SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1997
Commission File Number 0-8814
PURE CYCLE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0705083
(State of incorporation) (I.R.S. Employer
Identification No.)
5650 York Street, Commerce City, CO 80022
(Address of principal executive office) (Zip Code)
Registrant's telephone number: (303) 292-3456
Name of each
exchange
Securities registered under Section 12(b)of the Exchange Act:
Title of Class on which registered
None
None
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]
Aggregate market value of voting stock held by non-affiliates:
$14,903,554 (based upon the average bid and asked price on the OTC
Bulletin Board on November 24, 1997)
Number of shares of Common Stock outstanding, as of November 24,
1997: 78,439,763
Transitional Small Business Disclosure Format(Check One): Yes [ ]
No [x]
Documents incorporated by reference: None
Index to Pure Cycle Corporation
1997 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 . . . . . . . . . . . . . . . . . . . 7
Part II
5. Market for the Common Equity and
Related Stockholder Matters . . . . . . . . . 8
6. Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . 9
7. Financial Statements . . . . . . . . . . . . 12
8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . 28
Part III
9. Directors, Executive Officers, Promoters and
Control Persons; Section 16 (a) Beneficial
Ownership Reporting Compliance . . . . . . . 28
10. Executive Compensation . . . . . . . . . . . 29
11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . 30
12. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . 33
13. Exhibits and Reports on Form 8-K . . . . . . .33
Signatures . . . . . . . . . . . . . . . . .35
"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
anticipated permit and start-up dates, environmental risks, and the
results of financing efforts.
PART I
Item 1. Description of Business
General
Pure Cycle Corporation (the "Company") is primarily engaged in
the business of (i) acquiring, owning, developing and selling water
and water rights, (ii) designing, financing, constructing,
operating and maintaining of water and waste water systems, and
(iii) developing and applying of the Company's patented water
recycling technologies to process waste water into pure potable
drinking water. The Company seeks to sell water and water rights
to municipalities and other users as well as to develop, operate
and maintain water and waste water systems serving water and
sanitary sewer needs of customers located within its service areas.
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 (with
an annual usage right of 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 eighty five (85) year water privatization
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 located 2
miles from the greater Denver metropolitan area in growing Arapahoe
County ("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.
In January of 1997, the Company entered into an eighty five (85)
year waste water privatization agreement with the District to
design, construct, operate and maintain the District's waste water
system to service the waste water needs of customer's within the
District's 24,000 acre Service Area (the water and waste water
agreements collectively referred to as the "Service Agreements").
The Company's water assets together with its Service Agreements
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 to service the water
and waste water needs of customers within the District's Service
Area. The Company will seek to utilize its patented water
recycling technologies to process the return flow waste water /
sewage into pure potable water for reuse applications.
Description of Company Assets
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.
In April 1996, as part of a comprehensive settlement agreement
with the State of Colorado ("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.
The Company continues to develop and market its Export Water Rights
to Denver area water providers in need of additional water
supplies.
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 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 Agreements
The Company entered into an eighty five (85) year water
privatization 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.
In January of 1997, the Company entered into an eighty five (85)
year Waste Water Service Agreement with the District which provides
for the Company to design, finance, construct, operate and maintain
the District's waste water system to provide waste water service to
customers within the District's 24,000 acre Service Area. In
exchange for providing waste water service to customers within the
District's Service Area, the Company will receive 100% of the
District's waste water tap fees, and 90% of the District's waste
water usage fees.
The Company will supply water and waste water services 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.
The development of the Rangeview Project is divided into two
segments: one segment is the development and distribution of the
Export Water Rights to Denver area water providers in need of
additional water supplies; and the second, is the development of
water and waste water service to customers within the District's
24,000 acre Service Area. During fiscal year 1997, the Company's
revenues were generated by providing approximately 11 million
gallons of water to customers within the District's Service Area.
Through August 31, 1997, the Company has developed 4 wells together
with transmission lines to deliver water to customers within the
District's Service Area. Each water well is capable of producing
approximately 80 gallons per minute.
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.
Recycling Technology
The Company developed and patented water recycling technology
which converts single-family home waste water/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 waste water / sewage treatment applications. The
Company, through its Waste Water Service Agreement, will seek to
apply its water recycling technology to treat municipal waste water
/ sewage into pure potable water for reuse.
Description of Business
Beginning in fiscal 1987, and continuing through fiscal 1997, the
Company has acquired a portfolio of water rights (which are
described above in the Description of Company's Assets) which the
Company seeks to 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 waste water
systems. From its initial efforts in the Denver metropolitan area,
the Company seeks to utilize its water rights and waste water
treatment technologies to privatize other government owned water
and waste water 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 waste water 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
waste water treatment for customers in its Service Area.
Additionally, the District is empowered to set rates and charges
for water and waste water services. Pursuant to the Settlement
Agreements, 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 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).
Pursuant to the Company's water and waste water Service
Agreements, the Company will develop, operate and maintain the
District's water and waste water systems. In exchange for
developing, operating and maintaining the District's water system,
the Company receives 95% of the water tap fee and usage fee
revenues after payment of a twelve percent (12%) royalty to the
State Land Board. In exchange for developing, operating and
maintaining the District's waste water system the Company receives
100% of the District's waste water tap fees and 90% of the
District's waste water usage fees. Portions of the Company's
participation in the water and waste water tap fees and user fees
are used to finance the development of facilities needed to furnish
water and waste water service.
During fiscal 1997, the Company developed 4 wells together with
transmission lines and delivered approximately 11 million gallons
of water to customers within the District's Service Area. The
District does not currently have any waste water customers.
The 40 largest municipal water providers in the Denver
metropolitan area deliver approximately 98% 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 waste water
/ sewage treatment facilities. While the water supply market
throughout the Denver metropolitan area is fragmented with over 100
independent providers, the majority of waste water/sewage treatment
is processed by approximately 10 major waste water/sewage treatment
providers. The majority of Denver area water providers participate
in the Metropolitan Waste Water Authority which process
approximately 95% of the areas waste water/sewage.
During fiscal 1996, the Company acquired 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.
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 districts 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 the facilities to deliver the water 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 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 waste water/sewage processing, and from
regional waste water/sewage processors. The Company is not aware
of any private companies providing waste water/sewage treatment
services in the Denver metropolitan area. The Company believes
that it could have a competitive advantage because its waste water
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 waste water
treatment process can be composted into a high grade fertilizer for
agricultural use.
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 waste water and sewage, governmental
regulations concerning drinking water quality and waste water
discharge quality may be applicable. However, until the Company
has a contract proposal specifying the quantity and type of waste
water 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.
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.
In 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."
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."
Item 3. Legal Proceedings
None.
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, 1997.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Markets
The table below shows for the quarters indicated the high and low
bid prices of the Common stock on the OTC Bulletin Board. The
Company's Common stock is traded on the NASDAQ Bulletin Board under
the trade symbol PCYL. As of November 24, 1997, there were 4,028
holders of record of the Company's Common stock.
Calendar Quarter Low High
1997 First $.22 $.375
Second $.20 $.50
Third $.15 $.37
Fourth $.18 $.26
1996 First $.125 $.1875
Second $.14 $.19
Third $.14 $.4375
Fourth $.20 $.34375
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 1997, in connection with a loan for $350,000, the
Company issued warrants to purchase 2,100,000 shares of the
Company's Common Stock at $.25 per share to five related parties,
accredited investors who have previously invested in the Company.
The loan is due August 30, 2002.
Effective August 30, 1997, the Company issued warrants to
purchase 330,750 shares of the Company's Common Stock at $.25 per
share to six accredited investors pursuant to the terms of six
promissory notes issued in August 1996 which permitted the Company
to defer installments due under the notes 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.
Item 6. Management's Discussion and Analysis or Plan of Operation
Introduction
Pure Cycle is engaged in the privatization of municipal water and
waste water 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 two eighty five (85)
year water and waste water Service Agreements with the Rangeview
Metropolitan District which will enable the Company to provide
water and waste water service to over 36 square miles of property
located in the Denver metropolitan area. The Company continues to
develop its patented water recycling technologies and, will seek to
integrate these technologies for processing waste water into pure
potable water for reuse as part of its waste water 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 water supply market.
The Company is aggressively pursuing the marketing and sale 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 fiscal year 1997, the Company designed, constructed, and
operated 4 water wells together with transmission lines and
delivered approximately 11 million gallons of water to customers
within the District's Service Area. The Company continues to meet
with developers and other parties interested in developing portions
of the District's Service Area. The District's Service Area is
primarily undeveloped land situated in the growing Arapahoe County.
Portions of the property are either in negotiation for sale or have
been sold to private interests who may develop the property. The
timing of the development of water and waste water facilities will
depend upon when the property is developed.
In addition to the Company's Service Area activities, the Company
continues to meet with Denver area water providers to develop and
sell the Company's Export Water Rights. Denver area water providers
continue to experience strong regional growth rates which continue
to pressure their developed water supplies. The Company is
marketing its Export Water Rights to water providers in need of
supplemental water supplies. Additionally, during fiscal 1997, the
Company has presented 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.
At this time the Company is not able to determine the timing of
water 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 the
provisions of the CAA, the other investors in the Rangeview project
are to receive the first approximately $31,807,000 from the sale or
other disposition of the Export Water Rights. 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.
Results of Operations
During fiscal year 1997, the Company generated water service
revenues of $96,525. Water service revenues were divided into
$69,610 from tap fees and $26,915 from usage fees from the sale of
water to customers within the District's Service Area. The Company
incurred approximately $4,000 in operating costs associated with
the water service revenues. Prior to fiscal 1997, the Company did
not report any revenues. The Company continues to operate at a
loss with its operating capital requirements funded primarily
through debt and equity financings and the sale of rights to
participate in the proceeds from the sale of the Company's Export
Water Rights.
The Company's general and administrative expenses for fiscal 1997
decreased approximately $47,000 or 14% to $295,000 as compared to
$338,000 for fiscal 1996, due primarily to a decrease in payroll
expenditures. 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 1995, due primarily to a
decrease in payroll expenditures and facility costs.
The Company's net loss for fiscal 1997 decreased approximately
$103,000 or 22% as compared to $456,000 for fiscal 1996. The
decrease in net loss for fiscal 1997 was due primarily to the
revenues generated during 1997 and the recognition of an
extraordinary gain from the extinguishment of debt of $20,765 in
1997. The Company's net loss for fiscal 1996 decreased
approximately $59,000 or 12% to $456,000 as compared to $515,000
for fiscal 1995. The decrease in the net loss for fiscal 1996 over
fiscal 1995 was due primarily to the recognition of an
extraordinary gain from the extinguishment of debt of $48,228 in
1996 compared to $4,884 recognized in 1995. Lower interest expense
resulting from lower outstanding debt balances reduced the loss by
approximately $37,000 in fiscal 1996, however, this decrease was
largely offset by a charge of approximately $32,000 in fiscal 1996
resulting from the expiration of an option to purchase certain
water rights.
Liquidity and Capital Resources
The Company's working capital at August 31, 1997 was $329,020.
The Company expects to incur additional costs in fiscal 1998 to
expand water service to customers within the District's Service
Area. Based on budgets prepared by management, the Company
believes that its working capital at August 31, 1997 is adequate to
fund its activities through at least fiscal 1998.
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.
Operating Activities
During fiscal 1997, the Company used cash of approximately
$173,000 in its operations compared to approximately $314,000 in
fiscal 1996. Revenue received in fiscal 1997 and a reduction in
general and administrative expenses accounted for the reduction in
cash used for operations in fiscal 1997. Based on budgeted
operating costs, it is anticipated that a similar level of cash
will be used in the Company's operations during fiscal 1998.
Investing Activities
Cash used in investing activities for fiscal 1997 was
approximately $233,000. Costs of approximately $133,000 were
incurred relating to the Rangeview and Paradise water rights
projects and costs of approximately $100,000 were incurred relating
to the development of a water system serving customers within the
District's Service Area. Cash used in investing activities in
fiscal 1996 was approximately $282,000, including costs incurred of
approximately $166,000 relating to the Company's water rights
projects and approximately $113,000 advanced to the District.
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.
Financing Activities
In August 1996, the Company entered into a loan agreement with
six related party investors to borrow $300,000. The proceeds from
the loan agreement were received in fiscal 1997. The Company also
entered into a loan agreement in August of 1997 and received
$350,000 from five related party investors. A portion of the
proceeds under the agreements were attributed to the value of the
warrants issued in connection with the loans.
New Accounting Standards
In October of 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). This
standard addresses the timing and measurement of stock-based
compensation expense. Entities electing to continue to follow the
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. The Company adopted SFAS 123 in the first quarter of
fiscal 1997 and elected to retain the approach of APB 25 (the
intrinsic value method), for recognizing stock-based compensation
in its consolidated financial statements. The Company has included
the disclosures required by SFAS 123 in its financial statements.
In February of 1997, the FASB issued Statements of Financial
Accounting Standards No. 128, Earnings per Share ("SFAS 128")
effective for years ending after December 15, 1997. Statement No.
128 specifies the computation, presentation, and disclosure
requirements for earnings per share ("EPS") for entities with
publicly held common stock or potential common stock. The Company
will adopt SFAS 128 in its August 31, 1998 financial statements.
The adoption is not expected to have a material effect on the loss
per share of the Company.
In June of 1997, the FASB issued Statements of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"), and No 131, Disclosure About Segment of an Enterprise and
Related Information ("SFAS 131"), effective for years beginning
after December 15, 1997. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in
a full set of general-purpose financial statements. The Company
has not yet adopted SFAS 130. The Company will comply with the
reporting and display requirements under this statement when
required. SFAS 131 establishes standards for reporting information
about operating segments and the methods by which such segments
were determined. The Company has not yet adopted SFAS 131. As the
Company currently operates within one industry segment, the
reporting of such information is not expected to be significant.
Item 7. Financial Statements
Page
Independent Auditors' Reports 13
Consolidated Balance Sheets 14
Consolidated Statements of Operations 15
Consolidated Statements of Stockholders' Equity 16
Consolidated Statements of Cash Flows 17
Notes to Consolidated Financial Statements 18-24
Independent Auditors' Report
The Board of Directors
Pure Cycle Corporation:
We have audited the accompanying consolidated balance sheets of Pure
Cycle Corporation and Subsidary as of August 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. 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 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, 1997 and 1996 and the
results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
October 17, 1997
PURE CYCLE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
August 31
ASSETS 1997 1996
Current assets:
Cash and cash equivalents $ 370,426 $ 126,756
Marketable securities 3,429 3,429
Prepaid expenses and other current
assets 7,830 10,864
--------- ---------
Total current assets 381,685 141,049
Investment in water rights and systems:
Rangeview water rights (Note 2) 12,920,490 12,788,413
Paradise water rights 5,468,041 5,466,834
Rangeview Water System (Note 3) 100,212 --
---------- ----------
Total investment in water rights
and systems 18,488,743 18,255,247
Note receivable, including accrued
interest (Note 4) 274,765 251,282
Equipment, at cost, net of accumulated
depreciation of $14,149 in 1997 and
$12,083 in 1996 3,089 5,155
Other assets 22,596 40,596
---------- ----------
$ 19,170,878 $ 18,693,329
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,856 $ 24,986
Accrued liabilities 45,809 28,810
---------- ----------
Total current liabilities 52,665 53,796
Long-term debt - related parties,
including accrued interest (Note 5)
3,550,925 2,750,311
Other non-current liabilities (Note 6) 113,843 127,468
Participating interests in Rangeview
water rights (Note 2) 11,090,630 11,090,630
Stockholders' equity (Note 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 - 432,514 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 23,678,561 23,633,561
Accumulated deficit (19,579,363) (19,226,054)
---------- ----------
Total stockholders' equity 4,362,815 4,671,124
$ 19,170,878 $ 18,693,329
========== ==========
See Accompanying Notes to Consolidated Financial Statements
PURE CYCLE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended August 31
1997 1996
Water service revenue:
Tap fees $ 69,610 $ --
Water usage fees 26,915 --
------- -------
96,525 --
Water service operating expense (4,000) --
General and administrative
expense (291,133) (337,831)
Other income (expense):
Interest income 27,288 40,428
Interest expense:
Related parties (195,614) (167,283)
Other ( 7,140) ( 7,240)
Loss on abandonment of
options on water rights -- ( 31,997)
------- -------
Loss before
extraordinary item (374,074) (503,923)
Extraordinary gain on
extinguishment of debt
(Notes 5 and 6) 20,765 48,228
------- -------
Net loss $(353,309) $(455,695)
======= =======
Primary and fully diluted
loss per common share:
Loss before extraordinary
item $ * $ (.01)
Extraordinary item * *
Net loss per common share $ * $ (.01)
Weighted average common
shares outstanding 78,439,763 78,439,763
* Less than $.01 per share
See Accompanying Notes to Consolidated Financial Statements
PURE CYCLE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended August 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
<S> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1995 2,032,513 $2,033 78,439,763 $261,584 $23,615,561 $(18,770,359)
Warrants issued (Note 5
and 7) -- -- -- -- 18,000 --
Net loss -- -- -- -- -- ( 455,695)
Balance at August 31, 1996 2,032,513 2,033 78,439,763 261,584 23,633,561 (19,226,054)
Warrants issued (Note 5
and 7) -- -- -- -- 45,000 --
Net loss -- -- -- -- -- ( 353,309)
--------- ----- ---------- ------- ---------- ----------
Balance at August 31, 1997 2,032,513 $2,033 78,439,763 $261,584 $23,678,561 $(19,579,363)
========= ===== ========== ======= ========== ==========
</TABLE>
[FN]
See Accompanying Notes to Consolidated Financial Statements
PURE CYCLE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended August, 31
1997 1996
Cash flows from operating activities:
Net loss $(353,309) $( 455,695)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization 2,066 3,253
Amortization of deferred
financing costs 18,000 --
Loss on abandonment of
option on water rights -- 31,997
Extraordinary gain on
extinguishment of debt ( 20,765) ( 48,228)
Increase in accrued interest
on note receivable ( 23,483) ( 18,645)
Increase in accrued interest
on long term debt 202,754 174,523
Changes in operating assets
and liabilities:
Prepaid expenses and
other current assets 3,034 5,173
Accounts payable and
other accrued liabilities ( 1,131) (6,654)
-------- -------
Net cash used in
operating activities $(172,834) $(314,276)
Cash flows from investing activities:
Investments in water rights $(133,284) $(166,596)
Investment in Rangeview Water system (100,212) --
Increase in note receivable -- (113,310)
Purchase of equipment -- ( 2,365)
------- -------
Net cash provided by
(used in) investing
activities (233,496) (282,271)
Cash flows from financing activities:
Proceeds from issuance
of debt and warrants 650,000 --
Repayments of debt -- (142,500)
------- -------
Net cash provided by
(used in) financing
activities 650,000 (142,500)
------- -------
Net increase (decrease)
in cash and cash equivalents 243,670 (739,047)
Cash and cash equivalents
beginning of year 126,756 865,803
------- -------
Cash and cash equivalents
end of year $ 370,426 $126,756
======= =======
[FN]
See Accompanying Notes to Consolidated Financial Statements
PURE CYCLE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1997 and 1996
NOTE 1 - ORGANIZATION AND BUSINESS, BASIS OF PRESENTATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Pure Cycle Corporation (the "Company") is primarily engaged in
the business of (i) acquiring, owning, developing and selling water
and water rights, (ii) designing, financing, constructing,
operating and maintaining of water and waste water systems, and
(iii) developing and applying of the Company's patented water
recycling technologies to process waste water into pure potable
drinking water. The Company is currently marketing water on a
wholesale basis, whereby municipalities in need of additional water
supplies would seek to acquire water from the Company, as well as
developing retail water and waste water systems pursuant to the
Company's Service Agreements. The Company is marketing water to
municipalities in the Denver metropolitan area as well as users in
Arizona, Nevada, and California. Pursuant to the Company's water
and waste water Service Agreements, the Company is also developing
water systems to serve customers within the Rangeview Metropolitan
District's ("District") Service Area. Currently their are no waste
water customers within the District's Service Area, however the
Company expects to develop waste water systems as demand occurs
within the Service Area.
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, 1997 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.
Basis of Presentation
During the year ended August 31, 1997, the remaining litigation
regarding the acquisition of the Rangeview Water Rights was
settled, the Company entered into certain Service Agreements with
the District, and the Company received water service revenues of
approximately $97,000 pursuant to the Service Agreements (see Notes
2 and 3). Accordingly, the Company is no longer considered to be
in the development stage and the additional disclosures required
for development stage enterprises have been omitted.
Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Rangeview Development
Corporation which was dissolved in August 1997. All inter-company
balances and transactions have been eliminated.
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.
PURE CYCLE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS, BASIS OF PRESENTATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
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.
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, 1997. Pursuant to the terms of the
Comprehensive Amendment Agreement ("CAA") entered into in 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 those 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.
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 at August 31, 1997 and 1996 and therefore the
adoption of SFAS 121 has had no effect on the Company's financial
statements.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), effective for fiscal years
beginning after December 15, 1995. This statement defines a fair
value method of accounting for employee stock options and
encourages entities to adopt that value method of accounting for
its stock compensation plans. SFAS 123 allows an entity to
continue to measure compensation costs for these plans using the
intrinsic value method of accounting as prescribed in Accounting
Pronouncement Bulletin Opinion No. 25, Accounting for Stock Issued
to Employees (APB 25). The Company has elected to continue to
account for its employee stock compensation plans as prescribed
under APB 25. The pro forma disclosure of net loss and loss per
share required by SFAS 123 are included in Note 7.
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.
PURE CYCLE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS, BASIS OF PRESENTATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
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.
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. 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 addition to the payments described above, the Company
capitalized certain legal and other costs relating to the
acquisition of the Rangeview water rights totaling $133,284 in
1997, $166,596 in 1996, and $879,980 in years prior.
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 of the Rangeview
Water Rights, 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. Certain
crossclaims in the lawsuit between the District and East Cherry
Creek Valley Water and Sanitation District were settled in December
of 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").
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
$3,952,000 represented all of the District's outstanding Bonds
(totaling $24,914,000). The Company conveyed all of the
outstanding District Bonds to the District in exchange for title to
the Export Water Rights.
PURE CYCLE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - RANGEVIEW WATER RIGHTS -(continued)
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 $36,240,000 from the sale or other disposition of the
Export Water Rights.
NOTE 3 - RANGEVIEW WATER SYSTEM
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 receives 95% of the District's water revenues
remaining after payment of royalties to the State Land Board.
During fiscal year 1997, the Company incurred costs of $100,212 to
develop 4 wells with an aggregate production capacity of
approximately 200 gallons per minute together with transmission
lines to deliver water to customers within the District's Service
Area. During fiscal year 1997, the Company delivered approximately
11 million gallons of water to customers in its Service Area.
In addition to the water system service agreement, in January of
1997, the Company entered into an 85 year Waste Water Service
Agreement with the District to design, finance, construct, operate,
and maintain the District's waste water system to provide waste
water service to customers within the District's 24,000 acre
Service Area. Currently there are not waste water customers within
the District's Service Area.
NOTE 4 - 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,
matured on December 31, 1996. The balance of the note receivable
at August 31, 1997 was $274,765, including accrued interest.
Because of the revenue sources available to it, and its operating
expense history, the 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 5 - LONG-TERM DEBT
Long-term debt, including accrued interest at August 31, 1997 and
1996 is comprised of the following:
1997 1996
Notes payable, including
accrued interest to six
related parties, due August
2002, interest at prime
rate plus 2%, unsecured $ 330,750 $ --
Notes payable, including
accrued interest to five
related parties, due August
2002 interest at 10 1/4%,
unsecured net of unamortized
discount of $45,000 309,434 --
Note payable, to related party,
due October 2000, non-interest
bearing, unsecured 26,542 26,542
Notes payable, including accrued
interest, to President and
majority stockholder due October
2000, interest at 8.36% to 9.01%,
unsecured 380,781 359,421
Notes payable, including accrued
interest, to related party, due
October, 2000, interest at the
prime rate plus 3%, secured by
shares of the Company's common
stock owned by the President
and majority stockholder 1,864,670 1,758,138
Notes payable, including
accrued interest, to a
related party corporation,
due October 2000, interest
ranging from 7.18% to 8.04%,
unsecured 638,749 606,210
--------- ---------
Total long-term debt $3,550,925 $2,750,311
========= =========
PURE CYCLE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT - (continue)
Aggregate maturities of long-term debt are as follows:
Year Ending August 31, Amount
2000 $ 2,910,741
2002 640,184
---------
Total $ 3,550,925
=========
In August 1997, the Company entered into a loan agreement with
five related party investors. The loan is for $350,000, is
unsecured, bears interest at the rate of 10 1/4% and is due August
30, 2002. In connection with the loan agreement, the Company
issued warrants to purchase 2,100,000 shares of the Company's
common stock at $.25 per share (see Note 7). A portion of the
proceeds received under the agreement ($45,000) has been attributed
to the estimated fair value of the warrants issued. The resulting
discount is being amortized over the term of the loan.
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 at the rate of prime plus 2% or 10 1/4%
and is due August 30, 2002. The agreement allowed the Company to
extend the due date to August 30, 2002 by issuing additional
warrants (see Note 7). In connection with the loan agreement, the
Company issued warrants to purchase 600,000 shares of the Company's
common stock and additional warrants to purchase 1,323,000 shares
to extend the due date of the note until August 30, 2002. The
warrants are exercisable at $.25 per share (see Note 7).
In July 1996 the Company entered into an agreement with the two
corporations holding the notes payable due February 1998, to cancel
the notes and release their security interest in the Paradise water
rights in exchange for an assignment of a Participating 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.
During fiscal year 1997, the Company reached agreement with two
related party note holders to defer payment of principal and
accrued interest payable on certain notes totaling $2,245,451 to
October 2000. 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.
As of August 31, 1997, 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 6 - OTHER NON-CURRENT LIABILITIES
As a result of the expiration of the Colorado statute of
limitation, certain accounts payable to creditors incurred prior to
the Company's suspension of operations in 1985 totaling $20,765 are
considered extinguished and have been reflected as an extraordinary
item in the accompanying consolidated statements of operations in
fiscal year 1997. At August 31, 1997, the Company owes
approximately $114,000 to creditors incurred prior to the Company's
suspension of operations in 1985 which amounts are reflected as
other non-current liabilities in the accompanying balance sheet.
NOTE 7 - STOCKHOLDERS' EQUITY
Preferred Stock
On May 25, 1994, the Company sold 1,600,000 shares of Series A
Convertible Preferred Stock, $.001 par value, for $1.00 per share
for total proceeds of $1,600,000. The holders of the Series A
Convertible Preferred Stock are entitled to be paid a dividend
amount equal to $2.00 per share represented by a Participating
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.
PURE CYCLE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS' EQUITY -(continued)
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 dividend obligation on the Series A Convertible
Preferred Stock have been satisfied.
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 options 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 until 2002. 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.
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has
been recognized for stock options granted to key employees and
directors. Had compensation costs for the Company's two stock-
based compensation plans been determined based on the fair market
value at the grant dates for awards under those plans consistent
with the method prescribed in FASB Statement 123, the Company's net
loss and loss per share would have been increased to the pro forma
amounts indicated below for the years ended August 31, 1997 and
1996:
1997 1996
Net loss:
As Reported $(353,309) $(455,695)
Pro forma (356,882) (484,275)
Loss per share:
As Reported * (.01)
Pro forma * (.01)
* Less than $.01 per share
The fair value of each option grant is estimated on the date of
the grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in fiscal
year 1996: no dividend yield; no expected volatility; and the
weighted average risk-free interest rate of 6.75% for the options.
A summary of the status of the Company's Equity Incentive Plan as
of August 31, 1997 and 1996, and charges during the years then
ended is presented below:
1997 1996
Weighted average Weighted average
Fixed options Shares exercise price Shares exercise price
- ------------------- ------ --------------- ------ --------------
Outstanding at
beginning of year 23,000,000 $.22 20,000,000 $.21
Granted -- -- 3,000,000 .25
Exercised -- -- -- --
---------- ----------
Outstanding at
end of year 23,000,000 $.22 23,000,000 $.22
========== ==========
Options exercisable
at year end 22,250,000 22,000,000
Weighted average of
fair value of options
granted during the year -- $.01
PURE CYCLE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS' EQUITY -(continued)
The following table summarizes information about Equity Incentive
Plan options outstanding at August 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- --------------------------
Weighted average
remaining Weighted Weighted
Rang of exercise Number contractual average Number average
Price Outstanding life exercise price exercisable exercise price
- ---------------- ----------- ----------------- -------------- ----------- --------------
<S><C> <C> <C> <C> <C> <C>
$.20 15,000,000 4.75 .20 15,000,000 .20
.25 8,000,000 4.75 .25 7,250,000 .25
.20 - .25 23,000,000 4.75 .22 22,250,000 .22
</TABLE>
During the years ended August 31, 1997 and 1996, no options were exercised.
Warrants
In connection with the 1996 loan agreement described in note 5
the Company issued warrants to purchase 600,000 shares of the
Company's common stock at $.25 per share. Pursuant to the loan
agreement, the Company issued additional warrants to purchase
1,323,000 shares of common stock at $.25 per share to extend the
due date of the note to August 30, 2002. The warrants expire
August 30, 2002. The estimated fair value of the warrants issued
of $18,000 has been charged to expense during the year ended August
31, 1997.
In connection the 1997 loan agreement described in note 5, the
Company issued warrants to purchase 2,100,000 shares of the
Company's common stock at $.25 per share. The warrants expire
August 30, 2002. The estimated fair value of the warrants issued
of $45,000 will be amortized to expense over the life of the loan.
The Company has also issued warrants, which remain outstanding,
between 1990 and 1995 to purchase 26,003,000 shares of the
Company's stock at $.25 per share in connection with the sale of
profits interests in the Rangeview WCA, which were subsequently
converted into participating interests in the CAA. The warrants
expire 6 months after the payment of the participating interests in
the CAA.
During the years ended August 31, 1997 and 1996, no warrants were
exercised.
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.
1997 1996
Deferred tax assets:
Net operating loss carryforwards $ 3,397,000 $ 4,791,000
Less valuation allowance (3,397,000) (4,791,000)
--------- ---------
Net deferred tax asset $ -- $ --
========= =========
The valuation allowance for deferred tax assets as of August 31,
1997 was $3,397,000. The net change in the valuation allowance for
the year ended August 31, 1997 was a decrease of $1,394,000,
representing a decrease of $1,531,000 attributable to the
expiration of net operating loss carryforwards during the year and
increase of $137,000 attributable to the net operating loss
incurred during the year.
At August 31, 1997, the Company has net operating loss
carryforwards for federal income tax purposes of approximately
$8,732,000 which are available to offset future federal taxable
income, if any, through 2011.
NOTE 9 - SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Years ended August 31
1997 1996
Debt canceled in exchange for a
Participating Interest in the CAA -- $ 300,000
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 1997 or 1996
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, 1997:
Name Age Position(s) with the Company
Margaret S. Hansson . . . 73 Director, Chairman, Vice President
Fletcher L. Byrom . . . . 79 Director
Thomas P. Clark . . . . 61 Director, President, Treasurer
George M. Middlemas . . . 51 Director
Richard L. Guido . . . . 53 Director
Mark W. Harding . . . . 34 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.
GEORGE M. MIDDLEMAS
George M. Middlemas has been a Director of the Company since
April 1993. Mr. 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 Associate General Counsel of Inco Limited and President,
Chief Legal Officer and Secretary 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 Juris
Doctor 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 24, 1997 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 1997 60,000 0 0
1996 60,000 0 0
1995 60,000 0 0
For all other executive officers, consisting of two persons,
total annual salary and bonuses were less than $100,000.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of November 24, 1997, 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 8,246,000 9.5% (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 6,460,000 7.6% (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. 14,338,206 16.2% (6) 408,000 25.5%
233 S. Wacker Drive, (10)
Suite 9600 (11)
Chicago, Illinois 60606 (13)
Environmental Venture 5,676,620 7.0%(7)
Fund, L.P. (10)
233 S. Wacker Drive, Suite 9600 (11)
Chicago, Illinois 60606
Environmental Private Equity 5,322,264 6.6%(13) 600,000 37.5%
Fund II, L.P. (16)
233 S. Wacker Drive, Suite 9600
Chicago, Illinois 60606
The Productivity 4,296,18O 5.4% (8)
Fund II, L.P. (10)
233 S. Wacker Drive, Suite 9600 (11)
Chicago, Illinois 60606
Proactive Partners L.P. 2,801,252 3.4%(13)
50 Osgood Place, Penthouse (17)
San Francisco, California 94133
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 50,070,854 49.7%(12)
as a group (6 persons)
</TABLE>
(1) Includes 1,000,000 shares purchasable by Mr. Middlemas under
currently exercisable options.
(2) Includes 8,000,000 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 1,000,000 shares purchasable under a
currently exercisable option by MICASU Corporation which Mr. Byrom
controls as President, Chief Executive Officer, and controlling
shareholder and 3,000,000 shares purchasable by Mr. Byrom under
currently exercisable options..
(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 8,506,198 shares purchasable by Apex Investment Fund
II, L.P. ("Apex") under a currently exercisable warrants.
(7) Includes 2,596,620 shares purchasable by Environmental Venture
Fund, L.P. ("EVFund") under a currently exercisable warrants.
(8) Includes 1,776,166 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 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").
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 29,633,248 shares of Common Stock, or
30.9% 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 14,338,206 shares of Common Stock, or
16.2% 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 15,338,206 shares of Common Stock, or 17.1% 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 9,618,422 shares of Common Stock, or 11.6% 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
5,676,620 shares of Common Stock, or 7.0% 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 5,322,264 shares of
Common Stock, or 6.6% 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 10,998,884 shares of Common Stock, or 13.1% 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 10,998,884
shares of Common Stock, or 13.1% 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.
(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 322,264 shares purchasable by the Environmental
Private Equity Fund under a currently exercisable warrant.
(17) Includes 801,252 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 with interest
at 8.36% to 9.01% per annum, issued to Mr. Clark on various dates
are payable October 15, 2000. 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, 1997, the Company reached an agreement with LCH, Inc. to defer
payment of the principal amount of the Notes, plus interest until
October 1, 2000. No additional consideration is due to LCH, Inc.
for the deferral. The board members, other than Mr. Clark,
determined the transactions are at fair market value taking into
consideration the risk to LCH, Inc.
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.
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(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).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(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(f).1 Agreement to defer payment of notes, dated June 6,
1997, by and between LCH, Inc. and the Company filed
herewith.
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. *****
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 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-
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 1997.
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 24, 1997
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 24 , 1997
Margaret S. Hansson President, Director
/s/ Thomas P. Clark President, Treasurer, November 24, 1997
Thomas P. Clark Director
/s/ Mark W. Harding Principal Financial November 24, 1997
Mark W. Harding Officer, Secretary
/s/ Fletcher L. Byrom Director November 24, 1997
Fletcher L. Byrom
/s/ George M. Middlemas Director November 24, 1997
George M. Middlemas
/s/ Richard L. Guido Director November 24, 1997
Richard L. Guido
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S 10-KQSB DATED August 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BYREFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 370,426
<SECURITIES> 3,429
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 381,685
<PP&E> 17,238
<DEPRECIATION> 14,149
<TOTAL-ASSETS> 19,170,878
<CURRENT-LIABILITIES> 52,665
<BONDS> 0
<COMMON> 261,584
0
2,033
<OTHER-SE> 4,099,198
<TOTAL-LIABILITY-AND-EQUITY> 18,832,149
<SALES> 0
<TOTAL-REVENUES> 96,525
<CGS> 0
<TOTAL-COSTS> 291,133
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 202,754
<INCOME-PRETAX> (374,074)
<INCOME-TAX> 0
<INCOME-CONTINUING> (374,074)
<DISCONTINUED> 0
<EXTRAORDINARY> 20,765
<CHANGES> 0
<NET-INCOME> (353,309)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
