________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-8814
PURE CYCLE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0705083
(State or other jurisdiction) (I.R.S. Employer
Incorporation or organization) Identification No.)
5650 York Street, Commerce City, CO 80022
(Address of principal executive office) (Zip Code)
Registrant's telephone number (303) 292-3456
________________________________________________________________________
Securities registered under Section 12(b)of the Act:
None
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock,
1/3 of $.01 par value
(Title of class)
Check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporate by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB [X]
Aggregate market value of voting stock held by non-affiliates:
$14,315,257 (based upon the average bid and asked price on the
NASDAQ Bulletin Board market on November 20, 1995)
Number of shares of Common Stock Outstanding, as of November 20,
1995: 78,439,763
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
Documents incorporated by reference: None
________________________________________________________________________
Page 1 OF 38
Index to Pure Cycle Corporation
1995 Annual Report on Form 10-KSB
Item Part I Page
- ---- ----
1. Description of Business . . . . . . . . . . . 3
2. Description of Property . . . . . . . . . . . 7
3. Legal Proceedings. . . . . . . . . . . . . . . 7
4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . 7
Part II
5. Market for the Common Equity and
Related Stockholder Matters . . . . . . . . . 8
6. Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . 9
7. Financial Statements . . . . . . . . . . . . 12
8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . 28
Part III
9. Directors, Executive Officers, Promoters and
Control Persons; compliance with Section 16 (a)
of the Exchange Act . . . . . . . . . . . . . 28
10. Executive Compensation . . . . . . . . . . . 29
11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . 30
12. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . 33
Part IV
13. Exhibits and Reports on Form 8-K . . . . . . . 34
Signatures . . . . . . . . . . . . . . . . . 37
14. Financial Data Schedule . . . . . . . . . . . 38
PAGE 2 OF 38
PART I
Item 1. Description of Business.
General. Pure Cycle Corporation (the"Company") is a Delaware
corporation incorporated in 1976. Through 1982, the Company
researched, designed, manufactured, installed and maintained a
single-family home water recycling system which would treat and
completely recycle home wastewater and sewage into potable
drinking water. Production of the single-family water recycling
systems was halted in July of 1982 due to insufficient sales. The
Company also introduced a water purification vending machine (the
"Vending Machine") in June of 1983 which never attained
significant sales. In January of 1984, the Company acquired
Exidyne Fluid Technologies, Inc. which engaged in the planning,
design, manufacture and installation of water conditioning systems,
primarily custom-designed, complex water treatment systems, but
that business was discontinued in January 1985 after suffering
losses and a substantial decline in business. The Company had no
operations from June 1985 through August 31, 1986. In 1987, the
Company resumed operations, broadening its business development
efforts to include wholesale municipal water marketing in addition
to water purification, though revenue was minimal. The Company's
broadened business development activities include: Water Marketing,
the marketing and sales of water rights, or the resale of purified
water which has been processed using the Company's recycling
technology as a wholesale municipal water supply to cities,
municipalities and special districts in need of additional water
supplies; and Technology Marketing, the marketing and sales of the
Company's water recycling technology either through the licensing
of the technology, or through providing wastewater/sewage treatment
services to cities, municipalities and special districts. The
Company has acquired assets which enable the Company to market
water rights as a wholesale water supply source to municipal water
providers and the Company has sought to contract for the return
flow wastewater/sewage and apply the Company's water recycling
technology to purify the wastewater/sewage into pure potable water
for redistribution.
Description of Company's Assets
Paradise Water Rights
In 1987, the Company acquired certain water rights, water wells
and related assets from Paradise Oil, Water and Land Development
Inc., which constitute the "Paradise Water Rights". The Paradise
Water Rights include 70,000 acre feet of tributary Colorado River
decreed water rights, a right-of-way permit from the United States
Department of the Interior, Bureau of Land Management for the
construction of a 70,000 acre foot reservoir and dam across federal
lands, and four water wells ranging in depth from 900 feet to 1,800
feet. The water wells produce approximately 7,500 - 9,400 gallons
per minute (which produce approximately 14,000 acre feet per well
per year) with an artesian pressure of approximately 100 pounds per
square inch.
Geographically, there are two significant markets for the
Paradise Water Rights--water users in the downstream states of
Arizona, Nevada and California and water users in the Denver
metropolitan area. The Company is currently pursuing the sale and
development of the Paradise Water Rights as a wholesale municipal
water supply to cities, municipalities and special districts in
these downstream states, as well as municipal water providers
throughout the Denver metropolitan area. Other potential
development opportunities for the Paradise Water Rights include the
utilization of the artesian pressure for hydroelectric power
generation, water leasing to agricultural interests, mineral
interests, and recreational interests to mention a few. Currently,
the Company has outstanding proposals to several public and private
companies for the sale of the Paradise Water Rights.
Page 3 OF 38
Rangeview Water Rights
In 1988, the Company initiated efforts to acquire the rights to
approximately 10,000 acre feet of non-tributary groundwater rights
located in the four principal aquifers known as the Denver Basin
Aquifers. From June 1988 through June 1989, the Company made
payments of $750,000 to the Rangeview Metropolitan District (the
"District") for an Option and Purchase Agreement to purchase
approximately 10,000 acre feet of non-tributary groundwater rights.
From June 1989 through November 1990, the Company sought to expand
its acquisition of the Rangeview project to include the acquisition
of the 10,000 acre feet of non-tributary groundwater rights, the
purchase of 40 acres of real property which constitute the
boundaries of the District, and the purchase of Rangeview
Metropolitan District Water Revenue Notes and Bonds. On November
14, 1990, Inco Securities Corporation ("ISC"), a company with which
the Company had negotiated to obtain funding and a joint
development agreement with respect to the Rangeview assets, entered
into a new option and purchase agreement for the purchase of the
10,000 acre foot production right from the District (the "Rangeview
Water Rights"). The option, as extended, currently expires
February 12, 1997. In August of 1992, the Company in conjunction
with ISC and other investors purchased the 40 acres of real
property certain Rangeview Bonds, a portion of which are held by
other investors.
The term "production right" describes an annual right to extract
an amount of water from a non-tributary groundwater formation at
the rate of one percent per year. The 10,000 acre feet Rangeview
Water Rights enables the Company to extract water from all of the
Denver Basin aquifers at the rate of 10,000 acre feet per year for
a minimum of 100 years, or as long as the aquifers produce water.
The aggregate amount of water granted pursuant to the 10,000 acre
feet of water production rights is 1,000,000 acre feet. Pursuant
to a Water Rights Commercialization Agreement entered into in
December 1990 between the Company and ISC, the Company has the
right to market the Rangeview Water Rights, and the Company has an
option to acquire the Rangeview Water Rights, and additional
Rangeview Bonds.
There are over 100 independent municipal water providers
throughout the Denver metropolitan area which constitute the market
for the sale and development of the Rangeview Water Rights. The
Company is currently attempting to market the Rangeview Water
Rights as a wholesale municipal water supply to cities,
municipalities and special districts throughout the Denver
metropolitan area.
As discussed in Item 3 "Legal Proceedings", during fiscal
1995 the Company joined in a lawsuit against the Colorado State
Board of Land Commissioners (the "Board"). On March 1, 1995, a
counterclaim was filed by the Board against the Rangeview
Metropolitan District, the Company and other plaintiffs. Based on
settlement discussions subsequent to the fiscal year ended August
31, 1995, management believes the Rangeview litigation will be
settled on terms acceptable to the Company during fiscal year 1996.
Recycling Technology
The Company is also marketing and continuing the development of
its water recycling technology. The Company has shifted its
strategic market focus for its recycling technology from the single-
family home market to the municipal wastewater/ sewage treatment
market. In conjunction with the marketing of the Company's water
rights, the Company is negotiating to provide wastewater/ sewage
treatment services to municipal water providers. The Company
intends to utilize its patented water recycling technology to
recycle large quantities of water for redistribution as a wholesale
water supply product.
PAGE 4 OF 38
Description of Business. In 1987, the Company acquired the
Paradise Water Rights which are described above under the heading
"Description of Company's Assets - Paradise Water Rights."
In June 1988, the Company entered into an agreement with the
District for the purchase of a water production right to
approximately 10,000 acre feet of water per year. In December of
1990, the Company entered into a Water Rights Commercialization
Agreement ("WCA") with ISC, a subsidiary of INCO Limited, with
respect to the joint marketing of an option to purchase 10,000 acre
feet of the Rangeview Water Rights. Since that time, and
throughout fiscal 1995, the primary activity of management of the
Company has been negotiating arrangements for development and sale
of the water, seeking funds to finance the purchase and development
of the water, and other matters related to the Rangeview Water
Rights.
The Rangeview water draws water from several geological
formations and lies beneath a 36 square mile parcel of land owned
by the State of Colorado located approximately 12 miles south and
east of Denver. The District, a quasi-municipal, political
subdivision of the State of Colorado, is a special district
empowered to provide water and sanitation services, with the
ability to issue tax-exempt municipal bonds and to enter into other
governmental financing arrangements to provide service to its
service area. It provides an operational entity capable of
administering the water and sanitation system once in place and
empowered to charge service rates and fees necessary to support
that operation.
The Company's potential customers include the more than 100
independent municipal water providers who service the Denver
metropolitan area with more than 2 million residents. The over 100
area water providers obtain their water supplies from a variety of
sources including their own developed supplies, supplies purchased
from other area water providers, and supplies purchased from the
holders of private water rights.
Much like water supply, area water providers also have
independent wastewater and sewage treatment service capabilities.
