<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q
--------------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
Commission file number 0-18756
WESTERN WATER COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 33-0085833
(State of Incorporation) (I.R.S. Employer Identification No.)
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)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
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 of August 8, 1997, there were 8,236,119 shares of registrant's common
stock issued and outstanding.
<PAGE> 2
WESTERN WATER COMPANY AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C>
1 Financial statements:
Consolidated balance sheets
June 30, 1997 and March 31, 1997 3
Consolidated statements of operations
Three months ended June 30, 1997 and 1996 4
Consolidated statements of cash flows
Three months ended June 30, 1997 and 1996 5
Notes to consolidated financial statements 6
2 Management's discussion and analysis of financial
condition and results of operations 10
PART II - OTHER INFORMATION
6 Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE> 3
WESTERN WATER COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
June 30 and March 31, 1997
<TABLE>
<CAPTION>
1997
------------------------------
June 30, March 31,
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 11,850,007 $ 3,022,008
Investment in available-for-sale securities 7,948,091 1,034,096
Current portion of notes receivables 1,771,509 563,629
Other currents assets 269,011 214,170
------------ ------------
Total Current Assets 21,838,618 4,833,903
Notes receivable, less current portion 1,597,812 1,799,094
Land held for sale 5,078,521 5,078,521
Water rights (Note 2) 14,192,859 12,400,686
Other water assets, net of accumulated amortization 3,208,314 3,212,996
Investment in limited liabillity company (Note 3) -- 11,068,188
Debt issue costs, net of accumulated amortization 675,198 695,670
Discontinued operation, net -- 120,000
Property and equipment, net of accumulated depreciation 109,068 108,994
Other assets 155,697 157,306
------------ ------------
$ 46,856,087 $ 39,475,358
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 132,620 $ 127,883
Accrued expenses and other liabilities (Note 2) 827,676 682,518
Accrued interest 466,070 119,104
Current maturities of long-term debt 118,867 117,315
------------ ------------
Total Current Liabilities 1,545,233 1,046,820
Deposit 100,000 100,000
Deferred gain on sale (Note 3) 113,333 --
Long-term debt, less current maturities 2,819,909 2,840,860
9% Convertible subordinated debentures 15,000,000 15,000,000
------------ ------------
Total Liabilities 19,578,475 18,987,680
------------ ------------
Series C convertible redeemable preferred stock, $1,000 stated value,
1,000,000 shares authorized; 9,000 shares issued and outstanding (Note 4) 8,552,305 --
Stockholders' Equity:
Series B convertible preferred stock, $1,000 stated value, 1,000,000
shares authorized; 4,000 shares issued and outstanding -- 3,807,517
Common stock, $0.001 par value, 20,000,000 shares
authorized; 8,236,119 and 8,134,796 shares issued and outstanding at
June 30 and March 31, 1997, respectively 8,236 8,135
Additional paid-in capital 23,868,000 22,705,957
Unrealized loss on investment securities (16,029) (28,040)
Accumulated deficit ($14,405,252 of accumulated deficit eliminated in
quasi-reorganization of October 1, 1994) (5,134,900) (6,005,891)
------------ ------------
Total Stockholders' Equity 18,725,307 20,487,678
------------ ------------
$ 46,856,087 $ 39,475,358
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
WESTERN WATER COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
Three months ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenue - Water $ 45,592 $ 65,373
Cost of Revenue - Water 14,581 14,581
----------- -----------
Gross Profit 31,011 50,792
General and Administrative Expenses 1,211,188 577,794
----------- -----------
Operating Income (Loss) (1,180,177) (527,002)
----------- -----------
Other Income (Expenses):
Interest income 280,771 85,459
Interest expense (337,500) (360,683)
Loss from investment in limited liability company (Note 3) (307,623) (176,391)
Gain on sale of investment in limited liability company, net (Note 3) 2,425,860 --
Other (7,940) 3,561
----------- -----------
2,053,568 (448,054)
----------- -----------
Income (Loss) from Continuting Operarions
Before Income Taxes 873,391 (975,056)
Income Taxes (Note 5) 2,400 2,400
----------- -----------
Income (Loss) from Continuing Operations 870,991 (977,456)
Discontinued Operations -- (16,458)
----------- -----------
Net Income (Loss) $ 870,991 $ (993,914)
=========== ===========
Income (Loss) Per Common Share:
Continuing operations $ 0.11 $ (.12)
Discontinued operations -- --
----------- -----------
Net Income (Loss) Per Common Share $ 0.11 $ (.12)
=========== ===========
Average Common Shares Outstanding 8,146,924 8,068,486
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
WESTERN WATER COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three months ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 870,991 $ (993,914)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 42,668 38,090
Gain on sale of investment in limited liability company (2,425,860) --
