<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
Commission file number 0-18756
WESTERN WATER COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 33-0085833
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
4660 LA JOLLA VILLAGE DRIVE, SUITE 825, SAN DIEGO, CA 92122
(Address of principal executive offices)(Zip code)
(619) 535-9282
(Registrant's telephone number, including area code)
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 than the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
YES X NO
----- -----
As of November 11, 1996, 8,068,310 shares of $0.001 par value common
stock of the Registrant were issued and outstanding.
<PAGE> 2
WESTERN WATER COMPANY AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Item 1. Financial statements:
Consolidated balance sheets
September 30, 1996 and March 31, 1996 3
Consolidated statements of operations
Three months ended September 30, 1996 and 1995 5
Consolidated statements of operations
Six months ended September 30, 1996 and 1995 6
Consolidated statements of cash flows
Six months ended September 30, 1996 and 1995 7
Notes to consolidated financial statements 9
Item 2. Management's discussion and analysis of financial
condition and results of operations 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
2
<PAGE> 3
WESTERN WATER COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30, March 31,
1996 1996
(unaudited)
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 32,498 $ 540,883
Investments in marketable securities 1,817,385 2,815,927
Current portion notes receivable 286,575 343,530
Other current assets 372,906 252,654
----------- -----------
Total current assets 2,509,364 3,952,994
----------- -----------
NOTES RECEIVABLE, LESS CURRENT PORTION 1,787,358 2,342,426
----------- -----------
ASSETS HELD FOR SALE
Water rights 11,415,900 10,980,964
Real estate 5,856,577 5,626,857
----------- -----------
Total assets held for sale 17,272,477 16,607,821
----------- -----------
OTHER WATER ASSETS 3,228,607 3,234,816
----------- -----------
INVESTMENTS AND OTHER ASSETS
Investment in limited liability company 11,426,997 11,925,109
Deferred tax benefit 1,100,000 1,100,000
Debt issue costs, net 737,348 777,926
Silica plant 557,823 557,823
Property and equipment, net 57,785 50,994
----------- -----------
Total investments and other assets 13,879,953 14,411,852
----------- -----------
$38,677,759 $40,549,909
=========== ===========
</TABLE>
3
<PAGE> 4
WESTERN WATER COMPANY
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, March 31,
1996 1996
(unaudited)
----------- -----------
S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 215,634 $ 310,905
Accrued expenses 572,571 636,248
Current maturities of long-term debt 162,982 160,272
----------- -----------
Total current liabilities 951,187 1,107,425
----------- -----------
DEPOSIT 100,000 100,000
----------- -----------
LONG-TERM DEBT, LESS CURRENT MATURITIES 3,193,638 3,275,408
----------- -----------
9% CONVERTIBLE SUBORDINATED DEBENTURES 15,000,000 15,000,000
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $ 0.001 par value, 1,000,000
shares authorized; no shares issued or - -
Common stock, $0.001 par value, 10,000,000
shares authorized; 8,092,326 and 8,068,486
shares issued at September 30, 1996 and
March 31, 1996 respectively 8,092 8,068
Additional paid-in capital 22,102,418 21,696,867
Unrealized loss on investments (44,734) (24,442)
Retained deficit ($14,405,252 of retained deficit
eliminated in the quasi-reorganization as of
October 1, 1994) (2,632,842) (613,417)
----------- -----------
Total stockholders' equity 19,432,934 21,067,076
----------- -----------
$38,677,759 $40,549,909
=========== ===========
</TABLE>
4
<PAGE> 5
WESTERN WATER COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30,
1996 1995
----------- ----------
<S> <C> <C>
REVENUES
Water rights $ 57,771 $ 747,071
Real estate 150,000 -
----------- ----------
Total revenues 207,771 747,071
COST OF REVENUES
Water rights 14,631 102,428
Real estate 97,185 -
----------- ----------
Total cost of revenues 111,816 102,428
----------- ----------
GROSS PROFIT 95,955 644,643
GENERAL AND ADMINISTRATIVE 482,475 458,107
----------- ----------
OPERATING INCOME (LOSS) (386,520) 186,536
OTHER INCOME (EXPENSES)
Interest income 88,127 96,829
Interest expense (359,803) (76,603)
Rental income, net (Note 4) (33,453) (26,076)
Equity in loss of limited liability company (Note 3) (321,721) -