In conjunction with the marketing of the Company's water rights,
the Company is negotiating to provide wastewater/sewage treatment
services to municipal water providers.
The Company has made formal presentations to as many as 18 of
these area water providers during the fiscal year ended 1995. The
Company is also pursuing the sale of the Paradise Water Rights to
cities, municipalities, and special districts in the downstream
states of Arizona, Nevada, and California. However, there are
certain restrictions under Colorado law to the transportation of
water rights from one state to another, including a requirement of
obtaining a court decree authorizing the use of the water rights
out of state and compliance with interstate compact or agreements,
which may need to be resolved or complied with before the Paradise
Water Rights can be sold to users outside of Colorado. The Company
has developed numerous legal, engineering and financial modeling
studies which have aided its proposals and presentations to
municipal water providers. To date, the Company has not reached an
agreement with a municipal water provider for the sale of the
Rangeview Water Rights or the Paradise Water Rights.
The Company will not realize revenues from its water rights until
such rights are sold. The marketing and sale of the Rangeview
Water Rights may be conditional on the resolution or settlement of
the lawsuits more fully discussed in Item 3 "Legal Proceedings."
There are no impediments to the Company generating revenues through
the sale of its Paradise water rights other than locating a willing
and able buyer. The water rights could be sold for a lump sum,
pursuant to an installment contract, for payments from tap fees as
users are connected to a water delivery system, or some combination
of the above. It is contemplated that a municipality purchasing
the water rights would provide the capital for any water delivery
system. The timing of the receipt of revenues would depend on the
terms of any sales contract ultimately entered into. Similarly,
the Company is negotiating arrangements for the sale or license of
its recycling technology. Again there are no impediments to the
sale or licensing of the Company's technology other than locating a
willing and able buyer or licensee.
Page 5 OF 38
The development of the water rights would require the drilling of
water wells in the case of the Rangeview Water Rights, or the
construction of a dam in the case of the Paradise Water Rights, the
installation of pipelines, and the installation of storage
facilities to regulate the flow of water. The development of the
water rights may be done by the purchaser or the purchaser may
contract for development with outside private companies. The
Company anticipates that if the purchasing water provider would
like the water developed and delivered by the Company that the
Company would contract for these services with private contractors.
The Company's business of water sales is subject to competitive
factors as water providers desiring water will consider alternative
sources. The Company is aware of several other private water
companies who are attempting to market competing water rights to
municipal water providers in the Denver metropolitan area. In
addition, municipal water providers seeking to acquire water rights
evaluate independent water rights owned by individuals, farmers,
ranchers etc., in acquiring water rights. The principal factors
affecting competition in this regard include, but may not be
limited to, the availability of water for the particular purpose,
the cost of delivery of the water to the desired location, the
availability of water during dry year periods, the quality of the
water source, and the reliability of the water supply. The Company
believes that its water rights offer the Company a competitive
advantage over its competition due to the water right's status of
being designated for municipal use by decrees issued by Colorado
water courts, quantity of water available, quality of water,
location (with Rangeview's location only one mile from the Denver
metropolitan area, and Paradise's location to deliver water to
either downstream or Denver area water users), and price. The
quantity of the water rights has been determined by court decrees
of the Colorado water courts. The Company has also had the quality
and quantity of the Rangeview and Paradise Water Rights evaluated
by appraisers and water engineers. The water quality meets or
exceeds all current federal and state drinking water standards.
The Company's business activities of water purification and
municipal water recycling are also subject to competition from
municipal water providers who also provide wastewater/ sewage
processing and from regional wastewater/sewage processors. The
Company is not aware of any private companies providing
wastewater/sewage treatment services in the Denver region. The
Company believes that it could have a competitive advantage through
technology which utilizes no toxic chemicals and which can be
applied economically to process wastewater/sewage to more stringent
standards than is currently utilized by other wastewater/sewage
processors. All residual material 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 would require
compliance with environmental regulations. The Company does not
currently anticipate engaging in such construction activities. It
is anticipated that a purchaser of the water rights would undertake
the construction required to deliver the water to its users or the
Company would contract with private contractors for construction
services. If the Company were to ultimately agree to provide such
facilities, the Company could incur substantial capital
expenditures to comply with governmental regulations. However, the
Company cannot assess such costs until the purchaser of the water
rights and the nature of the water delivery system required has
been determined. Similarly if the Company were to obtain a
contract for treatment of wastewater and sewage, governmental
regulations concerning drinking water quality and wastewater
discharge quality may be applicable. However, until the Company
has a contract proposal specifying the quantity and type of
wastewater to be treated and the proposed use of such treated
water, the cost of regulatory compliance cannot be determined.
The Company holds several patents in the United States and abroad
related to its water recycling system and components thereof. The
value to the Company of these patents is dependent upon the
Company's ability to adapt its water recycling system to larger
scale users, or to develop other uses for the technology. These
patents will expire in the late 1990's.
The Company currently has four employees.
PAGE 6 OF 38
Item 2. Description of Property.
The Company currently leases office facilities at the address
shown on the cover page.
The Company has acquired approximately 70,000 acre feet of
conditional water rights, water wells and related assets in the
State of Colorado by assignment and quit claim deed. See "Item 1.
Description of Business - Description of Company's Assets -
Paradise Water Rights."
Item 3. Legal Proceedings.
In October 1994, the Company joined in a lawsuit initiated by
others including the Rangeview Metropolitan District (the
"District"), brought in the District Court of the City and County
of Denver, Colorado, against the Colorado State Board of Land
Commissioners (the "Board") seeking a declaratory judgment
affirming that the lease, as amended, (the "Lease"), from the Board
to the District is valid and enforceable. Under the Lease, the
Board leased the development rights to ground water underlying
certain lands controlled by the Board, to the current lessee, the
District. The Company has an interest in such water by reason
of agreements entered into between the District and other parties.
On March 1, 1995, a counterclaim was filed by the Board against
the District, the Company and other plaintiffs, in which the Board
asserts that the Lease is void because the original lessee breached
his fiduciary duty to the Board and that successive lessees have
breached the Lease. The Board also claims damages of unspecified
amounts against the plaintiffs, including the Company, because of
alleged wrongs done in connection with the Lease and subsequent
transactions.
Based on settlement discussions subsequent to the fiscal year
ended August 31, 1995, management believes that the Rangeview
litigation will be settled on terms acceptable to the Company
during fiscal year 1996. However, if the Board were to change its
current position on settling the matter and were it to prosecute
and prevail in its claims that the Lease is void or unenforceable,
that would have an effect on the Company's contractual rights under
its Water Commercialization Agreement related to the water covered
by the Lease and would have a materially adverse effect on the
Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of stockholders during the
fourth quarter ended August 31, 1995.
PAGE 7 OF 38
PART II
Item 5. Market for the common Equity and Related Stockholder
Matters.
Markets
The table below shows for the quarter indicated the high and low
bid prices of the Common Stock on the over-the-counter market and
the NASDAQ Bulletin Board as applicable. In February of 1994, the
Company's Common Stock began trading on the NASDAQ Bulletin Board
Exchange under the trade symbol PCYL. As of November 22, 1995,
there were 4,290 holders of record of the Company's Common Stock.
Calendar Quarter Low High
---------------- --- ----
1994 First $.125 $.325
Second $.125 $.325
Third $.125 $.25
Fourth $.125 $.25
1995 First $.0625 $.15
Second $.05 $.12
Third $.07 $.11
Fourth $.07 $.25
Quotations reflect interdealer 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.
PAGE 8 OF 38
Item 6. Management's Discussion and Analysis or Plan of
Operation.
Introduction.
The Company's principal business activities are focused on the
wholesale commercial development of its water rights to cities,
municipalities and special districts serving water to residential,
commercial and industrial consumers. The Company has options to
purchase 10,000 acre feet of water rights which currently extend
through February 12, 1997. Additionally, the Company owns
approximately 70,000 acre feet of Colorado River water rights on
Colorado's western slope which the Company seeks to market to users
in Arizona, Nevada and southern California.
Plan of Operation
During past years, the Company has continued operations primarily
through long term debt financing from certain related parties
including the Company's President and major stockholder. Since
1992, the Company has funded operations by equity financings and by
marketing the right to share in future proceeds from the sale of its
Rangeview Water Rights to private individuals, companies and
institutions with an interest in the municipal wholesale water
supply market.
The Company is aggressively pursuing the marketing and sales of
its water rights to municipal water providers in the Denver
metropolitan region as well as users in Arizona, Nevada and
California to generate current and long term revenue sources for
the Company. During the fiscal year ended 1995, the Company has
presented wholesale water supply proposals to 18 municipal
water providers throughout the Denver metropolitan area with
respect to the sale of 10,000 acre feet of Rangeview Water Rights.
Additionally, during the fiscal year ended 1995, the Company has
presented wholesale water supply proposals to private and municipal
water providers in Nevada, Arizona and California for the sale of
the Company's 70,000 acre feet of Paradise Water Rights,
understanding that certain legal issues relating to interstate
water rights transfers may exist. The Company continues to discuss
water supply arrangements with private companies and municipal
water providers to whom it has made proposals and continues to
identify and market its water rights to other private companies and
municipal water providers. At this time the Company is not able to
determine the timing of such sales, and there can be no assurance
that sales can be made on terms acceptable to the Company or that
it will be feasible to deliver the water to the ultimate users. In
the event such sales are not achieved, the Company may sell
additional portions of the Company's profits interest pursuant to
the Rangeview WCA, incur additional short or long-term debt
obligations or seek to sell additional shares of Common Stock,
Preferred Stock or stock purchase warrants as deemed necessary by
the Company to generate operating capital. The Company's ability
to ultimately realize its investment in its two primary water
projects is dependent on its ability to successfully market the
water, or in the event it is unsuccessful, to sell the underlying
water rights.
