What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2020-11-10 compared with 2019-11-12 · 465 added, 381 removed, 83 unchanged (91% of the section changed)

Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion and analysis below includes certain forward-looking statements that are subject to risks, uncertainties and other factors, as described in “Risk Factors” and elsewhere

in this Annual Report on Form 10-K, that could cause our actual growth, results of operations, performance, financial position and business prospects and opportunities for this fiscal year and the periods that follow to differ materially from those

expressed in, or implied by, those forward-looking statements.

Readers are cautioned that forward-looking statements contained in this Annual Report on Form 10-K should be read in conjunction with our

disclosure under the heading “FORWARD-LOOKING STATEMENTS” on page 1.

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and our financial condition and should be read in conjunction with the accompanying

financial statements and the notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K.

The following sections focus on the key indicators reviewed by management in evaluating our financial

condition and operating performance, including the following:

Revenue generated from providing water and wastewater services;

The discussion and analysis below includes certain forward-looking statements that are subject to risks, uncertainties and other factors, as described in “Risk Factors” and

elsewhere in this Annual Report on Form 10-K, that could cause our actual growth, results of operations, performance, financial position and business prospects and opportunities for this fiscal year and the periods that follow to differ

materially from those expressed in, or implied by, those forward-looking statements.

Readers are cautioned that forward-looking statements contained in this Annual Report on Form 10-K should be read in

conjunction with our disclosure under the heading “FORWARD-LOOKING STATEMENTS” on page 1.

accompanying consolidated financial statements and the notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K.

The following sections focus on the key indicators reviewed by

management in evaluating our financial condition and operating performance, including the following:

Revenues generated from providing water and wastewater services;

Revenues from water and wastewater tap sales;

Revenues from lot sales at Sky Ranch;

Expenses associated with developing our water and land assets;

Revenue from lot sales at Sky Ranch;

Expenses associated with developing lots at Sky Ranch;

5 unchanged sentences

judgments, assumptions, and estimates;

Results of Operations – an analysis of our results of operations for the three fiscal years presented in our financial statements.

We present our

discussion in the MD&A in conjunction with the accompanying financial statements.

Liquidity, Capital Resources and Financial Position – an analysis of our cash position and cash flows, as well as a discussion of

our financial obligations.

Results of Operations – an analysis of our results of operations for the three fiscal years presented in our accompanying consolidated financial

Liquidity, Capital Resources and Financial Position – an analysis of our cash position and cash flows, as well as a discussion

of our financial obligations.

Executive Summary

Fiscal 2019 included the following notable items:

Total revenue increased by $13.4 million or 193% versus fiscal 2018 to $20.4 million due primarily to lot sales and water and wastewater tap fees

Net income increased by $4.4 million or 1,060% versus fiscal 2018 to $4.8 million.

Fiscal 2020 was highlighted by the substantial completion of the initial phase of our Sky Ranch property.

Other notable items include the following:

Total revenue increased to $25.9 million for fiscal 2020 (a $5.5 million or 27% increase compared to fiscal 2019) primarily due to lot sales and water and wastewater tap fees at Sky Ranch

Net income increased to $6.8 million for fiscal 2020 (a $1.9 million or 40% increase compared to fiscal 2019), primarily due to lot sales, partial satisfaction of the contingency related to public improvement reimbursables, and water

and wastewater tap fees at Sky Ranch

Fully diluted earnings per common share for fiscal 2020 was $0.28 versus $0.20 for fiscal 2019

In fiscal 2019, our revenue totaled $20.4 million primarily related to the closing of sales of 255 lots and 113 water and wastewater taps to our three home builder customers.

We recognized $12 million in revenue from

lot sales and $3.5 million in revenue from the sale of water and wastewater taps, compared to $2.2 million and $50,000, respectively, during fiscal 2018.

As a result of the strong performance of our land development segment and the net tax benefit

due to releasing our valuation allowance on our net deferred tax asset in 2019, net income increased to $4.8 million in fiscal 2019 compared to $414,700 in fiscal 2018 or an increase of 1,060%.

Please see below for further discussion of our results.

Pure Cycle Corporation is a Colorado corporation that operates in two business segments.

We develop wholesale water and wastewater systems in the water-short Denver metropolitan area and are developing a Master Planned

Community on approximately 930 acres of land located along the Interstate 70 corridor (“I-70”), approximately four miles south of Denver International Airport (“DIA”).

The Company has accumulated valuable water and land interests over the past 30

years and has developed an extensive network of wholesale water production, storage, treatment, and distribution systems, and wastewater collection and treatment systems which serve domestic, commercial and industrial customers in the Denver

metropolitan region.

Our land assets are located in one of the most active development areas in the Denver metropolitan region along I-70.

Our operations are focused in two business segments:

(i) providing wholesale water and wastewater services, and (ii) land development activities in which we serve as the Master Plan developer for approximately 930

acres of land known as Sky Ranch.

The master plan includes a mix of 3,200 single-family and multifamily residential units and over 2 million square feet of commercial, retail, and industrial space.

Water and Wastewater Utilities

Total assets increased to $89.8 million as of August 31, 2020 (a $6.0 million or 7.2% increase compared to 2019), primarily due to increased cash from payments for lots and water, and wastewater taps

at Sky Ranch and a $10.5 million expense reimbursement from the Sky Ranch CAB through bond proceeds of which $4.2 million reduced Land development inventories on the consolidated balance

sheet and $6.3 million was recognized as Other income - Reimbursement of construction costs - related party on the c onsolidated statements of operations and comprehensive income and increased Investments in water and

wastewater systems on the consolidated balance sheet;

Total equity increased to $82.0 million as of August 31, 2020 (a $7.3 million or 9.8% increase compared to 2019), primarily due to net income for fiscal 2020

In fiscal 2020, total revenues were $25.9 million, primarily consisting of $18.9 million of lot sales recognized under the percentage-of-completion method as well as a point in time for one home builder customer,

and a combined $5.6 million from the sale of 201 and 189 water and wastewater taps.

The number of wastewater taps sold are less than the number of water taps sold because we do not sell wastewater taps at Wild Pointe.

Wild Pointe customers are on

septic systems.

Comparatively, in fiscal 2019, total revenues were $20.4 million, primarily from $12.0 million of recognized lot sales and $3.5 million from the sale of 119 and 113 water and wastewater taps.

income increased in fiscal 2020 mainly due to the $6.3 million of reimbursables we received from the Sky Ranch CAB for partial reimbursement of public improvement costs we funded at Sky Ranch.

In total, we received $10.5 million from the

Sky Ranch CAB for partial reimbursement of public improvement costs we funded, the remaining $4.2 million reduced Land development inventories on our consolidated balance sheet.

Due to the strong

performance of our land development segment, which produced the lot sales and lead to the increase in water and wastewater taps sales, along with the recognition of the $6.3 million of other income from receipt of the reimbursables, net income

increased to $6.8 million for fiscal 2020 compared to $4.8 million for fiscal 2019, for an increase of 40%.

We are a diversified land and water resource development company.

At our core we are an innovative and vertically integrated wholesale water and wastewater service provider that, in addition to owning and developing wholesale water and

wastewater resources, develops a master planned community on land we own and to which we provide water and wastewater services.

We have accumulated valuable water and land interests over the past 30 years and have developed an extensive network

of wholesale water production, storage, treatment and distribution systems, and wastewater collection and treatment systems that we use to serve domestic, commercial and industrial customers in the Denver metropolitan region.

Our primary land

asset, Sky Ranch, is located in one of the most active development areas in the Denver metropolitan region along the I-70 corridor, and we are developing lots at Sky Ranch for residential, commercial, retail, and light industrial uses.

Although we report our results of operations in two segments, our water and wastewater service segment and our land development segment, we operate these segments as a cohesive business designed to provide a cost

effective, sustainable and value added business enterprise.

Water and Wastewater

Water resources throughout the western United States and more prominently in Colorado are a scarce and valuable resource.

Our Company owns or controls a portfolio of approximately 29,200 acre feet of groundwater and

surface water supplies, approximately 26,000 acre feet of adjudicated reservoir sites, two wastewater reclamation facilities, water treatment facilities, potable and raw water storage facilities, wells and water production facilities, and nearly 50

miles of water distribution and wastewater collection lines.

Our water supplies and wholesale facilities are located in southeast Denver, in Arapahoe County, an area which is limited in both water availability and infrastructure to produce, treat,

store, and distribute water and wastewater, which we believe provides us with a unique competitive advantage offering these services.

We provide wholesale water and wastewater service to local governments, including the Rangeview District, Arapahoe County, the CAB, and Elbert 86 District.

Our mission is to provide reliable, high quality water to our

customers and collect and treat wastewater using advance water treatment systems, which produce high quality reclaimed water we can reuse for outdoor irrigation and industrial demands.

By using and reusing our water supplies, we seek to demonstrate

good stewardship over our valuable water rights in the water-scarce Denver, Colorado region.

We design, permit, construct, operate and maintain wholesale water and wastewater systems that we own or operate on behalf of governmental entities.

also design, permit, construct, operate and maintain retail distribution and collection systems that we own or operate on behalf of our governmental customers.

Additionally, we handle administrative functions, including meter reading, billing and

collection of monthly water and wastewater revenues, regulatory water quality monitoring, sampling, testing, and reporting requirements to the Colorado Department of Public Health and Environment.

Our utility segment generates revenues from three sources:

(i) tap fees, which are a one-time charge to home builders or businesses to connect to our water and wastewater systems, (ii) usage charges, which are monthly

metered water and wastewater fees, and (iii) construction or special facility fees, which are specifically contracted for when necessary.

