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, 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 Street, Thornton, Colorado 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 November 30, 2003:
Common Stock, 1/3 of $.01 par Value 81,217,541
(Class) (Number of Shares)
Transitional Small business Disclosure Format (Check one): Yes
[ ]; No [x]
PURE CYCLE CORPORATION
INDEX TO NOVEMBER 30, 2003 FORM 10-QSB
Page
Part I - Financial Information (unaudited)
Balance Sheets - November 30, 2003 and 3
August 31, 2003
Statements of Operations - For the three months 4
ended November 30, 2003 and 2002
Statements of Cash Flows - For the three months 5
ended November 30, 2003 and 2002
Notes to Financial Statements 6
Management's Discussion and Analysis of 7
Results of Operations and Financial Condition
Item 3 - Controls and Procedures 8
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
November 30, August 31,
ASSETS 2003 2003
(unaudited)
Current assets:
Cash and cash equivalents $ 430,382 $ 525,780
Trade accounts receivable 70,636 67,687
Total current assets 501,018 593,467
Investment in water and systems:
Rangeview water supply 13,730,373 13,710,773
Paradise water supply 5,494,323 5,494,323
Rangeview water system 148,441 148,441
Accumulated depreciation &
depletion (11,987) (10,543)
Total investment in water
and systems 19,361,150 19,342,994
Note receivable, including
accrued interest 403,342 399,902
Other assets 70,741 77,041
$ 20,336,251 $ 20,413,404
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,344 8,244
Accrued liabilities 16,600 43,528
Total current liabilities 19,944 51,772
Long-term debt - related parties,
including accrued interest 4,933,028 4,889,545
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 - 1,100,000 and 1,600,000
shares issued and outstanding,
respectively 1,100 1,600
Series B - 432,513 shares
issued and outstanding 433 433
Series D - 6,455,000 shares
issued and outstanding 6,455 6,455
Series D1- 2,000,000 shares
issued and outstanding 2,000 2,000
Common stock, par value 1/3 of
$.01 pershare; authorized -
135,000,000 shares; and
81,217,541 and 78,439,764 shares
issued and outstanding,
respectively 270,843 261,584
Additional paid-in capital 25,268,230 25,276,989
Accumulated deficit (21,256,412) (21,167,604)
Total stockholders' equity 4,292,649 4,381,457
$ 20,336,251 $ 20,413,404
See Accompanying Notes to the Financial Statements
3
PURE CYCLE CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
November 30, November 30,
2003 2002
Water service revenue
Water usage fees 36,868 57,447
Wastewater usage fees 13,501 12,570
Revenue - other 951 --
51,320 70,017
Water service operating expense (2,429) (3,213)
Wastewater service operating expense (2,183) (2,900)
Other expense (998) --
(5,610) (6,113)
Gross margin 45,710 63,904
General and administrative expense (87,637) (49,859)
Depreciation expense (1,237) (1,055)
Depletion expense (207) (738)
Other income (expense):
Interest income 4,346 4,437
Interest expense:
Related parties (43,483) (44,264)
Amortization of warrants (6,300) (6,300)
Net loss $(88,808) $ (33,875)
Basic and diluted net loss per
common share $ --* $ --*
Weighted average common shares
outstanding 81,217,541 78,439,763
* less than $.01 per share
See Accompanying Notes to the Financial Statements
4
PURE CYCLE CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
November 30, November 30,
2003 2002
Cash flows from operating activities:
Net loss $(88,808) $(33,875)
Adjustments to reconcile
net loss to net cash provided by
(used in) operating activities:
Depreciation on water system 1,237 1,055
Depletion expense 207 738
Increase in accrued interest
on note receivable (3,440) (3,583)
Increase in accrued interest on long
term debt and other non-current
liabilities 43,483 44,264
Changes in operating assets and
liabilities:
Trade accounts receivable (2,949) 29,748
Other assets 6,300 6,300
Accounts payable and accrued
liabilities (31,828) 13,117
Net cash provided by (used in)
operating activities (75,798) 57,764
Cash flows from investing activities:
Investments in water supply (19,600) (64,343)
Net cash used in investing
activities (19,600) (64,343)
Net decrease
in cash and cash equivalents (95,398) (6,579)
Cash and cash equivalents
beginning of period 525,780 287,720
Cash and cash equivalents
end of period $ 430,382 $ 281,141
See Accompanying Notes to the Financial Statements
5
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING PRINCIPLES
The balance sheet as of November 30, 2003, the statements of