PAGE 9 OF 38
Results of Operations
Summary:
The Company continues to operate at a loss with operating capital
funded through equity financings and the sale of rights to
participate in the proceeds from the sale of the Company's Rangeview
Water Rights.
Year Ended August 31, 1995 compared to the Year Ended August 31, 1994:
The Company's general and administrative expenses for fiscal 1995
decreased approximately $24,000 or 7% to $342,000 as compared to
$367,000 for fiscal year ended August 31, 1994, due primarily to a
decrease in professional and legal fees, research and development
costs and travel related costs. The Company's net loss for fiscal
1995 increased approximately $9,000 or 2% to $515,000 as compared
to $506,000 for fiscal year ended August 31, 1994. The increase in
the net loss for fiscal 1995 over fiscal 1994 was due primarily to
the recognition of $58,667 in extraordinary gains from the
extinguishment of debt in 1994 compared to $4,884 recognized in
1995.
Year Ended August 31, 1994 compared to the Year Ended August 31, 1993:
The Company's general and administrative expenses for fiscal 1994
decreased approximately $102,000 or 22% to $367,000 as compared to
$469,000 for fiscal year ended August 31, 1993, due primarily to a
decrease in professional accounting and legal fees. The Company's
net loss for fiscal 1994 increased approximately $77,000 or 18% to
$506,000 as compared to $429,000 for fiscal 1993 due primarily to a
decrease in extraordinary gains on the extinguishment of debt as
compared to 1993.
Liquidity and Capital Resources:
At August 31, 1995, current assets exceed current liabilities by
approximately $759,000 and, the Company had cash and cash
equivalents of $865,803.
Cash used in operating activities for fiscal 1995 was
approximately $259,000. Based on budgeted operating costs, it is
anticipated that a similar level of operating cash outflows will be
incurred during fiscal 1996.
Cash flows from financing activities of approximately $1,023,000
in fiscal 1995 resulted, primarily, from the sale of securities
held at August 31, 1994 which were sold during fiscal 1995.
Pursuant to agreements reached during fiscal 1995 with the
President of the Company and with a creditor affiliated with the
Company, the payment of certain certain notes totaling $1,987,740
have been deferred to October 1997. As discussed in note 8, during
August 1995, the Company entered into an agreement with a related
party whereby the Company exchanged a portion of its profits
interest in the WCA and agreed to pay $21,453 to retire a note
payable totaling $217,235, including accrued interest.
During 1993, a judgment in the amount of $214,000 was awarded to
a broker pursuant to a complaint filed against the Company in
October of 1991. The Company reached a settlement agreement with
the broker which involved the payment of $60,000 and $154,000 plus
8% interest due on or before October 1, 1995. The note is currently
in default.
PAGE 10 OF 38
As discussed in Note 11 and above, during fiscal 1995 the Company
joined in a lawsuit against the Colorado State Board of Land
Commissioners (the "Board"). On March 1, 1995, a counterclaim was
filed by the Board against the Rangeview Metropolitan District, the
Company and other plaintiffs. During 1995, the Company paid
approximately $89,000 in legal fees in connection with its efforts
to settle the suits and, it is expected that the Company will
continue to incur legal costs related to the settlement of these
lawsuits.
Based on cash budgets prepared by management and excluding the
raising of additional capital through debt or equity financings, at
its current activity level, the Company is capable of sustaining
its operating activities through fiscal 1997.
Development of any of the water rights that the Company has, or
is seeking to acquire, will require substantial capital investment
by the Company. Any such additional capital for the development of
the water rights, including the capital to pay the remaining
portion of the purchase price for the Rangeview Water Rights, is
anticipated to be financed by the municipality purchasing such
water rights or through the sale of water taps and water delivery
charges. A water tap charge refers to a charge imposed by a
municipality to permit a water user access to a water delivery
system (i.e. a single-family home's tap into the municipal water
system), and a water delivery charge refers to a water user's
monthly water bill, generally based on a per 1,000 gallons of water
consumed.
New Accounting Standard:
Statement of Financial Accounting Standard No. 121 ("SFAS No.
121"), "Accounting for the Impairment of Long Lived Assets and for
Long-Lived Assets To Be Disposed Of", requires that long-lived
assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company is not required to adopt SFAS No. 121
until fiscal year ending August 31, 1996. The Company does not
anticipate that its adoption of SFAS No. 121 will have a significant
effect on the carrying value of its long-lived assets, primarily
investments in water projects.
PAGE 11 OF 38
Item 7. Financial Statements.
Page
----
Independent Auditors' Reports 13
Consolidated Balance Sheets 14
Consolidated Statements of Operations 15
Consolidated Statements of Stockholders' Equity 16-18
Consolidated Statements of Cash Flows 19-20
Notes to Consolidated Financial Statements 23-27
PAGE 12 OF 38
Independent Auditors' Report
The Board of Directors
Pure Cycle Corporation:
We have audited the accompanying consolidated balance sheets of Pure
Cycle Corporation and subsidiary (a development stage enterprise) as of
August 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years
then ended and for the period from September 1, 1986 to August 31, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not
audit the consolidated financial statements of Pure Cycle Corporation
and subsidiary for each of the years in the five-year period ended
August 31, 1991. The financial statements for each of the years in the
four-year period ended August 31, 1991 were audite d by other auditors
whose reports contained explanatory paragraphs discussing the uncertainty
about the Company's ability to continue as a going concern. The financial
statements for the year ended August 31, 1987 were audited by other
auditors who have ceased operations and whose reports contained an
explanatory paragraph discussing the uncertainty about the Company's
ability to continue as a going concern. Our opinion, insofar as it
relates to the cumulative amounts for the years in the five-year period
ended August 31, 1991 included in the statements of operations,
stockholders' equity and cash flows for the period from September 1,
1986 to August 31, 1995, is based solely upon the reports of the other
auditors, which reports have been furnished to us.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pure
Cycle Corporation and subsidiary as of August 31, 1995 and 1994 and the
results of their operations and their cash flows for the years then
ended and, based on our audits and the reports of the other auditors
the period from September 1, 1986 to August 31, 1995, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
October 21, 1995
PAGE 13 OF 38
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
August 31
-----------------------
ASSETS 1995 1994
---- ----
Current Assets:
Cash and cash equivalents $ 865,803 $ 122,441
Marketable securities 3,429 1,285,329
Note receivable (Note 2) 119,327 --
Prepaid expenses and other current assets 16,037 4,507
---------- ----------
Total current assets 1,004,596 1,412,277
Investments in water projects:
Paradise water rights 5,462,457 5,454,081
Rangeview water commercialization
agreement (Rangeview WCA) (Note 3) 5,856,194 5,758,335
Sellers Gulch water rights 31,997 --
Equipment, at cost, net of accumulated
depreciation of $9,514 and $6,699 5,359 7,495
Patents, net of accumulated amortization
of $34,776 and $32,696 in 1995 and 1994, 684 2,770
respectively
Other assets 22,596 27,196
---------- ----------
$ 12,383,883 $ 12,662,154
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt (Note 4) $ 185,460 $ --
Accounts payable 60,450 9,638
--------- ---------
Total current liabilities 245,910 9,638
Long-term debt payable to related parties,
less current maturities (Note 4) 2,888,296 3,090,315
Other non-current liabilities 120,228 113,088
Minority interest in Rangeview WCA (Note 3) 4,020,630 3,945,630
Stockholders' equity (Notes 6,7 and 8):
Preferred stock, par value $.001 per
share; authorized - 25,000,000 shares:
Series A - 1,600,000 shares issued
and outstanding 1,600 1,600
Series B - 432,513 shares issued and
outstanding 433 433
Common stock, par value 1/3 of $.01 per
share; authorized - 135,000,000 shares;
issued and outstanding 78,439,763 shares 261,584 261,584
Additional paid-in capital 23,615,561 23,494,779
Deficit accumulated during
development stage ( 6,043,987) ( 5,528,541)
Deficit accumulated prior to
September 1, 1986 (12,726,372) (12,726,372)
---------- ----------
Total stockholders' equity 5,108,819 5,503,483
---------- ----------
Commitments and contingency (Note 11) $ 12,383,883 $12,662,154
========== ==========
See Accompanying Notes to Consolidated Financial Statements
PAGE 14 OF 38
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended August 31 Cumulative
--------------------- Sept. 1,1986 to
1995 1994 Aug. 31, 1995
---- ---- -------------
General and administrative
expense:
Related parties (Note 8) $ -- $( 29,543) $( 908,215)
Other (342,886) (337,405) (2,591,505)
------- ------- ---------
Total general and
administrative expense (342,886) (366,948) (3,499,720)
Other income (expense):
