 12D, Parcel 79REM1/2 (incorporated herein by reference to
Exhibit 10.9 filed as a part of our Form 8-K filed August 9, 2006,
File No. 0-25248)10.39
    
    
    Cayman Islands Collateral Charge, West Bay Beach North, Block 11D,
Parcel 40 (incorporated herein by reference to Exhibit 10.10 filed
as a part of our Form 8-K filed August 9, 2006, File No. 0-25248)10.40
    
    
    Cayman Islands Collateral Charge, West Bay Beach North, Block 11D,
Parcel 8 (incorporated herein by reference to Exhibit 10.11 filed
as a part of our Form 8-K filed August 9, 2006, File No. 0-25248)10.41
    
    
    Cayman Islands Collateral Charge, West Bay North East, Block 9A,
Parcel 8 (incorporated herein by reference to Exhibit 10.12 filed
as a part of our Form 8-K filed August 9, 2006, File No. 0-25248)10.42
    
    
    Cayman Islands Collateral Charge, West Bay North East, Block 9A,
Parcel 469 (incorporated herein by reference to Exhibit 10.13
filed as a part of our Form 8-K filed August 9, 2006, File No.
0-25248)




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##### Table of Contents



Number
    
    Exhibit Description10.43
    
    
    Loan Agreement dated as of October 4, 2006, by and between Royal
Bank of Canada and Consolidated Water (Bahamas) Ltd. (incorporated
herein by reference to Exhibit 10.1 filed as a part of our Form
8-K filed October 6, 2006, File No. 0-25248)18
    
    

Letter
regarding change in accounting principle21.1
    
    
    Subsidiaries of the Registrant23.1
    
    
    Consent of Rachlin LLP  Consolidated Water Co. Ltd.23.2
    
    
    Consent of Rachlin LLP  Ocean Conversion (BVI) Ltd.31.1
    
    
    Certification by the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification by the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification by the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification by the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Indicates a management contract or compensatory plan.