Loss on discount of notes receivable - (196,117)
Other 2,493 -
----------- ----------
(624,357) (201,967)
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (1,010,877) (15,431)
INCOME TAXES (BENEFIT) - (6,000)
----------- ----------
LOSS FROM CONTINUING OPERATIONS (1,010,877) (9,431)
LOSS FROM DISCONTINUED OPERATIONS,
AFTER TAX EFFECT (14,633) (12,114)
----------- ----------
NET LOSS $(1,025,510) $ (21,545)
=========== ===========
LOSS PER COMMON SHARE (NOTE 2)
Continuing operations $ (0.13) $ -
Discontinued operations - -
----------- ----------
NET INCOME (LOSS) PER SHARE $ (0.13) -
=========== ==========
AVERAGE COMMON SHARES OUTSTANDING 8,070,961 $7,909,788
=========== ==========
</TABLE>
5
<PAGE> 6
WESTERN WATER COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended September 30,
1996 1995
----------- ---------
<S> <C> <C>
REVENUES
Water rights $ 123,144 $ 782,143
Real estate 150,000 2,233,393
----------- ----------
Total revenues 273,144 3,015,536
COST OF REVENUES
Water rights 29,212 114,606
Real estate 97,184 802,055
----------- ----------
Total cost of revenues 126,396 916,661
----------- ----------
GROSS PROFIT 146,748 2,098,875
GENERAL AND ADMINISTRATIVE 1,060,269 1,027,482
----------- ----------
OPERATING INCOME (LOSS) (913,521) 1,071,393
OTHER INCOME (EXPENSES)
Interest income 173,586 189,284
Interest expense (720,486) (114,603)
Rental income, net (Note 4) (17,850) 10,044
Equity in loss of limited liability company (Note 3) (498,112) -
Loss on discount of notes receivable - (196,117)
Other (9,549) 600
----------- ----------
(1,072,411) (110,792)
----------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (1,985,932) 960,601
INCOME TAXES 2,400 384,000
----------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (1,988,332) 576,601
LOSS FROM DISCONTINUED OPERATIONS,
AFTER TAX EFFECT (31,092) (18,011)
----------- ----------
NET INCOME (LOSS) $(2,019,424) $ 558,590
=========== ==========
INCOME (LOSS) PER COMMON SHARE (NOTE 2)
Continuing operations $ (0.25) $ 0.07
Discontinued operations - -
----------- ----------
NET INCOME (LOSS) PER SHARE $ (0.25) $ 0.07
----------- ----------
AVERAGE COMMON SHARES OUTSTANDING 8,069,730 7,909,824
=========== ==========
</TABLE>
6
<PAGE> 7
WESTERN WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
September 30,
1996 1995
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(2,019,424) $ 558,590
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 67,218 29,749
Equity in loss of limited liability company 498,112 -
Loss on discount of notes receivable - 196,117
Changes in assets and liabilities:
(Increase) decrease in:
Notes receivable 612,023 876,707
Other current assets (120,253) (456,904)
Water rights held for sale (121,327) (1,796,234)
Real estate held for sale (229,720) 403,109
Other water assets (13,835) (338,071)
Deferred tax benefit - 372,000
Increase (decrease) in:
Accounts payable and accrued expenses (158,948) 392,734
Notes payable (79,060) (617,333)
----------- ----------
Net cash used in operating activities (1,565,214) (379,536)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (13,387) (5,891)
Sale of marketable securities 978,250 -
----------- ----------
Net cash provided by (used in) investing activities 964,863 (5,891)
</TABLE>
7
<PAGE> 8
WESTERN WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
September 30,
1996 1995
--------- ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from options 92,437 -
Net proceeds from issuance of Convertible Debentures - 655,000
Debt issue costs - (706,315)
Payments to acquire treasury stock (471) (335)
Other - (5,203)
--------- ----------
Net cash provided by (used in) financing activities 91,966 (56,853)
--------- ----------
Net decrease in cash and cash equivalents (508,385) (442,280)
CASH AND CASH EQUIVALENTS:
Beginning 540,883 2,335,532
--------- ----------
Ending $ 32,498 $1,893,252
========= ==========
</TABLE>
8
<PAGE> 9
WESTERN WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited
financial statements contain all adjustments (which include
only normal recurring adjustments) necessary to present fairly
the balance sheet of Western Water Company and Subsidiaries as
of September 30, 1996 and the results of their operations and
their cash flows for the six and three months ended September
30, 1996 and 1995, respectively. The financial statements are
consolidated to include the accounts of Western Water Company
and its subsidiary companies (together "the Company").
