Edgar Filing: PURE CYCLE CORP

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 2004.

REGISTRATION NO. 333-
================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________

FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
___________________________________

PURE CYCLE CORPORATION
(Exact name of registrant as specified in its charter)
___________________________________

DELAWARE 84-0705083
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

4941
(Primary Standard Industrial Classification Code)
___________________________________

8451 DELAWARE ST.
THORNTON, COLORADO 80260
(303) 292-3456
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

MARK W. HARDING
8451 DELAWARE ST.
THORNTON, COLORADO 80260
TELEPHONE: (303) 292-3456
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

With copies to:

WANDA J. ABEL, ESQ.
DAVIS GRAHAM & STUBBS LLP
1550 SEVENTEENTH STREET, SUITE 500
DENVER, COLORADO 80202
TELEPHONE: (303) 892-9400
___________________________________

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

_______________________________________

CALCULATION OF REGISTRATION FEE

----------------------------------------- ------------ ---------------- --------------- -----------------
Proposed Proposed
Amount maximum maximum
Title of each class of to be offering price aggregate Amount of
securities to be registered registered per share (1) offering price registration fee
----------------------------------------- ------------ ---------------- --------------- -----------------

Common Stock, $.00333 par value per share 3,586,210(2) $ 9.05 $ 32,455,200.50 $ 4,112.08
----------------------------------------- ------------ ---------------- --------------- -----------------

(1) Estimated solely for the purpose of computing the registration fee. The
proposed maximum offering price per share and maximum aggregate offering
price for the shares being registered hereby are calculated in accordance
with Rule 457(c) under the Securities Act using the average of the high and
low sales price per share of our common stock on April 14, 2004, as
reported on the OTC Bulletin Board.

(2) Consists of 700,000 shares of common stock being offered by Pure Cycle
Corporation, 2,418,443 shares of common stock being offered by certain
selling stockholders of Pure Cycle Corporation, and an additional 467,767
shares issuable by Pure Cycle upon the exercise of the underwriter's
overallotment option.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities pursuant to this prospectus
until the registration statement filed with the Securities and Exchange
Commission becomes effective. This prospectus is not an offer to sell these
securities and neither Pure Cycle nor the Selling Stockholders are soliciting
offers to buy these securities in any state where the offer or sale is not
permitted.

Subject to completion, dated April 19, 2004

PROSPECTUS

3,118,443 SHARES
PURE CYCLE CORPORATION
COMMON STOCK, $.00333 PAR VALUE

________________

The 3,118,443 shares of common stock, $.00333 par value, offered hereby are
being offered by Pure Cycle Corporation and by certain Pure Cycle stockholders.
Of the total number of shares offered, 700,000 shares are being offered by Pure
Cycle and 2,418,443 shares are being offered by the selling stockholders. See
"Selling Stockholders."

Pure Cycle's common stock is quoted on the OTC Bulletin Board under the
symbol "PCYL." On April 15, 2004, the last reported sales prices of our common
stock on the OTC Bulletin Board was $9.30 per share. We have applied for
listing of our common stock on the NASDAQ Small Cap Market under the symbol
"__________."

FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

PER SHARE TOTAL
--------- -----
Offering price * *
Underwriting discount * *
Proceeds, before expenses, to Pure Cycle * *
Proceeds, before expenses, to selling stockholders * *

We have granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of 467,767 additional
shares from us within 30 days following the date of this prospectus to cover
over-allotments. See "Plan of Distribution."

FLAGSTONE SECURITIES

The date of this prospectus is __________, 2004.

TABLE OF CONTENTS

Page
----

PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .16
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
MARKET PRICE OF AND DIVIDENDS FOR OUR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . 20
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 22
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS . . . . . . . . . . . . . . .44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSHIP AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . .48
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SELLING STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
WHERE YOU CAN FIND MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . 57

____________

As used in this prospectus, the terms "Pure Cycle," the "Company," "we,"
"our," or "us" refer to Pure Cycle Corporation, unless the context otherwise
indicates.

Unless otherwise stated, all information in this prospectus gives effect
to the 1-for-10 reverse stock split of our common stock that will be effective
April 26, 2004. The financial statements beginning on Page F-1 do not give
effect to the reverse stock split.

Unless otherwise stated in this prospectus, all information contained in
this prospectus assumes no exercise of the over-allotment option granted to the
underwriters.

The underwriters are offering the shares subject to various conditions and
may reject all or part of any order. The common stock should be ready for
delivery on or about _____________ ___, 2004 against payment in immediately
available funds.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this
prospectus. Because it is a summary, it does not contain all of the information
that you should consider before investing in our common stock. You should read
the entire prospectus carefully.

THE COMPANY

We own or have rights to use significant water assets which we have begun
to utilize to provide water and wastewater services to customers located in the
Denver, Colorado metropolitan area near our principal water assets. We will
operate water and wastewater systems to deliver and treat the water we provide.
Our services will include designing, constructing, operating and maintaining
systems to service our customers.

Rangeview Water Assets.
----------------------

We have exclusive access to approximately 29,000 acre feet per year of
water from, and the exclusive right to provide water and wastewater services to,
24,000 acres of primarily undeveloped land in eastern Colorado known as the
Lowry Range (the "Lowry Range service area"). The Lowry Range is located in
Arapahoe County approximately 15 miles southeast of Denver and 12 miles south of
the Denver International Airport. Of the approximately 29,000 acre feet of
water to which we have access, 17,500 acre feet are available to us for use on
the Lowry Range. We own the remaining 11,650 acre feet and we can "export" it
from the Lowry Range to supply water to nearby communities and developers in
need of additional water supplies ("Export Water"). We acquired these rights
and the Export Water in 1996 when we entered into an 85-year agreement with the
State of Colorado Board of Land Commissioners ("State Land Board"), which owns
the Lowry Range, and the Rangeview Metropolitan District (the "District"), a
quasi-municipal political subdivision formed for the sole purpose of providing
water and wastewater services to the Lowry Range. We refer to all of these
assets as our Rangeview water supply.

We are in the early stages of utilizing our Rangeview water assets. Since
June 2001, we have been supplying water and wastewater services in the Lowry
Range service area to approximately 200 single family equivalent, or SFE, units
through service to the Ridge View Youth Services Center, a 500 bed juvenile
facility. In October 2003, we entered into a contract to provide water service
to Sky Ranch, a proposed mixed-use development of single and multi-family
residences and commercial space. Sky Ranch will be located approximately four
miles north of the Lowry Range along Interstate-70 in Arapahoe County. When the
development is complete, we expect to supply Sky Ranch with water services for
4,000 SFE units. Our agreement does not call for us to provide wastewater
services to Sky Ranch. We expect the initial development of Sky Ranch to begin
in the fall of 2004. While we are currently actively marketing our water
services to other developers and property owners in areas near the Sky Ranch
development, the Ridge View Youth Services Center represents our only current
operation.

Operations. We will have two sources of revenue from providing water and
----------
water services. We will receive a one time "tap" fee, generally paid by the
developer, and annual service and use charges based on the monthly metered water
deliveries to the water user. The water tap fee has two components: a system
development fee, which gives the customer access to the water system and is used
for construction of the water delivery system, and a water resource fee, which
defrays the costs of acquiring the water rights. Under the terms of our
agreement with the State Land Board, our tap fees and use charges may not exceed
the average of the tap fees and use charges of three nearby communities. This
average, which is adjusted annually, has risen by approximately 52% since 2000
and is presently $12,420 per SFE. Generally, we receive 95% of these tap fees

after deducting a 12% royalty payable to the State Land Board. In exchange for
developing, operating and maintaining the wastewater system, we receive 100% of
wastewater tap fees, presently $4,883 per SFE, and 90% of monthly wastewater
usage fees. We also receive wastewater service fees. Annual water service fees
per SFE are approximately $578 and annual wastewater service fees per SFE are
approximately $404.

We expect to utilize the portion of the tap fees designated by the District
as the system development portion to construct the infrastructure necessary to
deliver water. We expect ongoing water and wastewater usage fees to cover costs
of operating the water and wastewater systems. We will design the water and
wastewater delivery systems and contract with third parties for construction of
the systems. We plan to utilize a dual distribution system that contains two
water pipes, one for potable water that will go directly to a residence and a
second for non-potable water that will be used to deliver water for outdoor
irrigation use. A third pipe will return the wastewater to our treatment
facility where it will be processed to Colorado Department of Public Health and
Environment ("CDPHE") standards for irrigation water and then, subject to
approval by the CDPHE, returned through the second delivery pipe for outdoor
non-potable use.

Under the terms of financing agreements we entered into in connection with
the acquisition of our Rangeview water assets, we are obligated to pay the first
$36,240,000 of proceeds (after royalty payments) from the sale of Export Water
to parties to these agreements. Generally, we will make these payments from the
water resource portion of the tap fees we receive. These financing agreements
will not restrict our use of the system development portion of the tap fees to
finance construction of the water and wastewater delivery systems.

Opportunity. The Denver Regional Council of Governments has estimated that
-----------
between 2000 and 2025 the population in the Denver metropolitan area will
increase from 2.4 million to 3.4 million. An independent consultant to the
State Land Board and the District has forecast that approximately 50% of new
land development in metropolitan Denver will occur in the area south of
Interstate-70 and east of Interstate-25, an area of Arapahoe County that
includes the Lowry Range, Sky Ranch and surrounding areas. Because of ongoing
water shortages, any developer submitting a land use plan to Arapahoe County is
required to provide assurance that water will be available to service the
development prior to any consideration of a change in land use.

The State Land Board is in the initial stages of developing a plan to
solicit requests for proposals (RFPs) to engage a development partner to assist
the State Land Board in planning for future development of the Lowry Range. If
RFPs are sent as planned later this summer, we expect that the first stage of
the long-term development of the Lowry Range could start within three years. We
estimate that full development of the Lowry Range will take in excess of 30
years.

We have received confirmation from independent engineering firms that our
Rangeview water assets are capable of providing water service to approximately
80,000 SFE units. Our Rangeview water assets have been adjudicated in the
Colorado water courts in decrees specifying the amount of water we own or have a
right to use and that the water is available for municipal use. We believe,
based on these Water Court decrees and the location of our water on or near
areas of projected future development, that we have significant opportunities to
utilize our water resources.

Paradise Water Supply.
---------------------

We own conditional water rights in western Colorado that entitle us to
build a 70,000 acre foot reservoir to store tributary water on the Colorado
River. We will seek to develop and market this water either to the greater
Denver metropolitan area or in markets in the downstream states of Nevada,

Arizona and California. Our ability to use this asset may be limited, however,
because of constraints imposed by the difficulties and costs involved in
transporting the water out of the Colorado River watershed to the Denver
metropolitan area and because of legal complications in transferring such water
to downstream states under the interstate Colorado River Compact.

General.
-------

We were incorporated in Delaware in 1976. Our corporate offices are
located at 8451 Delaware Street, Thornton, Colorado 80260. Our telephone number
is (303) 292-3456.

THE OFFERING

Common stock offered by Pure Cycle 700,000 shares

Common stock offered by selling 2,418,443 shares
stockholders . . . . . . . . . .

Common stock outstanding before. . 11,288,030 shares
the offering . . . . . . . . . .

Common stock to be outstanding 11,988,030 shares
after the offering . . . . . . .

Use of proceeds of common stock To pay outstanding indebtedness, for water
sold by Pure Cycle . . . . . . . system expenditures, and for working capital and
other general corporate purposes, including
acquisitions and to buy out third party rights to
receive proceeds from the sale of Export Water,
to the extent such rights are available on
acceptable terms.

OTC Bulletin Board and symbol. . . PCYL

Proposed NASDAQ SmallCap
symbol . . . . . . . . . . . . .

The shares of common stock outstanding before the offering is based on the
number of shares of common stock outstanding at February 29, 2004, increased
by:

- 645,500 shares of common stock issued upon conversion on April __,
2004 of 6,455,000 shares of Series D preferred stock,

- 200,000 shares of common stock issued upon conversion on April __,
2004 of 2,000,000 shares of Series D-1 preferred stock, and

- 326,667 shares of common stock purchasable on exercise of outstanding
stock options at an exercise price of $1.80 per share and 1,970,775
shares of common stock purchasable on exercise of outstanding warrants
at an exercise price of $1.80 per share, which shares are being sold
in this offering (the "Selling Stockholder Option and Warrant
Shares").

and excludes:

- 2,273,333 shares of common stock issuable on the exercise of
outstanding options at an exercise price of $1.80 per share,

- an additional 1,600,000 shares of common stock reserved for future
issuance under our stock option plan,

- 469,525 shares of common stock issuable on the exercise of outstanding
warrants at an exercise price of $1.80 per share, and

- 587,778 shares of common stock issuable upon the conversion of
outstanding Series A-1 convertible preferred stock at a conversion
ratio of 5.556 shares of common stock for each share of Series A-1
preferred stock.

The common stock offered by selling stockholders in this offering consists
of the Selling Stockholder Option and Warrant Shares and 121,000 shares being
offered by two of our officers (collectively, the "Selling Stockholder Shares").

At February 29, 2004, the Selling Stockholder Option and Warrant Shares
were not outstanding, but these options and warrants will be exercised
immediately prior to the sale of the shares in this offering. If all of these
options and warrants are exercised, we will receive $4,135,395 of gross
proceeds. The $588,000 exercise price for the options will be paid in cash and
the exercise price for the warrants will be paid $6,569 in cash and $3,540,826
in the form of 4% promissory notes payable to Pure Cycle, secured by the stock
issued upon exercise. We anticipate that the notes will be paid with the
proceeds of the sale of the stock in this offering. If the warrant holders'
shares are not sold, we expect that we will foreclose on the promissory notes
and cancel the shares.

The information in this prospectus, other than the financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, assumes that these options and warrants have been exercised, the
Series D and Series D-1 preferred stock have been converted, the common stock
issued or issuable on exercise and conversion are outstanding, and the
promissory notes payable to Pure Cycle in partial consideration of the exercise
price for the warrants have been repaid.

SUMMARY FINANCIAL DATA

The following table shows selected summary financial data for Pure Cycle as
of the dates and for the periods indicated. You should read this data in
conjunction with the financial statements and notes included in this prospectus
beginning on page F-1.

SIX MONTHS ENDED YEAR ENDED
------------------------- --------------------------
FEB. 29, FEB. 28, AUGUST 31, AUGUST 31,
2004 2003 2003 2002
------------ ----------- ------------ ------------

(UNAUDITED)
STATEMENT OF OPERATIONS
Revenues. . . . . . . . . . . . . . . . . . $ 85,731 $ 103,812 $ 225,432 $ 204,858
Expenses:
Operating . . . . . . . . . . . . . . . . 11,338 10,732 37,496 27,792
General and administrative. . . . . . . . 219,302 124,556 318,182 221,872
Operating loss. . . . . . . . . . . . . . . (147,691) (34,784) (135,841) (49,764)
Other expense, net. . . . . . . . . . . . . 91,259 92,572 185,212 195,383

Net loss. . . . . . . . . . . . . . . . . . (238,950) (127,356) (321,043) (245,147)

Basic and diluted net loss per common share $ --(1) $ --(1) $ --(1) $ --(1)
Weighted average number of shares of common
stock outstanding - basic and diluted . . 8,056,418 7,843,976 7,843,976 7,843,976
============ =========== ============ ============

FEBRUARY 29, 2004
----------------------------
ACTUAL AS ADJUSTED(2)
------------ --------------

(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 338,559
Investment in water and systems. . . . . . . . . . . . . . 19,410,635
Total assets . . . . . . . . . . . . . . . . . . . . . . . 20,254,298
Working capital. . . . . . . . . . . . . . . . . . . . . . 327,790
Long-term debt-related parties, including accrued interest 4,976,511
Participating interests in Rangeview water supply. . . . . 11,090,630
Stockholders' equity . . . . . . . . . . . . . . . . . . . 4,142,507

(1) Less than $.01 per share

(2) The "as adjusted" column reflects (a) the exercise of options to
purchase 326,667 shares of common stock at an exercise price of $1.80
per share and the exercise of warrants to purchase 1,970,775 shares of
common stock at an exercise price of $1.80 per share, and (b) the sale
by Pure Cycle of 700,000 shares of common stock in this offering at an
assumed offering price of $____________ per share, after deducting the
estimated underwriting discount and offering expenses, and the
application of the net proceeds from the sale of these shares as
described under "Use of Proceeds."

RISK FACTORS

INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER
INFORMATION IN THIS PROSPECTUS, BEFORE INVESTING IN OUR COMMON STOCK.

WE ARE DEPENDENT FOR FUTURE REVENUES ON DEVELOPMENT OF THE LOWRY RANGE AND OF
THE OTHER AREAS NEAR OUR RANGEVIEW WATER ASSETS THAT ARE POTENTIAL MARKETS FOR
OUR EXPORT WATER.

We expect that our principal source of future revenue will be from two
contracts that entitle us to provide water and wastewater service in the Lowry
Range service area. The timing and amount of these revenues will depend
significantly on the development of this area. The land in the Lowry Range is
owned by the State Land Board, which is in the early stages of considering
various development alternatives, but no timetable exists for development. We
are not able to determine the timing of water sales or the timing of
development. There can be no assurance that development will occur, or that
water sales will occur on acceptable terms or in the amounts or time required
for us to support our costs of operation. Because of the prior use of the Lowry
Range as a military reservation, environmental clean-up may be required prior to
development, including to remove unexploded ordnance. There is often
significant delay in adoption of development plans, as the political process
involves many constituencies with differing interests. In the event water sales
are not forthcoming or development of the Lowry Range is delayed, we may incur
additional short or long-term debt obligations or seek to sell additional equity
to generate operating capital. These sales of equity may be at prices that are
dilutive to existing investors.

Our operations are significantly affected by the general economic
conditions for real estate development and the pace and location of real estate
development activities in the greater Denver metropolitan area, most
particularly areas such as Sky Ranch which are near to our Rangeview water
assets and thus are potential markets for our Export Water. Increases in the
number of our water and wastewater connections, our connection fees and our
billings and collections will depend on real estate development in this area.
We have no ability to control the pace and location of real estate development
activities which affect our business.

WE ARE A START-UP BUSINESS AND DO NOT HAVE SIGNIFICANT EXPERIENCE IN THE
LARGE-SCALE SALE OF WATER AND OPERATION OF WATER AND WASTEWATER SYSTEMS.

Although we have been in operation since 1976, our expected future
operations are significantly different from the businesses in which we have been
engaged over most of our past. While we have constructed and are operating one
water and wastewater treatment facility on the Lowry Range, that facility serves
only one customer and provides revenues of only about $15,000 per month,
representing 81% of our total revenues. We do not yet have significant
experience in the large-scale sale of water and operation of water and
wastewater systems and our revenue growth will depend on our ability to enter
into new operating contracts with municipal water districts and developers.
Because we have not built a large number of water and wastewater systems, we
cannot assure you that the portion of the tap fee revenue that we will utilize
for construction of our water delivery system will cover the costs of
construction, particularly since a disproportionately greater cost must be paid
in the initial stage of construction, and the tap fees are assessed equally at
all stages of a development. A significant portion of our marketing and sales
effort is spent demonstrating to municipal water districts and developers the
benefits of our water assets and our operating capabilities, but our inability
to point to a history of successful operations may be a competitive disadvantage
in obtaining new contracts. Our business is subject to the risks often
associated with start-up businesses, and you will be unable to evaluate our
operations based on our past operating results.

OUR NET LOSSES MAY CONTINUE AND WE MAY NOT HAVE SUFFICIENT LIQUIDITY TO PURSUE
OUR BUSINESS OBJECTIVES.

We have experienced significant net losses and could continue to incur net
losses. For the year ended August 31, 2003 and the six months ended February
29, 2004, we had net losses of $321,000 and $238,950, respectively, on revenues
of $225,000 and $85,731 in the respective periods. Our cash flow from
operations has been insufficient to fund our operations in the past, and we have
been required to raise debt and equity capital from related parties to remain in
operation. Since 1998, we have raised $1,310,000 through the issuance of
776,133 shares of common stock to support our operations. Our ability to fund
our operational needs and meet our business objectives will depend on our
ability to generate cash from future operations. If our future cash flow from
operations and other capital resources are insufficient to fund our operations
and the significant capital expenditure requirements to build our water delivery
systems, we may be forced to reduce or delay our business activities, grant
additional priority rights to revenues from the sale of Export Water, or seek to
obtain additional debt or equity capital, which may not be available on
acceptable terms, or at all.

OBLIGATIONS UNDER THE COMMERCIALIZATION AGREEMENT AND OTHER AGREEMENTS WILL
DELAY OUR ABILITY TO BENEFIT FROM INCREASED REVENUES.

We have entered into financing agreements with investors and in settlement
of controversies over our Rangeview water assets that obligate us to pay to
others the first $36,240,000 of certain revenues we receive from our sale of
Export Water. Under the provisions of one of these financing agreements, called
the Commercialization Agreement, we are required to pay to investors in the
Rangeview project signatory to such agreement the first $31,807,000 from the
water resource component of the tap fees we receive from the sale or other
disposition of Export Water. We are obligated to pay the next $4,000,000 of
such revenues to another investor, and the next $433,000 in such revenues to the
holders of our Series B Preferred Stock. These obligations, along with other
indebtedness, pose risks to the holders of our common stock, including the risks
that:

- A substantial portion of our cash flow from the sale of Export Water
for a significant period of time will be dedicated to the payment of
obligations to investors;

- These obligations may impair our ability to obtain external financing
in the future, including for capital expenditures required for growth;

- The obligation to pay out these amounts may make us more vulnerable to
economic downturns and may limit our ability to withstand competitive
pressures; and

- Payment of these amounts will limit the amount of cash we will have
available to invest in acquisitions and other growth opportunities.

THE RATES WE ARE ALLOWED TO CHARGE CUSTOMERS ARE LIMITED BY THE DISTRICT'S
CONTRACT WITH THE STATE LAND BOARD AND OUR CONTRACT WITH THE DISTRICT AND MAY BE
INSUFFICIENT TO COVER OUR COSTS OF CONSTRUCTION AND OPERATION.

The price we can charge for our water and wastewater services are subject
to pricing regulations set in the District's contract with the State Land Board
and our contract with the District. Both the tap fees and our usage rates and
charges are based on the average of the rates of three surrounding
quasi-governmental water providers. We survey annually the tap fees and rates
and charges from the water providers that comprise our rate base group and set
our tap fees and rates and charges based on the average of those charged by this
group. Our costs associated with the construction of water delivery systems and
the production, treatment and delivery of our water are subject to market

conditions and other factors, which may increase at a significantly greater rate
than the prices charged by our rate base water providers. Factors beyond our
control and which cannot be predicted, such as drought, water contamination and
severe weather conditions, like tornadoes and floods, may result in additional
labor and material costs that may not necessarily be recoverable under our
operations and maintenance contracts, creating additional differences from the
costs of our rate base water providers. Increased customer demand can also
increase the overall cost of our operations. If the costs for construction and
operation of our water services, including the cost of extracting our
groundwater, exceed our revenues, we may petition the State Land Board for rate
increases. We cannot assure that the State Land Board would grant us approval
to increase rates beyond the average of the rate base water providers. Our
profitability could be negatively impacted if we experience an imbalance of
costs and revenues and are not successful in receiving approval for rate
increases.

