##### 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, 2006
 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 incorporation or 
organization)
    
    (I.R.S. Employer Identification No.)Regatta Office Park 
Windward Three, 4th Floor, West Bay Road 
P.O. Box 1114 GTGrand Cayman, Cayman Islands
    
    N/A(Address of principal executive offices)
    
    (Zip Code)
 (345) 945-4277
 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
   o þ 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
    
    
    22Item 1B.
    
    Unresolved Staff Comments
    
    
    30Item 2.
    
    Properties
    
    
    31Item 3.
    
    Legal Proceedings
    
    
    34Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    34PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    35Item 6.
    
    Selected Financial Data
    
    
    38Item 7.
    
    Managements Discussions and Analysis of Financial Condition and Results of Operations
    
    
    39Item 7A.
    
    Quantitative and Qualitative Disclosure about Market Risk
    
    
    51Item 8.
    
    Financial Statements and Supplementary Data
    
    
    52Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A.
    
    Controls and ProceduresItem 9B.
    
    Other InformationPART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    99Item 11.
    
    Executive Compensation
    
    
    105Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    119Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    124Item 14
    
    Principal Accounting Fees and Services
    
    
    125PART IVItem 15
    
    Exhibits, Financial Statement Schedules
    
    
    126SIGNATURES
    
    
    
    
    127EX-21.1 SubsidiariesEX-23.1 Consent of Rachlin Cohen & Holtz LLPEX-23.2 Consent of Rachlin Cohen & Holtz LLPEX-23.3 Consent of KPMGEX-23.4 Consent of KPMGEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO




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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 and a resort in The
Bahamas. In the Cayman Islands, we operate 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 2006, our retail water operations generated approximately 47% 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 2006, our bulk water operations generated
approximately 48% 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 2006, our services operations
generated approximately 5% 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.
  Location
    
    Plants
    
    Capacity(1)Cayman Islands
    
    
    6
    
    
    
    5.9Bahamas
    
    
    3
    
    
    
    10.0Belize
    
    
    1
    
    
    
    0.5Barbados
    
    
    1
    
    
    
    1.3British Virgin Islands
    
    
    2
    
    
    
    1.7
    (2)Total
    
    
    13
    
    
    
    19.4
 
 (1)
    
    In millions of U.S. gallons per day.(2)
    
    Owned and operated by OC-BVI. Does not include OC-BVIs recently constructed Bar Bay plant
that is currently not in use. 1




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Strategy
  
    
    little or no naturally occurring fresh water;
    
    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 populations and tourism levels.
   
    
    Maximizing the benefits of our exclusive retail license on Grand Cayman.We plan
to continue to increase operations within our exclusive retail license service area
through organic growth and possible further investments, if opportunities become
available.
    
    Expanding our existing operations in the Cayman Islands, Belize, Barbados and
The Bahamas.We plan to continue to seek new water supply agreements and licenses
and focus on renewing our existing service contracts with extended terms and
greater production levels.
    
    Penetrating new markets where there is demand for potable water and where we
believe production would be profitable.We plan to continue to seek opportunities
to expand our operations into new markets including, but not limited to, markets
throughout the Caribbean basin and Central America. We may pursue these
opportunities either on our own or through joint ventures and strategic alliances.
    
    Broadening our existing and future operations into complementary services, such
as wastewater management.We continue to consider and pursue opportunities to
leverage our water-related expertise to enter complementary service industries,
such as wastewater management.
 Our Company
  2




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
    
    Consolidated Water (Belize) Limited (or 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.
    
    Cayman Water Company Limited (or 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-municipal public water utility on
Grand Cayman, Cayman Water owns and operates three desalination plants on Grand Cayman.
    
    Ocean Conversion (Cayman) Limited (or 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 Water
Authority-Cayman.
    
    Consolidated Water (Bahamas) Limited (or CW-Bahamas).We acquired a 90.9% equity
interest in CW-Bahamas (formerly Waterfields Company Limited), which provides bulk
water under a long-term contract to the Water and Sewerage Corporation of The Bahamas,
a government agency. CW-Bahamas second desalination plant, our largest, was
substantially completed in July 2006.
    
    Aquilex, Inc.In 2005, we established Aquilex, a United States company, which
provides financial, engineering and supply chain management support services to our
subsidiaries and affiliate.
    
    Ocean Conversion (BVI) Ltd. (or OC-BVI). We acquired 50% of the voting stock of
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 and
certain profit sharing rights that raise our effective interest in OC-BVIs profits to
45.1%. OC-BVI also pays us fees for providing certain engineering and administrative
services.
 3




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
    
    DesalCo Limited (or DesalCo).We acquired DesalCo, a Cayman Islands company, which
provides management, engineering and construction services for desalination projects
and is the exclusive Caribbean distributor of the DWEER energy recovery system, an
advanced technology used to recapture energy from the discharged brine that is a
by-product of the reverse osmosis desalination process. DesalCo is the parent company
of DesalCo (Barbados) Ltd.
    
    DesalCo (Barbados) Ltd. (or DesalCo-Barbados).We acquired DesalCo-Barbados, a
wholly-owned subsidiary of DesalCo, with our acquisition of DesalCo. DesalCo-Barbados
operates a desalination plant in St. James, Barbados for a private owner. In addition
to our equity interest, DesalCo-Barbados pays us fees for providing engineering
services.
  Our Operations
   Retail Water Operations
  Retail Water Operations in the Cayman Islands
  4




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Facilities
    5




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Customers
    6




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Cayman Islands  Retail Water Customer Connections and Volume of Water Sold
 2006
    
    2005
    
    2004
    
    2003
    
    2002Number of Customers Connections
    
    
    4,300
    
    
    
    3,800
    
    
    
    3,600
    
    
    
    3,300
    
    
    
    3,100Volume of Water Sold (U.S. Gallons, In Thousands):Commercial
    
    
    562,702
    
    
    
    427,439
    
    
    
    451,609
    
    
    
    429,013
    
    
    
    405,545Residential
    
    
    173,665
    
    
    
    157,924
    
    
    
    122,699
    
    
    
    107,528
    
    
    
    103,661Government
    
    
    12,789
    
    
    
    8,929
    
    
    
    7,584
    
    
    
    6,164
    
    
    
    13,789Total
    
    
    749,156
    
    
    
    594,292
    
    
    
    581,892
    
    
    
    542,705
    
    
    
    522,995
    Retail Water Operations in The Bahamas
  Facilities
  Customers
  7




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Retail Water Demand and Average Sales Prices
  Retail Water Total Volume by Quarter
 2006
    
    2005
    
    2004
    
    2003
    
    2002First Quarter
    
    
    209,334
    
    
    
    146,461
    
    
    
    176,346
    
    
    
    141,575
    
    
    
    141,559Second Quarter
    
    
    213,570
    
    
    
    159,745
    
    
    
    175,813
    
    
    
    144,134
    
    
    
    146,488Third Quarter
    
    
    175,971
    
    
    
    137,881
    
    
    
    123,512
    
    
    
    125,510
    
    
    
    120,201Fourth Quarter
    
    
    156,640
    
    
    
    154,972
    
    
    
    110,754
    
    
    
    134,957
    
    
    
    119,231Total
    
    
    755,515
    
    
    
    599,059
    
    
    
    586,425
    
    
    
    546,176
    
    
    
    527,479
  Retail Water Average Sales Prices
 2006
    
    2005
    
    2004Average Sales Price Per 1,000 U.S. Gallons
    
    $
    23.82
    
    
    $
    22.32
    
    
    $
    20.62
 Bulk Water Operations
  Bulk Water Operations in the Cayman Islands
  Facilities
  8




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Customers
     Bulk Water Operations in Belize
  Facilities
   Customers
  9




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Bulk Water Operations in The Bahamas
  Facilities
  
 Customers
   10




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
    
    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.
  Bulk Water Demand and Average Sales Prices
  Bulk Water Total Volume By Quarter
 2006
    
    2005
    
    2004
    
    2003
    
    2002First Quarter
    
    
    585,297
    
    
    
    441,498
    
    
    
    438,851
    
    
    
    133,682
    
    
    
    24,751Second Quarter
    
    
    684,452
    
    
    
    456,625
    
    
    
    458,455
    
    
    
    208,107
    
    
    
    30,206Third Quarter
    
    
    1,040,096
    
    
    
    442,404
    
    
    
    424,665
    
    
    
    345,307
    
    
    
    30,028Fourth Quarter
    
    
    1,044,701
    
    
    
    506,892
    
    
    
    424,434
    
    
    
    414,404
    
    
    
    27,552Total
    
    
    3,354,546
    
    
    
    1,847,419
    
    
    
    1,746,405
    
    
    
    1,101,500
    
    
    
    112,537
 11




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Bulk Water Average Sales Prices
 2006
    
    2005
    
    2004Average Sales Price Per 1,000 U.S. Gallons
    
    $
    5.46
    
    
    $
    6.35
    
    
    $
    5.90
 Services Operations
  Engineering and Management Services Operations
    Services Operations in Barbados
  Customers
   12




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Affiliate Operations
    Customer
  Facilities
     13




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Reverse Osmosis Technology
  14




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Raw Materials and Sources of Supply
  Seasonal Variations in Our Business
  Government Regulations, Custom Duties and Taxes
  The Cayman Islands
  15




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
 
   The Bahamas
   Belize
  16




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Barbados
   The British Virgin Islands
  17




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Market and Service Area
      .
  18




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Competition
 Cayman Islands.
 19




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Belize.
 The Bahamas.
 British Virgin Islands.
 Barbados.
  Environmental Matters
 Cayman Islands.
  Belize, The Bahamas, British Virgin Islands.
 20




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Barbados.
 Employees
  Available Information
   th
 21




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ITEM 1A. RISK FACTORS
  Our exclusive license to provide water to retail customers in the Cayman Islands may not be renewed
in the future.
  We rely on fixed-term water supply and/or service agreements with our bulk customers in the Cayman
Islands, Belize, Barbados and The Bahamas, which may not be renewed or may be renewed on terms less
favorable to us.
  The water supply agreement between the British Virgin Islands Water and Sewerage Department and our
affiliate, OC-BVI, is on a month-to-month basis and could be cancelled or renegotiated on less
favorable terms.
  22




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The British Virgin Islands government has asserted a purported right of ownership of OC-BVIs
Baughers Bay plant. If this right is found to be enforceable and is exercised by the government,
OC-BVI will lose ownership of the Baughers Bay plant.
  We do not have sole control over our affiliate, OC-BVI. A divergence of our interests and the
interests of OC-BVIs other voting shareholder may adversely affect the operations of OC-BVI and in
turn decrease the value of our investment in OC-BVI.
  23




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The profitability of our plants is dependent upon our ability to accurately estimate the costs of
their construction and operation.
  A significant portion of our consolidated revenues are derived from two customers. A loss of, or a
less favorable relationship with either of these customers would adversely affect our results of
operations.
  If OC-BVI does not obtain a customer to purchase water to be produced at its Bar Bay plant
currently under construction, it may not be able to recover the cost of its investment in the
plant, which could adversely affect its operations and in turn decrease the value of our investment
in OC-BVI.
  24




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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.
  Continued production shortfalls under our Windsor supply contract could result in further rate
decreases or cancellation of the contract.
  25




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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.
 26




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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.
  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.
  27




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Future sales of our ordinary shares may depress the market price of our ordinary shares
  We may not pay dividends in the future. If dividends are paid, they may be in lesser amounts than
past dividends
  Service of process and enforcement of legal proceedings commenced against us in the United States
may be difficult to obtain.
    28




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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.
  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
 29




