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<SEC-DOCUMENT>0000950123-09-062329.txt : 20091113
<SEC-HEADER>0000950123-09-062329.hdr.sgml : 20091113
<ACCEPTANCE-DATETIME>20091113160207
ACCESSION NUMBER:		0000950123-09-062329
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20090831
FILED AS OF DATE:		20091113
DATE AS OF CHANGE:		20091113

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-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-08814
		FILM NUMBER:		091181599

	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-K
<SEQUENCE>1
<FILENAME>c92497e10vk.htm
<DESCRIPTION>FORM 10-K
<TEXT>
<HTML>
<HEAD>
<TITLE>Form 10-K</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: 7.20in">


<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-K</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">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>


<!-- xbrl,dc -->
<DIV align="center" style="font-size: 10pt; margin-top: 10pt; margin-left: 0%"><B>For the fiscal year ended August&nbsp;31, 2009</B></DIV>
<!-- /xbrl,dc -->

<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>
Commission File Number 0-8814</B>
</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 10pt"><B><FONT style="border-bottom: 1px solid #000000">PURE CYCLE CORPORATION</FONT></B>
</DIV>

<DIV align="center" style="font-size: 10pt">
(Exact name of registrant 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="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Colorado</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 Identification No.)</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>500 East 8</B><SUP style="font-size: 85%; vertical-align: text-top"><B>th</B></SUP><B> Ave, Ste 201, Denver, CO 80203</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>(303)&nbsp;292-3456</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 office) (Zip Code)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Registrant&#146;s telephone number, including area code)</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="bottom">
    <TD align="center" valign="top" colspan="3">Securities registered
pursuant to Section&nbsp;12(b) of the Act:
</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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>Common Stock 1/3 of $.01 par value</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>The NASDAQ Stock Market, LLC</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">(Title of each class)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Name of each exchange on which registered)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Securities registered pursuant to Section&nbsp;12(g) of the Act: <B>NONE</B></DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule&nbsp;405 of the Securities Act.
<FONT style="white-space:nowrap">Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT></FONT>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Indicate by check mark if the registrant is not required to file reports pursuant to Section&nbsp;13 or Section 15(d) of the Act.
<FONT style="white-space:nowrap">Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT></FONT>
</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.
Yes <FONT face="Wingdings">&#254;</FONT> No <FONT face="Wingdings">&#111;</FONT>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule&nbsp;405 of Regulation&nbsp;S-T (Section&nbsp;232.405 of this chapter) during the preceding
12&nbsp;months (or for such shorter period that the registrant was required to submit and post such files). Yes <FONT face="Wingdings">&#254;</FONT> No <FONT face="Wingdings">&#111;</FONT>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Indicate by check mark if disclosure of delinquent filers in response to Item&nbsp;405 of Regulation&nbsp;S-K (Section&nbsp;229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant&#146;s knowledge, in definitive proxy or information statements
incorporated by reference in Part&nbsp;III of this Form 10-K or any amendment to this Form 10-K. <FONT face="Wingdings">&#111;</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, a non-accelerated filer, or a smaller reporting company. See
the definitions of &#147;large accelerated filer,&#148; &#147;accelerated filer,&#148; and &#147;smaller
reporting company&#148; in Rule&nbsp;12b-2 of the Exchange Act:
</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="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left" valign="top" nowrap>Large accelerated filer <FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" nowrap>Accelerated filer <FONT face="Wingdings">&#254;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Non-accelerated filer <FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top" nowrap>Smaller reporting company <FONT face="Wingdings">&#111;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" nowrap>(Do not check if a smaller reporting company)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</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 (as defied in
Rule&nbsp;12b-2 of the Act). Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant&#146;s most recently completed second
fiscal quarter: $40,337,000
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Indicate the number of shares outstanding of each of the registrant&#146;s classes
of common stock, as of November&nbsp;12, 2009 was: 20,206,566
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>DOCUMENTS INCORPORATED BY REFERENCE</B></DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The information required by Part&nbsp;III is incorporated by reference from the
registrant&#146;s definitive proxy statement for the 2009 annual meeting of
stockholders, which will be filed with the SEC within 120&nbsp;days of the close of
the fiscal year ended August&nbsp;31, 2009.
</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: 7.20in">
<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B>Table of Contents</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="95%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Item</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">
    <TD colspan="5" align="center"><A href="#101"><B>Part I</B><BR></A></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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">1. Business</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">1A. Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">1B. Unresolved Staff Comments</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">2. Properties</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">3. Legal Proceedings</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">4. Submission of Matters to a Vote of Security Holders</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</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>
</TR>
<TR valign="bottom">
    <TD colspan="5" align="center"><A href="#108"><B>Part II</B><BR></A></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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">5. Market for Registrant&#146;s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">6. Selected Financial Data</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">7. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operation</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">7A. Quantitative and Qualitative Disclosures About Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">8. Financial Statements and Supplementary Data</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">9A. Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#116">9B. Other Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63</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>
</TR>
<TR valign="bottom">
    <TD colspan="5" align="center"><A href="#117"><B>Part III</B></A></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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">10. Directors, Executive Officers and Corporate Governance</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">11. Executive Compensation</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">13. Certain Relationships and Related Transactions, and Director Independence</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">14. Principal Accounting Fees and Services</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63</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>
</TR>
<TR valign="bottom">
    <TD colspan="5" align="center"><A href="#118"><B>Part IV</B><BR></A></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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#119">15. Exhibits, Financial Statement Schedules</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#120">Signatures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66</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>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c92497exv23w1.htm">Exhibit 23.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c92497exv31w1.htm">Exhibit 31.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c92497exv32w1.htm">Exhibit 32.1</A></FONT></TD></TR>
</TABLE>
</DIV>
<DIV align="left">
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>&#147;SAFE HARBOR&#148; STATEMENT UNDER THE UNITED STATES PRIVATE<BR>
SECURITIES LITIGATION REFORM ACT OF 1995</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Statements that are not historical facts contained in this Annual Report on Form 10-K are
forward looking statements that involve risk and uncertainties that could cause actual results to
differ from projected results. The words &#147;anticipate,&#148; &#147;believe,&#148; &#147;estimate,&#148; &#147;expect,&#148; &#147;plan,&#148;
&#147;intend&#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 real
estate market generally and the development of projects we currently have under contract, the
market price of water, changes in customer consumption patterns, 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.
</DIV>

<DIV align="left">
<A name="101"></A>
</DIV>

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

<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 10pt"><U><B>Item&nbsp;1 &#151; Business</B></U>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Summary of our business</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pure Cycle Corporation is a water and wastewater service provider engaged in the design,
construction, operation and maintenance of water and wastewater systems. We have a vertically
integrated business model which provides us with control and efficiency in the provision of water
and wastewater services by owning all components necessary to offer complete water and wastewater
services. Having a vertically integrated system means we own all assets required to provide water
and wastewater services, including 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="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Water rights used to provide domestic and irrigation water to customers;</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Infrastructure required to withdraw, treat, store and deliver domestic water to customers;</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Infrastructure required to collect, treat, store and reuse wastewater; 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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Infrastructure required to treat and deliver reclaimed water for irrigation use by
customers.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We currently provide water services to approximately 247 single family equivalent water connections
and 157 single family equivalent wastewater connections located in the southeastern Denver
metropolitan area. We plan to utilize our significant water assets, which are summarized below, to
provide residential/commercial water and wastewater services to other customers located along the
eastern slope of Colorado generally known as the &#147;Front Range&#148; (the area east of the Rocky
Mountains extending essentially from Ft. Collins on the north to Colorado Springs on the south).
Principally we are targeting the &#147;I-70 corridor&#148; which is located east of downtown Denver and south
of the Denver International Airport. This area is predominately undeveloped and is expected to
experience substantial growth over the next 30&nbsp;years. Our ability to increase our customer base is
dependent on new development in our targeted service area and on our ability to enter into
contracts to deliver water and wastewater service with land owners, land developers, home builders,
and municipalities.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our water rights are described in detail in the <I>Our Water Assets </I>section below, but in general we
own over 12,000 acre-feet of decreed groundwater and surface water rights in the Denver area and
have the exclusive right to use, through the year 2081, approximately 13,400 acre-feet of decreed
groundwater and surface water located at the &#147;Lowry Range&#148; (defined in the <I>Our Water Assets &#150; The
Lowry Range Property </I>section below). In addition to these Denver based assets, we also own
approximately 60,000 acre-feet of Arkansas River water which is currently being used to irrigate
approximately 17,500 acres of land we own in southeastern Colorado, and 70,000 acre-feet of
conditionally decreed Colorado River water rights on the western slope of Colorado. Along the
Front Range of Colorado, there are over 70 separate water providers with varying needs for
replacement and new water supplies. We believe that we are well positioned to assist certain of
these water providers in meeting their future water needs. Based on independent engineering
estimates, our Denver portfolio can serve approximately 78,000 SFE&#146;s, while our Arkansas River
supplies (estimated to be approximately 40,000 acre feet per year of
consumptive use water) can provide water service to an additional 100,000 SFE&#146;s for a combined
capacity of approximately 180,000 SFE&#146;s.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Glossary of terms</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The following terms are commonly used in the water industry and are used throughout our annual
report:
</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">Acre-foot &#150; approximately 326,000 gallons of water, or enough water to cover an acre of
ground with one foot of water. For some instances herein, as context dictates, acre feet is
used to designate an annual decreed amount of groundwater or the amount of surface water that
might be available during a typical year.</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Consumptive Use &#150; the amount of water that is evaporated, transpired, incorporated into
products or crops, consumed by humans or livestock, or otherwise removed from the immediate
water environment.</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Customer Facilities &#150; facilities that carry potable water and reclaimed water to customers
from the Retail water distribution system and collect wastewater from customers and transfer
it to the Retail wastewater collection system. Water and wastewater service lines, interior
plumbing, meters and other components are typical examples of Customer Facilities. In many
cases, portions of the Customer Facilities are constructed by the developer, but they are
owned and maintained by the customer.</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Retail Facilities &#150; facilities that distribute water to and collect wastewater from an
individual subdivision or community. Developers are typically responsible for the funding and
construction of Retail Facilities. Once we certify that the Retail Facilities have been
constructed in accordance with our design criteria, the developer dedicates the Retail
Facilities to us or to a quasi-municipal political subdivision of the state and we operate and
maintain the facilities.</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Section &#150; a parcel of land being one square mile and containing 640 acres.</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Single Family Equivalent unit (&#147;SFE&#148;) &#150; One SFE is a customer; whether residential,
commercial or industrial; that imparts a demand on our water or wastewater systems similar to
the demand of a family of four persons living in a single family house on a standard sized
lot. One SFE is assumed to have a water demand of approximately 0.4 acre-feet per year and to
contribute wastewater flows of approximately 300 gallons per day</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Special Facilities &#150; facilities that are required to extend services to an individual
development and are not otherwise classified as a typical &#147;Wholesale Facility&#148; or &#147;Retail
Facility.&#148; Temporary infrastructure required prior to construction of permanent water and
wastewater systems or transmission pipelines to transfer water from one location to another
are examples of Special Facilities. We typically design and construct the Special Facilities
using funds provided by the developer in addition to the normal rates, fees and charges that
we collect from our customers. We are typically responsible for the operation and maintenance
of the Special Facilities upon completion.</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Wholesale Facilities &#150; facilities that serve an entire service area or major regions or
portions thereof. Wells, treatment plants, pump stations, tanks, reservoirs, transmission
pipelines, and major sewage lift stations are typical examples of Wholesale Facilities. We
own, design, construct, operate, maintain and repair Wholesale Facilities which are typically
funded using rates, fees and charges that we collect from our customers.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Our Water Assets</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">This section should be read in conjunction with <I>Item&nbsp;1A &#150; Risk Factors, Item&nbsp;7 &#150; Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operation &#150; Critical Accounting
Policies and Use of Estimates</I>, and Note 4 to the accompanying financial statements.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The $103.2&nbsp;million of capitalized water costs on our balance sheet represent the costs of the water
rights we own and the related infrastructure developed to provide water and wastewater services.
We own or have the exclusive rights to use water in several river basins throughout Colorado, with
our most significant assets being located in the Denver metropolitan area and the Arkansas River
basin in southern Colorado. Each of these assets is explained in detail below.
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Rangeview Water Supply and the Lowry Range</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Our Rangeview Water</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our &#147;Rangeview Water Supply&#148; (defined below) includes a total of approximately 3,300 acre feet of
tributary surface water, 25,050 acre feet of nontributary and not-nontributary groundwater rights,
and storage rights associated with the Lowry Range.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Of the 25,050 acre feet of Lowry Range groundwater, we own approximately 11,650 acre feet of
non-tributary and not-nontributary groundwater 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;). We also have the right to convert up to 1,650 acre feet of
the Export groundwater to a similar amount of surface water for use off the Lowry Range. We hold
the exclusive right to develop and deliver (through 2081) the remaining 13,400 acre feet of
groundwater, along with the balance of the surface water, for use on the Lowry Range. Collectively
we refer to these as our &#147;Rangeview Water Supply.&#148;
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We acquired our Rangeview Water Supply in April&nbsp;1996 pursuant to the following agreements, which
collectively are referred to as the &#147;Rangeview Water Agreements&#148;:
</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">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The 1996 Amended and Restated Lease Agreement (the &#147;Lease&#148;) between the State Board of Land
Commissioners (the &#147;Land Board&#148;) and the Rangeview Metropolitan District (the &#147;District&#148;), a
quasi-municipal political subdivision of the State of Colorado,</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">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The Agreement for Sale of Export Water between us and the District, 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">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The Service Agreement between us and the District for the provision of water service to the
Lowry Range.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the Rangeview Water Agreements, we design, construct, operate and maintain the
District&#146;s water and wastewater systems to provide water and wastewater service to customers
within the District&#146;s 24,000 acre service area at the Lowry Range. In exchange for providing water
service, we receive 95% of all amounts received by the District relating to water services, after
deducting the required royalty to the Land Board, which initially totals 12% of gross revenues
received from water sales. The Rangeview Water Agreements require us to charge customers fair
market rates for water service based on the average of similar rates and charges at three nearby
communities. See the <I>Water and Wastewater Tap Fees </I>section below.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the Wastewater Service Agreement (the &#147;Wastewater Agreement&#148;) between us and the
District, we also design, finance, construct, operate and maintain the District&#146;s wastewater system
to provide wastewater service to customers within the District&#146;s service area. In exchange for
providing wastewater services, we receive 100% of the District&#146;s wastewater tap fees and 90% of the
District&#146;s monthly wastewater service fees, as well as the right to use or sell the reclaimed
water.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">On the Lowry Range, we operate both the water and the wastewater systems during our contract period
on behalf of the District, who owns the facilities for both systems. At the expiration of our
contract term in 2081, ownership of the water system facilities servicing customers on the Lowry
Range will revert to the Land Board, with the District retaining ownership of the wastewater
facilities.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Off the Lowry Range, we use our Export Water as well as other supplies owned by us to provide water
service to our customers and we own these facilities.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Historically we have contracted with third parties for the construction of these facilities, which
is a practice we plan to continue.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>The Lowry Range Property</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Lowry Range was acquired by the Land Board in the 1960&#146;s and according to the Land Board it is
one of the most complex and visible properties held in trust by the Land Board. Located in
unincorporated Arapahoe County, about 20 miles southeast of Metro Denver, the Lowry Range is one of
the largest contiguous parcels under single ownership next to a major metropolitan area in the
United States. The Lowry Range is Approximately 26,000 acres in size or about 40 square miles of
land. Of the 26,000 acres, we have the exclusive rights to provide water and wastewater services to
approximately 24,000 acres.
</DIV>

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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In December&nbsp;2006, the Land Board selected two development partners for the Lowry Range, one for a
parcel designated by the Land Board as the Development Parcel (including approximately 3,800 acres
of the Lowry Range) and one for a parcel designated as the Conservation Parcel (including
approximately 17,000 acres). In June&nbsp;2007, the Land Board entered into an agreement with a
developer for sole development rights of six sections of the Lowry Range. Of this, we have the
exclusive rights to provide water and wastewater services to two sections (or approximately 1,300
acres). As further detailed in <I>Item&nbsp;1A &#150; Risk Factors</I>, in January&nbsp;2009, the developer withdrew
from the project. We continue to work with the Land Board to develop the Lowry Range water assets
for customers located on and off the Lowry Range using the Lowry Range&#146;s surface and groundwater
supplies in conjunction with a water management program to provide state-of-the-art,
environmentally sensitive, sustainable water and wastewater services, at commercially reasonable
rates. The Land Board to date has not finalized an agreement on the Conservation Parcel with its
tentative partner.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Despite the developer&#146;s withdrawal, our agreements with the District and the Land Board remain
intact and we remain the exclusive water service provider to 24,000 acres of the Lowry Range. The
Land Board continues to own the property and has stated its desire to continue to pursue its
three-part vision for the Lowry Range which includes land development, conservation, and water
resource development. However, we are not aware of any other projects planned by the Land Board
and it may be some time before the Land Board commences another project. Beginning in the 1980&#146;s
and continuing with the Lease, we have been a dedicated partner with the Land Board in the pursuit
of development opportunities at the Lowry Range. We continue to invest in and expand our
capabilities to provide water and wastewater services to the Lowry Range and we look forward to
continuing to work with the Land Board on these important and valuable assets.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Additionally, on June&nbsp;1, 2009, the Colorado Supreme Court upheld the decision of the District
Court, Water Division I, State of Colorado (&#147;Water Court&#148;) requiring the City of Aurora (&#147;Aurora&#148;)
to remove three reservoir sites from its Water Court applications because the reservoir sites were
already adjudicated to us pursuant to agreements with the Land Board. This process began in 2003
when Aurora filed an application for conditional water rights with the Water Court in which Aurora
listed numerous potential sites for reservoirs for storage of its water rights. Three of the
potential reservoir sites were located on the Lowry Range on reservoir sites which had been
adjudicated by the District and the Land Board and for which the Land Board had previously granted
the right to obtain rights-of-way and to construct reservoirs to the District.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Water supplies and water storage reservoirs are competitively sought throughout the west and along
the Front Range of Colorado. We believe regional cooperation among area water providers in
developing new water supplies and water storage provides the most cost effective way of expanding
and enhancing service capacities for area water providers. We continue to discuss developing water
supplies and water storage opportunities with area water providers.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We own approximately 60,000 acre-feet of senior water rights in the Arkansas River basin.
Currently this water is being used for agricultural purposes on the approximately 17,500 acres of
real property we own in Southern Colorado, which is being leased to area farmers. The water rights
we own are represented by over 21,600 shares of the Fort Lyon Canal Company (the &#147;FLCC&#148;), which is
a non-profit mutual ditch company established in the late 1800&#146;s to operate and maintain the
110-mile long Fort Lyon Canal between La Junta, Colorado and Lamar, Colorado. We acquired these
assets on August&nbsp;31, 2006, from High Plains A&#038;M, LLC (&#147;HP A&#038;M&#148;) pursuant to an asset purchase
agreement (the &#147;Arkansas River Agreement&#148;). Pursuant to agreements we entered into with HP A&#038;M,
described in greater detail in Note 4 to the accompanying financial statements, the management of
these farm leases is being performed by HP A&#038;M through August&nbsp;31, 2011. After that date, depending
on certain factors described in the accompanying financial statements, HP A&#038;M may extend the
management services agreement, or we may assume management of the farms. Pursuant to the
management services agreement, while HP A&#038;M is managing the leases, HP A&#038;M is responsible for all
expenses associated with maintaining the leases with the exception of the water assessment fees
paid to the FLCC, which fees are borne by us. As compensation for their management
responsibilities, HP A&#038;M retains all lease and certain other non-crop income associated with the
farms and the water used thereon.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The farm land and related personal property and other non-water assets were acquired because the
amount of water we will ultimately be permitted to develop for municipal purposes is based on the
historical consumptive use of such water. We
anticipate that approximately 40,000 acre-feet of the 60,000 acre-feet we own will be available for
non-agricultural uses along the Front Range, but the Arkansas River Water will not be available for
such purposes until we successfully file for a change of use in Water Court as described below. By
owning the land and having the water continue to be used for agricultural purposes, we continue to
maintain beneficial use of the water.
</DIV>

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

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

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In order to use this water for municipal purposes we must file a change of use application with the
Water Court. This will likely be a lengthy process and require a substantial amount of capital for
legal and engineering services. If we successfully change the use of our water rights to include
municipal uses, we would then need to construct a pipeline and other infrastructure to transport
the water to the municipal customers, which could cost in excess of $500&nbsp;million. Although we have
not yet filed a change of use application. We are working with the FLCC and other interested
parties in the Arkansas River Valley to mitigate any adverse impacts to the local communities and
to make investments and decisions on farming operations which benefit continued agricultural
operations as well as providing new municipal water supplies for the Front Range. We are
conducting a rotational crop study program and participating in discussions with area interests
including the Lower Arkansas Valley Super Ditch (&#147;Super Ditch&#148;), which is a group of Arkansas
Valley irrigators that have assembled to study alternatives to traditional &#147;buy and dry&#148;
agricultural-to-municipal water transfers.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Due to the renewable nature of surface water, owning this large portfolio of surface water allows
us to more effectively market our water and wastewater services to customers in the Denver
metropolitan market as well as other markets such as the Colorado Springs region. Timing of the
development of the Arkansas River water will depend on the timing of new connections to our water
and wastewater systems. We plan to fund the development of the Arkansas River water, much like the
other water we own, by using proceeds generated from the sale of taps associated with new
connections to our system. In addition to increasing our service capacities, the Arkansas River
water may present additional market opportunities for us to assist other water providers in solving
their long-term water supply needs for their existing and new connections. See also <I>Item&nbsp;1A &#150; Risk
Factors </I>for additional information on the risks associated with a water transfer case and other
risks associated with the Arkansas River water.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Arapahoe County Fairgrounds Agreement for Water Service</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In 2005, we entered into an Agreement for Water Service (the &#147;County Agreement) with Arapahoe
County (the &#147;County&#148;) to design, construct, operate and maintain a water system for, and provide
water services to, the Arapahoe County Fairgrounds (the &#147;Fairgrounds&#148;), which is located west of
the Lowry Range. Pursuant to the County Agreement we purchased 321 acre-feet of water in 2008.
Further details of the funding arrangements with the County are described in Note 4 to the
accompanying financial statements.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the County Agreement we constructed various Wholesale and Special Facilities, including
a new deep water well, a 175 foot tall, 500,000 gallon water tank and pipelines to transport water
to the Fairgrounds. The construction of the Special and Wholesale facilities were completed in our
fiscal 2006, and we began providing water service to the Fairgrounds on July&nbsp;21, 2006.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Sky Ranch Water Supply and Water Service Agreements</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Sky Ranch property incorporates approximately 950 acres located four miles north of the Lowry
Range along Interstate 70. As described in <I>Item&nbsp;1A &#150; Risk Factors </I>below, the developer of Sky
Ranch currently has a plan of liquidation pending in federal bankruptcy court. We are party to two
Water Service Agreements (the &#147;Sky Ranch Agreements&#148;) with the developer of Sky Ranch which, based
on the approved preliminary development plans, obligate us to provide water service to the homes,
businesses, schools and other customers at the development, which could include service to up to
4,850 SFEs. The Sky Ranch Agreements also grant us the right to purchase a total of 760 acre feet
of water located beneath Sky Ranch as described in greater detail in Note 4 to the accompanying
financial statements. Due to the pending bankruptcy proceeding, the timing of development at Sky
Ranch, if any, and the status of the Sky Ranch Agreements, is uncertain.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In 1987 we acquired the conditional rights 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 our &#147;Paradise Water Supply&#148;). Due to
the significant development costs of water assets along the western slope and
agreements with other western slope water interests, the use of our Paradise Water Supply is
limited to opportunities along the western slope. See discussion of impairment analysis in the
<I>Critical Accounting Policies </I>section below for more information. See also Note 4 to the
accompanying financial statements for information concerning the Finding of Reasonable Diligence
review by the State Engineer.
</DIV>

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

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

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<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: 7.20in">




