UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended August 31, 20152018
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 0-8814
PURE CYCLE CORPORATION(Exact name of registrant as specified in its charter)
Large accelerated filer | [ ]Colorado | | Accelerated filer | [X] |
Non-accelerated filer | [ ] | (Do not check if a smaller reporting company) | Smaller reporting company | [ ] |
PURE CYCLE CORPORATION |
(Exact name of registrant as specified in its charter) |
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Colorado | 84-0705083 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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34501 E. Quincy Ave., Bldg. 34, Box 10 Watkins, CO 80137 | | (303) 292-3456 |
(Address of principal executive offices) (Zip Code) | | (Registrant'sRegistrant’s telephone number, including area code) |
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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 [ ] ☐ 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 [ ]☐ 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 [ ]☐
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 [ ]
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'sregistrant’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 [ ]☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer,"” “smaller reporting company” and "smaller reporting company"“emerging growth company” in Rule 12b-2 of the Exchange Act:Act.
Large accelerated filer☐ | [ ]
| | Accelerated filer | [X]☒
|
Non-accelerated filer☐ | [ ]
| (Do not check if a smaller reporting company)
| Smaller reporting company☒ |
| [ ]Emerging growth company ☐
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If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ]☐ No [X]☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant'sregistrant’s most recently completed second fiscal quarter: $86,018,020$134,634,077
Indicate the number of shares outstanding of each of the registrant'sregistrant’s classes of common stock, as of the latest practicable date: November 2, 2015: 23,754,0988, 2018 - 23,764,098
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III is incorporated by reference from the registrant'sregistrant’s definitive proxy statement for the Annual Meeting of Shareholders to be held in January 2016,2019, which will be filed with the SEC within 120 days of the close of the fiscal year ended August 31, 2015.2018.
Item | | | | Page | |
| | Part I | | | |
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| 1 | | Business | | | 3 | |
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| 1A. | | Risk Factors | | | 18 | |
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| 1B. | | Unresolved Staff Comments | | | 23 | |
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| 2 | | Properties | | | 23 | |
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| 3 | | Legal Proceedings | | | 24 | |
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| 4 | | Mine Safety Discolosures | | | 24 | |
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| | | Part II | | | | |
| | | | | | | |
| 5 | | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | | | 25 | |
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| 6 | | Selected Financial Data | | | 27 | |
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| 7 | | Management's Discussion and Analysis of Financial Condition and Results of Operations | | | 28 | |
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| 7A. | | Quantitative and Qualitative Disclosures About Market Risk | | | 40 | |
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| 8 | | Financial Statements and Supplementary Data | | | 41 | |
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| 9 | | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | | | 42 | |
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| 9A. | | Controls and Procedures | | | 42 | |
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| 9B. | | Other Information | | | 43 | |
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| | | Part III | | | | |
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| 10 | | Directors, Executive Officers and Corporate Governance | | | 43 | |
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| 11 | | Executive Compensation | | | 43 | |
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| 12 | | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | | | 43 | |
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| 13 | | Certain Relationships and Related Transactions, and Director Independence | | | 43 | |
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| 14 | | Principal Accounting Fees and Services | | | 43 | |
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| | | Part IV | | | | |
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| 15 | | Exhibits and Financial Statement Schedules | | | 44 | |
| | | | | | | |
| | | Signatures | | | 45 | |
Item | | Page |
| Part I | |
1 | | 4 |
1A. | | 19 |
1B. | | 28 |
2 | | 28 |
3 | | 28 |
4 | | 28 |
| Part II | |
5 | | 29 |
6 | | 31 |
7 | | 32 |
7A. | | 44 |
8 | | 45 |
9 | | 46 |
9A. | | 46 |
9B. | | 47 |
| Part III | |
10 | | 48 |
11 | | 48 |
12 | | 48 |
13 | | 48 |
14 | | 48 |
| Part IV | |
15 | | 49 |
16 | | 49 |
| | 54 |
FORWARD-LOOKING STATEMENTS
Statements that are not historical facts contained in this Annual Report on Form 10-K, or incorporated by reference into this Annual Report on Form 10-K, are "forward-looking statements"“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”). The words "anticipate," "seek," "project," "future," "likely," "believe," "may," "should," "could," "will," "estimate," "expect," "plan," "intend"“anticipate,” “seek,” “project,” “future,” “likely,” “believe,” “may,” “should,” “could,” “will,” “estimate,” “expect,” “plan,” “intend” and similar expressions, as they relate to us, are intended to identify forward-looking statements. Forward-looking statements include statements relating to, among other things:
| ·● | factors affecting demand for water; |
| ·● | our competitive advantage; |
| ·● | plans to develop additional water assets within the Denver area; |
| ·● | future water supply needs in Colorado and how such needs will be met; |
| ·● | anticipated increases in residential and commercial demand for water services and competition for these services; |
| ·● | estimated population increases in the Denver metropolitan area and the South Platte River basin; |
| ·● | plans for the use and development of our water assets and potential delays; |
| ·● | plans to provide water for drilling and hydraulic fracturing of oil and gas wells; |
| ·● | changes in oil and gas drilling activity on our property, and on the Lowry Range;Range, or in the surrounding areas; |
| ·● | 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; |
| ·● | the impact of individual housing and economic cycles on the number of connections we can serve with our water; |
| ·● | increases in future water tap fees; |
| ·● | negotiation of payment terms for fees; |
| ·● | plans for development of our Sky Ranch property; |
| ·● | the number of units planned for the first phase of development at Sky Ranch; |
| ● | the timing for the completion of construction of finished lots at Sky Ranch; |
| ● | the number of lots for which delivery is expected in calendar year 2019; |
| ● | estimated costs of earthwork, erosion control, streets, drainage and landscaping at Sky Ranch for calendar years 2018 and 2019; |
| ● | the estimated amount of reimbursable costs for Sky Ranch; |
| ● | capital required and costs to develop the first phase of Sky Ranch; |
| ● | estimated costs of improvements to be funded by Pure Cycle and constructed by the CAB; |
| ● | anticipated revenues and margins from full development of our Sky Ranch property; |
| ·● | estimated time period for build out of Sky Ranch and sufficiency of tap fees to fund infrastructure costs; |
| ● | the impact of theany downturn in the homebuilding and credit markets on our business and financial condition; |
| ·● | the sufficiency of our working capital and financing sources to fund our operations; |
| ·● | estimated supply capacity of our water assets; |
| ·● | need for additional production capacity; |
| ·● | costs and plans for treatment of water and wastewater; |
| ● | plans to use of raw andwater, effluent water or reclaimed water for outdoor irrigation;agricultural and irrigation uses; |
| · | costs to treat contaminated water; |
| ·● | participation in regional water projects, including "WISE";“WISE” and the timing and availability of water from, and projected costs related to, WISE; |
| ·● | our ability to assist Colorado "Front Range"“Front Range” water providers in meeting current and future water needs; |
| ·● | timing of and interpretation of Land Board royalties; |
| ·● | the number of new water connections needed to recover the costs of our Rangeview and Sky Ranch water supplies; |
| ·● | the adequacy of the provisions in the "Lease"“Lease” for the Lowry Range to cover present and future circumstances; |
| ·● | factors that may impact labor and material costs; |
| ·● | loss of key employees and hiring additional personnel for our operations; |
| ·● | 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 use the tool when we drill new water wells and to market that productthe tool to area water providers; |
| ·● | plans to drill water walls into aquifers located beneath the Lowry Range and the timing and estimated costs of such a build out; |
| ● | our ability to reduce the amount of up-front construction costs for water and wastewater systems; |
| ·● | ability to generate working capital and market our water assets; |
| · | plans to discontinue our farm operations; |
| ·● | plans to sell and estimated value of certain farms acquired to correct certain dry-up covenant issues;farms; |
| ·● | service life of constructed facilities; |
| ·● | use of third parties to construct facilities required to extend water and wastewater services;facilities and Sky Ranch lot improvements; |
| ·● | plans to utilize fixed-price contracts; |
| ● | payment of amounts due from the Rangeview District and the Sky Ranch Metropolitan District #5;Districts; |
| · | payment of amounts due from Rangeview Metropolitan District; |
| · | estimated property taxes; |
| · | utilization of net operating losses; |
| ·● | capital expenditures for investing in expenses and assets of the Rangeview District; |
| ·● | the impact of water quality, solid waste disposal and environmental regulations on our financial condition and results of operations; |
| ·● | environmental clean-up at the Lowry Range by the U.S. Army Corps of Engineers; |
| ·● | our ability to comply with permit requirements and environmental regulations and the cost of such compliance; |
| ·● | our ability to meet customer demands in a sustainable and environmentally friendly way; |
| ·● | the recoverability of construction and acquisition costs from rates; |
| ·● | our belief that we are not a public utility under Colorado law; |
| · | our belief that we are not an investment company under the Investment Company Act of 1940, as amended; |
| · | impairments in carrying amounts of long-lived assets; |
| ·● | changes in unrecognized tax positions; |
| ·● | plans to retain earnings and not pay dividends; |
| ·● | forfeitures of option grants, vesting of non-vested options and the fair value of option awards; |
| ·● | the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting; |
| ·● | accounting estimates and the impact of new accounting pronouncements; |
| ·● | future fluctuations in the price and trading volume of our common stock; and |
| ·● | timing of the filing of our proxy statement. |
Forward-looking statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. We cannot assure you that any of our expectations will be realized.Our actual results could differ materially from those in such statements. Factors that could cause actual results to differ from those contemplated by such forward-looking statements include, without limitation:
| ·● | 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; |
| ·● | changes in employment rates;levels, job and personal income growth and household debt-to-income levels; |
| ·● | changes in consumer confidence generally and confidence of potential homebuyers in particular; |
| ● | the ability of existing homeowners to sell their existing homes at prices that are acceptable to them; |
| ● | changes in the supply of available new or existing homes and other housing alternatives, such as apartments and other residential rental property; |
| ● | timing of oil and gas development in the areas where we sell our water; |
| ·● | general economic conditions; |
| ·● | the market price of water; |
| ·● | the market price of oil and gas; |
| · | the market price of alfalfa and other crops grown on our farms subject to crop share leases; |
| ·● | changes in customer consumption patterns; |
| ·● | changes in applicable statutory and regulatory requirements; |
| ·● | changes in governmental policies and procedures;procedures, including with respect to land use and environmental and tax matters; |
| ·● | changes in interest rates; |
| ·● | private and federal mortgage financing programs and lending practices; |
| ● | 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; |
| ·● | 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; |
| ·● | uncertainties in water court rulings; |
| ● | unauthorized access to confidential information and data on our information technology systems and security and data breaches; and |
| ·● | the factors described under "Risk Factors"“Risk Factors” in this Annual Report on Form 10‑K.10-K. |
We undertake no obligation, and disclaim any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements are expressly qualified by this cautionary statement.
Glossary of terms
The following terms are commonly used in the water industry and are used throughout our annual report:
| ● | Acre Foot – 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. |
| ● | 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. Customer Facilities are typically owned and maintained by the customer. |
| ● | Non-Tributary Groundwater – groundwater located outside the boundaries of any designated groundwater basins in existence on January 1, 1985, the withdrawal of which will not, within one hundred years of continuous withdrawal, deplete the flow of a natural stream at an annual rate greater than one-tenth of one percent of the annual rate of withdrawal. |
| ● | Not Non-Tributary Groundwater – statutorily defined as groundwater located within those portions of the Dawson, Denver, Arapahoe, and Laramie Fox-Hill aquifers outside of designated basins that does not meet the definition of “non-tributary.” |
| ● | 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 a quasi-municipal political subdivision of the state, and we operate and maintain the facilities on behalf of such political subdivision. |
| ● | Section – a parcel of land equal to one square mile and containing 640 acres. |
| ● | SFE – a single family equivalent unit. 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 such that depletion has an impact on the surface stream. |
| ● | 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. |
PART I
Pure Cycle Corporation, ("we," "us" or "our") is a Colorado corporation that provides wholesale water and wastewater services. The wholesale water and wastewater services may include, but are not limited to, water production, storage, treatment, bulk transmission to retail distribution systems, wastewater collection and treatment, irrigation water treatment and transmission, construction management, billing and collection, and emergency response. We provide these services to our wholesale customers, which are typically industrial customers and local governmental entities that provide water and wastewater services to their end-use customers located in the greater Denver, Colorado metropolitan area.
We are(“we,” “us” or “our”), is a vertically integrated water company which meansthat:
| ● | provides wholesale water and wastewater services; |
| ● | designs, constructs, operates and maintains water and wastewater systems; |
| ● | supplies untreated water for hydraulic fracturing and other commercial/industrial uses; and |
| ● | is developing a master planned mixed-use community as part of our plan to monetize our land and water assets. |
As a vertically integrated water company, we own or control substantially all assets necessary to provide wholesale water and wastewater services to our customers. This includes owning (i)We own or control the water rights whichthat we use to provide domestic and irrigation water to our wholesale customers (we own(including surface water, groundwater, reclaimed water rights and water storage rights), (ii). We own the infrastructure required to (i) withdraw, treat, store and deliver water (such as wells, diversion structures, pipelines, reservoirs and treatment facilities) required to withdraw, treat, store and deliver water, (iii) infrastructure required to; (ii) collect, treat, store and reuse wastewater,wastewater; and (iv) infrastructure required to(iii) treat and deliver reclaimed water for irrigation use. We are principally targeting the “I-70 corridor,” a largely undeveloped area located east of downtown Denver and south of Denver International Airport along Interstate 70, as we expect the I-70 corridor to experience substantial growth over the next 30 years.
We currently provide wholesale water service predominantly to two local governmental entity customers. Our largest customer is the Rangeview Metropolitan District (the "District"), a quasi-municipal political subdivision of the State of Colorado which is described further below. We provide service to the District and its end-use customers pursuant to "The Rangeview Water Agreements" (defined below) between us and the District for the provision of wholesale water service to the District for use in the District's service area. Through the District, we provide wholesale service to 258 Single Family Equivalent ("SFE") (as defined below) water connections and 157 SFE wastewater connections located in southeastern metropolitan Denver. In the past three years, we have been providing water to industrial customers in our service areas and adjacent to our service areas to the oil and gas industry for the purpose of hydraulic fracturing. Oil and gas operators have leased more than 135,000 acres within and adjacent to our service areas for the purpose of exploring oil and gas interests in the Niobrara and other formations and this activity has led to increased water demands.
We plan to utilize our significant water assets along with our adjudicated reservoir sites, which are described in the Our Water and Land Assets section below, to provide wholesale water and wastewater services predominantly to local governmental entities. Thesetwo local governmental entities willthat in turn provide residential and commercial water and wastewater services to communities along the eastern slope of Colorado in the area referred to as the “Front Range,” extending essentially from Fort Collins on the north to Colorado Springs on the southsouth. Our largest customer is the Rangeview Metropolitan District (the “Rangeview District”), which is generally referreda quasi-municipal political subdivision of the State of Colorado. We have the exclusive right to provide wholesale water and wastewater services to the Rangeview District and its end-use customers pursuant to the “Rangeview Water Agreements” and the “Off-Lowry Service Agreement” (each as defined below). Through the "Front Range." PrincipallyRangeview District, we currently provide wholesale service to 391 SFE water connections and 157 SFE wastewater connections located in the Rangeview District’s service area of southeastern metropolitan Denver in an area called the Lowry Range and other nearby areas where we have acquired service rights.
We supply untreated water to industrial customers for various purposes and to oil and gas companies for hydraulic fracturing on properties located within or adjacent to our service areas. Oil and gas operators have leased more than 135,000 acres within and adjacent to our service areas to explore and develop oil and gas interests in the oil-rich Niobrara and other formations. We have capitalized on the need for significant water supplies for hydraulic fracturing in proximity to our existing water supplies and infrastructure.
In addition to our water and wastewater operations, we are targeting the "I-70 corridor" which is located east of downtown Denver and south of the Denver International Airport along Interstate 70. This area is predominately undeveloped and is expected to experience substantial growth over the next 30 years.
Until August 18, 2015, we owned farm land consisting of approximately 14,600 acres of irrigated land that was leased to local farmers in southeastern Colorado. On August 18, 2015, we and our wholly owned subsidiary, PCY
Holdings, LLC, a Colorado limited liability company ("PCY Holdings"), sold approximately 14,600 acres of real property located in Bent, Otero and Prowers Counties, Colorado, and related water rights to Arkansas River Farms, LLC ("Arkansas River Farms"), a newly formed Colorado limited liability company and affiliate of C&A Companies, Inc., a Colorado corporation, and Resource Land Holdings, LLC, a Colorado limited liability company, for approximately $45.8 million in cash, for a loss of approximately $22.1 million. As of August 31, 2015, approximately $1.3 million of the closing consideration remained in escrow pending resolution by the parties of certain outstanding items. In addition, we owndeveloping 931 acres of land in thewe own along Denver’s I-70 corridor eastas a master planned community known as Sky Ranch. In June 2017, we entered into agreements to sell a total of Denver, Colorado, that is being held506 residential lots at Sky Ranch to three national home builders. In March 2018, we began construction of finished lots at Sky Ranch and in July 2018, we achieved the first payment milestone for development. These land intereststhe sale of 150 platted lots to two of our home builders pursuant to agreements with each builder. Pursuant to agreements with the Rangeview District, we are described in the Our Waterexclusive provider of wholesale water and Land Assetswastewater services to the future residents of Sky Ranch. section below.
Pure Cycle Corporation was incorporated in Delaware in 1976 and reincorporated in Colorado in 2008. Unless otherwise specified or the context otherwise requires, all references to “we,” “us,” or “our” are to Pure Cycle Corporation and its subsidiaries on a consolidated basis. Pure Cycle’s common stock trades on The NASDAQ Stock Market under the ticker symbol “PCYO.”
Glossary of terms
The following terms are commonly used in the water industry and are used throughout our annual report:
| · | Acre Foot – 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. |
| · | 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 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. |
| · | 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. |
Our Water and Land Assets
This section should be read in conjunction with Item 1A – Risk Factors, Item 7 – Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Use of Estimates, and Note 4 – Water and Land Assets and Note 13 – Segment Reporting. to the accompanying financial statements.