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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
  30




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ITEM 2. PROPERTIES
 Cayman Island Properties
 Governors Harbour Plant
  West Bay Plant
  Britannia Plant
  Distribution System
  Leased Properties
  31




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OC-Cayman Properties
  Red Gate Road Plant
  Lower Valley Plant
   
 North Sound Plant
  32




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Belize Properties
  Bahamas Properties
    U.S. Property
  33




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ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  34




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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 2006
    
    $
    28.40
    
    
    $
    19.85Second Quarter 2006
    
    
    31.32
    
    
    
    23.40Third Quarter 2006
    
    
    28.09
    
    
    
    21.13Fourth Quarter 2006
    
    
    28.62
    
    
    
    23.51First Quarter 2005
    
    $
    17.00
    
    
    $
    14.20Second Quarter 2005
    
    
    19.87
    
    
    
    16.40Third Quarter 2005
    
    
    22.24
    
    
    
    18.15Fourth Quarter 2005
    
    
    20.70
    
    
    
    15.30
       35




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Holders
  Dividends
   36




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First Quarter 2006
    
    $
    0.0600
    
    
    Per ShareSecond Quarter 2006
    
    
    0.0600
    
    
    Per ShareThird Quarter 2006
    
    
    0.0600
    
    
    Per ShareFourth Quarter 2006
    
    
    0.0600
    
    
    Per ShareFirst Quarter 2005
    
    $
    0.0575
    
    
    Per ShareSecond Quarter 2005
    
    
    0.0600
    
    
    Per ShareThird Quarter 2005
    
    
    0.0600
    
    
    Per ShareFourth Quarter 2005
    
    
    0.0600
    
    
    Per Share
 Exchange Controls and Other Limitations Affecting Security Holders
  Taxation
    37




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ITEM 6. SELECTED FINANCIAL DATA
  For the year ended December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002Statement of Income Data:Revenue
    
    $
    38,229,208
    
    
    $
    26,187,205
    
    
    $
    23,281,413
    
    
    $
    19,054,205
    
    
    $
    12,154,689Net Income
    
    
    7,521,126
    
    
    
    5,514,258
    
    
    
    6,197,383
    
    
    
    4,177,081
    
    
    
    2,576,310Balance Sheet Data:Total Assets
    
    
    138,961,343
    
    
    
    88,365,191
    
    
    
    70,825,049
    
    
    
    68,562,126
    
    
    
    25,507,637Long Term Debt Obligations
    
    
    23,500,593
    
    
    
    19,378,212
    
    
    
    12,856,226
    
    
    
    16,633,437
    
    
    
    2,074,609Redeemable Preferred Stock
    
    
    14,983
    
    
    
    19,382
    
    
    
    16,705
    
    
    
    16,302
    
    
    
    23,688Dividends Declared Per Share
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.23
    
    
    $
    0.21
    
    
    $
    0.21Basic Earnings Per Share
    
    $
    0.60
    
    
    $
    0.47
    
    
    $
    0.54
    
    
    $
    0.43
    
    
    $
    0.33Weighted Average Number of
Shares
    
    
    12,440,195
    
    
    
    11,767,573
    
    
    
    11,474,264
    
    
    
    9,834,366
    
    
    
    7,939,722Diluted Earnings Per Share
    
    $
    0.59
    
    
    $
    0.45
    
    
    $
    0.53
    
    
    $
    0.42
    
    
    $
    0.32Weighted Average Number of
Shares
    
    
    12,737,486
    
    
    
    12,161,407
    
    
    
    11,759,010
    
    
    
    10,075,060
    
    
    
    8,175,064
 38




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
    Comparative Operations2006
    
    2005Location
    
    Plants
    
    Capacity(1)
    
    Location
    
    Plants
    
    Capacity(1)Cayman Islands
    
    
    6
    
    
    
    5.9
    
    
    Cayman Islands
    
    
    6
    
    
    
    5.5Bahamas
    
    
    3
    
    
    
    10.0
    
    
    Bahamas
    
    
    2
    
    
    
    4.2Belize
    
    
    1
    
    
    
    0.5
    
    
    Belize
    
    
    1
    
    
    
    0.4Barbados
    
    
    1
    
    
    
    1.3
    
    
    Barbados
    
    
    1
    
    
    
    1.3British Virgin Islands
    
    
    2
    
    
    
    1.7
    (2)
    
    British Virgin Islands
    
    
    2
    
    
    
    1.7
    (2)Total
    
    
    13
    
    
    
    19.4
    
    
    Total
    
    
    12
    
    
    
    13.1
 
 (1)
    
    In millions of U.S. gallons per day.(2)
    
    Owned and operated by our affiliate OC-BVI. Does not include OC-BVIs recently
constructed Bar Bay plant that is currently not in use. Cayman Islands
  39




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##### Table of Contents



Belize
  Bahamas
   Barbados
  British Virgin Islands
  Critical Accounting Policies
  40




---



##### Table of Contents



Goodwill and other intangible assets
 Property, plant and equipment
 Buildings
    
    5 to 40 yearsPlant and equipment
    
    4 to 40 yearsDistribution system
    
    3 to 40 yearsOffice furniture, fixtures and equipment
    
    3 to 10 yearsVehicles
    
    3 to 10 yearsLeasehold improvements
    
    lesser of 5 years or operating lease termLab equipment
    
    5 to 10 years
  Construction in progress:
 41




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##### Table of Contents



Trade accounts receivable
 Quarterly Results of Operations
  For the year ended December 31, 2006First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterTotal revenue
    
    $
    9,243,564
    
    
    $
    9,626,979
    
    
    $
    10,010,365
    
    
    $
    9,348,300Gross profit
    
    
    4,773,348
    
    
    
    4,409,485
    
    
    
    3,808,822
    
    
    
    2,622,151Net income
    
    
    3,078,011
    
    
    
    2,522,029
    
    
    
    1,247,040
    
    
    
    674,046Diluted earnings per share
    
    
    0.24
    
    
    
    0.20
    
    
    
    0.10
    
    
    
    0.05
 For the year ended December 31, 2005First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterTotal revenue
    
    $
    6,057,485
    
    
    $
    6,552,868
    
    
    $
    6,204,386
    
    
    $
    7,372,466Gross profit
    
    
    2,397,860
    
    
    
    2,782,229
    
    
    
    2,202,414
    
    
    
    2,971,894Net income
    
    
    1,374,051
    
    
    
    1,481,359
    
    
    
    1,009,349
    
    
    
    1,649,499Diluted earnings per share
    
    
    0.12
    
    
    
    0.12
    
    
    
    0.08
    
    
    
    0.13
 Results of Operations
  Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 Consolidated Results
   42




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##### Table of Contents



Results by Segment
 Retail Segment:
    Bulk Segment:
  43




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##### Table of Contents



.
  Services Segment:
    Net Income
  Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 Revenue
   44




---



##### Table of Contents



Cost of Sales
     Gross Profit
  General and Administrative Expense
   45




---



##### Table of Contents



Other Income (Expense)
   LIQUIDITY AND CAPITAL RESOURCES
 Overview
     Cash Flows for the Year Ended December 31, 2006
  46




---



##### Table of Contents



Cash Flows from Operating Activities
  Cash Flows used in Investing Activities
  Cash Flows from Financing Activities
  Financial Position
      47




---



##### Table of Contents



Borrowings Outstanding
  5.95% Secured Bonds
    Consolidated Water (Bahamas) Limited (CW-Bahamas) Series A Bonds
  48




---



##### Table of Contents



CW-Bahamas Credit Facility
    Material Commitments, Expenditures and Contingencies
  2014 andTotal
    
    2007
    
    2008 - 2010
    
    2011 - 2013
    
    ThereafterSecured 5.95% bonds (1)
    
    $
    19,442,438
    
    
    $
    1,944,011
    
    
    $
    5,876,837
    
    
    $
    5,984,213
    
    
    $
    5,637,377Series A bonds (1)
    
    
    16,562,500
    
    
    
    937,500
    
    
    
    2,250,000
    
    
    
    2,250,000
    
    
    
    11,125,000Employment agreements
    
    
    1,754,379
    
    
    
    1,081,022
    
    
    
    673,357
    
    
    
    
    
    
    
    Operating leases
    
    
    710,227
    
    
    
    319,087
    
    
    
    363,290
    
    
    
    27,850
    
    
    
    Other
    
    
    442,126
    
    
    
    189,307
    
    
    
    202,819
    
    
    
    
    
    
    
    50,000
 
 (1)
    
    Includes interest costs to be incurred.  49




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##### Table of Contents



Dividends
      50




---



##### Table of Contents



Dividend Reinvestment and Common Stock Purchase Plan .
 Impact of Inflation
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 Credit Risk
  Interest Rate Risk
  Foreign Exchange Risk
  51




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 CONSOLIDATED WATER CO. LTD.
 PageINDEX TO CONSOLIDATED FINANCIAL STATEMENTSReports of Independent Registered Public Accounting Firms
    
    
    53Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    55Consolidated Statements of Income for each of the years ended December 31, 2006, 2005 and 2004
    
    
    56Consolidated Statements of Stockholders Equity for each of the years ended December 31, 2006, 2005 and 2004
    
    
    57Consolidated Statements of Cash Flows for each of the years ended December 31, 2006, 2005 and 2004
    
    
    58Notes to Consolidated Financial Statements
    
    
    59OCEAN CONVERSION (BVI) LTD.INDEX TO CONSOLIDATED FINANCIAL STATEMENTSReports of Independent Registered Public Accounting Firms
    
    
    81Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    83Consolidated Statements of Income for each of the years ended December 31, 2006, 2005 and 2004
    
    
    84Consolidated Statements of Stockholders Equity for each of the years ended December 31, 2006, 2005 and 2004
    
    
    85Consolidated Statements of Cash Flows for each of the years ended December 31, 2006, 2005 and 2004
    
    
    86Notes to Consolidated Financial Statements
    
    
    87
 52




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##### Table of Contents



53




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     
 54




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 
 CONSOLIDATED BALANCE SHEETS
  December 31,2006
    
    
    2005ASSETSCurrent assetsCash and cash equivalents
    
    $
    37,310,699
    
    
    $
    11,955,589Accounts receivable, net
    
    
    6,231,718
    
    
    
    5,659,975Inventory
    
    
    2,794,892
    
    
    
    2,032,209Prepaid expenses and other current assets
    
    
    1,099,619
    
    
    
    858,870Current portion of loans receivable
    
    
    735,632
    
    
    
    669,855Total current assets
    
    
    48,172,560
    
    
    
    21,176,498Loans receivable
    
    
    1,697,648
    
    
    
    1,636,702Property, plant and equipment, net
    
    
    60,229,358
    
    
    
    32,667,615Construction in progress
    
    
    3,339,011
    
    
    
    12,172,402Investment in and loans to affiliate
    
    
    15,470,330
    
    
    
    12,117,731Intangible assets, net
    
    
    3,670,559
    
    
    
    4,491,501Goodwill
    
    
    3,587,754
    
    
    
    3,568,374Other assets
    
    
    2,794,123
    
    
    
    534,368Total assets
    
    $
    138,961,343
    
    
    $
    88,365,191LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesDividends payable
    
    $
    970,081
    
    
    $
    828,709Accounts payable and accrued liabilities
    
    
    5,498,209
    
    
    
    3,939,538Current portion of long term debt
    
    
    1,154,067
    
    
    
    3,472,330Total current liabilities
    
    
    7,622,357
    
    
    
    8,240,577Long term debt
    
    
    23,500,593
    
    
    
    19,378,212Security deposits and other liabilities
    
    
    497,985
    
    
    
