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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, 2007
 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
  Delaware
    
    84-0705083(State of incorporation)
    
    (I.R.S. Employer Identification No.)8451 Delaware Street, Thornton, CO
    
    80260(Address of principal executive office)
    
    (Zip Code)
 (303) 292-3456
  Common Stock 1/3 of $.01 par value
    
    The NASDAQ Stock Market, LLCTitle of Class
    
    Name of each exchange on which registered
 NONE
  o þ
  o þ
 þ o
 o
  o þ o
 o þ




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##### 



Table of Contents
 Item
    
    
    
    PagePart I1.
    
    Business
    
    
    31A.
    
    Risk Factors
    
    
    161B.
    
    Unresolved Staff Comments
    
    
    212.
    
    Properties
    
    
    213.
    
    Legal Proceedings
    
    
    214.
    
    Submission of Matters to a Vote of Security Holders
    
    
    21Part II5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    226.
    
    Selected Financial Data
    
    
    247.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operation
    
    
    257A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    358.
    
    Financial Statements and Supplementary Data
    
    
    369.
    
    Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
    
    
    679A.
    
    Controls and Procedures
    
    
    679B.
    
    Other Information
    
    
    68Part III10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    6811.
    
    Executive Compensation
    
    
    6812.
    
    Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
    
    
    6813.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    6814.
    
    Principal Accounting Fees and Services
    
    
    68Part IV15.
    
    Exhibits, Financial Statement Schedules
    
    
    68Signatures
    
    
    71Exhibit 10.20Exhibit 10.21Exhibit 10.22Exhibit 10.23Exhibit 10.24Exhibit 10.25Exhibit 10.26Exhibit 10.27Exhibit 10.28Exhibit 10.29Exhibit 10.30Exhibit 10.31Exhibit 10.32Exhibit 10.33Exhibit 10.34Exhibit 10.35Exhibit 10.36Exhibit 14Exhibit 23.1Exhibit 23.2Exhibit 31.1Exhibit 32.1
   2




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SAFE HARBOR STATEMENT UNDER THE UNITED STATES PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
  
 PART I
 
 Item 1. Business
 Summary of our business
     3




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Our Water Assets
  
    
    Approximately 60,000 acre-feet of senior 1883 water rights in the Arkansas River and its
tributaries represented by over 21,600 shares of the Fort Lyon Canal Company (FLCC);
    
    Approximately 11,650 acre-feet of water located in Arapahoe County, Colorado at property
known as the Lowry Range (described below), which we can export from the Lowry Range to
supply water to nearby communities and developers in need of additional water supplies (this
water asset is referred to as our Export Water);
    
    Approximately 363 acre-feet of groundwater pursuant to an Agreement for Water Service (the
County Agreement) with Arapahoe County (the County), which will be added to our overall
Denver metropolitan water supply portfolio (we are awaiting the delivery of a water rights
deed for approximately 336 acre-feet of this water valued at approximately $240,000, the value
of which is included in the construction proceeds receivableaccount on our balance sheet as
of August 31, 2007, until the water rights deed is received); and
    
    Approximately 89 acre-feet of water located beneath Sky Ranch together with the right to
purchase an additional 671 acre-feet of water (for a total of 760 acre-feet), which will be
used to provide water service to the initial 1,500 taps purchased at Sky Ranch.
  
    
    We have the exclusive rights to use, through 2081, approximately 15,050 acre-feet of water
located at the Lowry Range. This water is required to be used specifically on the Lowry Range
(collectively we refer to the 15,050 acre-feet of water designated for use on the Lowry Range
and the 11,650 acre-feet of Export Water as our Rangeview Water Supply);
    
    We own conditional water rights in western Colorado that entitle us to build a 70,000
acre-foot reservoir to store Colorado River tributary water and a right-of-way permit from the
U.S. Bureau of Land Management for property at the dam and reservoir site (collectively known
as the Paradise Water Supply).
 Arkansas River Water
   4




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Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    A pledge agreement, whereby the Company pledged to HP A&M a defined number of FLCC shares
acquired pursuant to the Arkansas River Agreement which will be released as the consideration
(the value of the stock and the Tap Participation Fees paid) exceeds certain defined amounts;
    
    A property management agreement with HP A&M whereby HP A&M will manage the real estate
leases in exchange for all the rental income from the assumed leases for a period of five
years (through August 31, 2011), which can be extended under defined circumstances;
    
    A registration rights agreement, pursuant to which we granted HP A&M one demand right to
register 750,000 shares of Pure Cycle common stock and piggyback rights to register an
additional 750,000 shares of Pure Cycle common stock (HP A&M exercised the piggyback rights in
July 2007 and registered 750,000 shares of common stock); and
    
    A voting agreement, pursuant to which our President agreed to vote shares of Pure Cycle
common stock owned by him for HP A&Ms designated board member.
  5




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The Rangeview Water Supply and Related Agreements
        6




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Item 6 
Critical Accounting Policies  Accounting for CAA Payments
 Arapahoe County Fairgrounds Agreement for Water Service
 construction proceeds receivable
    th Critical Accounting Policies
 Sky Ranch Water Supply and Water Service Agreements
   7




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Paradise Water Supply
 Critical Accounting Policies
   8




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Revenues
  1.
    
    Water and wastewater tap fees,2.
    
    Construction fees, and3.
    
    Monthly service fees.
  Water and Wastewater Tap Fees
    Table A  Water System Tap Fees
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Water tap fees per SFE
    
    $
    20,000
    
    
    $
    16,840
    
    
    $
    14,740
    
    
    $
    12,420
    
    
    $
    11,150
    
    
    $
    10,500Percentage Increase
    
    
    18.8
    %
    
    
    14.2
    %
    
    
    18.7
    %
    
    
    11.4
    %
    
    
    6.2
    %
    
    
    
  Construction Fees
   9




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Monthly Service Fees
  Table B  Tiered Pricing Structure
 Price ($ per thousand gallons)Consumption(1,000 gallons / month)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Base charge per SFE
    
    $
    25.11
    
    
    $
    20.44
    
    
    $
    20.28
    
    
    $
    19.80Zero to 10
    
    $
    2.55
    
    
    $
    2.58
    
    
    $
    2.46
    
    
    $
    2.40more than 10 to 20
    
    $
    3.35
    
    
    $
    3.34
    
    
    $
    3.17
    
    
    $
    3.10more than 20
    
    $
    5.96
    
    
    $
    5.90
    
    
    $
    5.54
    
    
    $
    5.40
     10




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Land Board Royalties and District Fees
   Lowry Range Customers
  Export Water Customers
    11




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Table C  Royalties for Export Water Sales
 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
  Our Projected Operations
   12




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Table D  Our Balanced Water Plan
 
    13




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Rangeview Metropolitan District
      Water and Growth in Colorado
   14




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Competition
  Employees
   15




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Available Information and Website Address
 www.purecyclewater.com www.sec.gov/edgar/searchedgar/companysearch.html
 
 Item 1A. Risk Factors
 Our business, operations, and financial condition are subject to significant risks. These risks
include those listed below and may include additional risks of which we are not currently aware or
which we currently do not believe are material. If any of the events or circumstances described in
the following risk factors actually occurs, our business could be materially adversely affected.
These risks should be read in conjunction with the other information set forth in this report.
 We are dependent on the development of Sky Ranch, the Lowry Range and other areas near our
Rangeview Water Supply that are potential markets for our Export Water.
   We expect to be involved in on-going negotiations with the Land Board to clarify our rights and
obligations with respect to our Rangeview Water Supply and such negotiations may not be successful.
   16




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In order to utilize the Arkansas River water acquired in fiscal 2006, we must apply for a change of
use with the Colorado water court and this may take several years to complete.
  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 promissory notes secured by deeds of trust on our properties,
we would be required to cure the defaults or lose the properties.
  Our net losses may continue and we may not have sufficient liquidity to pursue our business
objectives.
   17




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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 only have three 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.
   18




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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.
   19




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We are required to maintain stringent water quality standards and are subject to regulatory and
environmental risks.
   Our contracts for the construction of water and wastewater projects may expose us to certain
completion and performance risks.
        20




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Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  Item
1. Description of Our Water Assets and Related Service Agreements
 
    
    We own the following assets in the Arkansas River valley in southeastern Colorado:
 a.
    