We estimate that our water portfolio can provide service to approximately 60,000 single family connections

Our current water tap fee is $26,675 per SFE, and our wastewater tap fee is $4,659 per SFE.

On average, we generate annual revenue of approximately $1,000 per SFE water connection and $500 per SFE wastewater connection.

potable water to nearly 460 SFE connections and domestic wastewater services to approximately 210 SFEs.

Industrial Frack Water Deliveries

In addition to our domestic customers, we provide raw water to industrial customers in the oil and gas industry for hydraulic fracturing.

Both our potable water and industrial water customers are located in

southeastern Denver, where competing water supplies and water systems are limited, well positioning us to deliver these valuable services to our customers.

Growth in the Denver area has trended east with significant activity occurring along the I-70

corridor, which enjoys excellent transportation infrastructure with I-70, rail access, and DIA.

The region has significant employment centers, including DIA, the University of Colorado Anschutz Medical Campus, an Amazon fulfillment center, the Rocky

Mountain Regional VA Medical Center, and more, creating demand for residential, retail, and commercial development opportunities.

The region has experienced significant oil and gas activity over the past seven years with multiple operators leasing

more than 135,000 acres in and adjacent to our service area with more than 100 wells and miles of oil and gas collection lines.

The Company believes that its water resources, land and infrastructure are located in one of the most attractive areas of

the Denver metropolitan region because it is well positioned for substantial growth over the next 30 years.

We own or control a portfolio of 29,500 acre-feet of groundwater and surface water supplies, 26,000 acre-feet of

adjudicated reservoir sites, wastewater reclamation facilities, water treatment facilities, potable and raw water storage facilities, wells and water production facilities, and roughly 50 miles of water distribution and wastewater collection

Our water supplies and wholesale facilities are located in southeast Denver, in Arapahoe County, an area which is limited in both water availability and infrastructure to produce, treat, store, and distribute water and wastewater, which

we believe provides us with a unique competitive advantage in offering these services.

We provide wholesale water and wastewater service to local governments, including the Rangeview District, Arapahoe County, the Sky Ranch CAB, and Elbert 86 District.

Our mission is to provide sustainable, reliable,

high quality water to our customers and collect and treat wastewater using advance water treatment systems, which produce high quality reclaimed water we can reuse for outdoor irrigation and industrial demands.

By using and reusing our water

supplies, we seek to demonstrate good stewardship over our valuable water rights in the water-scarce Denver, Colorado region.

We design, permit, construct, operate and maintain wholesale water and wastewater systems that we own or operate on

behalf of governmental entities.

We also design, permit, construct, operate and maintain retail distribution and collection systems that we own or operate on behalf of our governmental customers.

Additionally, we handle administrative functions,

including meter reading, billing and collection of monthly water and wastewater revenues, regulatory water quality monitoring, sampling, testing, and reporting requirements to the Colorado Department of Public Health and Environment.

Our water and wastewater service segment generates revenue from the following sources, described in greater detail in Item 1 – Business above:

Monthly water usage and wastewater treatment fees;

One-time water and wastewater tap (connection) fees;

Construction and Special Facility funding fees;

Consulting fees;

Industrial – oil and gas operation fees

Land Development

We are developing an approximately 930-acre Master Planned Community along the I-70 corridor that is planned to include 3,200 single family and multifamily homes, parks, open spaces, trails, recreational centers,

schools, and over 2 million square feet of retail, commercial and light industrial space just four miles south of DIA.

Our land development activities include the design, permitting, and construction of all of the horizontal infrastructure,

including, storm water, drainage, roads, curb, sidewalks, parks, open space, trails and other infrastructure to deliver “ready to build” finished lots to home builders and commercial customers.

Our land development activities generate revenue from

the sale of finished lots as well as construction revenues from activities where we construct infrastructure on behalf of others.

Land development revenues come from our home builder customers under specific agreements for the delivery of finished

lots as well as reimbursements for the construction of public improvements, such as roads, curbs, storm water, drainage, sidewalks, parks, open space, trails etc., which come from the local governmental entity, the CAB, subject to the approval and

issuance of municipal bonds to fund such reimbursements.

Our land development activities provide a strategic complement to our water utility segment as a significant component of any master planned community is providing high quality domestic water, irrigation water, and

wastewater service to the community.

Having control over land and utility development enables us to build infrastructure for water, irrigation, wastewater, distribution, collection, storm water, roads, parks, open spaces and other investments

efficiently, and to manage delivery of these investments to match take-down commitments from our home builder customers without significant excess capacity in any of these investments.

In June 2017, we entered into the Builder Contracts with three separate home builders (Richmond American Homes, Taylor Morrison, and KB Home) pursuant to which we agreed to sell, and the builders agreed to purchase,

506 total single-family, detached residential lots at the Sky Ranch property.

We are obligated, pursuant to the Builder Contracts to construct infrastructure and other improvements, such as roads, curbs and gutters, park amenities, sidewalks, street and traffic signs, water and sanitary sewer

mains and stubs, storm water management facilities, and lot grading improvements for delivery of finished lots to each builder.

Pursuant to the Builder Contracts, we must cause the Rangeview District to install and construct off-site infrastructure

In 2017, we launched our land development segment.

We are actively developing the Sky Ranch Master Planned Community located along the I-70 corridor to provide residential, commercial, retail, and light industrial lots.

Sky Ranch is zoned to

include up to 3,200 single-family and multifamily homes, parks, open spaces, trails, recreational centers, schools, and over two million square feet of retail, commercial and light industrial space just four miles south of DIA.

development activities include the design, permitting, and construction of all of the horizontal infrastructure, including, storm water, drainage, roads, curbs, sidewalks, parks, open space, trails and other infrastructure to deliver “ready to

build” finished lots to home builders and commercial customers.

Our land development activities generate revenue from the sale of finished lots as well as construction revenues from activities where we construct infrastructure on behalf of

Land development revenues come from our home builder customers under specific agreements for the delivery of finished lots as well as reimbursements for the construction of public improvements, such as roads, curbs, storm water,

drainage, sidewalks, parks, open space, trails etc., which come from the local governmental entity, the Sky Ranch CAB, subject to the approval and issuance of municipal bonds to fund such reimbursements.

Our land development activities provide a strategic complement to our water and wastewater services because a significant component of any master planned community is providing high quality domestic water,

irrigation water, and wastewater to the community.

Having control over land and the water and wastewater services enables us to build infrastructure for potable water and irrigation distribution, wastewater and storm water collection, roads,

parks, open spaces and other investments efficiently, and to manage delivery of these investments to match take-down commitments from our home builder customers without significant excess capacity in any of these investments.

In June 2017, we entered into separate contracts with three national home builders (Richmond American Homes, Taylor Morrison, and KB Home), pursuant to which we agreed to sell 506 total single-family, detached

residential lots at the Sky Ranch property.

We are obligated, pursuant to these contracts, to construct infrastructure and other improvements, such as roads, curbs and gutters, park amenities, sidewalks, street and traffic signs, water and

sanitary sewer mains and stubs, storm water management facilities, and lot grading improvements for delivery of finished lots to each builder.

We were also required to cause the Rangeview District to install and construct wholesale infrastructure

improvements (i.e., a wastewater reclamation facility and wholesale water facilities) for the provision of water and wastewater service to the property.

In conjunction with approvals from Arapahoe County for the Sky Ranch project, we together with

the Rangeview District and/or Sky Ranch Districts and/or the CAB are obligated to maintain a deposit account with Arapahoe County to ensure completion of the off-site infrastructure improvements.

Approximately $1,000,000 remains on deposit.

substantially completed all of the off-site infrastructure improvements for the initial 506 residential lots.

We have financed the obligations of the Rangeview District and the Sky Ranch Districts (through the CAB) as described in Note 14 – Related Party Transactions to the accompanying consolidated financial statements.

We estimate that the development of the finished lots for the first phase (506 lots) of Sky Ranch will require total capital of approximately $35 million, which includes estimated reimbursable costs of approximately

$29 million that will be reimbursable to us by the CAB from the anticipated sale of the municipal bonds.

Lot sales to home builders will generate approximately $36 million in revenues, providing a margin on lots of approximately $1 million prior to

receipt of reimbursable costs, as discussed above.

The Company and the CAB have agreed that no payment is required by the CAB with respect to reimbursable costs unless and until the CAB and/or the Sky Ranch Districts issue municipal bonds in an

amount sufficient to reimburse us for all or a portion of advances provided or expenses incurred for reimbursables.

Due to this contingency, reimbursable costs are currently included in Inventories and

subsequently expensed through Land development construction costs until the point in time when bonds are issued and the CAB reimburses us for the public improvements.

At that point, the portion of the

reimbursable costs repaid will be recorded as a note receivable and will reduce any remaining capitalized expenses.

Any reimbursable costs repaid in excess of capitalized expenses will be recognized as other income.

The costs of developing lots and

revenues from the sales of finished lots are expected to be incurred over several quarters, and the timing of cash flows will include certain milestone deliveries, including, but not limited to, completion of governmental approvals, installation of

improvements, and completion of lot deliveries.

As of August 31, 2020, we have substantially completed all of the wholesale infrastructure

improvements for the initial residential lots, which included the completion of a wastewater reclamation facility that can serve approximately 2,000 SFE’s in Sky Ranch before expansion.

Pursuant to various agreements, we provide financing to the

Rangeview District and the Sky Ranch Districts (through the Sky Ranch CAB) as described in Note 14 – Related Party Transactions to the accompanying consolidated financial statements for the majority of

the improvements at Sky Ranch.