Loss from investment in limited liability company 307,623 176,391
Changes in assets and liabilities:
(Increase) decrease in:
Other current assets (54,841) (72,514)
Land held for sale -- (286,099)
Other assets 1,609 --
Increase (decrease) in:
Accounts payable (55,505) 30,907
Accrued expenses and other liabilities 145,158 172,793
Accrued interest 346,966 --
------------ ------------
Net cash used in operating activities (821,191) (934,346)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposition of discontinued operation 120,000 --
Proceeds from sale of investment in limited liability
company 12,024,000 --
Purchase of property and equipment (7,688) (3,826)
Purchase of available-for-sale securities (7,105,411) --
Sales of available-for-sale securities 203,427 278,232
Additions to water rights (111,172) --
Purchase of water rights (518,857) (72,081)
Additions to other water assets (9,900) --
------------ ------------
Net cash provided by investing activities 4,594,399 202,325
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible
preferred stock 5,000,000 --
Payment of private placement costs (255,212) --
Principal payments received on notes receivable 329,402 559,780
Principal payments on notes payable (19,399) (73,410)
------------ ------------
Net cash provided by financial activities 5,054,791 486,370
------------ ------------
Net increase (decrease) in cash and cash equivalents 8,827,999 (245,651)
Cash and Cash Equivalents, beginning of period 3,022,008 540,883
------------ ------------
Cash and Cash Equivalents, end of period $ 11,850,007 $ 295,232
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
WESTERN WATER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 June 30, 1997 and the
results of operations and cash flows for the three months ended June
30, 1997 and 1996, respectively. The financial statements are
consolidated to include the accounts of Western Water Company and its
subsidiary companies ("the Company").
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, 1997.
Income (Loss) Per Common Share
Income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding
during each period. The dilutive effect of the securities for the
calculation of primary and fully diluted income per share are not
materially different for the three months ended June 30, 1997.
Securities for the calculation of primary and fully diluted loss per
share for the three months ended June 30, 1996 are excluded as their
effect is anti-dilutive.
Reclassifications
Certain reclassifications of prior period amounts have been made in
order to conform to the current period presentation.
NOTE 2. WATER RIGHTS:
In June 1997, the Company issued 88,238 shares of its common stock
("Common Stock") to acquire 400 acre feet of water rights located in
the Central Water Basin, Los Angeles County, California, for a
purchase price of $1,280,000. The Company guaranteed the price of its
stock, within a range, and has accrued liabilities of $117,856 related
thereto. The Common Stock issued has been recorded at the purchase
price less the amount of the accrued guarantee payment.
6
<PAGE> 7
WESTERN WATER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 3. INVESTMENT IN LIMITED LIABILITY COMPANY:
In October 1995, the Company and a joint venture comprised of The
Morgan Stanley Real Estate Fund II, L.P ("Morgan Stanley"), an
affiliate of Morgan Stanley Group, and two affiliates of Morgan
Stanley (collectively, "Western Land Joint Venture") formed Nevada
Land and Resource Company, LLC, a Delaware limited liability company
("NLRC") which was owned 35.3% by the Company and 64.7% by Western
Land Joint Venture. NLRC acquired approximately 1,400,000 acres of
land and related water rights in the state of Nevada. The Company's
$12,000,000 investment in NLRC was funded with the proceeds from the
sale of 9% Convertible Subordinated Debentures.
On April 23, 1997, the Company sold its interest in NLRC for
$13,360,000, of which $12,024,000 was paid in cash and $1,336,000 was
in the form of a note. The note bears interest at 6% per annum and is
due December 31,1997. During August 1997, the note plus the accrued
unpaid interest was converted into approximately 700,000 shares of the
Global Equity Corporation. In connection with the sale, NLRC entered
into a consulting agreement with Western Agua, L.P. (the "Consulting
Agreement"). Western Agua, L.P. is a Delaware limited partnership
formed by the Company and an affiliate of Morgan Stanley. The Company
owns a 70% interest in Western Agua, L.P. and is the sole general
partner of the partnership. The consolidated financial statements of
the Company include the accounts of Western Aqua, L.P. In exchange for
providing consulting services to NLRC, Western Agua, L.P. is to
receive 50% of all the net proceeds, if any, derived from the
subsequent sale, leasing or other disposition of all or any portion of
NLRC or refinancing of NLRC, or other revenues derived from the
disposition of NLRC by the new owners after they both recoup their
investment in NLRC and earn a 20% cumulative return, as defined,
compounded annually on their investment, provided such net proceeds
have begun to be earned within five years from the date of sale.
