NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2013
NOTE 1 PRESENTATION OF INTERIM INFORMATION
The February 28, 2013 balance sheet, the statements of comprehensive loss for the three and six months ended February 28,
2013 and February 29, 2012, respectively and the statements of cash flows for the six months ended February 28, 2013 and February 29, 2012, respectively, have been prepared by Pure Cycle Corporation (the Company) and have
not been audited. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations and cash flows at February 28, 2013, and for all periods presented have been made appropriately.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP) have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the
Companys 2012 Annual Report on Form 10-K (the 2012 Annual Report) filed with the Securities and Exchange Commission (the SEC) on November 28, 2012. The results of operations for interim periods presented are not
necessarily indicative of the operating results for the full fiscal year. The August 31, 2012 balance sheet was taken directly from the Companys audited financial statements.
Use of Estimates
The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents include all highly liquid debt instruments with original maturities of three months or less. The Companys cash equivalents
are comprised entirely of money market funds maintained at a high quality financial institution in an account which at various times during the six months ended February 28, 2013, exceeded federally insured limits. At various times during the
three and six months ended February 28, 2013, the Companys main operating account exceeded federally insured limits.
Financial Instruments Concentration of Credit Risk and Fair Value
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents and marketable securities. The Company places its cash equivalents
and investments with high quality financial institutions. The Company invests its cash primarily in certificates of deposits, money market instruments, and U.S. government treasury obligations. To date, the Company has not experienced significant
losses on any of these investments.
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value.
Current Assets and Liabilities
The amounts reported on
the balance sheets for cash and cash equivalents, trade receivables, and trade payables approximate their fair values because of the short maturity of these instruments.
The amounts reported on the balance sheets for marketable securities represent the fair values of the underlying instruments as reported by the financial institutions where the funds are held as of
February 28, 2013 and August 31, 2012. The Company has recorded an accumulated net unrealized gain on its marketable securities of $56 and an accumulated net unrealized loss on its marketable securities of $1,081 as of February 28,
2013 and August 31, 2012, respectively. The unrealized gain and loss were the result of changes in interest rates in the market.
Notes Receivable and Construction Proceeds Receivable
The amounts reported on the balance sheets for notes receivable and
construction proceeds receivable approximate fair value as they bear interest at rates which are comparable to current market rates.
7
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2013
The fair value of the Note Receivable related party Rangeview Metropolitan District (the
District) is not practical to estimate due to the related party nature of the underlying transaction.
Receivable from HP
A&M
As described in Note 4
Long-Term Obligations and Operating Lease
below, High Plains A&M, LLC (HP A&M) defaulted on certain promissory notes payable to third parties which are secured by real
property and water rights owned by the Company. To protect its property and water rights, the Company has purchased certain of the HP A&M notes. The Company has the right to recover from HP A&M all costs and expenses, including reasonable
attorneys fees, incurred by the Company in curing the defaulted notes and in protecting its right and title to the property and water rights securing the notes. The Company has recorded the entire amount of the HP A&M notes purchased by
the Company and the value of remaining notes the Company is currently negotiating to purchase as a receivable from HP A&M net of the $3.4 million in proceeds received from the sale of shares held as pledged assets. The short term portion of the
receivable represents the amount of the defaulted promissory notes payable by HP A&M which were purchased by the Company as of February 28, 2013, due within the next 12 months. The carrying value of the accounts receivable approximate the
fair value as the rates are comparable to market rates.
Long-term Financial Liabilities
The Comprehensive
Amendment Agreement No. 1 (the CAA as further described in Note 4
Long-Term Obligations and Operating Lease
below) is comprised of a recorded balance and an off-balance sheet or contingent obligation
associated with the Companys acquisition of its Rangeview Water Supply (defined in Note 4
Water Assets
to the 2012 Annual Report). The amount payable is a fixed amount but is repayable only upon the sale of
Export Water (defined in Note 4
Water Assets
to the 2012 Annual Report). Because of the uncertainty of the sale of Export Water, the Company has determined that the contingent portion of the CAA does not have a determinable
fair value.
The recorded balance of the Tap Participation Fee liability (as described below and in Note 4 -
Long-Term
Obligations and Operating Lease
below) is its estimated fair value determined by projecting new home development in the Companys targeted service area over an estimated development period.
Notes Payable
As of February 28, 2013, the Company has acquired approximately $5.8 million of the $9.6 million of promissory
notes that are payable by HP A&M to third parties. Subsequent to February 28, 2013, the Company purchased an additional $385,100 of promissory notes. To date these promissory notes were acquired with cash payments of $887,400 and the
issuance of notes by the Company, the majority of which have a five-year term, bear interest at an annual rate of five percent (5%), and require semi-annual payments with a straight-line amortization schedule. The carrying value of the notes payable
approximate the fair value as the rates are comparable to market rates.
Tap Participation Fee
This note should be read in conjunction with Note 4
Long-Term Obligations and Operating Lease
below.
Pursuant to the Asset Purchase Agreement (the Arkansas River Agreement) dated May 10, 2006, the Company is obligated to pay HP A&M a
defined percentage of a defined number of water tap fees the Company receives after the date of the Arkansas River Agreement. A Tap Participation Fee is due and payable once the Company has sold a water tap and received the consideration due for
such water tap. The Company did not sell any water taps during the three or six months ended February 28, 2013 or February 29, 2012.
The Company imputes interest expense on the unpaid Tap Participation Fee using the effective interest method over an estimated period which is utilized
in the valuation of the liability. The Company imputed interest of $650,100 and $862,400 during the three months ended February 28, 2013 and February 29, 2012, respectively. The Company imputed interest of $1,544,800 and $1,713,800 during
the six months ended February 28, 2013 and February 29, 2012, respectively.