    349,628Minority interest in Consolidated Water (Bahamas) Limited
    
    
    1,495,753
    
    
    
    833,695Total liabilities
    
    
    33,116,688
    
    
    
    28,802,112Stockholders equityRedeemable preferred stock, $0.60 par value. Authorized
200,000 shares; issued and outstanding 24,971 shares and
32,304 shares, respectively
    
    
    14,983
    
    
    
    19,382Class A common stock, $0.60 par value. Authorized 19,680,000
shares; issued and outstanding 14,132,860 shares and
12,181,778 shares, respectively
    
    
    8,479,716
    
    
    
    7,309,066Class B common stock, $0.60 par value. Authorized 120,000
shares; none issued or outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    76,071,710
    
    
    
    35,367,037Retained earnings
    
    
    21,278,246
    
    
    
    16,867,594Total stockholders equity
    
    
    105,844,655
    
    
    
    59,563,079Total liabilities and stockholders equity
    
    $
    138,961,343
    
    
    $
    88,365,191
  55




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 
 CONSOLIDATED STATEMENTS OF INCOME
  For the year ended December 31,2006
    
    
    2005
    
    
    2004Retail water sales
    
    $
    18,003,456
    
    
    $
    13,372,103
    
    
    $
    12,089,491Bulk water sales
    
    
    18,303,479
    
    
    
    11,724,438
    
    
    
    10,303,074Services revenue
    
    
    1,922,273
    
    
    
    1,090,664
    
    
    
    888,848Total revenues
    
    
    38,229,208
    
    
    
    26,187,205
    
    
    
    23,281,413Retail cost of sales
    
    
    6,635,879
    
    
    
    5,369,550
    
    
    
    5,250,372Bulk cost of sales
    
    
    14,878,731
    
    
    
    9,832,109
    
    
    
    7,798,225Services cost of sales
    
    
    1,100,792
    
    
    
    631,149
    
    
    
    623,116Total cost of sales
    
    
    22,615,402
    
    
    
    15,832,808
    
    
    
    13,671,713Gross profit
    
    
    15,613,806
    
    
    
    10,354,397
    
    
    
    9,609,700General and administrative expenses
    
    
    8,421,815
    
    
    
    6,115,297
    
    
    
    5,220,591Net insurance recovery from Hurricane Ivan
    
    
    
    
    
    
    
    
    
    
    591,404Income from operations
    
    
    7,191,991
    
    
    
    4,239,100
    
    
    
    4,980,513Other income (expense):Interest income
    
    
    304,945
    
    
    
    208,375
    
    
    
    81,560Interest expense
    
    
    (1,886,518
    )
    
    
    (885,628
    )
    
    
    (682,744
    )Profit
sharing income from affiliate
    
    
    507,849
    
    
    
    485,193
    
    
    
    434,258Other income
    
    
    241,338
    
    
    
    76,904
    
    
    
    99,716Equity in earnings of affiliate
    
    
    1,402,249
    
    
    
    1,390,314
    
    
    
    1,284,080Loss on early extinguishment of debt, net
    
    
    (240,728
    )
    
    
    
    
    
    
    Other income (expense), net
    
    
    329,135
    
    
    
    1,275,158
    
    
    
    1,216,870Net income
    
    $
    7,521,126
    
    
    $
    5,514,258
    
    
    $
    6,197,383Basic earnings per common share
    
    $
    0.60
    
    
    $
    0.47
    
    
    $
    0.54Diluted earnings per common share
    
    $
    0.59
    
    
    $
    0.45
    
    
    $
    0.53Weighted average number of common
shares used in the determination of:Basic earnings per share
    
    
    12,440,195
    
    
    
    11,767,573
    
    
    
    11,474,264Diluted earnings per share
    
    
    12,737,486
    
    
    
    12,161,407
    
    
    
    11,759,010
  56




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 2006
  Redeemable preferred
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Totalstock
    
    
    Common stock
    
    
    paid-in
    
    
    Retained
    
    
    stockholdersShares
    
    
    Dollars
    
    
    Shares
    
    
    Dollars
    
    
    capital
    
    
    earnings
    
    
    equityBalance at December 31, 2003
    
    
    27,170
    
    
    $
    16,302
    
    
    
    11,374,020
    
    
    $
    6,824,412
    
    
    $
    26,794,836
    
    
    $
    10,612,977
    
    
    $
    44,248,527Issue of share capital
    
    
    5,448
    
    
    
    3,269
    
    
    
    128,174
    
    
    
    76,905
    
    
    
    412,818
    
    
    
    
    
    
    
    492,992Conversion of preferred shares
    
    
    (4,776
    )
    
    
    (2,866
    )
    
    
    4,776
    
    
    
    2,866
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,197,383
    
    
    
    6,197,383Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,661,828
    )
    
    
    (2,661,828
    )Issue of options and share grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94,820
    
    
    
    
    
    
    
    94,820Balance at December 31, 2004
    
    
    27,842
    
    
    
    16,705
    
    
    
    11,506,970
    
    
    
    6,904,183
    
    
    
    27,302,474
    
    
    
    14,148,532
    
    
    
    48,371,894Public offering of common
shares, net of issuance costs
    
    
    
    
    
    
    
    
    
    
    404,770
    
    
    
    242,862
    
    
    
    6,476,000
    
    
    
    
    
    
    
    6,718,862Issue of share capital
    
    
    8,644
    
    
    
    5,187
    
    
    
    265,856
    
    
    
    159,511
    
    
    
    1,429,792
    
    
    
    
    
    
    
    1,594,490Conversion of preferred shares
    
    
    (4,182
    )
    
    
    (2,510
    )
    
    
    4,182
    
    
    
    2,510
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,514,258
    
    
    
    5,514,258Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,795,196
    )
    
    
    (2,795,196
    )Issue of options and share grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    158,771
    
    
    
    
    
    
    
    158,771Balance at 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
    
    
    
    
    
    
    
    40,139,899Conversion of preferred shares
    
    
    (12,244
    )
    
    
    (7,346
    )
    
    
    12,244
    
    
    
    7,346
    
    
    
    
    
    
    
    
    
    
    
    Issue of
share capital
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141,168
    
    
    
    
    
    
    
    141,168Balance at December 31, 2006
    
    
    24,971
    
    
    $
    14,983
    
    
    
    14,132,860
    
    
    $
    8,479,716
    
    
    $
    76,071,710
    
    
    $
    21,278,246
    
    
    $
    105,844,655
  57




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  For the year ended December 31,2006
    
    
    2005
    
    
    2004Cash flows provided by operating activitiesNet income
    
    $
    7,521,126
    
    
    $
    5,514,258
    
    
    $
    6,197,383Add (deduct) items not affecting cashDepreciation and amortization
    
    
    4,777,868
    
    
    
    3,188,063
    
    
    
    3,096,682Stock compensation on share grants
    
    
    372,425
    
    
    
    256,032
    
    
    
    155,388Loss on early extinguishment of debt
    
    
    240,728
    
    
    
    
    
    
    
    Net loss on disposal of fixed assets
    
    
    433,834
    
    
    
    37,585
    
    
    
    1,331,563Undistributed income from affiliate
    
    
    (1,910,098
    )
    
    
    (1,875,508
    )
    
    
    (1,718,338
    )Minority interest expense (recovery)
    
    
    (10,258
    )
    
    
    (27,768
    )
    
    
    52,259(Increase) decrease in accounts receivable
    
    
    (571,743
    )
    
    
    (780,565
    )
    
    
    (1,019,914
    )(Increase) decrease in insurance claim receivable
    
    
    
    
    
    
    1,932,905
    
    
    
    (1,932,905
    )(Increase) decrease in inventory
    
    
    (762,683
    )
    
    
    (402,861
    )
    
    
    (83,163
    )(Increase) decrease in prepaid expenses and other assets
    
    
    (336,626
    )
    
    
    (233,307
    )
    
    
    (38,416
    )Increase (decrease) in accounts payable and other liabilities
    
    
    1,819,452
    
    
    
    215,738
    
    
    
    1,793,729Net cash provided by operating activities
    
    
    11,574,025
    
    
    
    7,824,572
    
    
    
    7,834,268Cash flows provided by (used in) investing activitiesAdditions to property, plant and equipment and construction in progress
    
    
    (25,887,620
    )
    
    
    (18,172,679
    )
    
    
    (2,695,887
    )Distribution of income from affiliate
    
    
    757,500
    
    
    
    1,628,625
    
    
    
    681,750Proceeds from sale of minority interest in subsidiary, net
    
    
    652,756
    
    
    
    
    
    
    
    Loans to affiliate
    
    
    (2,200,000
    )
    
    
    (800,000
    )
    
    
    Collections of loans receivable
    
    
    770,276
    
    
    
    887,789
    
    
    
    1,098,732Net cash provided by (used in) investing activities
    
    
    (25,907,088
    )
    
    
    (16,456,265
    )
    
    
    (915,405
    )Cash flows provided by (used in) financing activitiesDividends paid
    
    
    (3,110,473
    )
    
    
    (2,750,341
    )
    
    
    (2,564,092
    )Net proceeds from issuance of common shares
    
    
    40,139,899
    
    
    
    6,718,862
    
    
    
    Net proceeds from issuance of 5.95% bonds
    
    
    14,445,720
    
    
    
    
    
    
    
    Proceeds from issuance of redeemable preference shares
    
    
    18,191
    
    
    
    31,035
    
    
    
    7,410Proceeds from exercises of stock options
    
    
    1,244,280
    
    
    
    1,321,155
    
    
    
    425,014Borrowings under line of credit
    
    
    5,659,608
    
    
    
    
    
    
    
    Line of credit repayment
    
    
    (5,659,608
    )
    
    
    
    
    
    
    Net proceeds from issuance of Series A bonds
    
    
    
    
    
    
    9,788,491
    
    
    
    Prepayment of long term debt
    
    
    (4,263,730
    )
    
    
    
    
    
    
    Principal repayments of long term debt
    
    
    (8,785,714
    )
    
    
    (3,738,828
    )
    
    
    (3,807,211
    )Net cash provided by (used in) financing activities
    
    
    39,688,173
    
    
    
    11,370,374
    
    
    
    (5,938,879
    )Net increase in cash and cash equivalents
    
    
    25,355,110
    
    
    
    2,738,681
    
    
    
    979,984Cash and cash equivalents at beginning of year
    
    
    11,955,589
    
    
    
    9,216,908
    
    
    
    8,236,924Cash and cash equivalents at end of year
    
    $
    37,310,699
    
    
    $
    11,955,589
    
    
    $
    9,216,908Supplemental disclosure of cash flow informationInterest paid in cash (net of capitalized interest of $375,000, $375,000
and $nil in 2006, 2005 and 2004, respectively)
    
    $
    1,427,908
    
    
    $
    777,262
    
    
    $
    591,795Interest received in cash
    
    $
    95,032
    
    
    $
    197,584
    
    
    $
    81,560
  58




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##### Table of Contents



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:
 Inventory:
 59




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2. Accounting policies (continued)
 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:
 Investments:
 Other assets:
 60




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2. Accounting policies (continued)
  Other liabilities:
 Income taxes:
 Shares repurchased:
 Stock and stock option incentive plans:
    2005
    
    
    2004Net income, as reported
    
    $
    5,514,258
    
    
    $
    6,197,383Add stock-based employee compensation expense included
in reporting net income
    
    
    256,032
    
    
    
    155,388Deduct total stock-based employee compensation expense
determined under fair-value-based method for all rewards
    
    
    (330,308
    )
    
