PURE CYCLE CORPORATION | |
(Exact name of registrant as specified in its charter) | |
Colorado | 84-0705083 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1490 Lafayette St, Suite 203, Denver, CO 80218 | (303) 292-3456 |
(Address of principal executive offices) (Zip Code) | |
Securities registered pursuant to Section 12(b) of the Act: | |
Common Stock 1/3 of $.01 par value | The NASDAQ Stock Market, LLC |
(Title of each class) | (Name of each exchange on which registered) |
Securities registered pursuant to Section 12(g) of the Act: NONE | |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x | |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o | |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K x |
- 1 - |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act: |
Large accelerated filer | o | Accelerated filer | o | |
Non-accelerated filer | o | (Do not check if a smaller reporting company) | Smaller reporting company | x |
- 2 - |
Item | Page | |
6 | ||
22 | ||
29 | ||
29 | ||
30 | ||
31 | ||
5 | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 31 |
34 | ||
34 | ||
49 | ||
50 | ||
51 | ||
51 | ||
52 | ||
10 | Directors, Executive Officers and Corporate Governance | 49 |
11 | Executive Compensation | 49 |
12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 49 |
13 | Certain Relationships and Related Transactions, and Director Independence | 49 |
14 | Principal Accounting Fees and Services | 49 |
52 | ||
55 |
- 3 - |
● | factors that may impact labor and material costs; |
● | loss of key employees and hiring additional personnel for our operations; |
● | our competitive advantage; |
● | negotiation of payment terms for fees; |
● | the sufficiency of our working capital and financing sources to fund our operations; |
● | intent not to hold marketable securities until maturity; |
● | our ability to comply with permit requirements and environmental regulations and the cost of such compliance; |
● | the adequacy of the provisions in the “Lease” for the Lowry Range to cover present and future circumstances; |
● | estimated population increases in the Denver metropolitan area and the South Platte River basin; |
● | plans for the use and development of our water assets; |
● | anticipated timing and amount of, and sources of funding for (i) capital expenditures to construct infrastructure and increase production capacities, (ii) compliance with water, environmental and other regulations, and (iii) operations including delivery and treatment of water and wastewater; |
● | the ability of our deep water well enhancement tool and process to increase efficiency of wells and our plans to market that product to area water providers; |
● | our ability to assist Colorado “Front Range” water providers in meeting current and future water needs; |
● | our ability to reduce the amount of up-front construction costs; |
● | participation in regional water projects, including “WISE”; |
● | timing of satisfaction of conditions to change Land Board royalties; |
● | regional cooperation among area water providers in the development of new water supplies and water storage, transmission and distribution systems as the most cost-effective way to expand and enhance service capacities; |
● | future water supply needs in Colorado; |
● | anticipated increases in residential and commercial demand for water services and competition for these services; |
● | use of raw and reclaimed water for outdoor irrigation; |
● | costs to treat contaminated water; |
● | the decreases of individual housing and economic cycles on the number of connections we can serve with our water; |
● | the number of new water connections needed to recover the costs of our Rangeview Water Supply and Arkansas River water assets; |
● | increases in future water tap fees; |
● | the impact of water quality, solid waste disposal and environmental regulations on our financial condition and results of operations; |
● | the impact of the downturn in the homebuilding and credit markets on our business and financial condition; |
● | environmental clean-up at the Lowry Range by the U.S. Army Corps of Engineers; |
● | our plans to provide water for drilling and hydraulic fracturing of oil and gas wells; |
● | increases in oil and gas drilling activity on our property and on the Lowry Range; |
● | the recoverability of construction and acquisition costs from rates; |
- 4 - |
● | our belief that we are not a public utility under Colorado law; |
● | plans for development of our Sky Ranch property; |
● | anticipated revenues from full development of our Sky Ranch property; |
● | management of farms and the generation of revenues from such management including plans to increase crop yields; |
● | our ability to meet customer demands in a sustainable and environmentally friendly way; |
● | potential opposition to, and anticipated requirements of, the water court in connection with a change of use application for our Arkansas River water; |
● | our ability to mitigate adverse impacts to local communities from our change of use process; |
● | claims of “HP A&M” against the Company; |
● | the amount of the “Tap Participation Fee” liability; |
● | our ability to reduce the Tap Participation Fee and recover damages from HP A&M; |
● | changes in unrecognized tax positions; |
● | forfeitures of option grants and vesting of non-vested options; |
● | the impact of new accounting pronouncements; |
● | impairments in carrying amounts of long-lived assets; |
● | the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting; |
● | loss of properties and water rights due to the failure to cure defaults by HP A&M; |
● | litigation and arbitration with the Land Board; |
● | litigation with HP A&M; and |
● | future fluctuations in the price and trading volume of our common stock. |
● | the timing of new home construction and other development in the areas where we may sell our water, which in turn may be impacted by credit availability; |
● | population growth; |
● | employment rates; |
● | general economic conditions; |
● | the market price of water; |
● | changes in customer consumption patterns; |
● | changes in applicable statutory and regulatory requirements; |
● | changes in governmental policies and procedures; |
● | uncertainties in the estimation of water available under decrees; |
● | uncertainties in the estimation of costs of delivery of water and treatment of wastewater; |
● | uncertainties in the estimation of the service life of our systems; |
● | uncertainties in the estimation of costs of construction projects; |
● | the strength and financial resources of our competitors; |
● | our ability to find and retain skilled personnel; |
● | climatic and weather conditions, including floods, droughts and freezing conditions; |
● | labor relations; |
● | turnover of elected and appointed officials and delays caused by political concerns and government procedures; |
● | availability and cost of labor, material and equipment; |
● | delays in anticipated permit and construction dates; |
● | engineering and geological problems; |
● | environmental risks and regulations; |
● | our ability to raise capital; |
● | our ability to negotiate contracts with new customers; |
● | outcome of litigation and arbitration proceedings; and |
● | uncertainties in water court rulings. |
- 5 - |
- 6 - |
● | Acre Foot (“aft”) – approximately 326,000 gallons of water, or enough water to cover an acre of ground with one foot of water. For some instances herein, as context dictates, the term acre feet is used to designate an annual decreed amount of water available during a typical year. |
● | Consumptive Use – the amount of water that is evaporated, transpired, incorporated into products or crops, consumed by humans or livestock, or otherwise removed from the immediate water environment. |
● | Customer Facilities – facilities that carry potable water and reclaimed water to customers from the retail water distribution system (see “Retail Facilities” below) and collect wastewater from customers and transfer it to the retail wastewater collection system. Water and wastewater service lines, interior plumbing, meters and other components are typical examples of Customer Facilities. In many cases, portions of the Customer Facilities are constructed by the developer, but they are owned and maintained by the customer. |
● | Non-Tributary Groundwater – underground water in an aquifer which is situated so it neither draws from nor contributes to a natural surface stream in any measurable degree. |
● | Not Non-Tributary Groundwater – statutorily defined as a groundwater located within those portions of the Dawson, Denver, Arapahoe, and Laramie-Fox hills aquifers that are outside of any designated groundwater basin in existence on January 1, 1985. |
● | Retail Facilities – facilities that distribute water to and collect wastewater from an individual subdivision or community. Developers are typically responsible for the funding and construction of Retail Facilities. Once we certify that the Retail Facilities have been constructed in accordance with our design criteria, the developer dedicates the Retail Facilities to us or to a quasi-municipal political subdivision of the state and we operate and maintain the facilities. |
● | Section – a parcel of land equal to one square mile and containing 640 acres. |
● | Single Family Equivalent unit (“SFE”) – One SFE is a customer – whether residential, commercial or industrial – that imparts a demand on our water or wastewater systems similar to the demand of a family of four persons living in a single family house on a standard sized lot. One SFE is assumed to have a water demand of approximately 0.4 acre feet per year and to contribute wastewater flows of approximately 300 gallons per day. |
● | Special Facilities – facilities that are required to extend services to an individual development and are not otherwise classified as a typical “Wholesale Facility” or “Retail Facility.” Temporary infrastructure required prior to construction of permanent water and wastewater systems or transmission pipelines to transfer water from one location to another are examples of Special Facilities. We typically design and construct the Special Facilities using funds provided by the developer in addition to the normal rates, fees and charges that we collect from our customers. We are typically responsible for the operation and maintenance of the Special Facilities upon completion. |
● | Tributary Groundwater – all water located in an aquifer that is hydrologically connected to a natural stream and is not considered non-tributary or not non-tributary. |
● | Tributary Surface Water – water on the surface of the ground flowing in a stream or river system. |
● | Wholesale Facilities – facilities that serve an entire service area or major regions or portions thereof. Wells, treatment plants, pump stations, tanks, reservoirs, transmission pipelines, and major sewage lift stations are typical examples of Wholesale Facilities. We own, design, construct, operate, maintain and repair Wholesale Facilities which are typically funded using rates, fees and charges that we collect from our customers. |
- 7 - |
- 8 - |
- 9 - |
- 10 - |
- 11 - |
Table A - Royalties for Export Water Sales | |||||||||
Royalty Rate | |||||||||
Private | Public | ||||||||
Net Revenues | Entity Buyer | Entity Buyer | |||||||
$0 - $45,000,000 | 12 | % | 10 | % | |||||
$45,000,001 - $60,000,000 | 24 | % | 20 | % | |||||
$60,000,001 – $75,000,000 | 36 | % | 30 | % | |||||
$75,000,001 - $90,000,000 | 48 | % | 40 | % | |||||
Over $90,000,000 | 50 | % | 50 | % |
The Land Board is currently claiming that Export Royalties are owed on gross rather than Net Revenues and that it is entitled to a royalty on wastewater service revenues. See Item 1A – Risk Factors – We, the District and the Land Board entered into an Arbitration Agreement pursuant to which the parties have agreed to submit claims under the Lease to binding arbitration and Item 3 – Legal Proceedings.
