What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2021-11-10 compared with 2020-11-10 · 311 added, 484 removed, 165 unchanged (83% of the section changed)

Item 1 – Business

Pure Cycle Corporation was incorporated in Delaware in 1976 and reincorporated in Colorado in 2008.

Unless otherwise specified or the context otherwise requires, any reference to the “Company,” “we,” “us” or “our” is

to Pure Cycle Corporation and its subsidiaries on a consolidated basis.

Unless otherwise specified or the context otherwise requires, any reference to “Pure Cycle,” the “Company,” “we,” “us” or “our” is to Pure Cycle Corporation and its wholly-owned subsidiaries on a consolidated basis.

We are a diversified land and water resource development company.

At our core we are an innovative and vertically integrated water and wastewater service provider that owns and develops a

valuable portfolio of water rights in a water short region.

In conjunction with developing water rights which culminates in providing water and wastewater services to customers, we also develop master planned communities creating value and

opportunity for water customers, investors, homeowners, and businesses along the busy I-70 corridor of the Denver metropolitan area.

We believe our water resources, land, and infrastructure, located in southeastern Denver, are positioned in one of

the most attractive development areas of the Denver metropolitan region and will provide favorable investment returns.

The eastern I-70 corridor is experiencing substantial growth which we believe will continue over several decades.

We are developing the Sky Ranch Master Planned Community located along the eastern I-70 corridor (see map below).

Sky Ranch is planned 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, all of which will be serviced by our water and wastewater resource development segment.

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

domestic water, irrigation water, and wastewater services to the community.

Having control over the water resources in conjunction with developing the land enables us to efficiently build and maintain infrastructure for potable water and irrigation

water distribution, wastewater and storm water collection, roads, parks, open spaces, and other investments.

It also enables us to essentially align construction and delivery of these investments with phased take-down commitments from our home

builder customers, minimizing significant excess capacity or downtime in these significant investments.

By being the landowner, land developer, and water/wastewater provider, we believe we can offer a more efficient development process, with more

competitive lot pricing, which results in a more affordable and marketable product.

Through our land development segment, we develop master planned communities creating value and opportunity for investors, homeowners, water customers, and businesses along the busy I-70 corridor of the Denver metropolitan area.

Our land development segment (including the newly launched rental division which will be described in detail below) was borne from our need to control the addition of water and wastewater customers to our systems as opposed to waiting for third-party entities to contract with us or for growth to come to us.

At our core we are an innovative and vertically integrated water and wastewater service provider that owns and develops a valuable portfolio of water rights in a water short region.

We believe our water resources, land, and infrastructure, located in southeastern Denver, are positioned in one of the most attractive development areas of the Denver metropolitan region and will provide favorable investment returns.

The eastern I-70 corridor is experiencing continued substantial growth which we believe will continue over several decades.

We are developing the Sky Ranch Master Planned Community located along the eastern I-70 corridor (see map below with location of Sky Ranch and other service areas).

Sky Ranch is planned 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, all of which will be serviced by our water and wastewater resource development segment.

Our land development activities provide a strategic complement to our water and wastewater resource development business, and vice versa.

A significant component of any master planned community is its ability to bring high quality domestic water, irrigation water, and wastewater services to the community.

Having control over the water resources in conjunction with developing the land enables us to efficiently build and maintain infrastructure for potable water and irrigation water distribution, wastewater and storm water collection, roads, parks, open spaces, and other investments.

It also enables us to efficiently align construction and delivery of these investments with phased take-down commitments from our home builder customers, minimizing significant excess capacity or downtime in these significant investments.

By being the landowner, land developer, and water/wastewater provider, we believe we offer a more efficient development process, with more competitive lot pricing, which results in a more affordable and marketable product.

Our water and land assets are designed, constructed, operated, and maintained by us.

Our water and land activities are each a distinct line of business which are operated as separate, but cohesive segments within the

We refer to these segments as our water and wastewater segment and our land development segment, both of which are described in more detail below.

Our water and land activities are each a distinct line of business which are operated as separate, but cohesive business segments.

We refer to these segments as our water and wastewater resource development segment and our land development segment, both of which are described in greater detail below.

In March 2021, we launched a new line of business which will be referred to as our Build-to-Rent or single-family home rental line of business.

During our initial development phase of Sky Ranch, we retained ownership of three residential lots, on which we have begun building three single-family homes which we will own, maintain, and rent to qualified renters.

We have contracted for the construction of the homes with a reputable home builder, and we expect these three homes to be completed and ready for renters in November 2021.

We anticipate that this single-family home rental business will become our third segment when it is material to our operations.

Water and Wastewater Resource Development Segment

We operate our water and wastewater resource development segment on a vertically integrated basis.

