What changed in this filing

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Item 1A. Risk Factors

2020-11-10 compared with 2019-11-12 · 325 added, 293 removed, 280 unchanged (69% of the section changed)

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General Risks Related to Our Company

Our business, operations and financial condition and results may be impacted by the COVID-19 pandemic to varying degrees.

In December 2019, a novel strain of coronavirus, referred to as the COVID-19 virus, was reported to have surfaced in Wuhan, China.

Since then, COVID-19 has spread to multiple countries, including the United States.

March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the United States government-imposed travel restrictions on travel between the United States, Europe and other countries.

Further, the President of the United

States declared the COVID-19 pandemic a national emergency.

In addition, the State of Colorado implemented stay-at-home orders requiring everyone to stay-at-home except to obtain or provide essential services such as food and medical care during

portions of March through May.

Many businesses responded with their own work-from-home or quarantine policies and/or indefinite closures.

Since June, most businesses have been allowed to reopen subject to capacity restrictions, social distancing and

mask requirements.

State and local restrictions have been varying in response to whether the number of COVID-19 cases is increasing or decreasing.

Since December 2019, COVID-19 has resulted in numerous deaths, travel restrictions, closed international borders, enhanced health screening at ports of entry and elsewhere, prolonged quarantines and the imposition of

both local and more widespread “work from home” measures, cancellations, supply chain disruptions, and lower consumer demand, as well as general concern and uncertainty.

The ongoing spread of COVID-19 has, and is expected to continue to have, a

material adverse impact on local economies in the affected jurisdictions and also on the global economy, as cross border commercial activity and market sentiment are increasingly impacted by the outbreak and government and other measures seeking to

contain its spread.

Our water and wastewater services are essential services, and we intend to continue to provide those services for our customers.

However, our land development activities and our ability to expand our water and wastewater services

may be disrupted, and we may be delayed in our current projects and timelines, the magnitude of which will depend, in part, on the length and severity of the COVID-19 outbreak.

The COVID-19 virus poses the risk that we or our employees, governmental

agencies permitting our projects, suppliers, consumers, and other business partners, including our home builders, may be prevented from conducting business activities in the ordinary course for an indefinite period of time, should the United States,

the state of Colorado, or local governmental authorities implement further stay-at-home orders or restrictions.

Shutdowns or other restrictions could also adversely impact the availability or cost of materials, which could limit our business

operations or increase our costs.

The duration of the COVID-19 outbreak and its ultimate impact on the Company and, on the global economy, cannot be determined with certainty.

The COVID-19 pandemic and its effects may last for an extended period of

time, and could result in significant and continued declines in global financial markets, higher default rates, and a substantial economic downturn or recession.

The extent to which COVID-19 will affect the Company will depend on future developments,

which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain COVID-19.

Given the significant economic and financial market disruptions associated

with the COVID-19 pandemic, the Company’s results of operations could be adversely impacted.

Our operations are concentrated in the Front Range area of Colorado;

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To the extent that the general economic conditions in the Front Range area of Colorado deteriorate, the value of our assets, our results of operations and our financial condition could be materially adversely affected.

Our net losses may continue, and we may not have sufficient cash flows from operations or other capital resources to pursue our business objectives.

While we have generated net income in the past two fiscal years, we have a long history of losses.

Our cash flows from operations generally have not been sufficient

to fund our operations, and we have been required to raise debt and equity capital and sell assets to remain in operation.

Since 2004, we have raised $76.3 million through (i) the issuance of $25.3 million of common stock (including the issuance of

stock pursuant to the exercise of options, net of expenses), (ii) the issuance of $5.2 million of convertible debt, which was converted to common stock on January 11, 2011, and (iii) the sale of our Arkansas

River water and land for approximately $45.8 million in cash.

Our continuing development of the first phase of Sky Ranch requires significant cash expenditures.

We have advanced the CAB approximately $20 million for construction of public

improvements on the Sky Ranch property.

The CAB is not required to repay us for advances made or expenses incurred for improvements at Sky Ranch unless and until the CAB and/or Sky Ranch Districts issue bonds in an amount sufficient to reimburse us

for all or a portion of advances made or expenses incurred.

We have funded and expect to continue to fund such expenditures with cash on hand and cash flows from operations.

At August 31, 2019 , we had approximately $9.7 million of cash and marketable securities on hand, which is a significant decrease compared to our fiscal 2018 balance.

We currently have a limited number of customers.

If our cash on hand and future cash flows

from operations are not sufficient to fund our operations and the significant capital expenditure requirements to build our water and wastewater systems and develop Sky Ranch, we may be forced to seek to obtain additional debt or equity capital.

Economic conditions and disruptions have previously caused substantial volatility in capital markets, including credit markets and the banking industry, increasing the cost and significantly reducing the availability of financing, which may reoccur

in the future.

We may not have sufficient cash flows from operations or other capital resources to pursue our business objectives.

While we have generated net income in the past three fiscal years, we have a history of losses.

Our cash flows from operations generally have not been

sufficient to fund our operations, and we have been required to raise debt and equity capital and sell assets to remain in operation.

Since 2004, we have raised $76.3 million through (i) the issuance of $25.3 million of common stock (including the

issuance of stock pursuant to the exercise of options, net of expenses), (ii) the issuance of $5.2 million of convertible debt, which was converted to common stock on January 11, 2011, and (iii) the sale

of our Arkansas River water and land for $45.8 million in cash.

Our continuing development of Sky Ranch requires significant cash expenditures.

We have advanced the Sky Ranch CAB $26 million for construction of public improvements on the

Sky Ranch property and expect to advance another $3 million for the completion of our initial filing, with another $65.5 million expected to be advanced for filing 2.

The Sky Ranch CAB is not required to repay us for advances made or expenses

incurred for improvements at Sky Ranch unless and until the Sky Ranch CAB and/or Sky Ranch Districts issue bonds in an amount sufficient to reimburse us for all or a portion of advances made or expenses incurred.

have funded and expect to continue to fund such expenditures with cash on hand and cash flows from operations.

As of August 31, 2020 , we had $21.8 million of cash on hand.

If our cash on hand and future

cash flows from operations are not sufficient to fund our operations and the significant capital expenditure requirements to continue to develop Sky Ranch, we may be forced to seek to obtain additional debt or equity capital.

Economic conditions

and disruptions have previously caused substantial volatility in capital markets, including credit markets and the banking industry, increasing the cost, and significantly reducing the availability of financing, which may reoccur in the future.

There can be no assurance that financing will be available on acceptable terms or at all.

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Our quarterly

results of operations may continue to fluctuate in the future as a result of a variety of factors, including, among others, the timing of the closings of sales of residential lots and weather-related problems.

We have identified material weaknesses in our internal control over financial reporting which could, if not remediated, result in material misstatements in our

financial statements.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.

A material weakness is a deficiency, or a

combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely

As disclosed in Item 9A – Controls and Procedures, during the first quarter of fiscal 2020, we concluded that material weaknesses existed as of August 31, 2019.

Specifically, management identified control deficiencies that constitute

individually, or in the aggregate, material weaknesses in our internal control over financial reporting related to our accruals of costs incurred from related parties and preparation of our income tax provision.

