##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended August 31, 2009
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 0-8814
 PURE CYCLE CORPORATION
  Colorado
    
    84-0705083(State of incorporation)
    
    (I.R.S. Employer Identification No.)500 East 8thAve, Ste 201, Denver, CO 80203
    
    (303) 292-3456(Address of principal executive office) (Zip Code)
    
    (Registrants telephone number, including area code)Securities registered
pursuant to Section 12(b) of the Act:Common Stock 1/3 of $.01 par value
    
    The NASDAQ Stock Market, LLC(Title of each class)
    
    (Name of each exchange on which registered)
 NONE
 Yes o No þ
 Yes o No þ
 þ o
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



Table of Contents
 Item
    
    PagePart I1. Business
    
    
    31A. Risk Factors
    
    
    141B. Unresolved Staff Comments
    
    
    192. Properties
    
    
    193. Legal Proceedings
    
    
    194. Submission of Matters to a Vote of Security Holders
    
    
    19Part II5. Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    206. Selected Financial Data
    
    
    227. Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    237A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    328. Financial Statements and Supplementary Data
    
    
    329. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    629A. Controls and Procedures
    
    
    629B. Other Information
    
    
    63Part III10. Directors, Executive Officers and Corporate Governance
    
    
    6311. Executive Compensation
    
    
    6312. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    6313. Certain Relationships and Related Transactions, and Director Independence
    
    
    6314. Principal Accounting Fees and Services
    
    
    63Part IV15. Exhibits, Financial Statement Schedules
    
    
    63Signatures
    
    
    66Exhibit 23.1Exhibit 31.1Exhibit 32.1
   2




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##### Table of Contents



SAFE HARBOR STATEMENT UNDER THE UNITED STATES PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
  
 PART I
 
 Item 1  Business
 Summary of our business
  
    
    Water rights used to provide domestic and irrigation water to customers;
 
    
    Infrastructure required to withdraw, treat, store and deliver domestic water to customers;
 
    
    Infrastructure required to collect, treat, store and reuse wastewater; and
 
    
    Infrastructure required to treat and deliver reclaimed water for irrigation use by
customers.
  Our Water Assets Our Water Assets  The
Lowry Range Property
  3




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##### Table of Contents



Glossary of terms
  
    
    Acre-foot  approximately 326,000 gallons of water, or enough water to cover an acre of
ground with one foot of water. For some instances herein, as context dictates, acre feet is
used to designate an annual decreed amount of groundwater or the amount of surface water that
might be available during a typical year.
 
    
    Consumptive Use  the amount of water that is evaporated, transpired, incorporated into
products or crops, consumed by humans or livestock, or otherwise removed from the immediate
water environment.
 
    
    Customer Facilities  facilities that carry potable water and reclaimed water to customers
from the Retail water distribution system and collect wastewater from customers and transfer
it to the Retail wastewater collection system. Water and wastewater service lines, interior
plumbing, meters and other components are typical examples of Customer Facilities. In many
cases, portions of the Customer Facilities are constructed by the developer, but they are
owned and maintained by the customer.
 
    
    Retail Facilities  facilities that distribute water to and collect wastewater from an
individual subdivision or community. Developers are typically responsible for the funding and
construction of Retail Facilities. Once we certify that the Retail Facilities have been
constructed in accordance with our design criteria, the developer dedicates the Retail
Facilities to us or to a quasi-municipal political subdivision of the state and we operate and
maintain the facilities.
 
    
    Section  a parcel of land being one square mile and containing 640 acres.
 
    
    Single Family Equivalent unit (SFE)  One SFE is a customer; whether residential,
commercial or industrial; that imparts a demand on our water or wastewater systems similar to
the demand of a family of four persons living in a single family house on a standard sized
lot. One SFE is assumed to have a water demand of approximately 0.4 acre-feet per year and to
contribute wastewater flows of approximately 300 gallons per day
 
    
    Special Facilities  facilities that are required to extend services to an individual
development and are not otherwise classified as a typical Wholesale Facility or Retail
Facility. Temporary infrastructure required prior to construction of permanent water and
wastewater systems or transmission pipelines to transfer water from one location to another
are examples of Special Facilities. We typically design and construct the Special Facilities
using funds provided by the developer in addition to the normal rates, fees and charges that
we collect from our customers. We are typically responsible for the operation and maintenance
of the Special Facilities upon completion.
 
    
    Wholesale Facilities  facilities that serve an entire service area or major regions or
portions thereof. Wells, treatment plants, pump stations, tanks, reservoirs, transmission
pipelines, and major sewage lift stations are typical examples of Wholesale Facilities. We
own, design, construct, operate, maintain and repair Wholesale Facilities which are typically
funded using rates, fees and charges that we collect from our customers.
 Our Water Assets
 Item 1A  Risk Factors, Item 7  Managements
Discussion and Analysis of Financial Condition and Results of Operation  Critical Accounting
Policies and Use of Estimates
   4




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##### Table of Contents



Rangeview Water Supply and the Lowry Range
 Our Rangeview Water
    (i)
    
    The 1996 Amended and Restated Lease Agreement (the Lease) between the State Board of Land
Commissioners (the Land Board) and the Rangeview Metropolitan District (the District), a
quasi-municipal political subdivision of the State of Colorado,
 (ii)
    
    The Agreement for Sale of Export Water between us and the District, and
 (iii)
    
    The Service Agreement between us and the District for the provision of water service to the
Lowry Range.
 Water and Wastewater Tap Fees
     The Lowry Range Property
   5




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Item 1A  Risk Factors
    Arkansas River Water
    6




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##### Table of Contents



Item 1A  Risk
Factors
 Arapahoe County Fairgrounds Agreement for Water Service
   Sky Ranch Water Supply and Water Service Agreements
 Item 1A  Risk Factors
 Paradise Water Supply
 Critical Accounting Policies
  7




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##### Table of Contents



Well Enhancement and Recovery Systems
 rd rd
 Revenues
  1.
    
    Water and wastewater tap fees,
 2.
    
    Construction fees, and
 3.
    
    Monthly service fees.
  Water and Wastewater Tap Fees
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Water tap fees per SFE
    
    $
    22,500
    
    
    $
    21,500
    
    
    $
    20,000
    
    
    $
    16,840
    
    
    $
    14,740
    
    
    $
    12,420
    
    
    $
    11,150Percentage Increase
    
    
    4.7
    %
    
    
    7.5
    %
    
    
    18.8
    %
    
    
    14.2
    %
    
    
    18.7
    %
    
    
    11.4
    %
    
    
    6.2
    %
 Item 7  Managements Discussion and Analysis of Financial Condition and Results of Operation 
Critical Accounting Policies and Use of Estimates
   8




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##### Table of Contents



Construction Fees
 Item 7  Managements
Discussion and Analysis of Financial Condition and Results of Operation  Critical Accounting
Policies and Use of Estimates
 Monthly Service Fees
   Price ($ per thousand gallons)Amount of consumption
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Base charge per SFE
    
    $
    25.11
    
    
    $
    25.11
    
    
    $
    25.11
    
    
    $
    20.44
    
    
    $
    20.28
    
    
    $
    19.800 gallons to 10,000 gallons
    
    $
    2.55
    
    
    $
    2.55
    
    
    $
    2.55
    
    
    $
    2.58
    
    
    $
    2.46
    
    
    $
    2.4010,001 gallons to 20,000 gallons
    
    $
    3.35
    
    
    $
    3.35
    
    
    $
    3.35
    
    
    $
    3.34
    
    
    $
    3.17
    
    
    $
    3.1020,001 gallons and above
    
    $
    5.96
    
    
    $
    5.96
    
    
    $
    5.96
    
    
    $
    5.90
    
    
    $
    5.54
    
    
    $
    5.40
    Land Board Royalties and District Fees
   Lowry Range Customers
   9




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##### Table of Contents



Export Water Customers
   Royalty RatePrivate
    
    
    PublicNet Revenues
    
    Entity
    
    
    Entity$0  $45,000,000
    
    
    12
    %
    
    
    10
    %$45,000,001  $60,000,000
    
    
    24
    %
    
    
    20
    %$60,000,001  $75,000,000
    
    
    36
    %
    
    
    30
    %$75,000,001  $90,000,000
    
    
    48
    %
    
    
    40
    %Over $90,000,000
    
    
    50
    %
    
    
    50
    %
 Our Current Operations
    Significant Customers
   % of Water Usage Fees2009
    
    
    2008
    
    
    2007Ridgeview Youth Services Center
    
    
    72
    %
    
    
    71
    %
    
    
    67
    %Schmidt Aggregates
    
    
    13
    %
    
    
    15
    %
    
    
    20
    %Combined
    
    
    85
    %
    
    
    86
    %
    
    
    87
    %
 % of Wastewater Service Fees2009
    
    
    2008
    
    
    2007Ridgeview Youth Services Center
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  10