Interest expense:
Related parties (188,054) (189,725) (1,218,433)
Other ( 24,020) ( 20,143) ( 490,760)
Loss on abandonment of
options on water rights -- -- ( 850,000)
Financing expense on
purchase of water rights
option -- -- ( 200,000)
Financing cost for issuance
of stock below market
price -- -- ( 187,500)
Loss on abandonment of
power plant equipment -- -- ( 242,500)
Gain from waived put options -- -- 40,950
Loss on marketable equity
securities ( 3,611) -- ( 3,611)
Interest Income 38,241 -- 38,241
Other, net -- 11,900 57,923
------- ------- ---------
Loss before
extraordinary item (520,330) (564,916) (6,555,410)
Extraordinary gain on
extinguishment of debt (Note 5) 4,884 58,677 511,423
------- ------- ---------
Net loss $(515,446) $(506,239) $(6,043,987)
======= ======= =========
Primary and fully diluted
loss per common share:
Loss before extraordinary
item $ (.01) $ (.01)
Extraordinary item -- --
----- -----
Net loss per common share $ (.01) $ (.01)
===== =====
Weighted average common
shares outstanding 78,439,763 78,439,763
========== ==========
See Accompanying Notes to Consolidated Financial Statements
PAGE 15 0F 38
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended August 31, 1995, 1994, 1993
Deficit
Accumulated
Common Stock Preferred Stock Additional During the
----------------- ---------------- Paid-in Development
Shares Amount Shares Amount Capital Stage
------ ------ ------ ------ ------- -----------
Balance at August 31, 1993 78,439,763 $261,584 -- $ -- $21,464,298 $ (5,022,302)
Sale of Preferred Stock
Series A for cash (Note 7) -- -- 1,600,000 1,600 1,598,400 --
Issuance of Preferred Stock
Series B in exchange for
debt (Note 8) -- -- 432,513 433 432,081 --
Net Loss -- -- -- -- -- ( 506,239)
---------- ------- --------- ----- ---------- ---------
Balance at August 31, 1994 78,439,763 261,584 2,032,513 2,033 23,494,779 (5,528,541)
Retirement of note payable
with a related party in
exchange for an interest
in the Water Commercial-
ization Agreement
(Notes 4 and 8) -- -- -- -- 120,782 --
Net Loss -- -- -- -- -- ( 515,446)
---------- ------- --------- ----- ---------- ---------
Balance at August 31, 1995 $78,439,763 $261,584 2,032,513 $2,033 $23,615,561 $(6,043,987)
========== ======= ========= ===== ========== =========
See Accompanying Notes to Consolidated Financial Statements
PAGE 16 OF 38
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Cumulative from September 1, 1986 through August 31, 1995
Deficit
Accumulated
Common Stock Preferred Stock Additional During the
----------------- ---------------- Paid-in Development
Shares Amount Shares Amount Capital Stage
------ ------ ------ ------ ------- -----------
Balance, September 1, 1986 59,721,797 $199,077 -- $ -- $11,869,506 $ --
Fiscal Year 1987 transactions:
Net Loss -- -- -- -- -- ( 139,906)
Fiscal Year 1988 transactions:
Stock issued for debt 250,000 833 -- -- 11,667 --
Sale of stock 1,255,466 4,185 -- -- 5,371,522 --
Net loss -- -- -- -- -- ( 626,583)
Fiscal Year 1989 transactions:
Payment for services with
stock donated by President -- -- -- -- 291,250 --
Net loss -- -- -- -- -- ( 980,793)
Fiscal Year 1990 transactions:
Redeemable common stock
redemption premiu -- -- -- -- ( 45,625) --
Expenses paid with stock
donated by President -- -- -- -- 7,000 --
Net loss -- -- -- -- -- ( 614,266)
Fiscal Year 1991 transactions:
Put options waived 315,000 -- -- -- -- --
Foreclosure on debt collat-
eralized by shares of stock
pledged by the President -- -- -- -- 85,080 --
Sale of stock options:
cash -- -- -- -- 100,000 --
Excess of market value
over option price -- -- -- -- 187,500 --
Net loss -- -- -- -- -- (1,751,701)
Fiscal Year 1992 transactions:
Put options expired 1,997,500 6,658 -- -- 223,017 --
Common shares contributed by
President and majority
stockholder 100,000 -- -- -- -- --
Common shares issued as
additional interest expense ( 100,000) -- -- -- 25,000 --
Foreclosure on debt collat-
eralized by shares of stock
pledged by the President -- -- -- -- 86,088 --
Repurchase of options -- -- -- -- ( 100,000) --
Sale of common stock 13,900,000 47,497 -- -- 2,852,503 --
Net loss -- -- -- -- -- ( 480,585)
Fiscal Year 1993 transactions:
Put options expired 200,000 667 -- -- 19,333 --
Foreclosure on debt
collateralized by shares
of stock pledged by
President -- -- -- -- 209,250 --
Foreclosure on debt
collateralized by shares
of stock pledged by
President and reissued
by Company 800,000 2,667 -- -- 271,207 --
Net Loss -- -- -- -- -- ( 428,468)
---------- ------- ----- ----- ------- ---------
Balance carried forward 78,439,763 $261,584 -- $ -- $21,464,298 $(5,022,302)
========== ======= ===== ===== ========== =========
(continued)
PAGE 17 OF 38
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Cumulative from September 1, 1986 through August 31, 1995
(CONTINUED)
Accumulated
Common Stock Preferred Stock Additional During the
------------------ ----------------- Paid-in Development
Shares Amount Shares Amount Capital Stage
------ ------ ------ ------ ------- -----------
Balance at August 31, 1993
(carried forward) 78,439,763 $261,584 $ -- $ -- $21,464,298 $(5,022,302)
Fiscal Year 1994 transactions:
Sale of Preferred Stock
Series A for cash -- -- 1,600,000 1,600 1,598,400 -
Issuance of Preferred Stock
Series B in exchange for
debt -- -- 432,513 433 432,081 --
Net loss -- -- -- -- -- ( 506,239)
Fiscal Year 1995 transactions:
Assignment of note payable
with a related party in
exchange for an interest
in the Water Commercial-
ization Agreement
(Notes 4 and 8) -- -- -- -- 120,782 --
Net Loss -- -- -- -- -- ( 515,446)
---------- ------- --------- ----- ---------- ---------
Balance at August 31, 1995 78,439,763 $261,584 2,032,513 $2,033 $23,615,561 $(6,043,987)
========== ======= ========= ===== ========== =========
See Accompanying Notes to Consolidated Financial Statements
PAGE 18 OF 38
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended August, 31 Cumulative
---------------------- Sept.1, 1986 to
1995 1994 Aug.31, 1995
---- ---- ------------
Cash flows from operating
activities:
Net loss $( 515,446) $( 506,239) $(6,043,987)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization 4,900 4,726 28,285
Amortization of debt
issuance costs 4,600 11,500 23,000
Loss)/gain on sale of
marketable securities 3,611 ( 11,900) ( 24,809)
Accretion of discount
on long-term debt 11,749 20,940 69,630
Common shares issued as
additional interest
expense -- -- 25,000
Extraordinary gain on
extinguishment of debt ( 4,884) ( 58,677) ( 511,423)
Loss on abandonment of
option on water rights -- -- 750,000
Financing expense on
purchase of water option -- -- 200,000
Financing costs for
issuance of stock options
below market price -- -- 187,500
Gain on put options waived -- -- ( 40,950)
Loss on abandonment of
power plant equipment -- -- 62,500
Payment for services and
expenses with common stock
donated by President -- -- 298,250
Other unrealized loss on
marketable securities -- -- 1,143
Increase in accrued interest
on note receivable ( 3,327) -- ( 3,327)
Other -- -- ( 1,065)
Changes in:
Prepaid expenses and
other current assets ( 11,530) 1,268 ( 11,087)
Accounts payable and
accrued liabilities 62,836 ( 118,130) 435,945
Accrued interest 188,927 176,012 1,418,119
--------- --------- ---------
Net cash used in
operating activities ( 258,564) ( 480,500) (3,137,276)
--------- --------- ---------
( Continued)
PAGE 19 OF 38
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Years ended August, 31 Cumulative
---------------------- Sept.1, 1986 to
1995 1994 Aug.31, 1995
---- ---- ------------
Cash flows from investing
activities:
Investments in water rights $( 138,232) $( 50,134) $(2,185,628)
Purchase of marketable
securities -- (1,250,000) (2,000,000)
Proceeds from sale of
marketable securities 1,278,289 230,000 2,024,809
Increase in note receivable ( 116,000) -- ( 116,000)
Purchase of equipment ( 678) ( 1,971) ( 14,872)
Increase in other assets -- ( 2,181) ( 106,595)
--------- --------- ---------
Net cash provided by
(used in) investing
activities $ 1,023,379 $(1,074,286) $(2,398,286)
--------- --------- ---------
Cash flows from financing
activities:
Proceeds from issuance
of debt $ -- $ 26,542 $ 2,677,629
Repayments of debt ( 21,453) ( 16,226) (1,024,690)
Proceeds from sale of
common stock -- -- 2,900,000
Proceeds from sale of
Series A convertible
Preferred stock -- 1,600,000 1,600,000
Proceeds from issuance of
redeemable common stock -- -- 245,000
Proceeds from issuance of
stock options -- -- 100,000
Repurchase of stock
options -- -- ( 100,000)
-------- --------- ---------
Net cash provided by
(used in) financing
activities ( 21,453) 1,610,316 6,397,939
------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents 743,362 55,530 862,377
Cash and cash equivalents
beginning of period 122,441 66,911 3,426
------- --------- ---------
Cash and cash equivalents
end of period $865,803 $ 122,411 $ 865,803
======= ========= =========
See Accompanying Notes to Consolidated Financial Statements
PAGE 20 OF 38
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1995, 1994, and 1993
NOTE 1 - ORGANIZATION AND BUSINESS, BASIS OF PRESENTATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIE
Organization and Business
Pure Cycle Corporation (the "Company") was incorporated under the
laws of the State of Delaware on April 1, 1976, to develop,
manufacture and market waste water recycling systems. During 1987,
the Company began a reorganization of its business, shifting
emphasis from smaller scale water purification systems to acquiring
water rights for future sales of water and subsequent reprocessing
of that water with larger scale sewage treatment facilities.