As of the date of this filing, we have

not yet completed our remediation of these material weaknesses.

We have, however, implemented compensating controls and are in the process of enhancing and revising the design of our existing controls and procedures to improve

our identification of accruals of costs incurred from related parties and our preparation of income tax provisions.

If our remedial measures are insufficient, or if additional material weaknesses or significant deficiencies in our internal

controls are detected, we could be required to restate our financial results and/or experience a decline in the price of our common stock.

results of operations may continue to fluctuate in the future because of a variety of factors, including, among others, the timing of the closings of sales of residential lots and weather-related problems.

Our stock price has been volatile in the past and may decline in the future.

Our common stock has experienced significant price and volume fluctuations in the

past and may experience significant fluctuations in the future depending upon a number of factors, some of which are beyond our control.

Factors that could affect our stock price and trading volume include, among others, the perceived prospects of

our business;

past and may experience significant fluctuations in the future depending upon several factors, some of which are beyond our control.

Factors that could affect our stock price and trading volume include, among others, the perceived prospects of our

differences between anticipated and actual operating results;

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the commencement and/or results of litigation and other legal proceedings;

and future sales of our common stock by us or

by significant shareholders, officers and directors.

and future sales of our common stock by us or by

significant shareholders, officers and directors.

In addition, stock markets in general have experienced price and volume volatility from time to time, which may adversely affect the market price of our common stock for reasons unrelated to our

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Providing wholesale water service using our

Colorado Front Range water supplies is our principal source of future revenue.

Colorado Front Range water supplies is one of our key sources of future revenue.

The timing and amount of these revenues will depend in part on housing developments being built near our water assets.

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We may not be able to manage the increasing demands of our expanded operations.

We have historically depended on a limited number of employees to administer our existing operations, interface with governmental bodies, market our services and plan for the construction and development of our assets.

execution of the Builder Contracts for Sky Ranch has increased the size and complexity of our business.

The success of our current business and future business development and our 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.

We may not be able to maximize the value of our assets if we are unable to attract and retain qualified personnel and to manage the demands of a

workforce that has nearly tripled in the past two years.

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 for, among other things, regulatory penalties (including fines and suspension of operations), operational errors at the facilities, improper billing and collection

processes, claims for personal injury and property damage, and loss of contracts and revenues.

We have historically depended on a limited number of employees to administer our existing operations, interface with governmental entities, market our services and plan for the construction and development of our

The execution of contracts for lot sales and the continued development of Sky Ranch has increased the size and complexity of our business.

The success of our current business and future business development and our 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.

We may not be able to maximize the value of our assets if we are unable to attract and retain

qualified personnel and to manage the demands of a workforce that has nearly tripled in the past two years.

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 for, among other things, regulatory penalties (including fines and suspension of operations), operational

errors at the facilities, improper billing and collection processes, claims for personal injury and property damage, and loss of contracts and revenues.

We may be unsuccessful in managing our operations and growth.

We are dependent on the services of a key employee .

Our success largely depends on the continuing services of our President and Chief Financial Officer, Mark

Our success largely depends on the continuing services of our President and Chief Executive Officer, Mark

We believe that Mr.

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Harding also serves on the boards of the Rangeview District, the Sky Ranch

Districts, and the CAB.

Districts, and the Sky Ranch CAB.

The loss of Mr.

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These issues could give rise to delays, cost overruns or performance

deficiencies, or otherwise adversely affect the construction or operation of our water and wastewater delivery systems and the construction and delivery of residential lots pursuant to our Builder Contracts.

In addition, we may experience quality

problems in the construction of our systems and facilities, including equipment failures.

We may not meet the required deadlines under our Builder Contracts.

We may face claims from customers or others regarding product quality and installation of

equipment placed in service by contractors.

The Builder Contracts for Sky Ranch and contracts for the water and wastewater facilities that we design and construct are fixed-price contracts, in which we bear all or a significant portion of the risk for cost

deficiencies, or otherwise adversely affect the construction or operation of our water and wastewater delivery systems and the construction and delivery of residential lots.

In addition, we may experience quality problems in the construction of our

systems and facilities, including equipment failures.

We may not meet the required deadlines under our sale and construction contracts.

We may face claims from customers or others regarding product quality and installation of equipment placed in

service by contractors.

The sales contracts at Sky Ranch and contracts for the water and wastewater facilities that we design and construct are fixed-price contracts, in which we bear all or a significant portion of the risk for cost

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 quotes or 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.

These quotes or estimates may be based on several 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 would not be within our control.

Pursuant to our Builder Contracts for Sky Ranch, we guarantee project completion of water and wastewater delivery systems and lot improvements by a scheduled date.

We also guarantee that the project, when completed,

will achieve certain performance standards, meet certain quality specifications and satisfy certain requirements for governmental approvals.

If we fail to complete the project as scheduled, meet guaranteed performance standards or quality

specifications, or obtain the required governmental approvals, 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 and the

quality specifications and to obtain the required government approvals.

To the extent that these events occur and are not due to circumstances for which the customer accepts responsibility or 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.

Pursuant to various contracts related to the development of Sky Ranch, we guarantee that the project, when completed, will achieve certain performance standards, meet certain quality specifications, and satisfy certain

requirements for governmental approvals.

If we fail to complete the project as scheduled, meet guaranteed performance standards or quality specifications, or obtain the required governmental approvals, 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 and the quality specifications and to obtain the required government approvals.

To the extent that these events occur

and are not due to circumstances for which the customer accepts responsibility or 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.

We are required to secure, or to have our subcontractors secure, performance and completion bonds for certain contracts and projects.

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In addition, there is a variety of legislation being enacted, or considered for enactment, at the federal, state, and local level relating to energy and climate change.

This legislation relates to items

such as carbon dioxide emissions control and building codes that impose energy efficiency standards.

This legislation relates to

items such as carbon dioxide emissions control and building codes that impose energy efficiency standards.

Such environmental laws may affect, for example, how we manage storm water runoff, wastewater discharges and dust;

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our business that can be significant.

Further, we may experience delays and increased expenses as a result of legal challenges to our proposed development activities, whether brought by governmental authorities or private parties.

Further, we may experience delays and increased expenses because of legal challenges to our proposed development activities, whether brought by governmental authorities or private parties.

The enactment of Senate Bill 19-181 “Protect Public Welfare Oil and Gas Operations” increased the regulatory authority of local governments in

Colorado over facilities siting and surface impacts of oil and gas development, which could have an adverse effect on our water sales to the oil and gas industry for hydraulic fracturing (“fracking”) and demand for new homes at Sky Ranch.

Colorado Senate Bill 19-181 (“SB181”) was signed into law on April 16, 2019.

Among other things, SB181 authorizes local governments to approve the siting of oil and gas locations and regulate the surface impacts of oil and natural gas development,

including empowering local governments to adopt requirements that are more stringent than state requirements.

SB181 changes the mission of the Colorado Oil and Gas Conservation Commission from fostering responsible and balanced development to

regulating development to minimize adverse impacts to public health and the environment.

Senate Bill 19-181 (“SB181”) was signed into law on April 16, 2019.