<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Well Enhancement and Recovery Systems</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In January&nbsp;2007, we, along with two other parties (each of whom own 1/3<SUP style="font-size: 85%; vertical-align: text-top">rd</SUP> of the
venture), formed Well Enhancement and Recovery Systems, LLC (&#147;Well Enhancement LLC&#148;), to develop a
new deep water well enhancement tool and process which we believe will increase the efficiency of
wells into the Denver Basin groundwater formation. In our fiscal 2008, the well enhancement tool
and process was completed and tested on two deep water wells developed by an area water provider
with favorable results. According to studies performed by an independent hydro-geologist,
preliminary results indicate the well enhancement tool effectively increased the production of the
two test wells by approximately 80% and 83% when compared to that of nearby wells developed in
similar formations at similar depths. Based on the positive results of the test wells, we continue
to refine the process of enhancing deep water wells and anticipate marketing the tool to area water
providers. We did not utilize the well enhancement tool during 2009 due to a lack of wells being
drilled in the Denver metropolitan market. During the fiscal years ended August&nbsp;31, 2009, 2008 and
2007, Well Enhancement LLC expensed approximately $17,100, $143,600 and $106,700, respectively, for
research and development activities. Since we are a 1/3<SUP style="font-size: 85%; vertical-align: text-top">rd</SUP> owner of Well Enhancement
LLC, we recorded approximately $7,900, $48,700 and $35,600, respectively, of Well Enhancement LLC&#146;s
losses for the fiscal years ended August&nbsp;31, 2009, 2009 and 2007.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We generate revenues predominately from three sources:
</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">Water and wastewater tap fees,</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">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Construction fees, 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">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Monthly service fees.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We typically negotiate the payment terms for tap fees, construction fees, and other water and
wastewater service fees with each developer, builder or municipality before we commit to providing
service and before construction of the project commences.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Water and Wastewater Tap Fees</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Tap fees are paid by the developer in advance of construction activities and are non-refundable.
Tap fees are typically used to fund construction of the Wholesale Facilities and defray the
acquisition costs of obtaining water rights.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to our Rangeview Water Agreements with the District and the Land Board, pricing for water
tap fees (as well as water usage charges described further below) is controlled through a
market-driven pricing mechanism in which our rates and charges may not exceed the average of
similar rates and charges of three nearby water providers. Due to increases in tap fees at these
communities, effective July&nbsp;1, 2009, water tap fees increased $1,000 to $22,500 per SFE, which is a
4.7% increase over the 2008 water tap fee. Wastewater tap fees remained unchanged at $4,883. Table
A provides a summary of our water tap fees since 2003:
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Table A &#151; Water System Tap Fees
</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="23%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&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">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <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>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2003</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">Water tap fees per SFE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">22,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">21,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,150</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Percentage Increase</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">4.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">18.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">14.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">18.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">11.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">6.2</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Tap fees revenues are deferred and recognized in the statement of operations as income as described
in <I>Item&nbsp;7 &#150; Management&#146;s Discussion and Analysis of Financial Condition and Results of Operation &#150;
Critical Accounting Policies and Use of Estimates </I>and Note 2 to the accompanying financial
statements.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Developers owning rights to either surface water or groundwater underlying their properties may
receive a credit against a portion of their water tap fees if they elect to sell their water to us,
which is negotiated at the time of the service agreement.
</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: 7.20in">



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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Construction fees are fees we receive, typically in advance, from developers, for us to build
certain infrastructure such as Special Facilities. Construction revenues are deferred and
recognized in the statement of operations as income as described in <I>Item&nbsp;7 &#150; Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operation &#150; Critical Accounting
Policies and Use of Estimates </I>and Note 2 to the accompanying financial statements.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Monthly water usage charges are assessed to our customers based on actual metered usage each month.
Water usage pricing uses a tiered pricing structure which is capped at the average of the prices
charged by the same three surrounding water providers used as the basis for our water tap fees.
Despite increases by these water providers, in 2009 we chose not to increase our monthly usage
rates in order to provide more competitive usage charges in our service area; however, the tiered
pricing structure has increased over the past several years as noted in Table B below:
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Table B &#151; Tiered Water Usage Pricing Structure
</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="28%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&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="22" style="border-bottom: 1px solid #000000">Price ($ per thousand gallons)</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Amount of consumption</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <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>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</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">Base charge per SFE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">25.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">25.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right"> 25.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20.44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19.80</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">0 gallons to 10,000 gallons</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">  2.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">  2.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">10,001 gallons to 20,000 gallons</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">  3.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">20,001 gallons and above</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right"> 5.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.54 </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.40</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Water revenues are sensitive to timing and volume of water use, meaning the more water used by a
customer in a given month, the higher the cost of additional incremental water deliveries to the
customer. Based on this, for a typical residential customer using approximately 0.4 acre-feet of
water annually, during a typical weather year, water usage fees total approximately $673 per year.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Wastewater customers are charged a flat monthly fee of $39.50 per SFE, or $474 per year per SFE,
which was last increased on July&nbsp;1, 2007 from $34.80 per SFE, an increase of 13.5%.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We also collect other immaterial fees and charges from residential customers and other end users to
cover miscellaneous administrative and service expenses, such as application fees, review fees and
permit fees.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Land Board Royalties and District Fees</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the Rangeview Water Agreements, the Land Board is entitled to royalty payments based on
a percentage of revenues earned from water sales that utilize water from the Lowry Range or Export
Water. The calculation of royalties depends on whether the customer is located on the Lowry Range
or elsewhere, and whether the customer is a public or private entity. In addition, the District is
entitled to retain 5% of amounts collected with respect to water sales to customers located on the
Lowry Range, after deducting the royalty payment to the Land Board.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the Wastewater Agreement, the District is entitled to 10% of our wastewater service
charge revenue (not including wastewater tap fees) from customers on the Lowry Range. The Land
Board does not receive a royalty from wastewater services.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Lowry Range Customers</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">For services to customers located on the Lowry Range, the District collects fees from customers,
pays the royalties to the Land Board, retains its own fee, and remits the remainder to us. Water
service related payments from customers on the Lowry Range generate royalties to the Land Board at
a rate of 12% of gross revenues. When either (i)&nbsp;metered production of water used on the Lowry
Range in any calendar year exceeds 13,000 acre-feet or (ii)&nbsp;10,000 surface acres on the Lowry Range
have been rezoned to non-agricultural use, finally platted and water tap agreements have been
entered into with respect to all improvements to be constructed on such acreage, the Land Board may
elect, at its option, to receive, in lieu of its royalty of 12% of gross revenues, 50% of the net
profits derived by the District and Pure Cycle after the Land Board&#146;s election from the sale or
other disposition of water on the Lowry Range. To date neither of these conditions has been met and
such conditions are not likely to be met any time soon.
</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: 7.20in">




<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Export Water Customers</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Payments for Export Water also generate royalty payments to the Land Board. These royalties vary
depending on a number of factors. When we withdraw, treat and deliver water to customers located
off the Lowry Range, incurring the costs related to this process, royalties to the Land Board are
based on our &#147;Net Revenues,&#148; (which are defined as: gross revenues less costs, including reasonable
overhead allocations, incurred as a direct and indirect result of incremental activity associated
with the withdrawal, treatment and delivery of the water). Royalties payable to the Land Board for
Export Water sales escalate based on the amount of Net Revenue we receive and are lower for sales
to a water district or similar municipal or public entity than for sales to a private entity as
noted in Table C:
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Table C &#151; Royalties for Export Water Sales
</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="72%">&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">Royalty Rate</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Private</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Public</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Net Revenues</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Entity</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Entity</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">$0 &#150; $45,000,000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">12</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$45,000,001 &#150; $60,000,000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">24</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">20</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$60,000,001 &#150; $75,000,000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">36</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">30</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$75,000,001 &#150; $90,000,000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">48</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">40</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Over $90,000,000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">50</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">50</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Our Current Operations</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We designed, built and operate water and wastewater systems that serve customers both on the Lowry
Range as well as customers off the Lowry Range including the Arapahoe County Fairgrounds.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">During fiscal 2009 we delivered approximately 33.9&nbsp;million gallons of potable water to our
customers. On average, this equates to approximately 830,000 gallons per month during the winter
and over six (6)&nbsp;million gallons per month during the summer. Our wastewater treatment facility
has a permitted capacity of 130,000 gallons per day and currently receives about 40,000 gallons per
day.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We operate and maintain all of our water and wastewater facilities with limited assistance from
third party contractors. We designed, constructed and operate the facilities serving customers on
the Lowry Range and plan to operate this system, together with facilities serving customers in
areas outside the Lowry Range, in an integrated manner to capitalize on economies of scale and
ensure the most efficient use of our water. Currently we provide service to approximately 247
single family equivalent water connections and 157 single family wastewater connections both on and
off the Lowry Range.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Table D lists the customers which accounted for 10% of more of our revenues for the fiscal years
ended August&nbsp;31, 2009, 2008 and 2007, respectively.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Table D &#151; Significant Customers
</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="10" style="border-bottom: 1px solid #000000">% of Water Usage Fees</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">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ridgeview Youth Services Center</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">72</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">71</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">67</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Schmidt Aggregates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">13</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">15</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">20</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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Combined</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">85</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">86</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">87</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="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="10" style="border-bottom: 1px solid #000000">% of Wastewater Service Fees</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">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ridgeview Youth Services Center</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</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>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->10<!-- /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: 7.20in">


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Our Projected Operations</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">This section should be read in conjunction with <I>Item&nbsp;1A &#150; Risk Factors</I>.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We design, construct and operate our existing and future water and wastewater facilities using
advanced water purification and wastewater treatment technologies which allow us to use our water
supplies in an efficient and environmentally friendly manner. We plan to develop our water and
wastewater systems in stages to efficiently meet increasing demands in our service areas, thereby
reducing the amount of up-front capital costs required for construction. We use third party
contractors to construct our facilities as needed. We employ licensed water and wastewater
operators to operate our water and wastewater systems. As our systems expand, we expect to hire
additional personnel to operate our systems, read meters, bill customers, and manage our
operations. We plan to take advantage of advanced technologies, such as systems that enable meter
readings and billings to be done remotely, to keep labor and other operating costs low.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our water and wastewater systems conjunctively use surface and groundwater supplies and storage of
raw water and highly treated effluent supplies to provide a balanced sustainable water supply for
our customers. Integrating conservation efforts with effective water reuse makes our water and
wastewater systems environmentally responsible.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our Denver based supplies are a valuable, locally available, resource located near the point of
use. This enables us to incrementally develop infrastructure to produce, treat and deliver water
to customers based on their growing demands. Adding our locally available supplies to our
intermediate and longer term supplies from the Arkansas River balances both current and ongoing
supplies to meet the growing water demands in the Front Range market.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our Arkansas River supplies are located in southeast Colorado and will require an approximately
130-mile pipeline and water treatment and pumping facilities with an estimated cost of over $500
million to deliver the water to Front Range customers. We are currently investigating various
pipeline alignments and potential partnerships for construction of these facilities. We are also
in discussion with the Arkansas Valley Super Ditch which is studying the feasibility of developing
a system-wide mechanism to transfer water from the Arkansas River basin to water short regions
through a rotational crop fallowing program. Converting the Arkansas Water to municipal use and
constructing a delivery system will be a long-term process, but one which will allow us to work
closely with those who might benefit or otherwise be impacted by any water transfers. The
development of this water will require us to apply for a change of use application in the Water
Court which is anticipated to take from one to more than three years and require a significant
capital investment. However, we do not plan on starting this process in the near term and
anticipate that the tap fees and usage fees from taps sold utilizing our Rangeview Water Supply,
along with funding from other pipeline partners, will be sufficient to fund the water delivery
facilities.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Based on our initial development plans, we expect the development of our Rangeview Water Supply to
require a significant number of high capacity deep water wells. We anticipate drilling separate
wells into each of the three principal aquifers located beneath the Lowry Range. Each well is
intended to deliver water to central water treatment facilities for treatment prior to delivery to
customers. Development of our Lowry Range surface water supplies will require facilities to divert
surface water to storage reservoirs to be located on the Lowry Range and treatment facilities to
treat the water prior to introduction into our distribution systems. Surface water diversion
facilities will be designed with capacities to divert the surface water when available
(particularly during seasonal events such as spring run-off and summer storms). Based on
preliminary engineering estimates, the full build-out of water facilities (including diversion
structures, transmission pipelines, reservoirs, and water treatment facilities) on the Lowry Range
will cost in excess of $340&nbsp;million and will accommodate water service to customers located in and
outside the Lowry Range.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Rangeview Metropolitan District</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The District is a quasi-municipal corporation and political subdivision of Colorado formed in 1986
for the purpose of providing water and wastewater service to the Lowry Range. The District is
required to utilize the 13,400 acre-feet of water leased to it by the Land Board to serve customers
on the Lowry Range.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The District is run by an elected board of directors. The only eligible voters and the only persons
eligible to serve as directors are the owners of property within the boundaries of the District. We
own certain rights to the real property which encompasses the current boundaries of the District.
The current directors of the District are Mark W. Harding and Scott E. Lehman (both employees of
Pure Cycle), and an independent board member.
</DIV>

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</DIV>

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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We are party to a Right of First Refusal Agreement with the owners of the property comprising the
District. Pursuant to a tenancy in common agreement, in the event of death, bankruptcy or
incompetence of any tenant, that tenant&#146;s estate or representative must offer the property interest
of that tenant to the remaining tenants for purchase. If the remaining tenants do not purchase all
of such person&#146;s interest, the property must be offered to us pursuant to the Right of First
Refusal Agreement. In addition, if any tenant wants to sell his interest in the parcel, such tenant
must find a bona fide buyer and then offer the property to us. We have the right, at our option, to
buy the property by matching the terms of the bona fide third party offer or by paying the
appraised value of the property as determined by independent appraisers. A tenant may also
negotiate a sale directly with us if he elects not to locate a bona fide buyer. Each of the
directors listed above currently owns an undivided interest in the land comprising the District.
Under applicable Colorado law, entities are not qualified to serve as directors of municipal
districts and may not vote. Our President and Corporate Secretary serve as elected members of the
board of directors of the District. Pursuant to Colorado law, directors receive $100 for each board
meeting or a maximum of $1,600 per year.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We and the District&#146;s board of directors transact business on an arms-length basis. Potential
conflicts of interest of the directors in transactions between us and the District are disclosed in
filings with the Colorado Secretary of State. The District and we were each represented by separate
legal counsel in negotiating the Rangeview Water Agreements and those agreements were approved by
the independent members of the District&#146;s board and by the Land Board at the time they were entered
into.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">It is likely that at some point in the future, the District&#146;s board of directors will be comprised
entirely of independent directors. As the Land Board develops the Lowry Range, landowners on the
Lowry Range may petition to include their land within the District&#146;s boundaries. Provided such
petition complies with applicable law, the District is required by the Rangeview Water Service
Agreements to proceed with due diligence to include the area designated in such petition within the
District&#146;s boundaries. As the District&#146;s boundaries expand, the base of persons eligible to serve
as directors and eligible to vote will also increase.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Water and Growth in Colorado</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In 2009, the Colorado economy, much like that of the US as a whole, has experienced a continuing
recession. Housing starts fell nearly 60% over the prior year and the unemployment rates rose to
7.3% in August&nbsp;2009, as compared to 4.9% in August&nbsp;2008. Despite this, the Denver Regional Council
of Governments (&#147;DRCOG&#148;), a voluntary association of over 50 county and municipal governments in
the Denver metropolitan area, estimates that the Denver metropolitan area population will increase
by about 44% from today&#146;s 2.7&nbsp;million people to 3.9&nbsp;million people by the year 2030. A recent
Statewide Water Supply Initiative report by the Colorado Water Conservation Board estimates that
the South Platte River basin, which includes the Denver metropolitan region, will grow from a
current population of approximately 3.2&nbsp;million to approximately 4.9&nbsp;million by the year 2030;
while the state populations increases from 4.7&nbsp;million to 7.2&nbsp;million. Accordingly, approximately
70% of the projected state population increase is anticipated to occur within the South Platte
River basin. Significant increases in Colorado&#146;s population, particularly in the Denver metro
region and other areas in the water short South Platte River basin, together with increasing
agricultural, recreational, and environmental water demands will intensify competition for water
supplies. Estimated population increases brings increased demand for water services; exceeding
what municipal service providers are currently capable of providing especially during drought
conditions. The Statewide Water Supply Initiative estimates that population growth in the Denver
region and the South Platte River Basin will result in additional water supply needs of over
400,000 acre feet by the year 2030, which must be met with new water sources. Many cities and
municipalities require property developers to demonstrate they have sufficient water supplies for
their proposed projects before considering rezoning or annexation applications. Based on this, we
focus our water marketing activities to developers and homebuilders that are active along the
Colorado Front Range as well as other area water providers in need of additional supplies.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Colorado&#146;s future water supply needs will be met through conservation, reuse and the development of
new supplies. Our rules and regulations for water and wastewater service call for adherence to
strict conservation measures, including low flow water fixtures, high efficiency appliances, and
advanced irrigation control devices. Additionally, our systems are designed and constructed using
a dual-pipe water distribution system that has one pipe to supply customers with high quality
potable drinking water and a second pipe to supply raw or reclaimed water for irrigation.
Typically, about one-half of the water needed to meet Denver-area residential water demands is used
for lawn and outdoor landscape irrigation. Along with most major water providers, we believe that
raw or reclaimed water supplies provide the lowest cost water for irrigation. Our
systems will include an extensive water reclamation system, in which essentially all effluent water
from wastewater treatment plants will be reused to meet non-potable water demands. This will
enhance our ability to provide quality water service and reinforce the importance of water reuse
and our commitment to environmentally responsible water management policies.
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We negotiate individual service agreements with developers and/or homebuilders, cities and
municipalities to design, construct and operate water and wastewater systems and to provide
services. These service agreements address all aspects of the development of the water and
wastewater systems including:
</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">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The purchase of water and wastewater taps in exchange for our obligation to construct the
Wholesale Facilities,</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">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The establishment of payment terms, timing, capacity and location of Special Facilities (if
any), 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">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Specific terms related to our provision of ongoing water and wastewater services.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Although we have exclusive long-term water and wastewater service contracts for the majority of the
Lowry Range (we currently have the exclusive rights to serve two of the six development sections
currently proposed at the Lowry Range), providing water service using our Export Water and Arkansas
River water is subject to competition. Moreover, competitors have attempted to challenge our
exclusive rights to service the Lowry Range. See <I>Item&nbsp;1A &#150; Risk Factors &#150; Lowry Range </I>below.
Alternate sources of water are available, principally from other private parties, such as farmers
or others owning senior water rights that have historically been used for agriculture, and from
municipalities seeking to annex new development areas in order to increase their tax base. Our
principal competition in areas close to the Lowry Range is the City of Aurora, which has the
ability to offer potential purchasers incentives, such as annexation and tax credits, which we
cannot. The other principal factors affecting competition for potential purchasers of our Arkansas
River water and Export Water include the availability of water for the particular purpose, the cost
of delivering the water to the desired location and the reliability of the water supply during
drought periods. We believe the water assets we own and have the exclusive right to use, which have
a supply capacity of approximately 180,000 SFE units, provide us a significant competitive
advantage along the Front Range. Our legal rights to the Rangeview Water Supply have been
confirmed for municipal use and a significant portion of our water supply is close to Denver area
water users. Our pricing structure is competitive and our water portfolio is well balanced with
senior surface water rights, groundwater rights, storage capacity and reclaimed water supplies.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We currently have three full-time employees and one part-time employee.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Available Information and Website Address</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our website address is <U><I>www.purecyclewater.com</I></U>. We make available free of charge through
our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and all amendments to these reports as soon as reasonably practicable after filing with the
SEC. They also may be obtained directly from the SEC&#146;s website,
<U><I>www.sec.gov/edgar/searchedgar/companysearch.html</I></U>, under CIK code <B><I>276720</I></B>. The contents of
our website are not incorporated by reference into this report.
</DIV>

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

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B>Item&nbsp;1A &#151; Risk Factors</B></U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our business, operations, and financial condition are subject to significant risks. These risks
include those listed below and may include additional risks of which we are not currently aware or
which we currently do not believe are material. If any of the events or circumstances described in
the following risk factors actually occurs, our business could be materially adversely affected.
These risks should be read in conjunction with the other information set forth in this report.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>We are dependent on the development of the Lowry Range, Sky Ranch, and other areas near our
Rangeview Water Supply that are potential markets for our Rangeview Water Supply.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Providing water service using our Rangeview Water Supply is one of our principal sources of future
revenue. The timing and amount of these revenues will depend significantly on the development of
the Lowry Range, Sky Ranch and other potential developments near our Rangeview Water Supply and
along the Colorado Front Range. The development of these areas is not within our control.
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As noted in <I>Item&nbsp;1 &#150; Business</I>, in June&nbsp;2007, the Land Board entered into an agreement with a
developer for the sole development rights of six sections (or approximately 3,900 acres) of the
Lowry Range. Of this, approximately two sections (or approximately 1,300 acres) were subject to
our service rights under the Lease. In January&nbsp;2009, the developer withdrew from the development
agreement. The Land Board continues to own the property, however; we are not aware of any other
projects planned by the Land Board and it may be some time before the Land Board commences another
project. Even if the Land Board does proceed with another development plan, there can be no
assurance that development will occur or that water sales will occur on acceptable terms or in the
amounts or time required for us to support our costs of operation.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Additionally, certain of our rights on the Lowry Range have been challenged. On June&nbsp;1, 2009, the
Colorado Supreme Court upheld the decision of the Water Court requiring the City of Aurora to
remove certain reservoir sites from its Water Court applications because the reservoir sites were
already adjudicated to us pursuant to agreements with the Land Board. While Aurora has been
unsuccessful so far in obtaining rights to the adjudicated reservoirs under the Lease, additional
legal action may become necessary to enforce our rights to the reservoirs and to provide water and
wastewater service to the Lowry Range. If additional legal proceedings become necessary and our
rights under the Lease are adversely ruled upon in such legal proceedings, it could materially
adversely impact the value of our interests, including the value of our Rangeview Water Supply.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our surface water interests and reservoirs sites at the Lowry Range are conditional decrees and are
subject to a Finding of Reasonable Diligence from the Water Court every six years. To arrive at
that finding, the Water Court must determine that we, together with the Land Board, continue to
diligently pursue the development of the water rights. If the Water Court is unable to make such a
finding, these portions of the Lowry Range water supply could be lost. The Lowry Range conditional
decrees are currently under their first review by the Water Court to determine if such decrees meet
the diligence criteria. If the Water Court does not make a determination of reasonable diligence,
it would materially adversely impact the value of our interests in the Rangeview Water Supply.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Because of the prior use of the Lowry Range as a military facility, environmental clean-up may be
required prior to development, including the removal of unexploded ordnance. There is often
significant delay in adoption of development plans, as the political process involves many
constituencies with differing interests. In the event water sales are not forthcoming or
development of the Lowry Range is delayed indefinitely, we would need to incur additional short or
long-term debt obligations or seek to sell additional equity to generate operating capital, and
there are no assurances that we would be successful in obtaining additional operating capital. In
addition, the Land Board may not develop large portions of the Lowry Range significantly limiting
our ability to utilize the non-Export Water specifically reserved for use on the Lowry Range.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The developer of Sky Ranch has filed a plan of liquidation in bankruptcy court, which remains
pending. There has been no resolution of our claims against the developer of Sky Ranch and we do
not know how the liquidation will impact our agreements with Sky Ranch or the Sky Ranch property.
The Sky Ranch Agreements could be rejected in the bankruptcy proceeding leaving us with unsecured
damage claims which would likely have little or no value. In addition to our claims against the
developer, a bank holds a security interest in the entire Sky Ranch development, including our
agreements. We are not aware of the bank&#146;s intentions with respect to its rights in the
development. Until these issues are resolved, there will be no development and consequently no
sales of water taps or water at Sky Ranch. We cannot reasonably predict how long this process will
take or whether any of our rights related to Sky Ranch will have any value following the
liquidation of the Sky Ranch developer.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>The Colorado housing market and economic conditions could adversely affect our operations.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our operations are affected by general economic conditions and the pace and location of real estate
development activities in the greater Denver metropolitan area, most particularly areas which are
close to our Rangeview Water Supply. Since 2006, the Colorado housing market has seen significant
declines in new construction, which could continue for some time. The current instability in the
credit markets has exacerbated the decline in demand for new homes. New connections to our water
and wastewater systems depend on real estate development in our service areas. We have no ability
to control the pace and location of real estate development activities which affect our business.
If the downturn in the homebuilding and credit markets continues, intensifies, or if the national
economy weakens further and economic concerns intensify, it could have a significant negative
impact on our business.
</DIV>

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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>We are involved in on-going discussion with the Land Board to clarify our rights and obligations
with respect to our Rangeview Water Supply and such negotiations may not be successful.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our Rangeview Water Supply rights derive principally from the Lease between the Land Board and the
District which was entered into in 1996 prior to any development of the Lowry Range or of areas
outside the Lowry Range that utilize our Export Water. The terms of the Lease did not fully
anticipate the specific circumstances of development that have arisen and may not clearly delineate
rights and responsibilities for the forms of transactions that may arise in the future. We are
involved in ongoing discussions with the Land Board to clarify the terms of the Lease. An
unfavorable outcome in such discussion could have a material adverse effect on our financial
results.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>In order to utilize the Arkansas River water acquired in fiscal 2006, we must apply for a change of
use with the Water Court and this may take several years to complete.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The change of use of our Arkansas River water requires a favorable ruling by the Water Court, which
could take several years and be a costly and contentious effort since it is anticipated that many
parties will oppose the change of use and the transfer of the water. There are several conditions
which must be satisfied prior to our receiving a change of use decree for transfer of our Arkansas
River water. One condition that we must satisfy is a showing of anti-speculation in which we, as
the applicant, must demonstrate that we have contractual obligations to provide water service to
customers prior to the Water Court ruling on the transfer of a water right. The Water Court is also
expected to limit the transfer to the &#147;consumptive use&#148; portion of the water right and to address
changing the historic use of the water from agricultural uses to other uses such as municipal and
industrial use. We expect to face opposition to any consumptive use calculations of the historic
agricultural uses of this water. The Water Court may impose conditions on our transfer of the water
rights such as requiring us to mitigate the loss of the farming tax base, imposing re-vegetation
requirements to convert soils from irrigated to non-irrigated, and imposing water quality measures.
Any such conditions will likely increase the cost of transferring the water rights.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>We may not be able to obtain sufficient capital to develop our water rights, in particular the
Arkansas River water.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Development of water rights requires a substantial capital investment. We anticipate financing
water and wastewater systems primarily through the sale of water taps and water delivery charges to
users. However, we cannot assure you that these sources of cash will be sufficient to cover our
capital costs. Moreover, the development of the Arkansas River water will require a pipeline and
other infrastructure to deliver the water to the Front Range, which is anticipated to cost over
$500&nbsp;million. We likely would be required to partner with others to finance a project of this
magnitude and there is no assurance we would be able to obtain the financing necessary to develop
our Arkansas River water.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Our valuation of the Tap Participation Fee payable to HP A&#038;M contains estimates and management
assumptions. The actual results could differ significantly from those estimates.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As part of our acquisition of the Arkansas River water rights from HP A&#038;M, we granted HP A&#038;M a tap
participation fee entitling HP A&#038;M to receive ten percent (10%) of the gross proceeds of our sales
of forty thousand (40,000) water taps (the &#147;Tap Participation Fee&#148;). For accounting purposes we
have estimated the fair value of the Tap Participation Fee payable to HP A&#038;M using available
historic market information and estimated future market data and projections. We believe the
estimates we used reasonably reflect the fair value of the Tap Participation Fee. Accounting
estimates involve matters of uncertainty and judgment and interpreting relevant market data is
inherently subjective in nature. 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, tap fee increases at our rate-base districts, and other market forces beyond our control.
The actual results could differ materially from the accounting estimates reflected in our balance
sheet which would result in significant changes to the fees being paid to HP A&#038;M and to the imputed
interest being reflected on our future statements of operations associated with the Tap
Participation Fee.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>In the event of default by HP A&#038;M on any of the promissory notes secured by deeds of trust on our
properties, we would be required to cure the defaults or lose the properties.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Certain of the real properties we acquired from HP A&#038;M are subject to promissory notes, aggregating
approximately $12.0&nbsp;million in principal and interest as of August&nbsp;31, 2009. The notes are secured
by deeds of trust on the properties we own, but
are solely the responsibility of HP A&#038;M. Because of HP A&#038;M&#146;s financial position and the
substantial penalties imposed on HP A&#038;M in the event of a default, the likelihood of HP A&#038;M
defaulting on the notes is deemed remote. As a result the promissory notes are not reflected on
our balance sheet. However, if HP A&#038;M was to default on any of the notes, and the defaults were
not cured, we would lose up to approximately 60 of the 80 real properties we acquired which equates
to approximately 75% of our Arkansas River water rights.
</DIV>