- 12 - |
- 13 - |
- 14 - |
- 15 - |
- 16 - |
i) | Monthly Service Fees – Monthly wholesale water usage fees are assessed to our customers based on actual metered deliveries to their end-use customers each month. Water usage fees are based on a tiered pricing structure that provides for higher prices as customers use greater amounts of water. Water usage pricing is capped at the average of the prices charged by the same three surrounding water providers used as the basis for water tap fees. The District has not changed its water usage fees since July 1, 2010. The water usage fees are noted below in table B: |
Table B - Tiered Water Usage Pricing Structure | ||||||||||||
Price ($ per thousand gallons) | ||||||||||||
Amount of consumption | 2013 | 2012 | 2011 | |||||||||
Base charge per SFE | $ | 27.62 | $ | 27.62 | $ | 27.62 | ||||||
0 gallons to 10,000 gallons | $ | 2.81 | $ | 2.81 | $ | 2.81 | ||||||
10,001 gallons to 20,000 gallons | $ | 3.69 | $ | 3.69 | $ | 3.69 | ||||||
20,001 gallons to 40,000 gallons | $ | 6.56 | $ | 6.56 | $ | 6.56 | ||||||
40,001 gallons and above | $ | 8.93 | $ | 8.93 | $ | 8.93 |
ii) | Water and Wastewater Tap Fees and Construction Fees – Tap fees are paid by developers in advance of construction activities and are non-refundable. Tap fees are typically used to fund construction of the Wholesale Facilities and defray the acquisition costs of obtaining water rights. |
- 17 - |
iii) | Consulting Fees – Consulting fees are fees we receive, typically on a monthly basis, from municipalities and area water providers along the I-70 corridor, for system management and maintenance. |
- 18 - |
- 19 - |
● | Housing Starts – From September 2011 to September 2012 the annual housing starts increased by 41%. From September 2012 to September 2013 the annual housing starts increased by 34%. |
● | Unemployment – The unemployment rate in Colorado was 7% at August 31, 2013 compared to a national unemployment rate of 7.3%. Colorado added an estimated 56,800 jobs from August 2012 to August 2013. |
● | Population – The Denver Regional Council of Governments (“DRCOG”), a voluntary association of over 50 county and municipal governments in the Denver metropolitan area, continues to estimate that the Denver metropolitan area population will increase by about 44% from today’s 2.7 million people to 3.9 million people by the year 2030. A Statewide Water Supply Initiative report by the Colorado Water Conservation Board estimates that the South Platte River basin, which includes the Denver metropolitan region, will grow from a current population of 3.2 million to 4.9 million by the year 2030; while the State’s population will increase from 4.7 million to 7.2 million. |
● | Demand – Approximately 70% of the State’s projected population increase is anticipated to occur within the South Platte River basin. Significant increases in Colorado’s population, particularly in the Denver metro region and other areas in the water short South Platte River basin, together with increasing agricultural, recreational, and environmental water demands will intensify competition for water supplies. The estimated population increases are expected to result in demands for water services in excess of the current capabilities of municipal service providers, especially during drought conditions. |
● | Supply – The Statewide Water Supply Initiative estimates that population growth in the Denver region and the South Platte River basin will result in additional water supply demands of over 400,000 acre feet by the year 2030, which must be met with new water sources. |
● | Development – Colorado law requires property developers to demonstrate they have sufficient water supplies for their proposed projects before rezoning or annexation applications will be considered. These factors indicate that water and availability of water will continue to be critical to growth prospects for the region and the state, and that competition for available sources of water will continue to intensify. We focus the marketing of our water supplies and services to developers and homebuilders that are active along the Colorado Front Range as well as other area water providers in need of additional supplies. |
- 20 - |
- 21 - |
- 22 - |
- 23 - |
- 24 - |
- 25 - |
- 26 - |
- 27 - |
- 28 - |
- 29 - |
- 30 - |
Fiscal 2013 quarters ended: | August 31 | May 31 | February 28 | November 30 | ||||||||||||
Market price of common stock | ||||||||||||||||
High | $ | 6.72 | $ | 7.32 | $ | 4.10 | $ | 2.78 | ||||||||
Low | $ | 5.00 | $ | 3.87 | $ | 2.31 | $ | 1.87 | ||||||||
Fiscal 2012 quarters ended: | August 31 | May 31 | February 28 | November 30 | ||||||||||||
Market price of common stock | ||||||||||||||||
High | $ | 2.51 | $ | 2.90 | $ | 3.25 | $ | 3.00 | ||||||||
Low | $ | 1.90 | $ | 2.03 | $ | 1.65 | $ | 1.70 |
- 31 - |
Table D - Securities Authorized for Issuance Under Equity Compensation Plans | ||||||||||||
Number of securities | ||||||||||||
remaining available for future | ||||||||||||
Number of securities to | Weighted-average exercise | issuance under equity | ||||||||||
be issued upon exercise of | price of outstanding | compensation plans | ||||||||||
outstanding options, | options, warrants and | (excluding securities reflected | ||||||||||
Plan category | warrants and rights | rights | in column (a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans: | ||||||||||||
Approved by security holders | 347,500 | $ | 5.63 | 1,218,311 | ||||||||
Not approved by security holders | — | — | — | |||||||||
Total | 347,500 | $ | 5.63 | 1,218,311 |
Cumulative Returns For the fiscal years ended August 31, | ||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
Pure Cycle Corporation | $ | 86.09 | $ | 33.11 | $ | 49.01 | $ | 49.83 | $ | 53.81 | ||||||||||
S&P 500 | $ | 142.35 | $ | 119.92 | $ | 101.63 | $ | 85.76 | $ | 81.75 | ||||||||||
Peer Group | $ | 160.97 | $ | 134.27 | $ | 117.94 | $ | 104.42 | $ | 93.18 |
- 32 - |
1. | This performance graph is not “soliciting material,” is not deemed “filed” with the Commission and is not to be incorporated by reference in any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. |
2. | The Peer Group consists of the following companies that have been selected on the basis of industry focus or industry leadership: American States Water Company, Aqua America, Inc., Artesian Resources Corp., California Water Service Group, Connecticut Water Service, Inc., Middlesex Water Company, Pennichuck Corp., SJW Corp., and The York Water Company. |
(f) | Recent Sales of Unregistered Securities; Use of Proceeds From Registered Securities |
(g) | Purchase of Equity Securities By the Issuer and Affiliated Purchasers |
- 33 - |
Table E - Selected Financial Data | ||||||||||||||||||||
In thousands (except per share data) | For the Fiscal Years Ended August 31, | |||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
Summary Statement of Operations items: | ||||||||||||||||||||
