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<SEC-DOCUMENT>0001362310-09-005103.txt : 20090409
<SEC-HEADER>0001362310-09-005103.hdr.sgml : 20090409
<ACCEPTANCE-DATETIME>20090409160501
ACCESSION NUMBER:		0001362310-09-005103
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20090228
FILED AS OF DATE:		20090409
DATE AS OF CHANGE:		20090409

FILER:

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

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-08814
		FILM NUMBER:		09742809

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

	MAIL ADDRESS:	
		STREET 1:		8451 DELAWARE STREET
		CITY:			THORNTON
		STATE:			CO
		ZIP:			80260
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>c83750e10vq.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>Form 10-Q</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-Q</B>
</DIV>

<DIV align="center" style="font-size: 1pt; margin-top: 10pt"><B><DIV align="center"><DIV style="font-size: 1pt; margin-top: 10pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV></B>
</DIV>


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

</DIV>
<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 1pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 10pt"><B>For the quarterly period ended: February&nbsp;28, 2009</B>

</DIV>

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

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


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

</DIV>

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

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

<DIV align="center" style="font-size: 10pt">(Exact name of 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 or other jurisdiction of incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer Identification Number)</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>8451 Delaware St., Thornton, CO</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>80260</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(Address of principal executive offices)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Zip Code)</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 10pt"><B>(303)&nbsp;292 &#150; 3456</B>
<DIV align="center" style="font-size: 10pt"><font style="border-top: 1px solid #000000">(Registrant&#146;s telephone number, including area code)</font>
</DIV>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 10pt"><B>N/A</B>
<DIV align="center" style="font-size: 10pt"><font style="border-top: 1px solid #000000">(Former name, former address and former fiscal year, if changed since last report)</font></DIV>
</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 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 <FONT style="white-space: nowrap">12b-2</Font> 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="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD nowrap align="center" valign="top"><FONT style="white-space: nowrap">Large accelerated filer <FONT face="Wingdings">&#111;</FONT></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" valign="top"><FONT style="white-space: nowrap">Accelerated filer <FONT face="Wingdings">&#254;</FONT></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" valign="top"><FONT style="white-space: nowrap">Non-accelerated filer <FONT face="Wingdings">&#111;</FONT></FONT></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" valign="top"><FONT style="white-space: nowrap">Smaller Reporting Company <FONT face="Wingdings">&#111;</FONT></FONT></TD>
</TR>

<TR valign="bottom">
    <TD nowrap align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" valign="top"><FONT style="white-space: nowrap">(Do not check if a smaller reporting company)</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap 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 filer (as defined in rule 12b-2 of
the Exchange Act).<BR> Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Indicate the number of shares outstanding of each of the issuer&#146;s classes of common stock, as of
April&nbsp;6, 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="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>

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


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







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

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">
<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
INDEX TO FEBRUARY 28, 2009 FORM 10-Q
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="2%">&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">Page</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="padding-top: 1px">
    <TD align="center" colspan="5"><DIV style="margin-left:15px; text-indent:-15px"><B>PART I &#151; FINANCIAL INFORMATION</B></DIV></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Item&nbsp;1 &#151; Financial Statements (unaudited)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#101">Balance Sheets:<br>
February&nbsp;28, 2009 and August&nbsp;31, 2008 </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#102">Statements of Operations:<br>
For the three months ended February&nbsp;28, 2009 and February&nbsp;29, 2008 </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px"><A href="#114">For the six months ended February&nbsp;28, 2009 and February&nbsp;29, 2008</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#103">Statements of Cash Flows:<br>
For the six months ended February&nbsp;28, 2009 and February&nbsp;29, 2008 </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#104">Notes to Financial Statements </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">Item&nbsp;2 &#151; Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">Item&nbsp;3 &#151; Quantitative and Qualitative Disclosures About Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Item&nbsp;4 &#151; Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD align="center" colspan="5"><DIV style="margin-left:15px; text-indent:-15px"><A href="#108"><B>PART II &#151; OTHER INFORMATION</B></A></DIV></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Item&nbsp;1A &#151; Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">Item&nbsp;4 &#151; Submission of Matters to a Vote of Security Holders</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">Item&nbsp;6 &#151; Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Signature Page</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c83750exv31.htm">Exhibit 31</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c83750exv32.htm">Exhibit 32</A></FONT></TD></TR>
<!-- End Table Body --></TABLE>
</DIV>

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


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

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

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

<DIV align="left">
<A name="101"></A>
</DIV>
<DIV align="center" style="font-size: 10pt">BALANCE SHEETS</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="2">(unaudited)</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">February 28, 2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">August 31, 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" style="padding-top: 1px">
    <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; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,362,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,238,973</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,401</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127,018</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of construction proceeds receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,783</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,783</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,654,453</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,502,175</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investments in water and water systems, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,220,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,346,623</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Construction proceeds receivable, less current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">441,192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">467,102</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes receivable &#151; related parties, including accrued interest:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Rangeview Metropolitan District</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">501,727</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">494,799</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">3,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Assets held for sale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,940</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investment in Well Enhancement and Recovery Systems, LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,759</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">108,916,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">109,899,403</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left: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="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">97,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">37,585</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,478</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">202,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">163,863</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred revenues, less current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,474,009</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="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Participating Interests in Export Water Supply</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,217,254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,217,876</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tap Participation Fee payable to HP A&#038;M, net of $57.3&nbsp;million
and $54.6&nbsp;million discount</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,814,501</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:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,708,673</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:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and Contingencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>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" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Preferred stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Par value $ .001 per share, 25&nbsp;million shares authorized;<BR>
Series&nbsp;B &#151; 432,513 shares issued and outstanding<BR>(liquidation preference of $432,513)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">433</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">433</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common
stock:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px"> Par value 1/3 of $.01 per share, 40&nbsp;million shares authorized;<BR>
20,206,566 shares issued and outstanding both periods presented
</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" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"> Additional
paid-in capital
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,082,027</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="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(41,941,773</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:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,208,047</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:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total liabilities and shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">108,916,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">109,899,403</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left: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">See Accompanying Notes to Financial Statements
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

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

<DIV align="left">
<A name="102"></A>
</DIV>
<DIV align="center" style="font-size: 10pt">STATEMENTS OF OPERATIONS</DIV>


<DIV align="center" style="font-size: 10pt">(unaudited)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months ended:</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">February 28, 2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">February 29, 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">Revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Metered water usage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">23,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">26,094</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Wastewater treatment fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,744</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,744</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Recognition of deferred revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Special facility funding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,377</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Water tap fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,574</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,082</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,789</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Water service operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,870</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,245</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">(6,125</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,430</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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">(22,068</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22,088</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <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">(37,063</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40,763</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,019</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,026</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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">(561,085</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(570,862</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(72,953</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(73,208</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(617,019</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(628,044</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on sale of land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,336</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,694</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Share of losses of Well Enhancement and
Recovery Systems, LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,696</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(198</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest imputed on the Tap Participation
Fee payable to HP A&#038;M</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(841,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,090,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss 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">(2,129</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,401,281</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,649,677</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss per common share &#151; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.07</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.08</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Weighted average common shares outstanding &#151;
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">20,206,566</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">See Accompanying Notes to Financial Statements
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
STATEMENTS OF OPERATIONS<BR>
(unaudited)
</DIV>
<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&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">Six Months Ended:</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">February 28, 2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">February 29, 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">Revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Metered water usage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">56,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">65,117</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Wastewater treatment fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,488</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Recognition of deferred revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Special facility funding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,754</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,754</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Water tap fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,148</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,148</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:45px; text-indent:-15px">Total revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126,507</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Water service operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27,741</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(29,440</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">(11,618</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,611</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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">(44,207</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(44,119</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total cost of revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(83,566</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(82,170</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,337</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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">(1,092,390</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,222,418</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(145,565</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(146,734</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,203,597</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,324,815</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">197,654</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on sale of land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Land use payment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left: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">(6,455</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(817</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest imputed on the Tap Participation Fee payable to HP A&#038;M</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,004,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,141,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss 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>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss 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>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,113,336</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,544,674</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss per common share &#151; basic and diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.15</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.18</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Weighted average common shares outstanding &#151; 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">20,170,588</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">See Accompanying Notes to Financial Statements
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