The $27.7$36.7 million of capitalized water costs on our balance sheet represents the costs of the water rights we own or have the exclusive right to use and the related infrastructure developed to provide wholesale water and wastewater services. Our water assets are as follows:
Water Source | | acre feet | | | SFE (0.4 acre feet) | |
Lowry (Rangeview Water Supply) | | | | | | |
Export | | | 11,650 | | | | 29,125 | |
Non-Export | | | 8,827 | | | | 22,068 | |
Surface Water | | | 3,300 | | | | 8,250 | |
WISE | | | 500 | | | | 1,250 | |
Fairgrounds | | | 320 | | | | 800 | |
Sky Ranch | | | 828 | | | | 2,069 | |
| | | 25,425 | | | | 63,562 | |
Each of these assets is explained in detail below.
None.
Item 4 – Mine Safety Disclosures
None.
PART II
Item 5 – Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a)Market Information
Our common stock is traded on theThe NASDAQ CapitalStock Market under the symbol "PCYO."“PCYO.” The high and low sales prices of our common stock, by quarter, for the fiscal years ended August 31, 20152018 and 20142017 are presented below:
Table C - Market Information |
Fiscal 2015 quarters ended: | | August 31 | | | May 31 | | | February 28 | | | November 30 | |
Market price of common stock | | | | | | | | | | | | |
High | | $ | 5.55 | | | $ | 5.50 | | | $ | 5.11 | | | $ | 7.00 | |
Low | | $ | 4.37 | | | $ | 4.12 | | | $ | 3.54 | | | $ | 4.94 | |
| | | | | | | | | | | | | | | | |
Fiscal 2014 quarters ended: | | August 31 | | | May 31 | | | February 28 | | | November 30 | |
Market price of common stock | | | | | | | | | | | | | | | | |
High | | $ | 7.36 | | | $ | 7.00 | | | $ | 7.19 | | | $ | 7.19 | |
Low | | $ | 5.40 | | | $ | 4.96 | | | $ | 5.62 | | | $ | 4.34 | |
Table D – Market Information
Fiscal 2018 Quarters Ended: | | August 31 | | | May 31 | | | February 28 | | | November 30 | |
Market price of common stock | | | | | | | | | | | | |
High | | $ | 11.40 | | | $ | 9.90 | | | $ | 8.95 | | | $ | 8.10 | |
Low | | $ | 9.05 | | | $ | 7.90 | | | $ | 6.65 | | | $ | 6.80 | |
Fiscal 2017 Quarters Ended: | | August 31 | | | May 31 | | | March 1 | | | November 30 | |
Market price of common stock | | | | | | | | | | | | |
High | | $ | 8.73 | | | $ | 8.10 | | | $ | 5.70 | | | $ | 5.93 | |
Low | | $ | 6.55 | | | $ | 5.20 | | | $ | 4.90 | | | $ | 4.60 | |
(b)HoldersHolders
On November 2, 2015,8, 2018, there were 997800 holders of record of our common stock.
(c)DividendsDividends
We have never paid any dividends on our common stock and expect for the foreseeable future to retain all of our capital and earnings from operations, if any, for use in expanding and developing our business. Any future decision as to the payment of dividends will be at the discretion of our board of directors and will depend upon our earnings, financial position, capital requirements, plans for expansion and such other factors as our board of directors deems relevant. The terms of our Series B Preferred Stock prohibit payment of dividends on common stock unless all dividends accrued on the Series B Preferred Stock have been paid and require dividends to be paid on the Series B Preferred Stock if proceeds from the sale of Export Water exceed $36,026,232. For further discussion, see Note 8 – Shareholder'sShareholders’ Equity to the accompanying financial statements.
(d)Securities Authorized For Issuance Under Equity Compensation Plans
Table D - Securities Authorized for Issuance Under Equity Compensation Plans |
Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
| | (a) | | | (b) | | | (c) | |
Equity compensation plans: | | | | | | | | | |
Approved by security holders | | | 312,000 | | | $ | 5.10 | | | | 1,600,000 | |
Not approved by security holders | | | – | | | | – | | | | – | |
Total | | | 312,000 | | | $ | 5.10 | | | | 1,600,000 | |
(e)Performance Graph 1 (1)
This graph compares the cumulative total return of our common stock for the last five fiscal years with the cumulative total return for the same period of the S&P 500 Index and a peer group index.2index.2 The graph assumes the investment of $100 in common stock in each of the indices as of the market close on August 31 and reinvestment of all dividends.
| | | | 8/10 | | | | 8/11 | | | | 8/12 | | | | 8/13 | | | | 8/14 | | | | 8/15 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | August 2013 | | | August 2014 | | | August 2015 | | | August 2016 | | | August 2017 | | | August 2018 | |
Pure Cycle Corporation | Pure Cycle Corporation | | | | 100.00 | | | | 98.34 | | | | 66.45 | | | | 172.76 | | | | 216.61 | | | | 166.11 | | | | $ | 100.00 | | | $ | 125.38 | | | $ | 96.15 | | | $ | 93.08 | | | $ | 139.42 | | | $ | 216.35 | |
| S&P 500 | | | | 100.00 | | | | 118.50 | | | | 139.83 | | | | 165.99 | | | | 207.89 | | | | 208.88 | | |
S&P 500 | |
|
| $ | 100.00 |
|
| $ | 125.25 |
|
|
| 125.84 |
|
| $ | 141.64 |
|
| $ | 164.64 |
|
| $ | 197.01 |
|
Peer Group | Peer Group | | | | 100.00 | | | | 127.15 | | | | 145.51 | | | | 174.44 | | | | 193.70 | | | | 203.47 | | | | $ | 100.00 | | | $ | 111.04 | | | | 116.64 | | | $ | 148.81 | | | $ | 177.68 | | | $ | 203.82 | |
| 1.(1) | This performance graph is not "soliciting“soliciting material,"” is not deemed "filed"“filed” with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. |
| 2.(2) | The Peer Grouppeer group consists of the following companies that have been selected on the basis of industry focus or industry leadership:and size: 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 |
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
None.
(g) | Purchase of Equity Securities By the Issuer and Affiliated Purchasers |
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 6 – Selected Financial Data
Table E - Selected Financial Data | |
In thousands (except per share data) | For the Fiscal Years Ended August 31, |
| 2015 | | | 2014 | | | 2013 | | | 2012 | | | 2011 | |
Summary Statement of Operations Items: | | | | | | | | | | | | | | |
Total revenues | | $ | 2,323.7 | | | $ | 3,091.1 | | | $ | 1,857.5 | | | $ | 284.4 | | | $ | 282.1 | |
Net loss | | $ | (23,127.9 | ) | | $ | (311.4 | ) | | $ | (4,150.4 | ) | | $ | (17,418.7 | ) | | $ | (6,016.2 | ) |
Basic and diluted loss per share | | $ | (0.96 | ) | | $ | (0.01 | ) | | $ | (0.17 | ) | | $ | (0.72 | ) | | $ | (0.26 | ) |
Weighted average shares outstanding | | | 24,041 | | | | 24,038 | | | | 24,038 | | | | 24,038 | | | | 23,169 | |
| | | | | | | | | | | | | | | | | | | | |
| As of August 31, |
Summary Balance Sheet Information: | | | 2015 | | | | 2014 | | | | 2013 | | | | 2012 | | | | 2011 | |
Current assets | | $ | 39,580.9 | | | $ | 4,463.3 | | | $ | 9,900.0 | | | $ | 7,661.8 | | | $ | 5,065.6 | |
Total assets | | $ | 73,060.9 | | | $ | 108,173.8 | | | $ | 108,618.3 | | | $ | 111,582.0 | | | $ | 116,122.7 | |
Current liabilities | | $ | 1,499.0 | | | $ | 3,274.4 | | | $ | 5,402.3 | | | $ | 6,254.8 | | | $ | 658.3 | |
Long-term liabilities | | $ | 1,476.4 | | | $ | 13,868.9 | | | $ | 65,443.5 | | | $ | 75,209.5 | | | $ | 68,174.0 | |
Total liabilities | | $ | 2,975.4 | | | $ | 17,143.3 | | | $ | 70,845.8 | | | $ | 81,464.3 | | | $ | 68,832.3 | |
Equity | | $ | 70,085.5 | | | $ | 91,030.5 | | | $ | 37,772.5 | | | $ | 30,117.8 | | | $ | 47,290.3 | |
Table E – Selected Financial Data
In thousands (except per share data)
| | For the Fiscal Years Ended August 31, | |
| | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | |
Summary Statement of Operations Items: | | | | | | | | | | | | | | | |
Total revenue | | $ | 6,959.2 | | | $ | 1,227.8 | | | $ | 452.2 | | | $ | 1,196.6 | | | $ | 2,023.1 | |
(Loss) income from continuing operations | | $ | 132.7 | | | $ | (1,678.8 | ) | | $ | (1,230.3 | ) | | $ | (575.1 | ) | | $ | 285.5 | |
Net income (loss) | | $ | 414.7 | | | $ | (1,710.9 | ) | | $ | (1,310.6 | ) | | $ | (23,127.9 | ) | | $ | (311.4 | ) |
Basic and diluted income (loss) per share | | $ | 0.02 | | | $ | (0.07 | ) | | $ | (0.06 | ) | | $ | (0.96 | ) | | $ | (0.01 | ) |
Weighted average diluted shares outstanding | | | 23,930 | | | | 23,754 | | | | 23,781 | | | | 24,041 | | | | 24,038 | |
| | As of August 31, | |
| | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | |
Summary Balance Sheet Information: | | | | | | | | | | | | | | | |
Current assets | | $ | 27,918.2 | | | $ | 27,124.3 | | | $ | 29,085.9 | | | $ | 39,580.9 | | | $ | 4,463.3 | |
Total assets | | $ | 71,906.6 | | | $ | 69,787.6 | | | $ | 70,879.6 | | | $ | 73,060.9 | | | $ | 108,173.8 | |
Current liabilities | | $ | 2,054.0 | | | $ | 940.2 | | | $ | 482.2 | | | $ | 1,499.1 | | | $ | 3,274.4 | |
Long-term liabilities | | $ | 399.4 | | | $ | 1,341.3 | | | $ | 1,399.5 | | | $ | 1,476.4 | | | $ | 13,868.9 | |
Total liabilities | | $ | 2,453.4 | | | $ | 2,281.5 | | | $ | 1,881.7 | | | $ | 2,975.5 | | | $ | 17,143.3 | |
Shareholders’ equity | | $ | 69,453.2 | | | $ | 67,506.1 | | | $ | 68,997.9 | | | $ | 70,085.4 | | | $ | 91,030.5 | |
The following items had a significant impact on our operations:
(a) | · | In fiscal 2018, we invested $1.1 million in our water and wastewater systems, $1.8 million for the construction of pipelines, $5.3 million for the development of our Sky Ranch property, and $445,400 for the purchase of equipment. During fiscal 2018, we had sales or maturities of marketable securities of approximately $11.4 million. Our revenue from water sales increased by 452% to $4.6 million primarily related to industrial water sales. In addition, we began construction on Sky Ranch and recognized $2.1 million in revenue from platted lot sales. |
(b) | In fiscal 2017, we invested $2.5 million in our water and wastewater systems, $4.4 million for the construction of pipelines, $902,600 for the development of our Sky Ranch property, and $95,400 for the purchase of equipment. During fiscal 2017, we had sales or maturities of marketable securities of approximately $9.8 million. |
(c) | In fiscal 2016, we invested $923,800 in our water and wastewater systems and $285,600 for planning and design of our Sky Ranch property. We also purchased three farms for approximately $450,300 in order to correct dry-up covenant issues related to water-only farms in order obtain the release of the escrow funds related to the Company’s farm sale to Arkansas River Farms, LLC. |
(d) | In fiscal 2015, we sold our remaining farm assets for approximately $45.8 million, for a loss of approximately $22.1$22.3 million. In conjunction with the sale, we repaid $4.9 million in mortgage debt relating to the farms and we invested approximately $3.5 million into our water systems. Financial results for the farm assets have been reflected as discontinued operations, and all prior periods have been reclassified. |
(e) | · | In fiscal 2014, in order to protect our farm assets, we acquired the remaining approximately $2.6 million of the $9.6 million in notes defaulted on by High Plains A&M, LLC (“HP A&M defaulted notes described in Note 7 – Long-Term Debt and Operating Lease – Promissory Notes Payable by HP A&M in Default in the accompanying financial statements.&M”). Additionally, we borrowed $1.75 million, sold farms for $5.8 million, and invested $3.7 million in our water systems. Additionally, we recorded an impairment of approximately $400,000 on land and water rights held for sale, and we recorded a gain of $1.3 million upon completing the sale of certain farms that we previously impaired in fiscal 2012. See further discussion in Note 4 – Water and Land Assets in the accompanying financial statements. |
| · | In fiscal 2013, in order to protect our farm assets, we acquired approximately $7 million of the $9.6 million in HP A&M defaulted notes. Additionally we sold 1,500,000 unregistered shares of Pure Cycle common stock owned by HP A&M for $2.35 per share, yielding approximately $3.4 million, net of expenses. |
| · | 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 and Land Assets in the accompanying financial statements. |
| · | In fiscal 2015, 2014, 2013, 2012, and 2011, respectively, we imputed $23,800, $1.4 million, $3.3 million, $3.5 million, and $3.8 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 was 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 was payable when we sell water taps and received funds from such water tap sales or other dispositions of property purchased from HP A&M. As further discussed in Note 12 – Litigation Loss Contingencies, we settled our claims against HP A&M relating to the defaults, and the Tap Participation Fee was eliminated. |
| · | In fiscal 2011, we acquired approximately 931 acres of land known as Sky Ranch for $7.0 million. |
Item 7 – Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The discussion and analysis below includes certain forward-looking statements that are subject to risks, uncertainties and other factors, as described in "Risk Factors"“Risk Factors” and elsewhere in this Annual Report on Form 10-K, that could cause our actual growth, results of operations, performance, financial position and business prospects and opportunities for this fiscal year and the periods that follow to differ materially from those expressed in, or implied by, those forward-looking statements. Readers are cautioned that forward-looking statements contained in this Annual Report on Form 10-K should be read in conjunction with our disclosure under the heading "FORWARD LOOKING STATEMENTS"“FORWARD-LOOKING STATEMENTS” on page 1.
The following Management'sManagement’s Discussion and Analysis ("(“MD&A"&A”) is intended to help the reader understand the results of operations and our financial condition and should be read in conjunction with the accompanying financial statements and the notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. The following sections focus on the key indicators reviewed by management in evaluating our financial condition and operating performance, including the following:
| ·● | Revenue generated from providing water and wastewater services and our farming operations;services; |
| ·● | Expenses associated with developing our water and land assets; and |
| ·● | Cash available to continue development of our land, water rights and service agreements. |
Our MD&A section includes the following items:
Our Business –a general description of our business, our services and our business strategy.
Critical Accounting Policies and Estimates –a discussion of our critical accounting policies that require critical judgments, assumptions and estimates.
Results of Operations – an analysis of our results of operations for the three fiscal years presented in our financial statements. We present our discussion in the MD&A in conjunction with the accompanying financial statements.
Liquidity, Capital Resources and Financial Position –an analysis of our cash position and cash flows, as well as a discussion of our financial obligations.
Our Business
Pure Cycle Corporation is a Colorado corporation that (i) providesoperates in two business segments. The Company’s wholesale water and wastewater services to end-usesegment focuses on customers of governmental entities, and to commercial and industrial customers through designing, engineering, constructing, operating and (ii) until the end of calendar 2015 manages landmaintaining water and water assets for farming.
Wholesale Water and Wastewater
Thesewastewater systems it owns as well as systems owned by others. Our utility services include water production, storage, treatment, bulk transmission to retail distribution systems, wastewater collection and treatment, irrigation water treatment and transmission, construction management, billing and collection and emergency response.
We areThe Company’s land development segment develops raw land by constructing infrastructure, including over-lot grading, wet and dry utility installation, storm water facilities, roads, parks and open space and other community improvements, to deliver finished lots to national home builders, as well as commercial and retail pad sites on its Sky Ranch land holdings.
Our land development operations include developing finished lots for home builders and commercial users that develop homes and businesses on our Sky Ranch property.
Water and Wastewater Utilities
Our utility operations position us as a vertically integrated wholesale water and wastewater provider, which means that we own or control substantially all assets necessary to provide wholesale water and wastewater services to our customers. This vertically integrated model includes owning or controlling (i) water rights which we use to provide domestic, irrigation, and industrial water to our wholesale customers (we own surface water, groundwater, reclaimed water rights and storage rights), (ii) infrastructure (such as wells, diversion structures, pipelines, reservoirs and treatment facilities) required to withdraw, treat, store and deliver water, (iii) infrastructure required to collect, treat, store and reuse wastewater, and (iv) infrastructure required to treat and deliver reclaimed water for irrigation use.
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We currently provide wholesale water and wastewater service predominatelypredominantly to twoseveral local governmental entity customers. Our largest wholesale domestic customer iscustomers include the District.Rangeview District, Arapahoe County, the CAB, and the Elbert & Highway 86 Commercial District (Wild Pointe). We provide serviceservices to the District and its end-use customers pursuant to the Rangeview Water Agreements. Through the District, weindividual service agreements and currently serve 258 SFE391 water connections and 157 SFE wastewater connections located in southeastern metropolitan Denver.
Industrial Frack Water Deliveries
In the past three years,addition to providing domestic water, we have been providingprovide raw water to industrial customers in the oil and gas industry located in our service areas and adjacent to our service areas for the purpose of hydraulic fracturing. Oil and gas operators have leased more thanapproximately 135,000 acres within and adjacent to our service areas for the purpose of exploring oil and gas interests in the Niobrara and other formations, and this activity had led to increased water demands. As a result of the recent decline in oil prices drilling has been significantly reduced, and as of the date of this report, we are not selling water to the oil and gas industry.
We plan to utilize our significant water assets along with our adjudicated reservoir sites to provide wholesale water and wastewater services to local governmental entities, which in turn will provide residential/commercial water and wastewater services to communities along the eastern slope of Colorado in the area generally referred to as the Front Range. Principally, we target the I-70 corridor, which is located east of downtown Denver and south of the Denver International Airport. This area is predominatelypredominantly undeveloped and is expected to experience substantial growth over the next 30 years. We also plan to continue to provide water service to commercial and industrial customers.
