##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 September 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  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 ParkWindward Three,
4thFloor, West Bay RoadP.O. Box 1114 GTGrand Cayman, Cayman Islands
    
    N/A(Address of principal executive offices)
    
    (Zip Code)
 (345) 945-4277
 x o
 x o
 o x
 ,




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EXCHANGE RATES




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TABLE OF CONTENTS
 Section
    
    Description
    
    PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as at September 30, 2005 (unaudited) and December 31, 2004
    
    
    1Condensed Consolidated Statements of Operations for each of the three and nine months ended September 30, 2005 and 2004 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004 (unaudited)
    
    
    3Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    4Item 2.
    
    Managements Discussions and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    25PART II
    
    OTHER INFORMATIONItem 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 6.
    
    Exhibits
    
    
    26SIGNATURE
    
    
    
    
    27Section 302 Chief Executive Officer CertificationSection 302 Chief Financial Officer CertificationSection 906 Chief Executive Officer CertificationSection 906 Chief Financial Officer Certification




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Forward-Looking Statements




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##### Table of Contents



Item 1. Financial Statements
 
 PART
I  FINANCIAL INFORMATION
 
 CONSOLIDATED WATER CO.
LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS
 (Expressed in United States Dollars)
 September 30,
    
    
    December 31,2005
    
    
    2004(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    12,394,564
    
    
    $
    9,216,908Accounts receivable
    
    
    3,972,888
    
    
    
    4,879,410Insurance claim receivable
    
    
    
    
    
    
    1,932,905Inventory
    
    
    1,840,510
    
    
    
    1,629,348Prepaid expenses and other current assets
    
    
    1,137,208
    
    
    
    625,563Current portion of loans receivable
    
    
    718,386
    
    
    
    924,020Total current assets
    
    
    20,063,556
    
    
    
    19,208,154Loans receivable, including $800,000 due from affiliate
    
    
    2,591,881
    
    
    
    2,270,326Property, plant and equipment, net
    
    
    26,821,536
    
    
    
    27,218,589Construction in progress, including interest of $187,500 and $nil in
2005 and 2004, respectively
    
    
    11,086,092
    
    
    
    1,642,813Other assets
    
    
    562,438
    
    
    
    424,564Investments in affiliates
    
    
    11,355,190
    
    
    
    11,070,848Intangible assets
    
    
    4,723,971
    
    
    
    5,421,381Goodwill
    
    
    3,568,374
    
    
    
    3,568,374Total assets
    
    $
    80,773,038
    
    
    $
    70,825,049LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesDividends payable
    
    $
    828,190
    
    
    $
    783,854Accounts payable and other current liabilities
    
    
    3,004,259
    
    
    
    3,860,511Current portion of long term debt
    
    
    3,721,144
    
    
    
    3,733,144Total current liabilities
    
    
    7,553,593
    
    
    
    8,377,509Long term debt, including Series A bond issue of $10,000,000
    
    
    20,185,633
    
    
    
    12,856,226Security deposits and other liabilities
    
    
    357,957
    
    
    
    357,957Minority interest in Waterfields Company Limited
    
    
    861,990
    
    
    
    861,463Total liabilities
    
    
    28,959,173
    
    
    
    22,453,155Stockholders equityRedeemable preferred stock, $0.60 par value. Authorized 200,000
shares; issued and outstanding 29,046 shares as at September
30, 2005 and 27,842 shares at as December 31, 2004
    
    
    17,428
    
    
    
    16,705Class A common stock, $0.60 par value. Authorized 19,680,000
shares; issued and outstanding 11,768,038 shares as at
September 30, 2005 and 11,506,970 shares at as December 31,
2004
    
    
    7,060,823
    
    
    
    6,904,183Class B common stock, $0.60 par value. Authorized 120,000 shares
    
    
    
    
    
    
    Stock and options earned but not issued
    
    
    150,715
    
    
    
    20,746Additional paid-in capital
    
    
    28,658,723
    
    
    
    27,281,728Retained earnings
    
    
    15,926,176
    
    
    
    14,148,532Total stockholders equity
    
    
    51,813,865
    
    
    
    48,371,894Total liabilities and stockholders equity
    
    $
    80,773,038
    
    
    $
    70,825,049
  1




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CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Expressed in United States Dollars)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Retail water sales
    
