REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Board of Directors and Shareholders
Pure Cycle Corporation
We have audited the accompanying
consolidated balance sheets of Pure Cycle Corporation as of August
31, 2016 and 2015, and the related consolidated statements of
operations, shareholders' equity and comprehensive income (loss),
and cash flows for each of the years in the three-year period ended
August 31, 2016. We also have audited Pure Cycle
Corporation’s internal control over financial reporting as of
August 31, 2016, based on criteria established in
Internal
Control—Integrated Framework 2013
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Pure Cycle
Corporation'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’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on
these financial statements and an opinion on Pure Cycle
Corporation’s internal control over financial reporting 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 audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audit of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. 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.
A company'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'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'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.
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, 2016 and 2015, and the results of its operations and its
cash flows for each of the years in the three-year period ended
August 31, 2016 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 of August 31, 2016,
based on criteria established in
Internal
Control—Integrated Framework 2013
issued by the Committee of Sponsoring
Organizations of the Treadway Commission
(COSO).
/s/ GHP HORWATH, P.C
Denver, Colorado
October 27, 2016
PURE
CYCLE CORPORATION
CONSOLIDATED
BALANCE SHEETS
ASSETS:
|
|
|
Current assets:
|
|
|
Cash and cash equivalents
|
$
4,697,288
|
$
37,089,041
|
Short-term investments
|
23,176,450
|
–
|
Trade accounts receivable, net
|
181,006
|
157,845
|
Sky Ranch receivable
|
–
|
148,415
|
Prepaid expenses
|
350,819
|
228,086
|
Assets of discontinued operations
|
680,287
|
1,957,552
|
Total current assets
|
29,085,850
|
39,580,939
|
|
|
|
Long-term investments
|
6,853,276
|
–
|
Investments in water and water systems, net
|
28,321,926
|
27,708,595
|
Land and mineral interests
|
5,345,800
|
5,091,668
|
Notes receivable - related parties, including accrued
interest
|
800,369
|
591,223
|
Other assets
|
472,393
|
88,488
|
Total assets
|
$
70,879,614
|
$
73,060,913
|
|
|
|
LIABILITIES:
|
|
|
Current liabilities:
|
|
|
Accounts payable
|
160,390
|
172,634
|
Accrued liabilities
|
242,624
|
499,808
|
Income taxes
|
–
|
292,729
|
Deferred revenues
|
55,800
|
55,800
|
Deferred oil and gas lease payment
|
19,000
|
360,765
|
Liabilities of discontinued operations
|
4,394
|
117,329
|
Total current liabilities
|
482,208
|
1,499,065
|
|
|
|
Deferred revenues, less current portion
|
1,055,491
|
1,111,293
|
Deferred oil and gas lease payment, less current
portion
|
–
|
19,000
|
Participating Interests in Export Water Supply
|
343,966
|
346,007
|
Total liabilities
|
1,881,665
|
2,975,365
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
SHAREHOLDERS' EQUITY:
|
|
|
Preferred stock:
|
|
|
Series B - par value $.001 per share, 25 million shares
authorized;
|
433
|
433
|
432,513 shares issued and outstanding (liquidation preference of
$432,513)
|
|
|
Common stock:
|
|
|
Par value 1/3 of $.01 per share, 40 million shares
authorized;
|
|
|
23,754,098 and 24,054,098 shares issued and outstanding,
respectively
|
79,185
|
80,185
|
Collateral stock
|
–
|
(1,407,000
)
|
Additional paid in capital
|
171,198,241
|
172,384,355
|
Accumulated other comprehensive income
|
3,122
|
–
|
Accumulated deficit
|
(102,283,032
)
|
(100,972,425
)
|
Total shareholders' equity
|
68,997,949
|
70,085,548
|
Total liabilities and shareholders' equity
|
$
70,879,614
|
$
73,060,913
|
PURE
CYCLE CORPORATION
CONSOLIDATED STATEMENTS OF
OPERATIONS
|
For the
Fiscal Years Ended August 31,
|
|
|
|
|
Revenues:
|
|
|
|
Metered water usage
|
$
220,997
|
$
969,989
|
$
1,879,495
|
Wastewater treatment fees
|
43,712
|
50,076
|
45,400
|
Special facility funding recognized
|
41,508
|
41,508
|
41,508
|
Water tap fees recognized
|
14,294
|
14,294
|
14,294
|
Other income
|
131,650
|
120,702
|
42,417
|
Total revenues
|
452,161
|
1,196,569
|
2,023,114
|
|
|
|
|
Expenses:
|
|
|
|
Water service operations
|
(264,424
)
|
(464,940
)
|
(547,562
)
|
Wastewater service operations
|
(29,187
)
|
(66,745
)
|
(38,426
)
|
Other
|
(68,478
)
|
(55,173
)
|
(39,421
)
|
Depletion and depreciation
|
(166,670
)
|
(172,546
)
|
(149,757
)
|
Total cost of revenues
|
(528,759
)
|
(759,404
)
|
(775,166
)
|
Gross
margin
|
(76,598
)
|
437,165
|
1,247,948
|
|
|
|
|
General
and administrative expenses
|
(1,849,743
)
|
(1,939,395
)
|
(2,445,633
)
|
Depreciation
|
(253,434
)
|
(174,717
)
|
(46,807
)
|
Operating loss
|
(2,179,775
)
|
(1,676,947
)
|
(1,244,492
)
|
|
|
|
|
Other
income (expense):
|
|
|
|
Oil and gas lease income, net
|
360,765
|
645,720
|
525,438
|
Oil and gas royalty income, net
|
343,620
|
412,627
|
–
|
Interest income
|
241,279
|
21,334
|
12,466
|
Other
|
3,852
|
22,120
|
160,004
|
Gain on extinguishment of contingent obligations
|
–
|
–
|
832,097
|
(Loss) income from continuing operations
|
(1,230,259
)
|
(575,146
)
|
285,513
|
Net loss from discontinued operations, net of taxes
|
(80,348
)
|
(22,552,801
)
|
(596,957
)
|
Net loss before taxes
|
(1,310,607
)
|
(23,127,947
)
|
(311,444
)
|
Taxes
|
–
|
-
|
–
|
Net loss
|
$
(1,310,607
)
|
$
(23,127,947
)
|
$
(311,444
)
|
Unrealized holding gains
|
3,122
|
–
|
–
|
Total comprehensive loss
|
$
(1,307,485
)
|
$
(23,127,947
)
|
$
(311,444
)
|
|
|
|
|
Basic and diluted net (loss) income per common share
-
|
|
|
|
(Loss) income from continuing operations
|
$
(0.06
)
|
$
(0.03
)
|
$
0.01
|
Loss from discontinued operations
|
*
|
$
(0.93
)
|
$
(0.02
)
|
Net loss
|
$
(0.06
)
|
$
(0.96
)
|
$
(0.01
)
|
|
|
|
|
Weighted average common shares outstanding –
|
|
|
|
basic and diluted
|
23,781,041
|
24,041,114
|
24,037,598
|
|
|
|
|
* Amount is less than $.01 per share
|
|
|
|
See
accompanying Notes to Financial Statements
F-3
PURE
CYCLE CORPORATION
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(LOSS)
|
|
|
|
Accumulated
Other
Comprhensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
2013 balance:
|
432,513
|
$
433
|
24,037,598
|
$
80,130
|
$
115,224,946
|
$
-
|
$
-
|
$
(77,533,034
)
|
$
37,772,475
|
Share-based
compensation
|
-
|
-
|
-
|
-
|
251,915
|
|
|
|
251,915
|
Reduction
in TPF due to remedies under
|
|
|
|
|
|
|
|
|
|
the
Arkansas River Agreement
|
-
|
-
|
-
|
-
|
53,317,535
|
-
|
-
|
-
|
53,317,535
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(311,444
)
|
(311,444
)
|
August 31,
2014 balance:
|
432,513
|
433
|
24,037,598
|
80,130
|
168,794,396
|
-
|
-
|
(77,844,478
)
|
91,030,481
|
Share-based
compensation
|
-
|
-
|
-
|
-
|
239,986
|
-
|
-
|
-
|
239,986
|
Exercise of
options
|
-
|
-
|
16,500
|
55
|
48,770
|
-
|
-
|
-
|
48,825
|
Reduction
in TPF due to remedies under
|
|
|
|
|
|
|
|
|
|
the
Arkansas River Agreement
|
-
|
-
|
-
|
-
|
3,301,203
|
-
|
-
|
-
|
3,301,203
|
Collateral
stock
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,407,000
)
|
-
|
(1,407,000
)
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(23,127,947
)
|
(23,127,947
)
|
August 31,
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
|
See
accompanying Notes to Financial Statements
F-4
PURE
CYCLE CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
For the
fiscal Years Ended August 31,
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
Net
loss
|
$
(1,310,607
)
|
$
(23,127,947
)
|
$
(311,444
)
|
Adjustments
to reconcile net loss to net cash provided by
|
|
|
|
(used