Certain 1995 amounts have been reclassified to conform to
current period presentation. These reclassifications have no
effect on previously reported net income.
The accounting policies followed by the Company are set forth
in Note 1 to the Company's financial statements as stated in
its report on Form 10-K for the fiscal year ended March 31,
1996.
NOTE 2. INCOME (LOSS) PER COMMON SHARE:
Income (loss) per common share is based on the weighted
average number of common shares outstanding during the period.
No material dilution of earnings per share would result for
the periods if it were assumed that all outstanding stock
options were exercised.
The income (loss) per common share computations, and the
weighted average common shares outstanding, for the six and
three month periods ended September 30, 1995, were adjusted to
reflect the effects of the stock split effected in the form of
a stock dividend in fiscal 1996.
9
<PAGE> 10
WESTERN WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
NOTE 3. INVESTMENT IN LIMITED LIABILITY COMPANY:
Nevada Land and Resource Company, LLC ("NLRC") is a Delaware
limited liability company which is owned 35.3% by the Company
and 64.7% by a joint venture comprised of Morgan Stanley Real
Estate Fund II, L.P. and two other affiliates of that real
estate partnership ("Morgan Stanley"). The Company accounts
for its investment in NLRC under the equity method in
accordance with Accounting Principles Board Opinion No. 18,
"The Equity Method of Investments in Common Stock" ("APB 18").
Accordingly, income or losses are allocated in proportion to
ownership interests. The Company consistently maintains a one
quarter time lag in applying the equity method. The Company's
equity in the loss of NLRC was $498,112 and $321,721 for the
six and three month periods ended September 30, 1996.
Intercompany profits and losses which have not been realized
have been eliminated, in accordance with APB 18.
The following information reflects the operations of NLRC for
the period of January 1, 1996 to June 30, 1996:
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, 1996 June 30, 1996
---------------- -----------------
<S> <C> <C>
Net operating revenues $ 565,530 $ 253,394
General and administrative expenses 2,066,610 1,209,784
----------- ----------
Operating loss $(1,501,080) $ (956,390)
=========== ==========
</TABLE>
10
<PAGE> 11
WESTERN WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
NOTE 4. RENTAL INCOME, NET
Rental income, net is comprised of:
<TABLE>
<CAPTION>
Six months ended September 30, Three months ended September 30,
1996 1995 1996 1995
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Rental income $108,813 $119,391 $ 55,909 $ 59,651
Rental expenses 126,663 109,347 89,362 85,727
-------- -------- -------- --------
Net $(17,850) $ 10,044 $(33,453) $(26,076)
======== ======== ======== ========
</TABLE>
NOTE 5. SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY
In September 1996, the Company issued 16,870 shares of common
stock to acquire 100 acre feet of water rights located in the
Central Water Basin, Los Angeles County, California, for a
purchase price of $320,000. The Company guaranteed the price
of its stock and subsequently was required to pay $6,392. The
common stock issued has been recorded at the purchase price
less the amount of the guarantee payment.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in 1984 as Yuba Silica, Inc. Until August 9, 1990, the
Company was a wholly owned subsidiary of Yuba Natural Resources, Inc. ("YNR"),
a publicly-held company. From the time the Company was formed in 1984 until
May 1989, the Company's sole business was the sorting and grinding of silica at
the Company's silica plant (the "Silica Plant"). In August 1990, the Company,
then known as YG Development Company, was spun-off from its former parent (the
"Spin-off"). Subsequently, the Company changed its name from YG Development
Company, Inc. to Western Water Company and changed its primary business to (i)
acquiring, owning, developing, packaging, and marketing water and water rights,
and (ii) selling real estate properties acquired in connection with its water
rights acquisition program and otherwise. In addition, the Company currently
provides services to unaffiliated third parties in identifying, developing, and
marketing water assets owned by such third parties as well as effecting water
transfers from Northern California to Southern California. In October 1994,
the Board of Directors determined that it was in the best interests of the
Company to liquidate the Silica Plant assets.
Due to the significant changes in the Company's business, the continuing
improvement of the Company's earnings potential and a change in direction of
the intended method of disposing of the discontinued silica operation, the
Company determined that it was appropriate to effect a quasi-reorganization.
