<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 SEPTEMBER 30, 1998
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 October 27, 1998, there were 8,239,816 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> <C>
1 Financial statements:
Consolidated balance sheets-
September 30 and March 31, 1998 3
Consolidated statements of operations-
Three months ended September 30, 1998 and 1997 4
Consolidated statements of operations-
Six months ended September 30, 1998 and 1997 5
Consolidated statements of comprehensive income-
Three and six months ended September 30, 1998 and 1997 6
Consolidated statements of cash flows-
Six months ended September 30, 1998 and 1997 7
Notes to consolidated financial statements 8
2 Management's discussion and analysis of financial
condition and results of operations 14
PART II - OTHER INFORMATION
4 Submission of Matters to Vote of Security Holders 22
6 Exhibits and Reports on Form 8-K 23
Signatures 24
</TABLE>
2
<PAGE> 3
WESTERN WATER COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
September 30 and March 31, 1998
<TABLE>
<CAPTION>
1998
-------------------------------
ASSETS September March 31,
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,008,927 $ 304,988
Investment in available-for-sale securities 7,668,477 16,453,147
Current portion of notes receivable 207,976 215,292
Deposits (Note 2) 115,000 37,500
Other current assets 453,520 377,561
------------ ------------
Total Current Assets 10,453,900 17,388,488
Notes receivable, less current portion 1,286,316 1,386,403
Land held for sale 4,500,482 3,960,277
Water rights, net 18,950,978 15,264,710
Prepaid leasing costs (Note 3) 3,603,200 --
Other water assets, net 3,166,127 3,188,357
Debt issue costs, net 657,738 613,782
Property and equipment, net 109,947 85,951
Other assets 49,094 4,000
------------ ------------
$ 42,777,782 $ 41,891,968
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,566 $ 19,274
Accrued expenses and other liabilities 555,049 732,954
Accrued interest 23,542 67,663
Current maturities of long-term debt (Note 3) 1,211,102 51,138
------------ ------------
Total Current Liabilities 1,817,259 871,029
Long-term debt, less current maturities (Note 3) 3,294,697 1,028,470
9% Convertible subordinated debentures 15,000,000 15,000,000
Deferred gain on sale 63,333 83,333
------------ ------------
Total Liabilities 20,175,289 16,982,832
Series C convertible redeemable preferred stock, $1,000 stated value, 100,000
shares authorized; 9,809 and 9,466 shares issued and outstanding (aggregate
liquidation preference of $9,809,000 and $9,466,000)
at September 30 and March 31, 1998, respectively 9,408,404 9,049,033
Stockholders' equity:
Common stock, $0.001 par value, 20,000,000 shares authorized; 8,239,816
and 8,235,816 shares issued and outstanding
at September 30 and March 31, 1998, respectively 8,240 8,236
Additional paid-in capital 24,279,535 24,198,539
Accumulated other comprehensive income (loss) (307,839) 117,233
Accumulated deficit ($14,405,252 of accumulated deficit eliminated in
quasi-reorganization of October 1, 1994) (10,785,847) (8,463,905)
------------ ------------
Total Stockholders' Equity 13,194,089 15,860,103
------------ ------------
$ 42,777,782 $ 41,891,968
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
WESTERN WATER COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
Three months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenue:
Water $ 64,587 $ 650,057
Real estate 67,500 490,000
----------- -----------
132,087 1,140,057
----------- -----------
Costs of Revenue:
Water 15,808 697,671
Real estate 55,648 107,152
----------- -----------
71,456 804,823
----------- -----------
Gross Profit 60,631 335,234
General and Administrative Expenses 1,456,007 1,322,095
----------- -----------
Operating Income (Loss) (1,395,376) (986,861)
Other Income (Expenses):
Interest income 195,474 321,957
Interest expense (337,500) (337,500)
Gain on sale of investment in limited liability company 10,000 10,000
Other (40,709) 16,513
----------- -----------
(172,735) 10,970
Income (Loss) before Income Taxes (1,568,111) (975,891)
Income Taxes (Note 5) -- --
----------- -----------
Net Income (Loss) (1,568,111) (975,891)
Accretion of preferred stock to redemption value (8,191) (14,991)
Preferred stock dividends (343,148) (194,856)
----------- -----------
Net Income (Loss) Applicable to Common Stockholders $(1,919,450) $(1,185,738)
=========== ===========
Basic and diluted net income (loss) per common share
applicable to common stockholders $ (0.23) $ (0.14)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
WESTERN WATER COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
Six months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenue:
Water $ 145,361 $ 695,649
Real estate 345,615 490,000
----------- -----------
490,976 1,185,649
----------- -----------
Costs of Revenue:
Water 30,389 712,252
Real estate 184,000 107,152
----------- -----------
214,389 819,404
----------- -----------
Gross Profit 276,587 366,245
General and Administrative Expenses 2,342,763 2,533,283
----------- -----------
Operating Income (Loss) (2,066,176) (2,167,038)
Other Income (Expenses):
Interest income 441,006 602,728
Interest expense (675,000) (675,000)
Loss from investment in limited liability company -- (307,623)
Gain on sale of investment in limited liability company 20,000 2,435,860
Other (Note 4) 319,999 8,573
