______________________________________________________________
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, 1996
___ 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 May 31, 1996:
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]
_________________________________________________________________
PAGE 1 OF 12
PURE CYCLE CORPORATION AND SUBSIDIARY
INDEX TO MAY 31, 1996 FORM 10-QSB
Page
Part I - Financial Information (unaudited)
Balance Sheets - May 31, 1996 and 3
August 31, 1995
Statements of Operations - For the three months 4
ended May 31, 1996 and May 31, 1995
Statements of Operations - For the Nine months 5
ended May 31, 1996 and May 31, 1995
Statements of Cash Flows - For the Nine months 6-7
ended May 31, 1996 and May 31, 1995
Notes to Financial Statements 8
Management's Discussion and Analysis of 9
Results of Operations and Financial Condition
Part II - Other Information
Item 1 - Legal Proceedings 10
Item 2 - Exhibits and reports on Form 8-K 11
Signature Page 12
PAGE 2 OF 12
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(unaudited)
May 31 August 31
Assets 1996 1995
------ ---------
Current Assets:
Cash and cash equivalents $ 242,148 $ 865,803
Marketable securities 3,429 3,429
Note receivable (Note 2) 245,406 119,327
Prepaid expenses and other current assets 10,710 16,037
Total current assets 501,693 1,004,596
Investments in water projects:
Paradise water rights 5,463,984 5,462,457
Rangeview water commercialization
agreement (Rangeview WCA) 5,989,895 5,856,194
Sellers Gulch water rights -- 31,997
Equipment, at cost, net of accumulated
depreciation of $11,527 and $9,514 5,711 5,359
Patents, net of accumulated amortization
of $35,460 and $34,776 in 1996 and 1995,
respectively -- 684
Other assets 22,596 22,596
---------- ----------
$ 11,983,879 $ 12,383,883
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt (Note 3) $ -- $ 185,460
Accounts payable 51,568 60,450
--------- ----------
Total current liabilities 51,568 245,910
Long-term debt payable to related parties,
less current maturities 3,010,203 2,888,296
Other non-current liabilities 125,583 120,228
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 ( 6,376,911) ( 6,043,987)
Deficit accumulated prior to
September 1, 1986 (12,726,372) (12,726,372)
---------- ----------
Total stockholders' equity 4,775,895 5,108,819
Contingency (Note 4)
---------- ----------
$ 11,983,879 $ 12,383,883
========== ==========
[FN]
See Accompanying Notes to the Consolidated Financial Statements
PAGE 3 OF 12
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
May 31 May 31
1996 1995
------ ------
Expenses:
General, administrative
and marketing $( 79,155) $( 90,114)
Interest ( 50,731) ( 51,531)
------- -------
Total Expenses (129,886) (141,645)
Interest income 9,000 9,064
------- -------
Net loss $(120,886) $(132,581)
======= =======
Net Loss per common share $ --* $ --*
======= =======
* less than $.01 per share
[FN]
See Accompanying Notes to the Consolidated Financial Statements
PAGE 4 OF 12
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Ended Cumulative
May 31 May 31 Sept. 1, 1986 to
1996 1995 May 31,1996
------ ------ -----------
General and administrative
expenses $(249,403) $(254,959) $(3,749,123)
Other income (expense):
Interest expense (132,530) (145,524) (1,841,723)
Loss on abandonment of
option on water
rights -- -- ( 850,000)
Financing expense on
purchase of water
rights option -- -- ( 200,000)
Financing cost for
issuance of stock
below market price -- -- ( 187,500)
Loss on abandonment
of power plant
equipment -- -- ( 242,500)
Gain from waived put
options -- -- 40,950
Expiration of option to
purchase water rights ( 31,997) -- ( 31,997)
Gain on sale of marketable
securities -- ( 3,611) 24,809
Interest income 32,778 -- 71,019
Other, net -- -- 29,503
------- ------- ---------
Net loss before
extraordinary item (381,152) (404,094) (6,936,562)
Extraordinary gain on
extinguishment of debt
(Note 3) 48,228 -- 559,651
------- ------- ---------
Net loss $(332,924) $(404,094) $(6,376,911)
======= ======= =========
Net Loss per common
share $ --* $ --*
======= =======
* less than $.01 per share
[FN]
See Accompanying Notes to the Consolidated Financial Statements
PAGE 5 OF 12
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended Cumulative
May 31 May 31 Sept. 1, 1986 to
1996 1995 May 31, 1996
------ ------ ----------------
Cash flows from operating
activities:
Net loss $(332,924) $(404,094) $(6,376,911)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization 2,697 3,669 30,982
Amortization of debt
issuance costs -- 4,600 23,000
(Loss)/gain on sale of
marketable securities -- 3,611 ( 24,809)
Accretion of discount
on long-term debt -- 11,750 69,630
Common shares issued as
additional interest
expense -- -- 25,000
Extraordinary gain on
extinguishment of debt ( 48,228) -- ( 559,651)
Loss on abandonment of
option on water rights -- -- 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 (12,769) ( 784) ( 16,096)
