##### 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, 2010
 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 8th Ave, Suite 201, Denver, CO 80203
    
    (303) 292-3456(Address of principal executive office) (Zip Code)
    
    (Registrants telephone number, including area code)
  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
 o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



Table of Contents
 Item
    
    
    
    PagePart I1.
    
    Business
    
    
    41A.
    
    Risk Factors
    
    
    121B.
    
    Unresolved Staff Comments
    
    
    172.
    
    Properties
    
    
    173.
    
    Legal Proceedings
    
    
    17Part II5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    176.
    
    Selected Financial Data
    
    
    207.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    207A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    298.
    
    Financial Statements and Supplementary Data
    
    
    309.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    319A.
    
    Controls and Procedures
    
    
    319B.
    
    Other Information
    
    
    32Part III10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    3211.
    
    Executive Compensation
    
    
    3212.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    3213.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    3214.
    
    Principal Accounting Fees and Services
    
    
    32Part IV15.
    
    Exhibits, Financial Statement Schedules
    
    
    32Signatures
    
    
    35Exhibit 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
     Our Water Assets
  - 3 -




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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, the term acre
feet is used to designate an annual decreed amount of 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 (see Retail Facilities below) 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.
 
    
    Non-tributary groundwater  water that is physically separated from surface water by
impermeable layers in an aquifer or located outside the boundaries of any designated
groundwater basin. The withdrawal of such water will not, within one hundred years of
continuous withdrawal, deplete the flow of a natural stream at an annual rate greater than
one-tenth of one percent of the annual rate of withdrawal.
 
    
    Not non-tributary groundwater  water located within those portions of the Dawson, Denver,
Arapahoe, and Laramie-Fox Hills aquifers that are outside the boundaries of any designated
groundwater basin, the withdrawal of which will, within one hundred years, deplete the flow of
a natural stream at an annual rate of greater than one-tenth of one percent of the annual rate
of withdrawal.
 
    
    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 equal to 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.
 
    
    Tributary groundwater  all water located in an aquifer that is hydrologically connected to
a natural stream and is not considered non-tributary or not non-tributary.
 
    
    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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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 Water Service Agreement between us and the District for the provision of water service
to the Districts Service Area.
   The Lowry Range Property
   Arkansas River Water and Land
   - 5 -




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Arapahoe County Fairgrounds Agreement for Water Service
   Sky Ranch Water Supply and Water Service Agreements
    - 6 -




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Paradise Water Supply
  Critical Accounting Policies
 Well Enhancement and Recovery Systems
 rd
 Revenues
  Water and Wastewater Tap Fees
    - 7 -




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2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Water tap fees per SFE
    
    $
    22,500
    
    
    $
    22,500
    
    
    $
    21,500
    
    
    $
    20,000
    
    
    $
    16,840Percentage Increase
    
    
    0.0
    %
    
    
    4.7
    %
    
    
    7.5
    %
    
    
    18.8
    %
    
    
    14.2
    %Percentage increase from 2006-2010
    
    
    34
    %
  Construction Fees
  Monthly Service Fees
   Price ($ per thousand gallons)Amount of consumption
    
    2010
    
    
    2009
    
    
    2008Base charge per SFE
    
    $
    27.62
    
    
    $
    25.11
    
    
    $
    25.110 gallons to 10,000 gallons
    
    $
    2.81
    
    
    $
    2.55
    
    
    $
    2.5510,001 gallons to 20,000 gallons
    
    $
    3.69
    
    
    $
    3.35
    
    
    $
    3.3520,001 gallons and above
    
    $
    6.56
    
    
    $
    5.96
    
    
    $
    5.96
     Land Board Royalties
   - 8 -




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##### Table of Contents



Lowry Range Customers
  Export Water Customers
   Royalty RatePrivate
    
    
    PublicNet Revenues
    
    Entity Buyer
    
    
    Entity Buyer$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
    %
 District Fees
  Tap Participation Fee
 Item 7  Managements Discussion and Analysis of Financial Condition and
Results of Operations: Critical Accounting Policies and Use of Estimates
 Significant Customer
   - 9 -




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Our Projected Operations
 Item 1A  Risk Factors
        - 10 -




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Rangeview Metropolitan District
  Water and Growth in Colorado
   Competition
  (i)
    
    The purchase of water and wastewater taps in exchange for our obligation to construct certain
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.
  - 11 -




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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 housing market and development in our targeted service areas for future
revenues.
    - 12 -




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Our construction of water and wastewater projects may expose us to certain completion, performance
and financial risks.
      Certain of our water rights are conditional decrees and require findings of reasonable diligence.
     - 13 -




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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 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.
   - 14 -




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In the event of default by HP A&M on the promissory notes secured by deeds of trust on our
properties, we would be required to cure the defaults or lose some of our properties and the water
rights associated with such properties.
  We have a limited number of 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.
   There are many obstacles to our ability to sell our Paradise Water Supply.
   - 15 -




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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.
    Our business is subject to seasonal fluctuations and weather conditions which could affect demand
for our water service and our revenues.
   - 16 -




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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
  
 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
 Item 7 -
Managements Discussion and Analysis of Financial Condition and Results of Operations)
  - 17 -




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(d) Securities authorized for issuance under equity compensation plans
  Number of securities remainingNumber of securities to be
    
    
    Weighted-average
    
    
    available for future issuance underissued upon exercise of
    
    
    exercise price of
    
    
    equity compensation plansoutstanding options,
    
    
    outstanding options,
    
    
    (excluding securities reflected inPlan category
    
    warrants and rights
    
    
    warrants and rights
    
    
    column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation plans:Approved by security holders
    