----------- -----------
106,005 2,064,538
Income (Loss) before Income Taxes (1,960,171) (102,500)
Income Taxes (Note 5) 2,400 2,400
----------- -----------
Net Income (Loss) (1,962,571) (104,900)
Accretion of preferred stock to redemption value (16,223) (14,991)
Preferred stock dividends (343,148) (194,856)
----------- -----------
Net Income (Loss) Applicable to Common Stockholders $(2,321,942) $ (314,747)
=========== ===========
Basic and diluted net income (loss) per common share
applicable to common stockholders $ (0.28) $ (0.04)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
WESTERN WATER COMPANY AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Three and six months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net income (loss) applicable to common stockholders $(1,919,450) $(1,185,738)
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during period (244,170) 370,072
Reclassification adjustment-realized holding gains -- (9,286)
----------- -----------
Other comprehensive income (loss) (244,170) 360,786
----------- -----------
Comprehensive income (loss) $(2,163,620) $ (824,952)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Six months ended
September 30,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net income (loss) applicable to common stockholders $(2,321,942) $ (314,747)
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during period (425,072) 385,510
Reclassification adjustment-realized holding gains -- (12,713)
----------- -----------
Other comprehensive income (loss) (425,072) 372,797
----------- -----------
Comprehensive income (loss) $(2,747,014) $ 58,050
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
WESTERN WATER COMPANY AND SUBSIDIARIES
Statements of Cash Flows
Six months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,962,571) $ (104,900)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 82,307 81,830
Compensation expense on vesting of unexercised
compensatory stock options 54,000 69,428
Gain on sale of investment in limited liability company (20,000) (2,435,860)
Loss from investment in limited liability company -- 307,623
(Gain) loss on disposition of property and equipment 1,982 (12,711)
Allowance against water rights 284,727 --
Changes in assets and liabilities:
(Increase) decrease in:
Other current assets (75,959) (267,948)
Land held for sale (540,205) 76,994
Other assets (25,094) 91,962
Increase (decrease) in:
Accounts payable 8,292 (103,305)
Accrued expenses and other liabilities (282,205) (205,778)
Accrued interest (44,121) (81,509)
Deposit -- (100,000)
------------ ------------
Net cash used in operating activities (2,518,847) (2,684,174)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits for purchase of land and water rights (77,500) --
Proceeds from disposition of discontinued operation -- 120,000
Proceeds from sale of investment in limited liability company -- 12,024,000
Principal payments received on notes receivable 107,403 516,433
Purchase of property and equipment (38,179) (7,688)
Purchase of available-for-sale securities (430,800) (7,105,411)
Sales of available-for-sale securities 8,790,398 1,868,436
Sales of water rights -- 683,089
Additions to water rights (755,115) (391,076)
Purchase of water rights (3,215,880) (960,850)
Additions to other water assets (6,932) (17,991)
Prepayment of leasing costs (3,568,200) --
------------ ------------
Net cash provided by investing activities 805,195 6,728,942
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 3,560,000 --
Proceeds from issuance of common stock 27,000 --
Proceeds from issuance of redeemable
preferred stock -- 5,000,000
Payment of debt issue costs (35,600) --
Payment of private placement costs -- (255,212)
Preferred stock dividends -- (59,856)
Purchase of common stock -- (2,591)
Principal payments on long-term debt (133,809) (383,065)
------------ ------------
Net cash provided by (used in) financing activities 3,417,591 4,299,276
------------ ------------
Net increase in cash and cash equivalents 1,703,939 8,344,044
Cash and cash equivalents, beginning of period 304,988 3,022,008
------------ ------------
Cash and cash equivalents, end of period $ 2,008,927 $ 11,366,052
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
WESTERN WATER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:
Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
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, 1998, the
statements of operations, comprehensive income and cash flows for the
three and six months ended September 30, 1998 and 1997. The financial
statements are consolidated to include the accounts of Western Water
Company and its subsidiaries, two corporations and two limited
partnerships ("the Company").
The accounting policies followed by the Company are set forth in Note 1
to the Company's consolidated financial statements as stated in its
annual report on Form 10-K for the fiscal year ended March 31, 1998.
Water Rights
The Company capitalizes costs directly relating to water rights
projects under development that are considered probable. Effective July
1, 1998, the Company adopted a policy of providing an allowance for
these costs, based upon the Company's historical experience with
similar projects. For the three months ended September 30, 1998, the
Company recorded a provision of $284,727. This amount is recorded as a
reduction to water rights on the balance sheet.