The following information reflects operations of NLRC for the period
from January 1, 1997 through April 23, 1997 (date of sale) and for the
three months ended March 31, 1996:
<TABLE>
<CAPTION>
For the period For the period
For the three April 1 January 1 For the three
months ended through through months ended
March 31, 1997 April 23, 1997 April 23, 1997 March 31, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net operating revenues $ 535,085 $ (2,515) $ 532,570 $ 312,135
General and administrative
Expenses 1,250,076 153,947 1,404,023 856,826
-------------- -------------- -------------- --------------
Net loss $ (714,991) $ (156,462) $ (871,453) $ (544,690)
============== ============== ============== ==============
Company's share of net loss $ (252,392) $ ( 55,231) $ (307,623) $ (176,391)
============== ============== ============== ==============
</TABLE>
7
<PAGE> 8
WESTERN WATER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 3. INVESTMENT IN LIMITED LIABILITY COMPANY: (CONTINUED)
As a result of the sale of the Company's interest in NLRC, the Company
realized a gain of $2,419,193, net of legal and other closing costs
totaling $60,242. In addition, the Company deferred $120,000 of the
gain relating to estimated future consulting services that will be
provided in accordance with the Consulting Agreement. As of June 30,
1997, $6,667 of the deferred gain has been realized.
NOTE 4. PREFERRED STOCK:
In April 1997, the Company privately placed $9,000,000 of a new series
of its convertible redeemable preferred stock. As a result of the
private placement, the Company received $4,744,788 in cash, net of
$255,212 of costs, and exchanged all 4,000 outstanding shares of its
Series B Convertible Preferred Stock for the new Series C Convertible
Redeemable Preferred Stock ("Series C Preferred Stock"). Each share of
Series C Preferred Stock has a stated value of $1,000, a par value of
$.001, and is convertible at any time at the option of the holder into
shares of common stock at a conversion price of $16.62 per share. The
conversion price, and therefore the number of shares of common stock
issuable upon the conversion of the Series C Preferred Stock, is
subject to adjustment in certain events to prevent dilution.
Commencing on April 1, 2006 and continuing until March 31, 2007, each
holder of the Series C Preferred Stock may, from time to time during
such period, at such holder's option, cause the Company to redeem for
cash, out of funds legally available therefore, up to an aggregate of
one-half of all shares of Series C Preferred Stock owned by such
holder on April 1, 2006. Commencing on April 1, 2007, each holder of
shares of Series C Preferred Stock may, from time to time, thereafter,
at such holder's option, cause the Company to redeem for cash, out of
funds legally available therefore, some or all of such holder's shares
of Series C Preferred Stock. The redemption price for each share of
Series C Preferred Stock shall be $1,000 per share, plus, in each
case, all declared and unpaid dividends, if any.
NOTE 5. INCOME TAXES:
Although the Company does have income from continuing operations for
the three months ended June 30, 1997, management does not expect there
will be taxable income for the fiscal year ended March 31, 1998.
Accordingly, the Company has not recorded a federal income tax
liability and has recorded the minimum state income tax provision for
the three months ended June 30, 1997.
8
<PAGE> 9
WESTERN WATER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 6. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1997 1996
---------- ----------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 54,236 $ 54,853
Interest capitalized during the period 63,702 49,026
Cash paid during the period for income taxes 2,400 2,400
Supplemental disclosure of noncash investing activities:
Water rights acquired in exchange for common stock 1,162,144 --
Exchange of Series B convertible preferred stock 4,000,000 --
Deferred gain on sale of investment in limited liability company 113,333 --
Issuance of note receivable 1,336,000 --
Accrued closing costs 60,242 --
</TABLE>
9
<PAGE> 10
WESTERN WATER COMPANY AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS
In addition to historical information contained herein, this Quarterly Report
contains forward-looking statements. The forward-looking statements contained
herein are subject to certain risks and uncertainties that could cause actual
results to differ materially from those reflected in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations". Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof based on information
currently available to management. Western Water Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof. Readers should carefully
review the risk factors described in other documents the Company files from time
to time with the Securities and Exchange Commission, including the Quarterly
Reports on Form 10-Q to be filed by the Company in 1998, any Current Reports on
Form 8-K filed by the Company and any Registration Statements on Form S-3 filed
by the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
In 1994, due to the significant changes in the Company's business, an
improvement of the Company's earnings potential and a change in direction of the
intended method of disposing of the Company's 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 amounts of increases, however, are
limited to the decreases in other assets. In this regard, effective October 1,
1994, the Company recognized a $1,830,914 write down in the value of its
non-operational silica sorting and grinding plant (the "Silica Plant"). 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 ($454,604),
water rights held for sale ($1,038,268), and water sale fees ($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 reflect only the results of operations
subsequent to October 1, 1994.