OUR CAPITAL RESOURCES MAY RESTRICT OUR ABILITY TO OPERATE AND EXPAND OUR
BUSINESS.

As of February 29, 2004, we had cash and cash equivalents of $338,599. We
have not been able to secure lines of credit to enable us to expand our
operations. We may be unable to establish credit facilities or execute
financing alternatives on terms that we find acceptable.

In order to obtain contracts, we must be able to demonstrate the ability to
fund the significant investments required to build water delivery and treatment
facilities. We may obtain funds for these obligations from the proceeds of this
offering or the sale of stock and other equity related securities, our cash flow
from operations, contributions by developers and the use of both short and
long-term debt. If we are unable to establish lines of credit, or if we are
unable to secure additional financing sources, our capital spending would be
reduced or delayed, which would limit our growth.

WE ONLY HAVE THREE EMPLOYEES AND MAY NOT BE ABLE TO MANAGE THE INCREASING
DEMANDS OF OUR EXPANDING OPERATIONS.

We expect that our activities relating to the Sky Ranch agreement will
significantly expand our business, and we are actively pursuing additional
development opportunities in areas near Sky Ranch, as well as acquisition
opportunities to continue to grow our operations. We currently have only three
employees to administer our existing assets, interface with applicable
governmental bodies, market our services, and plan for the construction and
development of our future assets. We may not be able to maximize the value of
our water assets because of our limited manpower. We depend significantly on
the services of Mark Harding, our President, and Thomas P. Clark, our Chief
Executive Officer. Loss of either of these employees would cause a significant
interruption of our operations. The success of our future business development
and ability to capitalize on growth opportunities depends on our ability to
attract and retain additional experienced and qualified persons to operate and
manage our business. State regulations set the training, experience and
qualification standards required for our employees to operate specific water and
wastewater facilities. Failure to find state-certified and qualified employees
to support the operation of our facilities could put us at risk, among other
things, for operational errors at the facilities, for improper billing and
collection processes, and for loss of contracts and revenues. We cannot assure
you that we can successfully manage our assets and our growth.

OUR BUSINESS IS SUBJECT TO GOVERNMENTAL REGULATION AND PERMITTING REQUIREMENTS.
WE MAY BE ADVERSELY AFFECTED BY ANY FUTURE DECISION BY THE COLORADO PUBLIC
UTILITIES COMMISSION TO REGULATE US AS A PUBLIC UTILITY AND TO IMPOSE
REGULATION.

The Colorado Public Utilities Commission (CPUC) regulates investor-owned
water companies that hold themselves out to the public as serving, or ready to
serve, all of the public in a service area. The CPUC regulates many aspects of
public utilities' operations, including the siting and construction of
facilities, establishing water rates and fees, initiating inspections,
enforcement and compliance activities and assisting consumers with complaints.

Although we act as a service provider under contracts with quasi-municipal
metropolitan districts that are exempt by statute from regulation by the CPUC,
the CPUC could decide to regulate us as a public utility. If this were to
occur, we might incur significant expense challenging the CPUC's assertion of
authority, and we may be unsuccessful. In the future, existing regulations may
be revised or reinterpreted, and new laws and regulations may be adopted or
become applicable to us or our facilities. If we become regulated as a public
utility, our ability to generate profits could be limited and we might incur
significant costs associated with regulatory compliance.

WATER IS A DEPLETING RESOURCE AND WE MAY NOT BE ABLE TO PROVIDE AN ADEQUATE
SUPPLY OF WATER TO OUR CUSTOMERS.

We obtain our water from various sources. The preferred source is pumping
tributary groundwater from the alluvial aquifer beneath or connected with the
surface streams located under the Lowry Range. Although a relatively small
portion of our water supply comes from these renewable surface water supplies,
the volume of water available through surface water rights are subject to a
priority system which, particularly in times of drought, may diminish the supply
of available water. A significant portion of our water supply comes from
nontributary groundwater that can only be withdrawn at an average rate of 1% per
year so that the resource, which is thought to be non-renewable, will last for
100 years. We will seek to recycle and reuse our existing water assets and to
replenish and increase our water rights through acquisition of additional
tributary and nontributary water rights, but we cannot assure you that we will
continue to have sufficient supplies of water in the future to meet our
customers' needs and to support continued growth.

THERE ARE MANY OBSTACLES TO OUR ABILITY TO REALIZE ON OUR PARADISE WATER ASSETS.

We currently earn no revenues from our Paradise water assets, which as of
February 29, 2004 are recorded at $5,498,124. Our ability to convert our
Paradise water supply into an income generating asset is limited. While there
is demand for water in the downstream states of California, Nevada and Arizona,
Colorado law prohibits the export of water out of state without obtaining a
Water Court decree. To issue a decree the Water Court must find that the export
is not in violation of the provisions of interstate compacts and does not
prevent Colorado from complying with its interstate compact obligations. In
addition, there are significant difficulties and costs involved in transporting
the water out of the Colorado River watershed to the Denver metropolitan area.
As part of our Water Court decree for the Paradise water, we are permitted to
construct a storage facility on the Colorado River. However, due to the strict
regulatory requirements for constructing an on-channel reservoir, completing the
conditional storage right at its decreed location would also be difficult. As a
result, we cannot assure you that we will ever be able to make use of this asset
or sell the water profitably.

CONFLICTS OF INTEREST MAY ARISE RELATING TO THE OPERATION OF THE RANGEVIEW
METROPOLITAN DISTRICT.

Our officers and employees constitute a majority of the directors of the
Rangeview Metropolitan District and Pure Cycle, along with our officers and
employees and one unrelated individual, own as tenants in common the 40 acres
that form the District. We have made loans to the District to fund its
operations. At February 29, 2004, total principal and interest owed to us by
the District was approximately $400,000. The District is a party to our
agreements with the State Land Board and receives fees of 5% of the revenues
from the sale of water on the Lowry Range, and will hold title to the water
distribution system at the Sky Ranch development. Proceeds from the fee
collections will initially be used to repay the District's obligations to us,
but after these loans are repaid, the District is not required to use the funds
to benefit Pure Cycle. We have received benefits from our activities undertaken
in conjunction with the District, but conflicts may arise between our interests
and those of the District, and with our officers who are acting in dual
capacities in negotiating contracts to which both we and the District are
parties. We expect that the District will expand when more properties are

developed and become part of the District, and our officers acting as directors
of the District will have fiduciary obligations to those other constituents.
There can be no assurance that all conflicts will be resolved in the best
interests of Pure Cycle and its stockholders. In addition, other landowners
coming into the District will be eligible to vote and to serve as directors of
the District. There can be no assurances that our officers and employees will
remain as directors of the District or that the actions of a subsequently
elected board would not have an adverse impact on our operations.

WEATHER CONDITIONS CAN IMPACT OUR FINANCIAL RESULTS AND OPERATIONS.

Rainfall and weather conditions may affect our operations, with most water
consumption occurring during the summer months when weather tends to be hot and
dry. Drought or unusually wet conditions may also adversely impact our results
of operations. During a drought, we may experience lower revenues, due to
consumer conservation efforts and regulatory mandates. Since a fairly high
percentage of our water is used outside our customers' homes, unusually wet
conditions could result in decreased customer demand and lower revenues. In
addition, heavy rainfall may limit our ability to perform certain work such as
pipeline maintenance, manhole rehabilitation and other outdoor services.

WE ARE REQUIRED TO MAINTAIN STRINGENT WATER QUALITY STANDARDS AND ARE SUBJECT TO
REGULATORY AND ENVIRONMENTAL RISKS.

We must provide water that meets all federal and state regulatory water
quality standards and operate our water and wastewater facilities in accordance
with the standards. We face contamination and pollution issues regarding our
water supplies. Improved detection technology, increasingly stringent regulatory
requirements, and heightened consumer awareness of water quality issues
contribute to an environment of increased focus on water quality. In contrast
with other providers in Colorado, we are combining the water delivery and
wastewater treatment processes, which may introduce technical treatment issues
that make compliance with water quality standards more difficult. We plan to
return effluent wastewater for irrigation and other nonpotable uses, although
the CDPHE is currently evaluating the use of effluent wastewater for residential
irrigation. We cannot assure you that we will be able in the future to reduce
the amounts of contaminants in our water to acceptable levels. In addition, the
standards that we must meet are constantly changing and becoming more stringent.
For example, in February 2002, the U.S. Environmental Protection Agency lowered
the arsenic standard in drinking water from 50 parts per billion to 10 parts per
billion. Future changes in regulations governing the supply of drinking water
and treatment of wastewater may have a material adverse impact on our financial
results.

We handle certain hazardous materials at our water treatment facilities,
primarily sodium hypochlorite. Any failure of our operation of the facilities
in the future, including sewage spills, noncompliance with water quality
standards, hazardous materials leaks and spills, and similar events could expose
us to environmental liabilities, claims and litigation costs. We cannot assure
you that we will successfully manage these issues, and failure to do so could
have a material adverse effect on our future results of operations by increasing
our costs for damages and cleanup.

WE HAVE ENGAGED IN TRANSACTIONS WITH RELATED PARTIES.

We have engaged in transactions, particularly the issuance of debt and
equity securities, with related parties, most significantly our chief executive
officer, Mr. Thomas P. Clark. Mr. Clark beneficially owns approximately 31% of
our common stock. In addition, we have outstanding borrowings at February 29,
2004 totaling $546,163 from Mr. Clark and $402,104 from other stockholders who
hold 10% or more of our common stock, and have issued warrants to certain
investors in connection with these loans. Those related party lenders have been
willing to forgo periodic payments of principal and interest on such debt. Many
of the Selling Stockholders are related parties that have engaged in

transactions with Pure Cycle. There can be no assurance that our equity and
debt issuances or other related party transactions have been on arms length
terms.

OUR CONTRACTS FOR THE CONSTRUCTION OF WATER AND WASTEWATER PROJECTS MAY EXPOSE
US TO CERTAIN COMPLETION AND PERFORMANCE RISKS.

We will rely on independent contractors to construct our water and
wastewater facilities. These construction activities may involve risks,
including shortages of materials and labor, work stoppages, labor relations
disputes, weather interference, engineering, environmental, permitting or
geological problems and unanticipated cost increases. These issues could give
rise to delays, cost overruns or performance deficiencies, or otherwise
adversely affect the construction or operation of the water delivery system.

In addition, we may experience quality problems in the construction of our
systems and facilities, including equipment failures. We cannot assure you that
we will not face claims from customers or others regarding product quality and
installation of equipment placed in service by contractors.

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

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

Our customers may require us to secure performance and completion bonds for
certain contracts and projects. The market environment for surety companies has
become more risk averse. We secure performance and completion bonds for our
contracts from these surety companies. To the extent we are unable to obtain
bonds, we may not be awarded new contracts. We cannot assure you that we can
secure performance and completion bonds where required.

We may operate engineering and construction activities for water and
wastewater facilities where design, construction or system failures could result
in injury to third parties or damage to property. Any losses that exceed claims
against our contractors, the performance bonds and our insurance limits at
facilities so managed could result in claims against us. In addition, if there
is a customer dispute regarding performance of our services, the customer may
decide to delay or withhold payment to us.

OUR CONTRACT TO PROVIDE WATER SERVICES TO THE LOWRY RANGE TERMINATES IN 2081.

Our contract with the Rangeview Metropolitan District grants us the
exclusive right to use water underlying the Lowry Range and to provide water to
customers on the Lowry Range until 2081, at which time ownership and control of
the water delivery system (other than the wastewater system) reverts to the
State Land Board and our ability to use such water to serve customers on the

Lowry Range will cease. While we may negotiate a new agreement to operate the
water assets, the selection process will be competitive and there can be no
assurance that we would continue as operator. In such event, our receipt of the
monthly water usage fees will terminate with respect to all customers located on
the Lowry Range. We estimate that our income from Lowry Range customers will
represent a significant component of our overall revenues at such date, so the
loss of such revenues will be material.

WE WILL HAVE BROAD DISCRETION IN ALLOCATION OF NET PROCEEDS TO US IN THIS
OFFERING.

Approximately $________, or ___%, of the estimated net proceeds to us in
this offering has been allocated to working capital and general corporate
purposes. Accordingly, our management will have broad discretion as to the
application of these proceeds. We may use a portion of the proceeds allocated
to working capital for acquisitions and to purchase contract rights under the
Commercialization Agreement. We currently have no agreement, arrangement or
understanding with respect to any acquisition or purchase under the
Commercialization Agreement.

THE MARKET PRICE OF OUR COMMON STOCK COULD BE VOLATILE.

A number of factors could cause the market price of our common stock to
fluctuate significantly, including:

- Small number of shares of our common stock available for purchase or
sale in the public markets;

- Large number of shares of our common stock held by insiders and
related parties;

- Our announcement of significant new development agreements,
acquisitions, strategic partnerships or capital commitments.

- Changes in general conditions or trends in the water industry;

- Announcements regarding development of the Lowry Range;

- Changes in regulatory guidelines that restrict our operations,
including the rates we can charge our customers;

- Adverse or unfavorable publicity regarding us or our services;

- Additional issuances of debt or equity; and

- Natural disasters, terrorist attacks or acts of war.

OUR REVERSE STOCK SPLIT MAY CONTRIBUTE TO UNCERTAINTY REGARDING OUR STOCK PRICE.

On April 26, 2004, we will effect a 1-for-10 reverse split of our common
stock with the goal of improving the liquidity of our stock by increasing the
stock price and thereby increasing interest of a broader range of investors in
our stock. There can be no assurance that the market price per share of our
common stock after the reverse stock split will increase in proportion to the
reduction in the number of shares of common stock outstanding before the reverse
stock split. For example, based on the closing price of our common stock on the
OTC Bulletin Board on April 15, 2004 of $0.93 per share, there can be no
assurance that the post-split market price of the common stock would be $9.30
per share. Accordingly, the total market capitalization of the common stock
(the aggregate value of all our common stock at the then market price) after the
proposed reverse stock split may be lower than the total market capitalization

before the reverse stock split. Even if the initial post-split stock price
reflects the reverse stock split ratio, if the market price of the common stock
declines after the reverse stock split is effected, the percentage decline may
be greater than would occur in the absence of a reverse stock split. There can
be no assurance that the reverse stock split will result in a per-share price
that will attract new investors or that the post-split share price will satisfy
the investing guidelines of institutional investors. As a result, the trading
liquidity of the common stock may not necessarily improve.

FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE.

At the conclusion of this offering, we will have outstanding options and
warrants to purchase 2,742,858 shares of common stock with an exercise price of
$1.80 per share, 105,800 shares of Series A preferred stock that are convertible
into 587,778 shares of common stock and a stock option plan that permits the
issuance of options to purchase an additional 1,600,000 shares of common stock.
Sales of substantial amounts of common stock by our stockholders, including
shares issued upon the exercise of outstanding options and warrants, or even the
potential for such sales, may have a depressive effect on the market price of
our common stock and could impair our ability to raise capital through the sale
of our equity securities.

FORWARD-LOOKING STATEMENTS

This prospectus contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
our financial condition, results of operations and business. The words
"anticipate," "believe," "estimate," "expect," "plan," "intend" and similar
expressions, as they relate to us, are intended to identify forward-looking
statements. Such statements reflect our current views with respect to future
events and are subject to certain risks, uncertainties and assumptions. We
cannot assure you that any of our expectations will be realized. Factors that
may cause actual results to differ materially from those contemplated by such
forward-looking statements include, without limitation, the timing of
development of the areas where we are selling our water, the market price of
water, changes in applicable statutory and regulatory requirements,
uncertainties in the estimation of water available under decrees, costs of
delivery of water, uncertainties in the estimation of revenues and costs of
construction projects, the strength and financial resources of our competitors,
our ability to find and retain skilled personnel, climatic conditions, labor
relations, availability and cost of material and equipment, delays in
anticipated permit and construction dates, environmental risks, the results of
financing efforts and the ability to meet capital requirements, and general
economic conditions.

USE OF PROCEEDS

We estimate that the net proceeds from the sale of the shares of common
stock we are offering will be approximately $________ million, assuming a stock
price of $_____ per share in this offering. If the underwriters fully exercise
their over-allotment option, the net proceeds of the shares we sell will be
$_______ million. "Net proceeds" is what we expect to receive after paying the
underwriting discount and other expenses of the offering.

The following table summarizes the use of the net proceeds from this
offering:

Repayment of outstanding debt to related parties $1,109,061 ___%

Water system expenditures $1,200,000 ___%

Working capital and general corporate purposes $________ ___%
---------- ----
Total 100%

$512,439 of the debt to be repaid bears interest at prime plus 2% (6% at
April 7, 2004) and $596,622 bears interest at 10.25%. All debt to be repaid
matures in August 2007. Except for the Harrison Augur Money Purchase Plan, the
holders of this indebtedness are all selling stockholders: Apex Investment Fund
II, L-P., Proactive Partners, L.P., The Environmental Venture Fund, L.P., The
Environmental Venture Fund II, L.P., Productivity Fund II, L.P., and Gregory M.
Morey. Accordingly, these persons will also receive proceeds from the sale of
shares in the offering.

The net proceeds allocated to water system expenditures will be used to
drill wells and build the infrastructure needed to provide water services to Sky
Ranch.

We anticipate that a portion of the proceeds allocated to working capital
and general corporate purposes will be used for acquisition of water rights and
acquisition of contractual rights to receive payments under the
Commercialization Agreement, in each case if and to the extent agreements can be
reached. Amounts to be utilized for these purposes will depend on the
opportunities that arise, but we do not expect to spend more than $5,000,000 on
acquisition of water rights or more than $3,600,000 on purchase of contract
rights under the Commercialization Agreement. We are not currently in
discussions regarding any specific acquisition of water rights.

We intend following the completion of this offering to approach certain of
the persons who have contractual rights to receive payments under the
Commercialization Agreement and offer to buy out a portion of those contractual
rights. We have had preliminary discussions regarding such purchases with some
of the parties to the Commercialization Agreement, but no firm commitments have
been made regarding any such sale. Many of the selling stockholders that are
exercising warrants are parties to the Commercialization Agreement.
Accordingly, if we purchase their contract rights, they will receive additional
proceeds from this offering. No assurance can be given that any of the parties
to the Commercialization Agreement will be willing to sell their contract rights
at all or on terms that would be acceptable to us.

While the amounts indicated above reflect what we currently expect to spend
on these matters, opportunities may arise that cause us to change the allocation
of proceeds among the categories described. Prior to using the net proceeds, we
plan to invest the net proceeds in bank deposits or short-term interest-bearing
investment grade securities.

Most of the selling stockholders are exercising options or warrants
immediately prior to the completion of this offering to obtain the shares to be
sold in this offering. In connection with this exercise, we will receive
$_______, $_____ of which will be paid in the form of promissory notes secured
by the shares we issue. The selling stockholders will pay the promissory notes
with the proceeds of this offering. We are paying the expenses, other than
underwriting discounts and expenses of separate counsel for the selling
stockholders, relating to the sale of the selling stockholder shares.

CAPITALIZATION

The following table sets forth:

- our actual cash and cash equivalents and capitalization as of February
29, 2004, adjusted to reflect the reverse stock split; and

- our cash and cash equivalents and capitalization as of February 29,
2004, as adjusted to reflect (i) the increase in our authorized shares
of common stock, (ii) the exercise by the Selling Stockholders of
certain options and warrants and the issuance of the 2,297,442
underlying shares of common stock, and our receipt of $4,135,395 of
proceeds upon such exercise, (iii) the conversion of the Series D
preferred stock and Series D-1 preferred stock into 845,500 shares of
common stock, and (iv) completion of the offering of 700,000 shares of
our common stock at an assumed public offering price of $_____ per
share and the use of net proceeds as described under "Use of
Proceeds."

AS OF FEBRUARY 29, 2004
--------------------------
ACTUAL AS ADJUSTED
------------- -----------

Cash and cash equivalents . . . . . . . . . . . . $ 338,599
=============
Current liabilities . . . . . . . . . . . . . . . 44,650
=============
Long-term debt - related parties, including
accrued interest. . . . . . . . . . . . . . . . 4,976,511

Participating interests in Rangeview water rights 11,090,630

Preferred stock, par value $.001 per share;
authorized - 25,000,000 shares:

Series A-1 - 1,058,000 shares issued and
outstanding actual and as adjusted. . . . . . . 1,058

Series B - 432,513 shares issued and
outstanding actual and as adjusted. . . . . . . 433

Series D - 6,455,000 shares issued and
outstanding actual, no shares issued and
outstanding as adjusted . . . . . . . . . . . . 6,455

Series D-1 - 2,000,000 shares issued and
outstanding actual, no shares issued and
outstanding as adjusted . . . . . . . . . . . . 2,000

Common stock, par value 1/3 of $.01 per share;
authorized - 135,000,000 shares actual,
225,000,000 shares as adjusted; 8,145,087
shares issued and outstanding actual, ____
shares issued and outstanding as adjusted . . . 271,621

Additional paid in capital. . . . . . . . . . . . 25,267,494

Accumulated deficit . . . . . . . . . . . . . . . (21,406,554)

Total stockholders' equity. . . . . . . . . . . . 4,142,507

Total noncurrent liabilities and stockholders'
equity. . . . . . . . . . . . . . . . . . . . . . 20,254,298
=============

MARKET PRICE OF AND DIVIDENDS FOR OUR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

Our common stock is quoted on the OTC Bulletin Board under the symbol
"PCYL." We have applied for listing of our common stock on the NASDAQ Small Cap
Market under the symbol " ". The following table shows, for the fiscal
periods indicated, the high and low sales prices for our common stock as
reported by the OTC Bulletin Board.

LOW HIGH
----- ------

FISCAL 2004
-----------
First Quarter. . . . . . . . . . . . . $2.00 $ 5.10
Second Quarter . . . . . . . . . . . . 4.00 13.00
Third Quarter (through April 15, 2004) 8.70 10.60

FISCAL 2003
-----------
First Quarter. . . . . . . . . . . . . $ .90 $ 1.80
Second Quarter . . . . . . . . . . . . 1.00 2.80
Third Quarter. . . . . . . . . . . . . 1.60 2.70
Fourth Quarter . . . . . . . . . . . . 1.70 3.00

FISCAL 2002
-----------
First Quarter. . . . . . . . . . . . . $ .80 $ 1.50
Second Quarter . . . . . . . . . . . . .60 1.20
Third Quarter. . . . . . . . . . . . . .60 2.10
Fourth Quarter . . . . . . . . . . . . .90 1.90

On April 15, 2004, the last reported sale price of our common stock on the
OTC Bulletin Board was $9.30 per share. As of March 18, 2004, there were
approximately 3,418 holders of record of our common stock.

We have never paid any dividends on our common stock and expect for the
foreseeable future to retain all of our earnings from operations for use in
expanding and developing our business. Any future decision as to the payment of
dividends will be at the discretion of our board of directors and will depend
upon our earnings, financial position, capital requirements, plans for expansion
and such other factors as our board of directors deems relevant.