The fiscal year ended August 31, 1987 is considered the
commencement of the current development stage activities of the
Company. Accordingly, cumulative amounts from September 1, 1986 to
August 31, 1995 have been reported in the statements of operation,
stockholders' equity and cash flows.
The Company is currently marketing the water from its two primary
water projects to municipal water providers in the Denver
metropolitan region as well as users in Arizona, Nevada and
California. Although the Company believes it will be successful in
marketing the water from one or both of its water projects, there
can be no assurance that sales can be made on terms acceptable to
the Company or that it will be feasible to deliver the water to the
ultimate users. The Company's ability to ultimately realize its
investment in its two primary water projects is dependent on its
ability to successfully market the water, or in the event it is
unsuccessful, to sell the underlying water rights.
Basis of Presentation
During its development stage, the Company has funded the
acquisition of certain water assets and operating capital primarily
through equity and other financing agreements with investors with
an interest in the wholesale municipal water development business.
Funding has been primarily achieved through debt and equity
financing instruments enabling investors to participate in the
future revenues derived from the sale of the Company's water
assets. The Company believes that at August 31, 1995 the Company
has sufficient cash, cash equivalents, marketable securities and
working capital 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 profits interests in its water projects, incur
additional short or long-term debt or seek to sell additional shares
of common stock or stock purchase warrants as deemed necessary by
the Company, to generate working capital.
Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Rangeview Development
Corporation ("RDC"). All intercompany balances and transactions
have been eliminated.
Cash equivalents
For purposes of the statement of cash flows, cash and cash
equivalents includes all highly liquid debt instruments with an
original maturity of three months or less.
PAGE 21 OF 38
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pervasiveness of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Marketable Securities
In May 1993, the FASB issued Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", effective for fiscal years beginning after
December 15, 1993. The Company classifies its investment in
marketable securities as available-for-sale securities. Unrealized
holding gains and losses have been recorded as a net amount in a
separate component of stockholders' equity. Realized gains and
losses have been recorded in operations for the year ended August 31,
1995.
Investments in Water Projects
The Paradise water rights represent Colorado River water rights,
water wells, and a federal right-of-way permit for a dam site
located near Debeque, Colorado. The Paradise water rights are
recorded at cost.
The investment in the Rangeview Water Commercialization Agreement
("Rangeview WCA") is stated at cost. The Company accounts for its
investment in the Rangeview WCA as if it were a joint venture
between the Company and other investors in the Rangeview Project.
The Company owns a controlling interest in the project governed by
the Rangeview WCA and accordingly is accounting for the Rangeview
WCA on a consolidated basis. The interest attributable to the
other investors in the Rangeview WCA has been reflected as minority
interest in the accompanying consolidated financial statements.
The Company periodically assesses its investment in water
projects including the feasibility of the project or the
marketability of the water or water rights. In connection with
this assessment, the Company annually obtains an updated appraisal
of the Paradise Water Rights. In the event an impairment of an
investment in a water project is indicated, a valuation allowance
will be provided for the amount of the impairment.
Patents
Patents are recorded at cost and are amortized on a straight-line
basis over 17 years.
Loss per common share
Loss per common share is computed by dividing net loss by the
weighted average number of shares outstanding during each period.
Common stock options and warrants have been excluded from the
calculation of loss per share as their effect is anti-dilutive.
PAGE 22 OF 38
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes
Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes ("Statement No. 109") requires the use of the
asset and liability method of accounting for income taxes. Under
the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected
to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Reclassifications
Certain amounts have been reclassified for comparability with the
1995 presentation.
NOTE 2 - NOTE RECEIVABLE
In 1995, the Company extended short-term credit to the Rangeview
Metropolitan District. The loan permits borrowings up to $150,000,
is unsecured, bears interest based on the prevailing prime rate
plus 2% and, matures on December 31, 1995.
NOTE 3 - RANGEVIEW WATER RIGHTS COMMERCIALIZATION AGREEMENT
In November and December of 1990, Inco Securities Corporation
("ISC"), entered into an agreement with the Rangeview Metropolitan
District (the "District") to purchase 10,000 acre feet of water
production rights and a joint Water Rights Commercialization
Agreement which provides for the Company and ISC to jointly develop
and market the Rangeview Water Rights. From November 1990 through
fiscal year ended August 31, 1995, the Company, ISC and other
investors made payments to the District totaling $1,075,000 for
certain options which currently expire February 12, 1997. The
Company purchased a right of first refusal to 40 acres of real
property for $201,000. The Company made payments to certain
Rangeview Bond holders totaling approximately $3,700,000 purchasing
approximately $9,730,000 in Rangeview Bonds. ISC and other investors
hold approximately $5,778,000 in Rangeview Bonds pursuant to the
WCA. During the same period, the Company raised approximately
$3,935,000. In order to raise the funds for the above described
financing, the Company issued notes to ISC totaling $424,000,
warrants to purchase 21,800,000 shares of Common Stock at an
exercise price of $.25 per share, issued 14,700,000 shares of Common
Stock at $.25 per share, and issued 1,600,000 shares of Series A
Convertible Preferred Stock at $1.00 per share. As of August 31,
1995, the Company has sold certain Profits Interests relating to
the first $31 million in proceeds pursuant to the Rangeview WCA to
be divided as follows: 42% to the Rangeview Project sellers, 47% to
the Rangeview Project investors, 10.3% or $3,200,000 to the Series
A preferred Stock purchasers, and .7% or 215,000 to the Company.
After the distributions pursuant to the Rangeview WCA, the Company
has agreed to distribute the next $4 million in proceeds to LCH,
Inc., a company affiliated with the Company's president. The next
$432,513 in proceeds is payable to the holders of Series B Preferred
Stock. The Company retains 100% of the Rangeview Project proceeds
in excess of $35.5 million.
If the final closing on the Rangeview Assets does not occur, ISC
may transfer its interests in the Rangeview Assets to the Company
in exchange for an approximately 5% ownership interest in the
Company.
In addition to the consideration described above, the Company
capitalized certain legal and other costs relating to the
acquisition of the Rangeview assets totaling $97,859, $30,863 and
$324,273 during 1995, 1994 and 1993, respectively.
PAGE 23 OF 38
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LONG-TERM DEBT
Long-term debt at August 31, 1995 and 1994 is comprised of the
following:
1995 1994
Notes payable, including accrued interest, to
President and majority stockholder; due October
1997; interest at 8.36% to 9.01%; unsecured $ 338,060 $ 316,700
Notes payable, including accrued interest,
to related party; due October, 1997;
interest at the prime rate plus 3%;
secured by shares of stock owned by
the President and majority stockholder 1,649,680 1,543,777
Notes payable, including accrued interest,
to a related party corporation; due August 1997;
interest ranging from 7.18% to 8.04%; unsecured 574,014 541,818
Notes payable, including accrued; due October 1995,
interest at 8%; secured by $315,000 par value of
Rangeview Bonds 185,460 173,180
Notes payable to two related party corporations;
due February 1998; secured by 3,800
acre feet of Paradise Water Rights
net of discount (at 8.5%) of $11,749 in 1994 300,000 288,251
Note payable, including accrued interest,
to related party; due September 1997;
unsecured 26,542 26,542
Note payable, including accrued interest,
to related party; due September 1995;
interest at 15%; unsecured (canceled - see note 8) -- 200,047
--------- ---------
Total 3,073,756 3,090,315
Less current maturities of long term debt ( 185,460) --
--------- ---------
Long-term debt, less current maturities $ 2,888,296 $ 3,090,315
========= =========
Aggregate maturities of long-term debt are as follows:
Year Ending August 31, Amount
---------------------- ------
1996 $ 185,460
1997 574,014
1998 2,314,282
---------
Total $ 3,073,756
=========
During the fiscal year ended August 31, 1994 the Company paid
interest expense, notes payable and long-term debt to related
parties of approximately $106,000. During fiscal year 1995, the
Company reached agreements with two related party note holders to
defer payment of principal and accrued interest payable on certain
notes totaling $1,987,740 to October 1997.
As discussed in note 8, during August 1995 the Company entered
into an agreement to retire a note payable to the Chairman of the
Company. In return for cancelation of the note, the Chairman
accepted payment of $21,453 and the assignment, by the Company, of
a portion of its profits interest in the Rangeview WCA.
As of August 31, 1995, the President and majority stockholder of
the Company has pledged a total of 20,000,000 shares of common
stock from his personal holdings as collateral on certain of the
above notes payable.
PAGE 24 OF 38
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - OTHER NONCURRENT LIABILITIES
As a result of the expiration of the Colorado statute of
limitation, certain accounts payable to creditors and a note
payable incurred prior to the Company's suspension of operations in
1985 totaling $4,884 and $58,677 in 1995 and 1994, respectively
are considered extinguished and have been reflected as an
extraordinary item in the accompanying consolidated statements of
operations.
NOTE 6 - STOCKHOLDERS' EQUITY
Stock Options
On August 12, 1992, the Company purchased from ISC, for $100,000,
the option issued to ISC to purchase 3,000,000 shares of the
Company's common stock at an exercise price of $.25 per share.
On June 15, 1992, the Company adopted an Equity Incentive Plan.