Agricultural Operations and LeasingLand Development
On August 18, 2015, weOur land development services at Sky Ranch include development of up to 4,400 single-family and multi-family home lots, and over 1.6 million square feet of commercial, retail, and light industrial development. Sky Ranch will develop in multiple phases over a number of years. Our first phase of 151 acres is platted for 506 detached single-family residential lots. We have entered into agreements with three national home builders for the sale of all 506 lots, development of which began in March 2018, with model homes scheduled for construction in late 2018. We expect to phase the development of our wholly owned subsidiary, PCY Holdings, soldinitial 506 lots beginning with delivery of approximately 14,600 acres150 finished lots in early 2019, delivering an additional 100 finished lots in mid-2019 and the balance of real propertythe lots to each builder depending on home sales. We estimate that build out of our initial 506 lots will take between three and related water rights in the FLCC to Arkansas River Farms for approximately $45.8 million in cash. Pursuant to the purchase and sale agreement, we retained our farm leasing operations through the December 31, 2015, after which time we intend to discontinue our farm operations.four years.
Based on total acreage, approximately 78% of our farm operations are managed through cash lease arrangementsIn June 2017, we entered into the Purchase and Sale Contracts with local area farmers whereby we charge a fixed fee to lease our land and the water for agricultural purposes to tenant farmers. Based on total acreage, approximately 22% of our farm operations are managed through crop share leases,three separate home builders pursuant to which we agreed to sell, and each builder agreed to purchase, a certain number (totaling 506) of single-family, detached residential lots at the Sky Ranch property. We are developing finished lots for each of the three home builders (which are lots on which homes are ready to be built that include roads, curbs, wet and dry utilities, storm drains and other improvements). Each builder is required to purchase water and sewer taps for the lots from the Rangeview District, the cost of which depends on the size of the lot, the size of the house, and the tenant farmer jointly shareamount of irrigated turf. Pursuant to the Off-Lowry Service Agreement, we will receive all of the water tap fees and wastewater tap fees and 90% of the monthly service fees and usage fees for wastewater services received by the Rangeview District from customers at Sky Ranch. We will also receive 98% of the usage fees for water services received by the Rangeview District from customers at Sky Ranch, after deduction, in most instances, of the gross revenues generatedroyalty to the Land Board related to the use of the Rangeview Water Supply.
In November 2017, each builder completed its due diligence under the Purchase and Sale Contracts, at which time certain earnest money deposits by each builder became non-refundable. In July 2018, we obtained final approval of the entitlements for the property and achieved the first payment milestone for the sale of 150 platted lots to two of our builders. We received a payment of $2,500,000, of which we recognized $2,139,000 as lot fee revenue based on a percent of completion accounting, and the builders posted letters of credit for an additional $7,775,000. We are working to complete construction of finished lots in fiscal year 2019 and will receive two additional payments, to be distributed from the crops grown under a 75% farmer, 25% landlord participation.escrowed funds, from each of these builders. The majorityfirst additional payment will be distributed upon completion of crops grown onconstruction of wet utilities, and the final payment will be distributed upon completion of finished lots. Additionally, we will receive payment from our farms are alfalfa, with a numberthird builder upon completion of acres also planted in corn, sorghum, and wheat.finished lots.
We also own 931are obligated pursuant to the Builder Contracts to construct infrastructure and other improvements, such as roads, curbs and gutters, park amenities, sidewalks, street and traffic signs, water and sanitary sewer mains and stubs, storm water management facilities, and lot grading improvements for delivery of finished lots to each builder. Pursuant to the Builder Contracts, we must cause the Rangeview District to install and construct off-site infrastructure improvements (i.e., wastewater reclamation facility and wholesale water facilities) for the provision of water and wastewater service to the property. In conjunction with our approvals with Arapahoe County for the Sky Ranch project, we and/or the Rangeview District and the Sky Ranch Districts are obligated to deposit into an account the anticipated costs to install and construct substantially all the off-site infrastructure improvements (which include drainage, wholesale water and wastewater, and entry roadway), which we estimate will be approximately $10.2 million.
The improvements, such as roads, parks, and water and sanitary sewer mains, that will be shared by all homeowners in the development and not specific to a finished lot will ultimately be owned by the Sky Ranch Districts or the CAB. Upon completion of the improvements and acceptance by the Sky Ranch Districts or the CAB, we will be entitled to reimbursement for the verified costs incurred with respect to such improvements. We estimate that the total capital required to develop lots in the first phase (506 lots) of Sky Ranch will be approximately $35 million, including estimated reimbursable costs of approximately of $27 million, and that lot sales to home builders will generate approximately $36 million in revenues, providing a margin on lots of approximately $1 million prior to receipt of reimbursable expenses. The Company and the CAB have an agreement that no repayment is required with respect to advances we have made to the CAB and expenses we have incurred related to the construction of improvements for the CAB unless and until the CAB and/or the Sky Ranch Districts issue bonds in an amount sufficient to reimburse us for all or a portion of advances made or expenses incurred. Due to this contingency, these reimbursable costs will be included in lot development costs until the point in time when bonding is obtained. At that point, all reimbursable costs will be reversed and recorded as a note receivable and will reduce any remaining capitalized costs. Any excess will be recognized as other income from CAB reimbursement.
Utility revenues are derived from tap fees (which vary depending on lot size, house size, and amount of irrigated turf) and usage fees (which are monthly water and wastewater fees). Our current Sky Ranch water tap fees are $26,650 (per SFE), and wastewater taps fees are $4,659 (per SFE).
We have begun design and preliminary engineering for our second phase, which will include approximately 320 acres of landresidential development and 160 acres of commercial, retail, and industrial development along the I-70 corridor eastfrontage. We expect to have multiple phases being developed concurrently and would expect the development of Denver, Colorado. We are currently leasing this landthe Sky Ranch project to an area farmer until such time as the property can be developed.occur over 10–14 years, depending on demand.
These land interests are described in the Arkansas River Assets and Sky Ranch sections of Note 4 – Water and Land Assets to the accompanying financial statements.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"(“GAAP”) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.
The most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with the timing of revenue recognition, the impairment of water assets and other long-lived assets, valuation of the Tap Participation Fee, fair value estimates and share-based compensation. Below is a summary of these critical accounting policies.
Revenue Recognition
Our revenues from our water and wastewater utility services consist mainly of monthly servicewholesale water usage and wastewater treatment fees, tap fees and construction fees,fees/Special Facility funding, and consulting fees,fees. Our revenues from land development services consist mainly of lot sales and beginning in fiscal 2013, farm operations.project management service fees. As further described in Note 2 – Summary of Significant Accounting Policies to the accompanying financial statements, proceeds from tap sales and construction fees are deferred upon receipt and recognized in income based on whether we own or do not own the facilities constructed with the proceeds. We recognize tap fees derived from agreements for which we construct infrastructure owned by others as revenue, along with the associated costs of construction, pursuant to the percentage-of-completion method. The percentage-of-completion method requires management to estimate the percent of work that is completed on a particular project, which could change materially throughout the duration of the construction period and result in significant fluctuations in revenue recognized during the reporting periods throughout the construction process. We did not recognize any revenues pursuant to the percentage-of-completion method during the fiscal years ended August 31, 2015, 2014 or 2013.
Tap and construction fees derived from agreements for which we own the infrastructure are recognized as revenue ratably over the estimated service life of the assets constructed with said fees. Although the cash will be received up-front and most construction will be completed within one year of receipt of the proceeds, revenue recognition may occur over 30 years or more. Management is required to estimate the service life, and currently the service life is based on the estimated useful accounting life of the assets constructed with the tap fees. The useful accounting life of the asset is based on management's estimation of an accounting based useful life and may not have any correlation to the actual life of the asset or the actual service life of the tap. This is deemed a reasonable recognition life of the revenues because the depreciation of the assets constructed generating those revenues will therefore be matched with the revenues.
Monthlymonthly water usage fees, monthly wastewater servicetreatment fees, and consulting fees are recognized in income each month as earned. Revenue from payments associated with lot sales are deferred until delivery of and final payment for the finished lot. Project management service fees are recognized on a monthly basis.
PursuantWater and Wastewater Revenue
Monthly wholesale water usage charges are assessed to our customers based on actual metered usage each month plus a base monthly service fee assessed per 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. We recognize wholesale water usage revenues upon delivering water to our customers or our governmental customers’ end-use customers, as applicable. Revenues recognized by us from the sale of Export Water and other portions of our Rangeview Water Supply off the Lowry Range are shown gross of royalties to the Land Board. Revenues recognized by us from the sale of water on the Lowry Range are shown net of royalties paid to the Land Board and amounts retained by the Rangeview District.
We recognize wastewater treatment revenue monthly based on a flat monthly fee and actual usage charges. The monthly wastewater treatment fees are shown net of amounts retained by the Rangeview District.
A tap fee constitutes a right to connect to the wholesale water and wastewater systems through a service line to a residential or commercial building or property, and once granted, the customer may make a physical tap into the wholesale line(s) to connect its property for water and/or wastewater service. Once connected to the water and/or wastewater systems, the customer has live service to receive metered water deliveries from our system and send wastewater into our system. We recognize water and wastewater tap fees as revenue at the time we grant a right for the customer to tap into the water or wastewater service line to obtain service.
We recognize construction fees, including fees received to construct “Special Facilities,” over time as the construction is completed.
Consulting fees are fees we receive, typically on a monthly basis, from municipalities and area water providers along the I-70 corridor, for contract operations services. Consulting fees are recognized monthly over time as the services are consumed based on a flat monthly fee plus charges for additional work performed.
Land Development Revenue
We sell lots at Sky Ranch pursuant to distinct agreements with each builder. These agreements follow one of two formats. One format is the sale of a finished lot, whereby the purchaser pays for a ready-to-build finished lot and payment is a lump-sum payment upon completion of the finished lot. The Company will recognize revenues at the point in time at the closing of the sale of a finished lot in which control transfers to the builder and the builder is able to obtain a building permit, as the transaction cycle will be complete and the Company will have no further obligations for the lot.
Our second format is the sale of finished lots pursuant to a development agreement, whereby we receive payments at three milestones. The first milestone payment is due upon completion of platted lots whereby we transfer title to a specified number of platted lots to each builder and receive payment for the platted lots. The second milestone payment is due upon completion of construction of wet utilities to each lot (water, sewer, and storm water), and the final payment is due upon completion of the finished lot. Because the builder (i.e., the customer) takes control of the lot at the first closing and subsequent improvements made by us improve the builder’s lot as construction progresses, we account for each progress payment over time under the percent-of-completion methodology.
We act as the project manager and provide any and all services required to deliver eligible improvements for the CAB. The project management fee is five percent (5%) of actual construction costs of CAB-eligible improvements and is recognized as other income.
Other Revenue
Up-front payments we received pursuant to the O&G Lease, the Rangeview Lease and an oil and gas lease on 40 acres of mineral estate the Company owns adjacent to the Lowry Range (the "Rangeview Lease"), we received up-front payments whichBison Lease are recognized as other income on a straight-line basis over the initial term or extension of term, as applicable, of the leases.
Currently we lease our farms to local area farmers on both a cash and crop share lease basis. Our cash lease farmers are charged a fixed fee, which is billed semi-annually in March and November. During the November billing cycle, our cash lease billings include either a discount or a premium adjustment based on actual water deliveries by the FLCC. Our crop share lease fees are based on actual crop yields and are received upon the sale of the crops. All fees are estimated and recognized ratably on a monthly basis.
Impairment of Water Assets and Other Long-Lived Assets
We review our long-lived assets for impairment whenever management believes events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We measure recoverability of assets to be held and used by a comparison of the carrying amount of an asset to estimated future undiscounted net cash flows we expect to be generated by the eventual use of the asset. If such assets are considered to be impaired and therefore the costs of the assets deemed to be unrecoverable, the impairment to be recognized would be the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.
Our water assets will be utilized in the provision of water services, which inevitably will encompass many housing and economic cycles. Our service capacities are quantitatively estimated based on an average single familysingle-family home consuming approximately 0.2 acre feet of water per year. Average water deliveries are approximately 0.4 acre feet; however, approximately 50% or 0.2 acre feet are returned and available for reuse. Our water supplies are legally decreed to usfor use through the water court. The water court decree allocates a specific amount of water (subject to continued beneficial use) which historically has not changed. Thus, individual housingfor municipal and economic cycles typically do not have an impact on the number of connections we can serve with our supplies or the amount of water legally decreed to us relating to these supplies.industrial uses.
We report assets to be disposed of at the lower of the carrying amount or fair value less costs to sell.
3035
Our Water Rights ��� Assets –We determine the undiscounted cash flows for our Denver-based assets and, prior to the sale of our farms, the Arkansas Riverwater assets by estimating tap sales to potential new developments in our service areas and along the Front Range, using estimated future tap fees less estimated costs to provide water services, over an estimated development period. Actual new home development in our service areas and the Front Range, actual future tap fees, and actual future operating costs inevitably will vary significantly from our estimates, which could have a material impact on our financial statements as well as our results of operations. We performed an impairment analysis as of August 31, 2015,2018, and determined there were no material changes and that our Denver-basedwater assets are not impaired and their costs are deemed recoverable. Our impairment analysis is based on development occurring within areas in which we have service agreements to provide water services utilizing water rights owned by us (e.g., Sky Ranch and the Lowry Range) as well as in surrounding areas, including the Front Range and the I-70 corridor. Our combined Rangeview Water Supply and Sky Ranch water assets have a carrying value of $27.7$34.6 million as of August 31, 2015.2018. Based on the carrying value of our water rights, the long termlong-term and uncertain nature of any development plans, current tap fees of $24,620$24,974 and estimated gross margins, we estimate that we would need to add approximately 2,300 new water connections (requiring 3.5%4% of our portfolio) to generate net revenues sufficient to recover the costs of our Rangeview Water Supply and Sky Ranch water. If tap fees increase 5%, we would need to add 2,100approximately 2,200 new water taps (requiring 3.4% 3.8% of our portfolio) to recover the costs of our Rangeview Water Supply and Sky Ranch water. If tap fees decrease 5%, we would need to add approximately 2,400 new water taps (requiring 3.7%4.2% of our portfolio) to recover the costs of our Rangeview Water Supply and Sky Ranch water.
Although changes in the housing markettiming of actual new home development throughout the Front Range have delayedwill impact our estimated tap sale projections, these changes doit will not alter our water ownership, nor our service obligations to existing properties or the number of SFEs we can service.
Tap Participation Fee
PriorOur Land Development Assets – We determine the undiscounted cash flows from lot sales, defined under our Builder Contracts, using the costs incurred to August 18, 2015, we owned approximately 14,600 acresdate and estimated costs to build the remaining infrastructure for delivery of irrigated land together with approximately 51,000 acre-feet of Arkansas River water rights. In addition to common stock issued to purchase these assets, we agreed to pay HP A&M a defined percentage of a defined number of water taps we sold from and after the date of the agreement with HP A&M. The TPF was payable when we sold water taps and received funds from such water tap sales or other dispositions of property purchased in the HP A&M acquisition. The TPF liability was valued by estimating new home development in our service areasfinished lots over an estimated development period. This was done by utilizing third-party historical and projected housing and population growth data forOur impairment analysis is based on comparing the Denver metropolitan area appliedlot sale price under our Builder Contracts, together with qualified reimbursables, with the cost to an estimateddeliver the finished lots. Our Sky Ranch land assets under development, pattern supported by historical development patterns of certain master planned communities in the Denver metropolitan area. This development pattern was then applied to projected future water tap fees determined by using historical water tap fee trends. Actual new home development in our service areas and actual future tap fees inevitably varied significantly from our estimates, which could have had a material impactshown as “Inventories” on our consolidated financial statements as well as our results of operations. An important component in our estimate of thebalance sheet, have a carrying value of $5.2 million as of August 31, 2018. Based on the TPF, which was based on historical trends, was that we reasonably expected water tap fees to continue to increase in the coming years. Tap fees are market based and the continued increase in tap fees reflects, among other things, the increasing costs to acquire and develop new water supplies. Tap fees are thus partially indicative of the increasingcarrying value of our water assets.
In January 2015,land inventories and the estimated costs to complete finished lots, compared to revenue generated from lot sales and reimbursables, we reached a settlement with HP A&M, which among other things, provided forestimate that we generate net revenues sufficient to recover the relinquishment by HP A&Mcosts of all claims relatedour land development activities. If our costs increase 5% and our lot sale revenues remain the same pursuant to our agreements, we estimate that our recoverable reimbursable costs would increase 2.5% and that we would generate net revenues sufficient to recover the TPF, and therefore, we have eliminated the TPF payable balance on the August 31, 2015 consolidated balance sheet.costs of our land development activities.
Fair Value Estimates
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. We generally use a fair value hierarchy that has three levels of inputs, both observable and unobservable, with use of the lowest possible level of input to determine fair value. See Note 3 – Fair Value Measurements to the accompanying financial statements. As discussed below, we used other methodologies to determine the fair value of the related party receivable from HP A&M, certain notes payable issued by us in exchange for HP A&M notes, and the receivable for unpaid balances that were owed to HP A&M for farm lease payments that are now payable to us.
Farm Accounts Receivable and Farm Operations – Most of the farm leases are cash only leases, although some are crop share leases. A "crop share" lease entitles us to a share of the sales from the crop sales of the farmer. As a result of the sale of our farms, the farm leases expire on December 31, 2015. The final cash based lease payments will be billed in November. The unpaid balances from the previous billings were recorded on our books as accounts receivable (less an allowance for uncollectible accounts) of $188,600. The crop share agreements are generally one year agreements and the payment cannot be calculated until after the farmers sell their crops. Accordingly any future payments from crop share leases are not included in the future farm lease billings schedule below.
The future scheduled billing for the farm income is presented in Table F below:
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 | | $ | 431,800 | | | $ | 431,800 | | | $ | - | |
Total | | $ | 431,800 | | | $ | 431,800 | | | $ | - | |
Expenses associated with the farm operations include management salaries, maintenance, property taxes and FLCC assessments. Under the terms of the purchase and sale agreement providing for the sale of our farms, we will continue to be responsible for these payments through December 2015.