    $
    3,005,984
    
    
    $
    2,522,708
    
    
    $
    9,549,318
    
    
    $
    9,634,096Bulk water sales
    
    
    2,869,852
    
    
    
    2,552,605
    
    
    
    8,435,746
    
    
    
    7,716,477Service revenue
    
    
    328,550
    
    
    
    203,741
    
    
    
    829,676
    
    
    
    675,543Total revenue
    
    
    6,204,386
    
    
    
    5,279,054
    
    
    
    18,814,740
    
    
    
    18,026,116Retail cost of sales
    
    
    (1,329,128
    )
    
    
    (1,280,030
    )
    
    
    (3,881,939
    )
    
    
    (4,071,181
    )Bulk cost of sales
    
    
    (2,448,101
    )
    
    
    (1,913,867
    )
    
    
    (7,023,888
    )
    
    
    (5,808,369
    )Service cost of sales
    
    
    (224,743
    )
    
    
    (142,734
    )
    
    
    (526,409
    )
    
    
    (447,851
    )Total cost of sales
    
    
    (4,001,972
    )
    
    
    (3,336,631
    )
    
    
    (11,432,236
    )
    
    
    (10,327,401
    )Gross profit
    
    
    2,202,414
    
    
    
    1,942,423
    
    
    
    7,382,504
    
    
    
    7,698,715General and administrative expense
    
    
    (1,477,898
    )
    
    
    (1,419,611
    )
    
    
    (4,421,675
    )
    
    
    (3,892,809
    )Net loss due to Hurricane Ivan
    
    
    
    
    
    
    (387,472
    )
    
    
    
    
    
    
    (387,472
    )Income from operations
    
    
    724,516
    
    
    
    135,340
    
    
    
    2,960,829
    
    
    
    3,418,434Other income (expense):Interest income
    
    
    42,605
    
    
    
    21,600
    
    
    
    78,840
    
    
    
    54,237Interest expense
    
    
    (214,736
    )
    
    
    (183,622
    )
    
    
    (661,216
    )
    
    
    (503,040
    )Other income
    
    
    121,232
    
    
    
    127,981
    
    
    
    422,081
    
    
    
    378,696Equity in earnings of affiliate
    
    
    337,248
    
    
    
    340,367
    
    
    
    1,055,186
    
    
    
    846,480Other income, net
    
    
    286,349
    
    
    
    306,326
    
    
    
    894,891
    
    
    
    776,373Income before income taxes and minority
interest
    
    
    1,010,865
    
    
    
    441,666
    
    
    
    3,855,720
    
    
    
    4,194,807Income tax benefit (expense)
    
    
    (6,822
    )
    
    
    (6,836
    )
    
    
    9,567
    
    
    
    (21,011
    )Minority interest recovery (expense)
    
    
    5,306
    
    
    
    (10,798
    )
    
    
    (527
    )
    
    
    (61,806
    )Net income
    
    $
    1,009,349
    
    
    $
    424,032
    
    
    $
    3,864,760
    
    
    $
    4,111,990Basic earnings per common share
    
    $
    0.09
    
    
    $
    0.04
    
    
    $
    0.33
    
    
    $
    0.36Diluted earnings per common share
    
    $
    0.08
    
    
    $
    0.04
    
    
    $
    0.32
    
    
    $
    0.35Dividends declared per common share
    
    $
    0.06
    
    
    $
    0.058
    
    
    $
    0.178
    
    
    $
    0.173Weighted average number of common shares
used in the determination of:Basic earnings per share
    
    
    11,754,530
    
    
    
    11,497,710
    
    
    
    11,678,398
    
    
    
    11,463,796Diluted earnings per share
    
    
    12,141,924
    
    
    
    11,773,582
    
    
    
    12,082,027
    
    
    
    11,723,580
  2




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CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Expressed in United States Dollars)
 Nine Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004Net cash flows provided by operating activities
    
    $
    6,362,132
    
    
    $
    5,297,563Cash flows provided by (used in) investing activitiesPurchase of property, plant and equipment
    
    
    (10,591,733
    )
    
    
    (1,728,524
    )Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    20,000Distribution of income from affiliate
    
    
    1,136,250
    
    
    
    681,750Loan to affiliate
    
    
    (800,000
    )
    
    
    Collections from loans receivable
    
    
    684,079
    
    
    