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Our Projected Operations
 Item 1A  Risk Factors
      Rangeview Metropolitan District
    11




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##### Table of Contents



Water and Growth in Colorado
    12




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##### Table of Contents



Competition
  (i)
    
    The purchase of water and wastewater taps in exchange for our obligation to construct the
Wholesale Facilities,
 (ii)
    
    The establishment of payment terms, timing, capacity and location of Special Facilities (if
any), and
 (iii)
    
    Specific terms related to our provision of ongoing water and wastewater services.
 Item 1A  Risk Factors  Lowry Range
 Employees
  Available Information and Website Address
 www.purecyclewater.com www.sec.gov/edgar/searchedgar/companysearch.html 276720
 
 Item 1A  Risk Factors
  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.
   13




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##### Table of Contents



Lowry Range
 Item 1  Business
    Sky Ranch
  The Colorado housing market and economic conditions could adversely affect our operations.
   14




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We are involved in on-going discussion with the Land Board to clarify our rights and obligations
with respect to our Rangeview Water Supply and such negotiations may not be successful.
  In order to utilize the Arkansas River water acquired in fiscal 2006, we must apply for a change of
use with the Water Court and this may take several years to complete.
  We may not be able to obtain sufficient capital to develop our water rights, in particular the
Arkansas River water.
  Our valuation of the Tap Participation Fee payable to HP A&M contains estimates and management
assumptions. The actual results could differ significantly from those estimates.
  In the event of default by HP A&M on any of the promissory notes secured by deeds of trust on our
properties, we would be required to cure the defaults or lose the properties.
   15




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##### Table of Contents



Our net losses may continue and we may not have sufficient liquidity to pursue our business
objectives.
  The rates we are allowed to charge customers on the Lowry Range are limited by the Lease with the
Land Board and our contract with the District and may not be sufficient to cover our costs of
construction and operation.
  We have three full time employees and may not be able to manage the increasing demands of our
expanding operations.
  We may be adversely affected by any future decision by the Colorado Public Utilities Commission to
regulate us as a public utility.
    16




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There are many obstacles to our ability to sell our Paradise Water Supply.
   Conflicts of interest may arise relating to the operation of the District.
  We are required to maintain stringent water quality standards and are subject to regulatory and
environmental risks.
    17




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##### Table of Contents



Our contracts for the construction of water and wastewater projects may expose us to certain
completion and performance risks.
       Our business is subject to seasonal fluctuations, which could affect demand for our water service
and our revenues.
   18




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##### Table of Contents



Weather conditions and overuse may interfere with our sources of water, demand for water services,
and our ability to supply water to our customers.
  
 Item 1B  Unresolved Staff Comments
  
 Item 2  Properties
  Item
1  Our Water Assets
 Item 1  Our
Water Assets  Arkansas River Water
 
 Item 3  Legal Proceedings
  
 Item 4  Submission of Matters to a Vote of Security Holders
   19




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PART II
 
 Item 5  Market for Registrants Common Equity, Related Stockholder  Matters and Issuer Purchases of Equity Securities
 (a) Market Information
  (b) Holders
  (c) Dividends
  (d) Securities authorized for issuance under equity compensation plans
  Number of securities remainingNumber of securities to
    
    
    Weighted-average
    
    
    available for future issuancebe issued upon exercise
    
    
    exercise price of
    
    
    under equity compensationof outstanding options,
    
    
    outstanding options,
    
    
    plans (excluding securitiesPlan category
    
    warrants and rights
    
    
    warrants and rights
    
    
    reflected in column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation plans approved by
security holders
    
    
    250,000
    
    
    $
    6.40
    
    
    
    1,350,000Equity compensation plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    250,000
    
    
    $
    6.40
    
    
    
    1,350,000
  20




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##### Table of Contents



(e) Performance Graph 1
 2
 2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Pure Cycle Corporation
    
    $
    40.37
    
    
    $
    75.03
    
    
    $
    94.91
    
    
    $
    102.73
    
    
    $
    91.30
    
    
    $
    100.00S&P 500
    
    $
    102.50
    
    
    $
    125.38
    
    
    $
    141.11
    
    
    $
    122.56
    
    
    $
    112.56
    
    
    $
    100.00Peer Group
    
    $
    128.78
    
    
    $
    138.03
    
    
    $
    157.15
    
    
    $
    150.39
    
    
    $
    149.38
    
    
    $
    100.00
 
 
 1.
    
    This performance graph is not soliciting material, is not deemed filed with the
Commission and is not to be incorporated by reference in any of our filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
whether made before or after the date hereof and irrespective of any general incorporation
language in any such filing.2.
    
    The Peer Group consists of the following companies that have been selected on the basis
of industry focus or industry leadership: American States Water Company, Aqua America,
Inc., Artesian Resources Corp., California Water Service Group, Connecticut Water Service,
Inc., Middlesex Water Company, Pennichuck Corp., SJW Corp., and The York Water Company. (f) Recent Sales of Unregistered Securities
   21




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##### Table of Contents



Item 6  Selected Financial Data
  For the Fiscal Years Ended August 31,In thousands (except per share data)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006 *
    
    
    2005Summary Statement of Operations items:Total revenues
    
    $
    260.2
    
    
    $
    282.4
    
    
    $
    265.7
    
    
    $
    271.7
    
    
    $
    234.7Net loss
    
    $
    (5,728.1
    )
    
    $
    (6,926.7
    )
    
    $
    (6,914.7
    )
    
    $
    (792.9
    )
    
    $
    (1,050.9
    )Basic and diluted loss per share
    
    $
    (0.28
    )
    
    $
    (0.34
    )
    
    $
    (0.37
    )
    
    $
    (0.05
    )
    
    $
    (0.08
    )Weighted average shares outstanding
    
    
    20,207
    
    
    
    20,189
    
    
    
    18,590
    
    
    
    14,694
    
    
    
    13,674
 As of August 31,2009
    
    
    2008
    
    
    2007
    
    
    2006 *
    
    
    2005Summary Balance Sheet Information:Current assets
    
    $
    3,990.4
    
    
    $
    5,502.2
    
    
    $
    7,288.4
    
    
    $
    3,121.4
    
    
    $
    5,740.3Total assets
    
    $
    108,091.1
    
    
    $
    109,899.4
    
    
    $
    111,891.9
    
    
    $
    108,833.9
    
    
    $
    26,046.5Current liabilities
    
    $
    138.1
    
    
    $
    163.9
    
    
    $
    183.3
    
    
    $
    380.1
    
    
    $
    689.4Long term liabilities
    
    $
    60,183.8
    
    
    $
    56,567.8
    
    
    $
    53,863.8
    
    
    $
    53,789.1
    
    
    $
    10,004.3Total liabilities
    
    $
    60,321.9
    
    
    $
    56,731.6
    
    
    $
    54,047.1
    
    
    $
    54,169.2
    
    
    $
    10,693.7Equity
    
    $
    47,769.2
    
    
    $
    53,167.8
    
    
    $
    57,844.8
    
    
    $
    54,664.7
    
    
    $
    15,352.7
 *
    
    As restated   
    
    In fiscal 2009, 2008 and 2007, respectively, we imputed approximately $3.7 million, $4.4
million and $4.7 million of interest related to the Tap Participation Fee payable to HP A&M
(explained further in Note 8 to the accompanying financing statements).
 
    
    In fiscal 2009, we recognized gains on the sale of non-irrigated land totaling
approximately $59,700.
 
    
    In fiscal 2008 and 2007, respectively, we recognized approximately $273,700 of losses and
$1.04 million of gains related to the acquisition of certain CAA interests (explained further
in Note 6 to the accompanying financial statements). In the 2007 acquisitions, certain of the
parties were deemed related to the Company and therefore, approximately $765,100 of this gain
was recorded as a contribution of capital in fiscal 2007. The remaining $271,100 of gain is
included in the statement of operations.
 
    
    In fiscal 2006, we acquired water and real property interests in the Arkansas River Valley.
The consideration for these assets consisted of equity valued at approximately $36.2 million,
and a Tap Participation Fee agreement valued at approximately $45.7 million (at August 31,
2006), which is payable when we sell water taps. The total consideration of approximately
$81.9 million was allocated to the acquired assets based on each assets relative fair value.
 