operations for the three months ended November 30, 2003 and 2002
and the statements of cash flows for the three months ended
November 30, 2003 and 2002, 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, 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 2003 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 - STOCKHOLDERS' EQUITY
In August 2003, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the
Company issued 2,000,000 shares of Series D-1 Preferred Stock
to the Company's CEO, Mr. Thomas Clark in exchange for 2,000,000
shares of Common Stock owned by Mr. Clark. The Company sold
2,000,000 shares of the Company's Common Stock at $.25 per share
to eleven accredited investors, four of whom had previously
invested with the Company. Proceeds to the Company were
$500,000. The Series D-1 Preferred Stock does not earn
dividends and is convertible into 2,000,000 shares of common
stock at such time that the Company has sufficient shares of
authorized Common Stock. The shares were issued under Section
4(2) of the Securities Act of 1933.
During the quarter ended November 30, 2003, the Company issued
2,777,777 shares of Common Stock in exchange for 500,000 shares
of Series A-1 Preferred Stock, pursuant to the certificate of
designation of the Series A-1 Preferred Stock. The holders of
the 500,000 shares of Series A-1 Preferred Stock surrendered the
shares to the Company for retirement.
6
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, an interpretation of
ARB No. 51. FIN No. 46 requires an entity to consolidate a
variable interest entity if it is designated as the primary
beneficiary of that entity even if the entity does not have a
majority of voting interests. A variable interest entity is
generally defined as an entity where its equity is unable to
finance its activities or where the owners of the entity lack the
risk and rewards of ownership. The provisions of this statement
apply at inception for any entity created after January 31, 2003.
For an entity created before February 1, 2003, the provisions of
this Interpretation must be applied at the beginning of the first
interim or annual period beginning after June 15, 2003. The
Company has determined it is not party to a variable interest
entity.
In June 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both
Liabilities and Equity." The statement is effective for financial
instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatory
redeemable financial instruments of a nonpublic entity. For
mandatory redeemable financial instruments of a nonpublic entity,
this statement shall be effective for fiscal periods beginning
after December 15, 2003. The adoption of SFAS No. 150 did not
have an impact on the Company's financial statements.
NOTE 4 - SIGNIFICANT EVENT
On October 31, 2003, the Company entered into a long-term
Water Service Agreement ("Agreement") whereby the Company will
provide domestic water service to a new master planned community
located in the Denver metropolitan area in Arapahoe County. The
new community will be developed over several years and be
composed of up to 4,000 single family residences. The Company
will generate one-time revenues from the sale of water taps
(currently $11,100 per tap) and annual revenues through the
delivery of water. The agreement is expected to generate gross
revenues of $44 million in tap fee revenues and approximately $2
million annually from water usage sales. The Company is
responsible for developing the associated infrastructure, which
is expected to commence in the summer of 2004 to provide water
service to the development and expects the tap fee revenues will
provide sufficient capital to the Company to construct
facilities necessary to deliver water to the development.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
During the three months ended November 30, 2003, the Company
delivered 14.8 million gallons of water generating revenues of
$36,868 compared to 12.6 million gallons during the quarter ended
November 30, 2002, which generated revenues of $57,447. The
decrease in water service revenues is a result of seasonal water
deliveries during peak periods resulting from the drought in
2002. During the three months ended November 30, 2003, the
Company processed approximately 2.13 million gallons of
wastewater generating revenues of $13,501, compared to processing
approximately 1.0 million gallons of wastewater generating
revenues of $12,570 during the period ending November 30, 2002.