At February 28, 2013, there remain 19,427 water
taps subject to the Tap Participation Fee.
8
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2013
Revenue Recognition
Tap and Construction Fees
In August 2005, the Company entered into the Water Service Agreement (the County Agreement) with Arapahoe County (the County). In
fiscal 2006, the Company began recognizing water tap fees as revenue ratably over the estimated service period upon completion of the Wholesale Facilities (defined in the 2012 Annual Report) constructed to provide service to the County.
The Company recognized $3,600 of water tap fee revenues during each of the three months ended February 28, 2013 and February 29, 2012, respectively. The Company recognized $7,100 of water tap fee revenues during each of the six months
ended February 28, 2013 and February 29, 2012, respectively. The water tap fees to be recognized over this period are net of the royalty payments to the State of Colorado Board of Land Commissioners (the Land Board) and amounts
paid to third parties pursuant to the CAA as further described in Note 4
Long-Term Obligations and Operating Lease
below.
The
Company recognized $10,400 of Special Facilities (defined in the 2012 Annual Report) funding as revenue during each of the three months ended February 28, 2013 and February 29, 2012, respectively. The Company recognized $20,800
of Special Facilities funding as revenue during each of the six months ended February 28, 2013 and February 28, 2012, respectively. This is the ratable portion of the Special Facilities funding proceeds received from the County pursuant to
the County Agreement as more fully described in Note 4
Water Assets
to the 2012 Annual Report.
As of February 28, 2013,
the Company has deferred recognition of $1.3 million of water tap and construction fee revenue from the County, which will be recognized as revenue ratably over the estimated useful accounting life of the assets constructed with the construction
proceeds as described above.
Farm Operations
The Company leases its Arkansas River water and land to area farmers who
actively farm the properties. Prior to August 3, 2012, pursuant to a property management agreement between HP A&M and the Company (the Property Management Agreement), HP A&M received a management fee equal to 100% of the
income from the land and water leases. As a result, the Company presented its land and water lease income net of the management fees paid to HP A&M. Effective August 3, 2012, the Company terminated the Property Management Agreement due to a
default by HP A&M on certain promissory notes secured by deeds of trust on the land and water purchased by the Company from HP A&M in 2006. As of August 3, 2012, the Company manages the land and water leases and the income from the land
and water leases became payable to the Company. Pursuant to the farm lease agreements, the Company bills the lessees semi-annually in March and November. The lease billings include minimum billings and adjustments based on actual water deliveries by
the Fort Lyon Canal Company (FLCC) or are based on crop yields. Subsequent to August 3, 2012, the Company records farm lease income ratably each month based on estimated annual lease income the Company anticipates collecting from
its land and water leases. The Company recorded these amounts as receivables, less an estimated allowance for uncollectible accounts. The allowance as of February 28, 2013, was determined by the Companys specific review of all past due
accounts. The Company has recorded allowances for doubtful accounts totaling $41,000 and $20,000 as of February 28, 2013 and August 31, 2012, respectively. The Company manages the farm lease business as a separate line of business from the
wholesale water and wastewater business.
Royalty and other obligations
Revenues from the sale of Export Water are shown
net of royalties payable to the Land Board. Revenues from the sale of water on the Lowry Range (described in Note 4
Water Assets
to the 2012 Annual Report) are shown net of the royalties to the Land Board and the amounts
retained by the District.
Oil and Gas Lease Payments
As further described in Note 2
Summary of Significant
Accounting Policies
to the 2012 Annual Report, on March 10, 2011, the Company entered into a Paid-Up Oil and Gas Lease (the O&G Lease) and a Surface Use and Damage Agreement (the Surface Use Agreement) with
Anadarko E&P Company, L.P. (Anadarko), a wholly owned subsidiary of Anadarko Petroleum Company. In December of 2012 the O&G lease was purchased by a wholly owned subsidiary of ConocoPhillips Company. Pursuant to the O&G
Lease, during the year ended August 31, 2011, the Company received up-front payments of $1,243,400 for the purpose of exploring for, developing, producing and marketing oil and gas on approximately 634 acres of mineral estate owned by the
Company at its Sky Ranch property (described in Note 4
Water Assets
to the 2012 Annual Report). The Company began recognizing the up-front payments as income on a straight-line basis over three years (the initial term of
the O&G Lease) on March 10, 2011. During each of the three months ended February 28, 2013 and February 29, 2012, the Company recognized $103,600 of income and royalty related to the up-front payments received pursuant to the
O&G Lease. During each of the six months ended February 28, 2013 and February 29, 2012, the Company recognized $207,200 of income and royalty related to the up-front payments received pursuant to the O&G Lease.
As of February 28, 2013, the Company has deferred recognition of $431,800 of income related to the O&G Lease, which will be recognized into
income ratably through March 2014.
9
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2013
Capitalized Costs of Water and Wastewater Systems and Depletion and Depreciation of Water Assets
Costs to construct water and wastewater systems that meet the Companys capitalization criteria are capitalized as incurred,
including interest, and depreciated on a straight-line basis over their estimated useful lives of up to thirty years. The Company capitalizes design and construction costs related to construction activities, and it capitalizes certain legal,
engineering and permitting costs relating to the adjudication and improvement of its water assets. The Company depletes its groundwater assets that are being utilized on the basis of units produced (i.e. thousands of gallons sold) divided by the
total volume of water adjudicated in the water decrees.