Total revenues | $ | 1,857.5 | $ | 284.4 | $ | 282.1 | $ | 264.1 | $ | 260.2 | ||||||||||
Net loss | $ | (4,150.4 | ) | $ | (17,418.7 | ) | $ | (6,016.2 | ) | $ | (5,391.3 | ) | $ | (5,728.1 | ) | |||||
Basic and diluted loss per share | $ | (0.17 | ) | $ | (0.72 | ) | $ | (0.26 | ) | $ | (0.27 | ) | $ | (0.28 | ) | |||||
Weighted average shares outstanding | 24,038 | 24,038 | 23,169 | 20,207 | 20,207 | |||||||||||||||
As of August 31, | ||||||||||||||||||||
Summary Balance Sheet Information: | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Current assets | $ | 9,900.0 | $ | 7,661.8 | $ | 5,065.6 | $ | 1,819.6 | $ | 3,990.4 | ||||||||||
Total assets | $ | 108,618.3 | $ | 111,582.0 | $ | 116,122.7 | $ | 106,377.8 | $ | 108,091.1 | ||||||||||
Current liabilities | $ | 5,402.3 | $ | 6,254.8 | $ | 658.3 | $ | 171.3 | $ | 138.1 | ||||||||||
Long term liabilities | $ | 65,443.5 | $ | 75,209.5 | $ | 68,174.0 | $ | 63,746.5 | $ | 60,183.8 | ||||||||||
Total liabilities | $ | 70,845.8 | $ | 81,464.3 | $ | 68,832.3 | $ | 63,917.8 | $ | 60,321.9 | ||||||||||
Equity | $ | 37,772.5 | $ | 30,117.8 | $ | 47,290.3 | $ | 42,460.0 | $ | 47,769.2 |
● | In fiscal 2013 in order to protect our farm assets we acquired approximately $7 million of the $9.6 million in HP A&M notes. |
● | In fiscal 2013 we sold 1,500,000 unregistered shares of Pure Cycle common stock owned by HP A&M for $2.35 per share, yielding approximately $3.5 million. |
● | In fiscal 2012 the Paradise Water Supply asset was deemed fully impaired and the entire asset value of $5.5 million was written off and recorded in the accompanying financial statements. Additionally, we recorded an impairment of $6.5 million on land and water rights held for sale. See further discussion in Note 4 – Water Assets in the accompanying financial statements. |
● | In fiscal 2013, 2012, 2011, 2010 and 2009, respectively, we imputed $3.3 million, $3.5 million, $3.8 million, $3.6 million and $3.7 million of interest related to the Tap Participation Fee payable to HP A&M. As described below, this represents the difference between the net present value and the estimated realizable value of the Tap Participation Fee, which is being charged to expense using the effective interest method over the estimated development period utilized in the valuation of the Tap Participation Fee. The Tap Participation Fee is payable when we sell water taps and receive funds from such water tap sales or other dispositions of property purchased from HP A&M. |
● | In fiscal 2011, we acquired 931 acres of land known as Sky Ranch for $7.0 million. |
● | In fiscal 2010, we sold a total of 3.8 million shares of common stock for a total of $10.7 million, which was used to acquire the Sky Ranch property and is being used for working capital. |
● | In fiscal 2009, we recognized gains on the sale of non-irrigated land totaling $59,700. |
- 34 - |
● | Revenue generated from providing water and wastewater services and our farming operations; |
● | Expenses associated with developing our water and land assets; and |
● | Cash available to continue development of our water rights and service agreements. |
- 35 - |
- 36 - |
- 37 - |
- 38 - |
● | Our obligation to pay HP A&M 20% of the gross proceeds, or the equivalent thereof, from the sale of the next 19,468 water taps as of September 1, 2011, became an obligation to pay 20% of the gross proceeds, or the equivalent thereof, from the sale of the next 17,194 water taps. |
● | The total undiscounted estimated payments to HP A&M for the TPF decreased $17.9 million from the previous valuation completed in fiscal 2012. The total estimated payments were then discounted to the current valuation date and the difference between the amount reflected on the Company’s balance sheet and the total estimated payments is imputed as interest expense over the estimated development life using the effective interest method. The imputed effective interest rate remained 5.3% and the amount of interest imputed was $3.3 million for fiscal 2013. |
- 39 - |
- 40 - |
August 31, 2013 | August 31, 2012 | |||||||
HP A&M receivable | ||||||||
Mortgage default (1) | $ | 9,643,550 | $ | 9,550,222 | ||||
Attorneys’ fees, filing fees, & other costs (2) | 426,606 | |||||||
10,070,156 | 9,550,222 | |||||||
Pledged share sale | (3,415,000 | ) | ||||||
HP A&M receivable | $ | 6,655,156 | $ | 9,550,222 |
1) | Includes default interest paid at the time we acquired the notes. In addition to the interest included above interest continues to accrue at a default interest rate of 10% per annum. As of August 31, 2013 the balance of default interest not accrued above was approximately $751,300. Payment of the default interest remains the sole responsibility of HP A&M. |
2) | In addition to the above we have expensed $72,557 in attorney’s fees related to the defaults during 2012 that have not been accrued. |
Table F - Contractual Farm lease income receivable | ||||||||||||
Payments due to Pure Cycle by period | ||||||||||||
Total | Less than 1 year | 1-3 years | ||||||||||
Contractual lease income receivable | ||||||||||||
Farm leases receivable | $ | 1,350,400 | $ | 895,800 | $ | 454,600 | ||||||
Total | $ | 1,350,400 | $ | 895,800 | $ | 454,600 |
- 41 - |
Table G - Summary Results of Operations | ||||||||||||||||||||||||||
Change | ||||||||||||||||||||||||||
Fiscal Years Ended August 31, | 2013-2012 | 2012-2011 | ||||||||||||||||||||||||
2013 | 2012 | 2011 | $ | % | $ | % | ||||||||||||||||||||
Millions of gallons of water delivered | 69.2 | 34.2 | 34.5 | 35.0 | 102 | % | (0.3 | ) | -1 | % | ||||||||||||||||
Water revenues generated | $ | 502,700 | $ | 182,800 | $ | 157,500 | $ | 319,900 | 175 | % | $ | 25,300 | 16 | % | ||||||||||||
Water delivery operating costs incurred | ||||||||||||||||||||||||||
(excluding depreciation and depletion) | $ | 188,300 | $ | 78,100 | $ | 51,900 | $ | 110,200 | 141 | % | $ | 26,200 | 50 | % | ||||||||||||
Water delivery gross margin % | 63 | % | 57 | % | 67 | % | ||||||||||||||||||||
Wastewater treatment revenues | $ | 41,700 | $ | 45,800 | $ | 68,800 | $ | (4,100 | ) | -9 | % | $ | (23,000 | ) | -33 | % | ||||||||||
Wastewater treatment operating costs incurred | $ | 17,000 | $ | 19,300 | $ | 19,200 | $ | (2,300 | ) | -12 | % | $ | 100 | 1 | % | |||||||||||
Wastewater treatment gross margin % | 59 | % | 58 | % | 72 | % | ||||||||||||||||||||
Farm operations | $ | 1,241,900 | $ | — | $ | — | $ | 1,241,900 | 100 | % | $ | — | 0 | % | ||||||||||||
Farm operations operating costs incurred | $ | 96,300 | $ | — | $ | — | $ | 96,300 | 100 | % | $ | — | 0 | % | ||||||||||||
Farm operations gross margin % | 92 | % | ||||||||||||||||||||||||
General and administrative expenses | $ | 2,333,100 | $ | 2,374,100 | $ | 2,212,000 | $ | (41,000 | ) | -2 | % | $ | 162,100 | 7 | % | |||||||||||
Net losses | $ | 4,150,400 | $ | 17,418,700 | $ | 6,016,200 | $ | (13,268,300 | ) | -76 | % | $ | 11,402,500 | 190 | % |
- 42 - |