Specifically, we own or control the water and infrastructure required to (i) withdraw, treat, store and deliver water

(i.e., water rights, wells, diversion structures, pipelines, reservoirs and treatment facilities required to extract and use the water);

(ii) collect, treat, store and reuse wastewater (i.e., we design, build, and operate water treatment and

wastewater reclamation facilities);

Specifically, we own or control the water and infrastructure required to (i) withdraw, treat, store and deliver water (i.e., water rights, wells, diversion structures, pipelines, reservoirs and treatment facilities required to extract and use the water);

(ii) collect, treat, store and reuse wastewater (i.e., we design, build, and operate water treatment and wastewater reclamation facilities);

and (iii) treat and deliver reclaimed water for irrigation use (i.e., we use and reuse our valuable water supplies through non-potable irrigation systems to irrigate parks and open spaces).

does not have water for development and enhance the value of that land, as well as our water resources, to a greater extent than either a traditional water utility or land developer can.

Having a valuable portfolio of water in a water short region

provides us with a competitive advantage over other land developers who may be required to buy expensive water, pay significant fees to another water provider, in lieu of buying water, and/or wait for a city to annex property and extend costly water

and wastewater infrastructure to the property before development can begin.

Having our own water supply gives us more control over the land development process and the ability to capitalize on the value of our water rights, as well as enhances the

value of the land to which we provide our water.

Our water supplies, which can be used in our exclusive service area and other areas along the eastern I-70 corridor, enable us to add significant value to our land development segment by bringing water to land that does not have water for development and enhance the value of that land, as well as our water resources, to a greater extent than either a traditional water utility or land developer can.

Having a valuable portfolio of water in a water short region provides us with a competitive advantage over other land developers who may be required to buy expensive water, pay significant fees to another water provider, in lieu of buying water, and/or wait for a city to annex property and extend costly water and wastewater infrastructure to the property before development can begin.

Having our own water supply gives us more control over the land entitlement and development process and the ability to capitalize on the value of our water

rights, as well as enhances the value of the land to which we provide our water.

In addition, we have significant in-house expertise in engineering, operations, and land development which allows us to take a hands-on approach to the water and land development process.

We mainly provide wholesale water and wastewater services to local governmental entities that in turn provide residential and commercial water and wastewater services to customers in their communities.

customer is the Rangeview Metropolitan District (“Rangeview District”).

We have the exclusive right to provide water and wastewater services to the Rangeview District’s customers in its exclusive 24,000-acre service area in southeast Denver

metropolitan area pursuant to various agreements that are described in greater detail below.

As of August 31, 2020, through the Rangeview District, we provide service to 649 single family equivalent (“SFE”) water connections and 384 SFE wastewater connections.

Our largest customer is the Rangeview Metropolitan District (“Rangeview District”).

We have the exclusive right to provide water and wastewater services to the Rangeview District’s customers in its exclusive 24,000-acre service area in the southeastern Denver metropolitan area pursuant to various agreements that are described in greater detail below.

As of September 30, 2021, through the Rangeview District, we provide service to 855 single-family equivalent (“SFE”) water connections and 580 SFE wastewater connections.

These connections are located mainly in the southeastern metropolitan Denver area on the Lowry Range, at our Sky Ranch development and other nearby areas where we have acquired service rights.

With the water rights we own and control, we believe we can serve over 60,000 SFEs.

An SFE is a customer, whether residential, commercial, or industrial, that imparts a demand on our water or wastewater systems like the demand of a family of four

persons living in a single-family house on a standard sized lot.

One SFE is assumed to have a water demand of approximately 0.4 acre-feet per year and to contribute wastewater flows of approximately 300 gallons per day.

An acre foot of water is

approximately 326,000 gallons of water, or enough water to cover an acre of ground with one foot of water.

For some instances herein, as context dictates, the term “acre-feet” is used to designate an annual decreed amount of water available during a

typical year.

With the water rights we own and control, we believe we can serve an estimated 60,000 SFEs.

An SFE is a customer, whether residential, commercial, or industrial, that imparts a demand on our water or wastewater systems based on the demand of a family of four persons living in a single-family house on a standard sized lot.

For some instances herein, as context dictates, the term “acre-feet” (which is approximately 326,000 gallons) is used to designate an annual decreed amount of water available during a typical year.

In addition to our domestic customers, we provide raw water for oil and gas operations.

Multiple operators lease 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.

Multiple operators lease 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.

Sales of water to industrial customers in the oil and gas industry are unpredictable and fluctuate dramatically.

After several years of significant activity throughout our service area, beginning around March 2020, demand for

water from the oil and gas industry dropped precipitously due to low oil and gas prices caused by increased world-wide production and decreased demand due to stay-at-home orders resulting from the coronavirus (“COVID-19”) pandemic.

After several years of significant activity throughout our service area, beginning around March 2020, demand for water from the oil and gas industry dropped precipitously due to low oil and gas prices caused by increased world-wide production and decreased demand due to stay-at-home orders resulting from the coronavirus (“COVID-19”) pandemic.

In 2021, we saw some recovery in the oil and gas markets, and this resulted in additional water sales to oil and gas clients in 2021.