    
    262,500
    
    
    $
    6.26
    
    
    
    1,303,311Not approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    262,500
    
    
    $
    6.26
    
    
    
    1,303,311
 (e) Performance Graph 1
 2
  2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010Pure Cycle Corporation
    
    $
    100.00
    
    
    $
    112.52
    
    
    $
    103.95
    
    
    $
    82.18
    
    
    $
    44.22
    
    
    $
    40.95S&P 500
    
    $
    100.00
    
    
    $
    108.88
    
    
    $
    125.36
    
    
    $
    111.40
    
    
    $
    91.06
    
    
    $
    95.53Peer Group
    
    $
    100.00
    
    
    $
    100.68
    
    
    $
    105.20
    
    
    $
    92.40
    
    
    $
    86.21
    
    
    $
    96.37
 
 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.  - 18 -




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(f) Recent Sales of Unregistered Securities; use of proceeds from registered securities
  (g) Purchase of equity securities by the issuer and affiliated purchasers
   - 19 -




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Item 6  Selected Financial Data
  For the Fiscal Years Ended August 31,In thousands (except per share data)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006 *Summary Statement of Operations items:Total revenues
    
    $
    264.1
    
    
    $
    260.2
    
    
    $
    282.4
    
    
    $
    265.7
    
    
    $
    271.7Net loss
    
    $
    (5,391.3
    )
    
    $
    (5,728.1
    )
    
    $
    (6,926.7
    )
    
    $
    (6,914.7
    )
    
    $
    (792.9
    )Basic and diluted loss per share
    
    $
    (0.27
    )
    
    $
    (0.28
    )
    
    $
    (0.34
    )
    
    $
    (0.37
    )
    
    $
    (0.05
    )Weighted average shares outstanding
    
    
    20,207
    
    
    
    20,207
    
    
    
    20,189
    
    
    
    18,590
    
    
    
    14,694
 As of August 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006 *Summary Balance Sheet Information:Current assets
    
    $
    1,819.6
    
    
    $
    3,990.4
    
    
    $
    5,502.2
    
    
    $
    7,288.4
    
    
    $
    3,121.4Total assets
    
    $
    106,377.8
    
    
    $
    108,091.1
    
    
    $
    109,899.4
    
    
    $
    111,891.9
    
    
    $
    108,833.9Current liabilities
    
    $
    171.3
    
    
    $
    138.1
    
    
    $
    163.9
    
    
    $
    183.3
    
    
    $
    380.1Long term liabilities
    
    $
    63,746.5
    
    
    $
    60,183.8
    
    
    $
    56,567.8
    
    
    $
    53,863.8
    
    
    $
    53,789.1Total liabilities
    
    $
    63,917.8
    
    
    $
    60,321.9
    
    
    $
    56,731.6
    
    
    $
    54,047.1
    
    
    $
    54,169.2Equity
    
    $
    42,460.0
    
    
    $
    47,769.2
    
    
    $
    53,167.8
    
    
    $
    57,844.8
    
    
    $
    54,664.7
 *
    
    As restated   
    
    In fiscal 2010, 2009, 2008 and 2007, respectively, we imputed approximately $3.6 million,
$3.7 million, $4.4 million and $4.7 million of interest related to the Tap Participation Fee
payable to HP A&M.
 
    
    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 5 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.
 
 Item 7  Managements Discussion and Analysis of Financial Condition and Results of
Operations
 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.
  - 20 -




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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an 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
   Revenue Recognition
   - 21 -




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Impairment of Water Assets and Other Long-Lived Assets
    Our Front Range and Arkansas River Water Rights
    - 22 -




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Our Paradise Water Rights
   Tap Participation Fee
  Obligations Payable by HP A&M
   - 23 -




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Share-based compensation
  Results of operations
 Executive Summary
   ChangeFiscal Years Ended August 31,
    
    
    2010-2009
    
    
    2009-20082010
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    $
    
    
    %Millions of gallons of water delivered
    
    
    33.1
    
    
    
    33.9
    
    
    
    42.8
    
    
    
    (0.8
    )
    
    
    -2
    %
    
    
    (8.9
    )
    
    
    -21
    %Water revenues generated
    
    $
    140,700
    
    
    $
    137,400
    
    
    $
    159,600
    
    
    $
    3,300
    
    
    
    2
    %
    
    $
    (22,200
    )
    
    
    -14
    %Water delivery operating costs incurred
(excluding depreciation and depletion)
    
    $
    52,400
    
    
    $
    54,700
    
    
    $
    58,600
    
    
    $
    (2,300
    )
    
    
    -4
    %
    
    $
    (3,900
    )
    
    
    -7
    %Water delivery gross margin %
    
    
    63
    %
    
    
    60
    %
    
    
    63
    %Wastewater treatment revenues
    
    $
    67,600
    
    
    $
    67,000
    
    
    $
    67,000
    
    
    $
    600
    
    
    
    1
    %
    
    $
    
    
    
    
    0
    %Wastewater treatment operating costs
incurred
    
    $
    20,800
    
    
    $
    20,200
    
    
    $
    18,900
    
    
    $
    600
    
    
    
    3
    %
    
    $
    1,300
    
    
    
    7
    %Wastewater treatment gross margin %
    
    
    69
    %
    
    
    70
    %
    
    
    72
    %General and administrative expenses
    
    $
    1,808,200
    
    
    $
    1,942,200
    
    
    $
    2,316,800
    
    
    $
    (134,000
    )
    
    
    -7
    %
    
    $
    (374,600
    )
    