SELECTED FINANCIAL DATA

This section presents our selected historical financial data. You should
read carefully the financial statements included in this prospectus, including
the notes to the financial statements. The selected data in this section is not
intended to replace the financial statements.

The following tables as of August 31, 2003 and 2002 and for each of the
years in the two year period ended August 31, 2003, and as of February 29, 2004
and February 28, 2003 and for the six month periods ended February 29, 2004 and
February 28, 2003, present selected financial information of the Company which
has been derived from our financial statements included elsewhere in this
prospectus. The financial statements as of August 31, 2003 and 2002 and for the
two years ended August 31, 2003 have been audited by KPMG LLP, our independent
auditors. The consolidated balance sheet data at February 29, 2004 and February
28, 2003 and the consolidated statement of operations data for the six months
ended February 29, 2004 and February 28, 2003 are derived from unaudited
financial statements which have been prepared on the same basis as the audited
annual financial statements and, in the opinion of management, contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the consolidated position at such dates and the operating
results for such periods. Operating results for the six months ended February
29, 2004 are not necessarily indicative of the results that may be expected for
the year ending August 31, 2004. This selected financial data should be read in
conjunction with the consolidated financial statements of Pure Cycle and notes
thereto, and Management's Discussion and Analysis of Financial Condition and
Results of Operations, included elsewhere in this prospectus.

SIX MONTHS ENDED YEAR ENDED
------------------------- --------------------------
Feb. 29, FEB. 28, AUGUST 31, AUGUST 31,
2004 2003 2003 2002
------------ ----------- ------------ ------------

Net loss. . . . . . . . . . . . . . . . . . (238,950) (127,356) (321,043) (245,147)

Basic and diluted net loss per common share $ --(1) $ --(1) $ --(1) $ --(1)
============ =========== ============ ============
Weighted average number of shares
of common stock outstanding -
basic and diluted . . . . . . . . . . . . 8,056,418 7,843,976 7,843,976 7,843,976

FEBRUARY 29, AUGUST 31, AUGUST 31,
2004 2003 2002
------------- ----------- -----------

BALANCE SHEET DATA:
Cash and cash equivalents $ 338,559 $ 525,780 $ 287,720
Investment in water and systems, net. . . 19,410,635 19,342,994 19,201,683
Total assets. . . . . . . . . . . . . . . 20,254,298 20,413,404 20,028,279
Working capital . . . . . . . . . . . . . 327,790 541,695 316,760
Long-term debt-related parties, including
accrued interest. . . . . . . . . . . . 4,976,511 4,889,545 4,713,270
Participating interests in Rangeview
water supply. . . . . . . . . . . . . . 11,090,630 11,090,630 11,090,630
Stockholders' equity. . . . . . . . . . . 4,142,507 4,381,457 4,202,500

__________
(1) Less than $.01 per share

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this discussion together with the financial statements and
other financial information included in this prospectus. This prospectus
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those indicated in the forward-looking
statements. Please see "Forward-Looking Statements" elsewhere in this
prospectus.

GENERAL

We have exclusive access to approximately 29,000 acre feet per year of
water from, and the exclusive right to provide water and wastewater services to,
24,000 acres of primarily undeveloped land in eastern Colorado known as the
Lowry Range. The Lowry Range is located in Arapahoe County approximately 15
miles southeast of Denver and 12 miles south of the Denver International
Airport. Of the approximately 29,000 acre feet of water to which we have
access, 17,500 acre feet are available to us for use on the Lowry Range. We own
the remaining 11,650 acre feet and can "export" it from the Lowry Range to
supply water to nearby communities and developers in need of additional water
supplies. We acquired these rights and the Export Water in 1996 when we entered
into an agreement with the State Land Board, which owns the Lowry Range, and
85-year agreements with the District.

The 17,500 acre feet of water designated for use within the Lowry Range
service area is capable of providing water service to approximately 47,000 SFE
units. We will design, construct, operate and maintain the water and wastewater
systems on the Lowry Range service area on behalf of the District and the State
Land Board. The District will own all water and wastewater facilities
constructed to serve customers in the Lowry Range service area during our
contract service period. At the end of our contract service period, ownership
of the water facilities will revert to the State Land Board.

Our annual entitlements to 11,650 acre feet of surface water and
groundwater on and beneath the Lowry Range service area can be developed for
"export" off the property to service approximately 32,000 SFE equivalent
customers throughout the Denver metropolitan region. We will design, construct,
operate and maintain facilities for water and/or wastewater service for
customers located off the Lowry Range service area and we will own these
facilities.

Water and/or wastewater service, whether to customers located in the Lowry
Range service area or off the Lowry Range service area in other parts of the
Denver metropolitan area, is subject to individual water and wastewater service
agreements. We will negotiate individual service agreements with developers
and/or homebuilders to provide water and wastewater service. Our service
contracts will outline our obligations to construct certain facilities necessary
to develop and treat water and/or wastewater, including the timing of
installation of the facilities, capacities of the systems, and where the
services will be provided. Developers and/or homebuilders are required to
purchase water and/or wastewater taps from us in exchange for our obligation to
construct the water and/or wastewater facilities.

Revenues we earn from providing water and/or wastewater service are divided
into two components: one-time tap fees, which are generally paid by the
developer, and service charges, which are monthly charges based on metered water
delivery or wastewater usage. Water tap fees are further divided into two

components: system development fees, which are used to construct facilities
necessary to develop and treat water and/or wastewater; and water resource fees,
which are used to defray the acquisition costs of the water rights. We are
generally required to use the water resource portion of the tap fees received
from water exported off the Lowry Range service area to repay investors. Under
the Commercialization Agreement that we entered into in conjunction with our
agreement to obtain our Rangeview water assets, we are obligated to pay
investors that are parties to the Commercialization Agreement the first
$31,807,000 from the water resource fees we receive from the sale of the Export
Water. In another agreement (the "LCH Agreement"), we agreed to pay the next
$4,000,000 of these revenues to another investor. Under the terms of our
certificate of designations for the Series B preferred stock, we are obligated
to pay the next $433,000 of these revenues to the holders of our Series B
preferred stock (collectively, the Commercialization Agreement, the LCH
Agreement and the Series B preferred stock are referred to as the "Financing
Agreements"). We will retain 100% of the water resource fees we receive in
excess of $36,240,000 from tap fees we receive from sale of Export Water.

In agreements marketing our Export Water, developers that own rights to
groundwater underlying their property may choose to dedicate the water to us for
service to their properties, in exchange for credit against a portion of their
water resource fees. Such dedicated water would not be subject to obligations
under any Financing Agreements. Similarly, water resource fees received from
the sale of taps to customers located in the Lowry Range service area are not
subject to obligations under any Financing Agreements.

Due to the continuing growth of the Denver metropolitan region and the
limited availability of new water supplies, many metropolitan planning agencies
are requiring property developers to first demonstrate adequate water
availability prior to any consideration for zoning requests for property
development. As a result, we believe we are well positioned to market and sell
our water and wastewater services to developers and home builders seeking to
develop new communities both within the Lowry Range service area as well as in
other areas in the Denver metropolitan region.

We also own conditional water rights in western Colorado enabling us to
build a 70,000 acre-foot reservoir to store tributary water on the Colorado
River, a right-of-way permit from the U.S. Bureau of Land Management for
property at the dam and reservoir site, and four tributary water wells with a
theoretical capacity to produce approximately 56,000 acre feet of water annually
(collectively known as the Paradise Water Supply). Although we will seek to
utilize the Paradise Water Supply to deliver water to customers located in the
Denver metropolitan area or to customers in the downstream states of Nevada,
Arizona and California, legal issues relating to interstate water transfers and
inter-basin water transfers make the short-term realization on these assets
unlikely.

The State Land Board is in the initial stages of developing a plan to
solicit requests for proposals this summer to engage a development partner to
assist in the planning for future development of the Lowry Range. We are not
able to determine the timing of development of property in and around the Lowry
Range service area, although residential, commercial and industrial development
is under way outside of the Lowry Range service area along its southern, western
and northern borders, and we anticipate that initial development of Sky Ranch
will begin shortly. Water sales will only occur after development has
commenced. We cannot assure you regarding the pace of development or that water
sales can be made on terms acceptable to us. In the event development of the
property within the Lowry Range service area or of Sky Ranch and surrounding
areas is delayed, we may be required to incur additional short or long-term debt
obligations or seek to sell equity services to generate operating capital.

CRITICAL ACCOUNTING POLICIES

Our financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ significantly from those
estimates.

We have identified certain key accounting policies on which our financial
condition and results of operations are dependent. These key accounting policies
most often involve complex matters or are based on subjective judgments or
decisions. In the opinion of management, our most critical accounting policies
are those related to revenue recognition, impairment of water assets and other
long-lived assets, depletion and depreciation, accounting for participating
interests, royalty and other obligations, and income taxes. Management
periodically reviews its estimates, including those related to the
recoverability and useful lives of assets. Changes in facts and circumstances
may result in revised estimates.

Revenue Recognition

For customers located on the Lowry Range service area, the District will
sell the taps and contract with us to construct the water delivery
infrastructure. We will recognize revenues relating to tap fees on the Lowry
Range service area as construction project income using the
percentage-of-completion method, measured by the contract costs incurred to date
as a percentage of the estimated total contract costs. Since we do not own the
facilities constructed for customers located in the Lowry Range service area, we
believe the treatment of these revenues as construction project income is the
most correct accounting methodology. Contract costs include all direct
material, labor and equipment costs and those indirect costs related to contract
performance, such as indirect labor and supplies costs. If the construction
project revenue is not fixed, we estimate revenues that are most likely to
occur. Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Billings in excess of costs and
estimated earnings represent payments received on construction projects for
which the work has not been completed. These amounts, if any, are recognized as
construction progresses in accordance with the percentage-of-completion method.

We will recognize revenues from the sale of taps relating to properties
located off the Lowry Range service area, and related costs of providing water
access, as water service is made available to the property under the tap fee
agreement.

We recognize water and wastewater service revenues as services are
performed, which are based upon metered water deliveries to customers or a flat
fee per SFE. We recognize costs of delivering water and processing wastewater
as incurred.

Impairment of Water Assets and Other Long-Lived Assets

We review our long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. We measure recoverability of assets to be held and used by a
comparison of the carrying amount of an asset to future undiscounted net cash
flows we expect to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. We
report assets to be disposed of at the lower of the carrying amount or fair
value less costs to sell. We believe there were no impairments in the carrying
amounts of our investments in water and water systems at February 29, 2004.

Depletion and Depreciation

We deplete our water assets on the basis of units produced divided by the
total volume of water adjudicated in the water decrees. Water and wastewater
facilities we own are depreciated on a straight line basis over their estimated
useful lives.

Accounting for Participating Interests

The balance sheet liability captioned "participating interests in Rangeview
water supply" represents an obligation which arose under the Commercialization
Agreement. We recorded a liability of $11.1 million, which represents the cash
we received and applied to the purchase of the Rangeview water assets. The
remainder of the participating interest of $20.7 million represents a contingent
return to the financing investors, Series A-1 preferred stockholders, and the
sellers of the Rangeview water assets that are parties to the Commercialization
Agreement. These amounts, totaling $31.8 million, will only be payable from the
water resource portion of the tap fees we receive from the sale of Export Water.
As we recognize revenues from the sale of Export Water to make payments to
investors, we will allocate a ratable percentage of the repayment to the
principal portion of the participating interest represented by the $11.1 million
(i.e., 35%), and the balance to the expense portion, $20.7 million (i.e., 65%),
as amounts are payable. The portion allocated to the principal portion will be
recorded as a reduction in participating interest in Rangeview water supply.

Royalty and other obligations

Pursuant to our service agreements, royalties we incur relating to gross
revenues received will be expensed in the same period that the revenue is
recognized.

Income taxes

We use the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which we expect to recover or settle those temporary differences. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A
valuation allowance is provided for deferred tax assets until realization is
more likely than not.

RESULTS OF OPERATIONS

Year Ended August 31, 2003 Compared with Year Ended August 31, 2002

During fiscal 2003, we delivered approximately 47.3 million gallons of
water generating water usage revenues of $156,217 from the sale of water to
customers within the Lowry Range service area, compared to the delivery of 54.5
million gallons of water generating revenues of $156,026 for fiscal 2002. Our
water service charges are based on a tiered pricing structure that provides for
higher prices as customers use greater amounts of water. The following table
outlines our tiered pricing structure:

Consumption Price
(1,000 gallons/month) ($/1,000 gallons)
--------------------- -----------------

0 to 10 $ 2.40
>10 to 20 $ 3.10
>20 $ 5.40

This pricing structure is sensitive to the date and volume of water use.
Actual water deliveries in fiscal 2003 decreased approximately 13% while
revenues remained the same, due primarily to seasonal water deliveries with
higher water rates during peak times.

Prior to May 2002, we contracted for the operation of our water and
wastewater systems through an agreement with a third party contract operations
firm. Beginning in May 2002, we began operating our water and wastewater system
using our in-house licensed water and wastewater operator. We incurred
approximately $20,580 in water service operating costs in fiscal 2003 compared
to $13,896 for fiscal 2002. Water service operating costs increased
approximately $7,000 in 2003 compared to fiscal 2002 due primarily to this
change from contracting out those services in 2002 to providing these services
in-house in 2003.

During fiscal 2003, we had wastewater usage revenues of $56,780 and
incurred $10,692 in wastewater service operating costs. This compares to
wastewater usage revenues of $48,832 and wastewater operating costs of $13,896,
in fiscal 2002. In 2003, we changed from a variable pricing structure to a
fixed pricing structure, resulting in higher revenues.

General and administrative expenses for fiscal 2003 were $318,182, or
approximately $96,310 higher than for fiscal 2002, due primarily to the hiring
of an additional employee beginning in January 2003. Interest income decreased
to $16,263 in fiscal 2003, compared to $22,181 for fiscal 2002, due primarily to
a decrease in interest rates and a decrease in the average balance in our
operating cash accounts. Interest expense decreased $18,376 in fiscal 2003 to
$176,275, as compared to $194,651 in fiscal 2002 due primarily to a decrease in
the prime lending rate. Net loss for fiscal 2003 of $321,043 was $75,896
greater than the net loss of $245,147 for fiscal year 2002, primarily due to the
addition of one employee.

Six Months Ended February 29, 2004 Compared With Six Months Ended February 28,
2003

During the six months ended February 29, 2004, we delivered approximately
22.0 million gallons of water generating water service revenues of $55,314,
compared to delivery of approximately 19.3 million gallons of water generating
$77,225 for the six months ended February 28, 2003. The higher revenues in the
six month period ended February 28, 2003 were the result of an approximately
$20,000 reversal of a water service revenue recorded in 2003. We incurred water
service operating expenses of $5,190 during the six month period ended February
29, 2004, compared to $5,719 during the six months ended February 28, 2003.
During the six months ended February 29, 2004, we generated revenues from
wastewater fees of $27,002 from customers in the Lowry Range service area, as
compared to revenues from wastewater fees of $26,587 during the six months ended
February 28, 2003. We incurred wastewater operating costs of $3,819 during the
six month period ending February 29, 2004 as compared to $5,013 for the
six-month period ending February 28, 2003.

General and administrative expenses for the six months ended February 29,
2004 were $94,748 higher than for the six months ended February 28, 2003,
primarily due to an increase in salary and overhead expenses from the addition
of one employee beginning in January 2003 and legal costs incurred in connection
with our annual meeting held on April 12, 2004. Net loss for the six months
ended February 29, 2004 was $238,950 compared to a net loss of $127,356 for the

six months ended February 28, 2003. The $111,595 increase in net loss is due to
additional overhead costs from an additional employee, as well as additional
legal fees incurred in connection with our annual meeting.

Liquidity and Capital Resources

At February 29, 2004, our working capital, defined as current assets less
current liabilities, was $327,790. We believe that at February 29, 2004, we had
sufficient working capital to fund our operations for the next year. However,
there can be no assurance that we will be successful in marketing the water from
our two primary water projects in the near term. In the event revenues from
providing water service are not achieved, we may incur additional short or
long-term debt or seek to sell additional equity securities to generate working
capital.

Development of any of the water that we have, or are seeking to acquire,
will require substantial capital investments. We anticipate that additional
capital for the development of the water will be financed by the entity
purchasing such water, through the sale of water taps to developers and water
delivery charges to users. A water tap charge refers to a charge we impose to
permit access to a water delivery system (e.g., a single-family home's tap into
our water system), and a water service charge refers to a water customer's
monthly water bill, generally charged per 1,000 gallons of water consumed by the
customer. Annually, the developer must purchase not less than a minimum number
of taps, the proceeds from which are used to expand the capacity of our water
system to deliver water to additional customers in the development. We
anticipate that the system development portion of tap fees will be sufficient to
generate funds with which we can design and construct the necessary water
facilities. However, once we receive tap fees from a developer, we are
contractually obligated to construct the water delivery system for the taps paid
for, even if our costs are not covered by the fees we receive. We can not
assure you that our revenues will be sufficient to cover our capital costs.

In October 2003, we entered into a water service agreement with a developer
to provide water to approximately 4,000 SFE units that are being built on
approximately 800 acres known as "Sky Ranch" located 4 miles north of the Lowry
Range along Interstate 70. We expect that the construction of the project will
begin in October 2004, with the first homes available in February 2005. Based
on housing market demands of similar projects in the area and projections
provided by the developer, we expect that the project will be fully built out
within 10 years. Under the agreement, the developer must purchase at least 400
water taps before occupancy of the first home. The agreement permits the
developer to add additional taps annually, with at least 250 taps to be
purchased each year. This schedule is designed to provide us with adequate
funds with which to construct the facilities needed to provide water service to
the areas being built.

The water service agreement for Sky Ranch incorporates 4,000 SFE
connections, which at current rates and charges would generate approximately $50
million in total water tap fee revenues and approximately $2.3 million annually
in water service revenues. These represent gross fees and, to the extent that
water service is provided using Export Water, we are be required to pay a
royalty to the State Land Board equal to 12% of the net revenue after deducting
our costs. We expect to dedicate approximately 1,200 acre feet, or
approximately 10%, of our Export Water supply (which is about 4.2% of our
overall Rangeview water supply) for this project. We estimate we will spend
approximately $25 million for infrastructure related to the development and
delivery of water to the 4,000 single family equivalent units.

houses are built at Sky Ranch. We will initially develop the water beneath the
Sky Ranch property, which is being dedicated to us by the developer in exchange
for credit of a portion of the water resource tap fee. The dedicated water is
sufficient to provide water service to approximately 1,400 customers. No
payments will be required to be made under the Financing Agreements or for
royalty payments to the State Land Board with respect to tap fee revenues from
the first 1,400 taps at Sky Ranch. Because the project has not yet commenced,
we cannot assure you that these revenue and expense estimates will be the actual
revenues and expenses that we will experience.

At February 29, 2004, we had outstanding debt to seven related parties
totaling $1,109,061, $512,439 of which bears interest at prime plus 2% (6% at
April 7, 2004) and $596,622 of which bears interest at 10.25%. All notes mature
in August 2007. Interest is not payable on a current basis, but accrues and is
added to principal monthly.

In addition, we are obligated under notes totaling $848,023 at February 29,
2004 which bear interest at rates at 7.18% and 8.04% and notes totaling
$2,473,263 at February 29, 2004 which bear interest at prime plus 3% (7% at
February 29, 2004). These notes mature in August 2007. The holders of these
notes are parties to the Commercialization Agreement and have agreed that if the
amount of principal and accrued interest on these notes is paid under the
Commercialization Agreement prior to the maturity date of the notes, the notes
will be canceled.

Operating Activities

Operating activities include revenues we receive from the sale of water and
wastewater service to our customers, costs incurred in the delivery of those
services, general and administrative expenses, and depreciation and depletion
expenses.

During fiscal 2003, cash used in operating activities was approximately
$115,000, compared to cash used of approximately $39,000 in fiscal 2002.
Operating costs increased in 2003 due principally to additional overhead costs
from the addition of one person to our staff. Accrued interest on notes
receivable of $14,000 was offset by accrued interest on notes payable of
$176,000, for a change in accrued interest of approximately $162,000.

During the six months ended February 29, 2004, cash used in operating
activities was approximately $117,000, compared to approximately $9,000 during
the six months ended February 28, 2003. Operating costs increased due to
additional costs of operating the domestic water and wastewater systems. We
anticipate that a similar level of cash will be used in our operations during
the remainder of fiscal 2004. We continue to provide domestic water and
wastewater service to customers in the Lowry Range service area and operate and
to maintain our water and wastewater systems with our own employees.

Investing Activities

We continue to invest in the acquisition, maintenance and development of
both the Rangeview and Paradise water assets. These investments include legal
and engineering fees associated with adjudicating additional water through the
Water Court system, as well as right-of-way permit fees to the Department of
Interior Bureau of Land Management.

Cash used in investing activities for fiscal 2003 was approximately
$147,000, of which $144,000 was capitalized to the Rangeview assets and $3,000
was capitalized to the Paradise Water Supply. Cash used in investing activities
for fiscal 2002 was approximately $109,000.

Cash used in investing activities for the six month ended February 29, 2004
was approximately $70,000, which costs were capitalized to the Rangeview Water
Supply. We capitalize certain legal, engineering and permitting costs relating
to the improvement of our water assets.

Financing Activities

In August 2003, we entered into a Plan of Recapitalization and a Stock
Purchase Agreement with Mr. Thomas Clark, our Chief Executive Officer. Under
this agreement, we issued 200,000 shares of Series D-1 preferred stock in
exchange for 200,000 shares of common stock owned by Mr. Clark. We sold 200,000
shares of our common stock at $2.50 per share to 11 accredited investors, four
of whom were existing common stockholders, generating proceeds of $500,000. We
issued the preferred stock under Section 4(2) of the Securities Act. We sold
the common stock pursuant to Regulation D, Rule 506, promulgated under the
Securities Act.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). Generally, SFAS
No. 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized as incurred, whereas EITF Issue No. 94-3 required such a
liability to be recognized at the time that an entity committed to an exit plan.
SFAS No. 146, which is effective for exit or disposal activities that are
initiated after December 31, 2002, did not have a material impact on us.

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51. FIN 46 requires
an entity to consolidate a variable interest entity if it is designated as the
primary beneficiary of that entity even if such entity does not have a majority
of voting interests. A variable interest entity is generally defined as an
entity whose equity is insufficient to finance its activities or whose owners
lack the risk and rewards of ownership. The Company has determined that it is
not a party to a variable interest entity.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation". SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, Statement 148
amends the disclosure requirements of SFAS No. 123 to require more prominent and
more frequent disclosures in financial statements about the effects of
stock-based compensation, including requiring that this information be included
in interim as well as annual financial statements. We have no plans to change
to the fair value based method of accounting for stock-based employee
compensation based on current literature, and therefore are not affected by the
transition provisions of SFAS No. 148. We adopted the disclosure provisions of
SFAS No. 148 effective December 31, 2002.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN 45 clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee, including its
ongoing obligation to stand ready to perform over the term of the guarantee in
the event that the specified triggering events or conditions occur. The
objective of the initial measurement of the liability is the fair value of the
guarantee at its inception. The initial recognition and initial measurement
provisions of FIN 45 are effective on a prospective basis to guarantees issued
after December 31, 2002. However, the disclosure requirements are effective for

interim and annual financial statement periods ending after December 15, 2002.
Our adoption of FIN 45 had no impact on our results of operations or financial
position.

