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, 1999
___ 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 February 28, 1999:
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 FEBRUARY 28, 1999 FORM 10-QSB
Page
Part I - Financial Information (unaudited)
Balance Sheets - February 28, 1999 and 3
August 31, 1998
Statements of Operations - For the three months 4
ended February 28, 1999 and February 28, 1998
Statements of Operations - For the six months 5
ended February 28, 1999 and February 28, 1998
Statements of Cash Flows - For the six months 6
ended February 28, 1999 and February 28, 1998
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.
<PAGE>
PURE CYCLE CORPORATION
CONSOLIDATED BALANCE SHEETS
February 28 August 31
ASSETS 1999 1998
----------- ---------
(unaudited)
Current assets:
Cash and cash equivalents $ 393,419 $ 423,027
Marketable securities 3,429 3,429
Prepaid expenses and other
current assets 7,830 7,830
---------- ---------
Total current assets 404,678 434,286
Investment in water projects:
Rangeview water rights 13,100,825 12,995,881
Paradise water rights 5,479,520 5,470,606
Rangeview Water System 129,081 114,088
---------- ----------
Total investment in water projects 18,709,426 18,580,575
Note receivable, including accrued
interest 321,021 298,269
Equipment, at cost, net of accumulated
depreciation of $16,624 and
$16,095, respectively 614 1,143
Other assets 22,596 22,596
---------- ----------
$ 19,458,335 $ 19,336,869
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 50,398 $ 4,049
Construction deposits (Note 2) 158,800 --
Accrued liabilities -- 45,809
---------- ----------
Total current liabilities 209,198 49,858
Long-term debt - related parties,
including accrued interest (Note 2) 3,887,072 3,786,981
Other non-current liabilities 124,553 120,983
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
Series C - 3,200,000 shares issued
and outstanding 3,200 3,200
Series C1 - 500,000 shares issued
and outstanding 500
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 24,216,244 24,126,744
Accumulated deficit (20,336,679) (20,105,144)
---------- ----------
Total stockholders' equity 4,146,882 4,288,417
---------- ----------
$ 19,458,335 $ 19,336,869
========== ==========
[FN]
See Accompanying Notes to the Consolidated Financial Statements
<PAGE>
PURE CYCLE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
----------------------------
February 28 February 28
1999 1998
------------- ------------
Water service revenue
Water usage fees $ 3,265 $ 8,136
-------- --------
3,265 8,136
Expenses
Water service operating
expense (1,200) (1,000)
General, administrative and
marketing (100,937) (136,225)
Interest
Related party ( 50,046) ( 50,046)
Other ( 1,785) ( 1,785)
------- -------
(153,968) (189,056)
Interest income 11,786 7,961
------- -------
Net Loss $(138,917) $(172,959)
======= =======
Loss per common share $ --* $ --*
* less than $.01 per share
[FN]
See Accompanying Notes to the Consolidated Financial Statements
<PAGE>
PURE CYCLE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six Months Ended
---------------------------
February 28 February 28
1999 1998
----------- -----------
Water service revenue
Water usage fees $ 9,636 $ 13,744
------- -------
9,636 13,744
Expenses
Water service operating
expense ( 2,400) ( 1,000)
General, administrative and
marketing (157,941) (190,801)
Interest
Related party (100,091) (100,091)
Other ( 3,570) ( 3,570)
------- -------
(264,002) (295,462)
Interest income 22,831 17,194
------- -------
Net Loss $(231,535) $(264,524)
======= =======
Loss per common share $ --* $ --*
* less than $.01 per share
[FN]
See Accompanying Notes to the Consolidated Financial Statements
<PAGE>
PURE CYCLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
------------------------------
February 28 February 28
1999 1998
----------- -----------
Cash flows from operating activities:
Net loss $(231,535) $(264,524)
Adjustments to reconcile
net loss to net cash provided (used
in) operating activities:
Depreciation and
amortization 529 1,332
Noncash compensation expense
for the repricing of options and
warrants -- 51,383
Increase in accrued interest
on note receivable ( 22,752) ( 11,752)
Increase in accrued interest and
other non-current liabilities 103,661 103,661
Changes in operating assets
and liabilities:
Accounts payable 540 ( 3,993)
Construction deposits 158,800 --
------- -------
Net cash used in
operating activities 9,243 (123,893)
Cash flows from investing activities-
Investments in water rights (113,858) ( 71,950)
Investment in rangeview water system ( 14,993) ( 13,876)
------- -------
Net cash used in investing
activities (128,851) ( 85,826)
Cash flows from financing activities:
Proceeds from sale of stock 90,000 --
Net cash provided by ------- -------
(used in) financing
activities 90,000 --
------- -------
Net decrease
in cash and cash
equivalents ( 29,608) (209,719)
Cash and cash equivalents
beginning of period 423,027 370,426
------- -------
Cash and cash equivalents
end of period $393,419 $160,707
======= =======
[FN]
See Accompanying Notes to the Consolidated Financial Statements
<PAGE>
PURE CYCLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING PRINCIPLES
The consolidated balance sheet as of February 28, 1999 and
August 31, 1998, the consolidated statements of operations for
the three months and six months ended February 28, 1999 and
February 28, 1998 and the consolidated statements of cash flows
for the six months ended February 28, 1999 and February 28, 1998,
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,
1999 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 1998 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 - CONSTRUCTION DEPOSITS
In August 1998, the Company entered into an agreement to
provide water and wastewater service to a 400 acre development
which will include the construction of a 500-bed Academic Model
Juvenile Facility ("Model Facility"). The Model Facility
purchased 201 equivalent residential water taps at $8,165 per tap
(or $1,641,165), and 156 equivalent residential wastewater taps
at $4,000 per tap (or $624,000, collectively $2,265,165).