    
    (216,346
    )Pro forma net income
    
    $
    5,439,982
    
    
    $
    6,136,425Earnings per share:Basic  as reported
    
    $
    0.47
    
    
    $
    0.54Basic  pro forma
    
    $
    0.46
    
    
    $
    0.53Diluted  as reported
    
    $
    0.45
    
    
    $
    0.53Diluted  pro forma
    
    $
    0.45
    
    
    $
    0.52
 61




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2. Accounting policies (continued)
  Revenue and cost of sales:
   Comparative figures:
 3. Cash and cash equivalents
  December 31,2006
    
    
    2005Bank accountsUnited States dollar
    
    $
    4,298,418
    
    
    $
    2,303,660Cayman Islands dollar
    
    
    2,014,485
    
    
    
    930,228Bahamian dollar
    
    
    664,626
    
    
    
    1,356Belize dollar
    
    
    228,806
    
    
    
    126,354Barbadian dollar
    
    
    104,364
    
    
    
    88,8247,310,699
    
    
    
    3,450,422Short term depositsUnited States dollar
    
    
    30,000,000
    
    
    
    Bahamian dollar
    
    
    
    
    
    
    8,505,16730,000,000
    
    
    
    8,505,167Total cash and cash equivalents
    
    $
    37,310,699
    
    
    $
    11,955,589
 62




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4. Accounts receivable
 December 31,2006
    
    
    2005Trade accounts receivable
    
    $
    6,053,612
    
    
    $
    5,777,190Other accounts receivable
    
    
    340,227
    
    
    
    90,0156,393,839
    
    
    
    5,867,205Allowance for doubtful accounts
    
    
    (162,121
    )
    
    
    (207,230
    )$
    6,231,718
    
    
    $
    5,659,975
  December 31,2006
    
    
    2005Opening allowance for doubtful accounts
    
    $
    207,230
    
    
    $
    165,342Provision for doubtful accounts
    
    
    130,202
    
    
    
    41,888Accounts written off during the year
    
    
    (175,311
    )
    
    
    Ending allowance for doubtful accounts
    
    $
    162,121
    
    
    $
    207,230
  5. Insurance claim
  6. Inventory
 December 31,2006
    
    
    2005Water stock
    
    $
    48,104
    
    
    $
    44,624Consumables stock
    
    
    407,313
    
    
    
    318,945Spare parts stock
    
    
    2,339,475
    
    
    
    1,668,640$
    2,794,892
    
    
    $
    2,032,209
 63




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 7. Loans receivable
 December 31,2006
    
    
    2005Due from 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.
    
    $
    332,952
    
    
    $
    506,667Due from Water Authority-Cayman: Two loans
originally aggregating $1,168,600, bearing
interest at 5% per annum, receivable in
combined monthly installments of principal
and interest of $16,516 to March 2006, and
secured by Lower Valley plant, machinery
and equipment.
    
    
    
    
    
    
    49,140Due from 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.
    
    
    1,303,750
    
    
    
    1,750,750Due from 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.
    
    
    796,578
    
    
    
    Total loans receivable
    
    
    2,433,280
    
    
    
    2,306,557Less current portion
    
    
    735,632
    
    
    
    669,855Loans receivable, excluding current portion
    
    $
    1,697,648
    
    
    $
    1,636,702
 8. Property, plant and equipment and construction in progress
 December 31,2006
    
    
    2005Land
    
    $
    1,081,045
    
    
    $
    475,679Buildings
    
    
    11,686,321
    
    
    
    4,388,100Plant and equipment
    
    
    42,364,299
    
    
    
    20,279,578Distribution system
    
    
    19,244,035
    
    
    
    18,560,540Office furniture, fixtures and equipment
    
    
    1,608,082
    
    
    
    1,272,159Vehicles
    
    
    1,014,408
    
    
    
    812,609Leasehold improvements
    
    
    202,592
    
    
    
    186,387Lab equipment
    
    
    26,705
    
    
    
    21,70077,227,487
    
    
    
    45,996,752Less accumulated depreciation
    
    
    16,998,129
    
    
    
    13,329,137Property, plant and equipment, net
    
    $
    60,229,358
    
    
    $
    32,667,615Construction in progress
    
    $
    3,339,011
    
    
    $
    12,172,402
 64




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 8. Property, plant and equipment and construction in progress (continued)
  9. Investment in affiliate
     December 31,2006
    
    
    2005Current assets
    
    $
    4,212,588
    
    
    $
    4,736,398Non-current assets
    
    
    10,557,481
    
    
    
    5,226,212Total assets
    
    $
    14,770,069
    
    
    $
    9,962,610Current liabilities
    
    $
    4,477,184
    
    
    $
    1,369,094Non-current liabilities
    
    
    2,145,188
    
    
    
    2,341,979Total liabilities
    
    $
    6,622,372
    
    
    $
    3,711,073
 For the year ended December 31,2006
    
    
    2005Water sales
    
    $
    8,047,783
    
    
    $
    7,715,827Cost of water sales
    
    $
    3,251,740
    
    
    $
    3,003,920Income from operations
    
    $
    2,922,317
    
    
    $
    2,893,678Net income
    
    $
    3,171,160
    
    
    $
    3,019,328
 65




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10. Intangible assets
       66




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10. Intangible assets (continued)
 December 31,2006
    
    
    2005CostNon-amortizable intangible asset
management service agreement
    
    $
    856,356
    
    
    $
    856,356Amortizable intangible assetsDWEERTMdistribution agreement
    
    
    337,149
    
    
    
    337,149Operations agreement with Sandy Lane
    
    
    104,050
    
    
    
    104,050Cayman water production and supply agreements
    
    
    4,385,496
    
    
    
    4,385,496Belize water production and supply agreement
    
    
    1,522,419
    
    
    
    1,522,4197,205,470
    
    
    
    7,205,470Accumulated amortizationDWEERTMdistribution agreement
    
    
    (193,339
    )
    
    
    (143,976
    )Operations agreement with Sandy Lane
    
    
    (104,050
    )
    
    
    (101,160
    )Cayman water production and supply agreements
    
    
    (2,976,985
    )
    
    
    (2,274,488
    )Belize water production and supply agreement
    
    
    (260,537
    )
    
    
    (194,345
    )(3,534,911
    )
    
    
    (2,713,969
    )Intangible assets, net
    
    $
    3,670,559
    
    
    $
    4,491,501Amortization for each of the next five years is as follows:2007
    
    
    
    
    
    $
    788,6592008
    
    
    
    
    
    
    639,2492009
    
    
    
    
    
    
    234,8552010
    
    
    
    
    
    
    154,3272011
    
    
    
    
    
    
    66,192Thereafter
    
    
    
    
    
    
    930,921
 11. Goodwill
   12. Dividends
  2006
    
    2005
    
    2004March 31
    
    $
    0.0600
    
    
    $
    0.0575
    
    
    $
    0.0575June 30
    
    
    0.0600
    
    
    
    0.0600
    
    
    
    0.0575September 30
    
    
    0.0600
    
    
    
    0.0600
    
    
    
    0.0575December 31
    
    
    0.0600
    
    
    
    0.0600
    
    
    
    0.0575
 67




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12. Dividends (continued)
   13. Long term debt
 December 31,2006
    
    
    2005Fixed 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.
    
    $
    15,480,595
    
    
    $
    Scotiabank $20,000,000 term loan bearing
interest at an annually adjusted
floating rate of LIBOR plus 1.5% to
3.0%, depending on the ratio of the
Companys consolidated debt to its
consolidated earnings before interest,
taxes and depreciation; payable in
quarterly installments of $714,286 plus
interest; due February 6, 2010 (6.11% at
December 31, 2005). Repaid on December
29, 2006, including premium.
    
    
    
    
    
    $
    12,142,858Scotiabank $1,428,000 term loan due
December 31, 2007, bearing interest at
3-month LIBOR plus 1.5%; payable in
semi-annual installments of $240,000
plus interest (6.03% at December 31,
2005). Repaid on June 30, 2006,
    
    
    
    
    
    
    228,000Royal Bank of Canada loan due in 2007,
bearing interest at LIBOR plus 1.75%;
payable in quarterly installments of
principal and interest (6.16% at
December 31, 2005). Repaid on December
11, 2006.
    
    
    
    
    
    
    251,633Royal Bank of Canada loan due in 2007,
bearing interest at Nassau Prime Lending
Rate plus 1.5%; payable in quarterly
installments of principal and Interest
(7.0% as of December 31, 2006 and 7.0%
as of December 31, 2005).
    
    
    92,498
    
    
    
    228,051Series 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
    
    
    25,573,093
    
    
    
    22,850,542Less discount
    
    
    918,433Less current portion
    
    
    1,154,067
    
    
    
    3,472,330Long term debt, excluding current portion
    
    $
    23,500,593
    
    
    $
    19,378,212
 68




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13. Long term debt (continued)
        2007
    
    $
    1,154,0672008
    
    
    1,142,2552009
    
    
    1,229,0712010
    
    
    1,322,4832011
    
    
    1,422,991Thereafter
    
    
    18,383,794
 14. Share capital and additional paid-in capital and stock split
     69




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 15. Costs of Sales and General and Administrative Expenses
 For the year ended December 31,2006
    
    
    2005
    
    
    2004Cost of water sales consist of:Water purchases
    
    $
    167,839
    
    
    $
    93,433
    
    
    $
    76,399Depreciation
    
    
    3,490,929
    
    
    
    2,033,464
    
    
    
    1,945,476Amortization of intangible assets
    
    
    820,943
    
    
    
    929,880
    
    
    
    926,739Employee costs
    
    
    3,383,892
    
    
    
    2,857,676
    
    
    
    2,906,249Fuel oil
    
    
    4,565,862
    
    
    
    2,244,204
    
    
    
    1,536,780Royalties
    
    
    1,256,257
    
    
    
    930,602
    
    
    
    868,324Electricity
    
    
    3,018,311
    
    
    
    3,015,037
    
    
    
    2,586,723Insurance
    
    
    840,201
    
    
    
    670,339
    
    
    
    516,133Maintenance
    
    
    3,135,004
    
    
    
    2,063,985
    
    
    
    1,712,673Other
    
    
    1,936,164
    
    
    
    994,188
    
    
    
    596,217$
    22,615,402
    
    
    $
    15,832,808
    
    
    $
    13,671,713General and administrative
expenses consist of:Employee costs
    
    $
    3,680,386
    
    
    $
    2,230,891
    
    
    $
    2,475,511Depreciation
    
    
    282,267
    
    
    
    104,911
    
    
    
    122,932Professional fees
    
    
    1,172,685
    
    
    
    1,328,272
    
    
    
    961,851Insurance
    
    
    537,011
    
    
    
    368,172
    
    
    
    287,068Directors fees and expenses
    
    
    622,750
    
    
    
    515,546
    
    
    
    348,439Maintenance
    
    
    105,909
    
    
    
    84,914
    
    
    
    28,086Other
    
    
    2,020,807
    
    
    
    1,482,591
    
    
    
    996,704$
    8,421,815
    
    
    $
    6,115,297
    
    
    $
    5,220,591
 70




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 16. Earnings per share
   2006
    
    
    2005
    
    
    2004Net income
    
    $
    7,521,126
    
    
    $
    5,514,258
    
    
    $
    6,197,383Less:Dividends paid and earnings attributable on preferred shares
    
    
    (6,461
    )
    
    
    (9,128
    )
    
    
    (7,751
    )Net income available to common shares in the determination
of basic earnings per common share
    