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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Our net losses may continue and we may not have sufficient liquidity to pursue our business
objectives.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We have experienced significant net losses and could continue to incur net losses. For the fiscal
years ended August&nbsp;31, 2009, 2008 and 2007, we had net losses of approximately $5.7&nbsp;million, $6.9
million and $6.9&nbsp;million, respectively, on revenues of approximately $260,200, $282,400 and
$265,700, in the respective periods. Our cash flows from operations have not been sufficient to
fund our operations in the past, and we have been required to raise debt and equity capital to
remain in operation. Since 2004, we have raised approximately $21.5&nbsp;million through the issuance of
common stock to support our operations. Our ability to fund our operational needs and meet our
business objectives will depend on our ability to generate cash from future operations. If our
future cash flows from operations and other capital resources are not sufficient to fund our
operations and the significant capital expenditure requirements to build our water delivery
systems, we may be forced to reduce or delay our business activities, or seek to obtain additional
debt or equity capital, which may not be available on acceptable terms, or at all.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>The rates we are allowed to charge customers on the Lowry Range are limited by the Lease with the
Land Board and our contract with the District and may not be sufficient to cover our costs of
construction and operation.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The prices we can charge for our water and wastewater services on the Lowry Range are subject to
pricing regulations set in the Lease with the Land Board. Both the tap fees and our usage rates
and charges are capped at the average of the rates of three surrounding water providers. Annually
we survey the tap fees and rates of the surrounding providers and we typically adjust our tap fees
and rates and charges based on the average of those charged by this group. Our costs associated
with the construction of water delivery systems and the production, treatment and delivery of our
water are subject to market conditions and other factors, which may increase at a significantly
greater rate than the prices charged by the three surrounding providers. Factors beyond our
control and which cannot be predicted, such as drought, water contamination and severe weather
conditions, like tornadoes and floods, may result in additional labor and material costs that may
not be recoverable under our rate structure. Either increased customer demand or increased water
conservation may also impact the overall cost of our operations. If the costs for construction and
operation of our water services, including the cost of extracting our groundwater, exceed our
revenues, we would be providing service to the Lowry Range at a loss. We may petition the Land
Board for rate increases; however, there can be no assurance that the Land Board would approve a
rate increase request.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>We have three full time employees and may not be able to manage the increasing demands of our
expanding operations.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We currently have three employees to administer our existing assets, interface with applicable
governmental bodies, market our services and plan for the construction and development of our
future assets. We may not be able to maximize the value of our water assets because of our limited
manpower. We depend significantly on the services of Mark W. Harding, our President. The loss of
Mr.&nbsp;Harding would cause a significant interruption of our operations. The success of our future
business development and ability to capitalize on growth opportunities depends on our ability to
attract and retain additional experienced and qualified persons to operate and manage our business.
State regulations set the training, experience and qualification standards required for our
employees to operate specific water and wastewater facilities. Failure to find state-certified and
qualified employees to support the operation of our facilities could put us at risk, among other
things, for operational errors at the facilities, for improper billing and collection processes,
and for loss of contracts and revenues. We cannot assure you that we can successfully manage our
assets and our growth.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>We may be adversely affected by any future decision by the Colorado Public Utilities Commission to
regulate us as a public utility.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Colorado Public Utilities Commission (&#147;CPUC&#148;) regulates investor-owned water companies
operating for the purpose of supplying water to the public. The CPUC regulates many aspects of
public utilities&#146; operations, including establishing water rates and fees, initiating inspections,
enforcement and compliance activities and assisting consumers with complaints.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We do not believe we are a public utility under Colorado law. We currently provide services by
contract to the District, which supplies the public. Quasi-municipal metropolitan districts, such
as the District, are exempt by statute from regulation by the CPUC. However, the CPUC could attempt
to regulate us as a public utility. If this were to occur, we might incur significant expense
challenging the CPUC&#146;s assertion of jurisdiction, and we may be unsuccessful. In the future,
existing regulations may be revised or reinterpreted, and new laws and regulations may be adopted
or become applicable to us or our facilities. If we become regulated as a public utility, our
ability to generate profits could be limited and we might incur significant costs associated with
regulatory compliance.
</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: 7.20in">




<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>There are many obstacles to our ability to sell our Paradise Water Supply.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We currently earn no revenues from our Paradise Water Supply, which as of August&nbsp;31, 2009 has a
recorded cost of approximately $5.5&nbsp;million. Our ability to convert our Paradise Water Supply into
an income generating asset is limited. Due to the cost of developing western slope water and
agreements with other western slope water interests, our use of the Paradise Water Supply is
limited to opportunities along the western slope. As part of our Water Court decree for the
Paradise Water Supply, we are permitted to construct a storage facility on the Colorado River.
However, due to a stipulation entered into with various objectors to our Paradise Water rights and
the strict regulatory requirements for constructing a reservoir on the main stem of the Colorado
River, we do not anticipate completing the storage facility at its decreed location. We cannot
assure you that we will ever be able to make use of this asset or sell the water profitably.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our Paradise Water Supply is also conditioned on a Finding of Reasonable Diligence from the Water
Court every six years. To arrive at that finding, the Water Court must determine that we continue
to diligently pursue the development of the water rights. If the Water Court is unable to make such
a finding, our right to the Paradise Water Supply would be lost and we would be required to impair
the Paradise Water Supply asset and incur a $5.5&nbsp;million charge against earnings. The fiscal 2005
review was completed in 2008 but not without objectors and not without us having to agree to
certain stipulations to remove the objections. In order to continue to maintain the Paradise water
right, over the next six years we must (i)&nbsp;select an alternative reservoir site; (ii)&nbsp;file an
application in Water Court to change the place of storage; (iii)&nbsp;identify specific end users and
place(s) of use of the water; and (iv)&nbsp;identify specific source(s) of the water rights for use.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Conflicts of interest may arise relating to the operation of the District.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our officers and employees constitute a majority of the directors of the District. Pure Cycle,
along with our officers and employees and one unrelated individual, own, as tenants in common, the
40 acres that form the District. We have made loans to the District to fund its operations. At
August&nbsp;31, 2009, total principal and interest owed to us by the District was approximately
$507,800. The District is a party to our agreements with the Land Board and receives fees of 5% of
the revenues from the sale of water on the Lowry Range. Proceeds from the fee collections will
initially be used to repay the District&#146;s obligations to us, but after these loans are repaid, the
District is not required to use the funds to benefit Pure Cycle. We have received benefits from
our activities undertaken in conjunction with the District, but conflicts may arise between our
interests and those of the District, and with our officers who are acting in dual capacities in
negotiating contracts to which both we and the District are parties. We expect that the District
will expand when more properties are developed and become part of the District, and our officers
acting as directors of the District will have fiduciary obligations to those other constituents.
There can be no assurance that all conflicts will be resolved in the best interests of Pure Cycle
and its shareholders. In addition, other landowners coming into the District will be eligible to
vote and to serve as directors of the District. There can be no assurances that our officers and
employees will remain as directors of the District or that the actions of a subsequently elected
board would not have an adverse impact on our operations.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>We are required to maintain stringent water quality standards and are subject to regulatory and
environmental risks.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We must provide water that meets all federal and state regulatory water quality standards and
operate our water and wastewater facilities in accordance with these standards. We face
contamination and pollution issues regarding our water supplies. Improved detection technology,
increasingly stringent regulatory requirements, and heightened consumer awareness of water quality
issues contribute to an environment of increased focus on water quality. We cannot assure you that
in the future we will be able to reduce the amounts of contaminants in our water to acceptable
levels. In addition, the standards that we must meet are constantly changing and becoming more
stringent. Future changes in regulations governing the supply of drinking water and treatment of
wastewater may have a material adverse impact on our financial results.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In October&nbsp;2009, the Water Quality Control Division of the Colorado Department of Public Health and
Environment advised us of proposed changes to the discharge permit for the District&#146;s Coal Creek
wastewater reclamation facility. The revised permit requires compliance with effluent ammonia
limitations, use of E. coli rather than fecal coliform as an indicator of effluent disinfection
efficacy, and a more stringent (lower)&nbsp;effluent chlorine residual limitation. The revised permit
establishes a schedule for complying with the new criteria and although we do not anticipate having
significant difficulties complying with the revised permit, future requirements may be more costly
and difficult.
</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: 7.20in">




<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our water supplies are subject to contamination, including contamination from naturally
occurring compounds, pollution from man-made sources and intentional sabotage. In addition, we
handle certain hazardous materials at our water treatment facilities, primarily sodium
hypochlorite. Any failure of our operation of the facilities or any contamination of our supplies
in the future, including sewage spills, noncompliance with water quality standards, hazardous
materials leaks and spills, and
similar events could expose us to environmental liabilities, claims
and litigation costs. If any of these events occur, we may have to interrupt the use of that water
supply until we are able to substitute the supply from another source or treat the contaminated
supply. We cannot assure you that we will successfully manage these issues, and failure to do so
could have a material adverse effect on our future results of operations. We might not be able to
recover the costs associated with these liabilities through our rates and charges or insurance or
such recovery may not occur in a timely manner.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Our contracts for the construction of water and wastewater projects may expose us to certain
completion and performance risks.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We intend to rely on independent contractors to construct our water and wastewater facilities.
These construction activities may involve risks, including shortages of materials and labor, work
stoppages, labor relations disputes, weather interference, engineering, environmental, permitting
or geological problems and unanticipated cost increases. These issues could give rise to delays,
cost overruns or performance deficiencies, or otherwise adversely affect the construction or
operation of our water and wastewater delivery systems.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In addition, we may experience quality problems in the construction of our systems and facilities,
including equipment failures. We cannot assure you that we will not face claims from customers or
others regarding product quality and installation of equipment placed in service by contractors.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Certain of our contracts may be fixed-price contracts, in which we may bear all or a significant
portion of the risk for cost overruns. Under these fixed-price contracts, contract prices are
established in part based on fixed, firm subcontractor quotes on contracts and on cost and
scheduling estimates. These estimates may be based on a number of assumptions, including
assumptions about prices and availability of labor, equipment and materials, and other issues. If
these subcontractor quotations or cost estimates prove inaccurate, or if circumstances change, cost
overruns may occur, and our financial results would be negatively impacted. In many cases, the
incurrence of these additional costs would not be within our control.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We may have contracts in which we guarantee project completion by a scheduled date. At times, we
may guarantee that the project, when completed, will achieve certain performance standards. If we
fail to complete the project as scheduled, or if we fail to meet guaranteed performance standards,
we may be held responsible for cost impacts and/or penalties to the customer resulting from any
delay or for the costs to alter the project to achieve the performance standards. To the extent
that these events occur and are not due to circumstances for which the customer accepts
responsibility or cannot be mitigated by performance bonds or the provisions of our agreements with
contractors, the total costs of the project would exceed our original estimates and our financial
results would be negatively impacted.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our customers may require us to secure performance and completion bonds for certain contracts and
projects. The market environment for surety companies has become more risk averse. We secure
performance and completion bonds for our contracts from these surety companies. To the extent we
are unable to obtain bonds; we may not be awarded new contracts. We cannot assure you that we can
secure performance and completion bonds when required.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We may operate engineering and construction activities for water and wastewater facilities where
design, construction or system failures could result in injury to third parties or damage to
property. Any losses that exceed claims against our contractors, the performance bonds and our
insurance limits at such facilities could result in claims against us. In addition, if there is a
customer dispute regarding performance of our services, the customer may decide to delay or
withhold payment to us.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Our business is subject to seasonal fluctuations, which could affect demand for our water service
and our revenues.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Demand for our water during the warmer months is generally greater than during cooler months due
primarily to additional requirements for water in connection with cooling systems, irrigation
systems and other outside water use. Throughout the year, and particularly during typically warmer
months, demand will vary with temperature and rainfall levels. If temperatures during the typically
warmer months are cooler than expected or there is more rainfall than expected, the demand for our
water may decrease and adversely affect our revenues.
</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: 7.20in">




<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Weather conditions and overuse may interfere with our sources of water, demand for water services,
and our ability to supply water to our customers.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We depend on an adequate water supply to meet the present and future demands of our customers and
to continue our expansion efforts. Conditions beyond our control may interfere with our water
supply sources. Drought and overuse may limit the availability of water. These factors might
adversely affect our ability to supply water in sufficient quantities to our customers and our
revenues and earnings may be adversely affected. Additionally, cool and wet weather, as well as
drought restrictions and our customers&#146; conservation efforts, may reduce consumption demands, also
adversely affecting our revenue and earnings. Furthermore, freezing weather may also contribute to
water transmission interruptions caused by pipe and main breakage. If we experience an interruption
in our water supply, it could have a material adverse effect on our financial condition and results
of operations.
</DIV>

<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B>Item&nbsp;1B &#151; Unresolved Staff Comments</B></U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We have no unresolved Staff comments.
</DIV>

<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B>Item&nbsp;2 &#151; Properties</B></U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At the end of August&nbsp;2009, we moved into new office space where we occupy approximately 1,000
square feet at a cost of approximately $1,400, per month, at the address shown on the cover of this
Form 10-K. This is leased pursuant to a three year operating lease agreement with a third party.
Until we moved, we leased approximately 1,000 square feet of office space, for $1,000 per month,
which was leased from the estate of Ryan Clark, the deceased son of our former CEO, which was
located at 8451 Delaware Street, Thornton, CO 80260.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In addition to the water rights we own in the Denver metropolitan area which are described in <I>Item
1 &#151; Our Water Assets</I>, we also own a 500,000 gallon water tank, a deep water well and pump station,
and approximately four miles of water pipeline in Arapahoe County Colorado. Additionally, although
owned by the District, we operate and maintain another 500,000 gallon deep water well, water tank
and pump station, two alluvial wells, the District&#146;s wastewater treatment plant, and water
distribution and wastewater collection pipelines that serve customers located at the Lowry Range.
These assets are used to provide service to our existing customers.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In addition to the real property we own in the Arkansas River Valley as described in <I>Item&nbsp;1 &#151; Our
Water Assets &#150; Arkansas River Water</I>, we also own various water delivery fixtures located on our
real properties. These items consist mainly of irrigation pumps, irrigation ditches, and
irrigation pipelines as well as various structures and agricultural related buildings.
</DIV>

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

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B>Item&nbsp;3 &#151; Legal Proceedings</B></U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We are involved in ordinary and routine litigation concerning certain water rights incident to our
business, none of which are material.
</DIV>

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

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B>Item&nbsp;4 &#151; Submission of Matters to a Vote of Security Holders</B></U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">No matters were submitted to a vote of shareholders during the fiscal quarter ended August&nbsp;31,
2009.
</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: 7.20in">



<DIV align="left">
<A name="108"></A>
</DIV>

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

<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 10pt"><B>Item&nbsp;5 &#151; Market for Registrant&#146;s Common Equity, Related Stockholder</B><BR>
<U><B>Matters and Issuer Purchases of Equity Securities</B></U>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>(a)&nbsp;Market Information</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our common stock is traded on the NASDAQ Capital Market under the symbol &#147;PCYO&#148;. The high and low
sales prices of our common stock, by quarter, for the fiscal years ended August&nbsp;31, 2009 and 2008
are presented with the Selected Quarterly Financial Information in Item&nbsp;8 below.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>(b)&nbsp;Holders</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">On October&nbsp;30, 2009, there were 3,341 holders of record of our common stock.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>(c)&nbsp;Dividends</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We have never paid any dividends on our common stock and expect for the foreseeable future to
retain all of our earnings from operations, if any, for use in expanding and developing our
business. Any future decision as to the payment of dividends will be at the discretion of our board
of directors and will depend upon our earnings, financial position, capital requirements, plans for
expansion and such other factors as our board of directors deems relevant. The terms of our Series
B Preferred Stock prohibit payment of dividends on common stock unless all dividends accrued on the
Series&nbsp;B Preferred Stock have been paid.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>(d)&nbsp;Securities authorized for issuance under equity compensation plans</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Table E &#151; Securities Authorized for Issuance Under Equity Compensation Plans
</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>&nbsp;</TD>
    <TD>&nbsp;</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">Number of securities remaining</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number of securities to</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted-average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">available for future issuance</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">be issued upon exercise</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">exercise price of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">under equity compensation</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">of outstanding options,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">outstanding options,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">plans (excluding securities</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Plan category</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">warrants and rights</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">warrants and rights</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">reflected in column (a))</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">(a)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(b)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(c)</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">Equity compensation plans approved by
security holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,350,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity compensation plans not approved
by security holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,350,000</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: 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>




<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: 7.20in">


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>(e)</B>
<B>Performance Graph</B><SUP style="font-size: 85%; vertical-align: text-top"><B> 1</B></SUP></DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">This graph compares the cumulative total return of our common stock for the last five fiscal years
with the cumulative total return for the same period of the S&#038;P 500 Index and a peer group
index<SUP style="font-size: 85%; vertical-align: text-top">2</SUP>. The graph assumes the investment of $100 in common stock in each of the indices
as of the market close on August&nbsp;31 and reinvestment of all dividends.
</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="28%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&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" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <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>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</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">Pure Cycle Corporation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">40.37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">75.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">94.91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">102.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">91.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">S&#038;P 500</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">102.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">125.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">141.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">122.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">112.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Peer Group</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">128.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">138.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">157.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">150.39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">149.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><IMG src="c92497c9249701.gif" alt="(PERFORMANCE GRAPH)">
</DIV>

<DIV align="left"><DIV style="font-size: 10pt; margin-top: 10pt; width: 18%; border-bottom: 1px solid #000000">&nbsp;</DIV></DIV>


<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR style="font-size: 6pt">
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="96">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">1.</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify">This performance graph is not &#147;soliciting material,&#148; is not deemed &#147;filed&#148; with the
Commission and is not to be incorporated by reference in any of our filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
whether made before or after the date hereof and irrespective of any general incorporation
language in any such filing.</DIV></TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">2.</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify">The Peer Group consists of the following companies that have been selected on the basis
of industry focus or industry leadership: American States Water Company, Aqua America,
Inc., Artesian Resources Corp., California Water Service Group, Connecticut Water Service,
Inc., Middlesex Water Company, Pennichuck Corp., SJW Corp., and The York Water Company.</DIV></TD>
</TR>

</TABLE>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>(f)</B>
<B>Recent Sales of Unregistered Securities</B></DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">There were no sales of unregistered securities during the three months ended August&nbsp;31, 2009.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->21<!-- /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: 7.20in">






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

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B>Item&nbsp;6 &#151; Selected Financial Data</B></U>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 10pt">Table F &#151; Selected Financial Data
</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 nowrap align="center" colspan="18" style="border-bottom: 1px solid #000000">For the Fiscal Years Ended August 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><I>In thousands (except per share data)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <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>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</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">Summary Statement of Operations items:</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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">260.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">282.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">265.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">271.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">234.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,728.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(6,926.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(6,914.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(792.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,050.9</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic and diluted loss per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.28</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.34</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.37</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.05</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.08</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,590</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,694</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,674</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</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 nowrap align="center" colspan="18" style="border-bottom: 1px solid #000000">As of August 31,</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">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <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>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</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">Summary Balance Sheet Information:</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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,990.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,502.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,288.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,121.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,740.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">108,091.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">109,899.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">111,891.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">108,833.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">26,046.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">138.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">163.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">183.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">380.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">689.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Long term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60,183.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">56,567.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53,863.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53,789.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,004.3</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 align="left">$</TD>
    <TD align="right">60,321.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">56,731.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">54,047.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">54,169.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,693.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">47,769.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53,167.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">57,844.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">54,664.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,352.7</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR style="font-size: 6pt">
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="96">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify">As restated</DIV></TD>
</TR>

</TABLE>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We did not declare or pay any cash dividends in any of the five fiscal years presented.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The following items had a significant impact on our operations:
</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">In fiscal 2009, 2008 and 2007, respectively, we imputed approximately $3.7&nbsp;million, $4.4
million and $4.7&nbsp;million of interest related to the Tap Participation Fee payable to HP A&#038;M
(explained further in Note 8 to the accompanying financing statements).</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">In fiscal 2009, we recognized gains on the sale of non-irrigated land totaling
approximately $59,700.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
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    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">In fiscal 2008 and 2007, respectively, we recognized approximately $273,700 of losses and
$1.04&nbsp;million of gains related to the acquisition of certain CAA interests (explained further
in Note 6 to the accompanying financial statements). In the 2007 acquisitions, certain of the
parties were deemed related to the Company and therefore, approximately $765,100 of this gain
was recorded as a contribution of capital in fiscal 2007. The remaining $271,100 of gain is
included in the statement of operations.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
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    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">In fiscal 2006, we acquired water and real property interests in the Arkansas River Valley.
The consideration for these assets consisted of equity valued at approximately $36.2&nbsp;million,
and a Tap Participation Fee agreement valued at approximately $45.7&nbsp;million (at August&nbsp;31,
2006), which is payable when we sell water taps. The total consideration of approximately
$81.9&nbsp;million was allocated to the acquired assets based on each asset&#146;s relative fair value.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
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    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">In fiscal 2006, we recognized $390,900 of gain related to the extinguishment of debt and
the acquisition of certain CAA interests.</DIV></TD>
</TR>

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

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B>Item&nbsp;7 &#151; Management&#146;s Discussion and Analysis of Financial Condition and Results of Operation</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><U>Overview</U>

</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>The discussion and analysis below includes certain forward-looking statements that are subject to
risks, uncertainties and other factors, as described in &#147;Risk Factors&#148; and elsewhere in this Annual
Report on Form&nbsp;10-K, that could cause our actual growth, results of operations, performance,
financial position and business prospects and opportunities for this fiscal year and the periods
that follow to differ materially from those expressed in, or implied by, those forward-looking
statements. Readers are cautioned that forward-looking statements contained in this Form&nbsp;10-K
should be read in conjunction with our disclosure under the heading: &#147;SAFE HARBOR STATEMENT UNDER
THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995&#148; on page 4.</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The following Management&#146;s Discussion and Analysis (&#147;MD&#038;A&#148;) is intended to help the reader
understand the results of operations and our financial condition and should be read in conjunction
with the accompanying financial statements and the notes thereto included in <I>Part&nbsp;II, Item&nbsp;8 </I>of
this Annual Report on Form 10-K. The following sections focus on the key indicators reviewed by
management in evaluating our financial condition and operating performance, including the
following:
</DIV>


<DIV style="margin-top: 10pt">
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    <TD><DIV style="text-align: justify">Revenue generated from providing water and wastewater services;</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
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    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Expenses associated with developing our water assets; and</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
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    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Cash available to continue development of our water rights and service agreements.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our MD&#038;A section includes the following items:
</DIV>





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    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Our Business</U> &#150; a general description of our business, our services and our business
strategy.</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">
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    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Critical Accounting Policies and Estimates</U> &#150; a discussion of our critical accounting
policies that require critical judgments, assumptions and estimates.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
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    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Results of Operations</U> &#150; analysis of our results of operations for the three fiscal years
presented in our financial statements. We present our discussion in the MD&#038;A in conjunction with
the accompanying Financial Statements.</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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>Liquidity, Capital Resources and Financial Position</U> &#150; an analysis of our cash position and
cash flows, as well as a discussion of our financing arrangements.</DIV></TD>
</TR>

