-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UIKLffl7ajJR9zCXzPnoRBbMEkgNMRLBYKtufrhFFr44V3htCFU1905quSAMmSLA 5ya6B5q9doTM4sUdJttsMQ== 0000950144-01-505787.txt : 20010815 0000950144-01-505787.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950144-01-505787 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED WATER CO LTD CENTRAL INDEX KEY: 0000928340 STANDARD INDUSTRIAL CLASSIFICATION: WATER SUPPLY [4941] STATE OF INCORPORATION: E6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25248 FILM NUMBER: 1709578 BUSINESS ADDRESS: STREET 1: TRAFALGAR PL STREET 2: WEST BAY RD CITY: GRAND CAYMAN BWI CAY STATE: E9 BUSINESS PHONE: 8099474277 MAIL ADDRESS: STREET 1: TRAFALGAR PLACE, WEST BAY ROAD, P.O. BOX STREET 2: GRAND CAYMAN, CAYMAN ISLANDS, BWI FORMER COMPANY: FORMER CONFORMED NAME: CAYMAN WATER CO LTD DATE OF NAME CHANGE: 19941212 10-Q 1 g71176e10-q.txt CONSOLIDATED WATER 6/30/2001 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 2001 OR [ ] 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. ---------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) CAYMAN ISLANDS N/A - ---------------------------- ------------------------------------ (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) TRAFALGAR PLACE, WEST BAY ROAD, P.O. BOX 1114 GT, GRAND CAYMAN, B.W.I. N/A - ----------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's Telephone number, including area code: (345) 945-4277 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As at June 30, 2001, there were 3,882,943 of the registrant's ordinary shares of common stock, with CI$ 1.00 par value, outstanding. 2 EXCHANGE RATES Unless otherwise indicated, all dollar amounts are in United States Dollars and references to "$", "U.S.", or "U.S. $" are to United States Dollars. The official fixed exchange rate for conversion of CI$ into U.S.$, as determined by the Cayman Islands Monetary Authority, has been fixed since April 1974 at U.S. $1.20 per CI$1.00. The official fixed exchange rate for conversion of BZE$ into U.S.$, as determined by the Central Bank of Belize, has been fixed since 1976 at U.S.$ 0.50 per BZE$ 1.00. 3 TABLE OF CONTENTS
SECTION DESCRIPTION PAGE - ------- ----------- ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as at June 30, 2001 and December 31, 2000...................................................... 1 Condensed Consolidated Statements of Income for each of the Three and Six Months ended June 30, 2001 and 2000.................................... 2 Condensed Consolidated Statements of Cash Flows for each of the Six Months ended March 31, 2001 and 2000............................... 3 Notes to Condensed Consolidated Financial Statements...................... 4 Item 2. Management's Discussions and Analysis of Financial Condition and Results of Operations.......................................................... 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk................ 11 PART II OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds................................. 12 Item 4. Submission of Matters to a Vote of Security Holders....................... 12 Item 6. Exhibits and Reports on Form 8-K.......................................... 12 SIGNATURE ............................................................................ 13
FORWARD-LOOKING STATEMENTS This Form 10-Q for Consolidated Water Co. Ltd. (the "Company") includes statements that may constitute "forward-looking" statements, usually containing the words "believe," "estimate," "project," "intend," "expect" or similar expressions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, continued acceptance of the Company's products and services in the marketplace, changes in its relationship with the governments of the jurisdictions in which it operates, the ability to successfully secure contracts for water projects in other countries, the ability to develop and operate such projects profitably, and other risks detailed in the Company's other periodic report filings with the Securities and Exchange Commission. By making these forward-looking statements, the Company undertakes no obligation to update these statements for revisions or changes after the date of this Form 10-Q. 4 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED WATER CO. LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Expressed in United States Dollars)
JUNE 30, DECEMBER 31, 2001 2000 ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents 552,938 250,837 Accounts receivable 1,489,176 1,488,729 Spares inventory 169,882 120,014 Inventory of water 47,299 34,219 Prepaid expenses and other assets 304,166 299,499 ----------- ----------- Total current assets 2,563,461 2,193,298 Property, plant and equipment 18,276,750 17,643,891 Intangible asset 1,912,234 2,008,483 Investments 12,451 -- ----------- ----------- Total assets $22,764,896 $21,845,672 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft/short term bank loan 439,386 703,331 Dividends payable 498,544 401,965 Accounts payable and other liabilities 1,170,214 1,448,364 Current portion of long term debt 350,667 219,580 ----------- ----------- Total current liabilities 2,458,811 2,773,240 Long term debt 1,392,686 1,131,986 Security deposit 52,763 52,763 Advances in aid of construction 39,174 41,090 ----------- ----------- Total liabilities 3,943,434 3,999,079 ----------- ----------- STOCKHOLDERS' EQUITY Common stock 4,655,774 4,635,774 Additional paid-in capital 6,756,749 6,726,749 Vested redeemable preferred stock 11,983 11,983 Non-vested redeemable preferred stock 28,378 28,378 Retained earnings 7,368,578 6,443,709 ----------- ----------- Total stockholders' equity 18,821,462 17,846,593 ----------- ----------- Total liabilities and stockholders' equity $22,764,896 $21,845,672 =========== ===========