    Approximately 60,000 acre-feet of Arkansas River water represented by over 21,600
shares of the FLCC,b.
    
    Approximately 17,500 acres of real property land located in the counties of Bent,
Otero and Prowers, Colorado, and mineral rights and personal property associated with the
real property.
 
    
    We own the following assets located on the Lowry Range:
 a.
    
    We own a total gross volume of 1,165,000 acre-feet (approximately 11,650 acre-feet
per year) of non-tributary groundwater, an option to substitute 1,650 acre-feet of
tributary surface water in exchange for a total gross volume of 165,000 acre-feet of
non-tributary groundwater, which we can export from the Lowry Range, and certain surface
storage rights on the Lowry Range.b.
    
    Pursuant to the Rangeview Water Agreements, we have the exclusive right, through
2081, to use approximately 15,050 acre feet of water located at the Lowery Range to serve
customers within the Districts service area.
 
    
    We own approximately 70,000 acre-feet of conditional water rights in the Colorado River,
water wells and related assets in the State of Colorado by assignment and quitclaim deed.
    
    We own 89.2 acre-feet of groundwater located in the Sky Ranch development. This represents
40% of the 223 acre-feet of groundwater we will own upon exercise of our rights under the
Denver groundwater purchase agreement.
    
    We own 27 acre-feet of groundwater located near the Arapahoe County Fairgrounds site.
    
    We own an undivided 59.9% interest as a tenant-in-common in a 40-acre parcel of undeveloped
land located in unincorporated Arapahoe County comprising the Rangeview Metropolitan District.
 
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
   21




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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 securitiesremaining availableNumber of
    
    
    
    
    
    
    for future issuancesecurities to be
    
    
    Weighted-
    
    
    under equityissued upon
    
    
    average exercise
    
    
    compensation plansexercise of
    
    
    price of
    
    
    (excludingoutstanding
    
    
    outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants
    
    
    reflected in columnPlan category
    
    and rights
    
    
    and rights
    
    
    (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    140,092
    
    
    $
    8.60
    
    
    
    1,460,000Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    140,092
    
    
    $
    8.60
    
    
    
    1,460,000
  22




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(e) Performance Graph 1
 
 (f) Recent Sales of Unregistered Securities
  ____________ 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.  23




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Item 6. Selected Financial Data
  In thousands (except per share data)
    
    August 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Summary of Statement of Operations items:Total revenues
    
    $
    265.7
    
    
    $
    271.7
    
    
    $
    234.7
    
    
    $
    205.0
    
    
    $
    225.4Gross margin
    
    $
    100.5
    
    
    $
    197.8
    
    
    $
    171.5
    
    
    $
    144.4
    
    
    $
    187.9Net loss
    
    $
    (6,914.7
    )
    
    $
    (792.9
    )
    
    $
    (1,050.9
    )
    
    $
    (1,975.7
    )
    
    $
    (321.0
    )Basic and diluted loss per share
    
    $
    (0.37
    )
    
    $
    (0.05
    )
    
    $
    (0.08
    )
    
    $
    (0.22
    )
    
    $
    (0.04
    )Weighted average shares outstanding
    
    
    18,590
    
    
    
    14,694
    
    
    
    13,674
    
    
    
    8,880
    
    
    
    7,844Summary Balance Sheet Information:Current assets
    
    $
    7,288.4
    
    
    $
    3,121.4
    
    
    $
    5,740.3
    
    
    $
    5,738.7
    
    
    $
    593.5Total assets
    
    $
    111,891.9
    
    
    $
    108,833.9
    
    
    $
    26,046.5
    
    
    $
    25,625.6
    
    
    $
    20,413.4Long-term liabilities
    
    $
    53,863.7
    
    
    $
    53,789.1
    
    
    $
    10,004.4
    
    
    $
    12,100.8
    
    
    $
    15,980.2Total liabilities
    
    $
    54,047.1
    
    
    $
    54,169.2
    
    
    $
    10,693.7
    
    
    $
    12,302.1
    
    
    $
    16,032.0Equity
    
    $
    57,844.8
    
    
    $
    54,664.7
    
    
    $
    15,352.7
    
    
    $
    13,323.5
    
    
    $
    4,381.5
  
    
    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 $45.6 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.
During our fiscal 2007, we imputed approximately $4.7 million of accrued interest on the Tap
Participation Fee. See Note 3  Water, Water Systems and Service Agreements in the
accompanying financial statements for more details.
    
    In fiscal 2007, we recognized approximately $1.04 million of gain related to the
acquisition of certain CAA interests, of which, approximately $765,000 was recorded as
additional paid in capital because the CAA interests were acquired from parties that are
deemed related to us. See Note 5  Participating Interests in Export Water in the accompanying
financial statements for more details.
    
    In fiscal 2006, we recognized $390,900 of gain related to the extinguishment of debt and
the acquisition of certain CAA interests. See Note 5  Participating Interests in Export Water
in the accompanying financial statements for more details.
    
    In fiscal 2004, we recognized a $1.1 million dollar loss related to the acquisition of
certain CAA interests.
    
    We did not declare or pay any cash dividends in any of the five years presented.
  24




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operation
  General
  Critical Accounting Policies
   Revenue Recognition
 Revenue Arrangements with Multiple Deliverables
 Accounting for Performance of
Construction-Type and Certain Production-Type Contracts Revenue
Recognition (SAB 104),
  25




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Impairment of Water Assets and Other Long-Lived Assets
 , Accounting for the
Impairment or Disposal of Long-Lived Assets
   Accounting for CAA Payments
  Sales of Future Revenues
  26




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Tap Participation Fee
  Obligations Payable by HP A&M
  Royalty and other obligations
  Depletion and depreciation of water assets
   27




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Income taxes
  Results of Operations
 Executive Summary
  Table E  Summary Results of Operations
 2007
    
    
    2006
    
    
    2005Millions of gallons of water delivered
    
    
    44.4
    
    
    
    56.6
    
    
    
    52.3Water revenues generated
    
    $
    149,500
    
    
    $
    163,600
    
    
    $
    152,300Water delivery operating costs incurred
    
    $
    54,600
    
    
    $
    48,500
    
    
    $
    43,900Water delivery gross margin %
    
    
    63
    %
    
    
    70
    %
    
    
    71
    %Wastewater treatment revenues
    
    $
    60,300
    
    
    $
    59,000
    
    
    $
    57,500Wastewater treatment operating costs incurred
    
    $
    22,800
    
    
    $
    17,300
    
    
    $
    15,700Wastewater treatment gross margin %
    
    
    62
    %
    
    
    71
    %
    
    
    73
    %General and administrative expenses
    
    $
    2,476,500
    
    
    $
    1,544,500
    
    
    $
    1,315,300Net losses
    
    $
    6,914,700
    
    
    $
    792,900
    
    
    $
    1,050,900
 Water and Wastewater Usage Revenues
   Item 1  Description of Business
    28




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General and Administrative and Other Expenses
 Share Based Payment
 Years ended August 31,2007
    
    
    2006
    
    
    IncreaseG&A expenses as reported
    
    $
    (2,476,500
    )
    
    $
    (1,544,500
    )
    
    $
    (932,000
    )SFAS 123(R) expenses
    
    
    287,300
    
    
    
    209,600
    
    
    
    77,700G&A expenses less SFAS 123(R) expenses
    
    $
    (2,189,200
    )
    
    $
    (1,334,900
    )
    
    $
    (854,300
    )
   
    
    Salaries and related expenses (including SFAS 123(R) expenses and healthcare costs)
totaled approximately $1.12 million, $944,800 and $690,500 for the fiscal years ended
August 31, 2007, 2006 and 2005, respectively. Without the effects of SFAS 123(R), salary
and related expenses in fiscal 2007 and 2006 would have been $833,000 and $735,200,
respectively, an increase of $97,800. This increase is mainly attributable to employee
bonuses totaling $330,000 in fiscal 2007, paid upon completion of the equity offering in
July 2007, which exceeded the $250,000 of bonuses paid in fiscal 2006. Salaries for 2007
(without the impact of SFAS 123(R)) exceeded fiscal 2005 salaries by $142,500, which is
mainly attributable to pay raises and the fact that bonuses in fiscal 2005 totaled
$150,000.
    