</TABLE>
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We are a water and wastewater service provider. We contract with land owners, land developers,
home builders, cities, and municipalities to design, construct, operate and maintain water and
wastewater systems using our balanced water portfolio consisting of surface water and groundwater
supplies, surface water storage, aquifer storage, and reclaimed water supplies. We generate cash
flows and revenues by (i)&nbsp;selling taps (connections)&nbsp;to our water and wastewater systems and/or
(ii)&nbsp;monthly service fees and consumption charges from metered deliveries. Tap fee (connection)
charges are a one-time fee typically paid by developers which are used to recoup the cost of the
Company&#146;s water rights and for construction of the various facilities required to withdraw, store,
treat and deliver water to customers and reclaim, store, treat and deliver treated effluent water
to satisfy irrigation demands. Monthly service fees and consumption charges from metered
deliveries of water and flat monthly fees for wastewater are paid by customers &#150; homeowners,
business owners or consumers of water and wastewater services. Monthly service fees include (i)
base monthly fees, (ii)&nbsp;monthly metered water usage fees (both potable and irrigation uses which
are charged at different rates), and (iii)&nbsp;other service related fees. We currently provide water
service to approximately 247 single family equivalent water connections and approximately 157
single family equivalent wastewater connections. During the fiscal years ended August&nbsp;31, 2009,
2008 and 2007, we did not sell any water or wastewater taps. During the fiscal years ended August
31, 2009, 2008 and 2007, we received approximately $137,400, $159,700 and $149,500 from the sale of
water, respectively, and we received approximately $67,000, $67,000 and $60,300 from monthly
wastewater service fees, respectively. Currently all monthly water and wastewater fees are
generated utilizing
our Rangeview Water Supply. See <I>Critical Accounting Policies and Use of Estimates </I>below regarding
our revenue recognition policies.
</DIV>

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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Critical Accounting Policies and Use of Estimates</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America (&#147;GAAP&#148;) requires management to make estimates and assumptions
about future events that affect the amounts reported in the financial statements and accompanying
notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment. Actual results inevitably will differ
from those estimates, and such differences may be material to the financial statements.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The most significant accounting estimates inherent in the preparation of our financial statements
include estimates associated with the timing of revenue recognition, the impairment analysis of our
water rights, management&#146;s valuation of the Tap Participation Fee, and share-based compensation.
Below is a summary of these critical accounting policies.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our revenues consist mainly of tap fees and monthly service fees. As further described in Note 2
to the accompanying financial statements, proceeds from tap sales are deferred upon receipt and
recognized in income based on whether we own or do not own the facilities constructed with the
proceeds. We recognize tap fees derived from agreements for which we construct infrastructure the
customer will own as revenue, along with the associated costs of construction, pursuant to the
percentage-of-completion method. The percentage-of-completion method requires management to
estimate the percent of work that is completed on a particular project, which could change
materially throughout the duration of the construction period and result in significant
fluctuations in revenue recognized during the reporting periods throughout the construction
process. We did not recognize any revenues pursuant to the percentage-of-completion method during
the fiscal years ended August&nbsp;31, 2009, 2008 or 2007.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Tap fees derived from agreements for which we own the infrastructure are recognized as revenue
ratably over the estimated service life of the assets constructed with said fees. Although the cash
will be received up-front and most construction will be completed within one year of receipt of the
proceeds, revenue recognition may occur over 30&nbsp;years or more. Management is required to estimate
the service life, and currently the service life is based on the estimated useful accounting life
of the assets constructed with the tap fees. The useful accounting life of the asset is based on
management&#146;s estimation of an accounting based useful life and may not have any correlation to the
actual life of the asset or the actual service life of the tap. This is deemed a reasonable
recognition life of the revenues because the depreciation of the assets constructed generating
those revenues will be matched with the revenues.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Impairment of Water Assets and Other Long-Lived Assets</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We review our long-lived assets for impairment at least annually or whenever management believes
events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. We measure recoverability of assets to be held and used by a comparison of the
carrying amount of an asset to estimated future undiscounted net cash flows we expect to be
generated by the eventual use of the asset. If such assets are considered to be impaired and
therefore the costs of the assets deemed to be unrecoverable, the impairment to be recognized would
be the amount by which the carrying amount of the assets exceeds the estimated fair value of the
assets.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our water assets will be utilized in the provision of water services which inevitably will
encompass many housing and economic cycles. Our service capacities are quantitatively estimated
based on an average single family home utilizing .4 acre-feet of water per year. Our water
supplies are legally decreed to us through the Water Court. The Water Court decree allocates a
specific amount of water (subject to continued beneficial use) which historically has not changed.
Thus, individual housing and economic cycles typically do not have an impact on the number of
connections we can serve or the amount of water legally decreed to us.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We report assets to be disposed of at the lower of the carrying amount or fair value less costs to
sell.
</DIV>

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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Our Front Range and Arkansas River Water Rights</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We determine the undiscounted cash flows for our Denver based assets and the Arkansas River Valley
assets by estimating tap sales to potential new developments in our service area and along the
Front Range, using estimated future tap fees less estimated costs to provide water services, over
an estimated development period. Actual new home development in our service area and the Front
Range, actual future tap fees, and actual future operating costs, inevitably will vary
significantly from our estimates, which could have a material impact on our financial statements
as well as our results of operations. We performed an impairment analysis as of August&nbsp;31, 2009,
and determined that our Rangeview and Arkansas River water assets were not impaired and their
costs were deemed recoverable. Our impairment analysis is based on development occurring within
areas in which we have service agreements (e.g. Sky Ranch and the Lowry Range) as well as in
surrounding areas including the Front Range, and the I-70 corridor. We estimate that we have the
ability to provide water services to approximately 180,000 SFE&#146;s using our combined Front Range
and Arkansas River water assets which have a carrying value of approximately $97.5&nbsp;million as of
August&nbsp;31, 2009. Based on the carrying value of our water rights, the long term and uncertain
nature of any development plans, current tap fees of $22,500 and estimated gross margins, we
estimate that we would need to add approximately 8,000 new water connections (requiring
approximately 4.8% of our portfolio) to generate net revenues sufficient to recover the costs of
our Front Range and Arkansas River water assets. If tap fees increase 5%, we would need to add
approximately 7,600 new water taps (requiring approximately 4.6% of our portfolio) to recover the
costs of our Front Range and Arkansas River water assets. If tap fees decrease 5%, we would need
to add approximately 8,400 new water taps (requiring approximately 5.0% of our portfolio) to
recover the costs of our Front Range and Arkansas River water assets.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Although the withdrawal of the Lowry Range developer, the Sky Ranch bankruptcy filing, and changes
in the housing market throughout the Front Range have delayed our estimated tap sale projections,
they do not alter our water ownership, nor our service obligation to these properties or the
number of SFE&#146;s we can service.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Our Paradise Water Rights</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Every six years the Paradise Water Supply is subject to a Finding of Reasonable Diligence review by
the Water Court and the State Engineer. For a favorable finding, the Water Court must determine
that we continue to diligently pursue the development of the water rights. If the Water Court does
not make such a finding, our right to the Paradise Water Supply would be lost and we would be
required to impair the Paradise Water Supply asset. The most recent diligence review was started
in our fiscal 2005 and was completed in 2008, but not without objectors and not without us having
to agree to certain stipulations to remove the objections. In order to continue to maintain the
Paradise water right, over the next six years we must (i)&nbsp;select an alternative reservoir site;
(ii)&nbsp;file an application in Water Court to change the place of storage; (iii)&nbsp;identify specific end
users and place(s) of use of the water; and (iv)&nbsp;identify specific source(s) of the water rights
for use. We fully intend to meet the stipulations by the date of the next diligence review.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">For our Paradise Water Supply, we determined the undiscounted cash flows by estimating the
proceeds we could derive from the leasing of the water rights to commercial, industrial, and
agricultural users along the western slope of Colorado, and based on the impairment analysis we
completed at August&nbsp;31, 2009, we believe the Paradise Water Supply is not impaired and the costs
are deemed recoverable.
</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">On August&nbsp;31, 2006, we acquired 60,000 acre-feet of Arkansas River water along with approximately
17,500 acres of real property and other associated rights from HP A&#038;M. Along with common stock
issued to HP A&#038;M, we agreed to pay HP A&#038;M 10% (this may increase to 20% under circumstances
described in Note 8 to the accompanying financial statements) of our tap fees on the sale of the
next 40,000 water taps we sell from and after the date of the Arkansas River Agreement, of which
38,937 water taps remain to be paid as of August&nbsp;31, 2009. The Tap Participation Fee is payable
when we sell water taps and receive funds from such water tap sales or other dispositions of
property purchased in the HP A&#038;M acquisition. The Tap Participation Fee liability is valued by
estimating new home development in our 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 metropolitan area applied to an estimated development pattern supported by historical
development patterns of certain master planned communities in the Denver metropolitan area. This
development pattern was then applied to estimated future water tap fees determined by using
historical water tap fee trends. Based on updated new home activity in
the Denver metropolitan area, we updated the estimated discounted cash flow analysis as of
February&nbsp;28, 2009. Due to a lack of significant changes, no such update was deemed necessary as
of August&nbsp;31, 2009. Actual new home development in our
service area and actual future tap fees
inevitably will vary significantly from our estimates which could have a material impact on our
financial statements as well as our results of operations. An important component in our estimate
of the value of the Tap Participation Fee, which is based on historical trends, is that we
reasonably expect water tap fees to continue to increase in the coming years. Tap fees are a
market based pricing metric which in part demonstrates the increasing costs to acquire and develop
new water supplies. It is thus a market metric which in part demonstrates the increasing value of
our water assets. We continue to assess the value of the Tap Participation Fee liability and
update its valuation analysis whenever events or circumstances indicate the assumptions used to
estimate the value of the liability have changed materially. The difference between the net
present value and the estimated realizable value will be imputed as interest expense using the
effective interest method over the estimated development period utilized in the valuation of the
Tap Participation Fee.
</DIV>


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<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 with principal and accrued interest totaling approximately $12.0
million at August&nbsp;31, 2009. 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. However, 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 defaults.
If we do not cure the defaults, we will lose the properties securing the defaulted notes and the
water rights associated with said properties. If HP A&#038;M defaults on any of 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, which is the primary reason
these notes are not reflected on our balance sheet, we 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 August&nbsp;31, 2009.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Share-based compensation</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We estimate the fair value of share-based payment awards made to key employees and directors on the
date of grant using the Black-Scholes option-pricing model. We then expense the fair value over
the vesting period of the grant using a straight-line expense model. The fair value of share-based
payments requires management to estimate/calculate various inputs such as the volatility of the
underlying stock, the expected dividend rate, the estimated forfeiture rate and an estimated life
of each option. These assumptions are based on historical trends and estimated future actions of
option holders and may not be indicative of actual events which may have a material impact on our
financial statements. See Note 9 to the accompanying financial statements for further details on
share-based compensation expense.
</DIV>


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


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The results of our operations for the fiscal years ended August&nbsp;31, 2009, 2008 and 2007 were as
follows:
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Table G &#151; Summary Results of Operations
</DIV>

<DIV align="center">
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    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000">Change</TD>
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    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Fiscal Years Ended August 31,</TD>
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    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2009-2008</TD>
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    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <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">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">%</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">33.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-21</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-4</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Water revenues generated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">137,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">159,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">149,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(22,200</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-14</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Water delivery operating costs incurred
(excluding depreciation and depletion)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">54,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">58,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">54,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,900</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <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">60</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">63</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">63</TD>
    <TD nowrap>%</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"><!-- 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>
    <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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wastewater treatment revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">67,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">67,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>

    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">11</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wastewater treatment operating costs incurred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">22,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,900</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-17</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">70</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">72</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">62</TD>
    <TD nowrap>%</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"><!-- 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>
    <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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">General and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,942,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,316,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,476,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(374,600</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-16</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(159,700</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-6</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,728,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,926,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,914,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,198,600</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-17</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->26<!-- /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: 7.20in">


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Water and Wastewater Usage Revenues</B>
</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 water providers. Table B in <I>Item&nbsp;1 &#150; Business</I>, outlines our tiered
pricing structure and changes during the fiscal years ended August&nbsp;31, 2009, 2008 and 2007,
respectively.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our wastewater customers are charged flat monthly fees based on their number of tap connections.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Fiscal 2009 compared to fiscal 2008</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Water deliveries during fiscal 2009 dropped approximately 21% over water deliveries in fiscal 2008,
due mainly to precipitation being higher in fiscal 2009, particularly in the late spring and early
summer months which are the main irrigation months. Water usage fees in fiscal 2009 decreased 14%
over fiscal 2008 which is mainly a result of the decreased water usage which was partially offset
by the increased water usage fees.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Wastewater usage fees remained at $39.50 per wastewater tap per month.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Gross margins for water services decreased approximately 3% in 2009 compared to 2008. This was due
to the decreased water usage as noted above. The decrease in the gross margin percentage was not
as large as the decrease in water usage due to our efforts to maintain costs knowing water usage
was decreasing.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Gross margins for wastewater services in fiscal 2009 decreased 2% over fiscal 2008 due to timing of
various testing procedures.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Fiscal 2008 compared to fiscal 2007</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Water deliveries during fiscal 2008 dropped approximately 4% over water deliveries in fiscal 2007,
due mainly to precipitation being higher in fiscal 2008. However, water usage fees in fiscal 2008
increased 7% over fiscal 2007 which is mainly a result of the timing of water usage and an
increasing block pricing scale (as of July&nbsp;1, 2007) for an entire fiscal year in 2008 versus two
months in fiscal 2007.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Wastewater usage fees remained at $39.50 per wastewater tap per month and before that they
increased July&nbsp;1, 2007, from $34.80 to $39.50 per wastewater tap per month. Consistent with water
taps, the increased wastewater fees in fiscal 2008 is a result of the higher usage fees being
charged for the entire fiscal 2008 versus two months in fiscal 2007.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Gross margins for water services remained constant from fiscal 2007 to fiscal 2008. Gross margins
for wastewater services in fiscal 2008 increased 10% over fiscal 2007 due to certain testing and
compliance expenses incurred during fiscal 2007 not experienced in fiscal 2008.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">General and administrative (&#147;G&#038;A&#148;) expenses for the fiscal years ended August&nbsp;31, 2009, 2008 and
2007 were impacted by the share-based compensation expenses as follows (amounts are approximate):
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 10pt">Table H &#151; G&#038;A Expenses
</DIV>
<DIV align="center">
<TABLE style="font-size: 9pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom">
    <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 nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000">Change</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Fiscal Years Ended August 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2009-2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2008-2007</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 9pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</TD>
    <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">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">%</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">$</TD>
    <TD align="right">1,942,200</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">2,316,300</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">2,476,500</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(374,100</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">16</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(160,200</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">6</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Share-based compensation expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(325,500</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(351,500</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(287,300</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">26,000</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(64,200</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">22</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>
    <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">G&#038;A expenses less share-based
compensation expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">1,616,700</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">1,964,800</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">2,189,200</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(348,100</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">18</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(224,400</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10</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>
    <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>

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

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The changes in G&#038;A expenses, with and without share-based compensation expenses, are mainly
attributable to the following:
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Fiscal 2009 compared to fiscal 2008</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">From fiscal 2008 to fiscal 2009, G&#038;A expenses, without share-based compensation expenses, decreased
approximately 18%, which is mainly a result of management&#146;s cost cutting efforts in light of the
poor economy and lack of new home development in our targeted service areas. Specifically, the
following accounts decreased during 2009:
</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">Excluding share-based compensation expenses our salary and salary related expenses in
fiscal 2009 and 2008 were $465,800 and $463,900, respectively, which is less than a 5%
change. Salary and salary related expenses including share-based compensation expenses
totaled approximately $791,300 and $815,400 for the fiscal years ended August&nbsp;31, 2009 and
2008, respectively. This decrease is less than 5%.</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Consulting fees decreased approximately $143,900, or 63%, from approximately $227,600 in
fiscal 2008 to approximately $83,700 in fiscal 2009. This was entirely due to the decrease
in use of consultants as a result of the withdrawal of the developer from the Lowry Range
development project.</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Professional fees (legal and accounting) decreased approximately $93,900, or 24%, from
approximately $386,000 in fiscal 2008 to approximately $292,100 in fiscal 2009. This is a
result of our reduced use of legal counsel as a result of the withdrawal of the developer
from the Lowry Range development project and less activity in Water Court.</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Costs associated with being a corporation and costs associated with being a publicly
traded entity decreased approximately $66,700, or 52%, from $127,900 in fiscal 2008 to
approximately $61,100 in fiscal 2009. This is due primarily to the elimination of
franchise fees paid to the State of Delaware due to our reincorporation into Colorado.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Fiscal 2008 compared to fiscal 2007</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">From fiscal 2007 to fiscal 2008, G&#038;A expenses decreased approximately 10%, which is mainly a result
of:
</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">Excluding share-based compensation expenses our salary and salary related expenses in
fiscal 2008 and 2007 were $463,900 and $805,200, respectively, a decrease of $341,300 or
42%. Salary and salary related expenses including share-based compensation expenses
totaled approximately $815,400 and $1.1&nbsp;million for the fiscal years ended August&nbsp;31, 2008
and 2007, respectively. The decrease in salaries is mainly attributable to management and
employee wages remaining unchanged in 2008 and there being no incentive compensation paid
in 2008 as compared to incentive compensation of $330,000 being paid in fiscal 2007 upon
the completion of the July&nbsp;2007 equity offering.</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Professional fees (legal and accounting) totaled approximately $386,000 and $470,300,
for 2008 and 2007, respectively. This decrease of $84,300 is a result of legal and
accounting bills incurred in fiscal 2007 related to our consultations with the Staff of the
Commission which did not recur in 2008.</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Costs associated with being a corporation and costs associated with being a publicly
traded entity decreased approximately $92,900 from $220,800 in fiscal 2007 to approximately
$127,900 in fiscal 2008. This is due primarily to the elimination of franchise fees paid
to the State of Delaware due to our reincorporation into Colorado.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The above decreases were offset by the following significant increases.
</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 fiscal 2008 and 2007, we expensed approximately $330,500 and $255,900 related to
water assessment charges payable to the FLCC. This is an increase of $74,600, which is a
result of the FLCC increasing assessments for the current fiscal year. This represents our
share (based on the number of FLCC shares we own) of FLCC&#146;s annual operating and
maintenance expenditures. Additionally, in fiscal 2008 and 2007 we expensed approximately
$49,700 and $37,200, respectively, for work performed in the Arkansas River Valley on our
behalf by HP A&#038;M. The increase is a result of increased salaries to the HP A&#038;M farm
management personnel which resulted in an increase in our costs.</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">We paid approximately $227,600 and $40,000 in consulting fees related to our discussions
with the former developer of the Lowry Range concerning the potential development of six
sections of the Lowry Range in fiscal 2008 and 2007, respectively.</DIV></TD>
</TR>

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

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">


<DIV style="margin-top: 10pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Depreciation and depletion charges for the fiscal years ended August&nbsp;31, 2009, 2008 and 2007 were
approximately $381,700, $381,300 and $366,100, respectively, which are changes of less than 5% per
fiscal year.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Interest income totaled approximately $84,600, $283,600 and $155,700 for the fiscal years ended
August&nbsp;31, 2009, 2008 and 2007, respectively. This represents interest earned on the temporary
investment of capital in cash equivalents or available-for-sale securities, interest accrued on the
note payable by the District and interest accrued on the Special Facilities construction proceeds
receivable from the County. The decrease from fiscal 2008 to fiscal 2009 of approximately $199,000
is due to a significant decline in interest rates due to the recessionary economy and decreasing
levels of cash investments. The increase from fiscal 2007 to fiscal 2008 of approximately $127,900
was due to additional funds being invested in interest bearing accounts as a result of the proceeds
raised in the July&nbsp;2007 equity offering.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Imputed interest expense related to the Tap Participation Fee payable to HP A&#038;M totaled
approximately $3.7&nbsp;million, $4.4&nbsp;million and $4.7&nbsp;million for the fiscal years ended August&nbsp;31,
2009, 2008 and 2007, 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. The decreases in the imputed interest expense from fiscal
2007 through fiscal 2009 is a result of the updated valuations performed in the first quarter of
fiscal 2008 and the second quarter of fiscal 2009, which are explained in greater detail in Note 8
to the accompanying financial statements.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Liquidity, capital resources and financial position</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At August&nbsp;31, 2009, our working capital, defined as current assets less current liabilities, was
approximately $3.9&nbsp;million, approximately $3.7&nbsp;million of which consisted of cash and cash
equivalents and marketable securities. We also 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. We believe that at August&nbsp;31, 2009, we have sufficient working capital to fund our
operations for the next fiscal 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.
</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. 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 those Wholesale Facilities, even
if our costs are not covered by the fees we receive. We cannot assure you that these sources of
cash will be sufficient to cover all our capital costs, in which case we would need to seek
additional financing.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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 August&nbsp;31, 2009, we have estimated the value of
the Tap Participation Fee at approximately $57.5&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
and February&nbsp;28, 2009. See Note 8 in the accompanying financial statements for the impact of the
revaluation. The actual amount to be paid will inevitably differ from 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 but did sell some non-irrigated land and made Tap Participation Fee payments
during the fiscal year ended August&nbsp;31, 2009 totaling approximately $59,700, which is the
equivalent of 28 taps and is further described in Note 4 to the accompanying financial statements.
As of August&nbsp;31, 2009, there are 38,937 taps that remain subject to the Tap Participation Fee.
</DIV>


<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
payable to the FLCC each calendar year. In December&nbsp;2008, the board and shareholders of the FLCC
approved a decrease in the calendar 2009 assessments from $15.00 per share to $14.40 per share,
which equates to a decrease in our water assessments from approximately $325,000 per year to
approximately $315,000 per year. However, the FLCC shareholders also approved a water purchase
prior to August&nbsp;31, 2009. Subsequent to our fiscal year end we were notified that our share of the
acquired water is approximately $32,500.
</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
Fairgrounds. In accordance with GAAP, upon completion of construction of the Fairgrounds facilities
and the initiation of water service to the 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. In addition, we
started recognizing deferred Special Facilities funding as revenues in fiscal 2006, which will also
be recognized over the useful life of the constructed assets. See also Note 3 to the accompanying
financial statements for information regarding the amendment to the County Agreement in regards to
the Special Facilities funding and the receipt of water rights in August&nbsp;2008.
</DIV>

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

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Operating Activities</B>
</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, G&#038;A expenses, and
depletion/depreciation expenses.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Cash used by operating activities was approximately $1.48&nbsp;million, $1.44&nbsp;million and $2.37&nbsp;million
for the fiscal years ended August&nbsp;31, 2009, 2008 and 2007, respectively. The increase from 2008 to
2009 was approximately $40,000 which is less than 3%. The decrease of approximately $1.0&nbsp;million
dollars from fiscal 2007 to fiscal 2008 is primarily a result of 2007 having a gain on the
extinguishment of CAA interests of approximately $270,100 whereas fiscal 2008 had a loss on the
extinguishment of CAA interests of approximately $273,700, which is a $543,800 fiscal year over
fiscal year impact to the cash flow statement. The remaining difference was due to the timing of
payments and receipts related to operating assets.
</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
$3.7&nbsp;million, $4.4&nbsp;million and $4.7&nbsp;million of interest on the Tap Participation Fee during the
fiscal years ended August&nbsp;31, 2009, 2008 and 2007, respectively. These are reflected as non-cash
items in the statements of cash flows.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">During the fiscal years ended August&nbsp;31, 2009, 2008 and 2007, we accrued interest on the note
receivable from the District of approximately $13,000, $19,100 and $23,500, respectively. The
decreases fiscal year over fiscal year are due to falling interest rates due to the economy. The
District note bears interest at prime plus 2%. We also accrued approximately $29,600, $35,900 and
$49,900 of interest on the construction proceeds receivable from the County during the fiscal years
ended August&nbsp;31, 2009, 2008 and 2007, respectively. The decrease in the construction proceeds
interest income is a result of payments made by the County since the prior fiscal year, which
reduced the interest income recognized pursuant to the effective interest method, and due to the
amendment to the County Agreement reached with the County as described in Note 4 to the
accompanying financial statements.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We incurred approximately $383,200, $382,600 and $369,000 of depreciation, depletion and other
non-cash charges during the fiscal years ended August&nbsp;31, 2009, 2008 and 2007, respectively.
Changes per fiscal year are less than 5%.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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"><B>Investing Activities</B>
</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 have the right to
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 requires 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 2007 and fiscal 2006 we made the two
required $50,000 payments pursuant to the DGPA; however, we have not received the water rights
deeds from the developer, nor has the developer cashed either of the payments. In November&nbsp;2007,
the developer of Sky Ranch filed for Chapter&nbsp;11 bankruptcy protection and on August&nbsp;26, 2009 the
developer filed a plan of liquidation. Because of the bankruptcy and since we have not received our
water rights deeds from Sky Ranch, we have cancelled the two un-cashed checks issued to Sky Ranch
and have reversed the $100,000 that was included in the Prepaid Expenses account on our Balance
Sheet. We will continue to monitor the bankruptcy proceedings of Sky Ranch and vigorously seek to
enforce our rights under the DGPA and other Sky Ranch agreements. However, our rights
related to Sky Ranch may have no value following the bankruptcy. Refer to the Risk Factors in Item
1A for additional information on the bankruptcy.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We continue to invest in legal and engineering fees associated with our 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>