10
<PAGE> 11
WESTERN WATER COMPANY AND SUBSIDIARIES
GENERAL (CONTINUED)
On September 22, 1995, the Company completed the private placement of
$15,000,000 of its 9% Convertible Subordinated Debentures Due 2005 (the
"Debentures"). The Debentures bear interest at 9% per annum payable
semi-annually on September 30 and March 31 of each year, and mature on September
30, 2005. The Debentures are convertible at any time at the option of the holder
into shares of Common Stock at a conversion price of $15.865 per share, subject
to certain anti-dilution adjustments (the "Conversion Price"). After September
30, 1997, the Company may, at its option, redeem some or all of the Debentures
at a redemption price equal to 100% of the principal amount to be redeemed, plus
accrued and unpaid interest thereon through the redemption date, if on each of
the 20 consecutive trading days immediately prior to the mailing of the
redemption notice the trading price of the common Stock is equal to or greater
than 150% of the then applicable Conversion Price.
In March 1996 the Company declared a 100% stock dividend (the "Stock Dividend").
A 100% stock dividend is effectively a two-for-one stock split. All share and
per-share information for prior periods has been restated to reflect the effects
of the Stock Dividend.
In February 1997 the Company issued shares of its Series B Convertible Preferred
Stock in the amount of $4,000,000 to two institutional investors, and in April
1997 the Company issued shares of its Series C Convertible Preferred Stock in
the amount of $5,000,000. Upon the issuance of the $5,000,000 of Series C
Preferred Stock, the shares of Series B Convertible Preferred Stock were
exchanged for shares of Series C Preferred Stock. There are no shares of Series
B Convertible Preferred Stock currently outstanding. Each share of Series C
Preferred Stock has a stated value of $1,000 and is convertible at any time at
the option of the holder into shares of Common Stock at a conversion price of
$16.62 per share. The conversion price and, therefore, the number of shares of
Common Stock issuable upon the conversion of the Series C Preferred Stock, is
subject to adjustment in certain events to prevent dilution. The holders of the
Series C Preferred Stock are entitled to receive, when, as and if declared by
the Board of Directors, dividends at the annual rate of 7.25% of the stated
value. Such dividends are payable semi-annually. The first four semi-annual
dividend payments may be made, at the discretion of the Board of Directors, in
cash or, in full or in part, by issuing fully paid and nonassessable shares of
Series C Preferred Stock of equal value. Commencing on April 1, 1999, the
Company may redeem, in whole or in part, shares of Series C Preferred Stock for
cash at $1,000 per share, plus any unpaid dividends thereon if the average
trading price of the Common Stock for 20 consecutive days prior to the date of
giving notice of such redemption is not less than 150% of the conversion price
then in effect.
In April 1997 the Company sold its 35.3% interest in NLRC for a price of
$13,360,000, of which $12,024,000 was paid in cash and $1,336,000 was paid by
the delivery to the Company of a convertible note due on December 31, 1997. The
Company had acquired its interest in NLRC in October 1995 for $12,000,000.
11
<PAGE> 12
WESTERN WATER COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
The following is a description of the Company's results of operations for the
three months ended June 30, 1997 and 1996.
CONSOLIDATED
<TABLE>
<CAPTION>
Three months ended June 30,
----------------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenue $ 46,000 $ 65,000
========= =========
Income (Loss) from Continuing Operations
Before Income Taxes $ 873,000 $(975,000)
Income Taxes (2,000) (2,000)
--------- ---------
Income (Loss) from Continuing Operations 871,000 (977,000)
Discontinued Operations -- (17,000)
--------- ---------
Net Income (Loss) $ 871,000 $(994,000)
========= =========
Net Income (Loss) Common Per Share $ .11 $ (.12)
</TABLE>
The Company reports its continuing operations in two segments, water rights and
real estate. As a result, upon the purchase of assets that contain both real
estate and water rights, the basis of such assets 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 the appropriate
component whenever possible. 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 of
the water rights acquired by the Company through its purchases of real estate
for the Cherry Creek Project. Accordingly, as properties or water rights are
sold, the allocated portion of the basis is included in costs of revenue.