Water Revenue Summary | ||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||
Customer Type | Sales | kgal | Average per kgal | Sales | kgal | Average per kgal | ||||||||||||||||||
On Site | $ | 138,300 | 33,831.2 | $ | 4.09 | $ | 142,300 | 30,759.9 | $ | 4.63 | ||||||||||||||
Export-Commercial | 42,000 | 4,156.8 | 10.10 | 23,700 | 2,587.6 | 9.16 | ||||||||||||||||||
Fracking | 322,400 | 34,025.1 | 9.48 | 10,200 | 852.8 | 11.96 | ||||||||||||||||||
Consulting | 6,600 | |||||||||||||||||||||||
$ | 502,700 | 72,013.1 | $ | 6.98 | $ | 182,800 | 34,200.3 | $ | 5.34 |
Farm Summary | ||||||||||||
2013 | ||||||||||||
Lease Type | Sales | Acres | Average per Acre | |||||||||
Arkansas Cash | $ | 1,062,120 | 10,732 | $ | 98.97 | |||||||
Arkansas Pasture | 5,500 | 1,084 | 5.07 | |||||||||
Arkansas Watershares | 56,000 | — | N/A | |||||||||
Arkansas Crop Share | 102,400 | 1,202 | 85.19 | |||||||||
Arkansas Held for Sale | — | 1,331 | — | |||||||||
Arkansas Not Farmed | — | 2,361 | — | |||||||||
Sky Ranch | 15,880 | 931 | 17.06 | |||||||||
$ | 1,241,900 | 17,641 | $ | 70.40 |
- 43 - |
Table H- G&A Expenses | ||||||||||||||||||||||||||||
Change | ||||||||||||||||||||||||||||
Fiscal Years Ended August 31, | 2013-2012 | 2012-2011 | ||||||||||||||||||||||||||
2013 | 2012 | 2011 | $ | % | $ | % | ||||||||||||||||||||||
Significant G&A Expense items: | ||||||||||||||||||||||||||||
Salary and salary related expenses | $ | 723,500 | $ | 693,500 | $ | 807,400 | $ | 30,000 | 4 | % | $ | (113,900 | ) | -14 | % | |||||||||||||
FLCC water assessment fees | 321,200 | 361,600 | 472,400 | (40,400 | ) | -11 | % | (110,800 | ) | -23 | % | |||||||||||||||||
Professional fees | 370,600 | 655,800 | 330,400 | (285,200 | ) | -43 | % | 325,400 | 98 | % | ||||||||||||||||||
Fees paid to directors including insurance | 120,600 | 124,700 | 144,100 | (4,100 | ) | -3 | % | (19,400 | ) | -13 | % | |||||||||||||||||
Costs associated with Sky Ranch | 83,600 | 133,800 | 136,500 | (50,200 | ) | -38 | % | (2,700 | ) | -2 | % | |||||||||||||||||
Public entity related expenses | 90,500 | 98,100 | 92,500 | (7,600 | ) | -8 | % | 5,600 | 6 | % | ||||||||||||||||||
Consulting fees | 47,400 | 2,600 | 11,600 | 44,800 | 1723 | % | (9,000 | ) | -78 | % | ||||||||||||||||||
Farm property taxes | 237,400 | — | ||||||||||||||||||||||||||
All other compenents of G&A combined | 338,300 | 304,000 | 217,100 | 34,300 | 11 | % | 86,900 | 40 | % | |||||||||||||||||||
G&A Expenses as reported | $ | 2,333,100 | $ | 2,374,100 | $ | 2,212,000 | $ | (41,000 | ) | -2 | % | $ | 162,100 | 7 | % | |||||||||||||
Share-based compensation | (66,800 | ) | (54,600 | ) | (94,500 | ) | (12,200 | ) | 22 | % | 39,900 | -42 | % | |||||||||||||||
G&A Expenses less share-based compensation | $ | 2,266,300 | $ | 2,319,500 | $ | 2,117,500 | $ | (53,200 | ) | -2 | % | $ | 202,000 | 10 | % | |||||||||||||
Note - salary and salary related expenses excluding share-based compensation: | ||||||||||||||||||||||||||||
Salary and salary related expenses | $ | 656,700 | $ | 638,900 | $ | 712,800 | $ | 17,800 | 3 | % | $ | (73,900 | ) | -10 | % |
- 44 - |
- 45 - |
Change | ||||||||||||||||||||||||||||
For the Fiscal Years Ended August 31, | 2013-2012 | 2012-2011 | ||||||||||||||||||||||||||
2013 | 2012 | 2011 | $ | % | $ | % | ||||||||||||||||||||||
Other expense items: | ||||||||||||||||||||||||||||
Depreciation and depletion expense | $ | 311,200 | $ | 309,200 | $ | 300,800 | $ | 2,000 | 1 | % | $ | 8,400 | 3 | % | ||||||||||||||
Imputed interest expense | $ | 3,275,400 | $ | 3,470,500 | $ | 3,847,000 | $ | (195,100 | ) | -6 | % | $ | (376,500 | ) | -10 | % | ||||||||||||
Other income items: | ||||||||||||||||||||||||||||
Oil and gas payments recognized | $ | 416,000 | $ | 423,000 | $ | 199,300 | $ | (8,500 | ) | -2 | % | $ | 223,700 | 100 | % | |||||||||||||
Interest income | $ | 34,600 | $ | 53,400 | $ | 53,100 | $ | (18,800 | ) | -35 | % | $ | 300 | 1 | % |
- 46 - |
- 47 - |
Change | ||||||||||||||||||||||||||||
For the Fiscal Years Ended August 31, | 2013-2012 | 2012-2011 | ||||||||||||||||||||||||||
2013 | 2012 | 2011 | $ | % | $ | % | ||||||||||||||||||||||
Cash (used) provided by: | ||||||||||||||||||||||||||||
Operating acitivites | $ | (1,756,700 | ) | $ | (1,887,100 | ) | $ | (623,200 | ) | $ | 130,400 | -7 | % | $ | (1,263,900 | ) | 203 | % | ||||||||||
Investing activities | $ | 4,098,100 | $ | 3,354,000 | $ | (9,996,100 | ) | $ | 744,100 | 22 | % | $ | 13,350,100 | -134 | % | |||||||||||||
Financing activities | $ | (1,516,500 | ) | $ | 85,000 | $ | 10,679,100 | $ | (1,601,500 | ) | -1884 | % | $ | (10,594,100 | ) | -99 | % |
- 48 - |
Table K - Contractual Cash Obligations | ||||||||||||||||||||
Payments due by period | ||||||||||||||||||||
Less than 1 | More than | |||||||||||||||||||
Total | year | 1-3 years | 3-5 years | 5 years | ||||||||||||||||
Contractual obligations | $ | 7,758,000 | $ | 4,546,900 | $ | 2,664,000 | $ | 547,100 | (a | ) | ||||||||||
Operating lease obligations | 24,480 | 18,360 | 6,120 | (b) | (b | ) | ||||||||||||||
Participating Interests in Export Water | 1,192,900 | (c) | (c) | (c) | (c | ) | ||||||||||||||
Tap Participation Fee payable to HP A&M | 105,065,800 | (d) | (d) | (d) | (d | ) | ||||||||||||||
Total | $ | 114,041,180 | $ | 4,565,260 | $ | 2,670,120 | $ | 547,100 | $ | — |
(a) | Our contractual obligations are related to our Arkansas Valley farms. We have refinanced most farms on 5 year terms at a rate of 5% payable 2 times per year. The remaining farms are in various stages of negotiation, but due to their default status by HP A&M they are reflected as a current liability maturing in less than 1 year. |
(b) | Our only operating lease is related to our office space. We occupy 1,200 square feet at a cost of $1,530, per month, at the address shown on the cover of this Form 10-K. We lease these premises pursuant to a two year operating lease agreement with a third party. |
(c) | The participating interests liability is payable to the CAA holders upon the sale of Export Water, and therefore, the timing of the payments is uncertain and not reflected in the above table by period. |
(d) | The Tap Participation Fee payable to HP A&M is payable upon the sale of water taps. Because the timing of these water tap sales is not fixed and determinable, the estimated payments are not reflected in the above table by period. The amount listed above includes an unamortized discount of $41.4 million. The Tap Participation Fee is described in greater detail in Note 7 – Long-Term Debt and Operating Lease to the accompanying financial statements. |
- 49 - |
Page | |
F-1 | |
F-2 | |
F-3 | |
F-4 | |
F-5 | |
F-6 | |
- 50 - |
F-1 |
August 31, 2013 | August 31, 2012 | |||||||
ASSETS: | ||||||||
Current assets: | ||||||||
Cash and cash equilvalents | $ | 2,448,363 | $ | 1,623,517 | ||||
Marketable securities | — | 1,101,367 | ||||||
Trade accounts receivable | 584,802 | 135,458 | ||||||