    $
    7,514,665
    
    
    $
    5,505,130
    
    
    $
    6,189,632Weighted average number of common shares in the
determination of basic earnings per ordinary share
    
    
    12,440,195
    
    
    
    11,767,573
    
    
    
    11,474,264Plus:Weighted average number of preferred shares outstanding
during the year
    
    
    28,502
    
    
    
    27,757
    
    
    
    27,148Potential dilutive effect of unexercised options
    
    
    268,789
    
    
    
    366,077
    
    
    
    257,598Weighted average number of shares used for determining
diluted earnings per common share
    
    
    12,737,486
    
    
    
    12,161,407
    
    
    
    11,759,010
 71




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17. Segment information
 As of and for the year ended December 31, 2006Retail
    
    
    Bulk
    
    
    Service
    
    
    Other
    
    
    TotalTotal revenues
    
    $
    18,003,456
    
    
    $
    18,303,479
    
    
    $
    1,922,273
    
    
    $
    
    
    
    $
    38,229,208Total cost of sales
    
    
    6,635,879
    
    
    
    14,878,731
    
    
    
    1,100,792
    
    
    
    
    
    
    
    22,615,402Gross profit
    
    
    11,367,577
    
    
    
    3,424,748
    
    
    
    821,481
    
    
    
    
    
    
    
    15,613,806General & administrative expenses
    
    
    7,086,511
    
    
    
    1,222,177
    
    
    
    113,127
    
    
    
    
    
    
    
    8,421,815Income from operations
    
    
    4,281,066
    
    
    
    2,202,571
    
    
    
    708,354
    
    
    
    
    
    
    
    7,191,991Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    329,135
    
    
    
    329,135Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,521,126Property 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
    
    
    
    
    
    
    
    3,339,011Total assets
    
    
    97,097,587
    
    
    
    36,075,509
    
    
    
    5,788,247
    
    
    
    
    
    
    
    138,961,343
 As of and for the year ended December 31, 2005Retail
    
    
    Bulk
    
    
    Service
    
    
    Other
    
    
    TotalTotal revenues
    
    $
    13,372,103
    
    
    $
    11,724,438
    
    
    $
    1,090,664
    
    
    $
    
    
    
    $
    26,187,205Total cost of sales
    
    
    5,369,550
    
    
    
    9,832,109
    
    
    
    631,149
    
    
    
    
    
    
    
    15,832,808Gross profit
    
    
    8,002,553
    
    
    
    1,892,329
    
    
    
    459,515
    
    
    
    
    
    
    
    10,354,397General & administrative expenses
    
    
    5,320,301
    
    
    
    744,275
    
    
    
    50,721
    
    
    
    
    
    
    
    6,115,297Income from operations
    
    
    2,682,252
    
    
    
    1,148,054
    
    
    
    408,794
    
    
    
    
    
    
    
    4,239,100Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,275,158
    
    
    
    1,275,158Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,514,258Property plant and equipment, net
    
    $
    21,938,568
    
    
    $
    7,919,173
    
    
    $
    2,809,874
    
    
    $
    
    
    
    $
    32,667,615Construction in progress
    
    
    166,924
    
    
    
    12,005,478
    
    
    
    
    
    
    
    
    
    
    
    12,172,402Total assets
    
    
    54,209,101
    
    
    
    29,502,302
    
    
    
    4,653,788
    
    
    
    
    
    
    
    88,365,191
 As of and for the year ended December 31, 2004Retail
    
    
    Bulk
    
    
    Service
    
    
    Other
    
    
    TotalTotal revenues
    
    $
    12,089,491
    
    
    $
    10,303,074
    
    
    $
    888,848
    
    
    $
    
    
    
    $
    23,281,413Total cost of sales
    
    
    5,250,372
    
    
    
    7,798,225
    
    
    
    623,116
    
    
    
    
    
    
    
    13,671,713Gross profit
    
    
    6,839,119
    
    
    
    2,504,849
    
    
    
    265,732
    
    
    
    
    
    
    
    9,609,700General & administrative expenses
    
    
    4,300,916
    
    
    
    838,596
    
    
    
    81,079
    
    
    
    
    
    
    
    5,220,591Net insurance recovery
    
    
    591,404
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    591,404Income from operations
    
    
    3,129,607
    
    
    
    1,666,253
    
    
    
    184,653
    
    
    
    
    
    
    
    4,980,513Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,216,870
    
    
    
    1,216,870Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,197,383Property plant and equipment, net
    
    $
    18,090,702
    
    
    $
    9,115,889
    
    
    $
    11,998
    
    
    $
    
    
    
    $
    27,218,589Construction in progress
    
    
    890,849
    
    
    
    746,085
    
    
    
    5,879
    
    
    
    
    
    
    
    1,642,813Total assets
    
    
    48,205,461
    
    
    
    18,922,720
    
    
    
    3,696,868
    
    
    
    
    
    
    
    70,825,049
 72




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17. Segment information (continued)
     18. Related party transactions
      73




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CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  19. Commitments and contingencies
           74




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##### Table of Contents



20. Stock Based Compensation
  Employee Share Incentive Plan (Preferred Shares)
 th
 Employee Share Option Plan (Common Stock Options)
 th
 Non-Executive Directors Share Plan
  Directors and Senior Management Stock Compensation
   75




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Risk free interest rate
    
    
    5.05
    %
    
    
    3.79
    %
    
    
    2.65
    %Expected option life
    
    2.90 years
    
    2.49 years
    
    2.82 yearsExpected volatility
    
    
    33.66
    %
    
    
    30.81
    %
    
    
    36.28
    %Expected dividend yield
    
    
    0.90
    %
    
    
    1.22
    %
    
    
    1.90
    %
  Weighted AverageRemainingWeighted Average
    
    
    Contractual Life
    
    
    Aggregate IntrinsicOptions
    
    
    Exercise Price
    
    
    (Years)
    
    
    Value (1)Outstanding at beginning of year
    
    
    600,650
    
    
    $
    8.63Granted
    
    
    6,742
    
    
    
    19.20Exercised
    
    
    (207,120
    )
    
    
    6.04Forfeited
    
    
    (25,513
    )
    
    
    7.91Outstanding at end of year
    
    
    374,759
    
    
    $
    10.22
    
    
    1.10 years
    
    $
    5,496,290Exercisable at end of year
    
    
    331,504
    
    
    $
    10.03
    
    
    0.27 years
    
    $
    4,941,067
 (1)
    
    The intrinsic value of a stock option represents the amount by which the
fair value of the underlying stock, measured by reference to the closing price of the ordinary
shares of $24.93 in the Nasdaq Global Select Market on December 31, 2006, exceeds the exercise
price of the option.
   76




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Options granted with an exercise price
below market price on the date of grant:Employees  preferred shares
    
    $
    15.93
    
    
    $
    10.35
    
    
    $
    6.26Overall weighted average
    
    $
    15.93
    
    
    $
    10.35
    
    
    $
    6.26Options granted with an exercise price
at market price on the date of grant:Management employees
    
    $
    
    
    
    $
    
    
    
    $
    Employees  ordinary share options
    
    $
    8.08
    
    
    $
    5.39
    
    
    $
    3.33Overall weighted average
    
    $
    8.08
    
    
    $
    5.39
    
    
    $
    3.33Total intrinsic value of options exercised
    
    $
    4,252,174
    
    
    $
    2,754,336
    
    
    $
    738,309
 77




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 21. Pension benefits
  22. Financial instruments
 Credit risk:
  Interest rate risk:
  Foreign exchange risk:
  Fair values:
  78




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##### Table of Contents



23. Non-cash transactions
  2006
    
    
    2005
    
    
    2004Note received for plant facility sold.
    
    $
    897,000
    
    
    $
    
    
    
    $
    Issuance of 2,135, 8,970 and 9,260,
respectively, of common shares for
services rendered.
    
    
    43,326
    
    
    
    150,716
    
    
    
    95,568Issuance of 3,587, 5,544 and 3,920,
respectively, of redeemable preferred
shares for services rendered.
    
    
    130,078
    
    
    
    111,434
    
    
    
    53,292Issuance of 9,364 of common shares issued
under senior management employment
agreements in lieu of cash bonuses.
    
    
    
    
    
    
    145,040
    
    
    
    Conversion of 12,244, 4,182 and 4,776
shares in 2006, 2005 and 2004,
respectively, of redeemable preferred
shares to common shares.
    
    
    7,346
    
    
    
    2,510
    
    
    
    2,866Dividends declared but not paid.
    
    
    849,470
    
    
    
    828,709
    
    
    
    783,854
 24. Impact of recent accounting standards pronouncements
 Adoption of New Accounting Standards :
 Share-Based Payment
   79




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##### Table of Contents



CONSOLIDATED WATER CO. LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 24. Impact of recent accounting standards pronouncements (continued)
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements ( ),
 Effect of Newly Issued But Not Yet Effective Accounting Standards :
 Accounting for Certain Hybrid Financial
Instruments-an amendment to FASB Statements No. 133 and 140
 Fair Value Measurements
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109
 25. Subsequent event
  80




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/ RACHLIN COHEN & HOLTZ, LLP
 
 81




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     
 82




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##### Table of Contents



OCEAN CONVERSION (BVI) LTD.
 
 CONSOLIDATED BALANCE SHEETS
 DECEMBER 31, 2006 and 2005
  2006
    
    
    2005ASSETSCurrent assetsCash and cash equivalents
    
    $
    1,353,105
    
    
    $
    944,574Accounts receivable
    
    
    2,399,575
    
    
    
    3,418,922Inventory
    
    
    425,222
    
    
    
    344,348Prepaid expenses and other assets
    
    
    34,686
    
    
    
    28,554Total current assets
    
    
    4,212,588
    
    
    
    4,736,398Property, plant and equipment, net
    
    
    2,929,953
    
    
    
    3,200,618Construction in progress
    
    
    7,627,528
    
    
    
    2,025,594Total assets
    
    $
    14,770,069
    
    
    $
    9,962,610LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable and accrued liabilities
    
    $
    1,477,184
    
    
    $
    1,114,094Current portion of long term debt, including $3,000,000 to
affiliate in 2006
    
    
    3,000,000
    
    
    
    255,000Total current liabilities
    
    
    4,477,184
    
    
    
    1,369,094Profit sharing obligation
    
    
    2,111,412
    
    
    
    1,508,714Due to affiliate
    
    
    
    
    
    
    800,000Minority interest in JVD Ocean Desalination Ltd.
    
    
    33,776
    
    
    
    33,265Total liabilities
    
    
    6,622,372
    
    
    
    3,711,073Commitments
    
    
    
    
    
    
    Stockholders equityClass A, voting shares, $1 par value. Authorized 600,000 shares:issued and outstanding 555,000 shares in 2006 and 2005
    
    
    555,000
    
    
    
    555,000Class B, voting shares, $1 par value. Authorized 600,000 shares:issued and outstanding 555,000 shares in 2006 and 2005
    
    
    555,000
    
    
    
    555,000Class C, non-voting shares, $1 par value. Authorized 600,000 shares:issued and outstanding 165,000 in 2006 and 2005
    
    
    165,000
    
    
    
    165,000Additional paid-in capital
    
    
    225,659
    
    
    
    225,659Retained earnings
    
    
    6,647,038
    
    
    
    4,750,878Total stockholders equity
    
    
    8,147,697
    
    
    
    6,251,537Total liabilities and stockholders equity
    
    $
    14,770,069
    
    
    $
    9,962,610
  83




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OCEAN CONVERSION (BVI) LTD.
 
