Securities and Exchange Commission
Washington, D.C. 20549
__________________
Form 10-QSB
__________________________
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2003
___ 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 February 28, 2003:
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 FEBRUARY 28, 2003 FORM 10-QSB
Page
Part I - Financial Information (unaudited)
Balance Sheets - February 28, 2003 and 3
August 31, 2002
Statements of Operations - For the three months 4
ended February 28, 2003 and 2002
Statements of Operations - For the six months 5
ended February 28, 2003 and 2002
Statements of Cash Flows - For the six months 6
ended February 28, 2003 and 2002
Notes to Financial Statements 7
Management's Discussion and Analysis of 8
Results of Operations and Financial Condition
Signature Page 11
"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.
PURE CYCLE CORPORATION
BALANCE SHEETS
(unaudited)
February 28, August 31,
ASSETS 2003 2002
Current assets:
Cash and cash equivalents $ 182,747 $ 287,720
Trade accounts receivable 27,635 50,919
Total current assets 210,382 338,639
Investment in water and systems:
Rangeview water supply 13,659,643 13,566,777
Paradise water supply 5,494,273 5,491,423
Rangeview water system 148,441 148,411
Total investment in water and systems 19,302,357 19,206,641
Accumulated depreciation & depletion (8,266) (4,958)
19,294,091 19,201,683
Note receivable, including
accrued interest 392,882 385,716
Other assets 89,641 102,241
$ 19,986,996 $ 20,028,279
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,929 2,384
Accrued liabilities 17,495 19,495
Total current liabilities 19,424 21,879
Long-term debt - related parties,
including accrued interest 4,801,798 4,713,270
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 (20,973,917) (20,846,561)
Total stockholders' equity 4,066,656 4,202,500
$ 19,986,996 $ 20,028,279
See Accompanying Notes to the Financial Statements
PURE CYCLE CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
Three months Ended
February 28, February 28,
2003 2002
Water service revenue
Water usage fees $ 19,778 $ 19,299
Wastewater usage fees 14,017 12,500
33,795 31,799
Water service operating expense ( 2,506) ( 2,396)
Wastewater service operating expense ( 2,113) ( 2,396)
Gross Margin 29,176 27,007
General and administrative expense (74,644) (58,175)
Depreciation expense ( 1,427) ( --)
Depletion expense ( 88) ( --)
Other income (expense):
Interest income 4,119 5,359
Interest expense related parties ( 44,264) ( 48,077)
Interest expense other ( 6,300) ( 6,300)
Other -- 13,546
Net loss $(93,428) $(66,640)
Basic and diluted net loss
per common share $ --* $ --*
Weighted average common
shares outstanding 78,236,429 78,236,429
* less than $.01 per share
See Accompanying Notes to the Financial Statements
PURE CYCLE CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
Six months Ended
February 28, February 28,
2003 2002
Water service revenue
Water usage revenues $ 77,225 $ 39,553
Wastewater usage fees 26,587 25,000
103,812 64,553
Water service operating expense ( 5,719) ( 6,676)
Wastewater service operating expense ( 5,013) ( 6,676)
Gross Margin 93,080 51,201
General and administrative expense ( 124,556) ( 107,947)
Depreciation expense ( 2,482) ( --)
Depletion expense ( 826) ( --)
Other income (expense):
Interest income 8,556 12,123
Interest expense related parties ( 88,528) ( 98,497)
Interest expense other ( 12,600) ( 12,600)
Other -- 13,546
Net loss $(127,356) $(142,174)
Basic and diluted net loss
per common share $ --* $ --*
Weighted average common shares
outstanding 78,236,429 78,236,429
* less than $.01 per share
See Accompanying Notes to the Financial Statements
PURE CYCLE CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
Six months Ended
February 28, February 28,
2003 2002
Cash flows from operating activities:
Net loss $(127,356) $(142,174)
Adjustment to reconcile
net loss to net cash provided by
operating activities:
Depreciation on water systems 2,482 2,110
Depletion expense 826 0
Increase in accrued interest
on note receivable (7,166) ( 8,170)
Increase in accrued interest on long
term debt and other non-current
liabilities 88,528 98,500
Changes in operating assets and
liabilities:
Trade accounts receivable 23,284 3,674
Other assets 12,600 12,600
Accounts payable and accrued liabilities ( 2,455) ( 6,156)
Net cash used in operating activities ( 9,257) (41,726)
Cash flows from investing activities:
Investments in water supply ( 95,716) (35,318)
Investment in Rangeview water system -- 2,110
Net cash used in investing activities (95,716) (33,208)
Cash flows from financing activities:
Net decrease in cash and cash equivalents (104,973) (74,934)
Cash and cash equivalents beginning
of period 287,720 435,660
Cash and cash equivalents end of period $ 182,747 $ 360,726
See Accompanying Notes to the Financial Statements
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING PRINCIPLES
The balance sheet as of February 28, 2003 and the statements
of operations and statements of cash flows for the three and six
months periods ended February 28, 2003 and February 28, 2002 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 February 28,
2003 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 2002 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.
