##### 



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
 June 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, 4th FloorWest 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
 ,




---



##### 



EXCHANGE RATES




---



##### 



TABLE OF CONTENTS
 Section
    
    Description
    
    PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as at June 30, 2005 (unaudited) and December 31, 2004
    
    
    1Condensed
Consolidated Statements of Operations for each of the three and six months ended June 30, 2005 and 2004 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the six months ended June 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
    
    
    9Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 4.
    
    Controls and Procedures
    
    
    21PART II
    
    OTHER INFORMATIONItem 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 6.
    
    Exhibits
    
    
    22SIGNATURE
    
    
    23




---



##### 



Forward-Looking Statements




---



##### 



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in United States Dollars)
 June 30,
    
    
    December 31,2005
    
    
    2004(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    8,052,519
    
    
    $
    9,216,908Accounts receivable
    
    
    4,613,383
    
    
    
    4,879,410Insurance claim receivable
    
    
    
    
    
    
    1,932,905Inventory
    
    
    1,803,470
    
    
    
    1,629,348Prepaid expenses and other assets
    
    
    2,137,475
    
    
    
    625,563Current portion of loans receivable
    
    
    766,316
    
    
    
    924,020Total current assets
    
    
    17,373,163
    
    
    
    19,208,154Loans receivable, including $800,000 due from affiliate
    
    
    2,747,059
    
    
    
    2,270,326Property, plant and equipment, net
    
    
    31,732,630
    
    
    
    28,861,402Other assets
    
    
    378,999
    
    
    
    424,564Investments in affiliates
    
    
    10,922,389
    
    
    
    11,070,848Intangible assets
    
    
    4,956,441
    
    
    
    5,421,381Goodwill
    
    
    3,568,374
    
    
    
    3,568,374Total assets
    
    $
    71,679,055
    
    
    $
    70,825,049LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesDividends payable
    
    $
    825,745
    
    
    $
    783,854Accounts payable and other liabilities
    
    
    3,633,439
    
    
    
    3,860,511Current portion of long term debt
    
    
    3,721,144
    
    
    
    3,733,144Total current liabilities
    
    
    8,180,328
    
    
    
    8,377,509Long term debt
    
    
    11,000,641
    
    
    
    12,856,226Security deposits and other liabilities
    
    
    357,957
    
    
    
    357,957Minority interest in Waterfields Company Limited
    
    
    867,296
    
    
    
    861,463Total liabilities
    
    
    20,406,222
    
    
    
    22,453,155Stockholders equityRedeemable preferred stock, $1.20 par value. Authorized
100,000 shares; issued and outstanding 11,830 shares as at
June 30, 2005 and 13,921 shares at as December 31, 2004
    
    
    14,196
    
    
    
    16,705Class A common stock, $1.20 par value. Authorized 9,840,000
shares; issued and outstanding 5,865,744 shares as at June 30,
2005 and 5,753,485 shares at as December 31, 2004
    
    
    7,038,893
    
    
    
    6,904,183Class B common stock, $1.20 par value. Authorized 60,000 shares
    
    
    
    
    
    
    Stock and options earned but not issued
    
    
    114,387
    
    
    
    20,746Additional paid-in capital
    
    
    28,481,185
    
    
    
    27,281,728Retained earnings
    
    
    15,624,172
    
    
    
    14,148,532Total stockholders equity
    
    
    51,272,833
    
    
    
    48,371,894Total liabilities and stockholders equity
    
    $
    71,679,055
    
    
    $
    70,825,049
  1




---



##### 



CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Expressed in United States Dollars)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Retail water sales
    
    $
    3,411,605
    
    
    $
    3,536,311
    
    
    $
    6,543,334
    
    
    $
    7,111,387Bulk water sales
    
    
    2,870,593
    
    
    
    2,655,693
    
    
    
    5,565,894
    
    
    
    5,163,872Service revenue
    
    
    270,670
    
    
    
    217,360
    
    
    
    501,126
    
    
    
