________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-8814
PURE CYCLE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0705083
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5650 York Street, Commerce City, CO 80022
(Address of principal executive office) (Zip Code)
Registrant's telephone number (303) 292-3456
________________________________________________________________________
Securities registered under Section 12(b)of the Exchange Act:
None
(Title of class)
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock,
1/3 of $.01 par value
(Title of class)
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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X]
Registrant had no revenues during the fiscal year ended August 31,
1996.
Aggregate market value of voting stock held by non-affiliates:
$14,119,157 (based upon the average bid and asked price on the
NASDAQ Bulletin Board on December 6, 1996)
Number of shares of Common Stock outstanding, as of December 6,
1996: 78,439,763
Transitional Small Business Disclosure Format(Check One): Yes [] No
[x]
Documents incorporated by reference: None
PAGE 1 0F 39
<PAGE>
Index to Pure Cycle Corporation
1996 Annual Report on Form 10-KSB
Item Part I Page
- ---- ----
1. Description of Business . . . . . . . . . . . 3
2. Description of Property . . . . . . . . . . . 7
3. Legal Proceedings. . . . . . . . . . . . . . . 7
4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . 8
Part II
5. Market for the Common Equity and
Related Stockholder Matters . . . . . . . . . 9
6. Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . 10
7. Financial Statements . . . . . . . . . . . . 13
8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . 31
Part III
9. Directors, Executive Officers, Promoters and
Control Persons; Section 16 (a) Beneficial
Ownership Reporting Compliance . . . . . . . 31
10. Executive Compensation . . . . . . . . . . . 31
11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . 32
12. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . 35
13. Exhibits and Reports on Form 8-K . . . . . . . 35
Signatures . . . . . . . . . . . . . . . . . 39
"SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Statements that are not historical facts contained in this Annual
Report on Form 10-KSB 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.
PAGE 2 OF 39
<PAGE>
PART I
Item 1. Description of Business
-----------------------
General
Pure Cycle Corporation (the "Company") is a Delaware corporation
founded in 1976 to manufacture and market its patented water
recycling technologies designed to process a single family home's
wastewater into pure potable drinking water. Production of the
single-family water recycling systems was halted in July 1982. In
1987, the Company resumed operations, broadening its business
development activities to include the privatization of water and
wastewater systems in Colorado and throughout the United States.
The Company's business activities include the development of large
municipal water and wastewater systems to provide water and
wastewater service to customers on a wholesale and retail basis.
The Company's business focus continues to center on the application
of its patented water recycling technologies to process municipal
wastewater into pure potable drinking water for resale.
In 1996, the Company entered into a landmark water privatization
agreement with the State of Colorado and the Rangeview Metropolitan
District (the "District") for the development of over 26,000 acre
feet of water in the Denver metropolitan area. The water
privatization agreement enabled the Company to acquire ownership to
a total gross volume of 1,165,000 acre feet of ground water
(approximately 11,650 acre feet per year), and an option to
substitute 1,650 acre feet of surface water in exchange for a total
gross volume of 165,000 acre feet of ground water, and the use of
surface reservoir storage capacity (collective referred to as the
"Export Water Rights").
In addition to ownership of the Export Water Rights, the Company
entered into an 85 year Service Agreement with the District to
design, develop, finance, construct, operate, and maintain the
District's water system to service customers within the District's
24,000 acre service area. The District has reserved approximately
14,350 acre feet per year of water and surface reservoir storage
capacity (collectively referred to as the "Service Area Water
Rights") for use within the District's Service Area.
The Company's water assets together with its Service Agreement
enable the Company to develop and market water rights on a
wholesale basis to cities, municipalities and special districts in
need of additional water supplies as well as retail customers
within the District's Service Area. The Company will seek to
utilize its patented water recycling technologies to process the
return flow wastewater/ sewage into pure potable water for reuse
applications.
Description of Company Assets
- -----------------------------
Paradise Water Rights
In 1987, the Company acquired certain water rights, water wells,
and related assets from Paradise Oil, Water and Land Development,
Inc., which constitute the "Paradise Water Rights". The Paradise
Water Rights include 70,000 acre feet of tributary Colorado River
decreed water rights, a right-of-way permit from the United States
Department of the Interior, Bureau of Land Management for the
construction of a 70,000 acre foot dam and reservoir across federal
lands, and four water wells ranging in depth from 900 feet to 1,800
feet. The water wells produce approximately 7,500 - 9,400 gallons
per minute (which produce approximately 14,000 acre feet per well
per year) with an artesian pressure of approximately 100 pounds per
square inch.
Geographically, there are two significant markets for the
Paradise Water Rights: water users in the downstream states of
Arizona, Nevada and California; and water users in the Denver
metropolitan area. The Company is currently pursuing the sale and
development of the Paradise Water Rights as a wholesale municipal
water supply to cities, municipalities and special districts in
these markets. Other potential development opportunities for the
Paradise Water Rights include, but are not limited to, the
utilization of the artesian pressure for hydroelectric power
generation, water leasing to agricultural interests, mineral
interests, and recreational interests. Currently, the Company has
outstanding proposals to several public and private companies for
the sale of the Paradise Water Rights.
PAGE 3 OF 39
<PAGE>
Rangeview Water Rights
Beginning in 1988, the Company initiated efforts to acquire the
rights to approximately 10,000 acre feet of non-tributary ground
water rights from the District. Since that time, the Company
acquired various options to purchase water together with a portion
of the Water Revenue Notes and Bonds (the "District Bonds") issued
by the District, options to purchase the remaining District Bonds,
and certain real property interests within the boundaries of the
District. In 1990 the Company entered into a Water
Commercialization Agreement (the "WCA") with Inco Securities
Corporation ("ISC") to jointly develop and market the water rights.
The Company sold rights to investors to participate in the
Company's share of proceeds from the WCA in order to finance the
acquisition of the above described assets. During fiscal 1995, the
Company joined in a lawsuit against the State of Colorado Board of
Land Commissioners (the "State Land Board") seeking clarification
of a lease which governed the development rights to the water.
In April 1996, the parties to the litigation, including the
Company, entered into a Settlement Agreement to dismiss the
lawsuit. As part of the Settlement Agreement, the Company
purchased all of the District's outstanding District Bonds from the
holders of the securities and entered into a water privatization
agreement between the District and the Company. As part of the
Settlement Agreement, the Company purchased fee interest to the
Export Water Rights, which consist of a total gross volume of
1,165,000 acre feet (approximately 11,650 acre feet per year) of
non-tributary and not non-tributary ground water, and the option to
substitute 1,650 acre feet of tributary surface water for a total
gross volume of 165,000 acre feet of non-tributary and not non-
tributary ground water, and surface reservoir storage rights from
the District in exchange for all the outstanding District Bonds.
Comprehensive Amendment Agreement
In order to acquire all the remaining outstanding District Bonds
not already held by the Company to enable the Company to enter into
the Settlement Agreement and to acquire the Export Water Rights,
the Company negotiated agreements with all the remaining bond
holders and amended the WCA and its agreements with all prior
investors in the WCA. Pursuant to the new Comprehensive Amendment
Agreement (the "CAA") entered into in conjunction with the
Settlement Agreement, such bond holders and investors have a right
to receive $31,807,232 from the proceeds of a sale or other
disposition of the Export Water Rights.
Service Agreement
Additionally, the Company entered into an eighty five (85) year
Service Agreement with the District to design, finance, construct,
operate, and maintain the District's water system to provide water
service to customers within the District's 24,000 acre Service
Area. The District has reserved approximately 14,350 acre feet of
water per year, together with surface reservoir storage capacity
for the Company's use in providing water service to customers
within the District's Service Area. In exchange for providing
water service to customers within the District's Service Area, the
Company will receive 95% of the District's water revenues remaining
after payment of royalties to the State Land Board.
The Company will supply water to customers within the 24,000
acres of property which constitute the boundaries of the District's
Service Area. The District's Service Area is located in
northeastern Arapahoe County, Colorado - a growing county
bordering Denver, Colorado. Currently the majority of the property
is undeveloped land, however portions of the property have been
sold to an area home builder. Development of the property is
dependent on overall growth in the Denver metropolitan area.
There are over 100 independent municipal water providers
throughout the Denver metropolitan area of which approximately 40
providers account for approximately 95% of the water delivered to
the metropolitan Denver consumers. The Company is actively
marketing its Export Water Rights to these 40 area water providers
as a wholesale or retail water supply.
PAGE 4 OF 39
<PAGE>
Recycling Technology
The Company developed and patented water recycling technology
which converts single-family home wastewater/sewage into pure
potable drinking water. The Company manufactured, installed and
operated the single-family water recycling units in the late 1970's
and early 1980's until halting production of the units in 1982.
The Company has shifted its strategic market for its water
recycling technology from the its original single-family units to
large municipal wastewater/ sewage treatment applications. The
Company, in conjunction with the marketing of its water rights and
the development of facilities pursuant to the Service Agreement,
will seek to apply its water recycling technology to treat
municipal wastewater/ sewage into pure potable water for reuse.
Description of Business
Beginning in fiscal 1987, and continuing through fiscal 1996, the
Company has sought to acquire a portfolio of water rights (which
are described above in the Description of Company's Assets) which
the Company can develop and market to municipal water providers. In
addition to developing water supplies for municipal water providers
in need of supplemental water sources, the Company is engaged in
the privatization of municipal water and wastewater systems. From
its initial efforts in the Denver metropolitan area, the Company
seeks to utilize its water rights and wastewater treatment
technologies to privatize other government owned water and
wastewater systems in Colorado and throughout the western United
States.
The Rangeview Metropolitan District, a quasi municipal, political
subdivision of the State of Colorado is a special district
empowered to provide water and wastewater services to approximately
24,000 acres of property located approximately 12 miles south and
east of Denver, most of which is owned by the State of Colorado
(the "Service Area"). The District has the ability to issue tax-
exempt municipal bonds and to enter into other governmental
financing agreements to provide water service and wastewater
treatment for customers in its Service Area. Additionally, the
District is empowered to set rates and charges for the water and
wastewater services. Pursuant to the Settlement Agreement, the
District's water rates and charges must be the average of similar
rates and charges of the three surrounding municipal water
providers.
The development of the District's Service Area is dependent on
growth in the Denver metropolitan area, and on the State of
Colorado selling portions of the its property to parties interested
in the development of the land. The District has reserved
approximately 14,350 acre feet of water annually, together with
surface reservoir storage capacity, to provide water service to the
property. The District completed a study to analyze the future
development opportunities for the property and defined three
categories of land uses: residential, commercial/ light
industrial, and open space. Approximately 10,000 acres is suitable
for residential development accommodating up to 30,000 single-
family homes; approximately 2,200 acres is suitable for commercial
and light industrial development along the primary access
corridors; and the remaining 12,800 acres is suitable for open
space (i.e. parks, playing fields, and golf courses).
The Company is negotiating with the Rangeview Metropolitan
District to provide wastewater/ sewage treatment facilities, in
addition to water service, to accommodate the development of the
District's 24,000 acres of property. The Company intends to
utilize its advanced wastewater treatment technologies to process
wastewater into pure potable drinking water for reuse.
During fiscal 1996, the Company purchased the Export Water
Rights, consisting of a total gross volume of 1,165,000 acre feet
(approximately 11,650 acre feet per year) of non-tributary and not
non-tributary ground water, together with an option to substitute
1,650 acre feet of tributary surface water in exchange for a total
gross volume of 165,000 acre feet of non-tributary and not non-
tributary ground water, and surface storage rights from the
District in exchange for all the outstanding District Bonds,
totaling approximately $39 million (par plus accrued interest).
The Company is marketing the Export Water Rights to Denver area
municipal water providers on both a wholesale and retail basis.
PAGE 5 OF 39
<PAGE>
The 40 largest municipal water providers in the Denver
metropolitan area deliver approximately 95% of the water consumed
by residents and businesses in the Denver metropolitan area. The
Company actively marketed the Export Water Rights to each of the 40
largest providers during fiscal year 1996. Concurrent with water
supply, some area water providers also have independent wastewater/
sewage treatment facilities. While the water supply market
throughout the Denver metropolitan area is fragmented with over 100
independent providers, the majority of wastewater/sewage treatment
is processed by approximately 10 major wastewater/sewage treatment
providers. The majority of Denver area water providers participate
to the Metropolitan Wastewater Authority which process
approximately 90% of the areas wastewater/sewage.
The Company is actively marketing its Export Water Rights to
other municipal users within the Denver area. Development of the
District's Service Area will include the design, construction,
operation and maintenance of a water delivery system to serve
customers within the District's Service Area. The Company will
receive 95% of the tap fee and user fee income remaining after
payment of royalties to the State Land Board (initially 12%) for
its commitments to build, operate, and maintain the water system.
The Company expects to use portions of the tap and user fee income
to finance the development of facilities for the District's Service
Area.
The Export Water Rights could be sold for a lump sum or pursuant
to an installment sale contract, either on a wholesale basis, where
the purchaser would be responsible for the development of
facilities to deliver the water to its users, or on a retail basis
where the Company would develop the facilities necessary to deliver
the water. The timing, terms, and conditions of sales are
dependent on the purchaser.
The Company is also pursuing the sale of the Paradise Water
Rights to cities, municipalities, and special district in the
downstream states of Arizona, Nevada and California. However,
there are certain restrictions under the Colorado River Compact
which relate to a reallocation of water rights from one state to
another, including a requirement that a court decree authorizing
the use of the water rights out of state be obtained and compliance
with other interstate compacts or agreements, which would need to
be resolved or complied with before the Paradise Water Rights can
be sold to users outside of Colorado. If the Company is successful
in selling its Paradise Water Rights, the Company would anticipate
developing these water rights in a manner similar to the Export
Water Rights.
The Company's business of water sales is subject to competitive
factors as water providers desiring water will consider alternative
sources. The Company is aware of several other private water
companies who are attempting to market competing water rights to
municipal water providers in the Denver area. In addition,
municipal water providers seeking to acquire water rights evaluate
independent water rights owned by individuals, farmers, ranchers,
etc. The principal factors affecting competition in this regard
include, but may not be limited to, the availability of water for
the particular purpose, the cost of delivery of the water to the
desired location, the availability of water during dry year
periods, the quality of the water source, and the reliability of
the water supply. The Company believes that its water rights
provide the Company with an advantage over its competition because
the water rights the Company owns have been designated for
municipal use by decrees issued by Colorado water courts, and
because of the quantity of water available, the quality of water,
their location in the Denver metropolitan area, and Paradise's
location to deliver water to either downstream or Denver area water
users), and price. The quantity of water the Company has available
for sale has been determined by court decrees of the Colorado
water courts. The Company has had the quality and quantity of the
Rangeview and Paradise Water Rights evaluated by independent
appraisers and water engineers. The water quality, without
treatment, meets or exceeds all current federal and state drinking
water standards.
The business segment of water purification and municipal water
recycling are also subject to competition from municipal water
providers who also provide wastewater/ sewage processing, and from
regional wastewater/sewage processors. The Company is not aware of
any private companies providing wastewater/sewage treatment
services in the Denver metropolitan area. The Company believes
that it could have a competitive advantage because its wastewater
treatment technology uses no toxic chemicals and the water after
processing exceeds stringent water quality standards currently in
effect. Additionally, residual material created in the wastewater
treatment process can be composted into a high grade fertilizer for
agricultural use.
PAGE 6 OF 39
<PAGE>
If the Company is successful in selling water, the construction
of wells, dams, pipelines and storage facilities may require
compliance with environmental regulations, however the Company
believes that regulatory compliance would not materially impact
such a sale. It is anticipated that a purchaser of the Company's
water rights would undertake to construct the required facilities
to deliver the water to its users, however the Company would
consider providing such infrastructure as part of a water sale
agreement. If the Company were to ultimately agree to provide such
facilities, the Company could incur substantial capital
expenditures to comply with governmental regulations. However, the
Company cannot assess such costs until the purchaser of the water
rights and the nature of the water delivery system required has
been determined. Similarly if the Company were to obtain a
contract for treatment of wastewater and sewage, governmental
regulations concerning drinking water quality and wastewater
discharge quality may be applicable. However, until the Company
has a contract proposal specifying the quantity and type of
wastewater to be treated and the proposed use of such treated
water, the cost of regulatory compliance cannot be determined.
The Company holds several patents in the United States and abroad
related to its water recycling system and components thereof. The
value to the Company of these patents is dependent upon the
Company's ability to adapt its water recycling system to larger
scale applications, or to develop other uses for the technology.
These patents will expire in the late 1990's.
The Company currently has four employees.
Item 2. Description of Property
-----------------------
The Company currently leases office facilities at the address
shown on the cover page.
The Company owns approximately 70,000 acre feet of conditional
water rights, water wells and related assets in the State of
Colorado by assignment and quit claim deed. See "Item 1.
Description of Business - Description of Company's Assets -
Paradise Water Rights."
During the fiscal year ended August 31, 1996, the Company
purchased a total gross volume of 1,165,000 acre feet
(approximately 11,650 acre feet per year) of non-tributary and not
non-tributary ground water, together with an option to substitute
1,650 acre feet of tributary surface water in exchange for a total
gross volume of 165,000 acre feet of non-tributary and not non-
tributary ground water, and surface storage rights from the
District. See "Item 1. Description of Business - Description of
Company's Assets - Rangeview water rights."
Item 3. Legal Proceedings
-----------------
In October 1994, the Company joined in a lawsuit initiated by
others including the Rangeview Metropolitan District (the
"District"), brought in the District Court of the City and County
of Denver, Colorado, against the Colorado State Board of Land
Commissioners (the "State Land Board") seeking a declaratory
judgment affirming that the lease, as amended, from the State Land
Board to the District was valid and enforceable.
In April of 1996, the parties to the lawsuit agreed to a
settlement (the "Settlement"). The Settlement, among other things,
clarifies the State Land Board's royalty participation in an
amended and restated lease relating to the Rangeview water rights.
The Company negotiated agreements to acquire the remainder of the
District's Bonds not already owned by the Company with a principal
value of $24,914,058 in exchange for interests in the Company's
Comprehensive Amendment Agreement ("CAA"). Commitments to the
former bondholders and investors to share in the proceeds from the
sale or other disposition of the Export Water Rights decreased from
approximately $33,546,000 to approximately $31,807,000 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 June 14, 1996 and became final and
non-appealable on July 29, 1996.
PAGE 7 OF 39
<PAGE>
Item 3. Legal Proceedings - (continued)
------------------------------
Certain crossclaims in the lawsuit remain pending between the
District and the East Cherry Creek Valley Water and Sanitation
District (the "ECCV"). One of ECCV's crossclaims would affect the
Company in that ECCV asserts that it has the right of first refusal
to purchase the Export Water. If ECCV were to prevail on this
claim, the Company would be required to sell the Export Water to
ECCV. The price for such a purchase would be determined by the
court and might be more or less favorable than the price the
Company could obtain from a third party. Management does not
believe the outcome of the remaining crossclaim will have a
material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of stockholders during the
fourth quarter ended August 31, 1996.
PAGE 8 OF 39
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
--------------------------------------------------------
Markets
The table below shows for the quarter indicated the high and low
bid prices of the Common stock on the NASDAQ Bulletin Board. The
Company's Common stock is traded on the NASDAQ Bulletin Board under
the trade symbol PCYL. As of December 6, 1996, there were 4,290
holders of record of the Company's Common stock.
Calendar Quarter Low High
---------------- ------- ------
1996 First $.125 $.1875
Second $.14 $.19
Third $.14 $.4375
Fourth $.20 $.34375
1995 First $.125 $.325
Second $.125 $.325
Third $.125 $.25
Fourth $.125 $.25
Quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual
transactions.
Dividends
The Company has never paid any dividends on its Common Stock and
does not anticipate paying any dividends in the foreseeable future.
Recent Sales of Unregistered Securities
In August 1996, in connection with a loan for $300,000, the
Company issued warrants to purchase 600,000 shares of the Company's
Common Stock at $.25 per share to six related party, accredited
investors who have previously invested in the Company. The loan
agreement provides that the Company can extend the due date of
any of the installments due to August 30, 2002 by issuing additional
warrants.
The Company issued the warrants under Section 4(2) of the
Securities Act of 1933 based on the fact that the warrants were
offered privately to a limited group of existing stockholders, each
of whom is sophisticated in investment matters and qualifies as an
accredited investor.
PAGE 9 OF 39
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
Introduction
Pure Cycle is engaged in the privatization of municipal water and
wastewater systems in Colorado and throughout the United States.
The Company seeks to use its portfolio of water rights and water
technologies to enhance the availability and quality of municipally
provided drinking water. The Company purchased approximately
11,650 acre feet of water and entered into a Service Agreement with
the Rangeview Metropolitan District to develop, operate, and
maintain the District's water system. The Company's eighty five
(85) year water Service Agreement with the Rangeview Metropolitan
District will enable the Company to provide water service to over
36 square miles of property located in the Denver metropolitan
area. Subsequent to the fiscal year end, the Company has been
negotiating a wastewater service agreement with the District which,
if concluded, would authorize the Company to develop, operate, and
maintain the District's wastewater system in addition to the water
system. The Company continues to develop its patented water
recycling technologies and, if successful in obtaining the
wastewater service agreement with the District, will seek to
integrate these technologies for processing wastewater into pure
potable water for reuse as part of its wastewater service
commitment to the District's Service Area.
Plan of Operation
Prior to fiscal 1992, the Company funded operations primarily
through long term debt financing from certain related parties
including the Company's President and major stockholder. Since
fiscal 1992, the Company has funded operations with equity
financing and by marketing the right to share in proceeds from the
sale of its Export Water Rights to private individuals, companies
and institutions with an interest in the municipal wholesale water
supply market.
The Company is aggressively pursuing the marketing and sales of
its water rights to municipal water providers in the Denver
metropolitan region as well as users in Arizona, Nevada and
California to generate current and long term revenue sources.
During the fiscal year 1996, the Company has presented wholesale
water supply proposals to 40 municipal water providers throughout
the Denver area with respect to the sale of the Export Water
Rights. Additionally, during fiscal 1996, the Company has
presented wholesale water supply proposals to private and municipal
water providers in Nevada, Arizona and California for the sale of
the Company's 70,000 acre feet of Paradise Water Rights,
understanding that certain legal issues relating to interstate
water rights transfers may exist. The Company continues to discuss
water supply arrangements with private companies and municipal
water providers to whom it has made proposals. The Company
continues to identify and market its water rights to other private
companies and municipal water providers.
In addition to marketing the Company's water rights, the Company
will develop the facilities to provide water and, subject to
concluding an agreement with the District, wastewater service to
customers on over 24,000 acres of property within the District's
Service Area. The property is primarily undeveloped land situated
in the Denver metropolitan area. Portions of the property have
been sold to a private interest who may develop the property. The
timing of the development of the water and wastewater facilities
for the District's Service Area and the revenues to be generated
therefrom will depend upon when the property is developed.
At this time the Company is not able to determine the timing of
water rights sales or the timing of development of the property
within the District's Service Area. There can be no assurance that
these sales can be made on terms acceptable to the Company or that
development will occur. In the event water sales are not
forthcoming or development of the property within the District's
Service Area is delayed, the Company may sell additional portions
of the Company's profits interest pursuant to the CAA, incur
additional 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. The Company's ability to ultimately realize its
investment in its two primary water projects is dependent on its
ability to successfully market the water, or in the event it is
unsuccessful, to sell the underlying water rights. Under provisions
of the CAA, the other investors in the the Rangeview project are to
receive the first approximately $31,807,000 from the sale or other
disposition of the Rangeview water rights. The Comapny has agreed
to pay the next $4,000,000 in proceeds to LCH, Inc., a company
affiliated with the Company's president. The next $432,513 in
proceeds is payable to the holders of the Company's Series
B Preferred Stock. The Company retains 100% of the proceeds in
excess of $35,807,232 from the sale or other disposition of the
Export Water Rights.
PAGE 10 OF 39
<PAGE>
Results of Operations
Summary
- -------
The Company continues to operate at a loss with its operating
capital requirements funded primarily through equity financings and
the sale of rights to participate in the proceeds from the sale of
the Company's Export Water Rights.
Year Ended August 31, 1996 compared to the Year Ended August 31,
- ------------------------------------------------------------------
1995
- ----
The Company's general and administrative expenses for fiscal 1996
decreased approximately $4,000 or 1% to $338,000 as compared to
$342,000 for fiscal year ended August 31, 1995, due primarily to a
decrease in payroll expenditures and facility costs. The Company's
net loss for fiscal 1996 decreased approximately $59,000 or 12% to
$456,000 as compared to $515,000 for fiscal year ended August 31,
1995. The decrease in the net loss for fiscal 1996 over fiscal
1995 was due primarily to the recognition of $48,228 in
extraordinary gain from the extinguishment of debt in 1996 compared
to $4,884 recognized in 1995; lower interest expense resulting from
a lower outstanding debt balance resulted in a savings of
approximately $37,000 in fiscal 1996. However, this decrease was
largely offset by a charge of approximately $32,000 resulting from
the expiration of an option to purchase certain water rights.
Year Ended August 31, 1995 compared to the Year Ended August 31,
- -------------------------------------------------------------------
1994
- ----
The Company's general and administrative expenses for fiscal 1995
decreased approximately $24,000 or 7% to $342,000 as compared to
$367,000 for fiscal year ended August 31, 1994, due primarily to a
decrease in professional and legal fees, research and development
costs and travel related costs. The Company's net loss for fiscal
1995 increased approximately $9,000 or 2% to $515,000 as compared
to $506,000 for fiscal year ended August 31, 1994. The increase in
the net loss for fiscal 1995 over fiscal 1994 was due primarily to
the recognition of $58,667 in extraordinary gains from the
extinguishment of debt in 1994 compared to $4,884 recognized in
1995.
Liquidity and Capital Resources
- -------------------------------
At August 31, 1996, current assets exceed current liabilities by
$87,253 and, the Company had cash and cash equivalents of $127,756.
Cash used in operating activities for fiscal 1996 was
approximately $314,000, and based on budgeted operating costs, it
is anticipated that a similar level of operating cash outflows will
be incurred during fiscal 1996.
Cash used in investing activities for fiscal 1996 was
approximately $282,000 resulting from the capitalization of costs
incurred with respect to the Rangeview and Paradise Water Rights
projects and funds loaned to the District under terms of a loan
agreement with the Company. The majority of water rights costs
incurred during fiscal 1996 were the result of professional and
legal fees necessary for negotiating the Settlement. Management
believes it will incur substantially lower costs with respect to
its water rights holdings during fiscal 1997, based on the
expectation that it will not be necessary to incur significant
legal fees. In addition, the Company has no further obligation to
advance funds to the District under the loan agreement. Because of
the revenue sources available to the District, and its operating
expense history, the Company believes the District will repay the
note within a period of one to two years after the due date of
December 31, 1996.
The Company entered into a loan agreement on August 30, 1996 to
borrow $300,000 from six related party investors (see note 4 to
the financial statements). The loan is payable in 2002. The
proceeds from the note were received subsequent to year end.
Net cash used in financing activities of $142,5000 in fiscal 1996
resulted from the repayment of a note to an unrelated party, as
more fully discussed in note 4 to the financial statements.
Based on budgets prepared by management, at its current activity
level, the Company believes that it is capable of sustaining its
activities through at least fiscal 1997.
PAGE 11 OF 39
<PAGE>
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 by the municipality
purchasing such water rights or through the sale of water taps and
water delivery charges. A water tap charge refers to a charge
imposed by a municipality to permit a water user access to 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.
The Company has reviewed the carrying value of its long-lived
assets, primarily investments in water projects, considering the
anticipated future cash flows from these projects. Based on its
analysis, it is management's belief that there is no impairment in
the carrying value of the Company's long-lived assets as reflected
on the balance sheet at August 31, 1996.
Statement of Financial Accounting Standard No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123") was issued by the
Financial Accounting Standards Board in October 1995. This Standard
addresses the timing and measurement of stock-based compensation
expense. Entities electing to continue to follow Accounting Principles
Board Opinion No. 25 ("APB 25") must make pro-forma disclosures of
net income and earnings per share, as if the fair value based method
of accounting defined by SFAS 123 had been applied. SFAS 123 is
applicable to fiscal years beginning after December 15, 1995. The
Company will adopt SFAS 123 in the first quarter of fiscal 1997 and
will elect to retain the approach of APB 25 (the intrinsic value
method), for recognizing stock-based compensation in its consolidated
financial statements. The Company will include disclosures required
by SFAS 123 in future financial statements.
PAGE 12 OF 39
<PAGE>
Item 7. Financial Statements
- ----------------------------
Page
----
Independent Auditors' Reports 14
Consolidated Balance Sheets 15
Consolidated Statements of Operations 16
Consolidated Statements of Stockholders' Equity 17-19
Consolidated Statements of Cash Flows 20-21
Notes to Consolidated Financial Statements 22-29
PAGE 13 OF 39
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
Pure Cycle Corporation:
We have audited the accompanying consolidated balance sheets of Pure
Cycle Corporation and subsidiary (a development stage enterprise) as of
August 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years then
ended, and for the period from September 1, 1986 to August 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit
the consolidated financial statements of Pure Cycle Corporation and
subsidiary for each of the years in the five-year period ended August
31, 1991. The financial statements for each of the years in the four-
year period ended August 31, 1991 were audited by other auditors whose
reports contained explanatory paragraphs discussing the uncertainty
about the Company's ability to continue as a going concern. The
financial statements for the year ended August 31, 1987 were audited by
other auditors who have ceased operations and whose reports contained an
explanatory paragraph discussing the uncertainty about the Company's
ability to continue as a going concern. Our opinion, insofar as it
relates to the cumulative amounts for the years in the five-year period
ended August 31, 1991 included in the statements of operations,
stockholders' equity and cash flows for the period from September 1,
1986 to August 31, 1996, is based solely upon the reports of the other
auditors, which reports have been furnished to us.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pure
Cycle Corporation and subsidiary as of August 31, 1996 and 1995 and the
results of their operations and their cash flows for the years then
ended and, based on our audits and the reports of the other auditors,
for the period from September 1, 1986 to August 31, 1996, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
October 4, 1996
PAGE 14 OF 39
<PAGE>
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31
----------------------------
ASSETS 1996 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalent $ 126,756 $ 865,803
Marketable securities 3,429 3,429
Prepaid expenses and other current assets 10,864 16,037
---------- ----------
Total current assets 141,049 885,269
Investment in water projects:
Rangeview water rights (Rangeview Water
Commercialization Agreement in 1995)
(Note 2) 12,788,413 5,856,194
Paradise water rights 5,466,834 5,462,457
Sellers Gulch option -- 31,997
---------- ----------
Total investment in water projects 18,255,247 11,350,648
Note receivable (Note 3) 251,282 119,327
Equipment, at cost, net of accumulated
depreciation of $12,083 in 1996 and
$9,514 in 1995 5,155 5,359
Patents, net of accumulated amortization
of $35,460 in 1996 and $34,776 in 1995 -- 684
Other assets 40,596 22,596
---------- ----------
$ 18,693,329 $ 12,383,883
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt (Note 4) $ -- $ 185,460
Accounts payable 53,796 60,450
---------- ----------
Total current liabilities 53,796 245,910
Long-term debt - related parties, less
current maturities 2,750,311 2,888,296
Other non-current liabilities (Note 5) 127,468 120,228
Participating interests in Rangeview
water rights (Minority interest in Rangeview
Water Commercialization Agreement in 1995)
(Note 2) 11,090,630 4,020,630
Stockholders' equity (Notes 6 & 7):
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;
78,439,763 shares issued and outstanding 261,584 261,584
Additional paid-in capital 23,633,561 23,615,561
Deficit accumulated during
development stage ( 6,499,682) ( 6,043,987)
Deficit accumulated prior to
September 1, 1986 (12,726,372) (12,726,372)
---------- ----------
Total stockholders' equity 4,671,124 5,108,819
Contingency (Note 2) ---------- ----------
$ 18,693,329 $ 12,383,883
========== ==========
</TABLE>
[FN]
See Accompanying Notes to Consolidated Financial Statements
PAGE 15 OF 39
<PAGE>
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended August 31 Cumulative
----------------------- Sept. 1, 1986 to
1996 1995 Aug. 31, 1996
---- ---- -------------
<S> <C> <C> <C>
General and administrative
expense:
Related parties (Note 7) $ -- $ -- $( 908,215)
Other (337,831) (342,886) (2,929,336)
------- ------- ---------
Total general and
administrative expense (337,831) (342,886) (3,837,551)
Other income (expense):
Interest expense:
Related parties (167,283) (188,054) (1,385,716)
Other ( 7,240) ( 24,020) ( 498,000)
Loss on abandonment of
options on water rights ( 31,997) -- ( 881,997)
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
Gain/(loss) on sale of
marketable equity securities -- ( 3,611) 24,809
Interest income 40,428 38,241 78,669
Other, net -- -- 29,503
------- -------- ---------
Loss before
extraordinary item (503,923) (520,330) (7,059,333)
Extraordinary gain on
extinguishment of debt
(Notes 4 & 5) 48,228 4,884 559,651
------- ------- ---------
Net loss $(455,695) $(515,446) $(6,499,682)
======= ======= =========
Primary and fully diluted
loss per common share:
Loss before extraordinary
item $ ( .01) $ ( .01)
Extraordinary item -- --
---- ----
Net loss per common share $ ( .01) $ ( .01)
==== ====
Weighted average common
shares outstanding 78,439,763 78,439,763
========= =========
</TABLE>
[FN]
See Accompanying Notes to Consolidated Financial Statements
PAGE 16 OF 39
<PAGE>
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended August 31, 1996 and 1995
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Additional During the
----------------- ------------------ Paid-in Development
Shares Amount Shares Amount Capital Stage
------ ------ ------ ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1994 2,032,51 3 $2,033 78,439,763 $261,584 $23,494,779 $(5,528,541)
Retirement of note payable
with a related party in
exchange for a profits
interest in the Water
Commercialization
Agreement (Notes 4 and 7) -- -- -- -- 120,782 --
Net loss -- -- -- -- -- ( 515,446)
--------- ----- ---------- ------- ---------- ---------
Balance at August 31, 1995 2,032,513 2,033 78,439,763 261,584 23,615,561 (6,043,987)
Warrants issued (Notes 4
and 6) 18,000
Net loss -- -- -- -- -- ( 455,695)
--------- ----- ---------- ------- ---------- ---------
Balance at August 31, 1996 2,032,513 $2,033 78,439,763 $261,584 $23,633,561 $(6,499,682)
========= ===== ========== ======= ========== =========
</TABLE>
[FN]
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
PAGE 17 OF 39
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Cumulative from September 1, 1986 through August 31, 1996
(CONTINUED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Additional During the
--------------- ------------------- Paid -in Development
Shares Amount Shares Amount Capital Stage
------- ------ ------ ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 1, 1986 -- $ -- 59,721,797 $199,077 $11,869,506 $ --
Fiscal Year 1987 transactions:
Net Loss -- -- -- -- -- ( 139,906)
Fiscal Year 1988 transactions:
Stock issued for debt -- -- 250,000 833 11,667 --
Sale of stock -- -- 1,255,466 4,185 5,371,522 --
Net loss -- -- -- -- -- ( 626,583)
Fiscal Year 1989 transactions:
Payment for services with
stock donated by President -- -- -- -- 291,250 --
Net loss -- -- -- -- -- ( 980,793)
Fiscal Year 1990 transactions:
Redeemable common stock
redemption premium -- -- -- -- ( 45,625) --
Expenses paid with stock
donated by President -- -- -- -- 7,000 --
Net loss -- -- -- -- -- ( 614,266)
Fiscal Year 1991 transactions:
Put options waived -- -- 315,000 -- -- --
Foreclosure on debt collat-
eralized by shares of stock
pledged by the President -- -- -- -- 85,080 --
Sale of stock options:
cash -- -- -- -- 100,000 --
Excess of market value
over option price -- -- -- -- 187,500 --
Net loss -- -- -- -- -- (1,751,701)
Fiscal Year 1992 transactions:
Put options expired -- -- 1,997,500 6,658 223,017 --
Common shares contributed by
President and majority
stockholder -- -- 100,000 -- -- --
Common shares issued as
additional interest expense -- -- ( 100,000) -- 25,000 --
Foreclosure on debt collat-
eralized by shares of stock
pledged by the President -- -- -- -- 86,088 --
Repurchase of options -- -- -- -- ( 100,000) --
Sale of common stock -- -- 13,900,000 47,497 2,852,503 --
Net loss -- -- -- -- -- ( 480,585)
Fiscal Year 1993 transactions:
Put options expired -- -- 200,000 667 19,333 --
Foreclosure on debt
collateralized by shares
of stock pledged by
President -- -- -- -- 209,250 --
Foreclosure on debt
collateralized by shares
of stock pledged by
President and reissued
by Company -- -- 800,000 2,667 271,207 --
Net Loss -- -- -- -- -- ( 428,468)
---- ---- ---------- ------- ---------- ---------
Balance carried forward -- $ -- 78,439,763 $261,584 $21,464,298 $(5,022,302)
(continued)
</TABLE>
PAGE 18 OF 39
<PAGE>
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Cumulative from September 1, 1986 through August 31, 1996
(CONTINUED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Additional During the
------------------ ------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage
--------- ------ ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1993
(carried forward) -- $ -- 78,439,763 $ 261,584 $21,464,298 $(5,022,302)
Fiscal year 1994 transactions:
Sale of Preferred Stock
Series A for cash 1,600,000 1,600 -- -- 1,598,400 --
Issuance of Preferred
Stock Series B in exchange
for debt 432,513 433 -- -- 432,081 --
Net Loss -- -- -- -- -- ( 506,239)
Fiscal year 1995 transactions:
Retirement of note payable
with a related party in
exchange for a profits
interest in the Water
Commercialization Agreement
(Notes 4 and 7) -- -- -- -- 120,782 --
Net loss -- -- -- -- -- ( 515,446)
Fiscal year 1996 transactions:
Warrants issued (Notes 4 and 6) 18,000
Net loss -- -- -- -- -- ( 455,695)
--------- ----- ---------- ------- ---------- ---------
Balance at August 31, 1996 2,032,513 $2,033 78,439,763 $261,584 $23,633,561 $(6,499,682)
========= ===== ========== ======= ========== =========
</TABLE>
[FN]
See Accompanying Notes to Consolidated Financial Statements
PAGE 19 OF 39
<PAGE>
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended August, 31 Cumulative
--------------------- Sept. 1, 1986 to
1996 1995 Aug.31, 1996
---- ---- ------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $(455,695) $( 515,446) $(6,499,682)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization 3,253 4,900 31,538
Amortization of debt
issuance costs -- 4,600 23,000
Gain/(loss) on sale of
marketable securities -- 3,611 ( 24,809)
Accretion of discount
on long-term debt -- 11,749 69,630
Common shares issued as
additional interest
expense -- -- 25,000
Extraordinary gain on
extinguishment of debt ( 48,228) ( 4,884) ( 559,651)
Loss on abandonment of
option on water rights 31,997 -- 781,997
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 ( 18,645) ( 3,327) ( 21,972)
Other -- -- ( 1,065)
Changes in operating assets
and liabilities:
Prepaid expenses and
other current assets 5,173 ( 11,530) ( 5,914)
Accounts payable and
other non-current
liabilities ( 6,654) 62,836 429,291
Accrued interest 174,523 188,927 1,592,642
------- --------- ---------
Net cash used in
operating activities $(314,276) $( 258,564) $(3,451,552)
------- --------- ---------
(continued)
</TABLE>
PAGE 20 OF 39
<PAGE>
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Years ended August, 31 Cumulative
------------------------ Sept. 1, 1986 tp
1996 1995 Aug.31, 1996
---- ---- ------------
<S> <C> <C> <C>
Cash flows from investing
activities:
Investments in water rights $ (166,596) $( 138,232) $(2,352,224)
Purchase of marketable
securities -- -- (2,000,000)
Proceeds from sale of
marketable securities -- 1,278,289 2,024,809
Increase in note receivable (113,310) ( 116,000) ( 229,310)
Purchase of equipment ( 2,365) ( 678) ( 17,237)
Increase in other assets -- -- ( 106,595)
------- --------- ---------
Net cash provided by
(used in) investing
activities (282,271) 1,023,379 (2,680,557)
------- --------- ---------
Cash flows from financing
activities:
Proceeds from issuance
of debt -- -- 2,677,629
Repayments of debt (142,500) ( 21,453) (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) ( 21,453) 6,255,439
------- ------- ---------
Net increase (decrease)
in cash and cash
equivalents (739,047) 743,362 123,330
Cash and cash equivalents
beginning of period 865,803 122,441 3,426
------- ------- ---------
Cash and cash equivalents
end of period $ 126,756 $ 865,803 $ 126,756
======= ======= =========
</TABLE>
[FN]
See Accompanying Notes to Consolidated Financial Statements
PAGE 21 OF 39
<PAGE>
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1996, 1995, and 1994
NOTE 1 - ORGANIZATION AND BUSINESS, BASIS OF PRESENTATION AND
- -------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------
Organization and Business
- -------------------------
Pure Cycle Corporation (the "Company") was incorporated under the
laws of the State of Delaware on April 1, 1976, to develop,
manufacture and market wastewater recycling systems. During 1987,
the Company began a reorganization of its business, shifting
emphasis from smaller scale water purification systems to acquiring
water rights for future sales of water and subsequent reprocessing
of that water with larger scale sewage treatment facilities.
The fiscal year ended August 31, 1987 is considered the
commencement of the current development stage activities of the
Company. Accordingly, cumulative amounts from September 1, 1986 to
August 31, 1996 have been reported in the statements of operation,
stockholders' equity and cash flows.
The Company is currently marketing the water from its two primary
water projects to municipal water providers in the Denver
metropolitan area as well as users in Arizona, Nevada and
California. Although the Company believes it will be successful in
marketing the water from one or both of its water projects, there
can be no assurance that sales can be made on terms acceptable to
the Company. The Company's ability to ultimately realize its
investment in its two primary water projects is dependent on its
ability to successfully market the water, or in the event it is
unsuccessful, to sell the underlying water rights.
During its development stage, the Company has funded the
acquisition of certain water rights and its operating activities
primarily through equity and other financing agreements with
investors with an interest in the wholesale municipal water
development business. These financing agreements have enabled
investors to participate in the future revenues derived from the
sale of the Company's water rights. The Company believes that at
August 31, 1996 the Company has sufficient working capital and
available credit to fund its operations for the next year or
longer. There can be no assurances, however, that the Company will
be successful in marketing the water from its two primary water
projects in the near term. In the event sales are not achieved,
the Company may sell additional participating interests in its
water projects, incur additional short or long-term debt or seek to
sell additional shares of common stock or stock purchase warrants,
as deemed necessary by the Company, to generate working capital.
Summary of Significant Accounting Policies
- ------------------------------------------
Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Rangeview Development
Corporation. All inter-company balances and transactions have been
eliminated.
Cash equivalents
----------------
For purposes of the statement of cash flows, cash and cash
equivalents include all highly liquid debt instruments with an
original maturity of three months or less.
PAGE 22 OF 39
<PAGE>
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS, BASIS OF PRESENTATION AND
- -------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
- --------------------------------------------------------
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Marketable Securities
---------------------
The Company classifies its investment in marketable securities as
available-for-sale securities. Unrealized holding gains and losses
are recorded as a separate component of stockholders' equity.
Realized gains and losses are recorded in the statement of
operations.
Investments in Water Projects
-----------------------------
The Paradise water rights represent Colorado River water rights,
water wells, and a federal right-of-way permit for a dam site
located near Debeque, Colorado. The Paradise water rights are
recorded at cost.
The Company's investment in the Rangeview water rights is
recorded at cost at August 31, 1996. Pursuant to the terms of the
Comprehensive Amendment Agreement ("CAA") entered into in August
1996 certain investors in the Rangeview project have the right to
receive the first approximately $31,807,000 from the proceeds of a
sale or other disposition of the Rangeview water rights. The
consideration received from the investors for this right to
participate in the proceeds has been reflected in the accompanying
consolidated balance sheet as participating interest in the Rangeview
water rights.
Prior to the acquisition of the water rights in 1996, the Company
accounted for its investment in the Rangeview Water Commercialization
Agreement as if it were a joint venture between the Company and the
other investors in the Rangeview Project. At August 31, 1995 the
interests attributable to the other investors in the the Rangeview
WCA reflected a minority interest in the accompanying consolidated
financial statements.
In fiscal 1996 the Company adopted the provisions of Statement of
Financial Accounting Standard No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long Lived Assets and for Long-Lived Assets
To Be Disposed Of". SFAS 121 requires that long-lived assets
and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company periodically assesses the feasibility,
marketability and anticipated future cash flows from the sale of it
water rights. Based on this assessment, the Company believes that
there is no impairment in the carrying value of the its investment
in water rights as reflected on the balance sheet at August 31,
1996 and therefor, the adoption of SFAS 121 had no effect on
the Company's financial statements.
Patents
-------
Patents are recorded at cost and are amortized on a straight-line
basis over 17 years.
Loss per common share
---------------------
Loss per common share is computed by dividing net loss by the
weighted average number of shares outstanding during each period.
Convertible preferred stock and common stock options and warrants
have been excluded from the calculation of loss per share as their
effect is anti-dilutive.
PAGE 23 OF 39
<PAGE>
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS, BASIS OF PRESENTATION AND
- -------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
- --------------------------------------------------------
Income taxes
------------
Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes ("Statement No. 109") requires the use of the
asset and liability method of accounting for income taxes. Under
the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
Reclassifications
-----------------
Certain amounts have been reclassified for comparability with the
1996 presentation.
NOTE 2 - RANGEVIEW WATER RIGHTS
- -------------------------------
In November and December of 1990, Inco Securities Corporation,
entered into an agreement with the Rangeview Metropolitan District
(the "District") to purchase 10,000 acre feet of water rights and
entered into a joint Water Rights Commercialization Agreement
("Rangeview WCA") with the Company to jointly develop and market such
water rights. From November 1990 through August 1995, the Company
made payments to the District totaling $1,075,000 for various purchase
options. In addition, the Company purchased a right of first refusal
to 40 acres of real property for $201,000. The Company also made
payments to certain District bond holders totaling approximately
$3,700,000, purchasing approximately $9,730,000 of District Bonds.
All of the amounts paid were capitalized as the cost of the Company's
investment in the Rangeview WCA.
In addition to the payments described above, the Company
capitalized certain legal and other costs relating to the
acquisition of the Rangeview water rights totaling $6,932,433 in
1996, $97,859 in 1995 and $782,121 in years prior.
During the period the Company sold rights to investors to
participate in the Company's share of the proceeds from the
Rangeview WCA ("Profit's Interests") in order to finance the
Company's investment in the Rangeview WCA. In, connection with
these transactions the Company transferred approximately $5,778,000
of District Bonds to certain of the investors.
In October 1994, the Company joined in a lawsuit initiated by
others, including the District, brought in the District Court of
the City and County of Denver, Colorado, against the Colorado State
Board of Land Commissioners (the "State Land Board") seeking a
declaratory judgment affirming that the lease, as amended, from the
State Land Board to the District was valid and enforceable.
In April 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 June 14, 1996 and
became final and non-appealable on July 29, 1996.
In connection with the Settlement, the Company entered into a
water privatization agreement with the State of Colorado and the
District. The water privatization agreement enabled the Company to
acquire ownership to a total gross volume of 1,165,000 acre feet of
ground water (approximately 11,650 acre feet per year), and an
option to substitute 1,650 acre feet of surface water in exchange
for a total gross volume of 165,000 acre feet of ground water, and
the use of surface reservoir storage capacity (collectively
referred to as the "Export Water Rights").
PAGE 24 OF 39
<PAGE>
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - RANGEVIEW WATER RIGHTS -(continued)
- --------------------------------------------
In conjunction with the Settlement, the Company also entered into
an 85 year Service Agreement with the District to design, finance,
construct, operate, and maintain the District's water system to
provide water service to customers within the District's 24,000
acre Service Area. The District has reserved approximately 14,350
acre feet of water per year, together with surface reservoir
storage capacity, for the Company's use in providing water service
to customers within the District's Service Area. In exchange for
providing water service to customers within the District's Service
Area, the Company will receive 95% of the District's water revenues
remaining after payment of royalties to the State Land Board.
Certain crossclaims in the lawsuit remain pending between the
District and the East Cherry Creek Valley Water and Sanitation
District (the "ECCV"). One of ECCV's crossclaims could affect the
Company in that ECCV asserts that it has the right to first refusal
to purchase the Export Water. If ECCV were to prevail on this claim,
the Company would be required to sell the Export Water Rights to
ECCV. The price for such a purchase would be determined by the
court and, consequently, could be more or less favorable than the
price the Company could obtain from a third party. Management
does not believe the outcome of the remaining crossclaim will have
a material adverse effect on the financial condition, results of
operations or cash flows of the Company.
In connection with the Settlement of the lawsuit, the Company
negotiated agreements with the District's bond holders, not
previously investors with the Company, to acquire all of the
remaining District Bonds totaling $15,184,000 by granting the bond
holders a senior, secured interest in the proceeds from the sale of
the Export Water Rights (referred to as a "Participating Interest")
aggregating $9,110,000, as provided for in the CAA.
Additionally, the Company negotiated agreements with all of the
investors in the Rangeview WCA to acquire their WCA Profits Interests
as well as all of the Bonds held by certain of those investors
totaling $5,778,000 in exchange for Participating Interests in the
CAA. The Bonds acquired from holders not previously investors with
the Company, totaling $15,184,000, together with Bonds held by
investors in the Rangeview WCA totaling $5,778,000, together with
bonds held by the Company totaling $3,700,000 represented all
of the District's outstanding Bonds (totaling $24,914,058). The
Company conveyed all of the outstanding District Bonds to the
District in exchange for title to the Export Water Rights.
The estimated fair value of the $15,184,000 of Bonds purchased
($6,770,000) has been recorded as an increase in the cost of the
Rangeview water rights and an increase in the Participating
Interests in the Rangeview water rights.
The Participating Interests in the CAA, in the aggregate, have
the right to receive the first approximately $31,807,000 from the
proceeds of a sale or other disposition of the Export Water Rights.
After the distributions pursuant to the CAA, the Company has
agreed to pay the next $4,000,000 in proceeds to LCH Inc., a
company affiliated with the Company's president. The next $432,513
in proceeds is payable to the holders of the Company's Series B
Preferred Stock. The Company retains 100% of the proceeds in
excess of $35,807,232 from the sale or other disposition of the
Export Water Rights.
NOTE 3 - NOTE RECEIVABLE
- ------------------------
In 1995, the Company extended a line of credit to the District.
The loan provides for borrowings of up to $250,000, is unsecured,
bears interest based on the prevailing prime rate plus 2% and,
matures on December 31, 1996. The balance of the note receivable
at August 31, 1996 was $251,282, including accrued interest. Based
on discussions with the District, repayment of the note
is not expected to occur at its maturity date of December 31, 1996.
Because of the revenue sources available to it, and its operating
expense history, the
PAGE 25 OF 39
<PAGE>
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - NOTE RECEIVABLE - (continued)
- --------------------------------------
Company believes the District will be able to repay the note within
a period of one to two years after its due date. Accordingly, the
note has been classified as non-current.
NOTE 4 - LONG-TERM DEBT
- -----------------------
Long-term debt at August 31, 1996 and 1995 is comprised of the
following:
1996 1995
---- ----
Note payable, to related party; due
September 1997; non-interest bearing,
unsecured $ 26,542 $ 26,542
Notes payable, including accrued interest, to
President and majority stockholder; due October
1997; interest at 8.36% to 9.01%; unsecured 359,421 338,060
Notes payable, including accrued interest,
to related party; due October, 1997;
interest at the prime rate plus 3%; secured
by shares of the Company's common stock owned
by the President and majority stockholder 1,758,138 1,649,680
Notes payable, including accrued interest,
to a related party corporation; due October 2000;
interest ranging from 7.18% to 8.04%; unsecured 606,210 574,014
Notes payable, including accrued interest; due
October 1995; interest at 8% -- 185,460
Notes payable to two corporations; due
February 1998; secured by 3,800 acre feet of
Paradise water rights -- 300,000
--------- ---------
Total 2,750,311 3,073,756
Less current maturities of long term debt -- ( 185,460)
--------- ---------
Long-term debt, less current maturities $ 2,750,311 $ 2,888,296
========= =========
Aggregate maturities of long-term debt are as follows:
Year Ending August 31, Amount
---------------------- ------
1998 2,144,101
2000 606,210
---------
Total $ 2,750,311
=========
In August 1996, the Company entered into a loan agreement with
six related party investors. The loan is for $300,000, is unsecured,
bears interest based on the prime rate plus 2%, is payable in equal
quarterly installments through August 30, 1997. The agreement
provides that the Company can extend the due date of any of the
four quarterly installment to August 30, 2002 by issuing additional
warrants (see Note 6). The funds were advanced to the Company
subsequent to the year end. In connection with the loan agreement,
the Company issued warrants to purchase shares of the Company's
common stock. The agreement includes a covenant that prohibits the
note from being called prior to the expiration of the warrants
issued in conjunction with the note.
In July 1996 the Company entered into an agreement with the two
corporations holding the notes payable due February 1998, to
can cancel the notes and their security interest in the the Paradise
water rights in exchange for assignment of a participation interest
in the Rangeview water rights.
In January 1996, the Company reached an agreement with a creditor
to retire a note payable, totaling $190,728 with accrued interest,
for a payment of $142,500. The difference between the principal
balance of the note and the amount paid to retire the debt of
$48,228 has been reflected as an extraordinary gain in the
consolidated statement of operations for the year ended August 31,
1996.
PAGE 26 OF 39
<PAGE>
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LONG-TERM DEBT - (continued)
- ------------------------------------
During fiscal year 1996, the Company reached agreement with a
related party note holder to defer payment of principal and accrued
interest payable on certain notes totaling $606,210 to October
2000.
During fiscal year 1995, the Company reached agreements with two
related party note holders to defer payment of principal and
accrued interest payable on certain notes totaling $1,987,740 to
October 1997.
As discussed in note 7, during August 1995 the Company entered
into an agreement to retire a note payable to the Chairman of the
Company. In return for cancellation of the note, the Chairman
accepted payment of $21,453 and the assignment, by the Company, of
a $150,000 Profits Interest in the Rangeview WCA.
As of August 31, 1996, the President and majority stockholder of
the Company has pledged a total of 20,000,000 shares of common
stock from his personal holdings as collateral on certain of the
above notes payable.
NOTE 5 - OTHER NON-CURRENT LIABILITIES
- --------------------------------------
As a result of the expiration of the Colorado statute of
limitation, certain accounts payable to creditors and a note
payable incurred prior to the Company's suspension of operations in
1985 totaling $4,884 in 1995 are considered extinguished and have
been reflected as an extraordinary item in the accompanying
consolidated statements of operations. At August 31, 1996 the
Company owes approximately $127,000 to creditors for obligations
incurred prior to the Company's suspension of operations in 1985,
for which amounts are reflected as other non-current liabilities in
the accompanying balance sheet.
NOTE 6 - STOCKHOLDERS' EQUITY
- -----------------------------
Preferred Stock
---------------
On May 25, 1994, the Company sold 1,600,000 shares of Series A
Convertible Preferred Stock $.001 par value of $1.00 per share for
total proceeds of $1,600,000. The holders of the Series A
Convertible Preferred Stock are entitled to be receive a dividend
equal to $2.00 per share represented by a PArticipation Interest in
the CAA. The Series A Preferred Stock is convertible into 4 shares
of Common Stock at the election of the Company or the holders of
the Preferred Stock.
During years prior to 1994, the Company was charged for the
reimbursement of costs, administrative services and rent expense by
a company related through common ownership. On August 31, 1994,
the Company issued 432,513 shares of Series B Preferred Stock,
$.001 par value, to a related party corporation, in satisfaction of
the payable for these charges of $432,513. The holder of the Series
B Preferred Stock is entitled to be paid a dividend amount equal to
$1.00 per share to be paid from the proceeds from a disposition of
the Rangeview water rights after the Participating Interests in the
CAA and the divided obligation on the Series A Convertible
Preferred Stock have been satisfied.
PAGE 27 OF 39
<PAGE>
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - STOCKHOLDERS' EQUITY - (continued)
- -------------------------------------------
Stock Options
-------------
On June 15, 1992, the Company adopted an Equity Incentive Plan.
In addition, on such date, the Company granted Mr. Fletcher Byrom
and Ms. Margaret Hansson options to purchase 7,000,000 and
8,000,000 shares of common stock, respectively, at an exercise
price of $.20 per share, through June 15, 1997. These shares were
issued in exchange for options previously issued to Mr. Byrom and
Ms. Hansson in June of 1989. Also on June 15, 1992, the Company
granted Mr. Mark Harding and Mr. George Middlemas an option to
purchase 4,000,000 and 1,000,000 shares of common stock,
respectively, under such Plan at an exercise price of $.25 per
share. On March 12, 1996 the Company extended the terms of all
such options. Also, on March 12, 1996, the Company granted Mr.
Mark Harding options to purchase 3,000,000 shares of common stock
at an exercise price of $.25 per share, 2,000,000 of which were
immediately exercisable, with the remaining 1,000,000 vesting in
annual increments of 250,000 shares beginning March 12, 1997
During the years ended August 31, 1996 and 1995, no options were
exercised.
Warrants
--------
In connection with a loan agreement described in note 4, the
Company issued warrants to purchase 600,000 shares of the Company's
common stock at $.25 per share. The warrants expire August 30,
2002. The loan agreement includes a provision entitling the
Company to extend the due date of any of the installments to August
30, 2002 by issuing additional warrants to purchase common stock at
$.25 per share. The number of warrants to be issued is equal to
150% of the principal amount due plus accrued interest, divided by
$.25. The estimated fair value of the warrants issued of $18,000
has been capitalized and is being amortized to expense over the
term of the note.
The Company issued warrants between 1990 and 1992 to purchase
21,980,000 shares of the Company's stock at $.25 per share, in
connection with the WCA.
During the years ended August 31, 1996 and 1995, no warrants were
exercised.
NOTE 7 - RELATED PARTY TRANSACTIONS
- -----------------------------------
In August 1995 the Company and its Chairman reached an agreement
to retire a note payable to the Chairman totaling $217,235
including accrued interest. In consideration for cancellation of
the note, the Company agreed to pay $21,453 in cash and assign
$150,000 of its profit participation interest in the WCA to the
Chairman. Pursuant to the agreement, the Company has reflected the
difference in the face amount of the note and the cash consideration
as an increase in minority interests in Rangeview WCA and additional
paid-in capital of $75,000 and $120,782, respectively.
NOTE 8 - INCOME TAXES
- ---------------------
The tax effects of the temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at
August 31, 1996 and 1995 are presented below.
1996 1995
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 1,580,000 $ 1,449,000
Less valuation allowance (1,580,000) (1,449,000)
--------- ---------
Net deferred tax asset $ -- $ --
========= =========
The valuation allowance for deferred tax assets as of September
1, 1996 was $1,580,000. The net change in the total valuation
allowance for the year ended August 31, 1996 was an increase of
$131,000.
At August 31, 1996, the Company has net operating loss
carryforwards for federal income tax purposes of approximately
$4,061,000 which are available to offset future federal taxable
income, if any, through 2011.
PAGE 28 OF 39
<PAGE>
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
- -------------------------------------------------------------------
ACTIVITIES
- ----------
Years ended August 31
-------------------------
1996 1995
Debt canceled in exchange for a Participating
Interest in the Rangeview CAA $ 300,000 $ --
Debt canceled in exchange for a Profits
Interest in the Rangeview WCA -- 120,782
Rangeview Metropolitan District Bonds
purchased in exchange for Participating
Interests in the Rangeview water rights 6,770,000 --
No cash was paid for interest in 1996 or 1995.
PAGE 29 OF 39
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosure
------------------------
There has been no change in the Company's independent auditors
during the Company's two most recent fiscal years or any subsequent
interim period.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; with Section 16(a) Beneficial Ownership Reporting
Compliance
The following are the officers and directors of the Company as of
August 31, 1996:
Name Age Position(s) with the Company
---- --- ----------------------------
Margaret S. Hansson . . . 72 Director, Chairman, Vice President
Fletcher L. Byrom . . . . . 78 Director
Thomas P. Clark . . . . . 60 Director, President, Treasurer
George M. Middlemas . . . . 45 Director
Richard L. Guido . . . . . 55 Director
Mark W. Harding . . . . 33 Chief Financial Officer, Secretary
MARGARET S. HANSSON
Ms. Hansson has been a Director of the Company since April 1977
and Chairman since September 23, 1983, and was the Chief Executive
Officer of the Company from September 23, 1983 to January 31, 1984.
Since May 1981, Ms. Hansson has been President of M. S. Hansson,
Inc., a Boulder, Colorado firm which consults to and invests in
small businesses. Ms. Hansson is Chief Executive Officer of
AquaLogic, Inc., a Boulder, Colorado company she founded in 1992.
From 1976 to May 1981, she was President of GENAC, Inc., a Boulder,
Colorado firm, which she founded. From 1960 to 1975, Ms. Hansson
was President and Chairman of the Board of Gerico, Inc., now Gerry
Baby Products, a Boulder, Colorado manufacturing firm which she
also founded. She is a Director of Norwest Banks, Stayodynamics,
Inc., the Midwest Group of Trust Funds and Gateway Technologies,
Inc. Ms. Hansson received her Bachelor of Arts degree from Antioch
College.
THOMAS P. CLARK
Thomas P. Clark has been a Director of the Company and President
since June 29, 1987, and Treasurer since September 6, 1988. Mr.
Clark is primarily involved in the management of the Company. His
business activities include: President, LC Holdings, Inc.
(business development), 1983 to present and, Partner, through a
wholly owned corporation, of Resource Technology Associates
(development of mineral and energy technologies), 1982 to present.
Mr. Clark received his Bachelor of Science degree in Geology and
Physics from Brigham Young University, Provo, Utah.
MARK W. HARDING
Mark W. Harding joined the Company in February 1990 as Corporate
Secretary and Chief Financial Officer. He brings a background in
public finance and management consulting experience. From 1988 to
1990, Mr. Harding worked for Price Waterhouse in Management
Consulting Services where he assisted clients in Public Finance
services and other investment banking related services. Mr.
Harding has a B.S. Degree in Computer Science, and a Masters in
Business Administration in Finance from the University of Denver.
FLETCHER L. BYROM
Fletcher L. Byrom has been a Director of the Company since April
22, 1988, and is a retired Chairman (1970-1982) and Chief Executive
Officer (1967-1982) of Koppers Company, Inc. Mr. Byrom presently
serves in the following positions: President and Director of MICASU
Corporation and, board member of Thermadyne Holdings Inc.
PAGE 30 OF 39
<PAGE>
GEORGE M. MIDDLEMAS
George M. Middlemas is a general partner with the Apex Investment
Partners, a diversified venture capital management group. From
1985 to 1991, Mr. Middlemas was Senior Vice President of Inco
Venture Capital Management, primarily involved in venture capital
investments for Inco. From 1979 to 1985, Mr. Middlemas was a Vice
President and a member of the Investment Committee of Citicorp
Venture Capital Ltd., where he sourced, evaluated and completed
investments for Citicorp. Mr. Middlemas is a director of Security
Dynamics Technologies, Inc., American Communications Services,
Inc., and Pennsylvania State University - Library Development
Board. Mr. Middlemas received Bachelor degrees in History and
Political Science from Pennsylvania State University, a Masters
degree in Political Science from the University of Pittsburgh and a
Master of Business Administration from Harvard Business School.
RICHARD L. GUIDO
Mr. Guido has been a Director of the Company since July 1996. Mr.
Guido is the Associate General Counsel for Inco, Limited and
President and Chief Legal Officer of Inco United States, Inc. Mr.
Guido is on the Board of Governors, Foreign Policy Association, a
Director on the American-Indonesia Chamber of Commerce, and the
Canada-United States Law Institute. Mr. Guido received a Bachelor
of Science degree from the United States Air Force Academy, a
Master of Arts degree from Georgetown University, and a Jurist
Doctorate degree from the Catholic University of America.
None of the above persons is related to any other officer or
director of the Company. All directors are elected for one-year
terms which expire at the annual meeting of stockholders or until
their successors are elected and qualified. The Company's officers
are elected annually by the board of directors and hold office
until their successors are elected and qualified.
Mr. Middlemas was elected to the Company's board of directors
pursuant to the EPFund Voting Agreement. See "Security Ownership
of Certain Beneficial Owners and Management."
Mr. Guido was elected to the Company's board of directors
pursuant to the Inco Voting Agreement. See "Security Ownership of
Certain Beneficial Owners and Management."
Section 16(a) Beneficial Ownership Reporting Compliance
The Company's directors and executive officers and persons who
are beneficial owners of more than 10% of the Company's Common
Stock are required to file reports of their holdings and
transactions in Common Stock with the Securities and Exchange
Commission and furnish the Company with such reports. Based solely
upon its review of the copies the Company has received or upon
written representations from these persons, the Company believes
that, as of November 27, 1996, all of the Company's directors,
executive officers, and 10% beneficial owners had complied with the
applicable Section 16 (a) filing requirements.
Item 10. Executive Compensation
Annual Compensation
---------------------------------
Other
Name Annual
and Compen-
Principal Fiscal Salary Bonus sation
Position Year ($) ($) ($)
- ------------------------------------------------
Thomas P. Clark
Pres./CEO 1996 60,000 0 0
1995 60,000 0 0
1994 80,000 0 0
For all other executive officers, consisting of two persons,
total annual salary and bonuses were less than $100,000.
PAGE 31 OF 39
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of December 6, 1996, the
beneficial ownership of the Company's issued and outstanding Common
Stock, Series A Preferred Stock and, Series B Preferred Stock by
each person who owns of record (or is known by the Company to own
beneficially) 5% or more of each such class of stock, by each
director of the Company, each executive officer and by all
directors and executive officers as a group. Except as otherwise
indicated, the Company believes that each of the beneficial owners
of the stock listed has sole investment and voting power with
respect to such shares, based on information provided by such
holders.
<TABLE>
<CAPTION>
Number Number of Number of
of Common Percent of Series A Series B Percent of
Name and Address of Stock Outstanding Preferred Preferred Outstanding
Beneficial Owner Shares Shares Shares Shares Shares
- ------------------ ---------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Thomas P. Clark 27,264,854 34.8% (9) 346,000 80.0% (14)
5650 York Street, Commerce (10)
City, Colorado 80022
George Middlemas 1,000,000 1.3% (1)
2440 N. Lakeview Ave (10)
Chicago, IL 60614 (11)
Richard L. Guido 0 0% (9)
One New York Plaza
New York, NY 10004
Margaret S. Hansson 7,746,000 9.0% (2)
2220 Norwood Avenue (9)
Boulder, Colorado 80304 (10)
Fletcher L. Byrom 7,100,000 8.3% (3)
P.O. Box 1055 (9)
Carefree, AZ 85377 (10)
Mark W. Harding 6,210,000 7.4% (4)
5650 York Street, Commerce
City, Colorado 80022
INCO Securities Corporation 4,700,000 5.7% (5)
One New York Plaza (9)
New York, New York 10004
Apex Investment Fund II L.P. 13,020,238 14.9% (6) 408,000 25.5%
233 S. Wacker Drive, (10)
Suite 9600 (11)
Chicago, Illinois 60606 (13)
Environmental Venture 5,240,972 6.5% (7)
Fund, L.P. (10)
233 S. Wacker Drive, Suite 9600 (11)
Chicago, Illinois 60606
Environmental Private Equity 5,054,166 6.2%(13) 600,000 37.5%
Fund II, L.P. (16)
233 S. Wacker Drive, Suite 9600
Chicago, Illinois 60606
The Productivity 3,966,624 5.0% (8)
Fund II, L.P. (10)
233 S. Wacker Drive, Suite 9600 (11)
Chicago, Illinois 60606
Proactive Partners L.P. 2,250,000 2.8%(13) 500,000 31.3%
50 Osgood Place, Penthouse
San Francisco, California 94133
</TABLE>
PAGE 32 OF 39
<PAGE>
<TABLE>
<CAPTION>
Number Number of Number of
of Common Percent of Series A Series B Percent of
Name and Address of Stock Outstanding Preferred Preferred Outstanding
Beneficial Owner Shares Shares Shares Shares Shares
- ------------------------ --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
LC Holdings, Inc. 432,513 100.0%
5650 York Street,
Commerce City, Colorado
LCH, Inc. 86,503 20.0% (15)
5650 York Street,
Commerce City, Colorado
All Officers and Directors 49,320,854 49.4% (12)
as a group (6 persons)
</TABLE>
(1) Includes 1,000,000 shares purchasable by Mr. Middlemas under
currently exercisable options.
(2) Includes 7,500,000 shares purchasable by Ms. Hansson under
currently exercisable options.
(3) Includes 3,000,000 shares purchasable under a currently
exercisable option by MICASU Aluminum, LLC which Mr. Byrom controls
as a manager and member and 4,000,000 shares purchasable under a
currently exercisable option by MICASU Corporation which Mr. Byrom
controls as President, Chief Executive Officer, and controlling
shareholder.
(4) Includes 6,000,000 shares purchasable by Mr. Harding under a
currently exercisable option.
(5) Includes 4,700,000 shares purchasable by Inco Securities
Corporation ("Inco") under currently exercisable warrants.
(6) Includes 7,188,230 shares purchasable by Apex Investment Fund
II, L.P. ("Apex") under a currently exercisable warrants.
(7) Includes 2,160,972 shares purchasable by Environmental Venture
Fund, L.P. ("EVFund") under a currently exercisable warrants.
(8) Includes 1,446,632 shares purchasable by Productivity Fund II,
L.P. ("PFund") under currently exercisable warrants.
(9) Pursuant to a voting agreement (the "Inco Voting Agreement")
dated December 11, 1990, Mr. Clark, Ms. Hansson and Mr. Byrom have
agreed to vote their shares of Common Stock in favor of electing a
representative designated by Inco to the Company's board of
directors. The Inco Voting Agreement remains in effect until
December 11, 2000.
(10) Pursuant to an Amended and Restated Voting Agreement (the
"EPFund Voting Agreement") dated August 12, 1992, Mr. Clark, Ms.
Hansson, Mr. Byrom, Apex, EVFund, and PFund have agreed to vote
their shares of Common Stock in favor of electing a representative
designated by Environmental Private Equity Fund II, L.P. ("EPFund")
to the Company's board of directors. The EPFund Voting Agreement
remains in effect until August 12, 1997 or the date on which EPFund
no longer owns or has rights to acquire at least 1,301,000 shares
of Common Stock, whichever is earlier.
(11) Each of the Apex, EVFund, PFund, and EPFund (the "Apex
Partnerships") is controlled through one or more partnerships. The
persons who have or share control of such stockholders after
looking through one or more intermediate partnerships are referred
to herein as "ultimate general partners." The ultimate general
partners of Apex are: First Analysis Corporation, a Delaware
corporation ("FAC"), Stellar Investment Co. ("Stellar"), a
corporation controlled by James A. Johnson ("Johnson"); George
Middlemas ("Middlemas"); and Paul J. Renze ("Renze"). The ultimate
general partners of EVFund are: FAC; F&G Associates ("F&G");
William D. Ruckleshaus Associates, a Limited Partnership ("WDRA");
and Robertson, Stephens & Co. ("RS"). The ultimate general
partners of PFund are FAC and Bret R. Maxwell ("Maxwell"). The
ultimate general partners of EPFund are FAC, Maxwell, RS, Argentum
Environmental Corporation ("AEC") and Schneur A. Genack, Inc.
("SZG").
PAGE 33 OF 39
<PAGE>
The business address of FAC, Stellar, Johnson, Middlemas, Renze
and Maxwell is 233 S. Wacker Drive, Suite 9600. Chicago Illinois
60606. Each of AEC and SZG maintains its business address c/o The
Argentum Group ("TAG"), 405 Lexington Avenue, New York, New York
10174. The business address of F&G is 123 Grove Avenue, Suite 118,
Cedarhurst, New York 11516. WDRA maintains its business address at
1201 Third Avenue, 39th Floor, Seattle, Washington 98101. RS
maintains its business address at One Embarcadero Center, San
Francisco, California 94111.
By reason of its status as a general partner or ultimate general
partner of each of Apex Partnerships, FAC may be deemed to be the
indirect beneficial owner of 27,282,000 shares of Common Stock, or
29.2% of such shares. By reason of his status as the majority
stockholder of FAC, F. Oliver Nicklin may also be deemed to be the
indirect beneficial owner of such shares. By reason of their
status as ultimate general partners of Apex, Stellar (and through
Stellar, Johnson), Middlemas and Renze may be deemed to be the
indirect beneficial owners of 13,020,238 shares of Common Stock, or
14.9% of such shares. When these shares are combined with his
currently exercisable option to purchase 1,000,000 shares of Common
Stock, Middlemas may be deemed to be the beneficial owner (directly
with respect to the option shares and indirectly as to the balance)
of 14,020,238 shares of Common Stock, or 15.9% of such shares.
By reason of his status as an ultimate general partner of PFund
and EPFund, Maxwell may be deemed to be the indirect beneficial
owner of 9,020,790 shares of Common Stock, or 11% of such shares.
By reason of F&G's and WDRA's status as an ultimate general
partners of EVFund, F&G, WDRA and their respective controlling
persons may be deemed to be the indirect beneficial owners of
5,240,972 shares of Common Stock, or 6.5% of such shares. By
reason of AEC's and SZG's status as ultimate general partners of
EPFund, AEC, SZG and their and their controlling persons may be
deemed to be the indirect beneficial owners of 5,054,166 shares of
Common Stock, or 6.2% of such shares. By reason of Genack's
interest in F&G, AEC and SZG, he may be deemed to be the indirect
beneficial owner of 10,295,138 shares of Common Stock, or 12.4% of
such shares.
By reason of RS's status as a general partner of EVFund and an
ultimate general partner of EPFund, RS and its controlling persons
may be deemed to be the indirect beneficial owners of 10,295,138
shares of Common Stock, or 12.4% of such shares.
Each of the Apex Partnerships disclaims beneficial ownership of
all shares of Common Stock described herein except those shares
that are owned by that entity directly. The Company understands
that each of the other persons named as an officer, director,
partner or other affiliate of any Apex Partnership herein disclaims
beneficial ownership of all the shares of Common Stock described
herein, except for Middlemas with respect to the option to purchase
1,000,000 shares held by him.
Each of the Apex Partnerships disclaims the existence of a
"group" among any or all of them and further disclaims the
existence of a "group" among any or all of them and any or all of
the other persons named as an officer, director, partner or those
affiliate of any of them, in each case within the meaning of
Section 13(d) (3) of the 1934 Act.
(12) Includes 21,500,000 shares purchasable by directors and
officers under currently exercisable options.
(13) Includes the conversion of 1,600,000 shares of Series A
Preferred Stock to Common Stock. Apex Investment Fund II, L.P.,
owning 408,000 shares of Series A Convertible Preferred Stock which
can convert into 1,632,000 shares of Common Stock, The
Environmental Private Equity Fund II, L.P., owning 600,000 shares
of Series A Convertible Preferred Stock which can convert into
2,400,000 shares of Common Stock, and Proactive Partners, L.P.,
owning 500,000 shares of Series A Convertible Preferred Stock which
can convert to 2,000,0000 shares of Common Stock.
(14) Includes 346,010 shares of Series B Preferred Stock which Mr.
Clark. the Company's president, may be deemed to hold beneficially
by reason of his ownership of 80% of the common stock of LC
Holdings, Inc., the owner of 100% of the Series B Preferred Stock.
PAGE 34 OF 39
<PAGE>
(15) Includes 86,503 shares of Series B Preferred Stock which LCH,
Inc. may be deemed to hold beneficially by reason of its ownership
of 20% of the common stock of LC Holdings, Inc., the owner of 100%
of the Series B Preferred Stock.
(16) Includes 54,166 shares purchasable by the Environmental
Private Equity Fund under a currently exercisable warrant.
(17) Includes 250,000 shares purchasable by Proactive Partners,
L.P. under a currently exercisable warrant.
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
From time to time since December 6, 1987, Thomas P. Clark, a
Director and President of the Company, loaned funds to the Company
to cover operating expenses. These funds have been treated by the
Company as unsecured debt, and the promissory notes (the "Notes")
with interest at 8.36% to 9.01% per annum, issued to Mr. Clark on
various dates are payable October 15, 1997 (the "Maturity Date").
To date, Mr. Clark has loaned the Company $284,178 of which $43,350
has been repaid, leaving a balance of $240,828. As of August 31,
1996, accrued interest on the Notes totaled $118,592. All loans
were made on terms determined by the board members, other than Mr.
Clark, to be at market rates.
Additionally, LCH, Inc., a Delaware corporation which owns 20% of
LC Holdings, Inc. and is thereby affiliated with Mr. Clark, who
owns 80% of LC Holdings, Inc., loaned the Company a total of
$950,000 between November, 1988 and February, 1989. These funds
were represented by two Demand Promissory Notes (the "Notes") with
interest at a rate equal to the rate announced from time to time by
Mellon Bank, Pittsburgh, Pennsylvania as its "prime rate" plus 300
basis points from the date of the first advance thereunder until
maturity, payable quarterly beginning on the first day of April,
1989 and continuing thereafter on the first day of each subsequent
calendar quarter. No payments were made on the Notes. An April
25, 1989 Assumption of Obligations Agreement assigned the entire
debt of $950,000 to Rangeview Development Corp., which is a wholly-
owned subsidiary of the Company, and further assigned $750,000 of
that $950,000 to Rangeview Company, L.P a limited partnership in
which LCH held a 45% interest and Rangeview Development Corporation
held a 55% interest. In February of 1991, LCH transferred its
interest in Rangeview Company, L.P. to the Company in exchange for
a $4,000,000 profits interest in the Rangeview Project paid
subsequent to the first $31,000,000 profits interest allocation
with ISC. In connection with the Settlement Agreement, LCH
consented to be paid its $4,000,000 profits interest from the sale
or other disposition of the Export Water subsequent to payment of
$31,808,732 owed under the CAA. During fiscal year ended August 31,
1992, the Company reached an agreement with LCH, Inc. to defer
payment of the principal amount of the Notes, plus interest until
September 15, 1995. During fiscal year ended August 31, 1995, the
Company reached an agreement with LCH, Inc. to defer payment of the
principal amount of the Notes, plus interest until October 1, 1997.
No additional consideration is due to LCH, Inc. for the deferral.
The board members, other than Mr. Clark, determined that the
transactions are at fair market value taking into consideration the
risk to LCH, Inc.
During fiscal year ended August 31, 1996, the Company reached an
agreement with Inco Securities Corporation ("ISC") to defer payment
of the principal amount of two notes, plus interest until October
1, 2000, totaling $606,210. No additional consideration is due to
ISC for the deferral.
Item 13. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
3(a) Certificate of Incorporation of Registrant -
Incorporated by reference from Exhibit 4-A to
Registration Statement No. 2-65226.
3(a).1 Certificate of Amendment to Certificate of
Incorporation, filed August 31, 1987 - Incorporated
by reference from Annual Report on Form 10-K for the
fiscal year ended August 31, 1987.
3(a).2 Certificate of Amendment to Certificate of
Incorporation, filed May 27, 1988. Incorporated by
reference from Proxy Statement for the Annual
Meeting held April 22, 1988.
PAGE 35 OF 39
<PAGE>
3(a).3 Certificate of Incorporation - Rangeview
Development Corporation. Incorporated by reference
from Annual Report on Form 10-K for the fiscal year
ended August 31, 1989.
3(a).4 Certificates of Amendment to Certificate
of Incorporation filed May 31, 1994. Incorporated by
reference from Proxy Statement for Annual Meeting
held April 2, 1993.
3(a).5 Certificates of Amendment to Certificate
of Incorporation filed August 31, 1994.
3(b) Bylaws of Registrant - Incorporated by
reference from Exhibit 4.c to Registration Statement
No. 2-62483.
3(b).1 Amendment to Bylaws effective April 22,
1988. Incorporated by reference from Annual Report
on Form 10-K for the fiscal year ended August 31,
1989.
3(b).2 Bylaws - Rangeview Development Corp.
Incorporated by reference from Annual Report on Form
10-K for the fiscal year ended August 31, 1989.
4.1 Specimen Stock Certificate - Incorporated by
reference to Registration Statement No. 2-62483.
4.2 Specimen Stock Certificate - Rangeview
Development Corp. Incorporated by reference from
Annual Report on Form 10-K for the fiscal year ended
August 31, 1989.
10(c).1 Water Commercialization Agreement, dated
December 11, 1990, between the Company and Inco
Securities Corporation.*
10(c).2 Amendment No. 1 to Water Commercialization
Agreement dated February 12, 1991 between the
Company and Inco Securities Corporation.*
10(d).1 Voting Agreement dated December 11, 1991,
by and among Inco Securities Corporation, Thomas P.
Clark, Margaret S. Hansson, Fletcher L. Byrom and
the Company.**
10(d).2 Interim Funding Agreement, dated August
12, 1991, by and among Inco Securities Corporation,
the Company, Landmark Water Partners, L.P., and CPV,
Inc. **
10(d).3 Investment Agreement, dated September 23,
1991, by and among Alan C. Stormo, D.W. Pettyjohn,
and the Company.**
10(d).4 Investment Agreement, dated September 30,
1991, by and between Beverly A. Beardslee and the
Company. **
10(d).5 Investment Agreement, dated September 30,
1991, by and among Bradley Kent Beardslee, Robert
Douglas Beardslee and the Company. **
10(d).6 Investment Agreement, dated November 20,
1991, between the Company and International
Properties, Inc. and letter amendment dated November
26, 1991. **
10(d).7 Investment Agreement, dated November 20,
1991, between the Company and ASRA Corporation and
letter amendment dated November 26, 1991. **
10(d).8 Investment Agreement, dated December 10,
1991, as amended August 12, 1992 by and among Apex
Investment Fund II, L.P., The Environmental Venture
Fund, L.P., Productivity Fund II, L.P., and the
Company. **
10(e).1 Funding Agreement, dated August 12, 1992
by and among Inco Securities Corporation, Landmark
Water Partners II, L.P., Warwick Partners, L.P.,
Auginco, Gregory M. Morey, Amy Leeds, Anders C.
Brag, Apex Investment Fund II, L.P., The
Environmental Venture Fund, L.P., The Environmental
Private Equity Fund II, L.P., Productivity Fund II,
L.P. and the Company. ***
PAGE 36 OF 39
<PAGE>
10(e).2 Amended and Restated Voting Agreement,
dated August 12, 1992 by and among Apex Investment
Fund II, L.P., The Environmental Venture Fund, L.P.,
The Environmental Private Equity Fund II, L.P.,
Productivity Fund II, L.P., Fletcher L. Byrom,
Thomas P. Clark, and Margaret S. Hansson. ***
10(e).3 Amendment Agreement No. 2 To Water Rights
Commercialization Agreement, dated August 12, 1992
by and among Inco Securities Corporation and the
Company. ***
10(f).1 Agreement to defer payment of notes, dated
August 28, 1992, by and between LCH, Inc. and the
Company. ****
10(g).1 Agreement to retire note payable, dated
August 30, 1995, by and between Margaret S. Hansson
and the Company. *****
10(h).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
("District"), the Company, INCO Securities
Corporation ("ISC"), and Apex Fund II, L.P.,
Landmark Water Partners II, L.P., Proactive
Partners, L.P., Warwick Partners, L.P., and D.W.
Pettyjohn (collectively the "Bondholders"), and OAR,
Incorporated ("OAR"), Willard G. Owens and H.F.
Riebesell, Jr., (collectively the "Owens Group
Bondholders"). ******
10(h).2Service Agreement, dated April 19, 1996, by
and between the Company, and the District. ******
10(h).3Agreement for Sale of Export Water, dated
April 11, 1996, by and between the Company, and the
District. ******
10(h).4Amended and Restated Option and Purchase
Agreement, dated April 11, 1996, by and among OAR,
the Company, and ISC. ******
10(h).5Amended and Restated Option and Purchase
Agreement, dated April 11, 1996, by and among the
Land Board, Riebesell, the Company, and ISC. ******
10(h).6Second 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. ******
PAGE 37 OF 39
<PAGE>
10(h).7Comprehensive Amendment Agreement No. 1,
dated April 11, 1996, by and among ISC, the Company,
the Bondholders, Gregory M. Morey, Newell Augur,
Jr., Bill Peterson, Stuart Sundlun, Alan C. Stormo,
Beverlee A. Beardslee, Bradley Kent Beardslee,
Robert Douglas Beardslee, Asra Corporation,
International Properties, Inc., and the Land Board.
******
27 Financial Data Schedule - filed herewith.
* Incorporated by reference from Quarterly Report Form 10-Q
for the quarterly period ended February 28, 1991.
** Incorporated by reference from Annual Report on Form 10-K
for fiscal year ended August 31, 1991.
*** Incorporated by reference from Form 8-K filed August
27, 1992.
**** Incorporated by reference from Annual Report on Form 10-
K for fiscal year ended August 31, 1992.
***** Incorporated by reference from Annual Report on Form 10-KSB
for fiscal year ended August 31, 1995.
******Incorporated by reference from Quarterly Report on Form 10-
QSB for the quarterly period ended May 31, 1996.
(b) The Company has not filed any reports on form 8-K during
the last quarter of fiscal 1996.
PAGE 38 OF 39
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PURE CYCLE CORPORATION
By: /s/ Thomas P. Clark
Thomas P. Clark, President
Date: November 26, 1996
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Margaret S. Hansson Chairman, Vice November 26, 1996
Margaret S. Hansson President, Director
/s/ Thomas P. Clark President, Treasurer, November 26, 1996
Thomas P. Clark Director
/s/ Mark W. Harding Principal Financial November 26, 1996
Mark W. Harding Officer, Secretary
/s/ Fletcher L. Byrom Director November 26, 1996
Fletcher L. Byrom
/s/ George M. Middlemas Director November 26, 1996
George M. Middlemas
/s/ Richard L. Guido Director November 26, 1996
Richard L. Guido
/s/ Michael S. Mehrtens Controller,
Principal November 22, 1996
Michael S. Mehrtens Accounting Officer
PAGE 39 OF 39
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPAY'S 10-KSB DATED AUGUST 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 126,756
<SECURITIES> 3,429
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 141,049
<PP&E> 17,238
<DEPRECIATION> 12,083
<TOTAL-ASSETS> 18,693,329
<CURRENT-LIABILITIES> 53,796
<BONDS> 0
<COMMON> 261,584
0
2,033
<OTHER-SE> 4,407,507
<TOTAL-LIABILITY-AND-EQUITY> 18,693,329
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 337,831
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174,523
<INCOME-PRETAX> (503,923)
<INCOME-TAX> 0
<INCOME-CONTINUING> (503,923)
<DISCONTINUED> 0
<EXTRAORDINARY> 48,228
<CHANGES> 0
<NET-INCOME> (455,695)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