In addition, on such date, the Company granted Mr. Fletcher Byrom
and Ms. Margaret Hansson options to purchase 7,000,000 and
8,000,000 shares of common stock, respectively, at an exercise
price of $.20 per share, through June 15, 1997. These shares were
issued in exchange for options previously issued to Mr. Byrom and
Ms. Hansson in June of 1989. Also on June 15, 1992, the Company
granted Mr. Mark Harding and Mr. George Middlemas 4,000,000 and
1,000,000 options common, respectively, under such Plan at an
exercise price of $.25 per share, through June 15, 1997.
During the two years ended August 31, 1995, no options were
exercised.
Warrants
In connection with agreements to sell a portion of the Company's
Profits Interest in the Rangeview WCA as described in Note 2, the
Company issued warrants to purchase 21,800,000 shares of the
Company's stock at $.25 per share.
During 1992, in connection with the repayment of a note payable,
the Company issued to the holder of the note a two year warrant
which expired in January 1995 to purchase 1,000,000 shares of the
Company's common stock at a purchase price of $.30 per share.
During the two years ended August 31, 1995, no warrants were
exercised.
NOTE 7 - SERIES A PREFERRED STOCK
On May 25, 1994, the Company sold 1,600,000 shares of Series A
Convertible Preferred Stock $.001 par value, to Environmental
Private Equity Fund II, L.P., Apex Investment Fund II, L.P.,
Proactive Partners L.P., Auginco, Anders C. Brag, Newell Augur Jr.,
William Peterson, and Stuart Sundlun (collectively "Series A
Purchasers") for a purchase price of $1.00 per share or a total
purchase price of $1,600,000. The holders of the Series A
Convertible Preferred Stock are entitled to be paid a dividend
amount equal to $2.00 per share to be paid from the Rangeview
Assets or the proceeds of a disposition of the Rangeview Assets
pursuant to the WCA. The Series A Preferred Stock can be converted
into 4 shares of Common Stock at the election of the Company or the
holders of the Preferred Stock.
PAGE 25 OF 38
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - RELATED PARTY TRANSACTIONS/ SERIES B PREFERRED STOCK
In August 1995 the Company and its Chairman reached an agreement
to retire a note payable to the Chairman totaling $217,235 with
accrued interest. In consideration for cancellation of the note,
the Company agreed to pay $21,453 and assign $150,000 of its
profit participation interest in the Rangeview WCA to the Chairman.
Pursuant to the agreement, the Company has reflected the difference
in the face amount of the note and the cash consideration as
an increase in minority interest and additional paid in capital of
$75,000 and $120,782, respectively.
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. Payments were
deferred until September 1995 for payables totaling $432,513 to this
related company. On August 31, 1994, the Company issued 432,513
shares of Series B Preferred Stock, $.001 par value, to LC Holdings
Inc., in satisfaction of the payable. The holder of the Series B
Preferred Stock is entitled to be paid a dividend amount equal to
$1.00 per share to be paid from the Rangeview Assets or the
proceeds from a disposition of the Rangeview Assets after the
interest from the WCA and the Series A Convertible Preferred Stock
have been satisfied.
NOTE 9 - 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, 1995 and 1994 are presented below.
1995 1994
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 1,449,000 $ 1,240,000
Less valuation allowance (1,449,000) (1,240,000)
--------- ---------
Net deferred tax asset $ -- $ --
========= =========
The valuation allowance for deferred tax assets as of September
1, 1994 was $1,240,000. The net change in the total valuation
allowance for the year ended August 31, 1995 was an increase of
$209,000.
At August 31, 1995, the Company has net operating loss
carryforwards for federal income tax purposes of $3,724,000 which
are available to offset future federal taxable income, if any,
through 2010.
PAGE 26 OF 38
PURE CYCLE CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Years ended August 31
--------------------------
1995 1994
---- ----
Issuance of Series B Preferred Stock -- 432,513
Long Term Debt A/P LC Holdings -- (432,513)
Debt exchanged for a profits interest
in the WCA 120,782 --
No cash was paid for interest in 1995. Cash paid for interest
was approximately $1,083 in 1994.
NOTE 11 - CONTINGENCY
In October 1994, the Company joined in a lawsuit initiated by
others including the Rangeview Metropolitan District (the
"District"), brought in the District Court of the City and County
of Denver, Colorado, against the Colorado State Board of Land
Commissioners (the "Board") seeking a declaratory judgment
affirming that the lease, as amended, (the "Lease"), from the Board
to the District is valid and enforceable. Under the Lease, the
Board leased the development rights to ground water underlying
certain lands controlled by the Board, to the current lessee,
the District. The Company has an interest in such water by reason
of the WCA.
On March 1, 1995, a counterclaim was filed by the Board against
the District, the Company and other plaintiffs, in which the Board
asserts that the Lease is void because the original lessee breached
his fiduciary to the Board and that successive lessees have
breached the Lease. The Board also claims damages of unspecified
amounts against the plaintiffs, including the Company, because of
alleged wrongs done in connection with the Lease and subsequent
transactions.
Based on settlement discussions subsequent to the fiscal year
ended August 31, 1995, management believes that the Rangeview
litigation will be settled on terms acceptable to the Company during
fiscal 1996. However, if the Board were to change its position on
settling the matter and were it to prosecute and prevail on its
claims that the Lease is void or unenforceable, that would have an
effect on the Company's contractual rights under the WCA related to
the water covered by the Lease and would have a materially adverse
effect on the Company.
PAGE 27 OF 38
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
There has been no change in the Company's independent auditors
during the Company's two most recent fiscal years or any subsequent
interim period.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
The following are the officers and directors of the Company as of
August 31, 1995:
Name Age Position(s) with the Company
---- --- ----------------------------
Margaret S. Hansson . . . . 71 Director, Chairman, Vice President
Fletcher L. Byrom . . . . . 77 Director
Thomas P. Clark . . . . . 59 Director, President, Treasurer
George M. Middlemas . . . . 44 Director
Henry J. Sandri . . . . . . 43 Director
Mark W. Harding . . . . . 32 Chief Financial Officer, Secretary
MARGARET S. HANSSON
Ms. Hansson has been a Director of the Company since April 1977
and Chairman since September 23, 1983, and was the Chief Executive
Officer of the Company from September 23, 1983 to January 31, 1984.
Since May 1981, Ms. Hansson has been President of M. S. Hansson,
Inc., a Boulder, Colorado firm which consults to and invests in
small businesses. Ms. Hansson is Chief Executive Officer of
AquaLogic, Inc., a Boulder, Colorado company she founded in 1992.
From 1976 to May 1981, she was President of GENAC, Inc., a Boulder,
Colorado firm, which she founded. From 1960 to 1975, Ms. Hansson
was President and Chairman of the Board of Gerico, Inc., now Gerry
Baby Products, a Boulder, Colorado manufacturing firm which she
also founded. She is a Director of Norwest Banks, Stayodynamics,
Inc., the Midwest Group of Trust Funds and Gateway Technologies,
Inc. Ms. Hansson received her Bachelor of Arts degree from Antioch
College.
THOMAS P. CLARK
Thomas P. Clark has been a Director of the Company and President
since June 29, 1987, and Treasurer since September 6, 1988. Mr.
Clark is primarily involved in the management of the Company. His
business activities include: President, LC Holdings, Inc.
(business development), 1983 to present and, Partner, through a
wholly owned corporation, of Resource Technology Associates
(development of mineral and energy technologies), 1982 to present.
Mr. Clark received his Bachelor of Science degree in Geology and
Physics from Brigham Young University, Provo, Utah.
MARK W. HARDING
Mark W. Harding joined the Company in February 1990 as Corporate
Secretary and Chief Financial Officer. He brings a background in
public finance and management consulting experience. From 1988 to
1990, Mr. Harding worked for Price Waterhouse in Management
Consulting Services where he assisted clients in Public Finance
services and other investment banking related services. Mr.
Harding has a B.S. Degree in Computer Science, and a Masters in
Business Administration in Finance from the University of Denver.
FLETCHER L. BYROM
Fletcher L. Byrom has been a Director of the Company since April
22, 1988, and is a retired Chairman (1970-1982) and Chief Executive
Officer (1967-1982) of Koppers Company, Inc. Mr. Byrom presently
serves in the following positions: President and Director of MICASU
Corporation and, board member of Thermadyne Holdings Inc.
GEORGE M. MIDDLEMAS
George M. Middlemas 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
PAGE 28 OF 38
investments for Citicorp. Mr. Middlemas is a director of Security
Dynamics Technologies, Inc., American Communications Services,
Inc., and Pennsylvania State University - Library Development
Board. Mr. Middlemas received Bachelor degrees in History and
Political Science from Pennsylvania State University, a Masters
degree in Political Science from the University of Pittsburgh and a
Master of Business Administration from Harvard Business School.
HENRY J. SANDRI, Ph.D.
Dr. Henry J. Sandri has been a Director of the Company since
April 1993. Dr. Sandri is an independent Natural Resource
Consultant specializing in acquisitions, economic evaluations,
strategic planning and project analysis. From 1988 to 1994 he was
a Director of Business Development, Acquisitions and Property
Management for Inco Exploration and Technical Services Inc., and an
Assistant Vice President of Inco Ltd., responsible for evaluating
and acquiring business opportunities. From 1987 to 1988 Dr. Sandri
was a partner at Mineral and Energy Resource Consultants,
specializing in acquisition analysis and strategic planning. From
1982 to 1987, Dr. Sandri was Senior Corporate Planner and Vice
President, Research Applications for Burlington Northern Inc. Dr.
Sandri received a Bachelor of Science in Foreign Service from
Georgetown University, a Masters in Applied Economics from American
University and a Ph.D. in Mineral Economics from Colorado School of
Mines.
