Securities and Exchange Commission
Washington, D.C. 20549
__________________________________________________
Form 10-QSB
__________________________________________________
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2002
___ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 0-8814
PURE CYCLE CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 84-0705083
(State of incorporation) (I.R.S. Employer Identification
Number)
8451 Delaware St., Thornton, CO 80260
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (303) 292 - 3456
_____________________________________________________
N/A
(Former name, former address and former fiscal year, if changed
since last report.)
Check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x]; NO [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of May 31, 2002:
Common Stock, 1/3 of $.01 par Value 78,236,429
(Class) (Number of Shares)
Transitional Small business Disclosure Format (Check one): Yes
[ ]; No [x]
PURE CYCLE CORPORATION
INDEX TO MAY 31, 2002 FORM 10-QSB
Page
Part I - Financial Information (unaudited)
Balance Sheets - May 31, 2002 and 3
August 31, 2001
Statements of Operations - For the three months 4
ended May 31, 2002 and 2001
Statements of Operations - For the nine months 5
ended May 31, 2002 and 2001
Statements of Cash Flows - For the nine months 6
ended May 31, 2002 and 2001
Notes to Financial Statements 7
Management's Discussion and Analysis of 8
Results of Operations and Financial Condition
Signature Page 9
"SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Statements that are not historical facts contained
in this Quarterly Report on Form 10-QSB are forward looking
statements that involve risk and uncertainties that could
cause actual results to differ from projected results.
Factors that could cause actual results to differ materially
include, among others: general economic conditions, the
market price of water, changes in applicable statutory and
regulatory requirements, changes in technology, uncertainties
in the estimation of water available under decrees and timing
of development, the strength and financial resources of the
Company's competitors, the Company's ability to find and
retain skilled personnel, climatic conditions, labor relations,
availability and cost of material and equipment, delays in the
anticipated permit and start-up dates, environmental risks,
and the results of financing efforts.
2
PURE CYCLE CORPORATION
BALANCE SHEETS
(unaudited)
May 31, August 31,
ASSETS 2002 2001
Current assets:
Cash and cash equivalents $ 336,951 $ 435,660
Trade accounts receivable 27,000 33,255
Other current assets 11,259 11,259
Total current assets 375,210 480,174
Investment in water and systems:
Rangeview water supply 13,533,786 13,483,425
Paradise water supply 5,491,423 5,487,433
Rangeview water system 144,340 126,611
Total investment in water and systems 19,169,549 19,097,469
Note receivable, including
accrued interest 381,846 369,806
Other assets 108,541 127,441
$ 20,035,146 $ 20,074,890
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 628 --
Accrued liabilities 10,995 17,994
Total current liabilities 11,623 17,994
Long-term debt - related parties,
including accrued interest 4,665,193 4,518,619
Participating interests in Rangeview
water rights 11,090,630 11,090,630
Stockholders' equity:
Preferred stock, par value $.001 per
share; authorized - 25,000,000 shares:
Series A1 - 1,600,000 shares issued
and outstanding 1,600 1,600
Series B - 432,514 shares issued
and outstanding 433 433
Series D - 6,455,000 shares
issued and outstanding 6,455 6,455
Common stock, par value 1/3 of $.01 per
share; authorized - 135,000,000 shares;
78,236,429 shares issued and outstanding 261,584 261,584
Additional paid-in capital 24,778,989 24,778,989
Accumulated deficit (20,781,361) (20,601,414)
Total stockholders' equity 4,267,700 4,447,647
$ 20,035,146 $ 20,074,890
See Accompanying Notes to the Financial Statements
3
PURE CYCLE CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
Three months Ended
May 31, May 31,
2002 2001
Water service revenue
Water construction revenues $ -- $ 178,167
Water usage and wastewater
processing fees 71,814 6,630
71,814 184,797
Construction costs incurred (Note 2) -- ( 32,664)
Water service and wastewater processing
operating expense ( 6,417) ( 2,573)
Gross Margin 65,397 149,560
General and administrative expense (53,672) ( 54,463)
Other income (expense):
Interest income 4,876 9,763
Interest expense - related parties ( 48,077) ( 49,240)
Interest expense - other ( 6,300) --
Other -- --
Net income (loss) $(37,776) $55,620
Basic and diluted net loss per
common share $ --* $ --*
Weighted average common shares
outstanding 78,236,429 78,439,763
* less than $.01 per share
See Accompanying Notes to the Financial Statements
4
PURE CYCLE CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
Nine months Ended
May 31, May 31,
2002 2001
Water service revenue
Water construction revenues $ -- $ 772,500
Water usage and wastewater
processing fees 136,367 49,060
136,367 821,561