Other -- -- ( 1,065)
Changes in operating assets
and liabilities:
Prepaid expenses and
other current assets 5,327 ( 6,667) ( 5,760)
Accounts payable and
other non-current
liabilities ( 3,527) 13,397 432,418
Accrued interest 127,175 139,800 1,545,294
------- ------- ---------
Net cash used in
operating activities $(262,249) $(234,718) $(3,399,525)
------- ------- ---------
(continued)
PAGE 6 OF 12
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Nine Months Ended Cumulative
May 31 May 31 Sept. 1, 1986 to
1996 1995 May 31, 1996
------ ------ ----------------
Cash flows from investing
activities:
Investments in water rights $(103,231) $( 84,800) $(2,288,859)
Purchase of marketable
securities -- ( 300,000) (2,000,000)
Proceeds from sale of
marketable securities -- 1,278,289 2,024,809
Increase in note receivable (113,310) 679 ( 229,310)
Purchase of equipment ( 2,365) ( 71,000) ( 17,237)
Increase in other assets -- -- ( 106,595)
------- --------- ---------
Net cash provided by
(used in) investing
activities (218,906) 821,810 (2,617,192)
------- --------- ---------
Cash flows from financing
activities:
Proceeds from issuance
of debt -- -- 2,677,629
Repayments of debt (142,500) -- (1,167,190)
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 (142,500) -- 6,255,439
------- ------- ---------
Net increase (decrease)
in cash and cash
equivalents (623,655) 587,092 238,722
Cash and cash equivalents
beginning of period 365,803 122,441 3,426
------- ------- ---------
Cash and cash equivalents
end of period $ 242,148 $ 709,533 $ 242,148
======= ======= =========
[FN]
See Accompanying Notes to the Consolidated Financial Statements
PAGE 7 OF 12
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING PRINCIPLES
The consolidated balance sheet as of May 31, 1996 and August
31, 1995, the consolidated statements of operations for the three
and nine months ended May 31, 1996 and May 31, 1995 and the
consolidated statements of cash flows for the nine months ended
May 31, 1996 and May 31, 1995, 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 May 31, 1996 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 April 1995, the Company extended short-term credit to the
Rangeview Metropolitan District. The loan permits borrowings up
to $250,000, is unsecured, bears interest based on the prevailing
prime rate plus 2% and, matures on December 31, 1996.
NOTE 3 - CURRENT MATURITIES OF LONG-TERM DEBT
During January 1996, the Company reached an agreement with a
creditor to retire a note payable, totaling $190,728 with accrued
interest, for payment of $142,500. The difference in the face
value of the note and the cash paid to retire the debt of $48,228
has been reflected as an extraordinary gain on the consolidated
statement of operations for the nine months ended May 31, 1996.
NOTE 4 - CONTINGENCY
In 1988, the Company initiated efforts to acquire approximately
10,000 acre feet of non-tributary ground water rights from the
Rangeview Metropolitan District (the "District"). Since that
time, the Company, together with other investors, has purchased
certain real property, municipal notes and bonds, and options to
purchase water related to this project.
In October of 1994, the Company joined in a lawsuit initiated
by others including the District, against the Colorado State
Board of Land Commissioners (the "Board") seeking a Declaratory
Judgment affirming that the lease between the Board and the
District was valid and binding.
In May of 1996, the parties to the lawsuit agreed to a
settlement (the "Settlement"). The Settlement was subject to
obtaining a final non-appealable order of the trial court
approving the Settlement. The trial court order was signed
subsequent to the end of the quarter on June 14, 1996 and will be
non-appealable on July 29, 1996.
PAGE 8 OF 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
General and administrative expenses for the nine months ended
May 31, 1996 were approximately $5,555 lower than for the period
ended May 31, 1995, primarily because of a decrease in facility
costs and administrative salaries. Interest expense decreased for
the nine months ended May 31, 1996 by approximately $28,630
compared to the period ended May 31, 1995 due to a lower average
outstanding balance of notes payable in the first nine months of
fiscal 1996 compared to the same period in fiscal 1995. Net loss
for the nine months ended May 31, 1996 decreased approximately
$71,170 compared to the nine months ended May 31, 1995 primarily
because of the combined effects of the recognition of an
extraordinary gain on the extinguishment of debt, higher interest
income and lower interest expense offset by the expiration of an
option to purchase certain water rights.
Liquidity and Capital Resources
At May 31, 1996, current assets exceed current liabilities by
approximately $450,125 and, the Company had cash and cash
equivalents of $242,148.