Among other things, SB181 authorizes local governments to approve the siting of oil and gas locations and regulate the surface impacts of oil and natural gas development, including

empowering local governments to adopt requirements that are more stringent than state requirements.

SB181 changes the mission of the Colorado Oil and Gas Conservation Commission from fostering responsible and balanced development to regulating

development to minimize adverse impacts to public health and the environment.

SB181 also requires the Colorado Oil and Gas Conservation Commission and the Air Quality Control Commission to undertake rulemaking on numerous issues, including

environmental protection, facility siting, application fees, and minimizing emissions of hydrocarbons and other compounds.

Rulemaking activities by the State Commissions and local governments may result in new application and operating requirements

that could lead to delays and additional costs for oil and gas operators, which, in turn, could result in a decline in oil and gas drilling activities.

A significant decline in oil and gas drilling activities in and around the Lowry Range and our Sky

Ranch property would have an adverse effect on our water sales for fracking and our financial condition.

Further, a significant decline in oil and gas activities throughout Colorado could negatively impact the Colorado economy, which could have an

adverse effect on demand for new homes at Sky Ranch.

The Colorado Oil and Gas Conservation Commission has proposed rules related to setbacks and siting requirements for well

locations that would require any well pad surface proposed to be located greater than 500 feet and less than 2,000 feet from a residential or high occupancy building to obtain an exemption from the Commission by satisfying certain requirements in the

rule (such as consent from owners and tenants) or to seek a ruling from the Commission, after a hearing, finding that the conditions of approval will provide substantially equivalent protections to a 2000 foot setback for public health, safety,

welfare, the environment and wildlife resources.

These and related rulemaking activities by the State Commissions and local governments could lead to delays and additional costs for oil and gas operators, which, in turn, could result in a decline in

oil and gas drilling activities.

A significant decline in oil and gas drilling activities in and around the Lowry Range and our Sky Ranch property would have an adverse effect on our water sales for fracking and our financial condition.

significant decline in oil and gas activities throughout Colorado could negatively impact the Colorado economy, which could have an adverse effect on demand for new homes at Sky Ranch.

Rulemaking activities by the Colorado Oil and Gas Conservation Commission could adversely impact the number of lots available for land development in

Colorado, which could have an adverse effect on our land development activities.

As noted above, the Colorado Oil and Gas Conservation Commission has proposed rules related to setbacks and siting requirements for well locations.

on how these proposed rules are applied and interpreted, if adopted, they could have the effect of limiting property development within 2,000 feet of a well pad surface.

If the proposed rules are implemented or interpreted in a manner that severely

limits the exemptions, landowners could be forced to choose between limiting oil and gas development on their property to maximize the land available for residential and commercial development or to limit land development to maximize revenue from oil

and gas development.

Under a restrictive interpretation of such rules, we might have to limit drilling on our mineral rights at Sky Ranch in order to proceed with the occupancy densities we have planned, which would adversely affect our industrial

water sales to the oil and gas industry.

Restrictive rules could also reduce the supply of other land acquisition opportunities for development or make such land opportunities less attractive or uneconomical.

Additionally, any rules that would

require the Land Board to elect between oil and gas or land development with respect to the Lowry Range would likely have an adverse effect on our financial condition, because we have the exclusive right to provide water service to customers on the

Lowry Range, including both lessees of the oil and gas rights on the Lowry Range and future occupants of the Lowry Range if the Land Board sells the land for development.

Natural disasters and severe weather conditions could delay the closing of the sale of residential lots at Sky Ranch and increase our costs, which could harm our

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The occurrence of natural disasters or severe

weather conditions in Colorado or elsewhere could delay construction of our water and wastewater systems and/or property development, increase costs and lead to shortages of labor and materials.

If our insurance or the insurance of our subcontractors

does not fully cover business interruptions or losses resulting from these events, our results of operations could be adversely affected.

For example, as a result of Hurricane Harvey in the Texas Gulf Coast in 2017, the cost of pipe used in our

business increased approximately 35%.

This additional cost is not clearly reimbursable by insurance.

We may be subject to significant potential liabilities as a result of warranty and liability claims made against us.

weather conditions in Colorado or elsewhere could delay our construction activities, increase costs, and lead to shortages of labor and materials.

If our insurance or the insurance of our subcontractors does not fully cover business interruptions or

losses resulting from these events, our results of operations could be adversely affected.

We may be subject to significant potential liabilities because of warranty and liability claims made against us.

Design, construction, or system failures

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We are also subject to

claims for losses or injuries that occur in the course of our property development activities.

We plan to record warranty and other reserves for the residential lots we sell based on historical trends in our market and our judgment of the qualitative

risks associated with the type of lots we sell.

claims for losses or injuries that occur during our property development activities.

We plan to record warranty and other reserves for the residential lots we sell based on historical trends in our market and our judgment of the qualitative risks

associated with the type of lots we sell.

We have, and many of our subcontractors have, general liability, property, workers’ compensation, and other business insurance.

These insurance policies are intended to protect us against a portion of

our risk of loss from claims, subject to certain self-insured retentions, deductibles and coverage limits.

These insurance policies are intended to protect us against a portion of our

risk of loss from claims, subject to certain self-insured retentions, deductibles, and coverage limits.

However, it is possible that this insurance will not be adequate to address all warranty and liability claims to which we are subject.

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our business, financial condition and operating results.

Conflicts of interest may arise relating to the operation of the Rangeview District, the Sky Ranch Districts and the CAB.

Our President and Chief Financial Officer and two of our employees constitute 75% of the directors of each of the Rangeview District, the Sky Ranch Districts and the CAB.

Pure Cycle, along with its officers and employees and two

unrelated individuals, own certain property interests in the 40 acres that constitute the Rangeview District and the acreage that constitutes the Sky Ranch Districts.

Conflicts of interest may arise relating to the operation of the Rangeview District, the Sky Ranch Districts and the Sky Ranch CAB.

Our Chief Executive Officer, Chief Financial Officer and two of our employees constitute 80% of the directors of each of the Rangeview District, the Sky Ranch Districts and the Sky Ranch CAB.

These officers and employees, along with Pure Cycle, and one unrelated individual, own certain property interests in the 40 acres that constitute the Rangeview District and the acreage that constitutes the Sky Ranch Districts.

We have made loans to the Rangeview District to fund its operations.

31, 2019 , total principal and interest owed to us by the Rangeview District was $961,300.

Pursuant to our water and wastewater service agreements with the Rangeview District, the Rangeview District retains two

percent of the revenues from the sale of water to its end-use customers and 10% of the revenues from the provision of wastewater services to its end-use customers.

Proceeds from the fee collections will

initially be used to repay the Rangeview District’s obligations to us, but after these loans are repaid, the Rangeview District is not required to use the funds to benefit Pure Cycle.

Similarly, we have made loans to and incurred expenses reimbursable by the Sky Ranch Districts, which amounts were fully refunded to the Company as of August 31, 2019 , and we have advanced the CAB approximately $20 million for construction of public improvements on the Sky Ranch property.

The CAB is not required to repay us for advances made or expenses incurred for improvements

at Sky Ranch unless and until the CAB and/or Sky Ranch Districts issue bonds in an amount sufficient to reimburse us for all or a portion of advances made or expenses incurred.