    821,804Net cash used in investing activities
    
    
    (9,571,404
    )
    
    
    (204,970
    )Cash flows provided by (used in) financing activitiesDividends paid
    
    
    (2,042,781
    )
    
    
    (1,888,200
    )Proceeds from issuance of common stock
    
    
    1,311,598
    
    
    
    432,421Proceeds from issuance of preferred stock
    
    
    12,213
    
    
    
    Net proceeds from issuance of Series A bonds
    
    
    9,788,491
    
    
    
    Principal payments of long term debt
    
    
    (2,682,593
    )
    
    
    (2,754,354
    )Net cash provided by (used in) financing activities
    
    
    6,386,928
    
    
    
    (4,210,133
    )Net increase in cash and cash equivalents
    
    
    3,177,656
    
    
    
    882,460Cash and cash equivalents at beginning of period
    
    
    9,216,908
    
    
    
    8,236,924Cash and cash equivalents at end of period
    
    $
    12,394,564
    
    
    $
    9,119,384Interest paid in cash
    
    $
    775,079
    
    
    $
    430,861Interest received in cash
    
    $
    79,854
    
    
    $
    54,237
  3




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. Presentation of Financial Information
   2. Principles of Consolidation
  3. Stock Based Compensation
   4




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 3. Stock Based Compensation (continued)
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income, as reported
    
    $
    1,009,349
    
    
    $
    424,032
    
    
    $
    3,864,760
    
    
    $
    4,111,990Add: stock-based compensation
expense included in reported
net income
    
    
    58,683
    
    
    
    45,750
    
    
    
    195,477
    
    
    
    113,067Deduct: total stock-based
compensation expense determined
under fair value based method
for all awards
    
    
    (103,178
    )
    
    
    (77,773
    )
    
    
    (259,598
    )
    
    
    (170,051
    )Pro forma net income
    
    $
    964,854
    
    
    $
    392,009
    
    
    $
    3,800,639
    
    
    $
    4,055,006Earnings per shareBasic  as reported
    
    $
    0.09
    
    
    $
    0.04
    
    
    $
    0.33
    
    
    $
    0.36Basic  pro forma
    
    $
    0.08
    
    
    $
    0.03
    
    
    $
    0.32
    
    
    $
    0.35Diluted  as reported
    
    $
    0.08
    
    
    $
    0.04
    
    
    $
    0.32
    
    
    $
    0.35Diluted  pro forma
    
    $
    0.08
    
    
    $
    0.03
    
    
    $
    0.31
    
    
    $
    0.35
  5




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 4. Segment Information
    6




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 4. Segment Information (continued)
 As of September 30 and for the three months then ended
 Retail
    
    
    Bulk
    
    
    Services
    
    
    Reconciling Items
    
    
    Total2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    
    3,005,984
    
    
    
    2,522,708
    
    
    
    3,722,867
    
    
    
    3,334,851
    
    
    
    328,550
    
    
    
    203,741
    
    
    
    (853,015
    )
    
    
    (782,246
    )
    
    
    6,204,386
    
    
    
    5,279,054Cost of sales
    
    
    1,329,128
    
    
    
    1,280,030
    
    
    
    2,778,471
    
    
    
    2,192,300
    
    
    
    224,743
    
    
    
    142,734
    
    
    
    (330,370
    )
    
    
    (278,433
    )
    
    
    4,001,972
    
    
    
    3,336,631Net income (loss)
    
    
    468,939
    
    
    
    (300,050
    )
    
    
    455,324
    
    
    
    634,739
    
    
    
    57,337
    
    
    
    16,846
    
    
    
    27,749
    
    
    
    72,497
    
    
    
    1,009,349
    
    
    
    424,032
 As of September 30 and for the nine months then ended
 Retail
    
    
    Bulk
    
    
    Services
    
    
    Reconciling Items
    
    
    Total2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    
    9,549,318
    
    
    
    9,634,096
    
    
    
    10,964,026
    
    
    
    9,815,319
    
    
    
    829,676
    
    
    
    675,543
    
    
    
    (2,528,280
    )
    
    
    (2,098,842
    )
    
    
    18,814,740
    
    
    
    18,026,116Cost of sales
    
    
    3,881,939
    
    
    
    4,071,181
    
    
    
    7,982,586
    
    
    