in) operating activities:
|
|
|
|
Share-based
compensation expense
|
219,886
|
239,986
|
251,915
|
Depreciation,
depletion and other non-cash items
|
420,104
|
347,263
|
196,564
|
Investment
in Well Enhancement and Recovery Systems LLC
|
10,675
|
4,577
|
(37,193
)
|
Interest
income and other non-cash items
|
(41,114
)
|
(419
)
|
(420
)
|
Interest
added to receivable from related parties
|
(29,099
)
|
(15,493
)
|
(12,039
)
|
Gain
on extinguishment of contingent obligations
|
-
|
-
|
(832,097
)
|
Changes
in operating assets and liabilities:
|
|
|
|
Trade
accounts receivable
|
(23,161
)
|
918,252
|
(1,041,288
)
|
Prepaid
expenses
|
(122,733
)
|
43,472
|
(168,795
)
|
Note
receivable - related parties
|
(31,633
)
|
(105,208
)
|
6,388
|
Accounts
payable and accrued liabilities
|
(269,428
)
|
(848,669
)
|
1,191,298
|
Income
taxes
|
(292,729
)
|
292,729
|
-
|
Deferred
revenue
|
(55,802
)
|
(64,226
)
|
(65,385
)
|
Deferred
income - oil and gas lease
|
(360,765
)
|
(645,720
)
|
790,002
|
Net
cash used in operating activities from continuing
operations
|
(1,886,406
)
|
(22,961,403
)
|
(32,494
)
|
Net
cash provided by operating activities from discontinued
operations
|
1,615,677
|
21,987,337
|
84,238
|
Net
cash provided by (used in) operating activities
|
(270,729
)
|
(974,066
)
|
51,744
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
Investments
in water, water systems and land
|
(1,209,416
)
|
(2,101,253
)
|
(3,864,443
)
|
Sales
and maturities of marketable securities
|
2,840,000
|
-
|
-
|
Purchase
of short-term investments
|
(25,970,721
)
|
-
|
-
|
Purchase
of long-term investments
|
(6,855,189
)
|
-
|
-
|
Proceeds
from sale of land and easements
|
-
|
-
|
192,851
|
Purchase
of property and equipment
|
(472,310
)
|
(17,186
)
|
(3,370
)
|
Net
cash used in investing activities from continuing
operations
|
(31,667,636
)
|
(2,118,439
)
|
(3,674,962
)
|
Net
cash provided by (used in) investing activities from discontinued
operations
|
(451,347
)
|
44,650,149
|
5,811,265
|
Net
cash provided by (used in) investing activities
|
(32,118,983
)
|
42,531,710
|
2,136,303
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
Proceeds
from exercise of options
|
-
|
48,825
|
-
|
Payment
to contingent liability holders
|
(2,041
)
|
(8,621
)
|
(6,185
)
|
Net
cash (used in) provided by financing activities from continuing
operations
|
(2,041
)
|
40,204
|
(6,185
)
|
Net
cash used in financing activities from discontinued
operations
|
-
|
(6,258,365
)
|
(2,880,667
)
|
Net
cash used in financing activities
|
(2,041
)
|
(6,218,161
)
|
(2,886,852
)
|
|
|
|
|
Net
change in cash and cash equivalents
|
(32,391,753
)
|
35,339,483
|
(698,805
)
|
Cash
and cash equivalents - beginning of year
|
37,089,041
|
1,749,558
|
2,448,363
|
Cash
and cash equivalents - end of year
|
$
4,697,288
|
$
37,089,041
|
$
1,749,558
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
|
|
|
|
Retirement
of collateral stock
|
$
1,407,000
|
$
-
|
$
-
|
Reduction
in Tap Participation Fee liability resulting from
|
|
|
|
remedies
under the Arkansas River Agreement
|
$
-
|
$
-
|
$
53,317,500
|
Reduction
in Tap Participation Fee liability and HP A&M
|
|
|
|
receivable,
collateral stock, and mineral interests received
|
|
|
|
as a
result of settlement of the Arkansas River Agreement
|
$
-
|
$
1,894,203
|
$
-
|
Assets
acquired through WISE funding obligation
|
$
-
|
$
1,381,004
|
$
-
|
See
accompanying Notes to Financial Statements
F-5
PURE
CYCLE CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
NOTE 1 – ORGANIZATION
Pure Cycle Corporation (the “Company”) was incorporated
in Delaware in 1976 and reincorporated in Colorado in 2008. The
Company owns assets in the Denver, Colorado metropolitan area. The
Company is currently using its water assets located in the Denver
metropolitan area to provide wholesale water and wastewater
services to customers located in the Denver metropolitan
area.
The Company provides a full line of wholesale water and wastewater
services which includes designing and constructing water and
wastewater systems as well as operating and maintaining such
systems. The Company’s business focus is to provide wholesale
water and wastewater services, predominately to local governmental
entities, which provide services to their end-use customers
throughout the Denver metropolitan area as well as along the
Colorado Front Range.
The Company believes it has sufficient working capital and
financing sources to fund its operations for at least the next
fiscal year. As of August 31, 2016, the Company had $4.7 million of
cash and cash equivalents and $28.6 million of working
capital.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of Pure Cycle Corporation and its majority-owned and
controlled subsidiaries. Intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America (“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
Company’s cash equivalents are comprised entirely of money
market funds maintained at a reputable financial institution. At
various times during the fiscal year ended August 31, 2016, the
Company’s main operating account exceeded federally insured
limits. The Company has never suffered a loss due to such excess
balance.
Investments
M
anagement determines the appropriate
classification of its investments in certificates of deposit and
debt and equity securities at the time of purchase and reevaluates
such determinations each reporting period.
Certificates of deposit and debt securities
are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. The
Company has $6.9 million of investments classified as
held-to-maturity at August 31, 2016 which represent certificates of
deposit and U.S. treasury notes with maturity dates after August
31, 2017. Debt securities for which the Company does not have the
positive intent or ability to hold to maturity are classified as
available-for-sale, along with any investments in equity
securities. Securities classified as available-for-sale are
marked-to-market at each reporting period. Changes in value on such
securities are recorded as a component of
Accumulated other
comprehensive income (loss).
The cost of securities sold is based on the
specific identification method. The Company’s certificates of
deposit and debt securities mature at various dates through July
23, 2018.
Concentration of Credit Risk and Fair Value
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash
equivalents and investments. From time to time, the Company places
its cash in money market instruments, commercial paper obligations,
corporate bonds 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 instrument for which it is
practicable to estimate that value.
Cash and Cash Equivalents
–
The Company’s cash and cash equivalents are
reported using the values as reported by the financial institution
where the funds are held. These securities primarily include
balances in the Company’s operating and savings accounts. The
carrying amount of cash and cash equivalents approximate fair
value.
Trade Accounts Receivable
–
The Company records accounts receivable net of
allowances for uncollectible accounts.
Investments –
The carrying amounts of investments approximate fair value.
Investments are described further in Note 3 –
Fair Value Measurements.
Accounts Payable
–
The carrying amounts of accounts payable approximate
fair value due to the relatively short period to maturity for these
instruments.
Long-Term Financial
Liabilities
–
The Comprehensive Amendment Agreement No. 1 (the “CAA”)
is comprised of a recorded balance and an off-balance sheet or
“contingent” obligation associated with the
Company’s acquisition of its “Rangeview Water
Supply” (defined in Note 4 –
Water and Land Assets
). The amount
payable is a fixed amount but is repayable only upon the sale of
“Export Water” (defined in Note 4 –
Water and Land Assets
).