Share-based Compensation
The Company maintains a stock option plan for the benefit of its employees and non-employee directors. The Company records share-based compensation costs
as expense over the applicable vesting period of the stock award using the straight-line method. The compensation costs to be expensed are measured at the grant date based on the fair value of the award. The Company has adopted the alternative
transition method for calculating the tax effects of share-based compensation, which allows for a simplified method of calculating the tax effects of employee share-based compensation. Because the Company has a full valuation allowance on its
deferred tax assets, the granting and exercise of stock options has no impact on the income tax provisions.
The Company recognized $12,500
and $21,400 of share-based compensation expense during the three months ended February 28, 2013 and February 29, 2012, respectively. The Company recognized $23,100 and $40,100 of share-based compensation expense during the six months ended
February 28, 2013 and February 29, 2012, respectively.
Income taxes
The Company uses a more-likely-than-not threshold for the recognition and de-recognition of tax positions, including any potential interest
and penalties relating to tax positions taken by the Company. The Company did not have any significant unrecognized tax benefits as of February 28, 2013.
The Company files income tax returns with the Internal Revenue Service and the State of Colorado. The tax years that remain subject to examination are fiscal 2010 through fiscal 2012. The Company does not
believe there will be any material changes in its unrecognized tax positions over the next twelve months.
The Companys policy is to
recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At February 28, 2013, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor
was any interest expense recognized during the three or six months ended February 28, 2013 and February 29, 2012.
Loss per
Common Share
Loss per common share is computed by dividing net loss by the weighted average number of shares outstanding during each
period. Common stock options and warrants aggregating 247,600 and 275,100 common share equivalents were outstanding as of February 28, 2013 and February 29, 2012, respectively, and have been excluded from the calculation of loss per common
share as their effect is anti-dilutive.
Recently Issued Accounting Pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting
pronouncement affects the Companys financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the
Companys financial statements properly reflect the change.
In June 2011, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU) No. 2011-05,
Comprehensive Income (Topic 220) Presentation of Comprehensive Income
(ASU 2011-05). ASU 2011-05 requires entities to present net income and other
comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 is effective for fiscal years beginning after December 15, 2011 (September 1,
2012 for the Company). The adoption of ASU 2011-05 did not have a material impact on its results of operations, financial condition or cash flows.
10
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2013
In February 2013, the FASB issued ASU No. 2013-02,
Comprehensive Income (Topic
220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
(ASU 2013-02). ASU 2013-02 finalizes Proposed ASU No. 2012-240, and seeks to improve the transparency of reporting reclassifications out of
accumulated other comprehensive income. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012 (September 1, 2013 for the Company). The adoption of ASU 2013-02 will not have a material impact on its
results of operations, financial condition or cash flows.
NOTE 2
FAIR VALUE MEASUREMENTS
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. The Company uses 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.
Level 1 Valuations for assets and liabilities traded in active exchange markets, such as the New York
Stock Exchange. The Company had none of these instruments at February 28, 2013.
Level 2 Valuations for assets and liabilities
obtained from readily available pricing sources via independent providers for market transactions involving similar assets or liabilities. The Company had one Level 2 asset at February 28, 2013, its marketable securities. The value of the
Companys marketable securities is based on observable market data obtained from the financial institutions at which the marketable securities are held.
Level 3 Valuations for assets and liabilities that are derived from other valuation methodologies, including discounted cash flow models and similar techniques, and not based on market exchange,
dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. The Company had one Level 3 liability at February 28, 2013, the Tap
Participation Fee liability, which is described in greater detail in Note 4
Long-Term Obligations and Operating Lease
below.
The Company maintains policies and procedures to value instruments using the best and most relevant data available.
The Companys non-financial assets measured at fair value on a non-recurring basis consist entirely of its investments in water and water systems
and other long-lived assets. See Note 3
Investment in Water, Water Systems, Land and Improvements
below.
Level 2 Asset
Marketable Securities Measured on a Recurring Basis.
The Companys marketable securities are the Companys only financial asset measured on a recurring basis. The fair value of the marketable securities is based on the
values reported by the financial institutions where the funds are held. These securities include only federally insured certificates of deposit.
Level 3 Liability Tap Participation Fee.
The Companys Tap Participation Fee liability is the Companys only financial liability measured on a non-recurring basis. As
further described in Note 4
Long-Term Obligations and Operating Lease
, the Tap Participation Fee liability is valued by projecting new home development in the Companys targeted service area over an estimated development period.
11
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2013
The following table provides information on the assets and liabilities measured at fair value on a
recurring basis as of February 28, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
|
|
|
|
|
|
|
|
Cost / Other
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
Total
Unrealized
|
|
|
|
Fair Value
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Gain
|
|
Marketable securities
|
|
$
|
62,056
|
|
|
$
|
62,000
|
|
|
$
|
|
|
|
$
|
62,056
|
|
|
$
|
|
|
|
$
|
56
|
|
Tap Participation Fee liability
|
|
$
|
69,814,000
|
|
|
$
|
69,814,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
69,814,000
|
|
|
$
|
|
|
Although not required, the Company deems the following table, which presents the changes in the Tap Participation Fee for
the six months ended February 28, 2013, to be helpful to the users of its financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement using Significant Unobservable
Inputs (Level 3)
|
|
|
|
Gross Estimated
Tap Participation
Fee Liability
|
|
|
Tap
Participation
Fee Reported
Liability
|
|
|
Discount - to
be imputed as
interest
expense in
future periods
|
|
Balance at August 31, 2012
|
|
$
|
112,958,000
|
|
|
$
|
68,269,200
|
|
|
$
|
44,688,800
|
|
Total gains and losses (realized and unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest recorded as Other Expense
|
|
|
|
|
|
|
1,544,800
|
|
|
|
(1,544,800
|
)
|
Transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 28, 2013
|
|
$
|
112,958,000
|
|
|
$
|
69,814,000
|
|
|
$
|
43,144,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3 INVESTMENTS IN WATER, WATER SYSTEMS, LAND AND IMPROVEMENTS
The Companys water rights and current water and wastewater service agreements are more fully described in Note 4
Water
Assets
to the 2012 Annual Report. There have been no significant changes to the Companys water rights or water and wastewater service agreements during the three and six months ended February 28, 2013.
