Pure Cycle Corp (PCYO) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2009 Pure Cycle final results and 2009 financial shareholders meeting. My name is Eric and I will be your audio coordinator for today. (Operator Instructions). I would now like to turn presentation over to your host, Mr. Mark Harding, President.

I would like to welcome you all to our first quarter 2009 financial results, as well as our 2009 annual shareholder meeting. With me today I would like to introduce and welcome our Board of Directors. We have with us Peter Howell, Mark Campbell, George Middlemas, Art Epker, Dick Guido and Harry Augur. Thank you all for joining us.

Also with us today are our auditors, [Mike Pakowski] and [Angie Parsons], who would be available for questions if anybody has any questions.

The way we'll conduct our order of business today is that, what I would like to do is spend a little bit of time going through our first quarter financial results. Shortly before those results, I'm going to provide a brief update to some of the activities and some of the recent announcements that the Company has had. Then we will proceed to the order of agenda on our annual shareholder meeting.

Right now you are all in listen only mode, and you can interact through our Company's website. We do have some slides for this presentation. So you can log on to our website and then click into the icon to allow yourself to follow alone with us on our slide presentation. I will try and note the transition of the slides as we move through the presentation.

With that, what I would like to do is have you move to the first slide, which is our Safe Harbor statement, which you are all familiar with. Statements are not historical fact that are contained in this presentation are forward-looking statements. So with that, Safe Harbor statements are fairly well-known and well understood.

If you can move to do the next item. On the agenda for today we will have our brief introductions, an overview of the Company, a discussion of the financial results, a brief Q&A session. And then we will follow on to the order of business on our annual shareholder meeting, which are election of the Board members and ratification of our independent auditors, and any other matters that come before the Board. And then a disclosure of the election results, and then we will have a brief closing.

If you will advance to the next slide. What I would like to do is just give you an update in three primary areas. Most notably will be our service area and a Lowry Range update. We have had some recent activity on the developer for the Lowry Range. Give you an update as to our Arkansas River assets, and then an overview of the markets here in Colorado. We try and key tabs on how -- the housing market and the overall economic market here in Colorado. So I want to update everybody to that. And then we will get into the specifics of the nuts and bolts on the financial results.

What I would like to do spend is a little bit of time on Lowry and our service area, so if you will transition to the next slide. I'm going to start with sort of an overview, stepping back to identify what is the State Land Board's vision in 2006 was for the Lowry Range.

The State Land Board has a very large asset holding just east of the Denver metropolitan area. They own 27,000 acres of ground. We have a relationship with the State Land Board to develop those water assets. A portion of those assets are to be developed for service on the State Land Board property, and a portion of those assets are to be developed for users throughout the metropolitan area.

Dating back to 2006, the Land Board divided up the 27,000 acres into three components of that. One component was approximately 4,000 acres, which was identified as the development parcel. One parcel was identified as the conservation parcel, which is around 17,000 acres. Then one parcel would be the water resource parcel. So as they divided that up, what they thought was separate and independent development proposals for two elements of that. One was the development parcel and one was the conservation parcel.

They had received competitive bids on each of those two parcels. And went through an evaluation process to identify preferred parties on each of those two parcels. On the development parcel, an Australian-based company, Lend Lease, was awarded the exclusive rights to negotiate a contract for the development parcel. And then on the conservation parcel there was a group which was a teaming group identified as the Arapaho Grasslands team, who were the preferred vendor and the exclusive negotiations team for the conservation parcel.

Finally was the water resource parcel, and that is one where they had set aside some property, which generally tracked to where we had some reservoir sites that were identified as key opportunities for development of surface water storage out there. And as you all know, we are the water and wastewater provider for 27,000 -- I'm sorry -- 24,000 of the 27,000 acres.

There is approximately four square miles which was included in the development parcel, which at the time we did our relationship with the State Land Board, the State Land Board did not own. They acquired those subsequent to the initiation of the lease. So those were not components of our relationship with the State Land Board.