Land Development Segment

In 2010, at a time when real estate prices were severely depressed due to the credit crisis the United States endured from 2007 until 2012, we purchased approximately 930 acres of land known as Sky Ranch.

We acquired Sky Ranch with the intention

of selling lots to national home builders in order to add value to our core water and wastewater operations by adding the ultimate purchasers of the homes as our water customers.

In June 2017, we entered into agreements with three national home

builders to sell the initial 506 residential lots at Sky Ranch.

As of August 31, 2020, we have delivered 483 finished lots.

The remaining finished lots were delivered on November 3, 2020.

As of October 31, 2020, these

home builders have built and sold over 315 homes at Sky Ranch.

Based on current sales levels, we believe homes in this initial filing will be sold out by the end of calendar 2021, which is nearly two-years ahead of forecast.

In December 2020, we

plan to begin construction on the second filing at Sky Ranch.

We anticipate that this filing will be platted for nearly 900 lots for residential units.

Subsequent to August 31, 2020, we entered into agreements with four national home builders to sell 789 finished lots for building attached and detached single-family residential homes in the second filing of Sky Ranch.

We expect construction of the second filing at Sky Ranch will begin in December 2020.

The second filing is planned to be developed in four sub-phases.

We believe it will take three years to complete all construction and sell the finished lots,

depending on market conditions.

We acquired Sky Ranch with the intention of selling lots to national home builders to add value to our core water and wastewater operations by adding the ultimate purchasers of the homes as our water customers.

In June 2017, we entered into agreements with three national home builders to sell the initial 505 residential lots at Sky Ranch.

As of August 31, 2021, we have delivered all 505 finished lots in this development phase and in February 2021, we broke ground on the second development phase which will ultimately include approximately 850 residential lots.

As of September 30, 2021, home builders have built and sold 368 homes at Sky Ranch, with another approximately 100 homes under construction and under contract with home buyers.

Based on current sales levels, we believe homes in this initial development phase will be sold out by the end of the second quarter of our fiscal 2022, which is nearly two-years ahead of forecast.

In February 2021, we broke ground on the second development phase at Sky Ranch.

The second phase, which will be constructed in four subphases, will include 850 residential lots, for which we have contracted to sell 804 finished lots to four homebuilders who will construct attached and detached single-family residential homes.

We have retained 46 lots which we will build homes to be included in our build-to-rent segment.

As of August 31, 2021, we have completed the grading and received plats for the first subphase of 229 lots, which includes 10 to be used in our build-to-rent division.

We believe it will take three years to complete all construction and sell all the finished lots all four subphases of the second development phase, depending on the market conditions and permitting process.

Additionally, as disclosed in March 2021, Sky Ranch Academy was formed for the purposes of partnering with the Bennett School District 29J in support of a new K-12 Charter School to be located at Sky Ranch.

Sky Ranch Academy has partnered with National Heritage Academy (www.nhaschools.com) to operate the charter.

NHA brings over 25 years of experience providing educational services at 90 schools in nine states, educating more than 60,000 students including four other schools in Colorado.

Sky Ranch Academy is expected to open in August 2022.

Build-to-Rent

As the housing market in Colorado continues to grow and prices continue to rise at double-digit rates, we believe rental units are becoming increasingly necessary to provide affordable housing options to the growing population in Colorado.

During fiscal 2021, to capitalize on the growing single-family rental market, we launched our build-to-rent division.

We contracted with a local semi-custom home builder to construct three single-family detached homes on three lots in our first development phase at Sky Ranch that were retained for future growth purposes.

The homes are nearing completion and are expected to be available for rent in November 2021.

These three rental units represent the initial investment into what we expect to become our third operating segment and expect to add 46 homes in our second development phase.

We believe having ongoing recurring rental income, in a community we are heavily involved with, which is experiencing double digit growth in home values provides tremendous upside potential for growing our balance sheet and diversifying our recurring revenue streams.

Our Water Assets

We use our valuable and growing inventory of water and land assets to conduct our water and land development operations.

We use our valuable and growing water and land assets to conduct our water and land development operations.

Our water assets are summarized in the table below and further discussed in this section:

Summary Water Assets Table

Surface Water

Other Water Rights

Rangeview Water Supply

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(1) Pending completion by the “Land Board” (defined below) of documentation related to the exercise of our right to substitute 1,650 acre-feet of our groundwater for a comparable amount of surface water.

We have the exclusive right to use this water to provide water services to customers on the Lowry Range, which is described further below.

Amount of WISE water available for our use various by year and is described in greater detail below.

(2) We have the exclusive right to use this water to provide water services to customers on and off the Lowry Range, which is described further below.

(3) Amount of WISE water available for our use varies by year and is described in greater detail below.

We capitalize costs associated with obtaining, defending, enhancing, and developing our water rights.

We capitalize costs incurred to construct infrastructure required to deliver water and wastewater services to our

customers, and we capitalize costs to develop our land assets that are not sold to home builders.

We capitalize costs incurred to construct infrastructure required to deliver water and wastewater services to our customers, and we capitalize costs to develop our land assets that are not sold to home builders.