Share-based Compensation
We estimate the fair value of share-based payment awards made to key employees and directors on the date of grant using the Black-Scholes option-pricing model. We then expense the fair value over the vesting period of the grant using a straight-line expense model. The fair value of share-based payments requires management to estimate/estimate or calculate various inputs such as the volatility of the underlying stock, the expected dividend rate, the estimated forfeiture rate and an estimated life of each option. We do not expect any forfeiture of option grants; therefore, the compensation expense has not been reduced for estimated forfeitures. These assumptions are based on historical trends and estimated future actions of option holders and may not be indicative of actual events, which may have a material impact on our financial statements. For further details on share-based compensation expense, see Note 8 – Shareholders'Shareholders’ Equity to the accompanying financial statements.
Results of Operations
Executive Summary
The results of our operations for the fiscal years ended August 31, 2015, 20142018, 2017 and 20132016 were as follows:
Table G - Summary Results of Operation |
| | | | | | | | | | | Change |
| | Fiscal Years Ended August 31, | | | | 2015-2014 | | | | 2014-2013 | |
| | 2015 | | | 2014 | | | 2013 | | | | | | | $ | % | | | | | | | $ | % | |
Millions of gallons of water delivered | | | 97.5 | | | | 190.1 | | | | 69.2 | | | | (92.6 | ) | | | -49 | % | | | 120.9 | | | | 175 | % |
Water revenues generated | | $ | 970,000 | | | $ | 1,879,500 | | | $ | 502,700 | | | $ | (909,500 | ) | | | -48 | % | | $ | 1,376,800 | | | | 274 | % |
Water delivery operating costs incurred (excluding depreciation and depletion) | | $ | 464,900 | | | $ | 547,600 | | | $ | 188,300 | | | $ | (82,700 | ) | | | -15 | % | | $ | 359,300 | | | | 191 | % |
Water delivery gross margin % | | | 52 | % | | | 71 | % | | | 63 | % | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Wastewater treatment revenues | | $ | 50,100 | | | $ | 45,400 | | | $ | 41,700 | | | $ | 4,700 | | | | 10 | % | | $ | 3,700 | | | | 9 | % |
Wastewater treatment operating costs incurred | | $ | 55,000 | | | $ | 38,400 | | | $ | 17,000 | | | $ | 16,600 | | | | 43 | % | | $ | 21,400 | | | | 126 | % |
Wastewater treatment gross margin % | | | -10 | % | | | 15 | % | | | 59 | % | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other income | | $ | 120,700 | | | $ | 42,400 | | | $ | 15,400 | | | $ | 78,300 | | | | 185 | % | | $ | 27,000 | | | | 175 | % |
Other income costs incurred | | $ | 90,100 | | | $ | 39,400 | | | $ | 1,200 | | | $ | 50,700 | | | | 129 | % | | $ | 38,200 | | | | 3183 | % |
Other income gross margin % | | | 25 | % | | | 7 | % | | | 92 | % | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Farm operations | | $ | 1,127,200 | | | $ | 1,068,000 | | | $ | 1,241,900 | | | $ | 59,200 | | | | 6 | % | | $ | (173,900 | ) | | | -14 | % |
Farm operations operating costs incurred | | $ | 126,300 | | | $ | 88,100 | | | $ | 96,300 | | | $ | 38,200 | | | | 43 | % | | $ | (8,200 | ) | | | -9 | % |
Farm operations gross margin % | | | 89 | % | | | 92 | % | | | 92 | % | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
General and administrative expenses | | $ | 2,699,600 | | | $ | 3,356,900 | | | $ | 2,333,100 | | | $ | (657,300 | ) | | | -20 | % | | $ | 1,023,800 | | | | 44 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net losses | | $ | 23,127,900 | | | $ | 311,400 | | | $ | 4,150,400 | | | $ | 22,816,500 | | | | 7327 | % | | $ | (3,839,000 | ) | | | -92 | % |
Table F – Summary of Results of Operations
|
| Fiscal Years Ended August 31, |
|
| Change | |
2018 versus 2017 | | | 2017 versus 2016 | |
| | 2018 | | | 2017 | | | 2016 | | | $ | | |
| % | | | $ | | |
| % | |
Millions of gallons of water delivered | | | 406.6 | | | | 94.6 | | | | 33.9 | | | | 312.0 | | | | 330 | % | | | 60.7 | | | | 179 | % |
Water revenues generated | | $ | 4,555,900 | | | $ | 825,100 | | | $ | 221,000 | | | $ | 3,730,800 | | | | 452 | % | | $ | 604,100 | | | | 273 | % |
Water tap fee revenue | | | 49,900 | | | | 217,500 | | | | 14,300 | | | | (167,600 | ) | | | (77 | )% | | | 203,200 | | | | 1,421 | % |
Water delivery operating costs incurred (excluding depreciation and depletion) | | $ | 1,379,600 | | | $ | 332,400 | | | $ | 264,400 | | | $ | 1,047,200 | | | | 315 | % | | $ | 68,000 | | | | 26 | % |
Water delivery gross margin % | | | 70 | % | | | 60 | % | | | -20 | % | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Wastewater treatment revenues | | $ | 46,200 | | | $ | 45,100 | | | $ | 43,700 | | | $ | 1,100 | | | | 2 | % | | $ | 1,400 | | | | 3 | % |
Wastewater treatment operating costs incurred | | $ | 28,400 | | | $ | 28,600 | | | $ | 29,200 | | | $ | (200 | ) | | | (1 | )% | | $ | (600 | ) | | | (2 | )% |
Wastewater treatment gross margin % | | | 39 | % | | | 37 | % | | | 33 | % | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lot fee revenue | | $ | 2,139,000 | | | $ | — | | | $ | — | | | $ | 2,139,000 | | | | 100 | % | | $ | — | | | | 0 | % |
Lot fee construction costs incurred | | $ | 2,013,800 | | | $ | — | | | $ | — | | | $ | 2,013,800 | | | | 100 | % | | $ | — | | | | 0 | % |
Lot fee gross margin % | | | 6 | % | | | 0 | % | | | 0 | % | | | | | | | | | | | | | | | | |
Other income | | $ | 168,200 | | | $ | 98,600 | | | $ | 131,700 | | | $ | 69,600 | | | | 71 | % | | $ | (33,100 | ) | | | (25 | )% |
Other income costs incurred | | $ | 88,300 | | | $ | 61,900 | | | $ | 68,500 | | | $ | 26,400 | | | | 43 | % | | $ | (6,600 | ) | | | (10 | )% |
Other income gross margin % | | | 48 | % | | | 37 | % | | | 48 | % | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
General and administrative expenses | | $ | 2,855,100 | | | $ | 2,201,700 | | | $ | 1,849,700 | | | $ | 653,400 | | | | 30 | % | | $ | 352,000 | | | | 19 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations | | $ | 132,700 | | | $ | (1,678,900 | ) | | $ | (1,230,300 | ) | | $ | 1,811,600 | | | | 108 | % | | $ | (448,600 | ) | | | 36 | % |
(Loss) income from discontinued operations | | $ | — | | | $ | (32,000 | ) | | $ | (80,300 | ) | | $ | 32,000 | | | | 100 | % | | $ | 48,300 | | | | (60 | )% |
Net income (loss) | | $ | 414,700 | | | $ | (1,710,900 | ) | | $ | (1,310,600 | ) | | $ | 2,125,600 | | | | 124 | % | | $ | (400,300 | ) | | | 31 | % |
Changes in Revenues and Gross Margin
We generate revenues from two segments: water and wastewater services and farm operations.land development. Water and wastewater revenues are generated from (i) monthly wholesale water usage fees and wastewater servicetreatment fees, (ii) one timeone-time water and wastewater tap fees and construction fees (including Special Facilities funding), and (iii) consulting fees. Land development revenues are generated from the sale of lots and project management services.
Water and Wastewater Revenues – Our water deliveries decreased 49%increased 330% in fiscal 20152018 compared to fiscal 20142017 and increased 175%179% in fiscal 20142017 compared to fiscal 2013.2016. Water revenues decreased 48%increased 452% in fiscal 20152018 compared to fiscal 20142017 and increased 274%273% in fiscal 20142017 compared to fiscal 2013.2016. The decreaseschanges in deliveries and sales in fiscal 2015 and the increases in deliveries and sales in fiscal 2014 were primarily due to the changes in demand for water to be used for oil and gas activities – namely, fracking wells drilled into the Niobrara formation.Formation. Additionally, during fiscal 2017, we acquired the service rights for the Wild Pointe water system, which increased our revenue by $268,800 from fiscal 2016. The following table details the sources of our water sales, the number of kgal (1,000 gallons) sold, and the average price per kgal for fiscal 2015,2018, fiscal 2014,2017, and fiscal 2013.
Water Revenue Summary |
| 2015 | | 2014 | | 2013 |
Customer Type | Sales (in thousands) | | kgal | | Average per kgal | | Sales (in thousands) | | kgal | | Average per kgal | | Sales (in thousands) | | kgal | | Average per kgal | |
On-Site | | $ | 137.3 | | | | 20,821.7 | | | $ | 6.59 | | | $ | 130.7 | | | | 23,318.2 | | | $ | 5.61 | | | $ | 138.3 | | | | 33,831.2 | | | $ | 4.09 | |
Export-Commercial | | | 50.0 | | | | 4,158.4 | | | | 12.02 | | | | 31.6 | | | | 2,318.4 | | | | 13.63 | | | | 42.0 | | | | 4,156.8 | | | | 10.10 | |
Industrial/Fracking | | | 782.7 | | | | 72,557.6 | | | | 10.79 | | | | 1,717.2 | | | | 164,502.7 | | | | 10.44 | | | | 322.4 | | | | 34,025.1 | | | | 9.48 | |
| | $ | 970.0 | | | | 97,537.7 | | | $ | 9.94 | | | $ | 1,879.5 | | | | 190,139.3 | | | $ | 9.88 | | | $ | 502.7 | | | | 72,013.1 | | | $ | 6.98 | |
2016.
Table G – Water Revenue Summary
| | 2018 | | | 2017 | | | 2016 | |
Customer Type | | Sales (in thousands) | | | kgal | | | Average per kgal | | | Sales (in thousands) | | | kgal | | | Average per kgal | | | Sales (in thousands) | | | kgal | | | Average per kgal | |
On-Site | | $ | 250.0 | | | | 55,287.7 | | | $ | 4.52 | | | $ | 174.6 | | | | 26,996.1 | | | $ | 6.47 | | | $ | 149.1 | | | | 26,620.8 | | | $ | 5.60 | |
Export-Commercial | | | 141.9 | | | | 13,998.8 | | | | 10.14 | | | | 106.4 | | | | 10,020.0 | | | | 10.62 | | | | 71.3 | | | | 7,216.2 | | | | 9.88 | |
Wild Pointe | | | 119.7 | | | | 25,052.4 | | | | 4.78 | | | | 65.6 | | | | 11,388.4 | | | | 5.76 | | | | — | | | | — | | | | — | |
Industrial/Fracking | | | 4,044.3 | | | | 312,216.7 | | | | 12.95 | | | | 478.5 | | | | 46,146.2 | | | | 10.37 | | | | 0.6 | | | | 58.2 | | | | 10.31 | |
| | $ | 4,555.9 | | | | 406,555.6 | | | $ | 11.21 | | | $ | 825.1 | | | | 94,550.7 | | | $ | 8.73 | | | $ | 221.0 | | | | 33,895.2 | | | $ | 6.52 | |
Our gross margin on delivering water (not including depletion charges) was 52%70% in fiscal 2018, 71%,60% in fiscal 2017 and 63%negative 20% during fiscal 2015, 2014, and 2013, respectively.2016. The changes in our gross margins were due to changes in demand related to water sales to the fracking industry and our ability to offset the ECCV system costs with increased water deliveries in fiscal 2014.
Our wastewater fees increased 10% and 9%2% in fiscal 20152018 compared to fiscal 20142017 and increased 3% in fiscal 20142017 compared to fiscal 2013, respectively.2016. Wastewater fee fluctuations result from demand changes from our only customer.
We sold two water taps during fiscal 2018, which generated revenues of approximately $49,900, and we sold 10 water taps during fiscal 2017, which generated revenues of approximately $203,200, that are included in water tap fee sales in the statement of operations and comprehensive income (loss). We did not sell any water or wastewater taps during fiscal 2015, 2014 or 2013.2016.
Other income consisted principallyWe recognized $41,500 of Special Facilities funding as revenue under our previous revenue recognition standard, Accounting Standards Update No. 2009-13, Revenue Recognition (Topic 605), during the years ended August 31, 2017 and 2016. No Special Facilities revenue has been recognized during the fiscal year ended August 31, 2018. The 2017 and 2016 amounts are the ratable portion of the Special Facilities funding, or construction fees, received from water agreements as more fully described in Note 2 – Summary of Significant Accounting Policies in Part II, Item 8 of this Annual Report on Form 10-K.
Our consulting fees of $85,800, $42,400, and $15,400 for the fiscal years ended August 31, 2015, 2014,2018, 2017, and 2013, respectively. During2016 were $142,700, $98,600, and $131,700, respectively, and are recognized upon the rendering of our services. Our consulting fees increased 45% in fiscal year ended August 31, 2015,2018 compared to fiscal 2017 and decreased 25% in fiscal 2017 compared to fiscal 2016. The increase in fees during fiscal 2018 is due to higher consulting billings from water systems we also received income relatedmanaged in fiscal 2018 compared to fiscal 2017. The decrease in fees during fiscal 2017 is due to a cost sharing arrangement from our industrial water sales related to the fracking industryreduction in the amount of $34,900. Our consulting fees increased 102%billings from water systems we managed in fiscal 20152017 compared to fiscal 2014 and increased 175% in fiscal 2014 compared to fiscal 2013. The increase in fees is the result of the additional management of new water systems. We have increased from managing one system during fiscal 2013 to managing two systems during fiscal 2014 and four systems during fiscal 2015.2016. Our margins have fluctuated as we allocated additional staff costs to system management.
Farm OperationsLand Development Revenues –Farm revenues increased 6%– In July 2018, we obtained final approval of the entitlements for the Sky Ranch property and achieved the first payment milestone for the sale of 150 platted lots to two of our builders. We received a payment of $2,500,000, and the two builders posted letters of credit for an additional $7,775,000. We are working to complete construction of finished lots in fiscal 2015 comparedyear 2019 and will receive two additional milestone payments, to be distributed from the escrowed funds, from these two builders. The first milestone payment will be distributed upon completion of construction of wet utilities, and the final payment will be distributed upon completion of finished lots. We will defer the payments from the first two milestones and recognize the revenue over time during the construction process of completing the finished lots because control transfers upon delivery of the platted lot and the customer is obtaining benefit from the improvements as the construction progresses. As of August 31, 2018, we recognized $2.1 million of land development revenue based on the input method of total project costs incurred as a percent of completion. Additionally, we will receive payment from our third builder upon completion of finished lots. We have determined that the delivery of a finished lot is a performance obligation and will recognize revenue at the point of time of closing the lot sale. We incurred $7.2 million in land development costs of $34 million total budgeted land development costs as construction in progress, $2.0 million of which was recorded as land development cost of revenue and $5.2 million of which was recorded as inventory and will be recorded as cost of revenue as land development revenues are recognized. We did not have any land development operations prior to fiscal 2014. The increase was the resultyear 2018.
We recognized $25,500 for project management services in fiscal 2018.
38
Farm Summary | |
| | 2015 | | | 2014 | |
Lease Type | | Sales (in thousands) | | | Acres (1) | | | Average per Acre | | | Sales (in thousands) | | | Acres | | | Average per Acre | |
Arkansas Cash | | $ | 825.8 | | | | 8,395 | | | $ | 98.37 | | | $ | 820.3 | | | | 9,888 | | | $ | 82.96 | |
Arkansas Pasture | | | 9.0 | | | | 1,131 | | | | 7.96 | | | | 8.5 | | | | 1,131 | | | | 7.52 | |
Arkansas Water Shares | | | 110.4 | | | | N/ | A | | | N/ | A | | | 104.4 | | | | N/ | A | | | N/ | A |
Arkansas Crop Share | | | 182.0 | | | | 3,119 | | | | 58.35 | | | | 134.8 | | | | 1,896 | | | | 71.10 | |
Arkansas Held for Sale | | | - | | | | - | | | | - | | | | - | | | | 299 | | | | - | |
Arkansas Not Farmed | | | - | | | | 1,959 | | | | - | | | | - | | | | 1,690 | | | | - | |
Sky Ranch | | | - | | | | 931 | | | | - | | | | - | | | | 931 | | | | - | |
| | $ | 1,127.2 | | | | 15,535 | | | $ | 72.56 | | | $ | 1,068.0 | | | | 15,835 | | | $ | 67.45 | |
1) | The amounts included under acres represent the total acres farmed during the fiscal year. In the first fiscal quarter of 2015 we sold one farm. From that time until we sold our farm assets in August 2015, we farmed 14,600 acres. Although we sold our farm assets in August 2015, pursuant to the terms of the purchase and sale agreement, we will retain revenues from the farms through December 2015. |
General and Administrative Expenses
Table H details significant items, and changes, included in our General and Administrative Expenses ("(“G&A Expenses"Expenses”) as well as the impact that share-based compensation has on our G&A Expenses for the fiscal years ended August 31, 2015, 20142018, 2017 and 2013,2016, respectively.