The Companys water, water systems, land and improvements consist of the following costs and accumulated depreciation and depletion at
February 28, 2013 and August 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2013
|
|
|
August 31, 2012
|
|
|
|
Costs
|
|
|
Accumulated
Depreciation
and Depletion
|
|
|
Costs
|
|
|
Accumulated
Depreciation
and Depletion
|
|
Arkansas River Valley assets
|
|
$
|
69,112,300
|
|
|
$
|
(1,401,800
|
)
|
|
$
|
69,112,300
|
|
|
$
|
(1,315,900
|
)
|
Rangeview water supply
|
|
|
14,496,400
|
|
|
|
(7,400
|
)
|
|
|
14,376,100
|
|
|
|
(7,100
|
)
|
Sky Ranch water rights and other costs
|
|
|
3,926,500
|
|
|
|
(65,300
|
)
|
|
|
3,924,100
|
|
|
|
(50,800
|
)
|
Fairgrounds water and water system
|
|
|
2,899,900
|
|
|
|
(578,500
|
)
|
|
|
2,899,900
|
|
|
|
(534,500
|
)
|
Rangeview water system
|
|
|
167,700
|
|
|
|
(70,100
|
)
|
|
|
167,700
|
|
|
|
(67,600
|
)
|
Water supply other
|
|
|
25,600
|
|
|
|
(20,300
|
)
|
|
|
25,600
|
|
|
|
(19,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
90,628,400
|
|
|
|
(2,143,400
|
)
|
|
|
90,505,700
|
|
|
|
(1,995,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investments in water and water systems
|
|
$
|
88,485,000
|
|
|
|
|
|
|
$
|
88,510,400
|
|
|
|
|
|
Sky Ranch land and improvements, net
|
|
$
|
3,773,300
|
|
|
|
|
|
|
$
|
3,778,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net investments in water, water systems, land and improvements
|
|
$
|
92,258,300
|
|
|
|
|
|
|
$
|
92,288,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized terms in this section not defined herein are defined in Note 4
Water Assets
to the 2012 Annual
Report.
12
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2013
Depletion and Depreciation.
The Company recorded $100 of depletion charges during each of
the three month periods ended February 28, 2013 and February 29, 2012, respectively. The Company recorded $200 of depletion charges during each of the six month periods ended February 28, 2013 and February 29, 2012, respectively.
This related entirely to the Rangeview Water Supply. No depletion is taken against the Arkansas River water or Sky Ranch Water Supply because the water located at these locations is not yet being utilized for its intended purpose as of
February 28, 2013.
The Company recorded $76,400 and $77,000 of depreciation expense during the three months ended February 28, 2013
and February 29, 2012, respectively. The Company recorded $153,900 and $152,700 of depreciation expense during the six months ended February 28, 2013 and February 29, 2012, respectively.
Land and Water Shares Held for Sale.
During fiscal 2012, management decided to sell certain farms in order to have cash flows sufficient to
acquire the notes defaulted upon by HP A&M and to meet the future obligations on the promissory notes the Company issued to purchase the defaulted notes owed by HP A&M. Management has entered into contracts to sell 1,486 acres of land along
with 3,377 FLCC shares associated with this land. The assets held for sale total $5.7 million, which is the lower of cost or fair value less cost to sell.
NOTE 4 LONG-TERM OBLIGATIONS AND OPERATING LEASE
The Participating Interests in Export Water Supply and the Tap Participation Fee payable to HP A&M are obligations of the Company
that have no scheduled maturity dates. Therefore, these liabilities are not disclosed in tabular format, but they are described below.
Participating Interests in Export Water Supply
The Company acquired its Rangeview Water Supply through various amended agreements entered into in the early 1990s. The acquisition was consummated with the signing of the CAA in 1996. Upon entering
into the CAA, the Company recorded an initial liability of $11.1 million, which represented the cash the Company received from the participating interest holders that was used to purchase the Companys Export Water (described in greater detail
in Note 4
Water Assets
to the 2012 Annual Report). The Company agreed to remit a total of $31.8 million of proceeds received from the sale of Export Water to the participating interest holders in return for their initial $11.1 million
investments. The obligation for the $11.1 million was recorded as debt, and the remaining $20.7 million contingent liability was not reflected on the Companys balance sheet because the obligation to pay this is contingent on the sale of Export
Water, the amounts and timing of which are not reasonably determinable.
The CAA obligation is non-interest bearing, and if the Export Water
is not sold, the parties to the CAA have no recourse against the Company. If the Company does not sell the Export Water, the holders of the Series B Preferred Stock are also not entitled to payment of any dividend and have no contractual recourse
against the Company.
As the proceeds from the sale of Export Water are received and the amounts are remitted to the external CAA holders, the
Company allocates a ratable percentage of this payment to the principal portion (the Participating Interests in Export Water Supply liability account) with the balance of the payment being charged to the contingent obligation portion. Because the
original recorded liability, which was $11.1 million, was 35% of the original total liability of $31.8 million, 35% of each payment remitted to the CAA holders is allocated to the recorded liability account. The remaining portion of each payment, or
65%, is allocated to the contingent obligation, which is recorded on a net revenue basis.