Rangeview Water Supply

The Rangeview Water Supply consists of 26,985 acre-feet of tributary surface water, non-tributary groundwater, and not non-tributary groundwater.

Additionally, the Rangeview Water Supply has 26,000 acre-feet of

adjudicated reservoir sites.

Additionally, the Rangeview Water Supply has 26,000 acre-feet of adjudicated reservoir sites.

Terminology typically used in the water industry that may help readers understand water rights are detailed below.

Non-Tributary Groundwater – groundwater located outside the boundaries of any designated groundwater basins in existence on January 1, 1985, the withdrawal of which will not, within one hundred years of continuous withdrawal, deplete the

flow of a natural stream at an annual rate greater than one-tenth of one percent of the annual rate of withdrawal.

Not Non-Tributary Groundwater – statutorily defined as groundwater located within those portions of the Dawson, Denver, Arapahoe, and Laramie Fox-Hill aquifers outside of designated basins that does not meet the definition of

“non-tributary.”

● Non-Tributary Groundwater – groundwater located outside the boundaries of any designated groundwater basins in existence on January 1, 1985, the withdrawal of which will not, within one hundred years of continuous withdrawal, deplete the flow of a natural stream at an annual rate greater than one-tenth of one percent of the annual rate of withdrawal.

● Not Non-Tributary Groundwater – statutorily defined as groundwater located within those portions of the Dawson, Denver, Arapahoe, and Laramie Fox-Hill aquifers outside of designated basins that does not meet the definition of “non-tributary.”

● Tributary Groundwater – all water located in an aquifer that is hydrologically connected to a natural stream such that depletion has an impact on the surface stream.

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We acquired our Rangeview Water Supply through the following agreements:

The 1996 Amended and Restated Lease Agreement between the Land Board and the Rangeview District, which was superseded by the 2014 Amended and Restated Lease Agreement, dated July 10, 2014 (the “Lease”), among us, the Land Board, and the

Rangeview District;

The 1996 Service Agreement between us and the Rangeview District, which was superseded by the Amended and Restated Service Agreement, dated July 11, 2014, between us and the Rangeview District (the “Lowry Service Agreement”), which

provides for the provision of water service to the Rangeview District’s customers located on the Lowry Range;

The Agreement for Sale of non-tributary and not non-tributary groundwater between us and the Rangeview District (the “Export Agreement”), pursuant to which we purchased a portion of the Rangeview Water Supply that we refer to as our

“Export Water” because the Export Agreement allows us to export this water from the Lowry Range to supply water to nearby communities;

● The 1996 Amended and Restated Lease Agreement between the Land Board and the Rangeview District, which was superseded by the 2014 Amended and Restated Lease Agreement, dated July 10, 2014 (the “Lease”), among us, the Land Board, and the Rangeview District;

● The 1996 Service Agreement between us and the Rangeview District, which was superseded by the Amended and Restated Service Agreement, dated July 11, 2014, between us and the Rangeview District (the “Lowry Service Agreement”), which provides for the provision of water service to the Rangeview District’s customers located on the Lowry Range;

● The Agreement for Sale of non-tributary and not non-tributary groundwater between us and the Rangeview District (the “Export Agreement”), pursuant to which we purchased a portion of the Rangeview Water Supply that we refer to as our “Export Water” because the Export Agreement allows us to export this water from the Lowry Range to supply water to nearby communities;

● The 1997 Wastewater Service Agreement between us and Rangeview District (the “Lowry Wastewater Agreement”), which allows us to provide wastewater service to the Rangeview District’s customers on the Lowry Range.

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Additionally, in August 2019, we purchased approximately 300 acre-feet of fully consumptive surface water in the Lost Creek Designated Ground Water Basin (“Lost Creek Water”).

The Lost Creek Water is currently

adjudicated for agricultural use, and we have filed an application with the Colorado water court to change the use of the water to augment our municipal/industrial water supplies at the Lowry Range.

We have consolidated our Lost Creek Water with our

Rangeview Water Supply to provide service to the Rangeview District’s customers both on and off the Lowry Range.

Rangeview District’s water and wastewater systems that are used to provide water and wastewater services to the Rangeview District’s customers located within the Rangeview District’s exclusive service area, and other approved areas.

The Lost Creek Water is currently adjudicated for agricultural use, and we have filed an application with the Colorado water court to change the use of the water to augment our municipal/industrial water supplies at the Lowry Range.

We have consolidated our Lost Creek Water with our Rangeview Water Supply to provide service to the Rangeview District’s customers both on and off the Lowry Range.

Pursuant to service agreements with Rangeview (including the Lowry Service Agreement, the Lowry Wastewater Agreement and the Non-Lowry Service Agreement described below), we design, construct, operate and maintain the Rangeview District’s water and wastewater systems that are used to provide water and wastewater services to the Rangeview District’s customers located within the Rangeview District’s exclusive service area, and other approved areas.