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

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Cash (used)&nbsp;provided by investing activities for the fiscal years ended August&nbsp;31, 2009, 2008 and
2007 was approximately ($3.1&nbsp;million), $466,100 and $2.5&nbsp;million, respectively. Investing
activities in 2009 consisted mainly of the purchase of marketable securities of approximately $3.0
million and the capitalization of approximately $110,400 related to investments in water systems.
Investing activities in 2008 consisted mainly of $790,600 received from the maturity of
available-for-sale securities, offset by $271,000 of investments in water rights. The fiscal 2007
cash provided by investing activities was positively impacted by the sale of LAWMA shares, as more
fully described in Note 4 to the accompanying financial statements and the sale of approximately
$1.5&nbsp;million of available-for-sale securities.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Cash provided by financing activities was approximately $19,500, $121,000 and $5.6&nbsp;million the
fiscal years ended August&nbsp;31, 2009, 2008 and 2007, respectively. Financing activities in 2009
consisted mainly of approximately $82,200 of payments received from the County on the construction
note, offset by approximately $59,700 of Tap Participation Fee payments made to HP A&#038;M as more
fully described in Note 8 to the accompanying financial statements (the cash generated from the
non-irrigated land sales that resulted in this Tap Participation Fee payment is included in the
Investing Activities above). Financing activities in 2008 consisted mainly of $150,500 of payments
received from the County on the construction note offset by approximately $26,500 of debt payments
to a related party. Financing activities in fiscal 2007 was positively impacted by the $9.0
million raised in the equity offering offset by the $2.6&nbsp;million used to extinguish contingent
obligations as described in Note 6 to the accompanying financial statements.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Off-Balance Sheet Arrangements</B>
</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
Note 6 to the accompanying financial statements.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">See Note 2 to the accompanying financial statements regarding recently adopted and issued
accounting pronouncements.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Total Contractual Cash Obligations</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 10pt">Table I &#151; Contractual Cash Obligations
</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="14" style="border-bottom: 1px solid #000000">Payments due by period</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">Less than 1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">1-3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">3-5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">More than 5</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">Total</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">year</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"> years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">years</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">Contractual obligations</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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">50,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,752</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,504</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(a)</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(a)</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Participating Interests in Export Water</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,216,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(b)</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(b)</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(b)</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(b)</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tap Participation Fee payable to HP A&#038;M</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113,126,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(c)</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(c)</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(c)</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(c)</TD>
    <TD nowrap>&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>
    <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</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">114,392,856</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,752</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,504</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>
</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>




<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR style="font-size: 6pt">
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="96">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(a)</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify">Our only operating lease is related to our office space. We signed this lease on August
27, 2009, it is a three year lease with monthly lease payments of approximately $1,400 per
month.</DIV></TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(b)</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify">The participating interests liability is payable to the CAA holders upon the sale of Export
Water, and therefore, the timing of the payments is uncertain and not reflected in the above
table by period.</DIV></TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(c)</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify">The Tap Participation Fee payable to HP A&#038;M is payable upon the sale of water taps. Because
the timing of these water tap sales is not fixed and determinable, the estimated payments are
not reflected in the above table by period. The amount listed above includes an unamortized
discount of approximately $55.6&nbsp;million. 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 our rate-base districts, and other
market forces beyond our control. Because the estimates and assumptions used to value the Tap
Participation Fees payable to HP A&#038;M are subjective, actual results could vary materially
from the estimates.</DIV></TD>
</TR>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->31<!-- /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: 7.20in">





<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B>Item&nbsp;7A &#151; Quantitative and Qualitative Disclosures About Market Risk</B></U>
</DIV>


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


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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 interest bearing investments. As of August&nbsp;31, 2009, the majority of our capital is
invested in certificates of deposit with stated maturities and locked interest rates and therefore
not subject to interest rate fluctuations. 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="113"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B>Item&nbsp;8 &#151; Financial Statements and Supplementary Data</B></U>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 10pt"><U>Index to Financial Statements and Supplementary Data</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="86%">&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"><B>Page</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#300">Report of Independent Registered Public Accounting Firm</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#301">Balance Sheets</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#302">Statements of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#303">Statements of Shareholders&#146; Equity</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#304">Statements of Cash Flows</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#305">Notes to Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#306">Supplemental Data: Selected Quarterly Financial Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61</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 -->32<!-- /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: 7.20in">
<DIV align="left">
<A name="300"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Report of Independent Registered Public Accounting Firm
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Board of Directors and Stockholders<BR>
Pure Cycle Corporation

</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We have audited the accompanying balance sheets of Pure Cycle Corporation as of August&nbsp;31, 2009 and
2008, and the related statements of operations, shareholders&#146; equity, and cash flows for each of
the years in the three-year period ended August&nbsp;31, 2009. We also have audited Pure Cycle
Corporation&#146;s internal control over financial reporting as of August&nbsp;31, 2009, based on criteria
established in <I>Internal Control&#151;Integrated Framework </I>issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Pure Cycle Corporation&#146;s management is
responsible for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management&#146;s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on these financial statements and an opinion
on the Company&#146;s internal control over financial reporting based on our audits.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis
for our opinions.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">A company&#146;s 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 generally accepted accounting principles. A
company&#146;s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2)&nbsp;provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3)&nbsp;provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company&#146;s assets that could have a material effect on the
financial statements.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Pure Cycle Corporation as of August&nbsp;31, 2009 and 2008, and the
results of its operations and its cash flows for each of the years in the three-year period then
ended in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, Pure Cycle Corporation maintained, in all material respects, effective
internal control over financial reporting as of August&nbsp;31, 2009, based on criteria established in
<I>Internal Control&#151;Integrated Framework </I>issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">/s/ GHP HORWATH, P.C.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Denver, Colorado<BR>
November&nbsp;13, 2009

</DIV>


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

<P align="center" style="font-size: 10pt"><!-- Folio -->33<!-- /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: 7.20in">




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

<DIV align="left">
<A name="301"></A>
</DIV>
<!-- xbrl,bs -->
<DIV align="Center" style="font-size: 10pt; margin-top: 0pt">BALANCE SHEETS
</DIV>
<!-- xbrl,body -->
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&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">August 31,</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">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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"><B>ASSETS:</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">
    <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="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">705,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,238,973</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,002,208</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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,401</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">154,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127,018</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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:30px; 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 assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,990,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,502,175</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">
    <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">103,159,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,346,623</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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Construction proceeds receivable, less current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">414,494</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">467,102</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes
receviable &#150; related parties:</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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Rangeview Metropolitan District, including accrued interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">507,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">494,799</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Well Enhancement and Recovery Systems, LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assets held for sale</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">77,940</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,759</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,593</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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">$</TD>
    <TD align="right">108,091,081</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">109,899,403</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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">
    <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">
    <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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">22,216</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">37,585</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,478</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <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 style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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 current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">138,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">163,863</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">
    <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">1,446,108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,501,910</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">1,216,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,217,876</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tap Participation Fee payable to HP A&#038;M,
net of $55.6&nbsp;million and $54.6&nbsp;million discount</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,521,329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,848,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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 liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,321,893</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,731,649</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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">
    <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"><!-- 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">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>SHAREHOLDERS&#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">
    <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="background: #cceeff">

<TD><DIV style="margin-left:30px; text-indent:-15px">Series&nbsp;B &#150; par value $.001 per share, 25&nbsp;million shares authorized;
432,513 shares issued and outstanding
(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">
    <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="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Par value 1/3 of $.01 per share, 40&nbsp;million shares authorized;
20,206,566 shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,360</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,253,916</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,928,398</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,986</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <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">(44,556,507</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(38,828,437</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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 shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,769,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,167,754</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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 shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">108,091,081</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">109,899,403</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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>
<!-- /xbrl,bs -->


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

<P align="center" style="font-size: 10pt"><!-- Folio -->34<!-- /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: 7.20in">

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

<DIV align="left">
<A name="302"></A>
</DIV>
<!-- xbrl,op -->
<DIV align="Center" style="font-size: 10pt; margin-top: 0pt">STATEMENTS OF OPERATIONS
</DIV>
<!-- xbrl,body -->
<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="10" style="border-bottom: 1px solid #000000">For the Fiscal Years Ended August 31,</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">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Metered water usage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">137,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">159,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">149,539</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Wastewater treatment fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,335</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Special facility funding recognized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,508</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,508</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,508</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Water tap fees recognized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,294</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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:45px; text-indent:-15px">Total revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">260,211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">282,429</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">265,676</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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">
    <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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Water service operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(54,668</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(58,576</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(54,631</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Wastewater service operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,162</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18,925</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22,817</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depletion and depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(88,576</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(88,511</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(87,739</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total cost of revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(163,406</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(166,012</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(165,187</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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">Gross margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,417</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,489</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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">General and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,942,225</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,316,291</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,476,462</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(293,113</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(292,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(278,360</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,138,533</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,492,652</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,654,333</TD>
    <TD nowrap>)</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">
    <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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84,636</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">283,590</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155,712</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,099</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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Loss) gain on extinguishment of contingent obligations and debt</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">(273,723</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">271,127</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Loss) gain on sale of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(270</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,927</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Loss) gain on sales of marketable securities</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">(1,973</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; 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">(7,943</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(48,672</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(35,569</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest 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">(3,733,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,393,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,669,742</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">(5,728,070</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(6,926,700</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(6,914,736</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss per common share &#150; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">(0.28</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">(0.34</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.37</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Weighted average common shares outstanding &#150; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,206,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,188,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,589,737</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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="left" style="font-size: 10pt; margin-top: 10pt">See accompanying Notes to Financial Statements</DIV>

<!-- /xbrl,op -->




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

<P align="center" style="font-size: 10pt"><!-- Folio -->35<!-- /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: 7.20in">




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

<DIV align="left">
<A name="303"></A>
</DIV>
<!-- xbrl,se -->
<DIV align="Center" style="font-size: 10pt; margin-top: 0pt">STATEMENTS OF SHAREHOLDERS&#146; EQUITY
</DIV>
<!-- xbrl,body -->
<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Additional</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Accumulated</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: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Preferred Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Common Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Treasury Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Paid-in</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Comprehensive</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Accumulated</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Capital</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Income (loss)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Deficit</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</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">August&nbsp;31, 2006 balance:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">432,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">433</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,479,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">61,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(130,279</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,009,534</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">80,609,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(10,654</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(24,987,001</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">54,664,721</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>
    <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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CAA acquisition</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>
    <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">&#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">765,071</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">765,071</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity offering
(net of $275,000 of expenses)</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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,000</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">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,020,608</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">9,024,608</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options exercised</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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">538,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(126,521</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(969,913</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">968,117</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">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Restricted stock grant</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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114</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 nowrap align="left">&nbsp;</TD>
    <TD align="right">(114</TD>
    <TD nowrap>)</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">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Share-based compensation</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>
    <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">&#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">287,340</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">287,340</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized gain on investments</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>
    <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">&#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">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,822</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">17,822</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</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>
    <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">&#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">&#151;</TD>
    <TD>&nbsp;</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">(6,914,736</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,914,736</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>&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>
    <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 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">Comprehensive loss</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>
    <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 nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,896,914</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>
    <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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">August&nbsp;31, 2007 balance:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">432,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">433</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,252,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(256,800</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,979,447</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,650,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(31,901,737</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,844,826</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>
    <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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CAA acquisition</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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">211,228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">704</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">1,904,573</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">1,905,277</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Retirement of treasury stock</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>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(256,800</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(856</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">256,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,979,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,978,591</TD>
    <TD nowrap>)</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">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Share-based compensation</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>
    <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">&#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">351,519</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">351,519</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized loss on investments</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>
    <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">&#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">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,168</TD>
    <TD nowrap>)</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">(7,168</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</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>
    <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">&#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">&#151;</TD>
    <TD>&nbsp;</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">(6,926,700</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,926,700</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>&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>
    <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 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">Comprehensive loss</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>
    <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 nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,933,868</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>
    <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" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">August&nbsp;31, 2008 balance:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">432,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">433</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,206,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,360</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">91,928,398</TD>
    <TD>&nbsp;</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">(38,828,437</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,167,754</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>
    <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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Share-based compensation</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>
    <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">&#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">325,518</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">325,518</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized gain on investments</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>
    <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">&#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">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,986</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">3,986</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</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>
    <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">&#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">&#151;</TD>
    <TD>&nbsp;</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">(5,728,070</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,728,070</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>&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>
    <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 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">Comprehensive loss</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>
    <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 nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,724,084</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>
    <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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">August&nbsp;31, 2009 balance:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">432,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">433</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,206,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">67,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">92,253,916</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,986</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(44,556,507</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">47,769,188</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>
    <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>
    <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>
<!-- /xbrl,se -->



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

<P align="center" style="font-size: 10pt"><!-- Folio -->36<!-- /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: 7.20in">




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

<DIV align="left">
<A name="304"></A>
</DIV>
<!-- xbrl,cf -->
<DIV align="Center" style="font-size: 10pt; margin-top: 0pt">STATEMENTS OF CASH FLOWS
</DIV>
<!-- xbrl,body -->
<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="10" style="border-bottom: 1px solid #000000">For the Fiscal Years Ended August 31,</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">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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>

<!-- 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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,728,070</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(6,926,700</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(6,914,736</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments to reconcile net loss to net cash
used for 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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Imputed interest on Tap Participation Fees payable to HP A&#038;M</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,733,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,393,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,669,742</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">383,206</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">382,648</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">368,960</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Share-based compensation expense included with
general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">325,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">351,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">287,340</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">7,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,569</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Loss (gain)&nbsp;on extinguishment of contingent obligations and debt</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">273,723</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(271,127</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Loss (gain)&nbsp;on sales 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">1,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(142</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">(Gain) loss on sale of fixed assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(59,671</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(17,927</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest added to note receivable &#150; related parties:</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">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Rangeview Metropolitan District</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(12,996</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,065</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23,504</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Well Enhancement and Recovery Systems, LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(355</TD>
    <TD nowrap>)</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">
    <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">(29,588</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,906</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(49,877</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Trade accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,184</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,797</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Interest receivable and prepaid expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27,910</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">131,535</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(170,849</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accounts payable and accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(25,767</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,088</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(223,271</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">(55,802</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(55,801</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(55,804</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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:75px; text-indent:-15px">Net cash used for operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,482,485</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,443,228</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,370,423</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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">
    <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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sale of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,250</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of note to Well Enhancement and Recovery Systems, LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,000</TD>
    <TD nowrap>)</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">
    <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">(14,992</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,547</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,003</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">(110,354</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(270,998</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(46,983</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,998,222</TD>
    <TD nowrap>)</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">(208,101</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">790,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,955,669</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sale of LAWMA shares</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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">849,742</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37,600</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Investment in Well Enhancement and Recovery Systems LLC</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">(47,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Net cash (used)&nbsp;provided by investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,070,897</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">466,116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,488,974</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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">
    <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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Arapahoe County construction proceeds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,330</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments to contingent liability holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,033</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,966</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,516</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Tap Participation Fee payments to HP A&#038;M</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(59,671</TD>
    <TD nowrap>)</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">(849,742</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from the sale of common and preferred stock, net</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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,024,608</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments to purchase contingent liabilities</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>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,625,225</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments on long-term debt &#150; related parties</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">(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:30px; 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" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,602,455</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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 change in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,533,890</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(856,102</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,721,006</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents &#150; beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,238,973</TD>
    <TD>&nbsp;</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:30px; 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">Cash and cash equivalents &#150; end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">705,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,238,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,095,075</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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="left" style="font-size: 10pt; margin-top: 10pt">See accompanying Notes to Financial Statements</DIV>

<!-- /xbrl,cf -->

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

<P align="center" style="font-size: 10pt"><!-- Folio -->37<!-- /Folio -->
</DIV>

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

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">


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

<DIV align="left">
<A name="305"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 0pt">NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>

<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 1: <U>ORGANIZATION</U>
</DIV>

<!-- xbrl,body -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pure Cycle Corporation (the &#147;Company&#148;) was incorporated in Delaware in 1976 and
reincorporated in Colorado in 2008. The Company owns water assets in the Denver, Colorado
metropolitan area, in the Arkansas River Valley in southern Colorado, and on the western slope of
Colorado. The Company is currently using its water assets located in the Denver metropolitan area
to provide water and wastewater services to customers located in the Denver metropolitan area.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company provides a full line of water and wastewater services which includes designing and
constructing water and wastewater systems as well as operating and maintaining such systems. The
Company&#146;s business focus is to provide water and wastewater service to customers throughout the
Denver metropolitan area as well as along the Colorado Front Range.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">With approximately $3.7&nbsp;million of cash, cash equivalents and marketable securities, $3.9&nbsp;million
of working capital and an open shelf registration statement allowing the Company to sell up to
approximately $5.7&nbsp;million of stock, at August&nbsp;31, 2009, the Company believes it has sufficient
working capital and financing sources to fund its operations for at least the next fiscal year.
However, there can be no assurance that the Company will be successful in marketing its water on
terms that are acceptable to the Company. The Company&#146;s ability to generate working capital from
its water and wastewater projects is dependent on its ability to successfully market the water, or
in the event it is unsuccessful, to sell the underlying water assets. In the event increased sales
are not achieved or the Company is unable to sell its water assets at a sufficient level, the
Company may have to issue additional short or long-term debt or seek to sell additional shares of
the Company&#146;s common or preferred stock to generate sufficient working capital.
</DIV>


<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 2: <U>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</U>
</DIV>

<!-- xbrl,body -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Revenue Recognition</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company generates revenues mainly from three sources:
</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">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">water and wastewater tap fees,</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">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">construction fees, 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">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">monthly water usage fees and wastewater service fees.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Each of the items above is typically included in a single contract with the Company&#146;s customers.
However, because these items are separately delivered the Company accounts for each of the items
separately.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Tap and Construction Fees</U>. Tap fees are system connection fees paid by the developer in
advance of construction activities and are non-refundable. Tap fees are typically used to fund
construction of certain facilities and defray the acquisition costs of obtaining water rights.
Construction fees are fees the Company may receive from developers to construct assets that are
typically required to be constructed by the developer.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Proceeds from tap fees and construction fees are deferred upon receipt and recognized in income
either upon completion of construction of infrastructure or ratably over time, depending on whether
the Company owns the infrastructure constructed with the proceeds or the customer owns the
infrastructure constructed with the proceeds.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Tap and construction fees derived from agreements in which the Company will not own the assets
constructed with the fees (for example the assets constructed for use on the Lowry Range) are
recognized as revenue using the percentage-of-completion method. Costs of construction of the
assets when the Company will not own the assets are recorded as costs of revenue.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Tap and construction fees derived from agreements for which the Company will own the infrastructure
(for example the assets constructed for use at the Arapahoe County Fairgrounds (the &#147;Fairgrounds&#148;))
are recognized as
revenues ratably over the estimated accounting service life of the facilities constructed, starting
at completion of construction, which could be in excess of thirty years. Costs of construction of
the assets when the Company will own the assets are capitalized and depreciated over their
estimated economic lives.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->38<!-- /Folio -->
</DIV>

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

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company recognized approximately $14,300 of water tap fee revenues in each of the three fiscal
years ended August&nbsp;31, 2009, respectively. These tap fee revenues relate to the Water Service
Agreement (the &#147;County Agreement&#148;) with Arapahoe County (the &#147;County&#148;) entered into in August&nbsp;2005.
The Company began recognizing the water tap fees as revenue ratably over the estimated service
period upon completion of the Wholesale Facilities in its fiscal 2006. The water tap fees being
recognized over this period are net of the royalty payments (described below) to the State of
Colorado Board of Land Commissioners (the &#147;Land Board&#148;) and amounts paid to third parties pursuant
to the Comprehensive Amendment Agreement No.&nbsp;1 (the &#147;CAA&#148;) as further described in Note 6 below.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company recognized approximately $41,500 of &#147;Special Facilities&#148; funding as revenue in each of
the three fiscal years ended August&nbsp;31, 2009, respectively. These construction revenues also relate
to the County Agreement as more fully described in Note 4 below.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of August&nbsp;31, 2009, the Company has deferred recognition of approximately $1.5&nbsp;million of tap
and construction fee revenue from the County, which will be recognized as revenue ratably through
2036.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Monthly Usage and Service Fees</U>. Monthly water usage charges are assessed to customers
based on actual metered usage each month plus a base monthly service fee assessed per single family
equivalent (&#147;SFE&#148;) unit served. One SFE is a customer; whether residential, commercial or
industrial; that imparts a demand on our water or wastewater systems similar to the demand of a
family of four persons living in a single family house on a standard sized lot. One SFE is assumed
to have a water demand of approximately 0.4 acre-feet per year; and to contribute wastewater flows
of approximately 300 gallons per day. Water usage pricing uses a tiered pricing structure. The
Company recognizes water usage revenues upon delivering water to its customers. The water revenues
recognized by the Company are shown net of royalties to the Land Board and amounts retained by the
Rangeview Metropolitan District (the &#147;District&#148;).
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company recognizes wastewater processing revenues monthly based on flat fees assessed per SFE.
The monthly wastewater service fees are shown net of amounts retained by the District.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company recognized approximately $137,400, $159,600 and $149,500 of water usage revenues during
the fiscal years ended August&nbsp;31, 2009, 2008 and 2007, respectively. The Company recognized
approximately $67,000, $67,000, and $60,300 of wastewater revenues during the fiscal years ended
August&nbsp;31, 2009, 2008 and 2007, respectively.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Costs of delivering water and providing wastewater service to customers are recognized as incurred.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America (&#147;GAAP&#148;) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Cash and cash equivalents include all highly liquid debt instruments with original maturities of
three months or less. The Company&#146;s cash equivalents are comprised entirely of money market funds
maintained at a high quality financial institution.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->39<!-- /Folio -->
</DIV>

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<!-- xbrl -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Financial Instruments &#150; Concentration of Credit Risk and Fair Value</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Financial instruments that potentially subject the Company to concentrations of credit risk consist
primarily of cash equivalents and marketable securities. The Company places its cash equivalents
and investments with a high quality financial institution. At various times throughout fiscal 2009,
cash deposits have exceeded federally insured limits. The Company invests its excess cash primarily
in certificates of deposit, money market instruments, commercial paper obligations, corporate bonds
and US government treasury obligations. To date, the Company has not experienced significant losses
on any of these investments.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company did not pay any interest or income taxes during the three fiscal years ended August
31, 2009.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At August&nbsp;31, 2009, the Company&#146;s marketable securities are comprised entirely of certificates of
deposit maintained at various financial institutions, each of which have invested balances below
federally insured limits and pay interest at stated rates through maturity. None of the Company&#146;s
certificates of deposit had unrealized losses at August&nbsp;31, 2009. The certificates mature at
various dates through February&nbsp;2011; however, these securities represent temporary investments and
it is management&#146;s intent to hold these securities available for current operations and not hold
them until maturity, therefore they are classified as available-for-sale securities and are
recorded at fair value. The Company has no investments in equity instruments.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company&#146;s marketable securities are recorded as available-for-sale and therefore any
unrecognized changes in the fair value of these marketable securities is included as a component of
accumulated comprehensive income (loss).
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At August&nbsp;31, 2008 the Company did not have any investments classified as marketable securities as
they were all sold or matured during the fiscal year.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">For the fiscal years ended August&nbsp;31, 2009, 2008 and 2007 gross realized gains totaled
approximately $0, $2,000, and $100, respectively.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company records accounts receivable net of allowances for uncollectible accounts (none as of
August&nbsp;31, 2009 or 2008). Any allowance for uncollectible accounts would be determined based on
specific review of past due accounts.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of
an asset to future undiscounted net cash flows expected to be generated by the eventual use of the
asset. If such assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs
to sell. The Company believes there are no impairments in the carrying amounts of its long-lived
assets at August&nbsp;31, 2009.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Water and Wastewater Systems</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">If costs meet the Company&#146;s capitalization criteria, costs to construct water and wastewater
systems are capitalized as incurred, including interest, and depreciated over their estimated
useful lives. The Company capitalizes design
and construction costs related to construction activities and it capitalizes certain legal,
engineering and permitting costs relating to the adjudication and improvement of its water assets.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->40<!-- /Folio -->
</DIV>

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<!-- xbrl -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Depletion and Depreciation of Water Assets</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company depletes its water assets that are being utilized 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 of up to thirty years.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company maintains a stock option plan for the benefit of its employees and directors. The
Company records share-based compensation costs which are measured at the grant date based on the
fair value of the award and are recognized as expense over the applicable vesting period of the
stock award using the straight-line method. The Company has adopted the alternative transition
method for calculating the tax effects of share-based compensation which allows for a simplified
method of calculating the tax effects of employee share-based compensation. Because the Company
has a full valuation allowance on its deferred tax assets, the granting and exercise of stock
options during the fiscal years ended August&nbsp;31, 2009 and 2008 had no impact on the income tax
provisions.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company recognized approximately $325,500, $351,500 and $287,300 of share-based compensation
expenses during the fiscal years ended August&nbsp;31, 2009, 2008 and 2007, respectively.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to GAAP, on September&nbsp;1, 2007, the Company adopted a &#147;more-likely-than-not&#148; threshold for
the recognition and de-recognition of tax positions, including any potential interest and penalties
relating to tax positions taken by the Company. The Company did not have any significant
unrecognized tax benefits and therefore, there was no material effect on its financial condition or
results of operations as a result of this implementation.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company files income tax returns with the Internal Revenue Service and the State of Colorado.
The tax years that remain subject to examination are fiscal 2006 through fiscal 2009. 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. At August&nbsp;31, 2009, the Company did not have any
accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest
expense recognized during the fiscal years ended August&nbsp;31, 2009, 2008 or 2007.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Loss per Common Share</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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 250,092, 155,092,
and 140,092, common share equivalents as of August&nbsp;31, 2009, 2008 and 2007, respectively, have
been excluded from the calculation of loss per common share as their effect is anti-dilutive.
</DIV>