If you will advance to the next slide. What I want to do is give you an overview of what these water resources are on the Lowry Range. And they are very comprehensive. They include both surface water in renewable features. And there are two streams, which transect the property. There they are intermittent flow streams, and they flow certain times of the year, generally every year. And they flow subsurface throughout the year.

There is approximately 8,000 acre feet of total adjudications on those streams, and approximately 3,300 acre feet of sustainable renewable supplies that come from those two streams which flow through the property.

The property has over 30,000 acre feet of the drought proof groundwater. And as we mentioned in the water resource parcel, we have over 25,000 acre feet of surface water storage sites on that property.

Now contrasting the water resources out at the Lowry Range together with what the development parcels' opportunity for development was looking like, Lend Lease's development, as they had defined that through their involvement in the project, if you took a look at all six sections, they were looking at a development plan which would require up to around 3,000 acre feet of water.

The sections which we were responsible for were the two sections that were encompassed in our original lease relationship with the State Land Board required approximately 1,000 acre feet. So the Company had -- and the State Land Board together with us on our partnership have tremendous amount of water resources we are providing service to this particular property.

If you will advance to the next slide, what I want to do is just what through a chronology of events that happened at the Lowry Range. As we mentioned earlier, in December of 2006 the State Land Board awarded the exclusive negotiating rights to Lend Lease Community. That was a special-purpose LLC that was formed here in the State of Colorado for the opportunity to pursue the Lowry Range development.

Shortly after that in February of 2007, the parties, which included the State Land Board, ourselves, Lend Lease, and other interests, worked with Arapaho County, which is where this property resides, to amend the Arapaho County comprehensive plan.

And what Arapaho County did was they worked very interactively with the State Land Board and other interests to set aside a subarea plan for this particular parcel so that they could accommodate any development requests that may be before them as a result of what the State Land Board was looking to take action on on the property.

In June of 2007 the Land Board entered into an agreement with Lend Lease Communities, known as the Development Management Services Agreement. So they formalized their agreements with Lend Lease in approximately six months. Then in October of 2007 Arapaho County, through a local jurisdictional process, obtained urban growth boundaries for the project. So they were -- Arapaho County was moving forward with, not only a subarea plan, but also the entitlement and the governmental processes here in the Denver metropolitan area to accommodate the development of this particular parcel.

After October of 2007, if you will advance to the next slide, things started to get a little bit more interesting. In March of 2008 we had an unusual and unexpected application from Lend Lease. Lend Lease had intervened with the neighboring city, the City of Aurora, in a water rights case, which involved the reservoirs that are out at the Lowry Range, and was seeking to support the City of Aurora's interest in overlapping and filing on those reservoir sites.

That intervention was directly conflicting what Pure Cycle's interests were and what the State Land Board interests were. And both us, together with the State Land Board, had filed statements of opposition, which is a legalized term that we have in Colorado when we develop water rights. And particular entities are looking to file water rights on various interests, if they have interests that conflict with somebody's direct interest, then they file statements of opposition.

The City of Aurora had had this reservoir case and a water right filing associated with this reservoir case dating back to 2003. And both the State Land Board and Pure Cycle and Rangeview were opposers to that particular case. It was an unusual filing by Lend Lease, and one that created a lot of interest by both us, the State and other parties that were interested in that water application.

In April of 2008 the Water Court rejected Lend Lease's attempt to intervene, and also rejected the City of Aurora's claims to include those reservoir sites in their application. So we had a high degree of certainty that the Water Court was upholding the rights that the State Land Board had and that Rangeview and Pure Cycle had in those reservoir sites, such that Aurora could not continue to move forward with that application with these reservoir sites.

It seemed like that there was a tantamount shift in the focus of where Lend Lease was looking to take this project. They had previously looked at a lot of the activity in Arapaho County, and that seemed to be shifting to the neighboring jurisdictions of the City of Aurora.