Although the Company does have income from continuing operations for the three
months ended June 30, 1997, management does not expect there will be taxable
income for the fiscal year ended March 31, 1998. Accordingly, the Company has
not recorded a federal income tax liability and has recorded the minimum state
income tax provision for the three months ended June 30, 1997.
12
<PAGE> 13
WESTERN WATER COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS (CONTINUED)
WATER RIGHTS
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenue $ 46,000 $ 65,000
Cost of Revenue 15,000 14,000
--------- ---------
Gross Profit $ 31,000 $ 51,000
========= =========
</TABLE>
Water rights revenue consisted primarily of payments under the Cucamonga Water
Fee Agreement. During Fiscal 1996, the Company acquired an additional 0.4878%
interest in the Cucamonga Water Fee Agreement for $350,000, and now receives
payments equal to 3.7398% of certain sales of water by a third party to the
Cucamonga County Water District (San Bernardino County, California). The other
cost of revenue in each period consists of amortization of the Cucamonga Water
Fee Agreement.
GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1997 1996
---------- --------
<S> <C> <C>
General and Administrative Expenses $1,211,000 $578,000
</TABLE>
General and administrative expenses for the three months ended June 30, 1997
increased by $633,000 from the comparable period ended June 30, 1996. The
increase was primarily due to increased salaries and related expenses due to the
addition of employees and increased consulting and travel expenses due to the
Company's expanded efforts in developing its new water transfer program. In
addition, during the quarter ended June 30, 1997, the Company incurred $225,000
in advisory fees in connection with programs to finance the acquisition of
additional water rights.
13
<PAGE> 14
WESTERN WATER COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS (CONTINUED)
OTHER NON-SEGMENT INFORMATION
<TABLE>
<CAPTION>
Three months ended June 30,
----------------------------
1997 1996
----------- ---------
<S> <C> <C>
Interest income $ 281,000 $ 85,000
Interest expense (338,000) (361,000)
Loss from investment in limited
liability company (308,000) (176,000)
Gain on sale of investment in limited
liability company, net 2,426,000 --
</TABLE>
Interest income is comprised of interest earned on the Company's cash reserves
and investments and interest earned on the secured promissory notes received by
the Company in connection with the properties that it has sold. The secured
notes bear interest at rates between 8% and 10% per annum.
Interest income increased for the three months ended June 30, 1997 from the
comparable period ended June 30, 1996 due to higher investment balances
resulting from proceeds received from the sale of the Company's investment in
NLRC and from the issuance of additional preferred stock.
Interest expense for both fiscal periods includes $337,500 of interest related
to the $15,000,000 Debentures. Interest of $64,000 and $55,000 on debt incurred
in connection with properties being developed was capitalized for the three
months ended June 30, 1997 and 1996, respectively.
The Company accounted for its investment in NLRC under the equity method of
accounting and, accordingly, income or losses were allocated according to the
Company's ownership interest in NLRC. The Company sold its interest in NLRC in
April 1997.
DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1997 1996
------- -------
<S> <C> <C>
Loss from Discontinued Operations $ -- $16,000
======= =======
</TABLE>
14
<PAGE> 15
WESTERN WATER COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS (CONTINUED)
During the fourth quarter of fiscal year 1993, the Company adopted a formal plan
to discontinue the silica plant business. As of October 1994, the Board of
Directors determined it was in the best interest of the Company to alter its
plan for disposing of the discontinued silica operations. Under the revised
plan, the Company has been liquidating the silica plant assets rather than
selling the entire operation as a unit. Accordingly, the silica plant business
is reported as a discontinued operation for the periods ended June 30, 1997 and
1996. Net assets of the discontinued operation at June 30, 1997 and 1996 consist
primarily of property, plant, and equipment.
During the quarter ended June 30, 1997, the Company received $120,000 from the
sale of silica plant assets. No gain or loss was recognized on the sale since
the silica plant assets were previously written down to reflect this sale. As of
June 30, 1997, the silica plant's book value is zero.