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. Sandri was elected to the Company's board of directors
pursuant to the Inco Voting Agreement. See "Security Ownership of
Certain Beneficial Owners and Management"
Item 10. Executive Compensation.
Annual Compensation
------------------------------------
Other
Name Annual
and Compen-
Principal Fiscal Salary Bonus sation
Position Year ($) ($) ($)
- -----------------------------------------------------
Thomas P. Clark
Pres./CEO 1995 60,000 0 0
1994 80,000 0 0
1993 80,000 0 0
For all other executive officers, consisting of one person, total
annual salary and bonuses were less than $100,000.
PAGE 29 OF 38
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth, as of November 29, 1995, the
beneficial ownership of the Company's issued and outstanding Common
Stock, Series A Preferred Stock and, Series B Preferred Stock by
each person who owns of record (or is known by the Company to own
beneficially) 5% or more of the of each such class of stock, by
each director of the Company, and by all directors and 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.
Number Number Number
of Common Percent of of Series A of Series B Percent of
Name and Address of Stock Outstanding Preferred Preferred Outstanding
Beneficial Owner Shares Shares Shares Shares Shares
- ---------------------------- --------- ----------- ----------- ----------- -----------
Thomas P. Clark 29,264,854 37.3% (9) 346,010 80.0% (14)
5650 York Street, Commerce (10)
City, Colorado 80022
George Middlemas 1,000,000 1.3% (1)
2440 N. Lakeview Ave (10)
Chicago, IL 60614
Henry J. Sandri 0 0% (9)
4900 Race Street
Denver, CO 80213
Margaret S. Hansson 8,246,000 10.5% (2)
2220 Norwood Avenue (9)
Boulder, Colorado 80304 (10)
Fletcher L. Byrom 7,100,000 9.1% (3)
P.O. Box 1055 (9)
Carefree, AZ 85377 (10)
Mark W. Harding 4,210,000 5.4% (4)
5650 York Street, Commerce
City, Colorado 80022
INCO Securities Corporation 4,700,000 6.0% (5)
One New York Plaza (9)
New York, New York 10004
Apex Investment Fund II L.P. 12,898,710 16.4% (6) 408,000 25.5%
233 S. Wacker Drive, (10)
Suite 9600 (11)
Chicago, Illinois 60606 (13)
Environmental Venture Fund, L.P. 5,200,000 6.6% (7)
233 S. Wacker Drive, Suite 9600 (10)
Chicago, Illinois 60606 (11)
Environmental Private Equity
Fund II, L.P. 600,000 37.5%
233 S. Wacker Drive, Suite 9600
Chicago, Illinois 60606
The Productivity 3,933,290 5.0% (8)
Fund II, L.P. (10)
233 S. Wacker Drive, Suite 9600 (11)
Chicago, Illinois 60606
Proactive Partners L.P. 2,000,000 2.6% (13) 500,000 31.3%
50 Osgood Place, Penthouse
San Francisco, California 94133
PAGE 30 OF 38
Number Number Number
of Common Percent of of Series A of Series B Percent of
Nme and Address of Stock Outstanding Preferred Preferred Outstanding
Beneficial Owner Shares Shares Shares Shares Shares
- ------------------------------- --------- ----------- ----------- ----------- -----------
LC Holdings, Inc.
5650 York Street,
Commerce City, CO 80022 346,010 80.0% (14)
LCH, Inc.
5650 York Street
Commerce, City CO 80022 86,503 20.0% (15)
All Officers and Directors 49,820,854 63.5% (12)
as a group (6 persons)
(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 7,000,000 shares purchasable by Mr. Byrom under a
currently exercisable option.
(4) Includes 4,000,000 shares purchasable by Mr. Harding under a
currently exercisable option.
(5) Includes 4,700,000 shares purchasable by Inco Securities
Corporation ("Inco") under currently exercisable warrants.
(6) Includes 7,066,702 shares purchasable by Apex Investment Fund
II, L.P. ("Apex") under a currently exercisable warrant.
(7) Includes 2,120,000 shares purchasable by Environmental Venture
Fund, L.P. ("EVFund") under a currently exercisable warrant.
(8) Includes 1,413,298 shares purchasable by Productivity Fund II,
L.P. ("PFund") under a currently exercisable warrant.
(9) Pursuant to a voting agreement (the "Inco Voting Agreement")
dated December 11, 1990, Mr. Clark, Ms. Hansson and Mr. Byrom have
agreed to vote their shares of Common Stock in favor of electing a
representative designated by Inco to the Company's board of
directors. The Inco Voting Agreement remains in effect until
December 11, 2000.
(10) Pursuant to an Amended and Restated Voting Agreement (the
"EPFund Voting Agreement") dated August 12, 1992, Mr. Clark, Ms.
Hansson, Mr. Byrom, Apex, EVFund, and PFund have agreed to vote
their shares of Common Stock in favor of electing a representative
designated by Environmental Private Equity Fund II, L.P. ("EPFund")
to the Company's board of directors. The EPFund Voting Agreement
remains in effect until August 12, 1997 or the date on which EPFund
no longer owns or has rights to acquire at least 1,301,000 shares
of Common Stock, whichever is earlier.
(11) Each of the Apex, EVFund, PFund, and EPFund (the "Apex
Partnerships") is controlled through one or more partnerships. The
persons who have or share control of such stockholders after
looking through one or more intermediate partnerships are referred
to herein as "ultimate general partners." The ultimate general
partners of Apex are: First Analysis Corporation, a Delaware
corporation ("FAC"), Stellar Investment Co. ("Stellar"), a
corporation controlled by James A. Johnson ("Johnson"); George
Middlemas ("Middlemas"); and Paul J. Renze ("Renze"). The ultimate
general partners of EVFund are: FAC; F&G Associates ("F&G");
William D. Ruckleshaus Associates, a Limited Partnership ("WDRA");
and Robertson, Stephens & Co. ("RS"). The ultimate general
partners of PFund are FAC and Bret R. Maxwell ("Maxwell"). The
ultimate general partners of EPFund are FAC, Maxwell, RS, Argentum
Environmental Corporation ("AEC") and Schneur A. Genack, Inc.
("SZG").
PAGE 31 OF 38
The business address of FAC, Stellar, Johnson, Middlemas, Renze
and Maxwell is 233 S. Wacker Drive, Suite 9600. Chicago Illinois
60606. Each of AEC and SZG maintains its business address c/o The
Argentum Group ("TAG"), 405 Lexington Avenue, New York, New York
10174. The business address of F&G is 123 Grove Avenue, Suite 118,
Cedarhurst, New York 11516. WDRA maintains its business address at
1201 Third Avenue, 39th Floor, Seattle, Washington 98101. RS
maintains its business address at One Embarcadero Center, San
Francisco, California 94111.
By reason of its status as a general partner or ultimate general
partner of each of Apex Partnerships, FAC may be deemed to be the
indirect beneficial owner of 23,000,000 shares of Common Stock, or
26.1% of such shares. By reason of his status as the majority
stockholder of FAC, F. Oliver Nicklin may also be deemed to be the
indirect beneficial owner of such shares.
By reason of their status as ultimate general partners of Apex,
Stellar (and through Stellar, Johnson), Middlemas and Renze may be
deemed to be the indirect beneficial owners of 11,266,710 shares of
Common Stock, or 13.3% of such shares. When these shares are
combined with his currently exercisable option to purchase
1,000,000 shares of Common Stock, Middlemas may be deemed to be the
beneficial owner (directly with respect to the option shares and
indirectly as to the balance) of 12,266,710 shares of Common Stock,
or 14.3% 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 6,533,290 shares of Common Stock, or 8.3% of such shares.
By reason of F&G's and WDRA's status as an ultimate general
partners of EVFund, F&G, WDRA and their respective controlling
persons may be deemed to be the indirect beneficial owners of
5,200,000 shares of Common Stock, or 6.5% 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 7,800,000 shares of Common
Stock, or 9.8% of such shares.
By reason of RS's status as a general partner of EVFund and an
ultimate general partner of EPFund, RS and its controlling persons
may be deemed to be the indirect beneficial owners of 7,800,000
shares of Common Stock, or 9.8% 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 20,000,000 shares purchasable by directors and
officers under currently exercisable options.
(13) Includes the conversion of 1,600,000 shares of Series A
Preferred Stock to Common Stock. Apex Investment Fund II, L.P.,
owning 408,000 shares of Series A Convertible Preferred Stock
which can convert into 1,632,000 shares of Common Stock, The
Environmental Private Equity Fund II, L.P., owning 600,000 shares
of Series A Convertible Preferred Stock which can convert into
2,400,000 shares of Common Stock, and Proactive Partners, L.P.,
owning 500,000 shares of Series A Preferred Stock which can convert
into 2,000,000 shares of common stock.
(14) Includes 346,010 shares of Series B Preferred Stock which Mr.
Clark, the Company's president, may be deemed to hold beneficially
by reason of his ownership of 80% of the common stock of LC
Holdings, Inc., the owner of 100% of the Series B Preferred Stock.
PAGE 32 OF 38
(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.
Item 12. Certain Relationships and Related Transactions.
From time to time since December 6, 1987, Thomas P. Clark, a
Director and President of the Company, loaned funds to the Company
to cover operating expenses. These funds have been treated by the
Company as unsecured debt, and the promissory notes (the "Notes")
with interest at 8.36% to 9.01% per annum, issued to Mr. Clark on
various dates are payable October 15, 1997 (the "Maturity Date").
