10-Q 1 brhc10023077_10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 000-08814

PURE CYCLE CORPORATION

(Exact name of registrant as specified in its charter)

Colorado		84-0705083
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

34501 E. Quincy Avenue, Bldg. 34, Watkins, CO		80137
(Address of principal executive offices)		(Zip Code)

(303) 292 – 3456

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock 1/3 of $.01 par value	PCYO	The NASDAQ Stock Market
(Title of each class)	(Trading Symbol(s))	(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of April 1, 2021:

Common stock, 1/3 of $.01 par value		23,905,644
(Class)		(Number of Shares)

PURE CYCLE CORPORATION

INDEX TO FEBRUARY 28, 2021 FORM 10-Q

		Page

PART I. FINANCIAL INFORMATION		1

	Item 1. Condensed Consolidated Financial Statements	1

	Condensed Consolidated Balance Sheets: February 28, 2021 (unaudited) and August 31, 2020	1

	Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited): For the three and six months ended February 28, 2021 and February 29, 2020	2

	Condensed Consolidated Statements of Shareholders’ Equity (unaudited): For the three and six months ended February 28, 2021 and February 29, 2020	3

	Condensed Consolidated Statements of Cash Flows (unaudited): For the six months ended February 28, 2021 and February 29, 2020	5

	Notes to Condensed Consolidated Financial Statements	6

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	29

	Item 4. Controls and Procedures	29

PART II. OTHER INFORMATION		30

	Item 6. Exhibits	30

SIGNATURES		31

Index

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

PURE CYCLE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

	February 28, 2021 (unaudited)			August 31, 2020
	(In thousands, except share and per share amounts)
ASSETS:
Current assets:
Cash, cash equivalents and restricted cash	$	20,763		$	21,797
Trade accounts receivable, net		1,385			1,124
Prepaid expenses and other assets		445			1,001
Land development inventories:
Land development - Phase 1		—			481
Land development - Phase 2		151			—
Public improvement reimbursables - Phase 2		315			—
Income taxes receivable		—			1,588
Total current assets		23,059			25,991

Investments in water and water systems, net		54,737			55,087
Land and mineral interests		5,055			4,915
Other assets		2,440			2,042
Notes receivable - related parties, including accrued interest:
Public improvement reimbursables - Phase 1		21,466			—
Other		1,159			1,079
Long-term land investment		451			451
Operating leases - right of use assets, less current portion		159			196
Total assets	$	108,526		$	89,761

LIABILITIES:
Current liabilities:
Accounts payable	$	137		$	180
Accrued liabilities		563			1,391
Accrued liabilities - related parties		374			1,212
Income taxes payable		4,267			—
Deferred lot sale revenues		995			1,635
Deferred oil and gas lease payment and water sales payment		191			1,800
Total current liabilities		6,527			6,218

Deferred oil and gas lease payment and water sales payment, less current portion		69			165
Participating interests in export water supply		326			328
Deferred tax liability		957			886
Lease obligations - operating leases, less current portion		79			120
Total liabilities		7,958			7,717

Commitments and contingencies

SHAREHOLDERS’ EQUITY:
Preferred stock:
Series B - par value $0.001 per share, 25 million shares authorized; 432,513 shares issued and outstanding (liquidation preference of $432,513)		—			—
Common stock:
Par value 1/3 of $.01 per share, 40 million shares authorized; 23,888,375 and 23,856,098 shares outstanding, respectively		80			80
Additional paid-in capital		173,254			172,927
Accumulated deficit		(72,766	)		(90,963	)
Total shareholders’ equity		100,568			82,044
Total liabilities and shareholders’ equity	$	108,526		$	89,761

See accompanying Notes to Condensed Consolidated Financial Statements

Index

PURE CYCLE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(unaudited)

	Three Months Ended						Six Months Ended
	February 28, 2021			February 29, 2020			February 28, 2021			February 29, 2020
Revenues:	(In thousands, except per share amounts)
Metered water usage from:
Municipal customers	$	74		$	37		$	241		$	140
Oil and gas operations		583			20			1,782			57
Wastewater treatment fees		51			20			93			40
Water and wastewater tap fees		1,583			1,173			2,666			2,845
Lot sales		515			2,265			2,871			10,807
Project management fees - recognized		1,548			—			1,548			—
Special facility projects and other		385			4			406			90
Total revenues		4,739			3,519			9,607			13,979

Expenses:
Water service operations		(213	)		(207	)		(758	)		(461	)
Wastewater service operations		(64	)		(38	)		(156	)		(64	)
Land development construction costs		(269	)		(1,817	)		(1,988	)		(9,880	)
Depletion and depreciation		(354	)		(383	)		(719	)		(602	)
Other		(363	)		(3	)		(387	)		(27	)
Total cost of revenues		(1,263	)		(2,448	)		(4,008	)		(11,034	)
Gross profit		3,476			1,071			5,599			2,945

General and administrative expenses		(1,342	)		(1,037	)		(2,428	)		(1,838	)
Depreciation		(76	)		(95	)		(160	)		(180	)
Operating income (loss)		2,058			(61	)		3,011			927

Other income:
Recognition of public improvement reimbursables - related party		18,894			—			18,894			—
Interest income		1,448			84			1,463			138
Reimbursement of construction costs - related party		485			—			485			6,276
Oil and gas royalty income, net		76			269			151			539
Oil and gas lease income, net		48			61			100			123
Other		10			—			20			—
Income from operations before income taxes		23,019			353			24,124			8,003
Income tax expense		(5,667	)		(79	)		(5,927	)		(1,966	)
Net income	$	17,352		$	274		$	18,197		$	6,037
Unrealized holding losses		—			—			—			(4	)
Total comprehensive income	$	17,352		$	274		$	18,197		$	6,033

Earnings per common share:
Basic	$	0.73		$	0.01		$	0.76		$	0.25
Diluted	$	0.72			0.01		$	0.76			0.25

Weighted average common shares outstanding:
Basic		23,882			23,846			23,874			23,836
Diluted		24,092			24,110			24,064			24,080

See accompanying Notes to Condensed Consolidated Financial Statements

Index

PURE CYCLE CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(unaudited)

	Three Months Ended February 28, 2021
	Preferred Stock				Common Stock				Additional Paid-in		Accumulated Other Comprehensive		Accumulated
	Shares		Amount		Shares		Amount		Capital		Income (Loss)		Deficit			Total
	(In thousands)
November 30, 2020 balance:		433	$	—		23,868	$	80	$	173,013	$	—	$	(90,118	)	$	82,975
Stock option exercises		—		—		8		—		14		—		—			14
Stock granted for services		—		—		12		—		136		—		—			136
Share-based compensation		—		—		—		—		91		—		—			91
Net income		—		—		—		—		—		—		17,352			17,352
February 28, 2021 balance:		433	$	—		23,888	$	80	$	173,254	$	—	$	(72,766	)	$	100,568

	Three Months Ended February 29, 2020
	Preferred Stock				Common Stock				Additional Paid-in		Accumulated Other Comprehensive		Accumulated
	Shares		Amount		Shares		Amount		Capital		Income (Loss)		Deficit			Total
	(In thousands)
November 30, 2019 balance:		433	$	—		23,827	$	79	$	172,466	$	—	$	(91,950	)	$	80,595
Stock option exercises		—		—		13		—		35		—		—			35
Stock granted for services		—		—		12		—		149		—		—			149
Share-based compensation		—		—		—		—		99		—		—			99
Net income		—		—		—		—		—		—		274			274
February 29, 2020 balance:		433	$	—		23,852	$	79	$	172,749	$	—	$	(91,676	)	$	81,152

Index

PURE CYCLE CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(unaudited)

	Six Months Ended February 28, 2021
	Preferred Stock				Common Stock				Additional Paid-in		Accumulated Other Comprehensive		Accumulated
	Shares		Amount		Shares		Amount		Capital		Income (Loss)		Deficit			Total
	(In thousands)
August 31, 2020 balance:		433	$	—		23,856	$	80	$	172,927	$	—	$	(90,963	)	$	82,044
Stock option exercises		—		—		20		—		14		—		—			14
Stock granted for services		—		—		12		—		136		—		—			136
Share-based compensation		—		—		—		—		177		—		—			177
Net income		—		—		—		—		—		—		18,197			18,197
February 28, 2021 balance:		433	$	—		23,888	$	80	$	173,254	$	—	$	(72,766	)	$	100,568

	Six Months Ended February 29, 2020
	Preferred Stock				Common Stock				Additional Paid-in		Accumulated Other Comprehensive		Accumulated
	Shares		Amount		Shares		Amount		Capital		Income (Loss)		Deficit			Total
	(In thousands)
August 31, 2019 balance:		433	$	—		23,827	$	79	$	172,361	$	4	$	(97,713	)	$	74,731
Stock option exercises		—		—		13		—		35		—		—			35
Stock granted for services		—

SEC Form 10-Q filed by Pure Cycle Corporation