    471,802Total revenue
    
    
    6,552,868
    
    
    
    6,409,364
    
    
    
    12,610,354
    
    
    
    12,747,061Retail cost of sales
    
    
    1,297,694
    
    
    
    1,420,869
    
    
    
    2,552,811
    
    
    
    2,791,151Bulk cost of sales
    
    
    2,316,463
    
    
    
    1,978,442
    
    
    
    4,575,787
    
    
    
    3,894,501Service cost of sales
    
    
    156,482
    
    
    
    160,508
    
    
    
    301,666
    
    
    
    305,117Total cost of sales
    
    
    3,770,639
    
    
    
    3,559,819
    
    
    
    7,430,264
    
    
    
    6,990,769Gross profit
    
    
    2,782,229
    
    
    
    2,849,545
    
    
    
    5,180,090
    
    
    
    5,756,292General and administrative expense
    
    
    1,519,974
    
    
    
    1,376,510
    
    
    
    2,943,778
    
    
    
    2,473,198Income from operations
    
    
    1,262,255
    
    
    
    1,473,035
    
    
    
    2,236,312
    
    
    
    3,283,094Other income (expense):Interest income
    
    
    18,478
    
    
    
    22,646
    
    
    
    36,235
    
    
    
    40,429Interest expense
    
    
    (268,151
    )
    
    
    (157,123
    )
    
    
    (446,480
    )
    
    
    (319,418
    )Other income
    
    
    116,165
    
    
    
    142,214
    
    
    
    300,849
    
    
    
    242,922Equity in earnings of affiliate
    
    
    363,530
    
    
    
    306,518
    
    
    
    717,938
    
    
    
    506,113230,022
    
    
    
    314,255
    
    
    
    608,542
    
    
    
    470,046Net income before income taxes and
minority interest
    
    
    1,492,277
    
    
    
    1,787,290
    
    
    
    2,844,854
    
    
    
    3,753,140Income tax benefit (expense)
    
    
    (7,010
    )
    
    
    (1,169
    )
    
    
    16,389
    
    
    
    (14,174
    )Minority Interest
    
    
    (3,908
    )
    
    
    (22,081
    )
    
    
    (5,833
    )
    
    
    (51,008
    )Net income
    
    $
    1,481,359
    
    
    $
    1,764,040
    
    
    $
    2,855,410
    
    
    $
    3,687,958Basic earnings per common share
    
    $
    0.25
    
    
    $
    0.31
    
    
    $
    0.49
    
    
    $
    0.64Diluted earnings per common share
    
    $
    0.25
    
    
    $
    0.30
    
    
    $
    0.48
    
    
    $
    0.63Dividends declared per common share
    
    $
    0.12
    
    
    $
    0.115
    
    
    $
    0.235
    
    
    $
    0.23Weighted average number of common
shares used in the determination
of:Basic earnings per share
    
    
    5,862,914
    
    
    
    5,747,044
    
    
    
    5,819,851
    
    
    
    5,723,327Diluted earnings per share
    
    
    6,011,642
    
    
    
    5,870,984
    
    
    
    5,986,928
    
    
    
    5,847,552
  2




---



##### 



CONSOLIDATED WATER CO. LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Expressed in United States Dollars)
 Six Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004Net cash flows provided by operating activities
    
    $
    3,966,580
    
    
    $
    3,509,382Cash flows provided by (used in) investing
activitiesPurchase of property, plant and equipment
    
    
    (3,886,193
    )
    
    
    (1,164,396
    )Receipt of income from affiliate
    
    
    1,136,250
    
    
    
    227,250Loan to affiliate
    
    
    (800,000
    )
    
    
    Collections from loans receivable
    
    
    480,971
    
    
    
    546,385Net cash used in investing activities
    
    
    (3,068,972
    )
    
    
    (390,761
    )Cash flows provided by (used in) financing activitiesDividends paid
    
    
    (1,337,879
    )
    
    
    (1,226,139
    )Proceeds from issuance of common stock
    
    
    1,143,468
    
    
    