Reporting Comprehensive Income
On April 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No.
130 requires the reporting of comprehensive income in addition to net
income. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net
income.
At September 30, 1998 and 1997 the Company held available-for-sale
securities which had pretax unrealized holding gains (losses) of
$(244,170) and $(425,072) for the three and six months ended September
30, 1998, and $370,072 and $385,510 for the three and six months ended
September 30, 1997. No tax benefit was recorded as management does not
expect that the Company will generate taxable income for the fiscal
year ended March 31, 1999.
8
<PAGE> 9
WESTERN WATER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES: (CONTINUED)
Income (loss) per share
Basic net income per share is computed by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding during each period. Diluted net income per share is
computed by dividing the amount of net income for the period available
to each share of common stock outstanding during the period by each
share that would have been outstanding assuming the issuance of common
shares for all potentially dilutive common shares outstanding during
the reporting period. The weighted average shares used for basic and
diluted net income per share were 8,237,599 and 8,236,712 shares for
the three and six months ended September 30, 1998, and 8,235,969 and
8,191,606 shares for the three and six months ended September 30, 1997.
Stock options to purchase the following number of shares of common
stock at exercise prices ranging from $5.44-$21.00 for the three and
six months ended September 30, 1998 and 1997 were not included in the
computation of diluted net income per share as their effect would have
been antidilutive:
<TABLE>
<CAPTION>
Three and six months ended
September 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Stock options 1,628,208 1,057,398
</TABLE>
Warrants to purchase 98,000 of common stock at $17.50 per share were
not included in the computation of diluted net income per share for the
three and six months ended September 30, 1998 and 1997 as their effect
would have been antidilutive.
Convertible debentures and redeemable preferred stock convertible into
the following number of shares of common stock at conversion prices of
$15.86 and $16.62 per share, respectively, were not included in the
computation of diluted net income per share for the three and six
months ended September 30, 1998 and 1997 as their effect would have
been antidilutive:
<TABLE>
<CAPTION>
Three and six months ended
September 30,
--------------------------
1998 1997
------- -------
<S> <C> <C>
Convertible debentures 945,763 945,763
Redeemable preferred stock 569,551 549,625
</TABLE>
Reclassifications
Certain reclassifications of prior period amounts have been made in
order to conform to the current year presentation.
9
<PAGE> 10
WESTERN WATER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2. DEPOSITS:
During June 1998, the Company deposited $1,538,450 toward the purchase
of a 244-acre dairy farm and certain water rights located in San
Bernardino County, California. The cash purchase price of $1,538,450,
including closing costs, was paid, and the acquisition was completed in
July 1998. The Company is marketing for sale the real property and all
personal property related to such real estate. However, the Company
intends to retain the rights to 909 acre-feet of water that were
acquired as part of the purchase.
NOTE 3. PREPAID LEASING COSTS:
On September 30, 1998, the Company entered into a pumping rights lease
and a water sale agreement with the City of Inglewood, California
("City"). Beginning October 1, 1998, the City leased the rights to pump
4,450 acre-feet of water per year to the Company for a five-year
period. In consideration of the lease, the Company made a $3,603,200
lump-sum cash payment to the City. Under the water sale agreement, the
Company agreed to sell, and the City agreed to buy, 5,950 acre-feet of
water each year for the next five years. In the first year, the City
will pay $200 per acre-foot ($1,190,000). The per acre-foot price will
escalate over the remaining four-year period at a rate equal to the sum
of 3.75% per year plus 25% of any increase in the Metropolitan Water
District's ("MWD") rate for water, as defined.
The Company financed the pumping rights lease lump-sum payment through
a $3,560,000 five-year amortizing term loan. The loan was obtained from
a commercial bank and is secured by the Company's rights under the
pumping rights lease with the City in addition to the water rights
associated with the other 1,500 acre-feet of water to be sold to the
City by the Company during the term of the loan. Principal payments of
$140,000 per quarter (for the first year) and interest on the loan are
due quarterly. The loan accrues interest at the bank's Reference Rate
or LIBOR plus 1.5%, at the Company's option. Scheduled payments of
principal on this loan for the remainder of the fiscal year ending
March 31, 1999 and fiscal years ending March 31, 2000, 2001, 2002 and
2003 are $280,000, $594,000, $668,000, $794,000 and $832,000,
respectively.
In order to secure a portion of the water that the Company agreed to
sell to the City, the Company entered into a five-year and a
fifteen-year water rights lease during the three months ended September
30, 1998. The five-year water rights lease is expected to provide 1,008
acre-feet per year for a payment of $150 per acre-foot in the first
year ($151,200). This amount will escalate over the remaining four-year
period at $7.50 per acre-foot per year. The fifteen-year water rights
lease is expected to provide 250 acre-feet per year for a payment of
$135 per acre-foot in the first year ($33,750). The fees for subsequent
years will be determined by multiplying the fee for the first year by
the ratio of the index price for each subsequent year divided by the
index price for the first year. The index price is the sum of the price
established by the MWD for full service untreated water and the price
components established by the West Basin Municipal Water District for
the Metropolitan readiness to serve charge and the West Basin surcharge
for basic non-interruptible water. The remaining 242 acre-feet of water
to be supplied to the City is owned by the Company.