    6,618,580
    
    
    
    526,409
    
    
    
    447,851
    
    
    
    (958,698
    )
    
    
    (810,211
    )
    
    
    11,432,236
    
    
    
    10,327,401Net income
    
    
    1,897,668
    
    
    
    1,935,283
    
    
    
    1,616,459
    
    
    
    1,891,178
    
    
    
    187,581
    
    
    
    111,357
    
    
    
    163,052
    
    
    
    174,172
    
    
    
    3,864,760
    
    
    
    4,111,990Property, plant and
equipment
    
    
    20,625,549
    
    
    
    18,402,083
    
    
    
    16,847,458
    
    
    
    11,882,772
    
    
    
    2,519,563
    
    
    
    31,103
    
    
    
    (2,084,942
    )
    
    
    (1,914,962
    )
    
    
    37,907,628
    
    
    
    28,400,996
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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 5. Earnings Per Share
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    1,009,349
    
    
    $
    424,032
    
    
    $
    3,864,760
    
    
    $
    4,111,990Less:Dividends declared
and earnings
attributable on
preferred shares
    
    
    (1,909
    )
    
    
    (1,510
    )
    
    
    (6,132
    )
    
    
    (5,615
    )Net income
available to
holders of common
shares in the
determination of
basic earnings per
common share
    
    $
    1,007,440
    
    
    $
    422,522
    
    
    $
    3,858,628
    
    
    $
    4,106,375Weighted average
number of common
shares in the
determination of
basic earnings per
common share
    
    
    11,754,530
    
    
    
    11,497,710
    
    
    
    11,678,398
    
    
    
    11,463,796Plus:Weighted average
number of preferred
shares outstanding
during the period
    
    
    26,529
    
    
    
    27,546
    
    
    
    25,640
    
    
    
    26,912Potential dilutive
effect of
unexercised options
    
    
    360,865
    
    
    
    248,326
    
    
    
    377,989
    
    
    
    232,872Weighted average
number of shares
used for
determining diluted
earnings
per common share
    
    
    12,141,924
    
    
    
    11,773,582
    
    
    
    12,082,027
    
    
    
    11,723,580
 8




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 6. Related Party Transaction
   7. Stock Split
  8. Issuance of Bonds and related Guarantee
     9




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 9. Option Deed Amendment
     10. Subsequent Events and Other Information
 Issuance of Bahamian Depositary Receipts
    10




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CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 10. Subsequent Events and Other Information (continued)
 Financial Covenants
  11. Impact of Recent Accounting Pronouncements
    11




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Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
    Critical Accounting Policies
  Goodwill and other intangible assets
 12




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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:
 Trade accounts receivable
 13




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Recent Developments, Off Balance Sheet Transactions and Commitments
 Equity Offering in The Commonwealth of the Bahamas
   Engineering
Services Agreement
   Renewal of Contract  Cayman Islands
   Performance and Operation Bonds
  14




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Cayman Island Operations
  Belize Operations
  Sources of Supply and Manufacturing Rights
   Dividend
  15




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Results of Operations
 Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004
 Revenue
        16




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Cost of Sales
     Gross Profit
  General and Administrative Expense
     17




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Net loss due to Hurricane Ivan  2004
  Other Income (Expense)
  Net Income
  Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004
 Revenue
      18




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Cost of Sales
     Gross Profit
  General and Administrative Expense
   19




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Other Income (Expense)
   Net Income
  Liquidity and Capital Resources
 Overview
    Operating Activities
  20




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Investing Activities
  Financing Activities
  Material Commitments and Material Expenditures
      21




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22




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Dividends
     Dividend Reinvestment and Common Stock Purchase Plan .
  Impact of Inflation
  23




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Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Credit Risk
  Interest Rate Risk
  Foreign Exchange Risk
  24




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Item 4. Controls and Procedures
     25




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PART II  OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 6. Exhibits
 ExhibitNumber
    
    Exhibit Description31.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of the
Company31.2
    
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of the
Company32.1
    
    
    Section 1350 Certification of Chief Executive Officer of the Company32.2
    
    
    Section 1350 Certification of Chief Financial Officer of the Company
 26




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SIGNATURE
  CONSOLIDATED WATER CO. LTD.By:
    /s/ Frederick W. McTaggartFrederick W. McTaggartChief Executive Officer  27