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 February 28, 2002 ___ 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) 8451 Delaware St., Thornton, CO 80260 (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 February 28, 2002: Common Stock, 1/3 of $.01 par Value 78,236,429 (Class) (Number of Shares) Transitional Small business Disclosure Format (Check one): Yes [ ]; No [x] PURE CYCLE CORPORATION INDEX TO FEBRUARY 28, 2002 FORM 10-QSB Page Part I - Financial Information (unaudited) Balance Sheets - February 28, 2002 and 3 August 31, 2001 Statements of Operations - For the three months 4 ended February 28, 2002 and 2001 Statements of Operations - For the six months 5 ended February 28, 2002 and 2001 Statements of Cash Flows - For the six months 6 ended February 28, 2002 and 2001 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 (unaudited) February 28, August 31, ASSETS 2002 2001 Current assets: Cash and cash equivalents $ 360,726 $ 435,660 Trade accounts receivable 29,581 33,255 Other current assets 11,259 11,259 Total current assets 401,566 480,174 Investment in water and systems: Rangeview water supply 13,514,753 13,483,425 Paradise water supply 5,491,423 5,487,433 Rangeview water system 124,501 126,611 Total investment in water and systems 19,130,677 19,097,469 Note receivable, including accrued interest 377,976 369,806 Other assets 114,841 127,441 $ 20,025,060 $ 20,074,890 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 4,346 -- Accrued liabilities 7,495 17,994 Total current liabilities 11,841 17,994 Long-term debt - related parties, including accrued interest 4,617,116 4,518,619 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 - 432,514 shares issued and outstanding 433 433 Series D - 6,455,000 shares issued and outstanding 6,455 6,455 Common stock, par value 1/3 of $.01 per share; authorized - 135,000,000 shares; 78,236,429 shares issued and outstanding 261,584 261,584 Additional paid-in capital 24,778,989 24,778,989 Accumulated deficit (20,743,588) (20,601,414) Total stockholders' equity 4,305,473 4,447,647 $ 20,025,060 $ 20,074,890 See Accompanying Notes to the Financial Statements 3 PURE CYCLE CORPORATION STATEMENTS OF OPERATIONS (unaudited) Three months Ended February 28, February 28, 2002 2001 Water service revenue Water construction revenues $ -- $ 19,536 Water usage fees 31,799 24,521 31,799 44,057 Construction costs incurred (Note 2) -- ( 15,000) Water service operating expense ( 4,792) ( 1,887) Gross Margin 27,007 27,170 General and administrative expense (58,175) ( 70,836) Other income (expense): Interest income 5,359 9,801 Interest expense related parties ( 48,077) ( 53,928) Interest expense other (6,300) Other 13,546 -- Net loss $(66,640) $(87,793) Basic and diluted net loss per common share $ --* $ --* Weighted average common shares outstanding 78,236,429 78,439,763 * less than $.01 per share See Accompanying Notes to the Financial Statements 4 PURE CYCLE CORPORATION STATEMENTS OF OPERATIONS (unaudited) Six months Ended February 28, February 28, 2002 2001 Water service revenue Water construction revenues $ -- $ 594,334 Water usage fees 64,553 42,430 64,553 636,764 Construction costs incurred (Note 2) -- (456,320) Water service operating expense ( 13,352) ( 4,103) Gross Margin 51,201 176,341 General and administrative expense ( 107,947) ( 121,845) Other income (expense): Interest income 12,123 24,083 Interest expense related parties ( 98,497) ( 116,848) Interest expense other (12,600) -- Other 13,546 -- Net loss $(142,174) $(38,269) Basic and diluted net loss per common share $ --* $ --* Weighted average common shares outstanding 78,236,429 78,439,763 * less than $.01 per share See Accompanying Notes to the Financial Statements 5 PURE CYCLE CORPORATION STATEMENTS OF CASH FLOWS (unaudited) Six months Ended February 28, February 28, 2002 2001 Cash flows from operating activities: Net loss $(142,174) $(38,269) Increase in accrued interest on note receivable (8,170) ( 11,466) Increase in accrued interest on long term debt and other non-current liabilities 98,500 116,848 Changes in operating assets and liabilities: Trade accounts receivable 3,674 16,719 Other assets 12,600 Billings in excess of costs and estimated earnings -- (594,334) Accounts payable and accrued liabilities (6,156) (7,691) Net cash provided by (used in) operating activities (41,726) (518,193) Cash flows from investing activities: Investments in water supply ( 35,318) (38,028) Investment in Rangeview water system 2,110 -- Net cash used in investing activities (33,208) (38,028) Cash flows from financing activities: Proceeds from sale of common stock -- 219,500 Net cash provided by financing activities -- 219,500 Net decrease in cash and cash equivalents (74,934) (336,721) Cash and cash equivalents beginning of period 435,660 821,124 Cash and cash equivalents end of period $ 360,726 $ 484,403 See Accompanying Notes to the Financial Statements 6 PURE CYCLE CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 1 - ACCOUNTING PRINCIPLES The balance sheet as of February 28, 2002 and the statements of operations and statements of cash flows for the three and six months periods ended February 28, 2002 and February 28, 2001 have been prepared by the Company and have not been audited. 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 February 28, 2002 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 financial statements be read in conjunction with the financial statements and notes thereto included in the Company's fiscal year 2001 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 - WATER CONSTRUCTION PROJECTS In 1998, the Company entered into an agreement to provide water and wastewater service to a 400 acre development which includes a 500-bed Academic Model Juvenile Facility ("Model Facility"). The Model Facility paid a Water System Development and Water Resource Charge based on estimated water consumption, for the construction of water and wastewater systems. Pursuant to its Service Agreements, the Company has received all fees pursuant to the agreements totaling $2,013,495 for the construction of the water and wastewater facilities. Additionally, the Company received $154,800 from the State of Colorado for the construction of additional facilities related to the wastewater plant which the Company constructed on behalf of the State of Colorado. The Company completed construction of the water and wastewater facilities in July 2001, concurrent with the opening of the Model Facility. NOTE 3 - STOCKHOLDERS' EQUITY In August 2001, the Company entered into a Plan of Recapitalization and a Stock Purchase Agreement whereby the Company issued 6,455,000 shares of Series D Preferred Stock to the Company's CEO, Mr. Thomas Clark in exchange for 421,666 shares of common stock, 3,200,000 shares of Series C Preferred Stock, 500,000 shares of Series C-1 Preferred Stock, 666,667 shares of Series C-2 Preferred Stock, and 1,666,667 shares of Series C-3 Preferred Stock, all of which were owned by Mr. Clark. The Company retired 3,200,000 shares of Series C Preferred Stock, 500,000 shares of Series C-1 Preferred Stock, 666,667 shares of Series C-2 Preferred Stock, and 1,666,667 shares of Series C-3 Preferred Stock. The Company sold 625,000 shares of the Company's Common Stock at $.16 per share to two accredited investors. Proceeds to the Company were $100,000. The shares were issued under Section 4(2) of the Securities Act of 1933. In December 2000, the Company sold 700,000 shares of the Company's Common Stock to two accredited investors at $.15 per share. Proceeds to the Company were $105,000. In August 2000, the Company entered into a Plan of Recapitalization and a Stock Purchase Agreement whereby the Company issued 1,666,667 shares of Series C-3 Preferred Stock to Mr. Thomas Clark in exchange for 1,666,667 shares of common stock owned by Mr. Clark. In August 2000, the Company comitted to issue, and four acredited investors comitted to purchase, a total of 763,333 shares of common stock, at $.15 per share generating proceeds to the Company of $114,500. Payment was received from these investors as follows: $10,000 on September 28, 2000; $4,500 on October 2, 2000; $50,000 on October 26, 2000; and $50,000 on October 27, 2000. The Company issued the 763,333 shares of common stock on November 22, 2000. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations During the quarter ended February 28, 2002, the Company delivered approximately 3.5 million gallons of water to customers in the Service Area generating revenues from water sales of $31,799 compared to the delivery of 2.7 million gallon generating revenues of $24,521 during the three months ended February 28, 2001. The increase in water revenues is attributable to the delivery of potable water during the current year compared to raw water during the previous year. The Company incurred water service operating costs of $4,792 for the three months ending February 28, 2002 as compared to $1,887 for the six month ending February 28, 2001. The increase in operating costs are attributable to the initiation of domestic water and wastewater service to the Model Facility beginning in July 2001. In August 2001, the Company entered into an agreement with a third party to provide operation and maintenance support for its water and wastewater operations. During the six months ended February 28, 2002, the Company delivered approximately 16.6 million gallons of water generated water service revenues of $64,553 compared to approximately 14.8 million gallons of water generating $42,430 for the six months ended February 28, 2001. The increase in water service revenues are due primarily to the delivery of potable water during the current year compared to raw water during the previous year. The Company incurred water service operating costs of $13,352 for the six months ending February 28, 2002 as compared to $4,103 for the six month ending February 28, 2001, due to the initiation of domestic water and wastewater service to the Model Facility beginning in July 2001. General and administrative expenses for the six months ended February 28, 2002 were $13,901 lower than for the period ended February 28, 2001, primarily because of a decrease in office rent. The Company has occupied office space owned by a related party at no cost since December 2000. Net loss for the six months ended February 28, 2002 was $142,171 compared to a net loss of $38,269 for the six month ended February 28, 2001 due to the completion of the Model Facility and the recognition of construction revenues in the previous year. Liquidity and Capital Resources At February 28, 2002, current assets exceed current liabilities by $389,725 and, the Company had cash and cash equivalents of $360,726. The Company believes it has sufficient working capital and available credit to fund its operations for the next year or longer. There can be no assurances, however, that the Company will be successful in marketing the water from its two primary water projects in the near term. In the event sales are not achieved, the Company may sell additional participating interests in its water projects, incur additional short or long term debt or seek to sell additional shares of common or preferred stock or stock purchase warrants, as deemed necessary by the Company, to generate working capital. 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. 8 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: April 13, 2002 /S/ Thomas P. Clark Thomas P. Clark, CEO Date: April 13, 2002 /S/ Mark W. Harding Mark W. Harding, President 9