Securities and Exchange Commission Washington, D.C. 20549 __________________ Form 10-QSB __________________________ (Mark One) X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 2000 ___ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT For the transition period from __________ to __________ Commission file number 0-8814 PURE CYCLE CORPORATION (Exact name of small business issuer as specified in its charter) Delaware 84-0705083 (State of incorporation) (I.R.S. Employer Identification Number) 5650 York Street, Commerce City, CO 80022 (Address of principal executive offices) (Zip Code) Registrant's telephone number (303) 292 - 3456 ______________________________________________________________________________ N/A (Former name, former address and former fiscal year, if changed since last report.) Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x]; NO [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of May 31, 2000: Common Stock, 1/3 of $.01 par Value 78,439,763 (Class) (Number of Shares) Transitional Small business Disclosure Format (Check one): Yes [ ]; No [x] PURE CYCLE CORPORATION INDEX TO MAY 31, 2000 FORM 10-QSB Page Part I - Financial Information (unaudited) Balance Sheets - May 31, 2000 and 3 August 31, 1999 Statements of Operations - For the three months 4 ended May 31, 2000 and May 31, 1999 Statements of Operations - For the nine months 5 ended May 31, 2000 and May 31, 1999 Statements of Cash Flows - For the nine months 6 ended May 31, 2000 and May 31, 1999 Notes to Financial Statements 7 Management's Discussion and Analysis of 8 Results of Operations and Financial Condition Signature Page 9 "SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements that are not historical facts contained in this Quarterly Report on Form 10-QSB are forward looking statements that involve risk and uncertainties that could cause actual results to differ from projected results. Factors that could cause actual results to differ materially include, among others: general economic conditions, the market price of water, changes in applicable statutory and regulatory requirements, changes in technology, uncertainties in the estimation of water available under decrees and timing of development, the strength and financial resources of the Company's competitors, the Company's ability to find and retain skilled personnel, climatic conditions, labor relations, availability and cost of material and equipment, delays in the anticipated permit and start-up dates, environmental risks, and the results of financing efforts. 2 PURE CYCLE CORPORATION BALANCE SHEETS May 31, August 31, ASSETS 2000 1999 (unaudited) Current assets: Cash and cash equivalents $ 383,266 $ 981,025 Accounts Receivable -- 6,106 Prepaid expenses and other current assets 11,259 11,259 Total current assets 394,525 998,390 Investment in water projects: Rangeview water rights 13,351,179 13,282,485 Paradise water rights 5,484,868 5,482,303 Rangeview Water System 126,611 126,611 Total investment in water projects 18,962,658 18,891,399 Note receivable, including accrued interest 340,569 321,794 Other assets 1,441 22,596 $ 19,699,193 $20,234,179 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 18,936 55,915 Billings in excess of costs and estimated earnings (Note 2) 281,918 895,379 Accrued liabilities 3,692 25,810 Total current liabilities 304,546 977,104 Long-term debt - related parties, including accrued interest 4,203,075 4,021,177 Other non-current liabilities 128,123 128,123 Participating interests in Rangeview water rights 11,090,630 11,090,630 Stockholders' equity: Preferred stock, par value $.001 per share; authorized - 25,000,000 shares: Series A1 - 1,600,000 shares issued and outstanding 1,600 1,600 Series B - 432,513 shares issued and outstanding 433 433 Series C - 3,200,000 shares issued and outstanding 3,200 3,200 Series C1 - 500,000 shares issued and outstanding 500 500 Series C2 - 666,667 shares issued and outstanding 667 -- Common stock, par value 1/3 of $.01 per share; authorized - 135,000,000 shares; 78,439,763 shares issued and outstanding 261,584 261,584 Additional paid-in capital 24,335,577 24,216,244 Accumulated deficit (20,630,742)(20,466,416) Total stockholders' equity 3,972,819 4,017,145 $ 19,699,193 $20,234,179 See Accompanying Notes to the Financial Statements 3 PURE CYCLE CORPORATION STATEMENTS OF OPERATIONS (unaudited) Three Months Ended May 31, May 31, 2000 1999 Water usage fees $ 12,279 $ 11,683 12,279 11,683 Water service operating expense (1,380) (1,200) Gross Margin 10,899 10,483 General, administrative and marketing ( 62,498) ( 55,836) Other income (expense) Interest income 10,958 8,878 Interest expense Related party ( 63,237) ( 50,046) Other -- ( 1,785) Net Loss $(103,878) $(88,304) Basic and diluted net loss per common share $ --* $ --* Weighted average common shares outstanding 78,439,763 78,439,763 * less than $.01 per share See Accompanying Notes to the Financial Statements 4 PURE CYCLE CORPORATION STATEMENTS OF OPERATIONS (unaudited) Nine Months Ended May 31, May 31, 2000 1999 Water usage fees $ 29,600 $ 21,319 Water construction revenue 613,461 -- 643,061 21,319 Construction costs incurred (Note 2) (475,786) -- Water service operating expense ( 3,980) ( 3,600) Gross Margin 163,295 17,719 General, administrative and marketing ( 201,993) (211,777) Other income (expense) Interest income 40,896 31,710 Interest expense Related party ( 181,898) ( 150,136) Other 15,374 ( 5,355) Net Loss $( 164,326) $(317,839) Basic and diluted net loss per common share $ --* $ --* Weighted average common shares outstanding 78,439,763 78,439,763 * less than $.01 per share See Accompanying Notes to the Financial Statements 5 PURE CYCLE CORPORATION STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended May 31, May 31, 2000 1999 Cash flows from operating activities: Net loss $(164,326) $(317,839) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization -- 1,143 Increase in accrued interest on note receivable (18,775) (28,628) Increase in accrued interest on long term debt and other non-current liabilities 181,898 155,491 Changes in operating assets and liabilities: Accounts receivable 6,106 -- Accounts payable and accrued liabilities (59,097) (12,990) Billings in excess of costs and estimated earnings (613,461) 104,496 Change in other assets 21,155 -- Net cash used in operating activities (646,500) (98,327) Cash flows from investing activities: Investments in water rights ( 71,259) (162,922) Investment in Rangeview water system -- (14,993) Net cash used in investing activities (71,259) (177,915) Net cash provided by financing activities proceeds from sale of stock 120,000 90,000 Net decrease in cash and cash equivalents (597,759) (186,242) Cash and cash equivalents beginning of period 981,025 423,027 Cash and cash equivalents end of period $ 383,266 $ 236,785 See Accompanying Notes to the Financial Statements 6 PURE CYCLE CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 1 - ACCOUNTING PRINCIPLES The balance sheet as of May 31, 2000, the statements of operations for the three months and nine months ended May 31, 2000 and May 31, 1999 and the statements of cash flows for the nine months ended May 31, 2000 and May 31, 1999, have been prepared by the Company, without an audit. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows at May 31, 2000 and for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1999 Annual Report on Form 10-KSB. The results of operations for interim periods presented are not necessarily indicative of the operating results for the full year. NOTE 2 - CONSTRUCTION CONTRACTS Pursuant to its Service Agreements, the Company is obligated to provide water and wastewater service to a 400 acre development which will include the construction of a 500-bed Academic Model Juvenile Facility ("Model Facility"). The Model Facility purchased the equivalent of 201 residential water taps. Pursuant to its Service Agreements, the Company received $1,372,014 from the water tap fees during fiscal 1999, and will receive $624,000 from the sewer tap fees upon the initiation of construction of the wastewater treatment facility scheduled for fourth quarter 2000 for a combined total of $1,996,014. The Company began construction of the water system in fiscal year 1999 and has incurred costs as of the end of the quarter ended May 31, 2000 of $835,000. No construction activity occurred during the third quarter, however the Company did complete the design and bid documents for the wastewater facility which will begin construction in the fourth quarter with projected costs of $600,000. The Company recognizes revenue from construction based on percent-of-completion methodology. NOTE 3 - STOCKHOLDERS' EQUITY In September 1999, the Company entered into a Plan of Recapitalization and a Stock Purchase Agreement whereby the Company issued 666,667 shares of Series C2 Convertible Preferred Stock to the Company's President, Mr. Thomas Clark, in exchange for 666,667 shares of common stock owned by Mr. Clark. The Series C2 Convertible Preferred Stock converts into an equivalent number of shares of Common stock at the election of Mr. Clark provided the Company has authorized and unissued shares of Common Stock available. The Company sold 666,667 shares of the Company's Common Stock at $.18 per share to 3 accredited investors who have previously invested in the Company. Proceeds to the Company were $120,000. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations During the three months ended May 31, 2000, the Company generated water usage revenues from the sale of water to customers within the Company's Service Area of $12,279 compared to $11,683 for the three months ended May 31, 1999, and incurred approximately $1,380 in operating costs compared to $1,200 for the three months ended May 31, 1999. No construction costs were incurred during the three months ended May 31, 2000 and accordingly, the Company recognized no revenue under the percent-of-completion method. During nine months ended May 31, 2000, the Company generated water usage revenues from the sale of water to customers within the Company's Service Area of $29,600 compared $21,319 for the nine months ended May 31, 1999, and incurred approximately $3,980 in operating costs compared $3,600 for the nine months ended May 31, 1999. During the nine months ended May 31, 2000, the Company generated water service revenues of $643,061 of which $613,461 were water construction revenues due primarily to the agreement with the Model Facility. Also during the nine months ended May 31, 2000, Company incurred construction costs of $475,786. Completion of the water facilities by the Company's contractor was approximately 118 days late. The contracts for construction of the water facilities with the contractor included provision for liquidated damages for late completion total $1,000 per day. The Company has retained approximately $100,000 from the contract pending resolution of the liquidated damages by the contractor and the contractor's surety bond company. The Company recognizes revenue from construction based on percentage-of- completion methodology. As of May 31, 2000, construction of the water and wastewater facilities for the Model Facility were estimated to be approximately 54% complete. During the three months ended May 31, 2000, the Company delivered approximately 6.7 million gallons of water to customers in the Service Area. During the nine months ended May 31, 2000, the Company delivered approximately 16.8 million gallons of water to customers in the service Area. General, administrative and marketing expenses for the three months ended May 31, 2000 were approximately $6,700 higher than for the three months ended May 31, 1999. General, administrative and marketing expenses for the nine months ended May 31, 2000 were approximately $10,000 lower than for the nine months ended May 31, 1999. Interest expense for the three and nine months ended May 31, 2000 were approximately $13,000 and $32,000 higher than for the respective periods ended May 31, 1999, primarily due to higher interest rates. Net loss for the three months ended May 31, 2000 was approximately $15,500 higher than for the three months ended May 31, 1999, primarily due to higher interest costs. Net loss for the nine months ended May 31, 2000 was approximately $153,500 lower than for the nine months ended May 31, 1999 primarily due to revenue received during fiscal 1999 for the construction of the water and wastewater facilities for the Model Facility. Liquidity and Capital Resources At May 31, 2000, current assets exceed current liabilities by $53,979 and, the Company had cash and cash equivalents of $383,266. Net cash used in operating activities for the nine months ended May 31, 2000 was $646,500. The Company received construction contract payments in Fiscal year 1999 to fund the construction costs incurred in Fiscal 2000. The Company is aggressively pursuing the sale and development of its water rights. The Company cannot provide any assurances that it will be able to sell its water rights. In the event a sale of the Company's water rights is not forthcoming and the Company is not able to generate revenues from the sale or development of its technology, the Company may sell additional portions of the Company's profit interest pursuant to the WCA, incur short or long-term debt obligations or seek to sell additional shares of Common Stock, Preferred Stock or stock purchase warrants as deemed necessary by the Company to generate operating capital. 8 Liquidity and Capital Resources (continued) Development of any of the water rights that the Company has, or is seeking to acquire, will require substantial capital investment by the Company. Any such additional capital for the development of the water rights is anticipated to be financed through the sale of water taps and water delivery charges to a city or municipality. A water tap charge refers to a charge imposed by a municipality to permit a water user to access a water delivery system (i.e. a single-family home's tap into the municipal water system), and a water delivery charge refers to a water user's monthly water bill generally based on a per 1,000 gallons of water consumed. 9 PURE CYCLE CORPORATION SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. PURE CYCLE CORPORATION Date: July 14, 2000 /S/ Thomas P. Clark Thomas P. Clark, President Date: July 14, 2000 /S/ Mark W. Harding Mark W. Harding, Chief Financial Officer 10