In conjunction with approvals from Arapahoe County for the Sky Ranch project, we, together with the Rangeview District and/or Sky Ranch Districts and/or the Sky Ranch CAB, are obligated to maintain a deposit account

with Arapahoe County to ensure completion of certain public infrastructure improvements and to warranty the improvements for a one-year period following completion and delivery.

As of August 31, 2020, $1.0 million remains on deposit, with the

warranty period set to expire in October 2021.

As of August 31, 2020, we have expended $33.5 million related to the development of the first filing of Sky Ranch out of the total estimated $35.8 million.

We anticipate the remaining $2.3 million will be spent during our fiscal 2021.

These amounts include estimated reimbursable costs of $29.0 million, for which we received a partial reimbursement of $10.5 million in November 2019.

We believe the remaining $18.5 million remaining reimbursables from the Sky Ranch CAB will

be paid from future municipal bonds as the project continues to grow its assessed value and tax base.

As of August 31, 2020, lot sales to home builders generated $35.1 million in cash payments, with the remaining $1.6 million paid in

November 2020, which combined represents the full $36.7 million sales price contracted for with the home builders.

In addition, as of August 31, 2020, the Sky Ranch development produced $8.9 million of water and wastewater tap fees, and we

expect that an additional $5.9 million of tap fees will be received during our fiscal 2021.

In December 2020, we expect to begin construction on the second filing at Sky Ranch, which is expected to include nearly 900 residential lots.

Subsequent to August 31, 2020, we entered into separate agreements

with four home builders (KB Home, Meritage Homes, DR Horton and Challenger Homes) pursuant to which we agreed to sell 789 single-family attached and detached residential lots at the Sky Ranch property.

Due to our strong performance in phase one

of the Sky Ranch project, we were able to realize a 30% increase in our lot price from $75,000 for a 50’ lot in phase one to $97,000 for the same 50’ lot in phase two.

This next filing at Sky Ranch will incorporate approximately 250 acres and is

planned to be completed in four sub-phases.

The timing of cash flows will include certain milestone deliveries, including, but not limited to, completion of governmental approvals for final plats, installation of wet utility public improvements,

and final completion of lot deliveries.

Critical Accounting Policies and Use of Estimates

4 unchanged sentences

results inevitably will differ from those estimates, and such differences may be material to the financial statements.

The most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with the timing of revenue recognition, the impairment of water assets and other long-lived

assets, fair value estimates and share-based compensation.

long-lived assets, fair value estimates and share-based compensation.

Below is a summary of these critical accounting policies.

Revenue Recognition

Our revenues from our water and wastewater utility services consist mainly of monthly wholesale water usage and wastewater treatment fees, tap fees and construction fees/Special Facility funding, and consulting fees.

Our revenues from land development services consist mainly of lot sales and project management service fees.

As further described in Note 2 – Summary of Significant Accounting Policies to the accompanying

financial statements, proceeds from monthly water usage fees, monthly wastewater treatment fees, and consulting fees are recognized in income each month as earned.

Revenue from payments associated with lot sales are deferred until delivery of and

final payment for the finished lot.

Project management service fees will be recognized when the CAB and/or the Sky Ranch Districts issue municipal bonds and reimburse the Company

for reimbursable costs, including project management service fees.

The portion of such fees repaid will be recognized as other income.

Revenues derived from our water and wastewater services consist mainly of monthly metered wholesale water usage and wastewater treatment fees, tap fees, construction fees/special facility funding, and consulting fees.

Revenues derived from

land development activities consist mainly of lot sales and project management service fees.

Revenue is recognized from our water and wastewater segment and land development segment as described below and further described in Note 2 – Summary of Significant Accounting Policies to the accompanying consolidated financial statements.

Water and Wastewater Revenue

Monthly wholesale water usage charges are assessed to our customers based on actual metered usage each month plus a base monthly service fee assessed per SFE unit served.

One SFE is a customer, whether residential,

commercial or industrial, that imparts a demand on the Company’s water or wastewater systems similar to the demand of a family of four persons living in a single-family house on a standard-sized lot.

Water usage pricing uses a tiered pricing

We recognize wholesale water usage revenues upon delivering water to our customers or our governmental customers’ end-use customers, as applicable.

Revenues recognized by us from the sale of Export Water and other portions of our Rangeview

Water Supply off the Lowry Range are shown gross of royalties to the Land Board.

Revenues recognized by us from the sale of water on the Lowry Range are shown net of royalties paid to the Land Board and amounts retained by the Rangeview District.

We recognize wastewater treatment revenue monthly based on a flat monthly fee and actual usage charges.

The monthly wastewater treatment fees are shown net of amounts retained by the Rangeview District.

A tap fee constitutes a right to connect to the wholesale water and wastewater systems through a service line to a residential or commercial building or property, and once granted, the customer may make a physical tap

into the wholesale line(s) to connect its property for water and/or wastewater service.

Once connected to the water and/or wastewater systems, the customer has live service to receive metered water deliveries from our system and send wastewater into

We recognize water and wastewater tap fees as revenue at the time we grant a right for the customer to tap into the water or wastewater service line to obtain service.

Monthly wholesale water charges are assessed to our customers based on actual metered usage each month plus a base monthly service fee assessed per SFE unit served.

One SFE is a customer, whether residential, commercial or industrial, that

imparts a demand on our water or wastewater systems are computed based on the demand of a single-family detached home of four persons living on a standard-sized 5,500 square foot lot.

Water consumption pricing uses a tiered pricing structure

where the cost of water increases as customers use more water.

We recognize wholesale water usage revenues at a point in time upon delivering water to our customers or our governmental customers’ end-use customers, as applicable.

recognized by us from the sale of Export Water and other portions of our “Rangeview Water Supply” off the Lowry Range are shown gross of royalties to the Land Board.

Revenues recognized by us from the sale of water on the Lowry Range are shown

net of royalties paid to the Land Board and amounts retained by the Rangeview District.

In addition, we provide water for hydraulic fracturing to industrial customers in the oil and gas industry who are located in and adjacent to our service areas.

Oil and gas operations revenues are recognized at a point in time upon

delivering water to a customer, unless other special arrangements are made.

We recognize wastewater treatment revenues monthly based on a fixed flat monthly fee and actual monthly usage charges.

The monthly wastewater treatment fees are shown net of amounts retained by the Rangeview

Costs of delivering water and providing wastewater services to customers are recognized as incurred.

A tap constitutes a right to connect to the wholesale water and wastewater systems through a service line to a residential or commercial building or property, and once granted, the customer may make a physical tap into the wholesale line(s)

to connect its property for water and/or wastewater service.

The right stays with the property.

We have no obligation to physically connect the property to the lines.

Once connected to the water and/or wastewater systems, the customer has live

service to receive metered water deliveries from our system and send wastewater into our system.

We recognize water and wastewater tap fees as revenue at the time we grant a right for the customer to tap into the water or wastewater service

line to obtain service.

The Rangeview District sets water usage, wastewater treatment, and tap fees for the customers we serve through our service agreements with the Rangeview District.

We recognize construction fees, including fees received to construct special facilities, over time as the construction is completed.

Consulting fees are fees we receive, typically on a monthly basis, from municipalities and area water providers, for contract operations services.

Consulting fees are recognized monthly over time as the services are

consumed based on a flat monthly fee plus charges for additional work performed.

Consulting fees are fees we receive, typically monthly.

We earn these fees from municipalities and area water providers along the I-70 corridor for which the Company provides contract operations services.

Consulting fees are recognized monthly based on a flat monthly fee plus charges for additional work performed, if applicable.

Land Development Revenue

We sell lots at Sky Ranch pursuant to distinct agreements with each builder.

Revenues derived from lot sales depend on the terms of the agreement with the builder.

Lots are completed and sold pursuant to distinct agreements with each home builder.

These agreements follow one of two formats.

One format is the sale of a finished lot, whereby the purchaser pays for a ready-to-build

finished lot and payment is a lump-sum payment upon completion of the finished lot.

The Company will recognize revenues at the point in time at the closing of the sale of a finished lot in which control transfers to the builder and the builder is

able to obtain a building permit, as the transaction cycle will be complete and the Company will have no further obligations for the lot.

Our second format is the sale of finished lots pursuant to a development agreement, whereby we receive payments at three milestones.

The first milestone payment is due upon completion of platted lots whereby we

transfer title to a specified number of platted lots to each builder and receive payment for the platted lots.

The second milestone payment is due upon completion of construction of wet utilities to each lot (water, sewer, and storm water), and the

final payment is due upon completion of the finished lot.

Because the builder (i.e., the customer) takes control of the lot at the first closing and subsequent improvements made by us improve the builder’s lot as construction progresses, we account

for each progress payment over time under the percent-of-completion methodology.

We act as the project manager and provide any and all services required to deliver eligible improvements for the CAB.

The project management fee is five percent (5%) of actual construction costs of CAB-eligible

improvements.

The Company and the CAB have agreed that no payment is required by the CAB with respect to project management fees unless and until the CAB and/or the Sky Ranch Districts issue municipal bonds in an amount sufficient to reimburse us for

all or a portion of advances provided or expenses incurred for reimbursables.

Due to this contingency, the project management fees are being accrued to revenue with a corresponding allowance until the point in time when bonds are issued and the CAB

reimburses us for the public improvements.

At that point, the portion of the project management fees repaid will be recorded as a note receivable and will be recognized as other income.