    422,145Principal payments of long term debt
    
    
    (1,867,586
    )
    
    
    (1,941,752
    )Net cash used in financing activities
    
    
    (2,061,997
    )
    
    
    (2,745,746
    )Net increase (decrease) in cash and cash equivalents
    
    
    (1,164,389
    )
    
    
    372,875Cash and cash equivalents at beginning of period
    
    
    9,216,908
    
    
    
    8,236,924Cash and cash equivalents at end of period
    
    $
    8,052,519
    
    
    $
    8,609,799Interest paid in cash
    
    $
    339,518
    
    
    $
    273,469Interest received in cash
    
    $
    34,034
    
    
    $
    40,429
  3




---



##### 



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




---



##### 



CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 3. Stock Based Compensation (continued)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income, as reported
    
    $
    1,481,359
    
    
    $
    1,764,040
    
    
    $
    2,855,410
    
    
    $
    3,687,958Add: Stock-based compensation
expense included in reported
net income
    
    
    69,029
    
    
    
    34,239
    
    
    
    136,794
    
    
    
    67,313Deduct: Total stock-based
compensation expense determined
under fair value based method
for all awards
    
    
    (78,842
    )
    
    
    (46,720
    )
    
    
    (156,420
    )
    
    
    (92,279
    )Pro forma net income
    
    $
    1,471,546
    
    
    $
    1,751,559
    
    
    $
    2,835,784
    
    
    $
    3,662,992Earnings per shareBasic  as reported
    
    $
    0.25
    
    
    $
    0.31
    
    
    $
    0.49
    
    
    $
    0.64Basic  pro forma
    
    $
    0.25
    
    
    $
    0.30
    
    
    $
    0.49
    
    
    $
    0.64Diluted  as reported
    
    $
    0.25
    
    
    $
    0.30
    
    
    $
    0.48
    
    
    $
    0.63Diluted  pro forma
    
    $
    0.24
    
    
    $
    0.30
    
    
    $
    0.47
    
    
    $
    0.63
  4. Segment Information
    5




---



##### 



CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 4. Segment Information (continued)
 As of June 30 and for the three months then endedRetail
    
    
    Bulk
    
    
    Services
    
    
    Reconciling Items
    
    
    Total2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    
    3,411,605
    
    
    
    3,536,311
    
    
    
    3,711,901
    
    
    
    3,356,582
    
    
    
    270,670
    
    
    
    217,360
    
    
    
    (841,308
    )
    
    
    (700,889
    )
    
    
    6,552,868
    
    
    
    6,409,364Cost of sales
    
    
    1,297,694
    
    
    
    1,420,869
    
    
    
    2,654,020
    
    
    
    2,244,543
    
    
    
    156,482
    
    
    
    160,508
    
    
    
    (337,557
    )
    
    
    (266,101
    )
    
    
    3,770,639
    
    
    
    3,559,819Net income
    
    
    822,749
    
    
    
    930,616
    
    
    
    587,847
    
    
    
    724,766
    
    
    
    56,698
    
    
    
    24,753
    
    
    
    14,065
    
    
    
    83,905
    
    
    
    1,481,359
    
    
    
    1,764,040
 As of June 30 and for the six months then endedRetail
    
    
    Bulk
    
    
    Services
    
    
    Reconciling Items
    
    
    Total2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    
    6,543,334
    
    
    
    7,111,387
    
    
    
    7,241,159
    
    
    
    6,480,468
    
    
    
    501,126
    
    
    
    471,802
    
    
    
    (1,675,265
    )
    
    
    (1,316,596
    )
    
    
    12,610,354
    
    
    
    12,747,061Cost of sales
    
    
    2,552,811
    
    
    
    2,791,151
    
    
    
    5,204,114
    
    
    
    4,426,279
    
    
    
    301,666
    
    
    
    305,117
    
    
    
    (628,327
    )
    
    
    (531,778
    )
    