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

<DIV align="left">
<A name="103"></A>
</DIV>
<DIV align="center" style="font-size: 10pt">STATEMENTS OF CASH FLOWS</DIV>

<DIV align="center" style="font-size: 10pt">(unaudited)</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&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">Six Months ended:</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">February 28, 2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">February 29, 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">Cash flows from operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,113,336</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,544,674</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments to reconcile net loss to net cash
used 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>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; 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">2,004,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,141,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation, depletion and other non-cash items</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">190,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191,515</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock-based compensation expense included with
general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,629</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">170,363</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Share of losses of Well Enhancement and Recovery Systems,
LLC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">817</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gain on sale of land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37,499</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest added to construction proceeds receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,188</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,953</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest added to notes receivable &#151; 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" style="background: #cceeff; padding-top: 1px">
    <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">(6,928</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,731</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">(145</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Loss on extinguishment of contingent obligations 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>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Loss 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>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Changes in operating assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Trade accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,643</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Interest receivable and prepaid expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60,242</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124,449</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accounts payable and accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,046</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,794</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Deferred revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27,901</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27,900</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Net cash used by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(836,464</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(678,569</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Investments in water and water systems</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60,400</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(184,877</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(12,703</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,547</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from sale of land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">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>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Net cash (used)&nbsp;provided by investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(42,604</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">598,237</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Arapahoe County construction proceeds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,348</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">(1,246</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,322</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Tap Participation Fee payments to High Plains A&#038;M</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37,499</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments on long-term debt &#151; 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>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,353</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,484</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net change in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(876,715</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(32,848</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents &#151; 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>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents &#151; end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,362,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,062,227</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">See Accompanying Notes to Financial Statements
</DIV>



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

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



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

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

<DIV align="left">
<A name="104"></A>
</DIV>
<DIV align="center" style="font-size: 10pt">NOTES TO FINANCIAL STATEMENTS</DIV>


<DIV align="center" style="font-size: 10pt">FEBRUARY 28, 2009</DIV>



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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The February&nbsp;28, 2009 balance sheet, the statements of operations for the three and six months
ended February&nbsp;28, 2009 and February&nbsp;29, 2008, and the statement of cash flows for the six months
ended February&nbsp;28, 2009 and February&nbsp;29, 2008, respectively, have been prepared by Pure Cycle
Corporation (the &#147;Company&#148;) and have not been audited. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments necessary to present fairly the
financial position, results of operations and cash flows at February&nbsp;28, 2009, and for all periods
presented have been made appropriately.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Certain information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of America (&#147;GAAP&#148;)
have been condensed or omitted. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the Company&#146;s 2008 Annual
Report on Form 10-K filed with the Securities and Exchange Commission on November&nbsp;14, 2008. The
results of operations for interim periods presented are not necessarily indicative of the operating
results for the full year.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The August&nbsp;31, 2008 balance sheet was taken directly from the Company&#146;s audited financial
statements.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Cash and Cash Equivalents</I></B>
</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. At February&nbsp;28, 2009, the Company&#146;s cash equivalents are comprised entirely
of money market funds maintained at high quality financial institutions. The Company has no
investments in equity instruments. The Company maintains its cash with various financial
institutions, which may exceed federally insured limits throughout the period.
</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
(the &#147;Tap Participation Fee&#148;). As of February&nbsp;28, 2009, there remain 38,947 taps subject to the
Tap Participation Fee. 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 three or six months ended February&nbsp;28, 2009 or February&nbsp;29, 2008. However,
the Company did make Tap Participation Fee payments to HP A&#038;M during the three months ended
February&nbsp;29, 2008, as a result of non-irrigated land sales, which are described in Note 4 below.
</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 $55.8
million balance at February&nbsp;28, 2009, includes approximately $11.1&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 a
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, which resulted in the following
changes from the prior valuation model:
</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">(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
$4.6&nbsp;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="4%" style="background: transparent">&nbsp;</TD>
    <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%;</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">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">A decrease in the imputed interest expense for the three and six months ended
February&nbsp;28, 2009, of approximately $346,300, which equates to $.02 per basic and diluted
share; 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">(iv)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">A decrease in the imputed interest expense for the year ending August&nbsp;31, 2009 of
approximately $1.1&nbsp;million.</DIV></TD>
</TR>

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

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
FEBRUARY 28, 2009
</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 new water supplies, 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 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 $841,000 and $2.0&nbsp;million during the three and six
months ended February&nbsp;28, 2009, respectively, and the Company imputed interest of approximately
$1.1&nbsp;million and $2.1&nbsp;million during the three and six months ended February&nbsp;29, 2008,
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. The Tap
Participation Fee is subject to acceleration 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>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company&#146;s revenue recognition policies have not changed since August&nbsp;31, 2008, and therefore
are more fully described in Note 2 to the Company&#146;s financial statements contained in the Company&#146;s
2008 Annual Report on Form 10-K.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company recognized approximately $3,600 of water tap fee revenues during each of the three
month periods ended February&nbsp;28, 2009 and February&nbsp;29, 2008, related 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 recognized approximately $7,100 of water tap fee revenues during each of the six month
periods ended February&nbsp;28, 2009 and February&nbsp;29, 2008, related to the County Agreement. In
accordance with GAAP, the Company began recognizing the water tap fees as revenue ratably over the
estimated service period upon completion of the &#147;Wholesale Facilities&#148; (defined in the Company&#146;s
2008 Annual Report on Form 10-K) in its fiscal 2006. The water tap fees to be recognized over this
period are net of the royalty payments 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 $10,400 of Special Facilities funding as revenue during each
of the three month periods ended February&nbsp;28, 2009 and February&nbsp;29, 2008. The Company recognized
approximately $20,800 of &#147;Special Facilities&#148; (defined in the Company&#146;s 2008 Annual Report on Form
10-K) funding as revenue during each of the six month periods ended February&nbsp;28, 2009 and February
29, 2008. This is the ratable portion of the &#147;Special Facilities&#148; funding proceeds received from
the County pursuant to the County Agreement as more fully described in Note 3 to the Company&#146;s
financial statements contained in the Company&#146;s 2008 Annual Report on Form 10-K.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of February&nbsp;28, 2009, the Company has deferred recognition of approximately $1.5&nbsp;million of
water tap and construction fee revenue from the County, which will be recognized as revenue ratably
over the estimated useful accounting life of the assets constructed with the construction proceeds
as described above.
</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="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
FEBRUARY 28, 2009
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Royalty and other obligations</I></B>
</DIV>


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

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Depletion and depreciation of water assets</I></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 and other
long-lived assets are depreciated on a straight-line basis over their estimated useful accounting
lives of between three and thirty years.
</DIV>

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


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

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company files income tax returns with the Internal Revenue Service and the State of Colorado.
The tax years that remain subject to examination are fiscal 2005 through fiscal 2008. The Company
does not believe there will be any material changes in its unrecognized tax positions over the next
twelve months.
</DIV>

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

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Recently Issued Accounting Pronouncements</I></B>
</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. In the case 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 May&nbsp;2008, the Financial Accounting Standards Board (&#147;FASB&#148;) issued Statement of Financial
Accounting Standard (&#147;SFAS&#148;) No.&nbsp;162, <I>The Hierarchy of Generally Accepted Accounting Principles</I>
(&#147;SFAS&nbsp;162&#148;). SFAS&nbsp;162 is intended to improve financial reporting by identifying a consistent
framework, or hierarchy, for selecting accounting principles to be used in preparing financial
statements that are presented in conformity with GAAP for nongovernmental entities. SFAS 162 will
be effective 60&nbsp;days following the SEC&#146;s approval of the Public Company Accounting Oversight Board
Auditing amendments to AU Section&nbsp;411, <I>The Meaning of </I>Present Fairly in Conformity with Generally
Accepted Accounting Principles<I>. </I>The Company does not believe that the provisions of SFAS 162 will
have a material impact on its financial statements.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In December&nbsp;2007, the FASB issued SFAS No.&nbsp;160,<I>&#147;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.&nbsp;&nbsp;SFAS 160 is effective as of the
beginning of the first fiscal year beginning on or after December&nbsp;15, 2008 (September&nbsp;1, 2009 for
the Company).&nbsp;&nbsp;Earlier adoption is prohibited. The Company does not believe that the provisions of
SFAS 160 will have a material impact on its financial statements unless the status of its ownership
in Well Enhancement and Recovery Systems, LLC (&#147;Well Enhancement LLC&#148;) changes.
</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="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
FEBRUARY 28, 2009
</DIV>


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

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Certain amounts in the February&nbsp;29, 2008 financial statements have been reclassified to conform to
the current presentation.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 2 <I>&#151; </I>FAIR VALUE MEASUREMENTS
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Effective September&nbsp;1, 2008, the Company adopted SFAS No.&nbsp;157, <I>Fair Value Measurements (as amended)</I>
(&#147;SFAS 157&#148;), as it applies to its financial instruments, and SFAS No.&nbsp;159, <I>The Fair Value Option
for Financial Assets and Financial Liabilities &#151; Including an amendment of FASB Statement No.&nbsp;115</I>
(&#147;SFAS 159&#148;). SFAS 157 defines fair value, outlines a framework for measuring fair value, and
details the required disclosures about fair value measurements. As permitted by FASB Statement of
Position No.&nbsp;157-2, <I>Effective Date of FASB Statement No.&nbsp;157, </I>the Company elected to defer the
adoption of the nonrecurring fair value measurement disclosures of nonfinancial assets and
liabilities The adoption of SFAS 157 for financial instruments did not have a material effect on
the Company&#146;s financial position, results of operations or cash flows for the three or six months
ended February&nbsp;28, 2009. SFAS 159 permits companies to irrevocably choose to measure certain
financial instruments and other items at fair value. SFAS 159 also establishes presentation and
disclosure requirements designed to facilitate comparison between entities that choose different
measurement attributes for similar types of assets and liabilities. 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 by SFAS 159.
</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 &#151; 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 February&nbsp;28, 2009.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Level 2 &#151; 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. Level 2 securities include U. S. Government agency obligations. The
Company had none of these instruments at February&nbsp;28, 2009.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Level 3 &#151; 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 February&nbsp;28, 2009.
&nbsp;
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The following table provides information on those assets and liabilities measured at fair value on
a recurring basis as of February&nbsp;28, 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="15%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&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>
</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 in</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>
</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">Active Markets</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>
</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">for Identical</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>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Carrying Value as of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Fair Value as of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">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>
</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">February 28, 2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">February 28, 2009</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>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD nowrap><DIV style="margin-left:15px; text-indent:-15px">Tap Participation Fee liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">55,814,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">55,814,500</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">55,814,500</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</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. The fair value of the Company&#146;s cash equivalents are based on the values reported
by the financial institution where the funds are held. These securities primarily include money
market funds and certificates of deposit. As further described in Note 1 above, 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>
<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="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
FEBRUARY 28, 2009
</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 on a recurring basis 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 carrying amount of cash and cash equivalents approximate
fair value.
</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>Assets Held for Sale:</U> Assets held for sale are reported at the lesser of (i)&nbsp;the net book
value or (ii)&nbsp;the estimated selling price less cost to sell the assets.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Investments in Water and Water Systems and Property and Equipment:</U> These assets are
carried at historical cost and require fair value charges to earnings when they are deemed to be
impaired. During the six months ended February&nbsp;28, 2009 and February&nbsp;29, 2008, respectively we did
not incur any impairment charges. Because the Company did not incur any impairment charges during
the periods presented, the tabular disclosures required by SFAS 157 for assets and liabilities
measured at fair value on a non-recurring basis are omitted.
</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 7 below). Because
repayment is contingent on the Sale of Export Water, the Company has determined it does not have a
determinable fair value.
&nbsp;
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The following table presents the changes in Level 3 instruments measured on a recurring basis for
the six months ended February&nbsp;28, 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="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 February 28, 2009 using</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">Significant 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 &#151; 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">$</TD>
    <TD align="right">108,449,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53,848,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">54,601,300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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; padding-top: 1px">
    <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">2,004,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,004,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">4,714,387</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">4,714,387</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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">(37,499</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37,499</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left: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 February&nbsp;28, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">113,126,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">55,814,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">57,311,687</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="left" style="font-size: 10pt; margin-top: 10pt">NOTE 3 &#151; MARKETABLE SECURITIES
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">All marketable securities held by the Company matured or were sold during the Company&#146;s fiscal
2008. The funds were transferred to other temporary investments with original maturities of three
months or less and are included in cash and cash equivalents on the balance sheet.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->11<!-- /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<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
FEBRUARY 28, 2009
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 4
&#151; INVESTMENTS IN WATER AND WATER SYSTEMS
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company&#146;s investments in water and water systems consist of the following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>February 28, 2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>August 31, 2008</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Depreciation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Depreciation</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Costs</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>and Depletion</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Costs</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>and Depletion</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Arkansas River Valley assets</DIV></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">(683,533</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" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rangeview water supply</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,248,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,207</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; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rangeview water system</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(49,382</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" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Paradise water supply</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,532,619</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; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fairgrounds water and water
system</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,899,863</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(226,285</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" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sky Ranch water supply</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&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; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Water supply
&#151; other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,486</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">104,187,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(966,893</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" 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">$</TD>
    <TD align="right">103,220,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</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">The Company&#146;s water rights and current water and wastewater service agreements are more fully
described in Note 3 to the Company&#146;s financial statements contained in the Company&#146;s 2008 Annual
Report on Form 10-K. Except the non-irrigated land sale described below, there have been no
significant changes to the Company&#146;s water rights or water and wastewater service agreements
during the three or six months ended February&nbsp;28, 2009.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Non-irrigated land sales</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">During the three months ended February&nbsp;28, 2009, the Company sold approximately 210 acres of
non-irrigated land for a total of $37,499 in cash (net of approximately $2,200 of fees). This
land was acquired from HP A&#038;M pursuant to the Arkansas River Agreement. 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), 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 equivalent to the sale of 18 water
taps, which results in 38,947 taps remaining subject to the Tap Participation Fee.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 5
&#151; HP A&#038;M PROMISSORY NOTES
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Certain of the properties the Company acquired from HP A&#038;M are subject to outstanding promissory
notes with principal and accrued interest totaling approximately $12.4&nbsp;million and $12.8&nbsp;million at
February&nbsp;28, 2009 and August&nbsp;31, 2008. Additional information regarding these promissory notes, the
circumstances under which the Company would be required to make payments pursuant to these notes
and the accounting treatment of these notes is more fully described in Note 7 to the Company&#146;s
financial statements contained in the Company&#146;s 2008 Annual Report on Form 10-K.
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Effective January&nbsp;30, 2007, the Company entered into an Operating Agreement with 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>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->12<!-- /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<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
FEBRUARY 28, 2009
</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 pursuant
to Accounting Principles Board Opinion No.&nbsp;18, <I>The Equity Method of Accounting for Investments in
Common Stock (as amended) </I>(&#147;APB 18&#148;) and Emerging Issues Task Force Issue No.&nbsp;03-16, <I>Accounting for
Investments in Limited
Liability Companies </I>(&#147;EITF 03-16&#148;). As of February&nbsp;28, 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, pursuant to APB 18, 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 and the Company&#146;s 1/3
share of the approximately $272,100 of net losses of Well Enhancement LLC from inception through
February&nbsp;28, 2009.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">For the three months ended February&nbsp;28, 2009 and February&nbsp;29, 2008, the Company recorded
approximately $3,700 and $200, respectively, of its share of Well Enhancement LLC&#146;s losses. For
the six months ended February&nbsp;28, 2009 and February&nbsp;29, 2008, the Company recorded approximately
$6,500 and $800, 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 February&nbsp;28, 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"><B><U>Well
Enhancement LLC Assets and Liabilities</U></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="77%">&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">$</TD>
    <TD align="right">7,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued professional fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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">20,700</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</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>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company acquired its Rangeview Water Supply through various amended agreements entered into in
the early 1990&#146;s. The acquisition was consummated with the signing of the 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 3 to the Company&#146;s financial statements contained in the
Company&#146;s 2008 Annual Report on Form 10-K. In return, the Company agreed to remit a total of $31.8
million of proceeds received from the sale of Export Water to the participating interest holders.
In accordance with EITF Issue No 88-18, <I>Sales of Future Revenues</I>, the obligation for the $11.1
million was recorded as debt, and the remaining $20.7&nbsp;million contingent liability is not reflected
on the Company&#146;s balance sheet because the obligation to pay this is contingent on sales of Export
Water, the amounts and timing of which are not reasonably determinable.
</DIV>

