_________________________________________________________________ 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 November 30,1995 ___ 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 or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 5650 York Street, Commerce City, CO 80022 (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 November 30, 1995: Common Stock, 1/3 of $.01 par Value 78,439,763 (Class) (Number of Shares) Transitional Small business Disclosure Format (Check one): Yes [ ]; No [x] _________________________________________________________________ 1 of 10 PURE CYCLE CORPORATION AND SUBSIDIARY INDEX TO NOVEMBER 30, 1995 FORM 10-QSB Page Part I - Financial Information (unaudited) Balance Sheets - November 30, 1995 and 3 August 31, 1995 Statements of Operations - For the three months 4 ended November 30, 1995 and November 30, 1994 Statements of Cash Flows - For the three months 5-6 ended November 30, 1995 and November 30, 1994 Notes to Financial Statements 7 Management's Discussion and Analysis of 8 Results of Operations and Financial Condition Signature Page 9 Financial Data Schedule 10 2 of 10 PURE CYCLE CORPORATION AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED BALANCE SHEETS (unaudited)
November 30 August 31 Assets 1995 1995 ------ ------------ ------------ Current Assets: Cash and cash equivalent $ 698,735 $ 865,803 Marketable securities 3,429 3,429 Note receivable (Note 2) 148,903 119,327 Prepaid expenses and other current assets 9,740 16,037 ---------- ---------- Total current assets 860,807 1,004,596 ========== ========== Investments in water projects: Paradise water rights 5,463,983 5,462,457 Rangeview water commercialization agreement (Rangeview WCA) 5,880,140 5,856,194 Sellers Gulch water rights -- 31,997 Equipment, at cost, net of accumulated depreciation of $9,514 and $6,699 5,312 5,359 Patents, net of accumulated amortization of $34,776 and $32,696 in 1996 and 1995, respectively -- 684 Other assets 22,596 22,596 ---------- ---------- $ 12,232,838 $ 12,383,883 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 188,530 $ 185,460 Accounts payable 17,602 60,450 ---------- ---------- Total current liabilities 206,132 245,910 Long-term debt payable to related parties, less current maturities 2,929,591 2,888,296 Other non-current liabilities 122,012 120,228 Minority interest in Rangeview WCA 4,020,630 4,020,630 Stockholders' equity: Preferred stock, par value $.001 per share; authorized - 25,000,000 shares: Series A - 1,600,000 shares issued and outstanding 1,600 1,600 Series B - 432,513 shares issued and outstanding 433 433 Common stock, par value 1/3 of $.01 per share; authorized - 135,000,000 shares; issued and outstanding 78,439,763 shares 261,584 261,584 Additional paid-in capital 23,615,561 23,615,561 Deficit accumulated during development stage ( 6,198,333) ( 6,043,987) Deficit accumulated prior to September 1, 1986 (12,726,372) (12,726,372) ---------- ---------- Total stockholders' equity 4,954,473 5,108,819 ---------- ---------- Contingency (Note 3) $ 12,232,838 $ 12,383,883 ========== ==========
[FN] See Accompanying Notes to the Consolidated Financial Statements PAGE 3 OF 10 PURE CYCLE CORPORATION AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended ---------------------------- November 30 November 30 1995 1994 ----------- ----------- Expenses: General, administrative and marketing $( 88,687) $( 74,667) Expiration of option to purchase water rights ( 31,997) -- Interest ( 46,150) ( 51,846) -------- ------- Total Expenses (166,834) (126,513) Other income (expense): Interest income 12,488 -- Gain/(loss) on marketable securities -- ( 604) ------- ------- Net Loss $(154,346) $(127,117) ======= ======= Net Loss per common share $ --* $ --* ======= ======= * less than $.01 per share
[FN] See Accompanying Notes to the Consolidated Financial Statements 4 of 10 PURE CYCLE CORPORATION AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended -------------------------- Cumulative November 30 November 30 Sept.1, 1986 to 1995 1994 August 31, 1995 ----------- ----------- --------------- Cash flows from operating activities: Net loss $(154,346) $(127,117) $(6,198,333) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,394 1,210 29,679 Amortization of debt issuance costs -- 2,300 23,000 (Loss)/gain on sale of marketable securities -- 604 ( 24,809) Accretion of discount on long-term debt -- 5,235 69,630 Common shares issued as additional interest expense -- -- 25,000 Extraordinary gain on extinguishment of debt -- -- ( 511,423) Loss on abandonment of option on water right -- -- 750,000 Financing expense on purchase of water option -- -- 200,000 Financing costs for issuance of stock options below market price -- -- 187,500 Gain on put options waived -- -- ( 40,950) Loss on abandonment of power plant equipment -- -- 62,500 Payment for services and expenses with common stock donated by President -- -- 298,250 Other unrealized loss on marketable securities -- -- 1,143 Increase in accrued interest on note receivable ( 3,276) -- ( 6,603) Other -- -- ( 1,065) Changes in operating assets and liabilities: Prepaid expenses and other current assets 6,297 ( 6,761) ( 4,790) Accounts payable and other non-current liabilities ( 41,064) ( 7,705) 394,881 Accrued interest 44,365 44,311 1,462,484 ------- ------- --------- Net cash used in operating activities $(146,630) $( 87,923) $(3,283,906) ------- ------- ---------