13
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2013
In fiscal years 2007 and 2008, in order to reduce the long term impact of the CAA, the Company
repurchased various portions of the CAA obligations in priority. The Company did not make any CAA acquisitions during the three or six months ended February 28, 2013 and February 29, 2012. As a result of the acquisitions, and due to the
sale of Export Water, as detailed in the table below, the remaining potential third party obligation at February 28, 2013, is $3.4 million:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Export Water
Proceeds
Received
|
|
|
Initial Export
Water
Proceeds to
Pure Cycle
|
|
|
Total Potential
Third party
Obligation
|
|
|
Paticipating
Interests
Liability
|
|
|
Contingency
|
|
Original balances
|
|
$
|
|
|
|
$
|
218,500
|
|
|
$
|
31,807,700
|
|
|
$
|
11,090,600
|
|
|
$
|
20,717,100
|
|
Activity from inception until August 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
|
|
|
|
28,077,500
|
|
|
|
(28,077,500
|
)
|
|
|
(9,790,000
|
)
|
|
|
(18,287,500
|
)
|
Option payments Sky Ranch and The Hills at Sky Ranch
|
|
|
110,400
|
|
|
|
(42,300
|
)
|
|
|
(68,100
|
)
|
|
|
(23,800
|
)
|
|
|
(44,300
|
)
|
Arapahoe County tap fees *
|
|
|
533,000
|
|
|
|
(373,100
|
)
|
|
|
(159,900
|
)
|
|
|
(55,800
|
)
|
|
|
(104,100
|
)
|
Export Water sale payments
|
|
|
111,300
|
|
|
|
(77,900
|
)
|
|
|
(33,400
|
)
|
|
|
(12,100
|
)
|
|
|
(21,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2012
|
|
|
754,700
|
|
|
|
27,802,700
|
|
|
|
3,468,800
|
|
|
|
1,208,900
|
|
|
|
2,259,900
|
|
Fiscal 2013 activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Export Water sale payments
|
|
|
93,900
|
|
|
|
(65,700
|
)
|
|
|
(28,200
|
)
|
|
|
(9,800
|
)
|
|
|
(18,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 28, 2013
|
|
$
|
848,600
|
|
|
$
|
27,737,000
|
|
|
$
|
3,440,600
|
|
|
$
|
1,199,100
|
|
|
$
|
2,241,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
The Arapahoe County tap fees are less $34,522 in royalties paid to the Land Board.
|
The CAA includes contractually established priorities which call for payments to CAA holders in order of their priority. This means the first three payees receive their full payment before the next
priority level receives any payment and so on until full repayment. The Company will receive $5.1 million of the first priority payout (the remaining entire first priority payout totals $7.3 million as of February 28, 2013).
Arkansas River Agreement Obligations
The Tap Participation Fee.
The $69.8 million Tap Participation Fee liability at February 28, 2013, represents the estimated discounted fair value of the Companys obligation to pay
HP A&M 20% of the Companys gross proceeds, or the equivalent thereof, from the sale of the next 19,427 water taps sold by the Company. Initially the obligation was to pay 10% of the Companys gross proceeds, or the equivalent thereof,
from the sale of 40,000 water taps sold after the date of the Arkansas River Agreement. The 40,000 water taps were reduced to 19,427 water taps as a result of (i) sales of Arkansas River Valley land in 2006 and 2009, (ii) the sale of
unutilized water rights owned by the Company in the Arkansas River Valley in 2007, (iii) the election made by HP A&M, effective September 1, 2011, pursuant to the Arkansas River Agreement, to increase the Tap Participation Fee
percentage from 10% to 20%, and to take a corresponding 50% reduction in the number of taps subject to the Tap Participation Fee, and (iv) the allocation of 26.9% of the Net Revenues (defined as all lease and related income received from the
farms less employee expenses, direct expanses for managing the leases and a reasonable overhead allocation) received by HP A&M from management of the farm leasing operations.
The fair value of the Tap Participation Fee liability is an estimate prepared by management of the Company. The fair value of the liability is based on discounted estimated cash flows subject to the Tap
Participation Fee calculated by projecting future annual water tap sales for the number of taps subject to the Tap Participation Fee at the date of valuation. Future cash flows from water tap sales are estimated by utilizing the following historical
information, where available:
|
|
|
New homes constructed in the area known as the 11-county Front Range of Colorado from the 1980s through the valuation date. The
Company utilized data for this length of time to provide development information over many economic cycles because the Company anticipates development in its targeted service area to encompass many economic cycles over the development period.
|
|
|
|
New home construction patterns for large master planned housing developments along the Front Range. The Company utilized this information because these
developments are deemed comparable to projects anticipated to be constructed in the Companys targeted service area (i.e. these master planned communities were located in predominately undeveloped areas on the outskirts of the Front Range).
|
|
|
|
Population growth rates for Colorado and the Front Range. Population growth rates were utilized to predict anticipated growth along the Front Range,
which was used to predict an estimated number of new homes necessary to house the increased population.
|
|
|
|
The Consumer Price Index since the 1980s, which was utilized to project estimated future water tap fees.
|
14
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2013
Utilizing this historical information, the Company projected an estimated new home development pattern
in its targeted service area sufficient to cover the sale of the water taps subject to the Tap Participation Fee at the date of the revaluation, which was September 1, 2011. The estimated proceeds generated from the sale of those water taps
resulted in estimated payments to HP A&M over the life of the projected development period of $120.6 million, which is an increase of $7.5 million from the previous valuation completed in fiscal 2009. The estimated payments to HP A&M are
then discounted to the current valuation date and the difference between the amount reflected on the Companys balance sheet at the valuation date and the total estimated payments is imputed as interest expense over the estimated development
time using the effective interest method. The implied interest rate for the most recent valuation was 5.3% which was a 1.0% decrease from the prior valuation completed in fiscal 2009. Based on review of the underlying assumptions used in the Tap
Participation Fee valuation as of September 1, 2011, there have not been any material changes to these assumptions and therefore no revaluation of the Tap Participation Fee is deemed necessary.