The Company's Board of Directors authorized management to effect a
quasi-reorganization effective October 1, 1994, which reorganization was
ratified by the Company's stockholders in March 1995.
In a quasi-reorganization, assets and liabilities are restated to current
values as of the date of the reorganization. The amount of increases, however,
are limited to the decreases in other assets. In this regard, effective
October 1, 1994, the Company recognized a write down in the value of the Silica
Plant of $1,830,914. This write down was offset by a corresponding write up of
a like amount which was allocated proportionately, based on the relative excess
of fair market value of each asset over historic book basis, to real estate
held for resale of $454,604, water rights held for sale $1,038,268, and water
sale fees of $338,042. Further, the accumulated deficit of $14,405,252, most
of which was due to the Company's prior and now discontinued operations, was
eliminated by a corresponding decrease in the Company's additional paid-in
capital. Retained earnings in the future will be dated to reflect only the
results of operations subsequent to October 1, 1994.
12
<PAGE> 13
RESULTS OF OPERATIONS
Significant consolidated results are summarized.
CONSOLIDATED
<TABLE>
<CAPTION>
Six months ended September 30, Three months ended September 30,
1996 1995 1996 1995
----------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 273,000 $3,016,000 $ 208,000 $747,000
Income (Loss) from (1,986,000) 961,000 (1,011,000) (15,000)
Continuing Operations,
before income taxes
Income taxes (Benefit) 2,000 384,000 - (6,000)
----------- --------- ----------- ---------
Net Income (Loss)
Continuing Operations (1,988,000) 577,000 (1,011,000) (9,000)
Discontinued Operations (31,000) (18,000) (15,000) (12,000)
----------- --------- ----------- ---------
Income (Loss) (2,019,000) 559,000 (1,026,000) (21,000)
Income (Loss) Per Share (0.25) 0.07 (0.13) -
</TABLE>
The Company reports its continuing operations in two segments, water rights and
real estate. As a result, the basis of each property that is acquired by the
Company is allocated to real estate and water rights based on the relative fair
market values of the components at the time of acquisition, and development
costs are allocated to properties whenever possible. Otherwise they are
allocated based on the relative fair value of the properties. Due to the
limited number of comparable water sales in the Cherry Creek Basin, the Company
has relied on periodic evaluations prepared by independent water engineers to
determine the relative fair values and market value of the water rights.
Accordingly, as properties or water rights are sold, the allocated portion of
the basis is included in costs of revenues.
In March, 1996, the Company effected a two-for-one stock split in the form of a
100% stock dividend (the "Stock Dividend"). Accordingly, the weighted average
common shares outstanding and per-share information for the prior periods has
been restated to reflect the effects of the Stock Dividend.
13
<PAGE> 14
WATER RIGHTS
<TABLE>
<CAPTION>
Six months ended September 30, Three months ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $123,000 $780,000 $58,000 $747,000
Cost of Revenues 29,000 115,000 15,000 102,000
-------- -------- ------- --------
Operating Income,
before Corporate
Expenses $ 94,000 $665,000 $43,000 $645,000
======== ======== ======= ========
</TABLE>
Water rights revenues in the six and three month periods ended September 30,
1996, consisted primarily of payments under the Cucamonga Water Fee Agreement
under which the Company receives payments equal to 3.7398% of certain sales of
water by a third party to the Cucamonga County Water District (San Bernadino
County, California). The costs of revenues in each period consist of
amortization of the Cucamonga Water Fee Agreement.
During the three month period ended September 30, 1995, the Company received
fees of $700,000 for acting as agent for the sale of water rights under its
agreement with The Atchison, Topeka and Santa Fe Railway Company. Costs
related to the transaction were $90,000. In addition, the Company received
payments in the six and three month periods ended September 30, 1995 from the
Cucamonga Water Fee Agreement, of $70,000 and $35,000, respectively.
REAL ESTATE
<TABLE>
<CAPTION>
Six months ended September 30, Three months ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $150,000 $2,233,000 $150,000 $ -
Cost of Revenues 97,000 802,000 97,000 -
-------- ---------- -------- ---
Operating Income, before
Corporate Expenses $ 53,000 $1,431,000 $ 53,000 $ -
======== ========== ======== ===
</TABLE>
14
<PAGE> 15
The Company has a program to dispose of real estate acquired in connection with
the acquisition of water rights, but not needed for water rights development.