10
<PAGE> 11
WESTERN WATER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 3. PREPAID LEASING COSTS: (CONTINUED)
The Company will recognize water sale revenue on a straight-line basis
over the life of the agreement with the City beginning October 1998.
Concurrently, the Company will amortize the prepaid leasing costs
associated with the pumping rights lease and the two water rights
leases on a straight-line basis over the life of the leases beginning
October 1998.
NOTE 4. OTHER INCOME:
On June 30, 1998, the Company entered into an agreement with two of its
former officers to sell its 40% interest in an option to purchase
certain outstanding shares of Integrated Water Technologies, Inc., an
unaffiliated water consulting company. In exchange for this option, one
of the former officers agreed to the cancellation of 56,858 stock
options to purchase Company common stock at $5.4375, and additional
options to purchase 296,000 shares of the Company stock by these two
former officers were cancelled as of the date of the agreement. In
addition, the Company's obligation to pay $290,637 of the remaining
severance costs recorded in the prior fiscal year ended March 31, 1998
to one of the former officers, was cancelled as of May 15, 1998.
Accordingly, the sale of the option resulted in the Company recognizing
other income of $290,637 for the three months ended June 30, 1998.
NOTE 5. INCOME TAXES:
Management does not expect there will be taxable income for the fiscal
year ended March 31, 1999. Accordingly, the Company has not recorded a
federal income tax liability and has recorded the minimum state income
tax provision for the six months ended September 30, 1998.
11
<PAGE> 12
WESTERN WATER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 6. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Six months ended September 30,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 762,859 $ 883,043
Interest capitalized during the period 59,038 126,534
Cash paid during the period for income taxes 2,400 2,400
Supplemental disclosure of noncash investing and financing
activities:
Water rights acquired in exchange for common stock -- 1,162,144
Exchange of Series B convertible preferred stock
for Series C convertible redeemable preferred stock -- 3,807,517
Deferral (recognition) of gain on sale of
investment in limited liability company -- 103,333
Issuance of note receivable in conjunction with
sale of limited liability company -- 1,336,000
Conversion of note receivable and related accrued
interest receivable into investment in
available-for-sale security:
Note receivable -- (1,336,000)
Other current assets -- (22,840)
----------- -----------
-- (1,358,840)
Accretion of preferred stock to redemption value 16,223 14,991
Common stock issued upon exercise of stock options 4 13
Preferred stock issued in lieu of cash dividends 343,148 135,000
Unrealized gain (loss) on available-for-sale
securities (425,072) 372,797
Write-off of property and equipment
and related accumulated depreciation:
Property and equipment (2,477) --
Accumulated depreciation 495 --
Addition to debt issue costs:
Debt issue costs 49,300 --
Increase in accrued expenses and
other liabilities (49,300) --
Additions to prepaid leasing costs and other
assets:
Prepaid leasing costs 35,000 --
Other assets 20,000 --
Increase in accrued expenses
and other liabilities (55,000) --
</TABLE>
12
<PAGE> 13
WESTERN WATER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 7. SUBSEQUENT EVENT:
On October 27, 1998, the Company sold $10,000,000 of its Series D
Convertible Redeemable Preferred Stock ("Series D Preferred Stock") to
an affiliate of Sociedad General de Aguas de Barcelona, S. A.
("Agbar"). Each share of Series D Preferred Stock has a stated value of
$1,000, has a dividend rate of 7.5% of its stated value, and is
convertible at any time at the option of the holder into the number of
shares of common stock determined by dividing the amount of the
liquidation preference on the conversion date by the conversion price
of such shares in effect on the conversion date. The conversion price
is $8.99 per share and is subject to adjustment in certain events to
prevent dilution. Agbar has also agreed to make up to three subsequent
$5,000,000 purchases of Series D Preferred Stock to fund capital
expenditures of the Company, as needed for water projects which Agbar
approves, during the next two years (which can be extended to four
years by mutual agreement).
Commencing on October 1, 2007 and continuing through September 30,
2008, each holder of the Series D Preferred Stock may, from time to
time during such period, at such holder's option, cause the Company to
redeem up to one-half of the shares of Series D Preferred Stock held by
such holder on October 1, 2007 for cash, out of funds legally
available. Commencing on October 1, 2008, each holder of shares of
Series D 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 D Preferred Stock. The redemption price for each share of Series
D Preferred Stock will be $1,000 per share, plus, in each case, all
declared and unpaid dividends, if any.
