Pure Cycle Corp. Reports Operating Results for Fiscal Quarter Ended on 2008-11-30

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Jan 10, 2009
Pure Cycle Corp. (PCYO, Financial) filed Quarterly Report for the period ended 2008-11-30.

PureCycle Corporation is an investor-owned water company providing water and wastewater services including water production storage treatment distribution wastewater collection and treatment irrigation water treatment and distribution construction management billing and collection and emergency response to its customers located in the greater Denver metropolitan area. Pure Cycle Corp. has a market cap of $50.52 million; its shares were traded at around $2.64 with and P/S ratio of 179.14.

Highlight of Business Operations:

We are obligated to pay annual water assessment charges to the Fort Lyon Canal Company (the FLCC), which are fees assessed to the FLCC shareholders for the upkeep and maintenance of the Fort Lyon Canal the agricultural delivery canal for our Arkansas River water. The payments are due in three payments to the FLCC each calendar year. In December 2008, the board of the FLCC approved a decrease to the calendar 2009 assessments from $15.00 per share to $14.50 per share, which equates to a decrease in our water assessments from approximately $325,000 per year to approximately $314,000 per year.

Cash used by operating activities was approximately $424,500 and $281,100 for the three months ended November 30, 2008 and 2007, respectively. Despite the decreases in our G&A expenses and net losses, cash used by operations increased $143,400 year over year. This is mainly due to a decrease in interest earned on our temporary investments of capital and, during the three months ended November 30, 2007, we cancelled $100,000 of checks issued to Sky Ranch (see Investing Activities and Risk Factors below for more information) for water purchases for which we have not received the water rights deeds. These were cancelled due to Sky Ranch entering bankruptcy.

During the three months ended November 30, 2008 and 2007, we accrued interest on the note receivable from the District of approximately $3,900 and $5,700, respectively, which decreased due to decreases in the prime interest rate. We also accrued approximately $7,700 and $6,700 of interest on the construction proceeds receivable from the County during the three months ended November 30, 2008 and 2007, respectively. The construction proceeds interest income is calculated using the effective interest method.

Investing activities used approximately $40,800 during the three months ended November 30, 2008, predominately for the purchase of property and equipment and investments in water supplies and systems. Investing activities provided approximately $447,100 for the three months ended November 30, 2007. The 2007 investing cash flows were positively impacted by the sale or maturity of approximately $499,800 of available-for-sale securities, which are now included in cash and cash equivalents and therefore no longer impact the investing cash flows. Without the effects of the sale or maturity of the available-for-sale securities, investing activities would have used approximately $52,700, during the three months ended November 30, 2007, entirely for the purchase of property and equipment and investments in water supplies and systems.

On October 31, 2003 we entered into the Denver Groundwater Purchase Agreement (the DGPA) with the developer of Sky Ranch. The DGPA provides us the right to purchase a total of 223 acre-feet of adjudicated decreed water rights owned by the developer. Under the DGPA, we can acquire 44.6 acre-feet of water per year (or 20% of the total 223 acre-feet) for a payment of $50,000 (acquiring the entire 223 acre-feet requires payments totaling $250,000). On March 26, 2004 and May 26, 2005, we purchased a total of 89.2 acre-feet of Denver aquifer groundwater for payments totaling $100,000. During our fiscal 2007 and fiscal 2006 we made the two required $50,000 payments pursuant to the DGPA, for which we have not received the water rights deeds from the developer, nor has the developer cashed either of the payments. In November, 2007, the developer of Sky Ranch filed for Chapter 11 bankruptcy protection. Because of the bankruptcy, and since we have not received our water rights deeds from Sky Ranch, in November 2007 we cancelled the two uncashed checks issued to Sky Ranch and reversed the $100,000 that was included in the Prepaid Expenses account on our Balance Sheet. We will continue to follow the bankruptcy proceedings of Sky Ranch and vigorously seek to enforce our rights under the DGPA and other Sky Ranch agreements.

Financing activities provided approximately $19,600 during the three months ended November 30, 2008, predominately due to construction proceed payments received from Arapahoe County. Financing activities provided approximately $27,200 during the three months ended November 30, 2007. This was comprised of approximately $54,800 of construction proceed payments offset by the repayment of approximately $26,600 of related party debt.

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