The Company retains virtually all of the water rights on the properties sold.
Real estate revenues in the current six and three month periods were from the
sale of 35 acres of its Cherry Creek property. Costs of real estate revenues
include the allocated purchase price of the property sold, directly related
development costs, sales commissions and other sales costs. In the six months
ended September 30, 1995, the Company also recognized real estate revenues of
$1,469,000 from the transfer of 257 acres in the Cherry Creek basin in exchange
for certain water rights, and $764,000 from the sale of a 315-acre portion of
the Company's California rice farm and ranch.
GENERAL & ADMINISTRATIVE
<TABLE>
<CAPTION>
Six Months ended September 30, Three Months ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
General & Administrative $1,060,000 $1,027,000 $482,000 $458,000
</TABLE>
General and Administrative expenses for the six and three months ended September
30, 1996 rose slightly from the prior year. Salaries and related expenses
increased due to the addition of two employees, whereas legal expenses decreased
due to the resolution of a lawsuit in fiscal 1996. Consulting and travel
expenses also increased primarily due to the Company's expanded efforts in
developing its water transfer program. During the current periods, the Company
also had amortization costs related to the sale of the $15,000,000 Subordinated
Debentures (the "Debentures"), which amortization amounted to $40,000 for the
six month period.
OTHER NON-SEGMENT INFORMATION
<TABLE>
<CAPTION>
Six Months ended September 30, Three Months ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income $ 174,000 $ 189,000 $ 88,000 $ 97,000
Interest Expense (720,000) (115,000) (360,000) (77,000)
Rental Income (Expenses), net (18,000) 10,000 (33,000) (26,000)
Equity in loss of Limited Liability
Company 498,000 - 321,000 -
Loss from disposition of assets - (196,000) - (196,000)
</TABLE>
15
<PAGE> 16
Interest income is comprised of interest earned on the Company's cash reserves
and investments and interest earned on the secured promissory notes the Company
received in connection with the properties that it has sold. The secured notes
bear interest at rates between 7% and 10% per annum.
During fiscal 1996, the Company sold or discounted secured promissory notes
with a principal amount of $1,267,000 from its promissory notes portfolio which
resulted in lower interest income in the current periods as compared to the
prior year. At September 30, 1996, the outstanding balance on notes receivable
was $1,687,000. These notes will continue to generate interest income in
future periods.
Interest expense increased significantly in the current fiscal year due to
interest expenses related to the $15,000,000 Debentures that were issued in
September, 1995. Interest of $110,173 and $113,120 on debt incurred in
connection with the properties being developed for resale was capitalized
during the six months ended September 30, 1996 and 1995, respectively.
Rental income and expenses are primarily related to the Company's California
rice farm and ranch. The Company also receives miscellaneous rents on certain
of the Cherry Creek, Colorado properties.
The Company is accounting for its investment in NLRC under the equity method of
accounting and, accordingly, income or losses are allocated according to the
ownership interests. For the six and three months ended September 30, 1996, the
Company has recorded losses of $498,000 and $321,000, respectively. (See
Liquidity and Capital Resources below).
DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
Six Months ended September 30, Three Months ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loss from Discontinued
Operations $31,000 $18,000 $15,000 $12,000
</TABLE>
The Company is accounting for its inactive Silica Plant as discontinued
operations. The Company has engaged an equipment liquidator to sell the Silica
Plant. As of March 31, 1996, the Company had disposed of approximately 45% of
the Silica Plant's equipment on which it recognized a loss of $122,000. There
have been no equipment sales in the current fiscal year.
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
The Company's current liquidity was reduced by $508,000 during the six month
period ended September 30, 1996 due to lower revenues. As a result, the
Company's current ratio at September 30, 1996, was 2.6 to 1 compared to 3.6 to
1 on March 31, 1996.
The Company believes that its existing capital resources will be sufficient to
fund the Company's foreseeable working capital needs in excess of revenues for
a period of at least one year from the date of this report. The Company plans
to meet its commitments thereafter from revenues derived from water, water
rights transactions, sales of properties or by refinancing or selling the
properties securing its long-term debt.