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

<P align="center" style="font-size: 10pt"><!-- Folio -->41<!-- /Folio -->
</DIV>

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<!-- xbrl -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company continually assesses any new accounting pronouncements to determine their applicability
to the Company. Where it is determined that a new accounting pronouncement affects the Company&#146;s
financial reporting, the Company undertakes a study to determine the consequence of the change to
its financial statements and assures that there are proper controls in place to ascertain that the
Company&#146;s financials properly reflect the change. New pronouncements assessed by the Company
recently are discussed below:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In June&nbsp;2009, the Financial Accounting Standards Board (&#147;FASB&#148;) issued Statement of Financial
Accounting Standard (&#147;SFAS&#148;) No.&nbsp;168, <I>The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles &#150; a replacement of FASB Statement No.&nbsp;162 </I>(&#147;SFAS 168&#148;).
SFAS 168 provides for the FASB Accounting Standards Codification (the &#147;Codification&#148;) to become
the single official source of authoritative, nongovernmental GAAP. The Codification did not change
GAAP but reorganizes the literature. SFAS 168 is effective for interim and annual periods ending
after September&nbsp;15, 2009 (November&nbsp;30, 2009 for the Company). The Company does not believe that
the provisions of SFAS 168 will have a material impact on its financial statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In June&nbsp;2009, the FASB issued SFAS No.&nbsp;167, <I>Amendments to FASB Interpretation No.&nbsp;46(R) </I>(&#147;SFAS
167&#148;). SFAS 167 changes how a company determines when an entity that is insufficiently capitalized
or is not controlled through voting (or similar rights) should be consolidated. SFAS 167 is
effective as of the beginning of each reporting entity&#146;s first annual reporting period that begins
after November&nbsp;15, 2009 (September&nbsp;1, 2010 for the Company). The Company is currently evaluating
the effect the adoption of SFAS 167 will have 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 Interest in Consolidated Financial
Statements, an amendment of ARB No.&nbsp;51 </I>(&#147;SFAS 160&#148;). SFAS 160 will change the accounting and
reporting for minority interests, which will be recharacterized as noncontrolling interests and
classified as a component of equity within the balance sheet. The Company will adopt SFAS 160 on
September&nbsp;1, 2009, and the Company does not believe this will a material impact on its financial
statements.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Certain amounts in the prior year financial statements have been reclassified to conform to the
current year presentation.
</DIV>


<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 3: <U>FAIR VALUE MEASUREMENTS</U>
</DIV>

<!-- xbrl,body -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Effective September&nbsp;1, 2008, the Company adopted the FASB fair value statements. This did not have
a material effect on the Company&#146;s financial position, results of operations or cash flows for the
fiscal year ended August&nbsp;31, 2009. Except for those assets and liabilities which are required to
be recorded at fair value, the Company elected not to record any other assets or liabilities at
fair value. As permitted, the Company elected to defer the adoption of the nonrecurring fair value
measurement disclosures of nonfinancial assets and liabilities until September&nbsp;1, 2009.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date in the
principal or most advantageous market. The Company uses a fair value hierarchy that has three
levels of inputs, both observable and unobservable, with use of the lowest possible level of input
to determine fair value.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Level
1 &#150; Valuations for assets and liabilities traded in active exchange markets, such as the New
York Stock Exchange. The Company had none of these instruments at August&nbsp;31, 2009.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Level
2 &#150; Valuations are obtained from readily available pricing sources via independent providers
for market transactions involving similar assets or liabilities. The Company&#146;s principal market for
these securities is the secondary institutional markets and valuations are based on observable
market data in those markets. The Company had one Level 2 asset at August&nbsp;31, 2009.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Level
3 &#150; Valuations for assets and liabilities that are derived from other valuation
methodologies, including discounted cash flow models and similar techniques, and not based on
market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain
assumptions and projections in determining the fair value
assigned to such assets or liabilities. The Company had one Level 3 liability at August&nbsp;31, 2009,
the &#147;Tap Participation Fee&#148; liability, which is described in greater detail in Note 8 below.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->42<!-- /Folio -->
</DIV>

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

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company maintains policies and procedures to value instruments using the best and most relevant
data available.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Level 2 Asset &#150; Marketable Securities Measured on a Recurring Basis</I></B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company&#146;s marketable securities were acquired during the fiscal year ended August&nbsp;31, 2009, and
are the Company&#146;s only financial asset or liability measured on a recurring basis. The fair value
of the marketable securities are based on the values reported by the financial institution where
the funds are held.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">These securities include only federally insured certificates of deposit.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Level 3 Liability &#150; Tap Participation Fee Payable to HP A&#038;M</I></B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company&#146;s Tap Participation Fee liability is the Company&#146;s only financial asset or liability
measured on a non-recurring basis. As further described in Note 8 below, the Tap Participation Fee
liability is valued by projecting new home development in the Company&#146;s targeted service area over
an estimated development period.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The following table provides information on the assets and liabilities measured at fair value as of
August&nbsp;31, 2009.
</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="28%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Fair Value Measurement Using:</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Quoted Prices</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Significant</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>&nbsp;</TD>
    <TD>&nbsp;</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">in Active</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Other</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Significant</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Total</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Markets for</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Observable</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Unobservable</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Unrealized</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Identical Assets</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Inputs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Inputs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Gains and</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">Carrying Value</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 1)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 3)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Losses</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">Marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,002,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,002,208</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">3,002,208</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">3,986</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tap Participation Fee liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">57,521,329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">57,521,329</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">$</TD>
    <TD align="right">57,521,329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Although not required, the Company deems the following table, which presents the changes in
the Tap Participation Fee for the fiscal year ended August&nbsp;31, 2009, to be helpful to the users of
its financial statements.
</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="10">Fair Value Measurement at August 31 using Significant</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Unobservable Inputs (Level 3)</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Discount &#150; to be</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">imputed as</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Gross Estimated</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Tap Participation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">interest expense</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Tap Participation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Fee Reported</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">in future</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">Fee Liability</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Liability</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">periods</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">Balance at August&nbsp;31, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">108,449,321</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53,848,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">54,601,321</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total gains and losses (realized and unrealized):</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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Imputed interest recorded as &#147;Other Expense&#148;</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">3,733,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,733,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in estimated value (to be realized in future periods)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,758,038</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">4,758,038</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchases, sales, issuances, payments, and settlements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(59,671</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(59,671</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Transfers in and/or out of Level 3</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>
    <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>
    <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">Balance at August&nbsp;31, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">113,147,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">57,521,329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">55,626,359</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>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The methodologies for estimating the fair value of financial assets and liabilities that are
measured at fair value are discussed above. The methodologies for other financial assets and
liabilities are discussed below.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Cash and Cash Equivalents</U>: The Company&#146;s cash and cash equivalents are reported using the
values as reported by the financial institution where the funds are held. These securities
primarily include balances in the Company&#146;s operating and savings accounts. The carrying amount of
cash and cash equivalents approximate fair value.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->43<!-- /Folio -->
</DIV>

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

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Accounts Receivable and Accounts Payable</U>: The carrying amounts of accounts receivable and
accounts payable approximate fair value due to the relatively short period to maturity for these
instruments.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Notes Receivable and Construction Proceeds Receivable</U>: The carrying amounts of the
Company&#146;s notes receivable and construction proceeds receivable approximate fair value as they bear
interest at rates which are comparable to current market rates.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Off-Balance Sheet Instruments</U>: The Company&#146;s off-balance sheet instruments consist
entirely of the contingent portion of the CAA (described further in Note 6 below). Because
repayment of this portion of the CAA is contingent on the Sale of Export Water, the Company has
determined that the contingent portion of the CAA does not have a determinable fair value.
</DIV>


<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 4: <U>WATER ASSETS</U>
</DIV>

<!-- xbrl,body -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company&#146;s water and water systems consist of the following costs and accumulated depreciation
and depletion as of August&nbsp;31:
</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">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2008</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">Accumulated</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">Accumulated</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">Depreciation</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">Depreciation</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">Costs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">and Depletion</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Costs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">and Depletion</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">Arkansas River Valley assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">81,241,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(823,660</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">81,232,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(544,126</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rangeview water supply</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,271,786</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,544</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,192,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,034</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">(51,978</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">(46,785</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Paradise water supply</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,532,619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,528,818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">2,899,863</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(270,317</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,899,863</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(182,252</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <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>&nbsp;</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LAWMA Shares (reported as held for sale</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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">at August&nbsp;31, 2008)</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">&#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">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Water supply &#150; other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,938</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">(1,955</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>&nbsp;</TD>
    <TD align="right">104,315,069</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,155,437</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104,126,775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(780,152</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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net investments in water and water systems</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">103,159,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">103,346,623</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"><B>Depletion and Depreciation</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company recorded approximately $500, $600 and $600 of depletion charges during the fiscal
years ended August&nbsp;31, 2009, 2008 and 2007, respectively. This related entirely to the use of the
Rangeview Water Supply. No depletion is taken against the Arkansas River water, the Paradise Water
Supply or Sky Ranch Water Supply because these assets have not been placed into service as of
August&nbsp;31, 2009.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company recorded approximately $381,200, $380,700 and $365,500 of depreciation expense in
fiscal 2009, 2008 and 2007, respectively.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->44<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Arkansas River Valley Assets</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Arkansas River Water</U>. The Company owns approximately 60,000 acre-feet of senior water
rights in the Arkansas River and its tributaries. The Company anticipates that of this,
approximately 40,000 acre-feet will be available for non-agricultural uses along the front range
of Colorado sometime in the future. The Company acquired its Arkansas River Valley assets from
High Plains A&#038;M LLC (&#147;HP A&#038;M&#148;) pursuant to an Asset Purchase Agreement (the &#147;Arkansas River
Agreement&#148;) entered into on August&nbsp;30, 2006. The Company acquired the Arkansas River Water Rights
to enhance and better balance its water portfolio by increasing its rights to senior surface water
which is being demanded by developers, cities and municipalities throughout the Colorado Front
Range, and to increase its inventory of water and capacity to serve additional customers.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In order to utilize the Arkansas River water in the Company&#146;s service areas, the Company will be
required to convert this water to municipal and industrial uses. Change of water use must be done
through the District Court, Water Division I, State of Colorado (&#147;Water Court&#148;) and several
conditions must be present prior to the Water Court granting an application for transfer of a water
right. A transfer case would be expected to include the following provisions: (i)&nbsp;a provision of
anti-speculation in which the applicant must have contractual obligations to provide water service
to customers prior to the Water Court ruling on the transfer of a water right, (ii)&nbsp;the applicant
can only transfer the &#147;consumptive use&#148; portion of its water rights (the Company expects to face
opposition to any consumptive use calculation of the historic agricultural uses of its water),
(iii)&nbsp;applicants likely would be required to mitigate the loss of tax base in the basin of origin,
(iv)&nbsp;applicants would likely have re-vegetation requirements requiring them to restore irrigated
soils to non-irrigated, and (v)&nbsp;applicants would be required to meet water quality measures which
would be included in the cost of transferring the water rights.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The value of the assets was recorded based on the deemed value of the consideration at August&nbsp;30,
2006, the acquisition date, because the value of the consideration was deemed more reliable than
the value of the acquired assets. The consideration paid is comprised of equity (3.0&nbsp;million
shares of the Company&#146;s common stock) and the Tap Participation Fee (described in Note 8 below).
Because the estimated value of the consideration paid was less than the total estimated fair value
of the assets acquired by the Company, the relative values assigned to the assets were ratably
reduced.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Land</U>. Currently the Arkansas River water owned by the Company is being used for
agricultural purposes on the 80 properties the Company owns (approximately 17,500 acres).
Approximately 60 of the properties are subject to promissory notes maintained by the seller as
further described in Note 8. The land is located in the counties of Bent, Otero and Prowers in
Southern Colorado. Each of the properties is subject to operating leases (which expire at various
dates through 2011) which the Company assumed effective as of the closing. Pursuant to a property
management agreement (described below) between HP A&#038;M and the Company, HP A&#038;M will manage the
leases for a period of five years (through August&nbsp;31, 2011) and will receive all lease payments
from the lessees as a management fee. Because the Company does not have the risk of loss
associated with the leases (HP A&#038;M&#146;s management fee is equal to the lease income for the next five
years, and contractually HP A&#038;M has the risk of loss on the leases), the lease income and
management fees are reflected on a net revenue basis throughout the term of the management
agreement. The Company also owns certain contract rights, tangible personal property, mineral
rights, and other water interests related to the Arkansas River water and land.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company and HP A&#038;M entered into a five year property management agreement, pursuant to which,
HP A&#038;M holds the right to pursue leasing of the land and Arkansas River water to interested
parties. All lease income associated with leasing the land and Arkansas River water, together with
all costs associated with these activities including but not limited to, overhead obligations, real
property taxes, and personnel costs, are the sole opportunity and obligation of HP A&#038;M. The
property management agreement can be extended under circumstances defined in the agreement.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Sale of non-irrigated land</U>. During the fiscal year ended August&nbsp;31, 2009, the
Company sold certain non-irrigated parcels of land at net sales prices of approximately $59,700 in
cash. This is net of approximately $3,600 of fees. Because the Company assigned no value to the
non-irrigated land at the acquisition date (the land was deemed to have a fair value of zero at
the acquisition date because it was not being irrigated and therefore was deemed non-essential to
the Company&#146;s business), the proceeds to the Company are recorded as a gain on sale of land in the
accompanying statement of operations. Pursuant to the Arkansas River Agreement, 100% of the
proceeds from the sale of the non-irrigated land are required to be paid to HP A&#038;M, which resulted
in credits to the Tap Participation Fee in an amount equivalent to the proceeds of the sale of 28
water taps. Following these payments, 38,937 taps remain subject to the Tap Participation Fee.
</DIV>

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

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Fort Lyon Canal Company (&#147;FLCC&#148;) Shares</U>. The water rights are represented by over 21,600
shares of the FLCC, which is a non-profit mutual ditch company established in the late 1800&#146;s that
operates and maintains the 110 mile Fort Lyon Canal between La Junta, Colorado and Lamar,
Colorado. The shares in the FLCC represent the amount of water the Company owns in the Fort Lyon
Canal.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the Arkansas River Agreement, the Company pledged to HP A&#038;M: (i)&nbsp;one-half of the shares
of FLCC purchased by the Company, (ii)&nbsp;all shares of FLCC hereafter issued to the Company by means
of any dividend or distribution in respect of the shares pledged hereunder (together with the
shares identified in (i), the &#147;Company&#146;s Pledged Shares&#148;), (iii)&nbsp;the certificates representing the
Company&#146;s Pledged Shares, (iv)&nbsp;the land associated with the water represented by the Company&#146;s
Pledged Shares, and (v)&nbsp;all rights to money or property which the Company now has or hereafter
acquires in respect of the Company&#146;s Pledged Shares. This pledge agreement will terminate upon
payment of the Tap Participation Fee.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Lower Arkansas Water Management Association (&#147;LAWMA&#148;) Shares</U>. During the fiscal
year ended August&nbsp;31, 2007, the Company sold 509 LAMWA shares for approximately $849,700.
Pursuant to the Arkansas River Agreement, the proceeds from these sales were remitted to HP A&#038;M as
Tap Participation Fee payments, which resulted in a reduction to the number of taps payable to HP
A&#038;M of 505 taps. See also Note 8 below for additional details on the Tap Participation Fee.
Because the LAWMA shares were sold at their allocated fair value, the Company did not recognize any
gain or loss on the transaction.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of August&nbsp;31, 2009, the Company owns 45 remaining LAWMA shares valued at approximately $77,900,
which are valued based on the sales value of the 509 LAWMA shares sold which is deemed the LAWMA
shares fair value. Because the Company plans to dispose of these LAWMA shares, at August&nbsp;31, 2008,
the net book value of the remaining LAWMA shares was reflected on the balance sheet as held for
sale. However, because the LAWMA shares were for sale longer than one year, the value of the
shares has been reclassified to the <I>Investments in Water and water systems </I>account on the
accompanying balance sheet as of August&nbsp;31, 2009. The LAWMA shares are not currently being
depleted. Management continues to evaluate offers and believes that the estimated selling price
less estimated cost to sell equals or exceeds the net book value of the LAWMA shares remaining and
therefore there is no impairment loss.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Non-Solicitation Agreement</U>. Pursuant to the Arkansas River Agreement, each of the owners
of HP A&#038;M agreed, for three years (i)&nbsp;not to solicit the Company&#146;s customers or potential customers
to provide water in the Company&#146;s service areas or potential service areas, (ii)&nbsp;not to solicit
employees of the Company, (iii)&nbsp;not to engage in certain activities competitive with the Company
and (iv)&nbsp;not to engage in the purchase of water or water rights without first offering such water
or water rights to the Company.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Rangeview Water Supply and Water System</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Rangeview Water Supply consists of 28,350 acre-feet and is a combination of tributary surface
water and groundwater rights along with certain storage rights associated with the Lowry Range,
a 27,000 acre property owned by the Land Board located approximately 15 miles southeast of Denver.
The $14.4&nbsp;million of capitalized costs represent the costs of assets acquired or facilities
constructed to extend water service to customers located on and off the Lowry Range. The recorded
costs of the Rangeview Water Supply include payments to the sellers of the Rangeview Water Supply,
design and construction costs and certain direct costs related to improvements to the asset
including legal and engineering fees.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company acquired the Rangeview Water Supply beginning in 1996 when:
</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">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The District entered into the Amended and Restated Lease Agreement with the Land Board,
which owns the Lowry Range;</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">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The Company entered into the Agreement for Sale of Export Water with the District, a
quasi-municipal political subdivision of the State of Colorado; 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">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The Company entered into the Service Agreement with the District for the provision of water
service to the Lowry Range (collectively these agreements are referred to as the &#147;Rangeview
Water Agreements&#148;).</DIV></TD>
</TR>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->46<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">


<DIV style="margin-top: 10pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the Rangeview Water Agreements, the Company has the exclusive right through 2081 to use
13,400 acre feet of the Rangeview Water Supply specifically on the Lowry Range. The Rangeview
Water Agreements also provide for the Company to use surface reservoir storage capacity in
providing water service to customers both on and off the Lowry Range. The Company owns the rights
to use the remaining 11,650 acre-feet of groundwater, which can be exported off the Lowry Range to
serve area users (referred to as &#147;Export Water&#148;). The Company also has the option with the Land
Board to exchange an aggregate gross volume of 165,000 acre-feet of groundwater for 1,650 acre-feet
per year of adjudicated surface water and to use this surface water as Export Water.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Based on independent engineering estimates, the water designated for use on the Lowry Range is
capable of providing water service to approximately 46,500 SFE units, and the Export Water owned by
the Company can serve approximately 33,600 SFE units throughout the Denver metropolitan region.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the Rangeview Water Agreements, the Company will design, finance, construct, operate
and maintain the District&#146;s water and wastewater systems to provide service to the District&#146;s
customers on the Lowry Range. On the Lowry Range, the Company will operate both the water and the
wastewater systems during the contract period and the District will own both systems. After 2081,
ownership of the water system servicing customers on the Lowry Range will revert to the Land Board,
with the District retaining ownership of the wastewater system. The Company owns the Export Water
and will use it to provide water and wastewater services to customers off the Lowry Range. The
Company will also own all the facilities required to extend water and wastewater services off the
Lowry Range. The Company plans to contract with third parties for the construction of these
facilities.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Rates and charges for all water and wastewater services on the Lowry Range, including tap fees and
usage or monthly fees, are governed by the terms of the Rangeview Water Agreements. The Company&#146;s
rates and charges are reviewed annually and are based on the average of similar rates and charges
of three surrounding municipal water and wastewater service providers. These represent gross fees
and to the extent that water service is provided using Export Water, the Company is required to pay
royalties to the Land Board ranging from 10% of gross revenues to 50% of net revenue after
deducting certain costs. In exchange for providing water service to customers on the Lowry Range,
the Company will receive 95% of all water service fees received by the District, after the District
pays the required royalties to the Land Board totaling 12% of gross revenues received from water
sales. In exchange for providing wastewater service for the District&#146;s customers, the Company will
receive 100% of the District&#146;s wastewater tap fees and 90% of the District&#146;s wastewater usage fees.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company delivered approximately 33.9&nbsp;million, 42.8&nbsp;million and 44.4&nbsp;million gallons of water to
customers during the fiscal years ended August&nbsp;31, 2009, 2008 and 2007, respectively.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In 1987, the Company acquired water, water wells, and related assets from Paradise Oil, Water and
Land Development, Inc., which constitute the Paradise Water Supply. The $5.5&nbsp;million of capitalized
costs includes costs to acquire the Paradise water supply, as well as certain direct legal and
engineering costs relating to improvements to the asset. The Paradise Water Supply includes 70,000
acre-feet of conditionally decreed tributary Colorado River water, a right-of-way permit from the
United States Department of the Interior, Bureau of Land Management, for the construction of a
70,000 acre-foot dam and reservoir across federal lands, and four unrelated water wells.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Every six years the Paradise Water Supply is subject to a Finding of Reasonable Diligence review by
the Water Court and the State Engineer to determine if the Company is diligently pursuing the
development of the water rights. During fiscal 2005, the Water Court began the latest review, which
the Company received its official Finding of Due Diligence in August&nbsp;2008. During the diligence
review, the Company received objections from two parties to its Paradise Water rights. The Company
and the objectors reached an agreement on the objections, which resulted in the Company receiving
its finding of due diligence. The agreement with the objectors called for the Company to, among
others, perform the following during the next six years: (i)&nbsp;acknowledge that the Company is
required to use its Paradise Water within the geographical boundaries of the Colorado River Water
Conservation District; (ii)&nbsp;investigate reservoir sites that are not located directly on the main
channel of the Colorado River and proceed with filings with the Water Court to change the location
of the reservoir sight; and (iii)&nbsp;identify specific end uses and users of the Paradise Water. The
Company is working on finding alternative reservoir locations and identifying specific end users
and anticipates reaching the above stipulations by the next diligence review period.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->47<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Arapahoe County Fairgrounds Agreement for Water Service</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company owns approximately 321 acre-feet of groundwater purchased pursuant to the County
Agreement. The Company plans to use this water in conjunction with its Rangeview Water Rights in
providing water to areas outside the Lowry Range. The $2.9&nbsp;million of capitalized costs includes
the costs to construct various Wholesale and Special Facilities, including a new deep water well, a
500,000 gallon water tank and pipelines to transport water to the Fairgrounds.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the County Agreement, the County has or will pay the Company 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="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">In August&nbsp;2005, the County purchased water taps for 38.5 SFEs for $567,490, or $14,740 per
tap, which was used to construct the Wholesale Facilities. This was received by the Company
in August&nbsp;2005, as follows:</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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">A cash payment of approximately $514,600, 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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The transfer of rights to 27 acre-feet of dedicated groundwater valued at
approximately $52,900.</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">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The County agreed to provide funding of approximately $1,245,200 for the Special Facilities.
This is being paid by the County as follows:</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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">An initial cash payment of approximately $397,000, which was received in August
2005,</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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The transfer of approximately 294 acre-feet of water, valued at approximately
$206,000, with a cash payment of approximately $34,100, received in August&nbsp;2008 (this
was initially 336 acre-feet of water valued at approximately $240,100 with no
additional cash payment, see discussion of the amendment to the County Agreement
below),</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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The balance of approximately $607,900 in monthly payments over 10&nbsp;years
(including interest at 6% per annum).</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Since the Company is utilizing Export Water to provide water service to the Fairgrounds, the sale
of the water taps generated a royalty payment to the Land Board of $34,522. The agreement with the
Land Board requires royalty payments on Export Water sales based on net revenues, which are defined
as proceeds from the sale of Export Water less direct and indirect costs, including reasonable
overhead charges, associated with the withdrawal, treatment and delivery of Export Water. Based on
this, in September&nbsp;2005, the Company made the required $34,522 royalty payment to the Land Board,
which is 10% of the net tap fees received from the County.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In addition, tap fees under service agreements in which Export Water will be utilized are subject
to the CAA, which is described in more detail in Note 6 below. Net tap fees subject to the CAA
totaled $532,968, which were the tap fees received from the County less the $34,522 Land Board
royalty. The $532,968 were distributed by the
escrow agent as required by the CAA in September&nbsp;2005. Based on the CAA positions held by the
Company at the time, the Company received $373,078, or 70%, of the distribution and external
parties received $159,890, or 30%.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The tap fees retained by the Company were used to fund construction of the Wholesale Facilities
required to extend water service to the Fairgrounds. In July&nbsp;2006 the Company completed
construction of the Wholesale Facilities and began ratably recognizing $428,000 of tap fees in
income over the estimated accounting life of the assets. The $428,000 is comprised of the tap fees
received by the Company of $567,490, decreased by (i)&nbsp;royalties to the Land Board of $34,522; and
(ii)&nbsp;65% of the total payments made to external CAA holders or $104,136. In each of the three
fiscal years ended August&nbsp;31, 2009, 2008 and 2007, the Company recognized approximately
$14,300 of tap fee revenue. At August&nbsp;31, 2009, approximately $384,800 of these tap fees are still
deferred.
</DIV>