Construction costs incurred (Note 2) -- (488,983)
Water service and wastewater
processing operating expense ( 21,877) ( 6,677)
Gross Margin 114,490 325,900
General and administrative expense ( 159,504) ( 176,308)
Other income (expense):
Interest income 13,546 33,846
Interest expense related parties ( 146,574) ( 116,088)
Interest expense other (18,900) --
Other 16,999 --
Net income (loss) $(179,947) $17,350
Basic and diluted net loss per
common share $ --* $ --*
Weighted average common shares
outstanding 78,236,429 78,439,763
* less than $.01 per share
See Accompanying Notes to the Financial Statements
5
PURE CYCLE CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
Nine months Ended
May 31, May 31,
2002 2001
Cash flows from operating activities:
Net income (loss) $(179,947) $17,350
Adjustments to reconcile net
income (loss) to cash from
operating activities:
Accumulated depletion 3,165 --
Increase in note receivable,
including accrued interest (12,040) ( 17,771)
Increase in long term debt - related
parties,including accrued interest 146,574 166,088
Changes in operating assets and
liabilities:
Trade accounts receivable 6,255 16,619
Other assets 18,900 --
Billings in excess of costs and
estimated earnings -- (772,500)
Accounts payable and accrued liabilities (6,371) (5,429)
Net cash used in operating activities (23,464) (595,643)
Cash flows from investing activities:
Investments in water supply ( 54,351) (50,301)
Investment in Rangeview water system (20,894) --
Net cash used in investing activities (75,245) (50,301)
Cash flows from financing activities:
Proceeds from sale of common stock -- 219,500
Net cash provided by financing activities -- 219,500
Net decrease in cash and cash equivalents (98,709) (426,444)
Cash and cash equivalents at beginning
of period 435,660 821,124
Cash and cash equivalents at
end of period $ 336,951 $ 394,680
See Accompanying Notes to the Financial Statements
6
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING PRINCIPLES
The balance sheet as of May 31, 2002 and the statements of
operations and statements of cash flows for the three and nine
months periods ended May 31, 2002 and May 31, 2001 have been
prepared by the Company and have not been audited. In the
opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial
position, results of operations and cash flows at May 31, 2002
and for all periods presented have been made.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed
or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes
thereto included in the Company's fiscal year 2001 Annual Report
on Form 10-KSB. The results of operations for interim periods
presented are not necessarily indicative of the operating results
for the full year.
NOTE 2 - WATER CONSTRUCTION PROJECTS
In 1998, the Company entered into an agreement to provide
water and wastewater service to a 400 acre development which
includes a 500-bed Academic Model Juvenile Facility ("Model
Facility"). The Model Facility paid a Water System Development
and Water Resource Charge based on estimated water consumption,
for the construction of water and wastewater systems. Pursuant
to its Service Agreements, the Company has received all fees
pursuant to the agreements, totaling $2,013,495, for the
construction of the water and wastewater facilities.
Additionally, the Company received $154,800 from the State of
Colorado for the construction of additional facilities related
to the wastewater plant which the Company constructed on behalf
of the State of Colorado. The Company completed construction of
the water and wastewater facilities in July 2001, concurrent
with the opening of the Model Facility.
NOTE 3 - STOCKHOLDERS' EQUITY
In August 2001, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the
Company issued 6,455,000 shares of Series D Preferred Stock to
the Company's CEO, Mr. Thomas Clark in exchange for 421,666
shares of common stock, 3,200,000 shares of Series C Preferred
Stock, 500,000 shares of Series C-1 Preferred Stock, 666,667
shares of Series C-2 Preferred Stock, and 1,666,667 shares of
Series C-3 Preferred Stock, all of which were owned by Mr.
Clark. None of the Series D Convertible Preferred Stock pay
dividends. The Company subsequently retired 3,200,000 shares of
Series C Preferred Stock, 500,000 shares of Series C-1 Preferred
Stock, 666,667 shares of Series C-2 Preferred Stock, and
1,666,667 shares of Series C-3 Preferred Stock.
In fiscal year ended August 31, 2000, the Company entered
into two separate Plans of Recapitalization and a Stock Purchase
Agreement. The first Plan was in September 1999 whereby the
Company issued 666,667 shares of Series C-2 Preferred Stock to
Mr. Thomas Clark in exchange for 666,667 shares of common stock
owned by Mr. Clark. The Company subsequently sold 666,667
shares of the Company's Common Stock at $.18 per share to three
accredited investors. Proceeds to the Company were $120,000. In
August 2000, the Company also sold 763,333 shares at $.15 per
share to four accredited investors generating proceeds of
$114,500.