One format is the sale of

a fully finished lot, whereby the purchaser pays for a ready-to-build finished lot and the sales price is paid in a lump-sum amount upon completion of the finished lot that is building permit ready.

We recognize revenues at the point in time of

the closing of the sale of a finished lot in which control transfers to the builder as the transaction cycle is complete, and we have no further obligations for the lot.

Our second format is the sale of finished lots pursuant to a lot

development agreement with builders, whereby we receive payments in stages.

Because the builder (i.e., the customer) takes ownership and control of the lot at the first closing and subsequent improvements made by us improve the builder’s lot as

construction progresses, we account for revenue over time with progress measured based upon costs incurred to date compared to total expected costs (percent complete methodology).

Any revenue in excess of amounts entitled to be billed is

reflected on the balance sheet as a contract asset and amounts received in excess of revenue recognized are recorded as deferred revenue.

We do not have any material significant payment terms as all payments are expected to be received within

12 months after the delivery of the platted lot.

We adopted the practical expedient for financing components and do not need to account for a financing component of these lot sales as the delivery of lot sales is expected to occur within one

year of when we begin construction on those lots.

The Sky Ranch CAB is required to construct certain public improvements, such as water distribution systems, sewer collection systems, storm water systems, drainage improvements, roads, curbs, sidewalks, landscaping

and parks, the costs of which may qualify as reimbursable costs.

Pursuant to our agreements with the Sky Ranch CAB (see Note 14 – Related Party Transactions to the accompanying consolidated financial

statements), we are obligated to finance this infrastructure, which we have substantially completed for the initial filing.

These public improvements are constructed pursuant to design standards specified by the Sky Ranch Districts and/or the Sky

Ranch CAB, Rangeview District, or other governmental entities, and after inspection and acceptance, are turned over to the applicable governmental entity to operate and maintain.

Because these public improvements are owned and operated on behalf

of a governmental entity, they may qualify for reimbursement.

Pursuant to our agreements with the Sky Ranch CAB, the Sky Ranch CAB is not required to make payments to us for any advances made or expenses incurred by us related to construction of public improvements unless and

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

Because 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 and project management fees, are initially capitalized in Land

development inventories.

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.

If bonds ultimately are issued, when we receive the reimbursement, we record the amount received as Other income to

the extent that costs have previously been expensed and reduce Land development inventories by any remaining reimbursables received.

We submit specific costs for reimbursement to the Sky Ranch CAB.

If reimbursable costs received exceed actual expenses we incurred for the cost of the public improvements, they are recorded as Other income as received.

All amounts owed pursuant to agreements with the Sky Ranch Districts or the Sky Ranch CAB bear interest at a rate of 6% per annum.

Due to the uncertainty of collecting the interest (because payment is contingent on

the issuance of bonds), interest income accrues but is not recognized by the Sky Ranch CAB until the bonds are issued.

As of August 31, 2020, we have deferred recognition of $1.2 million in interest due on

these amounts.

On May 2, 2018, we entered into two Service Agreements for Project Management Services (the “Project Management Agreements”) with the Sky Ranch CAB.

Pursuant to the Project Management Agreements, we act as the

project manager and provide any and all services required to deliver the Sky Ranch CAB-eligible improvements, including but not limited to Sky Ranch CAB compliance, planning design and approvals, project administration, contractor agreements, and

construction management and administration.

We must submit to the Sky Ranch CAB a monthly invoice, in a form acceptable to the Sky Ranch CAB, detailing all project management activities during the period.

We are responsible for all expenses we

incur in the performance of the Project Management Agreements and are not entitled to any reimbursement or compensation except as set forth in the Project Management Agreements, unless otherwise approved in advance by the Sky Ranch CAB in

The Sky Ranch CAB is subject to annual budget and appropriation procedures and does not intend to create a multiple-fiscal year direct or indirect debt or other financial obligation.

We receive a project management fee of five percent

(5%) of actual construction costs of Sky Ranch CAB-eligible improvements.

The project management fees owed to us qualify as a reimbursable cost.

The project management fee is based only on the actual costs of the improvements;

thus, items such as

fees, permits, review fees, consultant or other soft costs, and land acquisition or any other costs that are not directly related to the cost of construction of Sky Ranch CAB-eligible improvements are not included in the calculation of the

project management fee.

Soft costs and other costs that are not directly related to the construction of Sky Ranch CAB-eligible improvements are included in Land development i nventories and accounted for in the same manner as construction support activities as described below.

Per the Project Management Agreements, no payment is required by the Sky Ranch CAB with respect to project management fees

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 us for all or a portion of advances provided or expenses incurred for reimbursables.

contingency, the project management fees have been deferred and won’t be recognized as revenue until the bonds are issued by the Sky Ranch Districts and/or the Sky Ranch CAB and the Sky Ranch CAB reimburses us for the public improvements.

point, the portion of the project management fees repaid will be recognized as revenue.

As of August 31, 2020, we have deferred recognition of $1.5 million in project management services to the Sky Ranch

We perform certain construction activities at Sky Ranch.

The activities performed include construction and maintenance of the grading, erosion and sediment control best management practices and other

construction-related services.

These activities are invoiced upon completion and are included in Land development inventories and subsequently expensed through Land

development construction costs unless or until bonds are issued by the Sky Ranch Districts and/or the Sky Ranch CAB and the Sky Ranch CAB reimburses us for public improvements.

See Note 2 – Summary of

Significant Account Policies – Land Development Segment Revenue –Reimbursable Costs for Public Improvements to the accompanying consolidated financial statements for details on repayment of reimbursable costs.

Other Revenue

Up-front payments we received pursuant to the Bison Lease and the OGOA are recognized as other income on a straight-line basis over the initial term or extension of term, as applicable, of the leases.

Impairment of Water Assets and Other Long-Lived Assets

We review our long-lived assets for impairment whenever management believes events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

We measure recoverability of assets

to be held and used by a comparison of the carrying amount of an asset to estimated future undiscounted net cash flows we expect to be generated by the eventual use of the asset.

If such assets are considered to be impaired and therefore the costs of

the assets deemed to be unrecoverable, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.

Our water assets will be utilized in the provision of water services, which inevitably will encompass many housing and economic cycles.

We review our long-lived assets for impairment at least annually or more frequently if we believe events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

If we believe it

is more likely than not that the carrying value of the long-lived asset exceeds its fair value, then we perform a valuation to determine the fair value of the asset and recognize an impairment loss equal to the excess of the carrying amount of

the asset over its fair value.

Our Water Rights

During our fiscal 2020, there were no indicators of impairment related to our water rights;

therefore, we performed an impairment analysis as of August 31, 2020, and determined that it is not more likely than not that the carrying value of

our water rights exceeds the fair value of the water rights.

There have been no material changes to our water rights which would indicate they are impaired are or that their costs are not recoverable.

Our analysis is based on development

occurring within areas in which we have agreements to provide water services utilizing water rights owned by us (e.g., Sky Ranch and the Lowry Range) as well as in surrounding areas, including the Front Range and the I-70 corridor.

assets are being utilized to provide water services to customers on the Lowry Range, at Wild Pointe and along the I-70 corridor including Sky Ranch.

We will continue to expand our water services as Sky Ranch continues to develop and will

continue to enhance our water rights in the water courts.

Our water supplies are legally decreed for use through the water court.

court decree allocates a specific amount of water (subject to continued beneficial use) for municipal and industrial uses.

Our Water Assets – We determine the undiscounted cash flows for our water assets by estimating tap sales to potential new developments in our service areas

and along the Front Range, using estimated future tap fees less estimated costs to provide water services, over an estimated development period.

Actual new home development in our service areas and the Front Range, actual future tap fees, and actual

future operating costs inevitably will vary significantly from our estimates, which could have a material impact on our financial statements as well as our results of operations.

The most significant factor impacting our future estimated cash flows

from our water and wastewater segment are the amount of SFEs that come online and begin to generate revenue for us.

We performed an impairment analysis as of August 31, 2019, and determined that

there were no material changes and that our water assets are not impaired and their costs are deemed recoverable.

Our impairment analysis is based on development occurring within areas in which we have agreements to provide water services utilizing

water rights owned by us (e.g., Sky Ranch and the Lowry Range) as well as in surrounding areas, including the Front Range and the I-70 corridor.

Our combined Rangeview Water Supply and Sky Ranch water assets have a carrying value of approximately

$49.2 million as of August 31, 2019.

Based on the carrying value of our water rights, the long-term and uncertain nature of any development plans, current tap fees of $26,675 and estimated gross margins, we estimate that we would need to add

approximately 1,850 new water connections (requiring 7% of our portfolio) to generate net revenues sufficient to recover the costs of our Rangeview Water Supply and Sky Ranch water.

If tap fees increase 5%, we would need to add

approximately 1,750 new water taps (requiring 7% of our portfolio) to recover the costs of our Rangeview Water Supply and Sky Ranch water.

If tap fees decrease 5%, we would need to add approximately 1,940 new water taps (requiring 7% of our

portfolio) to recover the costs of our Rangeview Water Supply and Sky Ranch water.

Although the timing of actual new home development throughout the Front Range will impact our tap sale projections, it will not alter our water ownership, our service obligations to existing properties or the number of

SFEs we can service.

Our Land Development Assets – We determine the undiscounted cash flows from lot sales, defined under our Builder

Contracts, using the costs incurred to date and estimated costs to build the remaining infrastructure for delivery of finished lots over an estimated development period.

Our impairment analysis is based on comparing the lot sale price under our

Builder Contracts, together with qualified reimbursables, with the cost to deliver the finished lots.