    
    In fiscal 2006, we recognized $390,900 of gain related to the extinguishment of debt and
the acquisition of certain CAA interests.
  22




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Item 7  Managements Discussion and Analysis of Financial Condition and Results of Operation
 Overview
 The discussion and analysis below includes certain forward-looking statements that are subject to
risks, uncertainties and other factors, as described in Risk Factors and elsewhere in this Annual
Report on Form 10-K, that could cause our actual growth, results of operations, performance,
financial position and business prospects and opportunities for this fiscal year and the periods
that follow to differ materially from those expressed in, or implied by, those forward-looking
statements. Readers are cautioned that forward-looking statements contained in this Form 10-K
should be read in conjunction with our disclosure under the heading: SAFE HARBOR STATEMENT UNDER
THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 on page 4.
 Part II, Item 8
 
    
    Revenue generated from providing water and wastewater services;
 
    
    Expenses associated with developing our water assets; and
 
    
    Cash available to continue development of our water rights and service agreements.
  Our Business  a general description of our business, our services and our business
strategy.
 Critical Accounting Policies and Estimates  a discussion of our critical accounting
policies that require critical judgments, assumptions and estimates.
 Results of Operations  analysis of our results of operations for the three fiscal years
presented in our financial statements. We present our discussion in the MD&A in conjunction with
the accompanying Financial Statements.
 Liquidity, Capital Resources and Financial Position  an analysis of our cash position and
cash flows, as well as a discussion of our financing arrangements.
 Our Business
 Critical Accounting Policies and Use of Estimates
  23




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##### Table of Contents



Critical Accounting Policies and Use of Estimates
   Revenue Recognition
   Impairment of Water Assets and Other Long-Lived Assets
     24




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##### Table of Contents



Our Front Range and Arkansas River Water Rights
   Our Paradise Water Rights
   Tap Participation Fee
   25




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##### Table of Contents



Obligations Payable by HP A&M
  Share-based compensation
  Results of operations
 Executive Summary
   ChangeFiscal Years Ended August 31,
    
    
    2009-2008
    
    
    2008-20072009
    
    
    2008
    
    
    2007
    
    
    $
    
    
    %
    
    
    $
    
    
    %Millions of gallons of water delivered
    
    
    33.9
    
    
    
    42.8
    
    
    
    44.4
    
    
    
    (8.9
    )
    
    
    -21
    %
    
    
    (1.6
    )
    
    
    -4
    %Water revenues generated
    
    $
    137,400
    
    
    $
    159,600
    
    
    $
    149,500
    
    
    $
    (22,200
    )
    
    
    -14
    %
    
    $
    10,100
    
    
    
    7
    %Water delivery operating costs incurred
(excluding depreciation and depletion)
    
    $
    54,700
    
    
    $
    58,600
    
    
    $
    54,600
    
    
    $
    (3,900
    )
    
    
    -7
    %
    
    $
    4,000
    
    
    
    7
    %Water delivery gross margin %
    
    
    60
    %
    
    
    63
    %
    
    
    63
    %Wastewater treatment revenues
    
    $
    67,000
    
    
    $
    67,000
    
    
    $
    60,300
    
    
    $
    
    
    
    
    0
    %

    
    $
    6,700
    
    
    
    11
    %Wastewater treatment operating costs incurred
    
    $
    20,200
    
    
    $
    18,900
    
    
    $
    22,800
    
    
    $
    1,300
    
    
    
    7
    %
    
    $
    (3,900
    )
    
    
    -17
    %Wastewater treatment gross margin %
    
    
    70
    %
    
    
    72
    %
    
    
    62
    %General and administrative expenses
    
    $
    1,942,200
    
    
    $
    2,316,800
    
    
    $
    2,476,500
    
    
    $
    (374,600
    )
    
    
    -16
    %
    
    $
    (159,700
    )
    
    
    -6
    %Net losses
    
    $
    5,728,100
    
    
    $
    6,926,700
    
    
    $
    6,914,700
    
    
    $
    (1,198,600
    )
    
    
    -17
    %
    
    $
    12,000
    
    
    
    0
    %
  26




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##### Table of Contents



Water and Wastewater Usage Revenues
 Item 1  Business
  Fiscal 2009 compared to fiscal 2008
     Fiscal 2008 compared to fiscal 2007
    General and Administrative and Other Expenses
   ChangeFiscal Years Ended August 31,
    
    
    2009-2008
    
    
    2008-20072009
    
    
    2008
    
    
    2007
    
    
    $
    
    
    %
    
    
    $
    
    
    %G&A expenses as reported
    
    $
    1,942,200
    
    
    $
    2,316,300
    
    
    $
    2,476,500
    
    
    $
    (374,100
    )
    
    
    16
    %
    
    $
    (160,200
    )
    
    
    6
    %Share-based compensation expenses
    
    
    (325,500
    )
    
    
    (351,500
    )
    
    
    (287,300
    )
    
    
    26,000
    
    
    
    -7
    %
    
    
    (64,200
    )
    
    
    22
    %G&A expenses less share-based
compensation expenses
    
    $
    1,616,700
    
    
    $
    1,964,800
    
    
    $
    2,189,200
    
    
    $
    (348,100
    )
    
    
    18
    %
    
    $
    (224,400
    )
    
    
    10
    %
  27




---



##### Table of Contents



Fiscal 2009 compared to fiscal 2008
  
    
    Excluding share-based compensation expenses our salary and salary related expenses in
fiscal 2009 and 2008 were $465,800 and $463,900, respectively, which is less than a 5%
change. Salary and salary related expenses including share-based compensation expenses
totaled approximately $791,300 and $815,400 for the fiscal years ended August 31, 2009 and
2008, respectively. This decrease is less than 5%.
 
    
    Consulting fees decreased approximately $143,900, or 63%, from approximately $227,600 in
fiscal 2008 to approximately $83,700 in fiscal 2009. This was entirely due to the decrease
in use of consultants as a result of the withdrawal of the developer from the Lowry Range
development project.
 
    
    Professional fees (legal and accounting) decreased approximately $93,900, or 24%, from
approximately $386,000 in fiscal 2008 to approximately $292,100 in fiscal 2009. This is a
result of our reduced use of legal counsel as a result of the withdrawal of the developer
from the Lowry Range development project and less activity in Water Court.
 
    
    Costs associated with being a corporation and costs associated with being a publicly
traded entity decreased approximately $66,700, or 52%, from $127,900 in fiscal 2008 to
approximately $61,100 in fiscal 2009. This is due primarily to the elimination of
franchise fees paid to the State of Delaware due to our reincorporation into Colorado.
 Fiscal 2008 compared to fiscal 2007
  
    
    Excluding share-based compensation expenses our salary and salary related expenses in
fiscal 2008 and 2007 were $463,900 and $805,200, respectively, a decrease of $341,300 or
42%. Salary and salary related expenses including share-based compensation expenses
totaled approximately $815,400 and $1.1 million for the fiscal years ended August 31, 2008
and 2007, respectively. The decrease in salaries is mainly attributable to management and
employee wages remaining unchanged in 2008 and there being no incentive compensation paid
in 2008 as compared to incentive compensation of $330,000 being paid in fiscal 2007 upon
the completion of the July 2007 equity offering.
 
    
    Professional fees (legal and accounting) totaled approximately $386,000 and $470,300,
for 2008 and 2007, respectively. This decrease of $84,300 is a result of legal and
accounting bills incurred in fiscal 2007 related to our consultations with the Staff of the
Commission which did not recur in 2008.
 
    
    Costs associated with being a corporation and costs associated with being a publicly
traded entity decreased approximately $92,900 from $220,800 in fiscal 2007 to approximately
$127,900 in fiscal 2008. This is due primarily to the elimination of franchise fees paid
to the State of Delaware due to our reincorporation into Colorado.
  
    
    During fiscal 2008 and 2007, we expensed approximately $330,500 and $255,900 related to
water assessment charges payable to the FLCC. This is an increase of $74,600, which is a
result of the FLCC increasing assessments for the current fiscal year. This represents our
share (based on the number of FLCC shares we own) of FLCCs annual operating and
maintenance expenditures. Additionally, in fiscal 2008 and 2007 we expensed approximately
$49,700 and $37,200, respectively, for work performed in the Arkansas River Valley on our
behalf by HP A&M. The increase is a result of increased salaries to the HP A&M farm
management personnel which resulted in an increase in our costs.
 