    
    -16
    %Net losses
    
    $
    5,391,300
    
    
    $
    5,728,100
    
    
    $
    6,926,700
    
    
    $
    (336,800
    )
    
    
    -6
    %
    
    $
    (1,198,600
    )
    
    
    -17
    %
 Water and Wastewater Usage Revenues
 Item 1  Business
  Fiscal 2010 compared to fiscal 2009
    - 24 -




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Fiscal 2009 compared to fiscal 2008
   General and Administrative and Other Expenses
   ChangeFiscal Years Ended August 31,
    
    
    2010-2009
    
    
    2009-20082010
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    $
    
    
    %G&A expenses as reported
    
    $
    1,808,200
    
    
    $
    1,942,200
    
    
    $
    2,316,300
    
    
    $
    (134,000
    )
    
    
    -7
    %
    
    $
    (374,100
    )
    
    
    -16
    %Share-based compensation expenses
    
    
    (87,600
    )
    
    
    (325,500
    )
    
    
    (351,500
    )
    
    
    237,900
    
    
    
    -73
    %
    
    
    26,000
    
    
    
    -7
    %G&A expenses less share-based
compensation expenses
    
    $
    1,720,600
    
    
    $
    1,616,700
    
    
    $
    1,964,800
    
    
    $
    103,900
    
    
    
    6
    %
    
    $
    (348,100
    )
    
    
    -18
    %
    ChangeFiscal Years Ended August 31,
    
    
    2010-2009
    
    
    2009-20082010
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    $
    
    
    %Salary and salary related expenses:Including share-based compensation
    
    $
    606,600
    
    
    $
    814,800
    
    
    $
    791,300
    
    
    $
    (208,200
    )
    
    
    -26
    %
    
    $
    23,500
    
    
    
    3
    %Excluding share-based compensation
    
    $
    518,900
    
    
    $
    489,300
    
    
    $
    465,800
    
    
    $
    29,600
    
    
    
    6
    %
    
    $
    23,500
    
    
    
    5
    %FLCC water assessment fees
    
    $
    362,800
    
    
    $
    339,300
    
    
    $
    330,500
    
    
    $
    23,500
    
    
    
    7
    %
    
    $
    8,800
    
    
    
    3
    %Professional fees
    
    $
    244,500
    
    
    $
    292,100
    
    
    $
    386,000
    
    
    $
    (47,600
    )
    
    
    -16
    %
    
    $
    (93,900
    )
    
    
    -24
    %Public entity related expenses
    
    $
    74,300
    
    
    $
    61,100
    
    
    $
    66,700
    
    
    $
    13,200
    
    
    
    22
    %
    
    $
    (5,600
    )
    
    
    -8
    %Consulting fees
    
    $
    55,700
    
    
    $
    83,700
    
    
    $
    227,600
    
    
    $
    (28,000
    )
    
    
    -33
    %
    
    $
    (143,900
    )
    
    
    -63
    %
   - 25 -




---



##### Table of Contents



Other income and Expense Items
  ChangeFor the Fiscal Years Ended August 31,
    
    
    2010-2009
    
    
    2009-20082010
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    $
    
    
    %Other expense items:Depreciation and
depletion expense
    
    $
    255,100
    
    
    $
    381,700
    
    
    $
    381,300
    
    
    $
    (126,600
    )
    
    
    -33
    %
    
    $
    400
    
    
    
    0
    %Imputed interest expense
    
    $
    3,620,000
    
    
    $
    3,700,000
    
    
    $
    4,400,000
    
    
    $
    (80,000
    )
    
    
    -2
    %
    
    $
    (700,000
    )
    
    
    -16
    %Other income items:Interest income
    
    $
    67,400
    
    
    $
    84,600
    
    
    $
    283,600
    
    
    $
    (17,200
    )
    
    
    -20
    %
    
    $
    (199,000
    )
    
    
    -70
    %
    Liquidity, capital resources and financial position
   - 26 -




---



##### Table of Contents



Summary Cash Flows Table
  ChangeYear Ended August 31,
    
    
    2010-2009
    
    
    2009-20082010
    
    
    2009
    
    
    2008
    
    
    $
    
    
    %
    
    
    $
    
    
    %Cash (used) provded by:Operating acitivites
    
    $
    (1,584,600
    )
    
    $
    (1,482,500
    )
    
    $
    (1,443,200
    )
    
    $
    (102,100
    )
    
    
    7
    %
    
    $
    (39,300
    )
    
    
    3
    %Investing activities
    
    $
    806,900
    
    
    $
    (3,070,900
    )
    
    $
    466,100
    
    
    $
    3,877,800
    
    
    
    -126
    %
    
    $
    (3,537,000
    )
    
    
    -759
    %Financing activities
    
    $
    84,600
    
    
    $
    19,500
    
    
    $
    121,000
    
    
    $
    65,100
    
    
    
    334
    %
    
    $
    (101,500
    )
    
    
    -84
    %
 Changes in Operating Activities
    - 27 -




---



##### Table of Contents



Changes in Investing Activities
   Changes in Financing Activities
  Off-Balance Sheet Arrangements
  Recently Adopted and Issued Accounting Pronouncements
  Total Contractual Cash Obligations
  Payments due by periodLess than 1
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    yearsContractual obligationsOperating lease obligations
    
    $
    33,500
    
    
    $
    16,800
    
    
    $
    16,800
    
    
    
    (a
    )
    
    
    (a
    )Participating Interests in Export Water
    
    
    1,214,800
    
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )Tap Participation Fee payable to HP A&M
    