Table H- G&A Expenses | |
| | | | | | | | | | | Change | |
| | Fiscal Years Ended August 31, | | | | 2015-2014 | | | 2014-2013 | |
| | 2015 | | | 2014 | | | 2013 | | | | | | | $ | % | | | | | | $ | % | |
Significant G&A Expense items: | | | | | | | | | | | | | | | | | | | | | | | | |
Salary and salary related expenses | | $ | 1,181,100 | | | $ | 914,400 | | | $ | 723,500 | | | $ | 266,700 | | | | 29 | % | | $ | 190,900 | | | | 26 | % |
FLCC water assessment fees | | | 378,700 | | | | 304,300 | | | | 321,200 | | | | 74,400 | | | | 24 | % | | | (16,900 | ) | | | -5 | % |
Professional fees | | | 536,300 | | | | 1,540,300 | | | | 370,600 | | | | (1,004,000 | ) | | | -65 | % | | | 1,169,700 | | | | 316 | % |
Fees paid to directors including insurance | | | 140,400 | | | | 120,400 | | | | 120,600 | | | | 20,000 | | | | 17 | % | | | (200 | ) | | | 0 | % |
Insurance | | | 84,500 | | | | 78,700 | | | | 56,000 | | | | 5,800 | | | | 7 | % | | | 22,700 | | | | 41 | % |
Public entity related expenses | | | 83,200 | | | | 92,500 | | | | 90,500 | | | | (9,300 | ) | | | -10 | % | | | 2,000 | | | | 2 | % |
Consulting fees | | | 18,300 | | | | 13,100 | | | | 47,400 | | | | 5,200 | | | | 40 | % | | | (34,300 | ) | | | -72 | % |
Property taxes | | | 143,700 | | | | 88,700 | | | | 323,200 | | | | 55,000 | | | | 62 | % | | | (234,500 | ) | | | -73 | % |
All other compenents of G&A combined | | | 133,400 | | | | 204,500 | | | | 280,100 | | | | (71,100 | ) | | | -35 | % | | | (75,600 | ) | | | -27 | % |
G&A Expenses as reported | | $ | 2,699,600 | | | $ | 3,356,900 | | | $ | 2,333,100 | | | $ | (657,300 | ) | | | -20 | % | | $ | 1,023,800 | | | | 44 | % |
Share-based compensation | | | (240,000 | ) | | | (251,900 | ) | | | (66,800 | ) | | | 11,900 | | | | -5 | % | | | (185,100 | ) | | | 277 | % |
G&A Expenses less share-based compensation | | $ | 2,459,600 | | | $ | 3,105,000 | | | $ | 2,266,300 | | | $ | (645,400 | ) | | | -21 | % | | $ | 838,700 | | | | 37 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Note - salary and salary related expenses excluding share-based compensation: | | | | | | | | | | | | | | | | | | | | | |
Salary and salary related expenses | | $ | 941,100 | | | $ | 662,500 | | | $ | 656,700 | | | $ | 278,600 | | | | 42 | % | | $ | 5,800 | | | | 1 | % |
Salary and Salary RelatedSalary-Related Expenses – Salary and salary relatedsalary-related expenses increased by 29%20% during fiscal 20152018 as compared to fiscal 20142017 and increased by 26%34% during fiscal 20142017 as compared to fiscal 2013.2016. The increase in fiscal 20152018 compared to fiscal 20142017 was the result of the Company paying increased bonusesincrease from 11 to 19 employees to manage the development of our Sky Ranch property. The increase in fiscal 2017 compared to fiscal 2016 was the result of the increase from seven to 11 employees to manage the development of our Sky Ranch property and the addition of two field personnel during fiscal 2015. The increase in fiscal 2014 compared to fiscal 2013 resulted from the addition of an expense related to options issued to management in fiscal 2013 and the addition of a full-time system operator and field service employee. As noted on the bottom line of Table H, salary and related expenses excluding share-based compensation expenses increased 42% during fiscal 2015 compared to fiscal 2014 and increased 1% during fiscal 2014 compared to fiscal 2013. Share-based compensation expenses decreased 5% during fiscal 2015 compared to fiscal 2014 as a result of a decrease in the number of options issued during fiscal 2015 compared to fiscal 2014.Wild Pointe water system. Share-based compensation expense increased 277%39% during fiscal 20142018 compared to fiscal 2013 due to the issuance of annual options to our independent directors at a higher exercise price than the prior year.
FLCC Water Assessment Fees2017 – We pay fees for our share of the maintenance of the Fort Lyon Canal in Southeast Colorado. The fees are approved by the shareholders of the FLCC. Prior to the sale of our farm assets in August 2015, we held approximately 19.8% of the voting shares of the FLCC. Under the terms of the sale, we will continue to pay assessments through December 2015. FLCC fees increased 24% during fiscal 2015 compared to fiscal 2014 as a result of an increase in the assessment. FLCC fees decreased 5%number of stock option grants to non-employee members on the board of directors and employees. Share-based compensation expenses increased 6% during fiscal 20142017 compared to fiscal 20132016 as a result of the sale of a portion of our farm portfolio, which was partially offset by an increase in the assessment. FLCC assessments per share were $22.50, $16, and $15, fornumber of non-employee members on the calendar years ended 2015, 2014, and 2013, respectively.board of directors.
Professional Fees (mainly legal and accounting fees) – Professional fees decreased 65%increased 42% during fiscal 20152018 compared to fiscal 20142017 and increased 316% duringdecreased 6% in fiscal 20142017 compared to fiscal 2013.2016. The decrease during fiscal 2015 compared to fiscal 2014increase was primarily the result of settlement of the Land Board litigation, which decreased by $852,000 and the settlement of the HP A&M litigation claims, which decreased by $223,000. The decreases were partially offset by an increase of $33,000 inhigher general legal fees due to Builder Contracts and an increase of $38,000CAB contracts and audit fees in accounting fees associated with the audit of the Company's internal controls over financial reporting. The increase during fiscal 20142018 compared to fiscal 2013 was due to legal fees associated with the Land Board litigation, which increased by $748,0002017 and legal fees associated with the HP A&M litigation, which increased by $463,200. These increases were partially offset by a reduction inlower general legal fees of $31,000 and a reduction in accounting fees of $10,500.fiscal 2017 compared to fiscal 2016.
Fees Paid to Our Board of Directors – Fees for our board in fiscal 20152018 include $50,500$59,900 for premiums related to our directors and officers insurance policy (this amount increased by $1,000$4,300 from fiscal 2014)2017). The remaining fiscal 20152018 fees of $89,900$104,900 represent amounts paidaccrued to our board members for annual service, meeting attendance fees and travel expenses, which were higher than in fiscal 2017 due to increased board fees during the year 2018. Fees for our board in fiscal 2017 include $55,600 for premiums related to our directors and officers insurance policy (this amount increased by $1,200 from fiscal 2016). The remaining fiscal 2017 fees of $74,500 represent amounts accrued to our board members for annual service, meeting attendance fees and travel expenses, which were somewhat higherlower than in fiscal 20142016 due to an increasea decrease in the number of board meetings held in 2015.2017. Fees paid tofor our board of directors in fiscal 20142016 include $49,500$50,400 for premiums related to our directors and officers insurance policy (this amount increased by $3,700 from fiscal 2013).policy. The remaining fiscal 20142016 fees of $70,900$80,000 represent amounts paidaccrued to our board members for annual service, meeting attendance fees and travel expenses, which were somewhat higher than in fiscal 2013 due to an increase in the number of board meetings, but due to timing of accruals and payments are $2,900 less in our 2014 financial statements.
Insurance –We maintain policies for general liability insurance, workersworkers’ compensation insurance, and casualty insurance to protect our assets. Insurance expense fluctuates based on the number of employees and premiums associated with insuring our water systems.
Public EntityEntity-Related Expenses – Costs associated with being a corporation and costs associated with being a publicly traded entity consist primarily of XBRL and EdgarEDGAR conversion fees, stock exchange fees, and press releases. These costs fluctuate from year-to-year.year to year.
Consulting Fees –Consulting fees for fiscal 20152018 consisted of $10,000$33,800 for employee procurement fees and other services, $5,000 for professional services and $2,500 for board advisory services $3,800 related to developing Sky Ranch, and $4,500 related to the development of the Sky Ranch water districts.agreements. Consulting fees for fiscal 20142017 consisted of $9,600$6,300 for information technology and other services and $4,900 for valuation services. Consulting fees for fiscal 2016 consisted of $5,000 for board advisory services and $700 related to the development of the Sky Ranch water districts and $3,500 in general consulting fees related to our water rights.agreements.
Property Taxes – Our property tax expense increased from fiscal 2014 to fiscal 2015 by $55,000 because we did not have an excess amount accrued for property taxes like we did in fiscal 2014 due to the reclassification of our Sky Ranch property from commercial to farm land as described below. Our property tax expense decreased from fiscal 2013 to fiscal 2014 by $234,500 primarily as a result of the reclassification of our Sky Ranch property from commercial to farm land. As of August 31, 2013, we had an accrual of $57,600 in property taxes relatedrelate to our Sky Ranch property. Theand Rangeview properties and were approximately $17,700, $7,500 and $9,200 in fiscal 2018, 2017 and 2016 respectively. These taxes are based on estimated taxes paid in arrears and vary slightly from year to year based on actual property taxes were assessed at $3,200 resulting in a reduction in our property tax expense of $54,400 during fiscal 2014.assessments.
Other G&A Expenses – Other G&A Expensesexpenses include typical operating expenses related to the maintenance of our office, business development, bad debt charges,and travel, and funding provided to the Rangeview District funding.and the Sky Ranch Districts. Other G&A decreased 35%expenses increased 64% and 19% during fiscal 20152018 compared to fiscal 20142017 and decreased 27% during fiscal 20142017 compared to fiscal 2013.2016, respectively. The changes were primarily the result of the timing of various expenses. As described in greater detail in Note 14 – Related Party Transactions to the accompanying financial statements, pursuant to a funding agreement with the District, we are now able to provide funding to the District for day-to-day operations and accrue the funding into a note, which decreased our G&A by approximately $114,000 from fiscal 2014 to fiscal 2015. The decreases in other G&A from fiscal 2013 to fiscal 2014 were primarily the result of decreased District expenses of $24,700, the reduction of bad debt expenses by $21,200, and the elimination of the $20,200 expense we incurred to dispose of our Paradise water asset.
Other Income and Expense Items
Table I - Other Items | |
| | | | | | | | | | | Change | |
| | For the Fiscal Years Ended August 31, | | | | 2015-2014 | | | 2014-2013 | |
| | 2015 | | | 2014 | | | 2013 | | | | | | | $ | % | | | | | | $ | % | |
Other expense items: | | | | | | | | | | | | | | | | | | | | | | | | |
Imputed interest expense | | $ | 23,800 | | | $ | 1,445,500 | | | $ | 3,275,400 | | | $ | (1,421,700 | ) | | | -98 | % | | $ | (1,829,900 | ) | | | -56 | % |
Interest expense | | $ | 390,500 | | | $ | 239,200 | | | $ | 245,500 | | | $ | 151,300 | | | | 63 | % | | $ | (6,300 | ) | | | -3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other income items: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Oil and gas lease income, net | | $ | 645,700 | | | $ | 525,400 | | | $ | 416,000 | | | $ | 120,300 | | | | 23 | % | | $ | 109,400 | | | | 26 | % |
Oil and gas royalty income, net | | $ | 412,600 | | | $ | - | | | $ | - | | | $ | 412,600 | | | | 100 | % | | $ | - | | | | 100 | % |
Interest income | | $ | 43,000 | | | $ | 26,900 | | | $ | 34,600 | | | $ | 16,100 | | | | 60 | % | | $ | (7,700 | ) | | | -22 | % |
Other | | $ | 22,100 | | | $ | 160,000 | | | $ | 9,600 | | | $ | (137,900 | ) | | | -86 | % | | $ | 150,400 | | | | 1567 | % |
Gain on extinguishment of contingent obligations | | $ | - | | | $ | 832,100 | | | $ | - | | | $ | (832,100 | ) | | | -100 | % | | $ | 832,100 | | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Loss)/Gain on sale of land and water assets | | $ | (22,108,100 | ) | | $ | 1,407,300 | | | $ | - | | | $ | (23,515,400 | ) | | | -1671 | % | | $ | 1,407,300 | | | | 100 | % |
Imputed interest expense represents the expensed portion of the difference between the relative fair value of the Tap Participation Fee liability payable to HP A&M and the net present value of the liability recognized under the effective interest method. The changes in the imputed interest expense in each of the years presented are a result of the updated valuations performed in first quarter of fiscal 2012 and at the end of fiscal 2014, which are explained in greater detail in Note 7 – Long-Term Debt and Operating Lease to the accompanying financial statements. These imputed interest charges account for 119% and 79% of our total reported net losses for the fiscal years ended August 31, 2014 and 2013, respectively. As a result of the settlement with HP A&M, we no longer need to record an expense related to the Tap Participation Fee liability.
Interest expense represents the amounts recognized on our farm debt. We acquired HP A&M's farm notes from third parties in order to protect out farm assets as the result of the default by HP A&M. The notes were acquired during the fiscal years ended August 31, 2014 and 2013 in exchange for a combination of cash and promissory notes. The notes issued by the Company generally carried a stated interest rate of 5% and were payable twice per year with a term of five years. As a result of the sale of our farms, these notes were paid in full during August 2015. During fiscal 2015, we paid additional loan costs to refinance a portion of the farm notes. As a result of paying the mortgages in full, we incurred the entire loan costs during fiscal 2015 instead of amortizing the costs over the term of the loans.
|
|
For the Fiscal Years Ended August 31, |
|
| Change | |
2018 versus 2017 | | | 2017 versus 2016 | |
| | 2018 | | | 2017 | | | 2016 | | | $ | | |
| % | | | $ | | |
| % | |
Other income items: | | | | | | | | | | | | | | | | | | | | | | | |
Oil and gas lease income, net | | $ | 51,100 | | | $ | 18,800 | | | $ | 360,800 | | | $ | 32,300 | | | | 172 | % | | $ | (342,000 | ) | | | (44 | )% |
Oil and gas royalty income, net | | $ | 191,300 | | | $ | 186,600 | | | $ | 343,600 | | | $ | 4,700 | | | | 3 | % | | $ | (157,000 | ) | | | (17 | )% |
Interest income | | $ | 206,100 | | | $ | 257,500 | | | $ | 241,300 | | | $ | (51,400 | ) | | | (20 | )% | | $ | 16,200 | | | | 1,033 | % |
Other | | $ | (10,500 | ) | | $ | (10,500 | ) | | $ | 3,900 | | | $ | — | | | | 0 | % | | $ | (14,400 | ) | | | (82 | )% |
The $645,700, $525,400,$51,100, $18,800, and $416,000$360,800 of oil and gas lease payments recognized in fiscal 2015,2018, fiscal 2014,2017, and fiscal 2013,2016, respectively, primarily represent the deferred recognition of the up-front paymentpayments received onin March 10, 2011 and February 2014, upon the signing of the O&G Lease and Surface Use Agreement.Agreement and related extension. The amounts also represent the up-front payments received for the Rangeview Lease. On March 10, 2011, we received an up-front payment of $1,243,400 for the purpose of exploring for, developing, producing and marketing oil and gas on 634 acres of mineral estate we own at our Sky Ranch property. The oil and gas rights under the remaining 304approximately 300 acres at Sky Ranch were already owned by a third party.We deferred immediate recognition of the up-front payment butand began recognizing the up-front payment in income over the initial three-year term of the O&G Lease beginning March 10, 2011. During February 2014, we received an additional payment of $1,243,400 to extend the initial term of the O&G Lease by an additional two years through February 2016. The income received for the extension is beingwas recognized in income over the two-year extension term of the O&G Lease. As of August 31, 2015, we have deferred recognition of $379,800 of income related to the O&G Lease.
The oil and gas royalty income represents amounts received pursuant to the O&G Lease. The amount includesamounts for fiscal 2018, 2017 and 2016 include royalties from oil production from commencement of each well from August 16th through August 15, 2015, which represents approximately six months of production.15th, during each year, respectively. The first well (referred to as “Sky Ranch” in the chart below) generated oil and gas royalty revenueincome of approximately $321,800, $163,200, $147,300 and $266,600, 20% gross (net of taxes), based on the Company'sCompany’s 3/8ths8ths interest of the total production of this 1,280-acre pooled mineral estate.estate during the fiscal years ended August 31, 2018, 2017 and 2016, respectively. This 10,000 foot10,000-foot horizontal well recorded production of approximately 105,000 approximately 40,000, 33,600 and 80,400 barrels of oil for the period.fiscal years ended August 31, 2018, 2017 and 2016, respectively. The second well (referred to as “Property” in the chart below) generated oil and gas royalty revenueincome of approximately $90,800, approximately $40,400, $41,300 and $77,000, 20% gross (net of taxes), based on the Company'sCompany’s 1/8ths8ths interest of the total production of this 1,280-acre pooled mineral estate.estate during the fiscal years ended August 31, 2018, 2017 and 2016, respectively. This 10,000 foot10,000-foot horizontal well recorded production of approximately 88,600 approximately 31,200, 33,800 and 73,400 barrels of oil for the period. The gas collection infrastructure has been extended to these wellsfiscal years ended August 31, 2018, 2017 and the gas product is now being collected and will begin generating royalties during the next reporting period. During fiscal 2014 there were no producing wells.2016, respectively. The following charts detail well production and royaltyoil and gas royalties during fiscal 2015.2016, fiscal 2017, and fiscal 2018.
40
Interest income represents interest earned on the temporary investment of capital in cash equivalents or available-for-saledebt securities finance charges, interest accrued on the note receivable from the District and interest accrued on the Special Facilities construction proceedsnotes receivable from Arapahoe County.the Rangeview District. The increase fromhigher level of interest income in fiscal 20142017 compared to fiscal 20152018 and fiscal 2016 is due to higher cash and investment balances in 2017 from the receipt of interest on investments related to the proceeds from the sale of our farms. The decrease from fiscal 2013 compared to fiscal 2014 is due to reduced investments and the elimination of construction interest as a result of the county paying off the balance of the note in March 2013.
Other income represents paymentsincome we received for various easements and the construction of infrastructure for the oil and gas industry. During fiscal 2014, we received a number of payments for easements for the development of oil and gas on our Rangeview and Sky Ranch properties.industry, which is partially offset by other non-operational expenses.
Discontinued Operations
During fiscal 2015, we soldFor additional information about our remaining farms for $45.8 million. The farms were acquired for a total considerationdiscontinued operations, see Note 2 – Summary of $81.8 million which included the value of the equity granted as consideration for the purchase (3,000,000 shares of stock valued at $36.2 million), plus the present value of the Company's agreement to pay 10% of the first 40,000 taps that were addedSignificant Accounting Policies to the Company's water system (the Tap Participation Fee valued at $45.6 million). Beginning in 2012 and extending to Januaryaccompanying financial statements.