In the event of any liquidation or winding up of the Company, the
holders of Series D Preferred Stock will be entitled to receive an
amount equal to $1,000 per share plus all declared but unpaid dividends
on the Series D Preferred Stock. The liquidation rights granted to the
holders of Series D Preferred Stock will be pari passu with the
liquidation rights granted to the holders of Series C Preferred Stock
and senior to the liquidation rights of any other shares of capital
stock of the Company. A merger, consolidation, sale of assets or other
transaction in which control of the Company is transferred will be
treated as a liquidation for the purpose of the Agbar agreement unless
holders of more than 50% of the shares of Series D Preferred Stock
otherwise agree.
13
<PAGE> 14
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 Annual Report
on Form 10-K for the year ended March 31, 1998, the Quarterly Reports on Form
10-Q to be filed by the Company in 1998 and 1999, 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 land held for sale ($454,604), water
rights ($1,038,268), and other water assets ($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. Accumulated deficit reflects only the
results of operations subsequent to October 1, 1994.
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 $15.86 per share, subject
to certain anti-dilution adjustments (the "Conversion Price"). 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
14
<PAGE> 15
WESTERN WATER COMPANY AND SUBSIDIARIES
GENERAL (CONTINUED)
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 February 1997, the Company issued $4,000,000 of its Series B Convertible
Preferred Stock to two institutional investors, and in April 1997, the Company
issued an additional $5,000,000 of its Series C Convertible Redeemable Preferred
Stock ("Series C Preferred Stock"). 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 and if declared by the
Board of Directors, out of funds legally available therefor, dividends at the
annual rate of 7.25% of the stated value of the Series C Preferred Stock ($1,000
per share). Such dividends are payable semi-annually on January 15 and July 15
of each year. 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.
On July 15, 1998, the Company paid dividends of $343,148, all of which was paid
through the issuance of 343 shares of its Series C Preferred Stock. 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. Commencing on April 1, 2006 and continuing
until March 31, 2007, each holder of shares 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.
In April 1997 the Company sold its 35.3% interest in Nevada Land & Resources
Company, LLC (the "Nevada LLC") 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. In August 1997, the $1,336,000
promissory note and the related accrued interest of $22,840 was converted into
723,911 common shares of Global Equity Corporation, a Canadian corporation whose
shares are traded on the Toronto Stock Exchange and the Montreal Exchange. The
Company had acquired its interest in the Nevada LLC in October 1995 for
$12,000,000.
15
<PAGE> 16
WESTERN WATER COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
The following is a description of the Company's results of operations for the
three and six months ended September 30, 1998 and 1997.
CONSOLIDATED
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 132,000 $ 1,140,000 $ 491,000 $ 1,186,000
=========== =========== =========== ===========
Income (Loss) Before Income Taxes $(1,568,000) $ (976,000) $(1,961,000) $ (103,000)
Income Taxes -- -- 2,000 2,000
----------- ----------- ----------- -----------
Net Income (Loss) (1,568,000) (976,000) (1,963,000) (105,000)
Accretion of preferred stock to
redemption value (8,000) (15,000) (16,000) (15,000)
Preferred stock dividends (343,000) (195,000) (343,000) (195,000)
----------- ----------- ----------- -----------
Net Income (Loss) applicable to
common stockholders $(1,919,000) $(1,186,000) $(2,322,000) $ (315,000)
=========== =========== =========== ===========
Basic and diluted net income (loss)
applicable to common stockholders $ (.23) $ (.14) $ (.28) $ (.04)
=========== =========== =========== ===========
</TABLE>
The Company reports its 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 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 valuations 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. As properties or water rights are sold, the allocated portion of
the basis is included in costs of revenue.
Management does not expect that the Company will generate taxable income for the
fiscal year ended March 31, 1999. Accordingly, the Company has not recorded a
federal income tax liability and has recorded the minimum state income tax
provision for the three and six months ended September 30, 1998.
16
<PAGE> 17
WESTERN WATER COMPANY AND SUBSIDIARIES
WATER RIGHTS
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 65,000 $ 650,000 $ 145,000 $ 696,000
Cost of Revenue 16,000 698,000 30,000 712,000
--------- --------- --------- ---------
Gross Profit (Loss) $ 49,000 $ (48,000) $ 115,000 $ (16,000)
========= ========= ========= =========
</TABLE>
Water rights revenue for the three months ended September 30, 1998 resulted from
payments received under the Cucamonga Fee Agreement. Water rights revenue for
the six months ended September 30, 1998 resulted from the lease of water rights
($33,000) and payments received under the Cucamonga Fee Agreement. Water rights
revenue for the three and six months ended September 30, 1997 consisted
primarily of a one-time sale of water rights in Cherry Creek for $600,000 and
the remaining revenue resulted from payments received under the Cucamonga Fee
Agreement. Cost of revenue for the three and six months ended September 30, 1998
includes the amortization of the Cucamonga Water Fee Agreement. Cost of revenue
for the three and six months ended September 30, 1997 includes the allocated
purchase price of the water rights sold, directly related development costs,
sales commissions, other sales costs and amortization of the Cucamonga Water Fee
Agreement.