    
    We paid approximately $227,600 and $40,000 in consulting fees related to our discussions
with the former developer of the Lowry Range concerning the potential development of six
sections of the Lowry Range in fiscal 2008 and 2007, respectively.
  28




---



##### Table of Contents



Liquidity, capital resources and financial position
       29




---



##### Table of Contents



Operating Activities
       Investing Activities
    30




---



##### Table of Contents



Financing Activities
  Off-Balance Sheet Arrangements
  Recently Adopted and Issued Accounting Pronouncements
  Total Contractual Cash Obligations
  Payments due by periodLess than 1
    
    
    1-3
    
    
    3-5
    
    
    More than 5Total
    
    
    year
    
    
    years
    
    
    years
    
    
    yearsContractual obligationsOperating lease obligations
    
    $
    50,256
    
    
    $
    16,752
    
    
    $
    33,504
    
    
    
    (a)
    
    
    
    (a)Participating Interests in Export Water
    
    
    1,216,400
    
    
    
    (b)
    
    
    
    (b)
    
    
    
    (b)
    
    
    
    (b)Tap Participation Fee payable to HP A&M
    
    
    113,126,200
    
    
    
    (c)
    
    
    
    (c)
    
    
    
    (c)
    
    
    
    (c)Total
    
    $
    114,392,856
    
    
    $
    16,752
    
    
    $
    33,504
    
    
    $
    
    
    
    $
    
 (a)
    
    Our only operating lease is related to our office space. We signed this lease on August
27, 2009, it is a three year lease with monthly lease payments of approximately $1,400 per
month.(b)
    
    The participating interests liability is payable to the CAA holders upon the sale of Export
Water, and therefore, the timing of the payments is uncertain and not reflected in the above
table by period.(c)
    
    The Tap Participation Fee payable to HP A&M is payable upon the sale of water taps. Because
the timing of these water tap sales is not fixed and determinable, the estimated payments are
not reflected in the above table by period. The amount listed above includes an unamortized
discount of approximately $55.6 million. The valuation of the Tap Participation Fee payable
to HP A&M is a significant estimate based on available historic market information and
estimated future market information. Many factors are necessary to estimate future market
conditions, including but not limited to, supply and demand for new homes, population growth
along the Front Range, cash flows, tap fee increases at our rate-base districts, and other
market forces beyond our control. Because the estimates and assumptions used to value the Tap
Participation Fees payable to HP A&M are subjective, actual results could vary materially
from the estimates.  31




---



##### Table of Contents



Item 7A  Quantitative and Qualitative Disclosures About Market Risk
 General
 Balance
Sheets Statements of Operations Statements of Cash Flows
 Interest Rates
  
 Item 8  Financial Statements and Supplementary Data
 Index to Financial Statements and Supplementary Data
 PageReport of Independent Registered Public Accounting Firm
    
    
    33Balance Sheets
    
    
    34Statements of Operations
    
    
    35Statements of Shareholders Equity
    
    
    36Statements of Cash Flows
    
    
    37Notes to Financial Statements
    
    
    38Supplemental Data: Selected Quarterly Financial Information
    
    
    61
  32




---



##### Table of Contents



Internal ControlIntegrated Framework
    Internal ControlIntegrated Framework
  
  33




---



##### Table of Contents



August 31,2009
    
    
    2008ASSETS:Current assets:Cash and cash equivalents
    
    $
    705,083
    
    
    $
    5,238,973Marketable securities
    
    
    3,002,208
    
    
    
    Trade accounts receivable
    
    
    63,394
    
    
    
    71,401Prepaid expenses
    
    
    154,928
    
    
    
    127,018Current portion of construction proceeds receivable
    
    
    64,783
    
    
    
    64,783Total current assets
    
    
    3,990,396
    
    
    
    5,502,175Investments in water and water systems, net
    
    
    103,159,632
    
    
    
    103,346,623Construction proceeds receivable, less current portion
    
    
    414,494
    
    
    
    467,102Notes
receviable  related parties:Rangeview Metropolitan District, including accrued interest
    
    
    507,795
    
    
    
    494,799Well Enhancement and Recovery Systems, LLC
    
    
    2,171
    
    
    
    Assets held for sale
    
    
    
    
    
    
    77,940Investment in Well Enhancement and Recovery Systems, LLC
    
    
    
    
    
    
    2,759Property and equipment, net
    
    
    16,593
    
    
    
    8,005Total assets
    
    $
    108,091,081
    
    
    $
    109,899,403LIABILITIES:Current liabilities:Accounts payable
    
    $
    22,216
    
    
    $
    37,585Accrued liabilities
    
    
    60,080
    
    
    
    70,478Deferred revenues
    
    
    55,800
    
    
    
    55,800Total current liabilities
    
    
    138,096
    
    
    
    163,863Deferred revenues, less current portion
    
    
    1,446,108
    
    
    
    1,501,910Participating Interests in Export Water Supply
    
    
    1,216,360
    
    
    
    1,217,876Tap Participation Fee payable to HP A&M,
net of $55.6 million and $54.6 million discount
    
    
    57,521,329
    
    
    
    53,848,000Total liabilities
    
    
    60,321,893
    
    
    
    56,731,649Commitments and ContingenciesSHAREHOLDERS EQUITY:Preferred stock:Series B  par value $.001 per share, 25 million shares authorized;
432,513 shares issued and outstanding
(liquidation preference of $432,513)
    
    
    433
    
    
    
    433Common stock:Par value 1/3 of $.01 per share, 40 million shares authorized;
20,206,566 shares outstanding
    
    
    67,360
    
    
    
    67,360Additional paid-in capital
    
    
    92,253,916
    
    
    
    91,928,398Accumulated comprehensive income
    
    
    3,986
    
    
    
    Accumulated deficit
    
    
    (44,556,507
    )
    
    
    (38,828,437
    )Total shareholders equity
    
    
    47,769,188
    
    
    
    53,167,754Total liabilities and shareholders equity
    
    $
    108,091,081
    
    
    $
    109,899,403
   34




---



##### Table of Contents



For the Fiscal Years Ended August 31,2009
    
    
    2008
    
    
    2007Revenues:Metered water usage
    
    $
    137,431
    
    
    $
    159,649
    
    
    $
    149,539Wastewater treatment fees
    
    
    66,976
    
    
    
    66,976
    
    
    
    60,335Special facility funding recognized
    
    
    41,508
    
    
    
    41,508
    
    
    
    41,508Water tap fees recognized
    
    
    14,296
    
    
    
    14,296
    
    
    
    14,294Total revenues
    
    
    260,211
    
    
    
    282,429
    
    
    
    265,676Expenses:Water service operations
    
    
    (54,668
    )
    
    
    (58,576
    )
    
    
    (54,631
    )Wastewater service operations
    
    
    (20,162
    )
    
    
    (18,925
    )
    
    
    (22,817
    )Depletion and depreciation
    
    
    (88,576
    )
    
    
    (88,511
    )
    
    
    (87,739
    )Total cost of revenues
    
    
    (163,406
    )
    
    
    (166,012
    )
    
    
    (165,187
    )Gross margin
    
    
    96,805
    
    
    
    116,417
    
    
    
    100,489General and administrative expenses
    
    
    (1,942,225
    )
    
    
    (2,316,291
    )
    
    
    (2,476,462
    )Depreciation
    
    
    (293,113
    )
    
    
    (292,778
    )
    
    
    (278,360
    )Operating loss
    
    
    (2,138,533
    )
    
    
    (2,492,652
    )
    
    
    (2,654,333
    )Other income (expense):Interest income
    
    
    84,636
    
    
    
    283,590
    
    
    
    155,712Other
    
    
    7,099
    
    
    
    
    
    
    
    (Loss) gain on extinguishment of contingent obligations and debt
    
    
    
    
    
    
    (273,723
    )
    
    
    271,127(Loss) gain on sale of assets
    
    
    59,671
    
    
    
    (270
    )
    
    
    17,927(Loss) gain on sales of marketable securities
    
    
    
    
    
    
    (1,973
    )
    
    
    142Share of losses of Well Enhancement and Recovery Systems, LLC
    
    
    (7,943
    )
    
    
    (48,672
    )
    
    
    (35,569
    )Interest imputed on the Tap Participation Fees payable to HP A&M
    
    
    (3,733,000
    )
    
    
    (4,393,000
    )
    
    
    (4,669,742
    )Net loss
    
    $
    (5,728,070
    )
    
    $
    (6,926,700
    )
    
    $
    (6,914,736
    )Net loss per common share  basic and diluted
    
    $
    (0.28
    )
    
    $
    (0.34
    )
    
    $
    (0.37
    )Weighted average common shares outstanding  basic and diluted
    
    
    20,206,566
    
    
    
    20,188,675
    
    
    
    18,589,737
   35




---



##### Table of Contents



Additional
    
    
    AccumulatedPreferred Stock
    
    
    Common Stock
    
    
    Treasury Stock
    
    
    Paid-in
    
    
    Comprehensive
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income (loss)
    
    
    Deficit
    
    
    TotalAugust 31, 2006 balance:
    