Because of the uncertainty of the sale of Export Water, the Company
has determined that the recorded balance of the CAA does not have a
determinable fair value. The CAA is described further in
Note 5 –
Participating Interests in Export
Water
.
Notes Receivable –
Related Parties
–
The market value of the notes
receivable – related parties: Rangeview Metropolitan District
(the “District”) and Sky Ranch Metropolitan District
No. 5 are not practical to estimate due to the related party nature
of the underlying transactions.
Off-Balance Sheet
Instruments –
The Company’s off-balance sheet
instruments consist entirely of the contingent portion of the CAA.
Because repayment of this portion of the CAA is contingent on the
sale of Export Water, which is not reasonably estimable, the
Company has determined that the contingent portion of the CAA does
not have a determinable fair value. See further discussion in
Note 5 –
Participating Interests in Export
Water
.
Cash Flows
The Company did not pay any interest during the fiscal year ended
August 31, 2016. The Company paid $441,400 and $310,400 in interest
during the fiscal years ended August 31, 2015 and 2014,
respectively.
In the fiscal year ended August 31, 2016, the Company paid $292,700
for alternative minimum tax the Company owed as a result of the
sale of the Company’s farm assets. The Company did not pay
any income taxes during the fiscal years ended August 31, 2015 and
2014.
Trade Accounts Receivable
The Company records accounts receivable net of allowances for
uncollectible accounts. Excluded in trade accounts receivable are
balances due from discontinued operations. The Company has not
recorded an allowance for uncollectible accounts in receivables
from continuing operations for either of the periods ended August
31, 2016 or 2015. The allowance for uncollectible accounts was
determined based on specific review of all past due
accounts.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying
amount of an asset to future undiscounted net cash flows expected
to be generated by the eventual use of the asset. If such assets
are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
Capitalized Costs of Water and Wastewater Systems and Depreciation
and Depletion Charges
Costs to construct water and wastewater systems that meet the
Company’s capitalization criteria are capitalized as
incurred, including interest, and depreciated on a straight-line
basis over their estimated useful lives of up to 30 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 water 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.
Revenue Recognition
The Company generates revenues through one line of business. Its
revenues are derived through its wholesale water and wastewater
business, which is described below.
The Company generates revenues through its wholesale water and
wastewater business predominately from three sources: (i) monthly
wholesale water usage fees and wastewater service fees, (ii)
one-time water and wastewater tap fees and construction fees, and
(iii) consulting fees. Because these items are separately
delivered, the Company accounts for each of the items separately,
as described below.
i.
Monthly
wholesale water and wastewater service fees
–
Monthly wholesale water usage
charges are assessed to the Company’s customers based on
actual metered usage each month plus a base monthly service fee
assessed per single family equivalent (“SFE”) unit
served. One SFE is a customer, whether residential, commercial or
industrial, that imparts a demand on the Company’s water or
wastewater systems similar to the demand of a family of four
persons living in a single family house on a standard sized lot.
One SFE is assumed to have a water demand of approximately 0.4 acre
feet per year and to contribute wastewater flows of approximately
300 gallons per day. Water usage pricing uses a tiered pricing
structure. The Company recognizes wholesale water usage revenues
upon delivering water to its customers or its governmental
customers’ end-use customers, as applicable.
Revenues
recognized by the Company from the sale of "Export Water" are shown
gross of royalties to the State of Colorado Board of Land
Commissioners (the “Land Board”). Revenues recognized
by the Company 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
Metropolitan District (the “District”). See further
description of "Export Water" and the "Lowry Range" in Note 4 -
Water and Land Assets
under
"Rangeview Water Supply and Water
System."
The Company recognizes wastewater processing revenues monthly based
on usage. The monthly wastewater service fees are shown net of
amounts retained by the District. Amounts recognized for water and
wastewater services during the fiscal years ended August 31, 2016,
2015 and 2014 are presented in the statements of operations. Costs
of delivering water and providing wastewater service to customers
are recognized as incurred.
The Company delivered
33.9
million,
97.5 million and 190.1 million gallons of water to customers during
the fiscal years ended August 31, 2016, 2015 and 2014,
respectively.
ii.
Water and
wastewater tap fees and construction fees
–
Tap
fees, also called system development fees, are received in advance,
are non-refundable and are typically used to fund construction of
certain facilities and defray the acquisition costs of obtaining
water rights. Construction fees are fees used by the Company to
construct assets that are typically required to be constructed by
developers or home builders and are separate from tap
fees.
Proceeds from tap fees and construction fees are deferred upon
receipt and recognized in income either upon completion of
construction of infrastructure or ratably over time, depending on
whether the Company owns the infrastructure constructed with the
proceeds or a customer owns the infrastructure constructed with the
proceeds.
Tap and construction fees derived from agreements in which the
Company will not own the assets constructed with the fees are
recognized as revenue using the percentage-of-completion method.
Costs of construction of the assets when the Company will not own
the assets are recorded as construction costs.
Tap and construction fees derived from agreements for which the
Company will own the infrastructure are recognized as revenues
ratably over the estimated accounting service life of the
facilities constructed, starting at completion of construction,
which could be in excess of 30 years. Costs of construction of the
assets when the Company will own the assets are capitalized and
depreciated over their estimated economic lives.
From time to time, the Company enters into water service agreements
to provide water service to customers. The Company owns the
facilities which store, treat, and deliver the water and amortizes
the cost of these facilities over their useful lives. The Company
recognized $14,300 of tap fee revenue in each of the three fiscal
years ended August 31, 2016, 2015 and 2014. The Company recognized
$41,500 of “Special Facilities” funding as revenue in
each of the three fiscal years ended August 31, 2016, 2015, and
2014. As of August 31, 2016, the Company has deferred recognition
of $1.1 million of tap and construction revenue from customer
agreements, which will be recognized as revenue ratably through
2036.
iii.
Consulting
fees
– Consulting
fees are fees the Company receives, typically on a monthly basis,
from municipalities and area water providers along the I-70
corridor, for contract operations services.
Royalty and Other Obligations
Revenues from the sale of Export Water are
shown gross of royalties payable to the Land Board. Revenues from
the sale of water on the Lowry Range 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 4
–
Water and Land
Assets
below, 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. Pursuant to the O&G Lease, on
March 10, 2011, the Company received an up-front payment of
$1,243,400 from Anadarko 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. In December 2012, the O&G Lease was purchased by a
wholly owned subsidiary of ConocoPhillips Company. The Company
received an additional payment of $1,243,400 during February 2014
to extend the O&G Lease an additional two years through
February 2016, which was recognized as income on a straight-line
basis over two years (the extension term of the O&G Lease). In
addition, during the fiscal years ended August 31, 2015 and 2014,
the Company received up-front payments of $72,000 and $12,540,
respectively, for the purpose of exploring for, developing,
producing, and marketing oil and gas on 40 acres of mineral estate
the Company owns adjacent to the Lowry Range (the “Rangeview
Lease”). The Company recognizes the up-front payments on a
straight-line basis over the terms of the respective leases. During
the fiscal years ended August 31, 2016, 2015 and 2014, the Company
recognized $360,800, $645,700, and $525,400, respectively, of
income related to the up-front payments received pursuant to these
leases.
As of August 31, 2016, the Company has deferred recognition of
$19,000 of income related to the Rangeview Lease, which will be
recognized as income ratably through June 2017.
During
the three months ended February 28, 2015, two wells were drilled
within the Company’s mineral interest. Beginning in March
2015, both wells were placed into service and began producing oil
and gas and accruing royalties to the Company. In May 2015, certain
gas collection infrastructure was extended to the property to allow
the collection of gas from the wells and accrual of royalties
attributable to gas production. During the fiscal years ended
August 31, 2016 and 2015, the Company receiv
ed $343,600 and $412,600,
respectively, in royalties
attributable to these two wells.
Share-based Compensation
The Company maintains a stock option plan for the benefit of its
employees and directors. The Company records share-based
compensation costs which are measured at the grant date based on
the fair value of the award and are recognized as expense over the
applicable vesting period of the stock award using the
straight-line method. 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 during the fiscal years
ended August 31, 2016 and 2015 had no impact on the income tax
provisions.