Certain prior period amounts have been reclassified to conform
to the current period presentation.
NOTE 2 - 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 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. The Company sold 625,000
shares of the Company's Common Stock at $.16 per share to two
accredited investors. Proceeds to the Company were $100,000.
The shares were issued under Section 4(2) of the Securities Act
of 1933.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
During the quarter ended February 28, 2003, the Company
delivered approximately 6.5 million gallons of water to customers
in the Service Area generating revenues from water sales of
$19,778 compared to the delivery of 3.5 million gallon generating
revenues of $31,799 during the three months ended February 28,
2002. The difference in reported water revenues is attributable
to separate accounting for water and wastewater usage revenues,
where water revenues reported for the period ending February 28,
2002 included approximately $12,500 in wastewater usage revenues
thus adjusting for wastewater revenues the water usage revenues
for the period ending February 28, 2002 were $19,299. The
Company incurred water service operating costs of $2,506, and
wastewater operating costs of $2,113 to a combined total of
$4,619 for the three months ending February 28, 2003 as compared
to combined water and wastewater operating costs of $4,792 for
the six month ending February 28, 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 six months ended February 28, 2003, the Company
delivered approximately 19.3 million gallons of water generated
water service revenues of $77,225 compared to approximately 16.6
million gallons of water generating $64,553 for the six months
ended February 28, 2002. The increase in water service revenues
is due to the increase in delivery of potable water during the
current year compared to the previous year. The Company incurred
water service operating costs of $5,719, and wastewater service
operating costs of $5,013 for a combined total of $10,732 for
the six months ending February 28, 2003 as compared to $13,352
for the six month ending February 28, 2002. The decrease in
operating costs is due to higher costs incurred due to the
initiation of domestic water and wastewater service which were
incurred during the period ending February 28, 2002.
General and administrative expenses for the six months ended
February 28, 2003 were $16,609 higher than for the six months
ended February 28, 2002, primarily due to an increase in salaries
and overhead from the addition of one employee beginning in
January 2003. Net loss for the six months ended February 28,
2003 was $127,356 compared to a net loss of $142,174 for the six
month ended February 28, 2002. The decrease in net loss of
$14,818 was due to additional revenues from the sale of water
from the previous year.
Liquidity and Capital Resources
At February 28, 2003, current assets exceed current
liabilities by $190,958 and, the Company had cash and cash
equivalents of $210,382.
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.
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.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No.