 CONSOLIDATED STATEMENTS OF INCOME
 YEARS ENDED DECEMBER 31, 2006, 2005 and 2004
  2006
    
    
    2005
    
    
    2004Water sales
    
    $
    8,047,783
    
    
    $
    7,715,827
    
    
    $
    6,872,366Cost of water sales
    
    
    (3,251,740
    )
    
    
    (3,003,920
    )
    
    
    (2,475,304
    )Gross profit
    
    
    4,796,043
    
    
    
    4,711,907
    
    
    
    4,397,062General and administrative expenses
    
    
    (1,873,726
    )
    
    
    (1,818,229
    )
    
    
    (1,642,862
    )Income from operations
    
    
    2,922,317
    
    
    
    2,893,678
    
    
    
    2,754,200Other income (expense)Interest income
    
    
    363,420
    
    
    
    202,428
    
    
    
    57,081Interest expense
    
    
    (114,065
    )
    
    
    (62,150
    )
    
    
    (31,557
    )Other income
    
    
    
    
    
    
    111
    
    
    
    249,355
    
    
    
    140,389
    
    
    
    25,524Income before minority interest
    
    
    3,171,672
    
    
    
    3,034,067
    
    
    
    2,779,724Minority interest
    
    
    (512
    )
    
    
    (14,739
    )
    
    
    (8,526
    )Net income
    
    $
    3,171,160
    
    
    $
    3,019,328
    
    
    $
    2,771,198
 .
 84




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##### Table of Contents



OCEAN CONVERSION (BVI) LTD.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 2006
  Additional
    
    
    
    
    
    
    TotalCommon stock
    
    
    paid-in
    
    
    Retained
    
    
    stockholdersShares
    
    
    Dollars
    
    
    capital
    
    
    earnings
    
    
    equityBalance at December 31, 2003
    
    
    1,275,000
    
    
    $
    1,275,000
    
    
    $
    225,659
    
    
    $
    2,849,273
    
    
    $
    4,349,932Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,771,198
    
    
    
    2,771,198Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,147,500
    )
    
    
    (1,147,500
    )Balance at December 31, 2004
    
    
    1,275,000
    
    
    
    1,275,000
    
    
    
    225,659
    
    
    
    4,472,971
    
    
    
    5,973,630Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,019,328
    
    
    
    3,019,328Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,741,421
    )
    
    
    (2,741,421
    )Balance at 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 at December 31, 2006
    
    
    1,275,000
    
    
    $
    1,275,000
    
    
    $
    225,659
    
    
    $
    6,647,038
    
    
    $
    8,147,697
 .
 85




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##### Table of Contents



OCEAN CONVERSION (BVI) LTD.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 YEARS ENDED DECEMBER 31, 2006, 2005 and 2004
  2006
    
    
    2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    3,171,160
    
    
    $
    3,019,328
    
    
    $
    2,771,198Add/(deduct) items not affecting cashDepreciation
    
    
    403,255
    
    
    
    713,687
    
    
    
    719,163Amortization of bank fees
    
    
    3,837
    
    
    
    7,564
    
    
    
    7,567Profit sharing
    
    
    1,007,697
    
    
    
    970,386
    
    
    
    868,515Minority interest
    
    
    512
    
    
    
    14,739
    
    
    
    8,526(Increase) decrease in accounts receivable
    
    
    1,012,626
    
    
    
    (543,934
    )
    
    
    (2,178,171
    )(Increase) decrease in inventory
    
    
    (80,874
    )
    
    
    5,478
    
    
    
    (132,221
    )(Increase) decrease in other assets
    
    
    (3,248
    )
    
    
    5
    
    
    
    Increase in accounts payable and other liabilities
    
    
    363,090
    
    
    
    278,506
    
    
    
    78,856Net cash provided by operating activities
    
    
    5,878,055
    
    
    
    4,465,759
    
    
    
    2,143,433Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (132,590
    )
    
    
    (17,010
    )
    
    
    (212,362
    )Expenditures for construction in progress
    
    
    (4,201,934
    )
    
    
    (1,785,413
    )
    
    
    (84,217
    )Proceeds from sale of assets
    
    
    
    
    
    
    52,288
    
    
    
    Net cash used in investing activities
    
    
    (4,334,524
    )
    
    
    (1,750,135
    )
    
    
    (296,579
    )Cash flows from financing activitiesProfit sharing rights paid
    
    
    (405,000
    )
    
    
    (870,750
    )
    
    
    (364,500
    )Minority interest from affiliate
    
    
    
    
    
    
    
    
    
    
    10,000Proceeds from loan from affiliate
    
    
    800,000
    
    
    
    800,000
    
    
    
    Principal repayments of long term debt
    
    
    (255,000
    )
    
    
    (250,000
    )
    
    
    (250,000
    )Dividends paid
    
    
    (1,275,000
    )
    
    
    (2,741,421
    )
    
    
    (1,147,500
    )Net cash provided by (used in) financing activities
    
    
    (1,135,000
    )
    
    
    (3,062,171
    )
    
    
    (1,752,000
    )Net increase (decrease) in cash and cash equivalents
    
    
    408,531
    
    
    
    (346,547
    )
    
    
    94,854Cash and cash equivalents at the beginning of the year
    
    
    944,574
    
    
    
    1,291,121
    
    
    
    1,196,267Cash and cash equivalents at the end of the year
    
    $
    1,353,105
    
    
    $
    944,574
    
    
    $
    1,291,121Interest paid in cash
    
    $
    17,851
    
    
    $
    19,088
    
    
    $
    20,659Interest received in cash
    
    $
    283,236
    
    
    $
    184,389
    
    
    $
    11,013
  86




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OCEAN CONVERSION (BVI) LTD.
 
 NOTES TO THE 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:
 87




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##### Table of Contents



OCEAN CONVERSION (BVI) LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 2. Accounting policies (continued)
 Inventory:
 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 and cost of water sales:
 Repairs and maintenance:
 Comparative amounts:
 3. Trade accounts receivable
  88




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##### Table of Contents



OCEAN CONVERSION (BVI) LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 4. Inventory
 December 31,2006
    
    
    2005Consumables stock
    
    $
    55,543
    
    
    $
    43,679Spare parts stock
    
    
    369,679
    
    
    
    300,669Total
    
    $
    425,222
    
    
    $
    344,348
 5. Property, plant and equipment and construction in progress
 December 31,2006
    
    
    2005Plant and equipment
    
    $
    9,517,475
    
    
    $
    9,416,015Office furniture, fixtures and equipment
    
    
    61,363
    
    
    
    37,027Vehicles
    
    
    71,600
    
    
    
    71,600Tools & test equipment
    
    
    18,431
    
    
    
    11,6379,668,869
    
    
    
    9,536,279Accumulated depreciation
    
    
    (6,738,916
    )
    
    
    (6,335,661
    )Property, plant and equipment, net
    
    $
    2,929,953
    
    
    $
    3,200,618Construction in progress
    
    $
    7,627,528
    
    
    $
    2,025,594
 89




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##### Table of Contents



OCEAN CONVERSION (BVI) LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 6. Long term debt
 December 31,2006
    
    
    2005Scotiabank (Cayman Islands) loan bearing
interest at three month LIBOR plus 1.5% per
annum, with interest calculated daily and
payable quarterly. Principal is repayable in
semi-annual installments of $125,000 through
May 31, 2006.
    
    $
    
    
    
    $
    255,000CWCO loan bearing interest at three month
LIBOR plus 3.5% per annum, with interest
calculated daily and payable quarterly.
Principal is due June 1, 2007.
    
    
    3,000,000
    
    
    
    800,000Total long term debt
    
    
    3,000,000
    
    
    
    1,055,000Less current portion
    
    
    (3,000,000
    )
    
    
    (255,000
    )Long term debt, excluding current portion
    
    $
    
    
    
    $
    800,000
   7. Commitments
   90




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OCEAN CONVERSION (BVI) LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 7. Commitments (continued)
  2007
    
    $
    33,0752008
    
    
    33,0752009
    
    
    33,0752010
    
    
    33,0752011
    
    
    33,075Thereafter
    
    
    357,599
  8. Expenses
 For the year ended December 31,2006
    
    
    2005
    
    
    2004Cost of water sales comprise the following:Fuel oil
    
    $
    658,938
    
    
    $
    625,316
    
    
    $
    532,933Electricity
    
    
    820,134
    
    
    
    529,905
    
    
    
    151,726Maintenance
    
    
    558,653
    
    
    
    436,104
    
    
    
    296,361Depreciation
    
    
    402,150
    
    
    
    712,582
    
    
    
    718,611Employee costs
    
    
    446,126
    
    
    
    381,613
    
    
    
    468,506Insurance
    
    
    78,822
    
    
    
    80,138
    
    
    
    78,008Other direct costs
    
    
    286,917
    
    
    
    238,262
    
    
    
    229,159$
    3,251,740
    
    
    $
    3,003,920
    
    
    $
    2,475,304General and administrative expenses
comprise the following:Profit sharing
    
    $
    1,007,698
    
    
    $
    970,386
    
    
    $
    868,515Management fees, related parties
    
    
    620,448
    
    
    
    561,605
    
    
    
    567,802Directors fees and expenses
    
    
    65,456
    
    
    
    67,091
    
    
    
    79,589Professional fees
    
    
    33,418
    
    
    
    29,980
    
    
    
    24,399Employee costs
    
    
    50,622
    
    
    
    36,686
    
    
    
    25,689Maintenance costs
    
    
    160
    
    
    
    991
    
    
    
    474Depreciation
    
    
    1,105
    
    
    
    1,105
    
    
    
    552Other indirect costs
    
    
    94,819
    
    
    
    150,385
    
    
    
    75,842$
    1,873,726
    
    
    $
    1,818,229
    
    
    $
    1,642,862
 9. Related party transactions
  91




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OCEAN CONVERSION (BVI) LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 9. Related party transactions (continued)
      10. Profit sharing obligation
 December 31,2006
    
    
    2005Opening balance
    
    $
    1,508,714
    
    
    $
    1,409,078Additions
    
    
    1,007,698
    
    
    
    970,386Distributions
    
    
    (405,000
    )
    
    
    (870,750
    )Ending balance
    
    $
    2,111,412
    
    
    $
    1,508,714
 92




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##### Table of Contents



OCEAN CONVERSION (BVI) LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 10. Profit sharing obligation (continued)
    11. Taxation
  12. Pension plan
  93




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OCEAN CONVERSION (BVI) LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 13. Financial instruments
 Credit risk:
  Interest rate risk:
  Fair values:
  94




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
    95




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Managements Annual 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 authorization 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.
    Changes in Internal Control Over Financial Reporting
  96




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98




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PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Our Directors and Executive Officers
  Name
    
    Age
    
    PositionJeffrey M. Parker
    
    
    62
    
    
    Director, Chairman of the Board of DirectorsFrederick W. McTaggart
    
    
    44
    
    
    Director, President, Chief Executive OfficerDavid W. Sasnett
    
    
    50
    
    
    Director, Executive Vice President & Chief Financial OfficerGregory S. McTaggart
    
    
    43
    
    
    Vice President of Cayman OperationsRobert B. Morrison
    
    
    53
    
    
    Vice President of Purchasing and Information TechnologyGerard J. Pereira
    
    
    36
    
    
    Vice President of EngineeringRamjeet Jerrybandan
    
    
    38
    
    
    Vice President of Overseas OperationsWilliam T. Andrews
    
    
    58
    
    
    DirectorBrian E. Butler *
    
    
    57
    
    
    DirectorSteven A. Carr *
    
    
    56
    
    
    DirectorCarson K. Ebanks *
    
    
    51
    
    
    DirectorRichard
L. Finlay *
    
    
    48
    
    
    DirectorClarence B. Flowers, Jr. *
    
    
    51
    
    
    DirectorWilmer Pergande *
    
    
    67
    
    
    DirectorLeonard J. Sokolow*
    
    
    50
    
    
    DirectorRaymond Whittaker *
    
    
    53
    
    
    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
 Frederick W. McTaggart
 99




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##### Table of Contents



David W. Sasnett
 Gregory S. McTaggart
 Robert B. Morrison
 Gerard J. Pereira
 Ramjeet Jerrybandan
 William T. Andrews
 100




---



##### Table of Contents



Brian E. Butler
 Steven A. Carr th
 Carson K. Ebanks
 Richard L. Finlay
 Clarence B. Flowers, Jr.
 101




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##### Table of Contents



Wilmer Pergande
 Leonard J. Sokolow
 Raymond Whittaker
 Composition of the Board of Directors
  Group 1
    
    Group 2
    
    Group 3William T. Andrews
    
    Carson K. Ebanks, JP
    
    Wilmer PergandeBrian Butler
    
    Richard Finlay
    
    Raymond WhittakerSteven A. Carr
    
    Clarence Flowers, Jr.
    