The Company recognized $219,900, $240,000,
and $251,900 of share-based compensation expenses during the
fiscal
years
ended August 31, 2016, 2015 and 2014,
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 does not have any significant unrecognized
tax benefits as of August 31, 2016.
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 2012 through fiscal 2015. The
Company does not believe there will be any material changes in its
unrecognized tax positions over the next 12 months.
The Company’s policy is to recognize interest and penalties
accrued on any unrecognized tax benefits as a component of income
tax expense. At August 31, 2016, the Company did not have any
accrued interest or penalties associated with any unrecognized tax
benefits, nor was any interest expense recognized during the fiscal
years ended August 31, 2016, 2015 or 2014.
Discontinued Operations
In August 2015, the Company sold approximately 14,600 acres of
irrigated farm land and related Arkansas River water rights, which
were substantially all of the assets comprising the Company’s
agricultural segment. Pursuant to the terms of the purchase and
sale agreement, the Company continued to manage and receive the
lease income until December 31, 2015. As a consequence of the
sale, the operating results and the assets and liabilities of the
discontinued operations, which formerly comprised the agricultural
segment, are presented separately in the Company’s
consolidated financial statements. Summarized financial information
for the discontinued agricultural business is shown below. Prior
period balances have been reclassified to present the operations of
the agricultural business as a discontinued operation.
Discontinued Operations Statements of Operations
|
|
|
|
|
|
Fiscal years ended August 31,
|
|
|
|
|
Farm revenues
|
$
267,472
|
$
1,127,155
|
$
1,068,026
|
Farm expenses
|
(77,132
)
|
(126,279
)
|
(88,105
)
|
Gross profit
|
190,340
|
1,000,876
|
979,921
|
|
|
|
|
General and administrative expenses
|
(313,389
)
|
(760,192
)
|
(911,230
)
|
Impairment of land and water rights held for sale
|
-
|
-
|
(402,657
)
|
Operating (loss) profit
|
(123,049
)
|
240,684
|
(333,966
)
|
Finance charges
|
38,428
|
21,710
|
14,392
|
(Loss) gain on sale of farm assets
|
4,273
|
(22,108,145
)
|
1,407,326
|
Interest expense (1)
|
-
|
(390,505
)
|
(239,200
)
|
Interest imputed on the Tap Participation
|
|
|
|
Fee payable to HP A&M (2)
|
-
|
(23,816
)
|
(1,445,509
)
|
Taxes
|
-
|
(292,729
)
|
-
|
Loss from discontinued operations, net of
taxes
|
$
(80,348
)
|
$
(22,552,801
)
|
$
(596,957
)
|
(1) Interest
expense represents interest accrued related to notes the Company
had on its farm assets prior to the sale. All notes associated with
the farms have been paid off, and as a result the Company no longer
incurs interest on such notes.
(2)
Imputed interest represents an estimate of the interest accrued on
the Tap Participation Fee payable to High Plains A&M, LLC
(“HP A&M”), which was eliminated as a result of the
settlement with HP A&M during the three months ended February
28, 2015. As a result, the Company no longer accrues interest
related to the Tap Participation Fee.
The Company anticipates continued expenses through the end of
calendar 2016 related to the discontinued operations. The Company
will continue to incur expenses related to the remaining
agricultural land the Company continues to own and for the purpose
of collecting outstanding receivables.
The individual assets and liabilities of the discontinued
agricultural business are combined in the captions “Assets of
discontinued operations” and “Liabilities of
discontinued operations” in the consolidated balance sheets.
The carrying amounts of the major classes of assets and liabilities
included part of the discontinued business are presented in the
following table:
Discontinued Operations Balance Sheets
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
Trade accounts receivable
|
$
227,060
|
$
549,993
|
Escrow receivable
|
-
|
1,342,250
|
Land held for sale (1)
|
450,347
|
-
|
Prepaid expenses
|
2,880
|
65,309
|
Total assets
|
$
680,287
|
$
1,957,552
|
|
|
|
Liabilities:
|
|
|
Accounts payable
|
$
-
|
$
25,704
|
Accrued liabilities
|
4,394
|
90,725
|
Deferred revenues
|
-
|
900
|
Total liabilities
|
$
4,394
|
$
117,329
|
(1)
Land
Held for Sale.
During the
fiscal quarter ended November 30, 2015, the Company purchased three
farms totaling 700 acres for approximately $450,300. The farms were
acquired to correct dry-up covenant issues related to water only
farms to obtain the release of the escrow funds related to the
Company’s farm sale to Arkansas River Farms, LLC. The Company
intends to sell the farms within the next fiscal
year.
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 338,100, 312,100, and
315,100 common share equivalents as of August 31, 2016, 2015 and
2014, respectively, 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
Company’s financial reporting, the Company undertakes a study
to determine the consequence of the change to its consolidated
financial statements and ensure that there are proper controls in
place to ascertain that the Company’s consolidated financial
statements properly reflect the change.
New pronouncements
assessed by the Company recently are discussed below:
In May
2016, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2016-12,
Revenue from Contracts with
Customers (Topic 606): Narrow-Scope Improvements and
Practical
Expedients.
ASU 2016-12 provides for amendments to ASU
No. 2014-09,
Revenue from Contracts
with Customers
, amending
the guidance on transition, collectability, noncash consideration
and the presentation of sales and other similar taxes.
Specifically, ASU 2016-12 clarifies that, for a contract to be
considered completed at transition, all (or substantially all) of
the revenue must have been recognized under legacy GAAP. In
addition, ASU 2016-12 clarifies how an entity should evaluate the
collectability threshold and when an entity can recognize
nonrefundable consideration received as revenue if an arrangement
does not meet the standard’s contract criteria.
ASU 2016-12 is
effective for annual reporting periods beginning after December 15,
2017, including interim reporting periods within that reporting
period. Early adoption is permitted only for annual reporting
periods beginning after December 15, 2016, including interim
periods within that period.
The Company is assessing the impact of ASU
2016-12, but it does not expect the adoption of ASU 2016-12 to have
a material impact on its financial statements.
In
April 2016, the FASB issued ASU No. 2016-10,
Revenue from Contracts with Customers (Topic
606): Identifying Performance Obligations and Licensing
.
ASU 2016-10 provides for
amendments to ASU No. 2014-09,
Revenue from Contracts
with Customers,
reducing
the complexity when applying the guidance for identifying
performance obligations and improving the operability and
understandability of the license implementation guidance.
ASU 2016-10 is
effective for annual reporting periods beginning after December 15,
2017, including interim reporting periods within that reporting
period. Early adoption is permitted only for annual reporting
periods beginning after December 15, 2016, including interim
periods within that period.
The Company is assessing the impact of ASU
2016-10, but it does not expect the adoption of ASU 2016-10 to have
a material impact on its financial statements.
In
March 2016, the FASB issued ASU No. 2016-08,
Revenue from Contracts with Customers (Topic
606): Principal versus Agent Considerations (Reporting Revenue
Gross versus Net)
.
ASU
2016-08 provides for amendments to ASU No. 2014-09,
Revenue from
Contracts with Customers
,
clarifying the implementation guidance on principal versus agent
considerations in the new revenue recognition standard.
Specifically, ASU 2016-08 clarifies how an entity should identify
the unit of accounting (i.e., the specified good or service) for
the principal versus agent evaluation and how it should apply the
control principle to certain types of arrangements.
ASU 2016- is
effective for annual reporting periods beginning after December 15,
2017, including interim reporting periods within that reporting
period. Early adoption is permitted only for annual reporting
periods beginning after December 15, 2016, including interim
periods within that period.
The Company is assessing the impact of ASU
2016-08, but it does not expect the adoption of ASU 2016-08 to have
a material impact on its financial statements.
In April 2014, the FASB issued ASU No.
2014-08,
Presentation of
Financial Statements (Topic 205) and Property, Plant, and Equipment
(Topic 360):
Reporting Discontinued
Operations and Disclosures of Disposals of Components of an
Entity
. ASU 2014-08
changes the presentation and disclosure requirements for
discontinued operations. The update was adopted by the Company in
fiscal year 2016.