Our Sky Ranch land assets under development, shown as Inventories on our balance sheet, have a carrying

value of $11.6 million as of August 3 1, 2019.

Base d on the carrying value of our land inventories and the estimated costs to complete finished lots, compared to revenue generated from lot

sales and reimbursables, we estimate that we generate net revenues sufficient to recover the costs of our land development activities.

If our costs increase 5% and our lot sale revenues remain the same pursuant to our agreements, we estimate that our

recoverable reimbursable costs would increase 2.5% and that we would generate net revenues sufficient to recover the costs of our land development activities.

The water court decree allocates a specific amount of water (subject to continued beneficial use) for municipal

and industrial uses.

Our combined Rangeview Water Supply and Sky Ranch water assets have a carrying value of $53.9 million as of August 31, 2020.

Based on the carrying value of our water rights, the

long-term nature of any development plans, current tap fees of $27,209 and estimated gross margins on these tap fees, we estimate that we would need to serve a total of 4,250 water connections (requiring 7% of our portfolio) to generate cash

flows (deemed equivalent to fair value) sufficient to recover the costs of our Rangeview Water Supply and Sky Ranch water.

If our water tap fees increase 5%, we would need to serve a total of 4,050 water connections (requiring just under 7% of

our portfolio) to recover the costs of our Rangeview Water Supply and Sky Ranch water.

If tap fees decrease 5%, we would need to service a total of 4,500 water connections (requiring just over 7% of our portfolio) to recover the costs of our

Rangeview Water Supply and Sky Ranch water.

number of SFEs we can service;

therefore, no impairment indicators are present as of August 31, 2020.

Our Land Development Assets

During our fiscal 2020, there were no indicators of impairment related to our land;

therefore, we performed an impairment analysis as of August 31, 2020, and determined that it is not more likely than not that

the carrying value of our land will exceed the fair value of the land.

We are actively developing and selling lots at Sky Ranch.

We have completed the initial filling at Sky Ranch for 506 lots, all of which are under contract, with 483

finished lots delivered and fully paid for as of August 31, 2020, and the remaining lots were delivered and paid for on November 3, 2020.

The 506 lots have a total sales price of $36.7 million with total land development costs expected to be

$35.8 million.

Additionally, we collected $10.5 million of public improvement reimbursables during the year ended August 31, 2020, which will result in us realizing a net profit of $11.3 million on the sale of all 506 lots.

constructed $18.5 million of remaining public improvements, which are potentially reimbursable from our first filing at Sky Ranch.

If Sky Ranch home sales continue to be successful, we believe we will be able to collect these reimbursables

from future Sky Ranch CAB bond proceeds.

Pursuant to the agreements with the Sky Ranch CAB, the Sky Ranch CAB is not required to make payments to the Company for any advances made by the Company or expenses incurred related to

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

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 and project management fees, 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.

If bonds 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.

The Company submits specific costs for reimbursement to the Sky Ranch CAB.

reimbursable costs received exceed actual expenses incurred by the Company for the cost of the public improvements, they are recorded as Other income as received.

Subsequent to August 31, 2020, we announced the second phase at Sky Ranch.

The second phase will be platted for nearly 900 lots, for which we plan to begin development activities before the end of calendar 2020.

Subsequent to August 31, 2020, we entered into contracts with four home builders (Melody Homes (a wholly-owned subsidiary of DR Horton), KB Homes, Meritage Homes and Challenger Homes), to sell 789 finished lots, on which the home builders

will construct both attached and detached homes.

We are retaining the remaining 100+ lots for future uses.

The total sales price for the 789 lots contracted for is $63.4 million, subject to price escalations depending on development timing.

The remaining lots held for future use, assuming comparable lot prices to the contracted prices and excluding escalations, would result in a total sales value for the second filing of $72.6 million.

Our preliminary total cost estimates for

developing the nearly 900 lots is $65.6 million.

We believe that more than $48.0 million of this amount will be spent on public improvements that will be eligible for reimbursement by the Sky Ranch CAB subject to the conditions described

As of August 31, 2020, our Sky Ranch land assets under development, shown as Land development inventories on our balance sheet, have a carrying value of $481,500.

Because per lot sales prices are increasing, per lot costs are not anticipated to increase materially, and we are continuing to actively develop the land,

there are no indications of impairment.

In fiscal 2020, we assessed the recoverability of our 13,900 acres of mineral interests in the Arkansas River Valley in southeastern Colorado.

We determined that it appears more

likely than not that the carrying value of our Arkansas River Valley mineral rights is not recoverable as of August 31, 2020.

As a result, we recorded a non-cash impairment charge of $1.4 million.

The charge was recorded as a N on-cash mineral interest impairment charge in the consolidated statements of operations and comprehensive income included in Part II, Item 8 of

this Annual Report .

Fair Value Estimates

5 unchanged sentences

These securities include only federally insured certificates of deposit and U.S.

See Note 3 – Fair Value Measurements to the accompanying financial statements.

See Note 3 – Fair Value Measurements to the accompanying consolidated financial statements.

Share-based Compensation

We estimate the fair value of share-based payment awards made to key employees and directors on the date of grant using the Black-Scholes option-pricing model.

We then expense the fair value over the vesting period of

the grant using a straight-line expense model.

The fair value of share-based payments requires management to estimate or calculate various inputs such as the volatility of the underlying stock, the expected dividend rate, the estimated forfeiture

rate and an estimated life of each option.

We then expense the fair value over the vesting period

of the grant using a straight-line expense model.

The fair value of share-based payments requires management to estimate or calculate various inputs such as the volatility of the underlying stock, the expected dividend rate, the estimated

forfeiture rate, and an estimated life of each option.

We do not expect any forfeiture of option grants;

therefore, the compensation expense has not been reduced for estimated forfeitures.

These assumptions are based on historical trends and estimated future

actions of option holders and may not be indicative of actual events, which may have a material impact on our financial statements.

For further details on share-based compensation expense, see Note 8 – Shareholders’

Equity to the accompanying financial statements.

These assumptions are based on historical trends and

estimated future actions of option holders and may not be indicative of actual events, which may have a material impact on our financial statements.

For further details on share-based compensation expense, see Note 8 – Shareholders’ Equity to the accompanying consolidated financial statements.

Results of Operations

Executive Summary

Executive Summary of Results of Operations

The results of our operations for the fiscal years ended August 31, 2020 and 2019 were as follows:

Table E – Summary of Results of Operations

Fiscal Years Ended August 31,

2020 versus 2019

Millions of gallons of water delivered

Water revenues generated

Water and wastewater tap fee revenue

Water delivery operating costs incurred (excluding depreciation and depletion)

Water delivery gross margin %

Municipal water usage revenues

Oil and gas water usage revenues

Total metered water usage revenues

Water delivery operating costs incurred

(excluding depreciation and depletion)

Gross margin for delivering water

Gross margin % for delivering water

Wastewater treatment revenues

Wastewater treatment operating costs incurred

Wastewater treatment gross margin %

Lot fee revenue

Lot fee construction costs incurred

Lot fee gross margin %

Other income costs incurred

Other income gross margin %

Operating costs to treat wastewater

Gross margin for treating wastewater

Gross margin % for treating wastewater

Lot sales revenue

Lot development construction costs incurred

Gross margin on selling lots

Gross margin % on selling lots

Water and wastewater tap revenue

General and administrative expenses

Income (loss) from continuing operations

(Loss) income from discontinued operations

Net income (loss)

Non-cash mineral rights impairment charge

Changes in Revenues and Gross Margin

We generate revenues from water and wastewater services and land development.

Water and wastewater revenues are generated from (i) monthly wholesale water usage fees and wastewater treatment fees, (ii) one-time water

and wastewater tap fees and construction fees (including Special Facilities funding), and (iii) consulting fees.

Land development revenues are generated from the sale of lots and project management services.

Water and Wastewater Revenues – Our water deliveries decreased 12% in fisca l 2019 compared to fiscal 2018.

Water revenues increased 2% in fiscal 2019 compared to fiscal 2018.

The changes in deliveries were primarily due to a decline in demand for water used in oil and gas activities – namely, fracking wells

drilled into the Niobrara Formation.

The changes in revenues were primarily due to an increase in the rate per barrel for our industrial water customers.

The following table details the sources of our water sales, the number of kgal (1,000 gallons)

sold, and the average price per kgal for fiscal 2019 and fiscal 2018.

Table F – Water Revenue Summary

Water Usage Revenues and Margins – Our water deliveries decreased 79% in fiscal 2020 compared to fiscal 2019.

Water revenues decreased 77% in fiscal 2020 compared to fiscal 2019 and our gross margin % dropped from 67% to 22%.

These changes were primarily due to a 100% decline in demand for water used by oil and gas companies for hydraulic fracturing of

oil wells, which was partially offset by the increase in water used due to the sale of homes at Sky Ranch.

Due to the increase in water sales at Sky Ranch, municipal water delivered increased by 29%.

Water Usage Revenue Summary

The following table details the sources of our water sales, the number of kgal (1,000 gallons) sold, and the average price per kgal for fiscal 2020 and fiscal 2019.

Customer Type

(in thousands)

Average per kgal

(in thousands)

Average per kgal

Export-Commercial

Industrial/Fracking

Our gross margin on delivering w ater (not including depletion charges) was 68% in fiscal 2019 and 70% in fiscal 2018.

The changes in our gross margins were due to

changes in demand related to water sales to the fracking industry and our ability to offset the ECCV system costs with increased water deliveries in fiscal 2019 and fiscal 2018.

Our wastewater revenues decreased 23% in fiscal 2019 compared to fiscal 2018.