We have received benefits from our

activities undertaken in conjunction with the Rangeview and Sky Ranch Districts and the CAB, but conflicts may arise between our interests and those of the Rangeview and Sky Ranch Districts and the CAB and our officers and employees who are acting

in dual capacities in negotiating contracts to which we and a district and/or the CAB are parties.

We expect that the Rangeview and Sky Ranch Districts will expand when more properties are developed and become part of the respective districts, and

our officers and employees acting as directors of these districts will have fiduciary obligations to those other constituents.

As of August 31, 2020 , total principal and interest owed to us by the Rangeview District was just under $1.0 million.

Pursuant to our

water and wastewater service agreements with the Rangeview District, the Rangeview District retains two percent of the revenues from the sale of water to its end-use customers and 10% of the revenues from the provision of wastewater services to its

end-use customers.

Proceeds from the fee collections will initially be used to repay the Rangeview District’s obligations to us, but after these loans are repaid, the Rangeview District is not required to

use the funds to benefit Pure Cycle.

Similarly, we have made loans to and incurred expenses reimbursable by the Sky Ranch Districts, which amounts were fully refunded to us as of August 31, 2020 , and we have advanced the Sky Ranch CAB $26 million for construction of public improvements on the Sky Ranch property.

The Sky Ranch CAB is not required to repay us for advances made or expenses incurred for

improvements at Sky Ranch unless and until the Sky Ranch CAB and/or Sky Ranch Districts issue bonds in an amount sufficient to reimburse us for all or a portion of advances made or expenses incurred.

received benefits from our activities undertaken in conjunction with the Rangeview and Sky Ranch Districts and the Sky Ranch CAB, but conflicts may arise between our interests and those of the Rangeview

and Sky Ranch Districts and the Sky Ranch CAB and our officers and employees who are acting in dual capacities in negotiating contracts to which we and a district and/or the Sky Ranch CAB are parties.

We expect that the Rangeview and Sky Ranch Districts will expand when more properties are developed and become part of the respective districts, and our officers and employees acting as directors of

these districts will have fiduciary obligations to those other constituents.

Conflicts may not be resolved in the best interests of the Company and our shareholders.

In addition, other landowners

coming into a district will be eligible to vote and to serve as directors of these districts.

Our officers and employees may not remain as directors of these districts, and the actions of subsequently elected boards could have an adverse impact on

our operations.

In addition, other landowners coming into a district will be eligible to vote and

to serve as directors of these districts.

Our officers and employees may not remain as directors of these districts, and the actions of subsequently elected boards could have an adverse impact on our operations.

Growth limitations or moratoriums imposed by governmental authorities could adversely affect our land development activities or the land development activities of

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develop our land as planned or our customers’ ability to grow their communities as anticipated, which would also reduce the number of water and wastewater service customers we expect, which would have a negative impact on our business and financial

We could be hurt by efforts to impose liabilities or obligations on persons with regard to labor law violations by other persons whose employees

perform contracted services .

The infrastructure and improvements on our water and wastewater systems and on the finished lots we sell or that we must provide pursuant to service agreements and lot development agreements are done by employees

of subcontractors and other contract parties.

We do not have the ability to control what these contract parties pay their employees or the work rules they impose on their employees.

However, there have been efforts by government agencies to hold

contract parties like us responsible for violations of wage and hour laws and other work-related laws by firms whose employees are performing contracted-for services.

A 2016 National Labor Relations Board (“NLRB”) ruling held that for labor law

purposes a firm could under some circumstances be responsible as a joint employer of its contractors’ employees even if the firm had no direct control over the employees’ terms and conditions of employment.

That ruling was largely affirmed by the

Court of Appeals for the D.C.

Circuit, which clarified that only indirect control that affects the essential terms and conditions of employment could be considered.

However, in September 2018, the NLRB proposed an even narrower rule governing

joint employment, which is that an employer may be found to be a joint employer of another employee’s employees only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment and has

done so in a manner that is not limited and routine.

Indirect influence and contractual reservations of authority would not be sufficient to establish a joint employer relationship.

This proposed rule has received public comment but is still under

consideration by the NLRB.

It is unclear whether it will be implemented and whether a court would apply it retroactively, but it could effectively overrule most or all of the 2016 NLRB case and subsequent appellate decision.

Governmental rulings

that make us responsible for labor practices by our subcontractors could create substantial exposures for us in situations that are not within our control.

We could be hurt by efforts to impose liabilities or obligations on us regarding labor law violations by other persons whose employees perform contracted services .

The infrastructure and improvements on our

water and wastewater systems and on the finished lots we sell or that we must provide pursuant to service agreements and lot development agreements are done by employees of subcontractors and other contract parties.

We do not have the ability to

control what these contract parties pay their employees or the work rules they impose on their employees.

However, there have been efforts by government agencies to hold contract parties like us responsible for violations of wage and hour laws and

other work-related laws by firms whose employees are performing contracted-for services.

This includes a 2016 National Labor Relations Board (“NLRB”) ruling which held that for labor law purposes a firm could under some circumstances be responsible

as a joint employer of its contractors’ employees even if the firm had no direct control over the employees’ terms and conditions of employment.

The NLRB ultimately reversed this ruling through a final rule issued in February 2020.

Department of Labor and Employment proposed similar changes in an April 2020 emergency rulemaking but ultimately withdrew them in May 2020 following a notice and comment period.

Although these changes in the joint employer framework have not yet

succeeded, governmental rulings that make us responsible for labor practices by our subcontractors could create substantial exposures for us in situations that are not within our control.

Unauthorized access to confidential information and data on our information technology systems and security and data breaches could materially

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Risks Related to the Water Segment of Our Business

The rates that the Rangeview District is allowed to charge customers on the Lowry Range for water services are limited by the Lease with the Land

Board and our contract with the Rangeview District and may not be sufficient to cover our costs of construction and operation.

The prices charged by the

Rangeview District for water service on the Lowry Range are subject to pricing regulations set forth in the Lease with the Land Board.

Both the tap fees and usage rates and charges are capped at the average of the rates of three nearby water

Annually, the Rangeview District surveys the tap fees and rates of the three nearby providers, and the Rangeview District may adjust tap fees and rates and charges for water service on the Lowry Range based on the average of those

charged by this group.

The rates that the Rangeview District is allowed to charge customers on the Lowry Range for water services are limited by the Lease with the

Land Board and our contract with the Rangeview District and may not be sufficient to cover our costs of construction and operation.

charged by the Rangeview District for water service on the Lowry Range are subject to pricing regulations set forth in the Lease with the Land Board.

Both the tap fees and usage rates and charges are capped at the average of the rates of three

nearby water providers.

those charged by this group.

We receive 100% of tap fees and 98% of water usage fees charged by the Rangeview District to its customers after the deduction of royalties owed to the Land Board.

Our costs associated with the construction of water systems

and the production, treatment and delivery of water are subject to market conditions and other factors, which may increase at a significantly higher rate than that of the fees we receive from the Rangeview District.

Factors beyond our control and

which cannot be predicted, such as government regulations, insurance and labor markets, drought, water contamination and severe weather conditions, like tornadoes and floods, may result in additional labor and material costs that may not be

recoverable under the current rate structure.