    During fiscal 2007, we expensed approximately $256,000 related to water assessment
charges payable to the FLCC. This represents our share (based on the number of FLCC shares
we own) of FLCCs annual operating and maintenance expenditures. These charges were not
incurred during fiscal 2006 or 2005 because we acquired the Arkansas Water Rights in the
fourth quarter of fiscal 2006. Additionally, we expensed approximately $37,200 for work
performed in the Arkansas River Valley on our behalf by HP A&M.
    
    Professional fees (legal and accounting) totaled approximately $470,300, $187,400 and
$173,500, for the years ended August 31, 2007, 2006 and 2005, respectively. Approximately
$190,000 of the increases from fiscal 2005 to fiscal 2007 was a result of services
performed in connection with our consultations with the Staff of the Securities and
Exchange Commission completed during fiscal 2007. The remaining increase was a result of
the internal control audits as a result of the Sarbanes-Oxley Act of 2002 and related
items.
    
    Franchise fees to the State of Delaware and NASDAQ listing fees increased approximately
$113,500 since fiscal 2006 due to the increase in our total assets as a result of the
Arkansas River water acquisition and the issuance of common stock as a result of the
exercising of stock options.
    
    We paid approximately $40,000 in consulting fees related to our discussions with Lend
Lease Communities LLC as it relates to the potential development of six sections of the
Lowry Range.
   29




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Years ended August 31,
    
    
    Change2007
    
    
    2006
    
    
    2005
    
    
    2007-2006
    
    
    2007-2005Net loss as reported
    
    $
    (6,914,700
    )
    
    $
    (792,900
    )
    
    $
    (1,050,900
    )
    
    $
    (6,121,800
    )
    
    $
    (5,863,800
    )Interest imputed on Tap Participation Fees
payable to HP A&M
    
    
    4,669,700
    
    
    
    
    
    
    
    
    
    
    
    4,669,700
    
    
    
    4,669,700SFAS 123(R) expenses
    
    
    287,300
    
    
    
    209,600
    
    
    
    
    
    
    
    77,700
    
    
    
    287,300Net loss less imputed interest and SFAS
123(R) expenses
    
    $
    (1,957,700
    )
    
    $
    (583,300
    )
    
    $
    (1,050,900
    )
    
    $
    (1,374,400
    )
    
    $
    (906,800
    )Net loss per common share as reported
    
    $
    (0.37
    )
    
    $
    (0.05
    )
    
    $
    (0.08
    )
    
    $
    (0.32
    )
    
    $
    (0.30
    )Interest imputed on Tap Participation Fees
payable to HP A&M
    
    
    0.25
    
    
    
    
    
    
    
    
    
    
    $
    0.25
    
    
    $
    0.25SFAS 123(R) expenses
    
    
    0.02
    
    
    
    0.01
    
    
    
    
    
    
    $
    0.00
    
    
    $
    0.02Net loss per common share less non-cash
interest and SFAS 123(R) expenses
    
    $
    (0.10
    )
    
    $
    (0.04
    )
    
    $
    (0.08
    )Weighted avererage common shares
outstanding
    
    
    18,589,737
    
    
    
    14,693,585
    
    
    
    13,674,156
  30




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Liquidity and Capital Resources
        31




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##### Table of Contents



Sky
Ranch Water Supply and Water Service Agreements
   Operating Activities
   
    
    Approximately $833,000 in wages and related employee expenses, which is $98,000 higher than
2006 due mainly to additional bonuses to management and employees following the equity
offering;
    
    Approximately $345,500 of FLCC water assessment charges since September 2006, this includes
our fiscal 2007 assessments and a portion of the calendar 2006 assessments;
    
    Approximately $470,000 of professional fees, which is significantly higher than fiscal
2006, mainly due to approximately $180,000 for professional fees
related to consultations with the Staff of the Commission of the SEC;
    
    Approximately $260,000 for Delaware franchise fees and NASDAQ listing fees, which is
approximately $201,000 higher than the cash paid in 2006 mainly due to the increased assets
and number of shares outstanding as a result of the Arkansas River water acquisition (the
$260,000 paid in fiscal 2007 includes amounts expensed in fiscal 2007 and 2006);
    
    Approximately $136,000 for directors fees and expenses, which includes approximately
$50,000 for insurance.
   32




---



##### Table of Contents



Investing Activities
       33




---



##### Table of Contents



Financing Activities
  Impact of Recently Issued Accounting Pronouncements
 The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115
 Fair Value Measurement
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 Total Contractual Cash Obligations
 Payments due by periodLess than 1
    
    
    1-3
    
    
    3-5
    
    
    More than 5Total
    
    
    year
    
    
    years
    
    
    years
    
    
    yearsContractual obligationsLong-term debt obligations
    
    $
    26,542
    
    
    $
    26,542
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating lease obligations
    
    
    12,000
    
    
    
    12,000
    
    
    
    (a
    )
    
    
    (a
    )
    
    
    (a
    )Investment in Well Enhancement and Recovery
Systems, LLC
    
    
    30,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Participating Interests in Export Water
    
    
    2,851,037
    
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )
    
    
    (b
    )Tap Participation Fee payable to HP A&M
    
    
    104,582,000
    
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )
    
    
    (c
    )Total
    
    $
    107,501,579
    
    
    $
    38,542
    
    
    $
    
    
    
    $
    
    
    
    $
    
  34




---



##### Table of Contents



(a)
    
    Our only operating lease is related to our office space. The lease is month-to-month and is
cancelable upon thirty days notice. Due to this not being a long-term lease, payments cannot
be reasonably estimated beyond one year.(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 $55.1 million. The valuation of the Tap Participation Fee payable
to HP A&Mis 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-based 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. 
 7A. Quantitative and Qualitative Disclosures About Market Risk
 General. Balance Sheets Statements of
Operations Statements of Cash Flows
 Interest Rates.
 Rates and Charges.
  35




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 PageReports of Independent Registered Public Accounting Firms
    
    
    37Balance Sheets
    
    
    40Statements of Operations
    
    
    41Statements of Stockholders Equity
    
    
    42Statements of Cash Flows
    
    
    43Notes to Financial Statements
    
    
    44Supplemental Data: Selected Quarterly Financial Information
    
    
    66
  36




---



##### Table of Contents



Internal ControlIntegrated
Framework
    37




---



##### Table of Contents



Internal ControlIntegrated
Framework
  
  38




---



##### Table of Contents



,
 Internal Control 
Integrated Framework
    
  39




---



##### Table of Contents



August 31,2007
    
    
    2006ASSETS:Current assets:Cash and cash equivalents
    
    $
    6,095,075
    
    
    $
    374,069Marketable securities
    
    
    799,802
    
    
    
    2,529,406Trade accounts receivable
    
    
    70,217
    
    
    
    65,420Interest receivable
    
    
    11,585
    
    
    
    36,880Prepaid expenses
    
    
    246,968
    
    
    
    50,825Current portion of construction proceeds receivable
    
    
    64,783
    
    
    
    64,783Total current assets
    
    
    7,288,430
    
    
    
    3,121,383Investments in water and water systems, net
    
    
    103,248,427
    
    
    
    104,455,868Construction proceeds receivable, less current portion, including $240,075
expected to be paid with water rights
    
    
    792,719
    
    
    
    800,172Note receivable  Rangeview Metropolitan District, including accrued interest
    
    
    475,734
    
    
    
    452,230Assets held for sale
    
    
    77,940
    
    
    
    Investment in Well Enhancement and Recovery Systems, LLC
    
    
    4,431
    
    
    
    Property and equipment, net
    
    
    4,210
    
    
    