REAL ESTATE
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 68,000 $ 490,000 $ 346,000 $ 490,000
Cost of Revenue 56,000 107,000 184,000 107,000
--------- --------- --------- ---------
Gross Profit $ 12,000 $ 383,000 $ 162,000 $ 383,000
========= ========= ========= =========
</TABLE>
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 a substantial portion of the water rights on the properties
sold. Real estate revenue for the three months ended September 30, 1998 resulted
from the sale of 20 acres of property in Glenn County, California. Real estate
revenue for the six months ended September 30, 1998 resulted from the sale of 72
acres of Cherry Creek property in addition to the 20 acres of property sold in
Glenn County, California. Real estate revenue for the three and six months ended
September 30, 1997 was from the sale of 97 acres of Cherry Creek property. Cost
of real estate revenue include the allocated purchase price of the property
sold, directly related development costs, sales commissions and other sales
costs.
17
<PAGE> 18
WESTERN WATER COMPANY AND SUBSIDIARIES
GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
General and Administrative
Expenses $1,456,000 $1,322,000 $2,343,000 $2,533,000
</TABLE>
General and administrative expenses for the three months ended September 30,
1998 increased by 10%, or $134,000 from the comparable period ended September
30, 1997. The increase resulted from the Company recording a $285,000 allowance
against water rights projects under development and $74,000 of payroll taxes
paid by the Company in connection with the exercise of stock options by a former
officer. These increases were offset in part by a decrease in payroll expenses
of $155,000 and a decrease in legal and accounting fees of $60,000. Payroll
expenses for the three months ended September 30, 1998 declined from the
comparable period ended September 30, 1997 as a result of a decrease of $295,000
in bonuses and severance paid from $445,000 for the period ended September 30,
1997 to $150,000 for the period ended September 30, 1998. This decline in
payroll expenses was offset, in part, by increases in salaries for new hires
during the three months ended September 30, 1998. General and administrative
expenses for the six months ended September 30, 1998 decreased by 8%, or
$190,000 from the comparable period ended September 30, 1997. The decrease in
general and administrative expenses was primarily due to $250,000 of advisory
fees incurred during the six months ended September 30, 1997, which were not
incurred during the six months ended September 30, 1998, and a decrease of
$295,000 in bonus and severance paid for the six months ended September 30, 1998
as compared to the six month period ended September 30, 1997. These decreases
were offset in part by the $285,000 allowance against water rights projects
under development and the $74,000 of payroll taxes paid by the Company in
connection with the exercise of stock options by a former officer during the six
months ended September 30, 1998.
OTHER NON-SEGMENT INFORMATION
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income $ 195,000 $ 322,000 $ 441,000 $ 603,000
Interest expense (338,000) (338,000) (675,000) (675,000)
Loss from investment in limited
liability company -- -- -- (308,000)
Gain on sale of investment in
limited liability company, net 10,000 10,000 20,000 2,436,000
Other (41,000) 17,000 320,000 9,000
</TABLE>
Interest income is comprised of interest earned on the Company's cash and cash
equivalents 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 decreased for the three and six months ended September 30, 1998 from the
comparable periods ended September 30, 1997 due to lower investment balances.
18
<PAGE> 19
WESTERN WATER COMPANY AND SUBSIDIARIES
Interest expense for both fiscal periods includes $337,500 of interest related
to the $15,000,000 principal amount of outstanding Debentures. Interest of
$20,899 and $62,832 and $59,038 and $126,534 was capitalized during the three
and six months ended September 30, 1998 and 1997, respectively, in connection
with the development of land held for sale and water rights.
The Company accounted for its investment in the Nevada LLC under the equity
method of accounting and, accordingly, income or losses were allocated according
to the Company's ownership interest in the Nevada LLC. The Company sold its
interest in the Nevada LLC in April 1997. As a result of the sale, the Company
realized a gain of $2,419,193 net of legal and other closing costs totaling
$60,242 and deferred gain of $120,000 relating to estimated future consulting
services that are to be provided in accordance with the Consulting Agreement.
The Company realized $10,000 and $20,000 of the deferred gain during the three
and six months ended September 30, 1998, respectively. The Nevada LLC has
informed the Company that it has terminated the Consulting Agreement. The
Company believes that the Nevada LLC does not have any grounds for terminating
the Consulting Agreement and, accordingly, intends to take action to enforce its
rights under the agreement.