    David W. SasnettFrederick McTaggart
    
    Leonard J. SokolowJeffrey M. Parker
   102




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##### Table of Contents



Governance of the Company
     Committees of the Board of Directors
  Executive Committee
  Compensation Committee
   103




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##### Table of Contents



Audit Committee
   Nominations Committee
    Section 16(a) Beneficial Ownership Reporting Compliance
  104




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##### Table of Contents



ITEM 11. EXECUTIVE COMPENSATION
 COMPENSATION DISCUSSION & ANALYSIS
  Overview of Compensation Program
  Compensation Philosophy and Objectives
   Setting Executive Compensation
  105




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##### Table of Contents



Role of Chief Executive Officer in Compensation Decisions
  2006 Executive Compensation Components
  
    
    base salary;
    
    equity-based compensation;
    
    incentive-based compensation;
    
    retirement and other benefits; and
    
    perquisites and other personal benefits.
 106




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##### Table of Contents



Base Salary
   Equity-Based Compensation
   Incentive-Based Compensation
 Annual Bonus.
 107




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##### Table of Contents



Equity Incentives.
   Pension Plan
  108




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##### Table of Contents




    
    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.
 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.
  - 109 -




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##### Table of Contents



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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##### Table of Contents



Compensation Committee Report
   
 111




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##### Table of Contents



Summary Compensation Table
  Non-EquityOption
    
    Incentive PlanStock
    
    Awards
    
    Compensation
    
    All OtherName and Principal Position
    
    Year
    
    Salary ($)
    
    Bonus ($)
    
    Awards($)
    
    ($)
    
    ($)
    
    Compensation ($)
    
    Total($)(a)
    
    (b)
    
    (c)
    
    (d)(3)
    
    (e)(4)
    
    (f)(5)
    
    (g)(6)
    
    (i)(7)
    
    (j)Frederick W.
McTaggartChief Executive
Officer
    
    
    2006
    
    
    
    223,416
    
    
    
    175,379
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,600
    
    
    
    405,395David W. Sasnett (1)
Executive VP & Chief
Financial Officer
    
    
    2006
    
    
    
    155,000
    
    
    
    67,500
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    8,400
    
    
    
    250,900Jeffrey M. Parker
Chairman
    
    
    2006
    
    
    
    184,318
    
    
    
    272,484
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,600
    
    
    
    460,402Gregory S. McTaggart
VP Cayman Operations
    
    
    2006
    
    
    
    125,000
    
    
    
    35,816
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,600
    
    
    
    164,416Robert B. Morrison
VP IT & Purchasing
    
    
    2006
    
    
    
    125,000
    
    
    
    35,867
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,600
    
    
    
    164,467Joseph Pivinski (2)
Former Chief
Financial Officer
    
    
    2006
    
    
    
    60,417
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157,583
    
    
    
    218,000
 
 1)
    
    Mr. Sasnett assumed the position of Chief Financial Officer effective June 3,
2006. The information presented herein represents annualized compensation amounts rather than
actual amounts paid for the period from June 3, 2006 to December 31, 2006.2)
    
    Mr. Pivinski resigned from the position of Chief Financial Officer effective May 11,
2006. Other compensation paid to Mr. Pivinski was in accordance with the terms of his
separation agreement.3)
    
    Bonus amounts have been determined pursuant to the bonus terms outlined in our Named
Executive Officers respective employment agreements.4)
    
    Under the terms of Mr. Sasnetts employment agreement, he is entitled to receive the
equivalent in value of $40,000 of our ordinary shares annually. Such shares vest quarterly in
increments of 12.5% over a two-year period beginning on the date of grant. The issuance of
shares requires shareholder approval at our 2007 Annual General Meeting. The amount presented
above represents the annualized cash equivalent for 2006.5)
    
    There were no option awards during 2006 to Executive Management.6)
    
    There was no non-equity incentive plan compensation during 2006 to Executive Management.7)
    
    Represents (i) pension plan contributions of $3,600 for each of Frederick and Gregory
McTaggart, Jeff Parker and Robert Morison, (ii) car allowance of $8,400 for Mr. Sasnett; and
(iii) the cost to us in the amount of $3,000 for the automobile used by Frederick McTaggart. 112




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##### Table of Contents



Grants of Plan-Based Awards
  Employment Agreements
 Frederick W. McTaggartPresident and Chief Executive Officer
 st
 st
 Jeffrey M. ParkerChairman of the Board of Directors
 st
 st
 113




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##### Table of Contents



David W. SasnettExecutive Vice President & Chief Financial Officer
   Joseph PivinskiSenior Vice President and Chief Financial Officer
  Gregory S. McTaggartVice President of Cayman Operations
   114




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##### Table of Contents



Robert B. MorrisonVice President of Purchasing and Information Technology
   Outstanding Equity Awards at Fiscal Year-End
  Options AwardsNumber of
    
    Number ofSecurities
    
    SecuritiesUnderling
    
    UnderlingUnexercised
    
    Unexercised
    
    Option
    
    OptionOptions
    
    Options
    
    Exercise
    
    ExpirationName
    
    Exercisable (#)
    
    Unexercisable (#)
    
    Price ($)
    
    Date(a)
    
    (b)
    
    (c)
    
    (e)
    
    (f)Rick McTaggart
    
    
    87,580
    
    
    
    
    
    
    
    10.03
    
    
    April 8, 2007David Sasnett
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jeff Parker
    
    
    90,194
    
    
    
    
    
    
    
    10.03
    
    
    April 8, 2007Greg McTaggart
    
    
    63,444
    
    
    
    
    
    
    
    10.03
    
    
    April 8, 2007Bob Morrison
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
 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 ($)Rick McTaggart
    
    
    52,854
    
    
    
    1,117,598
    
    
    
    87,580
    
    
    
    1,305,380David Sasnett
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jeff Parker
    
    
    52,318
    
    
    
    1,121,960
    
    
    
    90,194
    
    
    
    1,344,342Greg McTaggart
    
    
    38,650
    
    
    
    787,880
    
    
    
    63,444
    
    
    
    945,633Bob Morrison
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 115




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##### Table of Contents



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.
    116




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##### Table of Contents



Medical
    
    Pension Fund
    
    TotalSalary
    
    Insurance
    
    Contribution
    
    CompensationName
    
    ($)
    
    ($)
    
    ($)
    
    ($)Rick McTaggart
    
    
    2,000
    
    
    
    21,161
    
    
    
    7,200
    
    
    
    30,376David Sasnett (1)
    
    
    2,000
    
    
    
    16,716
    
    
    
    
    
    
    
    18,716Jeff Parker
    
    
    2,000
    
    
    
    7,135
    
    
    
    7,200
    
    
    
    16,335Greg McTaggart
    
    
    2,000
    
    
    
    7,135
    
    
    
    7,200
    
    
    
    16,335Bob Morrison
    
    
    2,000
    
    
    
    16,140
    
    
    
    7,200
    
    
    
    25,340
 
 1)
    
    At the present time Mr. Sasnett is not participating in our health insurance plan.  Severance
   Change in Control
  
    
    Incentives to remain with us despite uncertainties while a transaction is
under consideration or pending; and
 117




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##### Table of Contents




    
    Assurance of compensation for terminated employees after a Change in
Control.
   Director Compensation
  Fees Earned orPaid in Cash
    
    Stock Awards
    
    TotalName
    
    ($)
    
    ($)
    
    ($)Jeffrey M. Parker
    
    
    
    
    
    
    
    
    
    
    Frederick W. McTaggart
    
    
    
    
    
    
    
    
    
    
    David W. Sasnett
    
    
    16,900
    
    
    
    6,600
    
    
    
    23,500William T. Andrews
    
    
    24,400
    
    
    
    9,600
    
    
    
    34,000Brian E. Butler *
    
    
    23,900
    
    
    
    9,600
    
    
    
    33,500Steven A. Carr *
    
    
    22,800
    
    
    
    10,200
    
    
    
    33,000Carson K. Ebanks *
    
    
    12,400
    
    
    
    3,600
    
    
    
    16,000Richard L. Finlay *
    
    
    29,300
    
    
    
    13,200
    
    
    
    42,500Clarence B. Flowers, Jr. *
    
    
    30,299
    
    
    
    13,200
    
    
    
    43,499Wilmer Pergande *
    
    
    31,500
    
    
    
    15,000
    
    
    
    46,500Leonard J. Sokolow*
    
    
    17,300
    
    
    
    7,200
    
    
    
    24,500Raymond Whittaker *
    
    
    33,200
    
    
    
    13,800
    
    
    
    47,000
 
 *
    
    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) Director Compensation Policy
   Compensation Committee Interlocks and Insider Participation in Compensation Decisions
  118




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##### Table of Contents



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 ordinary
shares or redeemable preference shares;
    
    each of our directors;
    
    our Chief Executive Officer and each person who served as our Chief Financial
Officer during the year ended December 31, 2006, and the three other most highly
compensated executive officers who were serving as executive officers on December 31,
2006; and
    
    all of our executive officers and directors as a group.
 Identity of
    
    Amount
    
    PercentageTitle of Class
    
    Person or Group
    
    Owned
    
    of ClassOrdinary Shares
    
    PowerShares Exchange
    
    
    1,456,557
    
    
    
    10.30
    %Traded Fund Trust (1)Ordinary Shares
    
    AMVESCAP PLC (2)
    
    
    1,310,105
    
    
    
    9.27
    %Ordinary Shares
    
    Pictet Asset Management SA
(3)
    
    
    830,900
    
    
    
    5.88
    %Ordinary Shares
    
    Thomson, Horstmann, &
    
    
    709,350
    
    
    
    5.02
    %Bryant, Inc. (4)Ordinary Shares
    
    Jeffrey M. Parker,
    
    
    480,131
    
    
    
    3.40
    %Director, Chairman of theBoard of Directors (5)Ordinary Shares
    
    Frederick W. McTaggart,
    
    
    174,080
    
    
    
    1.23
    %Director, President and ChiefExecutive Officer (6)Ordinary Shares
    
    David W. Sasnett,
    
    
    1,518
    
    
    
    *Director, Executive VicePresident and Chief FinancialOfficerOrdinary Shares
    
    Gregory S. McTaggart,
    
    
    152,692
    
    
    
    1.11
    %Vice President of CaymanOperations (7)Ordinary Shares
    
    Robert B. Morrison,
    
    
    3,986
    
    
    