    4,287Total assets
    
    $
    111,891,891
    
    
    $
    108,833,940LIABILITIES:Current liabilities:Accounts payable
    
    $
    15,056
    
    
    $
    34,650Accrued liabilities
    
    
    85,919
    
    
    
    289,596Deferred revenues
    
    
    55,800
    
    
    
    55,800Current debt  related party
    
    
    26,542
    
    
    
    Total current liabilities
    
    
    183,317
    
    
    
    380,046Long-term debt  related party
    
    
    
    
    
    
    26,542Deferred revenues, less current portion
    
    
    1,557,711
    
    
    
    1,613,515Participating Interests in Export Water Supply
    
    
    2,851,037
    
    
    
    6,514,116Tap Participation Fee payable to HP A&M,
net of discount of $55.1 million and $59.0 million
    
    
    49,455,000
    
    
    
    45,635,000Total liabilities
    
    
    54,047,065
    
    
    
    54,169,219Commitments and ContingenciesSTOCKHOLDERS EQUITY:Preferred stock:Par value $.001 per share, 25 million shares authorized;
Series B  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;
19,995,338 and 18,348,834 shares outstanding
    
    
    67,512
    
    
    
    61,602Additional paid-in capital
    
    
    91,650,897
    
    
    
    80,609,875Treasury stock, at cost, 256,800 and 130,279 shares of common stock
    
    
    (1,979,447
    )
    
    
    (1,009,534
    )Accumulated comprehensive income (loss)
    
    
    7,168
    
    
    
    (10,654
    )Accumulated deficit
    
    
    (31,901,737
    )
    
    
    (24,987,001
    )Total stockholders equity
    
    
    57,844,826
    
    
    
    54,664,721Total liabilities and stockholders equity
    
    $
    111,891,891
    
    
    $
    108,833,940
   40




---



##### Table of Contents



For the Years Ended August 31,2007
    
    
    2006
    
    
    2005Revenues:Metered water usage
    
    $
    149,539
    
    
    $
    163,560
    
    
    $
    152,247Wastewater treatment fees
    
    
    60,335
    
    
    
    59,008
    
    
    
    57,453Special facility funding
    
    
    41,508
    
    
    
    3,494
    
    
    
    Water tap fees
    
    
    14,294
    
    
    
    1,191
    
    
    
    Sky Ranch options
    
    
    
    
    
    
    44,416
    
    
    
    21,619Other
    
    
    
    
    
    
    
    
    
    
    3,335Total revenues
    
    
    265,676
    
    
    
    271,669
    
    
    
    234,654Expenses:Water service operations
    
    
    (54,631
    )
    
    
    (48,508
    )
    
    
    (43,873
    )Wastewater service operations
    
    
    (22,817
    )
    
    
    (17,312
    )
    
    
    (15,684
    )Depletion and depreciation
    
    
    (87,739
    )
    
    
    (8,078
    )
    
    
    (743
    )Other
    
    
    
    
    
    
    
    
    
    
    (2,858
    )Total cost of revenues
    
    
    (165,187
    )
    
    
    (73,898
    )
    
    
    (63,158
    )Gross margin
    
    
    100,489
    
    
    
    197,771
    
    
    
    171,496General and administrative expenses
    
    
    (2,476,462
    )
    
    
    (1,544,516
    )
    
    
    (1,315,320
    )Depreciation
    
    
    (278,360
    )
    
    
    (12,004
    )
    
    
    (7,148
    )Operating loss
    
    
    (2,654,333
    )
    
    
    (1,358,749
    )
    
    
    (1,150,972
    )Other income (expense):Interest income
    
    
    155,712
    
    
    
    190,987
    
    
    
    149,611Gain on extinguishment of contingent obligations and debt
    
    
    271,127
    
    
    
    390,866
    
    
    
    Gain on sale of land
    
    
    17,927
    
    
    
    
    
    
    
    Gain (loss) on sales of marketable securities
    
    
    142
    
    
    
    10,414
    
    
    
    (15,563
    )Share of losses of Well Enhancement and
Recovery Systems, LLC
    
    
    (35,569
    )
    
    
    
    
    
    
    Imputed interest expense related to the Tap
Participation Fees
payable to HP A&M
    
    
    (4,669,742
    )
    
    
    
    
    
    
    Interest expense  related parties
    
    
    
    
    
    
    (7,120
    )
    
    
    (21,359
    )Interest expense
    
    
    
    
    
    
    (19,258
    )
    
    
    (12,598
    )Net loss
    
    $
    (6,914,736
    )
    
    $
    (792,860
    )
    
    $
    (1,050,881
    )Net loss per common share  basic and diluted
    
    $
    (.37
    )
    
    $
    (.05
    )
    
    $
    (.08
    )Weighted average common shares outstanding 
basic and diluted
    
    
    18,589,737
    
    
    
    14,693,585
    
    
    
    13,674,156
   41




---



##### 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, 2004 balance:
    
    
    432,513
    
    
    $
    433
    
    
    
    13,316,135
    
    
    $
    44,387
    
    
    
    
    
    
    $
    
    
    
    $
    36,407,105
    
    
    $
    14,834
    
    
    $
    (23,143,260
    )
    
    $
    13,323,499Reimbursement to former
CEO
    
    
    
    
    
    
    
    
    
    
    300,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    2,414,000
    
    
    
    
    
    
    
    
    
    
    
    2,415,000Warrants exercised
    
    
    
    
    
    
    
    
    
    
    29,714
    
    
    
    99
    
    
    
    
    
    
    
    
    
    
    
    (99
    )
    
    
    
    
    
    
    
    
    
    
    Stock options exercised
    
    
    
    
    
    
    
    
    
    
    684,132
    
    
    
    2,284
    
    
    
    (73,154
    )
    
    
    (554,939
    )
    
    
    1,229,153
    
    
    
    
    
    
    
    
    
    
    
    676,498Unrealized loss on
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,381
    )
    
    
    
    
    
    
    (11,381
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,050,881
    )
    
    
    (1,050,881
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,062,262
    )August 31, 2005 balance:
    
    
    432,513
    
    
    
    433
    
    
    
    14,329,981
    
    
    
    47,770
    
    
    
    (73,154
    )
    
    
    (554,939
    )
    
    
    40,050,159
    
    
    
    3,453
    
    
    
    (24,194,141
    )
    
    
    15,352,735Related party debt
extinguishment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    363,208
    
    
    
    
    
    
    
    
    
    
    
    363,208CAA acquired and debt
extinguished
    
    
    
    
    
    
    
    
    
    
    242,169
    
    
    
    807
    
    
    
    
    
    
    
    
    
    
    
    2,127,389
    
    
    
    
    
    
    
    
    
    
    
    2,128,196Arkansas River water
acquisition
    
    
    
    
    
    
    
    
    
    
    3,000,000
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    36,230,000
    
    
    
    
    
    
    
    
    
    
    
    36,240,000Warrants exercised
    
    
    
    
    
    
    
    
    
    
    15,520
    
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    27,884
    
    
    
    
    
    
    
    
    
    
    
    27,936Stock options exercised
    
    
    
    
    
    
    
    
    
    
    891,443
    
    
    
    2,973
    
    
    
    (57,125
    )
    
    
    (454,595
    )
    
    
    1,601,624
    
    
    
    
    
    
    
    
    
    
    
    1,150,002Stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    209,611
    
    
    
    
    
    
    
    
    
    
    
    209,611Unrealized loss on
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,107
    )
    
    
    
    
    
    
    (14,107
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (792,860
    )
    
    
    (792,860
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (806,967
    )August 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 acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    765,071
    
    
    
    
    
    
    
    
    
    
    
    765,071Equity offering (net of
$275,000 expenses)
    
    
    
    
    
    
    
    
    
    
    1,200,000
    
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    9,020,608
    
    
    
    
    
    
    
    
    
    
    
    9,024,608Stock options exercised
    
    
    
    
    
    
    
    
    
    
    538,836
    
    
    
    1,796
    
    
    
    (126,521
    )
    
    
    (969,913
    )
    