<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 (more fully described in the Company&#146;s 2008 Annual
Report on Form 10-K).
</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 three or six months ended February&nbsp;28, 2009. The prior acquisitions are explained in
detail in Note 5 to the Company&#146;s financial statements contained in the Company&#146;s 2008 Annual
Report on Form 10-K.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->13<!-- /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<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
FEBRUARY 28, 2009
</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 February&nbsp;28, 2009 is
approximately $1.2&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"><B>Export</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Initial Export</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Total Potential</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Paticipating</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Water</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Water Proceeds</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Third party</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Interests</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Proceeds</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>to Pure Cycle</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Obligation</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Liability</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Contingency</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Original balances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">218,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">31,807,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,090,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,717,102</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">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" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Option payments &#151; 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; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Arapahoe County tap fees *</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">532,968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(373,078</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(159,890</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(55,754</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(104,136</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Export Water sale payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">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" style="padding-top: 1px">
    <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; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Export Water sale payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,161</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,783</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(622</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,161</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 February&nbsp;28, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">680,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">27,854,657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,491,086</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,217,254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,273,832</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 &#151; meaning the first three payees receive
their full payment before any other parties receive payment and so on. Following the CAA
acquisitions made by the Company, the Company&#146;s priority levels include $5.1&nbsp;million of remaining
amounts payable at the highest priority level, $2.5&nbsp;million in the third priority level, and the
remaining $20.3&nbsp;million at various other priority levels.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">NOTE 8 &#151; SHAREHOLDERS&#146; EQUITY
</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. Pursuant to
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 February&nbsp;28, 2009, the Company has 1,395,811 common shares that can be granted to
eligible participants pursuant to the Equity Plan.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Statement of Financial Accounting Standard No.&nbsp;123 (revised 2004), <I>Share Based Payment </I>(&#147;SFAS
123(R)&#148;) requires companies to estimate the fair value of share-based payment awards on the date
of grant using an option-pricing model and to expense the fair value over the vesting period of
the grant. For additional information on the Equity Plan, including a summary of the significant
assumptions, refer to the Company&#146;s Form 10-K for the year ended August&nbsp;31, 2008.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

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

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

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

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
FEBRUARY 28, 2009
</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 six months
ended February&nbsp;28, 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"><B>Weighted-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Approximate</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Remaining</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Aggregate</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Contractual</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Instrinsic</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Term</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Value</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding 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" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">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" style="padding-top: 1px">
    <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 February&nbsp;28, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">170,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</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 February&nbsp;28, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142,500</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 align="right">6.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</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="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom" style="font-size: 3pt">
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="98%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Intrinsic value less than zero.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<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 six
months ended February&nbsp;28, 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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Average</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Grant Date</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Fair Value</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-vested options outstanding 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">$</TD>
    <TD align="right">6.81</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-vested options outstanding at February&nbsp;28, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4.72</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">The total fair value of options vested during the three and six month periods ended February&nbsp;28,
2009 and February&nbsp;29, 2008, was approximately $93,700 and $67,700, respectively.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Stock-based compensation expense for the three months ended February&nbsp;28, 2009 and February&nbsp;29,
2008, was approximately $74,400 and $89,100, respectively. Stock-based compensation expense for the
six months ended February&nbsp;28, 2009 and February&nbsp;29, 2008, was approximately $153,600 and $170,400,
respectively.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At February&nbsp;28, 2009, the Company has unrecognized expenses relating to non-vested options that are
expected to vest totaling approximately $78,700. The weighted-average period over which these
options are expected to vest is less than 1&nbsp;year. The Company has not recorded any excess tax
benefits to additional paid in capital.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">There were no options exercised during the three or six months ended February&nbsp;28, 2009.
</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 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 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 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&nbsp;2009.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

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

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

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

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
FEBRUARY 28, 2009
</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. Pursuant to SFAS 123(R), the Company is recognizing
compensation expense on this grant based on the grant date fair value of the restricted stock. The
grant date fair value of the restricted stock was based upon the market price of the Company&#146;s
common stock on the date of the grant. The grant date fair value is being amortized to
compensation expense over the vesting term of two years. Because there has been no change in the
status of the restricted stock, the Company omitted the status table, which is disclosed in Note 8
to the Company&#146;s financial statements contained in the Company&#146;s 2008 Annual Report on Form 10-K.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of February&nbsp;28, 2009, there was approximately $64,900 of unrecognized compensation expense
related to restricted stock awarded under the Equity Plan, which is expected to be recognized
during the Company&#146;s fiscal 2009.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Loss per common share</I>.</B> Loss per common share is computed by dividing net loss by the weighted
average number of shares outstanding during each period. Common stock options and warrants
aggregating 170,092 and 155,092 common share equivalents as of February&nbsp;28, 2009 and February&nbsp;29,
2008, respectively, have been excluded from the calculation of loss per common share as their
effect is anti-dilutive.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Comprehensive Loss. </I></B>In addition to net loss, comprehensive loss includes the unrecognized changes
in the fair value of marketable securities that are classified as available-for-sale as noted in
the following table:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Six Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>February 28, 2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>February 29, 2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>February 28, 2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>February 29, 2008</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,401,281</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,649,677</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,113,336</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,544,674</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized gain on
marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#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">232</TD>
    <TD>&nbsp;</TD>
</TR>


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


<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,401,281</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,649,677</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,113,336</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,544,442</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: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In the Company&#146;s fiscal 2008, the Company had marketable securities that were recorded as
available-for-sale and therefore any unrecognized changes in the fair value of these marketable
securities was included as a component of other comprehensive income. As described in Note 3, all
of the Company&#146;s marketable securities either matured or were sold during the year ended August&nbsp;31,
2008. The Company invested these funds in cash equivalent accounts and therefore as of February
28, 2009 the only item included in comprehensive loss is the Company&#146;s net loss.
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The Company leases office space from the estate of the son of its former CEO, which is a greater
than 5% stockholder. The Company leases the office space on a month-to-month basis for $1,000 per
month.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">See Note 6 regarding the $7,000 loan made to Well Enhancement LLC on October&nbsp;27, 2008.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In 1995, the Company extended a loan to the District. 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
February&nbsp;28, 2009) and matures on December&nbsp;31, 2009. The approximately $501,700 balance of the
note receivable at February&nbsp;28, 2009, includes borrowings of approximately $229,300 and accrued
interest of approximately $272,400. The approximately $494,800 balance of the note receivable at
August&nbsp;31, 2008, includes borrowings of approximately $229,300 and accrued interest of
approximately $265,500.
</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="center" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION<BR>
NOTES TO FINANCIAL STATEMENTS<BR>
FEBRUARY 28, 2009
</DIV>


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

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

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>February 28,<BR>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>February 29,<BR>2008</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase in estimated Tap Participation Fee
liability and related discount</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,714,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,867,321</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <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 align="left">&nbsp;</TD>
    <TD>&nbsp;</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 align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,979,447</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <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 align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common stock issued to acquire contingent obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,905,277</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


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



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

<P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /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="105"></A>
</DIV>

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


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


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

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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">
<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">Revenue generated from providing water and wastewater services;</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">Expenses associated with developing our water assets; 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>&#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">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 and the financial statements and
the notes thereto contained in our 2008 Annual Report on Form 10-K. This overview summarizes the
MD&#038;A, which includes the following sections:
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%">Our Business &#151; a general description of our business, our services and our business strategy.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%">Results of Operations &#151; an analysis of our results of operations for the periods presented in
our financial statements.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%">Liquidity, Capital Resources and Financial Position &#151; an analysis of our cash position and cash
flows, as well as a discussion of our financing arrangements.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%">Critical Accounting Policies and Estimates &#151; a discussion of our critical accounting policies
that require critical judgments, assumptions and estimates.
</DIV>

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


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our water assets are comprised of the following annual entitlements which are described in greater
detail in our 2008 Annual Report on Form 10-K:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Approximately 60,000 acre-feet of senior water rights in the Arkansas River and its
tributaries;</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">Approximately 11,650 acre-feet of water located in Arapahoe County, Colorado at property
known as the Lowry Range (an approximately 27,000 acre property located in Arapahoe County,
Colorado, owned by State Board of Land Commissioners (the &#147;Land Board&#148;)), which we can
&#147;export&#148; from the Lowry Range to supply water to nearby communities and developers in need of
additional water supplies (this water asset is referred to as our &#147;Export Water&#148;);</DIV></TD>
</TR>

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


</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">Approximately 321 acre-feet of groundwater located in Arapahoe County acquired pursuant to
an Agreement for Water Service (the &#147;County Agreement&#148;) with Arapahoe County (the &#147;County&#148;);
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">Approximately 89 acre-feet of water located beneath Sky Ranch together with the right to
purchase an additional 671 acre-feet of water (for a total of 760 acre-feet) pursuant to the
Sky Ranch Agreements (however, see information on Sky Ranch bankruptcy in the Risk Factors
section of the 2008 Annual Report on Form 10-K).</DIV></TD>
</TR>

</TABLE>
</DIV>

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

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">We have the exclusive rights to provide water and wastewater services to approximately
24,000 acres of the Lowry Range through 2081 using approximately 15,050 acre-feet of water.
This water is required to be used specifically on the Lowry Range (collectively we refer to
the 15,050 acre-feet of water designated for use on the Lowry Range and the 11,650 acre-feet
of Export Water as our &#147;Rangeview Water Supply&#148;); 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">We own conditional water rights in western Colorado that entitle us to build a 70,000
acre-foot reservoir to store Colorado River tributary water and a right-of-way permit from the
U.S. Bureau of Land Management for property at the dam and reservoir site (collectively known
as the &#147;Paradise Water Supply&#148;).</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">For further details on our current service agreements please refer to our 2008 Annual Report on
Form 10-K.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We provide water and wastewater services utilizing water assets we own, concentrating our services
to customers along the Front Range of the metropolitan Denver area. 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 Front
Range, principally 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">We own nearly 12,000 acre-feet per year of decreed groundwater and surface water rights in the
Denver area and have the exclusive rights to use, through the year 2081, approximately 16,700
acre-feet per year of decreed groundwater and surface water located at the Lowry Range (the Lowry
Range is described in further detail in Item&nbsp;1 of our 2008 Annual Report on Form 10-K). In
addition to these Denver based assets, we also own approximately 60,000 acre-feet per year of
Arkansas River water that is currently being used to irrigate approximately 17,000 acres of land
owned by the Company in southeastern Colorado and 70,000 acre-feet of conditionally decreed
Colorado River water rights on the western slope of Colorado.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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, alluvial 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)&nbsp;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 &#151; homeowners, business owners or consumers of water and wastewater
services. Monthly service fees include (i)&nbsp;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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We did not sell any water taps or wastewater taps during the three or six months ended February&nbsp;28,
2009 and February&nbsp;29, 2008. We received approximately $23,400 and $26,100 from the sale of water
during the three months ended February&nbsp;28, 2009 and February&nbsp;29, 2008, respectively, and we
received $56,500 and $65,100, respectively, from the sale of water during the six months ended
February&nbsp;28, 2009 and February&nbsp;29, 2008, respectively. We received approximately $16,700 from
monthly wastewater service fees during both three month periods presented, and approximately
$33,500 from monthly wastewater service fees during both six month periods presented. Currently
all monthly water and wastewater fees are generated utilizing our &#147;Rangeview Water Supply&#148; which is
defined below. See Critical Accounting Policies below regarding our revenue recognition policies
for tap fees and construction fees.
</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 water rights we own in the Arkansas River in southeastern Colorado are currently being used for
agricultural purposes on farms that we own, which are being leased to area farmers. Pursuant to
agreements we entered into with High Plains A&#038;M, LLC (&#147;HP A&#038;M&#148;), described in greater detail in
Note 3 to the financial statements contained in our 2008 Annual Report on <FONT style="white-space:nowrap">Form 10-K</FONT>, 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 Note 3 to the financial statements contained in our 2008
Annual Report on Form 10-K, HP A&#038;M may extend the management services agreement, or we may assume
management of the farms. Pursuant to the farm management 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 Fort Lyon Canal Company (&#147;FLCC&#148;), which are
borne by us. The FLCC is the canal that supplies the water to the farms. As compensation for
their farm management responsibilities, HP A&#038;M retains all lease and other income associated with
the farms and the water used thereon.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Since our Arkansas River water is currently being used for agricultural purposes, in order to use
this water for municipal purposes we must file a change of use application with the Colorado Water
Court. This will likely be a long-term process, which may extend from one to more than three
years, 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 Front Range, which
could cost in excess of $500&nbsp;million. We have not yet filed a change of use application. However,
we are diligently working with local interests to determine the least intrusive method of
transferring water off our farms to serve customers along 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. See also our Risk Factors in our 2008 Annual Report on Form 10-K 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"><I>Recent Developments:</I>
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">On January&nbsp;9, 2009, the developer of the Lowry Range terminated its development agreement with the
Land Board. 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. See Risk Factors below for additional
discussion of the latest developments at the Lowry Range.
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As reported in our 2008 Annual Report on Form 10-K, in 2007 the developer of Sky Ranch filed for
Chapter&nbsp;11 bankruptcy protection. We have filed claims with the bankruptcy court related to the
water service agreements and groundwater purchase agreement, and the Sky Ranch development is
subject to foreclosure by a bank holding a security interest in the development. Until these
matters are resolved, we will not be able to sell taps or water at Sky Ranch. The timing of the
resolution of these matters is not within our control and is not predictable. For further
information see Risk Factors in our 2008 Annual Report on Form 10-K.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

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


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The results of our operations for the three months ended February&nbsp;28, 2009 and February&nbsp;29, 2008
are as follows:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B><I>Summary Table 1</I></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="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Three Months Ended:</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</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>February 28, 2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>February 29, 2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>$ Change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>% Change</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Millions of gallons of water delivered</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-31</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Water revenues generated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">23,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">26,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,700</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-10</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating costs to deliver water</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(5,300</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-37</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(excluding depreciation and depletion)</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">Water delivery gross margin %</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">62</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">46</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>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</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">$</TD>
    <TD align="right">16,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating costs to treat wastewater</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">39</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">63</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">74</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>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</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">$</TD>
    <TD align="right">561,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">570,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(9,800</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-2</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,401,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,649,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(248,400</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-15</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The results of our operations for the six months ended February&nbsp;28, 2009 and February&nbsp;29, 2008 are
as follows:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B><I>Summary Table 2</I></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="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Six Months Ended:</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</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>February 28, 2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>February 29, 2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>$ Change</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>% Change</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Millions of gallons of water delivered</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-25</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Water revenues generated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">56,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">65,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(8,600</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-13</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating costs to deliver water</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">27,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,700</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" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(excluding depreciation and depletion)</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">Water delivery gross margin %</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">51</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">55</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>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</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">$</TD>
    <TD align="right">33,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating costs to treat wastewater</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">35</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">65</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">74</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>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</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">$</TD>
    <TD align="right">1,092,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,222,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(130,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-11</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,113,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,544,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(431,400</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD nowrap align="right">-12</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our water service charges include a base monthly fee and a usage fee which is based on a tiered
pricing structure that provides for higher prices as customers use greater amounts of water. Our
rates and charges are established based on the average of three surrounding communities as
specified in our agreements with the Land Board.
</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>Comparison of usage fees and gross margins</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Water deliveries for the three and six months ended February&nbsp;28, 2009, decreased 31% and 25%,
respectively, over the comparable periods in 2008. As a result of the poor economy, our commercial
customers are experiencing decreased levels of business which in turn results in reduced water
demands and reduced water usage fees.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Despite the decreased usage, water operating gross margins for the three months ended February&nbsp;28,
2009 increased 16%, while the water operating gross margins for the six months ended February&nbsp;28,
2009 decreased 4% over
comparable periods in 2008. The increased gross margin during the three months ended February&nbsp;28,
2009 was mainly a result of lower energy usage due to our efforts to conserve energy and reduce the
use of our groundwater pumps during the low water usage non-irrigation season. The decrease in
gross margin for the six month period ended February&nbsp;28, 2009 was mainly due to tri-annual testing
fees incurred during our first fiscal quarter.
</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">Wastewater operation gross margins for the three and six months ended February&nbsp;28, 2009 decreased
11% and 9%, respectively over the comparable period in 2008. These decreases are mainly a result
of higher testing costs during the current fiscal year and higher energy costs over the prior year,
which cannot be controlled to the same extent as water energy costs.
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We recognized approximately $3,600 of water tap fee revenues during each of the three month periods
ended February&nbsp;28, 2009 and February&nbsp;29, 2008, related to the County Agreement. We recognized
approximately $7,100 of water tap fee revenues during each of the six month periods ended February
28, 2009 and February&nbsp;29, 2008, related to the County Agreement. In accordance with GAAP, we began
recognizing the water tap fees as revenue ratably over the estimated service period upon completion
of the Wholesale Facilities in fiscal 2006. The water tap fees to be recognized over this period
are net of the royalty payments to the Land Board and amounts paid to third parties pursuant to the
Comprehensive Amendment Agreement No.&nbsp;1 (the &#147;CAA&#148;) as further described in Note 7 to the
accompanying financial statements.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We recognized approximately $10,400 of Special Facilities funding as revenue during each of the
three month periods ended February&nbsp;28, 2009 and February&nbsp;29, 2008. We recognized approximately
$20,800 of Special Facilities funding as revenue during each of the six month periods ended
February&nbsp;28, 2009 and February&nbsp;29, 2008. This is the ratable portion of the &#147;Special Facilities&#148;
funding proceeds received from the County pursuant to the County Agreement as more fully described
in Note 3 to the financial statements contained in our 2008 Annual Report on Form 10-K.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of February&nbsp;28, 2009, we have deferred recognition of approximately $1.5&nbsp;million of water tap
and construction fee revenue from the County, which will be recognized as revenue ratably over the
estimated useful accounting life of the assets constructed with the construction proceeds as
described above.
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">General and administrative expenses for the three and six months ended February&nbsp;28, 2009 decreased
2% and 11%, respectively, over the comparable periods in 2008. These decreases were a result of
our cost reduction efforts in response to the overall downturn of the economy, and the delay in the
development of the Lowry Range as a result of the developers&#146; withdrawal from its development
agreement with the Land Board.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our general and administrative expenses for the three months ended February&nbsp;28, 2009 and February
29, 2008, respectively, are comprised of approximately:
</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">$199,000 and $213,900 of salary and salary related expenses, including approximately
$74,400 and $89,100, respectively, of stock-based compensation expenses recognized pursuant
to Statement of Financial Accounting Standard No.&nbsp;123 (revised 2004), <I>Share Based Payment</I>
(&#147;SFAS 123(R)&#148;),</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">$91,600 and $90,000 of fees and insurance premiums related to our board of directors,</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">$82,600 and $77,400 of water assessment expenses associated with the FLCC, which is the
canal system that provides water to the farms we own in the Arkansas River Valley in
southern Colorado and is described further in the Liquidity and Capital Resources section
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="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">$66,000 and $26,400 of professional fees, which increased as a result of the Lowry Range
negotiations,</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">$28,920 and $39,800 of consulting fees, generally related to negotiations with the Lowry
Range project and other pending water service agreements, 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>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">$20,900 and $25,400 of expenses associated with being a public company, generally
related to press releases, NASDAQ listing fees, EDGAR filing fees, etc.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our general and administrative expenses for the six months ended February&nbsp;28, 2009 and February&nbsp;29,
2008, respectively, are comprised of approximately:
</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">$398,500 and $412,900 of salary and salary related expenses, including approximately
$153,600 and $170,400, respectively, of stock-based compensation expenses recognized
pursuant to SFAS 123(R),</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">$112,200 and $106,000 of fees and insurance premiums related to our board of directors,</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">$174,200 and $166,700 of water assessment expenses associated with the FLCC,</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 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">$192,300 and $136,200 of professional fees, increase is mainly attributable to the Lowry
Range negotiations,</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">$62,500 and $152,700 of consulting fees, decrease is mainly related to the reduction of
consultants due to the developer withdrawing from the development agreement with the Land
Board, 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>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">$36,300 and $104,400 of expenses associated with being a public company, decrease mainly
due to the reincorporation into Colorado, which resulted in the avoidance of Delaware
franchise fees.</DIV></TD>
</TR>

</TABLE>
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Interest income totaled approximately $22,300 and $70,700 for the three months ended February&nbsp;28,
2009 and February&nbsp;29, 2008, respectively. Interest income totaled approximately $57,600 and
$197,700 for the six months ended February&nbsp;28, 2009 and February&nbsp;29, 2008, respectively. This
represents interest earned on the temporary investment of capital, interest accrued on our notes
receivable from related parties and interest accrued on the construction proceeds receivable from
Arapahoe County. The decrease is due to the continued decline in interest rates both on our
invested capital and for the notes receivable from related parties due to lower interest rates.
Our temporary investments are invested in overnight money market funds related to treasury
obligations and subsequent to February&nbsp;28, 2009, we invested approximately $3.0&nbsp;million in
certificates of deposit with scheduled maturities and set interest rates, and therefore, our
temporary investments are not subject to market risks. Our certificates of deposit are held by
various financial institutions in amounts less than federally insured limits.
</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 $841,000 and $1.1&nbsp;million for the three months ended February&nbsp;28, 2009 and February
29, 2008, respectively. Imputed interest expense related to the Tap Participation Fee payable to
HP A&#038;M totaled approximately $2.0&nbsp;million and $2.1&nbsp;million for the six months ended February&nbsp;28,
2009 and February&nbsp;29, 2008, respectively. This represents the expensed portion of the difference
between the relative fair value of the liability and the net present value of the liability
recognized under the effective interest method. See also Note 1 to the accompanying financial
statements for discussion on the revaluation of the Tap Participation Fee and the impact to the
February&nbsp;28, 2009 financial statements.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">During the six months ended February&nbsp;28, 2009, we received a $5,000 land use payment from an energy
company searching for natural gas on certain of our Arkansas Valley properties and we received $600
for our engineer providing water system consulting services for a local golf course.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Net losses for the three and six months ended February&nbsp;28, 2009 decreased approximately 15% and
12%, respectively, over the comparable periods in 2008. The reason for the decreases is
attributable to the changes in the operating items described above, and during the three months
ended February&nbsp;28, 2009, we recognized approximately $37,500 of gains related to the sale of
non-irrigated land we owned in the Arkansas River Valley in Southern Colorado.
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At February&nbsp;28, 2009, we had working capital (current assets less current liabilities) of
approximately $4.5&nbsp;million, and cash and cash equivalents totaling approximately $4.4&nbsp;million. We
believe that at February&nbsp;28, 2009, we have sufficient working capital and cash and cash equivalents
to fund our operations for the next year. However, there can be no assurance that we will be
successful in marketing the water from our primary water projects which we require to fund our
long-term operations. In order to generate working capital to support our operations, we may incur
additional short or long-term debt or seek to sell additional equity securities. We have an
effective shelf registration statement pursuant to which we may elect to sell up to another $5.7
million of stock at any time and from time to time.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Development of the water that we own, have rights to use, or may seek to acquire, will require
substantial capital investments. We anticipate that capital required for the development of the
water and wastewater systems will be financed through the sale of water taps to developers. A
water tap fee refers to a charge we impose to fund
construction of &#147;Wholesale Facilities&#148; (&#147;Wholesale Facilities&#148; are further defined in our 2008
Annual Report on Form 10-K) and permit access to our water delivery system. We anticipate tap fees
will be sufficient to generate funds with which we can design and construct the necessary Wholesale
Facilities. However, once we receive tap fees from a developer, we are contractually obligated to
construct the Wholesale Facilities for the taps paid for, even if our costs are not covered by the
fees we receive. We cannot assure you that these sources of cash will be sufficient to cover all
our capital costs.
</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">On a monthly basis, water customers are charged a flat base fee and usage fees, generally charged
per 1,000 gallons of water delivered to the customer, and wastewater customers are charged flat
monthly service fees. These fees are used to fund on-going operational expenses, including
general and administrative expenses.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As further described in our 2008 Annual Report on Form 10-K, <I>Critical Accounting Policies </I>below and
Note 1 to the accompanying financial statements, 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 (the
&#147;Tap Participation Fee&#148;). As of February&nbsp;28, 2009, we have estimated the ultimate value of the Tap
Participation Fee payable to HP A&#038;M at approximately $113.1&nbsp;million. The balance reflected on the
accompanying balance sheet of $55.8&nbsp;million excludes the discount of $57.3&nbsp;million based on a
discounted cash flow valuation analysis, which was originally prepared at August&nbsp;31, 2006, and was
updated as of February&nbsp;28, 2009. See Note 1 in the accompanying financial statements for the
impact of the revaluation. The actual amount to be paid could exceed our estimates. Tap
participation payments are not payable to HP A&#038;M until we receive water tap fee payments. We did
not sell any taps, but did make Tap Participation Fee payments during the three months ended
February&nbsp;28, 2009 related to the sale of non-irrigated property, and there remain 38,947 taps
subject to the Tap Participation Fee as of February&nbsp;28, 2009.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We are obligated to pay annual water assessment charges to the FLCC, which are fees assessed to the
FLCC shareholders for the upkeep and maintenance of the Fort Lyon Canal &#151; the agricultural delivery
canal for our Arkansas River water. The payments are due in three payments to the FLCC each
calendar year. In December&nbsp;2008, the board of the FLCC approved a decrease to the calendar 2009
assessments from $15.00 per share to $14.50 per share, which equates to a decrease in our water
assessments from approximately $325,000 per year to approximately $314,000 per year.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Repayment of all related party and non-related debt</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At February&nbsp;28, 2009, we had no outstanding related party or non-related party debt.
</DIV>

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


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

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Cash used by operating activities was approximately $836,500 and $678,600 for the six months ended
February&nbsp;28, 2009 and February&nbsp;29, 2008, respectively. Despite the decreases in our general and
administrative expenses and our net operating losses as described above, cash used by operations
increased $157,900 , or 23%, period over period. This is mainly due to a decrease in interest
earned on our temporary investments of capital and an increase in professional fees mainly related
to the Lowry Range negotiations. In addition, our prepaid expenses increased approximately $60,200
since August&nbsp;31, 2008, which is a result mainly of annual dues which are paid early in the calendar
year and then expensed throughout the fiscal year.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We incurred approximately $190,400 and $191,500 of depreciation, depletion and other non-cash
charges during the six months ended February&nbsp;28, 2009 and February&nbsp;29, 2008, respectively, which is
a change of 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"><I>Investing Activities</I>
</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>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Investing activities used approximately $42,600 during the six months ended February&nbsp;28, 2009,
predominately for investments in water supplies and systems and the purchase of property and
equipment. Investing activities provided approximately $598,200 for the six months ended February
29, 2008. The 2008 investing cash flows were positively impacted by the sale or maturity of
approximately $790,700 of available-for-sale securities, which are now included in cash and cash
equivalents and therefore no longer impact the investing cash flows. Without the effects of the
sale or maturity of the available-for-sale securities, investing activities would have used
approximately $192,300 during the six months ended February&nbsp;29, 2008, entirely for investments in
water supplies and systems and the purchase of property and equipment.
</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">On October&nbsp;31, 2003 we entered into the Denver Groundwater Purchase Agreement (the &#147;DGPA&#148;) with the
developer of Sky Ranch. The DGPA provides us the right to purchase a total of 223 acre-feet of
adjudicated decreed water rights owned by the developer. Under the DGPA, we can acquire 44.6
acre-feet of water per year (or 20% of the total 223 acre-feet) for a payment of $50,000 (acquiring
the entire 223 acre-feet requires payments totaling $250,000). On March&nbsp;26, 2004 and May&nbsp;26, 2005,
we 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, for which we have not received the water rights deeds from the developer, nor has the
developer cashed either of the payments. In November, 2007, the developer of Sky Ranch filed for
Chapter&nbsp;11 bankruptcy protection. Because of the bankruptcy and since we have not received our
water rights deeds from Sky Ranch, in November&nbsp;2007 we cancelled the two uncashed checks issued to
Sky Ranch and reversed the $100,000 that was included in the Prepaid Expenses account on our
Balance Sheet. We will continue to follow the bankruptcy proceedings of Sky Ranch and vigorously
seek to enforce our rights under the DGPA and other Sky Ranch agreements.
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Financing activities provided approximately $2,400 during the six months ended February&nbsp;28, 2009,
predominately due to approximately $41,100 of construction proceed payments received from Arapahoe
County, which were offset by the approximately $37,500 Tap Participation Fee payments made to HP
A&#038;M related to the sale of the non-irrigated land. Financing activities used approximately $27,900
during the six months ended February&nbsp;29, 2008. This was mainly due to the repayment of
approximately $26,600 of related party debt.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Off-Balance Sheet Arrangements</I><BR>
<BR>
Our off-balance sheet arrangements consist entirely of the CAA, which is more fully described in
Note 5 to the financial statements contained in our 2008 Annual Report on Form 10-K, and in Note 7
to the accompanying financial statements.

</DIV>

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


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

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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 stock-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. In accordance with applicable
GAAP, as detailed in our 2008 Annual Report on Form 10-K, 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. Tap
fees derived from agreements for which we construct infrastructure the customer will own are
recognized in accordance with Statement of Position 81-1 <I>Accounting for Performance of
Construction-Type and Certain Production-Type Contracts </I>(&#147;SOP 81-1&#148;), whereby we recognize tap fees
as revenue and costs of construction based on 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 SOP 81-1 during the three or six months ended February&nbsp;28, 2009 or February&nbsp;29, 2008,
respectively.
</DIV>
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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">Tap fees derived from agreements for which we own the infrastructure are recognized in accordance
with Staff Accounting Bulletin No.&nbsp;104 <I>Revenue Recognition </I>(&#147;SAB 104&#148;), whereby the up-front fees
are recognized as revenue ratably over the estimated service life. 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 of the tap fees is based on the estimated useful
life of the assets constructed with the tap fees. The &#147;useful life&#148; 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">In accordance with Statement of Financial Accounting Standard No.&nbsp;144, <I>Accounting for the
Impairment or Disposal of Long-Lived Assets </I>(&#147;SFAS 144&#148;), 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">We report assets to be disposed of at the lower of the carrying amount or fair value less costs to
sell.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Our Front Range and Arkansas River Water Rights</U>
</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 from our
estimates, which could have a material impact on our financial statements as well as our results
of operations. We last performed an impairment analysis as of August&nbsp;31, 2008, and determined
that our Rangeview and Arkansas River water assets were not impaired and their costs were deemed
recoverable in accordance with SFAS 144. Our impairment analysis is based on development
occurring within areas that we have service agreements (e.g. Sky Ranch and the Lowry Range) as
well as surrounding areas including the Front Range, and the I-70 corridor. Although the
withdrawal of the Lowry Range developer, the Sky Ranch bankruptcy filing, and accounting for
changes in the housing market throughout the Front Range have delayed our estimated tap sale
projections, they do not alter our water ownership structure nor service obligation to these
properties. We anticipate updating our impairment analysis as of August&nbsp;31, 2009 unless other
events or circumstances warrant an update prior to that planned update.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Our Paradise Water Rights</U>
</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 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. 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)
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 pursuant to SFAS 144 as of August&nbsp;31, 2008, we believe the Paradise Water Supply is not
impaired and the costs are deemed recoverable. We anticipate updating our impairment analysis as
of August&nbsp;31, 2009 unless other events or circumstances warrant an update prior to that planned
update.
</DIV>
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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"><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
17,000 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 7 to the financial statements contained in our 2008 Annual Report on Form 10-K)
of our tap fees on the sale of the next 40,000 water taps, of which 38,947 water taps remain to be
paid as of February&nbsp;28, 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. 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 impairment analysis, 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 new water supplies, 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
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"><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 $12.4
million at February&nbsp;28, 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. If HP
A&#038;M defaults on the promissory notes, we can foreclose on a defined amount of Pure Cycle stock
issued to HP A&#038;M being held in escrow and reduce the Tap Participation Fee by two times the amount
of notes defaulted on by HP A&#038;M. Although the likelihood of HP A&#038;M defaulting on the notes is
deemed remote, 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 February&nbsp;28, 2009.
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We recognize stock-based compensation expense pursuant to Statement of Financial Accounting
Standard No.&nbsp;123 (revised 2004), <I>Share Based Payment </I>(&#147;SFAS 123(R)&#148;). SFAS 123(R) requires
companies to estimate the fair value of share-based payment awards on the date of grant using an
option-pricing model and to expense the fair value over the vesting period of the grant. 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.
</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="106"></A>
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>General</B>
</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"><B>Interest Rates</B>
</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 February&nbsp;28, 2009, we no longer have any investments
which are subject to market risks as our capital is invested entirely in overnight money market
funds, which were transferred to certificates of deposit with stated maturities and locked interest
rates subsequent to our quarter end. 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="107"></A>
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Evaluation of Disclosure Controls and Procedure</B>
</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-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 February&nbsp;28, 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"><B>Changes in Internal Control Over Financial Reporting and Management&#146;s Remediation Initiatives</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">None
</DIV>
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<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="justify" style="font-size: 10pt; margin-top: 10pt"><B>Item&nbsp;1A. </B><U><B>Risk Factors</B></U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Our business, operations, and financial condition are subject to significant risks. These risks
include those listed in our 2008 Annual Report on </I><I>Form 10-K</I><I> and as set forth 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 these 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 and our 2008 Annual Report on </I><I>Form 10-K</I><I>.</I>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>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. </U>
</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 &#147;Front Range.&#148; The development of these areas is not within our control.
</DIV>

<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 we reported in a Form 8-K filed with the Commission on January&nbsp;9, 2009, the developer of the
Lowry Range terminated its development agreement with the Land Board. 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, Moreover, 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, the City of Aurora (&#147;Aurora&#148;) applied for the right to store water in certain
reservoir sites, on the Lowry Range, in the District Court, Water Division I, State of Colorado
(the &#147;Water Court&#148;). In that proceeding, Aurora applied for the right to store water in certain
reservoir sites on the Lowry Range which had previously been adjudicated by the District and the
Land Board dating back to 1988. 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">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, we may incur additional short or long-term debt
obligations or seek to sell additional equity to generate 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>
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</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We held our Annual Stockholders&#146; meeting on January&nbsp;13, 2009, at which, the following matters were
voted upon and adopted by stockholders:
</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>
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    <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"><B>Voted:</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>For</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Against</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Abstain</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Non-Votes</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
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<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">1. Election of Directors</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="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Mark W. Harding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,080,939</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,048,307</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; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Harrison H. Augur</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,413,687</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">715,559</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="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Mark D. Campbell</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,582,412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,546,834</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; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Arthur G. Epker III</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,413,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">715,429</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="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Richard L. Guido</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,412,422</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">716,824</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; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Peter C. Howell</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,413,837</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">715,409</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="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">George M. Middlemas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,279,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,850,226</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="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2. Ratification of the
appointment of GHP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Horwath P.C. as
independent
auditors for fiscal 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,088,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,866</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>

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

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

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Exhibits</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD align="center" valign="top" colspan="3">31</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.*</DIV></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD align="center" valign="top" colspan="3">32</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002.*</DIV></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>



<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3">Filed herewith.</TD>
</TR>

<!-- End Table Body --></TABLE>
</DIV>



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

<P align="center" style="font-size: 10pt"><!-- Folio -->30<!-- /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="justify" style="font-size: 10pt; margin-top: 10pt">SIGNATURES
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">PURE CYCLE CORPORATION
</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="35%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="64%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">/s/ Mark W. Harding
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Mark W. Harding<br>
President and Chief Financial Officer
</DIV></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">April&nbsp;9, 2009
</DIV>
<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="113"></A>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">EXHIBIT INDEX
</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="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Exhibits</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD align="center" valign="top" colspan="3">31</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.*</DIV></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD align="center" valign="top" colspan="3">32</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002.*</DIV></TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3">Filed herewith.</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>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>2
<FILENAME>c83750exv31.htm
<DESCRIPTION>EXHIBIT 31
<TEXT>
<HTML>
<HEAD>
<TITLE>Exhibit 31</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
</DIV>


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


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

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

</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: April&nbsp;9, 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="35%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="64%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">/s/ Mark W. Harding
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Mark W. Harding<br>
Principal Executive Office and Principal Financial Officer
</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>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>3
<FILENAME>c83750exv32.htm
<DESCRIPTION>EXHIBIT 32
<TEXT>
<HTML>
<HEAD>
<TITLE>Exhibit 32</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
</DIV>


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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In connection with the Quarterly Report of Pure Cycle Corporation (the &#147;Company&#148;) on Form 10-Q for
the six months ended February&nbsp;28, 2009, as filed with the Securities and Exchange Commission on the
date hereof (the &#147;Report&#148;), I, Mark W. Harding, President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. &#167; 1350, as adopted pursuant to &#167; 906 of the Sarbanes-Oxley
Act of 2002, that:
</DIV>

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

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
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    <TD width="3%" nowrap align="left">(2)</TD>
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    <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>
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<TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">/s/ Mark W. Harding
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Mark W. Harding<br>
Principal Executive Office and Principal Financial Officer
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">April&nbsp;9, 2009</DIV></TD>
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