    
    113,126,200
    
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )Total (d)
    
    $
    114,374,500
    
    
    $
    16,800
    
    
    $
    16,800
    
    
    $
    
    
    
    $
    
 (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.  - 28 -




---



##### Table of Contents



(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 $52.0 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.(d)
    
    This table does not include the Convertible Note which was issued on September 28, 2010. As
further described in Notes 7 and 14 to the accompanying financial statements, if approval to
convert the Convertible Note to common stock is not obtained from our shareholders at our
2011 annual meeting, the Convertible Note requires interest only payments totaling $487,800
in the next twelve months and interest and principal payments totaling approximately $5.4
million becoming due on January 15, 2012, which would be in the 1-3 year period in the table
above. 
 Item 7A  Quantitative and Qualitative Disclosures About Market Risk
 General
  Interest Rates
   - 29 -




---



##### Table of Contents



Item 8  Financial Statements and Supplementary Data
 Index to Financial Statements and Supplementary Data
 PageReport of Independent Registered Public Accounting Firm
    
    F-1Balance Sheets
    
    F-2Statements of Operations
    
    F-3Statements of Shareholders Equity
    
    F-4Statements of Cash Flows
    
    F-5Notes to Financial Statements
    
    F-6Supplemental Data: Selected Quarterly Financial Information
    
    F-28
  - 30 -




---



##### Table of Contents



Internal ControlIntegrated Framework
    Internal ControlIntegrated Framework
  
  F-1




---



##### Table of Contents



August 31,2010
    
    2009ASSETS:Current assets:Cash and cash equivalents
    
    $
    12,017
    
    
    $
    705,083Marketable securities
    
    
    1,435,054
    
    
    
    3,002,208Trade accounts receivable
    
    
    71,155
    
    
    
    63,394Prepaid expenses
    
    
    236,627
    
    
    
    154,928Current portion of construction proceeds receivable
    
    
    64,783
    
    
    
    64,783Total current assets
    
    
    1,819,636
    
    
    
    3,990,396Investments in water and water systems, net
    
    
    102,931,347
    
    
    
    103,159,632Construction proceeds receivable, less current portion
    
    
    351,791
    
    
    
    414,494Note receviable  related party, Rangeview Metropolitan District,
including accrued interest
    
    
    519,834
    
    
    
    507,795Escrow and other items related to the Sky Ranch acquisition
    
    
    735,000
    
    
    
    Property and equipment, net
    
    
    8,854
    
    
    
    16,593Other assets
    
    
    11,292
    
    
    
    2,171Total assets
    
    $
    106,377,754
    
    
    $
    108,091,081LIABILITIES:Current liabilities:Accounts payable
    
    $
    44,818
    
    
    $
    22,216Accrued liabilities
    
    
    70,704
    
    
    
    60,080Deferred revenues
    
    
    55,800
    
    
    
    55,800Total current liabilities
    
    
    171,322
    
    
    
    138,096Deferred revenues, less current portion
    
    
    1,390,305
    
    
    
    1,446,108Participating Interests in Export Water Supply
    
    
    1,214,799
    
    
    
    1,216,360Tap Participation Fee payable to HP A&M, net of $52.0 million and $55.6 million discount
    
    
    61,141,329
    
    
    
    57,521,329Total liabilities
    
    
    63,917,755
    
    
    
    60,321,893Commitments 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
    
    
    92,341,555
    
    
    
    92,253,916Accumulated comprehensive income (loss)
    
    
    (1,580
    )
    
    
    3,986Accumulated deficit
    
    
    (49,947,769
    )
    
    
    (44,556,507
    )Total shareholders equity
    
    
    42,459,999
    
    
    
    47,769,188Total liabilities and shareholders equity
    
    $
    106,377,754
    
    
    $
    108,091,081
   F-2




---



##### Table of Contents



For the Fiscal Years Ended August 31,2010
    
    
    2009
    
    
    2008Revenues:Metered water usage
    
    $
    140,677
    
    
    $
    137,431
    
    
    $
    159,649Wastewater treatment fees
    
    
    67,626
    
    
    
    66,976
    
    
    
    66,976Special facility funding recognized
    
    
    41,508
    
    
    
    41,508
    
    
    
    41,508Water tap fees recognized
    
    
    14,296
    
    
    
    14,296
    
    
    
    14,296Total revenues
    
    
    264,107
    
    
    
    260,211
    
    
    
    282,429Expenses:Water service operations
    
    
    (52,439
    )
    
    
    (54,668
    )
    
    
    (58,576
    )Wastewater service operations
    
    
    (20,805
    )
    
    
    (20,162
    )
    
    
    (18,925
    )Depletion and depreciation
    
    
    (88,564
    )
    
    
    (88,576
    )
    
    
    (88,511
    )Total cost of revenues
    
    
    (161,808
    )
    
    
    (163,406
    )
    
    
    (166,012
    )Gross margin
    
    
    102,299
    
    
    
    96,805
    
    
    
    116,417General and administrative expenses
    
    
    (1,808,167
    )
    
    
    (1,942,225
    )
    
    
    (2,316,291
    )Depreciation
    
    
    (166,513
    )
    
    
    (293,113
    )
    
    
    (292,778
    )Operating loss
    
    
    (1,872,381
    )
    
    
    (2,138,533
    )
    
    
    (2,492,652
    )Other income (expense):Interest income
    
    
    67,432
    
    
    
    84,636
    
    
    
    283,590Other
    
    
    24,283
    
    
    
    (844
    )
    
    
    (48,672
    )Gain (loss) on sale of assets
    
    
    9,404
    
    
    