NOTE 3 – 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 NASDAQ Stock Market. The
Company had one of these assets and no liabilities as of August 31,
2016. The Company had no Level 1 assets or liabilities as of August
31, 2015.
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 ha
d 36 Level 2 as
sets as of August 31,
2016, which consist of certificates of deposit and U.S. treasury
notes.
The Company had no Level
2 assets or liabilities as of August 31, 2015.
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 no Level 3
assets or liabilities as of August 31, 2016 or 2015.
The Company maintains policies and procedures to value instruments
using what management believes to be the best and most relevant
data available.
Level
2 Asset – Available for Sale Securities.
The Company’s available for sale
securities are the Company’s only financial asset measured at
fair value on a recurring basis.
The fair value of the
available for sale 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.
The following table provides information on
the assets and liabilities measured at fair value on a recurring
basis as of
August 31, 2016
:
|
|
|
Fair Value
Measurement Using:
|
|
|
|
|
Quoted
Prices in Active Markets for Identical Assets
|
Significant
Other Observable Inputs
|
Significant
Unobservable Inputs
|
Accumulated
Unrealized Gains and
|
|
|
|
|
|
|
|
Money
Market
|
$
4,184,900
|
$
4,184,900
|
$
4,184,900
|
$
-
|
$
-
|
$
-
|
Available
for sale
|
$
23,176,500
|
$
23,173,400
|
$
-
|
$
23,176,500
|
$
-
|
$
3,100
|
NOTE 4 – WATER AND LAND ASSETS
The Company’s water and water systems consist of the
following approximate costs and accumulated depreciation and
depletion as of August 31:
|
|
|
|
|
Accumulated Depreciation and Depletion
|
|
Accumulated Depreciation and Depletion
|
Rangeview water supply
|
$
14,444,600
|
$
(9,400
)
|
$
14,444,600
|
$
(8,800
)
|
Sky Ranch water rights and other costs
|
6,607,400
|
(334,500
)
|
6,440,800
|
(194,600
)
|
Fairgrounds water and water system
|
2,899,900
|
(886,800
)
|
2,899,900
|
(798,700
)
|
Rangeview water system
|
1,624,800
|
(152,800
)
|
1,256,300
|
(110,300
)
|
Water supply – other
|
3,703,000
|
(297,800
)
|
3,649,800
|
(193,900
)
|
Construction in progress
|
723,500
|
-
|
323,500
|
-
|
Totals
|
30,003,200
|
(1,681,300
)
|
29,014,900
|
(1,306,300
)
|
Net investments in water and water systems
|
$
28,321,900
|
|
$
27,708,600
|
|
Depletion and Depreciation
The Company recorded $500, $7,000, and $4,400 of depletion charges
during the fiscal years ended August 31, 2016, 2015 and 2014,
respectively. During the fiscal year ended August 31, 2016, this
related entirely to the Rangeview Water Supply (defined below), and
during the fiscal years ended August 31, 2015 and 2014, this
related to the Rangeview Water Supply and the Sky Ranch water
supply (discussed below).
The Company recorded $419,600, $340,300 and $192,200 of
depreciation expense in each of the fiscal years ended August 31,
2016, 2015 and 2014, respectively. These figures include
depreciation for other equipment not included in the table
above.
Rangeview Water Supply and Water System
The “Rangeview Water Supply” consists of 22,985 acre
feet and is a combination of tributary surface water and
groundwater rights along with certain storage rights associated
with the Lowry Range, a 27,000-acre property owned by the Land
Board located 16 miles southeast of Denver, Colorado. Approximately
$14.4 million of Investments in Water and Water Systems on the
Company’s balance sheet as of August 31, 2016, represents the
costs of assets acquired or facilities constructed to extend water
service to customers located on and off the Lowry Range. The
recorded costs of the Rangeview Water Supply include payments to
the sellers of the Rangeview Water Supply, design and construction
costs and certain direct costs related to improvements to the asset
including legal and engineering fees.
The Company acquired the Rangeview Water Supply beginning in 1996
when:
(i)
The District entered into the 1996 Amended and Restated Lease
Agreement with the Land Board, which owns the Lowry
Range;
(ii)
The Company entered into the Agreement for Sale of Export Water
with the District;
(iii)
The Company entered into the 1996 Service Agreement with the
District for the provision of water service to the Lowry Range;
and
(iv)
In 1997, the Company entered into the Wastewater Service Agreement
with the District for the provision of wastewater service to the
District’s service area.
In July 2014, the Company, the District and the Land Board entered
into the 2014 Amended and Restated Lease (the “Lease”),
which superseded the original 1996 lease, and the Company and the
District entered into an Amended and Restated Service Agreement.
Collectively, the foregoing agreements, as amended, are referred to
as the “Rangeview Water Agreements.”
Pursuant to the Rangeview Water Agreements, the Company owns 11,650
acre feet of water consisting of 10,000 acre feet of groundwater
and 1,650 acre feet of average yield surface water which can be
exported off the Lowry Range to serve area users (referred to as
“Export Water”). The 1,650 acre feet of surface rights
are subject to completion of documentation by the Land Board
related to the Company’s exercise of its right to substitute
an aggregate gross volume of 165,000 acre feet of its groundwater
for 1,650 acre feet per year of adjudicated surface water and to
use this surface water as Export Water. Additionally, assuming
completion of the substitution of groundwater for surface water,
the Company has the exclusive right to provide water and wastewater
service, through 2081, to all water users on the Lowry Range and
the right to develop an additional 12,035 acre feet of groundwater
and 1,650 acre feet of adjudicated surface water to serve customers
either on or off the Lowry Range. The Rangeview Water Agreements
also provide for the Company to use surface reservoir storage
capacity in providing water service to customers both on and off
the Lowry Range.
Services
on the Lowry Range –
Pursuant to the Rangeview Water Agreements,
the Company designs, finances, constructs, operates and maintains
the District’s water and wastewater systems to provide
service to the District’s customers on the Lowry Range. The
Company will operate both the water and the wastewater systems
during the contract period, and the District owns both systems.
After 2081, ownership of the water system will revert to the Land
Board, with the District retaining ownership of the wastewater
system.
Rates and charges for all water and wastewater services on the
Lowry Range, including tap fees and usage or monthly fees, are
governed by the terms of the Rangeview Water Agreements. Rates and
charges are required to be less than the average of similar rates
and charges of three surrounding municipal water and wastewater
service providers, which are reassessed annually. Pursuant to the
Rangeview Water Agreements the Land Board receives a royalty of 10%
or 12% of gross revenues from the sale or disposition of the water
depending on the purchaser of the water, except that the royalty on
tap fees shall be 2% (other than taps sold for Sky Ranch which are
exempt). The Company also is required to pay the Land Board a
minimum annual water production fee, which will offset future
royalty obligations. The Company and the Land Board are working
cooperatively to clarify the calculation of the minimum annual
production fee. Pursuant to the Company’s determination, the
Company has made payments of $45,600 for each of the past two
years. The Company does not anticipate any modification to the
minimum fee to be
material. The District retains 2% of the remaining gross
revenues and the Company receives 98% of the remaining gross
revenues after the Land Board royalty. The Land Board does not
receive a royalty on wastewater fees. The Company receives 100% of
the District’s wastewater tap fees and 90% of the
District’s wastewater usage fees (the District retains the
other 10%).
Export
Water –
The Company
owns the Export Water and intends to use it to provide water and
wastewater services to customers off the Lowry Range. The Company
will own all wholesale facilities required to extend water and
wastewater services using its Export Water. The Company anticipates
contracting with third parties for the construction of these
facilities. If the Company sells water, the Company is required to
pay royalties to the Land Board ranging from 10% to 12% of gross
revenues.
The Arapahoe County Fairgrounds Water and Water System
The Company owns 321 acre feet of groundwater purchased pursuant to
its agreement with Arapahoe County. The Company plans to use this
water in conjunction with its Rangeview Water Rights in providing
water to areas outside the Lowry Range. The $2.9 million of
capitalized costs includes the costs to construct various Wholesale
and Special Facilities, including a new deep water well, a
500,000-gallon water tank and pipelines to transport water to the
Arapahoe County fairgrounds.
