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 May 31, 1998
___ 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 of incorporation) (I.R.S. Employer
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 May 31, 1998:
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>
PURE CYCLE CORPORATION
INDEX TO May 31, 1998 FORM 10-QSB
Page
Part I - Financial Information (unaudited)
Balance Sheets May 31, 1998 and 3
August 31, 1997
Statements of Operations - For the three months 4
ended May 31, 1998 and May 31, 1997
Statements of Operations - For the nine months 5
ended May 31, 1998 and May 31, 1997
Statements of Cash Flows - For the nine months 6
ended May 31, 1998 and May 31, 1997
Notes to Financial Statements 7
Management's Discussion and Analysis of 8
Results of Operations and Financial Condition
Signature Page 9
"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.
2
<PAGE>
PURE CYCLE CORPORATION
CONSOLIDATED BALANCE SHEETS
May 31 August 31
ASSETS 1998 1997
Current assets:
Cash and cash equivalents $ 87,559 $ 370,426
Marketable securities 3,429 3,429
Prepaid expenses and other current assets 7,830 7,830
---------- ----------
Total current assets 98,818 381,685
Investment in water projects:
Rangeview water rights 12,992,383 12,920,490
Paradise water rights 5,470,606 5,468,041
Rangeview Water System 114,088 100,212
---------- ----------
Total investment in water projects 18,577,077 18,488,743
Note receivable, including accrued interest 292,393 274,765
Equipment, at cost, net of accumulated
depreciation of $15,790 and
$14,149, respectively 1,448 3,089
Other assets 22,596 22,596
---------- ----------
$ 18,992,332 $ 19,170,878
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,672 $ 6,856
Accrued liabilities -- 45,809
--------- ---------
Total current liabilities 48,672 52,665
Long-term debt - related parties,
including accrued interest (Note 2) 3,701,061 3,550,925
Other non-current liabilities 119,198 113,843
Participating interests in Rangeview
water rights 11,090,630 11,090,630
Stockholders' equity:
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 23,729,944 23,678,561
Accumulated deficit (19,960,790) (19,579,363)
---------- ----------
Total stockholders' equity 4,032,771 4,362,815
---------- ----------
$ 18,992,332 $ 19,170,878
========== ==========
[FN]
See Accompanying Notes to the Consolidated Financial Statements
3
<PAGE>
PURE CYCLE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
May 31 May 31
1998 1997
Water service revenue
Tap fees $ -- $ 29,354
Water usage fees 5,419 --
------- -------
5,419 29,354
Expenses
Water service operating expense ( 1,000) --
General, administrative and marketing ( 77,857) ( 75,164)
Interest
Related party ( 50,046) ( 49,580)
Other ( 1,785) --
------- -------
(130,688) (124,744)
Interest income 7,365 7,007
------- -------
Net Loss $(117,904) $( 88,383)
Loss per common share $ --* $ --*
* less than $.01 per share
[FN]
See Accompanying Notes to the Consolidated Financial Statements
4
<PAGE>
PURE CYCLE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Ended
May 31 May 31
1998 1997
Water service revenue
Tap fees $ -- $ 75,724
Water usage fees 19,163 --
------- -------
19,163 75,724
Expenses
Water service operating expense ( 2,000) --
General, administrative and marketing (267,658) (232,524)
Interest
Related party (150,136) (148,740)
Other ( 5,355) --
------- -------
(425,149) (381,264)
Interest income 24,559 20,744
------- -------
Net Loss $(381,427) $(284,796)
======= =======
Loss per common share $ --* $ --*
* less than $.01 per share
[FN]
See Accompanying Notes to the Consolidated Financial Statements
5
<PAGE>
PURE CYCLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
May 31 May 31
1998 1997
Cash flows from operating activities:
Net loss $(381,427) $(284,796)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization 1,641 1,544
Amortization of deferred financing
costs -- 13,500
Noncash compensation expense
for the repricing of options and
warrants (Note 3) 51,383 --
Increase in accrued interest
on note receivable ( 17,628) ( 17,607)
Increase in accrued interest on long
term debt and other non-current
liabilities 155,491 148,740
Changes in operating assets
and liabilities:
Prepaid expenses and
other current assets -- 3,034
Accounts payable ( 3,993) ( 25,124)
------- -------
Net cash used in
operating activities (194,533) (160,709)
Cash flows from investing activities:
Investments in water rights ( 74,458) ( 91,784)
Investment in rangeview water system ( 13,876) ( 41,535)
------- -------
Net cash used in
investing activities ( 88,334) (133,319)
Cash flows from financing activities:
Proceeds from issuance of debt -- 300,000
------- -------
Net cash provided by
(used in) financing
activities -- 300,000
------- -------
Net increase (decrease)
in cash and cash equivalents (282,867) 5,972
Cash and cash equivalents
beginning of period 370,426 126,756
------- -------
Cash and cash equivalents
end of period $ 87,559 $ 132,728
======= =======
[FN]
See Accompanying Notes to the Consolidated Financial Statements
6
<PAGE>
PURE CYCLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING PRINCIPLES
The consolidated balance sheet as of May 31, 1998 and August
31, 1997, the consolidated statements of operations for the three
months and nine months ended May 31, 1998 and May 31, 1997 and
the consolidated statements of cash flows for the nine months
ended May 31, 1998 and May 31, 1997, 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 May 31, 1998 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 1997 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 - 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% or 10
1/4% and is due August 30, 2002. In connection with the August
1996 loan agreement, the Company issued warrants to purchase
shares of the Company's common stock. The agreement allowed the
Company to extend the due date to August 30, 2002 by issuing
additional warrants (see Note 3).
