_________________________________________________________________
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 0-8814
PURE CYCLE CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 84-0705083
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5650 York Street, Commerce City, CO 80022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number(303) 292 - 3456
_________________________________________________________________
N/A
(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
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 [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity , as of February 28, 1997:
Common Stock, 1/3 of $.01 par Value 78,439,763
(Class) (Number of Shares)
Transitional Small business Disclosure Format (Check one):
Yes [ ]; No [x]
_________________________________________________________________
<PAGE> PAGE 1 0F 12
PURE CYCLE CORPORATION AND SUBSIDIARY
INDEX TO FEBRUARY 28, 1997 FORM 10-QSB
Page
----
Part I - Financial Information (unaudited)
Balance Sheets - February 28, 1997 and 3
August 31, 1996
Statements of Operations - For the three months 4
ended February 28, 1997 and February 29, 1996
Statements of Operations - For the six months 5
ended February 28, 1997 and February 29, 1996
Statements of Cash Flows - For the three months 6-7
ended February 28, 1997 and February 29, 1996
Notes to Financial Statements 8-9
Management's Discussion and Analysis of 10-11
Results of Operations and Financial Condition
Signature Page 12
"SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Statements that are not historical facts contained in this
Quarterly Report on Form 10-QSB are forward looking statements
that involve risk and uncertainties that could cause actual
results to differ from projected results. Factors that could
cause actual results to differ materially include, among others:
general economic conditions, the market price of water, changes
in applicable statutory and regulatory requirements, changes in
technology, uncertainties in the estimation of water available
under decrees and timing of development, the strength and
financial resources of the Company's competitors, the Company's
ability to find and retain skilled personnel, climatic
conditions, labor relations, availability and cost of material
and equipment, delays in the anticipated permit and start-up
dates, environmental risks, and the results of financing efforts.
<PAGE> PAGE 2 OF 12
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
February 28 August 31
ASSETS 1997 1996
------ ----------- ---------
Current assets:
Cash and cash equivalents $ 233,466 $ 126,756
Marketable securities 3,429 3,429
Prepaid expenses and other current assets 7,830 10,864
---------- ---------
Total current assets 244,725 141,049
Investment in water projects:
Rangeview water rights (Rangeview Water
Commercialization Agreement in 1995) 12,865,523 12,788,413
Paradise water rights 5,466,834 5,466,834
---------- ----------
Total investment in water projects 18,332,357 18,255,247
Note receivable 263,013 251,282
Equipment, at cost, net of accumulated
depreciation of $13,107 in 1997 and
$11,005 in 1996 4,131 5,155
Other assets 31,596 40,596
---------- ----------
$ 18,875,822 $ 18,693,329
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,542 $ 53,796
Long-term debt - related parties 3,145,901 2,750,311
Other non-current liabilities 131,038 127,468
Participating interests in Rangeview
water rights (Minority interest in Rangeview
Water Commercialization Agreement in 1995) 11,090,630 11,090,630
Stockholders' equity (Note 4):
Preferred stock, par value $.001 per
share; authorized - 25,000,000 shares:
Series A - 1,600,000 shares issued
and outstanding 1,600 1,600
Series B - 432,513 shares issued and
outstanding 433 433
Common stock, par value 1/3 of $.01 per
share; authorized - 135,000,000 shares;
78,439,763 shares issued and outstanding 261,584 261,584
Additional paid-in capital 23,633,561 23,633,561
Deficit accumulated during
development stage ( 6,696,095) ( 6,499,682)
Deficit accumulated prior to
September 1, 1986 (12,726,372) (12,726,372)
---------- ----------
Total stockholders' equity 4,474,711 4,671,124
---------- ----------
Contingency (Note 5)
$ 18,875,822 $ 18,693,329
========== ==========
[FN]
See Accompanying Notes to the Consolidated Financial Statements
<PAGE> PAGE 3 OF 12
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
---------------------------------
February 28 February 29
1997 1996
----------- -----------
Water revenue $ 46,370 $ --
Expenses:
General, administrative
and marketing (77,950) ( 81,561)
Expiration of option to purchase
water rights -- ( 31,997)
Interest (49,580) ( 44,487)
------ -------
Total Expenses (81,160) (158,045)
Other income (expense):
Interest income 8,034 11,290
------ -------
Net loss before
extraordinary item (73,126) (146,755)
Extraordinary gain on
extinguishment of debt (Note 2) -- 48,228
------ -------
Net loss $(73,126) $( 98,527)
====== =======
Net Loss per common share $ --* $ --*
====== =======
* less than $.01 per share
[FN]
See Accompanying Notes to the Consolidated Financial Statements
<PAGE> PAGR 4 OF 12
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six Months Ended
---------------------------- Cumulative
February 28 February 29 Sept. 1, 1986 to
1997 1996 Feb. 28, 1997