Subject to the terms and conditions of our agreements with the Rangeview District, we are the exclusive water and wastewater provider to the Rangeview District’s customers.

For the Rangeview District’s customers

located on the Lowry Range, we operate both the water and the wastewater systems during our contract period on behalf of the Rangeview District, which owns the facilities for both systems.

At the expiration of our contract term in 2081, ownership of

the water system facilities located on the Lowry Range used to deliver water to customers on the Lowry Range will revert to the Land Board, with the Rangeview District retaining ownership of any wastewater facilities located on the Lowry Range.

water system and related facilities used to deliver water to customers off the Lowry Range (including Export Water) will remain with us and the Rangeview District.

We provide wholesale water service and wastewater service to customers located both on

and outside of the Lowry Range, including customers of the Rangeview District and other governmental entities, and industrial and commercial customers.

For the Rangeview District’s customers located on the Lowry Range, we operate both the water and the wastewater systems during our contract period on behalf of the Rangeview District, which owns the facilities for both systems.

At the expiration of our contract term in 2081, ownership of the water system facilities located on the Lowry Range used to deliver water to customers on the Lowry Range will revert to the Land Board, with the Rangeview District retaining ownership of any wastewater facilities located on the Lowry Range.

The water system and related facilities used to deliver water to customers off the Lowry Range (including Export Water) will remain with us and the Rangeview District.

We provide wholesale water service and wastewater service to customers located both on and outside of the Lowry Range, including customers of the Rangeview District and other governmental entities, and industrial and commercial customers.

The Rangeview Water Agreements grant us the right to use approximately 26,000 acre-feet of surface reservoir capacity to provide water service to customers both on and off the Lowry Range.

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The Lowry Range consists of nearly 26,000 acres, or 40 square miles, of primarily undeveloped land in unincorporated Arapahoe County.

It is located 20 miles southeast of downtown Denver and is one of the largest

contiguous parcels under single ownership next to a major metropolitan area in the United States.

Pursuant to our agreements with the Land Board, we, together with the Rangeview District, have the exclusive rights to provide water and wastewater

services to 24,000 acres of the Lowry Range.

It is located 20 miles southeast of downtown Denver and is one of the largest contiguous parcels under single ownership next to a major metropolitan area in the United States.

Pursuant to our agreements with the Land Board, we, together with the Rangeview District, have the exclusive rights to provide water and wastewater services to 24,000 acres of the Lowry Range.

The Rangeview District

The Rangeview District is a quasi-municipal corporation and political subdivision of the State of Colorado formed in 1986 for the purpose of providing water and wastewater services to the Lowry Range and other approved

The Rangeview District is governed by an elected board of directors.

The Rangeview District is governed

by an elected board of directors.

Eligible voters and persons eligible to serve as directors of the Rangeview District must own an interest in property within the boundaries of the Rangeview District.

certain rights and real property interests which encompass the current boundaries of the Rangeview District.

We own certain rights and real property interests which encompass the current boundaries of the Rangeview District.

The current directors of the Rangeview District are Mark W.

2 unchanged sentences

Lehman (an employee of ours), Dirk Lashnits (an employee of ours), and one independent board member.

Pursuant to Colorado law, directors may receive $100 for each board meeting they

attend, up to a maximum of $1,600 per year.

Pursuant to Colorado law, directors may receive $100 for each board meeting they attend, up to a maximum of $1,600 per year.

Harding, McNeill, Lehman, and Lashnits have all elected to forego these payments .

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Water Deliveries – Pursuant to the Rangeview Water Agreements, the Land Board is entitled to royalty payments based on a percentage of revenues earned from water sales that use the Rangeview Water Supply.

calculation of royalties depends on the location of the customer and whether the customer is a public or private entity.

The calculation of royalties depends on the location of the customer and whether the customer is a public or private entity.

The Land Board does not receive a royalty from wastewater services.

When we develop, operate and deliver water from our Rangeview

Water Supply, the Land Board receives royalties on the gross revenues at a rate of 12% from water delivered to all customers located on the Lowry Range and to all private customers located off the Lowry Range and 10% from public entity customers

located off the Lowry Range.

platted and water tap agreements have been entered into with respect to all improvements to be constructed on such acreage, the Land Board may elect, at its option, to receive (in lieu of its royalty of 12% from customers on the Lowry Range), 50% of

the collective net profits (ours and the Rangeview District’s) derived from the sale or other disposition of water on the Lowry Range.

When we develop, operate, and deliver water from our Rangeview Water Supply, the Land Board receives royalties on the gross revenues at a rate of 12% from water delivered to all customers located on the Lowry Range and to all private customers located off the Lowry Range and 10% from public entity customers located off the Lowry Range.

In the event that (i) metered production of water used on the Lowry Range in any calendar year exceeds 13,000 acre-feet or (ii) 10,000 acres of land on the Lowry Range have been rezoned to non-agricultural use, finally platted and water tap agreements have been entered into with respect to all improvements to be constructed on such acreage, the Land Board may elect, at its option, to receive (in lieu of its royalty of 12% from customers on the Lowry Range), 50% of the collective net profits (ours and the Rangeview District’s) derived from the sale or other disposition of water on the Lowry Range.