Sky Ranch receivable | 57,303 | — | ||||||
Current portion of HP A&M receivable | 6,655,156 | 4,456,857 | ||||||
Prepaid expenses | 154,345 | 279,782 | ||||||
Current portion of construction proceeds receivable | — | 64,783 | ||||||
Total current assets | 9,899,969 | 7,661,764 | ||||||
Investments in water and water systems, net | 88,512,249 | 88,510,359 | ||||||
Land - Sky Ranch | 3,768,029 | 3,778,464 | ||||||
Land and water held for sale | 5,748,630 | 5,748,630 | ||||||
Construction proceeds receivable, less current portion | — | 226,879 | ||||||
Note receivable - related party: | ||||||||
Rangeview Metropolitan District, including accrued interest | 555,983 | 543,945 | ||||||
HP A&M receivable, less current portion | — | 5,093,365 | ||||||
Other assets | 133,471 | 18,671 | ||||||
Total assets | $ | 108,618,331 | $ | 111,582,077 | ||||
LIABILITIES: | ||||||||
Current liabilities: | ||||||||
Accounts payable | 167,775 | 261,383 | ||||||
Current portion mortgages payable, including interest payable of $122,028 | 4,668,943 | 5,340,890 | ||||||
Accrued liabilities | 264,740 | 172,630 | ||||||
Deferred revenues | 65,384 | 65,384 | ||||||
Deferred oil and gas lease payment | 235,483 | 414,480 | ||||||
Total current liabilities | 5,402,325 | 6,254,767 | ||||||
Deferred revenues, less current portion | 1,232,220 | 1,297,605 | ||||||
Deferred oil and gas lease payment, less current portion | — | 224,510 | ||||||
Mortgages payable, less current portion | 3,211,112 | 4,209,329 | ||||||
Participating interests in Export Water Supply | 1,192,910 | 1,208,928 | ||||||
Tap Participation Fee payable to HP A&M net of $42.9 million and $44.8 million discount respectively | 59,807,289 | 68,269,176 | ||||||
Total liabilities | 70,845,856 | 81,464,315 | ||||||
Commitments and Contingencies | ||||||||
SHAREHOLDERS’ EQUITY: | ||||||||
Preferred stock: | ||||||||
Series B - par value $.001 per share, 25 milllion shares authorized 432,513 shares issued and outstanding (liquidation perference of $432,513) | 433 | 433 | ||||||
Common stock: | ||||||||
Par value 1/3 of $.01 per share, 40 million shares authorized; 24,037,598 shares issued and outstanding | 80,130 | 80,130 | ||||||
Additional paid in capital | 115,224,946 | 103,420,869 | ||||||
Accumulated comprehensive loss | — | (1,081 | ) | |||||
Accumulated deficit | (77,533,034 | ) | (73,382,589 | ) | ||||
Total shareholders’ equity | 37,772,475 | 30,117,762 | ||||||
Total liabilities and shareholders’ equity | $ | 108,618,331 | $ | 111,582,077 |
F-2 |
For the Fiscal Years Ended August 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Revenues: | ||||||||||||
Metered water usage | $ | 502,668 | $ | 182,802 | $ | 157,497 | ||||||
Wastewater treatment fees | 41,697 | 45,778 | 68,833 | |||||||||
Special facility funding recognized | 41,508 | 41,508 | 41,508 | |||||||||
Water tap fees recognized | 14,294 | 14,296 | 14,296 | |||||||||
Farm operations | 1,241,882 | |||||||||||
Other income | 15,413 | |||||||||||
Total revenues | 1,857,462 | 284,384 | 282,134 | |||||||||
Expenses: | ||||||||||||
Water service operations | (188,309 | ) | (78,144 | ) | (51,882 | ) | ||||||
Wastewater service operations | (16,958 | ) | (19,269 | ) | (19,224 | ) | ||||||
Farm operations | (96,337 | ) | — | — | ||||||||
Other | (1,199 | ) | (1,995 | ) | ||||||||
Depletion and depreciation | (90,468 | ) | (88,576 | ) | (88,587 | ) | ||||||
Total cost of revenues | (393,271 | ) | (187,984 | ) | (159,693 | ) | ||||||
Gross margin | 1,464,191 | 96,400 | 122,441 | |||||||||
General and administrative expenses | (2,333,126 | ) | (2,374,106 | ) | (2,212,026 | ) | ||||||
Impairment of land and water rights held for sale | — | (6,457,760 | ) | — | ||||||||
Impairment of water assets | — | (5,544,022 | ) | — | ||||||||
Depreciation | (220,834 | ) | (220,657 | ) | (212,184 | ) | ||||||
Operating loss | (1,089,769 | ) | (14,500,145 | ) | (2,301,769 | ) | ||||||
Other income (expense): | ||||||||||||
Oil and gas lease income, net | 416,048 | 422,999 | 199,257 | |||||||||
Farm income, net | — | 71,101 | — | |||||||||
Interest income | 34,583 | 53,339 | 53,133 | |||||||||
Interest expense | (245,503 | ) | ||||||||||
Other | 9,574 | 3,552 | 31,887 | |||||||||
Gain on sale of assets | — | 1,016 | — | |||||||||
Interest expensed on Convertible Note - Related Party | — | — | (151,667 | ) | ||||||||
Interest imputed on the Tap Participation Fees payable to HP A&M | (3,275,378 | ) | (3,470,523 | ) | (3,847,000 | ) | ||||||
Net loss | $ | (4,150,445 | ) | $ | (17,418,661 | ) | $ | (6,016,159 | ) | |||
Net loss per common share – basic and diluted | $ | (0.17 | ) | $ | (0.72 | ) | $ | (0.26 | ) | |||
Weighted average common shares outstanding – basic and diluted | 24,037,596 | 24,037,596 | 23,168,450 |
F-3 |
Additional | Accumulated | |||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Comprehensive | Accumulated | ||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (loss) | Deficit | Total | |||||||||||||||||||||||||
August 31, 2010 balance: | 432,513 | $ | 433 | 20,206,566 | $ | 67,360 | $ | 92,341,555 | $ | (1,580 | ) | $ | (49,947,769.0 | ) | $ | 42,459,999 | ||||||||||||||||
Sale of common stock, less fees and expenses of approximately $145,200 | — | — | 1,848,931 | 6,163 | 5,395,442 | — | — | 5,401,605 | ||||||||||||||||||||||||
Issuance of restricted common stock upon conversion of Convertible Debt | — | — | 1,982,099 | 6,607 | 5,345,060 | — | — | 5,351,667 | ||||||||||||||||||||||||
Share-based compensation | — | — | — | — | 94,550 | — | — | 94,550 | ||||||||||||||||||||||||
Unrealized loss on investments | — | — | — | — | — | (1,323 | ) | — | (1,323 | ) | ||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (6,016,159 | ) | (6,016,159 | ) | ||||||||||||||||||||||
Comprehensive loss | (6,017,482 | ) | ||||||||||||||||||||||||||||||
August 31, 2011 balance: | 432,513 | 433 | 24,037,596 | 80,130 | 103,176,607 | (2,903 | ) | (55,963,928 | ) | 47,290,339 | ||||||||||||||||||||||
Share-based compensation | — | — | 54,588 | 54,588 | ||||||||||||||||||||||||||||
Allocation of net revenues to TPF | 189,674 | 189,674 | ||||||||||||||||||||||||||||||
Unrealized loss on investments | — | — | 1,822 | 1,822 | ||||||||||||||||||||||||||||
Net loss | — | — | (17,418,661 | ) | (17,418,661 | ) | ||||||||||||||||||||||||||
Comprehensive loss | (17,416,839 | ) | ||||||||||||||||||||||||||||||
August 31, 2012 balance: | 432,513 | 433 | 24,037,596 | 80,130 | 103,420,869 | (1,081 | ) | (73,382,589 | ) | 30,117,762 | ||||||||||||||||||||||
Share-based compensation | — | — | — | — | 66,812 | — | — | 66,812 | ||||||||||||||||||||||||
Reduction in TPF due to remedies under the Arkansas River Agreement | — | — | — | — | 11,737,265 | — | — | 11,737,265 | ||||||||||||||||||||||||
Realized gain on investments | — | — | — | — | — | 1,081 | — | 1,081 | ||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (4,150,445 | ) | (4,150,445 | ) | ||||||||||||||||||||||