Loss from the silica plant operations for the quarter ended June 30, 1997
amounted to $6,708 and was offset against the accrual for additional anticipated
operating losses.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997 the Company had working capital and a current ratio of
$20,293,000 and 14.13 as compared to $3,787,000 and 4.62, respectively, at March
31, 1997. The Company's liquidity increased primarily due to $4,745,000 of
proceeds received from the issuance in April 1997 of $5,000,000 of additional
convertible preferred stock. In addition, the Company received $12,024,000 in
April 1997 from the sale of its interest in NLRC.
Operating Activities. During the quarter ended June 30, 1997, the Company had
net income of $870,991 and net cash used in operating activities of $821,191.
Non-cash adjustments of $2,075,569, which reconciles net income to net cash used
in operating activities, were comprised primarily of the gain on the sale of the
Company's interest in NLRC.
Although there were no real estate sales during the three-month period ended
June 30, 1997, the Company intends to continue such sales by marketing the
additional 1,887 acres it is developing in Cherry Creek. The Company expects
that its operating revenues will continue to be highly volatile. Future revenue
from disposition of real estate will depend on the Company's ability to dispose
of real estate parcels on acceptable terms. There can be no assurance that such
disposition of real estate parcels can be made on acceptable terms. Revenue from
sale of water or water rights will likewise be dependent on individually
negotiated transactions. Revenues from leasing the Company's rice farms and
ranches, 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 revenue from
water sales of its own water rights, or of others acting as an agent, the
Company's cash flow will principally be derived from the sale of its remaining
real estate.
15
<PAGE> 16
WESTERN WATER COMPANY AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Investing and Financing Activities. In April 1997, the Company received
approximately $4,745,000 of net proceeds from the private placement of an
additional 5,000 shares of its convertible preferred stock at a price of $1,000
per share. In addition, the Company sold its interest in NLRC for a price of
$13,360,000, of which $12,024,000 was paid in cash.
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
year ending March 31, 1998 and fiscal years ending March 31, 1999, 2000,
2001 and 2002 are approximately $296,000, $368,000, $1,010,000, $1,794,000,
and $54,000, respectively.
- - The Company is required to make semi-annual interest payments of $675,000
on the $15,000,000 principal amount of Debentures.
- - The holders of Series C Preferred Stock are entitled to receive annual
dividends in the amount of $72.50 per share, payable semi-annually on
January 15 and July 15 of each year (aggregating $652,500 per year). The
first four semi-annual dividend payments (July 15, 1997 through and
including January 15, 1999) to be made with respect to Series C Preferred
Stock may be made, at the sole discretion of the Board of Directors, in
cash or, in full or in part, by issuing additional shares of Series C
Preferred Stock. Thereafter, all dividend payments made with respect to the
Series C Preferred Stock are required to be paid in cash.
The Company believes that its existing capital resources will be sufficient to
fund the Company's foreseeable working capital needs in excess of revenue 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 the sale of water or
water rights, from refinancing or selling its remaining real estate assets and,
if necessary, from future debt or equity financings.
The Company does not believe that inflation has had a material impact on its
results of operations.
Subsequent Event. On August 8, 1997, the Company announced that it has agreed to
purchase the water rights and fixed assets of the Willows Water District in
Arapahoe and Douglas Counties. Closing is subject to due diligence and is
expected to take place in about six months. The agreement provides for a
purchase price of $15 million, of which $9.5 million would be paid at closing
and the balance over four years.
16
<PAGE> 17
WESTERN WATER COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
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) A Current Report on Form 8-K dated April 21, 1997 was filed on
May 1, 1997 to report matters under Item 2 and Item 5.
17
<PAGE> 18
WESTERN WATER COMPANY AND SUBSIDIARIES
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.
WESTERN WATER COMPANY
Date: August 12, 1997 By: /s/ Peter L. Jensen
---------------------------
Peter L. Jensen
President
Date: August 12, 1997 By: /s/ Ronald I. Simon
--------------------------
Ronald I. Simon
Chief Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, THE CONSOLIDATED STATEMENTS OF INCOME AND THE
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,850
<SECURITIES> 7,948
<RECEIVABLES> 1,772
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,839
<PP&E> 109
<DEPRECIATION> 0
<TOTAL-ASSETS> 46,856
<CURRENT-LIABILITIES> 1,545
<BONDS> 15,000
<COMMON> 8
0
8,552
<OTHER-SE> 18,717
<TOTAL-LIABILITY-AND-EQUITY> 46,856
<SALES> 0
<TOTAL-REVENUES> 46
<CGS> 0
<TOTAL-COSTS> 15
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 338
<INCOME-PRETAX> 873
<INCOME-TAX> 2
<INCOME-CONTINUING> 871
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 871
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.00
</TABLE>
