Pure Cycle Corp. Reports Operating Results (10-Q)

Author's Avatar
Jul 10, 2009
Pure Cycle Corp. (PCYO, Financial) filed Quarterly Report for the period ended 2009-05-31.

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 $69.2 million; its shares were traded at around $3.505 with and P/S ratio of 245.4.

Highlight of Business Operations:

We did not sell any water taps or wastewater taps during the three or nine months ended May 31, 2009 and 2008. We received approximately $31,800 and $36,900 from the sale of water during the three months ended May 31, 2009 and 2008, respectively, and we received approximately $88,400 and $102,000, respectively, from the sale of water during the nine months ended May 31, 2009 and 2008, respectively. We received approximately $16,700 from monthly wastewater service fees during both three month periods presented, and approximately $50,200 from monthly wastewater service fees during both nine month periods presented. Currently all monthly water and wastewater fees are generated utilizing our Rangeview Water Supply which is defined below. See Critical Accounting Policies below regarding our revenue recognition policies for tap fees and construction fees.

Interest income totaled approximately $12,900 and $52,700 for the three months ended May 31, 2009 and 2008, respectively. Interest income totaled approximately $70,500 and $250,400 for the nine months ended May 31, 2009 and 2008, respectively. This represents interest earned on the temporary investment of capital, interest accrued on our notes receivable from related parties and interest accrued on the construction proceeds receivable from Arapahoe County. The decrease is due to the continued decline in interest rates both on our invested capital and for the notes receivable from related parties. Our temporary investments were invested in overnight money market funds related to treasury obligations until March 2009 when we transferred approximately $3.0 million into federally insured certificates of deposit with scheduled maturities and set interest rates which are not subject to market risk. Our certificates of deposit are held by various financial institutions in amounts less than federally insured limits.

Imputed interest expense related to the Tap Participation Fee payable to HP A&M (as defined in the Liquidity and Capital Resources section below) totaled approximately $858,000 and $1.1 million for the three months ended May 31, 2009 and 2008, respectively. Imputed interest expense related to the Tap Participation Fee payable to HP A&M totaled approximately $2.9 million and $3.3 million for the nine months ended May 31, 2009 and 2008, respectively. This represents the expensed portion of the difference between the estimated fair value of the liability and the net present value of the liability recognized under the effective interest method. See also Note 1 to the accompanying financial statements for discussion on the revaluation of the Tap Participation Fee and its impact to the nine months ended May 31, 2009 financial statements.

Investing activities used approximately $3.1 million during the nine months ended May 31, 2009, predominately for the purchase of marketable securities ($3.0 million) and investments in water supplies and systems ($110,400). Investing activities provided approximately $501,300 for the nine months ended May 31, 2008. The 2008 investing cash flows were positively impacted by the sale or maturity of approximately $790,700 of available-for-sale securities. Without the effects of the sale or maturity of the marketable securities, investing activities would have used approximately $289,400 during the nine months ended May 31, 2008, entirely for investments in water supplies and systems and the purchase of property and equipment.

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 $22,200 during the nine months ended May 31, 2009, predominately due to approximately $61,600 of construction proceed payments received from Arapahoe County, which were partially offset by the approximately $37,500 Tap Participation Fee payments made to HP A&M related to the sale of the non-irrigated land. Financing activities provided approximately $67,000 during the nine months ended May 31, 2008. This was mainly due to the receipt of approximately $95,900 of construction proceed payments from Arapahoe County partially offset by the repayment of approximately $26,600 of related party debt.

Read the The complete Report