Our costs associated with the construction of water

systems and the production, treatment and delivery of water are subject to market conditions and other factors, which may increase at a significantly higher rate than that of the fees we receive from the Rangeview District.

Factors beyond our

control and which cannot be predicted, such as government regulations, insurance and labor markets, drought, water contamination and severe weather conditions, like tornadoes and floods, may result in additional labor and material costs that may

not be recoverable under the current rate structure.

Both increased customer demand and increased water conservation may also impact the overall cost of our operations.

If the costs for construction and operation of

our wholesale water services, including the cost of extracting our groundwater, exceed our revenues, we would be providing water service to the Rangeview District for use at the Lowry Range at a loss.

The Rangeview District may petition the Land

Board for rate increases;

If the costs for construction and

operation of our wholesale water services, including the cost of extracting our groundwater, exceed our revenues, we would be providing water service to the Rangeview District for use at the Lowry Range at a loss.

The Rangeview District may

petition the Land Board for rate increases;

however, there can be no assurance that the Land Board would approve a rate increase request.

Further, even if a rate increase were approved, it might not be granted in a timely manner or in an amount sufficient to cover

the expenses for which the rate increase was sought.

Further, even if a rate increase were approved, it might not be granted in a timely manner or in an amount

sufficient to cover the expenses for which the rate increase was sought.

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

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If temperatures during the typically warmer months are cooler than expected or there is more rainfall than expected, the demand for our water may decrease and adversely affect our revenues.

Our water sales for the past two years have been highly concentrated among companies providing fracking services to the oil and gas industry, and

such sales can fluctuate significantly.

Our water sales have been historically highly concentrated directly and indirectly with one to three companies providing fracking services to the oil and gas

industry on and around the Lowry Range and our Sky Ranch property.

Our water sales for the past three years have been highly concentrated among companies providing hydraulic fracturing services to the oil and gas

industry, and such sales can fluctuate significantly.

Our water sales have been historically highly concentrated directly and indirectly with one to three companies providing hydraulic fracturing

services to the oil and gas industry on and around the Lowry Range and our Sky Ranch property.

Generally, investment in oil and gas development is dependent on the price of oil and gas.

While water sales for fracking represented 90% and 89% of our total water revenues during

the fiscal years ended August 31, 2019 and 2018, respectively, we have no long-term contractual commitments that will ensure these sales in the future.

The oil and gas industry has periodically gone through periods when activity has significantly

For example, water sales for fracking represented less than 1% of our total water revenues during the fiscal year ended August 31, 2016.

Further sales to this customer base as well as renewals of our oil and gas leases, if any, in the future are impacted by statutory ballot initiatives, regulations, court interpretations of the statutory

mandate of the Colorado Oil and Gas Conservation Commission, fracking technologies, the success of the wells and the price of oil and gas, among other things.

For example, certain interest groups in Colorado opposed to oil and natural gas development

generally, and hydraulic fracturing in particular, advanced a ballot initiative that would have resulted in oil and natural gas development in the state being significantly curtailed.

The initiative was not approved by the voters of Colorado in the

November 2018 election.

The Colorado Oil and Gas Conservation Commission estimated that implementation of the proposed initiative would have made drilling unlawful on approximately 85% of the non-federal surface area of the state of Colorado.

Although this initiative did not pass, interest groups opposed to oil and natural gas development have continued to seek restrictions.

The enactment of SB181 and the release of a Colorado Department of Public Health and Environment report dated

October 17, 2019, entitled Final Report:

Human Health Risk Assessment for Oil & Gas Operations in Colorado, concluding that people living within 2,000 feet of fracking sites could face elevated health risks may lead to increased opposition and

tougher oversight of oil and gas operations, which could reduce the demand for water for fracking.

During the years ended August 31, 2020, 2019, and 2018 water

sales for oil and gas operations represented 49%, 93%, and 90%, respectively, of our total metered water revenues.

We have no long-term contractual commitments that will ensure these sales continue in the future.

The oil and gas industry has

periodically gone through periods when activity has significantly declined such as earlier this year due to low oil and gas prices caused by increased world-wide production and decreased demand due to stay-at-home orders related to the COVID‑19

Further sales to this customer base as well as renewals of our oil and gas leases, if any, in the future are impacted by statutory ballot initiatives, regulations, rulemaking initiatives by the

Colorado Oil and Gas Conservation Commission, court interpretations of the statutory mandate of the Colorado Oil and Gas Conservation Commission, fracking technologies, the success of the wells and the price of oil and gas, among other things.

example, certain interest groups in Colorado opposed to oil and natural gas development generally, and hydraulic fracturing in particular, have advanced ballot initiatives that would significantly curtail oil and natural gas development in the state,

including a Colorado proposed initiative that would have made drilling unlawful on approximately 85% of the non-federal surface area of the state of Colorado.

Although these initiatives have not passed, interest groups opposed to oil and natural gas

development have continued to seek restrictions.

The enactment of SB181 and the release of a Colorado Department of Public Health and Environment report dated October 17, 2019, entitled Final Report:

Human Health Risk Assessment for Oil & Gas

Operations in Colorado, concluding that people living within 2,000 feet of fracking sites could face elevated health risks, may lead to increased opposition and tougher oversight of oil and gas operations, which could reduce the demand for water for

A significant portion of our water supplies come from non-renewable aquifers.

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While the acquisition of Lost Creek water, a renewable

“surface” water right that is diverted from an alluvial aquifer that is hydrologically connect to the surface water system, mitigates some of the risk of owning non-renewable supplies, if we are unable to obtain sufficient replacement supplies, it

“surface” water right that is diverted from an alluvial aquifer that is hydrologically connected to the surface water system, mitigates some of the risk of owning non-renewable supplies, if we are unable to obtain sufficient replacement supplies, it

would have a material adverse impact on our business and financial condition.

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We may incur significant costs in order to treat the contaminated source through expansion of our current treatment facilities or development of new treatment methods.

If we are unable to substitute water supply from

an uncontaminated water source, or to adequately treat the contaminated water source in a cost-effective manner, there may be an adverse effect on our revenues, operating results and financial condition.

The costs we incur to decontaminate a water

source or an underground water system could be significant and could adversely affect our business, operating results and financial condition and may not be recoverable in rates.

If we are unable to substitute water supply

from an uncontaminated water source, or to adequately treat the contaminated water source in a cost-effective manner, there may be an adverse effect on our revenues, operating results and financial condition.

The costs we incur to decontaminate a

water source or an underground water system could be significant and could adversely affect our business, operating results and financial condition and may not be recoverable in rates.

We could also be held liable for consequences arising out of human exposure to hazardous substances in our water supplies or other environmental damage.

For example, private plaintiffs could assert personal injury or

other toxic tort claims arising from the presence of hazardous substances in our drinking water supplies.

Although we have not been a party to any environmental or pollution-related lawsuits, such lawsuits have increased in frequency in recent years.

For example, private plaintiffs could assert personal injury

or other toxic tort claims arising from the presence of hazardous substances in our drinking water supplies.