----------- ----------- ----------------
Water revenue $ 46,370 $ -- $ 46,370
General and administrative
expenses (157,360) (170,248) (3,994,911)
Other income (expense):
Interest expense ( 99,160) ( 90,637) (1,982,876)
Loss on abandonment of
option on water
rights -- ( 31,997) ( 881,997)
Financing expense on
purchase of water
rights option -- -- ( 200,000)
Financing cost for
issuance of stock
below market price -- -- ( 187,500)
Loss on abandonment
of power plant
equipment -- -- ( 242,500)
Gain from waived put
options -- -- 40,950
Gain on sale of marketable
securities -- -- 24,809
Interest income 13,737 23,778 92,406
Other, net -- -- 29,503
------- ------- ---------
Net loss before
extraordinary item (196,413) (269,104) (7,255,746)
Extraordinary gain on
extinguishment of debt
(Note 2) -- 48,228 559,651
------- ------- ---------
Net loss $(196,413) $(220,876) $(6,696,095)
======= ======= =========
Net Loss per common share $ --* $ --*
======= =======
* less than $.01 per share
[FN]
See Accompanying Notes to the Consolidated Financial Statements
<PAGE> PAGE 5 OF 12
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
-------------------------- Cumulative
February 28 February 29 Sept. 1, 1986 to
1997 1996 Feb. 28, 1997
----------- ----------- -------------
Cash flows from operating
activities:
Net loss $(196,413) $(220,876) $(6,696,095)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization 1,024 2,175 32,562
Amortization of debt
issuance costs -- -- 23,000
Amortization of warrant
issuance costs 9,000 -- 9,000
(Loss)/gain on sale of
marketable securities -- -- ( 24,809)
Accretion of discount
on long-term debt -- -- 69,630
Common shares issued as
additional interest
expense -- -- 25,000
Extraordinary gain on
extinguishment of debt -- ( 48,228) ( 559,651)
Loss on abandonment of
option on water rights -- -- 781,997
Financing expense on
purchase of water option -- -- 200,000
Financing costs for
issuance of stock options
below market price -- -- 187,500
Gain on put options waived -- -- ( 40,950)
Loss on abandonment of
power plant equipment -- -- 62,500
Payment for services and
expenses with common stock
donated by President -- -- 298,250
Other unrealized loss on
marketable securities -- -- 1,143
Increase in accrued interest
on note receivable ( 11,731) ( 7,641) ( 33,703)
Other -- -- ( 1,065)
Changes in operating assets
and liabilities:
Prepaid expenses and
other current assets 3,034 3,552 ( 2,880)
Accounts payable and
other non-current
liabilities ( 20,254) ( 21,437) 409,037
Accrued interest 99,160 87,067 1,691,802
------- ------- ---------
Net cash used in
operating activities $(116,180) $(205,388) $(3,567,732)
------- ------- ---------
(continued)
<PAGE> PAGE 6 OF 12
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Six Months Ended
-------------------------- Cumulative
February 28 February 29 Sept. 1, 1986 to
1997 1996 Feb. 28, 1997
----------- ----------- ----------------
Cash flows from investing
activities:
Investments in water rights $( 77,110) $( 24,621) $(2,429,334)
Purchase of marketable
securities -- -- (2,000,000)
Proceeds from sale of
marketable securities -- -- 2,024,809
Increase in note receivable -- ( 70,300) ( 229,310)
Purchase of equipment -- ( 1,512) ( 17,237)
Increase in other assets -- -- ( 106,595)
------- ------- ---------
Net cash provided by
(used in) investing
activities ( 77,110) ( 96,433) (2,757,667)
------- ------- ---------
Cash flows from financing
activities:
Proceeds from issuance
of debt 300,000 -- 2,977,629
Repayments of debt -- (142,500) (1,167,190)
Proceeds from sale of
common stock -- -- 2,900,000
Proceeds from sale of
Series A convertible
Preferred stock -- -- 1,600,000
Proceeds from issuance of
redeemable common stock -- -- 245,000
Proceeds from issuance of
stock options -- -- 100,000
Repurchase of stock
options -- -- ( 100,000)
------- ------- ---------
Net cash provided by
(used in) financing
activities 300,000 (142,500) 6,555,439
------- ------- ---------
Net increase (decrease)
in cash and cash
equivalents 106,710 (444,321) 230,040
Cash and cash equivalents
beginning of period 126,756 865,803 3,426
------- ------- ---------
Cash and cash equivalents
end of period $ 233,466 $ 421,482 $ 233,466
======= ======= =========
[FN]
See Accompanying Notes to the Consolidated Financial Statements
<PAGE> PAGE 7 OF 12
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING PRINCIPLES
- ------------------------------
The consolidated balance sheet as of February 28, 1997 and
August 31, 1996, the consolidated statements of operations for
the three months ended February 28, 1997 and February 29, 1996
and the consolidated statements of cash flows for the three
months ended February 28, 1997 and February 29, 1996, have been
prepared by the Company, without an audit. In the opinion of
management, all adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial position,
results of operations and cash flows at February 28, 1997 and for
all periods presented have been made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these consolidated financial statements be
read in conjunction with the financial statements and notes
thereto included in the Company's 1996 Annual Report on Form 10-
KSB. The results of operations for interim periods presented are
not necessarily indicative of the operating results for the full
year.