Wastewater revenues fluctuations result from demand changes from our only customer.

We sold 113 water and wastewater taps at Sky Ranch and one commercial water tap at Wild Pointe during fiscal 2019, which generated revenues of approximately $3,544,700.

water taps during fiscal 2018, which generated revenues of approximately $49,900.

No Special Facilities revenue has been recognized during the fiscal year ended August 31, 2019 and 2018.

Our consulting fees for the fiscal years ended August 31, 2019 and 2018 were $158,600 and $142,700, respectively, and are recognized upon the rendering of our services.

consulting fees increased 11% in fiscal 2019 compared to fiscal 2018.

The increase in fees during fiscal 2019 is due to higher consulting billings from water systems we managed in fiscal 2019 compared to fiscal 2018.

Our margins have fluctuated as we

allocated additional staff costs to system management.

Land Development Revenues – We broke ground on our first

phase of Sky Ranch in March of 2018 and through the fiscal year ended August 31, 2019, we completed and sold to our home builder customers 255 finished lots, receiving total payments of $18.1 million, of which $15.6 million and $2.5 million was

received in fiscal 2019 and 2018, respectively, and recognized revenues of $12.0 million and $2.1 million in fiscal years 2019 and 2018, respectively.

Additionally, we have completed improvements (including over lot grading, water, sewer, storm

water), off-site improvements (including drainage), and our entry roadway (Monahan Road), for the remaining 251 lots, and carry those investments, totaling $11.6 million in Inventories in our financial

We are working with each of our home builder customers to deliver the remaining finished lots in advance of their original contract delivery deadlines by the end of fiscal year 2020.

As of October 31, 2019, 122 building permits have been

issued for the construction of homes within the Development and 11 certificates of occupancy have been issued relating to homes within the Development.

We act as the project manager and provide any and all services required to deliver eligible improvements for the CAB.

The project management fee is five percent (5%) of actual construction costs of CAB-eligible

improvements.

all or a portion of advances provided or expenses incurred for reimbursables.

Due to this contingency, the project management fees are being accrued to revenue with a corresponding allowance until the point in time when bonds are issued and the CAB

reimburses us for the public improvements.

At that point, the portion of the project management fees repaid will be recorded as a note receivable and will be recognized as other income.

We have accrued $860,300 in project management services as of

August 31, 2019.

Industrial (1)

(1) Industrial water revenue does not include $425,800 of industrial water revenue recognized due to a pre-paid water agreement that was forfeited by the customer because it was not able to use the water within 12

months of the invoice date.

Wastewater Treatment Revenues – Our wastewater treatment revenues increased 168% in fiscal 2020 compared to

The increase in wastewater revenues is a result of the wastewater service provided to customers at Sky Ranch.

In fiscal 2019, wastewater revenues were only recognized from one commercial customer.

Wastewater revenue fluctuations

result from demand changes from our customers.

Water and Wastewater Tap Fees Revenues – We sold 188 water and wastewater taps at Sky Ranch and 13 water taps at

Wild Pointe during fiscal 2020, which generated revenues of $5.6 million.

We sold 113 water and wastewater taps at Sky Ranch, one commercial water tap and six residential water taps at Wild Pointe during fiscal 2019, which generated revenues of

$3.6 million.

We have 202 water and wastewater taps remaining to be sold in the first phase of the development at Sky Ranch, which we believe will be sold in our fiscal 2021.

Land Development Revenues – We broke ground on our first phase of Sky Ranch in

As of August 31, 2020, we completed construction on all 506 lots and delivered and received payment for 483 finished lots to home builders.

We delivered the remaining lots on November 3, 2020.

During fiscal 2020 and 2019, we

received $16.6 million and $15.6 million in lot sale proceeds, for a total of $35.1 million since development started.

During fiscal 2020 and 2019, we recognized revenues of $18.9 million and $12.0 million using both the over time and point

in time accounting methods.

Additionally, we have substantially completed improvements (including over lot grading, water, sewer, and storm water), off-site improvements (including drainage), and our entry roadway (Monahan Road), for the

remaining lots, and carry those investments, totaling $481,500 in Land development inventories in our financial statements.

As of October 31, 2020, the builders have sold 315 homes at Sky Ranch.

on current sales rates, we believe the initial filing at Sky Ranch will be sold out before the end of calendar 2021.

We act as the project manager and provide all services required to deliver eligible improvements for the Sky Ranch CAB.

For these services, we charge a five percent (5%) project

management fee calculated on actual construction of Sky Ranch CAB eligible reimbursable improvements.

No payment is required of the Sky Ranch CAB for project management fees unless and until the Sky Ranch CAB and/or Sky Ranch Districts issue

bonds in an amount sufficient to pay us for all or a portion of the project management fees.

Because it is uncertain if bonds will be issued and when we will receive payment, we defer recognition of project management fee income from the Sky

Ranch CAB until the issuance of the bonds is certain.

Once issuance of the bonds and payment to us is certain, the portion of the project management fees repaid will be recognized as revenue.

A s of August 31, 2020, we have deferred

recognition of $1.5 million in project management fees.

General and Administrative Expenses

Table G details significant items, and changes, included in our General and Administrative Expenses (“G&A Expenses”) as well as the impact that share-based compensation has on our G&A Expenses for the fiscal

years ended August 31, 2019 and 2018, res pectively.

Table G – G&A Expenses

For the Fiscal Years Ended August 31,

The table below details significant items, and changes, included in our General and Administrative Expenses (“G&A Expenses”) as well as the impact that share-based compensation has on our G&A Expenses for

the fiscal years ended August 31, 2020 and 2019, respectively.

Summary of G&A Expenses

2020 versus 2019

3 unchanged sentences

Professional fees

Fees paid to directors including insurance

Fees paid to directors and D&O insurance

Corporate insurance

Public entity-related expenses

Consulting fees

Property taxes

All other combined

G&A Expenses as reported

Salary and Salary-Related Expenses – Salary and salary-related expenses increased by 10% during fisc al

2019 as compared to fiscal 2018.

The increase in fiscal 2019 compared to fiscal 2018 was the result of the increase from 19 to 29 employees to manage the development of our Sky Ranch property and our water and wastewater systems.

compensation expense incre ased 4% during fiscal 2019 compared to fiscal 2018 as a result of an increase in the fair value of stock option grants to non-employee members of the board of directors and

Professional Fees (mainly legal and accounting fees) – Professional

fees increased 37% during fiscal 2019 compared to fiscal 2018.

The increase was primarily the result of higher general legal fees due to the builder contracts related to the Sky Ranch development, water service contracts and CAB contracts in fiscal

2019 compared to fiscal 2018.

Fees Paid to Our Board of Directors – Fees for our board in fiscal

2019 include $61,100 for premiums related to our directors and officers insurance policy (this amount increased by $1,200 from fiscal 2018).

The remaining fiscal 2019 fees of $138,800 represent amounts accrued to our board members for annual

service, meeting attendance fees and travel expenses, which were higher than in fiscal 2018 due to additional board meetings in fiscal 2019.

Fees for our board in fiscal 2018 include $59,900 for premiums related to our directors and officers

insurance policy.

The remaining fiscal 2018 fees of $104,900 represent amounts accrued to our board members for annual service, meeting attendance fees and travel expenses.

Insurance – We maintain policies for general liability insurance,

workers’ compensation insurance, and casualty insurance to protect our assets.

Salary and Salary-Related Expenses – Salary and salary-related expenses increased by 54% for fiscal 2020 as compared to fiscal 2019.

The increase in

fiscal 2020 compared to fiscal 2019 was the result of the increase from 29 to 31 employees to manage the development of our Sky Ranch property and our water and wastewater systems.

Additionally, we hired a Chief Financial Officer in April 2020 to

help oversee the accounting, finance, IT, and operations teams, and help implement strategic goals for our continued growth.

Other increases include higher incentive pay related to achieving development and financial goals, increased benefit

costs, payroll taxes and the addition of an employer match for our 401(k) plan.

Share-based compensation expense increased 54% for fiscal 2020 compared to fiscal 2019 as a result of an unrestricted stock grant to non-employee board members and an

increase in the fair value of stock option grants to employees.

Professional Fees (mainly legal and accounting fees) – Professional fees increased 9% for fiscal 2020 compared to fiscal 2019.

The increase was primarily

the result of higher accounting fees due to fees related to tax services and higher professional fees related to business development.

Fees Paid to Our Board of Directors and Directors and Officers Insurance – Fees for our board in fiscal 2020 include $67,900 for premiums related to our

directors and officers insurance policy (this amount increased by $6,800 from fiscal 2019).

The remaining fiscal 2020 fees of $126,200 represent amounts earned by our board members for annual service, meeting attendance fees and travel expenses,

which were lower than in fiscal 2019 due to fewer board meetings in fiscal 2020 and less travel expenses due to remote attendance in some instances because of COVID 19.

Fees for our board in fiscal 2019 include $61,100 for premiums related to our

directors and officers insurance policy.

The remaining fiscal 2019 fees of $138,800 represent amounts earned by our board members for annual service, meeting attendance fees and travel expenses.

Corporate Insurance – We maintain policies for general liability insurance, workers’ compensation insurance, and casualty insurance to protect our assets.

Insurance expense fluctuates based on the number of employees and premiums associated with insuring our water systems.

Public Entity-Related Expenses – Costs associated with being a

corporation and costs associated with being a publicly traded entity consist primarily of XBRL and EDGAR conversion fees, stock exchange fees, and press releases.