The second Plan was in August 2000 whereby the Company
issued 1,666,667 shares of Series C-3 Preferred Stock to Mr.
Thomas Clark in exchange for 1,666,667 shares of common stock
owned by Mr. Clark. In three transactions, beginning in December
2000, the Company sold 700,000 shares of the Company's Common
Stock at $.15 per share to two accredited investors, generating
proceeds to the Company of $105,000. In August 2001, the Company
also sold 625,000 shares at $.16 per share to two accredited
investors generating proceeds of $100,000.
All the shares were issued under Section 4(2) of the
Securities Act of 1933.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
During the quarter ended May 31, 2002, the Company
delivered approximately 6.5 million gallons of water to
customers in the Service Area generating revenues from water
sales of $58,654 compared to the delivery of 5.6 million
gallons generating revenues of $6,630 during the three months
ended May 31, 2001. The increase in water revenues is
attributable to the delivery of potable water during the
current year compared to raw water during the previous year.
The Company incurred water service operating costs of $3,736
for the three months ending May 31, 2002 as compared to $2,573
for the three month ending May 31, 2001. The increase in
operating costs is attributable to the initiation of domestic
water and wastewater service to the Model Facility beginning in
July 2001. In August 2001, the Company entered into an agreement
with a third party to provide operation and maintenance support
for its water and wastewater operations.
During the quarter ended May 31, 2002, the Company processed
approximately 1.0 million gallons of wastewater from customers in
the Service Area generating revenues from wastewater service of
$13,160. The Company incurred wastewater service operating costs
of $2,681. Fiscal year 2002 is the first year of operations for
the Company's wastewater operations to the Model Facility which
began in July 2001.
General and administrative expenses for the three months
ended May 31, 2002 were $791 lower than for the period ended May 31,
2001, primarily because of a decrease in office rent expense.
Net loss for the three months ended May 31, 2002 was $37,776
compared to net income of $55,620 for the three month ended May
31, 2001 due to the completion of the Model Facility and the
recognition of construction revenues in the previous year
During the nine months ended May 31, 2002, the Company
delivered approximately 23.1 million gallons of water generating
water service revenues of $96,885 compared to approximately 18.6
million gallons of water generating $49,060 for the nine months
ended May 31, 2001. The increase in water service revenues are
due primarily to the delivery of potable water during the current
year compared to raw water during the previous year. The Company
incurred water service operating costs of $12,524 for the nine
months ending May 31, 2002 as compared to $6,677 for the nine
month ending May 31, 2001, due to the initiation of domestic
water and wastewater service to the Model Facility beginning in
July 2001.
During the nine months ended May 31, 2002, the Company
processed approximately 3.0 million gallons of wastewater from
customers in the Service Area generating revenues from wastewater
service of $39,482. The Company incurred wastewater service
operating costs of $9,357. Fiscal year 2002 is the first year of
operations for the Company's wastewater operations to the Model
Facility which began in July 2001.
General and administrative expenses for the nine months
ended May 31, 2002 were $16,804 lower than for the period ended
May 31, 2001, primarily because of a decrease in office rent expense.
The Company has occupied office space owned by a related party at
no cost since December 2000. Net loss for the nine months ended
May 31, 2002 was $179,947 compared to net income of $17,350 for
the nine month ended May 31, 2001 due to the completion of the
Model Facility and the recognition of construction revenues in
the previous year.
Liquidity and Capital Resources
At May 31, 2002, current assets exceed current liabilities by
$363,587 and, the Company had cash and cash equivalents of
$336,951.
The Company believes it has sufficient working capital and
available credit to fund its operations for the next year or
longer. There can be no assurances, however, that the Company
will be successful in marketing the water from its two primary
water projects in the near term. In the event sales are not
achieved, the Company may sell additional participating
interests in its water projects, incur additional short or long-
term debt or seek to sell additional shares of common or
preferred stock or stock purchase warrants, as deemed necessary
by the Company, to generate working capital.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Liquidity and Capital Resources (continued)
Development of any of the water rights that the Company has,
or is seeking to acquire, will require substantial capital
investment by the Company. Any such additional capital for the
development of the water rights is anticipated to be financed
through the sale of water taps and water delivery charges to a
city or municipality. A water tap charge refers to a charge
imposed by a municipality to permit a water user to access a
water delivery system (i.e. a single-family home's tap into the
municipal water system), and a water delivery charge refers to a
water user's monthly water bill generally based on a per 1,000
gallons of water consumed.
PURE CYCLE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
PURE CYCLE CORPORATION
Date:
July 15, 2002 /S/ Thomas P. Clark
Thomas P. Clark,
CEO
Date:
July 15, 2002 /S/ Mark W. Harding
Mark W. Harding,
President
9