The $69.8 million balance at February 28, 2013, includes $24.2 million of interest which has been imputed since the acquisition date, recorded using
the effective interest method. Payment of the Tap Participation Fee may be accelerated in the event of a merger, reorganization, sale of substantially all assets, or similar transactions and in the event of bankruptcy and insolvency events.
Actual new home development in the Companys service area and actual future tap fees inevitably will vary significantly from the
Companys estimates, which could have a material impact on the Companys financial statements. An important component in the Companys estimate of the value of the Tap Participation Fee, which is based on historical trends, is that
the Company reasonably expects 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 thus are partially indicative of the increasing value of the Companys water assets. The Company continues to assess the value of the Tap Participation Fee liability and updates its valuation analysis whenever events or circumstances
indicate the assumptions used to estimate the value of the liability have changed materially. The difference between the net present value and the estimated realizable value will be imputed as interest expense using the effective interest method
over the estimated development period utilized in the valuation of the Tap Participation Fee.
Promissory Notes Payable by HP A&M in
Default.
60 of the 80 properties the Company originally acquired from HP A&M are subject to outstanding promissory notes payable to third parties that are secured by deeds of trust on the Companys properties and water rights, as
well as mineral interests. During the Companys fiscal year ended August 31, 2012, HP A&M defaulted on over 50% of the promissory notes and informed the Company that it does not intend to pay any of the amounts owed on the remaining
notes. HP A&M owed approximately $9.6 million of principal and accrued interest at the time of default. These promissory notes are secured by approximately 14,000 acres of land and 16,882 FLCC shares representing water rights owned by the
Company.
On July 2, 2012, the Company formally notified HP A&M that its failure to pay the promissory notes constituted an Event of
Default under the Seller Pledge Agreement (as defined below) and a default of a material covenant under the Arkansas River Agreement. The Company informed HP A&M that unless such defaults were cured within thirty days, the Property Management
Agreement would be terminated and the Company would proceed to exercise certain rights and remedies under the Arkansas River Agreement, the Seller Pledge Agreement, and the Property Management Agreement to protect its assets. The Companys
remedies at law and under the Arkansas River Agreement and related agreements include, but are not limited to, the right to (i) foreclose on 1,500,000 shares of Pure Cycle common stock issued to HP A&M and the proceeds therefrom (the
Pledged Shares) which were pledged by HP A&M pursuant to a pledge agreement (the Seller Pledge Agreement) to secure the payment and performance by HP A&M of the promissory notes described above; (ii) reduce the
Tap Participation Fee; (iii) terminate the Property Management Agreement; and (iv) recover damages caused by the defaults, including certain costs and attorneys fees.
On August 3, 2012, the Company formally terminated the Property Management Agreement. On September 27, 2012, the Pledged Shares were sold at auction in a foreclosure sale for $2.35 per share,
yielding approximately $3.42 million of proceeds to the Company (net of fees of $110,000). Pursuant to the Arkansas River Agreement, the Company may be entitled to reduce the Tap Participation Fee and recover damages caused by the defaults,
including certain costs and attorneys fees. The Company intends to pursue such remedies over the next 12 months.
15
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2013
To protect its land and water interests, during the six months ended February 28, 2013, the Company
purchased approximately $5.8 million of the $9.6 million notes payable by HP A&M. HP A&M continues to be liable for making the required payments on the notes, and the Company is pursuing remedies to recover the costs and expenses, including
reasonable attorneys fees, incurred by the Company in protecting the rights and title to the land and water rights securing the notes payable by HP A&M, including the costs incurred in purchasing the notes defaulted on by HP A&M. HP
A&M owed approximately $8.8 million and $9.6 million at February 28, 2013 and August 31, 2012, respectively.
Operating
Lease
Effective December 18, 2012, the Company entered into an operating lease for 1,200 square feet of office space. The lease
has a two year term with payments of $1,540 per month.
NOTE 5 SHAREHOLDERS EQUITY
The Company maintains the 2004 Incentive Plan (the Equity Plan), which was approved by shareholders in April 2004.
Executives, eligible employees, consultants and non-employee directors are eligible to receive options and stock grants pursuant to the Equity Plan. Pursuant to the Equity Plan, options to purchase shares of stock and restricted stock awards can be
granted with exercise prices, vesting conditions and other performance criteria determined by the Compensation Committee of the Board. The Company initially reserved 1.6 million shares of common stock for issuance under the Equity Plan. At
February 28, 2013, the Company had 1,318,311 common shares remaining that can be granted to eligible participants pursuant to the Equity Plan.
The following table summarizes the stock option activity for the Equity Plan for the six months ended February 28, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Approximate
Aggregate
Instrinsic
Value
|
|
Oustanding at beginning of period (Aug. 31, 2012)
|
|
|
215,000
|
|
|
$
|
5.88
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
32,500
|
|
|
|
3.15
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 28, 2013
|
|
|
247,500
|
|
|
|
5.52
|
|
|
|
6.4
|
|
|
$
|
161,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at February 28, 2013
|
|
|
205,000
|
|
|
$
|
6.03
|
|
|
|
5.5
|
|
|
$
|
114,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the activity and value of non-vested options as of and for the six months ended
February 28, 2013:
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
|
Weighted-
Average Grant
Date Fair
Value
|
|
Non-vested options oustanding at beginning of period
|
|
|
22,500
|
|
|
$
|
1.72
|
|
Granted
|
|
|
32,500
|
|
|
|
2.36
|
|
Vested
|
|
|
(12,500
|
)
|
|
|
1.50
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options not vested at February 28, 2013
|
|
|
42,500
|
|
|
$
|
2.28
|
|
|
|
|
|
|
|
|
|
|
All non-vested options are expected to vest. The total fair value of options vested during the three and six months ended
February 28, 2013 and February 29, 2012 was $18,800 and $38,900, respectively.
Stock-based compensation expense for the three
months ended February 28, 2013 and February 29, 2012, was $12,500 and $21,300, respectively. Stock-based compensation expense for the six months ended February 28, 2013 and February 29, 2012, was $23,100 and $40,100,
respectively.
16
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2013
At February 28, 2013, the Company had unrecognized expenses relating to non-vested options that are
expected to vest totaling $70,400 which have a weighted average life of less than 1 year. The Company has not recorded any excess tax benefits to additional paid-in capital.
NOTE 6 RELATED PARTY TRANSACTIONS
On December 16, 2009, the Company entered into a Participation Agreement with the District, whereby the Company agreed to provide
funding to the District in connection with the District joining the South Metro Water Supply Authority (SMWSA). During the three months ended February 28, 2013 and February 29, 2012 the Company provided $38,600 and $15,000 of
funding to the District pursuant to the Participation Agreement, respectively. During the six months ended February 28, 2013 and February 29, 2012, the Company provided $39,600 and $40,400 of funding to the District pursuant to the
Participation Agreement, respectively. These amounts were expensed at the time of funding.
In 1995, the Company extended a loan to the
District, a related party. The loan provided for borrowings of up to $250,000, is unsecured, bears interest based on the prevailing prime rate plus 2% (5.25% at February 28, 2013) and matures on December 31, 2013. The Company intends to
extend the maturity date of the loan to December 31, 2014. The $549,900 balance of the note receivable at February 28, 2013, includes borrowings of $229,300 and accrued interest of $320,600.
NOTE 7 SIGNIFICANT CUSTOMERS
The Company sells wholesale water and wastewater services to the District pursuant to the Rangeview Water Agreements (defined in Note 4
Water Assets
to the 2012 Annual Report). Sales to the District accounted for 24% and 93% of the Companys total water and wastewater revenues for the three months ended February 28, 2013 and February 29, 2012,
respectively. Sales to the District accounted for 45% and 91% of the Companys water and wastewater revenues for the six months ended February 28, 2013 and February 29, 2012, respectively. The District had one significant customer.
Pursuant to the Rangeview Water Agreements the Company is providing water and wastewater services to this customer on behalf of the District. The Districts significant customer accounted for 24% and 80% of the Companys total water and
wastewater revenues for the three months ended February 28, 2013 and February 29, 2012, respectively. The Districts significant customer accounted for 37% and 71% of the Companys water and wastewater revenues for the six months
ended February 28, 2013 and February 29, 2012, respectively.
Revenues from another customer represented approximately 71% and 50%
of the Companys water and wastewater revenues for the three and six months ended February 28, 2013, respectively. The other customer had no revenues for the three and six months ended February 29, 2012.
The Company had accounts receivable from the District which accounted for 10% and 16% of the Companys trade receivables balances at
February 28, 2013 and August 31, 2012, respectively. Accounts receivable from the Districts largest customer accounted for 9% and 13% of the Companys trade receivables as of February 28, 2013 and August 31, 2012,
respectively.
NOTE 8 ACCRUED LIABILITIES
At February 28, 2013, the Company had accrued liabilities of $395,200, of which $270,100 was for estimated property taxes, $80,300
was for professional fees, $22,200 was for farm lease prepayments, and $22,600 related to operating payables.
At August 31, 2012, the
Company had accrued liabilities of $172,600, of which $60,500 was for estimated property taxes, $56,800 was for professional fees, $33,500 was for farm lease prepayments, and the remaining $21,800 related to operating payables.
NOTE 9 LITIGATION LOSS CONTINGENCIES
The Company is involved in various claims, litigation and other legal proceedings that arise in the ordinary course of its business.
The Company records an accrual for a loss contingency when its occurrence is probable and damages can be reasonably estimated based on the anticipated most likely outcome or the minimum amount within a range of possible outcomes. The Company makes
such estimates based on information known about the claims and experience in contesting, litigating and settling similar claims. Disclosures are also provided for reasonably possible losses that could have a material effect on the Companys
financial position, results of operations or cash flows.
17
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2013
Because each of the lawsuits below involves complex legal issues and uncertainties and are in the early
stages of litigation, the Company has determined that no accruals for losses related to the lawsuits is reasonably estimable or deemed reasonably likely at this time.
As discussed in a Form 8-K filed on December 19, 2011, on that date the Company and the District filed a lawsuit against the State of Colorado by and through the Land Board. The complaint was filed
with the District Court, City and County of Denver, State of Colorado. The Company and the District are claiming that the Land Board breached, and will breach, agreements entered into by the Land Board with the Company and the District in connection
with a 1996 settlement agreement. Those agreements include (i) the Amended and Restated Water Lease, dated as of April 4, 1996, between the Land Board and the District and (ii) the Service Agreement of the same date between the
Company and the District. As initially reported in a Current Report on Form 8-K filed on November 29, 2011, the Land Board issued a Request for Proposal that included a draft lease agreement related to oil and gas rights at the Land
Boards Lowry Range. The Company believes the draft lease agreement did not adequately address or protect the Companys exclusive right to provide water to the Lowry Range. The Land Board subsequently entered into an oil and gas lease for
the Lowry Range, which, like the draft lease, does not protect the Companys exclusive rights. As a result of this breach, the Company and the District are claiming damages which will be proven at trial.