Finally in October of 2008, Lend Lease announced that they were sending notification that they may terminate their involvement with the project with the State Land Board. Identifying the issue that if they could not identity -- resolve issues for water service out at the Lowry Range that they would exit the project. Ultimately in January of 2009, Lend Lease did terminate their involvement, January 9.

If you will advance to the next slide. What I want to do is really emphasize some of the key elements of the water resource parcel, and really where some of these conflicts have come in.

This particular slide illustrates our reservoir sites. We have four reservoir sites out there in conjunction with the State Land Board. And the red crosshatch sites are the overlapping sites that the City of Aurora had looked to try and file over our particular site. This issue was ruled on by the Colorado Water Court. The City of Aurora has appealed that particular rulings to the Supreme Court, and that is likely to be heard sometime later this year.

But the importance of these reservoir sites are that there are -- water storage in Colorado is a very important component to the overall water provider rules here. These storage sites are very important, not only for our ability to provide sustainable and renewable water service to the Lowry Range, because it allows us to store water in the intermittent streams, Coal Creek and Box Elder Creek, which is our surface water supply, but it also provides an opportunity for how you manage your water resources. How you meet your peak water demands.

Colorado has a very seasonal based water demand, where we have a very high demand for water in the summer and a very low, or much lower, demand for water the rest of the year.

So reservoirs are very critical and an important component to your overall water portfolio. And one where the State Land Board has a tremendous opportunity in helping monetize their asset, not only to generate revenues for the State Land Board, but also to make sure that the State Land Board property has a water system and a water provider for all of what they're looking to develop out there.

Why this is important and of interest, I guess, to the City of Aurora is it is in very close proximity to a good number of Aurora assets. Aurora has an existing reservoir, which is built right on the border of these properties. They are in the process of building a very large infrastructure project, where they're taking a pipeline some 30 miles north of Denver and bringing that back up to this particular area. And then they have a large water treatment plant that is currently under construction.

So the water storage elements are very attractive to the City of Aurora, just because of their location and their proximity. But they are extremely important to our overall water operations, and also to the State Land Board's land and opportunity.

If you advance to the next slide, this is a slide that you have seen before from us, and it really delineates out how this -- where our projects are in the regional context, as well as the division of the rules and responsibilities.

As we have identified, our lease in relationship with the State Land Board covers 24,000 acres, which includes the conservation parcel, as well as the water resource parcel. But if you drill down and focus specifically on the development parcel, the gray shaded area is the two sections that are covered under our lease. There was six sections total. So what you had in this relationship with the developer was you had a service provider that controlled two sections, and they had flexibility to do with what they wanted on the other four sections. So you sort of had two opportunities that presented itself from this development opportunity.

The other point of emphasis here is to take a look at where city boundaries are for the City of Aurora. If you look at the red highlighted area, that is going to be Aurora Corporate City limits.

Effectively over the last 20 years, since we originated this relationship with the State Land Board, the City of Aurora had annexed most of the property that has surrounded the Lowry Range. Whether or not they have any interest on annexing additional properties is really a function of the City of Aurora, and whether or not the City Council believes that is in the best interest of the citizens of the City of Aurora.

So the conflict came in to this relationship as to whether or not Lend Lease would seek to annex this into the City of Aurora, whether they wanted to pursue jurisdictional entitlements from Arapaho County. Much like what the Sky Ranch and other development projects that are in unincorporated Arapaho County would do. Lend Lease seemed to feel it was preferable for them to annex this project into the City of Aurora. So they pursued that option.

And when they exited the project, one of the things that they sought to do was -- so they weren't able to obtain water resources or clarity or sustainability and renewability of the water resources.

Well, we will take issue with that, because the company does have sustainable, renewable water resources, as much as 10 times the amount of water resources that they were looking for in this particular project. And what seemed to be the impediment was that if they were going to pursue this project in the City of Aurora, us controlling service to two sections, and they having the flexibility to define what they wanted to do with the other four sections, was the impediment.