Public Entity-Related Expenses – Costs associated with being a corporation and costs associated with being a publicly traded entity consist primarily of

XBRL and EDGAR conversion fees, stock exchange fees, and press releases.

These costs fluctuate from year to year.

Consulting Fees – Consulting fees for fiscal 2019 consisted of

$4,000 for employee procurement fees and other s ervices, $11,600 for information technology services and $8,800 for board advisory services related to the development of the Sky Ranch water agreements.

Consulting fees for fiscal 2018

consisted of $33,800 for employee procurement fees and other services, $5,000 for professional services and $2,500 for board advisory services related to the development of the Sky Ranch water agreements.

Property Taxes – Our property taxes in fiscal 2019 relate to our 40 acres of land that comprise the boundaries of the Rangeview District and were

approximately $8,200.

Property taxes related to our Sky Ranch property in fiscal 2019 were expensed in Lot fee construction costs .

Our property taxes in fiscal 2018 relate to our property at the Rangeview

District and our Sky Ranch property and were approximately $17,700.

These taxes are based on estimated taxes paid in arrears and vary slightly from year to year based on actual assessments.

Other Expenses – Other expenses include typical operating expenses related to the maintenance of our office, business development, travel, and funding

provided to the Rangeview District and the Sky Ranch Districts.

Other expenses decreased 11% during fiscal 2019 compared to fiscal

The changes were primarily the result of the timing of various expenses.

Consulting Fees – Consulting fees for fiscal 2020 consisted of $17,100 for information technology services, $16,500 for business development services and

$6,400 for board advisory services related to the development of the Sky Ranch water agreements.

Consulting fees for fiscal 2019 consisted of $4,000 for employee recruiting fees and other services, $11,600 for information technology services and

$8,800 for board advisory services related to the development of the Sky Ranch water agreements.

Other Expenses – Other expenses include typical operating expenses related to the maintenance of our office, business development, travel, property taxes,

and funding provided to the Rangeview District and the Sky Ranch Districts.

Other expenses increased 14% during fiscal 2020 compared to fiscal 2019.

The changes were primarily the result of the timing of various expenses and increased staffing.

Non-cash mineral rights impairment charge – Non-cash mineral rights impairment charge includes an impairment recorded for $1.4 million as a result of the Company impairing its Arkansas Valley, Colorado mineral rights.

impairment of long-lived assets were recorded in fiscal 2019.

Other Income and Expense Items

Table H – Other Items

For the Fiscal Years Ended August 31,

1 unchanged sentence

Other income items:

Reimbursement of construction costs - related party

Oil and gas lease income, net

1 unchanged sentence

Interest income

The $55,700 and $51,100 of oil and gas lease payments recognized in fisc al 2019 and fiscal 2018, r espectively, primarily represent the deferred recognition of

the up-front payment of $167,200 that we received in September 2017 upon entering into the Bison Lease, which payment is being recognized in income over the three year term of the Bison Lease.

In July 2019, we received a payment of $573,700 for the

OGOA for three years through July 2022.

We recognized $26,200 in fiscal 2019 related to the up-front payment received pursuant to the OGOA.

The oil and gas royalty income represents amounts received pursuant to the O&G Lease.

The amounts for fisca l 2019 and 2018 include royalties of each well from August 16th through August 15th, during each year, respectively.

The first well (referred to as “Sky Ranch” in the chart below) generated oil and gas royalty income of approximately $108,000

and $163,200, 20% (net of taxes), based on the Company’s 3/8ths interest of the total production of this 1,280-acre pooled mineral estate during the fiscal years ended August 31, 2019 and 2018, respectively.

This 10,000-foot horizontal well

recorded production of approximately 28,400 and 40,000 barrels of oil for the fiscal years ended August 31, 2019 and 2018, respectively.

The second well (referred to as “Property” in the chart below) generated oil and gas royalty income of

approximately $18,000 and $40,400, 20% (net of taxes), based on the Company’s 1/8ths interest of the total production of this 1,280-acre pooled mineral estate during the fiscal years ended August 31, 2019 and 2018, respectively.

This 10,000-foot

horizontal well recorded production of approximately 22,200 and 31,200 barrels of oil for the fiscal years ended August 31, 2019 and 2018, respectively.

The following charts detail well production and oil and gas royalties during fiscal 2018 and

Natural Gas Liquids (“NGL”) - are hydrocarbons in the same family of molecules as natural gas and crude oil, composed exclusively of carbon and hydrogen.

Interest income represents interest earned on investment of capital in cash equivalents or debt securities and interest accrued on the notes receivable from the Rangeview District.

The higher level of interest income

in fiscal 2019 compared to fiscal 2018 was primarily attributable to interest rates on investments and timing of the maturity of the investments.

Other represents income we received for various easements and the construction of infrastructure for the oil and gas industry, which is partially offset by other non-operational expenses.

Reimbursement of construction costs (related party) – On November 19, 2019, the Sky Ranch CAB sold tax-exempt, fixed rate senior bonds in the aggregate

principal amount of $11,435,000 and tax-exempt, fixed-rate subordinate bonds in the aggregate principal amount of $1,765,000 (collectively, the “Bonds”).

Upon the sale of the Bonds approximately $10.5 million of the net proceeds from the Bonds

were used to partially reimburse us for advances we made to the Sky Ranch CAB pursuant to the Sky Ranch FFAA to fund the construction of public improvements to the Sky Ranch property.

The remaining gross proceeds from the issuance of the bonds,

$2.7 million were retained by the Sky Ranch CAB in order to pay certain bond issuance costs and provide for debt service through 2021, when the Sky Ranch CAB expects to generate enough revenue through property taxes to repay bond holders.

amounts we received, $4.2 million reduced the remaining capitalized expenses in Land development i nventories and $6.3 million was recognized as Income from reimbursement of construction costs (related party).

The Company has no obligation for repaying the bonds in the event the Sky Ranch CAB defaults on repaying the bond holders.

Oil and gas lease income – The $247,000 and $55,700 of oil and gas lease payments recognized in fiscal 2020 and fiscal 2019 include the recognition of $55,700 in both fiscal 2020

and 2019 for the deferred up-front payment of $167,200 that we received in October 2017 in connection with the Bison Lease, which payment is being recognized in income over the three year term of the Bison Lease, and the recognition of

$191,300 in fiscal 2020 of the deferred up-front payment of $573,700 that we received in July 2019 for the OGOA giving the operator of the Sky Ranch O&G Lease (defined below) right to access 16 acres for an oil and gas pad site for three

years through July 2022.

Oil and gas royalty income – Oil and gas royalty income represents amounts we receive pursuant to the Sky Ranch O&G Lease as royalties for well

production from the six wells in our mineral estate at Sky Ranch.

Pursuant to the Sky Ranch O&G Lease, we receive 20% of the income generated by each well (after payment of taxes by the oil and gas company).

During the years ended August 31,

2020 and 2019, the six wells drilled on our property produced 413,700 and 50,600 barrels of oil, respectively, resulting in oil and gas royalty income of $669,000 and $148,300, respectively.

The wells produce oil, gas, and natural gas liquids, which are hydrocarbons in the same family of molecules as natural gas and crude oil, composed exclusively of carbon and hydrogen.

Interest Income – Interest income represents interest earned on investment of capital in cash equivalents or debt securities and interest accrued on the

notes receivable from the Rangeview District.

The lower level of interest income in fiscal 2020 compared to fiscal 2019 was primarily attributable to interest rates on investments and timing of the maturity of the investments.

Liquidity, Capital Resources and Financial Position

At August 31, 2019, o ur working capital, defined as current assets less current liabilities, was $15.2 million, which includes $9.7 million in cash and cash

equivalents, including investments with a maturity of less than 90 days.

We believe that as of August 31, 2019 a nd as of the date

of the filing of this Annual Report on Form 10-K, we had and have sufficient working capital to fund our operations for the subsequent 12 months.

We manage our capital investments in the construction of finished lots for our home builder customers to

match contractual purchases required by each builder agreement.

We authorize specific contracts in phases to assure adequate capital resources for the delivery of lots to our home builder customers.

By way of an example, we have invested

approximately $25 million into constructing the first 255 lots at Sky Ranch.

We have received approximately $18.1 million from the sale of the lots.

We seek to match completion of any new investment into lots concurrent with the contract delivery

payment from our builders for such lots.

On October 25, 2019, the CAB filed a preliminary offering memorandum for the offering and issuance of tax-exempt, fixed rate senior bonds in the aggregate principal amount of approximately $10,820,000 and

tax-exempt, fixed-rate subordinate bonds in the aggregate principal amount of approximately $1,765,000.

The issuance of the bonds will be dependent of market conditions and market demand for general obligation municipal bonds.

The offering is

intended to satisfy a portion of the CAB’s obligations to reimburse us for the construction of infrastructure and other improvements at Sky Ranch.

As of August 31, 2019, we have advanced the CAB approximately $20 million that we expect will be

reimbursable by the CAB.

We anticipate funding our working capital needs primarily from cash receipts from the sale of lots and water and wastewater taps in fiscal 2020 and do not expect to be dependent on the receipt of the bond proceeds.

At August 31, 2020, our working capital, defined as current assets less current liabilities, was $19.8 million, which includes $21.8 million in cash and cash equivalents.

We believe that as of August 31, 2020, and

as of the date of the filing of this Annual Report on Form 10-K, we had and have sufficient working capital to fund our operations for the next 12 months.

We have substantially completed the work required to deliver all lots under contract in the

first filing at Sky Ranch and are in the permitting process for the next filing at Sky Ranch.