The Company incurred approximately $2,429 in water operating
costs and $2,183 in wastewater operating costs during the quarter
ending November 30, 2003, compared to $3,213 and $2,900
respectively for the quarter ending November 30, 2002. The
decrease in operating costs are attributable to the Company
operating and maintaining its water and wastewater systems in
house as compared to contract operators in 2002.
General and administrative expenses for the three months ended
November 30, 2003 were $87,637 as compared to $49,859 for the
three months ended November 30, 2002. The increase in general
and administrative expenses are due to the addition of an
employee. Net loss for the three months ended November 30, 2003
was $88,808 compared to $33,875 in the three months ended
November 30, 2002 primarily because of the addition of an
employee.
Liquidity and Capital Resources
At November 30, 2003, current assets exceed current
liabilities by $481,074 and the Company had cash and cash
equivalents of $430,382.
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 Water
Commercialization Agreement, 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.
8
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.
Item 3. - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's chief executive officer and chief financial
officer have concluded that the Company's disclosure controls
(as defined in Exchange Act Rule 13a-14(c)) are sufficiently
effective to ensure that the information required to be
disclosed by the Company in the reports it files under the
Exchange Act is gathered, analyzed and disclosed with adequate
timeliness, accuracy and completeness, based on an evaluation of
such controls and procedures conducted within 90 days prior to
the date hereof.
Changes in Internal Controls
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation referred
to above.
9
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 14, 2004 /S/ Thomas P. Clark
Thomas P. Clark,
CEO
Date:
January 14, 2004 /S/ Mark W. Harding
Mark W. Harding,
President
10
CERTIFICATIONS
I, Thomas P. Clark, certify that:
1. I have reviewed this quarterly report on Form 10QSB of
PureCycle Corporation.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and
other financial information included in this 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 report;
4. The small business issuer's other certifying officer and
I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15(d)-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15f and 15d-15f
for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the small business issuer's, 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) Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principals;
(c) Evaluated the effectiveness of the small business
issuer's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the small
business issuer's internal control over financial reporting that
occurred during the small business issuer's most recent fiscal
quarter (the small business issuer's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer and
I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the small business issuer's
auditors and the audit committee of the small business issuer's
board of directors (or persons performing the equivalent
function):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
small business issuer's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
small business issuer's internal controls over financial
reporting.
Date January 14, 2004
/s/ Thomas P. Clark
A signed original of this written statement
required by Section 302 of the Sarbanes-Oxley Act of 2002 has
been provided to PureCycle Corporation and will be retained by
PureCycle Corporation and furnished to the Securities and
Exchange Commission or its staff upon request.
CERTIFICATIONS
I, Mark Harding, certify that:
1. I have reviewed this quarterly report on Form 10QSB of
PureCycle Corporation.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and
other financial information included in this 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 report;
4. The small business issuer's other certifying officer and
I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15(d)-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15f and 15d-15f
for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the small business issuer's, 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) Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principals;
(c) Evaluated the effectiveness of the small business
issuer's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the small
business issuer's internal control over financial reporting that
occurred during the small business issuer's most recent fiscal
quarter (the small business issuer's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer and
I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the small business issuer's
auditors and the audit committee of the small business issuer's
board of directors (or persons performing the equivalent
function):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
small business issuer's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
small business issuer's internal controls over financial
reporting.
Date January 14, 2004
/s/ Mark Harding
A signed original of this written statement
required by Section 302 of the Sarbanes-Oxley Act of 2002 has
been provided to PureCycle Corporation and will be retained by
PureCycle Corporation and furnished to the Securities and
Exchange Commission or its staff upon request.
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 November
30, 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
January 14, 2004
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 Quraterly Report of PureCycle Corporation
(the "Company"), on Form 10-QSB for the period ending November
30, 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
January 14, 2004