NOTE 2 - CURRENT MATURITIES OF LONG-TERM DEBT
- ---------------------------------------------
During January 1996, the Company reached an agreement with a
creditor to retire a note payable, totaling $190,728 with accrued
interest, for payment of $142,500. The difference in the face
value of the note and the cash paid to retire the debt of $48,228
has been reflected as an extraordinary gain on the consolidated
statement of operations for the six months ended February 29,
1996.
NOTE 3 - LONG-TERM DEBT
- -----------------------
In August 1996, the Company entered into a loan agreement with
six related party investors. The loan is for $300,000, is
unsecured, bears interest based on the prime rate plus 2%, is
payable in equal quarterly installments through August 30, 1997.
The agreement provides that the Company can extend the due date
of any of the four quarterly installment to August 30, 2002 by
issuing additional warrants (see Note 3). The funds were
advanced to the Company in September 1996. In connection with the
loan agreement, the Company issued warrants to purchase shares of
the Company's common stock. The agreement includes a covenant
that prohibits the note from being called prior to the expiration
of the warrants issued in conjunction with the note.
NOTE 4 - STOCKHOLDERS' EQUITY
- -----------------------------
In connection with a loan agreement described in note 3, the
Company issued warrants to purchase 600,000 shares of the
Company's common stock at $.25 per share. The warrants expire
August 30, 2002. The loan agreement includes a provision
entitling the Company to extend the due date of any of the
installments to August 30, 2002 by issuing additional warrants to
purchase common stock at $.25 per share. The number of warrants
to be issued is equal to 150% of the principal amounts due plus
accrued interest, divided by $.25. The estimated fair value of
the warrants issued of $18,000 has been capitalized and is being
amortized to expense over the term of the notes.
Note 5 - CONTINGENCY
- --------------------
In October 1994, the Company joined in a lawsuit initiated by
others including the Rangeview Metropolitan District (the
"District"), brought in the District Court of the City and County
of Denver, Colorado, against the
<PAGE> PAGE 8 OF 12
Note 5 - CONTINGENCY (continued)
- --------------------------------
Colorado State Board of Land Commissioners (the "State Land
Board") seeking a declaratory judgment affirming that the lease,
as amended, from the State Land Board to the District was valid
and enforceable. In April of 1996, the parties to the lawsuit
agreed to a settlement (the "Settlement"). The Settlement, among
other things, clarifies the State Land Board's royalty
participation in an amended and restated lease relating to the
principal value of $24,914,058 in exchange for interests in the
Company's Rangeview water rights. The Company negotiated
agreements to acquire the remainder of the District's Bonds not
already owned by the Company with a Comprehensive Amendment
Agreement ("CAA"). Commitments to the former bondholders and
investors to share in the proceeds from the sale or other
disposition of the Export Water Rights decreased from
approximately $33,546,000 to approximately $31,807,000 as a
result of the Settlement. The Settlement was subject to
obtaining a final non-appealable order of the trial court
approving the Settlement. The trial court order was signed June
14, 1996 and became final and non-appealable on July 29, 1996.
Certain crossclaims in the lawsuit remained pending between the
District and the East Cherry Creek Valley Water and Sanitation
District (the "ECCV"). One of ECCV's crossclaims would have
affected the Company in that ECCV asserted that it had the right
of first refusal to purchase the Export Water. If ECCV were to
have prevailed on this claim, the Company would have been
required to sell the Export Water to ECCV. The price for such a
purchase would have been determined by the court and might have
been more or less favorable than the price the Company could
obtain from a third party.
In December 1996, the crossclaims in the lawsuit were settled.
ECCV set aside its right to first refusal to purchase the Export
Water in return for a financial settlement with the District.
The outcome of the settlement had no effect on the Company.
<PAGE> PAGE 9 OF 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
=============================================
Results of Operations
- ---------------------
As a result of the Company's privatization of water and waste
water services for the Rangeview Metropolitan District
("Rangeview"), during the quarter ended February 28, 1997, the
Company generated revenues of $46,370 from the sale of water taps
within the Rangeview Service Area. In addition to the sale of
the water taps, the Company will receive monthly water use
revenues based on the water delivered to the users within the
Rangeview Service Area.