Pursuant to its Service Agreements, the Company will receive
$1,372,014 from the water tap revenue, and $624,000 from the
sewer tap revenues for a combined total of $1,996,014. The
Company will design, construct, operate and maintain the water
and wastewater system to deliver water and sewer service to the
Model Facility. During the six months ended February 28, 1999,
the Company received construction deposits of $459,800 to
construct a water and wastewater system to service the Model
Facility. Costs incurred on behalf of the model facility during
the six months ending February 28, 1999 applied to these deposits
totaled approximately $301,000.
NOTE 3 - STOCKHOLDERS' EQUITY
In August 1998, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the
Company issued 3,200,000 shares of Series C Convertible Preferred
Stock to the Company's President, Mr. Thomas Clark, in exchange
for 3,200,000 shares of common stock owned by Mr. Clark. The
Series C Convertible Preferred Stock converts into an equivalent
number of shares of Common stock at the election of Mr. Clark
provided the Company has authorized and unissued shares of Common
Stock available. The Company sold 3,200,000 shares of the
Company's Common Stock at $.125 per share to four accredited
investors who have previously invested in the Company. Proceeds
to the Company were $400,000.
In January 1999, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the
Company issued 500,000 shares of Series C-1 Convertible Preferred
Stock to the Company's President, Mr. Thomas Clark, in exchange
for 500,000 shares of common stock owned by Mr. Clark. The
Series C-1 Convertible Preferred Stock converts into an
equivalent number of shares of Common stock at the election of
Mr. Clark provided the Company has authorized and unissued shares
of Common Stock available. The Company sold 500,000 shares of
the Company's Common Stock at $.18 per share to an accredited
investor. Proceeds to the Company were $90,000.
In December of 1997, the Company agreed to adjust the
exercise price of its outstanding options and warrants totaling
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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
General and administrative and marketing expenses for the six
months ended February 28, 1999 were approximately $33,000 lower
than for the period ended February 28, 1998, primarily because of
a non-cash compensation expense incurred in 1998. Interest
expense increased for the six months ended February 28, 1999 by
approximately $1,000 compared to the period ended February
28, 1998 primarily because of a higher average outstanding
balance of notes payable for the six months of fiscal 1999
compared to the same period in fiscal 1998. Net loss for the six
months ended February 28, 1999 decreased approximately $33,000
compared to the six month ended February 28, 1998 primarily
because of the non-cash compensation expense during the six
months ended February 28, 1998.
During the six months ended February 28, 1999, the Company
generated water service revenues of $9,636 compared to
$13,744 for the period ended February 28, 1998 and incurred
approximately $2,400 in operating costs compared to $1,000 for
the period ended February 28, 1998 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 February 28, 1999, current assets exceed current liabilities
by $195,480 and, the Company had cash and cash equivalents of
$404,678.
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.
Year 2000
The Company has completed its assessment of year 2000 issues
on its computer systems and application and developed a
remediation plan. Conversion activities are in process and the
Company expects conversion and testing to be completed by the
end of the fiscal year ended August 31, 1999. The Company
expects completion of the project to cost less than $16,000.
The Company believes its non-information technology systems
either will not have year 2000 issues or are not material to the
Company's operations. While the Company does not believe it has
any material year 2000 problem, the failure to correct a
material problem or the impact of a year 2000 problem on
customers and third-party supplies could result in an
interruption in, or failure of normal business activities or
operations. Such failure could materially and adversely affect
the Company's results of operations, liquidity and financial
condition.
<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:
April 14, 1999 /S/ Thomas P. Clark
----------------------
Thomas P. Clark, President
Date:
April 14, 1999 /S/ Mark W. Harding
----------------------
Mark W. Harding, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S 10-QSB DATED FEBRUARY 28, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> FEB-28-1999
<CASH> 393,419
<SECURITIES> 3,429
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 404,678
<PP&E> 617
<DEPRECIATION> 16,670
<TOTAL-ASSETS> 19,759,335
<CURRENT-LIABILITIES> 510,198
<BONDS> 0
<COMMON> 261,584
0
5,733
<OTHER-SE> 3,879,565
<TOTAL-LIABILITY-AND-EQUITY> 19,759,335
<SALES> 9,636
<TOTAL-REVENUES> 9,636
<CGS> 2,400
<TOTAL-COSTS> 157,941
<OTHER-EXPENSES> 59,404
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103,661
<INCOME-PRETAX> (231,535)
<INCOME-TAX> 0
<INCOME-CONTINUING> (231,535)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (231,535)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