    
    968,117
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock grant
    
    
    
    
    
    
    
    
    
    
    34,189
    
    
    
    114
    
    
    
    
    
    
    
    
    
    
    
    (114
    )
    
    
    
    
    
    
    
    
    
    
    Stock 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
    )
    
    $
    57,844,826
   42




---



##### Table of Contents



For the years ended August 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (6,914,736
    )
    
    $
    (792,860
    )
    
    $
    (1,050,881
    )Adjustments to reconcile net loss to net cash
used for operating activities:Imputed interest on Tap Participation Fees
payable to HP A&M
    
    
    4,669,742
    
    
    
    
    
    
    
    Depreciation, depletion and other non-cash items
    
    
    368,960
    
    
    
    20,082
    
    
    
    7,891Stock based compensation expense included with
general and administrative expenses
    
    
    287,340
    
    
    
    209,611
    
    
    
    Share of losses of Well Enhancement
and Recovery Systems, LLC
    
    
    35,569
    
    
    
    
    
    
    
    (Gain) loss on sales of marketable securities
    
    
    (142
    )
    
    
    (10,414
    )
    
    
    15,563Gain on sale of fixed assets
    
    
    (17,927
    )
    
    
    
    
    
    
    Interest added to note receivable Rangeview Metropolitan District
    
    
    (23,504
    )
    
    
    (21,508
    )
    
    
    (16,917
    )Interest added to construction proceeds receivable
    
    
    (49,877
    )
    
    
    
    
    
    
    Extinguishment of contingent obligations and debt
    
    
    (271,127
    )
    
    
    (390,866
    )
    
    
    Interest accrued on long-term debt  related parties
    
    
    
    
    
    
    7,120
    
    
    
    21,360Interest accrued on long-term debt
    
    
    
    
    
    
    19,258
    
    
    
    12,597Changes in operating assets and liabilities:Export water proceeds to be remitted to escrow agent
    
    
    
    
    
    
    174,890
    
    
    
    (174,890
    )Trade accounts receivable
    
    
    (4,797
    )
    
    
    (15,361
    )
    
    
    179Interest receivable and prepaid expenses
    
    
    (170,849
    )
    
    
    (27,250
    )
    
    
    (1,862
    )Accounts payable and accrued liabilities
    
    
    (223,271
    )
    
    
    19,957
    
    
    
    (124,235
    )Deferred revenues
    
    
    (55,804
    )
    
    
    39,754
    
    
    
    492,933Net cash used for operating activities
    
    
    (2,370,423
    )
    
    
    (767,587
    )
    
    
    (818,262
    )Cash flows from investing activities:Sales and maturities of marketable securities
    
    
    1,955,669
    
    
    
    4,833,174
    
    
    
    5,971,735Sale of LAWMA shares
    
    
    849,742
    
    
    
    
    
    
    
    Sale of property and equipment
    
    
    19,250
    
    
    
    
    
    
    
    Purchase of property and equipment
    
    
    (3,003
    )
    
    
    (2,781
    )
    
    
    (5,660
    )Capitalized acquisition costs
    
    
    (37,600
    )
    
    
    (173,110
    )
    
    
    Investment in Well Enhancement and Recovery Systems LLC
    
    
    (40,000
    )
    
    
    
    
    
    
    Investments in water and water systems
    
    
    (46,983
    )
    
    
    (2,411,746
    )
    
    
    (404,519
    )Purchase of marketable securities
    
    
    (208,101
    )
    
    
    (3,885,238
    )
    
    
    (5,424,071
    )Sky Ranch option payments received
    
    
    
    
    
    
    
    
    
    
    60,400Net cash provided (used) by investing activities
    
    
    2,488,974
    
    
    
    (1,639,701
    )
    
    
    197,885Cash flows from financing activities:Proceeds from the sale of common and preferred stock, net
    
    
    9,024,608
    
    
    
    1,177,938
    
    
    
    676,498Payments received on construction proceeds receivable
    
    
    57,330
    
    
    
    
    
    
    
    Payments to contingent liability holders
    
    
    (4,516
    )
    
    
    (174,890
    )
    
    
    (3,120
    )Tap Participation Fee payments to HP A&M
    
    
    (849,742
    )
    
    
    
    
    
    
    Payments to purchase contingent liabilities
    
    
    (2,625,225
    )
    
    
    
    
    
    
    Payments on long-term debt  related parties
    
    
    
    
    
    
    (195,573
    )
    
    
    Construction funding
    
    
    
    
    
    
    
    
    
    
    397,235Reimbursement to former CEO
    
    
    
    
    
    
    
    
    
    
    (50,555
    )Net cash provided by financing activities
    
    
    5,602,455
    
    
    
    807,475
    
    
    
    1,020,058Net change in cash and cash equivalents
    
    
    5,721,006
    
    
    
    (1,599,813
    )
    
    
    399,681Cash and cash equivalents  beginning of year
    
    
    374,069
    
    
    
    1,973,882
    
    
    
    1,574,201Cash and cash equivalents  end of year
    
    $
    6,095,075
    
    
    $
    374,069
    
    
    $
    1,973,882
   43




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##### Table of Contents



NOTE
1  ORGANIZATION
   NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Revenue Recognition. Revenue Arrangements with Multiple
Deliverables
 Accounting for Performance of
Construction-Type and Certain Production-Type Contracts Revenue Recognition (SAB 104),
    44




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##### Table of Contents



Use of Estimates.
 Cash and Cash Equivalents.
 Financial Instruments.
 Cash Flows.
 Marketable Securities.
 Accumulated comprehensive income.
  45




---



##### Table of Contents



Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCommercial paper
    
    $
    95,500
    
    
    $
    
    
    
    $
    
    
    
    $
    95,500U.S. government debt securities with
unrealized gains
    
    
    597,984
    
    
    
    2,197
    
    
    
    
    
    
    
    600,181U.S. corporate debt securities with
unrealized gains
    
    
    194,650
    
    
    
    4,971
    
    
    
    
    
    
    
    199,621Total investments
    
    
    888,134
    
    
    
    7,168
    
    
    
    
    
    
    
    895,302Less cash equivalents
    
    
    95,500
    
    
    
    
    
    
    
    
    
    
    
    95,500Total marketable securities
    
    $
    792,634
    
    
    $
    7,168
    
    
    $
    
    
    
    $
    799,802
  Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCommercial paper
    
    $
    149,156
    
    
    $
    
    
    
    $
    
    
    
    $
    149,156U.S. government debt securities:With unrealized losses:Less than 12 months
    
    
    993,129
    
    
    
    
    
    
    
    (3,584
    )
    
    
    989,545Greater than 12 months
    
    
    299,742
    
    
    
    
    
    
    
    (2,109
    )
    
    
    297,633U.S. corporate debt securities:With unrealized gains
    
    
    295,400
    
    
    
    593
    
    
    
    
    
    
    
    295,993With unrealized losses:Less than 12 months
    
    
    702,503
    
    
    
    
    
    
    
    (4,529
    )
    
    
    697,974Greater than 12 months
    
    
    249,286
    
    
    
    
    
    
    
    (1,025
    )
    
    
    248,261Total investments
    
    
    2,689,216
    
    
    
    593
    
    
    
    (11,247
    )
    
    
    2,678,562Less cash equivalents
    
    
    (149,156
    )
    
    
    
    
    
    
    
    
    
    
    (149,156
    )Total marketable securities
    
    $
    2,540,060
    
    
    $
    593
    
    
    $
    (11,247
    )
    
    $
    2,529,406
   Accounts receivable.
 Fair value of financial instruments.
 Long-Lived Assets.
  46




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##### Table of Contents



Water and Wastewater Systems.
 Depletion and Depreciation of Water Assets.
 Share-based Compensation. Share-Based Payment Accounting for Stock Issued to Employees
 Transition Election Related to Accounting for Tax Effects of Share-Based Payment
Awards
  Accounting for Stock-Based Compensation
  47




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##### Table of Contents



Net loss, as reported
    
    $
    (1,050,881
    )Add back stock-based employee compensation expense
included in reported net loss
    