143, Accounting for Asset Retirement Obligations. SFAS No. 143
requires entities to record the fair value of a liability for an
asset retirement obligation in the period in which it is incurred
and a corresponding increase in the carrying amount of the related
long-lived asset. The pronouncement is effective for fiscal years
beginning after June 15, 2002. The Company does not believe that
adoption of SFAS No. 143 in 2003 will have a significant impact
on its financial condition.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144
supersedes SFAS No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS
No. 144 establishes a single accounting model for long-lived
assets to be disposed of by sale and requires that those long-
lived assets be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing
operations or in discontinued operations. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The
Company adopted SFAS No. 144 on January 1, 2002.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13,
and Technical Corrections." This statement provides guidance on
the classification of gains and losses from the extinguishment of
debt and on the accounting for certain specified lease
transactions. Management does not believe that SFAS No. 145 will
have a material impact on the Company.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," (effective
January 1, 2003) which replaces Emerging Issues Task Force
(EITF) Issue No. 94-3 "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 requires that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is
incurred and states that an entity's commitment to an exit plan,
by itself, does not create a present obligation that meets the
definition of a liability. SFAS No. 146 also establishes that
fair value is the objective for initial measurement of the
liability. Management does not believe that SFAS 146 will have a
material effect on the Company during fiscal 2003.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." This
statement amends FASB Statement No. 123 "Accounting for Stock-
Based Compensation," to provide alternative methods of transition
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. This statement
also amends the disclosure requirements of Statement 123 to
require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-
based employee compensation and the effect of the method used on
reported results. The provisions of this statement relating to
alternative transition methods and annual disclosure requirements
are effective for the year ended December 31, 2002. The
provisions of this statement relating to interim financial
information are effective for the quarter ending March 31, 2003.
The transitional provisions will not have an impact on the
Company's financial statements unless it elects to change from
the intrinsic value method to the fair value method. The
provisions relating to disclosures have been adopted and are
reflected herein.
In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (the Interpretation), which addresses the
disclosure to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees. The
Interpretation also requires the recognition of a liability by a
guarantor at the inception of certain guarantees. The
Interpretation requires the guarantor to recognize a liability
for the non-contingent component of the guarantee, this is the
obligation to stand ready to perform in the event that specified
triggering events or conditions occur. The initial measurement of
this liability is the fair value of the guarantee at inception.
The recognition of the liability is required even if it is not
probable that payments will be required under the guarantee or if
the guarantee was issued with a premium payment or as part of a
transaction with multiple elements. The Company is required to
adopt the disclosure provisions of the Interpretation beginning
with its fiscal 2003 consolidated financial statements, and will
apply the recognition and measurement provisions for all
guarantees entered into or modified after December 31, 2002. The
impact of the adoption is not expected to have a significant
impact on the Company's consolidated financial statements.
In January 2003, the Financial Accounting Standards Board issued
FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities" (FIN No. 46"). This interpretation clarifies existing
accounting principles related to the preparation of consolidated
financial statements when the equity investors in an entity do
not have the characteristics of a controlling financial interest
or when the equity at risk is not sufficient for the entity to
finance its activities without additional subordinated financial
support from others parties. FIN No. 46 requires a company to
evaluate all existing arrangements to identify situations where
a company has a "variable interest" (commonly evidenced by a
guarantee arrangement or other commitment to provide financial
support) in a "variable interest entity" (commonly a thinly
capitalized entity) and further determine when such variable
interests require a company to consolidate the variable interest
entities" financial statement with its own. The Company is
required to perform this assessment by December 31, 2003 and
consolidate any variable interest entities for which it will
absorb a majority of the entities' expected losses or receive a
majority of the expected residual gains. Management has not
yet performed this assessment, however it is not aware of any
material variable interest entities that it may be required
to consolidate.
PURE CYCLE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
PURE CYCLE CORPORATION
Date:
April 10, 2003 /S/ Thomas P. Clark
Thomas P. Clark,
CEO
Date:
April 10, 2003 /S/ Mark W. Harding
Mark W. Harding,
President
CERTIFICATION
I, Thomas P. Clark, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
PureCycle Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: April 10, 2003
/s/ Thomas P. Clark
Chief Executive Officer
CERTIFICATION
I, Mark W. Harding, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
PureCycle Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date April 10, 2003
/s/ Mark W. Harding
President, Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of PureCycle Corporation
(the "Company"), on Form 10-QSB for the period ending February
28, 2003 as filed with the Securities and Exchange Commission on
the date hereof (the "Report"), I, Thomas P. Clark, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C.
1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
result of operations of the Company.
/s/ Thomas P. Clark
Chief Executive Officer
April 10, 2003
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of PureCycle Corporation
(the "Company"), on Form 10-QSB for the period ending February
28, 2003 as filed with the Securities and Exchange Commission on
the date hereof (the "Report"), I, Mark Harding, President, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C.
1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
result of operations of the Company.
/s/ Mark W. Harding
Chief Financial Officer
April 10, 2003
Exhibit 99.1