    
    432,513
    
    
    $
    433
    
    
    
    18,479,113
    
    
    $
    61,602
    
    
    
    (130,279
    )
    
    $
    (1,009,534
    )
    
    $
    80,609,875
    
    
    $
    (10,654
    )
    
    $
    (24,987,001
    )
    
    $
    54,664,721CAA acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    765,071
    
    
    
    
    
    
    
    
    
    
    
    765,071Equity offering
(net of $275,000 of expenses)
    
    
    
    
    
    
    
    
    
    
    1,200,000
    
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    9,020,608
    
    
    
    
    
    
    
    
    
    
    
    9,024,608Options exercised
    
    
    
    
    
    
    
    
    
    
    538,836
    
    
    
    1,796
    
    
    
    (126,521
    )
    
    
    (969,913
    )
    
    
    968,117
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock grant
    
    
    
    
    
    
    
    
    
    
    34,189
    
    
    
    114
    
    
    
    
    
    
    
    
    
    
    
    (114
    )
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    287,340
    
    
    
    
    
    
    
    
    
    
    
    287,340Unrealized gain on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,822
    
    
    
    
    
    
    
    17,822Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,914,736
    )
    
    
    (6,914,736
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,896,914
    )August 31, 2007 balance:
    
    
    432,513
    
    
    
    433
    
    
    
    20,252,138
    
    
    
    67,512
    
    
    
    (256,800
    )
    
    
    (1,979,447
    )
    
    
    91,650,897
    
    
    
    7,168
    
    
    
    (31,901,737
    )
    
    
    57,844,826CAA acquisition
    
    
    
    
    
    
    
    
    
    
    211,228
    
    
    
    704
    
    
    
    
    
    
    
    
    
    
    
    1,904,573
    
    
    
    
    
    
    
    
    
    
    
    1,905,277Retirement of treasury stock
    
    
    
    
    
    
    
    
    
    
    (256,800
    )
    
    
    (856
    )
    
    
    256,800
    
    
    
    1,979,447
    
    
    
    (1,978,591
    )
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    351,519
    
    
    
    
    
    
    
    
    
    
    
    351,519Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,168
    )
    
    
    
    
    
    
    (7,168
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,926,700
    )
    
    
    (6,926,700
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,933,868
    )August 31, 2008 balance:
    
    
    432,513
    
    
    
    433
    
    
    
    20,206,566
    
    
    
    67,360
    
    
    
    
    
    
    
    
    
    
    
    91,928,398
    
    
    
    
    
    
    
    (38,828,437
    )
    
    
    53,167,754Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    325,518
    
    
    
    
    
    
    
    
    
    
    
    325,518Unrealized gain on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,986
    
    
    
    
    
    
    
    3,986Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,728,070
    )
    
    
    (5,728,070
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,724,084
    )August 31, 2009 balance:
    
    
    432,513
    
    
    $
    433
    
    
    
    20,206,566
    
    
    $
    67,360
    
    
    
    
    
    
    $
    
    
    
    $
    92,253,916
    
    
    $
    3,986
    
    
    $
    (44,556,507
    )
    
    $
    47,769,188
   36




---



##### Table of Contents



For the Fiscal Years Ended August 31,2009
    
    
    2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (5,728,070
    )
    
    $
    (6,926,700
    )
    
    $
    (6,914,736
    )Adjustments to reconcile net loss to net cash
used for operating activities:Imputed interest on Tap Participation Fees payable to HP A&M
    
    
    3,733,000
    
    
    
    4,393,000
    
    
    
    4,669,742Depreciation, depletion and other non-cash items
    
    
    383,206
    
    
    
    382,648
    
    
    
    368,960Share-based compensation expense included with
general and administrative expenses
    
    
    325,518
    
    
    
    351,519
    
    
    
    287,340Share of losses of Well Enhancement and Recovery Systems, LLC
    
    
    7,943
    
    
    
    48,672
    
    
    
    35,569Loss (gain) on extinguishment of contingent obligations and debt
    
    
    
    
    
    
    273,723
    
    
    
    (271,127
    )Loss (gain) on sales of marketable securities
    
    
    
    
    
    
    1,973
    
    
    
    (142
    )(Gain) loss on sale of fixed assets
    
    
    (59,671
    )
    
    
    270
    
    
    
    (17,927
    )Interest added to note receivable  related parties:Rangeview Metropolitan District
    
    
    (12,996
    )
    
    
    (19,065
    )
    
    
    (23,504
    )Well Enhancement and Recovery Systems, LLC
    
    
    (355
    )
    
    
    
    
    
    
    Interest added to construction proceeds receivable
    
    
    (29,588
    )
    
    
    (30,906
    )
    
    
    (49,877
    )Changes in operating assets and liabilities:Trade accounts receivable
    
    
    8,007
    
    
    
    (1,184
    )
    
    
    (4,797
    )Interest receivable and prepaid expenses
    
    
    (27,910
    )
    
    
    131,535
    
    
    
    (170,849
    )Accounts payable and accrued liabilities
    
    
    (25,767
    )
    
    
    7,088
    
    
    
    (223,271
    )Deferred revenues
    
    
    (55,802
    )
    
    
    (55,801
    )
    
    
    (55,804
    )Net cash used for operating activities
    
    
    (1,482,485
    )
    
    
    (1,443,228
    )
    
    
    (2,370,423
    )Cash flows from investing activities:Sale of property and equipment
    
    
    59,671
    
    
    
    1,000
    
    
    
    19,250Issuance of note to Well Enhancement and Recovery Systems, LLC
    
    
    (7,000
    )
    
    
    
    
    
    
    Purchase of property and equipment
    
    
    (14,992
    )
    
    
    (7,547
    )
    
    
    (3,003
    )Investments in water and water systems
    
    
    (110,354
    )
    
    
    (270,998
    )
    
    
    (46,983
    )Purchase of marketable securities
    
    
    (2,998,222
    )
    
    
    
    
    
    
    (208,101
    )Sales and maturities of marketable securities
    
    
    
    
    
    
    790,661
    
    
    
    1,955,669Sale of LAWMA shares
    
    
    
    
    
    
    
    
    
    
    849,742Capitalized acquisition costs
    
    
    
    
    
    
    
    
    
    
    (37,600
    )Investment in Well Enhancement and Recovery Systems LLC
    
    
    
    
    
    
    (47,000
    )
    
    
    (40,000
    )Net cash (used) provided by investing activities
    
    
    (3,070,897
    )
    
    
    466,116
    
    
    
    2,488,974Cash flows from financing activities:Arapahoe County construction proceeds
    
    
    82,196
    
    
    
    150,518
    
    
    
    57,330Payments to contingent liability holders
    
    
    (3,033
    )
    
    
    (2,966
    )
    
    
    (4,516
    )Tap Participation Fee payments to HP A&M
    
    
    (59,671
    )
    
    
    
    
    
    
    (849,742
    )Proceeds from the sale of common and preferred stock, net
    
    
    
    
    
    
    
    
    
    
    9,024,608Payments to purchase contingent liabilities
    
    
    
    
    
    
    
    
    
    
    (2,625,225
    )Payments on long-term debt  related parties
    
    
    
    
    
    
    (26,542
    )
    
    
    Net cash provided by financing activities
    
    
    19,492
    
    
    
    121,010
    
    
    
    5,602,455Net change in cash and cash equivalents
    
    
    (4,533,890
    )
    
    
    (856,102
    )
    
    
    5,721,006Cash and cash equivalents  beginning of year
    
    
    5,238,973
    
    
    
    6,095,075
    
    
    
    374,069Cash and cash equivalents  end of year
    
    $
    705,083
    
    
    $
    5,238,973
    
    
    $
    6,095,075
   37




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##### Table of Contents



ORGANIZATION
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Revenue Recognition
  (i)
    
    water and wastewater tap fees,
 (ii)
    
    construction fees, and
 (iii)
    
    monthly water usage fees and wastewater service fees.
  Tap and Construction Fees
     38




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##### Table of Contents



Monthly Usage and Service Fees
    Use of Estimates
  Cash and Cash Equivalents
   39




---



##### Table of Contents



Financial Instruments  Concentration of Credit Risk and Fair Value
  Cash Flows
  Marketable Securities
     Accounts receivable
  Long-Lived Assets
  Water and Wastewater Systems
   40




---



##### Table of Contents



Depletion and Depreciation of Water Assets
  Share-based Compensation
   Income Taxes
    Loss per Common Share
   41




---



##### Table of Contents



Recently Issued Accounting Pronouncements
  The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles  a replacement of FASB Statement No. 162
 Amendments to FASB Interpretation No. 46(R)
 Noncontrolling Interest in Consolidated Financial
Statements, an amendment of ARB No. 51
 Reclassifications
  FAIR VALUE MEASUREMENTS
       42