The following table provides the components of 2015, the sellerdiscontinued operations:
Table J – Discontinued Operations Statements of the farms, HP A&M, defaulted on certain obligations relating to the farms. In January of 2015, the Company and HP A&M agreed to settled all outstanding litigation relating to HP A&M's default. In addition to other consideration, HP A&M agreed to relinquish all rights to the TPF. Based on our remedies under the Arkansas River Agreement for the HP A&M defaults, beginning in 2012 andOperations
| | Fiscal Years Ended August 31, | |
| | 2017 | | | 2016 | |
Farm revenues | | $ | 6,848 | | | $ | 267,472 | |
Farm expenses | | | (1,298 | ) | | | (77,132 | ) |
Gross profit | | | 5,550 | | | | 190,340 | |
| | | | | | | | |
General and administrative expenses | | | (46,942 | ) | | | (313,389 | ) |
Operating loss | | | (41,392 | ) | | | (123,049 | ) |
Finance charges | | | 9,367 | | | | 38,428 | |
(Loss) gain on sale of farm assets | | | — | | | | 4,273 | |
Loss from discontinued operations | | $ | (32,025 | ) | | $ | (80,348 | ) |
We anticipate continued expenses through the settlement in January 2015, we eliminated approximately $68.4 millionend of the TPF liability and recorded that amountcalendar 2019 related to shareholders' equity.
Beginning in 2012, we sold a portion of our farms in order to address the HP A&M defaults, which resulted in a decrease of the farms assets and a loss due to the TPF's inclusion in the book value of the asset compared to the sale price of the farms. The sale of the remaining farms in 2015 resulted in a book lossheld by us. We will continue to receive revenues for leased agricultural land and incur expenses related to the remaining agricultural land we own and for the purpose of $22.1 million (as further described in Note 4 – Water and Land Assets), which is the difference of the $45.8 million received from the sale less our book value of $67.4 million (which included a portion of the TPF) and closing costs of $500,000.collecting outstanding receivables. The remaining farms’ values are recorded as long-term investments.
During fiscal 2014, we completed the sale of certain farms as further described in Note 4 – Water and Land Assets. We also recognized a gain related to easements on our properties totaling approximately $100,000.
Liquidity, Capital Resources and Financial Position
At August 31, 2015,2018, our working capital, defined as current assets less current liabilities, was $38.1$25.9 million,which includes $37.1$11.6 million in cash and cash equivalents. We have an effective shelf registration statement pursuant to which we may elect to sell up to another $15 millionbelieve that as of common stock at any timeAugust 31, 2018 and from time to time. We believe that as of the date of the filing of this annual reportAnnual Report on Form 10-K, we had and as of August 31, 2015, we have sufficient working capital to fund our operations for the next fiscal year.subsequent 12 months.
Sale of Farm Assets – We sold our Arkansas River farm assets for approximately $45.8 million on August 18, 2015. Approximately $1.3 million is being held in escrow pending the resolution of dry-up covenant issues related to three farms.
Arkansas River Water Assets – The FLCC water assessments are the charges assessed to the FLCC shareholders for the upkeep and maintenance of the Fort Lyon Canal. The water assessment payments are payable to the FLCC each calendar year. For the calendar year 2015, FLCC water assessments increased from $16 to $22.50 per share, which will increase our expenses by approximately $119,900 to $415,100, which will be expensed ratably during calendar 2015. For the calendar year 2014, FLCC water assessments increased from $15 to $16 per share, which increased our expenses by approximately $22,900 to $312,900, which were expensed ratably during calendar 2014. Our calendar year property taxes were approximately $137,000 and $150,500 for the calendar years 2015 and 2014, respectively. Based on these taxes, we are accruing monthly property taxes of approximately $11,400 and $11,700 for the calendar years 2015 and 2014, respectively. We sold our Arkansas River water assets in August 2015; however, pursuant to the terms of the purchase and sale agreement, we will remain obligated for all FLCC water assessments and property taxes through December 2015.
ECCV Capacity Operating System –
Pursuant to a 1982 contractual right, the Rangeview District may purchase water produced from the ECCV’s Land Board system, which is comprised of eight wells and more than 10 miles of buried water pipeline located on the Lowry Range. In May 2012, in order to increase the delivery capacity and reliability of these wells, in our capacity as the District'sRangeview District’s service provider and the Export Water Contractor (as defined in the Lease)Lease among us, the Rangeview District and the Land Board), we entered into an agreement to operate and maintain the ECCV facilities, allowing us to utilize the system to provide water to commercial and industrial customers, including customers providing water for drilling and hydraulic fracturing of oil and gas wells. Our costs associated with the use of the ECCV system are a flat monthly fee of $8,000 per month from January 1, 2013 through December 31, 2020 and will decrease to $3,000 per month from January 1, 2021 through April 2032. Additionally, we pay a fee per 1,000 gallons of water produced from ECCV'sECCV’s system, which is included in the water usage fees charged to customers.
South Metropolitan Water Supply Authority and WISE –
SMWSA is a municipal water authority in the State of Colorado organized to pursue the acquisition and development of new water supplies on behalf of its members, including the Rangeview District. Pursuant to the SMWSA Participation Agreement with the Rangeview District, we agreed to provide funding to the Rangeview District in connection with its membership in the SMWSA. During the fiscal years ended August 31, 20152018, 2017 and 2014,2016, we provided $78,600$22,000, $198,200, and $131,300,$113,600, respectively, of funding to the Rangeview District pursuant to the SMWSA Participation Agreement. In July 2013, the Rangeview District, together with nine other SMWSA members, formed an entity to enable its members to participle in WISE and entered into an agreement that specifies each member'smember’s pro rata share of WISE and the members'members’ rights and obligations with respect to WISE. On December 31, 2013, SMWA, Denver Water and Aurora Water entered into the WISE Partnership Agreement, which provides for the purchase of certain infrastructure (pipelines, water storage facilities, water treatment facilities, and other appurtenant facilities) to deliver water to and among the 10 members of the SMWA, Denver Water and Aurora Water. We have entered into the WISE Financing Agreement, which obligates us to fund the District'sRangeview District’s cost of participating in WISE. During the fiscal year ended August 31, 2015, we made payments of $1,156,800 to purchase certain rights to use existing water transmission and related infrastructure acquired by WISE. We anticipate that we will be investing approximately $1.2 million per year during each of the next five years to fund the District's purchase of its share of the water transmission line and additional facilities, water and related assets for WISE. In exchange for funding the District'sRangeview District’s obligations in WISE, we will have the sole right to use and reuse the District'sRangeview District’s 7% share of the WISE water and infrastructure to provide water service to the District'sRangeview District’s customers and to receive the revenue from such service. Upon completion in 2021, we expect to be entitledOur current WISE subscription entitles us to approximately 3 million gallons per day of transmission pipeline capacity and 500 acre feet per year of water.
We also funded In addition to the District'sfunding we have provided to the Rangeview District pursuant to the SMWSA Participation Agreement, to date we have provided approximately $3.1 million of financing to the Rangeview District to fund its obligation to repay approximately $1.4 million borrowed by the District from certain SMWA members to finance the purchase of infrastructure for WISE pursuantand the construction of a connection to the WISE system in accordance with the WISE Financing Agreement. The note was paidWe anticipate that we will be spending approximately $3.0 million in fullconnection with this system during August 2015.fiscal 2019 and $3.8 million in total for the fiscal years 2020 through 2023 to fund the Rangeview District’s purchase of its share of the water transmission line and additional facilities, water and related assets for WISE.
Summary Cash Flows Table
| | | | | | | | | | | Change | |
| | For the Fiscal Years Ended August 31, | | | | 2015-2014 | | | 2014-2013 | |
| | 2015 | | | 2014 | | | 2013 | | | | | | | $ | % | | | | | | $ | % | |
Cash (used) provided by: | | | | | | | | | | | | | | | | | | | | | | | | |
Operating acitivites | | $ | (974,100 | ) | | $ | 51,700 | | | $ | (1,756,700 | ) | | $ | (1,025,800 | ) | | | -1984 | % | | $ | 1,808,400 | | | | -103 | % |
Investing activities | | $ | 42,531,700 | | | $ | 2,136,300 | | | $ | 4,098,100 | | | $ | 39,014,400 | | | | 1826 | % | | $ | (1,961,800 | ) | | | -48 | % |
Financing activities | | $ | (6,218,200 | ) | | $ | (2,886,900 | ) | | $ | (1,516,500 | ) | | $ | (1,950,300 | ) | | | 68 | % | | $ | (1,370,400 | ) | | | 90 | % |
Table K – Summary Cash Flows
| |
| | | Change | |
| | For the Fiscal Years Ended August 31, | | | 2018 versus 2017 | | | 2017 versus 2016 | |
| | 2018 | | | 2017 | | | 2016 | | | $ | | |
| % | | | $ | | |
| % | |
Cash (used in) provided by: | | | | | | | | | | | | | | | | | | | | | | | |
Operating activities | | $ | 500 | | | $ | (1,052,900 | ) | | $ | (270,700 | ) | | $ | 1,053,400 | | | | 100 | % | | $ | (782,200 | ) | | | (289 | )% |
Investing activities | | $ | 5,700,800 | | | $ | 1,933,800 | | | $ | (32,119,000 | ) | | $ | 3,767,000 | | | | 195 | % | | $ | 34,052,800 | | | | (106 | )% |
Financing activities | | $ | 288,000 | | | $ | (2,400 | ) | | $ | (2,000 | ) | | $ | 290,400 | | | | 12,100 | % | | $ | (400 | ) | | | (20 | )% |
Changes in Operating Activities –Operating activities include revenues we receive from the sale of wholesale water and wastewater services, costs incurred in the delivery of those services, G&A Expenses, and depletion/depreciation expenses.
Cash usedprovided by operations in fiscal 20152018 increased by $1,025,700$1.1 million as compared to fiscal 2014,2017, which was primarily the result of us not receivingthe first milestone payment of $2.5 million from two builders at Sky Ranch and a feedeferred oil and gas lease payment for renewalthe Bison Lease, offset by increases in inventories related to the construction activities of Sky Ranch, trade account receivables related to oil and gas fracking and the O&G leasepayment of approximately $1.1 million for a collateral deposit paid to the Southeast Metropolitan Stormwater Authority in fiscal 2015, which accountedconnection with the grading, erosion and sediment control permit application for approximately $1.3 million in fiscal 2014.Sky Ranch, anticipated to be refunded within twelve months. Cash used byin operations in fiscal 2014 decreased2017 increased by $1,808,400$782,200 compared to fiscal 2013,2016, which was due primarily to the decrease in net operating losses, which was the result of increased revenues.an increase in salary and salary-related expenses and consulting expenses.
We will continue to provide wholesale domestic water and wastewater services to customers in our service areas, and we will continue to operate and maintain our water and wastewater systems with our own employees.
Changes in Investing Activities–Investing activities in fiscal 20152018 consisted of the sale and maturity of our farms, which generated proceedsdebt securities of approximately $44.6$34 million andoffset by the additionpurchase of approximately $2.1$23 million in water assets, which primarily consisted of the investment in WISE of approximately $2.5 million ($1.4 million acquired through WISE funding obligation) and the addition of pipelines and other water infrastructure of approximately $1 million. Investing activities in fiscal 2014 consisted of the sale of some of our farms and easements on our land, which generated $5.8 million and the addition of approximately $3.9 million in water assets, which primarily consisted of the addition of three wells to our system. Investing
activities in fiscal 2013 consisted ofsecurities, the investment in our water system of $1.3 million, and the purchase of equipment of $445,300. Investing activities in fiscal 2017 consisted of investments in our water infrastructureand wastewater systems of approximately $2.5 million, pipelines of approximately $4.4 million (approximately $300,000 was expended for the pipeline in fiscal 2016 and was reclassified from construction in progress to fixed assets when the pipeline was placed into service), the development of $418,000,our Sky Ranch land of approximately $900,000, and new equipment of approximately $100,000. The investments in new assets were offset by the sale of marketable securities of $1.1approximately $9.8 million. Investing activities in fiscal 2016 consisted of the investments in our water and wastewater systems and land of approximately $1.2 million, the purchase of equipment of approximately $472,300, and the salenet investment of collateral stockapproximately $30 million into U.S. treasuries and certificates of $3.4 million.deposit.
Changes in Financing Activities– Financing activities in 2018 consisted of the receipt of payment on a note receivable of $215,500 from a Sky Ranch District and proceeds from the exercise of stock options of $75,000, offset by a payment to contingent liability holders of $2,500. Financing activities in fiscal 20152017 and 2016 only consisted primarily of payments onto our promissory notes of $8.9 million (which includes repayment of the WISE funding obligation entered into in December 2014) and the receiptcontingent liability holders of approximately $2.7 million in new notes. Financing activities in fiscal 2014 consisted primarily of payments on our promissory notes of $2.9 million. Financing activities in fiscal 2013 consisted primarily of payments on our promissory notes of $1.8 million$2,400 and the receipt of $292,000 from Arapahoe County pursuant to the County Agreement and the early payoff of the debt.$2,000, respectively.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements consist entirely of the contingent portion of the CAAComprehensive Amendment Agreement No. 1 (the “CAA”), which is $646,400,$668,300, as described in Note 5 – Participating InterestInterests in Export Water to the accompanying financial statements. The contingent liability is not reflected on our balance sheet because the obligation to pay the CAA is contingent on sales of Export Water, the amounts and timing of which are not reasonably determinable.
Recently Adopted and Issued Accounting Pronouncements
See Note 2 – Summary of Significant Accounting Policies to the accompanying financial statements for recently adopted and issued accounting pronouncements.
Total Contractual Cash Obligations
Table K - Contractual Cash Obligations |
| | | Payments due by period |
| Total | | Less than 1 year | | | | 1-3 years | | | 3-5 years | | | More than 5 years |
Operating lease obligations | | $ | 6,300 | | | $ | 6,300 | | | | (a) | | | (a) | | | (a) |
Participating Interests in Export Water | | | 346,000 | | (b) | | | | (b) | | | (b) | | | (b) |
Total | | $ | 352,300 | | | $ | 6,300 | | | $ | - | | $ | - | | $ | - |
Table L - Contractual Cash Obligations
| | | | | Payments due by period |
| | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | More than 5 years |
Operating lease obligations (a) | | $ | 191,400 | | | $ | 79,200 | | | | 112,200 | | | (a) | | (a) |
Participating Interests in Export Water (b) | | | 339,000 | | | (b) | | | (b) | | | (b) | | (b) |
WISE participation (c) | | | 6,819,700 | | | | 3,010,400 | | | $ | 2,713,500 | | | $ | 1,095,800 | | (c) |
Total | | $ | 7,350,100 | | | $ | 3,089,600 | | | $ | 2,825,700 | | | $ | 1,095,800 | | |
| (a) | Our only operating lease is related to our office space. We occupy 2,50011,393 square feet at a cost of $3,000,$6,600, per month, at the address shown on the cover of this Annual Report on Form 10-K. We lease these premises pursuant to a one‑yearthree-year operating lease agreement which expires in December 2015January 2021 with a third party. |
| (b) | The participating interests liability is payable to the CAA holders upon the sale of Export Water, andWater; therefore, the timing of the payments is uncertain and not reflected in the above table by period. |
(c) | Projections for WISE participation have only been provided for the next five fiscal years. The timing and amount of payments beyond five years is uncertain and not reflected in the above table by period. |
Item 7A – Quantitative and Qualitative Disclosures About Market Risk
General
We have limited exposure to market risks from instruments that may impact our balance sheets, statements of operations and comprehensive income (loss), and statements of cash flows. Such exposure is due primarily to changing interest rates.
Interest Rates
The primary objective for our investment activities is to preserve principal while maximizing yields without significantly increasing risk. This is accomplished by investing in diversified short-term interest bearinginterest-bearing investments. As of August 31, 2015,2018, we are not holding any$8.9 million in marketable securities while we evaluate our investment policiesconsisting of certificates of deposit and expand our water systems.U.S. treasury notes. We have no investments denominated in foreign country currencies, andcurrencies; therefore, our investments are not subject to foreign currency exchange rate risk.
4044
Item 8 – Consolidated Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Supplementary Data
| |
| | | Page | |
ReportReports of Independent Registered Public Accounting Firm | | | F-1 | |
Consolidated Balance Sheets | | | F-2 | F-4 |
Consolidated Statements of Operations and Comprehensive Income (Loss) | | | F-3 | F-5 |
Consolidated Statements of Shareholders'Shareholders’ Equity and Comprehensive Income (Loss) | | | F-4 | F-6 |
Consolidated Statements of Cash Flows | | | F-5 | F-7 |
Notes to Consolidated Financial Statements | | | F-6 | F-8 |
Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors and Shareholders
of Pure Cycle CorporationCorporation:
Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheetssheet of Pure Cycle Corporation (the “Company”) as of August 31, 2015 and 2014,2018, and the related consolidated statements of operations, shareholders' equity and comprehensive income, (loss),shareholders’ equity, and cash flows for each of the years in the three-year periodyear ended August 31, 2015.2018, and the related notes (collectively referred to as the “financial statements”). We also have audited Pure Cycle Corporation'sthe Company’s internal control over financial reporting as of August 31, 2015,2018, based on criteria established in Internal Control—IntegratedControl-Integrated Framework 2013(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(the “COSO framework”). Pure Cycle Corporation's
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of August 31, 2018, and the results of its operations and its cash flows for the year ended August 31, 2018, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2018, based on criteria established in the COSO framework.
Basis for Opinion
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Annual Report on Internal Control Overover Financial Reporting. Our responsibility is to express an opinion on thesethe Company’s financial statements and an opinion on Pure Cycle Corporation'sthe Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our auditaudits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Plante & Moran PLLC
Boulder, Colorado
November 13, 2018
We have served as the Company’s auditor since 2017.