    
    Deduct: Total stock-based employee compensation expense
determined under fair value based method for all options and
warrants
    
    
    (168,000
    )Pro forma net loss
    
    $
    (1,218,881
    )Weighted average common shares outstanding
 basic and diluted
    
    
    13,674,156Pro forma net loss per share
    
    $
    (0.09
    )
  
    
    The grant date exercise price  which 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  pursuant to the 2004 Incentive Plan, all option grants have a 10 year
life;
    
    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.
 Income Taxes.
  48




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##### Table of Contents



Accumulated Comprehensive Income (Loss) .
 Loss per Common Share.
 Reclassifications.
 NOTE
3  WATER, WATER SYSTEMS AND SERVICE AGREEMENTS
  2007
    
    
    2006Accumulated
    
    
    
    
    
    
    AccumulatedDepreciation
    
    
    
    
    
    
    Depreciationand
    
    
    
    
    
    
    andCosts
    
    
    Depletion
    
    
    Costs
    
    
    DepletionArkansas River Valley assets
    
    $
    81,234,547
    
    
    $
    (265,466
    )
    
    $
    82,125,952
    
    
    $
    Rangeview water supply
    
    
    13,949,036
    
    
    
    (4,408
    )
    
    
    13,924,448
    
    
    
    (3,768
    )Rangeview water system
    
    
    167,720
    
    
    
    (38,032
    )
    
    
    167,720
    
    
    
    (28,862
    )Paradise water supply
    
    
    5,525,017
    
    
    
    
    
    
    
    5,520,836
    
    
    
    Fairgrounds water and water system
    
    
    2,669,924
    
    
    
    (94,325
    )
    
    
    2,653,995
    
    
    
    (7,225
    )Sky Ranch water supply
    
    
    100,000
    
    
    
    
    
    
    
    100,000
    
    
    
    Water supply  other
    
    
    5,307
    
    
    
    (893
    )
    
    
    3,022
    
    
    
    (250
    )Totals
    
    $
    103,651,551
    
    
    $
    (403,124
    )
    
    $
    104,495,973
    
    
    $
    (40,105
    )Net investments in water and
water systems
    
    $
    103,248,427
    
    
    
    
    
    
    $
    104,455,868
 Depletion and Depreciation.
  Arkansas River Valley Assets.
 
    
    60,000 acre-feet of senior water interests in the Arkansas River and its tributaries
represented by approximately 21,600 shares of the Fort Lyon Canal Company (FLCC)
(collectively these are referred to as the Water Rights),
    
    Approximately 80 separate real estate properties (or approximately 17,500 acres of land)
located in the counties of Bent, Otero and Prowers, Colorado, currently used for agricultural
purposes (the Properties) (certain of the Properties are subject to mortgages maintained by
HP A&M as further described below), and
 
    
    Certain contract rights, tangible personal property, mineral rights, and other water
interests related to the Water Rights and Properties (collectively the Water Rights,
Properties, and related assets are referred to as the Acquired Assets).
  49




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##### Table of Contents



Reporting
Revenue Gross as Principal versus Net as an Agent
 other assets
  Tap Participation Fee
   50




---



##### Table of Contents



Purchase Price Adjustment
   Sale of LAWMA Shares
   51




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##### Table of Contents



Accounting for the Impairment of Long-Lived Assets
 Promissory Notes Payable by HP A&M
  Consolidation of Variable Interest Entities (as amended)
 Additional Agreements and Information
  
    
    A pledge agreement related to the promissory notes, whereby HP A&M pledged, transferred,
assigned and granted to the Company a security interest in and to (a) 1,500,000 shares of Pure
Cycle common stock, (b) all shares of Pure Cycle Common Stock hereafter issued to HP A&M by
means of any dividend or distribution in respect of the shares pledged hereunder (together
with the shares identified in (a), the Pledged Shares), (c) the certificates representing
the Pledged Shares, and (d) all rights to money or property which HP A&M now has or hereafter
acquires in respect of the Pledged Shares;
    
    A pledge agreement, whereby the Company pledged to HP A&M: (i) one-half of the shares of
FLCC purchased by the Company, (ii) all shares of FLCC hereafter issued to the Company by
means of any dividend or distribution in respect of the shares pledged hereunder (together
with the shares identified in (i), the Companys Pledged Shares), (iii) the certificates
representing the Companys Pledged Shares, (iv) the Properties associated with the water
represented by the Companys Pledged Shares, and (v) all rights to money or property which the
Company now has or hereafter acquires in respect of the Companys Pledged Shares;
    
    A five year property management agreement with HP A&M, pursuant to which, HP A&M holds the
right to pursue leasing of the Properties and the Water Rights to interested parties. All
lease income associated with leasing the Properties and Water Rights, together with all costs
associated with these activities including but not limited to, overhead obligations, real
property taxes, and personnel costs, are the sole opportunity and obligation of HP A&M;
  52




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##### Table of Contents




    
    A non-solicitation agreement with each of the owners of HP A&M, pursuant to which each of
the named parties agreed, for three years (i) not to solicit the Companys customers or
potential customers to provide water in the
Companys service areas or potential service areas, (ii) not to solicit employees of the
Company, (iii) not to engage in certain activities competitive with the Company and (iv) not to
engage in the purchase of water or water rights without first offering such water or water
rights to the Company;
    
    A registration rights agreement, pursuant to which the Company granted HP A&M one demand
right to register 750,000 shares of Pure Cycle common stock and piggyback rights to register
an additional 750,000 shares of Pure Cycle common stock (HP A&M exercised its piggyback rights
in July 2007 and therefore the Company registered 750,000 shares of common stock held by HP
A&M); and
    
    A voting agreement, pursuant to which Mr. Mark Harding, the Companys President, agrees to
vote shares of Pure Cycle common stock owned by him for HP A&Ms designated board member.
   Rangeview Water Supply and Water System.
    53




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##### Table of Contents



Arapahoe County Fairgrounds Agreement for Water Service.
   54




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##### Table of Contents




    
    An initial cash payment of approximately $397,000, which was paid in August 2005,
 
    
    The transfer of approximately 336 acre-feet of water, valued at approximately $240,000,
and
 
    
    The balance of approximately $607,900 in monthly payments over 10 years (including
interest at 6% per annum).
   Sky Ranch Water Supply and Water Service Agreements.
  55




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##### Table of Contents



Participating Interests in Export
Water supply
 Participating Interests in Export Water supply
   56




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##### Table of Contents



Paradise Water Supply.
  , Accounting for the
Impairment or Disposal of Long-Lived Assets
 NOTE
4  INVESTMENT IN WELL ENHANCEMENT AND RECOVERY SYSTEMS, LLC
  The Equity Method of Accounting for Investments in
Common Stock (as amended) Accounting for Investments
in Limited Liability Companies Investment in Well Enhancement
and Recovery Systems, LLC rd
  57




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##### Table of Contents



NOTE
5  PARTICIPATING INTERESTS IN EXPORT WATER
 Sales of Future Revenues
 Participating Interests in Export Water supply Participating Interests in Export Water
  ExportWater
    
    
    Export Water
    
    
    Total
    
    
    PaticipatingProceeds
    
    
    Proceeds to
    
    
    Potential
    
    
    InterestsReceived
    
    
    Pure Cycle
    
    
    Obligation
    
    
    Liability
    
    
    ContingencyOriginal balances
    
    $
    
    
    
    $
    218,500
    
    
    $
    31,807,732
    
    
    $
    11,090,630
    
    
    $
    20,717,102Sky Ranch option payment
    
    
    50,000
    
    
    
    
    
    
    
    (50,000
    )
    
    
    (17,435
    )
    
    
    (32,565
    )Acquisitions
    
    
    
    
    
    
    8,199,333
    
    
    
    (8,199,333
    )
    
    
    (2,858,920
    )
    
    
    (5,340,413
    )Balance at August 31, 2004
    
    
    50,000
    
    
    
    8,417,833
    
    
    
    23,558,399
    
    
    
    8,214,275
    
    
    