Other income for the six months ended September 30, 1998 includes the reversal
of $290,637 of severance costs recorded in the prior fiscal year related to the
resignation of an officer. This reversal resulted from the Company selling to
two of its former officers its 40% interest in an option to purchase certain
shares of stock of Integrated Water Technologies, Inc.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998 the Company had working capital and a current ratio of
$8,636,641 and 5.75 to l, as compared to $16,517,459 and 19.96 to 1,
respectively, at March 31, 1998.
Operating Activities
For the six months ended September 30, 1998, the Company had a net loss of
$1,962,571 and net cash used in operating activities of $2,518,847. Since the
Company has sold most of its Cherry Creek real estate properties, revenues from
the sale of real estate in the near future are not expected to be sufficient to
fund the Company's operations. For the six months ended September 30, 1998, the
Company realized revenue from the leasing of its water rights and continued to
receive revenue from the sale of portions of its real property. In the past, the
Company had received most of its revenue from the sale of real estate, but it
does not expect real estate sales to be as significant in future periods.
Revenues from leasing the Company's rice farms and ranches, from the Cucamonga
Fee Agreement, from the Inglewood water sale agreement, and cash received from
principal and interest payments on promissory notes held by the Company will be
more predictable than periodic income received on historic sales of real estate
assets, but will be insufficient by themselves to cover general and
administrative expenses, interest on outstanding indebtedness and dividends
declared on its outstanding preferred stock that are payable in cash. Revenue
from sale of water or water rights and from the leasing of water rights will be
dependent on individually negotiated transactions. There can be no assurance
that such transactions can be made on acceptable terms. Accordingly, the
Company's future operations will be funded primarily from the Company's existing
financial resources, from financing it may arrange using debt or equity and from
proceeds the Company may derive from such future water sale/transfer
transactions that the Company may from time to time consummate.
19
<PAGE> 20
WESTERN WATER COMPANY AND SUBSIDIARIES
The Company's principal business plan is to develop, package and sell its water
and water rights to municipalities and other water users, to acquire and sell
other water rights, and to provide a variety of water-related services to
unaffiliated owners of water rights. Accordingly, the Company plans to enter
into water purchase and water sales agreements. These agreements are typically
subject to various conditions which have to be met before a purchase or sale can
take place. Management intends to structure such agreements so that the
commitments for water purchases and water sales are reasonably in balance.
However, no assurance can be given that management will be able to balance such
agreements in the future.
On September 30, 1998, the Company entered into a pumping rights lease and a
water sale agreement with the City of Inglewood, California ("City"). Beginning
October 1, 1998, the City leased the rights to pump 4,450 acre-feet of water per
year to the Company for a five-year period. In consideration of the lease, the
Company made a $3,603,200 lump-sum cash payment to the City. Under the water
sale agreement, the Company agreed to sell, and the City agreed to buy, 5,950
acre-feet of water per year for the next five years at a price of $200 per
acre-foot in the first year ($1,190,000). The per acre-foot price will escalate
over the remaining four-year period at a rate equal to the sum of 3.75% per year
plus 25% of any increase in the Metropolitan Water District's rate for water, as
defined.
INVESTING AND FINANCING ACTIVITIES
The Company is committed to certain material expenditures over the next several
years, including the following:
o Scheduled payments of principal on existing outstanding indebtedness for
the remainder of the fiscal year ending March 31, 1999 and fiscal years
ending March 31, 2000, 2001, 2002 and 2003 are $288,000, $1,246,000,
$697,000, $781,000, and $903,000, respectively.
o The Company is required to make semi-annual interest payments of $675,000
on the $15,000,000 principal amount of Debentures.
o The holders of Series C Preferred Stock are entitled to receive, when and
if declared, 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 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 has
elected to pay its entire July 15, 1998 dividend obligation through the
issuance of an additional 343 shares of Series C Preferred Stock.
o Commencing December 15, 1998, the holders of Series D Preferred Stock are
entitled to receive, when and if declared, annual dividends in the amount
of $75 per share, payable quarterly on March 15, June 15, September 15, and
December 15 of each year (aggregating $750,000 per year).
20
<PAGE> 21
WESTERN WATER COMPANY AND SUBSIDIARIES
INVESTING AND FINANCING ACTIVITIES: (CONTINUED)
On October 27, 1998, the Company sold $10,000,000 of its Series D Convertible
Redeemable Preferred Stock ("Series D Preferred Stock") to an affiliate of
Sociedad General De Aguas De Barcelona, S. A. ("Agbar"). Each share of Series D
Preferred Stock has a stated value of $1,000, has a dividend rate of 7.5% of its
stated value, and is convertible at any time at the option of the holder into
the number of shares of common stock determined by dividing the amount of the
liquidation preference on the conversion date by the conversion price of such
shares in effect on the conversion date. The conversion price is $8.99 per share
and is subject to adjustment in certain events to prevent dilution. Agbar has
also agreed to make up to three subsequent $5,000,000 purchases of Series D
Preferred Stock to fund capital expenditures of the Company, as needed for water
projects which Agbar approves, over the next two years (which can be extended to
four years by mutual agreement).