Report of Independent Registered Public Accounting Firm
Pure Cycle Corporation
Watkins, Colorado
We have audited the accompanying consolidated balance sheet of Pure Cycle Corporation as of August 31, 2017, and the related consolidated statements of operations and comprehensive income (loss), shareholders' equity, and cash flows for the year ended August 31, 2017. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 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 audit provides 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 the Company as of August 31, 2017, and the results of its operations and its cash flows for the year ended August 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
| /s/ CROWE LLP |
Denver, Colorado
| |
November 15, 2017 | |
Report of Independent Registered Public Accounting Firm
THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY GHP HORWATH, P.C. AND HAS NOT BEEN REISSUED BY GHP HORWATH, P.C. GHP HORWATH, P.C. CEASED OPERATIONS AND FILED ARTICLES OF DISSOLUTION WITH THE STATE OF COLORADO ON APRIL 25, 2018.
Board of Directors and Shareholders
Pure Cycle Corporation
We have audited the accompanying consolidated balance sheet of Pure Cycle Corporation as of August 31, 2016, and the related consolidated statements of comprehensive loss, shareholders’ equity, and cash flows for the year ended August 31, 2016. Pure Cycle Corporation’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 and 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 as of August 31, 2015 and 2014,2016, and the results of its operations and its cash flows for each of the years in the three-year periodyear ended August 31, 20152016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, Pure Cycle Corporation maintained, in all material respects, effective internal control over financial reporting as
/s/ GHP HORWATH, P.C. |
Denver, Colorado |
October 27, 2016 |
PURE CYCLE CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS: | | August 31, 2018 | | | August 31, 2017 | |
Current Assets: | | | | | | |
Cash and cash equivalents | | $ | 11,565,038 | | | $ | 5,575,823 | |
Short-term investments | | | 8,717,967 | | | | 20,055,345 | |
Trade accounts receivable, net | | | 1,067,268 | | | | 663,762 | |
Sky Ranch receivable | | | — | | | | 215,504 | |
Prepaid expenses and deposits | | | 1,372,886 | | | | 503,100 | |
Inventories | | | 5,195,059 | | | | - | |
Assets of discontinued operations | | | — | | | | 110,748 | |
Total current assets | | | 27,918,218 | | | | 27,124,282 | |
| | | | | | | | |
Long-term investments | | | 190,370 | | | | 187,975 | |
Investments in water and water systems, net | | | 36,721,884 | | | | 34,575,713 | |
Land and mineral interests | | | 4,659,569 | | | | 6,248,371 | |
Notes receivable – related parties, including accrued interest | | | 906,199 | | | | 776,364 | |
Other assets | | | 777,734 | | | | 424,226 | |
Long-term land investment | | | 450,641 | | | | — | |
Deferred tax asset | | | 282,000 | | | | — | |
Assets of discontinued operations held for sale | | | — | | | | 450,641 | |
Total assets | | $ | 71,906,615 | | | $ | 69,787,572 | |
| | | | | | | | |
LIABILITIES: | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | | 787,662 | | | | 492,410 | |
Accrued liabilities | | | 849,538 | | | | 380,852 | |
Deferred revenues | | | 361,050 | | | | 55,800 | |
Deferred oil and gas lease payment | | | 55,733 | | | | — | |
Liabilities of discontinued operations | | | — | | | | 11,165 | |
Total current liabilities | | | 2,053,983 | | | | 940,227 | |
| | | | | | | | |
Deferred revenues, less current portion | | | 60,378 | | | | 999,688 | |
Participating Interests in Export Water Supply | | | 339,035 | | | | 341,558 | |
Total liabilities | | | 2,453,396 | | | | 2,281,473 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
| | | | | | | | |
SHAREHOLDERS’ EQUITY: | | | | | | | | |
Preferred stock: | | | | | | | | |
Series B – par value $.001 per share, 25 million shares authorized; 432,513 shares issued and outstanding (liquidation preference of $432,513) | | | 433 | | | | 433 | |
Common stock: | | | | | | | | |
Par value 1/3 of $.01 per share, 40 million shares authorized; 23,764,098 and 23,764,098 shares issued and outstanding, respectively | | | 79,218 | | | | 79,185 | |
Collateral stock | | | — | | | | — | |
Additional paid-in capital | | | 171,831,293 | | | | 171,431,486 | |
Accumulated other comprehensive income (loss) | | | 66,446 | | | | (11,105 | ) |
Accumulated deficit | | | (102,524,171 | ) | | | (103,993,900 | ) |
Total shareholders’ equity | | | 69,453,219 | | | | 67,506,099 | |
Total liabilities and shareholders’ equity | | $ | 71,906,615 | | | $ | 69,787,572 | |
See accompanying Notes to Financial Statements
/s/ GHP HORWATH, P.C
Denver, Colorado
NovemberF-4 9, 2015
PURE CYCLE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)ASSETS: | | August 31, 2015 | | | August 31, 2014 | |
Current assets: | | | | | | |
Cash and cash equilvalents | | $ | 37,089,041 | | | $ | 1,749,558 | |
Trade accounts receivable, net | | | 707,838 | | | | 1,626,090 | |
Sky Ranch receivable | | | 148,415 | | | | 50,915 | |
Escrow receivable | | | 1,342,250 | | | | – | |
Land and water held for sale | | | – | | | | 699,826 | |
Prepaid expenses | | | 293,395 | | | | 336,867 | |
Total current assets | | | 39,580,939 | | | | 4,463,256 | |
| | | | | | | | |
Investments in water and water systems, net | | | 27,708,595 | | | | 90,823,916 | |
Land and mineral interests | | | 5,091,668 | | | | 3,662,754 | |
Land and water held for sale | | | – | | | | 1,500,000 | |
Note receivable - related party: | | | | | | | | |
Rangeview Metropolitan District, including accrued interest | | | 591,223 | | | | 568,022 | |
HP A&M receivable | | | – | | | | 7,069,511 | |
Other assets | | | 88,488 | | | | 86,363 | |
Total assets | | $ | 73,060,913 | | | $ | 108,173,822 | |
| | | | | | | | |
LIABILITIES: | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | | 198,338 | | | | 1,379,647 | |
Current portion mortgages payable, | | | | | | | | |
including interest payable of $0 and $80,847, respectively | | | – | | | | 925,980 | |
Accrued liabilities | | | 590,533 | | | | 257,893 | |
Income taxes | | | 292,729 | | | | - | |
Deferred revenues | | | 56,700 | | | | 65,124 | |
Deferred oil and gas lease payment | | | 360,765 | | | | 645,720 | |
Total current liabilities | | | 1,499,065 | | | | 3,274,364 | |
| | | | | | | | |
Deferred revenues, less current portion | | | 1,111,293 | | | | 1,167,095 | |
Deferred oil and gas lease payment, less current portion | | | 19,000 | | | | 379,765 | |
Mortgages payable, less current portion | | | – | | | | 4,032,227 | |
Participating Interests in Export Water Supply | | | 346,007 | | | | 354,628 | |
Tap Participation Fee payable to HP A&M | | | | | | | | |
net of $0 and $4.1 million discount respectively | | | – | | | | 7,935,262 | |
Total liabilities | | | 2,975,365 | | | | 17,143,341 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
| | | | | | | | |
SHAREHOLDERS' EQUITY: | | | | | | | | |
Preferred stock: | | | | | | | | |
Series B - par value $.001 per share, 25 milllion shares authorized | | | 433 | | | | 433 | |
432,513 shares issued and outstanding | | | | | | | | |
(liquidation perference of $432,513) | | | | | | | | |
Common stock: | | | | | | | | |
Par value 1/3 of $.01 per share, 40 million shares authorized; | | | | | | | | |
24,054,098 and 24,037,598 shares issued and outstanding, respectively | | | 80,185 | | | | 80,130 | |
Collateral stock | | | (1,407,000 | ) | | | – | |
Additional paid in capital | | | 172,384,355 | | | | 168,794,396 | |
Accumulated deficit | | | (100,972,425 | ) | | | (77,844,478 | ) |
Total shareholders' equity | | | 70,085,548 | | | | 91,030,481 | |
Total liabilities and shareholders' equity | | $ | 73,060,913 | | | $ | 108,173,822 | |
| | For the Fiscal Years Ended August 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Revenues: | | | | | | | | | |
Metered water usage | | $ | 4,555,912 | | | $ | 825,056 | | | $ | 220,997 | |
Wastewater treatment fees | | | 46,199 | | | | 45,106 | | | | 43,712 | |
Special facility funding recognized | | | — | | | | 41,508 | | | | 41,508 | |
Water tap fees recognized | | | 49,948 | | | | 217,515 | | | | 14,294 | |
Lot sales | | | 2,138,950 | | | | — | | | | — | |
Other income | | | 168,190 | | | | 98,602 | | | | 131,650 | |
Total revenues | | | 6,959,199 | | | | 1,227,787 | | | | 452,161 | |
| | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | |
Water service operations | | | (1,379,644 | ) | | | (332,449 | ) | | | (264,424 | ) |
Wastewater service operations | | | (28,350 | ) | | | (28,615 | ) | | | (29,187 | ) |
Lot fee construction costs | | | (2,013,840 | ) | | | — | | | | — | |
Other | | | (88,318 | ) | | | (61,860 | ) | | | (68,478 | ) |
Depletion and depreciation | | | (651,449 | ) | | | (380,382 | ) | | | (166,670 | ) |
Total cost of revenues | | | (4,161,601 | ) | | | (803,306 | ) | | | (528,759 | ) |
Gross profit (loss) | | | 2,797,598 | | | | 424,481 | | | | (76,598 | ) |
| | | | | | | | | | | | |
General and administrative expenses | | | (2,855,095 | ) | | | (2,201,744 | ) | | | (1,849,743 | ) |
Depreciation | | | (251,230 | ) | | | (353,939 | ) | | | (253,434 | ) |
Operating loss | | | (308,727 | ) | | | (2,131,202 | ) | | | (2,179,775 | ) |
| | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | |
Oil and gas lease income, net | | | 51,089 | | | | 18,765 | | | | 360,765 | |
Oil and gas royalty income, net | | | 191,309 | | | | 186,595 | | | | 343,620 | |
Interest income | | | 206,138 | | | | 257,488 | | | | 241,279 | |
Other | | | (7,129 | ) | | | (10,489 | ) | | | 3,852 | |
Income (loss) from continuing operations | | | 132,680 | | | | (1,678,843 | ) | | | (1,230,259 | ) |
Loss from discontinued operations, net of taxes | | | — | | | | (32,025 | ) | | | (80,348 | ) |
Net income (loss) before taxes | | | 132,680 | | | | (1,710,868 | ) | | | (1,310,607 | ) |
Income tax benefit | | | 282,000 | | | | — | | | | — | |
Net income (loss) | | $ | 414,680 | | | $ | (1,710,868 | ) | | $ | (1,310,607 | ) |
Unrealized holding gains (losses) | | | 77,551 | | | | (14,227 | ) | | | 3,122 | |
Total comprehensive income (loss) | | $ | 492,231 | | | $ | (1,725,095 | ) | | $ | (1,307,485 | ) |
| | | | | | | | | | | | |
Basic and diluted net income (loss) per common share – | | | | | | | | | | | | |
Income (loss) from continuing operations | | $ | 0.02 | | | $ | (0.07 | ) | | $ | (0.06 | ) |
Loss from discontinued operations | | | — | | | | * | | | $ | * | |
Net income (loss) | | $ | 0.02 | | | $ | (0.07 | ) | | $ | (0.06 | ) |
| | | | | | | | | | | | |
Weighted average common shares outstanding – basic | | | 23,760,765 | | | | 23,754,098 | | | | 23,781,041 | |
Weighted average common shares outstanding – diluted | | | 23,930,535 | | | | 23,754,098 | | | | 23,781,041 | |
* Amount is less than $.01 per share
See accompanying Notes to Financial Statements
F-2
PURE CYCLE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
SHAREHOLDERS’ EQUITY | | 2015 | | | 2014 | | | 2013 | |
Revenues: | | | | | | | | | |
Metered water usage | | $ | 969,989 | | | $ | 1,879,495 | | | $ | 502,668 | |
Wastewater treatment fees | | | 50,076 | | | | 45,400 | | | | 41,697 | |
Special facility funding recognized | | | 41,508 | | | | 41,508 | | | | 41,508 | |
Water tap fees recognized | | | 14,294 | | | | 14,294 | | | | 14,294 | |
Farm operations | | | 1,127,155 | | | | 1,068,026 | | | | 1,241,882 | |
Other income | | | 120,702 | | | | 42,417 | | | | 15,413 | |
Total revenues | | | 2,323,724 | | | | 3,091,140 | | | | 1,857,462 | |
| | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | |
Water service operations | | | (464,940 | ) | | | (547,562 | ) | | | (188,309 | ) |
Wastewater service operations | | | (66,745 | ) | | | (38,426 | ) | | | (16,958 | ) |
Farm operations | | | (126,279 | ) | | | (88,105 | ) | | | (96,337 | ) |
Other | | | (55,173 | ) | | | (39,421 | ) | | | (1,199 | ) |
Depletion and depreciation | | | (172,546 | ) | | | (149,757 | ) | | | (90,468 | ) |
Total cost of revenues | | | (885,683 | ) | | | (863,271 | ) | | | (393,271 | ) |
Gross margin | | | 1,438,041 | | | | 2,227,869 | | | | 1,464,191 | |
| | | | | | | | | | | | |
General and administrative expenses | | | (2,699,587 | ) | | | (3,356,863 | ) | | | (2,333,126 | ) |
Impairment of land and water rights held for sale | | | – | | | | (402,657 | ) | | | – | |
Depreciation | | | (174,717 | ) | | | (46,807 | ) | | | (220,834 | ) |
Operating loss | | | (1,436,263 | ) | | | (1,578,458 | ) | | | (1,089,769 | ) |
| | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | |
Oil and gas lease income, net | | | 645,720 | | | | 525,438 | | | | 416,048 | |
Oil and gas royalty income, net | | | 412,627 | | | | | | | | | |
Interest income | | | 43,044 | | | | 26,858 | | | | 34,583 | |
Interest expense | | | (390,505 | ) | | | (239,200 | ) | | | (245,503 | ) |
Other | | | 22,120 | | | | 160,004 | | | | 9,574 | |
(Loss) gain on sale of land and water assets | | | (22,108,145 | ) | | | 1,407,326 | | | | – | |
Gain on extinguishment of contingent obligations | | | – | | | | 832,097 | | | | – | |
Interest imputed on the Tap Participation Fees | | | | | | | | | | | | |
payable to HP A&M | | | (23,816 | ) | | | (1,445,509 | ) | | | (3,275,378 | ) |
Net loss before taxes | | | (22,835,218 | ) | | | (311,444 | ) | | | (4,150,445 | ) |
Taxes | | | (292,729 | ) | | | – | | | | – | |
Net loss | | $ | (23,127,947 | ) | | $ | (311,444 | ) | | $ | (4,150,445 | ) |
Net loss per common share – basic and diluted | | $ | (0.96 | ) | | $ | (0.01 | ) | | $ | (0.17 | ) |
| | | | | | | | | | | | |
Weighted average common shares outstanding – | | | | | | | | | | | | |
basic and diluted | | | 24,041,114 | | | | 24,037,598 | | | | 24,037,598 | |
| | Preferred Stock | | | Common Stock | | | Additional Paid-in | | | Accumulated Other Comprehensive | | | Collateral | | | Accumulated | | | | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Income (Loss) | | | Stock | | | Deficit | | | Total | |
September 1, 2015 balance: | | | 432,513 | | | $ | 433 | | | | 24,054,098 | | | $ | 80,185 | | | $ | 172,384,355 | | | $ | — | | | $ | (1,407,000 | ) | | $ | (100,972,425 | ) | | $ | 70,085,548 | |
Share-based compensation | | | — | | | | — | | | | — | | | | — | | | | 219,886 | | | | — | | | | — | | | | — | | | | 219,886 | |
Collateral stock retired | | | — | | | | — | | | | (300,000 | ) | | | (1,000 | ) | | | (1,406,000 | ) | | | — | | | | 1,407,000 | | | | — | | | | — | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,310,607 | ) | | | (1,310,607 | ) |
Unrealized holding gain on investments | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,122 | | | | — | | | | — | | | | 3,122 | |
August 31, 2016 balance: | | | 432,513 | | | | 433 | | | | 23,754,098 | | | | 79,185 | | | | 171,198,241 | | | | 3,122 | | | | — | | | | (102,283,032 | ) | | | 68,997,949 | |
Share-based compensation | | | — | | | | — | | | | — | | | | — | | | | 233,245 | | | | — | | | | — | | | | — | | | | 233,245 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,710,868 | ) | | | (1,710,868 | ) |
Unrealized holding loss on investments | | | — | | | | — | | | | — | | | | — | | | | — | | | | (14,227 | ) | | | — | | | | — | | | | (14,227 | ) |
August 31, 2017 balance: | | | 432,513 | | | | 433 | | | | 23,754,098 | | | | 79,185 | | | | 171,431,486 | | | | (11,105 | ) | | | — | | | | (103,993,900 | ) | | | 67,506,099 | |
Share-based compensation | | | — | | | | — | | | | — | | | | — | | | | 324,840 | | | | — | | | | — | | | | — | | | | 324,840 | |
Exercise of options | | | — | | | | — | | | | 10,000 | | | | 33 | | | | 74,967 | | | | — | | | | — | | | | — | | | | 75,000 | |
Adoption of accounting standards | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,055,049 | | | | 1,055,049 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 414,680 | | | | 414,680 | |
Unrealized holding gain on investments | | | — | | | | — | | | | — | | | | — | | | | — | | | | 77,551 | | | | — | | | | — | | | | 77,551 | |
August 31, 2018 balance: | | | 432,513 | | | $ | 433 | | | | 23,764,098 | | | $ | 79,218 | | | $ | 171,831,293 | | | $ | 66,446 | | | $ | — | | | $ | (102,524,171 | ) | | $ | 69,453,219 | |
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/ Mark W. Harding
Mark W. Harding, President and Chief Financial Officer
November 9, 2015
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.