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##### Table of Contents



Level 2 Asset  Marketable Securities Measured on a Recurring Basis
   Level 3 Liability  Tap Participation Fee Payable to HP A&M
   Fair Value Measurement Using:Quoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    Significant
    
    
    TotalMarkets for
    
    
    Observable
    
    
    Unobservable
    
    
    UnrealizedIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Gains andCarrying Value
    
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    LossesMarketable securities
    
    $
    3,002,208
    
    
    $
    3,002,208
    
    
    $
    
    
    
    $
    3,002,208
    
    
    $
    
    
    
    $
    3,986Tap Participation Fee liability
    
    $
    57,521,329
    
    
    $
    57,521,329
    
    
    $
    
    
    
    $
    
    
    
    $
    57,521,329
    
    
    $
    
  Fair Value Measurement at August 31 using SignificantUnobservable Inputs (Level 3)Discount  to beimputed asGross Estimated
    
    
    Tap Participation
    
    
    interest expenseTap Participation
    
    
    Fee Reported
    
    
    in futureFee Liability
    
    
    Liability
    
    
    periodsBalance at August 31, 2008
    
    $
    108,449,321
    
    
    $
    53,848,000
    
    
    $
    54,601,321Total gains and losses (realized and unrealized):Imputed interest recorded as Other Expense
    
    
    
    
    
    
    3,733,000
    
    
    
    (3,733,000
    )Increase in estimated value (to be realized in future periods)
    
    
    4,758,038
    
    
    
    
    
    
    
    4,758,038Purchases, sales, issuances, payments, and settlements
    
    
    (59,671
    )
    
    
    (59,671
    )
    
    
    Transfers in and/or out of Level 3
    
    
    
    
    
    
    
    
    
    
    Balance at August 31, 2009
    
    $
    113,147,688
    
    
    $
    57,521,329
    
    
    $
    55,626,359
  Cash and Cash Equivalents
  43




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##### Table of Contents



Accounts Receivable and Accounts Payable
 Notes Receivable and Construction Proceeds Receivable
 Off-Balance Sheet Instruments
 WATER ASSETS
  2009
    
    
    2008Accumulated
    
    
    
    
    
    
    AccumulatedDepreciation
    
    
    
    
    
    
    DepreciationCosts
    
    
    and Depletion
    
    
    Costs
    
    
    and DepletionArkansas River Valley assets
    
    $
    81,241,428
    
    
    $
    (823,660
    )
    
    $
    81,232,769
    
    
    $
    (544,126
    )Rangeview water supply
    
    
    14,271,786
    
    
    
    (5,544
    )
    
    
    14,192,298
    
    
    
    (5,034
    )Rangeview water system
    
    
    167,720
    
    
    
    (51,978
    )
    
    
    167,720
    
    
    
    (46,785
    )Paradise water supply
    
    
    5,532,619
    
    
    
    
    
    
    
    5,528,818Fairgrounds water and water system
    
    
    2,899,863
    
    
    
    (270,317
    )
    
    
    2,899,863
    
    
    
    (182,252
    )Sky Ranch water supply
    
    
    100,000
    
    
    
    
    
    
    
    100,000LAWMA Shares (reported as held for saleat August 31, 2008)
    
    
    77,940
    
    
    
    
    
    
    
    
    
    
    
    Water supply  other
    
    
    23,713
    
    
    
    (3,938
    )
    
    
    5,307
    
    
    
    (1,955
    )Totals
    
    
    104,315,069
    
    
    
    (1,155,437
    )
    
    
    104,126,775
    
    
    
    (780,152
    )Net investments in water and water systems
    
    $
    103,159,632
    
    
    
    
    
    
    $
    103,346,623
 Depletion and Depreciation
    44




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##### Table of Contents



Arkansas River Valley Assets
 Arkansas River Water
   Land
  Sale of non-irrigated land
  45




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##### Table of Contents



Fort Lyon Canal Company (FLCC) Shares
  Lower Arkansas Water Management Association (LAWMA) Shares
 Investments in Water and water systems
 Non-Solicitation Agreement
 Rangeview Water Supply and Water System
   (i)
    
    The District entered into the Amended and Restated Lease Agreement with the Land Board,
which owns the Lowry Range;
 (ii)
    
    The Company entered into the Agreement for Sale of Export Water with the District, a
quasi-municipal political subdivision of the State of Colorado; and
 (iii)
    
    The Company entered into the Service Agreement with the District for the provision of water
service to the Lowry Range (collectively these agreements are referred to as the Rangeview
Water Agreements).
  46




---



##### Table of Contents



Paradise Water Supply
    47




---



##### Table of Contents



Arapahoe County Fairgrounds Agreement for Water Service
   (i)
    
    In August 2005, the County purchased water taps for 38.5 SFEs for $567,490, or $14,740 per
tap, which was used to construct the Wholesale Facilities. This was received by the Company
in August 2005, as follows:
 a.
    
    A cash payment of approximately $514,600, and
 b.
    
    The transfer of rights to 27 acre-feet of dedicated groundwater valued at
approximately $52,900.
 (ii)
    
    The County agreed to provide funding of approximately $1,245,200 for the Special Facilities.
This is being paid by the County as follows:
 a.
    
    An initial cash payment of approximately $397,000, which was received in August
2005,
 b.
    
    The transfer of approximately 294 acre-feet of water, valued at approximately
$206,000, with a cash payment of approximately $34,100, received in August 2008 (this
was initially 336 acre-feet of water valued at approximately $240,100 with no
additional cash payment, see discussion of the amendment to the County Agreement
below),
 c.
    
    The balance of approximately $607,900 in monthly payments over 10 years
(including interest at 6% per annum).
     48




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##### Table of Contents



Amendment to the County Agreement Construction proceeds receivable
 Sky Ranch Water Supply and Water Service Agreements
       49




---



##### Table of Contents



INVESTMENT IN WELL ENHANCEMENT AND RECOVERY SYSTEMS, LLC
  Investment in Well Enhancement and Recovery Systems, LLC
    Cash
    
    $
    4,200Accrued professional fees
    
    $
    1,800Notes payable  related parties, including accrued interest
    
    $
    21,300
  50




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##### Table of Contents



PARTICIPATING INTERESTS IN EXPORT WATER
   Participating Interests in Export Water Supply
     51




---



##### Table of Contents



Export Water
    
    
    Initial Export
    
    
    Total Potential
    
    
    ParticipatingProceeds
    
    
    Water Proceeds
    
    
    Third party
    
    
    InterestsReceived
    
    
    to Pure Cycle
    
    
    Obligation
    
    
    Liability
    
    
    ContingencyOriginal balances
    
    $
    
    
    
    $
    218,500
    
    
    $
    31,807,732
    
    
    $
    11,090,630
    
    
    $
    20,717,102Activity from inception until August 31, 2008:Acquisitions
    
    
    
    
    
    
    28,077,500
    
    
    
    (28,077,500
    )
    
    
    (9,789,983
    )
    
    
    (18,287,517
    )Option payments  Sky Ranch
and The Hills at Sky Ranch
    
    
    110,400
    
    
    
    (42,280
    )
    
    
    (68,120
    )
    
    
    (23,754
    )
    
    
    (44,366
    )Arapahoe County tap fees *
    
    
    532,968
    
    
    
    (373,078
    )
    
    
    (159,890
    )
    
    
    (55,754
    )
    
    
    (104,136
    )Export Water sale payments
    
    
    31,177
    
    
    
    (21,824
    )
    
    
    (9,353
    )
    
    
    (3,263
    )
    
    
    (6,090
    )Balance at August 31, 2008
    
    
    674,545
    
    
    
    27,858,818
    
    
    
    3,492,869
    
    
    
    1,217,876
    
    
    
    2,274,993Fiscal 2009 activity:Export Water sale payments
    
    
    14,485
    
    
    
    (10,140
    )
    
    
    (4,346
    )
    
    
    (1,516
    )
    
    
    (2,830
    )Balance at August 31, 2009
    
    $
    689,030
    
    
    $
    27,848,678
    
    
    $
    3,488,523
    
    
    $
    1,216,360
    
    
    $
    2,272,163
 *
    
    The Arapahoe County tap fees are less the $34,522 royalty payment to the Land Board.  ACCRUED LIABILITIES
  LONG-TERM DEBT AND OPERATING LEASE
   Tap Participation Fee payable to HP A&M
   52




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##### Table of Contents



(i)
    
    An increase in the overall future estimated Tap Participation Fee of approximately $4.7
million (from approximately $108.5 million to approximately $113.1 million);
 (ii)
    