To date, neither of these conditions has been met, and such conditions are not likely to be met any time soon.

addition to royalties on the sale of metered water deliveries, the Land Board will receive a royalty of two percent (2%) of the gross amount received from the sale of water taps to be served by the Rangeview Water Supply, except for the sale of any

taps to Sky Ranch.

In addition to royalties on the sale of metered water deliveries, the Land Board will receive a royalty of two percent (2%) of the gross amount received from the sale of water taps to be served by the Rangeview Water Supply, except for the sale of any taps to Sky Ranch.

Escalated royalties will be owed if we sell our Export Water outright rather than delivering water service.

We do not currently anticipate selling our Export Water.

Annual Production Fee – We are also required to pre-pay the Land Board a minimum annual water royalty of $46,000 per year, which is credited against earned royalties.

Annual Production Fee – We are also required to pre-pay the Land Board a minimum annual water royalty of $46,000 per year, which is credited against earned royalties each year.

Annual Rent – We pay the Land Board annual rent under the Lease of $8,400, which amount is increased every five years based on the Consumer Price Index for Urban Consumers.

The next increase will occur in 2026.

South Metropolitan Water Supply Authority (“SMWSA”) and Water Infrastructure Supply Efficiency Partnership (“WISE”)

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

SMWSA members include 14 Denver

area water providers in Arapahoe and Douglas Counties.

Pursuant to certain agreements between us and the Rangeview District, we agreed to provide funding to enable the Rangeview District to acquire rights to water projects undertaken by SMWSA,

including rights to water supplied pursuant to the cooperative water project known as WISE.

WISE provides for the purchase and construction of infrastructure (such as pipelines, water storage facilities, water treatment facilities, and other

appurtenant facilities) to deliver water to and among the 10 members of the South Metro WISE Authority (“SMWA”), consisting of the Rangeview District and nine other SMWSA members, from the City and County of Denver acting through its Board of Water

Commissioners (“Denver Water”) and the City of Aurora acting by and through its utility enterprise (“Aurora Water”).

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

District’s share of WISE water (approximately 9%) and infrastructure to provide water service to the Rangeview District’s customers and to receive the revenue from providing those services.

Our current WISE subscription entitles us to approximately

three million gallons per day of transmission pipeline capacity and increasing acre-feet of water per year as noted below.

SMWSA members include 14 Denver area water providers in Arapahoe and Douglas Counties.

Pursuant to certain agreements between us and the Rangeview District, we agreed to provide funding to enable the Rangeview District to acquire rights to water projects undertaken by SMWSA, including rights to water supplied pursuant to the cooperative water project known as WISE.

WISE provides for the purchase and construction of infrastructure (such as pipelines, water storage facilities, water treatment facilities, and other appurtenant facilities) to deliver water to and among the 10 members of the South Metro WISE Authority (“SMWA”), consisting of the Rangeview District and nine other SMWSA members, from the City and County of Denver acting through its Board of Water Commissioners (“Denver Water”) and the City of Aurora acting by and through its utility enterprise (“Aurora Water”).

In exchange for funding the Rangeview District’s WISE obligations, we have the exclusive right to use and reuse the Rangeview District’s share of WISE water (approximately 9%) and infrastructure to provide water service to the Rangeview District’s

customers and to receive the revenue from providing those services.

Our current WISE subscription entitles us to approximately three million gallons per day of transmission pipeline capacity and increasing acre-feet of water per year as noted below.

(June 1 – May 31)

2026 and thereafter

The cost of the water to the members is based on the water rates charged by Aurora Water and can be adjusted each January 1.

As of January 1, 2020, WISE water was $5.77 per thousand gallons and such rate will remain in

effect through calendar 2021.

As of January 1, 2021, WISE water was $5.98 per thousand gallons and such rate will remain in effect through calendar 2021.

Effective, January 1, 2022, WISE water is expected to increase to $6.13 per thousand gallons.

In addition, we pay certain system operational and construction costs.

If a WISE member, including the Rangeview District, does not need its WISE water each year or a member needs additional water, the members can trade

and/or buy and sell water amongst themselves.

During the fiscal year ended August 31, 2020, the Company, through the Rangeview District, purchased an additional 400 acre-feet of WISE water for $582,200, which amount is in addition to the subscription

described above.

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

operational and construction charges.

Ongoing funding requirements are dependent on the WISE water subscription amount and the Rangeview District’s allowable share of the operational and overhead costs of SMWA and construction activities related to

delivery of WISE water.

If a WISE member, including the Rangeview District, does not need its WISE water each year or a member needs additional water, the members can trade and/or buy and sell water amongst themselves.

For the year ended August 31, 2021, we, through the Rangeview District, purchased a total of 120 acre-feet of WISE water for $0.6 million.