In June 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." The
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatory redeemable financial
instruments of a nonpublic entity. The adoption of this statement did not have
a material effect on our results of operations.

TOTAL CONTRACTUAL CASH OBLIGATIONS

A summary of our total contractual cash obligations (in millions) as of
August 31, 2003 is as follows:

PAYMENTS DUE BY PERIOD:
MORE
LESS THAN THAN
CONTRACTUAL OBLIGATIONS TOTAL 1 YR. 1-3 YRS. 3-5 YRS. 5 YRS.
-------------------------- -------- --------- -------- ---------- ------

Long-term debt $ 5.0(1) -- -- $ 5.0(1) --
Participating interests in
Rangeview water supply $36.2(2) -- -- -- --

(1) As of February 29, 2004, $3,321,287 of this debt, due in August 2007, is
subject to reduction through payments to holders of the notes under the
Commercialization Agreement. If the amount of principal and accrued interest on
the notes is paid under the Commercialization Agreement prior to the maturity of
the notes, the notes will be canceled.

(2) These amounts are payable under the Financing Agreements entered into to
finance our acquisition of the Rangeview water assets. We are only required to
make payments from the water resource portion of tap fees we receive from the
sale of Export Water. If we do not receive sufficient proceeds from the sale of
Export Water to satisfy these obligations, the obligations will not become
payable.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off balance sheet arrangements.

BUSINESS

BACKGROUND

Pure Cycle was founded and continues to be managed based on the belief that
water is a precious commodity, one that is often undervalued and therefore used
inefficiently.

We have exclusive access to approximately 29,000 acre feet per year of
water from, and the exclusive right to provide water and wastewater services to,
the Lowry Range service area. The Lowry Range is located in Arapahoe County
approximately 15 miles southeast of Denver and 12 miles south of the Denver
International Airport. Of the 29,000 acre feet of water to which we have
access, 17,500 acre feet are available to us for use on the Lowry Range. We own
the remaining 11,650 acre feet that we can "export" from the Lowry Range to
supply water to nearby communities and developers in need of additional water
supplies. We acquired these rights and the Export Water in 1996 when we entered
into an agreement with the State Land Board, which owns the Lowry Range, and the
District, a quasi-municipal political subdivision formed for the sole purpose of
providing water and wastewater services to the Lowry Range.

HISTORY

Pure Cycle was incorporated in 1976 to commercialize a patented single
family water recycling technology and became a public company in 1977. During
the late 1970's, we manufactured, installed and maintained approximately 50
water recycling systems that captured and treated wastewater flows from homes
and recycled that water for potable use. However, these individual recycling
systems proved to be too costly for us to operate, monitor and maintain, and we
discontinued the business in the early 1980's.

Beginning in 1987, concurrent with a change of management and ownership
control, we shifted our business to the acquisition, development and wholesale
marketing of water and large scale wastewater utility systems, principally for
sale to municipalities in the Denver area. We acquired rights to what we refer
to as the Paradise Water Supply, which includes several water wells and rights
to divert and store up to 70,000 acre feet of Colorado River water near DeBeque,
Colorado. Our ability to provide water service was greatly enhanced in 1996
when we entered into a water privatization agreement with the District and the
State Land Board and purchased annual entitlement rights to 11,650 acre feet of
water available for service to customers located off the Lowry Range service
area and entered into a water service agreement extending through 2081 which
grants us the rights to an additional 17,500 acre feet of water per year to
serve customers located in the Lowry Range service area.

WATER TO MEET COLORADO DEMANDS

In common with large portions of the desert West, the Denver metropolitan
area is semi-arid, receiving an average of only 13 inches of precipitation
annually. Eighty percent of the State's water supplies reside west of the
Continental Divide, while 80 percent of the population resides east of the
Continental Divide. Roughly 80 percent of Colorado's annual surface water
supply comes from snow. Due to wide fluctuations in snowfall from year to year
and area to area, the amount of surface water that can be captured for use

varies greatly. Further, the State is obligated through compacts and treaties
to allow much of the water that originates in the State to pass out of Colorado
for use by downstream out-of-state users.

Most of the state's population resides along the "front range," which
extends from Pueblo to Fort Collins and lies along the eastern side of the Rocky
Mountains. The largest population center is the greater Denver metropolitan
area which has been growing at above average rates for decades. By the 1960s,
water available during an average precipitation year from Denver's primary
source of surface water, the South Platte River, was no longer sufficient to
meet the area's needs. To address this imbalance, numerous reservoirs and
tunnels have been built to transport an average of 500,000 acre feet per year of
Colorado River water located in western Colorado to eastern Colorado users.
Even with this diversion, the U.S. Department of the Interior has identified the
Denver metropolitan area as one that is 'highly likely' to experience a 'water
supply crisis' by 2025.

The Denver Regional Council of Governments, a voluntary association of 50
county and municipal governments in the Denver metropolitan area, estimates that
between 2000 and 2025 the population in the Denver metropolitan area will grow
from 2.4 million to 3.4 million. To accommodate for this growth, the
metropolitan area is expected to grow from about 500 square miles to about 770
square miles during the same 25-year period. We expect that servicing this
population expansion will require an additional 300,000 acre feet of water
annually.

With our Rangeview water assets, we are positioned to supply water to meet
the needs of approximately 80,000 single family homes, or approximately 240,000
people.

PURE CYCLE ASSETS

Rangeview Water Assets. Our primary assets are a combination of
nontributary groundwater rights and tributary surface water and storage rights
associated with the Lowry Range property, which we collectively call the
"Rangeview Water Supply." We own the rights to use 1,650 acre feet of tributary
surface water, together with 10,000 acre feet of non-tributary water, that can
be exported off the Lowry Range property to serve area users. We have the right
to use an additional 1,650 acre feet of surface water together with over 16,000
acre feet of nontributary groundwater to serve customers within our Lowry Range
service area. We provide additional information regarding tributary and
non-tributary water rights under "Colorado Water Law Principles" below. The
Export Water we own, together with water available under our service agreements,
total over 29,000 acre feet.

Beginning in 1988, we began to pursue acquisition of a portion of the Lowry
Range water. Our initial interest was the water which could be exported off the
property to serve customers throughout the Denver area. Through a series of
transactions between the initial project principals, the State Land Board and
the District, we ultimately acquired the rights we now own. These assets were
acquired using a financing instrument, called the Commercialization Agreement,
in which we raised approximately $11,100,000 to purchase the Rangeview water
supply, and issued in exchange therefore 1,821,907 shares of common stock,
warrants to purchase 2,038,000 shares of common stock, 1,600,000 Series A
Preferred Stock and an obligation to pay to these investors the first
$31,807,000 we receive from the sale or other disposition of the Export Water.
Also, as part of the Rangeview water supply acquisition, we raised an additional
$950,000 from another investor, and incurred an incremental obligation to pay
the next $4,000,000 we receive from the sale or other disposition of Export
Water to this investor. The investors that are parties to the Commercialization
Agreement comprise the majority of the selling stockholders in this prospectus.
The shares being sold by the selling stockholders will be issued to them upon
exercise of warrants issued in connection with the Commercialization Agreement
transactions.

We are the exclusive water and wastewater service provider for the
24,000-acre Lowry Range property through 2081. Under this agreement we are
entitled to manage 17,500 acre feet of water capable of servicing up to 47,000
SFE equivalents (or approximately 140,000 people). We also own the rights to an
additional 11,650 acre feet of water annually that we can sell to other areas
throughout the Denver metropolitan region. We estimate that this amount of
Export Water is sufficient to service up to 32,000 single family homes (or
approximately 96,000 people).

We will design, construct and operate facilities to provide water and
wastewater service to customers located on the Lowry Range through our service
contract period ending in 2081. The District owns both the water and the
wastewater systems during our contract period, and we will operate both systems
during this period pursuant to our service contract. After 2081, ownership of
the water system will revert to the State Land Board. We will also design,
construct and operate the facilities to provide water and wastewater service to
customers located off the Lowry Range that will use our Export Water, and will
own these assets. We will contract with third parties for construction of these
facilities. We will design, engineer, and develop these systems as a single
unified system to improve reliability and economies of scale for customers
located both on and off the Lowry Range property.

Paradise Water Assets. In 1987, we acquired assets known as the Paradise
Water Supply. These assets include a Water Court decree for conditional water
rights enabling us to build a 70,000 acre-foot reservoir to store tributary
water on the Colorado River, a right-of-way permit for U.S. Bureau of Land
Management property at the dam and reservoir site, and four existing tributary
water wells with a theoretical capacity to produce approximately 56,000 acre
feet of water per year. The reservoir site is located in western Colorado on
the Colorado River about 60 miles east of the Utah border. Our ability to use
this asset may be limited, however, because of constraints imposed by the
difficulties and costs involved in transporting the water out of the Colorado
River watershed to the Denver metropolitan area and because of legal
complications in transferring such water to down-stream states like California
under the interstate Colorado River Compact. See "Governmental Regulation -
Water Deliveries." Due to the strict regulatory requirements for constructing
an on-channel reservoir, completing this conditional storage right at its
decreed location would also be difficult. As a result, we cannot assure you
that we will ever be able to make use of this asset or sell the water
profitably.

We continue to evaluate prospects for the acquisition of additional water
rights in the Denver metropolitan area to expand our water service capabilities.

REVENUE

We will derive revenue from two principal sources: one-time tap fees,
which are typically paid by the developer of a property and become part of the
cost of the lot or home, and service fees, which are monthly metered water
deliveries paid by all customers connected to our water and wastewater systems.
Under our privatization agreement with the District and the State Land Board,
pricing for water and wastewater services is controlled through a market-driven
pricing mechanism in which our rates and charges may not exceed similar rates
and charges of three nearby communities.

Table 1 provides a summary of our tap fees over the past several years. We
base our tap fees on the average of the tap fees that have been charged by the
three communities whose rates determine our allowable charges.

TABLE 1 - WATER SYSTEM TAP FEES

Year 1998 1999 2000 2001 2002 2003 2004
-------------------- ------ ------ ------ -------- ------- -------- --------

Tap Fee (per SFE) $8,165 $8,165 $8,165 $10,500 $10,500 $11,150 $12,420
-------------------- ------ ------ ------ -------- ------- -------- --------
Percentage increase --- --- --- 29% --- 6.2% 11.4%
-------------------- ------ ------ ------ -------- ------- -------- --------

Water system tap fees consist of two components: a system development fee
and a water resource charge. System development fees are typically used to
defray the cost to develop and deliver the water into the distribution system.
Water resource charges are typically used to defray the costs associated with
the water rights. Our current water system development fee is $9,020 per single
family equivalent (SFE), and our water resource charge is $3,400 per SFE. An
SFE is defined as the amount of water required each year by a family of three
persons living in a single family house on a standard acre lot. We will also
collect an additional wastewater system development fee of $4,883 per SFE to
develop, operate and maintain the wastewater system. Currently, for a typical
residential customer using approximately 0.4 acre feet of water annually, the
water service fee is approximately $578 per year and the wastewater service fees
are approximately $404 per year for a typical residential customer. We also
collect other relatively small fees and charges from residential customers and
other end users to cover miscellaneous administrative and service expenses, such
as application fees, review fees and permit fees.

We negotiate the payment terms for tap fees and other water/wastewater
service obligations with each land developer or builder before we commit to
providing service and begin construction of the project. In some cases where
service is provided off the Lowry Range, we may provide only water service, but
will typically retain the right to reuse treated effluent wastewater in our
dual-pipe distribution system. We are typically responsible for the
construction of wholesale facilities, which are those facilities necessary to
develop and treat the water, including water wells, water collection pipelines,
water reservoirs, water treatment plants, storage tanks, pump stations and
wastewater treatment plants. The costs for these facilities are financed by the
system development fee portion of the tap fees paid by developers to gain access
to the water and wastewater systems.

Developers are typically responsible for the construction of retail
facilities - the water distribution system that transports the water throughout
the subdivision or community. Retail facilities are constructed pursuant to our
design standards and are inspected by our engineers prior to completion. Once
we certify that the retail facilities have been constructed in accordance with
our design criteria, the developer is required to dedicate the retail facilities
to us at no cost. In the Sky Ranch transaction, the developer will dedicate the
retail facilities to the District. We are then responsible for the operation
and maintenance of those facilities.

Customer facilities consist of water service pipelines, plumbing, meters
and other components that carry potable water and re-use water from the street
to the customer's house and collect wastewater from the customer's house to the
street. In many cases, a portion of the customer's facilities are also
constructed by the developer, again pursuant to our design standards, but are
owned and maintained by the customer.

Under our water privatization agreements, the State Land Board is entitled
to a royalty and the District is entitled to retain a fee, each based on a
percentage of revenues from water sales that utilize water from the Rangeview
water assets. Royalties and fees are calculated either on a gross or net
revenue basis depending on whether the customer is located within the Lowry
Range or elsewhere in the Denver metropolitan area. Payments from customers who
are within the Lowry Range generate royalties to the State Land Board and fees
to the District based on gross revenues. Payments from customers located
outside the Lowry Range generate royalties to the State Land Board based on net
revenues, which are defined as gross revenues less costs incurred to develop and

deliver water. The District collects fees from customers, pays the royalties
and fees, and remits the remainder to Pure Cycle. Table 2 below sets forth
these payments:

TABLE 2 - OBLIGATIONS RELATING TO USE OF RANGEVIEW WATER ASSETS

REVENUE SOURCE STATE LAND BOARD RANGEVIEW METROPOLITAN
DISTRICT
-------------------------- ------------------------------- --------------------------------

Water Tap Fees & Service 12% of gross revenue 5% of gross revenue after State
Fees within Lowry Range Land Board royalty

Water Tap Fees & Service 12% of net revenue (gross 0%
Fees from Export Water revenue less costs incurred to
deliver water)

Wastewater Tap Fees 0% 0%

Wastewater Service Charges 0% 10% of gross revenue

Developers having rights to groundwater underlying their properties can
receive a credit against a portion of their tap fees if they dedicate their
water to us. The credit is equal to the water resource charge portion of the
tap fee - currently $3,400 of the total $12,420 tap fee, based on 0.7 acre feet
of water being dedicated to us for each water resource tap credit issued. In
the Sky Ranch transaction, we are crediting the developer the water resource
charge portion of the tap fee for the first 1,400 taps and combining the water
resources underlying the Sky Ranch property with a portion of our Export Water
to provide the full amount of water required for the Sky Ranch development.

We are obligated to pay investors in the Commercialization Agreement the
water resource fee component from the sale of Export Water taps up to a total of
$36,240,000. The obligations under the Commercialization Agreement will not
prevent us from utilizing the system development portion of the tap fee to
construct the infrastructure we will need to build to provide our water
services.

WATER RECLAMATION

With interest heightened by an ongoing drought, most water providers in
Colorado are actively pursuing the re-use of treated wastewater for irrigation
and other non-potable uses. Our master plan for the Lowry Range and other areas
in which we will work with developers to install water service calls for the
installation of a dual water distribution system, with one pipe supplying the
customer with potable water and the second pipe providing treated effluent
wastewater, or "reclaimed" water, for irrigation and other nonpotable uses. A
third pipe would retrieve effluent wastewater for treatment and subsequent
reuse. About one-half of the water needed to meet Denver-area municipal water
demands is used for irrigation of lawns and landscape. We believe that treated
wastewater would provide an essentially drought-proof supply of irrigation water
for the areas we will serve. The Colorado Department of Public Health and
Environment is currently evaluating the use of effluent wastewater for
residential irrigation, and, pending the outcome of their review, we may not be
able to deliver this water to residential customers. However, even if we cannot
use this reclaimed water for residential irrigation , we will be able to use it
in other approved commercial irrigation uses, such as for golf course watering.
We expect that the implementation of an extensive water reclamation system, in
which essentially all wastewater treatment plant effluent will be re-used to
meet nonpotable water demands, will greatly expand our capability to provide
quality water service and will reinforce our philosophy that emphasizes the
importance of water recycling.

THE LOWRY RANGE

The State Land Board acquired the Lowry Range, which was formerly a
military reservation, in the 1960s. The Lowry Range encompasses approximately
27,000 acres, of which 24,000 acres are within our exclusive service area.

The Lowry Range is located in unincorporated Arapahoe County 15 miles
southeast of downtown Denver and 12 miles directly south of Denver International
Airport. The State Land Board has stated that the Lowry Range is the most
valuable property in its nearly 2,500,000 acre portfolio. It has explored a
number of development models for the property, including continued development
similar to that which is ongoing adjacent to the property's western borders, a
new planned community, and a compact development model with high density village
centers surrounded by large expanses of open space. The State Land Board
continues to review and refine the development opportunities for the Lowry Range
and anticipates approaching the development community for "requests for
qualification" and "requests for proposals" during 2004.

We believe that the Lowry Range is among the single largest contiguous
parcel of primarily undeveloped land in the United States that is near a
metropolitan area and owned by a single landowner. In October 2003, the State
Land Board directed its staff to prepare a request for proposal to send to the
development community to seek assistance with the planning and development of
this tract of property. The State Land Board has engaged the Urban Land
Institute to assist in the preparation of evaluation criteria for a request for
qualification and request for proposal. The Urban Land Institute's criteria are
expected to be completed in June 2004. The State Land Board has indicated that
it will shortly thereafter send a request for qualification followed by a
request for proposal to local and national developers to assist in the
development of the Lowry Range.

We have designed and constructed, and we currently operate and maintain,
water and wastewater facilities that service customers on the Lowry Range. We
currently have one facility that during 2003 provided, treated and delivered
approximately 47 million gallons of potable water and treated approximately 7
million gallons of wastewater. We intend to plan, construct and operate the
facilities serving the Lowry Range and areas outside the Lowry Range in a
unified manner to capitalize on economies of scale.

Full build-out of the Lowry Range is likely to take more than 30 years,
with initial development occurring as soon as two to three years from now,
depending on the decisions of State Land Board and the results of the proposal
process.

EXPORT WATER

Colorado municipalities have strong incentives to attract commercial
development to their areas, as a large portion of their revenues are derived
through sales tax receipts. Cities and municipalities historically have used
water availability as a means to attract development in competition with other
municipalities. As water has become scarce, cities and municipalities have
begun requiring property developers to demonstrate that they have sufficient
water supplies for their proposed projects before the cities and municipalities
will consider rezoning applications. This is forcing developers to find
adequate water supplies in order to develop new property.

Our water marketing activities are centered around targeting our water and
wastewater services to developers and homebuilders developing new areas of the
Denver metropolitan area. Our water supplies are largely undeveloped and are
located in southeast Arapahoe County, one of the fastest growing regions of the
Denver metropolitan area. We work with area developers to investigate water
supply constraints, water and wastewater utility issues, market demand,

transportation concerns, employment centers and other issues in order to
identify suitable areas for development.

CURRENT OPERATIONS

At this time, we operate and maintain all of our water supply and
wastewater treatment facilities with limited assistance from third party
maintenance contractors. Water deliveries during 2003 totaled about 47 million
gallons, ranging from 2 million gallons per month in the winter to 7 million
gallons per month in the summer. Our wastewater treatment plant currently has a
permitted capacity of 130,000 gallons per day and receives about 20,000 gallons
per day.

Presently, approximately 81% of our water and wastewater treatment revenues
are from one customer. In 1998, we entered into a water service agreement with
the State of Colorado Department of Human Services to provide water and
wastewater services to a juvenile correction facility on the western edge of the
Lowry Range known as the Ridge View Youth Services Center. We designed and
built this facility to provide water and wastewater services serving the
approximately 200 single family equivalents of the Ridge View Youth Services
Center. Upon completion in 2001, we commenced service to this facility.

In October 2003, we entered into a water service agreement with a developer
to provide water to approximately 4,000 SFE that are being built on
approximately 800 acres known as "Sky Ranch" located 4 miles north of the Lowry
Range along Interstate 70. We expect that the construction of the project will
begin in October 2004, with the first homes available in February 2005. Based
on housing market demand in similar projects in the area and projections
provided by the developer, we expect that the project will be fully built out
within 10 years. Under the agreement, the developer must purchase at least 400
water taps before occupancy of the first home. The agreement permits the
developer to add additional taps annually, with at least 250 taps to be
purchased each year. This schedule is designed to provide us with adequate
funds with which to construct the facilities needed to provide water service to
the areas being built.

For the initial development at Sky Ranch, we anticipate receiving tap fees
of approximately $1.9 million, representing approximately 156 taps, in the
current fiscal year ending August 31, 2004, and approximately $3.0 million,
representing an additional 244 taps, prior to January 2005. We estimate that it
will cost approximately $2.5 million to construct the infrastructure to service
the initial 400 taps. We will expand the infrastructure to meet demand as
houses are built at Sky Ranch. We will initially develop the water beneath the
Sky Ranch property, which is being dedicated to us by the developer in exchange
for credit of a portion of the water resource tap fee. The dedicated water is
sufficient to provide water service to approximately 1,400 customers. No
payments will be required to be made under the Financing Agreements or for
royalty payments to the State Land Board with respect to tap fee revenues from
the first 1,400 taps at Sky Ranch. Because this project has not yet commenced,
we cannot assure you that these revenue and expense estimates will be the actual
revenues and expenses that we will experience.

PROJECTED OPERATIONS

We will develop water and wastewater infrastructure in stages to meet
demand. We anticipate that development of the entire 29,000 acre feet of
non-tributary water will require between 250 and 300 high capacity water wells
ranging in depth from 800 feet to over 2,500 feet. We will drill separate wells
into each of the three principal aquifers and each well will deliver water to
central water treatment facilities for treatment prior to delivery to customers.
We also intend to build structures to divert surface water to four storage
reservoirs to be located in the Lowry Range. The surface water will be diverted
when available and, prior to distribution to our customers, will be treated by a
separate water treatment facility that we will build specifically to treat
surface water. We anticipate that full build-out of water facilities on the
Lowry Range will cost approximately $340 million and will accommodate up to
water service to 80,000 single family equivalent units incorporating both
customers located in and outside the Lowry Range service area.

We intend to design, construct and operate our own wastewater treatment
facilities using advanced wastewater treatment technologies currently available
in the market. We plan to store our treated effluent water in surface water
reservoirs for reuse in our irrigation water system. The combination of deep
well water from our non-tributary water supplies, surface water supplies from
two surface water streams that flow through the Lowry Range and the reuse of the
treated effluent water supplies will provide an advanced water management system
that maximizes the use and reuse of our valuable water supplies.

We currently operate one system serving customers on the Lowry Range that
has a capacity to treat approximately 130,000 gallons of wastewater per day;
current utilization is approximately 20,000 gallons per day. We anticipate that
the full build-out of wastewater facilities on the Lowry Range will cost
approximately $68.4 million and will accommodate up to approximately 12.3
million gallons of wastewater per day serving an estimated 47,000 single family
equivalent units.