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

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The total construction funding of $1.25&nbsp;million is deferred and will be recognized as revenue over
the expected service period, which is also the estimated useful life of the Special Facilities
constructed with the funds. In each of the fiscal years ended August&nbsp;31, 2009, the
Company recognized approximately $41,500 of Special Facilities revenue. At August&nbsp;31, 2009,
approximately $1.12&nbsp;million of the construction funding is still deferred.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Amendment to the County Agreement</U>. Because the County had not transferred the 336
acre-feet of groundwater to the Company as required in the County Agreement, the County was making
interest payments to the Company totaling $600 per month until such time as the required water
rights transfer was made. In August&nbsp;2008, the Company and the County entered into Amendment No.&nbsp;1
to Agreement For Water Service (the &#147;County Amendment&#148;), whereby the County transferred to the
Company 294 acre-feet of water valued at approximately $206,000, and made a cash payment of
approximately $34,100. The County Amendment was necessary because prior to the signing of the
County Agreement, some of the water rights to be transferred to the Company had previously been
adjudicated to another party. As a result, the acre-feet to be transferred from the County to the
Company were reduced from 336 acre-feet to approximately 294 acre-feet. As a result of the
reduction in the acre-feet transferred to the Company, the County made an additional cash payment
of approximately $34,100 in August&nbsp;2008. As a result of the transfer of the water rights and the
cash payment, the County ceased making the required $600&nbsp;monthly interest payments to the Company
in August&nbsp;2008. The value of the water rights was included in the <I>Construction proceeds receivable</I>
account on the accompanying balance sheet until the transfer, and then $206,000 was capitalized as
part of the investment in Arapahoe County water.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Sky Ranch Water Supply and Water Service Agreements</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In 2007, the developer of Sky Ranch filed for Chapter&nbsp;11 bankruptcy protection. On August&nbsp;26,
2009, the Company was informed that the developer of Sky Ranch would be liquidated pursuant to a
plan of liquidation filed in bankruptcy court.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Prior to the bankruptcy filings, the Company acquired approximately 89 acre-feet of water located
beneath Sky Ranch and has the right to purchase an additional 671 acre-feet of water (for a total
of 760 acre-feet), which could be used to provide water service to the initial 1,500 taps purchased
at Sky Ranch. The $100,000 of capitalized costs is comprised of the cash payments made to the
developer of Sky Ranch to acquire the 89 acre-feet of water rights.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company acquired these water rights pursuant to the October&nbsp;31, 2003, and May&nbsp;14, 2004 Water
Service Agreements (collectively the &#147;Sky Ranch Agreements&#148;) with the developer of Sky Ranch, an
approximately 950 acre property located 4 miles north of the Lowry Range. Pursuant to the Sky
Ranch Agreements, if the project commences, the Company is required to provide water service to the
homes, businesses, schools and other developments that are expected to be built at Sky Ranch, which
could include service to up to 4,850 SFEs.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As part of the Sky Ranch Agreements, approximately 537 acre-feet of water would be dedicated to the
Company in exchange for a $3,400 per tap credit for the first 767 water taps purchased.
Additionally, prior to development, the developer would be required to pay the Company $3.41
million for the construction of certain Special Facilities which are necessary to extend service to
Sky Ranch. As of August&nbsp;31, 2009, none of this water has been dedicated
to the Company, the developer of Sky Ranch has not purchased any water taps, and construction of
the Special Facilities has not occurred. Consequently, none of the $3.41&nbsp;million for construction
of the Special Facilities has been paid.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company also entered into a five year groundwater purchase agreement with Sky Ranch to acquire
the 223 acre-feet of Denver Aquifer groundwater located at Sky Ranch for payments totaling
$250,000. As of the date of this filing, the Company has acquired 40% of this water, or 89.2
acre-feet for payments totaling $100,000. The 89.2 acre-feet of water acquired from Sky Ranch does
not have to be used at Sky Ranch. Instead, at the discretion of the Company, it can be used
throughout the Company&#146;s service area. Due to the developer&#146;s bankruptcy filing, the Company has
not been able to complete the acquisition of the final 60% of the groundwater located at Sky Ranch
and the Company is unsure if it will be able to complete the acquisition of the remaining
groundwater.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->49<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">If Sky Ranch is developed, the Company plans to initially develop the 760 acre-feet of water
beneath the Sky Ranch property. This water is sufficient to provide water service to approximately
1,500 taps. Any taps purchased by Sky Ranch in excess of 1,500 are anticipated to be serviced
utilizing Export Water and are subject to royalty payments to the Land Board and payments to the
CAA holders.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Sky Ranch Agreements granted the developer two options to use a combined 1,200 acre-feet of
Export Water per year at Sky Ranch after a defined number of taps have been purchased for use at
Sky Ranch. The two options were to be paid in annual installments of $50,000 over five years (the
&#147;Sky Ranch Option&#148;), and $10,400 over five years (the &#147;Hills Option&#148;), respectively. Installment
payments received before the options are exercised or expire will not be refunded and are deferred
and recognized into income ratably until the next installment payment is due.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In fiscal 2005 and 2004, the developer remitted the first two $50,000 payments for the Sky Ranch
Option which were both distributed in order of priority to the CAA holders. In February&nbsp;2005, the
developer remitted the first payment for the $10,400 Hills Option which was distributed in order of
priority to the CAA holders. As of August&nbsp;31, 2009, the developer of Sky Ranch has not remitted
the payments for the Sky Ranch Option or the Hills Option due in our fiscal 2008, 2007 or 2006, and
therefore the payments are past due. Notwithstanding Sky Ranch being in default on its payments,
the Sky Ranch Agreements remain in effect. Continued default by Sky Ranch on these payments for
Export Water places the Sky Ranch development at risk of not being able to use the Company&#146;s Export
Water to service development in excess of the 1,500 single family units.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company has dedicated approximately 1,200 acre-feet, or 10%, of the Export Water supply (which
is about 4.5% of the Company&#146;s overall Rangeview Water Supply) for this project under the Sky Ranch
options.
</DIV>


<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 5: <U>INVESTMENT IN WELL ENHANCEMENT AND RECOVERY SYSTEMS, LLC</U>
</DIV>

<!-- xbrl,body -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Effective January&nbsp;30, 2007, the Company entered into an Operating Agreement with Energy
Technologies, Inc. and Hydro Resources Holdings, Inc. (collectively the Company, Energy
Technologies, Inc. and Hydro Resources Holdings, Inc. are referred to as the &#147;LLC Owners&#148;) to form
Well Enhancement LLC. Well Enhancement LLC was established to develop a proprietary new deep water
well enhancement tool and process 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 uses the equity method to account for its investment in Well Enhancement LLC. As of
August&nbsp;31, 2009, as a result of the recognition of the Company&#146;s 1/3 share of the losses of Well
Enhancement LLC, the Company&#146;s <I>Investment in Well Enhancement and Recovery Systems, LLC </I>account on
its balance sheet has been reduced to zero. However, once the investment account was reduced to
zero, the Company began recording its share of Well Enhancement LLC&#146;s losses against the note
receivable from Well Enhancement LLC described below. The investment account and the receivable
account on the Company&#146;s balance sheet include $87,000 of capital contributions made to date, the
$7,000 loan with accrued interest of $355 and the Company&#146;s 1/3 share of the approximately $276,600
of net losses of Well Enhancement LLC from inception through August&nbsp;31, 2009.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">For the fiscal years ended August&nbsp;31, 2009, 2008 and 2007, the Company recorded
approximately $7,900, $48,700 and $35,600, respectively, of its share of Well Enhancement LLC&#146;s
losses. The net losses are primarily a result of research and development costs associated with
the design of the well enhancement tool.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of August&nbsp;31, 2009, Well Enhancement LLC&#146;s assets and liabilities consisted of the following
approximate amounts:
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Well Enhancement LLC Assets and Liabilities
</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="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&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</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,200</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued professional fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes payable &#151; related parties, including accrued interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">21,300</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 -->50<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">On October&nbsp;27, 2008, the Company loaned Well Enhancement LLC $7,000 for use in its operations. The
note receivable from Well Enhancement LLC carries simple interest at six percent (6%) per annum,
and matures on October&nbsp;27, 2011, with no payments due until maturity.
</DIV>


<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 6: <U>PARTICIPATING INTERESTS IN EXPORT WATER</U>
</DIV>

<!-- xbrl,body -->
<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 CAA 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 &#147;Export Water,&#148; which is
described in greater detail in Note 4 above. In return, the Company agreed to remit a total of
$31.8&nbsp;million of proceeds received from the sale of Export Water to the participating interest
holders. The obligation for the $11.1&nbsp;million was recorded as debt, and the remaining $20.7
million contingent liability was 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>


<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>


<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. Because the original recorded
liability, which was $11.1&nbsp;million, was approximately 35% of the original total liability of $31.8
million, 35% of each payment remitted to the CAA holders is allocated to the recorded liability
account. The remaining portion of each payment, or approximately 65%, is allocated to the
contingent obligation, which is recorded on a net revenue basis.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In recent years, in order to reduce the long term impact of the CAA, the Company has repurchased
various portions of the CAA obligations in priority. The Company did not make any CAA acquisitions
during the fiscal year ended August&nbsp;31, 2009.
</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
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">In July&nbsp;2007, the Company acquired the rights to approximately $10.5&nbsp;million of CAA interests in
exchange for cash payments of approximately $2.6&nbsp;million, which was raised in the Company&#146;s equity
offering in July&nbsp;2007. The Company recorded a gain on the acquisition of the CAA interests made in
July&nbsp;2007 of approximately $1.0&nbsp;million. Of this, approximately $765,000 was recorded as a capital
contribution because the CAA interests
acquired by the Company for approximately $7.8&nbsp;million were held by parties that are deemed related
to the Company.
</DIV>



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

<P align="center" style="font-size: 10pt"><!-- Folio -->51<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As a result of the CAA acquisitions, and due to the sale of Export Water, as detailed in the table
below, the total remaining potential third party obligation as of August&nbsp;31, 2009 is approximately
$3.5&nbsp;million:
</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 nowrap align="center" colspan="2">Export Water</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Initial Export</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Total Potential</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Participating</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">Proceeds</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Water Proceeds</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Third party</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Interests</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">Received</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">to Pure Cycle</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Obligation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Liability</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Contingency</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">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>Activity from inception until August&nbsp;31, 2008:</I></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">
    <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">28,077,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(28,077,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,789,983</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18,287,517</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Option payments &#150; Sky Ranch
and The Hills at Sky Ranch</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="background: #cceeff">
    <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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Export Water sale payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,824</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,353</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,263</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,090</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" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at August&nbsp;31, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">674,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,858,818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,492,869</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,217,876</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,274,993</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>Fiscal 2009 activity:</I></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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Export Water sale payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,140</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,346</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,516</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,830</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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at August&nbsp;31, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">689,030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">27,848,678</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,488,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,216,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,272,163</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>




<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR style="font-size: 6pt">
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="96">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify">The Arapahoe County tap fees are less the $34,522 royalty payment to the Land Board.</DIV></TD>
</TR>

</TABLE>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The CAA includes contractually established priorities which call for payments to CAA holders
in order of their priority. This means the first three payees receive their full payment before
the next priority level receives any payment and so on until full repayment. The Company will
receive approximately $5.1&nbsp;million of the first priority payout (the remaining entire first
priority payout totals approximately $7.3&nbsp;million as of August&nbsp;31, 2009).
</DIV>


<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 7: <U>ACCRUED LIABILITIES</U>
</DIV>

<!-- xbrl,body -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At August&nbsp;31, 2009, the Company had accrued liabilities of approximately $60,100, of which $50,100
was for professional fees with the remainder relating to operating payables. At August&nbsp;31, 2008,
the Company had accrued liabilities of approximately $70,500, of which $62,800 was for
professional fees with the remainder relating to operating payables.
</DIV>


<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 8: <U>LONG-TERM DEBT AND OPERATING LEASE</U>
</DIV>

<!-- xbrl,body -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of August&nbsp;31, 2009, the Company has no debt with contractual maturity dates.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Participating Interest in Export Water supply and the Tap Participation Fees payable to HP A&#038;M
are obligations of the Company that have no scheduled maturity dates. Therefore, these liabilities
are not disclosed in tabular format. However, the Tap Participation Fee is described below.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Tap Participation Fee payable to HP A&#038;M</I></B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the Asset Purchase Agreement (the &#147;Arkansas River Agreement&#148;) dated August&nbsp;31, 2006,
the Company granted High Plains A&#038;M, LLC (&#147;HP A&#038;M&#148;) the right to receive ten percent (10%) of the
Company&#146;s gross proceeds, or the equivalent thereof, from the sale of the next 40,000 water taps
sold by the Company from and after the date of the Arkansas River Agreement (the &#147;Tap
Participation Fee&#148;). The 40,000 figure was reduced to 39,470 at the August&nbsp;31, 2006 closing date
because HP A&#038;M sold certain assets and properties not related to the FLCC shares which were
subject to the Arkansas River Agreement and were available for credit against the Tap
Participation Fee. The 39,470 figure was reduced to 38,965 during the fiscal year ended
August&nbsp;31, 2007, when the Company sold 509 LAMWA shares for approximately $849,700 (as described
in Note 4 above). Pursuant to the Arkansas River Agreement, 100% of the proceeds from the sale of
the LAWMA shares were required to be paid to HP A&#038;M, which resulted in a credit to the Tap
Participation Fee equivalent to the sale of 505 water taps. The 38,965 figure was reduced to
38,937 taps as a result of the sale of non-irrigated land during the fiscal year ended
August&nbsp;31, 2009 as described in Note 4 above.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->52<!-- /Folio -->
</DIV>

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

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Tap Participation Fee is due and payable once the Company has sold a water tap and received
the consideration due for such water tap. The Company did not sell any water taps during the
fiscal year ended August&nbsp;31, 2009 or 2008. However, the Company did make Tap
Participation Fee payments to HP A&#038;M during the fiscal year ended August&nbsp;31, 2009, as a
result of non-irrigated land sales described above.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Tap Participation Fee was initially valued at approximately $45.6&nbsp;million at the acquisition
date using a discounted cash flow analysis of the projected future payments to HP A&#038;M. The $57.5
million balance at August&nbsp;31, 2009, includes approximately $12.8&nbsp;million of imputed interest,
recorded using the effective interest method. The Company estimates the value of the Tap
Participation Fee by projecting new home development in the Company&#146;s targeted 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 estimated future water tap fees calculated using historical water tap fees. Based on
the weak new home construction market in the Denver metropolitan area, the Company updated its
estimated discounted cash flow analysis as of February&nbsp;28, 2009. There were no significant
changes in the assumptions since February&nbsp;28, 2009, therefore, no change in the Tap Participation
Fee was determined necessary after that date. The February&nbsp;2009 update resulted in the following
changes from the prior estimate:
</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">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">An increase in the overall future estimated Tap Participation Fee of approximately $4.7
million (from approximately $108.5&nbsp;million to approximately $113.1&nbsp;million);</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">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">A decrease in the imputed effective interest rate from approximately 8.6% to approximately
6.3%; 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">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">A decrease in the imputed interest expense for the fiscal year ended August&nbsp;31,
2009 of approximately $1.1&nbsp;million, which equates to approximately $.05 per basic and diluted
share</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Actual new home development in the Company&#146;s service area and actual future tap fees inevitably
will vary significantly from the Company&#146;s estimates which could have a material impact on the
Company&#146;s financial statements as well as its results of operations. An important component in the
Company&#146;s estimate of the value of the Tap Participation Fee, which is based on historical trends,
is that the Company reasonably expects water tap fees to continue to increase in the coming years.
Tap fees are a market based pricing metric which in part demonstrates the increasing costs to
acquire and develop new water supplies. It is thus a market metric which in part demonstrates the
increasing value of the Company&#146;s water assets. The Company continues to assess the value of the
Tap Participation Fee liability and updates its valuation analysis whenever events or
circumstances indicate the assumptions used to estimate the value of the liability have changed
materially. The difference between the net present value and the estimated realizable value will
be imputed as interest expense using the effective interest method over the estimated development
period utilized in the valuation of the Tap Participation Fee.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company imputes interest expense on the unpaid Tap Participation Fee using the effective
interest method over the estimated development period utilized in the valuation of the liability.
The Company imputed interest of approximately $3.7&nbsp;million, $4.4&nbsp;million and $4.7&nbsp;million during
the fiscal years ended August&nbsp;31, 2009, 2008 and 2007, respectively.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">After five years, under circumstances defined in the Arkansas River Agreement, the Tap
Participation Fee can increase to 20% of the Company&#146;s water tap fees and the number of water taps
subject to the Tap Participation Fee would be correspondingly reduced by half. Payment of the Tap
Participation Fee may be accelerated in the event of a merger, reorganization, sale of
substantially all assets, or similar transactions and in the event of bankruptcy and insolvency
events.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->53<!-- /Folio -->
</DIV>

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

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Promissory Notes Payable by HP A&#038;M</B>
</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 $12.0&nbsp;million and $12.8&nbsp;million at
August&nbsp;31, 2009 and 2008, respectively. These promissory notes are secured by deeds of trust on
the Properties. The Company did not assume any of these promissory notes and is 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, at the Company&#146;s sole discretion, the Company may make
payments pursuant to any or all of the notes and cure any or all of the defaults. If the Company
does not cure the defaults, it will lose the properties securing the defaulted notes. If HP A&#038;M
defaults on the promissory notes, the Company can foreclose on a defined amount of stock issued to
HP A&#038;M and reduce the Tap Participation Fee by two times the amount of notes defaulted on by HP
A&#038;M. Because HP A&#038;M would lose such a substantial amount of equity and the Tap Participation Fee,
and based on the financial stability of HP A&#038;M and its owners and affiliated companies, the
probability of HP A&#038;M defaulting on the notes is deemed remote. As far as the Company is aware, as
of August&nbsp;31, 2009, HP A&#038;M has not defaulted on any of the promissory notes.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Because the outstanding notes are collateralized by the Company&#146;s Properties and Arkansas River
Water, HP A&#038;M is deemed to be a Variable Interest Entity (&#147;VIE&#148;) per GAAP. However, because the
Company will not absorb any of HP A&#038;M&#146;s expected losses or receive any of HP A&#038;M&#146;s expected gains,
the Company is not deemed the &#147;Primary Beneficiary&#148; of HP A&#038;M and therefore is not required to
consolidate HP A&#038;M. HP A&#038;M became a VIE to the Company on August&nbsp;30, 2006 when the Company
acquired the Arkansas River Water Rights and Properties subject to the outstanding promissory
notes. HP A&#038;M is a holding company that acquires water rights and related properties for
investment and sale purposes. If HP A&#038;M were to default on the notes, the Company would lose
approximately 60 of the 80 (approximately 75%) real property interests it acquired and a comparable
percentage of the water rights the Company acquired, which are associated with those Properties,
unless the Company cured the notes in default.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Effective August&nbsp;27, 2009, the Company entered into an operating lease for approximately 1,000
square feet of office space. The lease has a three year term with payments of approximately
$1,400 per month.
</DIV>


<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 9: <U>SHAREHOLDERS&#146; EQUITY</U>
</DIV>

<!-- xbrl,body -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Preferred Stock</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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 exceed
$36,026,232, the Series&nbsp;B Preferred Stock holders will receive the next $432,513 of proceeds in
the form of a dividend.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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 options 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 August&nbsp;31, 2009, the Company has approximately 1,315,800 shares that can be granted to
eligible participants pursuant to the Equity Plan.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->54<!-- /Folio -->
</DIV>

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

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company estimates the fair value of share-based payment awards on the date of grant using the
Black-Scholes option-pricing model (&#147;Black-Scholes model&#148;). Using the Black-Scholes model, the
value of the portion of the award that is ultimately expected to vest is recognized as a period
expense over the requisite service period in the statement of operations. Option forfeitures are
to be estimated at the time of grant and revised if necessary, in subsequent periods if actual
forfeitures differ from those estimates. The Company does not expect any forfeiture of its option
grants and therefore the compensation expense has not been reduced for estimated forfeitures. No
options were forfeited by option holders during the three fiscal years ended August&nbsp;31,
2009. The Company attributes the value of share-based compensation to expense using the
straight-line single option method for all options granted.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company&#146;s determination of the estimated fair value of share-based payment awards on the date
of grant is affected by the following variables and assumptions:
</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">The grant date exercise price &#150; is the closing market price of the Company&#146;s common stock
on the date of grant;</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Estimated option lives &#150; based on historical experience with existing option holders;</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Estimated dividend rates &#150; based on historical and anticipated dividends over the life of
the option;</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Life of the option &#150; based on historical experience option grants have lives between 8 and
10&nbsp;years;</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Risk-free interest rates &#150; with maturities that approximate the expected life of the
options granted;</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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Calculated stock price volatility &#150; calculated over the expected life of the options
granted, which is calculated based on the weekly closing price of the Company&#146;s common stock
over a period equal to the expected life of the option; 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"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Option exercise behaviors &#150; based on actual and projected employee stock option exercises
and forfeitures.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In August&nbsp;2009, the Company granted two employees options to purchase a combined 80,000 shares of
the Company&#146;s common stock pursuant to the Equity Plan. The options vest one-fifth at the grant
date and one-fifth on each of the next four anniversary dates of the grant date. The options
expire ten years from the date of grant. The Company calculated the fair value of these options at
approximately $217,300 (approximately $2.72 per option) using the Black-Scholes model with the
following variables: weighted average exercise price of $3.13 (which was the closing sales price of
the Company&#146;s common stock on the date of the grant); estimated option lives of ten years;
estimated dividend rate of 0%; weighted average risk-free interest rate of 3.51%; weighted average
stock price volatility of 89.35%; and an estimated forfeiture rate of 0%. Approximately $43,500 of
the share-based compensation was expensed at the grant date and the remaining $173,800 will be
expensed monthly over the remaining vesting period.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In January&nbsp;2009, the Company granted its directors options to purchase a combined 15,000 shares of
the Company&#146;s common stock pursuant to the Equity Plan. The options vest one year from the date of
grant and expire ten years from the date of grant. The Company calculated the fair value of these
options at approximately $36,300 (approximately $2.42 per option) using the Black-Scholes model
with the following variables: weighted average exercise price of $2.94 (which was the closing sales
price of the Company&#146;s common stock on the date of the grant); estimated option lives of eight
years; estimated dividend rate of 0%; weighted average risk-free interest rate of 2.33%; weighted
average stock price volatility of 91.6%; and an estimated forfeiture rate of 0%. The $36,300 of
stock-based compensation is being expensed monthly over the vesting period.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In August&nbsp;2008, the Company granted one of its directors an option to purchase 2,500 shares of the
Company&#146;s common stock pursuant to the Equity Plan. The option vests one year from the date of
grant and expires ten years from the date of grant. The Company calculated the fair value of this
option at approximately $16,100 (approximately $6.44 per option) using the Black-Scholes model with
the following variables: weighted average exercise price of $7.64 (which was the closing sales
price of the Company&#146;s common stock on the date of the grant); estimated option life of eight
years; estimated dividend rate of 0%; weighted average risk-free interest rate
of 4.75%; weighted average stock price volatility of 92.5%; and an estimated forfeiture rate of 0%.
The $16,100 of stock-based compensation was expensed monthly over the vesting period.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->55<!-- /Folio -->
</DIV>

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

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In January&nbsp;2008, the Company granted its directors options to purchase a combined 15,000 shares of
the Company&#146;s common stock pursuant to the Equity Plan. The options vest one year from the date of
grant and expire ten years from the date of grant. The Company calculated the fair value of these
options at approximately $93,600 (approximately $6.25 per option)using the Black-Scholes model with
the following variables: weighted average exercise price of $7.50 (which was the closing sales
price of the Company&#146;s common stock on the date of the grant); estimated option lives of eight
years; estimated dividend rate of 0%; weighted average risk-free interest rate of 4.25%; weighted
average stock price volatility of 90.6%; and an estimated forfeiture rate of 0%. The $93,600 of
stock-based compensation was expensed monthly over the vesting period which was through January
2009.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">No options were exercised during the fiscal years ended August&nbsp;31, 2009 or 2008.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The following table summarizes the stock option activity for the Equity Plan for the fiscal
year ended August&nbsp;31, 2009:
</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted-</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Approximate</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">Weighted-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Remaining</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Aggregate</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Contractual</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Instrinsic</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">Options</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Exercise Price</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Term</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Value</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">Oustanding at beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8.50</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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.10</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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised</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>
    <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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited or expired</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>
    <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 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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at August&nbsp;31, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7.5</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</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>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options exercisable at August&nbsp;31, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">6.5</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</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>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR style="font-size: 6pt">
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="96">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify">Intrinsic value less than zero</DIV></TD>
</TR>


</TABLE>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The following table summarizes the activity and value of non-vested options as of and for the
fiscal year ended August&nbsp;31, 2009:
</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="72%">&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">Weighted-</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">Average Grant</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Date Fair</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">Options</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Value</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">Non-vested options oustanding at beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.81</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.67</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(43,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-vested options outstanding at August&nbsp;31, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.66</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="justify" style="font-size: 10pt; margin-top: 10pt">All non-vested options are expected to vest. The total fair value of options vested during the
fiscal year ended August&nbsp;31, 2009 was approximately $230,700.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Share-based compensation expense for the fiscal years ended August&nbsp;31, 2009, 2008 and
2007, was approximately $325,500, $351,500 and $287,300, respectively.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At August&nbsp;31, 2009, the Company has unrecognized expenses relating to non-vested options that are
expected to vest totaling approximately $189,000. The weighted-average period over which these
options are expected to vest is approximately three and a half years. The Company has not recorded
any excess tax benefits to additional paid in capital.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->56<!-- /Folio -->
</DIV>