For the year ended August 31, 2020, we, through the Rangeview District, purchased a total of 49 acre-feet of WISE water for $0.1 million.

During the years ended August 31, 2021 and 2020, we provided $1.1 million and $2.8 million of financing to the Rangeview District to fund the Rangeview District’s obligation to purchase WISE water rights and pay for operational and construction charges.

Additionally, the Rangeview District has entered into an agreement with WISE to construct special facilities for $0.6 million, which began in our fiscal 2021.

We are funding the construction of the special facility and the Rangeview District will remit 100% of the amount it receives to us.

The construction of the special facility was approximately 75% complete as of August 31, 2021.

East Cherry Creek Valley System

Pursuant to a 1982 agreement, the Rangeview District may purchase water from East Cherry Creek Valley Water and Sanitation District’s (“ECCV”) Land Board system.

ECCV’s Land Board system is comprised of eight wells and

more than ten miles of buried water pipeline located on the Lowry Range.

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

including hydraulic fracturing for oil and gas wells.

The agreement allows us to use the ECCV system through April 30, 2032, in exchange for a flat monthly fee and a fee per 1,000 gallons of water produced from ECCV’s system, which is included in the

water usage fees charged to customers.

ECCV’s Land Board system is comprised of eight wells and more than ten miles of buried water pipeline located on the Lowry Range.

In May 2012, we entered into an agreement to operate and maintain the ECCV facilities allowing us to utilize the system to provide water to commercial and industrial customers, including hydraulic fracturing for oil and gas wells.

The agreement allows us to use the ECCV system through April 30, 2032, in exchange for a flat monthly fee and a fee per 1,000 gallons of water produced from ECCV’s system, which is included in the water usage fees charged to customers.

Sources of Water and Wastewater Service Revenues

Our water and wastewater segment generates revenue from the following sources, described in greater detail below:

Monthly water usage and wastewater treatment fees

Our water and wastewater resource development segment generates revenue from the following sources, described in greater detail below:

● Monthly metered water usage and wastewater treatment fees

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

● Construction and special facility funding fees

Consulting fees;

● Consulting fees, and

● Industrial – oil and gas operations fees

Monthly Water Usage and Wastewater Treatment Fees

Monthly water usage fees are assessed to customers based on actual metered deliveries each month.

Water usage fees are based on a tiered pricing structure that provides for higher prices as customers use greater

amounts of water.

Monthly Metered Water Usage and Wastewater Treatment Fees

Monthly metered water usage fees are assessed to customers based on actual deliveries each month.

Water usage fees are based on a tiered pricing structure that provides for higher prices as customers use greater amounts of water.

The water usage fees for customers on the Lowry Range are noted in the table below:

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The figures in the table above reflect the amounts charged to the Rangeview District’s end-use customers on the Lowry Range.

Pursuant to the Lease, the amounts charged by the Rangeview District to its end-use customers

on the Lowry Range cannot exceed the average of similar rates and charges of three surrounding municipal water and wastewater service providers.

In exchange for providing water service to the Rangeview District’s Lowry Range customers, we receive 98%

of the usage charges received by the Rangeview District relating to water services after deducting the required royalty to the Land Board (described above at Rangeview Water Supply – Land Board Royalties and Fees ).

Pursuant to the Lease, the amounts charged by the Rangeview District to its end-use customers on the Lowry Range cannot exceed the average of similar rates and charges of three surrounding municipal water and wastewater service providers.

In exchange for providing water service to the Rangeview District’s Lowry Range customers, we receive 98% of the usage charges received by the Rangeview District relating to water services after deducting the required royalty to the Land Board (described above at Rangeview Water Supply – Land Board Royalties and Fees ).

The amounts charged by the Rangeview District to its end-use customers off the Lowry Range are determined pursuant to the Rangeview District’s service agreements with such customers and such rates may vary.

for providing water service to the Rangeview District’s customers off the Lowry Range, we receive 98% of the usage charges received by the Rangeview District relating to water services after deducting any required royalty to the Land Board.

royalty to the Land Board is required for water service provided utilizing our Rangeview Water Supply, which includes most of our current customers off the Lowry Range except those at the Elbert & Highway 86 Commercial District (also known as

“Wild Pointe” described below).

We sell bulk water at a rate of $14.76 per thousand gallons to commercial and industrial customers through the use of hydrant meters.

In exchange for providing water service to the Rangeview District’s customers off the Lowry Range, we receive 98% of the usage charges received by the Rangeview District relating to water services after deducting any required royalty to the Land Board.

The royalty to the Land Board is required for water service provided utilizing our Rangeview Water Supply, which includes most of our current customers off the Lowry Range except those at the Elbert & Highway 86 Commercial District (also known as “Wild Pointe” described below).

We sell bulk water at a rate of $14.76 per thousand gallons to commercial and industrial customers via hydrant meters or metered fill stations.

We also collect other immaterial fees and charges from customers and other users to cover miscellaneous administrative and service expenses, such as application fees, review fees, reinspection fees, and permit fees.