Pursuant to the Company's 85 year Service Agreement with
Rangeview, the Company receives 95% of Rangeview's water revenues
after deducting royalties (totaling 12% of gross revenues) paid
to the State of Colorado. Rangeview's water and waste water tap
fees are $8,000 and $4,000, respectively, per single family
equivalent dwelling. Rangeview's water usage fees are $1.55 for
non-potable water and $2.00 for potable water per 1,000 gallons
(or $505 and $652 per acre foot, respectively). Rangeview's
waste water usage fee is $2.24 per 1,000 gallons (or $730 per
acre foot of waste water processed). Rangeview's Service Area
encompasses over 24,000 acres of property with the capacity to
serve approximately 30,000 single family equivalent dwellings.
The Company is currently negotiating with potential customers for
additional water and waste water service within the Rangeview
Service Area.
General and administrative expenses for the six months ended
February 28, 1997 were approximately $12,900 lower than for the
period ended February 29, 1996. Lower general and administrative
expenses resulted from a reduction in salaries paid to the
officers of the Company offset by higher professional service
fees. Interest expense increased for the three months ended
February 28, 1997 by approximately $8,500 compared to the period
ended February 29, 1996 primarily because of a higher average
outstanding balance of notes payable in the second quarter of
fiscal 1997 compared to the same period in fiscal 1996. Net loss
for the three months ended February 28, 1997 decreased
approximately $24,400 compared to the six months ended February
29, 1996. The reduction in net loss from the prior period
resulted from the recognition of water tap fee revenues and lower
salaries expense, however increased professional service fees and
lower interest income served to lessen the reduction in net loss
for the six months ended February 28, 1997 as compared to the
same period in fiscal 1996.
Liquidity and Capital Resources
- -------------------------------
At February 28, 1997, current assets exceed current liabilities
by $211,183 and, the Company had cash and cash equivalents of
$233,466.
In August 1996, the Company entered into a loan agreement with
six related party investors. The loan is for $300,000, is
unsecured, bears interest based on the prime rate plus 2%, is
payable in equal quarterly installments through August 30, 1997
(see Notes 2 and 3 to the financial statements). Proceeds from
the note were received in September 1996.
The Company is aggressively pursuing the sale and development
of its water rights. The Company cannot provide any assurances
that it will be able to sell its water rights. In the event a
sale of the Company's water rights is not forthcoming and the
Company is not able to generate revenues from the sale or
development of its technology, the Company may sell additional
portions of the Company's profit interest pursuant to the CAA,
incur short or long-term debt obligations or seek to sell
additional shares of Common Stock, Preferred Stock or stock
purchase warrants as deemed necessary by the Company to generate
operating capital.
<PAGE> PAGE 10 OF 12
Liquidity and Capital Resources (continued)
- -------------------------------------------
Development of any of the water rights that the Company has, or
is seeking to acquire, will require substantial capital
investment by the Company. Any such additional capital for the
development of the water rights is anticipated to be financed
through the sale of water taps and water delivery charges to a
city or municipality. A water tap charge refers to a charge
imposed by a municipality to permit a water user to access a
water delivery system (i.e. a single-family home's tap into the
municipal water system), and a water delivery charge refers to a
water user's monthly water bill generally based on a per 1,000
gallons of water consumed.
<PAGE> PAGE 11 OF 12
PURE CYCLE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
PURE CYCLE CORPORATION
Date:
March 25, 1997 /S/ THOMAS P. CLARK
- ------------------------ --------------------------
Thomas P. Clark,
President
Date:
March 25, 1997 /S/ MARK W. HARDING
- ------------------------ --------------------------
Mark W. Harding,
Chief Financial Officer
Date:
March 25, 1997 /S/ MICHAEL S. MEHRTENS
- ------------------------ --------------------------
Michael S. Mehrtens
Controller
<PAGE> PAGE 12 OF 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S 10-QSB DATED FEBRUARY 28, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> FEB-28-1996
<CASH> 233,466
<SECURITIES> 3,429
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 244,725
<PP&E> 17,238
<DEPRECIATION> 13,107
<TOTAL-ASSETS> 18,875,822
<CURRENT-LIABILITIES> 33,542
<BONDS> 0
<COMMON> 261,584
0
2,033
<OTHER-SE> 4,211,094
<TOTAL-LIABILITY-AND-EQUITY> 18,875,822
<SALES> 0
<TOTAL-REVENUES> 46,370
<CGS> 0
<TOTAL-COSTS> 79,410
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,160
<INCOME-PRETAX> (196,413)
<INCOME-TAX> 0
<INCOME-CONTINUING> (196,413)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (196,413)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