Although we have not been a party to any environmental or pollution-related lawsuits, such lawsuits have increased in frequency in recent

If we are subject to an environmental or pollution-related lawsuit, we might incur significant legal costs, and it is uncertain whether we would be able to recover the legal costs from ratepayers or other third parties.

Our insurance policies may not

cover or provide sufficient coverage for the losses associated with or the costs of these claims.

Our insurance

policies may not cover or provide sufficient coverage for the losses associated with or the costs of these claims.

We may be adversely affected by any future decision by the Colorado Public Utilities Commission to regulate us as a public utility.

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However, the CPUC could attempt to regulate us as a public utility.

this were to occur, we might incur significant expense challenging the CPUC’s assertion of jurisdiction, 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 this were to occur, we might incur significant expense challenging the CPUC’s assertion of jurisdiction, 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.

The Rangeview District’s and our rights under the Lease have been challenged by third parties.

The Rangeview District’s and our rights under the Lease have

been challenged by third parties, including the Land Board, in the past.

In 2014, in connection with settling a lawsuit filed by us and the Rangeview District against the Land Board, the Land Board, the Rangeview District and we amended and restated

the Lease to clarify and update a number of provisions.

However, there are issues still subject to disagreement and negotiation, including our rights with respect to revenue from our Export Water after 2081, and it is likely that during the remaining

term (through 2081) of the Lease, the parties will disagree over interpretations of provisions in the Lease again.

The Rangeview District’s or our rights under the Lease could be challenged in the future, which could require potentially expensive

litigation to enforce our rights.

The Rangeview District’s and our rights under the Lease

have been challenged by third parties, including the Land Board, in the past.

In 2014, in connection with settling a lawsuit filed by us and the Rangeview District against the Land Board, the Land Board, the Rangeview District and we amended and

restated the Lease to clarify and update a number of provisions.

However, there are issues still subject to disagreement and negotiation, including our rights with respect to revenue from our Export Water after 2081, and it is likely that during

the remaining term (through 2081) of the Lease, the parties will disagree over interpretations of provisions in the Lease again.

The Rangeview District’s or our rights under the Lease could be challenged in the future, which could require

potentially expensive litigation to enforce our rights.

Our Lowry Range surface water rights are “conditional decrees” and require findings of reasonable diligence.

surface water interests and reservoir sites at the Lowry Range are conditionally decreed and are subject to a finding of reasonable diligence from the Colorado water court every six years.

To arrive at a finding of reasonable diligence, the water

court must determine that we continue to diligently pursue the development of said water rights.

Our surface water interests and reservoir sites at the Lowry Range are conditionally decreed and are subject to a finding of reasonable diligence from the Colorado water court every six years.

To arrive at a finding of

reasonable diligence, the water court must determine that we continue to diligently pursue the development of said water rights.

If the water court is unable to make such a finding, we could lose the water right under review.

During each of fiscal 2012 and 2018, the Lowry Range

conditional decrees were granted review by the water court, which determined that we and the Rangeview District met the diligence criteria.

The water court entered a finding of reasonable diligence on the Lowry Range surface water decrees in January

During each of

fiscal 2012 and 2018, the Lowry Range conditional decrees were granted review by the water court, which determined that we and the Rangeview District met the diligence criteria.

The water court entered a finding of reasonable diligence on the

Lowry Range surface water decrees in January 2019.

Our next review for reasonable diligence on the Lowry Range surface water decrees will be in January 2025.

We believe that we will be successful in maintaining our decrees as we continue to develop these rights.

If the water court does not make

a determination of reasonable diligence, the value of our interests in the Rangeview Water Supply would be materially adversely impacted.

We believe that we will be successful in maintaining our decrees as we continue to

develop these rights.

If the water court does not make a determination of reasonable diligence, the value of our interests in the Rangeview Water Supply would be materially adversely impacted.

Our operations are affected by local politics and governmental procedures that are beyond our control.

We operate in a highly political environment.

our water rights to municipalities and other governmental entities run by elected or politically appointed officials.

market our water rights to municipalities and other governmental entities run by elected or politically appointed officials.

Our principal competitors are municipalities seeking to expand their sales tax base and other water districts.

constituencies, including our competitors, developers, environmental groups, conservation groups, and agricultural interests, have competing agendas with respect to the development of water rights in Colorado, which means that decisions affecting our

business are based on many factors other than economic and business considerations.

our business are based on many factors other than economic and business considerations.

Additional risks associated with dealing with governmental entities include turnover of elected and appointed officials, changes in policies from election to

election, and a lack of institutional history in these entities concerning their prior courses of dealing with the Company.

We spend significant time and resources educating elected officials, local authorities and others regarding our water rights

and the benefits of contracting with us.

We spend significant time and resources educating elected officials, local authorities and others regarding our water

rights and the benefits of contracting with us.

Political concerns and governmental procedures and policies may hinder or delay our ability to enter into service agreements or develop our water rights or infrastructure to deliver our water.

While we have

worked to reduce the political risks in our business through our participation as the service provider for the Rangeview District in regional cooperative resource programs, such as the SMWSA and the WISE partnership with Denver Water and Aurora

Water, as well as education and communication efforts and community involvement, our efforts may be unsuccessful.

we have worked to reduce the political risks in our business through our participation as the service provider for the Rangeview District in regional cooperative resource programs, such as the SMWSA and the WISE partnership with Denver Water and

Aurora Water, as well as education and communication efforts and community involvement, our efforts may be unsuccessful.

The number of connections we can serve are affected by local governmental policies that are beyond our control.

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agreements to developers, municipalities and other governmental entities run by elected or politically appointed officials.

We believe that our water rights can serve approximately 60,000 single family connections based on standards applied to water

providers in Arapahoe, Douglas, and Adams Counties.

We believe that our water rights can serve approximately 60,000 single family connections based on standards applied to

water providers in Arapahoe, Douglas, and Adams Counties.

These standards are policy driven, based on assumed life and reliability of water supplies and may become more restrictive at the discretion of the governmental entity.

If these standards become

more restrictive, water supplies of all water providers, including those of the Company, may not serve the number of connections that providers currently estimate.

If these standards

become more restrictive, water supplies of all water providers, including those of the Company, may not serve the number of connections that providers currently estimate.

Development on the Lowry Range is not within our control and is subject to obstacles.

Development on the Lowry Range is controlled by the Land Board, which is

governed by a five-person citizen board of commissioners representing education, agriculture, local government and natural resources, plus one at-large commissioner, each appointed for a four-year term by the Colorado governor and approved by the

Colorado Senate.

Development on the Lowry Range is controlled by the Land Board,

which is governed by a five-person citizen board of commissioners representing education, agriculture, local government and natural resources, plus one at-large commissioner, each appointed for a four-year term by the Colorado governor and

approved by the Colorado Senate.

The Land Board’s focus with respect to issues such as development and conservation on the Lowry Range tends to change as membership on the Land Board changes.

In addition, there are often significant delays in the adoption and

implementation of plans with respect to property administered by the Land Board because the process involves many constituencies with diverse interests.

In the event water sales are not forthcoming or development of the Lowry Range is delayed or

abandoned, we may need to use our capital resources, incur additional short or long-term debt obligations or seek to sell additional equity.