(continued) 5 of 10 PURE CYCLE CORPORATION AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three Months Ended Cumulative November 30 November 30 Sept.1, 1986 to 1995 1994 August 31, 1995 ----------- ----------- --------------- Cash flows from investing activities: Investments in water rights $ 6,525 $( 48,797) $(2,179,103) Purchase of marketable securitie -- -- (2,000,000) Proceeds from sale of marketable securities -- 50,000 2,024,809 Increase in note receivable ( 26,300) -- ( 142,300) Purchase of equipment ( 663) ( 671) ( 15,535) Increase in other assets -- -- ( 106,595) ------- --------- --------- Net cash provided by (used in) investing activities ( 20,438) 532 (2,418,724) ------- --------- --------- Cash flows from financing activities: Proceeds from issuance of debt -- -- 2,677,629 Repayments of debt -- -- (1,024,690) Proceeds from sale of common stock -- -- 2,900,000 Proceeds from sale of Series A convertible Preferred stock -- -- 1,600,000 Proceeds from issuance of redeemable common stock -- -- 245,000 Proceeds from issuance of stock options -- -- 100,000 Repurchase of stock options -- -- ( 100,000) ------- --------- --------- Net cash provided by (used in) financing activities -- -- 6,397,939 Net increase (decrease) ------- --------- --------- in cash and cash equivalents (167,068) ( 87,391) 695,309 Cash and cash equivalents beginning of period 865,803 122,441 3,426 ------- --------- -------- Cash and cash equivalents end of period $ 698,735 $ 35,050 $ 698,735 ======= ========= ========
[FN] See Accompanying Notes to the Consolidated Financial Statements 6 of 10 PURE CYCLE CORPORATION AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ACCOUNTING PRINCIPLES The consolidated balance sheet as of November 30, 1995 and August 31, 1995, the consolidated statements of operations for the three and three months ended November 30, 1995 and November 30, 1994 and the consolidated statements of cash flows for the three months ended November 30, 1995 and November 30, 1994, have been prepared by the Company, without an audit. 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 November 30, 1995 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 consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1995 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 - NOTE RECEIVABLE In 1995, the Company extended short-term credit to the Rangeview Metropolitan District. The loan permits borrowings up to $150,000, is unsecured, bears interest based on the prevailing prime rate plus 2% and, matures on December 31, 1995. NOTE 3 - CONTINGENCY In October 1994, the Company joined in a lawsuit initiated by others including the Rangeview Metropolitan District (the "District"), brought in the District Court of the City and County of Denver, Colorado, against the Colorado State Board of Land Commissioners (the "Board") seeking a declaratory judgment affirming that the lease, as amended, (the "Lease"), between the Board and the District is valid and enforceable. Under the Lease, the Board leased the development rights to ground water underlying certain lands controlled by the Board, to the current lessee, the District. The Company has an interest in such water by reason of agreements entered into between the District and other parties. On March 1, 1995, a counterclaim was filed by the Board against the District, the Company and other plaintiffs, in which the Board asserts that the Lease is void because the original lessee breached his fiduciary duty to the Board and that successive lessees have breached the Lease. The Board also claims damages of unspecified amounts against the plaintiffs, including the Company, because of alleged wrongs done in connection with the Lease and subsequent transactions. Based on ongoing settlement discussions, management believes that the Rangeview litigation will be settled on terms acceptable to the Company during fiscal year 1996. However, if the Board were to change its current position on settling the matter and were to prosecute and prevail on its claims that the Lease is void or unenforceable, that would have an effect on the Company's contractual rights under its Water Commercialization Agreement (the "WCA") related to the water covered by the Lease and would have a materially adverse effect on the Company. 7 of 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations General and administrative expenses for the three months ended November 30, 1995 were approximately $14,000 higher than for the period ended November 30, 1994, primarily because of and increase in professional fees expense. Interest expense decreased for the three months ended November 30, 1995 by approximately $5,700 compared to the period ended November 30, 1994 primarily because of a lower average outstanding balance of notes payable in the first quarter of fiscal 1996 compared to the same period in fiscal 1995. Net loss for the three months ended November 30, 1995 increased approximately $20,900 compared to the three months ended November 30, 1994 primarily because the company did not expercise its option to purchase certain water rights which expired in November 1995. Liquidity and Capital Resources At November 30, 1995, current assets exceed current liabilities by approximately $654,675 and, the Company had cash and cash equivalents of $698,735. During 1993, a judgment in the amount of $214,000 was awarded to a broker pursuant to a complaint filed against the Company in October of 1991. The Company reached a settlement agreement with the broker which involved the payment of $60,000 and $154,000 plus 8% interest due on or before October 1, 1995. The note is currently in default. The Company is aggressively pursuing the sale and development of its water rights. The Company cannot provide any assurances that it will be able to sell its water rights. In the event a sale of the Company's water rights is not forthcoming and the Company is not able to generate revenues from the sale or development of its technology, the Company may sell additional portions of the Company's profit interest pursuant to the WCA, incur short or long-term debt obligations or seek to sell additional shares of Common Stock, Preferred Stock or stock purchase warrants as deemed necessary by the Company to generate operating 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. 8 of 10 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: January 9, 1996 /S/ Thomas P. Clark - ------------------------ --------------------------- Thomas P. Clark, President Date: January 9, 1996 /S/ Mark W. Harding - ------------------------ --------------------------- Mark W. Harding, Chief Financial Officer Date: January 9, 1996 /S/ Michael S. Mehrtens - ------------------------ --------------------------- Michael S. Mehrtens Controller 9 of 10