We intend to utilize third party contractors to construct our facilities
and we will employ licensed water and wastewater operators to operate our water
and wastewater systems. At full buildout, we expect to employ approximately 50
professionals to operate our systems, read meters, bill customers, and manage
our affairs. We will take advantage of advanced technologies to keep personnel
requirements and operating costs low. Currently available technologies enable
meter reading and billing to be done automatically, reducing associated handling
and labor costs. A vehicle driving past a home can send a signal to the meter,
and the meter reading goes directly into a database, which automatically prints
billing information for the customer.

RANGEVIEW METROPOLITAN DISTRICT

The Rangeview Metropolitan District is a quasi-municipal corporation and
political subdivision of Colorado formed in 1986 for the sole purpose of
providing water and wastewater service to the Lowry Range, using water leased to
the District by the State Land Board. The District was formed following, and
based on, the purchase in 1986 of a 40 acre parcel of vacant land located in
unincorporated Arapahoe County near but not on the Lowry Range. This land
comprises all of the property currently within the boundaries of the District.

The District is run by an elected board of directors. The only eligible
voters and the only persons eligible to serve as directors are the owners of
property in the 40 acre boundary of the District. The current directors of the
District are Thomas P. Clark, Mark W. Harding, Scott E. Lehman (all employees of
Pure Cycle) and Tom Lamm.

We are party to a Right of First Refusal Agreement with the owners of the
property comprising the District. Pursuant to a tenancy in common agreement, in
the event of death, bankruptcy or incompetence of any tenant, that tenant's
estate or representative must offer the property interest of that tenant to the
remaining tenants for purchase. If the remaining tenants do not purchase all of
such person's interest, the property must be offered to us pursuant to its Right
of First Refusal Agreement. In addition, if any tenant wants to sell his
interest in the parcel, such tenant must find a bona fide buyer and then offer
the property to us. We have the right, at our option, to buy the property by
matching the terms of the bona fide third party offer or by paying the appraised
value of the property, as determined by independent appraisers. A tenant may
also negotiate a sale directly with us if he elects not to locate a bona fide
buyer. Each of the directors currently owns an undivided one-fifth interest in
the land comprising the District. We also own an undivided one-fifth interest.
Under applicable Colorado law, entities are not qualified to serve as directors
of municipal districts and may not vote.

We and the directors have attempted to transact business between the
District and us on an arms-length basis. The conflicts of interest of the
directors in transactions between us and the District are disclosed in filings
with the Colorado Secretary of State. The District and we were each represented
by separate legal counsel in negotiating the water service agreement and
wastewater service agreement between the parties. The agreements were also
approved by the two members of the District's board who were not our employees
and by the State Land Board.

It is likely that at some point in the future, the board of directors of
the District will be comprised entirely of directors independent from Pure
Cycle. As the State Land Board develops the Lowry Range, landowners on the
Lowry Range may petition to include their land within the District's boundaries.
Provided such petition complies with applicable law, the District is required by
its lease with the State Land Board to proceed with due diligence to include the
area designated in such petition within the District's boundaries. As the
District's boundaries expand beyond the initial 40 acre parcel, the base of
persons eligible to serve as directors and eligible to vote will also increase.
A board of the District that is not controlled by us would not have the power to
take away from us the water rights embedded in our existing agreements.

COMPETITION

Although we have exclusive, long term water and wastewater service
contracts for the Lowry Range service area, our business of providing water
service using our Export Water is subject to competition. Alternate sources of
water are available, principally from other private parties, such as farmers
owning senior water rights that are no longer being economically used in
agriculture, and municipalities seeking to annex newly developed areas in order
to increase their tax base. Our principal competition in areas close to the
Lowry Range would be the City of Aurora. The principal factors affecting
competition for potential purchasers of Export Water include the availability of
water for the particular purpose, the cost of delivering the water to the
desired location, and the reliability of the water supply during drought
periods. We believe that our assets provide us with a competitive advantage
because our legal rights to the assets have been confirmed for municipal use,
our water supply is close to Denver area water users and our pricing structure
is competitive. Further, the size of the Lowry Range service area and the
amount of property that can be served by the Export Water will provide us with
economies of scale that should give us advantages over our competitors.

COLORADO WATER LAW PRINCIPLES

Under Colorado water law, a person generally does not own the water itself
but only the right to use the water from a certain source. A water right,
however, is considered a property right that can be owned and conveyed, separate
from land, in the same manner as a real property interest.

Generally, we own two types of water rights: tributary water rights and
nontributary groundwater rights. In addition, we own water storage or recharge
rights, which consist of both the right to use the water stored or recharged,
and the right to construct, maintain and/or use the reservoir or aquifer in
which the water is stored.

Colorado water rights are administered jointly by special State Water
Courts and the State Engineer's Office. Water Courts adjudicate and confirm the
nature and scope of water rights by issuing decrees. The State Engineer is
responsible for issuing well permits, implementing interstate compacts and
administering tributary water rights.

Tributary water rights are covered by the Colorado Constitution, which
provides that all surface and ground water in or tributary to natural streams in
Colorado is the property of the public and subject to appropriation. Such
tributary water includes all springs, surface drainage and groundwater that is
hydrologically connected to surface streams. Tributary water in Colorado is
subject to the "prior appropriation" doctrine, which is grounded on the
"first-in-time, first-in-right" principle. Under this doctrine, an absolute
tributary water right is acquired by the act of diverting and placing the water
to some beneficial use, and the right is confirmed and assigned a priority based
on the date of initial use through a decree issued by a State Water Court. The
Water Court decree legally confirms the appropriation date, the specific type
and place of use, and the amount of water permitted to be diverted under the
water right. Decreed water that is appropriated earlier in time holds senior
priority over later-acquired water rights. In times of shortage, a senior water
right must be fully satisfied before any junior right can use any water. This
means that the relative priority of a tributary water right is critical to its
value. A tributary water right cannot typically be used and reused successively
to exhaustion.

Tributary water rights can also be "conditional" as opposed to absolute. A
conditional water right permits an owner to take an initial step towards
appropriating water, such as planning a storage or diversion structure, and
demonstrating to the Water Court every six years that additional steps are
diligently being taken to put the water to a beneficial use. The water right
can ultimately be perfected and become an absolute water right, with the date of
appropriation being the date of the initial action. Our Paradise Water Supply
consists in part of conditional rights in tributary water in the Colorado River
basin in western Colorado.

Nontributary groundwater is defined by statute as water that is not
hydrologically connected to surface water. In Colorado, nontributary water is
most commonly found in the Denver Basin, which is a series of four aquifers
stretching from the town of Greeley south to Colorado Springs, and from the
foothills of the Rocky Mountains to east of the Denver metropolitan area.
Nontributary groundwater is not subject to the prior appropriation doctrine and
the related priority administration system. Rather, the right to use
nontributary water is generally incident to overlying land ownership. By
statute, owners of surface land have rights to withdraw the calculated amount of
nontributary groundwater that lies beneath their land, and these rights are
perfected by drilling a well or obtaining a Water Court decree. An owner can
withdraw one percent of the total volume of nontributary groundwater to which it
is entitled each year, in order to allow this resource, to the extent
non-renewable, to last 100 years. Nontributary water is permitted to be used
and reused successively to exhaustion. As a result, rights to nontributary
water are extremely valuable, particularly in times of drought and water
shortages.

GOVERNMENT REGULATION

Water Quality

The water we deliver for use by customers must meet water quality standards
for public water supply systems that are set under the federal Safe Drinking
Water Act (SDWA), 42 U.S.C. Sec. 300f et seq. and related Colorado state law.

These standards are subject to periodic revision and may become more strict in
the future. In general, we anticipate that groundwater from wells located on
the Lowry Range will conform with these water quality standards without
treatment, other than residual disinfection prior to use. Lower quality
groundwater, if encountered, may be used directly in the non-potable irrigation
system, blended with other potable water supplies to yield an acceptable quality
mixture, or receive additional treatment. We will build water filtration plants
to treat surface waters prior to use. We believe that we should have no
difficulty meeting existing SDWA standards.

Wastewater that we treat that is or will be discharged to any stream,
drainage or aquifer, must also comply with various water quality standards and
other requirements under the Federal Water Pollution Control Act (FWPCA), 33
U.S.C. Sec. 1251 et seq., as delegated to and administered by the State of
Colorado. We currently operate a wastewater treatment plant that discharges
treated wastewater effluent to Coal Creek under a State discharge permit. We
believe we should also have no difficulty meeting any applicable FWPCA or
related State requirements associated with any regulated treated wastewater
discharges. As noted above, our master plan calls for a dual distribution
system under which treated wastewater can be reclaimed and redistributed to
customers for irrigation use, which would limit regulation under the above FWPCA
discharge permit program.

Water Deliveries

While we are exploring the potential sale of our Paradise Water Supply to
customers in Arizona, Nevada and California, such out-of-state transactions are
subject to several significant regulatory hurdles. Colorado is a signatory to
interstate compacts with six other western states to apportion fixed amounts of
water from the Colorado River. These compacts contain complex provisions that
impose obligations on the states to ensure that each state receives and uses
only its allotted amount of Colorado River water. Rights created by interstate
compacts are superior to state water rights granted by the State of Colorado;
Colorado may create and vest in-state water rights as property, but these rights
are subject to Colorado's allocated share of Colorado River water and its
obligation to deliver water to downstream states under the compacts. Recently,
the U.S. Department of Interior began strictly enforcing the provisions of the
Colorado River Compact of 1922 to require that California limit the amount of
Colorado River water it diverts to 4.4 million acre-feet, the amount it was
originally allocated under that compact. Significant demand for water exists in
California, Nevada and Arizona as a result of increased populations in these
states, giving rise to water needs that exceed the supplies of water originally
allocated to these states under the compact. However, as a result of
obligations imposed on Colorado by the compacts to send water to the downstream
states, Colorado law restricts the export of water out of state without
obtaining a Water Court decree, and to issue a decree, the Water Court must find
that such export is not in violation of provisions of interstate compacts and
does not prevent Colorado from complying with its interstate compact
obligations. Obtaining such a decree would likely involve significant
litigation cost.

EMPLOYEES

We currently have three employees, none of whom is subject to any
collective bargaining agreements. We believe that our relations with our
employees are good.

PROPERTIES

OFFICE LEASE

We currently occupy approximately 1,800 square feet of office space at no
cost from Thomas P. Clark, our Chief Executive Officer and one of our directors.
There is no written lease.

FACILITIES

Generally, we will own and operate the water and wastewater facilities to
be constructed for service to customers located off the Lowry Range that are
using our Export Water. While we have an exclusive right to provide water and
wastewater services to customers on the Lowry Range until 2081, as well as the
obligation to construct and operate the wastewater facilities to provide this
water, the facilities (other than the wastewater system) will be owned by the
State Land Board, and the District will own the wastewater system. We intend to
construct the water supply facilities for both the Lowry Range service area and
for our Export Water services as part of a unified plan. Under our service
agreement with the State Land Board and the District, we have a perpetual right
to construct, operate and maintain water supply facilities on the Lowry Range as
needed to produce and supply Export Water.

RANGEVIEW METROPOLITAN DISTRICT

We own an undivided one-fifth interest as a tenant-in-common in a 40-acre
parcel of undeveloped land located in unincorporated Arapahoe County comprising
the Rangeview Metropolitan District.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the names, ages and titles of the persons
who are currently our directors and executive officers of the Company, along
with other positions they hold with us.

Name Age Position
------------------------- --- ---------------------------------
Harrison H. Augur(1)(2) 62 Chairman of the Board
Thomas P. Clark 67 Director, Chief Executive Officer
Mark W. Harding 40 Director, President
George M. Middlemas(1)(2) 57 Director
Margaret S. Hansson 79 Director
Richard L. Guido (1)(2) 59 Director

________________

(1) Member of Audit Committee.

(2) Member of Compensation Committee.

HARRISON H. AUGUR was elected Chairman of the Board in April 2001. For the
past 20 years, Mr. Augur has been involved with investment management and
venture capital investment groups. Mr. Augur has been a General Partner of CA
Partners since 1987, and General Partner of Patience Partners LLC since 1999.
Mr. Augur received a Bachelor of Arts degree from Yale University, an LLB degree
from Columbia University School of Law, and an LLM degree from New York
University School of Law.

THOMAS P. CLARK was appointed Chief Executive Officer in April 2001. Prior
to his appointment as our Chief Executive Officer, Mr. Clark served as our
President and Treasurer from 1987 to April 2001. Mr. Clark is primarily involved
in the management of our business. His other business activities include:
President, LC Holdings, Inc. (business development), 1983 to present, and

partner (through a wholly owned corporation) of Resource Technology Associates
(development of mineral and energy technologies), 1982 to present. Mr. Clark
serves on the board of the Rangeview Metropolitan District. Mr. Clark received
his Bachelor of Science degree in Geology and Physics from Brigham Young
University.

MARK W. HARDING joined Pure Cycle in April 1990 as Corporate Secretary and
Chief Financial Officer. He was appointed President in April 2001, and on
February 13, 2004 was appointed to fill a vacancy on the board. He brings a
background in public finance and management consulting. From 1988 to 1990, Mr.
Harding worked for Price Waterhouse, where he assisted clients in providing
public finance and other investment banking related services. Mr. Harding is
the President of the Rangeview Metropolitan District. Mr. Harding has a B.S.
Degree in Computer Science and a Masters in Business Administration in Finance
from the University of Denver.

GEORGE M. MIDDLEMAS has been a Director since April 1993. Mr. Middlemas
has been a general partner with Apex Investment Partners, a diversified venture
capital management group, since 1991. From 1985 to 1991, Mr. Middlemas was
Senior Vice President of Inco Venture Capital Management, primarily involved in
venture capital investments for INCO Securities Corporation. From 1979 to 1985,
Mr. Middlemas was a Vice President and a member of the Investment Committee of
Citicorp Venture Capital Ltd., where he sourced, evaluated and completed
investments for Citicorp. Mr. Middlemas is a director of Tut Systems, and
Pennsylvania State University - Library Development Board. Mr. Middlemas
received a Bachelors degree in History and Political Science from Pennsylvania
State University, a Masters degree in Political Science from the University of
Pittsburgh and a Master of Business Administration from Harvard Business School.

MARGARET S. HANSSON has been a director since April 1977, Chairman from
1983 to 2001, Vice President from 1992 to 2003, and was our Chief Executive
Officer from September 23, 1983 to January 31, 1984. From 1976 to May 1981, she
was President of GENAC, Inc., a Boulder, Colorado firm which she founded. From
1960 to 1975, Ms. Hansson was CEO and Chairman of Gerry Baby Products Company
(formerly Gerico, Inc.), now a division of Evenflo. She is a Director of Wells
Fargo Bank, Boulder, Colorado, Wells Fargo Banks, PC, Colorado Capital Alliance,
Realty Quest, Inc. (now RQI, Inc.), and the Boulder Technology Incubator. Ms.
Hansson is currently President of two companies, Adrop, LLC and Erth, LLC,
companies engaged in development of a centrifuge for water purification systems.
Ms. Hansson received her Bachelor of Arts degree from Antioch College.

RICHARD L. GUIDO served as a director from July 1996 through August 31,
2003, and on February 13, 2004 was appointed to fill a vacancy on the board.
Mr. Guido was an employee of INCO Securities Corporation, a 5.5% stockholder,
from 1980 through August 2003, and previously served on our board pursuant to a
voting agreement between INCO and us that is no longer in effect. Mr. Guido was
Associate General Counsel of Inco Limited and President, Chief Legal Officer and
Secretary of Inco United States, Inc. Mr. Guido is a Director on the
American-Indonesia Chamber of Commerce and the Canada-United States Law
Institute. Mr. Guido received a Bachelor of Science degree from the United
States Air Force Academy, a Master of Arts degree from Georgetown University,
and a Juris Doctor degree from the Catholic University of America.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information concerning the compensation
received by or awarded to (i) our chief executive officer and (ii) our other
executive officers for the fiscal years ended August 31, 2003, 2002 and 2001:

Annual Compensation
--------------------------------------
Name and Fiscal Salary Bonus Other Annual
Principal Position Year ($) ($) Compensation
($)
--------------------- ------ ------- ------ -------------

Thomas P. Clark , CEO 2003 60,000 0 0
2002 60,000 0 0
2001 60,000 0 0

Mark W. Harding, 2003 80,000 0 0
President and CFO 2002 80,000 0 0
2001 80,000 0 0

Each director who is not an employee of Pure Cycle receives a payment of
$10,000 for each full year in which he or she serves as a director, with an
additional payment of $1,000 for each committee on which he or she serves, and
$1,000 for serving as chairman of the board. An additional $500 is paid to each
non-employee director for attendance at each board meeting and, if committee
meetings are held separate from board meetings, $500 is paid for attendance at
such committee meetings. Directors who are employees of Pure Cycle receive no
additional compensation for serving as a director.

In addition to cash compensation, as part of the 2004 Equity Incentive
Plan, each non-employee director will receive an option to purchase 5,000 shares
of common stock upon election to the board, and an option to purchase 2,500
shares for each subsequent full year in which he or she serves as a director.

The functions to be performed by the audit committee include the
appointment, retention, compensation and oversight of the Company's independent
auditors, including pre-approval of all audit and non-audit services to be
performed by such auditors.

Effective February 13, 2004, the Company appointed a compensation
committee. The functions to be performed by the compensation committee include
establishing in the compensation of officers and directors, and administering
management incentive compensation plans.

Option Grants in Last Fiscal Year

There were no grants of stock options made during the fiscal year ended
August 31, 2003 to our executive officers.

Aggregated Option Exercises and Fiscal Year End Option Values

Number of Value of
Unexercised Unexercised In-
Securities The-Money
Underlying Options Options at
at 08/31/03 08/31/03
Acquired on Value Exercisable/ Exercisable/
Named Officer Exercise Received Unexercisable Unexercisable
--------------- ----------- -------- ------------------ ----------------

Thomas P. Clark - - - -
Mark W. Harding - - 975,000/25,000 $ 39,000/$1,000

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERSHIP AND MANAGEMENT

The following table sets forth, as of February 29, 2004, the beneficial
ownership of our issued and outstanding common stock and Series A-1 Preferred
Stock by (i) each person who owns of record (or we know to own beneficially) 5%
or more of each such class of stock, (ii) each of our directors, (iii) each of
our executive officers and (iv) all directors and executive officers as a group.
Except as otherwise indicated, we believe that each of the beneficial owners of
the stock listed has sole investment and voting power with respect to such
shares, based on information provided by such holders

Series A-1
Common Stock Preferred Stock
------------ ---------------
Name and Address of # of # of
Beneficial Owner Shares % Shares %
---------------------------------- ---------------- ----- ------- -----

Thomas P. Clark
8451 Delaware St.
Thornton, CO 80260 2,546,485 31.3%

George M. Middlemas
225 W. Washington, #1500
Chicago, IL 60606 1,842,114(1)(2) 19.8%

Harrison H. Augur
P.O. Box 4389
Aspen, CO 81611 53,166(3) 0.7%

Margaret S. Hansson
2220 Norwood Avenue
Boulder, CO 80304 824,600(4) 9.2%

Richard L. Guido
121 Antebellum Drive
Meridianville, AL 35759 0 0

Mark W. Harding
8451 Delaware St.
Thornton, CO 80260 1,021,000(5) 10.9%

All Directors and Officers as a
group (6 persons) 6,262,365(6) 56.2%

____________________

INCO Securities Corporation
145 King St. West, #1500
Toronto, Ontario Canada M5H4B7 1,470,000(7) 5.5%

Apex Investment Fund II L.P.
("Apex")
225 W. Washington
#1500
Chicago, IL 60606 1,708,781(2)(8) 18.6% 408,000 38.6%

Environmental Venture Fund
Limited Partnership ("EVFund")
233 S. Wacker Drive
Suite 9500
Chicago, IL 60606 629,137(2)(9) 7.5%

Environmental Private Equity Fund
II, L.P. ("EPFund")
233 S. Wacker Drive
Suite 9500
Chicago, IL 60606 712,146(2)(10) 8.47% 600,000 56.7%

The Productivity Fund II, L.P.
("PFund')
233 S. Wacker Drive
Suite 9500
Chicago, IL 60606 478,948(2)(11) 5.8%

(1) Includes 100,000 shares of common stock issuable upon exercise of options
and 1,708,781 shares of common stock which Mr. Middlemas may be deemed to own
but of which he disclaims beneficial ownership as described in more detail in
footnote (2) below.

(2) Each of the Apex, EVFund, PFund, and EPFund (the "Apex Partnerships") is
controlled through one or more partnerships. The persons who have or share
control of such stockholders are referred to herein as "ultimate general
partners." The ultimate general partners of Apex are: First Analysis
Corporation, a Delaware corporation ("FAC"), Stellar Investment Co. ("Stellar"),
a corporation controlled by James A. Johnson ("Johnson"); George Middlemas
("Middlemas"); and Chartwell Holdings Inc. ("Chartwell"), a corporation
controlled by Paul J. Renze ("Renze"). The ultimate general partners of EVFund
are: FAC; Felsen, Genack Associates ("FGA"); William D. Ruckelshaus Associates,
a Limited Partnership ("WDRA"); and RS Investment Management ("RSIM"). The
ultimate general partners of PFund are FAC and Bret R. Maxwell ("Maxwell"). The
ultimate general partners of EPFund are FAC, Maxwell, RSIM, Argentum
Environmental Corporation ("AEC") and Schneur Z. Genack, Inc. ("SZG").

By reason of its status as ultimate general partner of each of Apex
Partnerships, FAC may be deemed to be the indirect beneficial owner of 3,529,013
shares of common stock, or 36.4% of such shares. By reason of his status as the

majority stockholder of FAC, F. Oliver Nicklin may also be deemed to be the
indirect beneficial owner of such shares. By reason of their status as ultimate
general partners of Apex, Stellar (and through Stellar, Johnson), Middlemas,
Chartwell (and through Chartwell, Renze) may be deemed to be the indirect
beneficial owners of 1,708,781 shares of common stock, or 18.6% of such shares.
When these shares are combined with his personal holdings of 33,333 shares of
common stock and his currently exercisable option to purchase 100,000 shares of
common stock, Middlemas may be deemed to be the beneficial owner (directly with
respect to his shares and the option shares and indirectly as to the balance) of
1,842,114 shares of common stock, or 19.8% of such shares.

By reason of his status as a general partner of an ultimate general partner of
PFund and EPFund, Maxwell may be deemed to be the indirect beneficial owner of
1,191,094 shares of common stock, or 14.2% of such shares.

By reason of their status as ultimate general partners of EVFund, FGA, WDRA and
RSIM and their respective controlling persons may be deemed to be the indirect
beneficial owners of 629,137 shares of common stock, or 7.8% of such shares. By
reason of AEC's and SZG's status as ultimate general partners of EPFund, AEC,
SZG, and their and their controlling persons may be deemed to be the indirect
beneficial owners of 712,146 shares of common stock, or 8.7% of such shares. By
reason of Genack's interest in FGA, AEC and SZG, he may be deemed to be the
indirect beneficial owner of 1,341,283 shares of common stock, or 15.9% of such
shares.

By reason of RSIM's status as ultimate general partner of EPFund and EVFund,
RSIM and its controlling persons may be deemed to be the indirect beneficial
owners of 1,341,283 shares of common stock, or 15.9% of such shares.