Sky Ranch
In 2010, the Company purchased approximately 931 acres of
undeveloped land known as Sky Ranch. The property includes the
rights to approximately 830 acre feet of water.
Total consideration for the land and water included the $7.0
million purchase price, plus direct costs and fees of $554,100. The
Company allocated the total acquisition cost to the land and water
rights based on estimates of each asset’s respective fair
value.
O&G
Lease
–
On March 10, 2011, the Company
entered into the O&G Lease and the Surface Use Agreement with
Anadarko. Pursuant to the O&G Lease, the Company received an
up-front payment of $1,243,400 from Anadarko for the purpose of
exploring for, developing, producing and marketing oil and gas on
634 acres of mineral estate owned by the Company at its Sky Ranch
property. The Company also received $9,000 in surface use and
damage payments. In December 2012, the O&G Lease was purchased
by a wholly owned subsidiary of ConocoPhillips Company. The Company
received an additional payment of $1,243,400 during February 2014
to extend the O&G Lease an additional two years through
February 2016. The O&G Lease is now held by production
entitling the Company to royalties based on
production.
NOTE 5 – PARTICIPATING INTERESTS IN EXPORT WATER
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 Company’s Export Water (described in
greater detail in Note 4 –
Water and Land
Assets
). 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 investment. The obligation
for the $11.1 million was recorded as debt, and the remaining $20.7
million contingent liability was not reflected on the
Company’s 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, approximately 35% of each payment
remitted to the CAA holders is allocated to the
recorded liability account. The remaining
portion of each payment, or approximately 65%, is allocated to the
contingent obligation, which is recorded on a net revenue
basis.
From time to time, the Company repurchased various portions of the
CAA obligations, which retained their original priority. The
Company did not make any CAA acquisitions during the fiscal years
ended August 31, 2016 or 2015. In July 2014, the Land Board
relinquished its approximately $2.4 million of CAA interests to the
Company as part of a settlement of the 2011 lawsuit filed by the
Company and the District against the Land Board.
As a result of the acquisitions, the relinquishment by the Land
Board, and the sale of Export Water, as detailed in the table
below, the remaining potential third-party obligation at August 31,
2016, is approximately $1 million:
|
Export Water Proceeds Received
|
Initial Export Water Proceeds to Pure Cycle
|
Total Potential Third-party Obligation
|
Participating Interests Liability
|
|
Original balances
|
$
–
|
$
218,500
|
$
31,807,700
|
$
11,090,600
|
$
20,717,100
|
Activity from inception until August 31, 2014:
|
|
|
|
|
|
Acquisitions
|
–
|
30,428,900
|
(30,428,900
)
|
(10,622,100
)
|
(19,806,800
)
|
Option payments - Sky Ranch
|
|
|
|
|
|
and The Hills at Sky Ranch
|
110,400
|
(42,300
)
|
(68,100
)
|
(23,800
)
|
(44,300
)
|
Arapahoe County tap fees (1)
|
533,000
|
(373,100
)
|
(159,900
)
|
(55,800
)
|
(104,100
)
|
Export Water sale payments
|
361,500
|
(262,800
)
|
(98,700
)
|
(34,300
)
|
(64,400
)
|
Balance at August 31, 2014
|
1,004,900
|
29,969,200
|
1,052,100
|
354,600
|
697,500
|
Fiscal 2015 activity:
|
|
|
|
|
|
Export Water sale payments
|
207,900
|
(183,200
)
|
(24,700
)
|
(8,600
)
|
(16,100
)
|
Balance at August 31, 2015
|
1,212,800
|
29,786,000
|
1,027,400
|
346,000
|
681,400
|
Fiscal 2016 activity:
|
|
|
|
|
|
Export Water sale payments
|
49,200
|
(43,300
)
|
(5,900
)
|
(2,000
)
|
(3,900
)
|
Balance at August 31, 2016
|
$
1,262,000
|
$
29,742,700
|
$
1,021,500
|
$
344,000
|
$
677,500
|
(1)
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 payees receive their full payment before the next
priority level receives any payment and so on until full repayment.
The Company will receive approximately $6 million of the first
priority payout (the remaining entire first priority payout totals
approximately $6.8 million as of August 31, 2016).
NOTE 6 – ACCRUED LIABILITIES
At August 31, 2016, the Company had accrued liabilities of
$242,600, of which $160,000 was for accrued compensation, $5,700
was for estimated property taxes, $48,000 was for professional fees
and the remaining $28,900 was related to operating
payables.
At August 31, 2015, the Company had accrued liabilities of
$499,800, of which $400,000 was for accrued compensation, $4,800
was for estimated property taxes, $52,500 was for professional fees
and the remaining $42,500 was related to operating
payables.
NOTE 7 – LONG-TERM DEBT AND OPERATING LEASE
As of August 31, 2016 and 2015, the Company had no
debt.
The Participating Interests in Export Water
Supply are obligations of the Company that have no scheduled
maturity dates. Therefore, these liabilities are not disclosed in
tabular format. However, the Participating Interests in Export
Water Supply are described in Note 5 –
Participating Interests
in Export Water
.
WISE Partnership
During
December 2014, the Company, through the District,
consented to the waiver of all
contingencies set forth in the Amended and Restated WISE
Partnership – Water Delivery Agreement, dated December 31,
2013 (the “WISE Partnership Agreement”), among the City
and County of Denver acting through its Board of Water
Commissioners (“Denver Water”), the City of Aurora
acting by and through its Utility Enterprise (“Aurora
Water”), and the South Metro WISE Authority
(“SMWA”). The SMWA was formed by the District and nine
other governmental or quasi-governmental water providers pursuant
to the South Metro WISE Authority Formation and Organizational
Intergovernmental Agreement, dated December 31, 2013 (the “SM
IGA”), to enable the members of SMWA to participate in the
regional water supply project known as the Water Infrastructure
Supply Efficiency partnership (“WISE”) created by the
WISE Partnership Agreement. The SM IGA specifies each
member’s pro rata share of WISE and the members’ rights
and obligations with respect to WISE. The WISE Partnership
Agreement provides for the purchase of certain infrastructure
(i.e., 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. Certain infrastructure has been constructed and other
infrastructure will be constructed over the next several
years.
By consenting to the waiver of the
contingencies set forth in the WISE Partnership Agreement, pursuant
to the terms of the Rangeview/Pure Cycle WISE Project Financing
Agreement (the “WISE Financing Agreement”) between the
Company and the District, the Company has an agreement to fund the
District’s participation in WISE effective as of December 22,
2014. The Company’s cost of funding the District’s
purchase of its share of existing infrastructure and future
infrastructure for WISE and funding operations and water deliveries
related to WISE is projected to be approximately $5.6 million over
the next five years. See further discussion in Note 14
–
Related Party Transactions.
Operating Lease
Effective January 2016, the Company entered into an operating lease
for approximately 2,500 square feet of office and warehouse space.
The lease has a one-year term with payments of $3,000 per
month.
NOTE 8 – SHAREHOLDERS’ EQUITY
Preferred Stock
The Company’s non-voting Series B Preferred Stock has a
preference in liquidation of $1.00 per share less any dividends
previously paid. Additionally, the Series B Preferred Stock is
redeemable at the discretion of the Company for $1.00 per share
less any dividends previously paid. In the event that the
Company’s proceeds from sale or disposition of Export Water
rights exceed $36,026,232, the Series B Preferred Stock holders
will receive the next $432,513 of proceeds in the form of a
dividend.
Equity Compensation Plan
The Company maintains the 2014 Equity Incentive Plan (the
“2014 Equity Plan”), which was approved by shareholders
in January 2014 and became effective April 12, 2014. Executives,
eligible employees, consultants and non-employee directors are
eligible to receive options and stock grants pursuant to the 2014
Equity Plan. Pursuant to the 2014 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
has reserved 1.6 million shares of common stock for issuance under
the 2014 Equity Plan. Awards to purchase 62,000 shares of the
Company’s common stock have been made under the 2014 Equity
Plan. Prior to the effective date of the 2014 Equity Plan, the
Company granted stock awards to eligible participants under its
2004 Incentive Plan (the “2004 Incentive Plan”), which
expired April 11, 2014. No additional awards may be granted
pursuant to the 2004 Incentive Plan; however, awards outstanding as
of April 11, 2014, will continue to vest and expire and may be
exercised in accordance with the terms of the 2004 Incentive
Plan.