Ultimately as we worked through a number of issues, and we worked with Lend Lease together with our partner, the State Land Board, over the course of approximately two years, we were not able to come to a relationship where both we, together with the State Land Board, felt that it was in both of our interest. Whether it was in Pure Cycle's interest or whether it was in the State Land Board's interest to pursue a joint annexation into the City of Aurora. So that ultimately became the determining factor on why, or what seemed to be what Lend Lease's decision was in terminating their interest in the project.

If we advance to the next page. I'm sorry, the next slide. On January 9 as we discussed, Lend Lease did terminate their agreement with the State Land Board. Some of the reasons for doing that are jurisdictional issues. I mean it clearly came down to, one, whether or not we could formulate an acceptable relationship between us and the State Land Board.

Late in the negotiations I believe that we, together with the State Land Board, had a win-win relationship. And then ultimately it came down to a determination as to whether or not the City of Aurora needed or wanted to pursue an annexation. And we just don't know that there was any assurances or any definition from where the city's position was. I don't think that the city took a position on this. So Lend Lease ultimately decided that they did not want to move forward with that.

There are obviously a number of considerations that weighed into that. The pressure on housing, the overall economic considerations, all had to be a component of this. But what we would like to define is that, while much of the press is focused on water as being the critical issue, there is adequate renewable, sustainable cost-effective supplies to Lowry Range, and we do look forward to providing service out there.

So what does all this mean for us, for the State Land Board and for the region? The Lowry Range still represents one of the most valuable assets for the State Land Board. It is a large assemblage, a large assemblage of property. One of the largest in the metropolitan area that is owned by a single landowner. It does have adequate water supplies. They are a blend of both drought proof groundwater supplies. They have renewable surface water supplies, and very attractive storage to be able to meet all of the utility needs out there.

The Company has a full reuse model for this particular project. We have implemented an use and reuse system for this water supply. We have existing facilities that are providing water and wastewater service to Lowry Range. And being able to use a blend of our groundwater and service water supplies in doing that.

What we look forward to is we we look forward to continuing to work with our partner, the State Land Board, as the dust settles from the definition and the objectives of Lend Lease. Really to sit down and define what the State Land Board's objectives are, work with the State Land Board and the Company to see how we monetize both the land interests, as well as the water interests.

The water interests not only generate and monetize value for our shareholders, but they also generate revenues and monetize that particular asset for the State Land Board and the Colorado School System. So it generates a tremendous amount of revenue for the school system, and it allows the Land Board the flexibility to pursue options that they are looking for in developing that property.

We will work with our partners. We will have further definition as to what their objectives are going to be post this particular developer, and then we will keep you apprised of that.

With that, I would like to move on and provide you a brief update on some of our other assets, the Arkansas asset. In 2008 the users in the multiple ditches down in the Arkansas Valley formed a trade organization known as the Arkansas Valley Super Ditch Association. And the Super Ditch is a mechanism that is looking to implement a rotational fallowing concept, where we are providing an alternative to agriculture to urban transfers, where we're looking to pursue something other than the traditional model of municipal interests, buying up agricultural interests, and drying those agricultural interests up, and transferring those water uses from ag to municipal use.

This is a system where we can maintain agricultural use, as well as provide additional new water supplies for municipal use. Colorado's water situation continues to worsen. It continues to elevate in terms of its challenges. And so this is an opportunity for us to be able to monetize that asset. Do it in such a way that we provide sustainable operations for the local communities, as well as freeing up additional water supplies, both for use within the basin, users that are located within the Arkansas Basin, as well as the use of that water supply in the higher demand centers in the Platte River Basin.

Advancing to the next slide. Typically what we do, we purchase that asset for two considerations components. One was equity and one was a participation in [tap fee] revenues. And that is known as the Tap Participation Fee. The Company annually and quarterly assesses the valuation of that Tap Participation Fee. So that is an ongoing assessment that we review to make sure that all of our modeling assumptions on how that is valued is up-to-date and current.

In Q1, because of the valuation updates that we did in fiscal 2008, at the filing of the Q1 there were no changes that were deemed necessary to that valuation allowance. And we will continue to monitor the variables of that as we get additional information.

So both in terms of the market opportunities, the market opportunities for this continue to grow, both in the basin, opportunities for providing service in the Arkansas Basin either to some of the districts in the growing region around Colorado Springs areas, and then also taking a look at opportunities for bringing that water into the metropolitan market, into the Lowry system, and integrating that within our overall service opportunities in the Denver metro area.

If you will advance to the next slide. I want to talk a little bit about Well Enhancement. That is a LOC that was formed in 2007, and we are a one-third owner interest in that. And what this effort was entailing was the development of a tool. And it is a tool process where we can utilize the ability to crossover some oilfield technologies in the development of some of these deep groundwater supplies.

In Denver and in the Denver aquifer, our water supplies can run as deep as 3,000 feet deep. So these wells are very expensive. And it is very important to try and optimize the production capacities of each of these wells.

This tool has been developed using some of that technology. And we have not only a partnership with ourselves and another private interest, but also a partnership with one of the largest well drillers -- water well drillers in the region, to be able to find a new method for enhancing the stimulation of each individual well.

The tool is there on the bottom. And this is some pictures of an actual application of that tool. We're partnered with BJ Services. And they are our vendor for implementing some of the process technology, where they come out and they are able to stimulate the productions through a hydro frac.

If you advance to the next slide. This is kind of an illustration of the use of the tool. And what happens is you have several different water-bearing formations. And what we're trying to do is we're trying to stimulate the flow of water to the well. And how we do that effectively -- and if I can simplify the technology is we create something known as a french drain in each of the individual formations. We use the hydro frac process where water will come in and they will separate the intermittent layers of sand and gravel that are in these formations.

And then we back channel that and put some size particulate in there that is a larger size particulates in the native formation, and that creates the impetus for water to flow more freely within the formation, and ultimately more freely to the well.

We have had a couple of uses of that tool in 2008, with one of the area water providers. And both of those uses have had very favorable results, almost doubling the stimulation of the wells. And that is a very important dynamic here, because what you see is, as more and more wells are developed into this aquifer, you have some of the artesian pressure that was historically associated with this formation has come off of that. And what you want to do, is you want to try and get the best bang for the buck on being able to have a very expensive well to develop water from these formations.

We do have opportunities for implementing this tool and this process in 2009. And we look forward to, not only capitalizing on the advantage of the ability to generate value for each of our water providers by use of that, but also the ability to offer a product for our municipal customer group by being able to invest in developing wells for them, and then be able to sell water out of that well. Where we are a service provider for developing individual wells. So you'll be hearing more and more about that as we continue to progress through this.

If we advance to the next portion of the presentation. What I would like to do is give you a brief update in the Colorado market. We provide as much of this information at year-end. And generally speaking the market continues to be soft. What we are seeing in Colorado is a direct observation to what you are seeing in the national market.

It is probably a little bit better in Colorado than what we see in most other areas. But if you track -- and consistently we track the same dynamics of statistics year-over-year. If you are tracking housing starts, and you are taking a look at the housing starts year-over-year from 2007 to 2008, we have both in terms of the front range, which is the 11 county front range, as well as the eight Denver metropolitan area, we have housing starts down by about 50% over the 2007 level.

Foreclosures are still impacting the market; however, they are decreasing. The complete foreclosures in 2007 were down 14%. So we have year-over-year statistics that show that that most of Colorado used to have some of the higher foreclosure rates, but most of that stuff is starting to wean itself through the marketplace.

The other statistics that we do try and keep track of is where the income markets are, or what the apartment vacancies are. And statewide apartment vacancies have increased somewhat. They increased marginally over 2007. And this is probably more attributable to supply, an increase of supply coming on to the market. So we had a very active market for people building apartments. And so as a result of some of those units coming online what you are seeing is absorption into those markets.

Advancing to the next slide, taking a look at job growth. Job growth in Colorado, we do have job growth, which is a positive indicator. Taking a look at the state seasonally adjusted unemployment rate, our Colorado unemployment rate is a little bit below the national average. We are about 5.8% compared to a national average of around 7.2%. So the overall economic profile here in Colorado is weaker than it was in the prior year, but generally tracking more favorably than other major metropolitan markets throughout the country.

With that as an update, what I would like to do is move on to the financial highlights and give you some of the results of operations from our first quarter. If you take a look at our first quarter slide, the overall revenues were down -- revenues, I think, around 8%. And that is attributable to seasonality and the variable nature of the timing of waterflows.

Total net losses are slightly down to $1.7 million. And what I will do is describe a little bit more about what that net loss -- what is in that net loss number. But down a little -- about 12% from prior -- no, I think 18% from down from prior year.

If you advance to the next slide, what I will define for you is approximately 78% of our net loss is in non-cash consideration. The largest component of that is interest expense from the Tap Participation interest. And so we have $1.16 million in Tap Participation interest expense, together with some depreciation and CEA loss and FAS 123 stock-based compensation loss.

Advancing to the next slide, taking a look at water deliveries. Water deliveries were down, just as I mentioned, due to seasonality. We delivered approximately 33 million gallons compared to approximately 40 million gallons quarter over quarter.

Net revenues, next slide, those are down approximately 8%. And those are going to be the timing of water sales and monthly deliveries, but in line ostensibly with prior year water delivery.

Continuing on. If you take a look at general and overhead operating expenses. Our general and overhead operating expenses are down about 18%. And we do -- we are budgeting about an overall decrease of around 18% for fiscal year 2009 compared to fiscal year 2008. And it continues to be one of the emphasis of the Company to make sure that we're good stewards of our investor capital, and making sure that we're allocating our resources correctly and pursuing monetization of the assets.

Current assets, moving on to the next slide, current assets are in line with where they were at year-end. Down principally by operating cash (inaudible). Total assets, next slide, in line with where they were year-end, and in line with where they were fiscal year 2007. And then also in equity, total equity.

That will conclude the brief update to our activities, as well as the financial performance. What I would like to do is open it up to questions about the quarterly performance before we move into our annual meeting agenda.

So, Eric, if we can open that up, and you can explain instructions on how to ask questions, we can take a brief -- a few questions.

(Operator Instructions). Robert Kirkpatrick, Cardinal Capital.

Could we return to the reservoir issue in the dispute with Aurora? Is it that they want to take the reservoirs or they want to offer fair compensation for the reservoirs?

That is a good distinction. Let me back up and clarify that just slightly. What Aurora was doing in their application was they filed a Water Court application that sought to divert and appropriate a new water right from the Platte. And so when you do that, one of things that you need to do is explain to everybody, not only where you're doing it, how much water you are taking, where you're going to use it, but also each element of that system.

One component of that system was to say, we're going to divert that from this point. We're going to put it in a pipeline, which we are developing, and we're going to deliver it to a specific point. That specific point was they identified eight potential reservoir sites.

Two sites were already developed by the City of Aurora. One of them was the neighboring reservoir, Aurora Reservoir. One of them was another reservoir that they had that is part of their overall utility network.

The one that caused us concern, and there was actually four reservoir sites that caused us concern, the three that we had identified as those overlapping sites, and then there was a fourth site that did rise to a level of concern to objecting by the State Land Board.

The State Land Board objected to that one, not because of it being part of our -- being the State Land Board Pure Cycle's mutual development plans for water, but because the reservoir overlapped into a portion of the property that Lend Lease was looking to develop.

So the State Land Board opposed that site. We didn't opposed that site, but they opposed those sites. And then they had two other sites, which were sites -- that were potential sites that didn't impact us. So we didn't care about the two sites that were existing or the two sites that didn't impact as. We just cared about the sites that they overlapped on top of ours.

And the rub there was that they were just looking to leave those sites in their application. If the Water Court ultimately came back and said, hey, we can leave those sites in there, they still would have to negotiate an agreement with us for getting use of those sites. Our objection was that there is a rule that you have to have the ability to get access to what it is that you are filing to. And they do not have that in this case. They would have to negotiate an agreement with somebody in order to get that application done. And we do not have conversations with the City of Aurora over those particular sites.

So we are the applicant that is looking for them to get those out of their application. By us asking that, that tells the court that they don't have the permission from the beneficiary or the entity that has the overlapping entitlement.

So, no, they weren't looking to sort of extract that for no value. Nor were they looking to condemn that, because they could not condemn it. That was one of the rubs that they had is that is a particular site that they can't condemn.

There is two reasons why they can't condemn that. One is that the state is higher on the condemnation list on them. And then secondly because of our utility interest we are equal. And by virtue of the fact that we have a previous interest in that, we are superior in our interest to what they're looking for.

Is there an opportunity for the City of Aurora to come back and negotiate a deal with us? Right now we have not had a conversation with the City of Aurora, and we're not engaged in conversations with them. And so that has been a component of that. They had not looked to steal that, but they were really looking to just overlap that and leave that in their application.

But there is no particular reason why, if they wanted to come and speak to the State Land Board and Pure Cycle and Rangeview and everybody that has the interest in it, that they could not, or that they are prohibited from having a -- or purchasing or leasing some sort of economic interest?

That's right. And from Aurora's standpoint, what they would like the Water Court, and the Supreme Court ultimately, to consider is, while we always have the ability to negotiate a deal with these guys, so please allow us to keep them in the application. That may be true, but by the very nature of us being the primary interest that they will have to negotiate with, and us asking the Water Court to remove that, that forecloses their opportunity to leave that in their application.

It has to do more with the order in which they're doing things?

Correct. That's exactly right.

(Operator Instructions). It appears we have no more questions in queue at this time.

Please, if you think of a question later, or if you listen to this on a rebroadcast, don't hesitate to give me a call and follow-up with any questions that you might have.

With that, I will turn our attention to the annual shareholders meeting. And what I would like to do is call this meeting to order. I would like to begin by welcoming everybody. We've got a plurality of shareholders. So in order to conduct this meeting, we will do this in an orderly fashion. I would like to recognize Mr. Scott Lehman, who is the Secretary of the Company, who will act as Secretary of this meeting. And I will appoint Mr. Patrick Hayes and [Mr. Brandon Trahill] from Computershare Trust Company as our transfer agent, as the inspector of the elections for the meeting. And I will ask that they subscribe their oath of office and file that with the Secretary, if they have not already done so.

Thank you. The Board of Directors fixed December 5 as the record date for determination of shareholders entitled to notice and to vote at this annual meeting, or any postponement or adjournment thereof. Mr. Lehman, the Secretary of the meeting, please report on the notice of this meeting and the presence of a quorum and the affidavits of mailing. I turn the podium over to Mr. Lehman.

Mr. Chairman, I present to the meeting the following, a certified list of holders of common stock of the Company as of the close of business on December 5, 2008, our record date for determining shareholders entitled to notice of, and to vote at this meeting, prepared by Computershare Trust Company, the Company's transfer agent.

This list has been available at the Company's office the past ten days, and is available at the meeting for inspection by any shareholder. On December 5, 2008 there were outstanding and entitled to vote at this meeting approximately 20,206,000 shares of the Company's common stock, each entitled to one vote.

Shareholders who hold a total of over 18,129,246 shares are present in person or represented by proxy. This represents approximately 89.72% of the outstanding shares entitled to vote at this meeting.

I also present an affidavit of [Hugo Morales], a proxy production control specialist for Computershare Communications Services, as to the mailing on December 12, 2008 of a proxy card, the annual report on Form 10-K, the proxy statement dated December 12, 2008, and the postage-paid return envelope for all holders of record of common stock of the Company for which we had a current address as of the close of business on December 5, 2008. Copies of these materials are attached as exhibits to the affidavit.

Thank you, Mr. Secretary. Please file these materials with the minutes of this meeting. I hereby declare a quorum present at the meeting. I will proceed with the business of the meeting.

On the agenda for this meeting is consideration of two proposals, as recommended to the shareholders by the Board of Directors. The polls are now open for voting, and will be open for voting during our consideration of the proposals. I will declare the polls closed for voting subsequent to our discussion of the proposal.

I now call Mr. Lehman, Secretary of the Company and the meeting, to identify these two proposals.

The first proposal to be acted on by the shareholders is the election of the following nominees to serve on the Board of Directors of the Company until the 2010 annual meeting of shareholders -- Mark W. Harding, Harrison H. Augur, Mark D. Campbell, Arthur G. Epker III, Richard L. Guido, Peter C. Howell, and George M. Middlemas.

I call for a motion nominating for election as Directors of the Company the nominees identified by Mr. Lehman. The motion has been moved. The motion -- is there a second? The motion has been moved and seconded. No other nominations have been received pursuant to the procedures set forth in the Company's bylaws. Mr. Secretary, please identity the next proposal.

Mr. Chairman, the second proposal to be acted upon by the shareholders is the ratification of the Audit Committee's selection of GHP Horwath, P.C. as the Company's independent auditors for the current fiscal year ending August 31, 2009.

I would like to call for a motion to adopt the proposal ratifying selection of the auditors. The motion has been made. Do I have a second? The motion made and seconded. Thank you.

Let us proceed with voting on the election of the Directors and the ratification of selection of auditors. Mr. Secretary, please identity the voting required to approve each of the proposals.

Mr. Chairman, for proposal number one, the election of each Director requires the affirmative vote of a plurality of the votes cast by shares represented in person or by proxy and entitled to vote for the election of Directors.

The ratification of auditors requires an affirmative vote of the majority of the shares of common stock represented and entitled to vote at the meeting.

If you wish to vote, and have not done so, now is the time to return your proxy card or ballet to the inspector. If you have previously returned a proxy card, and do not wish to change your vote, you need not turn in a ballot at this meeting.

If you have not yet turned in a proxy card, or if you are a shareholder of record on December 5, 2008, and you wish to vote shares in a manner different than you have indicated in your proxy card, please raise your hand so that you may be given a ballot to vote.

If there are any questions regarding voting procedures or any shareholder wishes to comment or raise on any questions regarding the proposals being voted on, please raise your hand or press star one on your conference call, and we will allow you to address the Board.

If there are none, there being no further discussion on the proposals, I will close the polls. Please return your proxies now, if you have not already done so. I now declare the polls closed. Inspector, have you completed tabulation of voting? Have him come up to the podium.

Mr. Chairman, based on my tabulation of plurality of the shares represented in person or by proxy at the meeting have voted for the election of each of the Company's nominees for Director of the Company. Accordingly, Mr. Harding, Augur, Campbell, Eckard, Guido, Howell, and Middlemas have been elected as Directors.

Proposal number two, the ratification of the selection of the auditor has received the affirmative vote of a majority of the shares of common stock represented in person or of proxy and voting at this meeting.

Thank you Mr. [Adams]. Based on these results, I hereby declare the nominees for Director have been duly elected. The appointment of GHP Horwath, P.C. to audit the financial statements of the Company for fiscal year ending August 31, 2009 has been duly ratified.

I am aware of no further business that should be brought before this Board at this annual meeting. I would just like to thank you all for coming to this annual meeting and our quarterly earnings call. And thank you for participating in the conference call and webcast. I would also like to express my appreciation for all our shareholders who have submitted their proxies and were unable to attend in person.

Directors, the officers and the employees of this Company appreciate your loyalty and confidence in all of our shareholders. I hereby adjourn the meeting.

I would like to thank you all for your attendance on this conference call and here at the meeting. And welcome the opportunity to interact with us briefly here at the meeting. As well as those are listening on the conference call, if you have any questions on a follow-up, please do not hesitate to give us a call. Thank you very much. Thank you, Eric.

Again, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.