    59,671
    
    
    
    (270
    )Loss on extinguishment of contingent obligations and debt
    
    
    
    
    
    
    
    
    
    
    (273,723
    )Loss on sales of marketable securities
    
    
    
    
    
    
    
    
    
    
    (1,973
    )Interest imputed on the Tap Participation Fees payable to HP A&M
    
    
    (3,620,000
    )
    
    
    (3,733,000
    )
    
    
    (4,393,000
    )Net loss
    
    $
    (5,391,262
    )
    
    $
    (5,728,070
    )
    
    $
    (6,926,700
    )Net loss per common share  basic and diluted
    
    $
    (0.27
    )
    
    $
    (0.28
    )
    
    $
    (0.34
    )Weighted average common shares outstanding  basic and diluted
    
    
    20,206,566
    
    
    
    20,206,566
    
    
    
    20,188,675
   F-3




---



##### 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, 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
    )
    
    
    47,769,188Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,639
    
    
    
    
    
    
    
    
    
    
    
    87,639Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,566
    )
    
    
    
    
    
    
    (5,566
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,391,262
    )
    
    
    (5,391,262
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,396,828
    )August 31, 2010 balance:
    
    
    432,513
    
    
    $
    433
    
    
    
    20,206,566
    
    
    $
    67,360
    
    
    
    
    
    
    $
    
    
    
    $
    92,341,555
    
    
    $
    (1,580
    )
    
    $
    (49,947,769
    )
    
    $
    42,459,999
   F-4




---



##### Table of Contents



For the Fiscal Years Ended August 31,2010
    
    
    2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (5,391,262
    )
    
    $
    (5,728,070
    )
    
    $
    (6,926,700
    )Adjustments to reconcile net loss to net cash
used for operating activities:Imputed interest on Tap Participation Fees payable to HP A&M
    
    
    3,620,000
    
    
    
    3,733,000
    
    
    
    4,393,000Depreciation, depletion and other non-cash items
    
    
    258,872
    
    
    
    390,794
    
    
    
    431,320Share-based compensation expense included with
general and administrative expenses
    
    
    87,639
    
    
    
    325,518
    
    
    
    351,519Loss on extinguishment of contingent obligations and debt
    
    
    
    
    
    
    
    
    
    
    273,723Loss on sales of marketable securities
    
    
    
    
    
    
    
    
    
    
    1,973(Gain) loss on sale of fixed assets
    
    
    (9,404
    )
    
    
    (59,671
    )
    
    
    270Interest added to note receivable  related partyRangeview Metropolitan District
    
    
    (12,039
    )
    
    
    (12,996
    )
    
    
    (19,065
    )Interest added to construction proceeds receivable
    
    
    (26,343
    )
    
    
    (29,588
    )
    
    
    (30,906
    )Changes in operating assets and liabilities:Trade accounts receivable
    
    
    (7,761
    )
    
    
    8,007
    
    
    
    (1,184
    )Interest receivable and prepaid expenses
    
    
    (81,699
    )
    
    
    (27,910
    )
    
    
    131,535Accounts payable and accrued liabilities
    
    
    33,226
    
    
    
    (25,767
    )
    
    
    7,088Deferred revenues
    
    
    (55,803
    )
    
    
    (55,802
    )
    
    
    (55,801
    )Net cash used for operating activities
    
    
    (1,584,574
    )
    
    
    (1,482,485
    )
    
    
    (1,443,228
    )Cash flows from investing activities:Sales and maturities of marketable securities
    
    
    1,561,588
    
    
    
    
    
    
    
    790,661Sale of property and equipment
    
    
    10,000
    
    
    
    59,671
    
    
    
    1,000Other investing activities
    
    
    (10,000
    )
    
    
    (7,000
    )
    
    
    Investments in water and water systems
    
    
    (19,649
    )
    
    
    (110,354
    )
    
    
    (270,998
    )Escrow payment for Sky Ranch acquisition
    
    
    (735,000
    )
    
    
    
    
    
    
    Purchase of property and equipment
    
    
    
    
    
    
    (14,992
    )
    
    
    (7,547
    )Purchase of marketable securities
    
    
    
    
    
    
    (2,998,222
    )
    
    
    Investment in Well Enhancement and Recovery Systems LLC
    
    
    
    
    
    
    
    
    
    
    (47,000
    )Net cash provided (used) by investing activities
    
    
    806,939
    
    
    
    (3,070,897
    )
    
    
    466,116Cash flows from financing activities:Arapahoe County construction proceeds
    
    
    89,046
    
    
    
    82,196
    
    
    
    150,518Payments to contingent liability holders
    
    
    (4,477
    )
    
    
    (3,033
    )
    
    
    (2,966
    )Tap Participation Fee payments to HP A&M
    
    
    
    
    
    
    (59,671
    )
    
    
    Payments on long-term debt  related parties
    
    
    
    
    
    
    
    
    
    
    (26,542
    )Net cash provided by financing activities
    
    
    84,569
    
    
    
    19,492
    
    
    
    121,010Net change in cash and cash equivalents
    
    
    (693,066
    )
    
    
    (4,533,890
    )
    
    
    (856,102
    )Cash and cash equivalents  beginning of year
    
    
    705,083
    
    
    
    5,238,973
    
    
    
    6,095,075Cash and cash equivalents  end of year
    
    $
    12,017
    
    
    $
    705,083
    
    
    $
    5,238,973
   F-5




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##### Table of Contents



ORGANIZATION
    
    
    At August 31, 2010:
 
    
    The Company has approximately $1.4 million of cash, cash equivalents
and marketable securities, and
    
    The Company has approximately $1.6 million of working capital.
 