We estimate the cost to finish the nearly 900 lots expected to be platted in the second filing at Sky Ranch to be approximately $65.6 million.

we estimate we will spend up to $15.0 million during fiscal 2021, and we anticipate receiving approximately $12.0 million in milestone payments from the homebuilders over the same period.

Due to staffing shortages at Arapahoe County and the

disruption to its operations caused by COVID-19, permitting is taking longer than normal, but we do anticipate having permits and beginning construction of the next phase of development before the end of calendar 2020.

We believe we can fund such

capital expenditures from cash and cash equivalents on hand and phased payments from our lot sales agreements.

ECCV Capacity Operating System

In May 2012, we entered into an agreement to operate and maintain certain wells and transmission lines, the ECCV facilities, allowing us to utilize the system to provide water to commercial and industrial customers,

including customers providing water for drilling and hydraulic fracturing of oil and gas wells.

Our cost associated with the use of the ECCV system is a flat monthly fee of $8,000 per month from January 1, 2013 through December 31, 2020 and will

decrease to $3,000 per month from January 1, 2021 through April 2032.

customers, including customers providing water for drilling and hydraulic fracturing of oil and gas wells.

Our cost associated with the use of the ECCV system is a flat monthly fee of $8,000 per month from January 1, 2013 through December 31,

2020, which decreases to $3,000 per month from January 1, 2021 through April 30, 2032.

Additionally, we pay a fee per 1,000 gallons of water produced from ECCV’s system, which is included in the water usage fees charged to customers.

the ECCV system costs us approximately $5400 per month to maintain.

South Metropolitan Water Supply Authority and WISE

SMWSA is a municipal water authority in the State of Colorado organized to pursue the acquisition and development of water supplies on behalf of its members, including the Rangeview District.

SMWSA members include 14

Denver area water providers in Arapahoe and Douglas Counties.

Pursuant to certain agreements between the Company and the Rangeview District, we agreed to provide funding to enable the Rangeview District to acquire rights to water projects

undertaken by SMWSA, including the WISE water supply, which provides for the purchase and construction of certain infrastructure (pipelines, water storage facilities, water treatment facilities, and other appurtenant facilities) to deliver water to

and among the Rangeview District and the other nine members of the SMWA, Denver Water and Aurora Water.

In exchange for funding the Rangeview District’s obligations in WISE, we have the sole right to use and reuse the Rangeview District’s approximate

7% share of the WISE water and infrastructure to provide water service to the Rangeview District’s customers and to receive the revenue from such service.

Our current WISE subscription entitles us to approximately three million gallons per day of

transmission pipeline capacity and 500 acre feet per year of water.

In accordance with financing agreements, to date we have provided approximately $3.5 million of financing to the Rangeview District to fund its obligation to purchase infrastructure

for WISE, its obligations related to SMWSA, and the construction of a connection to the WISE system.

We anticipate that we will be spending approximately $3.0 million in connection with this system during fiscal 2020 and $4.0 million in total for the fiscal years 2021 through 2024 to fund the Rangeview District’s purchase of its share of the water transmission line and additional facilities, water and related assets for WISE.

Summary Cash Flows Table

Table I – Summary Cash Flows

SMWSA is a municipal water authority in the State of Colorado organized to pursue the acquisition and development of new water supplies on behalf of its members, including the Rangeview District.

certain agreements with the Rangeview District, we agreed to provide funding to the Rangeview District in connection with its membership in the SMWSA.

In July 2013, the Rangeview District, together with nine other SMWSA members, formed an SMWA to

enable its members to participle in a cooperative water project known as WISE and entered into an agreement that specifies each member’s pro rata share of WISE and the members’ rights and obligations with respect to WISE.

On December 31, 2013,

SMWA, Denver Water, and Aurora Water entered into the Amended and Restated WISE Partnership – Water Delivery Agreement, which provides for the purchase of certain infrastructure (pipelines, water storage facilities, water treatment facilities,

and other appurtenant facilities) to deliver water to and among Rangeview District and the other nine members of the SMWA from Denver Water and Aurora Water.

We have entered into a financing agreement that obligates us to fund the Rangeview

District’s cost of participating in WISE.

During the years ended August 31, 2020 and 2019, we provided $2.8 million and $1.5 million, respectively, of financing to the Rangeview District to fund its obligation to purchase WISE water rights and

pay for operational and construction charges.

Ongoing funding requirements are dependent on operational and overhead costs of SMWA and the construction activities.

We anticipate that we will be investing an additional $1.1 million in 2021 and

$7.5 million in total for the fiscal years 2022 through 2025 to fund the Rangeview District’s obligation to purchase infrastructure for WISE, its obligations related to SMWSA, and the construction of a connection to the WISE system.

for funding the Rangeview District’s obligations in WISE, we will have the sole right to use and reuse the Rangeview District’s 9% share of the WISE water and infrastructure to provide water service to the Rangeview District’s customers and to

receive the revenue from such service.

Summary Cash Flows

For the Fiscal Years Ended August 31,

2020 versus 2019

Cash (used in) provided by:

Cash provided (used) by:

Operating activities

1 unchanged sentence

Financing activities

Changes in Operating Activities – Operating activities include revenues we receive from the sale of wholesale water and wastewater services, costs incurred in

the delivery of those services, G&A Expenses, and depletion/depreciation expenses.

Cash provided by operations in fisca l 2019 increased by approximately $3.5 million as compared to fiscal 2018, whic h was primarily the result of payments

received relating to milestone payments from two builders at Sky Ranch that have been deferred, an upfront payment for industrial water and a payment for the OGOA that has been deferred, offset by increases in inventories related to the construction

activities of Sky Ranch, and the payment of approximately $1.0 million for a collateral deposit paid to the Arapahoe County in connection with the grading, erosion and sediment control permit application for Sky Ranch, anticipated to be refunded by

2021 coupled with the increase net income due primarily to recognized revenue from water and wastewater tap fees of $3.5 million.

Tap fee revenue in 2018 was approximately $50,000.

Changes in Investing Activities – Investing activities in fiscal 2019 consisted of the sale and maturity of debt securities of approximately $56 million offset by the purchase of approximately $52 million in securities, the investment in our water system of approximately $14.1 million, and the purchase of equipment of

Investing activities in fiscal 2018 consisted of the sale and maturity of debt securities of approximately $34 million, offset by the purchase of approximately $23 million in securities, the investment

in our water system of approximately $1.3 million, and the purchase of equipment of $445,300.

Changes in Operating Activities – Operating activities include amounts we receive from the sale of wholesale water and wastewater services, costs incurred

in the delivery of those services, the sale of lots, the costs incurred in completing and delivering finished lots, and G&A Expenses.

Cash provided by operations in fiscal 2020 increased $17.2 million as compared to fiscal 2019, which is primarily due to the reimbursement of capitalized costs of $10.5 million partially recorded in Land development i nventories , the collection of up-front deferred oil and gas payments of $1.6 million, receipt of water and wastewater tap fees, receipt of lot sale

proceeds, timing differences on payments of payables and accrued liabilities along with an increase in net income of $1.9 million.

Cash provided by operations in fiscal 2019 consisted primarily of payments received relating to milestone payments

from two builders at Sky Ranch that had been deferred, an upfront payment for industrial water and a payment for the OGOA that had been deferred, offset by increases in inventories related to the construction activities of Sky Ranch, and the

payment of approximately $1.0 million for a collateral deposit paid to Arapahoe County in connection with the grading, erosion and sediment control permit application for Sky Ranch, coupled with the increase in net income due primarily to

recognized revenue from water and wastewater tap fees of $3.5 million.

Changes in Investing Activities – Investing activities in fiscal 2020 consisted of the sale and maturity of debt securities of $6.9 million offset by the purchase of $1.7 million in securities, the investment in our land and water system of $8.0 million, and the purchase of equipment of $586,000.

Investing activities in

fiscal 2019 consisted of the sale and maturity of debt securities of $56 million offset by the purchase of $52 million in securities, the investment in our water system of $14.1 million, and the purchase of

equipment of $354,000.

Changes in Financing Activities – Financing activities in 2020 consisted of proceeds from the exercise of stock

options of $49,200, offset by a payment to contingent liability holders of $4,400.

Financing activities in 2018 consisted of the receipt of payment on a note receivable of $215,500 from a Sky Ranch District and proceeds from the exercise of stock

options of $75,000, offset by a payment to contingent liability holders of $2,500.

Financing activities in 2019 consisted of proceeds from the exercise of stock options of $193,100, offset by a payment to contingent liability holders of $6,900.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements consist entirely of the contingent portion of the Comprehensive Amendment Agreement No.

1 (the “CAA”), which is $655,400, as described in Note 5 – Participating

Interests in Export Water to the accompanying financial statements.

The contingent liability is not reflected on our balance sheet because the obligation to pay the CAA is contingent on sales of Export Water, the amounts and timing of which

are not reasonably determinable.

1 (the “CAA”), which is $647,200, as described in Note 5 – Participating Interests in Export Water to the accompanying consolidated financial statements.

The contingent liability is not reflected on our balance sheet because the obligation to pay the CAA is contingent on sales of Export

Water, the amounts and timing of which are not reasonably determinable.

Recently Adopted and Issued Accounting Pronouncements

See Note 2 – Summary of Significant Accounting Policies to the accompanying financial statements for recently adopted and issued accounting pronouncements.

See Note 2 – Summary of Significant Accounting Policies to the accompanying consolidated financial statements for recently adopted and issued accounting pronouncements.

Item 7A – Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

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 7. Management’s Discussion and Analysis