The accompanying information and notes are an integral part of these condensed consolidated financial statements 1 5 CONSOLIDATED WATER CO. LTD. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Expressed in United States Dollars)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------------- -------------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Water sales 3,000,866 2,379,353 5,858,071 4,942,405 Cost of water sales (1,614,969) (1,295,271) (3,098,358) (2,663,636) ----------- ----------- ----------- ----------- Gross profit 1,385,897 1,084,082 2,759,713 2,278,769 ----------- ----------- ----------- ----------- Indirect expenses (614,468) (533,575) (1,261,828) (988,709) ----------- ----------- ----------- ----------- Income from operations 771,429 550,507 1,497,885 1,290,060 ----------- ----------- ----------- ----------- Other income: Interest income 782 16,504 812 16,622 Other income 103,121 99,991 207,525 215,203 ----------- ----------- ----------- ----------- 103,903 116,495 208,337 231,825 ----------- ----------- ----------- ----------- Net income $ 875,332 $ 667,002 $ 1,706,222 $ 1,521,885 =========== =========== =========== =========== Basic earnings per share (Note 5) $ 0.22 $ 0.20 $ 0.44 $ 0.47 =========== =========== =========== =========== Diluted earnings per common share (Note 5) $ 0.22 $ 0.19 $ 0.43 $ 0.46 =========== =========== =========== =========== Dividends declared per share $ 0.10 $ 0.08 $ 0.20 $ 0.16 =========== =========== =========== =========== Weighted average number of common shares used in the determination of: Basic earnings per share (Note 5) 3,879,646 3,373,747 3,871,343 3,198,591 =========== =========== =========== =========== Diluted earnings per share (Note 5) 3,993,668 3,470,423 3,978,420 3,289,857 =========== =========== =========== ===========
The accompanying information and notes are an integral part of these condensed consolidated financial statements 2 6 CONSOLIDATED WATER CO. LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Expressed in United States Dollars)
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------- ---------------- 2001 2000 ----------- ----------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 2,081,449 1,957,342 ----------- ----------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES Purchase of property, plant and equipment (1,167,588) (825,168) Purchase of investments (12,450) -- Proceeds from sale of equipment 4,200 1,590 ----------- ----------- Net cash used in investing activities (1,175,838) (823,578) ----------- ----------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES Net proceeds from issuance of common stock 50,000 5,362,731 Repurchase of common stock -- (494,375) Principal payment under water purchase agreement -- (178,161) Drawdown of new credit facility 500,000 -- Principal payments of long term debt (108,213) (776,955) Dividends paid (781,352) (530,757) Repayment of short term bank overdraft / loan (263,945) (651,606) ----------- ----------- Net cash provided by (used in) financing activities (603,510) 2,730,877 ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 302,101 3,864,641 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 250,837 22,146 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 552,938 $ 3,886,787 =========== ===========
The accompanying information and notes are an integral part of these condensed consolidated financial statements 3 7 CONSOLIDATED WATER CO. LTD. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Expressed in United States dollars except where stated otherwise) The accompanying financial statements should be read in conjunction with the 2000 Annual Report for the Company on Form 10-K. The interim condensed consolidated financial statements are unaudited, but in the opinion of management, reflect all adjustments necessary for a fair presentation of results for such periods. All adjustments are of a normal recurring nature. 1. PRINCIPAL ACTIVITY AND STATUS 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, Ambergris Caye, Belize as well as South Bimini, Bahamas. The Company's exclusive license in Grand Cayman allows it to process and supply water in 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 Belize Water Services Ltd. of Belize to supply water to Belize Water Services Ltd. in Ambergris Caye expiring in 2011. At the expiry of the contract, Belize Water Services Ltd. may at its option extend the term of the agreement or purchase the plant outright. In addition, on July 11, 2001 the Company commenced producing and supplying water under an agreement with South Bimini International Ltd., a Bahamian company, to provide water to properties in South Bimini Island, Bahamas. The base price of water supplied by the Group, and adjustments thereto, are determined by the terms of the license and contracts, which provides for adjustments based upon the movement in the government price indices specified in the license and contracts respectively, as well as monthly adjustments for changes in the cost of energy. 