Pure Cycle Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

3. WATER AND LAND ASSETS

3. WATER AND LAND ASSETS

6 Months Ended

Feb. 28, 2017

Investments In Water Water Systems Land And Improvements

Wild Pointe

On December 15, 2016, Rangeview, acting by and through its Water Activity Enterprise, and Elbert & Highway 86 Commercial Metropolitan District, a quasi-municipal corporation and political subdivision of the State of Colorado, acting by and through its Water Enterprise (the "EH86 District"), entered into a Water Service Agreement (the "Wild Pointe Service Agreement"). Subject to the conditions set forth in the Wild Pointe Service Agreement and the terms of the Company's engagement by Rangeview as Rangeview's exclusive service provider, the Company acquired, among other things, the exclusive right to provide water services to residential and commercial customers in Wild Pointe Ranch, located in unincorporated Elbert County, Colorado, in exchange for $1,600,000 in cash. Pursuant to the terms of the Wild Pointe Service Agreement, the Company, in its capacity as Rangeview's service provider, is responsible for providing water services to all users of water services within the boundaries and service area of the EH86 District and for operating and maintaining the EH86 District's water system. In exchange, the Company receives all rates, fees and charges remitted to Rangeview by the EH86 District pursuant to the Wild Pointe Service Agreement, including system development (or tap) fees from new customers and monthly water service revenues. The EH86 District's water system currently provides water service to approximately 120 existing SFE water connections in Wild Pointe.

The Company’s Investments in Water and Water Systems consist of the following costs and accumulated depreciation and depletion at February 28, 2017 and August 31, 2016:

	February 28, 2017					August 31, 2016
	Costs		Accumulated Depreciation and Depletion			Costs		Accumulated Depreciation and Depletion
Rangeview water supply	$	14,475,900	$	(9,700	)	$	14,444,600	$	(9,400	)
Sky Ranch water rights and other costs		6,660,400		(386,700	)		6,607,400		(334,500	)
Fairgrounds water and water system		2,899,900		(930,800	)		2,899,900		(886,800	)
Rangeview water system		1,637,800		(179,800	)		1,624,800		(152,800	)
Water supply – other		3,790,500		(349,600	)		3,703,000		(297,800	)
Wild Pointe service rights		1,661,000		(26,000	)		—		—
Construction in progress		4,499,600		—			723,500		—
Totals		35,625,100		(1,882,600	)		30,003,200		(1,681,300	)
Net investments in water and water systems	$	33,742,500				$	28,321,900

Construction in progress relates to the Sky Ranch project and includes engineering and other initial costs (approximatley $949,000) and water line installation (approximately $3.5 million). An additional approximately $700,000 is expected to be incurred over the next two months related to the water line installation.

Capitalized terms in this section not defined herein are defined in Note 4 – Water and Land Assets in Part II, Item 8 of the 2016 Annual Report.

Depletion and Depreciation. The Company recorded depletion charges of $200 and $40 during the three month periods ended February 28, 2017 and February 29, 2016, respectively. The Company recorded depletion charges of $500 and $100 during the six months ended February 28, 2017 and February 29, 2016, respectively. During the three and six months ended February 28, 2017, this related entirely to the Rangeview Water Supply and the Sky Ranch water assets.

The Company recorded $141,800 and $104,500 of depreciation expense during the three months ended February 28, 2017 and February 29, 2016, respectively. The Company recorded $257,600 and $199,000 of depreciation expense during the six months ended February 28, 2017 and February 29, 2016, respectively.