Comprehensive loss | (4,149,364 | ) | ||||||||||||||||||||||||||||||
August 31, 2013 balance: | 432,513 | $ | 433 | 24,037,596 | $ | 80,130 | $ | 115,224,946 | $ | — | $ | (77,533,034 | ) | $ | 37,772,475 |
F-4 |
For the fiscal Years Ended August 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Cash flows from operating activities | ||||||||||||
Net loss | $ | (4,150,445 | ) | $ | (17,418,661 | ) | $ | (6,016,159 | ) | |||
Adjustments to reconcile net loss to net cash used for operating activities: | ||||||||||||
Share-based compensation expense | 66,812 | 54,588 | 94,550 | |||||||||
Depreciation, depletion and other non-cash items | 313,137 | 307,507 | 297,212 | |||||||||
Imputed interest on Tap Participation Fees payable to HP A&M | 3,275,378 | 3,470,523 | 3,847,000 | |||||||||
Impairment of water assets | — | 5,544,022 | — | |||||||||
Impairment of land and water rights held for sale | — | 6,457,760 | — | |||||||||
Interest expensed on Convertible Note-Related Party | — | — | 151,667 | |||||||||
Interest added to note receivable - related party | ||||||||||||
Rangeview Metropolitan District | (12,038 | ) | (12,072 | ) | (12,039 | ) | ||||||
Interest added to construction proceeds receivable | — | (19,241 | ) | (22,899 | ) | |||||||
Gain on sale of fixed assets | — | (1,016 | ) | — | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Trade accounts receivable | (449,344 | ) | (36,974 | ) | (27,329 | ) | ||||||
Prepaid expenses | 125,437 | (37,782 | ) | (5,373 | ) | |||||||
HP A&M Receivable | (519,934 | ) | — | — | ||||||||
Sky Ranch Receivable | (57,303 | ) | — | — | ||||||||
Accounts payable and accrued liabilities | 120,527 | 246,034 | 72,457 | |||||||||
Deferred revenue | (65,385 | ) | (27,314 | ) | (55,802 | ) | ||||||
Deferred income - oil and gas lease | (403,507 | ) | (414,480 | ) | 1,053,470 | |||||||
Net cash used for operating activities | (1,756,665 | ) | (1,887,106 | ) | (623,245 | ) | ||||||
Cash flows from investing activities: | ||||||||||||
Investments in water, water systems and land | (378,008 | ) | (132,221 | ) | (6,841,255 | ) | ||||||
Purchases of marketable securities | — | (1,235,857 | ) | (6,357,177 | ) | |||||||
Sales and maturities of marketable securities | 1,101,367 | 4,724,847 | 3,202,373 | |||||||||
Proceeds from sale of land | — | 1,099 | — | |||||||||
Proceeds from sale of collateral stock | 3,415,000 | — | — | |||||||||
Purchase of property and equipment | (40,300 | ) | (3,894 | ) | — | |||||||
Net cash provided by (used for) investing activities | 4,098,059 | 3,353,974 | (9,996,059 | ) | ||||||||
Cash flows from financing activities | ||||||||||||
Net proceeds from equity offering | — | — | 5,401,606 | |||||||||
Issuance of Convertible Note - Related Party | — | — | 5,200,000 | |||||||||
Arapahoe County construction proceeds | 291,662 | 84,854 | 82,196 | |||||||||
Payment to contingent liability holders | (16,018 | ) | — | (4,720 | ) | |||||||
Payments made on promissory notes payable | (1,792,192 | ) | ||||||||||
Net cash (used for) provided by financing activities | (1,516,548 | ) | 84,854 | 10,679,082 | ||||||||
Net change in cash and cash equivalents | 824,846 | 1,551,722 | 59,778 | |||||||||
Cash and cash equivalents - beginning of year | 1,623,517 | 71,795 | 12,017 | |||||||||
Cash and cash equivalents - end of year | $ | 2,448,363 | $ | 1,623,517 | $ | 71,795 |
F-5 |
F-6 |
F-7 |
i) | Monthly wholesale water and wastewater service fees – Monthly wholesale water usage charges are assessed to the Company’s customers based on actual metered usage each month plus a base monthly service fee assessed per single family equivalent (“SFE”) unit served. One SFE is a customer, whether residential, commercial or industrial, that imparts a demand on the Company’s water or wastewater systems similar to the demand of a family of four persons living in a single family house on a standard sized lot. One SFE is assumed to have a water demand of approximately 0.4 acre feet per year and to contribute wastewater flows of approximately 300 gallons per day. Water usage pricing uses a tiered pricing structure. The Company recognizes wholesale water usage revenues upon delivering water to its customers or its governmental customers’ end-use customers, as applicable. The water revenues recognized by the Company are shown net of royalties to the Land Board and, when applicable, amounts retained by the Rangeview Metropolitan District (the “District”). |
F-8 |
ii) | Water and wastewater tap fees and construction fees – Tap fees, also called system development fees, are received in advance, are non-refundable and are typically used to fund construction of certain facilities and defray the acquisition costs of obtaining water rights. Construction fees are fees used by the Company to construct assets that are typically required to be constructed by developers or home builders. |
iii) | Consulting Fees – Consulting fees are fees we receive, typically on a monthly basis, from municipalities and area water providers along the I-70 corridor, for system management and maintenance |
Agricultural Farming Operations –The Company leases its Arkansas River water and land to area farmers who actively farm the properties. Prior to August 3, 2012, pursuant to a property management agreement between HP A&M and the Company (the “Property Management Agreement”), HP A&M received a management fee equal to 100% of the income from the land and water leases. As a result, the Company presented its land and water lease income net of the management fees paid to HP A&M. Effective August 3, 2012, the Company terminated the Property Management Agreement due to a default by HP A&M on certain promissory notes secured by deeds of trust on the land and water purchased by the Company from HP A&M in 2006. Effective August 3, 2012, the Company manages the land and water leases and the income from the land and water leases became payable to the Company. Pursuant to the farm lease agreements, the Company bills the lessees semi-annually in March and November. Thelease billings include minimum billings and adjustments based on actual water deliveries by the Fort Lyon Canal Company (“FLCC”) or are based on crop yields. Subsequent to August 3, 2012, the Company records farm lease income ratably each month based on estimated annual lease income the Company anticipates collecting from its land and water leases.TheCompany recorded these amounts as receivables, less an estimated allowance for uncollectible accounts. The allowance as of August 31, 2013, was determined by the Company’s specific review of all past due accounts. The Company has recorded allowances for doubtful accounts totaling $41,100 and $20,400 as of August 31, 2013 and 2012, respectively. As of August 31, 2013 the company has accrued $397,300 of farm income related to billings for future periods. The Company manages the farm lease business as a separate line of business from the wholesale water and wastewater business.
