Consolidated Water Co. Ltd. (the “Company”) and its wholly-owned subsidiaries (together the “Group”) use reverse osmosis technology to produce fresh water from seawater. The Group processes and supplies water to its customers in Grand Cayman, Cayman Islands as well as Ambergris Caye, Belize. The Company’s exclusive license in Grand Cayman allows it to process and supply water to certain areas of Grand Cayman for a period of twenty years from July 11, 1990 in addition to having a right of first refusal on the extension or renewal thereof. The Group also has a contract with the Water and Sewerage Authority of Belize (the “Water Authority”) to supply water to the Water Authority in Ambergris Caye expiring in 2011. At the expiry of the contract, the Water Authority may at its option extend the term of the agreement or purchase the plant outright. The base price of water supplied by the Group, and adjustments thereto, are determined by the terms of the license and contract, which provide for adjustments based upon the movement in the government price indices specified in the license and contract respectively as well as monthly adjustments for changes in the cost of fuel. As a result of a management decision the Group has voluntarily adopted accounting principles generally accepted in the United States of America (“US-GAAP”) effective January 1, 2000. Previously, annual financial statements were prepared in accordance with International Accounting Standards (“IAS”). As a result all prior periods’ financial statements presented in these financial statements have been prepared in accordance with “US-GAAP”. The following income statement and balance sheet captions contain certain items, the accounting for which has changed as a result of the change from IAS to US-GAAP: INCOME STATEMENT: Administrative costs include: i) recognition of stock option compensation expenses and ii) start up costs expensed following the change in accounting policy to effect the application of Statement of Position 98-5 “Reporting on the Costs of Start Up Activities.” BALANCE SHEET: Accounts payable and accrued expenses are affected by: stock compensation relating to unexercised options. Fixed assets are affected by: reversal of recognition of unrealized capital gains arising on the revaluation of land. Additional paid in capital is affected by: stock compensation relating to exercised options. Retained earnings and other reserves are affected by: i) stock option compensation expense, ii) start up costs and iii) reversal of recognition of unrealized capital gains. Cash and cash equivalents: As a result of the application of US- GAAP, cash and cash equivalents now represents cash, and highly liquid bank deposits with original maturity of three months or less. Detailed information on accounting principles for the above items under US-GAAP, as well as the value of the reconciling items between US-GAAP and IAS at December 31, 1999 and 1998 and other dates and for other periods can be found in Note 20 of the Group's previous financial statements filed on Form 20-F. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  Basis of consolidation: The consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries Belize Water Ltd. and Commonwealth Water Limited. The operating results of Belize Water Ltd. have been included in the financial statements since the date of the acquisition (July 21, 2000). All inter-company balances and transactions have been eliminated. There are no operating results for Commonwealth Water Limited as the Company has been dormant since inception. Use of estimates Basis of preparation 2. Accounting policies 1. Principal activity and status (Expressed in United States dollars) CONSOLIDATED WATER CO. LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Group's significant accounting policies are: