SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
X ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2000
Commission File Number 0-8814
PURE CYCLE CORPORATION
(Name of small business issuer as specified in its charter)
Delaware 84-0705083
(State of incorporation) (I.R.S. Employer
Identification No.)
8451 Delaware Street, Thornton, CO 80260
(Address of principal executive office) (Zip Code)
Issuer's telephone number: (303) 292-3456
Name of
Securities registered under Section Title exchange which
12(b) of the Exchange Act: 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 issuer (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]
Revenues for fiscal year ended August 31, 2000: $ 951,868
Aggregate market value of voting stock held by non-affiliates: $
8,628,374 (based upon closing price on the OTC Bulletin Board on
November 1, 2000)
Number of shares of Common Stock outstanding, as of November 16,
2000: 78,439,763
Transitional Small Business Disclosure Format(Check One): Yes [
] No [x]
Documents incorporated by reference: None
Table of Contents
Item Part I Page
1. Description of Business 3
2. Description of Property 6
3. Legal Proceedings 6
4. Submission of Matters to a Vote of Security Holders
6
Part II
5. Market for the Common Equity and
Related Stockholder Matters 7
6. Management's Discussion and Analysis 8
7. Financial Statements 11
8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 24
Part III
9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act 25
10. Executive Compensation 26
11. Security Ownership of Certain Beneficial
Owners and Management 27
12. Certain Relationships and Related
Transactions 30
13. Exhibits and Reports on Form 8-K 30
Signatures 32
"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: 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 and
cost of development and delivery, uncertainties in the
estimation of revenues and costs of construction projects, 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, the results of financing efforts,
and general economic conditions.
PART I
Item 1. Description of Business
General
Pure Cycle Corporation (the "Company") was incorporated in
Delaware in 1976. The Company is engaged in providing water and
wastewater services to customers located in the Denver area.
The Company operates water and wastewater systems which include
designing, constructing, operating and maintaining systems
serving customers in the Denver metropolitan area. The Company
also owns patented water recycling technologies which are
capable of processing wastewater into pure potable drinking
water. There have been no significant changes in the way the
Company does business during the year. The Company's focus
continues to be to provide water and wastewater service to
customers within its service area and to expand its service to
other areas throughout the Denver metropolitan area and the
southwestern United States.
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 groundwater (with an annual usage right
of 11,650 acre feet per year), an option to substitute 1,650
acre feet of surface water in exchange for a total gross volume
of 165,000 acre feet of groundwater, and the use of surface
reservoir storage capacity (collectively referred to as the
"Export Water Supply").
In addition to ownership of the Export Water Supply, the
Company entered into eighty-five year water and wastewater
privatization agreements ("Service Agreements") with the
District to design, construct, operate, and maintain the
District's water and wastewater systems to service customers
within the District's 24,000 acre service area which is located
in the greater Denver metropolitan area in 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
Supply") for use within the District's Service Area.
The Company's water assets together with its Service
Agreements enable the Company to develop and market water and
wastewater service to cities, municipalities and special
districts in need of additional water supplies and to serve the
water and wastewater needs of customers within the District's
Service Area. The Company will seek to utilize its patented
water recycling technologies to process the wastewater into pure
potable water for reuse applications.
Description of Company Assets
Rangeview Water Supply
In 1996, as part of a comprehensive settlement agreement with
the State of Colorado ("Settlement Agreement"), the Company
purchased all of the District's outstanding 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 entered into the Service
Agreements and purchased a fee interest to the Export Water
Supply, which consists of a total gross volume of 1,165,000 acre
feet (approximately 11,650 acre feet per year) of non-tributary
groundwater, 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 groundwater, and surface reservoir storage
rights from the District in exchange for all the District's
outstanding bonds. The Company is seeking to develop and
market its Export Water Supply to Denver area water providers
that are in need of additional water supplies.
Comprehensive Amendment Agreement
In order to acquire the District's outstanding bonds to enable
the Company to enter into the Settlement Agreement and to
acquire the Export Water Supply, the Company negotiated
agreements with all the remaining bond holders and amended the
Water Commercialization Agreement ("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 a total of $31,807,000 from
the proceeds of a sale or other disposition of the Export Water
Supply (see Note 3 to the financial statements).
Service Agreements
In 1996, the Company entered into an eighty-five year water
privatization agreement with the District to design, construct,
operate, and maintain the District's water system to provide
water service to customers within the 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 Service Area, the Company will
receive 95% of all amounts received by the District relating to
water services remaining after payment of royalties to the State
of Colorado Land Board.
In January of 1997, the Company entered into an eighty-five
year Wastewater Service Agreement with the District which
provides for the Company to design, finance, construct, operate
and maintain the District's wastewater system to provide
wastewater service to customers within the Service Area. In
exchange for providing wastewater service to customers within
the Service Area, the Company will receive 100% of the
District's wastewater tap fees, and 90% of the District's
wastewater usage fees.
The Company supplies water and wastewater services to
customers within the 24,000 acres of property which constitute
the boundaries of the Service Area. The Service Area is located
in southeastern Arapahoe County, Colorado, a growing county
bordering Denver, Colorado. Currently the majority of the
property is undeveloped land owned by the State of Colorado,
however portions of the property are currently under
development. Development of the property is dependent on
overall growth in the Denver metropolitan area.
Development of the Rangeview water supply is are divided into
two phases: one phase is the development and distribution of
the Export Water Supply to Denver area water providers in need
of additional water supplies; and the second, is the development
of water and wastewater service to customers within the Service
Area.
Paradise Water Supply
In 1987, the Company acquired certain water, water wells, and
related assets from Paradise Oil, Water and Land Development,
Inc., which constitute the "Paradise Water Supply". The
Paradise Water Supply includes 70,000 acre feet of tributary
Colorado River decreed water, 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 or approximately
14,000 acre feet per well per year with an artesian pressure of
approximately 100 pounds per square inch.
Recycling Technology
The Company developed and patented water recycling technology
which converts single-family home wastewater/sewage into pure
potable drinking water. The Company manufactured, installed and
operated the single-family water recycling units in the late
1970's and early 1980's until halting production of the units in
1982. The Company has shifted its strategic market for its
water recycling technology from its original single-family units
to large municipal wastewater treatment applications. The
Company has not operated a large wastewater treatment plant
using its technologies and there can be no assurance that the
technology will be technically or economically feasible on a
large scale. The Company, through its Wastewater Service
Agreement, will seek to apply its water recycling technology to
treat municipal wastewater into pure potable water for reuse.
The Business
Beginning in fiscal 1987, and continuing through fiscal 2000,
the Company has acquired a portfolio of water assets which are
described above in the Description of Company Assets. This
portfolio of water assets can be used to provide water service
to customers located throughout the Denver metropolitan area and
the Company has acquired the exclusive right to provide water
and wastewater service to customers located within the Service
Area. The Company seeks to utilize its water assets and
wastewater treatment technologies to privatize other government
owned water and wastewater systems in Colorado and throughout
the western United States.
The Rangeview Metropolitan District is a quasi-municipal,
political subdivision of the State of Colorado and is empowered
to provide water and wastewater services to approximately 24,000
acres of property located south and east of Denver metropolitan
area, most of which is owned by the State of Colorado (the
"Service Area").
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 located within the
Service Area 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 70,000 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 wastewater Service
Agreements, the Company will develop, operate and maintain the
District's water and wastewater 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 wastewater system the Company
receives 100% of the District's wastewater tap fees and 90% of
the District's wastewater usage fees. The District is empowered
to set rates and charges for water and wastewater services.
Pursuant to the Settlement Agreement, the District's water rates
and charges must be the average of similar rates and charges of
the three surrounding municipal water providers. Portions of
the Company's participation in the water and wastewater tap fees
and user fees are required to be used to finance the development
of facilities needed to furnish water and wastewater service.
In 1998, the Company entered into an agreement to provide
water and wastewater service to a 400 acre development which
will include the construction of a 500-bed Academic Model
Juvenile Facility ("Model Facility"). The Model Facility paid a
Water System Development and Water Resource Charge based on
estimated water consumption, to fund construction of water and
wastewater systems. Pursuant to its Service Agreements, the
Company has received $1,998,014 of the total charges of
$2,013,495 relating to the construction of the water and
wastewater facilities. Additionally, the Company has received
$154,800 from the State of Colorado for the construction of
additional facilities related to the wastewater plant to be
undertaken by the Company on behalf of the State of Colorado.
The Company has completed construction of the water facilities
and has begun construction of the wastewater facilities which is
projected to be completed by the end of the first quarter of
fiscal year 2001. The Model Facility is projected to open in
May 2001
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 is actively marketing the Export Water Supply
to each of the 40 largest providers during fiscal year 2000. The
Export Water Supply could be sold for a lump sum amount or
incrementally pursuant to the Company's service contracts
whereby the Company will design, construct, operate and maintain
the water system to deliver the water to customers. The timing,
terms, and conditions of sales, if any, are dependent on the
purchaser.
The Company is also pursuing the sale of water from the
Paradise Water Supply to users in the Denver metropolitan area
and 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 from one state to
another, including a requirement that a court decree authorizing
the use of the water 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 Supply
can be sold to users outside of Colorado. If the Company is
successful in selling its Paradise Water Supply, the Company
would anticipate developing and constructing the facilities to
deliver the water in a manner similar to the development and
construction currently in progress related to the Model
Facility. Other potential development opportunities for the
Paradise Water Supply include, but are not limited to, the
utilization of the artesian pressure for hydroelectric power
generation and water leasing to agricultural interests, mineral
interests, or recreational interests.
The Company's business of providing water and wastewater
services are subject to competitive factors since alternative
providers are available. The Company is aware of other private
water companies who are attempting to market competing service
to municipal water providers in the Denver area. In addition,
municipal water providers seeking to acquire water evaluate
independent water owned by individuals, farmers, ranchers, and
others. 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 delivering the
water to the desired location, the availability of water during
dry year periods, the quality and quanity of the water source,
and the reliability of the water supply. The Company believes
that its water provides the Company with an advantage over its
competition because the water the Company owns has been
designated for municipal use by decrees issued by Colorado water
courts, and because of the quantity of water available, the
quality of water, its location relative to the Denver
metropolitan area, (and Paradise's location to deliver water to
either downstream users or Denver area water users through
exchanges or other transfers), 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 Supply
evaluated by independent appraisers and water engineers. The
Rangeview water quality, without treatment, meets or exceeds all
current federal and state drinking water standards.
Water processing and municipal water recycling are also
subject to competition from municipal water providers who also
provide wastewater/sewage processing, and from regional
wastewater/sewage processors. The majority of wastewater/sewage
treatment is processed by approximately 10 major
wastewater/sewage treatment providers. The majority of Denver
area water providers participate in the Metropolitan Wastewater
Authority which processes approximately 95% of the area's
wastewater/sewage. The Company is not aware of any private
companies providing wastewater/sewage treatment services in the
Denver metropolitan area. The Company believes that it could
have a competitive advantage because its wastewater treatment
technology uses no toxic chemicals and the water after
processing exceeds stringent water quality standards currently
in effect. Additionally, residual material created in the
wastewater treatment process can be composted into a high grade
fertilizer for agricultural use.
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 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 and the nature of
the water delivery system required has been determined.
Similarly if the Company were to obtain a contract for treatment
of wastewater and sewage, governmental regulations concerning
drinking water quality and wastewater discharge quality may be
applicable. However, until the Company has a contract proposal
specifying the quantity and type of wastewater to be treated and
the proposed use of such treated water, the cost of regulatory
compliance cannot be determined.
The Company holds several patents in the United States and
abroad related to its water recycling system and its components.
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 three full time employees and one
part time employee.
Item 2. Description of Property
The Company currently leases office facilities from a related
party at the address shown on the cover page.
The Company owns a total gross volume of 1,165,000 acre feet
(approximately 11,650 acre feet per year) of non-tributary
groundwater, 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 groundwater, and surface
storage rights from the District. See "Item 1. Description of
Business - Description of Company's Assets - Rangeview Water
Supply."
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 Supply."
Item 3. Legal Proceedings
In March 1998, the Company joined a lawsuit initiated by
others including the Rangeview Metropolitan District and the
State of Colorado, Board of Land Commissioners ("State"),
brought in the District Court of Arapahoe County, Colorado,
against US Home Corporation seeking declaratory judgment
affirming US Home Corporation's responsibilities under Lease S-
37280 as amended and the Agreement to Exchange Real Property
requiring US Home
Corporation to obtain water service from the District and the
State for development activities on property governed under
Lease S-37280. On April 23, 1999 the District Court of Arapahoe
County entered an order of summary judgement in favor of US Home
Corporation on all claims. The Company together with Rangeview
and the State appealed the trial court's order. Subsequent to
the fiscal year ended August 31, 20000, on September 21, 2000,
the Colorado Court of Appeals affirmed the judgement of the
trial court in favor of US Home Corporation. The Company will
not seek further action in this matter.
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, 2000.
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 OTC Bulletin Board
under the trade symbol PCYL. As of November 15, 2000, there
were 3,900 holders of record of the Company's Common stock.
Calendar Quarter Low High
2000 First $.12 $.19
Second $.10 $.19
Third $.125 $.18
Fourth $.08 $.15
1999 First $.10 $.125
Second $.12 $.40
Third $.17 $.24
Fourth $.17 $.20
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. Dividends cannot be paid on the common stock at any
time when there are unpaid accrued dividends owning on the
Company's outstanding Preferred Stock.
Recent Sales of Unregistered Securities
In August 2000, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the
Company issued 1,666,667 shares of Series C-3 Preferred Stock to
Mr. Thomas Clark in exchange for 1,666,667 shares of common
stock owned by Mr. Clark.
In August 2000, the Company comitted to issue, and four
acredited investors comitted to purchase, a total of 763,333
shares of common stock, at $.15 per share generating proceeds to
the Company of $114,500. As of August 31, 2000, the Company has
not issued these shares, nor received payment from the
investors. Payment was received from these investors subsequent
to year end as follows: $10,000 on September 28, $4,500 on
October 2, $50,000 on October 26, and $50,000 on October 27.
In September 1999, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the
Company issued 666,667 shares of Series C-2 Preferred Stock to
Mr. Thomas Clark in exchange for 666,667 shares of common stock
owned by Mr. Clark. The Company sold 666,667 shares of the
Company's Common Stock at $.18 per share to three accredited
investor. Proceeds to the Company were $120,000. The shares
were issued under Section 4(2) of the Securities Act of 1933.
In January 1999, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the
Company issued 500,000 shares of Series C-1 Preferred Stock to
Mr. Thomas Clark in exchange for 500,000 shares of common stock
owned by Mr. Clark. The Company sold 500,000 shares of the
Company's Common Stock at $.18 per share to an accredited
investor. Proceeds to the Company were $90,000. The shares
were issued under Section 4(2) of the Securities Act of 1933.
Item 6. Management's Discussion and Analysis
General
Pure Cycle is engaged in the privatization of municipal water
and wastewater systems in Colorado. The Company seeks to use
its water and water technologies to enhance the availability and
quality of domestic drinking water. The Company purchased
approximately 1,165,000 acre feet of water (11,650 acre feet
annually) and entered into two eighty-five year water and
wastewater Service Agreements with the Rangeview Metropolitan
District which will enable the Company to provide water and
wastewater service to over 36 square miles of property located
in the Denver area. The Company continues to develop its water
recycling technologies and, will seek to integrate these
technologies for processing wastewater into pure potable water
for reuse into its wastewater service commitment to the
District's Service Area.
The Company is aggressively pursuing the marketing and sale of
its water 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 2000, the Company recognized construction
revenues of $916,601 and delivered approximately 37 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 owned by the State of Colorado situated in the
growing Arapahoe County. A portion of the property is currently
under development and the Company has constructed the water
system and is in the process of constructing the wastewater
system to serve customers on the property.
In 1998, the Company entered into an agreement to provide
water and wastewater service to a 400 acre development which
will include the construction of a 500-bed Academic Model
Juvenile Facility ("Model Facility"). The Model Facility paid a
Water System Development and Water Resource Charge based on
estimated water consumption, to fund construction of water and
wastewater systems. Pursuant to its Service Agreements, the
Company has received $1,998,014 of the total charges of
$2,013,495 to be paid relating to the construction of the water
and wastewater facilities. Additionally, the Company has
received $154,800 from the State of Colorado for the
construction of additional facilities related to the wastewater
plant to be undertaken by the Company on behalf of the State of
Colorado. The Company has completed construction of the water
facilities and has begun construction of the wastewater
facilities which are projected to be completed by the end of the
first quarter of fiscal year 2001. The Model Facility is
projected to open in May 2001
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 Supply. 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 Supply to water
providers in need of supplemental water supplies. Additionally,
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
Supply, understanding that certain legal issues relating to
interstate water 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 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
assets is dependent on its ability to successfully market the
water, or in the event it is unsuccessful, to sell the
underlying water. Under the provisions of the CAA, the other
investors in the Rangeview project are to receive the first
$31,807,000 from the sale or other disposition of the Export
Water Supply. 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 $433,000 in proceeds are 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 Supply.
Results of Operations
During fiscal year 2000, the Company generated water usage
revenues from the sale of water to customers within the
Company's Service Area of $53,886 compared to $35,425 for
fiscal 1999, and incurred approximately $8,690 in operating
costs compared to $4,800 for fiscal 1999. The Company incurred
construction costs of $700,142 and recognized construction
revenues of $916,601 in fiscal year 2000 compared to costs and
revenues of $359,009 and $462,892 in fiscal year 1999. The
Company recognized revenues from construction based on
percentage-of-completion methodology.
General, administrative and marketing expenses for fiscal year
2000 were $273,000 approximately $22,000 lower than for fiscal
year 1999. Interest income increased to $51,000 in fiscal year
2000, as compared to $40,000 for fiscal year 1999 due primarily
to an increase in the average balance in the Company's cash
operating accounts. Interest expense increased approximately
$22,000 to $266,000 as compared to $234,000 in fiscal year 1999
due primarily to a higher level of outstanding loan balances and
an increas in the prime lending rate. Net loss for fiscal year
2000 was approximately $278,000 lower than for fiscal year 1999,
primarily due to recognition of construction revenues and the
extinguishment of old liabilities.
Liquidity and Capital Resources
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 debt and
equity financing and by marketing the right to share in proceeds
from the sale of its Export Water Supply to private individuals,
companies and institutions with an interest in the water supply
market.
The Company's working capital at August 31, 2000 was $164,355,
which includes $114,500 of common stock subscriptions that were
received in October 2000. The Company has billings in excess of
costs and estimated earnings from the construction of water and
wastewater facilities for the Model Facility of $772,500 at
August 31, 2000. The Company expects to incur additional costs
in fiscal 2000 to complete the wastewater facilities for the
Model Facility which will be funded primarily from existing cash
balances. The Company believes that at August 31, 2000, it 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 or preferred stock or stock purchase
warrants, as deemed necessary by the Company, to generate
working capital.
Development of any of the water 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 is anticipated to be financed by the municipality
purchasing such water 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 2000, cash used in operating activities was
approximately $139,000, compared to cash provided by operating
activities of approximately $779,000 in fiscal 1999. Payments
to contractors in fiscal 2000 accounted for the cash used in
operations in fiscal 2000. The Company expects that payments
received pursuant to its Service Agreements will be in excess of
estimated costs to complete the construction of the Model
Facility's wastewater system. Budgeted operating costs are
expected to remain the same and it is anticipated that a similar
level of cash will be used in the Company's general and
administration operations during fiscal 2000. Completion of the
water facilities by the Company's contractor was approximately
205 days late. The contracts for construction of the water
facilities with the contractor included provision for liquidated
damages for late completion total $1,000 per day. The Company
has retained approximately $100,000 from the contract pending
resolution of the liquidated damages by the contractor and the
contractor's surety bond company.
In August 1998, the Company entered into an agreement to
provide water and wastewater service to a 400 acre development
which will include the construction of a 500-bed Model Facility.
The Company is designing, constructing, and will operate and
maintain the water and wastewater system to provide service to
the Model Facility. Projected costs for construction of the
water system are approximately $950,000, and projected costs for
construction of the wastewater system are $548,000 for combined
costs of $1,498,000. These costs will be funded by construction
revenues.
As of August 31, 2000, construction of the combined water and
wastewater facilities for the Model Facility was estimated to be
approximately 64% complete compared to 23% at August 31, 1999.
During fiscal year 2000, the Company delivered approximately 37
million gallons of water to customers in the Service Area
compared to 29 million gallons in fiscal year 1999.
Investing Activities
Cash used in investing activities for fiscal 2000 was
approximately $142,000. Costs of approximately $142,000 were
incurred relating to the Rangeview and Paradise Water Supply
projects. Cash used in investing activities for fiscal 1999 was
approximately $310,000. In fiscal 1999, costs of approximately
$298,000 were incurred relating to the Rangeview and Paradise
Water Supply projects and costs of approximately $12,000 were
incurred relating to the development of a water system serving
customers within the District's Service Area.
Financing Activities
In August 2000, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the
Company issued 1,666,667 shares of Series C-3 Preferred Stock to
Mr. Thomas Clark in exchange for 1,666,667 shares of common
stock owned by Mr. Clark.
In August 2000, the Company comitted to issue, and four
acredited investors comitted to purchase, a total of 763,333
shares of common stock, at $.15 per share. As of August 31,
2000, the Company has not issued these shares, nor received
payment from the investors. Payment was received from these
investors subsequent to year end as follows: $10,000 on
September 28, $4,500 on October 2, $50,000 on October 26, and
$50,000 on October 27.
In September 1999, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the
Company issued 666,667 shares of Series C-2 Preferred Stock to
Mr. Thomas Clark in exchange for 666,667 shares of common stock
owned by Mr. Clark. The Company sold 666,667 shares of the
Company's Common Stock at $.18 per share to three accredited
investors. Proceeds to the Company were $120,000. The shares
were issued under Section 4(2) of the Securities Act of 1933.
Readers are cautioned that forward-looking statements
contained in this Form 10KSB should be read in conjunction with
the Company's disclosure under the heading: "SAFE HARBOR
STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995" on page 2.
Item 7. Financial Statements
Page
Independent Auditors' Report 12
Balance Sheets 13
Statements of Operations 14
Statements of Stockholders' Equity 15
Statements of Cash Flows 16
Notes to Financial Statements 17-23
Independent Auditors' Report
The Board of Directors
Pure Cycle Corporation:
We have audited the accompanying balance sheets of Pure Cycle
Corporation ("the Company") as of August 31, 2000 and 1999, and
the related 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 financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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 financial statements referred to above
present fairly, in all material respects, the financial position
of Pure Cycle Corporation as of August 31, 2000 and 1999 and the
results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Denver, Colorado
October 30, 2000
PURE CYCLE CORPORATION
BALANCE SHEETS
August 31,
ASSETS 2000 1999
Current assets:
Cash and cash equivalents $ 821,124 $ 981,025
Trade accounts receivable 18,619 6,106
Accounts receivable - stock subscriptions 114,500 --
Prepaid expenses and other current assets 11,259 11,259
Total current assets 965,502 998,390
Investment in water and systems:
Rangeview water supply (Note 3) 13,422,134 13,282,485
Paradise water supply 5,484,868 5,482,303
Rangeview water system (Note 4) 126,611 126,611
Total investment in water
and systems 19,033,613 18,891,399
Note receivable, including accrued
interest (Note 6) 347,162 321,794
Other assets 1,441 22,596
$ 20,347,718 $ 20,234,179
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,955 $ 55,915
Billings in excess of costs and
estimated earnings (Note 5) 772,500 895,379
Accrued liabilities 21,692 25,810
Total current liabilities 801,147 977,104
Long-term debt - related parties, including
accrued interest (Note 7) 4,287,251 4,021,177
Other non-current liabilities (Note 8) -- 128,123
Participating interests in Rangeview water
supply (Note 3) 11,090,630 11,090,630
Stockholders' equity (Notes 9 and 12):
Preferred stock, par value $.001 per
share; authorized - 25,000,000 shares:
Series A1 1,600,000 shares issued
and outstanding 1,600 1,600
Series B 432,514 shares issued
and outstanding 433 433
Series C 3,200,000 shares issued
and outstanding 3,200 3,200
Series C-1 500,000 shares authorized
and outstanding 500 500
Series C-2 666,667 shares authorized
and outstanding 667 --
Series C3 1,666,667 shares authorized
and outstanding 1,667 --
Common stock, par value 1/3 of $.01 per
share; 135,000,000 shares authorized;
78,439,763 shares issued
and outstanding 261,584 261,584
Additional paid-in capital 24,583,910 24,216,244
Accumulated deficit ( 20,549,371) (20,466,416)
Treasury stock at cost; 903,334 shares (135,500) --
Total stockholders' equity 4,046,123 4,017,145
$ 20,347,718 $ 20,234,179
See Accompanying Notes to Financial Statements
PURE CYCLE CORPORATION
STATEMENTS OF OPERATIONS
Years ended August
31,
2000 1999
Water service revenue:
Construction revenue (Note 5) $ 916,601 $ 462,892
Water usage fees 53,886 35,425
970,487 498,317
Construction costs incurred (Note 5) (700,142) (359,009)
Water service operating expense (8,690) (4,800)
Gross Margin 261,655 134,508
General and administrative
expense (272,875) (294,514)
Operating loss ( 11,220) (160,006)
Other income (expense):
Other income 128,123 --
Interest income 50,842 40,070
Interest expense:
Related parties (266,074) (234,196)
Other 15,374 ( 7,140)
Net loss $(82,955) $(361,272)
Basic and diluted net
loss per common share $ * $ *
Weighted average common
shares outstanding 78,439,763 78,439,763
* Less than $.01 per share
See Accompanying Notes to Financial Statements
PURE CYCLE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended August 31, 2000 and 1999
Preferred Stock Common Stock
Shares Amount Shares Amount
Balance at August 31, 1998 5,232,513 $5,233 78,439,763 $261,584
Preferred Stock issued in
exchange (Note 9) 500,000 500 -- --
Common Stock issued (Note 9) -- -- -- --
Net loss -- -- -- --
Balance at
August 31, 1999 5,732,513 $5,733 78,439,763 $261,584
Preferred Stock
issued in exchanges
(Note 9) 2,333,334 2,334 -- --
Common Stock Issued and
subscribed (Note 9) -- -- -- --
Net loss -- -- -- --
Balance at
August 31, 2000 $8,065,847 $8,067 78,439,763 $261,584
Additional
Treasury Paid-in Accumulated
Shares Amount Capital Deficit
Balance at August 31, 1998 $24,126,744 (20,105,144)
Preferred Stock
issued in exchange (Note 9) (500,000) (90,000) -- --
Common Stock issued (Note 9 500,000 90,000 89,500 --
Net loss -- -- -- (361,272)
Balance at August 31, 1999 0 0 $24,216,244 $(20,466,416)
Preferred Stock
issued in exchanges (Note 9) (2,333,334) (370,000) 367,666 --
Common Stock Issued and
subscribed (Note 9) 1,430,000 234,500 -- --
Net loss -- -- -- (82,955)
Balance at
August 31, 2000 (903,334) (135,500) $24,583,910 $(20,549,371)
See Accompanying Notes to Financial Statements
PURE CYCLE CORPORATION
STATEMENTS OF CASH FLOWS
Years ended
August 31,
2000 1999
Cash flows from operating activities:
Net loss $(82,955) $( 361,272)
Adjustments to reconcile
net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization -- 1,143
Increase in accrued interest on note receivable ( 25,368) ( 23,525)
Increase in accrued interest on long term
debt and Other non-current liabilities 266,074 241,336
Changes in operating assets and liabilities:
Accounts receivable (12,513) (6,106)
Other assets 21,155 --
Billings in excess of costs and
estimated earnings (122,879) 895,379
Accounts payable and other accrued
liabilities (53,078) 31,867
Other non-current liabilities (128,123) --
Net cash provided by (used in)
operating activities (138,687) 778,822
Cash used in investing activities:
Investments in water supply (142,214) (298,301)
Investment in Rangeview water system -- (12,523)
Net cash used in investing activities (142,214) (310,824)
Cash flows from financing activities:
Proceeds from sale of common stock 120,000
90,000
Net cash provided by financing activities 120,000
90,000
Net increase (decease) in cash and
cash equivalents (159,901) 557,998
Cash and cash equivalents beginning of year 981,025 423,027
Cash and cash equivalents end of year $ 821,124 $981,025
See Accompanying Notes to Financial Statements
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
August 31, 2000 and 1999
NOTE 1 - ORGANIZATION AND BUSINESS
Pure Cycle Corporation owns certain water assets and is
providing water and wastewater services to customers located in
the Denver metropolitan area. The Company operates water and
wastewater systems and its operating activities include
designing, constructing, operating and maintaining systems
serving customers in the Denver metropolitan area. The Company
also owns patented water recycling technologies which are
capable of processing wastewater into pure potable drinking
water. There have been no significant changes in the way the
Company does business during the current year. The Company's
focus continues to be to provide water and wastewater service to
customers within its service area and the Company expects to
expand its service to other areas throughout the Denver
metropolitan area and the southwest.
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
assets.
The Company believes that at August 31, 2000, it 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 or preferred stock or stock purchase
warrants, as deemed necessary by the Company, to generate
working capital.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The company recognizes construction project income using the
percentage-of-completion method, measured by the contract costs
incurred to date as a percentage of the estimated total contract
costs. Contract costs include all direct material, labor, and
equipment costs and those indirect costs related to contract
performance such as indirect labor and supplies costs. If the
construction project revenue is not fixed, the Company estimates
revenues that are most likely to occur. Provisions for
estimated losses on uncompleted contracts are made in the period
in which such losses are determined.
At August 31, 2000, billings in excess of costs and estimated
earnings represent payments received on construction projects
under which the work has not been completed. This amount will
be recognized as construction progresses in accordance with the
percentage-of-completion method.
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
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash equivalents
Cash and cash equivalents include all liquid debt instruments
with an original maturity of three months or less.
The Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair market value
of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
The Company believes there are no impairments in the carrying
amounts of its investments in water at August 31, 2000.
Stock-Based Compensation
As allowed by Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation (SFAS 123), the
Company continues 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 pro forma disclosure of
net loss and loss per share required by SFAS 123 are included in
Note 9.
Income taxes
The Company uses the asset and liability method of accounting
for income taxes. Under the asset and liability method, 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. 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.
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.
Recent Accounting Pronouncements
In December 1999, The Securities and Exchange Commission
issued Staff Accounting Buletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements." SAB 101 is to be adopted
for fiscal years beginning after December 15, 1999 which for the
Company would be fiscal year 2001. SAB 101 addresses various
topics in revenue recognition. The Company is currently
analyzing SAB 101, however based on
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
management's current understanding and interpretation, SAB 101
is not expected to have a material impact on the Company's
financial statements.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44"), "Accounting for Certain
Transactions Involving Stock Compensation - An Interpretative of
Accounting Principals Board Opinion ("APB") No. 25". FIN 44
clarifies the application of APB 25 and is effective July 1,
2000. The Company believes that its current
accounting policies are in conformity with this interpretation,
and does not believe that FIN 44 will have a material effect on
the Company's financial statements.
Reclassifications
Certain reclassifications were made to the 1999 financial
statements to conform to the August 31, 2000 presentation.
NOTE 3 - RANGEVIEW WATER SUPPLY
In April of 1996, the Company entered into a water
privatization agreement with the State of Colorado and the
Rangeview Metropolitan District (the "District") which enabled
the Company to acquire ownership to a total gross volume of
1,165,000 acre feet of groundwater (approximately 11,650 acre
feet per year), an option to substitute 1,650 acre feet of
surface water in exchange for a total gross volume of 165,000
acre feet of groundwater, and the use of surface reservoir
storage capacity (collectively referred to as the "Export Water
Supply").
In addition to the Export Water Supply, the Company entered
into a water and wastewater service agreement ("The Service
Agreements") with the District which grants the Company an
eighty-five year exclusive right to design, construct, operate
and maintain the District's water and wastewater systems. In
exchange for designing, constructing, operating and maintaining
the District's water and wastewater system, the Company will
receive 95% of the District's water revenues remaining after
payment of royalties totaling 12% of gross revenues to the State
Land Board, and 100% of the District's wastewater system
development charges and 90% of the District's wastewater usage
charges.
The Company capitalized certain legal, engineering and other
costs relating to the acquisition of the Rangeview Water Supply
due to the improvements of the water assets through adjudication
and engineering services. The Company capitalized costs
totaling $142,214 and $310,824 in fiscal 2000 and 1999
respectively.
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
Supply. After the distributions pursuant to the CAA, LCH Inc.,
a company affiliated with the Company's president has the right
to receive the next $4,000,000 in proceeds. The next $433,000
in proceeds is payable to the holders of the Company's Series B
Preferred Stock. The Company will retain 100% of the proceeds
in excess of $36,240,000 from the sale or other disposition of
the Export Water Supply.
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - RANGEVIEW WATER SYSTEM
In conjunction with the privatization agreement, 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 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 Service Area.
In exchange for providing water service to customers within the
Service Area, the Company receives 95% of the District's water
related revenues remaining after payment of royalties totaling
12% of gross revenues to the State Land Board. The Company
incurred costs of $8,690 during 2000, and $4,800 during 1999 to
operate and maintain the water system to deliver water to
customers within the Service Area. During fiscal year 2000, the
Company delivered approximately 37 million gallons of water to
customers in the Service Area. Currently there are no
wastewater customers within the Service Area.
NOTE 5 - CONSTRUCTION REVENUE
Pursuant to its Service Agreements, the Company is obligated
to provide water and wastewater service to a 400 acre
development which will include the construction of a 500-bed
Academic Model Juvenile Facility ("Model Facility"). The Model
Facility paid Water System Development and Water Resources
Charges to fund construction of water and wastewater systems.
Pursuant to its Service Agreements, the Company has received
$1,998,014 of the total charges of $2,013,495 to be paid by the
Model Facility. Additionally, the Company has received $154,800
from the State of Colorado for the construction of additional
facilities related to the wastewater plant undertaken by the
Company on behalf of the State of Colrado. The Company has
completed construction of the water facilities and has begun
construction of the wastewater facilities which is projected to
be completed by the end of the first quarter of fiscal year
2001. The Model Facility is projected to open in May 2001.
Projected cost for construction of the combined water and sewer
capital project costs of $1,652,895.
At August 31, 2000, the estimated period to complete contracts
in process range from 1 to 6 months, and the Company expects to
collect substantially all related accounts receivable and costs
and estimated earnings in excess of billings on uncompleted
contracts as of August 31, 2000 within one year.
The following summarizes contracts in process at August 31,
2000, and 1999
August 31,
2000
1999
Costs incurred on uncompleted contracts $1,059,151
$359,009
Estimated earnings 166,363
$117,626
1,225,514
476,635
Less billings to date (1,998,014) (
1,372,014)
(772,500)
(895,379)
During fiscal 1999 and 2000, the Company had revenues from a
single customer that accounted for 93% and 96% of total revenue,
respectively.
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - NOTE RECEIVABLE
In 1995, the Company extended a line of credit to the
District. The loan provides for borrowings of up to $250,000,
is unsecured, bears interest based on the prevailing prime rate
plus 2% and, matures on December 31, 2000. The balance of the
note receivable at August 31, 2000 was $347,162, including
accrued interest. The Company intends to extend the due date to
December 31, 2001. Accordingly, the note has been classified as
non-current.
NOTE 7 - LONG-TERM DEBT
Long-term debt, including accrued interest, at August 31, 2000
and 1999 is comprised of the following:
Notes payable, including accrued interest to six 2000 1999
related parties,due August 2002, interest at
10.25%, unsecured $ 425,438 $ 392,250
Notes payable, including accrued interest to five
related parties, due August 2002, interest at 10.25%,
unsecured net of unamortized discount of $18,000 462,059 399,184
Note payable, to President, due October 2003,
non-interest bearing, unsecured 26,542 26,542
Notes payable, including accrued interest, to
President due September 2003, interest at 8.36% to
9.01%, unsecured 444,861
423,501
Notes payable, including accrued interest, to related
party, due October, 2003, interest at the prime rate
plus 3%, secured by shares of the
Company's common stock owned by the President 2,193,014 2,076,559
Notes payable, including accrued interest, to a
related corporation, due August 2003, interest
ranging from 7.18% to 8.04%, unsecured 735,337 703,141
Total long-term debt $4,287,251 $4,021,17
Aggregate maturities of long-term debt are as follows:
Year Ending August 31, Amount
2001 $ 0
2002 887,497
2003 3,399,754
Total $ 4,287,251
In August 1997, the Company entered into a loan agreement with
five related party investors. The loan balance is $462,059 at
August 31, 2000, is unsecured, bears interest at the rate of
10.25% 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 $.18 per share (see Note
9). A portion of the proceeds received under the agreement
($45,000) was attributed to the estimated fair value of the
warrants issued. The resulting discount is being amortized
straight-line over the term of the loan.
As of August 31, 2000, the President and 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.
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - OTHER INCOME
During fiscal 2000, the Company wrote off $128,123 of
liabilities that represented amounts owed to creditors for debts
incurred prior to 1986. Such amounts reached their statute of
limitations during fiscal 2000 and thus were written off to
other income.
NOTE 9 - STOCKHOLDERS' EQUITY
Preferred and Common Stock
In August 2000, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the
Company issued 1,666,667 shares of Series C-3 Preferred Stock to
Mr. Thomas Clark in exchange for 1,666,667 shares of common
stock owned by Mr. Clark.
In August 2000, the Company comitted to issue, and four
acredited investors comitted to purchase, a total of 763,333
shares of common stock, at $.15 per share. Subsequent to fical
year end August 31, 2000, the Company received proceeds of
$114,500 pursuant to the sale of 763,333 shares of common stock.
As of August 31, 2000, the Company has not issued these shares,
nor received payment from the investors. Payment was received
from these investors subsequent to year end as follows: $10,000
on September 28, $4,500 on October 2, $50,000 on October 26, and
$50,000 on October 27.
In September 1999, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the
Company issued 666,667 shares of Series C-2 Preferred Stock to
Mr. Thomas Clark in exchange for 666,667 shares of common stock
owned by Mr. Clark. The Company sold 666,667 shares of the
Company's Common Stock at $.18 per share to three accredited
investor. Proceeds to the Company were $120,000. The shares
were issued under Section 4(2) of the Securities Act of 1933.
In January 1999, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the
Company authorized the issuance of 500,000 shares of Series C-1
Convertible Preferred Stock to the Company's President, Mr.
Thomas Clark, in exchange for 500,000 shares of common stock
owned by Mr. Clark. The Series C-1 Convertible Preferred Stock
converts into an equivalent number of shares of Common stock at
the election of Mr. Clark provided the Company has authorized
and unissued shares of Common Stock available. The Company sold
500,000 shares of the Company's Common Stock at $.18 per share
to four accredited investors who had previously invested in the
Company. Proceeds to the Company were $90,000.
None of the Series C, C-1, C-2, and C-3 Convertible Preferred
Stock pay a dividend.
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 May 25, 1994,
the Company issued 1,600,000 shares of Series A Preferred Stock,
$.001 par value to eight accredited investors which are entitled
to be paid a dividend amount equal to $2.00 per share for a
total of $3,200,000. 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 for a total of $432,513 to be paid from the proceeds
from a disposition of the Rangeview Water Supply after the
Participating Interests in the CAA and the dividend obligation
on the Series A Convertible Preferred Stock have been satisfied.
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY (continued)
Stock Options
Pursuant to the Company's Equity Incentive Plan, the Company
has granted Mr. Fletcher Byrom, Ms. Margaret Hansson, Mr. George
Middlemas, and Mr. Mark Harding options to purchase 7,000,000,
8,000,000, 1,000,000, and 7,000,000 shares of common stock
respectively at an exercise price of $.18 per share which expire
in 2002. All such options are fully vested.
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
under the Equity Incentive Plan. 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, 2000 and 1999:
Net loss: 2000 1999
As Reported $( 82,955)
(361,272)
Pro forma (297,168) (368,772)
Loss per share:
As Reported *
*
Pro forma *
*
* 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 years 1996 through 2000: 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, 2000 and 1999, and changes during the years
then ended is presented below:
2000 1999
Weighted average Weighted
average
Fixed options Shares exercise price Shares
exercise price
Outstanding at beginning of year 23,000,000 $.18 23,000,000
$.18
Granted -- -- -- -
-
Exercised -- -- -- -
-
Outstanding at end of year 23,000,000 $.18 23,000,000
$.18
Options exercisable at year end 23,000,000 22,750,000
Weighted average of fair value
of options granted during the year -- --
The following table summarizes information about Equity
Incentive Plan options outstanding at August 31, 2000:
Options Outstanding Options
Exercisable
Range Weighted average Weighted
Weighted
of exercise Number remaining average Number
average
Price outstanding contractual life exercise price
exercisable exercise price
.18 23,000,000 1.75 .18
23,000,000 .18
No options were exercised during the years ended August 31,
2000 and 1999.
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY (continued)
Warrants
As discussed in Note 7, the Company issued warrants, which
remain outstanding as of August 31, 2000, to purchase 24,403,000
shares of the Company's stock at $.18 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.
No warrants were exercised during the years ended August 31,
2000 and 1999.
NOTE 10 - 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, 2000 and 1999 are presented below.
2000 1999
Deferred tax assets:
Net operating loss carry forwards $ 2,735,000 $ 2,712,000
Less valuation allowance (2,735,000) (2,712,000)
Net deferred tax asset $ -- $
--
The valuation allowance for deferred tax assets as of August
31, 2000 was $2,735,000. The net change in the valuation
allowance for the year ended August 31, 2000 was a net increase
of $23,000, attributable to the net operating loss incurred
during the year. Since this is the only temporary difference,
the accompanying statements of operations reflect no income tax
benefit.
At August 31, 2000, the Company has net operating loss carry
forwards for federal income tax purposes of approximately
$7,000,000, which are available to offset future federal taxable
income, if any, through fiscal 2020.
NOTE 11 - INFORMATION CONCERNING BUSINESS SEGMENTS
The Company has two lines of business: one segment is the
design and construction of water and wastewater systems pursuant
to the Service Agreements to provide water and wastewater
service to customers within the Service Area; and the second is
the operation and maintenance of the water and wastewater
systems which serve customers within the Service Area.
The accounting policies of the segments are the same as those
described in the Summary of Significant Accounting Policies (see
Note 2). The Company evaluates the performance of its segments
based on gross margins of the respective business units.
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - INFORMATION CONCERNING BUSINESS SEGMENTS (continued)
Segment information for the years ended August 31, 2000 and 1999
is as follows:
2000
1999
Water
Water
Construction Service Total
Construction Service Total
Revenues $ 916,601 $53,886 $911,843 $
462,892 $35,425 $498,317
Gross Margin 216,459 45,196
261,655 103,883 30,625 134,508
Total Assets -- 126,611 126,611
-- 126,611 126,611
Capital Expenditures -- 142,214
142,214 -- 310,824 310,824
NOTE 12 - LEASES
The Company leases office facilities from a related party on a
month-to-month basis under an operating lease agreement. The
related party did not charge the Company for rent from June
through August 2000. Rent expense for the years ended August
31, 2000 and 1999 was $15,000 and $24,000 resepctively.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
The following are the officers and directors of the Company as
of August 31, 2000:
Name Age Position(s) with the
Company
Margaret S. Hansson . . . 76 Director, Chairman, Vice
President
Fletcher L. Byrom . . . . 82 Director
Thomas P. Clark . . . . . 64 Director, President,
Treasurer
George M. Middlemas . . . 54 Director
Richard L. Guido . . . . 56 Director
Mark W. Harding . . . . . 37 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. She was the Chief
Executive Officer of the Company from September 24, 1983 to
January 31, 1984. 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 CEO and Chairman of Gerry Baby
Products Company (formerly Gerico, Inc.), now a division of
Evenflo. She is a Director of Wells Fargo Bank, Boulder
Colorado, Wells Fargo Banks, P.C. Colorado, Colorado Capital
Alliance, Reality Quest Inc.(now RQI Inc.) and Boulder
Technology Incubator. Ms Hansson is currently President and CEO
of two companies Adrop LLC, and Erth LLC. 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. He 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.
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 Online Resources & Communications Corporation,
Tut Systems, Data Critical Corporation., 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 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 16, 2000 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 ___
Name Other Annual
and Principal Fiscal Salary Bonus Compensation
Position Year ($) ($) ($)
Thomas P. Clark
Pres./CEO 2000 60,000 0 0
1999 60,000 0 0
1998 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 16, 2000, the
beneficial ownership of the Company's issued and outstanding
Common Stock, Series A-1 Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series C1 Preferred Stock ,
Series C2 Preferred Stock, and Series C3 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.
Common Stock
Name and Address of Number of Common Percent of
Beneficial Owner Stock Shares Outstanding
Common Shares
Thomas P. Clark 27,264,854
34.8% (9)
5650 York Street, Commerce
(18) (19) (20) (21)
City, Colorado 80022
George Middlemas 1,333,333 1.7% (1)
2440 N. Lakeview Ave
(11)
Chicago, IL 60614
Richard L. Guido 0 0% (9)
Park 80 West - Plaza Two
Saddle Brook, New Jersey 07663
Margaret S. Hansson 8,246,000 9.5% (2)
2220 Norwood Avenue (9)
Boulder, Colorado 80304
Fletcher L. Byrom 7,100,000 8.3%
(3)
P.O. Box 1055 (9)
Carefree, AZ 85377
Mark W. Harding 7,210,000 8.4%
(4)
5650 York Street, Commerce
City, Colorado 80022
INCO Securities Corporation 4,700,000 5.7%
(5)
One New York Plaza (9)
New York, New York 10004
Apex Investment Fund II L.P. 17,087,833 19.2% (6)
233 S. Wacker Drive,
(11)
Suite 9600 (13)
Chicago, Illinois 60606
Environmental Venture 6,278,181 7.7%
(7)
Fund, L.P. (11)
233 S. Wacker Drive, Suite 9600
Chicago, Illinois 60606
Environmental Private Equity 7,142,320
8.7%(13)
Fund II, L.P. (16)
233 S. Wacker Drive, Suite 9600
Chicago, Illinois 60606
The Productivity 4,781,846 6.0%
(8)
Fund II, L.P. (11)
233 S. Wacker Drive, Suite 9600
Chicago, Illinois 60606
Proactive Partners L.P. 3,579,052 4.5% (13)
50 Osgood Place, Penthouse
(17)
San Francisco, California 94133
All Officers and Directors 51,154,187
47.5% (12)
as a group (6 persons) (18) (19)
(20) (21)
Preferred Stock
Number of Number of Number of
Series
Series A Percentage Series B Percentage C,
C1,C2,C3 Percent of
Name and Address of Preferred Outstanding Preferred
Outstanding Preferred Outstanding
Beneficial Owner Shares Shares
Shares Shares Shares Shares
Thomas P. Clark 346,000 80.0%
(14)
5650 York Street, Commerce 3,200,000 100.0% (18)
City, Colorado 80022 500,000 100.0%(19)
666,667 100.0%(20)
1,666,667 100.0%(21)
Apex Investment Fund II L.P. 408,000 25.5%
233 S. Wacker Drive,
Suite 9600
Chicago, Illinois 60606
Environmental Private Equity 600,000 37.5%
Fund II, L.P.
233 S. Wacker Drive, Suite 9600
Chicago, Illinois 60606
Proactive Partners L.P. 500,000 31.5%
50 Osgood Place, Penthouse
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
(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 7,000,000 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. Mr. Guido is currently serving in the
director position elected pursuant to this Agreement.
(10) Intentionally omitted.
(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 Chartwell
Holdings Inc. ("Chartwell"), a corporation controlled by Paul J.
Renze ("Renze"). The ultimate general partners of EVFund are:
FAC; F&G Associates ("F&G"); William D. Ruckelshaus Associates,
a Limited Partnership ("WDRA"); and Banc America Robertson,
Stephens & Co. ("BARS"). The ultimate general partners of PFund
are FAC and Bret R. Maxwell ("Maxwell"). The ultimate general
partners of EPFund are FAC, Maxwell, BA, RS, Argentum
Environmental Corporation ("AEC") and Schneur Z. Genack, Inc.
("SZG").
The business address of FAC, Stellar, Johnson, Middlemas, and
Maxwell is 233 S. Wacker Drive, Suite 9600. Chicago Illinois
60606. The business address of Renze and Chartwell is 20 N
Wacker Dr., Suite 2200, Chicago IL 60606. Each of AEC and SZG
maintains its business address c/o The Argentum Group ("TAG"),
405 Lexington Avenue, 54th Floor New York, New York 10174. The
persons who take actions on behalf of AEC and SZG with respect
to their functioning as ultimate general partners of EPEF are
Schenur Z. Genack ("Genack"), Daniel Raynor ("Raynor") and
Walter H. Barandiaran ("Barandiaran"). Each of Raynor and
Barandiaran is principally employed as an executive of TAG and
maintains his business address at the TAG address. TAG's
principal business is merchant banking. SZG is principally
employed as a private investor and maintains his business
address at 18 East 48th Street, Suite 1800, New York, New York
10017. The business address of F&G and Harvey G. Felsen
("Felsen") who takes actions on behalf of F&G with respect to
its functioning as a ultimate general partner of EVFund, is 123
Grove Avenue, Suite 118, Cedarhurst, New York 11516. WDRA and
Paul B. Goodrich the person who takes action on behalf of WDRA
with respect to its functions on behalf of WDRA with respect to
its functioning as general partner of EVFund, maintains its
business address at 1201 Third Avenue, 39th Floor, Seattle,
Washington 98101. BARS maintains its business address at One
Embarcadero Center, San Francisco, California 94111. BARS
maintains its business address at 555 California St., San
Francisco, CA 94111. The person who takes actions on behalf of
BARS with respect to its functioning as an ultimate general
partner of EVF and EPEF is Charles R. Hamilton ("Hamilton").
Hamilton is principally employed as a partner is BARS and
maintains his principal business address at BARS.
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 35,290,180 shares of
Common Stock, or 36.3% 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,
Chartwell and through Chartwell and Renze) may be deemed to be
the indirect beneficial owners of 17,087,833 shares of Common
Stock, or 19.2% of such shares. When these shares are combined
with his personal holdings of 333,333 shares and 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 his shares and the option shares and indirectly
as to the balance) of 18,421,166 shares of Common Stock, or
20.4% 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 11,924,166 shares of Common Stock, or 14.2%
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
6,278,181 shares of Common Stock, or 7.7% 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 7,142,320 shares
of Common Stock, or 8.7% 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 13,420,501 shares of Common Stock,
or 15.8% of such shares.
By reason of BARS's status as a general partner of EVFund and
an ultimate general partner of EPFund, BARS and its controlling
persons may be deemed to be the indirect beneficial owners of
13,420,501 shares of Common Stock, or 15.8% 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 23,000,000, shares purchasable by directors and
officers under currently exercisable options.
(13) Includes the conversion of 1,600,000 shares of Series A-1
Preferred Stock to Common Stock. Apex Investment Fund II, L.P.,
owning 408,000 shares of Series A Convertible Preferred Stock
which are currently convertible into 2,266,685 shares of Common
Stock, The Environmental Private Equity Fund II, L.P., owning
600,000 shares of Series A Convertible Preferred Stock which are
currently convertible into 3,333,360 shares of Common Stock, and
Proactive Partners, L.P., owning 500,000 shares of Series A-1
Convertible Preferred Stock which are currently convertible to
2,777,800 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.
(18) Includes 3,200,000 shares of Series C Preferred Stock,
which Mr. Clark, the Company's president owns which are
convertible to 3,200,000 shares of common stock if the Company
has sufficent authorized but unissued shares of common stock.
(19) Includes 500,000 shares of Series C1 Preferred Stock ,
which Mr. Clark, the Company's president owns which are
convertible to 500,000 shares of common stock if the Company has
sufficent authorized but unissued shares of common stock
(20) Includes 666,667 shares of Series C2 Preferred Stock ,
which Mr. Clark, the Company's president owns which are
convertible to 666,667 shares of common stock if the Company has
sufficent authorized but unissued shares of common stock.
(21) Includes 1,666,667 shares of Series C3 Preferred Stock ,
which Mr. Clark, the Company's president owns which are
convertible to 1,666,667 shares of common stock if the Company
has sufficent authorized but unissued shares of common stock.
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, 2002. To date,
Mr. Clark has loaned the Company $310,720 of which $43,350 has
been repaid, leaving a balance of $267,370. As of August 31,
2000, accrued interest on the Notes totaled $204,032. 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 was a wholly-owned subsidiary of the
Company until it was dissolved in fiscal 1997 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 $31,807,000 profits interest allocated to other investors.
The Company's wholly-owned subsidary Rangeview Development
Corporation was dissolved in August 1997. 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 $31,807,000 owed
under the CAA. During fiscal year ended August 31, 1998, the
Company reached an agreement with LCH, Inc. to defer payment of
the principal amount of the Notes, plus interest until October
15, 2003. 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).1Certificate 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).2Certificate 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).4Certificates of Amendment to Certificate of
Incorporation filed April 13, 1993. Incorporated by
reference from Proxy Statement for Annual Meeting held
April 2, 1993.
3(a).6Certificates of Amendment to Certificate of
Incorporation filed May 25, 1994 (Series A).
Incorporated by reference from Annual Report on Form 10-K
for the fiscal year ended August 31, 1994.
3(a).7Certificates of Amendment to Certificate of
Incorporation filed August 31, 1994 (Series B).
Incorporated by reference from Annual Report on Form 10-K
for the fiscal year ended August 31, 1994
3(a).8Certificates of Designation for the Series A-1 Preferred
Stock Filed July 21, 1998.**
3(a).9Certificates of Amendment to Certificate of
Incorporation filed September 2, 1999 (Series C).**
3(a).10Certificates of Amendment to Certificate of
Incorporation filed November 5, 1999 (Series C1),
Incorporated by reference from Annual Report on form
10KSB for the fiscal year ended August 31, 1999.
3(a).11Certificates of Amendment to Certificate of
Incorporation filed November 5, 1999 (Series C2),
Incorporated by reference from Annual Report on form
10KSB for the fiscal year ended August 31, 1999.
3(a).12 Certificates of Amendment to Certificate of
Incorporation filed August 29, 2000 (Series C3), filed
herewith.
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.
4.1 Specimen Stock Certificate - Incorporated by reference to
Registration Statement No. 2-62483.
9.1 Voting Agreement dated December 11, 1991, by and among
Inco Securities Corporation, Thomas P. Clark, Margaret S.
Hansson, Fletcher L. Byrom and the Company.*
10.2 Equity Incentive Plan. Incorporated by references from
Proxy State for Annual Meeting held April 2, 1993.
10(h).2 Service Agreement, dated April 19, 1996, by and
between the Company, and the District. ***
10(h).3 Wastewater Service Agreement, dated January 22, 1998,
by and between the Company, and the District.**
10(h).4 Comprehensive 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 Annual Report on Form 10-
KSB for fiscal year ended August 31, 1998.
*** Incorporated by reference from Quarterly Report on Form
10-QSB for the period ended May 31, 1996.
(b) The Company has not filed any reports on form 8-K during
the last quarter of fiscal 2000.
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 29, 2000
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 29, 2000
Margaret S. Hansson President, Director
/s/ Thomas P. Clark President, Treasurer, November 29,
2000
Thomas P. Clark Director
/s/ Mark W. Harding Principal Financial November 29,
2000
Mark W. Harding Officer, Secretary
/s/ Fletcher L. Byrom Director
November 29, 2000
Fletcher L. Byrom
/s/ George M. Middlemas Director
November 29, 2000
George M. Middlemas
/s/ Richard L. Guido Director
November 29, 2000
Richard L. Guido
. CERTIFICATE OF THE DESIGNATIONS, POWERS, PREFERENCES
AND RIGHTS OF
SERIES C-3 CONVERTIBLE PREFERRED STOCK
($.001 Par Value)
of
PURE CYCLE CORPORATION
______________________
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
______________________
PURE CYCLE CORPORATION, a Delaware corporation (the
"Corporation"), does hereby certify that the following
resolutions were duly adopted by the board of directors of the
Corporation pursuant to authority conferred upon the board of
directors by Article IV of the Certificate of Incorporation of
the Corporation, which authorizes the issuance of up to
25,000,000 shares of Preferred Stock, at a meeting of the board
of directors duly held on August 29, 2000
RESOLVED, that one series of the class of authorized
Preferred Stock, $.001 par value, of the Corporation is hereby
created and that the designations, powers, preferences and
relative, participating, optional or other special rights of the
shares of such series, and qualifications, limitations or
restrictions thereof, are hereby fixed as follows:
1. Number of Shares and Designation. 1,666,667 shares of
the Preferred Stock, $.001 par value, of the Corporation are
hereby constituted as a series of the Preferred Stock designated
as Series C-3 Convertible Preferred Stock (the "Series C-3
Preferred Stock").
2. Liquidation.
A. Upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the
holders of the Series C-3 Preferred Stock will be entitled to
share in any distribution or payment made to the holders of
Common Stock on a pro rata basis with the holders of the Common
Stock determined as if such holders had converted their Series
C-3 Preferred Stock to Common Stock pursuant to Section 4 hereof
immediately prior to such liquidation, dissolution or winding
up.
B. The Corporation will mail written notice of any
distribution in connection with such liquidation, dissolution or
winding up, not less than 60 days prior to the payment date stated
therein, to each record holder of Series C-3 Preferred Stock.
Neither the consolidation or merger of the Corporation into or
with any other corporation or corporations, nor the sale or
transfer by the Corporation of all or any part of its assets, nor
the reduction of the capital stock of the Corporation, will be
deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of this Section 2.
3. Dividends. The holders of the Series C-3 Preferred
Stock will be entitled to share in any dividend or distribution or
payment made to the holders of Common Stock on a pro rata basis
with the holders of the Common Stock determined as if such holders
had converted their Series C-3 Preferred Stock to Common Stock
pursuant to Section 4 hereof immediately prior to such dividend or
distribution.
4. Conversion.
A. Right to Convert. Each share of Series C-3
Preferred Stock shall be convertible, at the option of the holder
thereof, at any time, into 1 fully paid and non-assessable share
of Common Stock (the "Conversion Rate"), provided that the
Corporation has authorized but unissued shares of Common Stock to
deliver to the holders of the Series C-3 Preferred Stock at the
time of such conversion.
B. Fractional Shares. In the event the aggregate
number of shares of Series C-3 Preferred Stock being converted by
a holder thereof is convertible into a number of shares of Common
Stock which would require the issuance of a fractional interest in
a share of Common Stock, the Corporation shall deliver cash in the
amount of the fair market value of such fractional interest.
C. Accrued Dividends. If, at the time the holder of
shares of Series C-3 Preferred Stock exercises its right of
conversion under Section 4.A, such holder's shares of Series C-3
Preferred Stock have accrued dividends which remain unpaid at the
time of such conversion, such holder's right to receive dividends
on the shares so converted, to the extent accrued but unpaid on
the date of conversion, shall continue.
D. Mechanics of Conversion. Before any holder of the
Series C-3 Preferred Stock shall be entitled to voluntarily
convert the same into shares of Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed,
at the office of the Corporation, in the case of a conversion
pursuant to Section 4.A above, shall give written notice to the
Corporation at such office that he or she elects to convert the
same and shall state therein his or her name or the name or names
of his or her nominees in which he or she wishes the certificate
or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of the Series C-3 Preferred
Stock, or to his or her nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which he
or she shall be entitled as aforesaid. Any conversion shall be
deemed to have taken place at 5:01 Mountain Time on the date of
such surrender of the shares to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such
date; provided, however, that the right to receive dividends on
the shares so converted, to the extent accrued but unpaid on the
date of such conversion (whether or not declared), shall continue.
E. Adjustment for Combinations or Consolidations of
Common Stock. In the event the Corporation at any time or from
time to time after the date of issuance of any Series C-3
Preferred Stock effects a subdivision, combination or
reclassification of its outstanding shares of Common Stock into a
greater or lesser number of shares, then and in each such event
the Conversion Rate shall be increased or decreased
proportionately.
F. Adjustments for Merger or Reorganization, etc. In
case of any consolidation or merger of the Corporation with or
into another corporation or the conveyance of all or substantially
all of the assets of the Corporation to another corporation or
other person, provision shall be made so that each share of the
Series C-3 Preferred Stock shall thereafter be convertible into
the number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series C-3
Preferred Stock would have been entitled upon such consolidation,
merger or conveyance; and, in any such case, appropriate
adjustment (as determined by the board of directors) shall be made
in the application of the provisions herein set forth with respect
to the rights and interest thereafter of the holders of the Series
C-3 Preferred Stock, to the end that the provisions set forth
herein (including provisions with respect to changes in and other
adjustments of the Conversion Rate) shall thereafter be
applicable, as nearly as they reasonably may be, in relation to
any shares of stock or other securities or property thereafter
deliverable upon the conversion of the Series C-3 Preferred Stock.
5. Voting.
A. Holders of the Series C-3 Preferred Stock shall
have the right to vote together with the Common Stock, and not
separately as a class, for the election of directors and upon all
other matters to be voted on by the holders of the Common Stock of
the Corporation. Every holder of shares of the Series C-3
Preferred Stock shall have the number of votes equal to the number
of shares of Common Stock that his or her shares of Series C-3
Preferred Stock would be convertible into pursuant to Section 4 on
the record date of the meeting at which such shares are being
voted.
B. At each meeting or at any adjournment thereof at
which the holders of the Series C-3 Preferred Stock have the right
to vote as a class, the presence, in person or by proxy, of the
holders of a majority of the Series C-3 Preferred Stock then
outstanding will be required to constitute a quorum. The vote of
a majority of such quorum will be required to take any action at
such meeting. Cumulative voting by holders of Series C-3
Preferred Stock is prohibited. In the absence of a quorum, a
majority of the holders present in person or by proxy of the
Series C-3 Preferred Stock shall have the power to adjourn the
portion of the meeting related to that particular series for a
period of up to 30 days without notice other than announcement at
the meeting until a quorum shall be present.
6. Corporation's Right to Purchase Series C-3 Preferred
Stock.
A. The Corporation shall have the right at any time to
acquire any Series C-3 Preferred Stock from the owner of such
shares on such terms as may be agreeable to such owner. Shares of
Series C-3 Preferred Stock may be acquired by the Corporation from
any stockholder pursuant to this Section 6.A without offering any
other stockholder an equal opportunity to sell his stock to the
Corporation, and no purchase by the Corporation from any
stockholder pursuant to this Section 6.A shall be deemed to create
any right on the part of any stockholder to sell any shares of
Series C-3 Preferred Stock (or any other stock) to the
Corporation. The purchase by the Corporation of shares of Series
C-3 Preferred Stock pursuant to this Section 6.A shall not be
deemed for any purpose to be a redemption. Such shares shall not
be entitled to receive dividends while held by the Company.
B. Notwithstanding the foregoing provisions of this
Section 6, if a dividend upon any shares of Series C-3 Preferred
Stock is past due, the Corporation shall not purchase or otherwise
acquire any shares of Series C-3 Preferred Stock, except (i)
pursuant to a purchase or exchange offer made on the same terms to
all holders of the Series C-3 Preferred Stock, or (ii) by
conversion of shares of Series C-3 Preferred Stock into, or
exchange of such shares for, Common Stock.
7. Preemptive Rights. The holders of shares of Series C-3
Preferred Stock are not entitled to any preemptive or subscription
rights in respect of any securities of the Corporation.
8. Notices. Any notice required hereby to be given to the
holders of shares of Series C-3 Preferred Stock shall be
sufficiently given if sent by telecopier, registered or certified
mail, postage prepaid, by express mail or by other express courier
addressed to each holder of record at his address appearing on the
books of the Corporation. All notices and other communications
shall be effective (i) if mailed, when received or three (3) days
after mailing, whichever is earlier; (ii) if sent by express mail
or courier, when delivered; and (iii) if telecopied, when received
by the telecopier to which transmitted (a machine-generated
transaction report produced by sender bearing recipient's
telecopier number being prima facie proof of receipt).
9. Transfer Costs. The Corporation shall pay any and all
documentary stamp and other transaction taxes attributable to the
issuance or delivery of shares of Common Stock upon conversion of
any shares of Series C-3 Preferred Stock; provided, however, that
the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue or
delivery of shares of Common Stock in a name other than that of
the holder of the Series C-3 Preferred Stock to be converted and
no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
IN WITNESS WHEREOF, the undersigned have executed this
Certificate of Designation this 29 day of August, 2000.
PURE CYCLE CORPORATION
By:/s/ Thomas P. Clark
Thomas P. Clark,
President
ATTEST:
By:/s/ Mark W. Harding
Mark W. Harding, Secretary
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