We may not have sufficient capital resources or be successful in obtaining additional operating capital.

In addition, there are often significant delays in the

adoption and implementation of plans with respect to property administered by the Land Board because the process involves many constituencies with diverse interests.

In the event water sales are not forthcoming or development of the Lowry Range

is delayed or abandoned, we may need to use our capital resources, incur additional short or long-term debt obligations or seek to sell additional equity.

We may not have sufficient capital resources or be successful in obtaining additional

operating capital.

Because of the prior use of the Lowry Range as a military facility, environmental clean-up may be required prior to development, including the removal of unexploded ordnance.

Army Corps of Engineers has been

conducting unexploded ordnance removal activities at the Lowry Range for more than 30 years.

Continued activities are dependent on federal appropriations, and the Army Corps of Engineers has no assurance from year to year of such appropriations for

its activities at the Lowry Range.

Army Corps of Engineers has

been conducting unexploded ordnance removal activities at the Lowry Range for more than 30 years.

Continued activities are dependent on federal appropriations, and the Army Corps of Engineers has no assurance from year to year of such

appropriations for its activities at the Lowry Range.

Risks Related to the Land Development Segment of Our Business

The homebuilding industry is cyclical and a deterioration in industry conditions or downward changes in general economic or other business conditions could adversely

affect our business, results of operations, cash flows and financial condition.

The residential homebuilding industry is cyclical and is highly sensitive to changes in general economic conditions such as levels of employment, consumer

confidence and income, availability of mortgage financing for acquisitions, interest rate levels and inflation, among other factors.

Beginning in 2006 and continuing through 2012, the U.S.

and Colorado housing markets were unfavorably impacted by a

severe weakness in new home sales attributable to, among other factors, weak consumer confidence, tightened mortgage standards, large supplies of foreclosure, resale and new homes and a more challenging appraisal environment.

These conditions,

combined with a prolonged economic downturn, high unemployment levels, increases in the rate of inflation and uncertainty in the U.S.

economy, contributed to a decreased demand for housing, declining sales prices and increased pricing pressure.

Additionally, the residential housing market is impacted by federal and state personal income tax rates and provisions, and government actions, policies, programs and regulations directed at or affecting the housing market, including the Tax Cuts and

Jobs Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by

government-sponsored enterprises and government agencies.

In fiscal 2019, housing starts in Colorado declined compared to housing starts in fiscal 2018.

Although the number of housing starts continues to be better than during the last economic

downturn, if the recovery of the Colorado housing market reverses, we could experience declines in the market value of our inventory and demand for our lots, which could have a material adverse effect on our business, results of operations, cash

flows and financial condition.

The homebuilding industry is cyclical and a deterioration in industry conditions or downward changes in general economic or other business conditions could

adversely affect our business, results of operations, cash flows and financial condition.

The residential homebuilding industry is cyclical and is highly sensitive to changes in general economic conditions such as levels of employment,

consumer confidence and income, availability of mortgage financing for acquisitions, interest rate levels and inflation, among other factors.

Additionally, the residential housing market is impacted by federal and state personal income tax rates

and provisions, and government actions, policies, programs and regulations directed at or affecting the housing market, including the Tax Cuts and Jobs Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, tax benefits associated

with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies.

In fiscal 2019, housing starts in Colorado declined

compared to housing starts in fiscal 2018.

However, in fiscal 2020 housing starts in Colorado increased compared to fiscal 2019.

Although the number of housing starts continues to be better than during the last economic downturn, if the recovery

of the Colorado housing market reverses, we could experience declines in the market value of our inventory and demand for our lots, which could have a material adverse effect on our business, results of operations, cash flows and financial

We have limited experience with the development of real property.

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facilities and maintaining and operating these facilities, we have limited experience developing real property.

We may underestimate the capital expenditures required to develop Sky Ranch, including the costs of certain infrastructure improvements.

We may underestimate the capital expenditures required to develop Sky Ranch, including the costs of certain infrastructure

improvements.

We also have limited experience in managing property development activities, including the permitting and other approvals required, which may result in delays in obtaining the necessary permits and government approvals.

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There are numerous land developers, as well as properties and development projects, in the same geographic area in which Sky Ranch is located.

Many of our land development

competitors may have advantages over us, such as more favorable locations, which may provide more desirable schools and easier access to roads and shopping, or amenities that we may not offer, as well as greater financial resources.

other development projects are found to be more attractive to homebuyers, home builders or other developers or operators of real estate based on location, price, or other factors, then we may be pressured to reduce our prices or delay further

development, either of which could materially adversely affect our business, results of operations, cash flows and financial condition.

The funds that we are advancing to the CAB for construction of public improvements might not be repaid, which would negatively impact our results of

operations, cash flows and financial condition.

We have advanced the CAB approximately $20 million for construction of public improvements and expect to fund an additional estimated $8.4 million in buildout costs that we expect will be

reimbursable by the CAB.

The ability and obligation of the CAB to reimburse us is dependent on sufficient home sales and commercial development occurring at Sky Ranch to create a tax base that would enable the CAB to issue bonds to pay for the

improvements.

If development at Sky Ranch is delayed or curtailed for any reason, including regulatory restrictions, a downturn in the economy or default by one or more of the builders at Sky Ranch, the CAB may not have sufficient revenues to issue

Failure of the CAB to repay a significant portion of the funds that we have advanced would negatively impact our business, results of operations, cash flows and financial condition.

Many of our land

development competitors may have advantages over us, such as more favorable locations, which may provide more desirable schools and easier access to roads and shopping, or amenities that we may not offer, as well as greater financial resources.

If other development projects are found to be more attractive to home buyers, home builders or other developers or operators of real estate based on location, price, or other factors, then we may be pressured to reduce our prices or delay

further development, either of which could materially adversely affect our business, results of operations, cash flows and financial condition.

The funds that we are advancing to the Sky Ranch CAB for construction of public improvements might not be repaid, which would negatively impact our income, gross margin

on selling lots, and cash flows.

We have advanced the Sky Ranch CAB $26 million for construction of public improvements and expect to fund an additional estimated

$3 million in buildout costs for filing one and $48 million for filing two that we expect will be reimbursable by the Sky Ranch CAB.

N o payment is required by the Sky Ranch CAB with respect to construction of public improvements unless and until the Sky Ranch CAB and/or the Sky Ranch Districts have funds or issue municipal bonds in an amount sufficient to reimburse the Company for all or a portion

of advances provided or expenses incurred for reimbursables.

The ability and obligation of the Sky Ranch CAB to reimburse us is dependent on sufficient home sales and

commercial development occurring at Sky Ranch to create a tax base that would enable the Sky Ranch CAB to issue bonds to pay for the improvements.

If development at Sky Ranch is delayed or curtailed

for any reason, including regulatory restrictions, a downturn in the economy or default by one or more of the builders at Sky Ranch, the Sky Ranch CAB may not have sufficient revenues to issue bonds.

the timing of the issuance and approval of any bonds is subject to considerable uncertainty, any potential reimbursable costs for the construction of public improvements, including construction support activities, are not included on our

consolidated balance sheets and are initially capitalized in Land development i nventories.