    
    7,430,264
    
    
    
    6,990,769Net income
    
    
    1,428,729
    
    
    
    2,235,337
    
    
    
    1,161,133
    
    
    
    1,256,436
    
    
    
    130,243
    
    
    
    94,512
    
    
    
    135,305
    
    
    
    101,673
    
    
    
    2,855,410
    
    
    
    3,687,958Property, plant and
equipment
    
    
    20,061,136
    
    
    
    19,543,376
    
    
    
    13,233,079
    
    
    
    12,138,258
    
    
    
    486,720
    
    
    
    19,832
    
    
    
    (2,048,305
    )
    
    
    (1,976,204
    )
    
    
    31,732,630
    
    
    
    29,725,262
 6




---



##### 



CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 5. Earnings Per Share
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    1,481,359
    
    
    $
    1,764,040
    
    
    $
    2,855,410
    
    
    $
    3,687,958Less:Dividends declared
and earnings
attributable on
preferred shares
    
    
    (1,432
    )
    
    
    (1,288
    )
    
    
    (2,804
    )
    
    
    (2,575
    )Net income
available to
holders of common
shares in the
determination of
basic earnings per
common share
    
    $
    1,479,927
    
    
    $
    1,762,752
    
    
    $
    2,852,606
    
    
    $
    3,685,383Weighted average
number of common
shares in the
determination of
basic earnings per
common share
    
    
    5,862,914
    
    
    
    5,747,044
    
    
    
    5,819,851
    
    
    
    5,723,327Plus:Weighted average
number of preferred
shares outstanding
during the period
    
    
    11,830
    
    
    
    13,008
    
    
    
    12,594
    
    
    
    13,296Potential dilutive
effect of
unexercised options
    
    
    136,898
    
    
    
    110,932
    
    
    
    154,483
    
    
    
    110,929Weighted average
number of shares
used for
determining diluted
earnings
per common share
    
    
    6,011,642
    
    
    
    5,870,984
    
    
    
    5,986,928
    
    
    
    5,847,552
 7




---



##### 



CONSOLIDATED WATER CO. LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 6. Related Party Transaction
   7. Impact of Recent Accounting Pronouncements
   8. Subsequent Events
   
 8




---



##### 



Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
    Critical Accounting Policies
  Goodwill and other intangible assets
 9




---



##### 



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
   Trade accounts receivable
 Recent Developments, Off Balance Sheet Transactions and Commitments
 Long- Term Debt Arrangement
   10




---



##### 



Stock Split
  Increased Dividend
  Loan to Affiliate
    Operating Leases
   11




---



##### 



Long Term Debt Guarantee
  Financial Covenants
  Lease Guarantee
  Performance and Operation Bonds
  Cayman Island Operations
  12




---



##### 



Contemplated Financing Arrangements
  Engineering Services Agreement
    Sources of Supply and Manufacturing Rights
   Results of Operations
 Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
 Revenue
   13




---



##### 



Cost of Sales
     Gross Profit
  General and Administrative Expense
  14




---



##### 



Other Income (Expense)
  Net Income
  Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
 Revenue
    15




---



##### 



Cost of Sales
     Gross Profit
  General and Administrative Expense
   16




---



##### 



Other Income (Expense)
  Net Income
  Liquidity and Capital Resources
 Overview
    Operating Activities
  17




---



##### 



Investing Activities
  Financing Activities
  Material Commitments and Material Expenditures
       18




---



##### 



Dividends
    Dividend Reinvestment and Common Stock Purchase Plan .
 19




---



##### 



Impact of Inflation
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Credit Risk
  Interest Rate Risk
  Foreign Exchange Risk
  20




---



##### 



Item 4. Controls and Procedures
     21




---



##### 



PART II  OTHER INFORMATION
 
 Item 2. Changes in 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
 22




---



##### 



SIGNATURE
  CONSOLIDATED WATER CO.
LTD.By:
    /s/Frederick W. McTaggartFrederick W. McTaggartChief Executive Officer  23