SignatureExhibit Number | | Title | | DateDescription |
| | President,
Chief Financial Officer and Director
| | November 9, 2015 |
Mark W. Harding | | (Principal Executive Officer, Principal Financial and Accounting Officer) | | |
| | | | |
/s/ Harrison H. Augur | | | | |
Harrison H. Augur | | Chairman, Director | | November 9, 2015 |
| | | | |
/s/ Arthur G. Epker III | | | | |
Arthur G. Epker III | | Director | | November 9, 2015 |
| | | | |
/s/ Richard L. Guido | | | | |
Richard L. Guido | | Director | | November 9, 2015 |
| | | | |
/s/ Peter C. Howell | | | | |
Peter C. Howell | | Director | | November 9, 2015 |
EXHIBIT INDEX
Exhibit Number | Description |
| |
3.1 | Articles of Incorporation of the Company.Company. Incorporated by reference to Appendix B to the Proxy Statement on Schedule 14A filed on December 14, 2007. |
| | Bylaws of the Company.Company. Incorporated by reference to Appendix C to the Proxy Statement on Schedule 14A filed on December 14, 2007. |
| | Specimen Stock Certificate.Certificate. Incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10‑10 Q for the fiscal quarter ended February 28, 2015. |
| | 2004 Incentive Plan, effective April 12, 2004.2004. Incorporated by reference to Exhibit F to the Proxy Statement for the Annual Meeting held on April 12, 2004. ** |
| |
10.2 | Wastewater Service Agreement, dated January 22, 1997, by and between the Company and the Rangeview Metropolitan District.District. Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-KSB for the fiscal year ended August 31, 1998. |
| | Comprehensive Amendment Agreement No. 1, dated April 11, 1996, by and among Inco Securities Corporation, 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.Board. Incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-QSB for the period ended May 31, 1996. |
| | Agreement for Sale of Export Water dated April 11, 1996 by and between the Company and the District.Rangeview Metropolitan District. Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-QSB for the fiscal quarter ended May 31, 1996. |
| | Water Service Agreement for the Sky Ranch PUD dated October 31, 2003 by and among 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 on April 19, 2004, Registration No. 333-114568.
|
10.6 | 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 on June 7, 2004, Registration No. 333-114568.
|
10.7 | 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 on June 7, 2004, Registration No. 333-114568.
|
10.8 | 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, 2006.
|
10.9 | Bargain and Sale Deed among the Land Board, the Rangeview Metropolitan District and the Company dated April 11, 1996.1996. Incorporated by reference to Exhibit 10.18 to Amendment No. 1 to Registration Statement on Form SB-2, filed on June 7, 2004, Registration No. 333-114568. |
10.10 | | 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.
|
10.11 | Agreement for Water Service dated August 3, 2005 among the Company, 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. |
10.12 | | Asset Purchase Agreement dated May 10, 2006, between the Company and High Plains A&M, LLC, and the Seller Pledge Agreement, Pure Cycle Pledge Agreement and Property Management Agreement, attached as exhibits thereto, between the Company 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.
|
10.13 | Amendment No. 1 to Agreement for Water Service dated August 25, 2008, between the Company and Arapahoe County.County. Incorporated by reference to Exhibit 10.36 to the Annual Report on Form 10-K for the fiscal year ended August 31, 2008. |
10.14 | | Registration Rights Agreement dated September 28, 2010, between the Company 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.
|
10.15 | Paid-Up Oil and Gas Lease dated March 14, 2011, between the Company and Anadarko E&P Company, L.P.L.P. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 15, 2011. |
10.16 | | Surface Use and Damage Agreement dated March 14, 2011, between the Company and Anadarko E&P Company, L.P.L.P. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on March 15, 2011. |
10.17 | | 2014 Equity Incentive Plan, effective April 12, 2014.2014. Incorporated by reference to ExhibitAppendix A to the Proxy Statement for the Annual Meeting held on January 15, 2014. ** |
10.18 | | 2014 Amended and Restated Lease Agreement, dated July 10, 2014, by and between the Land Board, the Rangeview Metropolitan District, and the Company.Company. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on July 14, 2014. |
Exhibit Number | | Description |
10.19 | | 2014 Amended and Restated Service Agreement, dated July 10, 2014, by and between the Company and the District.Rangeview Metropolitan District. Incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on July 14, 2014. |
10.20 | Settlement Agreement and Mutual Release, dated July 10, 2014, by and among the Land Board, the District, and the Company. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on July 14, 2014.
|
10.21 | Assignment and Termination Agreement, dated July 10, 2014, by and among the Land Board, the District, and the Company. Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on July 14, 2014.
|
10.22
| Release of Mortgage and Termination Statement, dated July 10, 2014, by and between the Land Board and the Company. Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on July 14, 2014.
|
10.23 | Settlement Agreement and Mutual Release, dated September 29, 2014, by and between HP A&M and the Company. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on September 30, 2014.
|
10.11 | Agreement for Water Service dated August 3, 2005 among the Company, 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.
|
10.12 | Asset Purchase Agreement dated May 10, 2006, between the Company and High Plains A&M, LLC, and the Seller Pledge Agreement, Pure Cycle Pledge Agreement and Property Management Agreement, attached as exhibits thereto, between the Company 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.
|
10.13 | Amendment No. 1 to Agreement for Water Service dated August 25, 2008, between the Company 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, 2008.
|
10.14 | Registration Rights Agreement dated September 28, 2010, between the Company 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.
|
10.15 | Paid-Up Oil and Gas Lease dated March 14, 2011, between the Company 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.
|
10.16 | Surface Use and Damage Agreement dated March 14, 2011, between the Company 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.
|
10.17 | 2014 Equity Incentive Plan, effective April 12, 2014. Incorporated by reference to Exhibit A to the Proxy Statement for the Annual Meeting held on January 15, 2014. **
|
10.18 | 2014 Amended and Restated Lease Agreement, dated July 10, 2014, by and between the Land Board, the District, and the Company. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on July 14, 2014.
|
10.19 | 2014 Amended and Restated Service Agreement, dated July 10, 2014, by and between the Company and the District. Incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on July 14, 2014.
|
10.20 | Settlement Agreement and Mutual Release, dated July 10, 2014, by and among the Land Board, the District, and the Company. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on July 14, 2014.
|
10.21 | Assignment and Termination Agreement, dated July 10, 2014, by and among the Land Board, the District, and the Company. Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on July 14, 2014.
|
10.22
| Release of Mortgage and Termination Statement, dated July 10, 2014, by and between the Land Board and the Company. Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on July 14, 2014.
|
10.23 | Settlement Agreement and Mutual Release, dated September 29, 2014, by and between HP A&M and the Company. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on September 30, 2014.
|
10.24 | Business Loan Agreement dated October 27, 2014, between the Company and The First National Bank of Las Animas. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on October 29, 2014.
|
10.25 | Commercial Pledge Agreement, dated October 27, 2014, between the Company and The First National Bank of Las Animas. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on October 29, 2014.
|
10.26 | Rangeview/Pure Cycle WISE Project Financing and Service Agreement, effective as of December 22, 2014.2014. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 30, 2014. |
10.27 | | South Metro WISE Authority Formation and Organizational Intergovernmental Agreement, dated December 31, 2013.2013. Incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2014. |
10.28
| | Amended and Restated WISE Partnership – Water Delivery Agreement, dated December 31, 2013, among the City and County of Denver acting through its Board of Water Commissioners, the City of Aurora acting by and through its Utility Enterprise, and South Metro WISE Authority.Authority. Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2014. |
10.29 | | Agreement for Purchase and Sale of Western Pipeline Capacity, dated November 19, 2014, among the Rangeview Metropolitan District and certain members of the South Metro WISE Authority.Authority. Incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2014. |
10.30 | | SettlementWater Service Agreement and Mutual Release, dated January 29, 2015, by and between HP A&M, the CompanyRangeview Metropolitan District, acting by and PCY Holdings.through its Water Activity Enterprise, and Elbert & Highway 86 Commercial Metropolitan District, acting by and through its Water Enterprise, dated as of December 15, 2016. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on February 3, 2015.
December 19, 2016. |
10.31 | | Export Service Agreement, effective as of June 16, 2017, between the Company and the Rangeview Metropolitan District. Incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K for the fiscal year ended August 31, 2017 |
| | Contract for Purchase and Sale Agreement among the Company,of Real Estate, dated June 27, 2017, by and between PCY Holdings, LLC, and Arkansas River Farms,Richmond American Homes of Colorado, Inc., as amended by First Amendment to Contract for Purchase and Sale of Real Estate, dated August 28, 2017, by and between PCY Holdings, LLC, and Richmond American Homes of Colorado, Inc., as amended by Second Amendment to Contract for Purchase and Sale of Real Estate, dated MarchAugust 29, 2017, by and between PCY Holdings, LLC, and Richmond American Homes of Colorado, Inc., as amended by Third Amendment to Contract for Purchase and Sale of Real Estate, dated September 8, 2017, by and between PCY Holdings, LLC, and Richmond American Homes of Colorado, Inc., as amended by Fourth Amendment to Contract for Purchase and Sale of Real Estate, dated September 20, 2017, by and between PCY Holdings, LLC, and Richmond American Homes of Colorado, Inc., as amended by Fifth Amendment to Contract for Purchase and Sale of Real Estate, dated October 6, 2017, by and between PCY Holdings, LLC, and Richmond American Homes of Colorado, Inc., as amended by Sixth Amendment to Contract for Purchase and Sale of Real Estate, dated October 11, 2015. Incorporated2017, by and between PCY Holdings, LLC, and Richmond American Homes of Colorado, Inc., as amended by Seventh Amendment to Contract for Purchase and Sale of Real Estate, dated October 18, 2017, by and between PCY Holdings, LLC, and Richmond American Homes of Colorado, Inc., as amended by Eighth Amendment to Contract for Purchase and Sale of Real Estate, dated October 20, 2017, by and between PCY Holdings, LLC, and Richmond American Homes of Colorado, Inc., as amended by Ninth Amendment to Contract for Purchase and Sale of Real Estate, dated October 20, 2017, by and between PCY Holdings, LLC, and Richmond American Homes of Colorado, Inc., as amended by Tenth Amendment to Contract for Purchase and Sale of Real Estate, dated November 3, 2017, by and between PCY Holdings, LLC, and Richmond American Homes of Colorado, Inc., as amended by Eleventh Amendment to Contract for Purchase and Sale of Real Estate, dated November 10, 2017, by and between PCY Holdings, LLC, and Richmond American Homes of Colorado, Inc., as amended by Twelfth Amendment to Contract for Purchase and Sale of Real Estate, dated April 20, 2018, by and between PCY Holdings, LLC and Richmond American Homes of Colorado, Inc. The Contract for Purchase and Sale of Real Estate and the First through Tenth Amendments are incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K for the fiscal year ended August 31, 2017. The Eleventh Amendment is incorporated by reference to Exhibit 10.1 to the CurrentQuarterly Report on Form 8-K filed on March 17, 2015. |
10.32
| First10-Q for the fiscal quarter ended November 30, 2017. The Twelfth Amendment to Purchase and Sale Agreement among the Company, PCY Holdings and Arkansas River Farms, dated March 31, 2015. Incorporatedis incorporated by reference to Exhibit 10.110.3 to the Current Report on Form 8-K filed on May 21, 2015.
|
10.33
| Second Amendment to Purchase and Sale Agreement among the Company, PCY Holdings and Arkansas River Farms, dated May 18, 2015. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on May 21, 2015.
|
10.34 | Third Amendment to Purchase and Sale Agreement among the Company, PCY Holdings and Arkansas River Farms, dated June 18, 2015. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 19, 2015
|
10.35 | Fourth Amendment to Purchase and Sale Agreement among the Company, PCY Holdings and Arkansas River Farms, dated July 2, 2015. Incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2015.2018.
|
Exhibit Number | | Description |
| | Contract for Purchase and Sale of Real Estate, dated June 27, 2017, by and between PCY Holdings, LLC, and Taylor Morrison of Colorado, Inc., as amended by First Amendment to Contract for Purchase and Sale of Real Estate, dated August 24, 2017, by and between PCY Holdings, LLC, and Taylor Morrison of Colorado, Inc., as amended by Second Amendment to Contract for Purchase and Sale of Real Estate, dated September 19, 2017, by and between PCY Holdings, LLC, and Taylor Morrison of Colorado, Inc., as amended by Third Amendment to Contract for Purchase and Sale of Real Estate, dated October 6, 2017, by and between PCY Holdings, LLC, and Taylor Morrison of Colorado, Inc., as amended by Fourth Amendment to Contract for Purchase and Sale of Real Estate, dated October 13, 2017, by and between PCY Holdings, LLC, and Taylor Morrison of Colorado, Inc., as amended by Fifth Amendment to Contract for Purchase and Sale of Real Estate, dated October 18, 2017, by and between PCY Holdings, LLC, and Taylor Morrison of Colorado, Inc., as amended by Sixth Amendment to Contract for Purchase and Sale of Real Estate, dated October 20, 2017, by and between PCY Holdings, LLC, and Taylor Morrison of Colorado, Inc., as amended by Seventh Amendment to Contract for Purchase and Sale of Real Estate, dated October 20, 2017, by and between PCY Holdings, LLC, and Taylor Morrison of Colorado, Inc., as amended by Eighth Amendment to Contract for Purchase and Sale of Real Estate, dated November 3, 2017, by and between PCY Holdings, LLC, and Taylor Morrison of Colorado, Inc., as amended by Ninth Amendment to Contract for Purchase and Sale of Real Estate, dated November 7, 2017, by and between PCY Holdings, LLC, and Taylor Morrison of Colorado, Inc., as amended by Tenth Amendment to Contract for Purchase and Sale of Real Estate, dated November 10, 2017, by and between PCY Holdings, LLC, and Taylor Morrison of Colorado, Inc., as amended by Eleventh Amendment to Contract for Purchase and Sale of Real Estate, dated March 27, 2018, by and between PCY Holdings, LLC and Taylor Morrison of Colorado, Inc., as amended by Twelfth Amendment to Contract for Purchase and Sale of Real Estate, dated April 10, 2018, by and between PCY Holdings, LLC and Taylor Morrison of Colorado, Inc. The Contract for Purchase and Sale of Real Estate and the First through Ninth Amendments are incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K for the fiscal year ended August 31, 2017. The Tenth Amendment is incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2017. The Eleventh and Twelfth Amendments are incorporated by reference to Exhibits 10.1 and 10.2, respectively, to the Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2018. |
| Subsidiaries | Contract for Purchase and Sale of Real Estate, dated June 29, 2017, by and between PCY Holdings, LLC, and KB Home Colorado Inc., as amended by First Amendment to Contract for Purchase and Sale of Real Estate, dated August 28, 2017, by and between PCY Holdings, LLC, and KB Home Colorado Inc., as amended by Second Amendment to Contract for Purchase and Sale of Real Estate, dated September 15, 2017, by and between PCY Holdings, LLC, and KB Home Colorado Inc., as amended by Third Amendment to Contract for Purchase and Sale of Real Estate, dated September 28, 2017, by and between PCY Holdings, LLC, and KB Home Colorado Inc., as amended by Fourth Amendment to Contract for Purchase and Sale of Real Estate, dated October 9, 2017, by and between PCY Holdings, LLC, and KB Home Colorado Inc., as amended by Fifth Amendment to Contract for Purchase and Sale of Real Estate, dated October 18, 2017, by and between PCY Holdings, LLC, and KB Home Colorado Inc., as amended by Sixth Amendment to Contract for Purchase and Sale of Real Estate, dated October 20, 2017, by and between PCY Holdings, LLC, and KB Home Colorado Inc., as amended by Seventh Amendment to Contract for Purchase and Sale of Real Estate, dated October 31, 2017, by and between PCY Holdings, LLC, and KB Home Colorado Inc., as amended by Eighth Amendment to Contract for Purchase and Sale of Real Estate, dated November 3, 2017, by and between PCY Holdings, LLC, and KB Home Colorado Inc., as amended by Ninth Amendment to Contract for Purchase and Sale of Real Estate, dated November 7, 2017, by and between PCY Holdings, LLC, and KB Home Colorado Inc., as amended by Tenth Amendment to Contract for Purchase and Sale of Real Estate, dated November 10, 2017, by and between PCY Holdings, LLC, and KB Home Colorado Inc. The Contract for Purchase and Sale of Real Estate and the First through Ninth Amendments are incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K for the fiscal year ended August 31, 2017. The Tenth Amendment is incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2017. |
Exhibit Number | | Description |
| | ConsentLetter of GHP Horwath, P.C., dated January 13, 2017. Incorporated by reference to Exhibit 16.1 to the Current Report on Form 8 K filed on January 17, 2017.
|
| | Letter of Crowe Horwath dated December 5, 2017. Incorporated by reference to Exhibit 16.1 to the Current Report on Form 8-K filed on December 6, 2017. |
| | Letter of EKS&H LLLP, dated October 4, 2018. Incorporated by reference to Exhibit 16.1 to the Current Report on Form 8-K filed on October 4, 2018. |
| | Subsidiaries * |
| | Consent of Plante & Moran PLLC * |
| | Consent of Crowe LLP * |
| | Certification under Section 302 of the Sarbanes-Oxley Act of 2002. * |
| | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *** |
101.INS 101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
| | 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. *** |
** | Indicates management contract or compensatory plan or arrangement in which directors or executive officers are eligible to participate. |
50
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 | |
| |
/s/ Mark W. Harding | |
Mark W. Harding, President and Chief Financial Officer | |
November 13, 2018 | |
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/ Mark W. Harding | | | | |
Mark W. Harding | | President, Chief Financial Officer and Director | | November 13, 2018 |
| | (Principal Executive Officer, Principal Financial and Accounting Officer) | | |
/s/ Harrison H. Augur | | | | |
Harrison H. Augur | | Chairman, Director | | November 13, 2018 |
| | | | |
/s/ Patrick J. Beirne | | | | |
Patrick J. Beirne | | Director | | November 13, 2018 |
| | | | |
/s/ Arthur G. Epker III | | | | |
Arthur G. Epker III | | Director | | November 13, 2018 |
| | | | |
/s/ Richard L. Guido | | | | |
Richard L. Guido | | Director | | November 13, 2018 |
| | | | |
/s/ Peter C. Howell | | | | |
Peter C. Howell | | Director | | November 13, 2018 |
54