In August 1997, the Company entered into a loan agreement with
five related party investors. The loan is for $350,000, is
unsecured, bears interest at the rate of 10 1/4% and is due
August 30, 2002. In connection with the August 1997 loan
agreement, the Company issued warrants to purchase shares of the
Company's common stock (see Note 3).
NOTE 3 - STOCKHOLDERS' EQUITY
In connection with the August 1996 loan agreement described in
note 2, the Company issued warrants to purchase 600,000 shares of
the Company's common stock and additional warrants to purchase
1,323,000 shares to extend the due date of the note until August
30, 2002. The warrants are exercisable at $.25 per share and
expire August 30, 2002. The estimated fair value of the warrants
issued of $18,000 has been charged to expanse during the year
ended August 31, 1997.
In connection with the August 1997 loan agreement, the Company
issued warrants to purchase 2,100,000 shares of the Company's
common stock. The warrants are exercisable at $.25 per share and
expire August 30, 2002. A portion of the proceeds received under
the agreement ($45,000) has been attributed to the estimated fair
value of the warrants issued. The resulting discount is being
amortized over the term of the loan.
In December of 1997, the Company agreed to adjust the exercise
price of its outstanding options and warrants to purchase
approximately 48,672,000 shares held by certain directors,
officers, and investors of the Company from $.25 per share to
$.18 per share. The options and warrant repricing was based on
the market closing price on December 2, 1997 of $.18 per share.
The Company has recognized a non-cash compensation expense of
$51,000 which reflects the change in value of the options and
warrants based on the price of the Company's outstanding shares
at the date of repricing. The options and warrants expire during
2002.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
General and administrative expenses for the nine months ended
May 31, 1998 were approximately $37,000 higher than for
the period ended May 31, 1997, primarily because of a non-
recurring, non-cash compensation expense related to the repricing
of outstanding options and warrants. Interest expense
increased for the nine months ended May 31, 1998 by approximately
$7,000 compared to the period ended May 31, 1997 primarily
because of a higher average outstanding balance of notes payable
for the nine months of fiscal 1998 compared to the same period in
fiscal 1997. Net loss for the nine months ended May 31, 1998
increased approximately $97,000 compared to the nine month ended
May 31, 1997 primarily because of the receipt of one-time tap fee
revenue during the nine months ended May 31, 1997 and the non-
cash compensation expense.
During the nine months ended May 31, 1998, the Company
generated water service revenues of $19,163 and incurred
approximately $2,000 in operating costs associated with the water
service revenues The water service revenues were generated from
the sale of water to customers within the Company's Service Area.
Liquidity and Capital Resources
At May 31, 1998, current assets exceed current liabilities by
$50,146 and, the Company had cash and cash equivalents of
$87,559.
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 WCA,
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.
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.
8
<PAGE>
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:
July 9, 1998 /S/ Thomas P. Clark
--------------------
Thomas P. Clark,
President
Date:
July 9, 1998 /S/ Mark W. Harding
--------------------
Mark W. Harding,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THECOMPANY'S 10-QSB DATED May 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BYREFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 87,559
<SECURITIES> 3,429
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 98,818
<PP&E> 17,238
<DEPRECIATION> 15,790
<TOTAL-ASSETS> 18,992,332
<CURRENT-LIABILITIES> 48,672
<BONDS> 0
<COMMON> 261,584
0
2,033
<OTHER-SE> 3,769,154
<TOTAL-LIABILITY-AND-EQUITY> 18,992,332
<SALES> 0
<TOTAL-REVENUES> 19,163
<CGS> 0
<TOTAL-COSTS> 269,658
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155,491
<INCOME-PRETAX> (381,427)
<INCOME-TAX> 0
<INCOME-CONTINUING> (381,427)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (381,427)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