The Company believes that its existing capital resources will be sufficient to
fund the Company's foreseeable working capital needs 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 has completed its assessment of Year 2000 issues. Management
believes that the Company's computer systems and applications are Year 2000
compliant. Consequently, the Company does not expect any material adverse affect
on the Company's business, results of operations or financial condition as a
result of problems with its computer systems and operations. However, the
Company receives payments from a variety of external sources, and although the
Company has made reasonable efforts to identify and protect itself with respect
to external Year 2000 problems, there can be no assurance that the Company will
not be affected by such problems.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, February 1998 and June 1998, the Financial Accounting Standards
Board issued SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," SFAS No. 132, "Employers' Disclosure about Pensions and
Other Postretirement Benefits -an amendment of FASB Statements No. 87, 88 and
106," and SFAS No.133, "Accounting for Derivative Instruments and Hedging
Activities", respectively. The Company anticipates that the adoption of SFAS
Nos. 131, 132 and 133 will not have a material effect on the financial position,
results of operations or liquidity of the Company, nor result in disclosures
that will be materially different from those presently included in its financial
statements.
21
<PAGE> 22
WESTERN WATER COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on September 15, 1998.
The matters voted upon at the annual meeting were as follows: (i) the election
of one member of the Company's Board of Directors for the ensuing period; (ii)
the approval of an increase of 800,000 shares in the number of shares of Common
Stock reserved for issuance under the Company's 1997 Stock Option Plan from
600,000 to 1,400,000 shares; (iii) the ratification of an amendment of the
Company's 1997 Stock Option Plan increasing the limitation on the number of
shares of Common Stock that may be granted to a person, in any fiscal year,
pursuant to options under the 1997 Stock Option Plan from 200,000 shares to a
new maximum of 650,000 shares and (iv) the ratification of the appointment of
KPMG Peat Marwick LLP as the independent accountants of the Company for the
fiscal year ending March 31, 1999.
The voting on each proposal was set forth in the table below.
1. Election of director:
Scott A. Katzmann FOR WITHHOLD AUTHORITY
Common shares 6,165,395 1,273,522
Preferred shares 0 262,314
No other person received any votes.
2. Approve an increase of 800,000 shares in the number of shares of Common
Stock reserved for the issuance under the Company's 1997 Stock Option Plan
from 600,000 to 1,400,000 shares:
FOR AGAINST ABSTENTIONS(a)
Common shares 4,143,597 919,472 27,525
Preferred shares 262,314 0 0
22
<PAGE> 23
WESTERN WATER COMPANY AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS (CONTINUED)
3. Ratify an amendment of the Company's 1997 Stock Option Plan increasing the
limitation on the number of shares of Common Stock that may be granted to a
person, in any fiscal year, pursuant to options under the 1997 Stock Option
Plan from 200,000 shares to a new maximum of 650,000 shares
FOR AGAINST ABSTENTIONS(a)
Common shares 6,645,019 759,508 13,521
Preferred shares 262,314 0 0
4. Ratify the appointment of KPMG Peat Marwick LLP as the independent
accountants of the Company for the fiscal year ending March 31, 1999:
FOR AGAINST ABSTENTIONS(a)
Common shares 7,381,948 32,115 24,854
Preferred shares 262,314 0 0
(a) Does not include "broker non-votes", which are abstentions by nominee
holders on behalf of beneficial owners who have given no instructions to
the nominee holder. When such nominee has no authority to vote absent
such instructions, the nominee is required to abstain from voting, even
though present or represented at the meeting. Such "broker non-votes"
are not considered present and entitled to vote with respect to the
referenced proposals and therefore have no effect on the outcome of the
vote.
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) No reports on Form 8-K were filed during the prior fiscal quarter.
23
<PAGE> 24
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: October 28, 1998 By: /s/ Michael P. George
--------------------------------
Michael P. George
President
Date: October 28, 1998 By: /s/ Ronald I. Simon
--------------------------------
Ronald I. Simon
Chief Financial Officer
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, THE CONSOLIDATED STATEMENTS OF OPERATIONS 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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,009
<SECURITIES> 7,668
<RECEIVABLES> 208
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,175
<PP&E> 162
<DEPRECIATION> (52)
<TOTAL-ASSETS> 42,778
<CURRENT-LIABILITIES> 1,817
<BONDS> 15,000
0
9,408
<COMMON> 8
<OTHER-SE> 13,186
<TOTAL-LIABILITY-AND-EQUITY> 42,778
<SALES> 0
<TOTAL-REVENUES> 491
<CGS> 0
<TOTAL-COSTS> 214
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 675
<INCOME-PRETAX> (1,961)
<INCOME-TAX> 2
<INCOME-CONTINUING> (1,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,963)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