If the bonds have not been approved and issued prior to the sale of

the lots serviced by the public improvements, the costs are expensed through Land development construction costs when the lots are sold consistent with other construction related costs.

ultimately are issued, upon receipt of reimbursements by the Company, the Company records the reimbursements received as Other income to the extent that costs have previously been expensed and

reduces Land development i nventories by any remaining reimbursables received.

Failure of the Sky Ranch CAB to repay a significant portion of the funds that we have advanced for public improvements would negatively impact our income, gross margin on selling lots and cash flows.

Supply shortages and risks related to the demand for skilled labor and building materials could increase costs and delay closings.

The property development

industry is highly competitive for skilled labor and materials.

development industry is highly competitive for skilled labor and materials.

Labor shortages in the Colorado Front Range have become more acute in recent years as the supply chain adjusts to uneven industry growth.

Increased costs or shortages of skilled labor

and/or concrete, steel, pipe and other materials could cause increases in property development costs and delays.

We are unable to pass on increases in property development costs to home builders with whom we have already entered into purchase and

sale contracts for residential lots, as our contracts fix the price of the lots at the time the contracts are signed, which will be well in advance of property development.

Sustained increases in development costs may, over time, erode our margins.

Increased costs or shortages of

skilled labor and/or concrete, steel, pipe and other materials could cause increases in property development costs and delays.

We are unable to pass on increases in property development costs to home builders with whom we have already entered

into purchase and sale contracts for residential lots, as our contracts fix the price of the lots at the time the contracts are signed, which will be well in advance of property development.

Sustained increases in development costs may, over

time, erode our margins.

Products supplied to us and work done by subcontractors can expose us to risks that could adversely affect our business.

We rely on subcontractors to perform

the actual property development, and in many cases, to select and obtain concrete and other materials.

We rely on subcontractors to

perform the actual property development, and in many cases, to select and obtain concrete and other materials.

Subcontractors may use improper construction processes or defective materials.

Defective products can result in the need to perform extensive

Defective products can result in the need to perform

extensive repairs.

The cost of complying with our warranty obligations may be significant if we are unable to recover the cost of repairs from subcontractors, materials suppliers and insurers.

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considerable lag time between the time we acquire land and the time we begin selling finished lots, we may generate significant operating losses.

In addition, if sales of homes on the finished lots are delayed, our revenue from utility services will

If our cash on hand and future cash flows from operations are not sufficient to fund our operations and the significant capital expenditure requirements to develop any acquired land and build water and wastewater systems, we may be forced

to seek to obtain additional debt or equity capital.

In addition, if sales of homes on the finished lots are delayed, our revenue from water and

wastewater resource development services will be delayed.

If our cash on hand and future cash flows from operations are not sufficient to fund our operations and the significant capital expenditure requirements to develop any acquired land and

build water and wastewater systems, we may be forced to seek to obtain additional debt or equity capital.

There can be no assurance that financing will be available on acceptable terms or at all.

Delays in property development may extend the time it takes us to recover our property development costs.

We incur many costs, such as the costs of preparing

land, finishing and entitling lots, installing roads, sewers, water systems and other utilities, taxes and other costs related to ownership of the land, before we close on the sale of residential lots to home builders.

If the rate at which we develop

residential lots slows, we may incur additional costs, and it may take longer for us to recover our costs.

In addition, if sales of homes on the finished lots are delayed, our revenue from utility services will be delayed.

Delays in property development may extend the time it takes us to recover our property development costs and delay our revenue from water and wastewater resource development services.

We incur many costs, such as the costs of preparing land, finishing and

entitling lots, installing roads, sewers, water systems and other utilities, taxes and other costs related to ownership of the land and/or developing lots on behalf of builders who purchase the land, before we close on the sale of finished lots

to home builders.

If the rate at which we develop residential lots slows, we may incur additional costs, and it may take longer for us to recover our costs.

In addition, if sales of homes on the finished lots are delayed, our revenue from water

and wastewater resource development services will be delayed.

A significant downturn in the housing market could cause our builders to delay building homes on their lots until market conditions improve.

Builders with contracts that do not require

purchasing the lot until we deliver a finished, ready-to-build lot could walk away from the contract anytime prior to closing without consequence other than the forfeiture of their upfront deposits for the lot, utilities and other improvements.

If a builder elected to walk away without cause, we would be entitled to keep these deposits as liquidated damages, but the deposits would not be sufficient to cover the expenses we expect to incur to finish the lots for delivery.

We would not be

able to recover our costs until we were able to sell the finished lots to another builder.

If the original builder did not go through with the closing due to a poor housing market, we would likely have difficulty finding another buyer for the

same reason..

Fluctuations in real property values may require us to write-down the book value of our land interests.

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sales absorption rates below management expectations;

a decrease in the value of homes or the underlying land due to general market conditions, actual or perceived risks due to proximity to oil and gas drilling operations, or

other reasons;

a decrease in the value of homes or the underlying land due to general market conditions, actual or perceived risks due to proximity to oil and gas drilling operations,

or other reasons;

and a decrease in projected cash flows for a project.

Our land development segment may be subject to risks related to oil and gas operations in the vicinity of our Sky Ranch development, which could have

an adverse impact on the marketability and/or value of our Sky Ranch property .

We have leased the minerals underlying Sky Ranch to a wholly owned subsidiary of a major independent exploration and

production company.

Our land development segment may be subject to risks related to oil and gas operations in the vicinity of our Sky Ranch development, which

could have an adverse impact on the marketability and/or value of our Sky Ranch property .

We have leased the minerals underlying Sky Ranch to a wholly owned subsidiary of a major independent

exploration and production company.

Oil and gas extraction is an inherently dangerous activity that can potentially lead to air and water contamination, fire, explosion or other hazards.

While the State of Colorado, local governments, and private operators have

regulations and procedures in place intended to mitigate these risks, there can be no assurances that these safeguards will be effective in all cases with respect to any oil and gas activity around Sky Ranch.

The existence of oil and gas wells and

drilling activity in or near our property and public concern regarding the negative health impacts from emissions near drilling and hydraulic fracturing sites, including those detailed in a recent 380-page report submitted to the Colorado Department

of Public Health and Environment entitled the Final Report:

Human Health Risk Assessment for Oil & Gas Operations in Colorado dated October 17, 2019, may adversely impact the marketability and/or value

of the lots at Sky Ranch and decrease demand for homes in proximity to oil and gas operations, negatively impacting our land development segment, which could also negatively impact our business and financial condition.

While the State of Colorado, local governments, and private

operators have regulations and procedures in place intended to mitigate these risks, there can be no assurances that these safeguards will be effective in all cases with respect to any oil and gas activity around Sky Ranch.

The existence of oil

and gas wells and drilling activity in or near our property and public concern regarding the negative health impacts from emissions near drilling and hydraulic fracturing sites, including those detailed in a recent 380-page report submitted to

the Colorado Department of Public Health and Environment entitled the Final Report:

Human Health Risk Assessment for Oil & Gas Operations in Colorado dated October 17, 2019, may adversely impact the

marketability and/or value of the lots at Sky Ranch and decrease demand for homes in proximity to oil and gas operations, negatively impacting our land development segment, which could also negatively impact our business and financial condition.

Item 1B – Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors