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<SEC-DOCUMENT>0001362310-08-000068.txt : 20080109
<SEC-HEADER>0001362310-08-000068.hdr.sgml : 20080109
<ACCEPTANCE-DATETIME>20080109162350
ACCESSION NUMBER:		0001362310-08-000068
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20071130
FILED AS OF DATE:		20080109
DATE AS OF CHANGE:		20080109

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PURE CYCLE CORP
		CENTRAL INDEX KEY:			0000276720
		STANDARD INDUSTRIAL CLASSIFICATION:	WATER SUPPLY [4941]
		IRS NUMBER:				840705083
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0831

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-08814
		FILM NUMBER:		08520788

	BUSINESS ADDRESS:	
		STREET 1:		8451 DELAWARE STREET
		CITY:			THORNTON
		STATE:			CO
		ZIP:			80260
		BUSINESS PHONE:		3032923456

	MAIL ADDRESS:	
		STREET 1:		8451 DELAWARE STREET
		CITY:			THORNTON
		STATE:			CO
		ZIP:			80260
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>c72031e10vq.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>Filed by Bowne Pure Compliance</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 10pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 10pt"><B>Form&nbsp;10-Q</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">(Mark One)

</DIV>
<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 10pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>For the quarterly period ended: November&nbsp;30, 2007</B>
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 10pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>For the transition period from <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Commission file number 0-8814</B>
</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 10pt"><B>PURE CYCLE CORPORATION</B>
</DIV>

<DIV align="center" style="font-size: 10pt">(Exact name of small business issuer as specified in its charter)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Delaware</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>84-0705083</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(State of incorporation)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer<BR>
Identification Number)</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>8451 Delaware St., Thornton, CO</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>80260</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(Address of principal executive offices)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Zip Code)</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>(303)&nbsp;292 &#151; 3456</B><BR>
Registrant&#146;s telephone number
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>N/A</B><BR>
(Former name, former address and former fiscal year, if changed since last report.)
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for
such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days. <FONT style="white-space: nowrap">Yes <FONT face="Wingdings">&#254;</FONT> No <FONT face="Wingdings">&#111;</FONT></FONT>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of &#147;accelerated filer and large accelerated filer&#148; in
rule 12b-2 of the Exchange Act. (Check one):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="30%"></TD>
    <TD width="5%"></TD>
    <TD width="30%"></TD>
    <TD width="5%"></TD>
    <TD width="30%"></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">Large accelerated filer <FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Accelerated filer <FONT face="Wingdings">&#254;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">Non-accelerated filer <FONT face="Wingdings">&#111;</FONT></TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Indicate by check mark whether the registrant is a shell company filer (as defined in rule 12b-2 of
the Exchange Act).
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 10pt">Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Indicate the number of shares outstanding of each of the issuer&#146;s classes of common stock, as of
January&nbsp;4, 2008:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">Common stock, 1/3 of $.01 par value
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">20,206,566</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(Class)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Number of Shares)</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>



<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">






<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
INDEX TO NOVEMBER 30, 2007 FORM 10-Q
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Page</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD colspan="5" align="center"><B>PART I &#151; FINANCIAL INFORMATION<BR></B></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Item&nbsp;1 &#151; Financial Statements (unaudited)&nbsp;3</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#103">Balance Sheets &#151; November&nbsp;30, 2007 and August&nbsp;31, 2007</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#104">Statements of Operations &#151; For the three months ended November&nbsp;30, 2007 and 2006</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#105">Statements of Cash Flows &#151; For the three months ended November&nbsp;30, 2007 and 2006</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#106">Notes to Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Item&nbsp;2 &#151; Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Item&nbsp;3 &#151; Quantitative and Qualitative Disclosures About Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Item&nbsp;4 &#151; Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD colspan="5" align="center"><A href="#110"><B>PART II &#151; OTHER INFORMATION<BR></B></A></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">Item&nbsp;6 &#151; Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Signature Page</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c72031exv10w2.htm">Exhibit 10.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c72031exv31.htm">Exhibit 31</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c72031exv32.htm">Exhibit 32</A></FONT></TD></TR>
<!-- End Table Body --></TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">


<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
BALANCE SHEETS
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">November 30,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">August 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left"><B>ASSETS:</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(unaudited)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,288,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,095,075</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">799,802</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,605</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,217</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,907</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,585</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">176,721</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">246,968</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of construction proceeds receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,783</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,783</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,903,475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,288,430</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investments in water and water systems, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,199,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,248,427</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Construction proceeds receivable, less current portion, including $240,075
expected to be paid with water rights</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">744,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">792,719</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Note receivable &#151; Rangeview Metropolitan District, including accrued interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">481,403</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">475,734</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assets held for sale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,940</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investment in Well Enhancement and Recovery Systems, LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,812</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,431</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,210</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">111,421,036</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">111,891,891</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>LIABILITIES:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">62,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,056</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,919</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current debt &#151; related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,542</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">215,525</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">183,317</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred revenues, less current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,543,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,557,711</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Participating Interests in Export Water Supply</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,219,131</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,851,037</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tap Participation Fee payable to HP A&#038;M,
net of discount of $57.9&nbsp;million and $55.1&nbsp;million</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,506,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,455,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,484,416</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,047,065</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and Contingencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>STOCKHOLDERS&#146; EQUITY:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Preferred stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Par value $.001 per share, 25&nbsp;million shares authorized;<BR>
Series&nbsp;B &#151; 432,513 shares issued and outstanding<BR>
(liquidation preference of $432,513)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">433</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">433</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Par value 1/3 of $.01 per share, 40&nbsp;million shares authorized;<BR>
20,206,566 and 19,995,338 shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,216</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,512</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,636,752</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,650,897</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Treasury stock, at cost, 256,800 and 256,800 shares of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,979,447</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,979,447</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,168</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(33,796,734</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(31,901,737</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,936,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,844,826</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total liabilities and stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">111,421,036</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">111,891,891</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">See Accompanying Notes to Financial Statements

</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">
<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
STATEMENTS OF OPERATIONS<BR>
(unaudited)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended November 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Metered water usage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">39,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">35,005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Wastewater treatment fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,744</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,752</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Special facility funding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,377</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Water tap fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,574</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,708</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cost of revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Water delivery costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,195</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,689</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Wastewater treatment costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,181</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,909</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depletion and depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22,031</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,829</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total cost of revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(41,407</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(41,427</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,311</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,281</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">General and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(651,556</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(443,536</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(73,526</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(68,624</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(696,771</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(489,879</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,603</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gain on sale of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,064</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Share of losses of Well Enhancement and
Recovery Systems, LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(619</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Loss on extinguishment of contingent obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(273,723</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest expense imputed on the Tap
Participation Fees payable to HP A&#038;M</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,051,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,141,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,894,997</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,585,212</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net loss per common share &#151; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(.09</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(.09</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Weighted average common shares outstanding &#151;
basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,136,157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,353,443</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">See Accompanying Notes to Financial Statements

</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">
<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE
CYCLE CORPORATION<br>
STATEMENTS OF CASH FLOWS<br>
(unaudited)
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended November 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,894,997</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,585,212</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments to reconcile net loss to net cash
used by operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78,236</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation, depletion and other non-cash items</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,158</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Imputed interest expensed on Tap Participation Fees
payable to HP A&#038;M</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,051,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,141,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest added to construction proceeds receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,697</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(12,831</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest added to note receivable &#151; Rangeview Metropolitan District</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,669</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,860</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gain on sale of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(156</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,064</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Share of losses of Well Enhancement and Recovery Systems, LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Loss on extinguishment of contingent obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">273,723</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Changes in operating assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Trade accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,612</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,633</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Construction proceeds receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,665</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Interest receivable and prepaid expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,925</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(38,987</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accounts payable and accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(134,495</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Deferred revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,951</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,951</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Net cash used by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(226,314</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(433,708</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Investments in water and water systems</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(45,161</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capitalized acquisition costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(35,800</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sales and maturities of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">499,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199,960</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,547</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Net cash provided by investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">447,062</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160,160</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments to Participating Interests in Export Water Supply holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,010</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,083</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments on debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(26,542</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Net cash used by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27,552</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,083</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net change in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">193,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(274,631</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents &#151; beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,095,075</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">374,069</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents &#151; end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,288,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">99,438</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">See Accompanying Notes to Financial Statements

</DIV>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">


<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 1 &#151; PRESENTATION OF INTERIM INFORMATION
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The balance sheet as of November&nbsp;30, 2007, and the statements of operations and cash flows for the
three months ended November&nbsp;30, 2007 and 2006, respectively, have been prepared by Pure Cycle
Corporation (the &#147;Company&#148;) 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 November&nbsp;30, 2007 and for all periods
presented have been appropriately made.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Certain information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of America (&#147;GAAP&#148;)
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&#146;s 2007 Annual
Report on Form 10-K. The results of operations for interim periods presented are not necessarily
indicative of the operating results for the full year.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The August&nbsp;31, 2007 balance sheet was derived from the Company&#146;s audited financial statements.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Cash and Cash Equivalents. </I></B>Cash and cash equivalents include all highly liquid debt and equity
instruments with original maturities of three months or less. The Company&#146;s cash equivalents are
comprised of money market funds and investments in commercial paper. As of November&nbsp;30, 2007, the
Company has no investments in equity instruments.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Tap Participation Fee payable to HP A&#038;M. </I></B>The Tap Participation Fee payable to High Plains A&#038;M (&#147;HP
A&#038;M&#148;), arose as a result of the Company&#146;s acquisition of its Arkansas River Water rights and is
described in greater detail in the Company&#146;s 2007 Annual Report on Form 10-K. The $50.5&nbsp;million
estimated fair value of the Tap Participation Fee payable at November&nbsp;30, 2007 (which includes
imputed interest of approximately $5.7&nbsp;million) was determined using a discounted cash flow
analysis of the projected future payments to HP A&#038;M. The Company determined this value by
estimating new home development in the Company&#146;s service area over an estimated development
period. This was done by utilizing third party historical and projected housing and population
growth data for the Denver, Colorado metropolitan area applied to an estimated development pattern
supported by historical development patterns of certain master planned communities in the Denver,
Colorado metropolitan area. This development pattern was then applied to future water tap fees
that were calculated using historical water tap fees. Based on the housing market in the Denver
metropolitan area, the Company updated its estimated tap sales schedule as it relates to the Tap
Participation Fee estimate as of November&nbsp;30, 2007. The effect
of this change was an
increase in the overall future estimated Tap Participation Fee of approximately $3.9&nbsp;million
(from approximately $104.6&nbsp;million to approximately $108.5&nbsp;million), a decrease in
the imputed effective interest rate from 10% to approximately 8.6%
and a decrease in the imputed interest expense for the three months ended November&nbsp;30, 2007 of approximately
$183,400 (approximately $702,000 for the fiscal year). Actual development may differ substantially from the estimated new home
development in the Company&#146;s service area, which may have a material effect on the estimated fair
value of the Tap Participation Fee payable to HP A&#038;M and such differences may have a material
impact on the financial statements. The valuation of the Tap Participation Fee payable to HP A&#038;M
is a significant estimate based on available historic market information and estimated future
market information. Many factors are necessary to estimate future market conditions, including but
not limited to, supply and demand for new homes, population growth along the Front Range, cash
flows, tap fee increases at the Company&#146;s rate-based districts, and other market forces beyond the
Company&#146;s control.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company imputes interest expense on the unpaid Tap Participation Fee using an effective
interest method over the estimated development period utilized in the valuation of the liability.
The Company imputed interest of approximately $1.1&nbsp;million related to the Tap Participation Fee
during both the three month periods ended November&nbsp;30, 2007 and 2006, respectively.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Royalty and other obligations. </I></B>Revenues from the sale of Export Water are shown net of royalties
payable to the State of Colorado Board of Land Commissioners (the &#147;Land Board&#148;). Revenues from the
sale of water on the Lowry Range Property are shown net of the royalties to the Land Board and the
fees retained by the Rangeview Metropolitan District.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Depletion and depreciation of water assets</I></B><I>. </I>Water supplies that are being utilized are depleted on
the basis of units produced divided by the total volume of water adjudicated in the water decrees.
Water systems are depreciated on a straight line basis over their estimated useful lives.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Recently Adopted Accounting Pronouncements. </I></B>On September&nbsp;1, 2007, the Company adopted Financial
Accounting Standards Board (&#147;FASB&#148;) Interpretation No.&nbsp;48, <I>Accounting for Uncertainty in Income
Taxes &#151; an interpretation of FASB Statement No.&nbsp;109 </I>(&#147;FIN 48&#148;). FIN 48 prescribes a
&#147;more-likely-than-not&#148; threshold for the recognition and de-recognition of tax positions, providing
guidance on the accounting for interest and penalties relating to tax positions and requires that
the cumulative effect of applying the provisions of FIN 48 shall be reported as an adjustment to
the opening balance sheet of retained earnings or other appropriate components of equity or net
assets in the statement of financial position. The Company did not have any significant
unrecognized tax benefits and there was no material effect on its financial condition or results of
operations as a result of implementing FIN 48.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company files income tax returns in the U.S. federal jurisdiction and the State of Colorado.
The tax years that remain subject to examination are fiscal 2005 through fiscal 2007. The Company
does not believe there will be any material changes in its unrecognized tax positions over the next
twelve months.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company&#146;s policy is to recognize interest and penalties accrued on any unrecognized tax
benefits as a component of income tax expense. As of the date of adoption of FIN 48, the Company
did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor
was any interest expense recognized during the quarter.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Recently Issued Accounting Pronouncements. </I></B>In December&nbsp;2007, the FASB issued Statement of Financial
Accounting Standard No.&nbsp;141 (R), <I>Business Combinations </I>(&#147;SFAS 141 (R)&#148;),which becomes effective for
fiscal periods beginning after December&nbsp;15, 2008 (September&nbsp;1, 2009 for the Company). SFAS No.&nbsp;141
(R)&nbsp;requires all business combinations completed after the effective date to be accounted for by
applying the acquisition method (previously referred to as the purchase method). Companies applying
this method will have to identify the acquirer, determine the acquisition date and purchase price
and recognize at their acquisition date fair values of the identifiable assets acquired,
liabilities assumed, and any non-controlling interests in the acquiree. In the case of a bargain
purchase the acquirer is required to reevaluate the measurements of the recognized assets and
liabilities at the acquisition date and recognize a gain on that date if an excess remains. The
Company does not expect the adoption of this statement to have a material impact on its financial
statements.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In December&nbsp;2007, the FASB issued SFAS No.&nbsp;160, <I>Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB 51 </I>(&#147;SFAS 160&#148;) which becomes effective for fiscal periods
beginning after December&nbsp;15, 2008 (September&nbsp;1, 2009 for the Company). This statement amends ARB 51
to establish accounting and reporting standards for the non-controlling interest in a subsidiary
and for the deconsolidation of a subsidiary. The statement requires consolidated net income to be
reported at amounts that include the amounts attributable to both the parent and the
non-controlling interest. It also requires disclosure on the face of the consolidated statement of
income, of the amounts of consolidated net income attributable to the parent and to the
non-controlling interest. In addition this statement establishes a single method of accounting for
changes in a parent&#146;s ownership interest in a subsidiary that do not result in deconsolidation and
requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated.
The Company does not expect the adoption of this statement to have a material impact on its
financial statements.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In February&nbsp;2007, the FASB issued SFAS No.&nbsp;159, <I>The Fair Value Option for Financial Assets and
Financial Liabilities&#151;Including an Amendment of FASB Statement No.&nbsp;115 </I>(&#147;SFAS No.&nbsp;159&#148;). SFAS No.
159 allows companies the choice to measure many financial instruments and certain other items at
fair value. This gives a company the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply complex hedge
accounting provisions. SFAS No.&nbsp;159 is effective for fiscal years beginning after November&nbsp;15, 2007
(September&nbsp;1, 2008 for the Company). The Company is currently evaluating the impact of this
standard on its financial statements.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In September&nbsp;2006, the FASB issued SFAS No.&nbsp;157, <I>Fair Value Measurement</I>, (&#147;FAS 157&#148;), which
establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures
about fair value measurements. FAS 157 is effective for fiscal years, and the interim periods
within those fiscal years, beginning after November&nbsp;15, 2007 (September&nbsp;1, 2008 for the Company).
The Company is currently evaluating the impact of this standard on its financial statements.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 2 &#151; MARKETABLE SECURITIES
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Marketable Securities. </I></B>Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such determinations each
reporting period. 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 had no investments
classified as held-to-maturity at November&nbsp;30, 2007 or August&nbsp;31, 2007.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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 <I>Accumulated comprehensive income. </I>The
cost of securities sold is based on the specific identification method.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The following is a summary of marketable securities at November&nbsp;30, 2007:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Estimated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Cost Basis</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Gains</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Losses</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Fair Value</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commercial paper</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">607,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">607,546</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">U.S. government debt securities
with unrealized gains</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,188</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px; background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">U.S. corporate debt securities with unrealized gains</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">193,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">900,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">907,734</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">607,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">607,546</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">292,788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">300,188</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company&#146;s marketable securities mature at various dates through January&nbsp;2008. However,
these securities represent the temporary investment of capital and it is not management&#146;s intent to
hold these securities until maturity.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 3 &#151; INVESTMENTS IN WATER AND WATER SYSTEMS
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company&#146;s investments in water and water systems consist of the following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>November 30, 2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>August 31, 2007</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Depreciation and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Depreciation and</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Costs</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Depletion</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Costs</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Depletion</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Arkansas River Valley assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">81,234,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(335,259</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">81,234,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(265,466</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rangeview water supply</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,966,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,561</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,949,036</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,408</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rangeview water system</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40,324</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(38,032</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Paradise water supply</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,528,818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,525,017</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fairgrounds water and water system</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,693,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(116,203</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,669,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(94,325</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sky Ranch water supply</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Water supply &#151; other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,160</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(893</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Totals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">103,696,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(497,507</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">103,651,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(403,124</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net investments in water and
water systems</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">103,199,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">103,248,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company&#146;s water rights and current water and wastewater service agreements are more fully
described in Note 3 to the Company&#146;s 2007 Annual Report on Form 10-K.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 4 &#151; HP A&#038;M PROMISSORY NOTES
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Certain of the properties the Company acquired from HP A&#038;M are subject to outstanding promissory
notes with principal and accrued interest totaling approximately $13.8&nbsp;million at November&nbsp;30,
2007. Additional information regarding these promissory notes, the circumstances under which the
Company would be required to make payments pursuant to these notes and the accounting treatment of
these notes is more fully described in Note 3 to the Company&#146;s 2007 Annual Report on Form 10-K.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->8<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 5 &#151; CONSTRUCTION PROCEEDS RECEIVABLE
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the Water Service Agreement (the &#147;County Agreement&#148;) with Arapahoe County (the
&#147;County&#148;), as more fully described in Note 3 to the 2007 Annual Report on Form 10-K, the County is
required to make monthly payments to the Company for the construction of the &#147;Special Facilities&#148;
constructed at the County Fairgrounds. The monthly payments payable by the County were originally
$6,850. This was calculated based on an original payable balance of approximately $607,900, which
is the total capital expended by the Company for the Special Facilities of approximately $1.245
million less approximately $397,000 paid by the County up front and less approximately $240,000 for
the value of the water rights to be transferred to the Company. However, pursuant to the County
Agreement, because the County had not transferred the 336 acre-feet of water to the Company upon
the completion of construction, the balance owed the Company was not reduced by the value of the
water rights and is therefore still included in the construction proceeds receivable account. As a
result, the monthly payments being charged to the County was increased to $9,555 upon completion of
the facilities. The County made six payments of $9,555 each through December&nbsp;2006, but then ceased
making payments because the County disagreed with the increase. As a result, in October&nbsp;2007, the
Company and the County amended the County Agreement, whereby the County would (i)&nbsp;make the
principal and interest payments on the original $607,900 balance owed to the Company (or
approximately $6,850 per month for ten years), (ii)&nbsp;pay half of the interest (at 6% per annum)
calculated on the value of the water rights that have not been transferred to the Company as of
yet, and (iii)&nbsp;transfer the water rights valued at approximately $240,000 as soon as practical. The
transfer of the water rights to the Company is currently being processed in the Colorado Water
Court and the Company expects to receive the rights during its fiscal 2008. In addition, in October
2007 the County made a one-time payment of approximately $54,800, which represents the amounts past
due under the amendment to the County Agreement.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 6 &#151; INVESTMENT IN WELL ENHANCEMENT AND RECOVERY SYSTEMS, LLC
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Effective January&nbsp;30, 2007, the Company entered into an Operating Agreement with Mr.&nbsp;R. Clark (who
is deemed the indirect beneficial owner of 8.7% of the Company&#146;s common stock by means of his role
as manager of TPC Ventures, LLC) and Hydro Resources, Inc. (collectively the Company, Mr.&nbsp;Clark and
Hydro Resources, Inc. are referred to as the &#147;LLC Owners&#148;) to form Well Enhancement and Recovery
Systems, LLC (&#147;Well Enhancement LLC&#148;). Well Enhancement LLC was established to develop a new deep
water well enhancement tool which the LLC Owners believe will increase the efficiency of deep water
wells in the Denver metropolitan area. Each of the LLC Owners holds a 1/3 interest in Well
Enhancement LLC. The president of the Company acts as the manager of Well Enhancement LLC.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company accounts for its investment in Well Enhancement LLC under the equity method pursuant to
Accounting Principles Board Opinion No.&nbsp;18 <I>The Equity Method of Accounting for Investments in
Common Stock (as amended) </I>and Emerging Issues Task Force Issue No.&nbsp;03-16 <I>Accounting for Investments
in Limited Liability Companies</I>. As of November&nbsp;30, 2007, the Company&#146;s <I>Investment in Well
Enhancement and Recovery Systems, LLC </I>account on its balance sheet includes $40,000 of capital
contributions made to date by the Company (total initial capital contribution will be approximately
$70,000 per LLC Owner) and its 1/3<SUP style="font-size: 85%; vertical-align: text-top">rd</SUP> share of the approximately $108,600 of net losses
of Well Enhancement LLC from its inception through November&nbsp;30, 2007. As of November&nbsp;30, 2007, Well
Enhancement LLC&#146;s balance sheet consisted entirely of
approximately $11,400 of cash and for the three and ten months ended
November&nbsp;30, 2007, Well Enhancement LLC posted net losses of
approximately $1,900 and $108,600, respectively. The net losses are
primarily a result of research and developments costs associated with
the design of the well enhancement tool.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 7 &#151; PARTICIPATING INTERESTS IN EXPORT WATER
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company acquired its Rangeview Water Supply through various amended agreements entered into in
the early 1990&#146;s. The acquisition was consummated with the signing of the Comprehensive Amendment
Agreement No.&nbsp;1 (the &#147;CAA&#148;) in 1996. Upon entering into the CAA, the Company recorded an initial
liability of approximately $11.1&nbsp;million, which represents the cash the Company received and used
to purchase its Export Water Supply. In return, 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 accordance with EITF Issue No 88-18 <I>Sales of Future Revenues</I>, the obligation for the $11.1
million was recorded as debt, and the remaining $20.7&nbsp;million contingent liability is not reflected
on the Company&#146;s balance sheet because the obligation to pay this is contingent on sales of Export
Water, the amounts and timing of which are not reasonably determinable.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->9<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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 <I>Participating Interests in Export Water supply </I>liability account) with the balance of
the payment being charged to the contingent obligation portion. The amount allocated to the
liability is approximately 35%, which is the percentage the $11.1&nbsp;million represented of the
original total $31.8&nbsp;million obligation. The remaining portion, or approximately 65%, is allocated
to the contingent obligation. The portion allocated to principal will be recorded as a reduction in
the <I>Participating Interests in Export Water </I>liability account while the amounts applied to the
contingency are recorded on a net revenue basis when funds are received.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In recent years the Company has repurchased various portions of the CAA obligations in priority.
The table below summarizes the transactions impacting the CAA obligations since its signing, which
are explained in greater detail below the table:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Export Water</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Export Water</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Proceeds to</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Total Potential</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Paticipating</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Proceeds Received</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Pure Cycle</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Obligation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Interests Liability</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Contingency</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Original balances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">218,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">31,807,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,090,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,717,102</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD colspan="21" align="left"><I>Activity from inception through August&nbsp;31, 2007:</I></TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sky Ranch option payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(42,280</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(68,120</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23,754</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(44,366</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,398,234</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23,398,234</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,158,430</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,239,804</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Arapahoe County tap fees *</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">532,968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(373,078</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(159,890</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(55,754</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(104,136</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Export Water Sale payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,810</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,067</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,743</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,655</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,088</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at August&nbsp;31, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">659,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,190,309</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,176,745</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,851,037</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,325,708</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD colspan="21" align="left"><I>Activity during the three months ended November&nbsp;30, 2007:</I></TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Export Water Sale payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,356</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,010</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(353</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(657</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,679,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,679,266</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,631,553</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,047,713</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at November&nbsp;30,
2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">662,544</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">27,867,219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,496,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,219,131</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,277,338</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>



<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 1%">*&nbsp;The Arapahoe County tap fees are less a $34,522 royalty payment to the Land Board.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In October&nbsp;2007, the Company acquired the rights to approximately $4.7&nbsp;million of CAA
interests in exchange for 211,228 shares of the Company&#146;s restricted common stock valued at
approximately $1.9&nbsp;million. As a result, the Company now has the right to retain an additional $4.7
million of the initial $31.8&nbsp;million of proceeds from the sale of Export Water. When combined with
the CAA acquisitions and the payments made as a result of the sale of Export Water through August
31, 2007, as described in the Company&#146;s 2007 Annual Report on Form 10-K, the total remaining
potential third party obligation as of November&nbsp;30, 2007 is approximately $3.5&nbsp;million. The Company
recorded a loss on the acquisition of the CAA interests in October&nbsp;2007 of approximately $273,700.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The acquisition of these CAA obligations and debt reduction, reduces the long term impact of the
CAA and provides the Company with additional cash flows to fund operations and pursue other
business opportunities that may arise.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The CAA includes contractually established priorities. Following the CAA acquisition made by the
Company, the Company&#146;s priority levels include $5.1&nbsp;million of remaining amounts payable at the
highest priority level, $2.5&nbsp;million in the third priority level, and the remaining $20.3&nbsp;million
at various other priority levels.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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&nbsp;B Preferred Stock are also not entitled to payment of any dividend and have
no contractual recourse against the Company.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->10<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 8 &#151; STOCKHOLDERS&#146; EQUITY
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Preferred and Common Stock. </I></B>The Company&#146;s non-voting Series&nbsp;B Preferred Stock has a preference in
liquidation of $1.00 per share less any dividends previously paid. Additionally, the Series&nbsp;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&#146;s proceeds from sale or disposition of
Export Water rights exceeds $36,026,232, the Series&nbsp;B Preferred Stock holders will receive the
next $433,513 of proceeds in the form of a dividend.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Equity Compensation Plan. </I></B>The Company maintains the 2004 Incentive Plan (the &#147;Equity Plan&#148;) which
was approved by stockholders in April&nbsp;2004. Executives, eligible employees and non-employee
directors are eligible to receive option and restricted stock grants pursuant to the Equity Plan.
Under the Equity Plan, options to purchase shares of stock, and restricted stock awards, can be
granted with exercise prices and vesting periods determined by the Compensation Committee of the
Board. The Company initially reserved 1.6&nbsp;million shares of common stock for issuance under the
Equity Plan. As of November&nbsp;30, 2007, the Company has 1,425,800 shares that can be granted to
eligible participants pursuant to the Equity Plan.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Because there were no options exercised or granted and no options vested during the three months
ended November&nbsp;30, 2007, the Company has omitted the stock option activity tables as there were no
significant changes from the tables presented in Note 8 to the Company&#146;s 2007 Annual Report on Form
10-K. The intrinsic value of options fully vested and expected to vest, as well as the weighted
average remaining contractual terms of the fully vested options and options expected to vest as of
November&nbsp;30, 2007, did not change significantly from August&nbsp;31, 2007. The Company has not recorded
any excess tax benefits to additional paid in capital.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At November&nbsp;30, 2007, the Company has unrecognized SFAS 123(R) expenses relating to non-vested
options that are expected to vest totaling approximately $210,500. The weighted-average period over
which these options are expected to vest is approximately one year.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">On August&nbsp;27, 2007, the Company granted 34,189 shares of restricted common stock to the President
of the Company pursuant to the Equity Plan. Pursuant to SFAS 123(R), the Company will recognize
compensation expense on this grant based on the grant date fair value of the stock. The grant date
fair value of the restricted stock was based upon the market price of the Company&#146;s common stock on
the date of the grant. The grant date fair value will be amortized to compensation expense over
the vesting term of two years. Because there has been no change in the status of the restricted
stock, the Company omitted the status table, which is disclosed in Note 8 to the Company&#146;s 2007
Annual Report on Form 10-K.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of November&nbsp;30, 2007, there was approximately $227,000 of unrecognized compensation expense
related to restricted stock awarded under the Equity Plan. This expense is expected to be
recognized over a period of approximately 2&nbsp;years.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Warrants. </I></B>As of November&nbsp;30, 2007, the Company had outstanding warrants to purchase 92 shares
of common stock at an exercise price of $1.80 per share, which are more fully described in Note 8
to the Company&#146;s 2007 Annual Report on Form 10-K.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Loss per common share</I></B>. 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 140,092 and 663,663 common share equivalents as of November&nbsp;30, 2007 and 2006,
respectively, have been excluded from the calculation of loss per common share as their effect is
anti-dilutive.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Comprehensive Loss. </I></B>In addition to net loss, comprehensive loss includes the unrecognized changes
in the fair value of marketable securities that are classified as available-for-sale as noted in
the following table:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Three Months Ended November 30,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,894,997</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,585,212</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized gain on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,237</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,894,765</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,577,975</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->11<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 9 &#151; RELATED PARTY TRANSACTIONS
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In October&nbsp;2007, the Company repaid approximately $26,500 to a party related to Mr.&nbsp;Clark. This
represented the only remaining note payable with a scheduled maturity.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company leases office space from Mr.&nbsp;Clark, who is also the sole manager of TPC Ventures, LLC
which is a greater than 5% holder of the Company&#146;s common stock. The Company leases the office
space on a month-to-month basis for $1,000 per month.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 10 &#151; SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>November 30,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common stock issued to acquire contingent obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,905,276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Treasury stock accepted upon exercise of stock options
with mature shares used as consideration</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">44,415</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>*****</B>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->12<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">


<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Item&nbsp;2. </B><U><B>Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B></U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>The following discussion should be read in conjunction with the accompanying unaudited financial
statements and related notes thereto and the financial statements and the notes thereto contained
in our 2007 Annual Report on </I><I>Form 10-K</I><I>.</I>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Disclosure Regarding Forward-Looking Statements</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Certain statements in this Quarterly Report, other than purely historical information, including
estimates, projections, forecasts, and assumptions are &#147;forward-looking statements&#148; within the
meaning of the Private Securities Litigation Reform Act of 1995, Section&nbsp;27A of the Securities Act
of 1933 and Section&nbsp;21E of the Securities Exchange Act of 1934. The words &#147;anticipate,&#148; &#147;believe,&#148;
&#147;estimate,&#148; &#147;expect,&#148; &#147;plan,&#148; &#147;intend,&#148; &#147;would&#148; and similar expressions, as they relate to us, are
intended to identify forward-looking statements. Such statements reflect our current views with
respect to future events and are subject to certain risks, uncertainties and assumptions. We cannot
assure you that any of our expectations will be realized. Factors that may cause actual results to
differ materially from those contemplated by such forward-looking statements include, without
limitation, the timing of development of the areas where we may sell our water, including
uncertainties related to the development of projects the Company currently has under contract, the
market price of water, changes in applicable statutory and regulatory requirements, uncertainties
in the estimation of water available under decrees, costs of delivery of water and treatment of
wastewater, uncertainties in the estimation of costs of construction projects, the strength and
financial resources of our competitors, our ability to find and retain skilled personnel, climatic
and weather conditions, labor relations, availability and cost of material and equipment, delays in
anticipated permit and construction dates, environmental risks, the results of financing efforts
and the ability to meet capital requirements, and general economic conditions. We undertake no
obligation to update or revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>General</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pure Cycle Corporation is an investor owned water and wastewater service provider engaged in the
design, construction, operation and maintenance of water and wastewater systems. Our business
premise is that water is a precious commodity that is often undervalued and therefore used
inefficiently. We primarily operate in the Denver, Colorado metropolitan area and have assets
located in the Denver area, in southeastern Colorado in the Arkansas River, and on the western
slope of Colorado. Our business practices are centered on efficient and environmentally responsible
water management programs to ensure we have water to meet the long-term needs of our customers.
Utilizing our water assets, we withdraw, treat, store and deliver water to our customers. We then
collect wastewater from our customers which is treated and reused through dual distribution
systems. A dual distribution system is one in which domestic water demands and irrigation water
demands are provided through separate independent infrastructure. Our dual distribution systems
promote efficient water resource management and reduce the amount of water that is &#147;wasted&#148; by
traditional water systems which enable us to maximize the use of our valuable water supplies and
allow us the ability to provide long-term water solutions on a regional basis.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our water assets are comprised of the following annual entitlements which are described in greater
detail in our 2007 Annual Report on Form 10-K:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Approximately 60,000 acre-feet of senior 1883 water rights in the Arkansas River and its
tributaries represented by over 21,600 shares of the Fort Lyon Canal Company (&#147;FLCC&#148;);</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Approximately 11,650 acre-feet of water located in Arapahoe County, Colorado at property
known as the Lowry Range(an approximately 27,000 acre property located in Arapahoe County,
Colorado, owned by the State Board of Land Commissioners) , which we can &#147;export&#148; from the
Lowry Range to supply water to nearby communities and developers in need of additional water
supplies (this water asset is referred to as our &#147;Export Water&#148;);</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Approximately 363 acre-feet of groundwater pursuant to an Agreement for Water Service (the
&#147;County Agreement&#148;) with Arapahoe County (the &#147;County&#148;), which will be added to our overall
Denver metropolitan water supply portfolio (we are awaiting the delivery of a water rights
deed for approximately 336 acre-feet of this water valued at approximately $240,000, the value
of which is included in the <I>construction proceeds receivable </I>account on our balance sheet as
of November&nbsp;30, 2007, until the water rights deed is received, which we expect to be in our
fiscal 2008); and</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Approximately 89 acre-feet of water located beneath Sky Ranch together with the right to
purchase an additional 671 acre-feet of water (for a total of 760 acre-feet) pursuant to the
Sky Ranch Agreements.</DIV></TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->13<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In addition to the water we own, we also control the following water assets in Colorado, which are
described in greater detail below:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">We have the exclusive rights to use, through 2081, approximately 15,050 acre-feet of water
located at the Lowry Range. This water is required to be used specifically on the Lowry Range
(collectively we refer to the 15,050 acre-feet of water designated for use on the Lowry Range
and the 11,650 acre-feet of Export Water as our &#147;Rangeview Water Supply&#148;);</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">We own conditional water rights in western Colorado that entitle us to build a 70,000
acre-foot reservoir to store Colorado River tributary water and a right-of-way permit from the
U.S. Bureau of Land Management for property at the dam and reservoir site (collectively known
as the &#147;Paradise Water Supply&#148;).</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our water marketing activities target our water and wastewater services to developers and
homebuilders developing new communities along the Front Range, including the greater Denver and
Colorado Springs metropolitan areas. Our groundwater supplies are largely undeveloped and are
located in the southeastern portion of the greater Denver area in Arapahoe County. The majority of
our surface water is located in the Arkansas River Valley, and we are proposing to use it in our
target service market and throughout the Front Range of Colorado. We work with area developers to
investigate water supply constraints, water and wastewater utility issues, market demand, treatment
and transportation concerns, employment centers and other issues in order to identify suitable
areas for development. Construction of water and wastewater systems and the providing of water and
wastewater services are subject to individual water and wastewater service agreements. We negotiate
individual agreements with developers and/or homebuilders to design, construct and operate water
and wastewater systems. Our service contracts outline our obligations to design, construct and
operate certain facilities necessary to develop and treat water and treat and reuse wastewater.
These service agreements include the timing of installation of the facilities, required capacities
of the systems, and locations for the services to be provided. Service agreements address all
aspects of the development of the water and wastewater systems. For details on our current service
agreements please refer to our 2007 Annual Report on Form 10-K.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Results of Operations</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Executive Summary</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The approximate results of our operations for the three months ended November&nbsp;30, 2007 and 2006
are:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="center" colspan="8" style="border-bottom: 1px solid #000000"><B><I>Executive Summary</I></B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>November 30,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Millions of gallons of water delivered</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Water revenues generated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">39,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">35,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Water delivery operating costs incurred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,700</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Water delivery gross margin %</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">61</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">61</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wastewater treatment revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wastewater treatment operating costs incurred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Wastewater treatment gross margin %</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">75</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">60</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">General and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">651,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">443,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,895,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,585,200</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Water Usage and Wastewater Treatment Revenues</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Water deliveries for the three months ended November&nbsp;30, 2007 remained comparable with the three
months ended November&nbsp;30, 2006. Water usage revenues for the three months ended November&nbsp;30, 2007
increased 11% over the three months ended November&nbsp;30, 2006, mainly due to the July&nbsp;2007 water
rates increase.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our water service charges are based on a tiered pricing structure that provides for higher prices
as customers use greater amounts of water. Our rates and charges are established based on the
average of three surrounding
communities, referred to as our rate-based districts. Our rate-based districts have continued to
raise their rates over the past several years.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->14<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our wastewater customers are charged flat monthly fees based on the number of tap connections they
have. Wastewater usage fees have not changed since July&nbsp;2005.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Gross margin for water operations for the three months ended November&nbsp;30, 2007 remained comparable
with the three months ended November&nbsp;30, 2006. Gross margin for wastewater operations for the three
months ended November&nbsp;30, 2007 was approximately 15% higher than the three months ended November
30, 2006, due to certain maintenance expenses incurred in fiscal 2007 which were not incurred in
2008.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>General and Administrative and Other Expenses</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">General and administrative (&#147;G&#038;A&#148;) expenses for the three months ended November&nbsp;30, 2007 and 2006
were impacted by the adoption of SFAS No.&nbsp;123 (revised 2004) <I>Share Based Payment </I>(&#147;SFAS 123(R)&#148;),
as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>November 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Increase</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">G&#038;A expenses as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(651,600</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(443,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(208,100</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SFAS 123(R) expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,100</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">G&#038;A expenses less SFAS 123(R)
expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(570,300</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(365,300</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(205,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Without the effects of stock-based compensation expenses, the increase in G&#038;A expenses for the
periods presented is mainly attributable to the following:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">During the three months ended November&nbsp;30, 2007, we incurred approximately $112,900 of
consulting fees related to negotiations and water marketing activities associated with the
proposed development of the Lowry Range, which were not incurred during the three months
ended November&nbsp;30, 2006.</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">During the three months ended November&nbsp;30, 2007 and 2006 we expensed approximately
$89,300 and $75,000, respectively, related to water assessment charges payable to the FLCC.
This represents our share (based on the number of FLCC shares we own) of FLCC&#146;s annual
operating and maintenance expenditures. The increase is attributable to higher assessments
levied by the FLCC</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Professional fees accounted for approximately $35,700 of the increase, mainly
attributable to the Lowry Range negotiations and other general corporate legal services.</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Franchise fees payable to the State of Delaware and other public company expenses
accounted for approximately $32,200 of the increase, which is mainly due to more shares
being outstanding as a result of the July&nbsp;2007 equity offering.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Depreciation and depletion charges for the three months ended November&nbsp;30, 2007 were approximately
$95,600, which is comparable to the approximately $90,500 of expense recorded for the three months
ended November&nbsp;30, 2006.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Interest income totaled approximately $127,000 and $44,600 for the three months ended November&nbsp;30,
2007 and 2006, respectively. This represents interest earned on the temporary investment of capital
in available-for-sale securities, interest accrued on the note receivable from the District and
interest accrued on the construction proceeds receivable from Arapahoe County. The increase is due
mainly to the temporary investment of over $5.0&nbsp;million raised in the equity offering in July&nbsp;2007.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Imputed interest expense related to the Tap Participation Fees payable to HP A&#038;M totaled
approximately $1.1&nbsp;million and $1.1&nbsp;million for the three months ended November&nbsp;30, 2007 and 2006,
respectively. This represents the expensed portion of the difference between the relative fair
value of the liability and the net present value of the liability recognized under the effective
interest method. See also Note 1 to the accompanying financial statements for
discussion on the revaluation of the Tap Participation Fee and the impact to the November&nbsp;30, 2007
financial statements.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->15<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our net losses, as reported in our statements of operations for the three months ended November&nbsp;30,
2007 and 2006, were approximately $1.9&nbsp;million and $1.6&nbsp;million, respectively. Our reported net
losses have been materially impacted by the imputed interest on the Tap Participation Fee and
stock-based compensation expense recognized pursuant to SFAS 123(R). In the table below, we have
presented a non-GAAP financial disclosure to provide a quantitative analysis of the impact of the
imputed interest and stock-based compensation expenses on our reported net losses and loss per
share. Because these items do not require the use of current assets, management does not include
these items in its analysis of our financial results or how we allocate our resources. Because of
this, we deemed it meaningful to provide this non-GAAP disclosure of the impact of these
significant items on our financial results.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Three Months Ended november 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Change</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,885,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,585,200</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(299,800</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest imputed on Tap
Participation Fees payable to HP A&#038;M</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,041,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,141,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(100,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SFAS 123(R) expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,100</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss less imputed interest and
SFAS 123&#146;(R) expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(762,700</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(366,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(396,700</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss per common share as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.09</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.09</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest imputed on Tap
Participation Fees payable to HP A&#038;M</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SFAS 123(R) expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss per common share less
non-cash interest and SFAS 123(R)
expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.04</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.02</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted avererage common shares
outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,136,157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,353,443</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Liquidity and Capital Resources</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our working capital, defined as current assets less current liabilities, at November&nbsp;30, 2007 was
approximately $6.7&nbsp;million, and we had cash and cash equivalents and marketable securities on hand
totaling approximately $6.6&nbsp;million at November&nbsp;30, 2007. We believe that at November&nbsp;30, 2007, we
have sufficient working capital to fund our operations for the next year. However, there can be no
assurance that we will be successful in marketing the water from our primary water projects in the
near term. In order to generate working capital to support our operations, we may incur additional
short or long-term debt or seek to sell additional equity securities. We have an effective shelf
registration statement pursuant to which we may elect to sell up to another $5.7&nbsp;million of stock
at any time and from time to time.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Development of the water that we own, have rights to use, or may seek to acquire, will require
substantial capital investments. We anticipate that capital required for the development of the
water and wastewater systems will be financed through the sale of water taps to developers and
water delivery charges to users. A water tap charge refers to a charge we impose to fund
construction of &#147;Wholesale Facilities&#148; (&#147;Wholesale Facilities&#148; are further defined in our 2007
Annual Report on Form 10-K) and permit access to our water delivery system (e.g., a single-family
home&#146;s tap into our water system), and a water service charge refers to a water customer&#146;s monthly
water bill, generally charged per 1,000 gallons of water delivered to the customer. We anticipate
tap fees will be sufficient to generate funds with which we can design and construct the necessary
Wholesale Facilities. However, once we receive tap fees from a developer, we are contractually
obligated to construct the Wholesale Facilities for the taps paid for, even if
our costs are not covered by the fees we receive. We can not assure you that these sources of cash
will be sufficient to cover all our capital costs.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As further described in our 2007 Annual Report on Form 10-K, pursuant to the Arkansas River
Agreement we agreed to pay HP A&#038;M 10% of our water tap fees received on the sale of the next 40,000
water taps. As of November&nbsp;30, 2007, we have estimated the value of the Tap Participation Fee
payable to HP A&#038;M at approximately $50.5&nbsp;million based on a discounted cash flow valuation
analysis, which was originally prepared at August&nbsp;31, 2006, and was updated as of November&nbsp;30,
2007. See Note 3 in the accompanying financial statements for the impact of the revaluation. The
actual amount to be paid could exceed our estimates. Tap participation payments are not payable to
HP A&#038;M until we receive water tap fee payments. We did not sell any taps or make any Tap
Participation Fee payments during the three months ended November&nbsp;30, 2007. As of November&nbsp;30,
2007, 38,965 taps remain subject to the Tap Participation Fee.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->16<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We are obligated to pay the FLCC annual water assessment charges which are the charges assessed to
the FLCC shareholders for the upkeep and maintenance of the Fort Lyon Canal. The payments are due
to the FLCC each calendar year. In December&nbsp;2007, the FLCC approved an increase in the calendar
2008 assessments from $12.50 per share to $15.00 per share, which equates to an increase in our
water assessments from approximately $265,000 per year to approximately $325,000 per year.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">On August&nbsp;3, 2005, we entered into the County Agreement to provide water service to the Arapahoe
County Fairgrounds. In accordance with SAB 104, upon completion of construction of the Arapahoe
County Fairgrounds facilities and the initiation of water service to the Arapahoe County
Fairgrounds in July&nbsp;2006, we began ratably recognizing deferred tap fee revenues as income. The tap
fees received from the County are being recognized in income over the estimated useful life of the
constructed assets, or 30&nbsp;years. For the three months ended November&nbsp;30, 2007, we recognized water
tap revenues of approximately $3,600. In addition, we started recognizing deferred &#147;Special
Facilities&#148; (the Special Facilities funding is more fully described in Note 3 to the 2007 Annual
Report on Form 10-K) funding as revenues per SAB 104 in fiscal 2006, which will also be recognized
over the useful life of the constructed assets. For the three months ended November&nbsp;30, 2007, we
recognized Special Facility funding revenues of approximately $10,400. See also Note 5 to the
accompanying financial statements for information regarding the amendment to the County Agreement
in regards to the Special Facilities funding.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In October&nbsp;2007, we repaid our sole outstanding note to a related party. Therefore, at November&nbsp;30,
2007, we had no outstanding related party debt.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Operating Activities</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Operating activities include revenues we receive from the sale of water and wastewater services to
our customers, costs incurred in the delivery of those services, general and administrative
expenses, and depletion/depreciation expenses.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Cash used by operating activities was approximately $226,300 and $433,700 for the three months
ended November&nbsp;30, 2007 and 2006, respectively. The change is mainly due to changes in operating
assets and liabilities.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As a
result of the Arkansas River Agreement signed on August&nbsp;31,
2006, we imputed approximately $1.1&nbsp;million of interest on the
Tap Participation Fee Payable to HP A&#038;M for both the three month
periods ended November&nbsp;30, 2007 and 2006.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">During the three months ended November&nbsp;30, 2007 and 2006, we accrued interest on the note
receivable from the District of approximately $5,700 and $5,900, respectively. We also accrued
approximately $6,700 and $12,800 of interest on the construction proceeds receivable during the
three months ended November&nbsp;30, 2007 and 2006, respectively. The decrease is due to the amendment
to the agreement as further described in the accompanying financial statements. We incurred
approximately $96,400 and $91,200 of depreciation, depletion and other non-cash charges during the
three months ended November&nbsp;30, 2007 and 2006, respectively. We will continue to provide domestic
water and wastewater service to customers in our service area and we will continue to operate and
maintain our water and wastewater systems with our own employees.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Investing Activities</I>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">On October&nbsp;31, 2003 we entered into the Denver Groundwater Purchase Agreement (the &#147;DGPA&#148;) with the
developer of Sky Ranch. The DGPA provides us the right to purchase a total of 223 acre-feet of
adjudicated decreed water rights owned by the developer. Under the DGPA, we can acquire 44.6
acre-feet of water per year (or 20% of the total 223 acre-feet) for a payment of $50,000 (acquiring
the entire 223 acre-feet will require payments totaling $250,000). On March&nbsp;26, 2004 and May&nbsp;26,
2005, we exercised our rights and purchased a total of 89.2 acre-feet of Denver aquifer groundwater
for payments totaling $100,000. During our fiscal 2006 and in the first quarter of fiscal 2007,
respectively, we made the required $50,000 payments pursuant to the DGPA, for which we have not
received the water rights deeds from the developer. As of the date of this filing, we are
continuing to work with the developer on finalizing these acquisitions. Since we have not received
the water rights deed as of November&nbsp;30, 2007, and Sky Ranch has not cashed either of our checks,
we have not recorded these acquisitions of groundwater as investments in water. Instead they are
reflected as a pre-paid assets in the accompanying financial statements. We anticipate purchasing
the remaining 20% of the Sky Ranch groundwater pursuant to the DGPA in our fiscal 2008, by
exercising our rights. This will require a payment totaling $50,000.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We continue to invest in legal and engineering fees associated with certain water rights, and we
continue to invest in the right-of-way permit fees to the Department of Interior Bureau of Land
Management and legal and engineering costs for our Paradise Water Supply.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Cash provided by investing activities for the three months ended November&nbsp;30, 2007 and 2006, was
approximately $447,100&nbsp;million and $160,200&nbsp;million, respectively. Increase in cash provided by
investing activities is a result of the sale or maturity of approximately $500,000 of temporary
investments.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Financing Activities</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Cash used by financing activities during the three months ended November&nbsp;30, 2007 and 2006, was
approximately $27,600 and $1,100, respectively. The difference is mainly due to the repayment of
approximately $26,500 of debt to a related party in October&nbsp;2007.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Off-Balance Sheet Arrangements</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our off-balance sheet arrangements consist entirely of the CAA, which is more fully described in
our 2007 Annual Report on <FONT style="white-space: nowrap">Form&nbsp;10-K</FONT>, and in Note 7 to the accompanying financial statements.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Recently Adopted and Issued Accounting Pronouncements</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">See Note 1 to the accompanying financial statements regarding recently adopted and issued
accounting pronouncements.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Critical Accounting Policies</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our financial statements are prepared in accordance with Accounting Principles Generally Accepted
in the United States of America (&#147;GAAP&#148;), which requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements, and reported amounts of revenues and expenses
during the reporting period. Actual results could differ significantly from those estimates. With
the exception of the items described below, since August&nbsp;31, 2007, there have been no significant
changes to our critical accounting policies, therefore, for further discussion of our significant
accounting policies, refer to Note 2 and Item&nbsp;7 &#151; Critical Accounting Policies in our 2007 Annual
Report on Form 10-K.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Tap Participation Fee</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As
described in Note 1 to the accompanying financial statements, we assess the value of the &#147;Tap
Participation Fee payable to HP A&#038;M&#148; whenever events or circumstances indicate the assumptions used
to estimate the value of the liability have changed materially. Based on changes in the housing
market in Colorado and other similar factors, we revalued the Tap Participation Fee at November&nbsp;30,
2007. See Note 3 to the accompanying financial statements for impact of this revaluation as of
November&nbsp;30, 2007.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Obligations Payable by HP A&#038;M</I>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Certain of the properties we acquired pursuant to the Arkansas River Agreement are subject to
outstanding promissory notes, as further described in the accompanying financial statements. These
notes are secured by deeds of trust on the properties. We did not assume any of these promissory
notes and are not responsible for making any of the required payments under these notes. This
responsibility remains solely with HP A&#038;M. In the event of default by HP A&#038;M, we may make payments
on any or all of the notes and cure any or all of the defaults. If we do not cure the defaults, we
will lose the properties securing the defaulted notes. If HP A&#038;M defaults on the promissory notes,
we can foreclose on a defined amount of Pure Cycle stock issued to HP A&#038;M being held in escrow and
reduce the Tap Participation Fee by two times the amount of notes defaulted on by HP A&#038;M. Although
the likelihood of HP A&#038;M defaulting on the notes is deemed remote, we will continue to monitor the
status of the notes for any indications of default. We are not aware of any defaults by HP A&#038;M as
of November&nbsp;30, 2007.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->18<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Income taxes</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">There is no provision for income taxes because we continue to incur operating losses. See Note 1 to
the accompanying financial statements for information regarding our adoption of Financial
Accounting Standards Board Interpretation No.&nbsp;48, <I>Accounting for Uncertainty in Income Taxes &#151; an
interpretation of FASB Statement No.&nbsp;109.</I>
</DIV>
<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Item&nbsp;3. </B><U><B>Quantitative and Qualitative Disclosures About Market Risk </B></U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>General. </I>Pure Cycle has limited exposure to market risks from instruments that may impact the
<I>Balance Sheets</I>, <I>Statements of Operations</I>, and <I>Statements of Cash Flows</I>, such exposure is due
primarily to changing interest rates.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Interest Rates. </I>The primary objective for our investment activities is to preserve principal while
maximizing yields without significantly increasing risk. This is accomplished by investing in
diversified short-term investments, consisting primarily of United States Treasury Obligations and
other investment grade debt securities. As of November&nbsp;30, 2007, the fair value of our marketable
securities was approximately $300,000 with maturity dates through January&nbsp;2008. A hypothetical 50
basis point change in interest rates would not result in a material decrease or increase in the
fair value of our marketable securities. We have no investments denominated in foreign country
currencies and therefore our investments are not subject to foreign currency exchange risk.
</DIV>
<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Item&nbsp;4. </B><U><B>Controls and Procedures</B></U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Evaluation of Disclosure Controls and Procedure</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our management is responsible for establishing and maintaining adequate internal control over
financial reporting as such term is defined in the Exchange Act Rule&nbsp;13a&#151;15(f). Our 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 GAAP.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The President and Chief Financial Officer assessed the effectiveness of internal control over
financial reporting as of November&nbsp;30, 2007 based on the criteria established in <I>Internal
Control&#151;Integrated Framework </I>issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based upon this evaluation, the President and Chief Financial Officer concluded that
our disclosure controls and procedures have been designed and are being operated in a manner that
provides reasonable assurance that the information required to be disclosed by us in reports filed
under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the SEC&#146;s rules and forms. 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Changes in Internal Control Over Financial Reporting and Management&#146;s Remediation Initiatives</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">None
</DIV>

<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Part II</B>
</DIV>

<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Item&nbsp;6. </B><U><B>Exhibits </B></U>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Exhibits</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" nowrap valign="top"><DIV style="margin-left:15px; text-indent:-15px">10.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
2004 Incentive Plan, effective April 12, 2004, as amended November 12, 2007.*</TD>
</TR>
<TR valign="bottom" style="padding-top: 1em">
    <TD align="center" nowrap valign="top">31</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.*</TD>
</TR>
<TR valign="bottom" style="padding-top: 1em">
    <TD align="center" nowrap valign="top">32</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002.*</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">*&nbsp;Filed herewith.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->19<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">
<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">SIGNATURES
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In accordance with 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><FONT style="border-bottom: 1px solid #000000">/s/ Mark W. Harding&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><BR>
Mark W. Harding<BR>
President and Chief Financial Officer
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">January&nbsp;9, 2008
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->20<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>EXHIBIT INDEX</B>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
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    <TD width="85%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left">Exhibit</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Description</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" nowrap valign="top"><DIV style="margin-left:15px; text-indent:-15px">10.2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
2004 Incentive Plan, effective April 12, 2004, as amended November 12, 2007.</TD>
</TR>
<TR valign="bottom" style="padding-top: 1em">
    <TD align="center" nowrap valign="top">31</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>
<TR valign="bottom" style="padding-top: 1em">
    <TD align="center" nowrap valign="top">32</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>2
<FILENAME>c72031exv10w2.htm
<DESCRIPTION>EXHIBIT 10.2
<TEXT>
<HTML>
<HEAD>
<TITLE>Filed by Bowne Pure Compliance</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="right" style="font-size: 10pt; margin-top: 10pt">Exhibit&nbsp;10.2
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PURE CYCLE CORPORATION<BR>
2004 INCENTIVE PLAN</B><BR>
Effective as of April&nbsp;12, 2004<BR>
As amended November&nbsp;12, 2007<BR>
(Reflects reverse stock split effective April&nbsp;26, 2004)
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 1<BR>
INTRODUCTION</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">1.1 <I>Establishment. </I>Pure Cycle Corporation hereby establishes the Pure Cycle Corporation 2004
Incentive Plan (the &#147;Plan&#148;) for certain officers, employees, consultants, and directors of the
Company.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">1.2 <I>Purposes</I>. The purposes of the Plan are to provide the officers, employees, consultants,
and directors of the Company selected for participation in the Plan with added incentives to
continue in the long-term service of the Company and to create in such persons a more direct
interest in the future success of the operations of the Company by relating incentive compensation
to increases in stockholder value, so that the income of such persons is more closely aligned with
the income of the Company&#146;s stockholders. The Plan is also designed to enhance the ability of the
Company to attract, retain and motivate officers, employees, consultants, and directors by
providing an opportunity for investment in the Company.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 2<BR>
DEFINITIONS</B>
</DIV>



<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%">2.1 <I>Definitions. </I>The following terms shall have the meanings set forth below:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(a)&nbsp;<I>&#147;Administrator&#148; </I>means (i)&nbsp;the Board, or (ii)&nbsp;one or more committees of the Board to whom
the Board has delegated all or part of its authority under this Plan. Any committee under clause
(ii)&nbsp;hereof which makes grants to &#147;officers&#148; of the Company (as that term is defined in Rule
16a-1(f) promulgated under the Exchange Act) shall be composed of not less than the minimum number
of persons from time to time required by Rule&nbsp;16b-3, each of whom, to the extent necessary to
comply with Rule&nbsp;16b-3 only, shall be a Nonemployee Director. Further, if the Administrator
consists of less than the entire Board, then to the extent necessary for any Award to qualify as
&#147;performance-based compensation&#148; within the meaning of Section 162(m) of the Internal Revenue Code,
each member of the Administrator will be an Outside Director. For purposes of the preceding
provisions, if one or more members of the Administrator is not a Nonemployee or not an Outside
Director, but recuses himself or herself or abstains from voting with respect to a particular
action taken by the Administrator, then the Administrator, with respect to the action, will be
deemed to consist only of the members of the Administrator who have not recused themselves or
abstained from voting.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(b)&nbsp;<I>&#147;Affiliated Corporation&#148; </I>means (i)&nbsp;any corporation or other entity (including but not
limited to a partnership) that directly, or through one or more intermediaries controls, is
controlled by, or is under common control with, Pure Cycle Corporation, or (ii)&nbsp;any entity in which
the Company has a significant equity interest, as determined by the Administrator.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(c)&nbsp;<I>&#147;Award&#148; </I>means a grant made under this Plan in the form of Stock, Options, Restricted
Stock, Performance Shares, or Performance Units.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 8%">(d) <I>&#147;Board&#148; </I>means the board of directors of the Company.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(e)&nbsp;&#147;<I>Company</I>&#148; means Pure Cycle Corporation, a Delaware corporation, together with its
Affiliated Corporations except where the context otherwise requires.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(f)&nbsp;&#147;<I>Consultant</I>&#148; means any person, including an advisor, engaged by the Company to render
consulting or advisory services and who is compensated for such services and such person is
eligible to receive shares registered on Form S-8 under the Securities Act. Mere service as a
Director or payment of a director&#146;s fee by the Company or an Affiliated Corporation shall not be
sufficient to constitute &#147;consulting or advisory services&#148; rendered to the Company or an Affiliated
Corporation.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 8%">(g) <I>&#147;Director&#148; </I>means a member of the Board.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(h)&nbsp;<I>&#147;Effective Date&#148; </I>means the date on which the Plan is initially approved by a vote of the
stockholders of the Company.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(i)&nbsp;<I>&#147;Employee&#148; </I>means any person who is a full or part-time employee (including, without
limitation, an officer or director who is also an employee) of the Company or any Affiliated
Corporation or any division thereof. The term also includes future employees who have received a
formal offer of employment.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 8%">(j) &#147;<I>Exchange Act</I>&#148; shall mean the Securities Exchange Act of 1934, as amended.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(k)&nbsp;&#147;<I>Executive Officer</I>&#148; shall mean an officer as defined in Exchange Act Rule&nbsp;16a-1(f) and any
person deemed to be an &#147;executive officer&#148; within the scope of Section 13(k) of the Exchange Act.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 8%">(l) <I>&#147;Fair Market Value&#148; </I>means, as of any date, the value of the Stock determined as follows:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 12%">(i)&nbsp;If the Stock is listed on any established stock exchange or a national market system, its
Fair Market Value shall be the closing sales price for such Stock as quoted on such exchange or
system for the last market trading day prior to the time of determination (or, if there are no
actual sales of such Stock on such date, the latest sales price of such Stock preceding such date);
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 12%">(ii)&nbsp;If the Stock is regularly quoted by a recognized securities dealer but selling prices are
not reported, the Fair Market Value of a Share shall be the mean between the high bid and low asked
prices for the Stock on the last market trading day prior to the time of determination, as reported
in The Wall Street Journal or such other source as the Administrator deems reliable;
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 12%">(iii)&nbsp;In the absence of an established market for the Stock, the Fair Market Value shall be
determined in good faith by the Administrator by the reasonable application of a reasonable
valuation method in accordance with Section&nbsp;409A of the Internal Revenue Code and the regulations
thereunder.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(m)&nbsp;<I>&#147;Incentive Stock Option&#148; </I>means any Option designated as such and granted in accordance
with the requirements of Section&nbsp;422 of the Internal Revenue Code.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(n)&nbsp;<I>&#147;Internal Revenue Code&#148; </I>means the Internal Revenue Code of 1986, as it may be amended from
time to time, and the rules and regulations promulgated thereunder.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(o)&nbsp;&#147;<I>Nonemployee Director</I>&#148; means a Director who is a &#147;nonemployee director&#148; within the meaning
of Rule&nbsp;16b-3 promulgated under the Exchange Act.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 8%">(p) <I>&#147;Non-Statutory Option&#148; </I>means any Option other than an Incentive Stock Option.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 8%">(q) <I>&#147;Option&#148; </I>means a right to purchase Stock at a stated price for a specified period of time.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(r)&nbsp;<I>&#147;Option Price&#148; </I>means the price at which shares of Stock subject to an Option may be
purchased, determined in accordance with Section&nbsp;7.2(b).
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(s)&nbsp;&#147;<I>Outside Director</I>&#148; means a Director who is an &#147;outside director&#148; within the meaning of
Internal Revenue Code Section&nbsp;162(m).
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(t)&nbsp;<I>&#147;Participant&#148; </I>means an Employee or Director of, or Consultant to, the Company designated
by the Administrator from time to time during the term of the Plan to receive one or more Awards
under the Plan.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(u)&nbsp;<I>&#147;Performance Cycle&#148; </I>means the period of time as specified by the Administrator over which
Performance Share or Performance Units are to be earned.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(v)&nbsp;<I>&#147;Performance Shares&#148; </I>means an Award made pursuant to Section&nbsp;9 which entitles a
Participant to receive Shares, their cash equivalent or a combination thereof based on the
achievement of performance targets during a Performance Cycle.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(w)&nbsp;<I>&#147;Performance Units&#148; </I>means an Award made pursuant to Section&nbsp;9 which entitles a Participant
to receive cash, Stock or a combination thereof based on the achievement of performance targets
during a Performance Cycle.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(x)&nbsp;<I>&#147;Plan Year&#148; </I>means each 12-month period beginning September 1 and ending the following
August&nbsp;31, except that for the first year of the Plan it shall begin on the Effective Date and
extend to August&nbsp;31 of that year.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(y)&nbsp;<I>&#147;Restricted Stock&#148; </I>means Stock granted under Section&nbsp;8 that is subject to restrictions
imposed pursuant to such Section.
</DIV>
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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(z)&nbsp;&#147;<I>Service Provider</I>&#148; means an Employee or Director of, or Consultant to, the Company or an
Affiliated Corporation.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(aa)&nbsp;<I>&#147;Share&#148; </I>means a share of Stock.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(bb)&nbsp;<I>&#147;Stock&#148; </I>means the common stock, $.01 par value, of the Company.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(cc)&nbsp;&#147;<I>Stock Option Agreement</I>&#148; means a written document delivered by the Company to the
recipient of an Option specifying the terms of such Option. Such document must specify, at a
minimum, the number of Shares subject to the Option, the exercise price, any vesting schedule, and
any terms which vary from the default provisions provided in the Plan. Such document need not be
signed by the Option recipient.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">2.2 <I>Gender and Number. </I>Except when otherwise indicated by the context, the masculine gender
shall also include the feminine gender, and the definition of any term herein in the singular shall
also include the plural
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 3<BR>
PLAN ADMINISTRATION</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">3.1 <I>Authority of Administrator</I>. The Plan shall be administered by the Administrator. Subject
to the terms of the Plan and applicable law, and in addition to other express powers and
authorizations conferred on the Administrator by the Plan, the Administrator shall have full power
and authority to: (i)&nbsp;designate Participants; (ii)&nbsp;determine the type or types of Awards to be
granted to eligible Participants; (iii)&nbsp;determine the number of Shares to be covered by, or with
respect to which payments, rights, or other matters are to be calculated in connection with,
Awards; (iv)&nbsp;determine the terms and conditions of any Award; (v)&nbsp;determine whether, to what
extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited, or suspended and the method or
methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi)
determine whether, to what extent, and under what circumstances cash, shares, other securities,
other Awards, other property, and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the holder thereof or of the Administrator; (vii)
determine whether, to what extent, and under what circumstances to accelerate the exercisability of
any Award or the end of a Performance Cycle or the termination of the restriction period for any
Restricted Stock Award; (viii)&nbsp;correct any defect, supply any omission, reconcile any
inconsistency and otherwise interpret and administer the Plan and any instrument or agreement
relating to the Plan or any Award hereunder; (ix)&nbsp;establish, amend, suspend, or waive such rules
and regulations and appoint such agents as it shall deem appropriate for the proper administration
of the Plan; and (x)&nbsp;make any other determination and take any other action that the Administrator
deems necessary or desirable for the administration of the Plan. To the extent necessary or
appropriate, the Administrator may adopt sub-plans consistent with the Plan to conform to
applicable state or foreign securities or tax laws.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">3.2 <I>Determinations Under the Plan</I>. Unless otherwise expressly provided in the Plan all
designations, determinations, interpretations, and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Administrator, may be made at any
time and shall be final, conclusive, and binding upon all persons, including the Company, any
Affiliated Corporation, any Participant, any holder or beneficiary of any Award, and any
stockholder. No member of the Administrator shall be liable, in the absence of bad faith, for any
act or omission with respect to his or her services as an Administrator. Service on a committee
acting as the Administrator shall constitute service as a director of the Company entitling members
to any indemnification of liability benefits applicable to directors with respect to their services
as Administrator.
</DIV>
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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">3.3 <I>Delegation of Certain Responsibilities</I>. The Administrator may, in its sole discretion,
delegate to appropriate officers of the Company the administration of the Plan under this Section
3; provided, however, that no such delegation by the Administrator shall be made (i)&nbsp;if such
delegation would not be permitted under applicable law or (ii)&nbsp;with respect to the administration
of the Plan as it affects Executive Officers or Directors of the Company, and provided further that
the Administrator may not delegate its authority to correct errors, omissions or inconsistencies in
the Plan. Subject to the above limitations, the Administrator may delegate to the Chief Executive
Officer of the Company its authority under this Section&nbsp;3 to grant Awards to employees who are not
Executive Officers or Directors of the Company. All authority delegated by the Administrator under
this Section&nbsp;3.3 shall be exercised in accordance with the provisions of the Plan and any
guidelines for, conditions on, or limitations to the exercise of such authority that may from time
to time be established by the Administrator.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 4<BR>
STOCK SUBJECT TO THE PLAN</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">4.1 <I>Number of Shares. </I>Subject to adjustment as provided in Section&nbsp;4.3, one million six
hundred thousand (1,600,000) Shares are initially authorized for issuance under the Plan in
accordance with the provisions of the Plan and subject to such restrictions or other provisions as
the Administrator may from time to time deem necessary. Subject to adjustment as provided in
Section&nbsp;4.3, no Participant may be granted Awards in any twelve-month period with respect to more
than three hundred thousand (300,000) Shares. The Shares may be divided among the various Plan
components as the Administrator shall determine, except that no more than one million five hundred
thousand (1,500,000) Shares as calculated pursuant to Section&nbsp;4.2 shall be cumulatively available
for the grant of Incentive Stock Options under the Plan. Shares which may be issued upon the
exercise of Options shall be applied to reduce the maximum number of Shares remaining available for
use under the Plan. The Company shall at all times during the term of the Plan and while any
Options are outstanding retain as authorized and unissued Stock, or as treasury Stock, at least the
number of Shares from time to time required under the provisions of the Plan, or otherwise assure
itself of its ability to perform its obligations hereunder.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">4.2 <I>Unused and Forfeited Stock. </I>Any Shares that are subject to an Award under this Plan which
are not used because the terms and conditions of the Award are not met, including any Shares that
are subject to an Option which expires or is terminated for any reason, any Shares which are used
for full or partial payment of the purchase price of Shares with respect to which an Option is
exercised and any Shares retained by the Company pursuant to Section&nbsp;16.2 shall automatically
become available for use under the Plan. Notwithstanding the foregoing, any Shares used for full
or partial payment of the purchase price of the Shares with respect to which an Option is exercised and any Shares retained by the Company pursuant to Section&nbsp;16.2 that
were originally Incentive Stock Option Shares shall still be considered as having been granted for
purposes of determining whether the Share limitation provided for in Section&nbsp;4.1 has been reached
for purposes of Incentive Stock Option grants.
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">4.3 <I>Adjustments for Stock Split, Stock Dividend, etc. </I>If the Company shall at any time
increase or decrease the number of its outstanding Shares of Stock or change in any way the rights
and privileges of such Shares by means of the payment of a stock dividend or any other distribution
upon such Shares payable in Stock, or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the Stock, then in relation to the
Stock that is affected by one or more of the above events, the numbers, rights and privileges of
(i)&nbsp;the shares of Stock as to which Awards may be granted under the Plan, and (ii)&nbsp;the Shares of
Stock then included in each outstanding Option, Performance Share or Performance Unit granted
hereunder, shall be increased, decreased or changed in like manner as if they had been issued and
outstanding, fully paid and nonassessable at the time of such occurrence.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">4.4 <I>Dividend Payable in Stock of Another Corporation, etc. </I>Except as set forth in Section&nbsp;4.5
below, if the Company shall at any time pay or make any dividend or other distribution upon the
Stock payable in securities of another corporation or other property (except money or Stock), a
proportionate part of such securities or other property shall be set aside and delivered to any
Participant then holding an Award for the particular type of Stock for which the dividend or other
distribution was made, upon exercise thereof in the case of Options, and the vesting thereof in the
case of other Awards. Prior to the time that any such securities or other property are delivered
to a Participant in accordance with the foregoing, the Company shall be the owner of such
securities or other property and shall have the right to vote the securities, receive any dividends
payable on such securities, and in all other respects shall be treated as the owner. If securities
or other property which have been set aside by the Company in accordance with this Section are not
delivered to a Participant because an Award is not exercised or otherwise vested, then such
securities or other property shall remain the property of the Company and shall be dealt with by
the Company as it shall determine in its sole discretion.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">4.5 <I>Spin-offs. </I>If the Company shall at any time pay or make any dividend or other
distribution upon the Stock in the nature of a spin-off, for example a dividend payable in
securities of an Affiliated Corporation, the Administrator shall in its discretion determine what
changes are equitably required to outstanding Awards to effect the spin-off, including but not
limited to treating Awards of Employees remaining with the Company differently from Awards to
Employees of the newly spun-off entity, substituting Awards for Company Stock for Awards of stock
in the spun-off entity, and allowing either the Company, the spun-off entity or both to hold the
securities or property set aside for Award participants.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">4.6 <I>Other Changes in Stock. </I>In the event there shall be any change, other than as specified
in Sections&nbsp;4.3, 4.4 and 4.5, in the number or kind of outstanding shares of Stock or of any stock
or other securities into which the Stock shall be changed or for which it shall have been
exchanged, and if the Administrator shall in its discretion determine that such change equitably
requires an adjustment in the number or kind of Shares subject to outstanding Awards or which have
been reserved for issuance pursuant to the Plan but are not then subject to an Award, then such adjustments shall be made by the Administrator and shall be effective for all
purposes of the Plan and on each outstanding Award that involves the particular type of stock for
which a change was effected.
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">4.7 <I>General Adjustment Rules. </I>If any adjustment or substitution provided for in this Section
4 shall result in the creation of a fractional Share under any Award, the Company shall, in lieu of
selling or otherwise issuing such fractional Share, pay to the Participant a cash sum in an amount
equal to the product of such fraction multiplied by the Fair Market Value of a Share on the date
the fractional Share would otherwise have been issued. In the case of any such substitution or
adjustment affecting an Option, the total Option Price for the shares of Stock then subject to an
Option shall remain unchanged but the Option Price per share under each such Option shall be
equitably adjusted by the Administrator to reflect the greater or lesser number of shares of Stock
or other securities into which the Stock subject to the Option may have been changed.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">4.8 <I>Determination by Administrator. </I>Adjustments under this Section&nbsp;4 shall be made by the
Administrator, whose determinations with regard thereto shall be final and binding upon all
persons.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 5<BR>
REORGANIZATION OR LIQUIDATION</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In the event that the Company is merged or consolidated with another corporation (other than a
merger or consolidation in which the Company is the continuing corporation and which does not
result in any reclassification or change of outstanding Shares), or if all or substantially all of
the assets or more than 50% of the outstanding voting stock of the Company is acquired by any other
corporation, business entity or person (other than a sale or conveyance in which the Company
continues as a holding company of an entity or entities that conduct the business or businesses
formerly conducted by the Company), or in case of a reorganization (other than a reorganization
under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of
Section&nbsp;11 do not apply, the Administrator, or the board of directors of any corporation assuming
the obligations of the Company, shall, have the power and discretion to prescribe the terms and
conditions for the exercise, or modification, of any outstanding Awards granted hereunder. By way
of illustration, and not by way of limitation, the Administrator may provide for the complete or
partial acceleration of the dates of exercise of the Options, or may provide that such Options will
be exchanged or converted into options to acquire securities of the surviving or acquiring
corporation, or may provide for a payment or distribution in respect of outstanding Options (or the
portion thereof that is currently exercisable) in cancellation thereof. The Administrator may
remove restrictions on Restricted Stock and may modify the performance requirements for any other
Awards. The Administrator may provide that Stock or other Awards granted hereunder must be
exercised in connection with the closing of such transaction, and that if not so exercised such
Awards will expire. Any such determinations by the Administrator may be made generally with
respect to all Participants, or may be made on a case-by-case basis with respect to particular
Participants. The provisions of this Section&nbsp;5 shall not apply to any transaction undertaken for
the purpose of reincorporating the Company under the laws of another jurisdiction, if such
transaction does not materially affect the beneficial ownership of the Company&#146;s capital stock.
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 6<BR>
PARTICIPATION</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Participants in the Plan shall be those Employees, Directors, or Consultants who, in the
judgment of the Administrator, are performing, or during the term of their incentive arrangement
will perform, important services in the management, operation and development of the Company, and
significantly contribute, or are expected to significantly contribute, to the achievement of
long-term corporate economic objectives. Participants may be granted from time to time one or more
Awards; provided, however, that the grant of each such Award shall be separately approved by the
Administrator, receipt of one such Award shall not result in automatic receipt of any other Award,
and written notice shall be given to such person, specifying the terms, conditions, rights and
duties related thereto; and further provided that Incentive Stock Options shall not be granted to
(i)&nbsp;Consultants, (ii)&nbsp;part-time employees, (iii)&nbsp;Nonemployee Directors, or (iv)&nbsp;Employees of any
partnership or other entity which is included within the definition of an Affiliated Corporation
but whose employees are not permitted to receive Incentive Stock Options under the Internal Revenue
Code. Each Participant shall enter into an agreement with the Company, in such form as the
Administrator shall determine and which is consistent with the provisions of the Plan, specifying
such terms, conditions, rights and duties. Awards shall be deemed to be granted as of the date
specified in the grant resolution of the Administrator, which date shall be the date of any related
agreement with the Participant. In the event of any inconsistency between the provisions of the
Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 7<BR>
STOCK OPTIONS TO EMPLOYEES AND CONSULTANTS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">7.1 <I>Grant of Options to Employees and Consultants. </I>Coincident with or following designation
for participation in the Plan, a Participant (other than a Nonemployee Director) may be granted one
or more Options. The Administrator in its sole discretion shall designate whether an Option is to
be considered an Incentive Stock Option or a Non-Statutory Option. The Administrator may grant
both an Incentive Stock Option and a Non-Statutory Option to the same Participant at the same time
or at different times. Incentive Stock Options and Non-Statutory Options, whether granted at the
same or different times, shall be deemed to have been awarded in separate grants, shall be clearly
identified, and in no event shall the exercise of one Option affect the right to exercise any other
Option or affect the number of Shares for which any other Option may be exercised.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">7.2 <I>Option Agreements. </I>Each Option granted under the Plan shall be evidenced by a Stock
Option Agreement which shall be delivered by the Company to the Participant to whom the Option is
granted (the &#147;Option Holder&#148;). Except as otherwise set forth in a Stock Option Agreement delivered
to the Participant, each Option shall be governed by the following terms and conditions, as well as
such other terms and conditions not inconsistent therewith as the Administrator may consider
appropriate in each case.
</DIV>
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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(a)&nbsp;<I>Number of Shares. </I>Each Stock Option Agreement shall state that it covers a specified
number of Shares, as determined by the Administrator. To the extent that the aggregate Fair Market
Value of Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Participant during any year (under all
plans of the Company and any Affiliated Corporation) exceeds $100,000, such Options shall be
treated as not being Incentive Stock Options. The foregoing shall be applied by taking Options
into account in the order in which they were granted. For the purposes of the foregoing, the Fair
Market Value of any Share shall be determined as of the time the Option with respect to such Share
is granted. In the event the foregoing results in a portion of an Option designated as an
Incentive Stock Option exceeding the $100,000 limitation, only such excess shall be treated as not
being an Incentive Stock Option.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(b)&nbsp;<I>Price. </I>Except for the limitations on Incentive Stock Options set forth below, the price
at which each Share covered by an Option may be purchased shall be determined in each case by the
Administrator and set forth in the Stock Option Agreement. In no event shall the Option Price for
each Share covered by an Option be less than the Fair Market Value of the Stock on the date the
Option is granted. Further, the Option Price for each Share covered by an Incentive Stock Option
granted to an Employee who then owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any parent or subsidiary corporation of the Company
must be at least 110% of the Fair Market Value of the Stock subject to the Incentive Stock Option
on the date the Option is granted.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(c)&nbsp;<I>Duration of Options. </I>The Administrator shall determine the period of time within which
the Option may be exercised by the Option Holder (the &#147;Option Period&#148;). The Option Period must
expire, in all cases, not more than ten years from the date an Option is granted; provided,
however, that the Option Period of an Incentive Stock Option granted to an Employee who then owns
stock possessing more than 10% of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation of the Company must expire not more than five years
from the date such Option is granted. Any Option Period determined by the Administrator to be
shorter than the ten or five-year term set forth above, must be set forth in a Stock Option
Agreement. Each Stock Option Agreement shall also state the periods of time, if any, as determined
by the Administrator, when incremental portions of each Option shall vest. If any Option is not
exercised during its Option Period, it shall be deemed to have been forfeited and of no further
force or effect.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(d)&nbsp;<I>Termination of Service, Retirement, Death or Disability. </I>Except as otherwise determined
by the Administrator, each Option shall be governed by the following terms with respect to the
exercise of the Option if an Option Holder ceases to be a Service Provider:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 12%">(i)&nbsp;If the Option Holder ceases to be a Service Provider within the Option Period for cause,
as determined by the Company, the Option shall thereafter be void for all purposes. As used in
this Section&nbsp;7.2(d), &#147;cause&#148; shall mean (A)&nbsp;if applicable, &#147;cause&#148; as defined on a written contract
between the Option Holder and the Company, or (B)&nbsp;in any other case, a gross violation, as
determined by the Company, of the Company&#146;s established policies and procedures. The effect of
this Section&nbsp;7.2(d)(i) shall be limited to determining the consequences of a termination, and
nothing in this Section&nbsp;7.2(d)(i) shall restrict or otherwise interfere with the Company&#146;s
discretion with respect to the termination of any Service Provider.
</DIV>
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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 12%">(ii)&nbsp;If the Option Holder ceases to be a Service Provider with the Company in a manner
determined by the Board, in its sole discretion, to constitute retirement (which determination
shall be communicated to the Option Holder within 10&nbsp;days of such termination), the Option may be
exercised by the Option Holder, or in the case of death, by the persons specified in clause (iii)
of this Section&nbsp;7.2(d), within three months following his or her retirement if the Option is an
Incentive Stock Option or within twelve months following his or her retirement if the Option is a
Non-Statutory Stock Option (provided in each case that such exercise must occur within the Option
Period), but not thereafter. In any such case, the Option may be exercised only as to the Shares
as to which the Option had become exercisable on or before the date the Option Holder ceases to be
a Service Provider.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 12%">(iii)&nbsp;If the Option Holder dies (A)&nbsp;while he or she is a Service Provider, (B)&nbsp;within the
three-month period referred to in clause (v)&nbsp;below, or (C)&nbsp;within the three or twelve-month period
referred to in clause (ii)&nbsp;above, the Option may be exercised by those entitled to do so under the
Option Holder&#146;s will or by the laws of descent and distribution within twelve months following the
Option Holder&#146;s death (provided that such exercise must occur within the Option Period), but not
thereafter. In any such case, the Option may be exercised only as to the Shares as to which the
Option had become exercisable on or before the date the Option Holder ceased to be a Service
Provider.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 12%">(iv)&nbsp;If the Option Holder becomes disabled (within the meaning of Section 22(e) of the
Internal Revenue Code) while a Service Provider, Incentive Stock Options held by the Option Holder
may be exercised by the Option Holder within twelve months following the date the Option Holder
ceases to be a Service Provider (provided that such exercise must occur within the Option Period),
but not thereafter. If the Option Holder becomes disabled (within the meaning of Section 22(e) of
the Internal Revenue Code) while a Service Provider or within three-month period referred to in
clause (v)&nbsp;below or within the twelve-month period following his or her retirement as provided in
clause (ii)&nbsp;above, Non-Statutory Options held by the Option Holder may be exercised by the Option
Holder within twelve months following the date of the Option Holder&#146;s disability (provided that
such exercise must occur within the Option Period), but not thereafter. In any such case, the
Option may be exercised only as to the Shares as to which the Option had become exercisable on or
before the date the Option Holder ceased to be a Service Provider.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 12%">(v)&nbsp;If the Option Holder ceases to be a Service Provider within the Option Period for any
reason other than cause, retirement as provided in clause (ii)&nbsp;above, disability as provided in
clause (iv)&nbsp;above or the Option Holder&#146;s death, the Option may be exercised by the Option Holder
within three months following the date of such cessation (provided that such exercise must occur
within the Option Period), but not thereafter. In any such case, the Option may be exercised only
as to the Shares as to which the Option had become exercisable on or before the date that the
Option Holder ceases to be a Service Provider
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(e)&nbsp;<I>Exercise, Payments, etc.</I>
</DIV>
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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 12%">(i)&nbsp;The method for exercising each Option granted under the Plan shall be by delivery to the
Corporate Secretary of the Company or an agent designated pursuant to Section&nbsp;18 of a notice
specifying the number of Shares with respect to which such Option is exercised and payment of the Option Price. Such notice shall be in a form satisfactory to the
Administrator and shall specify the particular Option (or portion thereof) which is being exercised
and the number of Shares with respect to which the Option is being exercised. The exercise of the
Option shall be deemed effective upon receipt of such notice by the Corporate Secretary or a
designated agent and payment to the Company. The purchase of such Stock shall be deemed to take
place at the principal office of the Company upon delivery of such notice, at which time the
purchase price of the Stock shall be paid in full by any of the methods or any combination of the
methods set forth in (ii)&nbsp;below. A properly executed certificate or certificates representing the
Stock shall be issued by the Company and delivered to the Option Holder. If certificates
representing Stock are used to pay all or part of the Option Price, separate certificates for the
same number of shares of Stock shall be issued by the Company and delivered to the Option Holder
representing each certificate used to pay the Option Price, and an additional certificate shall be
issued by the Company and delivered to the Option Holder representing the additional shares, in
excess of the Option Price, to which the Option Holder is entitled as a result of the exercise of
the Option.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 12%">(ii)&nbsp;The exercise price shall be paid by any of the following methods or any combination of
the following methods:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 15%">(A)&nbsp;in cash;
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 15%">(B)&nbsp;by cashier&#146;s check payable to the order of the Company;
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 15%">(C)&nbsp;if authorized by the Administrator, in its sole discretion, by delivery to the Company of
certificates representing the number of Shares then owned by the Option Holder, the Fair Market
Value of which equals the purchase price of the Stock purchased pursuant to the Option, properly
endorsed for transfer to the Company; provided however, that Shares used for this purpose must have
been held by the Option Holder for more than six months; and provided further that the Fair Market
Value of any Shares delivered in payment of the purchase price upon exercise of the Option shall be
the Fair Market Value as of the exercise date, which shall be the date of delivery of the
certificates for the Stock used as payment of the Option Price;
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 15%">(D)&nbsp;if authorized by the Administrator, in its sole discretion, and subject to applicable law,
including Section&nbsp;402 of the Sarbanes-Oxley Act, by delivery by a Participant (other than an
Executive Officer or Director) to the Company of a properly executed notice of exercise together
with irrevocable instructions to a broker to deliver to the Company promptly the amount of the
proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Option
Holder necessary to pay the exercise price; or
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 15%">(E)&nbsp;if authorized by the Administrator, in its sole discretion, any combination of these
methods.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 12%">(iii)&nbsp;In the sole discretion of the Administrator, the Company may, subject to applicable law,
including Section&nbsp;402 of the Sarbanes-Oxley Act, guaranty a third-party loan obtained by a
Participant (other than an Executive Officer or Director) to pay part or all of the Option Price of
the Shares provided that such loan or the Company&#146;s guaranty is secured by the Shares and the loan bears interest at a market rate. The Company may not make
or guaranty loans to Executive Officers or Directors.
</DIV>
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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(f)&nbsp;<I>Date of Grant. </I>An option shall be considered as having been granted on the date specified
in the grant resolution of the Administrator.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(g)&nbsp;<I>Adjustment of Options. </I>Subject to the limitations contained in Sections&nbsp;7 and 15, the
Administrator may make any adjustment in the Option Price, the number of shares subject to, or the
terms of, an outstanding Option and a subsequent granting of an Option by amendment or by
substitution of an outstanding Option. Such amendment, substitution, or re-grant may result in
terms and conditions (including Option Price, number of shares covered, vesting schedule or
exercise period) that differ from the terms and conditions of the original Option. This provision
specifically authorizes the Administrator to reprice outstanding Options. The Administrator may
not, however, adversely affect the rights of any Participant to previously granted Options without
the consent of such Participant. If such action is affected by amendment, the effective date of
such amendment shall be the date of the original grant.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 8<BR>
STOCK AWARDS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">8.1 <I>Awards Granted by Administrator</I>. Coincident with or following designation for
participation in the Plan, a Participant (other than a Nonemployee Director) may be granted one or
more unrestricted Stock Awards or Restricted Stock Awards consisting of Shares. A Stock Award may
be paid by delivery of Stock, in cash or in a combination of Stock and cash, as determined by the
Administrator.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">8.2 <I>Restrictions</I>. A Participant&#146;s right to retain a Restricted Stock Award granted to such
Participant under Section&nbsp;8.1 shall be subject to such restrictions, including but not limited to
the Participant&#146;s continuing to perform as a Service Provider for a restriction period specified by
the Administrator, or the attainment of specified performance goals and objectives, as may be
established by the Administrator with respect to such Award. The Administrator may, in its sole
discretion, require different periods of service or different performance goals and objectives with
respect to (i)&nbsp;different Participants, (ii)&nbsp;different Restricted Stock Awards, or (iii)&nbsp;separate,
designated portions of the Shares constituting a Restricted Stock Award.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">8.3 <I>Privileges of a Stockholder, Transferability</I>. A Participant shall have all voting,
dividend, liquidation and other rights with respect to Stock in accordance with its terms received
by such Participant as a Stock Award under this Section&nbsp;8 upon the Participant&#146;s becoming the
holder of record of such Stock; provided, however, that the Participant&#146;s right to sell, encumber
or otherwise transfer Restricted Stock shall be subject to the limitations of Section&nbsp;12.2 hereof.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">8.4 <I>Enforcement of Restrictions</I>. The Administrator may in its sole discretion require one or
more of the following methods of enforcing the restrictions referred to in Section&nbsp;8.2 and 8.3:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(a)&nbsp;placing a legend on the stock certificates referring to the restrictions as follows:
</DIV>
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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><B>THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE AND TRANSFERABILITY
RESTRICTIONS AS SET FROTH IN THE RESTRICTED STOCK AGREEMENT BETWEEN THE SHAREHOLDER AND PURE
CYCLE CORPORATION DATED
&nbsp;_____&nbsp;
.. A COPY OF THE RESTRICTED STOCK AGREEMENT IS ON FILE
AT THE EXECUTIVE OFFICE OF PURE CYCLE CORPORATION.</B>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(b)&nbsp;requiring the Participant to keep the stock certificates, duly endorsed, in the custody of
the Company while the restrictions remain in effect; or
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(c)&nbsp;requiring that the stock certificates, duly endorsed, be held in the custody of a third
party while the restrictions remain in effect.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">8.5 <I>Termination of Service, Death or Disability. </I>In the event of the death or disability
(within the meaning of Section 22(e) of the Internal Revenue Code) of a Participant, or the
retirement of a Participant as provided in Section&nbsp;7.2(d)(ii), all service period and other
restrictions applicable to Restricted Stock Awards then held by him shall lapse, and such Awards
shall become fully nonforfeitable. Subject to Sections&nbsp;5 and 10, in the event a Participant ceases
to be a Service Provider for any other reason, any Restricted Stock Awards as to which the service
period or other restrictions have not been satisfied shall be forfeited.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 9<BR>
PERFORMANCE SHARES AND PERFORMANCE UNITS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">9.1 <I>Awards Granted by Administrator</I>. Coincident with or following designation for
participation in the Plan, a Participant (other than a Nonemployee Director) may be granted
Performance Shares or Performance Units.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">9.2 <I>Amount of Award</I>. The Administrator shall establish a maximum amount of a Participant&#146;s
Award, which amount shall be denominated in Shares in the case of Performance Shares or in dollars
in the case of Performance Units.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">9.3 <I>Communication of Award</I>. Written notice of the maximum amount of a Participant&#146;s Award and
the Performance Cycle determined by the Administrator shall be given to a Participant as soon as
practicable after approval of the Award by the Administrator.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">9.4 <I>Amount of Award Payable</I>. The Administrator shall establish maximum and minimum
performance targets to be achieved during the applicable Performance Cycle. Performance targets
established by the Administrator shall relate to corporate, group, unit or individual performance
and may be established in terms of earnings, growth in earnings, ratios of earnings to equity or
assets, or such other measures or standards determined by the Administrator. Multiple performance
targets may be used and the components of multiple performance targets may be given the same or
different weighting in determining the amount of an Award earned, and may relate to absolute
performance or relative performance measured against other groups, units, individuals or entities.
Achievement of the maximum performance target shall entitle the Participant to payment (subject to
Section&nbsp;9.6) at the full or maximum amount specified with respect to the Award; provided, however,
that notwithstanding any other provisions of this Plan, in the case of an Award of Performance Shares the Administrator in
its discretion may establish an upper limit on the amount payable (whether in cash or Stock) as a
result of the achievement of the maximum performance target. The Administrator may also establish
that a portion of a full or maximum amount of a Participant&#146;s Award will be paid (subject to
Section&nbsp;9.6) for performance which exceeds the minimum performance target but falls below the
maximum performance target applicable to such Award.
</DIV>
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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">9.5 <I>Adjustments</I>. At any time prior to payment of a Performance Share or Performance Unit
Award, the Administrator may adjust previously established performance targets or other terms and
conditions to reflect events such as changes in laws, regulations, or accounting practice, or
mergers, acquisitions or divestitures.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">9.6 <I>Payments of Awards</I>. Following the conclusion of each Performance Cycle, the Administrator
shall determine the extent to which performance targets have been attained, and the satisfaction of
any other terms and conditions with respect to an Award relating to such Performance Cycle. The
Administrator shall determine what, if any, payment is due with respect to an Award and whether
such payment shall be made in cash, Stock or some combination. Payment shall be made in a lump sum
or installments, as determined by the Administrator, commencing as promptly as practicable
following the end of the applicable Performance Cycle, subject to such terms and conditions and in
such form as may be prescribed by the Administrator; provided, however, that, subject to Section
20.4, all payments shall be made no later than (i)&nbsp;March&nbsp;15 of the year following the end of the
Performance Cycle if such Performance Cycle ends on or before August&nbsp;31 of a year, or (ii)&nbsp;November
15 of the year following the end of the Performance Cycle if such Performance Cycle ends on or
after September 1 of a year.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">9.7 <I>Termination of Employment</I>. If a Participant ceases to be a Service Provider before the
end of a Performance Cycle by reason of his death, disability as provided in Section&nbsp;7.2(d)(iv), or
retirement as provided in Section&nbsp;7.2(d)(ii), the Performance Cycle for such Participant for the
purpose of determining the amount of the Award payable shall end at the end of the calendar quarter
immediately preceding the date on which such Participant ceased to be a Service Provider. Subject
to Section&nbsp;20.4, the amount of an Award payable to a Participant to whom the preceding sentence is
applicable shall be paid at the end of the Performance Cycle and shall be that fraction of the
Award computed pursuant to the preceding sentence the numerator of which is the number of calendar
quarters during the Performance Cycle during all of which said Participant was a Service Provider
and the denominator of which is the number of full calendar quarters in the Performance Cycle.
Upon any other termination of Participant&#146;s services as a Service Provider during a Performance
Cycle, participation in the Plan shall cease and all outstanding Awards of Performance Shares or
Performance Units to such Participant shall be canceled.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 10<BR>
FORMULA AWARDS TO DIRECTORS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">10.1 <I>Administrator</I>. The Administrator shall have no authority, discretion or power to select
the Nonemployee Directors who will receive any Award, determine the number of shares to be issued
hereunder or the time at which such Awards are to be granted, establish the duration of the Awards or alter any other terms or conditions specified in the Plan, except in the
sense of administering the Plan pursuant to the provisions of the Plan.
</DIV>
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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">10.2 <I>Number of Option Shares</I>. Upon the initial election or appointment of a Nonemployee
Director to the Company&#146;s Board, or upon the Effective Date, whichever is later, the Nonemployee
Director shall be granted a Non-Statutory Option to purchase 5,000 Shares of Stock (subject to
adjustment pursuant to Section&nbsp;4 hereof), which option shall become exercisable at the rate of
2,500 Shares of Stock on each of the first two anniversaries of the initial date of grant. In
addition, each Nonemployee Director shall be granted a Non-Statutory Option to purchase 2,500
Shares of Stock (subject to adjustment pursuant to Section&nbsp;4 hereof) on the date of each annual
meeting of the Company&#146;s stockholders held subsequent to such Nonemployee Director&#146;s initial
election or appointment to the Board, provided the Nonemployee Director is reelected as a Director
at such annual meeting, which option shall be exercisable one year from the date of grant. Options
shall expire, to the extent not exercised, ten years after the date on which day they were granted.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">10.3 <I>Price of Option Shares</I>. The exercise price per Share for any Option granted pursuant to
this Section&nbsp;10 shall be 100% of the Fair Market Value of the Stock on the date on which the
Nonemployee Director is granted the Option.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">10.4 <I>Option Termination</I>. If the Nonemployee Director ceases to be a Director for any reason,
the Option may be exercised by the Nonemployee Director at any time following the date of such
cessation provided that such exercise must occur prior to the Option expiration date. In any such
case, the Option may be exercised only as to the Shares as to which the Option had become
exercisable on or before the date that the Nonemployee Director ceased to be a Director.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">10.5 <I>Option Exercise</I>. Options granted to Nonemployee Directors pursuant to this Section&nbsp;10
shall provide for exercise as set forth in Section&nbsp;7.2(e).
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">10.6 <I>Other Terms</I>. Except for the limitations set forth in Sections&nbsp;5, 10.2, 10.3, and 11, the
terms and provisions of Options shall be as determined from time to time by the Administrator, and
Options issued may contain terms and provisions different from other Options granted to the same or
other Option recipients. Options shall be evidenced by a Stock Option Agreement containing such
terms and provisions as the Administrator may determine, subject to the provisions of the Plan.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">10.7 <I>Meeting of Board Committees</I>. The Board (and not a committee of the Board), in its sole
discretion, may adopt one or more formulas that provide for granting a specified Award to each
Nonemployee Director for attendance at each meeting of designated committees of the Board. The
Board may adopt different formulas for the various committees of the Board, and it may choose to
adopt formulas for some committees and not others. Further, any formula may provide for a
different grant to members of the committee charged with additional responsibilities on the
committee, such as the chairman.
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 11<BR>
CHANGE IN CONTROL</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">11.1 <I>Options, Restricted Stock</I>. In the event of a change in control of the Company as defined
in Section&nbsp;11.3, then the Administrator may, in its sole discretion, without obtaining stockholder
approval, to the extent permitted in Section&nbsp;15, take any or all of the following actions: (a)
accelerate the exercise dates of any outstanding Options or make all such Options fully vested and
exercisable; (b)&nbsp;grant a cash bonus award to any Option Holder in an amount necessary to pay the
Option Price of all or any portion of the Options then held by such Option Holder; (c)&nbsp;pay cash to
any or all Option Holders in exchange for the cancellation of their outstanding Options in an
amount equal to the difference between the Option Price of such Options and the greater of the
tender offer price for the underlying Stock or the Fair Market Value of the Stock on the date of
the cancellation of the Options; (d)&nbsp;make any other adjustments or amendments to the outstanding
Options; and (e)&nbsp;eliminate all restrictions with respect to Restricted Stock and deliver Shares
free of restrictive legends to any Participant; provided, however, that the Administrator shall not
make any adjustment or amendment that would constitute a &#147;modification&#148; of an Option, as such term
is used in Internal Revenue Code regulation &#167; 1.409A-1(b)(5)(v), that would result in such Option
being subject to additional tax pursuant to Section&nbsp;409A of the Internal Revenue Code.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">11.2 <I>Performance Shares and Performance Units</I>. Under the circumstances described in Section
11.1, the Administrator may, in its sole discretion, and without obtaining stockholder approval, to
the extent permitted in Section&nbsp;15, provide for payment of outstanding Performance Shares and
Performance Units at the maximum award level or any percentage thereof; provided, however, that to
the extent permitted by &#167; 20.4 herein, all payments shall be made no later than (i)&nbsp;March&nbsp;15 of the
year following the end of the Performance Cycle to which the Performance Shares or Performance
Units relate if such Performance Cycle ends on or before August&nbsp;31 of a year, or (ii)&nbsp;November&nbsp;15
of the year following the end of the Performance Cycle to which the Performance Shares or
Performance Units relate if such Performance Cycle ends on or after September 1 of a year.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">11.3 <I>Definition</I>. For purposes of the Plan, a &#147;change in control&#148; shall be deemed to have
occurred if: (a)&nbsp;any &#147;person&#148; or &#147;group&#148; (within the meaning of Sections 13(d) and 14(d)(2) of the
Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company, is or becomes the &#147;beneficial owner&#148; (as defined in Rule&nbsp;13d-3 under the
Exchange Act), directly or indirectly, of more than 33-1/3% of the then outstanding voting stock of
the Company; or (b)&nbsp;at any time during any period of three consecutive years (not including any
period prior to the Effective Date), individuals who at the beginning of such period constitute the
Board (and any new director whose election by the Board or whose nomination for election by the
Company&#146;s stockholders was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a majority thereof; or
(c)&nbsp;the stockholders of the Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity) at least 80% of
the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the stockholders approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or substantially all
of the Company&#146;s assets.
</DIV>
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<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 12<BR>
CONTINUATION OF SERVICES; TRANSFERABILITY</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">12.1 <I>Continuation of Services</I>. Nothing contained in the Plan or in any Award granted under
the Plan shall confer upon any Participant any right with respect to the continuation of his or her
services as a Service Provider, or interfere in any way with the right of the Company, subject to
the terms of any separate employment or consulting agreement to the contrary, at any time to
terminate such services or to increase or decrease the compensation of the Participant from the
rate in existence at the time of the grant of an Award. Whether an authorized leave of absence, or
absence in military or government service, shall constitute a termination of Participant&#146;s services
as a Service Provider shall be determined by the Administrator at the time of such leave in
accordance with then current laws and regulations.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">12.2 <I>Nontransferability</I>. Except as provided in Section&nbsp;12.3, no right or interest of any
Participant in an Award granted pursuant to the Plan shall be assignable or transferable during the
lifetime of the Participant, except (if otherwise permitted under Section&nbsp;12.4) pursuant to a
domestic relations order, either voluntarily or involuntarily, or be subjected to any lien,
directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment,
attachment, pledge or bankruptcy. In the event of a Participant&#146;s death, a Participant&#146;s rights
and interests in Options shall, if otherwise permitted under Section&nbsp;12.4, be transferable by
testamentary will or the laws of descent and distribution, and payment of any amounts due under the
Plan shall be made to, and exercise of any Options may be made by, the Participant&#146;s legal
representatives, heirs or legatees. If, in the opinion of the Administrator, a person entitled to
payments or to exercise rights with respect to the Plan is disabled from caring for his or her
affairs because of mental condition, physical condition or age, payment due such person may be made
to, and such rights shall be exercised by, such person&#146;s guardian, conservator or other legal
personal representative upon furnishing the Administrator with evidence satisfactory to the
Administrator of such status. Transfers shall not be deemed to include transfers to the Company or
&#147;cashless exercise&#148; procedures with third parties who provide financing for the purpose of (or who
otherwise facilitate) the exercise of Awards consistent with applicable laws and the authorization
of the Administrator.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">12.3 <I>Permitted Transfers</I>. Pursuant to conditions and procedures established by the
Administrator from time to time, the Administrator may permit Awards (other than Incentive Stock
Options) to be transferred to, exercised by and paid to certain persons or entities related to a
Participant, including but not limited to members of the Participant&#146;s immediate family, charitable
institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of
the Participant&#146;s immediate family and/or charitable institutions. In the case of initial Awards,
at the request of the Participant, the Administrator may permit the naming of the related person or
entity as the Award recipient. Any permitted transfer shall be subject to the condition that the
Administrator receive evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes on a gratuitous or donative basis and without
consideration (other than nominal consideration).
</DIV>
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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">12.4 <I>Limitations on Incentive Stock Options</I>. Notwithstanding anything in this Agreement (or
in any Stock Option Agreement evidencing the grant of an Option hereunder) to the contrary,
Incentive Stock Options shall be transferable only to the extent permitted by Section&nbsp;422 of the
Internal Revenue Code and the treasury regulations thereunder without affecting the Option&#146;s
qualification under Section&nbsp;422 as an Incentive Stock Option.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 13<BR>
GENERAL RESTRICTIONS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">13.1 <I>Investment Representations</I>. The Company may require any person to whom an Option or
other Award is granted, as a condition of exercising such Option or receiving Stock under the
Award, to give written assurances in substance and form satisfactory to the Company and its counsel
to the effect that such person is acquiring the Stock subject to the Option or the Award for his
own account for investment and not with any present intention of selling or otherwise distributing
the same, and to such other effects as the Company deems necessary or appropriate in order to
comply with federal and applicable state securities laws. Legends evidencing such restrictions may
be placed on the certificates evidencing the Stock.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">13.2 <I>Compliance with Securities Laws</I>. Each Award shall be subject to the requirement that, if
at any time counsel to the Company shall determine that the listing, registration or qualification
of the Shares subject to such Award upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental or regulatory body, is necessary as a condition of,
or in connection with, the issuance or purchase of Shares thereunder, such Award may not be
accepted or exercised in whole or in part unless such listing, registration, qualification, consent
or approval shall have been effected or obtained on conditions acceptable to the Administrator.
Nothing herein shall be deemed to require the Company to apply for or to obtain such listing,
registration or qualification.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">13.3 <I>Stock Restriction Agreement</I>. The Administrator may provide that shares of Stock issuable
pursuant to an Award shall, under certain conditions, be subject to restrictions whereby the
Company has a right of first refusal with respect to such shares or a right or obligation to
repurchase all or a portion of such shares, which restrictions may survive a Participant&#146;s
cessation or termination as a Service Provider.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">13.4 <I>Stockholder Privileges. </I>No Award Holder shall have any rights as a stockholder with
respect to any Shares covered by an Award until the Award Holder becomes the holder of record of
such Stock, and no adjustments shall be made for dividends or other distributions or other rights
as to which there is a record date preceding the date such Award Holder becomes the holder of
record of such Stock, except as provided in Section&nbsp;4.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 14<BR>
OTHER EMPLOYEE BENEFITS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The amount of any compensation deemed to be received by a Participant as a result of the
exercise of an Option or the grant or vesting of any other Award shall not constitute &#147;earnings&#148; with respect to which any other benefits of such Participant are determined, including without
limitation benefits under any pension, profit sharing, life insurance or salary continuation plan.
</DIV>
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</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 15<BR>
PLAN AMENDMENT, MODIFICATION AND TERMINATION</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Board may at any time terminate, and from time-to-time may amend or modify, the Plan;
provided, however, that no amendment or modification may become effective without approval of the
amendment or modification by the stockholders if stockholder approval is required to enable the
Plan to satisfy any applicable statutory or regulatory requirements, or if the Company, on the
advice of counsel, determines that stockholder approval is otherwise necessary or desirable.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">No amendment, modification or termination of the Plan shall in any manner adversely affect any
Awards theretofore granted under the Plan, without the consent of the Participant holding such
Awards.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 16<BR>
WITHHOLDING</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">16.1 <I>Withholding Requirement</I>. The Company&#146;s obligations to deliver Shares upon the exercise
of an Option, or upon the vesting of any other Award, shall be subject to the Participant&#146;s
satisfaction of all applicable federal, state and local income and other tax withholding
requirements. The Company may defer exercise of an Award unless indemnified by the Participants to
the Administrator&#146;s satisfaction against the payment of any such amount. Further, the Company
shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of
any kind due to the Participant by the Company.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">16.2 <I>Withholding with Stock</I>. At the time the Administrator grants an Award, it may, in its
sole discretion, grant the Participant an election to pay all such amounts of tax withholding, or
any part thereof, by electing to transfer to the Company, or to have the Company withhold from
Shares otherwise issuable to the Participant, Shares having a value equal to the amount required to
be withheld or such lesser amount as may be elected by the Participant. All elections shall be
subject to the approval or disapproval of the Administrator. The value of Shares to be withheld
shall be based on the Fair Market Value of the Stock on the date that the amount of tax to be
withheld is to be determined (the &#147;Tax Date&#148;). Any such elections by Participants to have Shares
withheld for this purpose will be subject to the following restrictions:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(a)&nbsp;All elections must be made prior to the Tax Date;
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(b)&nbsp;All elections shall be irrevocable; and
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">(c)&nbsp;If the Participant is an &#147;officer&#148; or &#147;director&#148; of the Company within the meaning of
Section&nbsp;16 of the Exchange Act, the Participant must satisfy the requirements of such Section&nbsp;16
and any applicable rules thereunder with respect to the use of Stock to satisfy such tax
withholding obligation.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->-19-<!-- /Folio -->
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">16.3 <I>Incentive Options. </I>In the event that an Option Holder makes a disposition (as defined in
Section 424(c) of the Internal Revenue Code) of any Stock acquired pursuant to the exercise of an
Incentive Stock Option prior to the later of (i)&nbsp;the expiration of two years from the date on which
the Incentive Stock Option was granted or (ii)&nbsp;the expiration of one year from the date on which
the Option was exercised, the Option Holder shall send written notice to the Company at its
principal office (Attention: Corporate Secretary) of the date of such disposition, the number of
shares disposed of, the amount of proceeds received from such disposition, and any other
information relating to such disposition as the Company may reasonably request. The Option Holder
shall, in the event of such a disposition, make appropriate arrangements with the Company to
provide for the amount of additional withholding, if any, required by applicable federal and state
income tax laws.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 17<BR>
SECTION 162(M) PROVISIONS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">17.1 <I>Limitations</I>. Notwithstanding any other provision of this Plan, if the Administrator
determines at the time any Stock Award or Performance Award is granted to a Participant that such
Participant is, or is likely to be at the time he or she recognizes income for federal income tax
purposes in connection with such Award, a &#147;covered employee&#148; within the meaning of 162(m)(3) of the
Internal Revenue Code, then the Administrator, may provide that this Section&nbsp;17 is applicable to
such Award.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">17.2 <I>Performance Goals</I>. If an Award is subject to this Section&nbsp;17, then the lapsing of
restrictions thereon and the distribution of cash, Shares or other property pursuant thereto, as
applicable, shall be subject to the achievement of one or more objective performance goals
established by the Administrator, which shall be based on the attainment of one or any combination
of the following: specified levels of earnings per share from continuing operations, operating
income, revenues, gross margin, return on operating assets, return on equity, economic value added,
stock price appreciation, total stockholder return (measured in terms of stock price appreciation
and dividend growth), or cost control, of the Company or Affiliated Corporation (or any division
thereof) for or within which the Participant is primarily employed. Such performance goals also
may be based upon the attaining of specified levels of Company performance under one or more of the
measures described above relative to the performance of other corporations. Such performance goals
shall be set by the Administrator within the time period prescribed by, and shall otherwise comply
with the requirements of, Section 162(m) of the Internal Revenue Code and the regulations
thereunder.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">17.3 <I>Adjustments</I>. Notwithstanding any provision of the Plan other than Sections&nbsp;5 and 11,
with respect to any Award that is subject to this Section&nbsp;17, the Administrator may not adjust
upwards the amount payable pursuant to such Award, nor may it waive the achievement of the
applicable performance goals except in the case of the death or disability of the Participant.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">17.4 <I>Other Restrictions</I>. The Administrator shall have the power to impose such other
restrictions on Awards subject to this Section&nbsp;17 as it may deem necessary or appropriate to ensure
that such Awards satisfy all requirements for &#147;performance-based compensation&#148; within the meaning
of Section&nbsp;162(m)(4)(B) of the Internal Revenue Code or any successor thereto.
</DIV>
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<P align="center" style="font-size: 10pt"><!-- Folio -->-20-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 18<BR>
BROKERAGE ARRANGEMENTS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Administrator, in its discretion, may enter into arrangements with one or more banks,
brokers or other financial institutions to facilitate the exercise of Options or the disposition of
Shares acquired upon exercise of Stock Options, including, without limitation, arrangements for the
simultaneous exercise of Stock Options and sale of the Shares acquired upon such exercise.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 19<BR>
NONEXCLUSIVITY OF THE PLAN</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Neither the adoption of the Plan by the Board nor the submission of the Plan to stockholders
of the Company for approval shall be construed as creating any limitations on the power or
authority of the Board to adopt such other or additional incentive or other compensation
arrangements of whatever nature as the Board may deem necessary or desirable or preclude or limit
the continuation of any other plan, practice or arrangement for the payment of compensation or
fringe benefits to Employees or Consultants generally, or to any class or group of Employees or
Consultants, which the Company or any Affiliated Corporation now has lawfully put into effect,
including, without limitation, any retirement, pension, savings and stock purchase plan, insurance,
death and disability benefits and executive short-term incentive plans.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 20<BR>
REQUIREMENTS OF LAW</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">20.1 <I>Requirements of Law</I>. The issuance of Stock and the payment of cash pursuant to the Plan
shall be subject to all applicable laws, rules and regulations.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">20.2 <I>Rule&nbsp;16b-3</I>. Transactions under the Plan and within the scope of Rule&nbsp;16b-3 of the
Exchange Act are intended to comply with all applicable conditions of Rule&nbsp;16b-3. To the extent
any provision of the Plan or any action by the Administrator under the Plan fails to so comply,
such provision or action shall, without further action by any person, be deemed to be automatically
amended to the extent necessary to effect compliance with Rule&nbsp;16b-3; provided, however, that if
such provision or action cannot be amended to effect such compliance, such provision or action
shall be deemed null and void to the extent permitted by law and deemed advisable by the
Administrator.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">20.3 <I>Governing Law</I>. The Plan and all agreements hereunder shall be construed in accordance
with and governed by the laws of the State of Delaware.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">20.4 <I>Specified Employees Under Regulation&nbsp;409A</I>. For purposes of this Plan, the term
&#147;termination of employment&#148; shall mean, with respect to any Award that constitutes a deferral of
compensation within the meaning of Section&nbsp;409A of the Internal Revenue Code, &#147;separation from
service&#148; within the meaning of Section&nbsp;409A of the Internal Revenue Code. Payment of any amount
due a Participant after a termination of employment with the Company shall generally be made as
soon as practical after such termination. However, if a Participant is a &#147;specified employee&#148; on
the date of his or her termination of employment, as that term is defined under Sections
409A(a)(2)(A)(i) and 409A(a)(2)(B)(i) of the Internal Revenue Code, then, to the extent necessary
to avoid imposition of additional taxes and interest under Section&nbsp;409A of the Internal Revenue Code, any such payment shall be made on the date that is the earliest of:
(i)&nbsp;six (6)&nbsp;months after the Participant&#146;s termination of employment, (ii)&nbsp;the Participant&#146;s date
of death, if applicable, or (iii)&nbsp;such other earliest date for which such payment will not be
subject to the constructive receipt, interest, and additional tax provisions of Section&nbsp;409A of the
Internal Revenue Code.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->-21-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">20.5 <I>Regulation&nbsp;409A</I>. The payments and benefits payable under the Plan are intended to not be
subject to the additional tax imposed pursuant to Section&nbsp;409A of the Internal Revenue Code, and
the Plan shall be construed in accordance with such intent.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SECTION 21<BR>
DURATION OF THE PLAN</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">No Award shall be granted under the Plan after ten years from the Effective Date; provided,
however, that any Award theretofore granted may, and the authority of the Board or the
Administrator to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to
waive any conditions or rights under any such Award shall, extend beyond such date.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Dated: November&nbsp;12, 2007
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">PURE CYCLE CORPORATION</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Mark W. Harding</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Mark W. Harding<br>
President</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>



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<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>3
<FILENAME>c72031exv31.htm
<DESCRIPTION>EXHIBIT 31
<TEXT>
<HTML>
<HEAD>
<TITLE>Filed by Bowne Pure Compliance</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">EXHIBIT 31
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>CERTIFICATIONS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">I, Mark W. Harding, certify that:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">I have reviewed this quarterly report on Form 10-Q of Pure Cycle Corporation;</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report;</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">I am responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules&nbsp;13a-15(f) and 15d-15(f)) for the registrant and
have:</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under my supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to me by
others within those entities, particularly during the period in which this quarterly report
is being prepared;</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under my supervision, 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
principals;</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures and
presented in this report my conclusion about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Disclosed in this report any change in the registrant&#146;s internal control over financial
reporting that occurred during the registrant&#146;s most recent fiscal quarter (the
registrant&#146;s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant&#146;s internal control
over financial reporting; and</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">I have disclosed, based on my most recent evaluation of internal control over financial
reporting, to the registrant&#146;s auditors and the audit committee of the registrant&#146;s board of
directors (or persons performing the equivalent functions):</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrant&#146;s ability to record, process, summarize and report financial information;
and</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant&#146;s internal control over financial reporting.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Dated: January&nbsp;9, 2008
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><FONT style="border-bottom: 1px solid #000000">/s/ Mark W. Harding&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><BR>
Mark W. Harding<BR>
Principal Executive Office and Principal Financial Officer
</DIV>
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<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>4
<FILENAME>c72031exv32.htm
<DESCRIPTION>EXHIBIT 32
<TEXT>
<HTML>
<HEAD>
<TITLE>Filed by Bowne Pure Compliance</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.5in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">EXHIBIT 32
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,<BR>
AS ADOPTED PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In connection with the Quarterly Report of Pure Cycle Corporation (the &#147;Company&#148;), on Form 10-Q for
the three months ended November&nbsp;30, 2007, as filed with the Securities and Exchange Commission on
the date hereof (the &#147;Report&#148;), I, Mark W. Harding, President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. &#167; 1350, as adopted pursuant to &#167; 906 of the Sarbanes-Oxley
Act of 2002, that:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and</DIV></TD>
</TR>

<TR style="font-size: 5pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><FONT style="border-bottom: 1px solid #000000">/s/ Mark W. Harding&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><BR>
Mark W. Harding<BR>
Principal Executive Office and Principal Financial Officer<BR>
January&nbsp;9, 2008

</DIV>


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