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.
PAGE 9 OF 12
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In 1988, the Company initiated efforts to acquire approximately
10,000 acre feet of non-tributary ground water rights located in
the four principal aquifers known as the Denver Basin Aquifers
from the Rangeview Metropolitan District (the "District"). Since
that time, the Company, together with other investors, has
purchased certain real property, municipal notes and bonds, and
options to purchase water related to this project.
In October of 1994, the Company joined in a lawsuit initiated
by others including the District, against the Colorado State
Board of Land Commissioners (the "Board") seeking a Declaratory
Judgment affirming that the lease between the Board and the
District was valid and binding. Under the lease, the Board
granted development rights to the ground water located on and
beneath certain land owned by the Board.
In May of 1996, the parties to the lawsuit agreed to a
settlement (the "Settlement"). The Settlement, among other
things, provides for the retirement of all of the District's
outstanding Water Revenue Notes and Bonds, and clarifies the
Board's royalty participation in a new lease of the ground water.
The Company negotiated agreements to acquire the remainder of the
District's outstanding Water Revenue Notes and Bonds not already
owned by the Company with a principal value of $24,914,058 in
exchange for participation interests in the Company's Water
Rights Commercialization Agreement ("WCA"). Commitments with
respect to the WCA will increased from approximately $31,00,000
to approximately $32,026,000 as a result of the Settlement. The
Settlement was subject to obtaining a final non-appealable order
of the trial court approving the Settlement. The trial court
order was signed subsequent to the end of the quarter on June 14,
1996 and will be non-appealable on July 29, 1996.
Pursuant to the Settlement, the Company will deliver all of the
outstanding Notes and Bonds to the District in exchange for
ownership of 11,650 acre feet of tributary and non-tributary
ground water, 12,000 acre feet of surface storage rights, and an
85 year Service Agreement between the District and the Company.
The Service Agreement provides for the Company to design,
develop, operate, and maintain the District's water system which
will deliver water to customers within the District's 24,000 acre
service area. The District has reserved approximately 14,000
acre feet of water to provide water service to future customers
within its service area. The Company will receive approximately
85% of the District's tap fees, user fees, and system development
fees in exchange for the Company's commitments under the Service
Agreement.
The Company is currently negotiating with several Denver area
water providers to sell portions of the 11,650 acre feet of water
and with certain property owners within the District's Service
Area for development of the District's water system
PAGE 10 OF 12
Item 2 - Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are included herewith.
10.1 Settlement Agreement and Mutual Release, dated
April 11, 1996, by and among the Colorado State
Board of Land Commissioners (the "Land Board"),
Rangeview Metropolitan District ("Rangeview"), the
Company, INCO Securities Corporation ("Inco"), and
Apex Investment Fund II, L.P., Landmark Water
Partners, L.P., Landmark Water Partners II, L.P.,
Environmental Venture Fund, L.P., Environmental
Private Equity Fund II, L.P., The Productivity Fund II,
L.P., Proactive Partners, L.P., Warwick Partners,
L.P., Auginco, Anders C. Brag, Amy Leeds, and D.W
Pettyjohn (collectively the "Bondholders"), and
("OAR"), Willard G. Owens and H. F. Riebesell, Jr.
(collectively the "Owens Group Bondholders").
10.2 Service Agreement, dated April 11, 1996, by and
between the Company and Rangeview.
10.3 Agreement for Sale of Export Water, dated April 11,
1996, by and between the Company and Rangeview.
10.4 Amended and Restated Option and Purchase Agreement,
dated April 11, 1996, by and among OAR, the Company
and INCO.
10.5 Amended and Restated Option and Purchase Agreement,
dated April 11, 1996, by and among the Land Board,
Riebesell, the Company and Inco.
10.6 Second Amended and Restated Closing Escrow
Instructions Willard Owens Transaction, dated
April 11, 1996, by and among OAR, the Company, the
Land Board, H. F. Riebesell, Jr., and Colorado
National Bank.
10.7 Comprehensive Amendment Agreement No. 1, dated April
11, 1996, by and among Inco, the Company, the
Bondholders, Gregory M. Morey, Newell Augur, Jr.,
Bill Peterson, Stuart Sundlun, Alan C. Stormo,
Beverly A. Beardslee, Bradley Kent Beardslee, Robert
Douglas Beardslee, Asra Corporation, International
Properties, Inc., and the Land Board.
(b) The Company has not filed any reports on Form 8-K
during the quarter.
PAGE 11 OF 12
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 12, 1996 /S/ Thomas P. Clark
- ---------------------- --------------------------
Thomas P. Clark, President
Date:
July 12, 1996 /S/ Mark W. Harding
- --------------------- --------------------------
Mark W. Harding,
Chief Financial Officer
PAGE 12 OF 12