To date, Mr. Clark has loaned the Company $284,178 of which $43,350
has been repaid, leaving a balance of $240,828. As of August 31,
1995, accrued interest on the Notes totaled $75,872. All loans
were made on terms determined by the board members, other than Mr.
Clark, to be at market rates.
Additionally, LCH, Inc., a Delaware corporation which owns 20% of
LC Holdings, Inc. and is thereby affiliated with Mr. Clark, who
owns 80% of LC Holdings, Inc., loaned the Company a total of
$950,000 between November, 1988 and February, 1989. These funds
were represented by two Demand Promissory Notes (the "Notes") with
interest at a rate equal to the rate announced from time to time by
Mellon Bank, Pittsburgh, Pennsylvania as its "prime rate" plus 300
basis points from the date of the first advance thereunder until
maturity, payable quarterly beginning on the first day of April,
1989 and continuing thereafter on the first day of each subsequent
calendar quarter. No payments were made on the Notes. An April
25, 1989 Assumption of Obligations Agreement assigned the entire
debt of $950,000 to Rangeview Development Corp., which is a
wholly-owned subsidiary of the Company, and further assigned
$750,000 of that $950,000 to Rangeview Company, L.P a limited
partnership in which LCH held a 45% interest and Rangeview
Development Corporation held a 55% interest. In February of 1991,
LCH transferred its interest in Rangeview Company, L.P. to the
Company in exchange for a $4,000,000 profits interest in the
Rangeview Project paid subsequent to the first $31,000,000 profits
interest allocation with ISC. During fiscal year ended August 31,
1992, the Company reached an agreement with LCH, Inc. to defer
payment of the principal amount of the Notes, plus interest until
September 15, 1995. During fiscal year ended August 31, 1995, the
Company reached an agreement with LCH, Inc. to defer payment of the
principal amount of the Notes, plus interest until October 1, 1997.
No additional consideration is due to LCH, Inc. for the deferral.
The board members, other than Mr. Clark, determined that the
transactions are at fair market value taking into consideration the
risk to LCH, Inc.
On June 3, 1988, Margaret S. Hansson, a Director of the Company
and Chairman of the Board, loaned $130,000 to the Company and
received the Company's promissory note (the "Note") payable
December 1, 1990 (the "Maturity Date"), with interest at 15% per
annum payable monthly beginning December 1, 1988. On November 30,
1989, a new promissory note substantially the same as the Note, but
with a new principal amount equal to the principal plus accrued
interest at 15% per year of the Note plus $2,500 in interest
penalty, which principal amount is $161,616, was drawn up with a
maturity date of January 10, 1991. Furthermore, an agreement was
made between Ms. Hansson and the Company on December 12, 1989,
establishing the pre-payment of the New Note from any proceeds
generated from the sale of water rights by the Company. During the
fiscal year ended August 31, 1992, the Company reached an agreement
with Ms. Hansson to repay $68,000 of the note, $20,000 upon signing
of a new note for $166,730 with a maturity date of October 15,
1995, and 8 payments of $6,000 each payable at the end of each
month beginning January 31, 1993. On August 30, 1995, Ms. Hansson
and the Company entered into an agreement whereby, in exchange for
a payment of $21,453 and the assignment of $150,000 of the
Company's profits interest in the WCA, the Chairman canceled the
note. The transactions were approved by the members of the board,
other than Ms. Hansson, as being at fair market value.
PAGE 33 OF 37
Part IV
Item 13. Exhibits and Reports on Form 8-K.
(a)(1) Financial Statements - The following financial
and (2) statements are included in Part II, Item 8:
Independent Auditors' Reports
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(3) Exhibits - The following exhibits are
included herewith:
3(a) Certificate of Incorporation of Registrant -
Incorporated by reference from Exhibit 4-A to
Registration Statement No. 2-65226.
3(a).1 Certificate of Amendment to Certificate
of Incorporation, filed August 31, 1987 -
Incorporated by reference from Annual Report on Form
10-K for the fiscal year ended August 31, 1987.
3(a).2 Certificate of Amendment to Certificate
of Incorporation, filed May 27, 1988.
3(a).3 Certificate of Incorporation - Rangeview Development
Corporation. Incorporated by reference from Annual
Report on form 10-K for the fiscal year ended August
31, 1989.
3(a).4 Certificates of amendment to certificate of
incorporation filed May 31, 1994. Incorporated by
reference from Proxy Statement for Annual Meeting
held April 2, 1993
3(a).5 Certificates of amendment to certificate of
incorporation filed August 31, 1994.
3(b) Bylaws of Registrant - Incorporated by
reference from Exhibit 4.c to Registration Statement
No.2-62483.
3(b).1 Amendment to Bylaws effective April 22,
1988. Incorporated by reference from Annual Report
on From 10-K for the fiscal year ended August 31,
1989.
3(b).2 Bylaws - Rangeview Development Corp. Incorporated by
reference from Annual Report on form 10-K for the
fiscal year ended August 31, 1989
4 Specimen Stock Certificate - Incorporated by
reference to Registration Statement No. 2-62483.
4(a).1 Specimen Stock Certificate - Rangeview
Development Corp. Incorporated by reference from
Annual Report on From 10-K for the fiscal year ended
August 31, 1989.
10(c).1 Water Commercialization Agreement, dated
December 11, 1990, between the Company and Inco
Securities Corporation.*
10(c).2 Amendment No.1 to Water Commercialization
Agreement dated February 12, 1991 between the
Company and Inco Securities Corporation.*
10(d).1 Voting Agreement dated December 11, 1991,
by and among Inco Securities Corporation, Thomas P.
Clark, Margaret S. Hansson, Fletcher L. Byrom and
the Company.**
PAGE 34 OF 38
10(d).3 Interim Funding Agreement, dated August
12, 1991, by and among Inco Securities Corporation,
the Company, Landmark Water Partners, L.P., and CPV,
Inc. **
10(d).4 Investment Agreement, dated September 23,
1991, by and among Alan C. Stormo, D.W. Pettyjohn,
and the Company.**
10(d).5 Investment Agreement, dated September 30,
1991, by and between Beverly A. Beardslee and the
Company. **
10(d).6 Investment Agreement, dated September 30,
1991, by and among Bradley Kent Beardslee, Robert
Douglas Beardslee and the Company. **
10(d).7 Investment Agreement, dated November 20,
1991, between the Company and International
Properties, Inc. and letter amendment dated November
26, 1991. **
10(d).8 Investment Agreement, dated November 20,
1991, between the Company and ASRA Corporation and
letter amendment dated November 26, 1991.**
10(d).9 Investment Agreement, dated December 10,
1991, as amended August 12, 1992 by and among Apex
Investment Fund II, L.P., The Environmental Venture
Fund, L.P., Productivity Fund II, L.P., and the
Company. **
10(e).1 Funding Agreement, dated August 12, 1992
by and among Inco Securities Corporation, Landmark
Water Partners II, L.P., Warwick Partners, L.P.,
Auginco, Gregory M. Morey, Amy Leeds, Anders C.
Brag, Apex Investment Fund II, L.P., The
Environmental Venture Fund, L.P., The Environmental
Private Equity Fund II, L.P., Productivity Fund II,
L.P. and the Company. ***
10(e).3 Amended and Restated Voting Agreement,
dated August 12, 1992 by and among Apex Investment
Fund II, L.P., The Environmental Venture Fund, L.P.,
The Environmental Private Equity Fund II, L.P.,
Productivity Fund II, L.P., Fletcher L. Byrom,
Thomas P. Clark, and Margaret S. Hansson. ****
10(e).4 Amendment Agreement No. 2 To Water Rights
Commercialization Agreement, dated August 12, 1992
by and among Inco Securities Corporation and the
Company. ***
10(f).2 Agreement to defer payment of notes, dated
August 28, 1992, by and between LCH, Inc. and the
Company. ****
10(f).3 Agreement to Stay Execution of a Judgment
dated March 1, 1993. *****
10(g).1 Agreement to retire note payable, dated August 30,
1995, by and between Meg S. Hansson and the Company.
******
* Incorporated by reference from Quarterly Report Form 10-Q for
the quarterly period ended February 28, 1991.
** Incorporated by reference from Annual Report on Form 10-K for
fiscal year ended August 31, 1991.
*** Incorporated by reference from Form 8-K filed August 27, 1992.
**** Incorporated by reference from Annual Report on Form 10-K for
fiscal year ended August 31, 1992.
***** Incorporated by reference from Annual Report on Form 10-K for
fiscal year ended August 31, 1993.
PAGE 35 OF 38
****** Incorporated by reference from Annual Report on Form 10-K for
fiscal year ended August 31, 1995.
(b) The Company has not filed any reports on form 8-K
during the last quarter of fiscal 1995.
PAGE 36 OF 38
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly 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 28, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, 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, Director November 28, 1995
- -----------------------
Margaret S. Hansson
/s/ Thomas P. Clark President, Treasurer November 28, 1995
- ----------------------- and Director
Thomas P. Clark
/s/ Mark W. Harding Principal Financial November 28, 1995
- ----------------------- Officer, Director
Mark W. Harding
/s/ Fletcher L. Byrom Director November 28, 1995
- -----------------------
Fletcher L. Byrom
/s/ George M. Middlemas Director November 28, 1995
- -----------------------
George M. Middlemas
/s/ Henry J. Sandri Director November 28, 1995
- -----------------------
Henry J. Sandri
/s/ Michael S. Mehrtens Controller, Principal November 28, 1995
- ----------------------- Accounting Officer
Michael S. Mehrtens
PAGE 37 OF 38
Item 14. Financial Data Schedule.