    A decrease in the imputed effective interest rate from approximately 8.6% to approximately
6.3%; and
 (iii)
    
    A decrease in the imputed interest expense for the fiscal year ended August 31,
2009 of approximately $1.1 million, which equates to approximately $.05 per basic and diluted
share
     53




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##### Table of Contents



Promissory Notes Payable by HP A&M
   Operating Lease
  SHAREHOLDERS EQUITY
 Preferred Stock
  Equity Compensation Plan
   54




---



##### Table of Contents




    
    The grant date exercise price  is the closing market price of the Companys common stock
on the date of grant;
 
    
    Estimated option lives  based on historical experience with existing option holders;
 
    
    Estimated dividend rates  based on historical and anticipated dividends over the life of
the option;
 
    
    Life of the option  based on historical experience option grants have lives between 8 and
10 years;
 
    
    Risk-free interest rates  with maturities that approximate the expected life of the
options granted;
 
    
    Calculated stock price volatility  calculated over the expected life of the options
granted, which is calculated based on the weekly closing price of the Companys common stock
over a period equal to the expected life of the option; and
 
    
    Option exercise behaviors  based on actual and projected employee stock option exercises
and forfeitures.
     55




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##### Table of Contents



Weighted-Average
    
    
    ApproximateWeighted-
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Average
    
    
    Contractual
    
    
    InstrinsicOptions
    
    
    Exercise Price
    
    
    Term
    
    
    ValueOustanding at beginning of period
    
    
    155,000
    
    
    $
    8.50Granted
    
    
    95,000
    
    
    
    3.10Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    Outstanding at August 31, 2009
    
    
    250,000
    
    
    $
    6.43
    
    
    
    7.5
    
    
    
    *Options exercisable at August 31, 2009
    
    
    171,000
    
    
    $
    7.98
    
    
    
    6.5
    
    
    
    *
 *
    
    Intrinsic value less than zero  Weighted-Average GrantNumber of
    
    
    Date FairOptions
    
    
    ValueNon-vested options oustanding at beginning of period
    
    
    27,500
    
    
    $
    6.81Granted
    
    
    95,000
    
    
    
    2.67Vested
    
    
    (43,500
    )
    
    
    5.30Forfeited
    
    
    
    
    
    
    Non-vested options outstanding at August 31, 2009
    
    
    79,000
    
    
    $
    2.66
     56




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##### Table of Contents



Restricted Stock
  Weighted-averagegrant dateShares
    
    
    fair valueRestricted stock outstanding at August 31, 2008
    
    
    34,189
    
    
    $
    7.59Restricted stock granted, vested, released or forfeited
    
    
    
    
    
    
    Restricted stock outstanding at August 31, 2009
    
    
    34,189
    
    
    $
    7.59
  Warrants
  (i)
    
    The date all of the Export Water is sold or otherwise disposed of,
 (ii)
    
    The date the CAA is terminated with respect to the original holder of the warrant, or
 (iii)
    
    The date on which the Company makes the final payment pursuant to Section 2.1(r) of the CAA.
  Pledged Common Stock Owned by HP A&M
  Registration Rights Agreement
     57




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##### Table of Contents



Voting Rights Agreement
  Gain on Extinguishment of Related Party CAA Obligations and Debt
 Related Party Transactions
 SIGNIFICANT CUSTOMERS
  Accounts ReceivableAs of August 31,2009
    
    
    2008% of Total
    
    
    
    
    
    
    % of TotalReceivable
    
    
    Accounts
    
    
    Receivable
    
    
    AccountsBalance
    
    
    Receivable
    
    
    Balance
    
    
    ReceivableRidgeview Youth Services Center
    
    $
    51,800
    
    
    
    82
    %
    
    $
    59,600
    
    
    
    83
    %Schmidt Aggregates
    
    
    4,700
    
    
    
    7
    %
    
    
    4,200
    
    
    
    6
    %Combined
    
    $
    56,500
    
    
    
    89
    %
    
    $
    63,800
    
    
    
    89
    %
  Water and Wastewater RevenuesFor the Fiscal Years Ended August 31,2009
    
    
    2008
    
    
    2007% of Total
    
    
    
    
    
    
    % of Total
    
    
    
    
    
    
    % of TotalRevenues
    
    
    Revenues
    
    
    Revenues
    
    
    Revenues
    
    
    Revenues
    
    
    RevenuesRidgeview Youth Services Center
    
    $
    165,500
    
    
    
    64
    %
    
    $
    180,200
    
    
    
    64
    %
    
    $
    159,900
    
    
    
    60
    %Schmidt Aggregates
    
    
    18,100
    
    
    
    7
    %
    
    
    24,600
    
    
    
    9
    %
    
    
    30,100
    
    
    
    11
    %Combined
    
    $
    183,600
    
    
    
    71
    %
    
    $
    204,800
    
    
    
    73
    %
    
    $
    190,000
    
    
    
    72
    %
  58




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##### Table of Contents



INCOME TAXES
  For the Fiscal Years Ended August 31,2009
    
    
    2008Deferred tax assets:Net operating loss carryforwards
    
    $
    4,575,900
    
    
    $
    4,536,300Imputed interest on Tap Participation Fee payable to HP A&M
    
    
    4,772,800
    
    
    
    3,380,400Deferred
revenue
    
    
    352,100
    
    
    
    342,300Depreciation and depletion
    
    
    143,500
    
    
    
    85,900Loss in Well Enhancment LLC
    
    
    34,200
    
    
    
    31,400Other
    
    
    5,800
    
    
    
    5,200Valuation allowance
    
    
    (9,884,300
    )
    
    
    (8,381,500
    )Net deferred tax asset
    
    
    
    
    
    
    Deferred tax liabilities:Depreciation and depletion
    
    
    
    
    
    
    Net deferred assets
    
    $
    
    
    
    $
    
   For the Fiscal Years Ended August 31,2009
    
    
    2008
    
    
    2007Expected benefit from federal taxes at statutory rate of 34%
    
    $
    (1,947,500
    )
    
    $
    (2,355,100
    )
    
    $
    (2,351,000
    )State taxes, net of federal benefit
    
    
    (189,000
    )
    
    
    (228,600
    )
    
    
    (228,200
    )Expiration of net operating losses
    
    
    142,800
    
    
    
    117,600
    
    
    
    393,900Permanent differences
    
    
    121,900
    
    
    
    131,800
    
    
    
    (243,200
    )Change in valuation allowance
    
    
    1,871,800
    
    
    
    2,334,300
    
    
    
    2,428,500Total income tax expense / benefit
    
    $
    
    
    
    $
    
    
    
    $
    
   401(k) PLAN
   59




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##### Table of Contents



SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
 For the Fiscal Years Ended August 31,2009
    
    
    2008
    
    
    2007Increase in
estimated Tap
Participation Fee
liability and
related discount
    
    $
    4,758,038
    
    
    $
    3,867,321
    
    
    $
    Water rights
received from
Arapahoe County
which reduced the
Construction
proceeds receivable
balance
    
    $
    
    
    
    $
    206,005
    
    
    $
    Adjustment to
purchase price
relating to LAWMA
shares acquired
from HP A&M
    
    $
    
    
    
    $
    
    
    
    $
    927,682Treasury stock
accepted upon
exercise of stock
options with mature
shares used as
consideration
    
    $
    
    
    
    $
    
    
    
    $
    969,913Gain on
extinguishment of
related party debt
accounted for as
contributed capital
    
    $
    
    
    
    $
    
    
    
    $
    765,071
 RELATED PARTY TRANSACTIONS
       SUBSEQUENT EVENTS
   60




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##### Table of Contents



SUPPLEMENTAL DATA: SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited)
 In thousands, except per share amounts
    
    August 31
    
    
    May 31
    
    
    February 28
    
    
    November 30Fiscal 2009 quarters ended:Total revenues
    
    $
    79.8
    
    
    $
    62.5
    
    
    $
    54.1
    
    
    $
    63.8Gross margin
    
    $
    36.8
    
    
    $
    25.7
    
    
    $
    17.0
    
    
    $
    17.3Net loss
    
    $
    (1,289.5
    )
    
    $
    (1,325.2
    )
    
    $
    (1,401.3
    )
    
    $
    (1,712.1
    )Earnings per
share  basic and diluted
    
    $
    (0.06
    )
    
    $
    (0.07
    )
    
    $
    (0.07
    )
    