    *Vice President of Purchasingand IT (8)
 119




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##### Table of Contents



Identity of
    
    Amount
    
    PercentageTitle of Class
    
    Person or Group
    
    Owned
    
    of ClassOrdinary Shares
    
    Joseph Pivinski,
    
    
    
    
    
    
    *Senior Vice President andChief Financial OfficerOrdinary Shares
    
    William T. Andrews,
    
    
    1,865
    
    
    
    *DirectorOrdinary Shares
    
    Brian E. Butler,
    
    
    43,744
    
    
    
    *DirectorOrdinary Shares
    
    Steven A. Carr,
    
    
    80,543
    
    
    
    *Director (9)Ordinary Shares
    
    Carson K. Ebanks,
    
    
    287
    
    
    
    *DirectorOrdinary Shares
    
    Richard L. Finlay,
    
    
    9,294
    
    
    
    *DirectorOrdinary Shares
    
    Clarence B. Flowers, Jr.,
    
    
    13,000
    
    
    
    *DirectorOrdinary Shares
    
    Wilmer Pergande,
    
    
    13,257
    
    
    
    *DirectorOrdinary Shares
    
    Leonard J. Sokolow,
    
    
    218
    
    
    
    *DirectorOrdinary Shares
    
    Raymond Whittaker,
    
    
    29,624
    
    
    
    *DirectorOrdinary Shares
    
    Directors and Executive
    
    
    1,004,239
    
    
    
    7.1
    %Officers as a Group (10)Redeemable Preference Shares
    
    Margaret Julier,
    
    
    2,140
    
    
    
    8.93
    %Officer Manager
 120




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##### Table of Contents



Identity of
    
    Amount
    
    PercentageTitle of Class
    
    Person or Group
    
    Owned
    
    of ClassRedeemable
    
    Elizabeth Triana,
    
    
    1,658
    
    
    
    5.1
    %Preference Shares
    
    Customer Service
 *
    
    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 9, 2007 are deemed outstanding for that person but are not
deemed outstanding for computing the percentage of ownership of any
other person.
 (1)
    
    On May 19, 2006, PowerShares Capital Management, as investment adviser to
PowerShares Exchange  Traded Fund Trust, filed a Schedule 13G (Schedule 13G) with
the Securities and Exchange Commission. The Schedule 13G states that PowerShares
Exchange  Traded Fund Trust has sole voting power over 1,456,557 shares of common
stock and sole dispositive power over 1,456,557 shares. The address of PowerShares
Capital Management is 301 West Roosevelt Road, Wheaton, Illinois 60187.(2)
    
    On March 9, 2007, AMVESCAP PLC, on its own behalf and on behalf of its subsidiary,
PowerShares Capital Management LLC, filed an amended Schedule 13G (Schedule 13G) with the
Securities and Exchange Commission. The Schedule 13G states that PowerShares Capital
Management LLC has sole voting power over 1,310,105 shares of common stock and sole
dispositive power over 1,310,105 shares. The address of AMVESCAP PLC is 30 Finsbury Square,
London, EC2A 1AG, England.(3)
    
    On February 12, 2007, Pictet Asset Management SA filed a Schedule 13G
(Schedule 13G) with Securities and Exchange Commission. The Schedule 13G states that
Pictet Asset Management SA has sole voting power over 830,900 shares of common stock
and sole dispositive power over 830,900 shares. The address of Pictet Asset Management
SA is 60 Route des Acacias, Geneva 73, Switzerland, CH-12 11.(4)
    
    On January 29, 2007, Thomson Horstmann & Bryant, Inc. filed a Schedule 13G
(Schedule 13G) with the Securities and Exchange Commission. The Schedule 13G states
that Thomson Horstmann & Bryant, Inc. has sole voting power over 709,350 shares of
common stock and sole dispositive power over 709,350 shares. The address of the
Thomson Horstmann & Bryant, Inc. is Park 80 West, Plaza One, Saddle Brook, NJ 07663.(5)
    
    Of the
480,131 ordinary shares owned by Mr. Parker, 90,194 are ordinary
shares underlying options granted to Mr. Parker, which may be
exercised within 60 days after March 9, 2007 and
389,937 shares are owned by the Parker Settlement Trust (the Trust). Mr. Parker disclaims beneficial ownership of the shares owned
by the Trust. The 389,937 shares owned by the Trust have been pledged.(6)
    
    Of the
174,080 ordinary shares owned by Mr. Frederick McTaggart, 32,324
have been pledged and 87,850 are ordinary shares underlying options
granted to Mr. McTaggart, which may be exercised within
60 days after March 9, 2007.(7)
    
    Of the
152,692 ordinary shares owned by Mr. Gregory McTaggart, 63,444
are ordinary shares underlying options granted to Mr. McTaggart,
which may be exercised within 60 days after March 9, 2007.(8)
    
    Of the 3,986 ordinary shares owned by Mr. Morrison, 3,206 have
shared investment power.(9)
    
    Of the 80,543 ordinary shares owned by Mr. Car, 77,452 are in a
trust, for which Mr. Car indirectly owns the shares as co
trustee.(10)
    
    Of the 1,004,239 ordinary shares owned by the Directors and executive
officers as a group, 240,984 are ordinary shares underlying options
which may be exercised within 60 days after March 9, 2007,
3,206 have shared investment power, 77,452 are indirectly owned, and
422,261 are pledged, including 389,937 disclaimed as beneficially
owned. 121




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##### Table of Contents



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,
    
    securitieswarrants and rights
    
    warrants and rights
    
    reflected in column (a))Plan category
    
    (a)
    
    (b)
    
    (c)Equity compensation plansapproved by security holders
    
    
    526,860
    
    
    $
    8.52
    
    
    
    *Equity compensation plansnot approved by securityholders
    
    
    73,790
    **
    
    $
    9.39
    
    
    
    *Total
    
    
    600,650
    
    
    $
    8.63
    
    
    
    *
 
 *
    
    Our equity compensation plans do not have any limits on the amount of shares reserved for
issuance under the plans.**
    
    All of the 73,790 shares are issuable pursuant to our Employee Share Option Plan. See Note 21
to the Notes to Consolidated Financial Statements. 123




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##### Table of Contents



ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 Transactions With Related Persons
   Director Independence
  124




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##### Table of Contents



ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
  2006
    
    
    2005Audit
    
    $
    502,885
    
    
    $
    397,000Audit-Related
    
    
    63,320
    
    
    
    Tax
    
    
    
    
    
    
    All Other
    
    
    
    
    
    
    Total
    
    
    566,205
    
    
    
    397,000
     125




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
 (a)
    
    1. Financial Statements
 The Consolidated Water Co. Ltd. financial statements found in ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA are incorporated herein by reference.Pursuant to Rule 3-09 of Regulation S-X, when either the first or third condition set forth
in Rule 1-02(w), substituting 20 percent for 10 percent, is met by a 50
percent-or-less-owned person accounted for by the equity method separate financial
statements shall be filed. The Ocean Conversion (BVI) Ltd. financial statements found in
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA are incorporated herein by reference.2.
    
    Financial Statement SchedulesNone3.
    
    ExhibitsThe Exhibits listed in the Exhibit Index immediately preceding the Signatures are filed as
part of this Annual Report on Form 10-K.
 126




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##### Table of Contents



SIGNATURES
  CONSOLIDATED WATER CO. LTD.By:
    
    /s/ Jeffrey M. ParkerJeffrey M. Parker
Chairman of the Board of Directors
   Signature
    
    Title
    
    DateBy:
    
    /s/ Jeffrey M. ParkerJeffrey M. Parker
    
    Chairman of the Board of
    
    March 16, 2007DirectorsBy:
    
    /s/ Frederick W. McTaggartFrederick W. McTaggart
    
    Director, Chief Executive
    
    March 16, 2007Officer and President (PrincipalExecutive Officer)By:
    
    /s/ David W. Sasnett
    
    Director, Executive Vice
    
    March 16, 2007David W. Sasnett
    
    President &Chief Financial Officer(Principal Financial andAccounting Officer)By:
    
    /s/ William T. AndrewsWilliam T. Andrews
    
    Director
    
    March 16, 2007
 127




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##### Table of Contents



Signature
    
    Title
    
    DateBy:
    
    /s/ Brian E. ButlerBrian E. Butler
    
    Director
    
    March 16, 2007By:
    
    /s/ Steven A. CarrSteven A. Carr
    
    Director
    
    March 16, 2007By:
    
    /s/ Carson K. EbanksCarson K. Ebanks
    
    Director
    
    March 16, 2007By:
    
    
    
    Director
    
    March 16, 2007Richard L. FinlayBy:Clarence B. Flowers, Jr.
    
    Director
    
    March 16, 2007By:
    
    /s/ Wilmer PergandeWilmer Pergande
    
    Director
    
    March 16, 2007By:
    
    /s/ Leonard J. SokolowLeonard J. Sokolow
    
    Director
    
    March 16, 2007By:
    
    /s/ Raymond WhittakerRaymond Whittaker
    
    Director
    
    March 16, 2007
 128




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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)




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##### Table of Contents



Number
    
    Exhibit Description2.2.3
    
    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)2.5
    
    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 August 17, 2005 (incorporated by reference to Exhibit
4.1 filed as part of our Form F-3 filed October 12, 2006, Commission
File No. 333-137970)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)




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##### Table of Contents



Number
    
    Exhibit Description4.1
    
    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)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. 0-2524810.1.4
    
    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*
    
    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)10.6*
    
    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)10.7*
    
    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)10.8*
    
    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
    
    Consultancy Agreement dated January 1, 2006 between Mr. Wilmer
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)10.12
    
    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)10.13
    
    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 Description10.14*
    
    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)10.15*
    
    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)10.16
    
    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)10.17
    
    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)10.18
    
    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)10.19
    
    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)10.20
    
    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)10.21
    
    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)10.22
    
    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)10.23
    
    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)10.24.1
    
    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)10.24.2
    
    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




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##### Table of Contents



Number
    
    Exhibit Descriptionfiled as a part of our Form 10-K for
the fiscal year ended December 31, 2003, Commission File No.
0-25248)10.25
    
    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)10.26.1
    
    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)10.26.2
    
    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)10.27.1
    
    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)10.27.2
    
    First Amendment to the Distributorship Agreement dated August 30,
2005 among Calder AG, DessalCo Limited and DWEER Technologies Ltd.10.27.3
    
    Amended and Restated Distributorship Agreement dated August 30,
2005 between Calder AG and DesalCo Limited.10.28
    
    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)10.29
    
    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)10.30
    
    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)10.31
    
    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)10.32
    
    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)10.33
    
    Equitable Charge of Shares dated August 4, 2006 between
Consolidated Water Co. Ltd. and Dextra Bank & Trust Co. Ltd.
(incorporated herein by reference to




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##### Table of Contents



Number
    
    Exhibit DescriptionExhibit 10.7 filed as a part
of our Form 8-K filed August 9, 2006, File No. 0-25248)10.34
    
    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)10.35
    
    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)10.36
    
    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)10.37
    
    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)10.38
    
    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)10.39
    
    Cayman Islands Collateral Charge, West Bay North East, Block 9A,
Parcel 469 (incorporated herein by reference to Exhibit 10.13 filed
as a part of our Form 8-K filed August 9, 2006, File No. 0-25248)10.40
    
    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)21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of Rachlin Cohen & Holtz LLP  Consolidated Water Co. Ltd.23.2
    
    Consent of Rachlin Cohen & Holtz LLP  Ocean Conversion (BVI) Ltd.23.3
    
    Consent of KPMG  Consolidated Water Co. Ltd.23.4
    
    Consent of KPMG  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