2. SEGMENTED INFORMATION On July 21, 2000, the Company acquired a 100% stake in Belize Water Ltd. that has been consolidated in these condensed financial statements. In addition, on December 18, 2000, the Company entered into the agreement with South Bimini International Ltd., and although operations have not yet begun as at June 30, 2001, equipment with a carrying value of $307,395, has been transferred to the Bahamas for use on this project and are currently included in property, plant and equipment. Property, plant and equipment also includes costs to June 30, 2001 of $866,454 for purchases of additional equipment and costs related to construction in progress that will be capitalized on this project. As the Bahamian operations did not commence until July 11, 2001 no revenues or expenses have been generated for the periods reported. 4 8 CONSOLIDATED WATER CO. LTD. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Expressed in United States dollars except where stated otherwise) 2. SEGMENTED INFORMATION (CONTINUED) Under FAS 131 `Disclosure about Segments of an Enterprise and Related Information' the supply of water to Cayman Islands, Belize and Bahamas are considered by management as separate business segments. Previously the Group's operations in the Cayman Islands was the only reportable business segment and as such, segmented information for the six months ended June 30, 2000 has not been reproduced below. The basis of measurement of segment information is the same as that adopted for the condensed financial statements.
AS AT JUNE 30, 2001 AND FOR THE SIX MONTHS THEN ENDED --------------------------------------------------------------- CAYMAN ISLANDS BELIZE BAHAMAS TOTAL ------- ------ ------- ----- Water sales 5,190,441 667,630 -- 5,858,071 Other income 207,555 782 -- 208,337 Cost of water sales 2,741,030 357,328 -- 3,098,358 Indirect expenses 1,182,743 79,085 -- 1,261,828 Net income 1,474,223 231,999 -- 1,706,222 Property, plant and equipment 15,509,221 1,593,680 1,173,849 18,276,750
During the six months ended June 30, 2001 expenses totaling $19,114 were paid by Consolidated Water Co. Ltd. and expensed in the Belize subsidiary. 3. CONTINGENCIES AND COMMITMENTS The license that the Company has with the government of the Cayman Islands (the "Government") requires it to obtain approval from the Government for an issuance or transfer of shares which (a) exceeds 5% of the issued shares of our company, or (b) would, upon registration, result in any shareholder holding more than 5% of the issued share capital of the Company. More than 5% of the ordinary shares of common stock are registered in the name of Cede and Co., the nominee for the Depository Trust Company, which is a clearing agency for shares held by participating banks and brokers. The Company does not believe that these shareholdings by Cede and Co. constitute a breach of the intent of the license. The Company believes that the purpose of this clause of the license is to allow the Government to approve significant shareholders of the Company. Cede and Co. and Depository Trust Company, however, act solely as the nominee for banks and brokers, and have no beneficial ownership in the ordinary shares of common stock. Nevertheless, the Company's Cayman Islands legal counsel ("Legal Counsel") has advised it that the shareholdings by Cede & Co. may well be a technical breach of the Company's license. 5 9 CONSOLIDATED WATER CO. LTD. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Expressed in United States dollars except where stated otherwise) 3. CONTINGENCIES AND COMMITMENTS (CONTINUED) In August and September 1994 and in September 1995, the Company completed private placements of an aggregate of 500,000 ordinary shares of common stock and warrants to purchase an additional 100,000 ordinary shares of common stock. In April 1996 and May 2000, the Company completed public offerings of 515,000 and 773,000 ordinary shares, respectively. Based upon the advice of Legal Counsel, the Company determined that the license did not require the Government's approval to complete these offerings. However, if a court determined that the Government's approval of these offerings was required under the license, the Company would be in breach of the license. Legal Counsel has advised the Company that in order to make this determination, a court would have to disagree with the Company's interpretation of the license and dismiss several defenses that would be available to the Company. These defenses include acquiescence and waiver on the part of the Government with respect to these offerings. The Company received a letter dated June 1, 2000, from an official in the Government, stating that the Company's April 1996 public offering of the ordinary shares of common stock was a breach of the license. The letter is not clear as to whether the Government views the public offering completed in 2000 as a breach of our license. The Company has advised the Government that it does not believe that it is in breach of the license. The Company has been advised by Legal Counsel that the June 1st letter from the Government does not constitute a "notice of breach of the license" as contemplated in the license. In June and December 2000, the Company met with representatives of the Government to discuss this matter. Other than providing the Company with it's June 1, 2000 letter the Government has not taken any other action in connection with the Company's license to date. 4. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued two standards. A summary of these standards is given below: Statement of Financial Accounting Standard No. 141, "Business Combinations" (FAS 141) addresses financial accounting and reporting for business combinations. It requires all business combinations covered by the scope of the Standard to be accounted for using the purchase method. It is effective for business combinations initiated after June 30, 2001 and business combinations completed July 1, 2001 and later which use the purchase method of accounting. Although the Company has no pending business combinations that would be affected by this statement, the requirements of this statement will be considered in any business combination contemplated in the future. 6 10 CONSOLIDATED WATER CO. LTD. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Expressed in United States dollars except where stated otherwise) 4. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED) Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets" (FAS 142) addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. It requires that goodwill and other intangible assets having indefinite useful lives be tested annually for impairment using a fair-value based test and prohibits amortization. Assets having finite useful lives would continue to be amortized over those lives. The Standard also provides specific guidance for testing goodwill and other intangible assets for impairment and also requires additional disclosures concerning goodwill and other intangible assets. FAS 142 is effective for fiscal years beginning after December 15, 2001 and must be applied to all goodwill and other intangible assets recognized in financial statements as of the start of that fiscal year. Impairment losses resulting from the initial application of the Standard are to be reported as resulting from a change in accounting principle. At this time, the Company does not believe the adoption of the Standard will have an impact on its financial position or results of operations. However, the evaluation of the impact has not yet been completed. 5. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the net profit attributable to stockholders by the weighted average number of ordinary shares of common stock in issue during the year, excluding the average number of ordinary shares of common stock purchased by the Company and held as treasury shares. The net income and weighted average number of ordinary shares of common stock and potential ordinary shares figures used in the determination of the basic and diluted earnings per ordinary share of common stock are summarized as follows: 7 11 CONSOLIDATED WATER CO. LTD. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States dollars except where stated otherwise) 5. EARNINGS PER SHARE (CONTINUED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Net income used in determination of diluted earnings per ordinary share of common stock $ 875,332 $ 667,002 $1,706,222 $1,521,885 Less: Dividends paid on non-vested redeemable preferred stock (2,365) (1,892) (4,730) (3,784) Earnings attributable to vested redeemable preferred stock (2,239) (1,720) (4,365) (3,926) ---------- ---------- ---------- ---------- Net income available to holders of ordinary shares of common stock in the determination of basic earnings per ordinary share of common stock $ 870,728 $ 663,390 $1,697,127 $1,514,175 ========== ========== ========== ========== Weighted average number of ordinary shares of common stock in the determination of basic earnings per ordinary share of common stock 3,879,646 3,373,747 3,871,343 3,198,591 Plus: Weighted average number of redeemable preferred stock outstanding during the year 33,634 37,136 33,634 39,086 Potential dilutive effect of unexercised options 80,388 54,745 73,443 46,702 Potential dilutive effect of unexercised warrants -- 4,795 -- 5,478 ---------- ---------- ---------- ---------- Weighted average number of shares used for determining diluted earnings per ordinary share of common stock 3,993,668 3,470,423 3,978,420 3,289,857 ========== ========== ========== ==========