Each of the Apex Partnerships disclaims beneficial ownership of all shares of
common stock described herein except those shares that are owned by that entity
directly. We understand that each of the other persons named as an officer,
director, partner or other affiliate of any Apex Partnership disclaims
beneficial ownership of all the shares of common stock described herein, except
for Middlemas with respect to the shares and options to purchase 133,333 shares
owned by him.

Each of the Apex Partnerships disclaims the existence of a "group" among any or
all of them and further disclaims the existence of a "group" among any or all of
them and any or all of the other persons named as an officer, director, partner
or those affiliate of any of them, in each case within the meaning of Section
13(d) of the 1934 Act.

The information herein was derived from a filing dated April 16, 2001 made by
the APEX Partnerships with the SEC.

(3) Includes (i) 30,000 shares of common stock issuable upon exercise of
warrants and (ii) 2,500 shares of common stock held by Patience Partners, L.P.,
a limited partnership in which a foundation controlled by Mr. Augur is a 60%
limited partner and Patience Partners LLC is a 40% general partner. Patience
Partners LLC is a limited liability company in which Mr. Augur owns a 50%
membership interest.

(4) Includes 800,000 shares of common stock issuable upon exercise of options,
200,000 of the shares underlying these options are being sold in this offering.

(5) Includes 100,000 shares of common stock issuable upon exercise of options.

(6) Includes 1,875,000 shares of common stock issuable upon exercise of options,
880,619 shares of common stock issuable upon exercise of warrants and 237,777
shares of common stock purchasable on conversion of outstanding Series A-1
Convertible Preferred Stock. The directors and officers disclaim beneficial
ownership of 1,708,781 such shares.

(7) Consists of 470,000 shares of common stock issuable upon exercise of
warrants.

(8) Includes 850,619 shares of common stock issuable upon exercise of warrants
and 226,666 shares of common stock purchasable on conversion of 408,000 shares
of Series A-1 Convertible Preferred Stock.

(9) Includes 260,981 shares of common stock issuable upon exercise of warrants.

(10) Includes 30,143 shares of common stock issuable upon exercise of warrants
and 333,333 shares of common stock purchasable on conversion of 600,000 shares
of Series A-1 Convertible Preferred Stock.

(11) Includes 178,380 shares of common stock issuable upon exercise of warrants.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

From time to time since December 6, 1987, Thomas P. Clark, our president
and a director, loaned funds to us to cover operating expenses. We have treated
these funds as unsecured debt, and the promissory notes, with interest at 8.36%
and 9.01% per annum issued to Mr. Clark on various dates are payable October 1,
2007. To date, Mr. Clark has loaned us $310,720, of which $43,350 has been
repaid, leaving a balance of $267,370. As of February 29, 2004, accrued
interest on the notes totaled $278,792. The board members, other than Mr.
Clark, determined that all loans were made at market rates.

In 1996 and 1997, we entered into loan agreements with five related party
investors: Apex, EVFund, EPFund and PFund, each a 5% stockholder, and Harrison
Augur, a director. The loan balances to such persons totaled $1,109,061 at
February 29, 2004. The loans are unsecured and bear interest at the rate of
10.25% and prime plus 2%. The notes mature August 31, 2007. In connection with
the loan agreements, we issued warrants to such persons to purchase 402,300
shares of our common stock with an exercise price of $1.80 per share. Such
warrants expire August 31, 2007. These loans are being repaid with the proceeds
of this offering, and the common stock underlying these warrants is being sold
by selling stockholders in this offering.

In 1995, we extended a line of credit to the District, a related party.
Three of our officers and employees are directors of the District. The loan
provides for borrowings of up to $250,000, is unsecured, bears interest based on
the prevailing prime rate plus 2% and matures on December 31, 2004. The balance
of the note receivable at February 29, 2004 was $406,782, including accrued
interest.

DESCRIPTION OF SECURITIES

The summary of the terms of the shares of our capital stock set forth below
does not purport to be complete and is subject to and qualified in its entirety
by reference to our Certificate of Incorporation, as amended (the
"Certificate"), and our Bylaws, as amended (the "Bylaws"), both of which may be
further amended from time to time and both of which are incorporated herein by
reference. References to the "DGCL" are to the Delaware General Corporation Law,
as amended.

GENERAL

We are authorized to issue 250,000,000 shares of stock, consisting of
225,000,000 shares of common stock, $.00333 par value per share, and 25,000,000
shares of preferred stock, par value $0.001 per share. We have designated
1,600,000 shares of our preferred stock as Series A-1 Convertible Preferred
Stock and 432,513 shares of our preferred stock as Series B Preferred Stock. As
of February 29, 2004, there were 8,145,087 shares of common stock issued and
outstanding, 1,058,000 shares of Series A-1 Preferred Stock issued and
outstanding, and 432,513 shares of Series B Preferred Stock issued and
outstanding.

COMMON STOCK

All of the outstanding shares of common stock are fully paid and
nonassessable. Each share of common stock has an equal and ratable right to
receive dividends when declared by our board of directors out of assets legally
available for that purpose and subject to the dividend obligations of Pure Cycle
to holders of any preferred stock then outstanding.

In the event of a liquidation, dissolution or winding up, the holders of
our common stock are entitled to share equally and ratably in the assets
available for distribution after payment of all liabilities, and subject to any
prior rights of any holders of preferred stock outstanding at that time.

The holders of common stock have no preemptive, subscription, conversion or
redemption rights, and are not subject to further calls or assessments. Each
share of common stock is entitled to one vote in the election of directors and
on all other matters submitted to a vote of stockholders. Cumulative voting in
the election of directors is not permitted. Meetings of our stockholders may be
called on no fewer than 10 days nor more than 50 days notice. The presence of a
majority of the shares outstanding, in person or by proxy, is required to
establish a quorum and conduct business at meetings of the stockholders.

On April 12, 2004, our stockholders authorized the board of directors to
implement a reverse stock split. On April 12, 2004, our board approved a
1-for-10 reverse stock split. The reverse stock split will be effective on
April 26, 2004. All information in this prospectus, other than the financial
statements, reflects this reverse stock split.

SERIES A-1 CONVERTIBLE PREFERRED STOCK

Liquidation Rights

Upon any voluntary or involuntary liquidation, dissolution or winding up of
Pure Cycle, the holders of shares of Series A-1 Preferred Stock will be entitled
to be paid, before any distribution or payment is made upon any of our other
equity securities, $2.00 per share less an amount equal to all dividends paid
thereon. This liquidation preference shall only be paid from the Export Water
or the proceeds of a disposition of such asset. Holders of Series A-1 Preferred
Stock are then entitled to participate with the holders of common stock in any
other distribution or payment made to the holders of common stock, whether from
the Export Water or otherwise.

Dividends

Holders of the Series A-1 Preferred Stock are entitled to receive
dividends, when and as declared by the Company's board of directors, in a total
amount of $2.00 per share. The Series A-1 Preferred Stock shall only earn and
accrue dividends when gross proceeds, after payment of royalties, are received
from the marketing, sale or other disposition of our interest in the Export
Water as set forth in the Certificate. Until all accrued dividends on the
Series A-1 Preferred Stock have been paid, we may not declare or pay dividends
on the common stock or the Series B Preferred Stock. Upon the sale, transfer or
other conveyance by us of our interest in the Export Water, the Series A-1
Preferred Stock will cease to accrue dividends.

Conversion

At the option of the holder, each share of Series A-1 Preferred Stock is
convertible into 5.5556 shares of common stock, subject to proportional
adjustments in the event of combinations or consolidations of common stock, and
the merger or reorganization of Pure Cycle.

In the event that (i) the full dividends on the Series A-1 Preferred Stock
have been paid, (ii) we have transferred our interest in the Export Water, or
(iii) a majority of the Board and the holders of a majority of the Series A-1
Preferred Stock determine that it is no longer economically feasible to develop
the Export Water, all shares of Series A-1 Preferred Stock will automatically
convert in to shares of common stock on a 1 for 5.5556 basis, subject to
proportional adjustments in the event of combinations or consolidations of
common stock, and the merger or reorganization of Pure Cycle.

Voting Rights

Holders of Series A-1 Preferred Stock are entitled to vote together with
holders of common stock on all matters on which holders of common stock are
entitled to vote. Each holder of Series A-1 Preferred Stock shall have the

number of votes equal to the number of shares of common stock that his or her
shares are convertible into on the record date. Certain changes to the terms of
the Series A-1 Preferred Stock that would be materially adverse to the rights of
holders of the Series A-1 Preferred Stock cannot be made without the approval of
the holders of a majority of the outstanding Series A-1 Preferred Stock. These
consist of the following:

- alter or change terms, preferences or privileges of Series A-1
Preferred Stock;

- increase or decrease number of authorized shares of Series A-1
Preferred Stock;

- authorize a new security ranking prior to or on parity with the Series
A-1 Preferred Stock as to dividends from earnings from the Export
Water or the distribution of the Export Water or the proceeds
therefrom;

- any transaction by us which would have the effect of decreasing the
surplus, as defined in the DGCL, of Pure Cycle by more than $500,000
or which would cause its surplus to be equal to less than $1,000,000;

- any expenditure by us in excess of $50,000 in any one month at any
time that the surplus is equal to or less than $1,000,000; and

- the merger or consolidation of Pure Cycle with or into one or more
corporations or business entities where Pure Cycle is not the
surviving entity.

Right of Purchase

We have the right to purchase shares of Series A-1 Preferred Stock in the
public market at such prices as may be available in the public market and the
right at any time to acquire any Series A-1 Preferred Stock from holders on such
terms as may be agreeable to holders.

SERIES B PREFERRED STOCK

Liquidation Rights

Upon any voluntary or involuntary liquidation, dissolution or winding up of
Pure Cycle, the holders of shares of Series B Preferred Stock will be entitled
to be paid, before any distribution or payment is made upon any other equity
securities of Pure Cycle, $1.00 per share less an amount equal to all dividends
paid thereon; provided, however, that with respect to the Rangeview Water
-------- -------
Supply, the Series B Preferred shall be subject to and junior to the rights and
preferences of the holders of the Series A-1 Preferred Stock in the Rangeview
Water Supply.

Dividends

Holders of the Series B Preferred Stock are entitled to receive dividends,
when and as declared by the Company's board of directors, in a total amount of
$1.00 per share. The Series B Preferred Stock shall only earn and accrue
dividends from the marketing, sale or other disposition of our interest in the
Export Water in an amount greater than $35,000,000 as set forth in the
Certificate. Until all accrued dividends on the Series B Preferred Stock have
been paid, we may not declare or pay dividends on the common stock.

Redemption

The Series B Preferred Stock is redeemable for cash at the option of the
Company at a redemption price equal to $1.00 per share less an amount equal to
all dividends paid thereon. The Series B Preferred Stock may not be redeemed
using the Rangeview assets or any proceeds therefrom unless it would be
permissible under the Certificate to use such assets to pay a dividend on the
Series B Preferred Stock. Holders of Series B Preferred Stock do not have any
right to require Pure Cycle to redeem any or all shares of the Series B
Preferred Stock.

Voting Rights

Holders of Series B Preferred Stock generally will have no voting rights
except as required by law. Certain changes to the terms of the Series B
Preferred Stock that would be materially adverse to the rights of holders of the
Series B Preferred Stock cannot be made without the approval of the holders of a
at least 66 2/3% of the outstanding Series B Preferred Stock voting separately
as a class. These consist of the following:

- alter or change terms, preferences or privileges of Series B Preferred
Stock; and

- authorize a new security ranking senior to the Series B Preferred
Stock as to dividend or liquidation rights.

In addition, when dividends on the Series B Preferred Stock have accrued
but have not been declared by the Board, the holders of the Series B Preferred
Stock shall be entitled to vote with the holders of common stock at any meeting
of shareholders held during the period such dividends remain in arrears. Each
share of Series B Preferred Stock shall have one vote when voting with the
common stock.

WARRANTS

At February 29, 2004, there were warrants outstanding to purchase a total
of 2,440,284 shares of common stock. This includes warrants to purchase
1,970,775 shares of common stock that will be exercised by selling stockholders
in connection with this offering. There is no public market for our warrants.
The following table summarizes information on our outstanding warrants:

NUMBER OF SHARES
UNDERLYING EXERCISE EXPIRATION
DATE OF GRANT WARRANTS PRICE DATE
------------- ---------------- --------- ----------

12/11/1990 79,800 $ 1.80 *
02/12/1991 550,200 $ 1.80 *
09/23/1991 108,000 $ 1.80 *
11/20/1991 120,000 $ 1.80 *
12/10/1991 1,059,999 $ 1.80 *
08/12/1992 120,000 $ 1.80 *
08/30/1996 166,984 $ 1.80 08/30/2007
07/18/1997 179,999 $ 1.80 08/30/2007
08/08/1997 55,302 $ 1.80 08/30/2007
----------------
2,440,284

________________________
* Expire six months from the earlier of (i) the date all of the Export Water is
sold or otherwise disposed of, (ii) the date the Comprehensive Amendment
Agreement is terminated with respect to the original holder of this Warrant, or
(iii) the date on which the Company makes the final payment pursuant to Section
2.1(r) of the Comprehensive Amendment Agreement.

REGISTRATION RIGHTS

We are party to a Stock Purchase Agreement and Investment Agreement dated
December 10, 1991, or the Stock Purchase Agreement, together with certain
stockholders of the Company. The stockholders who are party to the Stock
Purchase Agreement are entitled to piggyback registration rights covering the
shares of common stock issued to them pursuant to the Stock Purchase Agreement
and the shares of common stock issuable to them upon exercise of warrants
granted to them pursuant to the Stock Purchase Agreement, subject to certain
limitations. The registration rights granted under the Stock Purchase Agreement
expire on December 10, 2006.

ANTI-TAKEOVER PROVISIONS

We are subject to the provisions of Section 203 of the DGCL, which restrict
certain business combinations with interested stockholders even if such a
combination would be beneficial to all stockholders. In general, Section 203
would require a two-thirds vote of stockholders for any business combination
(such as a merger or sale of all or substantially all of our assets) between us
and an "interested stockholder" unless such transaction is approved by a
majority of the disinterested directors or meets certain other requirements. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of our voting
stock. These provisions could deprive stockholders of an opportunity to receive
a premium for their common stock as part of a sale of us or may otherwise
discourage a potential acquirer from attempting to obtain control of us.

TRANSFER AGENT

Our transfer agent is Computershare Trust Company, Inc., 350 Indiana
Street, Suite 800, Golden, Colorado 80401, telephone (303) 262-0600.

SELLING STOCKHOLDERS

The following table sets forth certain information as of February 29, 2004
regarding the Selling Stockholders in this offering.

NUMBER OF NUMBER OF
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO SHARES OFFERED OWNED AFTER PERCENT OF
NAME THIS OFFERING IN THIS OFFERING THIS OFFERING(1) OUTSTANDING
------------------------------ -------------- ---------------- ---------------- ------------

Inco Securities Corporation 470,000 470,000 -0- *

Landmark Water Partners, L.P. 160,000 136,600 23,400 *

Alan C. Stormo 36,000 18,000 18,000 *

D. W. Pettyjohn 36,000 36,000 -0- *

Warwick Partners L.P. 70,000 38,500 31,500 *

Beverly A. Beardslee, Robert 36,000 36,000 -0- *
Douglas Beardslee
Bradley Kent Beardslee

Asra Corporation 60,000 60,000 -0- *

International Properties, Inc. 60,000 25,000 35,000 *

Apex Investment Fund II, L.P. 1,708,781 500,000 1,208,781 9.38%

The Environmental Venture 629,137 166,667 462,470 3.80%
Fund, L.P.

Productivity Fund II, L.P. 478,948 166,667 312,281 2.60%

Landmark Water Partners II,
L.P. 70,000 38,500 31,500 *

Proactive Partners, L.P. 80,125 80,125 -0- *

The Environmental Private 712,146 166,667 545,479 4.48%
Equity Fund II, L.P.

Gregory M. Morey 16,025 16,025 -0- *

Don Fogel 16,025 16,025 -0- *

George Middlemas 133,333 100,000 33,333 *

Margaret S. Hansson 824,600 200,000 624,600 4.89%

Susan Byrom Evans 233,333 26,667 206,666 1.85%

Thomas P. Clark 2,546,485 100,000 2,446,485 17.32%

Mark W. Harding 1,021,000 21,000 1,000,000 7.89%
----------------
2,418,443

_______________________
* Less than 1%.

(1) For purposes of calculating shares beneficially owned after this offering,
it is assumed that shares being registered for the benefit of the selling
stockholders have been sold pursuant to this offering. The selling stockholders
may have sold, transferred or otherwise disposed of their offered shares since
the date on which they provided information in transactions exempt from the
registration requirements of the Securities Act.

Except as described below, none of the Selling Stockholders has, or has had
within the last three years, any position, office, or other material
relationship with the issuer.

Margaret S. Hansson, Thomas P. Clark, George Middlemas and Mark Harding are
directors of Pure Cycle. Mr. Clark also serves as the chief executive officer
and Mr. Harding serves as president and chief financial officer.

Susan Byrom Evans is the daughter of Fletcher Byrom, who served as a
director of Pure Cycle from 1988 until his retirement on February 13, 2004.

Apex Investment Fund II, L.P. ("Apex") is controlled by several general
partners including George Middlemas, a director.

The EP Fund is a party to a Voting Agreement, as amended and restated
August 12, 1992. Pursuant to the voting agreement, Margaret Hansson and Thomas
Clark (current directors) and Fletcher Byrom (retired director) have agreed to
vote all of their shares of common stock in favor of a director candidate
designated by EP Fund. The current EP Fund director candidate is George
Middlemas.

Each of the Selling Stockholders (other than Don Fogel, Susan Byrom and
Mark Harding) have at various dates prior to 1996 made an investment in Pure
Cycle which resulted in the Selling Stockholder being entitled to a contingent
return on such Selling Stockholder's investment from the proceeds of the sale of
Export Water pursuant to the Commercialization Agreement.

Apex, EV Fund, EP Fund and Productivity Fund hold promissory notes payable
by us with aggregate principal and interest outstanding as of February 29, 2004
in the amount of $512,439. The notes are due in August 2007.

Apex, EV Fund, EP Fund, Productivity Fund, Gregory M. Morey and Proactive
Partners, L.P. hold promissory notes payable by us with aggregate principal and
interest outstanding as of February 29, 2004 in the amount of $596,622. The
notes are due in August 2007.

PLAN OF DISTRIBUTION

Flagstone Securities is acting as representative of the underwriters named
below. Subject to the terms and conditions described in an underwriting
agreement among us, the selling stockholders and the underwriters, we and the
selling stockholders have agreed to sell to the underwriters, and the
underwriters severally have agreed to purchase from us and the selling
stockholders, the number of shares listed opposite their names below.

UNDERWRITERS NUMBER OF
SHARES

Flagstone Securities

Total

The underwriters have agreed to purchase all of the shares sold under the
underwriting agreement if any of these shares are purchased. If an underwriter
defaults, the underwriting agreement provides that the purchase commitments of
the nondefaulting underwriters may be increased or the underwriting agreement
may be terminated.

We have agreed to pay the representative an expense allowance of $30,000 on
a non-accountable basis. We have also agreed to pay all expenses in connection
with qualifying our securities offered hereby for sale under the laws of such
states as the underwriters may designate and the filing fees incurred in
registering the offering with the National Association of Securities Dealers,
Inc., or NASD.

We and the selling stockholders have agreed to indemnify the several
underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the underwriters may be required to
make in respect of those liabilities.

The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares and other conditions
contained in the underwriting agreement, such as the receipt by the underwriters
of officers' certificates and legal opinions. The underwriters reserve the right
to withdraw, cancel or modify offers to the public and to reject orders in whole
or in part.

The representative has advised us and the selling stockholders that the
underwriters propose initially to offer the shares to the public at the initial
public offering price on the cover page of this prospectus and to dealers at
that price less a concession not in excess of $ per share. The
underwriters may allow, and the dealers may reallow, a discount not in excess of
$ per share to other dealers. After the offering, the public
offering price, concession and discount may be changed.

The table below shows the public offering price, underwriting discounts and
commissions to be paid to the underwriters by us and proceeds before expenses to
us. These amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares.

PER SHARE WITHOUT OPTION WITH OPTION

Public offering price $ $ $
Underwriting discount $ $ $
Proceeds, before expenses, to Pure Cycle $ $ $

The table below shows the public offering price, underwriting discounts and
commissions to be paid to the underwriters by the selling stockholders and
proceeds before expenses to the selling stockholders.

PER SHARE

Public offering price $
Underwriting discount $
Proceeds, before expenses, to the selling stockholders $

OPTION TO PURCHASE ADDITIONAL SHARES

We have granted an option to the underwriters to purchase up to an
additional _______ shares if the underwriters sell more shares in this offering
than the total number set forth in the table above. The underwriters may
exercise that option for 45 days. If any shares of common stock are purchased
pursuant to this option, the underwriters will severally purchase shares of
common stock in approximately the same proportion as set forth in the table
above.

NO SALES OF SIMILAR SECURITIES

We, our executive officers, directors and each of our existing stockholders
who holds at least ____ shares (which includes each of the selling stockholders
participating in this offering) will agree with the underwriters not to,
directly or indirectly, offer, sell, transfer or otherwise dispose of any shares
of common stock, or any securities convertible into, exchangeable for or that
represent the right to receive shares of common stock, during the period from
the date of this prospectus continuing through the date 180 days after the date
of this prospectus, except with the prior written consent of the representative
on behalf of the underwriters.

NASDAQ LISTING

We have applied to have our common stock approved for listing on the Nasdaq
SmallCap under the symbol "____."

PRICE STABILIZATION AND SHORT POSITIONS

Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the underwriters may engage in transactions that
stabilize the price of the common stock. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress. The underwriters also may impose a
penalty bid. This occurs when a particular underwriter repays to the
underwriters a portion of the underwriting discount received by it because the
representative has repurchased shares sold by or for the account of such
underwriter in stabilizing or short covering transactions.

These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
SmallCap, in the over-the-counter market or otherwise.

Certain persons participating in this offering may also engage in passive
market making transactions in the common stock on the Nasdaq SmallCap. Passive
market making consists of displaying bids on the Nasdaq SmallCap limited by the
prices of independent market makers and affecting purchases limited by such
prices and in response to order flow. Rule 103 of Regulation M under the
Securities Exchange Act of 1934 limits the amount of net purchases that each
passive market maker may make and the displayed size of each bid. Passive
market making may stabilize the market price of the common stock at a level
above that which might otherwise prevail in the open market and, if commenced,
may be discontinued at any time.

Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters make any representation that the representatives
or the lead managers will engage in these transactions or that these
transactions, once commenced, will not be discontinued without notice.

LEGAL MATTERS

The validity of the securities offered by this prospectus will be passed
upon by Davis Graham & Stubbs LLP, Denver, Colorado. Certain matters in
connection with this offering will be passed upon for the underwriters by Davis
& Gilbert LLP.

EXPERTS

The audited financial statements for Pure Cycle as of August 31, 2003 and
2002 and for the two years in the period ended August 31, 2003 included in this
prospectus have been audited by KPMG, LLP, independent certified public
accountants, for the periods set forth in their report with respect thereto, and
are included, in reliance on the authority of that firm as experts in accounting
and auditing.