The Company estimates the fair value of share-based payment awards
on the date of grant using the Black-Scholes option-pricing model
(“Black-Scholes model”). Using the Black-Scholes model,
the value of the portion of the award that is ultimately expected
to vest is recognized as a period expense over the requisite
service period in the statement of operations. Option forfeitures
are to be estimated at the time of grant and revised, if necessary,
in
subsequent periods if actual forfeitures differ from those
estimates. The Company does not expect any forfeiture of its option
grants and therefore the compensation expense has not been reduced
for estimated forfeitures. During fiscal year 2015, 12,500 options
expired and 16,500 were exercised. During fiscal year 2016, 10,000
options expired. The Company attributes the value of share-based
compensation to expense using the straight-line single option
method for all options granted.
The Company’s determination of the estimated fair value of
share-based payment awards on the date of grant is affected by the
following variables and assumptions:
●
The grant date exercise price – is the closing market
price of the Company’s common stock on the date of
grant;
●
Estimated option lives – based on historical experience
with existing option holders;
●
Estimated dividend rates – based on historical and
anticipated dividends over the life of the option;
●
Life of the option – based on historical experience option
grants have lives between 8 and 10 years;
●
Risk-free interest rates – with maturities that
approximate the expected life of the options granted;
●
Calculated stock price volatility – calculated over the
expected life of the options granted, which is calculated based on
the weekly closing price of the Company’s common stock over a
period equal to the expected life of the option; and
●
Option exercise behaviors – based on actual and
projected employee stock option exercises and
forfeitures.
In January 2016, the Company granted its non-employee directors
options to purchase a combined 36,000 shares of the Company’s
common stock pursuant to the 2014 Equity Plan. Options for 26,000
shares vest one year after the date of grant, and options for
10,000 shares vest one-half one year after the date of grant and
one-half two years after the date of grant. All of the options
expire 10 years after the date of grant. The Company calculated the
fair value of the options granted during January 2016 at
approximately $104,100, using the Black Scholes model with the
following variables: weighted average exercise price of $4.26
(which was the closing sales price of the Company’s common
stock on the date of grant); estimated option lives of 10 years;
weighted average risk free interest rate of 2.06%; weighted average
stock price volatility of 58.26%; and an estimated forfeiture rate
of 0%. The $104,100 of stock-based compensation is being expensed
monthly over the vesting periods.
In January 2015, the Company granted its non-employee directors
options to purchase a combined 26,000 shares of the Company’s
common stock pursuant to the 2014 Equity Plan. The options vest one
year after the date of grant and expire 10 years after the date of
grant. The Company calculated the fair value of the options granted
during January 2015 at approximately $72,000, using the Black
Scholes model with the following variables: weighted average
exercise price of $4.17 (which was the closing sales price of the
Company’s common stock on the date of grant); estimated
option lives of 10 years; weighted average risk free interest rate
of 1.77%; weighted average stock price volatility of 57.45%; and an
estimated forfeiture rate of 0%. The $72,000 of stock-based
compensation is being expensed monthly over the vesting
periods.
In January 2014, the Company granted its non-employee directors
options to purchase a combined 32,500 shares of the Company’s
common stock pursuant to the 2004 Incentive Plan. The options vest
one year after the date of grant and expire 10 years after the date
of grant. The Company calculated the fair value of these options at
$132,900 using the Black-Scholes model with the following
variables: weighted average exercise price of $6.08 (which was the
closing sales price of the Company’s common stock on the date
of grant); estimated option lives of 10 years; estimated
dividend rate of 0%; weighted average risk-free interest rate of
1.84%; weighted average stock price volatility of 63.6%; and an
estimated forfeiture rate of 0%. The $132,900 of stock-based
compensation was being expensed monthly over the vesting
periods.
During the fiscal year ended August 31, 2015, 16,500 options were
exercised. No options were exercised during the fiscal years ended
August 31, 2016 or 2014.
The following table summarizes the stock option activity for the
combined 2004 Incentive Plan and 2014 Equity Plan for the fiscal
year ended August 31, 2016:
|
|
Weighted-Average Exercise Price
|
Weighted-Average Remaining Contractual Term
|
Approximate Aggregate Intrinsic Value
|
Outstanding at beginning of period
|
312,000
|
$
5.10
|
|
|
Granted
|
36,000
|
$
4.26
|
|
|
Exercised
|
-
|
$
-
|
|
|
Forfeited or expired
|
(10,000
)
|
$
13.25
|
|
|
Outstanding at August 31, 2016
|
338,000
|
$
4.77
|
5.68
|
$
248,000
|
|
|
|
|
|
Options exercisable at August 31, 2016
|
302,000
|
$
4.83
|
5.36
|
$
227,100
|
The following table summarizes the activity and value of non-vested
options as of and for the fiscal year ended August 31,
2016:
|
|
Weighted-Average Grant Date Fair Value
|
Non-vested options outstanding at beginning of period
|
59,333
|
$
3.66
|
Granted
|
36,000
|
2.89
|
Vested
|
(59,333
)
|
3.66
|
Forfeited
|
-
|
-
|
Non-vested options outstanding at August 31, 2016
|
36,000
|
$
2.89
|
All non-vested options are expected to vest. The total fair value
of options vested during the fiscal years ended August 31, 2016,
2015 and 2014 was $216,900, $280,700 and $219,200, respectively.
The weighted average grant date fair value of options granted
during the fiscal years ended August 31, 2016, 2015 and 2014 was
$2.89, $2.78, and $4.09, respectively.
Share-based compensation expense for the
fiscal years ended August 31, 2016, 2015 and 2014, was
$219,900,
$240,000,
and $251,900, respectively.
At August 31, 2016, the Company had
unrecognized expenses relating to non-vested options that are
expected to vest totaling $51,400.
The weighted-average period over which these
options are expected to vest is less than three years. The Company
has not recorded any excess tax benefits to additional paid in
capital.
Warrants
As of August 31, 2016, the Company had outstanding warrants to
purchase 92 shares of common stock at an exercise price of $1.80
per share. These warrants expire six months from the earlier
of:
(i)
The date all of the Export Water is sold or otherwise disposed
of,
(ii)
The date the CAA is terminated with respect to the original holder
of the warrant, or
(iii)
The date on which the Company makes the final payment pursuant to
Section 2.1(r) of the CAA.
No warrants were exercised during fiscal 2016, 2015 or
2014.
NOTE 9 – SIGNIFICANT CUSTOMERS
The Company sells wholesale water and wastewater services to the
District pursuant to the Rangeview Water Agreements. Sales to the
District accounted for 67%, 19% and 9% of the Company’s total
water and wastewater revenues for the fiscal years ended August 31,
2016, 2015 and 2014, respectively. The District had one
significant
customer, the Ridgeview Youth Services Center. Pursuant to the
Rangeview Water Agreements, the Company is providing water and
wastewater services to this customer on behalf of the District. The
District’s significant customer accounted for 55%, 16%, and
7% of the Company’s total water and wastewater revenues for
the fiscal years ended August 31, 2016, 2015 and 2014,
respectively.
Revenues from another customer directly and
indirectly represented approximately
less than 1%,
75% and 88% of the
Company’s water and wastewater revenues for the fiscal years
ended August 31, 2016, 2015 and 2014,
respectively.
The Company had accounts receivable from the District which
accounted for 74% and 87% of the Company’s water and
wastewater trade receivables balances at August 31, 2016 and 2015,
respectively. Accounts receivable from the District’s largest
customer accounted for 63% and 77% of the Company’s water and
wastewater trade receivables as of August 31, 2016 and 2015,
respectively.
NOTE 10 – INCOME TAXES
Deferred income taxes reflect the tax effects of net operating loss
carryforwards and temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant
components of the Company’s deferred tax assets as of August
31 are as follows:
|
For the Fiscal Years Ended August 31,
|
|
|
|
Deferred tax assets:
|
|
|
Net operating loss carryforwards
|
$
2,393,200
|
$
1,816,200
|
Deferred revenue
|
344,300
|
503,300
|
Depreciation and depletion
|
247,400
|
320,300
|
Other
|
65,600
|
34,200
|
Valuation allowance
|
(3,050,500
)
|
(2,674,000
)
|
Net deferred tax asset
|
$
-
|
$
-
|
The Company has recorded a valuation allowance against the deferred
tax assets as the Company is unable to reasonably determine if it
is more likely than not that deferred tax assets will ultimately be
realized.
Income taxes computed using the federal statutory income tax rate
differs from our effective tax rate primarily due to the following
for the fiscal years ended August 31:
|
For the
Fiscal Years Ended August 31,
|
|
|
|
|
Expected
benefit from federal taxes at statutory rate of 34%
|
$
(420,300
)
|
$
(195,500
)
|
$
97,100
|
State
taxes, net of federal benefit
|
(40,700
)
|
(19,000
)
|
9,400
|
Expiration
of net operating losses
|
-
|
-
|
89,400
|
Permanent
and other differences
|
84,500
|
91,900
|
96,500
|
Change
in valuation allowance
|
376,500
|
122,600
|
(292,400
)
|
Total
income tax expense / (benefit)
|
$
-
|
$
-
|
$
-
|
At August 31, 2016, the Company has
$6.5
million of net operating loss carryforwards
available for income tax purposes, which expire between fiscal 2032
and 2036. Utilization of these net operating loss carryforwards may
be subject to substantial annual ownership change limitations
provided by the Internal Revenue Code. Such an annual limitation
could result in the expiration of the net operating loss
carryforwards before utilization.
No net operating loss carryforwards expired during the fiscal years
ended August 31, 2016 or 2015. Net operating loss carryforwards of
$239,600 expired during the fiscal year ended August
2014.
NOTE 11 – 401(k) PLAN
The Company maintains a Pure Cycle Corporation 401(k) Profit
Sharing Plan (the “Plan”), a defined contribution
retirement plan for the benefit of its employees. The Plan is
currently a salary deferral only plan, and at this time the Company
does not match employee contributions. The Company pays the annual
administrative fees of the Plan, and the Plan participants pay the
investment fees. The Plan is open to all employees, age 21 or
older, who have been employees of the Company for at least six
months. During the fiscal years ended August 31, 2016, 2015 and
2014, the Company paid fees of $5,000, $3,800 and $3,600,
respectively, for the administration of the Plan.
NOTE 12 – LITIGATION LOSS CONTINGENCIES
The Company has historically been 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
Company’s financial position, results of operations or cash
flows.
NOTE 13 – SEGMENT REPORTING
Prior to the sale of the Company’s agricultural assets and
the residual operations through December 31, 2015, the Company
operated primarily in two lines of business: (i) the wholesale
water and wastewater business and (ii) the agricultural
farming business. The Company has discontinued its agricultural
farming operations. Currently the Company operates its wholesale
water and wastewater services segment as its only line of business.
The wholesale water and wastewater services business includes
selling water service to customers, which is then provided by the
Company using water rights owned or controlled by the Company and
developing infrastructure to divert, treat and distribute that
water and collect, treat and reuse wastewater.
NOTE 14 – 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”). The
Company provided funding of $113,600, $78,600, and $114,900 for the
fiscal years ended August 31, 2016, 2015, and 2014,
respectively.
Through the WISE Financing Agreement, to date the Company made
payments of $2,870,500 to purchase certain rights to use existing
water transmission and related infrastructure acquired by the WISE
project and to construct the connection to the WISE system. The
amounts are included as Investments in Water and Water Systems on
the Company’s balance sheet as of August 31, 2016. The
Company anticipates spending the following over the next five
fiscal years to fund the District’s purchase of its share of
the water transmission line and additional facilities, water and
related assets for WISE and to fund operations and water deliveries
related to WISE:
|
|
For the Fiscal Years Ended August 31,
|
|
|
|
|
|
|
Operations
|
$
96,600
|
$
96,600
|
$
96,600
|
$
96,600
|
$
96,600
|
Water Delivery
|
45,000
|
225,000
|
495,000
|
675,000
|
855,000
|
Capital
|
464,000
|
339,000
|
464,000
|
1,339,200
|
57,100
|
Other
|
43,500
|
23,600
|
86,600
|
23,600
|
23,600
|
|
$
649,100
|
$
684,200
|
$
1,142,200
|
$
2,134,400
|
$
1,032,300
|
The Company has outstanding loans of $800,400 to the District and
Sky Ranch Metropolitan District No. 5, which are both related
parties, as discussed below:
The District
In 1995, the Company extended a loan to the
District. The loan provided for borrowings of up to $250,000, is
unsecured, and bears interest based on the prevailing prime rate
plus 2% (5.5% at August 31, 2016).
The maturity
date of the loan is December 31, 2020. Beginning in January 2014,
the District and the Company entered into a funding agreement that
allows the Company to continue to provide funding to the District
for day-to-day operations and accrue the funding into a note that
bears interest at a rate of 8% per annum and remains in full force
and effect for so long as the 2014 Amended and Restated Lease
Agreement remains in effect.
The $628,500 balance of the notes receivable
at August 31, 2016, includes borrowings of $260,200 and accrued
interest of $368,300. The $591,200 balance of the notes receivable
at August 31, 2015, includes borrowings of $237,000 and accrued
interest of $354,200.
Sky Ranch Metropolitan District No. 5
Each year, beginning in 2012, the Company has entered into an
Operation Funding Agreement with Sky Ranch Metropolitan District
No. 5 obligating the Company to advance funding to the district for
the district's operations and maintenance expenses for the then
current calendar year. The District is expected to repay the
amounts advanced pursuant to the funding agreements from future
revenues from property tax assessments. All payments are subject to
annual appropriations by the district in its absolute discretion.
The advances by the Company accrue interest at a rate of 8% per
annum from the date of the advance.
In November 2014, but effective as of January 1, 2014, the Company
entered into a Facilities Funding and Acquisition Agreement with
Sky Ranch Metropolitan District No. 5 obligating the Company to
either finance district improvements or to construct improvements
on behalf of the district subject to reimbursement. Improvements
subject to this agreement are determined pursuant to a mutually
agreed upon budget. Each year in September, the partieis are to
mutually determine the improvements required for the following year
and finalize a budget by the end of October. Each advance or
reimbursable expense accrues interest at a rate of 6% per annum. No
payments are required by the district unless and until the district
issues bonds in an amount sufficient to reimburse the Company for
all or a portion of the advances and costs incurred.
Pursuant to the Operation Funding Agreements and the Facilities
Funding and Acquisition Agreement, the Company has provided funding
to the district in the amounts of $8,500, $97,500 and $50,900 for
the fiscal years 2016, 2015, and 2014, respectively. The $171,900
balance of the receivable at August 31, 2016, includes advances of
$156,900 and accrued interest of $15,000. Upon the district's
ratification of the advances and related expenditures, the amount
was reclassified to long-term and is recorded as part of Notes
receivable – related parties.
NOTE 15 – UNAUDITED QUARTERLY FINANCIAL DATA
Quarterly results of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
Total revenues
|
$
126
|
$
76
|
$
101
|
$
149
|
$
570
|
$
372
|
$
120
|
$
135
|
Gross margin
|
(7
)
|
(44
)
|
(34
)
|
8
|
373
|
217
|
(19
)
|
(134
)
|
Operating loss
|
(472
)
|
(557
)
|
(533
)
|
(618
)
|
47
|
(324
)
|
(448
)
|
(952
)
|
Net income (loss)
|
$
(97
)
|
$
(271
)
|
$
(422
)
|
$
(521
)
|
$
10
|
$
(86
)
|
$
30
|
$
(23,082
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
income (loss) per share
|
*
|
$
(0.01
)
|
$
(0.02
)
|
$
(0.03
)
|
*
|
*
|
*
|
$
(0.96
)
|
* Amount is less than $.01 per share
|
|
|
|
|
|
|
|
|
The following item had a significant impact on the Company’s
net income (loss):
●
In August 2015, the Company sold its remaining farm portfolio. The
Company recognized a loss of $22.1 million.