The Company’s water rights and current water and wastewater service agreements are more fully described in Note 4 – Water and Land Assets in Part II, Item 8 of the 2014 Annual Report. There have been no significant changes to the Company’s water rights or water and wastewater service agreements during the nine months ended May 31, 2015.

The Company’s Investment in Water and Water Systems consists of the following costs and accumulated depreciation and depletion at May 31, 2015 and August 31, 2014:

Capitalized terms in this section not defined herein are defined in Note 4 – Water and Land Assets to the 2014 Annual Report.

Depletion and Depreciation. The Company recorded depletion charges of $500 and $100 during the three month periods ended May 31, 2015 and 2014, respectively. The Company recorded depletion charges of $6,700 and $300 during the nine months ended May 31, 2015 and 2014, respectively. During the three and nine months ended May 31, 2015, this related to the Rangeview and Sky Ranch water supplies, and during the three and nine months ended May 31, 2014, this related entirely to the Rangeview Water Supply. No depletion is taken against the Arkansas River assets because the water at this location was not being utilized for municipal purposes as of May 31, 2015.

The Company recorded $86,300 and $45,400 of depreciation expense during the three months ended May 31, 2015 and 2014, respectively. The Company recorded $252,200 and $138,800 of depreciation expense during the nine months ended May 31, 2015 and 2014, respectively.

Land and Water Shares Held for Sale. During fiscal year 2012, management decided to sell certain farms in order to have liquidity sufficient to acquire the notes defaulted upon by HP A&M and to meet the future obligations on the promissory notes the Company intended to issue as consideration to purchase the notes owed by HP A&M. Management planned to sell approximately 1,603 acres of land along with 3,397 Fort Lyon Canal Company (“FLCC”) shares associated with this land.

Through August 31, 2014, the Company completed sales of approximately 1,886 acres of land and 2,982 FLCC shares associated with the land and, in November 2014, completed sales of approximately 299 acres of land along with 239 FLCC shares associated with the land. Management believes that the November 2014 sale completed the sales cycle related to the land held for sale as of August 31, 2012.

In addition, management identified as of August 2014 an additional 640 acres of land and 512 FLCC shares associated with the land as held for sale in order to have sufficient liquidity to continue to meet future obligations on the promissory notes the Company issued to purchase the defaulted notes owed by HP A&M and to continue to fund water system expansions. The net book value of the assets identified as held for sale was $1.9 million prior to designation as held for sale. The anticipated sales price for these assets is $1.5 million based on recent sales transactions, which required the Company to record an impairment of approximately $400,000 in fiscal year 2014.

Sale of Arkansas River Valley Assets. On March 11, 2015, the Company and Arkansas River Farms, LLC, a newly formed Colorado limited liability company (“Arkansas River Farms”), an affiliate of C&A Companies, Inc., a Colorado corporation, and Resource Land Holdings, L.L.C., a Colorado limited liability company, entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”). The Purchase and Sale Agreement originally provided that, upon the terms and subject to the conditions set forth in the Purchase and Sale Agreement, the Company will sell approximately 14,641 acres of real property located in Bent, Otero and Prowers Counties, Colorado, together with certain rights, easements, and benefits appurtenant to the land, including all improvements, all sand and gravel, 25% of the Company’s mineral rights, water rights (including 18,448.44 shares of stock in the FLCC and 45 shares of stock in the Lower Arkansas Water Management Association), and all water taps and rights to acquire water taps associated with the land and the wells located on the land, to Arkansas River Farms for approximately $53 million in cash, subject to such amendments to the Purchase and Sale Agreement as may be approved by the board of directors. The Purchase and Sale Agreement was amended after the end of the quarter to, among other things, reduce the purchase price to approximately $46 million and to remove the Company's mineral rights from the sale, See Note 11 – Subsequent Event. The Purchase and Sale Agreement has been approved by the Board and the shareholders of the Company.

The Company will continue to operate the assets as held for use and will continue to lease the farms to area farmers until the sale has been completed. The assets will remain in Investments in Water and Water Systems until the terms of the agreement are satisfied at which time it will be transferred to Land and Water Held for Sale. The assets being sold have a book value of approximately $69 million, or 68% of Pure Cycle’s total assets as of May 31, 2015. Upon satisfaction of the terms of the agreement, the Company will record a loss, which is expected to be approximately $23 million, of the difference between the book value and the closing amount.

See Exhibit 10.4 filed herewith and the Company’s Current Reports on Form 8-K filed with the SEC on March 17, 2015, May 21, 2015, June 19, 2015, and June 24, 2015 and the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on March 27, 2015, for additional information.