    
    Subsequent to August 31, 2010:
 
    
    The Company sold approximately $5.5 million of its common stock
pursuant to an effective shelf registration and issued a $5.2 million Convertible
Negotiable Promissory Note Payable (the Convertible Note), as described in
detail in Note 14 below,
    
    Following this stock sale, the Company can sell up to approximately
$4.5 million of additional common stock pursuant to the shelf registration
statement, and
    
    Following the acquisition of Sky Ranch as described in Note 14 below,
the Company has approximately $5.8 million in cash, cash equivalents and
marketable securities.
  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Revenue Recognition
  Tap and Construction Fees.
   F-6




---



##### Table of Contents



Monthly Usage and Service Fees.
    Use of Estimates
   F-7




---



##### Table of Contents



Cash and Cash Equivalents
  Financial Instruments  Concentration of Credit Risk and Fair Value
   Current Assets and Liabilities
   August 31, 2010
    
    
    August 31, 2009Carrying Amount
    
    $
    1,435,100
    
    
    $
    3,002,200Estimated Fair Value
    
    
    1,433,500
    
    
    
    3,006,200Unrealized (loss) gain
    
    $
    (1,600
    )
    
    $
    4,000
 Notes Receivable and Construction Proceeds Receivable
  Long-term Financial Liabilities
   August 31, 2010
    
    
    August 31, 2009Carrying Amount
    
    $
    61,141,300
    
    
    $
    57,521,300Estimated Fair Value
    
    
    61,141,300
    
    
    
    57,521,300Unrealized gain or loss
    
    $
    
    
    
    $
    
  F-8




---



##### Table of Contents



Cash Flows
  Marketable Securities
    Accounts receivable
  Long-Lived Assets
  Water and Wastewater Systems
  Depletion and Depreciation of Water Assets
   F-9




---



##### Table of Contents



Share-based Compensation
   Income Taxes
    Loss per Common Share
  Recently Issued Accounting Pronouncements
  Improving Disclosures about Fair Value Measurements
  F-10




---



##### Table of Contents



Multiple-Deliverable Revenue Arrangements-a
Consensus of the FASB Emerging Issues Task Force Recognition
  Consolidations: Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities. Consolidation
 Reclassifications
  FAIR VALUE MEASUREMENTS
      F-11




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##### Table of Contents



UnrealizedEstimated Fair
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gains andAssets and liabilities
    
    Value
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    (Losses)Measured on a recurring basis:Marketable securities
    
    $
    1,435,000
    
    
    $
    
    
    
    $
    1,435,000
    
    
    $
    
    
    
    $
    (1,600
    )Measured on a non-recurring basis:Tap Participation Fee liability
    
    $
    61,141,329
    
    
    $
    
    
    
    $
    
    
    
    $
    61,141,329
    
    
    $
    
  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, 2009
    
    $
    113,147,688
    
    
    $
    57,521,329
    
    
    $
    55,626,359Total gains and losses (realized and unrealized):Imputed interest recorded as Other Expense
    
    
    
    
    
    
    3,620,000
    
    
    
    (3,620,000
    )Increase in estimated value (to be realized in future periods)
    
    
    
    
    
    
    
    
    
    
    Purchases, sales, issuances, payments, and settlements
    
    
    
    
    
    
    
    
    
    
    Transfers in and/or out of Level 3
    
    
    
    
    
    
    
    
    
    
    Balance at August 31, 2010
    
    $
    113,147,688
    
    
    $
    61,141,329
    
    
    $
    52,006,359
  F-12




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##### Table of Contents



WATER ASSETS
  August 31, 2010
    
    
    August 31, 2009Accumulated
    
    
    
    
    
    
    AccumulatedDepreciation
    
    
    
    
    
    
    DepreciationCosts
    
    
    and Depletion
    
    
    Costs
    
    
    and DepletionArkansas River Valley assets
    
    $
    81,318,700
    
    
    $
    (972,400
    )
    
    $
    81,319,300
    
    
    $
    (823,700
    )Rangeview water supply
    
    
    14,285,700
    
    
    
    (6,000
    )
    
    
    14,271,800
    
    
    
    (5,500
    )Rangeview water system
    
    
    167,700
    
    
    
    (57,200
    )
    
    
    167,700
    
    
    
    (52,000
    )Paradise water supply
    
    
    5,536,500
    
    
    
    
    
    
    
    5,532,600
    
    
    
    Fairgrounds water and water system
    
    
    2,899,900
    
    
    
    (358,400
    )
    
    
    2,899,900
    
    
    
    (270,300
    )Sky Ranch water supply
    
    
    100,000
    
    
    
    
    
    
    
    100,000
    
    
    
    Water supply  other
    
    
    25,700
    
    
    
    (8,900
    )
    
    
    23,800
    
    
    
    (4,000
    )Totals
    
    
    104,334,200
    
    
    
    (1,402,900
    )
    
    
    104,315,100
    
    
    
    (1,155,500
    )Net investments in water and water systems
    
    $
    102,931,300
    
    
    
    
    
    
    $
    103,159,600
 Depletion and Depreciation
   Arkansas River Valley Assets
 Arkansas River Water.
    F-13




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##### Table of Contents



Land.
  Land sales.
 Fort Lyon Canal Company (FLCC) Shares.
  Rangeview Water Supply and Water System
   F-14




---



##### Table of Contents



(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;
 (iii)
    
    The Company entered into the Service Agreement with the District for the provision of water
service to the Lowry Range; and
 (iv)
    