    15,344,124Sky Ranch option payment
    
    
    50,000
    
    
    
    (35,000
    )
    
    
    (15,000
    )
    
    
    (5,231
    )
    
    
    (9,769
    )Hills at Sky Ranch option payment
    
    
    10,400
    
    
    
    (7,280
    )
    
    
    (3,120
    )
    
    
    (1,088
    )
    
    
    (2,032
    )Arapahoe County tap fees *
    
    
    532,968
    
    
    
    (373,078
    )
    
    
    (159,890
    )
    
    
    (55,754
    )
    
    
    (104,136
    )Balance at August 31, 2005
    
    
    643,368
    
    
    
    8,002,475
    
    
    
    23,380,389
    
    
    
    8,152,202
    
    
    
    15,228,187Acquisition
    
    
    
    
    
    
    4,698,001
    
    
    
    (4,698,001
    )
    
    
    (1,638,086
    )
    
    
    (3,059,915
    )Balance at August 31, 2006
    
    
    643,368
    
    
    
    12,700,476
    
    
    
    18,682,388
    
    
    
    6,514,116
    
    
    
    12,168,272Export Water Sale payments
    
    
    15,810
    
    
    
    (11,067
    )
    
    
    (4,743
    )
    
    
    (1,655
    )
    
    
    (3,088
    )Acquisitions
    
    
    
    
    
    
    10,500,900
    
    
    
    (10,500,900
    )
    
    
    (3,661,424
    )
    
    
    (6,839,476
    )Balance at August 31, 2007
    
    $
    659,178
    
    
    $
    23,190,309
    
    
    $
    8,176,745
    
    
    $
    2,851,037
    
    
    $
    5,325,708
 *
    
    The Arapahoe County tap fees are less the $34,522 royalty payment to the Land Board.  58




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##### Table of Contents



NOTE
6  ACCRUED LIABILITIES
  NOTE 7  LONG-TERM DEBT
    59




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NOTE 8  STOCKHOLDERS EQUITY
 Preferred and Common Stock.
  Stock Options.
  Weighted-Weighted-
    
    
    Average
    
    
    ApproximateAverage
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    InstrinsicOptions
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at August 31, 2006:
    
    
    661,336
    
    
    $
    3.08Granted
    
    
    17,500
    
    
    
    7.84Exercised
    
    
    (538,836
    )
    
    
    1.80Forfeited or expired
    
    
    
    
    
    
    Outstanding at August 31, 2007:
    
    
    140,000
    
    
    $
    8.60
    
    
    
    8.0
    
    
    $
    (131,700
    )Options exercisable at August 31, 2007:
    
    
    100,000
    
    
    $
    8.70
    
    
    
    7.4
    
    
    $
    (102,700
    )
   60




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##### Table of Contents



Weighted-AverageNumber of
    
    
    Grant DateOptions
    
    
    Fair ValueNon-vested options outstanding at August 31, 2006
    
    
    60,000
    
    
    $
    8.10Granted
    
    
    17,500
    
    
    
    6.62Vested
    
    
    (37,500
    )
    
    
    8.35Forfeited
    
    
    
    
    
    
    Non-vested options outstanding at August 31, 2007
    
    
    40,000
    
    
    $
    7.22
   Treasury Stock
     61




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##### Table of Contents



Restricted stock.
  Weighted-averagegrant dateShares
    
    
    fair valueRestricted stock outstanding at August 31, 2006
    
    
    
    
    
    $
    Restricted stock granted
    
    
    34,189
    
    
    
    7.59Restricted stock vested and released
    
    
    
    
    
    
    Restricted stock forfeited
    
    
    
    
    
    
    Restricted stock outstanding at August 31, 2007
    
    
    34,189
    
    
    $
    7.59
  Warrants.
  62




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Gain on extinguishment of related party CAA obligations and debt. Related Party
Transactions
 NOTE 9   SIGNIFICANT CUSTOMERS
  NOTE 10  INCOME TAXES
  2007
    
    
    2006
    
    
    2005Deferred tax assets:Net operating loss carryforwards
    
    $
    4,440,600
    
    
    $
    3,366,200
    
    
    $
    3,472,500Imputed interest on Tap Participation Fee
payable to HP A&M
    
    
    1,753,000
    
    
    
    
    
    
    
    Depreciation and depletion of water and
water systems
    
    
    462,400
    
    
    
    479,200
    
    
    
    77,900Water tap revenues
    
    
    154,200
    
    
    
    159,500
    
    
    
    Valuation allowance
    
    
    (6,810,100
    )
    
    
    (4,003,300
    )
    
    
    (3,548,900
    )Net deferred tax asset
    
    
    100
    
    
    
    1,600
    
    
    
    1,500Deferred tax liabilities:Depreciation on property and equipment
    
    
    (100
    )
    
    
    (1,600
    )
    
    
    (1,500
    )Net deferred assets
    
    $
    
    
    
    $
    
    
    
    $
    
   2007
    
    
    2006
    
    
    2005Expected benefit from federal income taxes at statutory
rate of 34%
    
    $
    (2,351,000
    )
    
    $
    (269,600
    )
    
    $
    (357,300
    )State taxes, net of federal benefit
    
    
    (228,200
    )
    
    
    (26,200
    )
    
    
    (34,700
    )Expiration of net operating losses
    
    
    393,900
    
    
    
    160,500
    
    
    
    176,900Permanent differences
    
    
    (621,500
    )
    
    
    (319,100
    )
    
    
    (215,000
    )Change in valuation allowance
    
    
    2,806,800
    
    
    
    454,400
    
    
    
    430,100Total income tax expense
    
    $
    
    
    
    $
    
    
    
    $
    
   63




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NOTE
11  401(k) PLAN
  NOTE
12  SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
 Years Ended August 31,2007
    
    
    2006
    
    
    2005Adjustment to purchase price relating to LAWMA
shares acquired from 
HP A&M
    
    $
    927,682
    
    
    $
    
    
    
    $
    Treasury stock accepted upon exercise of stock
options with mature shares used as consideration
    
    $
    969,913
    
    
    $
    454,595
    
    
    $
    554,939Gain on extinguishment of related party debt
accounted for as contributed capital
    
    $
    765,071
    
    
    $
    363,208
    
    
    $
    Tap Participation Fee issued to HP A&M pursuant to
Arkansas River Agreement
    
    $
    
    
    
    $
    45,635,000
    
    
    $
    Common stock issued to HP A&M pursuant to the
Arkansas River Agreement
    
    $
    
    
    
    $
    36,240,000
    
    
    $
    Common stock issued to acquire contingent
obligations, and extinguish debt
    
    $
    
    
    
    $
    2,128,196
    
    
    $
    Construction proceeds receivable included in
deferred revenue
    
    $
    
    
    
    $
    864,955
    
    
    $
    Investments in water and water systems included
with accrued liabilities
    
    $
    
    
    
    $
    117,287
    
    
    $
    Capitalized legal and engineering fees incurred in
connection with Arkansas River water acquisition
included with accrued liabilities
    
    $
    
    
    
    $
    77,842
    
    
    $
    Water rights acquired with deferred tap fee credits
    
    $
    
    
    
    $
    52,938
    
    
    $
    Estimated common stock registration costs included
with accrued liabilities
    
    $
    
    
    
    $
    15,000
    
    
    $
    Restricted common stock issued to former CEO in
satisfaction of reimbursement obligation
    
    $
    
    
    
    $
    
    
    
    $
    2,415,000
  64




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NOTE
13  RELATED PARTY TRANSACTIONS
      NOTE
14  SUBSEQUENT EVENTS
  Arapahoe County
Fairgrounds Agreement for Water Service
  65




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##### Table of Contents



NOTE
15  SUPPLEMENTAL DATA: SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited)
 In thousands, except per share amountsFiscal 2007 quarters ended:
    
    August 31
    
    
    May 31
    
    
    February 28
    
    
    November 30Total revenues
    
    $
    87.6
    
    
    $
    62.4
    
    
    $
    52.0
    
    
    $
    63.7Gross margin
    
    $
    43.5
    
    
    $
    21.9
    
    
    $
    12.8
    
    
    $
    22.3Net loss
    
    $
    (1,757.3
    )
    