WHERE YOU CAN FIND MORE INFORMATION

Pure Cycle files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any of these documents at the Commission's public reference room at 450
Fifth Street N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Our SEC
filings are also available to the public at the SEC's website at
http://www.sec.gov.
------------------

You may receive a copy of any of these filings, at no cost, by writing or
calling Pure Cycle Corporation, 8451 Delaware St., Thornton, Colorado 80260,
telephone (303) 292-3456, and directed to the attention of Mark Harding,
President.

INDEX TO FINANCIAL STATEMENTS

PAGE

Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Balance Sheets as of August 31, 2003 and 2002 . . . . . . . . . . . . . . . . . . . . . F-3

Statements of Operations for each of the years ended December 31, 2003 and 2002 . . . . F-4

Statements of Stockholders' Equity for the years ended December 31, 2003 and 2002 . . . F-5

Statements of Cash Flows for the years ended December 31, 2003 and 2002 . . . . . . . . F-6

Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7

Balance Sheet as of February 29, 2004 and August 31, 2003. . . . . . . . . . . . . . . F-16

Statements of Operations for the six-month periods ended February 29, 2004 and
February 28, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17

Statements of Cash Flows for the six-month periods ended February 29, 2004 and
February 28, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-18

Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-19

F-1

INDEPENDENT AUDITORS' REPORT
----------------------------

The Board of Directors
Pure Cycle Corporation:

We have audited the accompanying balance sheets of Pure Cycle Corporation ("the
Company") as of August 31, 2003 and 2002, and the related statements of
operations, stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pure Cycle Corporation as of
August 31, 2003 and 2002 and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.

/s/ KPMG LLP

Denver, Colorado
October 10, 2003

F-2

PURE CYCLE CORPORATION
BALANCE SHEETS
August 31,
-----------------------------
ASSETS 2003 2002
------ -------------- -------------

Current assets:
Cash and cash equivalents $ 525,780 $ 287,720
Trade accounts receivable 67,687 50,919
-------------- -------------
Total current assets 593,467 338,639

Investment in water and systems:
Rangeview water supply (Note 3) 13,710,773 13,566,777
Paradise water supply 5,494,323 5,491,423
Rangeview water system (Note 3) 148,441 148,441
-------------- -------------
Investment in water and systems 19,353,537 19,206,641
Accumulated depreciation & depletion (10,543) (4,958)
-------------- -------------
Total water and water systems 19,342,994 19,201,683

Note receivable - related party, including accrued interest (Note 4) 399,902 385,716
Other assets 77,041 102,241
-------------- -------------
$ 20,413,404 $ 20,028,279
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
Accounts payable $ 8,244 $ 2,384
Accrued liabilities (Note 5 ) 43,528 19,495
-------------- -------------
Total current liabilities 51,772 21,879

Long-term debt - related parties, including accrued interest (Note 6) 4,889,545 4,713,270

Participating interests in Rangeview water supply (Note 3) 11,090,630 11,090,630

Stockholders' equity (Notes 7):
Preferred stock, par value $.001 per
share; authorized - 25,000,000 shares:
Series A1 - 1,600,000 shares issued and outstanding 1,600 1,600
Series B - 432,513 shares issued and outstanding 433 433
Series D - 6,455,000 shares issued and outstanding 6,455 6,455
Series D1- 2,000,000 shares issued and outstanding in 2003 2,000 --

Common stock, par value 1/3 of $.01 per
share; 135,000,000 shares authorized;
78,439,763 shares issued and outstanding 261,584 261,584
Additional paid-in capital 25,276,989 24,778,989
Accumulated deficit ( 21,167,604) (20,846,561)
-------------- -------------

Total stockholders' equity 4,381,457 4,202,500
-------------- -------------
$ 20,413,404 $ 20,028,279
============== =============

See Accompanying Notes to Financial Statements

F-3

PURE CYCLE CORPORATION
STATEMENTS OF OPERATIONS

Years ended August 31,
--------------------------
2003 2002
------------ ------------

Water service revenues:
Water usage revenues 156,217 156,026
Wastewater processing revenues 56,780 48,832
Revenue - Other 12,435 --
------------ ------------
225,432 204,858

Water service operating expense (20,580) (13,896)
Wastewater service operating expense (10,692) (13,896)
Other expense (6,224) --
------------ ------------
Gross margin 187,936 177,066

General and administrative expense (318,182) (221,872)
Depreciation expense (4,948) (4,220)
Depletion expense ( 637) ( 738)
------------ ------------
Operating income (loss) (135,841) (49,764)

Other income (expense):
Interest income 16,263 22,181
Interest expense - related parties (176,275) (194,651)
Amortization of warrants (25,200) (25,200)
Other income -- 2,287
------------ ------------
Total other income (expense) (185,212) (195,383)
------------ ------------

Net loss $ (321,043) $ (245,147)
============ ============

Basic and diluted net
loss per common share $ * $ *
============ ============

Weighted average common
shares outstanding basic and diluted 78,439,763 78,439,763
============ ============

* Less than $.01 per share

See Accompanying Notes to Financial Statements

F-4

PURE CYCLE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended August 31, 2003 and 2002

PREFERRED STOCK COMMON STOCK TREASURY STOCK
------------------- -------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------- ---------- -------- ----------- -----------

Balance at August 31, 2001 8,487,513 $ 8,488 78,439,763 $261,584 0 $ 0
========== ======= ========== ======== =========== ===========
Net loss -- -- -- -- -- --
---------- ------- ---------- -------- ----------- -----------
Balance at August 31, 2002 8,487,513 $ 8,488 78,439,763 $261,584 0 $ 0
========== ======= ========== ======== ----------- ===========
Preferred Stock issued in
Exchanges, net (Note 7) 2,000,000 2,000 -- -- (2,000,000) ( 500,000)

Common Stock issued from treasury
stock (Note 7) -- -- -- -- 2,000,000 500,000

Net loss -- -- -- -- -- --
---------- ------- ---------- -------- ----------- -----------
Balance at August 31, 2003 10,487,513 $10,488 78,439,763 $261,584 - --
========== ======= ========== ======== =========== ===========

ADDITIONAL TOTAL
PAID-IN ACCUMULATED STOCKHOLDERS'
CAPITAL DEFICIT EQUITY
----------- -------------- ---------------

Balance at August 31, 2001 $24,778,989 $ (20,601,414) $ 4,447,647
=========== ============== ===============
Net loss -- (245,147) (245,147)
----------- -------------- ---------------
Balance at August 31, 2002 $24,778,989 $ (20,846,561) $ 4,202,500
=========== ============== ===============
Preferred Stock issued in Exchanges, net (Note 7) 498,000 -- --

Common Stock

Issued from treasury stock (Note 7) -- -- 500,000

Net loss -- (321,043) (321,043)
----------- -------------- ---------------
Balance at August 31, 2003 $25,276,989 ($21,167,604) $ 4,381,457
=========== ============== ===============

See Accompanying Notes to Financial Statements

F-5

PURE CYCLE CORPORATION
STATEMENTS OF CASH FLOWS

Years ended August 31,
-----------------------
2003 2002
---------- -----------

Cash flows from operating activities:
Net loss $(321,043) $( 245,147)
Adjustments to reconcile
net loss to net cash used in operating activities:
Depreciation expense 4,948 4,220
Depletion expense 637 738
Change in accrued interest 162,089 178,741
Changes in operating assets and liabilities:
Trade accounts receivable (16,768) (17,664)
Other assets 25,200 36,459
Accounts payable and accrued liabilities 29,893 3,885
---------- -----------
Net cash used in operating activities (115,044) (38,768)
---------- -----------

Cash used in investing activities-
Investments in water supply (146,896) (87,342)
Investments in water systems -- (21,830)
---------- -----------
Net cash provided by investing activities (146,896) (109,172)

Cash flows from financing activities-
Proceeds from sale of equity instruments 500,000 --
---------- -----------

Net increase (decease) in cash and cash equivalents 238,060 (147,940)
---------- -----------
Cash and cash equivalents beginning of year 287,720 435,660
---------- -----------

Cash and cash equivalents end of year $ 525,780 $ 287,720
========== ===========

See Accompanying Notes to Financial Statements

F-6

PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
August 31, 2003 and 2002

NOTE 1 - ORGANIZATION AND BUSINESS

Pure Cycle Corporation (Company) owns certain water assets and is providing
water and wastewater services to customers located in the Denver metropolitan
area (Service Area). The Company operates water and wastewater systems and its
operating activities include designing, constructing, operating and maintaining
systems serving customers in the Denver metropolitan area. The Company also owns
patented water recycling technologies which are capable of processing wastewater
into pure potable drinking water. The Company's focus continues to be to provide
water and wastewater service to customers within its Service Area and the
Company expects to expand its service to other areas throughout the Denver
metropolitan area and the southwestern United States.

Although the Company believes it will be successful in marketing the water
from one or both of its water projects, there can be no assurance that sales can
be made on terms acceptable to the Company. The Company's ability to ultimately
realize its investment in its two primary water projects is dependent on its
ability to successfully market the water, or in the event it is unsuccessful, to
sell the underlying water assets.

The Company believes that at August 31, 2003, it has sufficient working
capital and financing sources to fund its operations for the next year or
longer. There can be no assurances, however, that the Company will be
successful in marketing the water from its two primary water projects in the
near term. In the event sales are not achieved, the Company may sell additional
participating interests in its water projects, incur additional short or
long-term debt or seek to sell additional shares of common or preferred stock or
stock purchase warrants, as deemed necessary by the Company, to generate working
capital.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue recognition
-------------------

The Company recognizes construction project income using the
percentage-of-completion method, measured by the contract costs incurred to date
as a percentage of the estimated total contract costs. Contract costs include
all direct material, labor, and equipment costs and those indirect costs related
to contract performance such as indirect labor and supplies costs. If the
construction project revenue is not fixed, the Company estimates revenues that
are most likely to occur. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Billings
in excess of costs and estimated earnings represent payments received on
construction projects under which the work has not been completed. These
amounts, if any, are recognized as construction progresses in accordance with
the percentage-of-completion method.

The Company recognizes water usage revenues upon delivering water to
customers. The Company recognizes wastewater processing revenues based on flat
fees assessed per single family equivalent unit served. Costs of delivering
water and providing wastewater service to customers are recognized as incurred.
Revenues from the sale of water and wastewater taps is recognized when taps are
sold.

Use of estimates
------------------

The preparation of financial statements in conformity with accounting
principles generally accepted in the United State of America requires management
to make estimates and assumptions that affect the reported amounts of assets and

F-7

PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
August 31, 2003 and 2002

liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Cash equivalents
----------------

Cash and cash equivalents include all liquid debt instruments with an
original maturity of three months or less.

Cash flows
-----------

No cash was paid for interest or taxes in 2003 or 2002. See Note 6 for
discussion regarding non cash exchange of common stock for preferred stock.

Long lived assets
-----------------

The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. The Company believes there are no impairments in the
carrying amounts of its investments in water and water systems at August 31,
2003.

Water and wastewater systems
----------------------------

The Company capitalizes certain legal, engineering and permitting costs
relating to the adjudication and improvement of its water assets.

Depletion and Depreciation of water assets
------------------------------------------

The Company depletes its water assets on the basis of units produced
divided by the total volume of water adjudicated in the water decrees. Water
systems are depreciated on a straight line basis over their estimated useful
lives of 30 years.

Stock-Based Compensation
-------------------------

The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principals Board ("APB No. 25"), Accounting for
Stock Issued to Employees. The Company has adopted the disclosure requirements
of Statement of Financial Accounting Standards ("SFAS No. 123"), "Accounting for
Stock-Based Compensation" as specified in SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment of SFAS No.
123". The pro forma disclosure of net loss and loss per share required by SFAS
No. 123 is shown below.

F-8

PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
August 31, 2003 and 2002

2003 2002
--------- ---------

Net loss, as reported (321,043) (245,147)
Add: Stock-based employee compensation
Expense included in reported net income -- --
Deduct: Total stock-based employee compensation
expense determined under fair value based method for all
options and warrants -- --
Pro forma net loss ( --) ( --)

Actual and pro forma earnings per share for the year ended August 31, 2003 were
less than $.01 per share.

Income taxes
-------------

The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

Loss per common share
------------------------

Loss per common share is computed by dividing net loss by the weighted
average number of shares outstanding during each period. Convertible preferred
stock and common stock options and warrants aggregating 67,746,889 common
share equivalents outstanding as of August 31, 2003 have been excluded from the
calculation of loss per share as their effect is anti-dilutive.

NOTE 3 - RANGEVIEW WATER SUPPLY AND SYSTEM
-------------------------------------------------

Beginning in 1987, the Company initiated the purchase of the Rangeview
water assets. From 1987 through 2003, the Company made payments to the sellers
of the Rangeview water assets and capitalized costs incurred relating to the
acquisition of the water assets totaling $12,038,161, and capitalized certain
direct costs relating to improvements to the asset which include legal and
engineering costs totaling $1,672,612.

In April 1996, the Company completed the purchase of the Rangeview water
assets and entered into a water privatization agreement with the State of
Colorado and the Rangeview Metropolitan District (the "District"), a related
party, which enabled the Company to acquire ownership rights to a total gross
volume of 1,165,000 acre feet of groundwater (approximately 11,650 acre feet per
year), an option to substitute 1,650 acre feet of surface water in exchange for
a total gross volume of 165,000 acre feet of groundwater, and the use of surface
reservoir storage capacity (collectively referred to as the "Export Water
Supply").

F-9

PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
August 31, 2003 and 2002

In addition to the Export Water Supply, the Company entered into a water
and wastewater service agreement ("The Service Agreements") with the District
which grants the Company an eighty-five year exclusive right to design,
construct, operate and maintain the District's water and wastewater systems. In
exchange for designing, constructing, operating and maintaining the District's
water and wastewater system, the Company will receive 95% of the District's
water revenues remaining after payment of royalties totaling 12% of gross
revenues to the State Land Board, 100% of the District's wastewater system
development charges and 90% of the District's wastewater usage charges. The
Company delivered approximately 47.3 and 54.5 million gallons of water to
customers in the Service Area in fiscal 2003 and 2002, respectively. The
Company processed approximately 6.95 and 3.7 million gallons of wastewater from
customers within its Service Area during fiscal 2003 and 2002, respectively.

The Company capitalizes certain legal, engineering and other costs relating
to the acquisition of the Rangeview Water Supply due to improvements of the
water assets through adjudication and engineering services.

Participating interests in the Comprehensive Amendment Agreement (the
"CAA"), in the aggregate, have the right to receive the first approximately
$31,807,000 from the proceeds of a sale or other disposition of the Export
Water Supply. As monies from the sale of the Export Water are received, they
are required to be paid to the holders of the CAA participation interests,
including holders of Series A-1 Preferred Stock, on a pari passu basis for the
first $31,807,000. After payment of the $31,807,000 in participating interest
pursuant to the CAA, LCH Inc., a company affiliated with the Company's CEO, has
the right to receive the next $4,000,000 in proceeds in exchange for $950,000 in
notes payable entered into between LCH and the Company in 1987 and 1988. The
next $433,000 in proceeds are payable to the holders of the Company's Series B
Preferred Stock. In 1994, the Company issued the Series B Preferred Stock in
exchange for certain accounts payable totaling $433,000 to LC Holdings Inc. The
total obligation of $36,240,000 is non-interest bearing, and if the Export Water
is not sold, the parties to the agreement have no recourse against the Company.
If the Company does not sell the Export Water, the holders of the Series A-1,
and Series B Preferred Stock are not entitled to payment of any dividend and
have no contractual recourse against the Company.

The participating interests liability of $11.1 million represents the
obligation recorded by the Company relating to actual cash financings received
and costs incurred to acquire the Rangeview water supply. The remainder of the
participating interests ($20.7 million) represent a contingent return to
financing investors and certain preferred stock holders that will only be
payable from the sale of Export Water and will be recognized if and when such
sale occurs.

During fiscal 2003 and 2002, the Company had revenues from two significant
customers that accounted for 81% and 11%, respectively of the Company's
revenues during 2003 and 76% and 14%, respectively of revenues during 2002.

NOTE 4 - NOTE RECEIVABLE
----------------------------

In 1995, the Company extended a line of credit to the District, a related
party. The loan provides for borrowings of up to $250,000, is unsecured, bears
interest based on the prevailing prime rate plus 2% and matures on December 31,
2003. The balance of the note receivable at August 31, 2003 was $399,902,
including accrued interest. The Company intends to extend the due date to
December 31, 2004. Accordingly, the note has been classified as non-current.

F-10

PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
August 31, 2003 and 2002

NOTE 5 - ACCRUED LIABILITIES
--------------------------------

During fiscal year ended August 31, 2003, the Company had accrued
liabilities of $43,528, of which approximately $26,000 were for audit fees and
the remainder was for operating trade accounts payables. During fiscal year
ended August 31, 2002, the Company had accrued liabilities of $19,495, of which
approximately 18,000 were for audit fees.

NOTE 6 - LONG-TERM DEBT
-----------------------

Long-term debt, including accrued interest, at August 31, 2003 and 2002 is
comprised of the following:

2003 2002
---------- ----------

Notes payable, including accrued interest to six related parties, due August 2007,
interest at prime plus 2% (6.25% at August 31, 2003), unsecured $ 503,439 $ 484,876

Notes payable, including accrued interest to five related parties, due August
2007, interest at 10.25%, unsecured, net of unamortized discount of $0 and
$9,000, respectively 578,685 542,809

Note payable, to CEO, due October 2007, non-interest bearing, unsecured 26,542 26,542

Notes payable, including accrued interest, to CEO due October 2007, interest at
8.36% to 9.01%, unsecured 508,941 487,581

Notes payable, including accrued interest, to related party, due October, 2007,
interest at the prime rate plus 3% (7.25% at August 31, 2003), secured by
shares of the Company's common stock owned by the President 2,440,014 2,371,733

Notes payable, including accrued interest, to a related party, due August 2007,
interest ranging from 7.18% to 8.04%, unsecured 831,924 799,729
---------- ----------

Total long-term debt $4,889,545 $4,713,270
========== ==========

Aggregate maturities of long-term debt are as follows:

Year Ending August 31, Amount
---------------------- ------
2007 1,914,048
2008 and thereafter 2,975,497
------------
Total $ 4,889,545
============

In 1996 and 1997, the Company entered into loan agreements with eleven
related party investors. The loan balances total $1,082,124 at August 31, 2003,
the loans are unsecured, and bear interest at the rate of 10.25% and prime plus
2%. In connection with the loan agreements, the Company issued warrants to
purchase 2,100,000 shares of the Company's common stock at $.18 per share. A
portion of the proceeds received under the agreement ($45,000) was attributed to
the estimated fair value of the warrants issued. The resulting discount is
being amortized over the term of the loan. In 2001, the term of the warrants
and debt was extended to 2007. The fair value of the warrants extension are
being amortized over the revised term of the debt. See further discussion of
the warrant in Note 7.

As of August 31, 2003, the CEO of the Company has pledged a total of
20,000,000 shares of the Company's common stock from his personal holdings as
collateral on certain of the above notes payable.

F-11

PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
August 31, 2003 and 2002

NOTE 7 - STOCKHOLDERS' EQUITY
---------------------------------

Preferred and Common Stock
--------------------------

In August 2003, the Company entered into a Plan of Recapitalization and a
Stock Purchase Agreement whereby the Company issued 2,000,000 shares of Series
D-1 Preferred Stock to the Company's CEO, Mr. Thomas Clark in exchange for
2,000,000 shares of Common Stock owned by Mr. Clark. The Company sold 2,000,000
shares of the Company's Common Stock at $.25 per share to eleven accredited
investors, four of whom had previously invested with the Company. Proceeds to
the Company were $500,000. The Series D-1 Preferred Stock does not earn
dividends and is convertible into 2,000,000 shares of common stock at such time
that the Company has sufficient shares of authorized Common Stock. The shares
were issued under Section 4(2) of the Securities Act of 1933.

Stock Options
-------------

Pursuant to the Company's Equity Incentive Plan approved by stockholders in
June of 1992, the Company granted Mr. Fletcher Byrom, Ms. Margaret Hansson, Mr.
George Middlemas, and Mr. Mark Harding options to purchase 7,000,000, 8,000,000,
1,000,000, and 7,000,000 shares of common stock respectively at an exercise
price of $.18 per share. In April of 2001, the Board extended the expiration
date of options granted to Mr. Fletcher Byrom, Ms. Margaret Hansson, Mr. George
Middlemas and Mr. Mark Harding from August 2002 to August 2007. In connection
with their extension of the expiration dates and whereas the related options
were fully vested in April 2001, and whereas these options were not in the money
at the time of their extension, no compensation expense was recognized for the
extensions. Also in April 2001, the Board granted Mr. Harding options pursuant
to employment arrangements outside the Equity Incentive Plan to purchase an
additional 3,000,000 shares of common stock at an exercise price of $.18 per
share of which 2,250,000 vested immediately and 250,000 shares vest on each
anniversary date of the grant over the following three years. Mr. Harding's
new options also expire in August 2007.

No options were granted in fiscal year 2003.

A summary of the status of the Company's Equity Incentive Plan and other
compensatory options as of August 31, 2003 and 2002, and changes during the
years then ended is presented below:

2003 2002
--------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- --------------- ---------- ---------------

Outstanding at beginning of year. 26,000,000 $ .18 26,000,000 $ .18

Granted -- -- -- --
---------- ----------
Outstanding at end of year 26,000,000 $ .18 26,000,000 $ .18
========== ==========

Options exercisable at year end 25,750,000 $ .18 25,500,000 $ .18

Weighted average fair value of
options granted during the year -- --

F-12

PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
August 31, 2003 and 2002

The weighted average remaining contractual life of the Options Outstanding
and Options Exercisable as of August 31, 2003 is 4 years.

No options were exercised during the years ended August 31, 2003 and 2002.

Warrants
--------

In addition to the warrants discussed in Note 6, the Company issued
warrants from 1990 through 1996 to purchase 22,303,000 shares of the Company's
stock at $.18 per share in connection with the sale of profits interests in the
Rangeview project, which remain outstanding as of August 31, 2003. In 1996, all
interests held in the Rangeview water rights were converted into participating
interests in the CAA. The warrants expire 6 months after the payment of the
participating interests in the Comprehensive Amendment Agreement ("CAA").

Certain related parties, who hold notes payable from the Company which
aggregate a total of $1,082,124, as of August 31, 2003, extended the maturity
date of the notes from August 2002 to August 2007. In connection with the
extension of the maturity of the notes, the expiration date of the warrants was
extended to August 2007. The $126,000 recorded in connection with extension of
the warrants' expiration date is the fair value of the warrants as of April 9,
2001, calculated using a Black-Scholes option-pricing model with the following
assumptions: no dividend yield; annualized expected volatility of 101%; and a
weighted average risk-free interest rate of 4.65%. This amount is being
amortized straight-line over the period August 2002 to August 2007 as the
imputed consideration relating to the extension of the debt terms.

No warrants were exercised during the years ended August 31, 2003 and 2002.

NOTE 8 - SIGNIFICANT CUSTOMERS
----------------------------------

The Company had accounts receivable from two significant customers totaling
approximately $56,546 and $7,187, respectively, as of August 31, 2003 and
$38,700 and $12,200, respectively, as of August 31, 2002. The same customers
accounted for approximately 81% and 11%, respectively of the Company's revenue
during the year ended August 31, 2003 and approximately 76% and 14%,
respectively of the Company's revenue during the year ended August 31, 2002.

NOTE 9 - INCOME TAXES
-------------------------

The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at August 31, 2003 and 2002
are presented below.

2003 2002
------------ ------------

Deferred tax assets:
Net operating loss carry forwards $ 2,483,000 $ 2,423,000
Less valuation allowance (2,483,000) (2,423,000)
------------ ------------
Net deferred tax asset $ -- $ --
============ ============

The valuation allowance for deferred tax assets as of August 31, 2003
was $2,483,000. The net change in the valuation allowance for the year ended
August 31, 2003 was a net increase of $60,000, primarily attributable to the
net operating loss incurred during the year, expiration of a portion of net

F-13

PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
August 31, 2003 and 2002

operating loss carry forwards, and difference in amortization. The deferred tax
asset at August 31, 2003, for which a valuation allowance has been recorded,
will be recognized, if ever, when realization is more likely than not.

The expected statutory tax rate applied to the book loss is equal to the
increase in the net operating tax loss carry forwards less the expiration of any
tax loss carry forwards. At August 31, 2003, the Company has estimated net
operating loss carry forwards for federal income tax purposes of approximately
$6,423,000, which are available to offset future federal taxable income, if any,
through fiscal 2023.

NOTE 10 - INFORMATION CONCERNING BUSINESS SEGMENTS
--------------------------------------------------

The Company has two lines of business: one is the design and construction
of water and wastewater systems pursuant to the Service Agreements to provide
water and wastewater service to customers within the Service Area; and the
second is the operation and maintenance of the water and wastewater systems
which serve customers within the Service Area. The Company did not recognize
construction revenues during fiscal years 2003 or 2002.

The accounting policies of the segments are the same as those of the
Company, described in note 2. The Company evaluates the performance of its
segments based on gross margins of the respective business units.

Segment information for the years ended August 31, 2003 and 2002 is as
follows:

2003 2002
------------------------ ------------------------
Service Total Service Total
----------- ----------- ----------- -----------

Revenues $ 225,432 $ 225,432 $ 204,858 $ 204,858
Gross margin 187,936 187,936 177,066 177,066
Total assets 20,413,404 20,413,404 20,028,279 20,028,279
Capital expenditures 146,896 146,896 109,172 109,172

NOTE 11 - RELATED PARTY TRANSACTIONS

During the years ended August 31, 2003 and 2002, the Company has occupied
office space from a related party at no cost to the Company. Additionally, the
Company has certain debt instruments between related parties (see notes 3, 4 and
5).

NOTE 12 - SUBSEQUENT EVENT TRANSACTION
--------------------------------------

Subsequent to fiscal year end August 31, 2003, subject to final
governmental approvals, the Company entered into a long-term Water Service
Agreement ("Agreement") whereby the Company will provide domestic water service
to a new master planned community located in the Denver metropolitan area in
Arapahoe County. The new community will be developed over several years and be
composed of up to 4,000 single family residences. The Company will generate
one-time revenues from the sale of water taps (currently $11,100 per tap) and
annual revenues through the delivery of water. The agreement is expected to
generate gross revenues of $44 million in tap fee revenues and approximately $2
million annually from water usage sales. The Company is responsible for
developing the associated infrastructure, which is expected to commence in the

F-14

PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
August 31, 2003 and 2002

summer of 2003 to provide water service to the development and expects the tap
fee revenues will provide sufficient capital to the Company to construct
facilities necessary to deliver water to the development.

F-15

PURE CYCLE CORPORATION
BALANCE SHEETS
February 29, 2004 and August 31, 2003

February 29, August 31,
ASSETS 2004 2003
------ -------------- -------------

(unaudited)
Current assets:
Cash and cash equivalents $ 338,599 $ 525,780
Trade accounts receivable 33,841 67,687
-------------- -------------
Total current assets 372,440 593,467

Investment in water and systems:
Rangeview water supply 13,777,395 13,710,773
Paradise water supply 5,498,124 5,494,323
Rangeview water system 148,441 148,441
Accumulated depreciation & depletion (13,325) (10,543)
-------------- -------------
Total investment in water and systems 19,410,635 19,342,994

Note receivable, including accrued interest 406,782 399,902

Other assets 64,441 77,041
-------------- -------------
$ 20,254,298 $ 20,413,404
============== =============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
Accounts payable $ 23,550 8,244
Accrued liabilities 21,100 43,528
-------------- -------------
Total current liabilities 44,650 51,772

Long-term debt - related parties, including accrued interest 4,976,511 4,889,545

Participating interests in Rangeview
water rights 11,090,630 11,090,630

Stockholders' equity:
Preferred stock, par value $.001 per
share; authorized - 25,000,000 shares:
Series A1 - 1,058,000 and 1,600,000 shares issued and
outstanding, respectively 1,058 1,600
Series B - 432,513 shares issued and outstanding 433 433
Series D - 6,455,000 shares issued and outstanding 6,455 6,455
Series D1- 2,000,000 shares issued and outstanding 2,000 2,000
Common stock, par value 1/3 of $.01 per
share; authorized - 135,000,000 shares;
81,450,875 and 78,439,763 shares issued and
outstanding, respectively 271,621 261,584
Additional paid-in capital 25,267,494 25,276,989
Accumulated deficit (21,406,554) (21,167,604)
-------------- -------------
Total stockholders' equity 4,142,507 4,381,457
-------------- -------------
$ 20,254,298 $ 20,413,404
============== =============

See Accompanying Notes to the Financial Statements

F-16

PURE CYCLE CORPORATION
STATEMENTS OF OPERATIONS
Six Months Ended February 29, 2004 and February 28, 2003

Six months ended
------------------------------
February 29, February 28,
2004 2003
-------------- --------------

Water service revenue
Water usage revenues $ 55,314 $ 77,225
Wastewater usage fees 27,002 26,587
Revenues - other 3,415 --
-------------- --------------
85,731 103,812
-------------- --------------

Water service operating expense ( 5,190) ( 5,719)
Wastewater service operating expense ( 3,819) ( 5,013)
Consulting services expense ( 2,329) --
-------------- --------------

Gross margin 74,393 93,080

General and administrative expense ( 219,302) ( 124,556)
Depreciation expense (2,474) ( 2,482)
Depletion expense ( 308) (826)

Other income (expense):

Interest income 8,307 8,556
Interest expense related parties ( 86,966) ( 88,528)
Interest expense other (12,600) (12,600)
--------------
Net loss $ (238,950) $ (127,356)
============== ==============

Basic and diluted net loss per common share $ --* $ --*
============== ==============

Weighted average common shares outstanding 80,564,182 78,439,763
============== ==============

* less than $.01 per share

See Accompanying Notes to the Financial Statements

F-17

PURE CYCLE CORPORATION
STATEMENTS OF CASH FLOWS
Six Months Ended February 29, 2004 and February 28, 2003

Six months ended
------------------------------
February 29, February 28,
2004 2003
-------------- --------------

Cash flows from operating activities:
Net loss $ (238,950) $ (127,356)
Adjustment to reconcile
net loss to net cash provided by
operating activities:
Depreciation on water systems 2,474 2,482
Depletion expense 308 826

Increase (decrease) in accrued interest
on note receivable (6,880) ( 7,166)
Increase in accrued interest on long
term debt and other non-current
liabilities 86,966 88,528
Changes in operating assets and liabilities:
Trade accounts receivable 33,846 23,284
Other assets 12,600 12,600
Accounts payable and accrued liabilities ( 7,122) ( 2,455)
--------------
Net cash used in
operating activities (116,758) (9,257)
-------------- --------------

Cash flows provided by (and in) from investing activities:
Investments in water supply (70,423) (95,716)
Investment in Rangeview water system -- --
-------------- --------------
Net cash used in investing activities (70,423) (95,716)

Cash flows from financing activities:

Net decrease
in cash and cash
equivalents (187,181) (104,973)
Cash and cash equivalents
beginning of period 525,780 287,720
-------------- --------------
Cash and cash equivalents
end of period $ 338,599 $ 182,747
============== ==============

See Accompanying Notes to the Financial Statements

F-18

PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Six Months Ended February 29, 2004 and February 28, 2003

NOTE 1 - ACCOUNTING PRINCIPLES
------------------------------

The balance sheet as of February 29, 2004 and the statements of operations
and statements of cash flows for the six month periods ended February 29, 2004
and February 28, 2003 have been prepared by the Company and have not been
audited. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position, results of operations and cash flows at February 29, 2004 and for all
periods presented have been made.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto included
in the Company's fiscal year 2003 Annual Report on Form 10-KSB. The results of
operations for interim periods presented are not necessarily indicative of the
operating results for the full year.

Certain prior period amounts have been reclassified to conform to the
current period presentation.

NOTE 2 - STOCKHOLDERS' EQUITY
---------------------------------

In August 2003, the Company entered into a Plan of Recapitalization and a
Stock Purchase Agreement whereby the Company issued 2,000,000 shares of Series
D-1 Preferred Stock to the Company's CEO, Mr. Thomas Clark, in exchange for
2,000,000 shares of Common Stock owned by Mr. Clark. The Company sold
2,000,000, shares of the Company's Common Stock at $.25 per share to eleven
accredited investors, four of whom had previously invested with the Company.
Proceeds to the Company were $500,000. The Series D-1 Preferred Stock does not
earn dividends and is convertible into 2,000,000 shares of common stock at such
time that the Company has sufficient shares of authorized Common Stock. The
shares were issued under Section 4(2) of the Securities Act of 1933.

During the six months ended February 29, 2004, the Company issued 3,011,111
shares of Common Stock in exchange for 542,000 shares of Series A-1 Preferred
Stock, pursuant to the certificate of designation of the Series A-1 Preferred
Stock. The holders of the 542,000 shares of Series A-1 Preferred Stock
surrendered the shares to the Company for retirement.

NOTE 3 - WATER CONTRACT
-----------------------

On October 31, 2003, the Company entered into a long-term Water Service
Agreement ("Agreement") whereby the Company will provide domestic water service
to a new master planned community located in the Denver metropolitan area in
Arapahoe County. The new community will be developed over several years and be
composed of up to 4,000 single family residences. The Company will generate
one-time revenues from the sale of water taps (currently $11,100 per tap) and
annual revenues through the delivery of water. The agreement is expected to
generate gross revenues of $44 million in tap fee revenues and approximately $2
million annually from water usage sales. The Company is responsible for
developing the associated infrastructure, which is expected to commence in the
summer of 2004 to provide water service to the development and expects the tap
fee revenues will provide sufficient capital to the Company to construct
facilities necessary to deliver water to the development.

NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS
----------------------------------------------

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51. FIN No. 46
requires an entity to consolidate a variable interest entity if it is designated

F-19

PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Six Months Ended February 29, 2004 and February 28, 2003

as the primary beneficiary of that entity even if the entity does not have a
majority of voting interests. A variable interest entity is generally defined as
an entity where its equity is unable to finance its activities or where the
owners of the entity lack the risk and rewards of ownership. The provisions of
this statement apply at inception for any entity created after January 31, 2003.
For small business entities, the provisions of this Interpretation must be
applied at the end of the first reporting period that ends after December 15,
2004. The Company has determined it is not party to a variable interest entity.

In June 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." The
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatory redeemable financial
instruments of a nonpublic entity. The adoption of SFAS No. 150 did not have an
impact on the Company's financial statements.

F-20

================================================================================

You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement to this prospectus. We have
authorized no one to provide you with different information. We are not making
an offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the front of this prospectus.

PURE CYCLE CORPORATION

COMMON STOCK

____________
PROSPECTUS
____________

____________, 2004

================================================================================

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Pure Cycle is incorporated in the State of Delaware. The Delaware General
Corporation Law (the "DGCL") permits corporations to indemnify a present or
former director or officer of the corporation (and certain other persons serving
at the request of the corporation in related capacities) for liabilities,
including legal expenses, arising by reason of service in such capacity if such
person shall have acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and in any
criminal proceeding if such person had no reasonable cause to believe his
conduct was unlawful. However, in the case of actions brought by or in the right
of the corporation, no indemnification may be made with respect to any matter as
to which such director or officer shall have been adjudged liable, except in
certain limited circumstances.

Pure Cycle's Certificate of Incorporation, as amended (the "Certificate")
and Bylaws, as amended (the "Bylaws") provide that the registrant shall
indemnify directors and executive officers to the fullest extent now or
hereafter permitted by the DGCL.

The indemnification provided by the DGCL and the registrant's Certificate
and Bylaws is not exclusive of any other rights to indemnification to which a
director or officer may be entitled. The general effect of the foregoing
provisions may be to reduce the number of circumstances in which an officer or
director may be required to bear the economic burden of the foregoing
liabilities and expenses.

Pure Cycle is in the process of obtaining a liability policy for its
directors and officers as permitted by the DGCL which extends to, among other
things, liability arising under the Securities Act of 1933, as amended.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth various expenses in connection with the sale
and distribution of the securities being registered, other than the underwriting
discounts and commissions. All amounts shown are estimates except the
Commission's registration fee and the NASD filing fee.

Registration fee--Securities and Exchange Commission. . . $4,112.08
---------
NASD filing fee . . . . . . . . . . . . . . . . . . . . . 3,745.52
---------
Legal Fees and Expenses . . . . . . . . . . . . . . . . . *
---------
Accountants Fees and Expenses . . . . . . . . . . . . . . *
---------
Printing Expenses . . . . . . . . . . . . . . . . . . . . *
---------
Blue sky filing fees and expenses . . . . . . . . . . . .
---------
Transfer agent fees and expenses. . . . . . . . . . . . .
---------

Total . . . . . . . . . . . . . . . . . . . . . . . . . .$ *
=========

*Estimated.

The selling stockholders have paid none of the expenses related to this
offering.

II-1

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES (REPORTED ON A PRE-REVERSE
SPLIT BASIS)

In August 2003, we entered into a Plan of Recapitalization and a Stock
Purchase Agreement whereby we issued 2,000,000 shares of Series D-1 Convertible
Preferred Stock to our CEO, Mr. Thomas Clark in exchange for 2,000,000 shares of
common stock owned by Mr. Clark. We sold 2,000,000 shares of our common stock
at $.25 per share to eleven accredited investors, four of whom had previously
invested with us. Proceeds to us were $500,000. The Preferred Stock was issued
under Section 4(2) of the Securities Act of 1933. The common stock was sold
pursuant to Regulation D, Rule 506.

In August 2001, we entered into a Plan of Recapitalization and a Stock
Purchase Agreement whereby we issued 6,455,000 shares of Series D Preferred
Stock to our CEO, Mr. Thomas Clark in exchange for 421,666 shares of common
stock, 3,200,000 shares of Series C Preferred Stock, 500,000 shares of Series
C-1 Preferred Stock, 666,667 shares of Series C-2 Preferred Stock, and 1,666,667
shares of Series C-3 Preferred Stock, all of which were owned by Mr. Clark. We
retired 3,200,000 shares of Series C Preferred Stock, 500,000 shares of Series
C-1 Preferred Stock, 666,667 shares of Series C-2 Preferred Stock, and 1,666,667
shares of Series C-3 Preferred Stock. We sold 625,000 shares of our common
stock at $.16 per share to two accredited investors. Proceeds to us were
$100,000. The shares were issued under Section 4(2) of the Securities Act of
1933.

ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibit
No. Description of Exhibit
---- ------------------------

1.1 Underwriting Agreement.*

3.1 Certificate of Incorporation, as amended (incorporated by
reference from Exhibit 4-A to Registration Statement No.
2-65226).

3.2 Certificate of Amendment to Certificate of Incorporation dated
August 27, 1987 (incorporated by reference from Annual Report on
Form 10-K for the fiscal year ended August 31, 1987).

3.3 Certificate of Amendment to Certificate of Incorporation dated
May 27, 1988 (incorporated by reference from Proxy Statement
filed with the SEC on May 28, 1988).

3.4 Certificate of Amendment to Certificate of Incorporation dated
April 13, 1993 (incorporated by reference from Proxy Statement
filed with the SEC on March 18, 1993).

3.5 Certificate of Designations, Powers, Preferences and Rights of
Series A Convertible Preferred Stock dated May 25, 1994
(incorporated by reference from Annual Report on Form 10-KSB for
the fiscal year ended August 31, 1994).

3.6 Certificate of Designations, Powers, Preferences and Rights of
Series B Preferred Stock dated August 31, 1994 (incorporated by
reference from Annual Report on Form 10-KSB for the fiscal year
ended August 31, 1994).

3.7 Certificate of Designations, Powers, Preferences and Rights of
Series A-1 Convertible Preferred Stock dated July 21, 1998
(incorporated by reference from Annual Report on Form 10-KSB for
the fiscal year ended August 31, 1998).

3.8 Certificate of Designations, Powers, Preferences and Rights of
Series C Convertible Preferred Stock dated September 2, 1998
(incorporated by reference from Annual Report on Form 10-KSB for
the fiscal year ended August 31, 1998).

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3.9 Certificate of Designations, Powers, Preferences and Rights of
Series C-1 Convertible Preferred Stock dated November 5, 1999
(incorporated by reference from Annual Report on Form 10-KSB for
the fiscal year ended August 31, 1999).

3.10 Certificate of Designations, Powers, Preferences and Rights of
Series C-2 Convertible Preferred Stock dated November 5, 1999
(incorporated by reference from Annual Report on Form 10-KSB for
the fiscal year ended August 31, 1999).

3.11 Certificate of Designations, Powers, Preferences and Rights of
Series C-3 Convertible Preferred Stock dated August 31, 2000
(incorporated by reference from Annual Report on Form 10-KSB for
the fiscal year ended August 31, 2000).

3.12 Certificate of Designations, Powers, Preferences and Rights of
Series D Convertible Preferred Stock dated October 16, 2001
(incorporated by reference from Annual Report on Form 10-KSB for
the fiscal year ended August 31, 2001).

3.13 Certificate of Designations, Powers, Preferences and Rights of
Series D-1 Convertible Preferred Stock dated August 13, 2003
(incorporated by reference from Annual Report on Form 10-KSB for
the fiscal year ended August 31, 2003).

3.14 Certificate of Amendment to Certificate of Incorporation dated
April 12, 2004.**

3.15 Bylaws (incorporated by reference from Exhibit 4.C to
Registration Statement No. 2-62483).

3.16 Amendment to Bylaws effective April 22, 1988 (incorporated by
reference from Annual Report on Form 10-KSB for the fiscal year
ended August 31, 1989).

5.1 Opinion of Davis Graham & Stubbs LLP*

10.1 Letter Agreement dated August 31, 1987 between the Company and
Paradise Oil, Water & Land Development, Inc. (incorporated by
reference from Current Report on Form 8-K filed with the SEC on
August 5, 1988).

10.2 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.**

10.3 Stock Purchase Agreement and Investment Agreement dated December
10, 1991 by and among the Company and Apex Investment Fund II,
L.P., the Environmental Fund II, L.P. and Productivity Fund II,
L.P. (incorporated by reference from Annual Report on Form 10-KSB
for the fiscal year ended August 31, 1992).

10.4 Service Agreement dated April 11, 1996 by and between the Company
and the District (incorporated by reference from Quarterly Report
on Form 10-QSB for the fiscal quarter ended May 31, 1996).

10.5 Settlement Agreement and Mutual Release dated April 11, 1996 by
and among the State Land Board and the District, the Company,
INCO Securities Corporation, Apex Investment Fund II, L.P.,
Landmark Water Partners, L.P., Landmark Water Partners II, L.P.,
Environmental Venture Fund, L.P., Environmental Private Equity
Fund II, L.P., The Productivity Fund II, L.P., Proactive
Partners, L.P., Warwick Partners, L.P., Auginco, Anders C. Brag,
Amy Leeds, and D.W. Pettyjohn, and OAR, Incorporated, Willard G.
Owens and H.F. Riebesell, Jr. (incorporated by reference from
Quarterly Report on Form 10-QSB for the fiscal quarter ended May
31, 1996).

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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 Comprehensive Amendment Agreement No. 1 dated April 1, 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 State Land Board (incorporated by reference from Quarterly
Report on Form 10-QSB for the fiscal quarter ended May 31, 1996).

10.8 Wastewater Service Agreement dated January 22, 1997 by and
between the Company and the District (incorporated by reference
from Annual Report on Form 10-KSB for the fiscal year ended
August 31, 1998).

10.9 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.**

10.10 1992 Equity Incentive Plan (incorporated by reference from Proxy
Statement filed with the SEC on March 18, 1993).

10.11 2004 Incentive Plan (incorporated by reference from Proxy
Statement filed with the SEC on March 25, 2004).

10.12 Non-Statutory Stock Option Agreement dated April 19, 2001 between
the Company and Mark W. Harding.**

10.13 Amendment to Water Service Agreement for the Sky Ranch PUD dated
January 6, 2004.*

10.14 Amendment to Water Service Agreement for the Sky Ranch PUD dated
January 30, 2004.*

10.15 Amendment to Water Service Agreement for the Sky Ranch PUD dated
January 30, 2004 pertaining to amendment of the Option Agreement
for Export Water.*

10.16 Amendment to Water Service Agreement for the Sky Ranch PUD dated
March 5, 2004.*

23.1 Consent of Davis Graham & Stubbs LLP (included in Exhibit 5.1).

23.2 Consent of KPMG, LLP.**

_________________
* To be filed by amendment to this registration statement.

**Filed herewith.

ITEM 28. UNDERTAKINGS.

(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless in the

II-4

opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

(b) The undersigned small business issuer will:

(1) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the small business issuer under Rule 424(b)(1) or
(4) or 497(h) under the Securities Act as part of this registration
statement as of the time the SEC declared it effective; and

(2) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.

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SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Denver, State of Colorado, on April 16, 2004.

PURE CYCLE CORPORATION

By: /s/ Mark W. Harding
------------------------------
Name: Mark W. Harding
Title: President

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Wanda Abel and Mark W. Harding his true
and lawful attorney-in-fact and agent with full power of substitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments filed in accordance with Rule
462 or otherwise) to this registration statement on Form SB-2, and to file the
same with all exhibits and schedules thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

/s/ Thomas P. Clark Chief Executive Officer April 16, 2004
-------------------------- and Director (Principal
Thomas P. Clark Executive Officer)

/s/ Mark W. Harding President and Director April 16, 2004
-------------------------- (Principal Financial
Mark W. Harding Officer and Principal
Accounting Officer)

/s/ Harrison H. Augur Chairman of the Board April 16, 2004
--------------------------
Harrison H. Augur

/s/ Richard L. Guido Director April 16, 2004
--------------------------
Richard L. Guido

/s/ Margaret S. Hansson Director April 16, 2004
--------------------------
Margaret S. Hansson

/s/ George M. Middlemas Director April 16, 2004
--------------------------
George M. Middlemas

EXHIBIT INDEX