    $
    (0.08
    )Market price of common stockHigh
    
    $
    3.70
    
    
    $
    3.25
    
    
    $
    3.96
    
    
    $
    6.09Low
    
    $
    2.41
    
    
    $
    2.16
    
    
    $
    1.75
    
    
    $
    2.09
 August 31
    
    
    May 31
    
    
    February 28
    
    
    November 30Fiscal 2008 quarters ended:Total revenues
    
    $
    88.3
    
    
    $
    67.6
    
    
    $
    56.8
    
    
    $
    69.7Gross margin
    
    $
    40.8
    
    
    $
    31.3
    
    
    $
    16.0
    
    
    $
    28.3Net loss
    
    $
    (1,653.6
    )
    
    $
    (1,728.4
    )
    
    $
    (1,649.7
    )
    
    $
    (1,895.0
    )Earnings per
share  basic and diluted
    
    $
    (0.08
    )
    
    $
    (0.09
    )
    
    $
    (0.08
    )
    
    $
    (0.09
    )Market price of common stockHigh
    
    $
    6.75
    
    
    $
    6.80
    
    
    $
    8.99
    
    
    $
    9.37Low
    
    $
    5.11
    
    
    $
    5.04
    
    
    $
    6.49
    
    
    $
    7.35
   61




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##### Table of Contents



Item 9  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A  Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
   (b) Managements Report on Internal Control Over Financial Reporting
  
    
    Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
    
    Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of
America, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and
directors of the Company; and
    
    Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Companys
assets that could have a material effect on the financial statements.
    62




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Item 8. Financial Statements and
Supplementary Data
 (c) Changes in Internal Controls
  
 Item 9B  Other Information
  
 PART III
 
  
 PART IV
 
 Item 15  Exhibits and Financial Statement Schedules
  1.
    
    See Index to Financial Statements and Supplementary Data in Part II, Item 8 of this Form
10-K.2.
    
    Financial Statement Schedules: None3.
    
    Exhibits: The exhibits listed in the accompanying Index to Exhibits are filed or
incorporated by reference as part of this Form 10-K
 Index to Exhibits
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of
Incorporation  Incorporated by reference from Exhibit
3.1 to Amendment No. 2 to Registration Statement on Form SB-2, filed June 10, 2004,
Registration No. 333-1145683.2
    
    Amended and Restated Bylaws of
Registrant  Incorporated by reference from Exhibit 3.2 to
Amendment No. 2 to Registration Statement on Form SB-2, filed June 10, 2004, Registration
No. 333-114568.4.1
    
    Specimen Stock Certificate  Incorporated by reference to Registration Statement No. 2-62483.10.1
    
    Right of First Refusal Agreement dated August 12, 1992 between INCO Securities Corporation
and Richard F. Myers, Mark W. Harding, Thomas P. Clark, Thomas Lamm and Rowena Rogers.
Incorporated by Reference from Registration Statement on Form SB-2, filed April 19, 2004,
Registration No. 333-114568.10.2
    
    2004 Equity Incentive Plan. Incorporated by reference from Proxy Statement for Annual
Meeting held April 12, 2004. **
  63




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##### Table of Contents



Exhibit No.
    
    Description10.3
    
    Service Agreement, dated April 11, 1996, by and between Pure Cycle Corporation and the
Rangeview Metropolitan District. Incorporated by reference from Quarterly Report on Form
10-QSB for the period ended May 31, 1996.10.4
    
    Wastewater Service Agreement, dated January 22, 1997, by and between Pure Cycle Corporation
and the Rangeview Metropolitan District. Incorporated by reference from the Annual Report on
Form 10-KSB for the fiscal year ended August 31, 1998.10.5
    
    Comprehensive Amendment Agreement No. 1, dated April 11, 1996, by and among ISC, the
Company, the Bondholders, Gregory M. Morey, Newell Augur, Jr., Bill Peterson, Stuart
Sundlun, Alan C. Stormo, Beverlee A. Beardslee, Bradley Kent Beardslee, Robert Douglas
Beardslee, Asra Corporation, International Properties, Inc., and the Land Board.
Incorporated by reference from Quarterly Report on Form 10-QSB for the period ended May 31,
1996.10.6
    
    Agreement for Sale of Export Water dated April 11, 1996 by and among the Company and the
District. Incorporated by reference from Quarterly Report on Form 10-QSB for the fiscal
quarter ended May 31, 1996).10.7
    
    Water Service Agreement for the Sky Ranch PUD dated October 31, 2003 by and between Airpark
Metropolitan District, Icon Investors I, LLC, the Company and the District. Incorporated by
reference from Registration Statement on Form SB-2, filed April 19, 2004, Registration No.
333-114568.10.8
    
    Amendment to Water Service Agreement for the Sky Ranch PUD dated January 6, 2004.
Incorporated by Reference from Amendment No. 1 to Registration Statement on Form SB-2, filed
June 7, 2004, Registration No. 333-114568.10.9
    
    Amendment to Water Service Agreement for the Sky Ranch PUD dated January 30, 2004.
Incorporated by Reference from Amendment No. 1 to Registration Statement on Form SB-2, filed
June 7, 2004, Registration No. 333-114568.10.10
    
    Amendment to Water Service Agreement for the Sky Ranch PUD dated January 30, 2004 pertaining
to amendment of the Option Agreement for Export Water. Incorporated by Reference from
Amendment No. 1 to Registration Statement on Form SB-2, filed June 7, 2004, Registration No.
333-114568.10.11
    
    Corrected Amendment to Water Service Agreement for the Sky Ranch PUD dated March 5, 2004.
Incorporated by Reference from original Annual Report on Form 10-K for the fiscal year ended
August 31, 2007, filed November 21, 2006.10.12
    
    Amended and Restated Lease Agreement between the Land Board and the District dated April 4,
1996. Incorporated by Reference from Amendment No. 1 to Registration Statement on Form SB-2,
filed June 7, 2004, Registration No. 333-114568.10.13
    
    Bargain and Sale Deed among the Land Board, the District and the Company dated April 11,
1996. Incorporated by Reference from Amendment No. 1 to Registration Statement on Form SB-2,
filed June 7, 2004, Registration No. 333-114568.10.14
    
    Mortgage Deed, Security Agreement, and Financing Statement between the Land Board and the
Company dated April 11, 1996. Incorporated by Reference from Amendment No. 1 to Registration
Statement on Form SB-2, filed June 7, 2004, Registration No. 333-114568.10.15
    
    Water Service Agreement for the Hills at Sky Ranch Water dated May 14, 2004 among Icon Land
II, LLC, a Colorado limited liability company, the Company, and the District. Incorporated
by reference from the Current Report on Form 8-K filed with the SEC on May 21, 2004.
  64




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##### Table of Contents



Exhibit No.
    
    Description10.16
    
    Agreement for Water Service dated August 3, 2005 among Pure Cycle Corporation, Rangeview
Metropolitan District and Arapahoe County incorporated by reference from Form 8-K filed on
August 4, 2005.10.17
    
    Arkansas River Agreement dated May 10, 2006 among Pure Cycle Corporation and High Plains
A&M, LLC incorporated by reference from Form 8-K filed on May 16, 2006.10.18
    
    Amendment No. 1 to Agreement for Water Service dated August 25, 2008, between Pure Cycle
Corporation and Arapahoe County, incorporated by reference from Form 10-K for the
fiscal year ended August 31, 2008.14
    
    Code of Ethics as amended August 2, 2007, incorporated by reference from Form 10-K for the
fiscal year ended August 31, 2008.23.1
    
    Consent of GHP Horwath, P.C. *31.1
    
    Certification under Section 302 of the Sarbanes-Oxley Act of 2002. *32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *
 *
    
    Filed herewith**
    
    Indicates management contract or compensatory plan or arrangement in which directors or
executive officers are eligible to participate.  65




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##### Table of Contents



SIGNATURES
  PURE CYCLE CORPORATIONBy:
    
    /s/ Mark W. HardingMark W. Harding, President and Chief Financial OfficerNovember 13, 2009
  Signature
    
    Title
    
    Date/s/ Mark W. Harding
    
    President,
Chief Financial Officer and Director
    
    November 13, 2009Mark W. Harding
    
    (Principal
Executive Officer,
Principal Financial and Accounting
Officer)/s/ Harrison H. AugurHarrison H. Augur
    
    Chairman,
Director
    
    November 13, 2009/s/ Mark D. CampbellMark D. Campbell
    
    Director
    
    November 13, 2009/s/ Arthur G. Epker IIIArthur G. Epker III
    
    Director
    
    November 13, 2009/s/ Richard L. GuidoRichard L. Guido
    
    Director
    
    November 13, 2009/s/ Peter C. HowellPeter C. Howell
    
    Director
    
    November 13, 2009/s/ George M. MiddlemasGeorge M. Middlemas
    
    Director
    
    November 13, 2009
  66