8 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30, 2001 WATER SALES AND OTHER INCOME ("TOTAL INCOME") Total income increased by 24.4% from $2,495,848 to $3,104,769 for the three months ended June 30, 2000 and 2001, respectively, and by 17.2% from $5,174,230 to $6,066,408 for the six months ended June 30, 2000 and 2001, respectively. Total income increased as a result of several factors. The automatic inflation adjustment on our operations in the Cayman Islands led to an increase in prices for most of our customers by an average of 2.7%. In addition, there was respectively, a 8.9% and 1.9%, increase in the number of normal operating gallons sold over the same periods in the prior year, and finally, the addition of the operations of Belize Water Ltd. as of July 21, 2000 increased total income $348,500 for the three months ended June 30, 2001, representing 57.2% of the increase and $668,412 for the six month ended June 30, 2001, representing 74.9% of the increase. All sales in Belize are to one customer, Belize Water Services Ltd., a public company that recently acquired the assets of Belize Water and Sewerage Authority, which was a government statutory corporation. The terms of our contract have not changed as a result of the privatization of Belize Water and Sewerage Authority. Total water sales increased by 26.1% from $2,379,353 to $3,000,866 for the three months ended June 30, 2000 and 2001, respectively and 18.5% from $4,942,405 to $5,858,071 for the six months ended June 30, 2000 and 2001, respectively. During the three months ended June 30, 2001, non-budgeted sales of $112,409 were made to one customer, which comprise 18.1% of the total increase for three months ended June 30, 2001, and 12.3% of the total increase for six months ended June 30, 2001. In addition, the operations of Belize Water Ltd. added $347,718 to income for the three months ended June 30, 2001, which is 56.0% of the total increase, and $667,630 for the six months ended June 30, 2001, which is 72.9% of the total increase for that period. Water sales generated by our Belize operations were approximately 36% and 39% higher when comparing this three and six month reporting periods, respectively, to the same periods in 2000 (pre-acquisition as reported by the previous owners of the Belize operations). We believe these higher sales have resulted because the water production capacity of our reverse osmosis water plant was less than sales demand prior to April 2000 when the plant capacity was increased, by the previous owners, from 237,000 to 421,000 U.S. gallons per day. While early 2001 results for Belize indicate an increasing trend, it may not be indicative of future results because of the production limitations in early 2000. EXPENSES Cost of water sales increased by 24.7% from $1,295,271 to $1,614,969 for the three months ended June 31, 2000 and 2001, respectively, and by 16.3% from $2,663,636 to $3,098,358 for the six months ended June 30, 2000 and 2001, respectively. The addition of the operations of Belize Water Ltd. as of July 21, 2000 increased cost of water sales $185,323 for the three months ended June 30, 2001 representing 58.0% of the increase and $357,328 for the six months ended June 30, 2001 representing 82.2% of the increase. Cost of water sales increased in proportion to water sales. 9 13 Gross profit margins increased from 45.6% to 46.2% for the three months ended June 30, 2000 and 2001, respectively, and from 46.1% to 47.1% for the six months ended June 30, 2000 and 2001, respectively. Gross profit margins increased as a result of greater utilization of existing plant, equipment and resources. Indirect expenses increased by 15.2% from $533,575 to $614,468 for the three months ended June 30, 2000 and 2001, respectively, and by 27.6% from $988,709 to $1,261,828 for the six months ended June 30, 2000 and 2001, respectively. Of these increases, 43.8% and 32.6%, respectively, is due to additional audit, legal and professional fees incurred because of the increased voluntary SEC reporting, as well as a new executive position, Director of Special Projects. In addition, 7.5% of the six months ended June 30, 2001 increase is a result of increased costs incurred in the first quarter resulting from the replacement of our former Chief Financial Officer who left the Company on April 6, 2001. Our Belize operations, which were acquired in July 2000, and did not affect the June 30, 2000 amounts, increased indirect expenses during the three months ended June 30, 2001 by $39,910 and during the six months ended June 30, 2001 by $79,085. These increases reflect 49.3% and 29.0% of the total increases, respectively. As a percentage of the total income, indirect expenses were at 21.4% and 19.8% for the three months ended June 30, 2000 and 2001, respectively, and at 19.1% and 20.8% for the six months ended June 30, 2000 and 2001, respectively. NET INCOME Net income increased from $667,002 to $875,332 for the three months ended June 30, 2000 and 2001, respectively and from $1,521,885 to $1,706,222 for the six months ended June 30, 2000 and 2001, respectively. This increase is primarily due to higher sales as a result of our Belize operations, which commenced on July 21, 2000 and greater utilization of our existing plant, equipment and resources. LIQUIDITY AND CAPITAL RESOURCES OVERVIEW We generate cash from our operations in the Cayman Islands and Belize, from the sale of our shares, and through our loans and facilities obtained from two banks. Cash flow is impacted by operating and maintenance expenses, the timeliness and adequacy of rate increases (excluding automatic adjustments to our rates for inflation and electricity costs), and various factors affecting tourism in the Cayman Islands and Belize, such as weather conditions and the economy. We use cash to fund our operations in the Cayman Islands and Belize, fund our capital project in the Bahamas, to make payments under our operating agreement with Ocean Conversion (Cayman) Ltd., a Cayman Islands company which operates our Governor's Harbour plant, to expand our infrastructure, to pay dividends, to repay principal on our loans, to repurchase our shares when appropriate and take advantage of new investment opportunities which expand our operations. OPERATING ACTIVITIES Cash from operating activities for the six months ended June 30, 2000 and 2001 was $1,957,342 and $2,081,449, respectively. This increase was primarily due to the increase in our net income. When comparing the six months ended June 30, 2000 and 2001, we had an increase in our net income of $184,337 as described above. This was offset by an increase in trade accounts receivable due to our increased customer base and extended credit to Belize Water Services Ltd., and a decrease in our trade accounts payable due to increased controls and more timely payments of payables. 10 14 INVESTING ACTIVITIES Cash used in investing activities for the six months ended June 30, 2000 and 2001 was $823,578 and $1,175,838, respectively. This increase is primarily due to increased expenditures for new property, plant and equipment associated with the construction of our new water production and distribution system in Bimini, Bahamas. We also continued to expand our water distribution system in the Cayman Islands by constructing pipelines to service several new developments within our franchise area. In addition, we purchased 16,600 shares of Belize Water Services Ltd. This investment has been recorded at cost and represents less than 1% of the total issued and outstanding share capital of Belize Water Services Ltd. As these shares are not publicly traded there is a risk that a market for resale may not be available. During the similar period in 2000, investing activities consisted primarily of the installation of a new energy recovery system and the expansion of our water production plant in West Bay, Cayman Islands, and the completion of a major pipeline extension within our franchise area in the Cayman Islands. FINANCING ACTIVITIES Cash generated from financing activities for the six months ended June 30, 2000 was $2,730,877, compared to cash used of $603,510 for the six months ended June 30, 2001. During the period of six months ended June 30, 2001, the primary financing activity was the payment of two interim quarterly dividends totaling $0.20 per share. This was offset by a small issuance of ordinary shares of common stock, due to a director exercising certain options, as well as, a net increase in our long term bank debt due to the draw down of a new credit facility. Also during this period we converted half of our overdraft facility to a short-term bank loan. During the same period during 2000, we had a substantial issuance of common stock due to our share offering. These cash amounts were offset by a repurchase of 79,100 ordinary shares of common stock at $6.25 per share from a shareholder whose assets were being liquidated, the payment of two interim quarterly dividends totaling $0.16 per share and the repayment of both short term and long term bank debt. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not use derivative financial instruments for speculative trading purposes and as of June 30, 2001 have not been a party to any financial instruments or contracts that expose us to material market risk. 11 15 PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS In April 2001, the Company issued 20,000 ordinary shares of its common stock to one of its executive officers pursuant to the exercise of a stock option. The aggregate exercise price of the option was $50,000. The issuance of the shares was exempt from registration under Section 4(2) of the Securities Act of 1933 because the executive officer is a sophisticated investor who has knowledge of all material information about the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting of the Company's shareholders was held on May 23, 2001. Of the 3,882,943 shares of common stock outstanding on the record date of March 31, 2001 a total of 3,104,343 shares were represented in person or by proxy. (b) (i) The following Directors were re-elected effective May 23, 2001 VOTES CAST ------------------------------ FOR WITHHELD AUTHORITY --- ------------------ J. Bruce Bugg, Jr. 3,077,443 26,900 Brian E. Butler 3,077,307 27,036 Steven A. Carr 3,077,443 26,900 (ii) The following Directors were not up for reelection at the Annual Meeting and their terms of office as a Director continued after the Annual Meeting: Richard L. Finlay Clarence B. Flowers, Jr. Frederick W. McTaggart Jeffrey M. Parker Wilmer Pergande Peter D. Ribbins Raymond Whittaker (iii) The Cayman Islands government's nominee, Carson Ebanks, was elected as a director by the Board on May 22, 2001 and will be up for reelection at the 2002 Annual Meeting. (c) The vote to approve PricewaterhouseCoopers as Independent Accountants for the year 2001 at a fee to be agreed by the Directors was 3,072,919 for, 27,100 against, 4,324 abstain. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-K None 12 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CONSOLIDATED WATER CO. LTD. By: /s/ Jeffrey M. Parker --------------------------------------------- Jeffrey M. Parker Chairman of the Board of Directors and Chief Executive Officer Dated: August 14, 2001 13 -----END PRIVACY-ENHANCED MESSAGE-----