The Company is currently negotiating with several municipal agencies in
Southern California to provide long term water supply contracts. As part of
this effort, the Company has received a proposal from a major investment
banking firm to provide financing for these transactions. The proposed
financing would enable the Company to acquire major water interests for resale
to municipal agencies, which water interests the Company could not otherwise
acquire with its existing financial resources.
OPERATING ACTIVITIES
During the current six month period, the Company had negative cash flow from
operations of $1,565,000. In addition to operating expenses, the Company used
cash reserves of $365,000 for a net increase in assets held for sale and
$79,000 for payments on notes payable. The cash outflow was partially offset
by cash received of $612,000 from payoffs on promissory notes receivable.
Other operating activities generated cash of approximately $286,000.
The Company intends to continue sales of portions of its real property located
in the Cherry Creek basin and its rice farm and ranch. The Company expects,
however, that its operating revenues will continue to be highly volatile.
Continued revenues from disposition of real estate will be dependent on the
Company's ability to dispose of real estate parcels on acceptable terms, as to
which there can be no assurance. Revenues from the sale of water or water
rights will likewise be dependent on individually negotiated transactions.
Revenues from leasing the Company's three rice farms, from the Cucamonga Water
Fee Agreement, and from principal and interest payments received on promissory
notes held by the Company will be more predictable, but will be insufficient by
themselves to cover the Company's general and administrative expenses and the
Company's interest obligations under the Debentures. Accordingly, until the
Company can increase its on-going revenues from water sales of its own water
rights, or acting as an agent for others, the Company's liquidity will be
largely dependent upon its ability to sell real estate.
17
<PAGE> 18
INVESTING AND FINANCING ACTIVITIES
The Company is committed to certain material expenditures over the next several
years, including the following:
# Scheduled payments of principal and interest on existing
outstanding indebtedness, other than the Debentures, for
the remainder of the fiscal years ending March 31, 1997,
and fiscal years ending March 31, 1998, 1999, 2000, and
2001 are approximately $262,000, $447,000, $446,000,
$1,115,000, and $302,000, respectively. In addition,
balloon payments of approximately $1,664,000 and $135,000
are due in the fiscal years ending March 31, 2002 and
2003, respectively.
# The operating agreement of NLRC provides for additional
cash contributions if the executive committee, comprised of
an equal number of representatives from Morgan Stanley and
the Company, agree that a shortfall exists in the funds
available to cover necessary expenses. In lieu of cash
contributions, the executive committee may elect to obtain
such funds through borrowing. The Company, however,
believes that NLRC has sufficient working capital reserves
to meet its requirements for at least one year and that the
Company will not be required to provide any additional
funds during the next twelve months. The Company had
previously announced that NLRC had entered into a
non-binding letter of intent to sell substantially all of
NLRC's real estate properties, which sale would have
substantially increased the Company's liquidity. The
proposed sale of the real estate has been terminated. As
part of its plan to resell its real estate holdings, NLRC
has recently entered into an agreement with a major land
auction firm to market portions of NLRC's real estate
holdings. The first auctions are scheduled to be held
during the first quarter of 1997. In addition, to
facilitate mineral transactions, NLRC is establishing a
wholly owned subsidiary to hold all of the precious metal
rights and mining royalties on its 1.4 million acre
property.
# The Company is required to make semiannual interest
payments of $675,000 on the $15,000,000 principal amount
of Debentures, which payments began in March 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this
report;
27- Financial Data Schedule
(b) None
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
WESTERN WATER COMPANY
Date: November 13, 1996 By: /s/ Peter L. Jensen
--------------------------------
Peter L. Jensen
President
Date: November 13, 1996 By: /s/ Marilyn Buseman Dreyer
--------------------------------
Marilyn Buseman Dreyer
Chief Financial Officer
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 32
<SECURITIES> 1,817
<RECEIVABLES> 287
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,509
<PP&E> 58
<DEPRECIATION> 0
<TOTAL-ASSETS> 38,678
<CURRENT-LIABILITIES> 951
<BONDS> 15,000
0
0
<COMMON> 8
<OTHER-SE> 19,425
<TOTAL-LIABILITY-AND-EQUITY> 38,678
<SALES> 0
<TOTAL-REVENUES> 273
<CGS> 0
<TOTAL-COSTS> 126
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 720
<INCOME-PRETAX> (1,986)
<INCOME-TAX> 2
<INCOME-CONTINUING> (1,988)
<DISCONTINUED> (31)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,019)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> 0
</TABLE>