As disclosed in two Form 8-Ks, one filed on February 16, 2012, and one filed on February 29, 2012, HP A&M initiated a
lawsuit against the Company in District Court, City and County of Denver, State of Colorado on February 27, 2012, alleging breaches of representations made in connection with the Arkansas River Agreement. The HP A&M claims relate to the
issues currently being litigated between the Company and the Land Board regarding the Companys exclusive right to provide water service to the Land Boards Lowry Range property. The Company believes the allegations are without merit and
intends to vigorously defend against them.
During the period ended February 28, 2013, foreclosure proceedings were commenced against 15
of the properties acquired by the Company from HP A&M which are subject to promissory notes defaulted upon by HP A&M and secured by deeds of trust on the Companys land and water rights. Subsequent to February 28, 2012, foreclosure
proceedings were commenced against an additional 17 properties. These properties represent approximately 31% of the Companys Arkansas River assets. The proceedings were filed on various dates from January 9, 2013, through April 8,
2013, with the Public Trustees of Bent, Otero and Prowers Counties in Colorado. Foreclosure proceedings in Colorado take at least nine months to conclude. Due to statutory protections afforded to the Company as the owner of the properties, the
Companys liquidity and its success in acquiring the notes and deeds of trust, the Company anticipates concluding these foreclosure proceedings on terms which will not have a material adverse effect on its financial position, results of
operations or cash flows. The Company also intends to pursue remedies against HP A&M for the defaults. Because the Company has determined that losses related to the foreclosure proceedings are not probable and because the Company is unable to
predict which, if any, of these proceedings may conclude other than as anticipated, the Company has determined that no accruals for losses related to the foreclosures are reasonably estimable or deemed reasonably likely at this time.
18
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2013
NOTE 10 SEGMENT INFORMATION
The Company operates primarily in two lines of business: (i) the wholesale water and wastewater business; and (ii) the
agricultural farming business. The Company provides wholesale water and wastewater services to customers using water rights owned by the Company and develop infrastructure to divert, treat and distribute that water and collect, treat and reuse
wastewater. The Companys agricultural business consists of the Company leasing its Arkansas Valley land and water to area farmers under cash leases or in certain cases crop share leases. The following tables show information by operating
segment for the three and six months ended February 28, 2013:
Three months ended February 28, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segments
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
|
|
|
|
|
|
|
|
|
|
water and
|
|
|
|
|
|
|
|
|
|
|
|
|
wastewater
|
|
|
Agricultural
|
|
|
All Other
|
|
|
Total
|
|
Revenues
|
|
$
|
114,900
|
|
|
$
|
305,200
|
|
|
$
|
14,400
|
|
|
$
|
434,500
|
|
Gross profit
|
|
|
16,200
|
|
|
|
278,600
|
|
|
|
14,400
|
|
|
|
309,200
|
|
Depletion and depreciation
|
|
|
54,300
|
|
|
|
|
|
|
|
|
|
|
|
54,300
|
|
Other significant noncash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
12,500
|
|
TPF interest expense
|
|
|
650,100
|
|
|
|
|
|
|
|
|
|
|
|
650,100
|
|
Segment assets
|
|
|
96,254,200
|
|
|
|
3,586,900
|
|
|
|
10,481,100
|
|
|
|
110,322,200
|
|
Expenditures for segment assets
|
|
|
12,100
|
|
|
|
|
|
|
|
|
|
|
|
12,100
|
|
Six months ended February 28, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segments
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
|
|
|
|
|
|
|
|
|
|
water and
|
|
|
|
|
|
|
|
|
|
|
|
|
wastewater
|
|
|
Agricultural
|
|
|
All Other
|
|
|
Total
|
|
Revenues
|
|
$
|
172,200
|
|
|
$
|
667,900
|
|
|
$
|
32,800
|
|
|
$
|
872,900
|
|
Gross profit
|
|
|
21,000
|
|
|
|
621,800
|
|
|
|
32,800
|
|
|
|
675,600
|
|
Depletion and depreciation
|
|
|
109,800
|
|
|
|
|
|
|
|
|
|
|
|
109,800
|
|
Other significant noncash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
23,100
|
|
|
|
23,100
|
|
TPF interest expense
|
|
|
1,544,800
|
|
|
|
|
|
|
|
|
|
|
|
1,544,800
|
|
Segment assets
|
|
|
96,413,100
|
|
|
|
3,586,900
|
|
|
|
10,481,100
|
|
|
|
110,322,200
|
|
Expenditures for segment assets
|
|
|
120,300
|
|
|
|
|
|
|
|
|
|
|
|
120,300
|
|
As of February 29, 2012, the Company had only one operating segment.
NOTE 11 SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
February 28, 2013
|
|
|
February 29, 2012
|
|
Accrued interest and penalties related to HP A&M receivable and related promissory notes
|
|
$
|
52,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in estimated Tap Participation Fee liability and related discount
|
|
|
|
|
|
$
|
7,450,000
|
|
|
|
|
|
|
|
|
|
|
Farm revenue allocated against the Tap Participation Fee liability and additional paid-in capital
|
|
|
|
|
|
$
|
103,700
|
|
|
|
|
|
|
|
|
|
|
*****
19