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

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Restricted Stock</B>
</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. The Company is recognizing 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 closing sales price of the Company&#146;s common stock on the date
of the grant and is being amortized to compensation expense over the vesting term of two years. A
summary of the status of the restricted stock at August&nbsp;31, 2009, and changes during fiscal 2009,
are 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="72%">&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">Weighted-</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">average</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">grant date</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">Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">fair value</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">Restricted stock outstanding at August&nbsp;31, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7.59</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Restricted stock granted, vested, released or forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Restricted stock outstanding at August&nbsp;31, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7.59</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="justify" style="font-size: 10pt; margin-top: 10pt">These restricted shares were fully vested and expensed as of August&nbsp;31, 2009.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of August&nbsp;31, 2009, the Company had outstanding warrants to purchase 92 shares of common stock
at an exercise price of $1.80 per share. These warrants expire six months from the earlier of:
</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">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The date all of the Export Water is sold or otherwise disposed of,</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">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The date the CAA is terminated with respect to the original holder of the warrant, or</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">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The date on which the Company makes the final payment pursuant to Section&nbsp;2.1(r) of the CAA.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">No warrants were exercised during fiscal 2009, 2008 or 2007.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Pledged Common Stock Owned by HP A&#038;M</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the Arkansas River Agreement, HP A&#038;M pledged, transferred, assigned and granted to the
Company a security interest in and to (a)&nbsp;1,500,000 shares of Pure Cycle common stock, (b)&nbsp;all
shares of Pure Cycle Common Stock hereafter issued to HP A&#038;M by means of any dividend or
distribution in respect of the shares pledged hereunder (together with the shares identified in
(a), the &#147;Pledged Shares&#148;), (c)&nbsp;the certificates representing the Pledged Shares, and (d)&nbsp;all
rights to money or property which HP A&#038;M now has or hereafter acquires in respect of the Pledged
Shares. The Pledged Shares are being held by the Company&#146;s corporate legal counsel.
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the Arkansas River agreement the Company granted HP A&#038;M one demand right to request the
registration of 750,000 shares of Pure Cycle common stock and piggyback rights to register an
additional 750,000 shares of Pure Cycle common stock.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the demand right, upon the request of HP A&#038;M, the Company is required to file a
registration statement for up to 750,000 shares of the Company&#146;s common stock owned by HP A&#038;M and
to use its reasonable best, diligent efforts to cause the registration statement to become
effective. Provided the Company exercises the appropriate efforts, it has no liability to HP A&#038;M
if the registration statement is not declared effective. Furthermore, HP A&#038;M has no right to put
its Company common stock to the Company or to otherwise require the Company to purchase its
shares. As of August&nbsp;31, 2009, HP A&#038;M has not requested the Company to register these shares.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">HP A&#038;M exercised its piggyback rights in July&nbsp;2007 and therefore the Company registered 750,000
shares of common stock held by HP A&#038;M.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->57<!-- /Folio -->
</DIV>

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

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the Arkansas River Agreement Mr.&nbsp;Mark Harding, the Company&#146;s President, agrees to vote
shares of Pure Cycle common stock owned by him (which totals 727,243 shares at August&nbsp;31, 2009) for
HP A&#038;M&#146;s designated board member (currently Mark Campbell).
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Gain on Extinguishment of Related Party CAA Obligations and Debt</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">See Note 14 &#150; <I>Related Party Transactions </I>regarding gain on extinguishment of related party CAA
obligations and debt recorded as additional paid in capital.
</DIV>


<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 10: <U>SIGNIFICANT CUSTOMERS</U>
</DIV>

<!-- xbrl,body -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company had accounts receivable from two customers totaling the following approximate amounts:
</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="14" style="border-bottom: 1px solid #000000">Accounts Receivable</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000">As of August 31,</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">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2008</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">% of Total</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">% of Total</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Receivable</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Accounts</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Receivable</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Accounts</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">Balance</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Receivable</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Balance</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Receivable</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">Ridgeview Youth Services Center</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">51,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">82</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">59,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">83</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Schmidt Aggregates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">6</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" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Combined</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">56,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">89</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">63,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">89</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>
    <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 earned revenues from two customers totaling the following approximate amounts:
</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="28%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&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="22" style="border-bottom: 1px solid #000000">Water and Wastewater Revenues</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22" style="border-bottom: 1px solid #000000">For the Fiscal Years Ended August 31,</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">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2007</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">% of Total</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">% of Total</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">% of Total</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">Revenues</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Revenues</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Revenues</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Revenues</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Revenues</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Revenues</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">Ridgeview Youth Services Center</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">165,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">64</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">180,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">64</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">159,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">60</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Schmidt Aggregates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">11</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Combined</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">183,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">71</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">204,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">73</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">190,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">72</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>
    <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>


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

<P align="center" style="font-size: 10pt"><!-- Folio -->58<!-- /Folio -->
</DIV>

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

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 11: <U>INCOME TAXES</U>
</DIV>

<!-- xbrl,body -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">There is no provision for income taxes because the Company has incurred operating losses. Deferred
income taxes reflect the tax effects of net operating loss carryforwards and temporary differences
between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company&#146;s deferred tax assets as of August&nbsp;31 are 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="72%">&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="7" style="border-bottom: 1px solid #000000">For the Fiscal Years Ended August 31,</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">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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">Deferred tax 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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net operating loss carryforwards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,575,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,536,300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Imputed interest on Tap Participation Fee payable to HP A&#038;M</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,772,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,380,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred
revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">352,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">342,300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and depletion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">143,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss in Well Enhancment LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,400</TD>
    <TD>&nbsp;</TD>
    </TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,200</TD>
    <TD>&nbsp;</TD>

</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,884,300</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,381,500</TD>
    <TD nowrap>)</TD>
   </TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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">Net deferred tax asset</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"><!-- 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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax 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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and depletion</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 style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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">Net deferred assets</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">&#151;</TD>
    <TD>&nbsp;</TD>
    </TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; 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>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company has recorded a valuation allowance equal to the excess of the deferred tax assets over
the deferred tax liability as the Company is unable to reasonably determine if it is more likely
than not that deferred tax assets will ultimately be realized.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Income taxes computed using the federal statutory income tax rate differs from our effective tax
rate primarily due to the following for the fiscal years ended August&nbsp;31:
</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="10" style="border-bottom: 1px solid #000000">For the Fiscal Years Ended August 31,</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">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected benefit from federal taxes at statutory rate of 34%</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,947,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,355,100</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,351,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">State taxes, net of federal benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(189,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(228,600</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(228,200</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expiration of net operating losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">393,900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Permanent differences</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">131,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(243,200</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,871,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,334,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,428,500</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">Total income tax expense / benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</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>
    <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">At
August&nbsp;31, 2009, the Company has approximately $12.3&nbsp;million of net operating loss carryforwards
available for income tax purposes which expire between fiscal 2009 and 2024. Utilization of these
net operating loss carryforwards may be subject to substantial annual ownership change limitations
provided by the Internal Revenue Code. Such an annual limitation could result in the expiration of
the net operating loss carryforwards before utilization.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Net operating loss carryforwards of approximately $382,800, $315,400 and $1.1&nbsp;million expired
during the fiscal years ended August&nbsp;31, 2009, 200 and 2007, respectively.
</DIV>


<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 12: <U>401(k) PLAN</U>
</DIV>

<!-- xbrl,body -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Effective July&nbsp;25, 2006, the Company adopted the Pure Cycle Corporation 401(k) Profit Sharing Plan
(the &#147;Plan&#148;), a defined contribution retirement plan for the benefit of its employees. The Plan is
currently a salary deferral only plan and at this time the Company does not match employee
contributions. The Company pays the annual administrative fees of the Plan, and the Plan
participants pay the investment fees. The Plan is open to all employees, age 21 or older, who have
been employees of the Company for at least six months. During the fiscal years ended
August&nbsp;31, 2009, 2008 and 2007, the Company paid fees of approximately $3,800, $2,400 and $3,400,
respectively, for the administration of the Plan.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->59<!-- /Folio -->
</DIV>

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

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>


<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 13: <U>SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES</U>
</DIV>

<!-- xbrl,body -->
<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="10" style="border-bottom: 1px solid #000000">For the Fiscal Years Ended August 31,</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">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2008</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>

<!-- 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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase in
estimated Tap
Participation Fee
liability and
related discount</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,758,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,867,321</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Water rights
received from
Arapahoe County
which reduced the
Construction
proceeds receivable
balance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">206,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</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>
    <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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustment to
purchase price
relating to LAWMA
shares acquired
from HP A&#038;M</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">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">927,682</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Treasury stock
accepted upon
exercise of stock
options with mature
shares used as
consideration</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">969,913</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>
</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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on
extinguishment of
related party debt
accounted for as
contributed capital</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">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">765,071</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>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 14: <U>RELATED PARTY TRANSACTIONS</U>
</DIV>

<!-- xbrl,body -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Until August&nbsp;31, 2009, the Company leased office space from the estate of the son of its former
CEO. The Company leased 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">The Company paid HP A&#038;M approximately $41,700, $49,700 and $37,200 during the fiscal
years ended August&nbsp;31, 2009, 2008 and 2007, respectively, for fees related to work performed
by an HP A&#038;M employee on behalf of the Company as it relates to operations of the agricultural
property owned by the Company in the Arkansas River valley.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In 2009, as more fully described in Note 8 above, the Company paid HP A&#038;M approximately $59,700
pursuant to the Tap Participation Fee as a result of the sale of non-irrigated land.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In 2008, as more fully described in Note 8 above, the Company paid HP A&#038;M approximately $849,700
pursuant to the Tap Participation Fee as a result of the sale of LAWMA Shares.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">On July&nbsp;30, 2007, the Company acquired approximately $10.5&nbsp;million of CAA interests, for cash
payments totaling approximately $2.6&nbsp;million, resulting in a gain on extinguishment of
approximately $1.04&nbsp;million. Certain of these parties were deemed related to the Company and
therefore, approximately $765,100 of this gain was recorded as a contribution of capital in fiscal
2007. The remaining $271,100 of gain is included in the statement of operations.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In 1995, the Company extended a loan to the District, a related party. The loan provided for
borrowings of up to $250,000, is unsecured, bears interest based on the prevailing prime rate plus
2% (5.25% at August&nbsp;31, 2009) and matures on December&nbsp;31, 2009. The approximately $507,800 balance
of the note receivable at August&nbsp;31, 2009 includes borrowings of approximately $229,300 and
accrued interest of approximately $278,500. The Company extended the due date to December&nbsp;31, 2010
and accordingly the note has been classified as non-current.
</DIV>


<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 15: <U>SUBSEQUENT EVENTS</U>
</DIV>

<!-- xbrl,body -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">For purposes of determining whether a post-balance sheet event should be evaluated to determine
whether it has an effect on the financial statements for the period ending August&nbsp;31,
2009,
subsequent events were evaluated by the
Company through November&nbsp;13, 2009, the date on which the financial statements at and
for the
fiscal year ended August&nbsp;31, 2009, were issued.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->60<!-- /Folio -->
</DIV>

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

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
AUGUST 31, 2009, 2008 AND 2007
</DIV>

<DIV align="left">
<A name="306"></A>
</DIV>

<!-- xbrl,n -->
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 16: <U>SUPPLEMENTAL DATA: SELECTED QUARTERLY FINANCIAL INFORMATION</U>
<U>(unaudited)</U>
</DIV>
<!-- xbrl,body -->
<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 nowrap align="left" style="border-bottom: 1px solid #000000"><I>In thousands, except per share amounts</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">August 31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">May 31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">February 28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">November 30</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">Fiscal 2009 quarters ended:</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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">79.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">62.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">54.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">63.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gross margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">36.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">25.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,289.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,325.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,401.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,712.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Earnings per
share &#150; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.06</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.07</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.07</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.08</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Market price of 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>
    <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">
    <TD><DIV style="margin-left:45px; text-indent:-15px">High</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.09</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Low</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.09</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</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="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="2" style="border-bottom: 1px solid #000000">August 31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">May 31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">February 28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">November 30</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">Fiscal 2008 quarters ended:</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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">88.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">67.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">56.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">69.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gross margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">40.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">31.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">28.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,653.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,728.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,649.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,895.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Earnings per
share &#150; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.08</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.09</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.08</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.09</TD>
    <TD nowrap>)</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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Market price of 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>
    <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">
    <TD><DIV style="margin-left:45px; text-indent:-15px">High</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8.99</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9.37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Low</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7.35</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

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

<!-- /xbrl,ns -->

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

<P align="center" style="font-size: 10pt"><!-- Folio -->61<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">



<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B>Item&nbsp;9 &#151; Changes in and Disagreements with Accountants on Accounting and Financial Disclosure</B></U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">There were no changes in or disagreement with accountants on accounting and financial disclosures.
</DIV>

<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B>Item&nbsp;9A &#151; Controls and Procedures</B></U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>(a)&nbsp;Evaluation of Disclosure Controls and Procedures</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 Rule&nbsp;13a&#150;15(f) of the Securities Exchange Act of
1934, as amended (the &#147;Exchange Act&#148;). 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">We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified by the Commission&#146;s
rules and forms, and that information is accumulated and communicated to management, including the
principal executive and financial officer as appropriate, to allow timely decisions regarding
required disclosures. The President and Chief Financial Officer evaluated the effectiveness of
disclosure controls and procedures as of August&nbsp;31, 2009, pursuant to Rule&nbsp;13a-15(b) under the
Exchange Act. Based on that evaluation, the President and Chief Financial Officer concluded that,
as of the end of the period covered by this report, the Company&#146;s disclosure controls and
procedures were effective. A system of controls, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the system of controls are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within a company have been detected.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>(b)&nbsp;Management&#146;s Report on Internal Control Over Financial Reporting</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The management of the Company is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules&nbsp;13a-15(f) and 15d-15(f) under the
Exchange Act. The Exchange Act defines internal control over financial reporting as a process
designed by, or under the supervision of, the Company&#146;s principal executive and principal financial
officers and effected by the Company&#146;s board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America and includes those policies and procedures 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="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">Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
assets of the Company;</DIV></TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&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">Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of
America, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and
directors of the Company; and</DIV></TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&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">Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company&#146;s
assets that could have a material effect on the financial statements.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Management assessed the effectiveness of the Company&#146;s internal control over financial reporting as
of August&nbsp;31, 2009. In making this assessment, we used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO)&nbsp;in Internal Control &#150; Integrated
Framework. Based on our assessment, we
determined that, as of August&nbsp;31, 2009, the Company&#146;s internal control over financial reporting was
effective based on those criteria.
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->62<!-- /Folio -->
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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">GHP Horwath P.C. (&#147;GHP&#148;) our independent registered public accounting firm has performed an audit
of the effectiveness of the Company&#146;s internal control over financial reporting as of August&nbsp;31,
2009. This audit is required to be performed in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Our independent auditors were given
unrestricted access to all financial records and related data. The report of the Company&#146;s
independent registered public accounting firm is included in <I>Item&nbsp;8. Financial Statements and
Supplementary Data</I>.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>(c)&nbsp;Changes in Internal Controls</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">No changes were made to our internal control over financial reporting during our most recently
completed fiscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
</DIV>

<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B>Item&nbsp;9B &#151; Other Information</B></U>
</DIV>


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

<DIV align="left">
<A name="117"></A>
</DIV>

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

<DIV align="left">
<A name="121"></A>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Information concerning Items 10 through Items 14 will be contained in our definitive Proxy
Statement pursuant to Regulation&nbsp;14A promulgated under the Exchange Act for the 2009 Annual Meeting
of Shareholders and is incorporated herein by reference, which is expected to be filed on or about
December&nbsp;3, 2009.
</DIV>

<DIV align="left">
<A name="118"></A>
</DIV>

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

<DIV align="left">
<A name="119"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 10pt"><U><B>Item&nbsp;15 &#151; Exhibits and Financial Statement Schedules</B></U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">(a) Financial Statements</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">See &#147;Index to Financial Statements and Supplementary Data&#148; in Part&nbsp;II, Item&nbsp;8 of this Form
10-K.</DIV></TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&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">Financial Statement Schedules: None</DIV></TD>
</TR>

<TR>
    <TD style="font-size: 8pt">&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">Exhibits: The exhibits listed in the accompanying &#147;Index to Exhibits&#148; are filed or
incorporated by reference as part of this Form&nbsp;10-K</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U>Index to Exhibits</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="2%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Exhibit No.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Description</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">3.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Certificate of
Incorporation &#150; Incorporated by reference from Exhibit
3.1 to Amendment No.&nbsp;2 to Registration Statement on Form&nbsp;SB-2, filed June&nbsp;10, 2004,
Registration No.&nbsp;333-114568</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">3.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Bylaws of
Registrant &#150; Incorporated by reference from Exhibit&nbsp;3.2 to
Amendment No.&nbsp;2 to Registration Statement on Form&nbsp;SB-2, filed June&nbsp;10, 2004, Registration
No.&nbsp;333-114568.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">4.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Specimen Stock Certificate &#150; Incorporated by reference to Registration Statement No.&nbsp;2-62483.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Right of First Refusal Agreement dated August&nbsp;12, 1992 between INCO Securities Corporation
and Richard F. Myers, Mark W. Harding, Thomas P. Clark, Thomas Lamm and Rowena Rogers.
Incorporated by Reference from Registration Statement on Form&nbsp;SB-2, filed April&nbsp;19, 2004,
Registration No.&nbsp;333-114568.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2004 Equity Incentive Plan. Incorporated by reference from Proxy Statement for Annual
Meeting held April&nbsp;12, 2004. **</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->63<!-- /Folio -->
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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

<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="2%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Exhibit No.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Description</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Service Agreement, dated April&nbsp;11, 1996, by and between Pure Cycle Corporation and the
Rangeview Metropolitan District. Incorporated by reference from Quarterly Report on Form
10-QSB for the period ended May&nbsp;31, 1996.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Wastewater Service Agreement, dated January&nbsp;22, 1997, by and between Pure Cycle Corporation
and the Rangeview Metropolitan District. Incorporated by reference from the Annual Report on
Form&nbsp;10-KSB for the fiscal year ended August&nbsp;31, 1998.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Comprehensive Amendment Agreement No.&nbsp;1, dated April&nbsp;11, 1996, by and among ISC, the
Company, the Bondholders, Gregory M. Morey, Newell Augur, Jr., Bill Peterson, Stuart
Sundlun, Alan C. Stormo, Beverlee A. Beardslee, Bradley Kent Beardslee, Robert Douglas
Beardslee, Asra Corporation, International Properties, Inc., and the Land Board.
Incorporated by reference from Quarterly Report on Form&nbsp;10-QSB for the period ended May&nbsp;31,
1996.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement for Sale of Export Water dated April&nbsp;11, 1996 by and among the Company and the
District. Incorporated by reference from Quarterly Report on Form&nbsp;10-QSB for the fiscal
quarter ended May&nbsp;31, 1996).</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Water Service Agreement for the Sky Ranch PUD dated October&nbsp;31, 2003 by and between Airpark
Metropolitan District, Icon Investors I, LLC, the Company and the District. Incorporated by
reference from Registration Statement on Form&nbsp;SB-2, filed April&nbsp;19, 2004, Registration No.
333-114568.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Water Service Agreement for the Sky Ranch PUD dated January&nbsp;6, 2004.
Incorporated by Reference from Amendment No.&nbsp;1 to Registration Statement on Form&nbsp;SB-2, filed
June&nbsp;7, 2004, Registration No.&nbsp;333-114568.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Water Service Agreement for the Sky Ranch PUD dated January&nbsp;30, 2004.
Incorporated by Reference from Amendment No.&nbsp;1 to Registration Statement on Form&nbsp;SB-2, filed
June&nbsp;7, 2004, Registration No.&nbsp;333-114568.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.10
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Water Service Agreement for the Sky Ranch PUD dated January&nbsp;30, 2004 pertaining
to amendment of the Option Agreement for Export Water. Incorporated by Reference from
Amendment No.&nbsp;1 to Registration Statement on Form&nbsp;SB-2, filed June&nbsp;7, 2004, Registration No.
333-114568.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.11
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corrected Amendment to Water Service Agreement for the Sky Ranch PUD dated March&nbsp;5, 2004.
Incorporated by Reference from original Annual Report on Form&nbsp;10-K for the fiscal year ended
August&nbsp;31, 2007, filed November&nbsp;21, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Lease Agreement between the Land Board and the District dated April&nbsp;4,
1996. Incorporated by Reference from Amendment No.&nbsp;1 to Registration Statement on Form&nbsp;SB-2,
filed June&nbsp;7, 2004, Registration No.&nbsp;333-114568.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Bargain and Sale Deed among the Land Board, the District and the Company dated April&nbsp;11,
1996. Incorporated by Reference from Amendment No.&nbsp;1 to Registration Statement on Form&nbsp;SB-2,
filed June&nbsp;7, 2004, Registration No.&nbsp;333-114568.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Mortgage Deed, Security Agreement, and Financing Statement between the Land Board and the
Company dated April&nbsp;11, 1996. Incorporated by Reference from Amendment No.&nbsp;1 to Registration
Statement on Form&nbsp;SB-2, filed June&nbsp;7, 2004, Registration No.&nbsp;333-114568.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.15
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Water Service Agreement for the Hills at Sky Ranch Water dated May&nbsp;14, 2004 among Icon Land
II, LLC, a Colorado limited liability company, the Company, and the District. Incorporated
by reference from the Current Report on Form&nbsp;8-K filed with the SEC on May&nbsp;21, 2004.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->64<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="91%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Exhibit No.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Description</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.16
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement for Water Service dated August&nbsp;3, 2005 among Pure Cycle Corporation, Rangeview
Metropolitan District and Arapahoe County incorporated by reference from Form&nbsp;8-K filed on
August&nbsp;4, 2005.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.17
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Arkansas River Agreement dated May&nbsp;10, 2006 among Pure Cycle Corporation and High Plains
A&#038;M, LLC incorporated by reference from Form&nbsp;8-K filed on May&nbsp;16, 2006.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">10.18
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment No.&nbsp;1 to Agreement for Water Service dated August&nbsp;25, 2008, between Pure Cycle
Corporation and Arapahoe County, incorporated by reference from Form&nbsp;10-K for the
fiscal year ended August&nbsp;31, 2008.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Code of Ethics as amended August&nbsp;2, 2007, incorporated by reference from Form&nbsp;10-K for the
fiscal year ended August&nbsp;31, 2008.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">23.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of GHP Horwath, P.C. *</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification under Section&nbsp;302 of the Sarbanes-Oxley Act of 2002. *</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="right"><DIV style="margin-right:20px; text-indent:-20px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the
Sarbanes-Oxley Act of 2002. *</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR style="font-size: 6pt">
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="96">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify">Filed herewith</DIV></TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">**</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify">Indicates management contract or compensatory plan or arrangement in which directors or
executive officers are eligible to participate.</DIV></TD>
</TR>

</TABLE>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->65<!-- /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: 7.20in">
<DIV align="left">
<A name="120"></A>
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
</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="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="56%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left">PURE CYCLE CORPORATION</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">By:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Mark W. Harding</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 1pt">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top" align="left" nowrap>Mark W. Harding, President and Chief Financial Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top" align="left">November&nbsp;13, 2009</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacity and on the dates
indicated.
</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="5%">&nbsp;</TD>
    <TD width="43%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Signature</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Title</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Date</TD>
</TR>

<TR><TD>&nbsp;</TD></TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Mark W. Harding
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President,
Chief Financial Officer and Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">November&nbsp;13, 2009</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Mark W. Harding
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;(Principal
Executive Officer,
Principal Financial and Accounting
Officer)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Harrison H. Augur</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">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Harrison H. Augur
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;Chairman,
Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">November&nbsp;13, 2009</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Mark D. Campbell</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">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Mark D. Campbell
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">November&nbsp;13, 2009</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Arthur G. Epker III</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">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Arthur G. Epker III
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">November&nbsp;13, 2009</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Richard L. Guido</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">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Richard L. Guido
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">November&nbsp;13, 2009</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Peter C. Howell</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">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Peter C. Howell
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">November&nbsp;13, 2009</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ George M. Middlemas</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">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
George M. Middlemas
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">November&nbsp;13, 2009</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

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

<P align="center" style="font-size: 10pt"><!-- Folio -->66<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>2
<FILENAME>c92497exv23w1.htm
<DESCRIPTION>EXHIBIT 23.1
<TEXT>
<HTML>
<HEAD>
<TITLE>Exhibit 23.1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">EXHIBIT 23.1
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Consent of Independent Registered Public Accounting Firm
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We consent to the incorporation by reference in the Registration Statements on Form&nbsp;S-3 (No.
333-142335) and Form&nbsp;S-8 (No.&nbsp;333-115240) of Pure Cycle Corporation of our report dated November
13, 2009, related to the financial statements and the effectiveness of internal control over
financial reporting (which expresses an unqualified opinion), which
appears on page 33 of this
annual report on Form 10-K for the fiscal year ended August&nbsp;31, 2009.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">/s/ GHP HORWATH, P.C.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Denver, Colorado<BR>
November&nbsp;13, 2009

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

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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>3
<FILENAME>c92497exv31w1.htm
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<HTML>
<HEAD>
<TITLE>Exhibit 31.1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">EXHIBIT 31.1
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>CERTIFICATION</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 Annual Report on Form 10-K of Pure Cycle Corporation;</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">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>

</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">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>

</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">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 report is being
prepared;</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">(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
principles;</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">(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>

</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">(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>

</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">(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: November&nbsp;13, 2009</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="22%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="76%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Mark W. Harding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Mark W. Harding
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="left" nowrap>Principal Executive Officer and Principal Financial Officer</TD>
    <TD>&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 -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>4
<FILENAME>c92497exv32w1.htm
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
<HTML>
<HEAD>
<TITLE>Exhibit 32.1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->

<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">




<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">EXHIBIT 32.1
</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">I, Mark W. Harding, the Chief Executive Officer and Chief Financial Officer of Pure Cycle
Corporation (the &#147;Company&#148;), hereby 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 Form 10-K of the Company for the fiscal year ended August&nbsp;31, 2009, as filed
with the Securities and Exchange Commission on the date hereof (the &#147;Report&#148;), fully complies
with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15
U.S.C. 78m or 78o(d)); 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">(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="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="76%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Mark W. Harding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Mark W. Harding
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="left" nowrap>Principal Executive Officer and Principal Financial Officer</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">November&nbsp;13, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</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>



</BODY>
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end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