F-9 |
F-10 |
F-11 |
Fair Value Measurement Using: | ||||||||||||||||||||||||
Quoted Prices in | Significant | Total | ||||||||||||||||||||||
Active Markets for | Significant Other | Unobservable | Unrealized | |||||||||||||||||||||
Identical Assets | Observable Inputs | Inputs | Gains and | |||||||||||||||||||||
Fair Value | Cost / Other Value | (Level 1) | (Level 2) | (Level 3) | (Losses) | |||||||||||||||||||
Tap Participation Fee | $ | 59,807,289 | $ | 59,807,289 | $ | — | $ | — | $ | 59,807,289 | $ | — |
Fair Value Measurement using Significant Unobservable Inputs (Level 3) | ||||||||||||
Discount - to | ||||||||||||
Tap | be imputed as | |||||||||||
Gross Estimated | Participation | interest | ||||||||||
Tap Participation | Fee Reported | expense in | ||||||||||
Fee Liability | Liability | future periods | ||||||||||
Balance at August 31, 2012 | $ | 112,958,000 | $ | 68,269,100 | $ | 44,688,900 | ||||||
Total gains and losses (realized and unrealized): | ||||||||||||
Imputed interest recorded as “Other Expense” | — | 3,275,400 | (3,275,400 | ) | ||||||||
Purchases, sales, issuances, payments, and settlements | (10,276,100 | ) | (11,737,200 | ) | 1,461,100 | |||||||
Transfers in and/or out of Level 3 | — | — | — | |||||||||
Balance at August 31, 2013 | $ | 102,681,900 | $ | 59,807,300 | $ | 42,874,600 |
F-12 |
F-13 |
August 31, 2013 | August 31, 2012 | |||||||||||||||
Accumulated | Accumulated | |||||||||||||||
Depreciation | Depreciation | |||||||||||||||
Costs | and Depletion | Costs | and Depletion | |||||||||||||
Arkansas River assets | $ | 69,112,300 | $ | (1,487,700 | ) | $ | 69,112,300 | $ | (1,315,900 | ) | ||||||
Rangeview water supply | 14,667,000 | (7,700 | ) | 14,376,100 | (7,100 | ) | ||||||||||
Sky Ranch water rights and other costs | 3,915,100 | (79,800 | ) | 3,924,100 | (50,800 | ) | ||||||||||
Fairgrounds water and water system | 2,899,900 | (622,600 | ) | 2,899,900 | (534,500 | ) | ||||||||||
Rangeview water system | 167,700 | (72,800 | ) | 167,700 | (67,600 | ) | ||||||||||
Water supply – other | 43,200 | (22,400 | ) | 25,600 | (19,400 | ) | ||||||||||
Totals | 90,805,200 | (2,293,000 | ) | 90,505,700 | (1,995,300 | ) | ||||||||||
Net investments in water and water systems | $ | 88,512,200 | $ | 88,510,400 |
(i) | a provision of anti-speculation in which the applicant must have contractual obligations to provide water service to customers prior to the water court ruling on the transfer of a water right, |
(ii) | the applicant can only transfer the “consumptive use” portion of its water rights (the Company expects to face opposition to any consumptive use calculation of the historic agricultural uses of its water), |
(iii) | applicants likely would be required to mitigate the loss of tax base in the basin of origin, |
(iv) | applicants would likely have re-vegetation requirements to restore irrigated soils to non-irrigated, and |
(v) | applicants would be required to meet water quality measures which would be included in the cost of transferring the water rights. |
F-14 |
F-15 |
(i) | The District entered into the Amended and Restated Lease Agreement with the Land Board, which owns the Lowry Range; |
(ii) | The Company entered into the Agreement for Sale of Export Water with the District, a quasi-municipal political subdivision of the State of Colorado; |
(iii) | The Company entered into the Service Agreement with the District for the provision of water service to the Lowry Range; and |
(iv) | In 1997, the Company entered into the Wastewater Service Agreement with the District for the provision of wastewater service to the District’s service area (collectively these agreements are referred to as the “Rangeview Water Agreements”). |
F-16 |
F-17 |
Export Water | Initial Export | Total Potential | Paticipating | |||||||||||||||||
Proceeds | Water Proceeds | Third party | Interests | |||||||||||||||||
Received | to Pure Cycle | Obligation | Liability | Contingency | ||||||||||||||||
Original balances | $ | — | $ | 218,500 | $ | 31,807,700 | $ | 11,090,600 | $ | 20,717,100 | ||||||||||
Activity from inception until August 31, 2012: | ||||||||||||||||||||
Acquisitions | — | 28,077,500 | (28,077,500 | ) | (9,790,000 | ) | (18,287,500 | ) | ||||||||||||
Option payments - Sky Ranch and The Hills at Sky Ranch | 110,400 | (42,300 | ) | (68,100 | ) | (23,800 | ) | (44,300 | ) | |||||||||||
Arapahoe County tap fees * | 533,000 | (373,100 | ) | (159,900 | ) | (55,800 | ) | (104,100 | ) | |||||||||||
Export Water sale payments | 111,300 | (77,900 | ) | (33,400 | ) | (12,100 | ) | (21,300 | ) | |||||||||||
Balance at August 31, 2012 | 754,700 | 27,802,700 | 3,468,800 | 1,208,900 | 2,259,900 | |||||||||||||||
Fiscal 2013 activity: | ||||||||||||||||||||
Export Water sale payments | 158,000 | (110,600 | ) | (47,400 | ) | (16,000 | ) | (31,400 | ) | |||||||||||
Balance at August 31, 2013 | $ | 912,700 | $ | 27,692,100 | $ | 3,421,400 | $ | 1,192,900 | $ | 2,228,500 |
F-18 |
● | New homes constructed in the area known as the 11-county “Front Range” of Colorado from the 1980’s through the valuation date. The Company utilized data for this length of time to provide development information over many economic cycles because the Company anticipates development in its targeted service area to encompass many economic cycles over the development period. |
● | New home construction patterns for large master planned housing developments along the Front Range. The Company utilized this information because these developments are deemed comparable to projects anticipated to be constructed in the Company’s targeted service area (i.e. these master planned communities were located in predominately undeveloped areas on the outskirts of the Front Range). |
● | Population growth rates for Colorado and the Front Range. Population growth rates were utilized to predict anticipated growth along the Front Range, which was used to predict an estimated number of new homes necessary to house the increased population. |
● | The Consumer Price Index since the 1980’s, which was utilized to project estimated future water tap fees. |
F-19 |
F-20 |
Mortgage notes held and defaulted on by HP A&M | $ | 2,526,900 | ||
Mortgage notes, interest at 5%, due various dates in 2017 | 5,231,100 | |||
Total | 7,758,000 | |||
Less: current portion | (4,546,900 | ) | ||
Total long-term mortgage payable | $ | 3,211,100 | ||
Future Maturities | ||||
2014 | $ | 4,546,900 | ||
(including $2,526,900 of HP A&M defaulted notes to third parties) | ||||
2015 | 844,500 | |||
2016 | 887,300 | |||
2017 | 932,200 | |||
2018 | 534,500 | |||
2019 | 12,600 | |||
Total | $ | 7,758,000 |
F-21 |
● | The grant date exercise price – is the closing market price of the Company’s common stock on the date of grant; |
● | Estimated option lives – based on historical experience with existing option holders; |
● | Estimated dividend rates – based on historical and anticipated dividends over the life of the option; |
● | Life of the option –based on historical experience option grants have lives between 8 and 10 years; |
● | Risk-free interest rates – with maturities that approximate the expected life of the options granted; |
● | Calculated stock price volatility – calculated over the expected life of the options granted, which is calculated based on the weekly closing price of the Company’s common stock over a period equal to the expected life of the option; and |
● | Option exercise behaviors – based on actual and projected employee stock option exercises and forfeitures. |
F-22 |
Number of Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Approximate Aggregate Instrinsic Value | |||||||||||||
Oustanding at beginning of period | 215,000 | $ | 5.88 | |||||||||||||
Granted | 132,500 | $ | 5.21 | |||||||||||||
Exercised | — | $ | — | |||||||||||||
Forfeited or expired | — | $ | — | |||||||||||||
Outstanding at August 31, 2013 | 347,500 | $ | 5.62 | $ | 6.98 | $ | 145,559 | |||||||||
Options exercisable at August 31, 2013 | 215,000 | $ | 5.90 | $ | 4.89 | $ | 121,265 |
F-23 |
Number of Options | Weighted- Average Grant Date Fair Value | |||||||
Non-vested options oustanding at beginning of period | 22,500 | $ | 1.72 | |||||
Granted | 132,500 | 3.80 | ||||||
Vested | (22,500 | ) | 1.72 | |||||
Forfeited | — | — | ||||||
Non-vested options outstanding at August 31, 2013 | 132,500 | $ | 3.80 |
(i) | The date all of the Export Water is sold or otherwise disposed of, |
(ii) | The date the CAA is terminated with respect to the original holder of the warrant, or |
(iii) | The date on which the Company makes the final payment pursuant to Section 2.1(r) of the CAA. |
F-24 |
For the Fiscal Years Ended August 31, | ||||||||
2013 | 2012 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carryforwards | $ | 6,080,000 | $ | 5,948,300 | ||||
Imputed interest on Tap Participation Fee | 10,074,200 | 8,852,500 | ||||||
Deferred revenue | 494,600 | 560,700 | ||||||
Impairment charges | — | 2,408,800 | ||||||
Depreciation and depletion | 4,899,800 | 2,425,700 | ||||||
Other | 43,600 | 45,000 | ||||||
Valuation allowance | (21,592,200 | ) | (20,241,000 | ) | ||||
Net deferred tax asset | $ | — | $ | — |
For the Fiscal Years Ended August 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Expected benefit from federal taxes at statutory rate of 34% | $ | (1,411,200 | ) | $ | (5,922,300 | ) | $ | (2,045,500 | ) | |||
State taxes, net of federal benefit | (137,000 | ) | (574,800 | ) | (198,500 | ) | ||||||
Expiration of net operating losses | 147,400 | 90,000 | 121,000 | |||||||||
Permanent and other differences | 27,400 | 25,800 | 37,800 | |||||||||
Change in valuation allowance | 1,373,400 | 6,381,300 | 2,085,200 | |||||||||
Total income tax expense / benefit | $ | — | $ | — | $ | — |
F-25 |
F-26 |
Fiscal Year Ended August 31, 2013 | ||||||||||||||||
Business segments | ||||||||||||||||
Wholesale | ||||||||||||||||
water and | ||||||||||||||||
wastewater | Agricultural | All Other | Total | |||||||||||||
Revenues | $ | 544,400 | $ | 1,241,900 | $ | 71,200 | $ | 1,857,500 | ||||||||
Gross profit | 248,600 | 1,145,600 | 70,000 | 1,464,200 | ||||||||||||
Depletion and depreciation | 311,300 | — | — | 311,300 | ||||||||||||
Other significant noncash items: | ||||||||||||||||
Stock-based compensation | — | — | 66,800 | 66,800 | ||||||||||||
TPF interest expense | 3,275,400 | — | — | 3,275,400 | ||||||||||||
Segment assets | 93,522,800 | 6,697,500 | 8,398,000 | 108,618,300 | ||||||||||||
Expenditures for segment assets | — | — | — | — |
F-27 |
For the Fiscal Years Ended August 31, | |||||||||||||||
2013 | 2012 | 2011 | |||||||||||||
Reduction in Tap Participation Fee Liability resulting from remedies under the Arkansas River Agrement | $ | 11,737,300 | $ | — | $ | — | |||||||||
Mortgage payable and related party receivable recorded upon HP A&M default | — | 9,550,200 | — | ||||||||||||
Farm revenue allocated against the Tap Participation Fee liability and additional paid in capital thru August 3, 2012 | — | 189,700 | — | ||||||||||||
Issuance of shares of restricted common stock upon conversion of the Convertible Note - Related Party | — | — | 5,351,700 | ||||||||||||
$ | 11,737,300 | $ | 9,739,900 | $ | 5,351,700 |
F-28 |
● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and |
● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
- 51 - |
(a) | Financial Statements | |
1. | See “Index to Financial Statements and Supplementary Data” in Part II, Item 8 of this Form 10-K. | |
2. | Financial Statement Schedules: None | |
3. | Exhibits: The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Form 10-K | |
Index to Exhibits | ||
Exhibit No. | Description | |
3.1 | Articles of Incorporation of Pure Cycle Corporation. Incorporated by reference to Appendix B to the Proxy Statement on Schedule 14A filed December 14, 2007. | |
3.2 | Bylaws of Pure Cycle Corporation. Incorporated by reference to Appendix C to the Proxy Statement on Schedule 14A filed December 14, 2007. | |
4.1 | Specimen Stock Certificate. Incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2010. | |
10.1 | 2004 Equity Incentive Plan, Incorporated by reference to Exhibit F to the Proxy Statement for the Annual Meeting held April 12, 2004. ** | |
10.2 | Service Agreement, dated April 11, 1996, by and between Pure Cycle Corporation and the Rangeview Metropolitan District. Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-QSB for the period ended May 31, 1996. | |
10.3 | Wastewater Service Agreement, dated January 22, 1997, by and between Pure Cycle Corporation and the Rangeview Metropolitan District. Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-KSB for the fiscal year ended August 31, 1998. | |
10.4 | Comprehensive Amendment Agreement No. 1, dated April 11, 1996, by and among ISC, the Company, the Bondholders, Gregory M. Morey, Newell Augur, Jr., Bill Peterson, Stuart Sundlun, Alan C. Stormo, Beverlee A. Beardslee, Bradley Kent Beardslee, Robert Douglas Beardslee, Asra Corporation, International Properties, Inc., and the Land Board. Incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-QSB for the period ended May 31, 1996. |
- 52 - |
10.5 | Agreement for Sale of Export Water dated April 11, 1996 by and among the Company and the District. Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-QSB for the fiscal quarter ended May 31, 1996. | |
10.6 | Water Service Agreement for the Sky Ranch PUD dated October 31, 2003 by and between Airpark Metropolitan District, Icon Investors I, LLC, the Company and the District. Incorporated by reference to Exhibit 10.9 to the Registration Statement on Form SB-2, filed April 19, 2004, Registration No. 333-114568. | |
10.7 | Amendment to Water Service Agreement for the Sky Ranch PUD dated January 6, 2004. Incorporated by reference to Exhibit 10.13 to Amendment No. 1 to Registration Statement on Form SB-2, filed June 7, 2004, Registration No. 333-114568. | |
10.8 | Agreement to Amend Water Service Agreement for the Sky Ranch PUD dated January 30, 2004. Incorporated by reference to Exhibit 10.14 to Amendment No. 1 to Registration Statement on Form SB-2, filed June 7, 2004, Registration No. 333-114568. | |
10.9 | Second Amendment to Water Service Agreement for the Sky Ranch PUD dated March 5, 2004. Incorporated by reference to Exhibit 10.15 to the original Annual Report on Form 10-K for the fiscal year ended August 31, 2007. | |
10.10 | Amended and Restated Lease Agreement between the Land Board and the District dated April 4, 1996. Incorporated by reference to Exhibit 10.17 to Amendment No. 1 to Registration Statement on Form SB-2, filed June 7, 2004, Registration No. 333-114568. | |
10.11 | Bargain and Sale Deed among the Land Board, the District and the Company dated April 11, 1996. Incorporated by reference to Exhibit 10.18 to Amendment No. 1 to Registration Statement on Form SB-2, filed June 7, 2004, Registration No. 333-114568. | |
10.12 | Mortgage Deed, Security Agreement, and Financing Statement between the Land Board and the Company dated April 11, 1996. Incorporated by reference to Exhibit 10.19 to Amendment No. 1 to Registration Statement on Form SB-2, filed June 7, 2004, Registration No. 333-114568. | |
10.13 | Water Service Agreement for the Hills at Sky Ranch Water dated May 14, 2004 among Icon Land II, LLC, a Colorado limited liability company, the Company, and the District. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on May 21, 2004. | |
10.14 | Agreement for Water Service dated August 3, 2005 among Pure Cycle Corporation, Rangeview Metropolitan District and Arapahoe County incorporated by reference to Exhibit 10.24 to the Current Report on Form 8-K filed on August 4, 2005. | |
10.15 | Arkansas River Agreement dated May 10, 2006, between Pure Cycle Corporation and High Plains A&M, LLC, and the Seller Pledge Agreement, Pure Cycle Corporation Pledge Agreement and Property Management Agreement, attached as exhibits thereto, entered into between Pure Cycle Corporation and High Plains A&M, LLC dated August 31, 2010. Incorporated by reference to Exhibit 10.25 to the Current Report on Form 8-K filed on May 16, 2006. | |
10.16 | Amendment No. 1 to Agreement for Water Service dated August 25, 2008, between Pure Cycle Corporation and Arapahoe County. Incorporated by reference to Exhibit 10.36 to the Annual Report on Form 10-K for the fiscal year ended August 31, 2009. | |
10.17 | Registration Rights Agreement dated September 28, 2010, between Pure Cycle Corporation and PAR Investment Partners, L.P. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on September 29, 2010. | |
10.18 | Paid-Up Oil and Gas Lease dated March 14, 2011, between Pure Cycle Corporation and Anadarko E&P Company, L.P. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 15, 2011. |
- 53 - |
10.19 | Surface Use and Damage Agreement dated March 14, 2011, between Pure Cycle Corporation and Anadarko E&P Company, L.P. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on March 15, 2011. | |
21.1 | Subsidiaries | |
23.1 | Consent of GHP Horwath, P.C. * | |
31.1 | Certification under Section 302 of the Sarbanes-Oxley Act of 2002.* | |
32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
* | Filed herewith | |
** | Indicates management contract or compensatory plan or arrangement in which directors or executive officers are eligible to participate. |
- 54 - |
PURE CYCLE CORPORATION | ||
By: | /s/ Mark W. Harding | |
Mark W. Harding, President and Chief Financial Officer | ||
November 27, 2013 |
Signature | Title | Date | ||
/s/ Mark W. Harding | President, Chief Financial Officer and Director | November 27, 2013 | ||
Mark W. Harding | (Principal Executive Officer, Principal Financial and Accounting Officer) | |||
/s/ Harrison H. Augur | ||||
Harrison H. Augur | Chairman, Director | November 27, 2013 | ||
/s/ Arthur G. Epker III | ||||
Arthur G. Epker III | Director | November 27, 2013 | ||
/s/ Richard L. Guido | ||||
Richard L. Guido | Director | November 27, 2013 | ||
/s/ Peter C. Howell | ||||
Peter C. Howell | Director | November 27, 2013 | ||
/s/ George M. Middlemas | ||||
George M. Middlemas | Director | November 27, 2013 |
- 55 - |