    $
    (1,742.9
    )
    
    $
    (1,829.3
    )
    
    $
    (1,585.2
    )Earnings per share  basic and diluted
    
    $
    (0.09
    )
    
    $
    (0.09
    )
    
    $
    (0.10
    )
    
    $
    (0.09
    )Market price of common stockHigh
    
    $
    8.66
    
    
    $
    8.71
    
    
    $
    9.32
    
    
    $
    9.74Low
    
    $
    7.16
    
    
    $
    6.47
    
    
    $
    7.60
    
    
    $
    6.41
 Fiscal 2006 quarters ended:
    
    August 31
    
    
    May 31
    
    
    February 28
    
    
    November 30Total revenues
    
    $
    83.4
    
    
    $
    67.7
    
    
    $
    55.0
    
    
    $
    65.6Gross margin
    
    $
    55.3
    
    
    $
    54.8
    
    
    $
    40.9
    
    
    $
    46.8Net loss
    
    $
    (79.1
    )
    
    $
    (201.9
    )
    
    $
    (306.8
    )
    
    $
    (205.1
    )Earnings per share  basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.01
    )Market price of common stockHigh
    
    $
    11.23
    
    
    $
    14.48
    
    
    $
    11.88
    
    
    $
    8.00Low
    
    $
    7.67
    
    
    $
    9.57
    
    
    $
    6.61
    
    
    $
    5.56
   66




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
 Accounting for Expenses or
Liabilities by Principal Stockholder(s)
 
 Item 9A. Controls and Procedures.
 (a)   Evaluation of Disclosure Controls and Procedures
  Internal
ControlIntegrated Framework
 (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.
  67




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##### Table of Contents



Item 8. Financial Statements and
Supplementary Data
 (c) Changes in Internal Controls
  
 Item 9B. Other Information.
  
 PART III
 
  
 PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
 (a)
    
    Exhibits3.1
    
    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
  68




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##### Table of Contents



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, 1996.10.4
    
    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, 2006, 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 among Pure Cycle Corporation and High
Plains A&M, LLC incorporated by reference from Form 8-K filed on May 16, 2006.10.18
    
    Purchase and Sale Agreement dated as of August 28, 2006 between Pure Cycle Corporation
and Inco Securities Corporation incorporated by reference from Form 8-K filed on September
1, 2006.
  69




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##### Table of Contents



10.19
    
    Placement Agent Agreement by and among Pure Cycle Corporation, certain selling
stockholders, and Wm Smith Securities, Incorporated and Flagstone Securities, LLC, as
Placement Agents, dated July 24, 2007 incorporated by reference from 
Form 8-K filed on July
25, 2007.10.20
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and
Apex Investment Fund II, L.P. *10.21
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and
Productivity Fund II, L.P.*10.22
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and
Environmental Private Equity
 Fund II, L.P.*10.23
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and
Environmental Venture Fund, L.P.*10.24
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and
the Estate of Thomas P. Clark.*10.25
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and Auginco.*10.26
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and Newell Augur, Jr.*10.27
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and Anders Brag.*10.28
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and Bill Peterson.*10.29
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and Gregory M. Morey.*10.30
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and Amy Leeds.*10.31
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and Margaret S. Hansson.*10.32
    
    Purchase and Sale Agreements dated October 1, 2007 between Pure Cycle Corporation and
Landmark Water Partners, L.P.*10.33
    
    Purchase and Sale Agreements dated October 1, 2007 between Pure Cycle Corporation and
Landmark Water Partners II, L.P.*10.34
    
    Purchase and Sale Agreements dated October 1, 2007 between Pure Cycle Corporation and
Warwick Partners, L.P.*10.35
    
    Purchase and Sale Agreements dated October 1, 2007 between Pure Cycle Corporation and
International Properties, Inc.*10.36
    
    Purchase and Sale Agreements dated October 1, 2007 between Pure Cycle Corporation and
Fayyaz & Company, Inc.*14
    
    Code of Ethics as amended August 2, 2007. *16.1
    
    Letter from Anton Collins Mitchell LLP to the Securities and Exchange Commission, dated
December 18, 2006, incorporated by reference from Form 8-K filed on December 18, 2006.23.1
    
    Consent of GHP Horwath, P.C. *23.2
    
    Consent of Anton Collins Mitchell LLP *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(b)
    
    Financial Statement Schedules   70




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##### Table of Contents



SIGNATURES
  PURE CYCLE CORPORATIONBy:
    
    /s/ Mark W. HardingMark W. Harding, President and Chief Financial OfficerNovember 14, 2007
  Signature
    
    Title
    
    Date/s/ Mark W. Harding
    
    President,
Chief Financial Officer and Director
    
    November 14, 2007Mark W. Harding
    
    (Principal Executive
Officer, Principal Financial and
Accounting Officer)/s/ Harrison H. AugurHarrison H. Augur
    
    Chairman,
Director
    
    November 14, 2007/s/ Mark D. CampbellMark D. Campbell
    
    Director
    
    November 14, 2007/s/ Arthur G. Epker IIIArthur G. Epker III
    
    Director
    
    November 14, 2007/s/ Richard L. GuidoRichard L. Guido
    
    Director
    
    November 14, 2007/s/ Peter C. HowellPeter C. Howell
    
    Director
    
    November 14, 2007/s/ George M. MiddlemasGeorge M. Middlemas
    
    Director
    
    November 14, 2007
  71




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##### Table of Contents



EXHIBIT
INDEX
 ExhibitsNo.
    
    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, 200410.3
    
    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, 2006, 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 among Pure Cycle Corporation and High
Plains A&M, LLC incorporated by reference from Form 8-K filed on May 16, 2006.10.18
    
    Purchase and Sale Agreement dated as of August 28, 2006 between Pure Cycle Corporation
and Inco Securities Corporation incorporated by reference from Form 8-K filed on September
1, 2006.10.19
    
    Placement Agent Agreement by and among Pure Cycle Corporation, certain selling
stockholders, and Wm Smith Securities, Incorporated and Flagstone Securities, LLC, as
Placement Agents, dated July 24, 2007 incorporated by reference from Form 8-K filed on July
25, 2007.10.20
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and
Apex Investment Fund II, L.P. *10.21
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and
Productivity Fund II, L.P.*10.22
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and
Environmental Private Equity Fund II, L.P.*10.23
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and
Environmental Venture Fund, L.P.*10.24
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and
the Estate of Thomas P. Clark.*10.25
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and Auginco.*10.26
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and Newell Augur, Jr.*10.27
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and Anders Brag.*10.28
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and Bill Peterson.*10.29
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and Gregory M. Morey.*10.30
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and Amy Leeds.*10.31
    
    Purchase and Sale Agreements dated July 31, 2007 between Pure Cycle Corporation and Margaret S. Hansson.*10.32
    
    Purchase and Sale Agreements dated October 1, 2007 between Pure Cycle Corporation and
Landmark Water Partners, L.P.*10.33
    
    Purchase and Sale Agreements dated October 1, 2007 between Pure Cycle Corporation and
Landmark Water Partners II, L.P.*10.34
    
    Purchase and Sale Agreements dated October 1, 2007 between Pure Cycle Corporation and
Warwick Partners, L.P.*10.35
    
    Purchase and Sale Agreements dated October 1, 2007 between Pure Cycle Corporation and
International Properties, Inc.*10.36
    
    Purchase and Sale Agreements dated October 1, 2007 between Pure Cycle Corporation and
Fayyaz & Company, Inc.*14
    
    Code of Ethics as amended August 2, 2007. *16.1
    
    Letter from Anton Collins Mitchell LLP to the Securities and Exchange Commission, dated
December 18, 2006, incorporated by reference from Form 8-K filed on December 18, 2006.23.1
    
    Consent of GHP Horwath P.C. *23.2
    
    Consent of Anton Collins Mitchell LLP *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(b)
    
    Financial Statement Schedules  72