    In 1997, the Company entered into the Wastewater Service Agreement with the District for the
provision of wastewater service to the Districts service area (collectively these agreements
are referred to as the Rangeview Water Agreements).
       F-15




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##### 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).
      F-16




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##### Table of Contents



Amendment to the County Agreement. Construction proceeds receivable
 Sky Ranch
   Paradise Water Supply
    F-17




---



##### Table of Contents



PARTICIPATING INTERESTS IN EXPORT WATER
   Participating Interests in Export Water Supply
     F-18




---



##### Table of Contents



Export Water
    
    
    Initial Export
    
    
    Total Potential
    
    
    PaticipatingProceeds
    
    
    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, 2009: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
    
    
    45,662
    
    
    
    (31,963
    )
    
    
    (13,699
    )
    
    
    (4,779
    )
    
    
    (8,920
    )Balance at August 31, 2009
    
    
    689,030
    
    
    
    27,848,679
    
    
    
    3,488,523
    
    
    
    1,216,360
    
    
    
    2,272,163Fiscal 2010 activity:Export Water sale payments
    
    
    14,922
    
    
    
    (10,445
    )
    
    
    (4,477
    )
    
    
    (1,561
    )
    
    
    (2,916
    )Balance at August 31, 2010
    
    $
    703,952
    
    
    $
    27,838,234
    
    
    $
    3,484,046
    
    
    $
    1,214,799
    
    
    $
    2,269,247
 *
    
    The Arapahoe County tap fees are less $34,522 in royalties paid to the Land Board.  ACCRUED LIABILITIES
   LONG-TERM DEBT AND OPERATING LEASE
   Tap Participation Fee payable to HP A&M
    F-19




---



##### 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,
2010 and 2009 of approximately $1.6 million and $1.1 million, respectively, which equates to
approximately $.08 and $.05 per basic and diluted share, respectively.
      F-20




---



##### Table of Contents



Promissory Notes Payable by HP A&M
   Operating Lease
  SHAREHOLDERS EQUITY
 Preferred Stock
  Equity Compensation Plan
    F-21




---



##### 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.
      F-22




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##### Table of Contents



Weighted-Average
    
    
    ApproximateWeighted-
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Average
    
    
    Contractual
    
    
    InstrinsicOptions
    
    
    Exercise Price
    
    
    Term
    
    
    ValueOustanding at beginning of period
    
    
    250,000
    
    
    $
    6.43Granted
    
    
    12,500
    
    
    $
    2.88Exercised
    
    
    
    
    
    $
    Forfeited or expired
    
    
    
    
    
    $
    Outstanding at August 31, 2010
    
    
    262,500
    
    
    $
    6.26
    
    
    
    6.7
    
    
    
    *Options exercisable at August 31, 2010
    
    
    202,000
    
    
    $
    7.22
    
    
    
    6.2
    
    
    
    *
 *
    
    Intrinsic value less than zero  Weighted-Average GrantNumber of
    
    
    Date FairOptions
    
    
    ValueNon-vested options oustanding at beginning of period
    
    
    79,000
    
    
    $
    2.66Granted
    
    
    12,500
    
    
    
    2.49Vested
    
    
    (31,000
    )
    
    
    2.57Forfeited
    
    
    
    
    
    
    Non-vested options outstanding at August 31, 2010
    
    
    60,500
    
    
    $
    2.67
    F-23




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##### Table of Contents



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
    Voting Rights Agreement
  Gain on Extinguishment of Related Party CAA Obligations and Debt
   F-24




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##### Table of Contents



Shelf Registration Statement
  SIGNIFICANT CUSTOMERS
  INCOME TAXES
  For the Fiscal Years Ended August 31,2010
    
    
    2009Deferred tax assets:Net operating loss carryforwards
    
    $
    5,022,300
    
    
    $
    4,575,900Imputed interest on Tap Participation Fee
    
    
    6,123,100
    
    
    
    4,772,800Deferred revenue
    
    
    539,400
    
    
    
    352,100Depreciation and depletion
    
    
    175,600
    
    
    
    143,500Loss in Well Enhancment LLC
    
    
    34,600
    
    
    
    34,200Other
    
    
    6,400
    
    
    
    5,800Valuation allowance
    
    
    (11,901,400
    )
    
    
    (9,884,300
    )Net deferred tax asset
    
    
    
    
    
    
    
   For the Fiscal Years Ended August 31,2010
    
    
    2009
    
    
    2008Expected benefit from federal taxes at statutory rate of 34%
    
    $
    (1,833,000
    )
    
    $
    (1,947,500
    )
    
    $
    (2,355,100
    )State taxes, net of federal benefit
    
    
    (177,900
    )
    
    
    (189,000
    )
    
    
    (228,600
    )Expiration of net operating losses
    
    
    147,900
    
    
    
    142,800
    
    
    
    117,600Permanent and other differences
    
    
    (154,100
    )
    
    
    121,900
    
    
    
    131,800Change in valuation allowance
    
    
    2,017,100
    
    
    
    1,871,800
    
    
    
    2,334,300Total income tax expense / benefit
    
    $
    
    
    
    $
    
    
    
    $
    
   F-25




---



##### Table of Contents



401(k) PLAN
  SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
 For the Fiscal Years Ended August 31,2010
    
    
    2009
    
    
    2008Increase in estimated
Tap Participation Fee
liability and related
discount
    
    $
    
    
    
    $
    4,758,038
    
    
    $
    3,867,321Water rights received
from Arapahoe County
which reduced the
Construction proceeds
receivable balance
    
    $
    
    
    
