PURE CYCLE CORP 10-Q

Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures as defined in Rule 13a-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. The President and the Chief Financial Officer evaluated the effectiveness of disclosure controls and procedures as of May 31, 2020, pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, the President and the Chief Financial Officer each concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective. A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Changes in Internal Control Over Financial Reporting Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (the “2013 COSO Framework”). Based on that evaluation, our management identified deficiencies related to our identification of expense accruals of costs incurred from related parties and the preparation of our income tax provision that constitute material weaknesses in our internal control over financial reporting as of August 31, 2019. A material weakness is a deficiency, or combination of deficiencies, in our internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management is dedicated to remediating the control deficiencies that gave rise to the material weaknesses in our internal control over financial reporting. The following steps are among the measures that have been implemented or that we intend to implement in the second, third and fourth quarters of fiscal 2020 to address our material weaknesses as of August 31, 2019: • We have initiated compensating controls, including designating an additional person to confirm expense accruals; • We are enhancing and revising the design of existing controls and procedures to improve our identification of expense accruals of costs; • We have initiated compensating controls, including designating an external tax consulting firm to review and confirm our quarterly income tax provisions are correct and complete; and • As described below, we have hired a Chief Financial Officer separate from the President, who is expected to provide additional expertise and oversight of our internal control over financial reporting. We have begun the remediation of these material weaknesses and anticipate they will be completed prior to the end of our fiscal 2020. We cannot assure that the measures we take will remediate the identified material weaknesses or that any additional material weaknesses will not arise in the future. On April 1, 2020, Kevin B. McNeill, joined the Company as Vice President, and the board of directors of the Company voted to elect Mr. McNeill as Chief Financial Officer, principal accounting officer and principal financial officer of the Company effective as of April 10, 2020. Mark W. Harding continues to serve as the Company’s President and Chief Executive Officer, but relinquished his position as Chief Financial Officer, principal accounting officer and principal financial officer effective as of April 10, 2020. Except as noted above, n o changes were made to our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 39 Index PART II – OTHER INFORMATION Item 6. Exhibits Exhibit Number Description 3.1 Articles of Incorporation of the Company. Incorporated by reference to Appendix B to the Proxy Statement on Schedule 14A filed on December 14, 2007. 3.2 Bylaws of the Company. Incorporated by reference to Appendix C to the Proxy Statement on Schedule 14A filed on December 14, 2007. 10.1 Sixteenth Amendment to Contract for Purchase and Sale of Real Estate, dated April 30, 2020, by and between PCY Holdings, LLC and KB Home Colorado Inc.* 31.1 Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 31.2 Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 32.1 Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** 32.2 Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** 101.INS XBRL Instance Document. * 101.SCH XBRL Taxonomy Extension Schema Document. * 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. * 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. * 101.LAB XBRL Taxonomy Extension Label Linkbase Document. * 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. * * Filed herewith. ** Furnished herewith. 40 Index SIGNATURES Pursuant to the requirements of the Securities 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 /s/ Kevin B. McNeill Kevin B. McNeill Vice President and Chief Financial Officer July 7, 2020 41