    $
    
    
    
    $
    206,005
 RELATED PARTY TRANSACTIONS
       F-26




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##### Table of Contents



SUBSEQUENT EVENTS
  Issuance of the Convertible Note
   Fiscal Year Ending:
    
    Principal Payments
    
    
    Interest Payments
    
    
    Total PaymentsAugust 31, 2011
    
    $
    
    
    
    $
    486,800
    
    
    $
    486,800August 31, 2012
    
    
    5,200,000
    
    
    
    197,900
    
    
    
    5,397,900Total payments
    
    $
    5,200,000
    
    
    $
    684,700
    
    
    $
    5,884,700
  Sale of common stock pursuant to the shelf registrations
   F-27




---



##### Table of Contents



SUPPLEMENTAL DATA: SELECTED QUARTERLY FINANCIAL INFORMATION



(unaudited)
 In thousands, except per share amountsFiscal 2010 quarters ended:
    
    August 31
    
    
    May 31
    
    
    February 28
    
    
    November 30Total revenues
    
    $
    95.3
    
    
    $
    58.0
    
    
    $
    51.2
    
    
    $
    59.6Gross margin
    
    $
    49.2
    
    
    $
    22.3
    
    
    $
    13.7
    
    
    $
    17.1Net loss
    
    $
    (1,264.9
    )
    
    $
    (1,333.4
    )
    
    $
    (1,514.3
    )
    
    $
    (1,278.7
    )Earnings per share  basic and diluted
    
    $
    (0.06
    )
    
    $
    (0.07
    )
    
    $
    (0.07
    )
    
    $
    (0.06
    )Market price of common stockHigh
    
    $
    3.15
    
    
    $
    3.27
    
    
    $
    3.24
    
    
    $
    3.68Low
    
    $
    2.22
    
    
    $
    2.30
    
    
    $
    2.00
    
    
    $
    2.13
 Fiscal 2009 quarters ended:
    
    August 31
    
    
    May 31
    
    
    February 28
    
    
    November 30Total 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
   F-28




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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.
   Item 8.
Financial Statements and Supplementary Data
  31




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##### Table of Contents



(c)
    
    Changes in Internal Controls
  
 Item 9B  Other Information
  
 PART III
  
 PART IV
 
 Item 15  Exhibits and Financial Statement Schedules
 (a)
    
    Financial Statements1.
    
    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
    
    
    Articles of Incorporation of Pure Cycle Corporation. Incorporated
by reference to Appendix B to the Proxy Statement on Schedule 14A
filed December 14, 2007.3.2
    
    
    Bylaws of Pure Cycle Corporation. Incorporated by reference to
Appendix C to the Proxy Statement on Schedule 14A filed December
14, 2007.4.1
    
    
    Specimen Stock Certificate. Incorporated by reference to Quarterly
Report on Form 10-Q for the fiscal quarter ended May 31, 2010.10.1
    
    
    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. **10.3
    
    
    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.
  32




---



##### Table of Contents



Exhibit No.
    
    Description10.4
    
    
    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
    
    
    Agreement to Amend 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
    
    
    Agreement to Amend Option Agreement for Export Water Service 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. 333-114568.10.11
    
    
    Second 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,
2004.10.16
    
    
    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, between Pure Cycle
Corporation and High Plains A&M, LLC, and the Seller Pledge
Agreement, Pure Cycle Corporation Pledge Agreement, Property
Management Agreement, and Registration Rights Agreement, attached
as exhibits thereto, entered into between Pure Cycle Corporation
and High Plains A&M, LLC dated August 31, 2009. Incorporated by
reference from Form 8-K filed on May 16, 2006.
  33




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##### Table of Contents



Exhibit No.
    
    Description10.18
    
    
    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, 2008.10.19
    
    
    Loan Sale and Assignment Agreement dated July 30, 2010, between
Pure Cycle Corporation and Bank of America, N.A. Incorporated by
reference from Form 8-K filed on August 4, 2010.10.20
    
    
    License Agreement between Pure Cycle Corporation and Sky Ranch LLC,
a Colorado limited liability company, Debtor-in-Possession.
Incorporated by reference from Form 8-K filed on August 4, 2010.10.21
    
    
    Convertible Negotiable Note Payable dated September 28, 2010,
between Pure Cycle Corporation and PAR Investment Partners, L.P.
Incorporated by reference from Form 8-K filed on September 29,
2010.10.22
    
    
    Registration Rights Agreement dated September 28, 2010, between
Pure Cycle Corporation and PAR Investment Partners, L.P.
Incorporated by reference from Form 8-K filed on September 29,
2010.14
    
    
    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.  34




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##### Table of Contents



SIGNATURES
  PURE CYCLE CORPORATIONBy:
    
    /s/ Mark W. Harding

Mark W. Harding, President and Chief Financial OfficerNovember 12, 2010
  Signature
    
    Title
    
    Date/s/ Mark W. Harding

Mark W. Harding
    
    President,
Chief Financial Officer and
Director (Principal
Executive Officer,
Principal Financial and Accounting
Officer)
    
    November 12, 2010/s/ Harrison H. Augur

Harrison H. Augur
    
    Chairman,
Director
    
    November 12, 2010/s/ Arthur G. Epker III

Arthur G. Epker III
    
    Director
    
    November 12, 2010/s/ Richard L. Guido

Richard L. Guido
    
    Director
    
    November 12, 2010/s/ Peter C. Howell

Peter C. Howell
    
    Director
    
    November 12, 2010/s/ George M. Middlemas

George M. Middlemas
    
    Director
    
    November 12, 2010
  35