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These fees are known as tap fees.

The tap fee is a non-refundable fee that is payable typically at the

time a building permit is granted for construction of a home or business and authorizes the property to connect to the water or wastewater system.

The tap fee is a non-refundable fee that is payable typically at the time a building permit is granted for construction of a home or business and authorizes the property to connect to the water or wastewater system.

Once granted, 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.

Thus, the customer has full control of the

connection right as it can obtain all the benefits from this right.

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

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

Thus, the customer has full control of the connection right as it can obtain all the benefits from this right.

Our systems are “wholesale facilities,” namely those assets used to deliver water and wastewater to a service area or major regions or portions thereof.

Wells, treatment plants,

pump stations, tanks, reservoirs, transmission pipelines, and major sewage lift stations are typical examples of wholesale facilities.

Wells, treatment plants, pump stations, tanks, reservoirs, transmission pipelines, and major sewage lift stations are typical examples of wholesale facilities.

The Rangeview District’s 2021 water tap fees are $27,753 per SFE, and its wastewater tap fees are $4,847.

In exchange for providing water service to the Rangeview District’s customers using the Rangeview Water Supply (other than taps to Sky Ranch, which are exempt), we receive 98% of the Rangeview District’s tap fees and

the Land Board receives the remaining two percent as a royalty.

two percent as a royalty.

In exchange for providing wastewater services, whether to customers on or off the Lowry Range, we receive 100% of the Rangeview District’s wastewater tap fees.

Construction and Special Facility Funding Fees

Construction and Special Facility Funding fees are fees we receive, typically in advance, from developers for us to build infrastructure that is normally the responsibility of the developer because the facilities

service only the developer’s property.

services to an individual development and are not otherwise classified as a typical wholesale facility or retail facilities.

Temporary infrastructure required prior to construction of permanent water and wastewater systems or transmission pipelines

to transfer water from one location to another are examples of special facilities.

Once we certify that the special facilities have been constructed in accordance with our design criteria, the developer dedicates the special facilities to the

Rangeview District, and we operate and maintain the facilities on behalf of Rangeview.

Those type of facilities may include retail facilities, which distribute water to and collect wastewater from an individual subdivision or a community, and special facilities, which are required to extend services to an individual development and are not otherwise classified as a typical wholesale facility or retail facilities.

Temporary infrastructure required prior to construction of permanent water and wastewater systems or transmission pipelines to transfer water from one location to another are examples of special facilities.

Once we certify that the special facilities have been constructed in accordance with our design criteria, the developer dedicates the special facilities to the Rangeview District, and we operate and maintain the facilities on behalf of Rangeview.

Consulting Fees

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Industrial – Oil and Gas Operations Fees

We provide water for oil and gas operators that are performing hydraulic fracturing, mainly in the Niobrara Formation around our service area and our Sky Ranch property.

These fees are paid based on the metered

gallons of water delivered.

We provide water for oil and gas operators that are performing hydraulic fracturing, mainly in the Niobrara Formation on and around our service area and our Sky Ranch property.

These fees are paid based on the metered gallons of water delivered.

Oil and gas drilling in our area is affected by the price of oil and state, local and federal government regulations.

The number of wells drilled vary from year to year.

Each well utilizes between 10 and 20 million

gallons of water during the hydraulic fracturing process, which equates to selling water to between approximately 100 and 200 homes for an entire year.

With a large percentage of the acreage surrounding the Lowry Range in Arapahoe, Adams, Elbert,

and portions of Douglas Counties already leased by oil companies, we anticipate continuing to provide water for drilling and hydraulic fracturing in the future.

Each well utilizes between 10 and 20 million gallons of water during the hydraulic fracturing process, which equates to selling water to between approximately 100 and 200 homes for an entire year.

With a large percentage of the acreage surrounding the Lowry Range in Arapahoe, Adams, Elbert, and portions of Douglas Counties already leased by oil companies, we anticipate continuing to provide water for drilling and hydraulic fracturing in the future.

Service to Customers Not on the Lowry Range

In addition to customers on the Lowry Range, we have an exclusive agreement with the Rangeview District to provide water and wastewater service, including the design, construction, operation and maintenance of water

and wastewater systems to serve the Rangeview District’s customers located outside the Lowry Range service area (for example Wild Pointe and Sky Ranch) (the “Non-Lowry Service Agreement”).

In exchange for providing water and wastewater services to

the Rangeview District’s customers that are not on the Lowry Range, we receive 100% of water and wastewater tap fees, 98% of the water usage fees, and 90% of the monthly wastewater service and usage fees received by the Rangeview District from these

customers, after deduction of royalties due to the Land Board, if applicable (i.e., if we use a portion of the Rangeview Water Supply, such as the Export Water, to provide service to such customers).

We are currently not using the Rangeview Water

Supply at Sky Ranch, but we may do so in the future, in which case water usage fees to be collected for such service would become subject to the Land Board royalty.

In addition to customers on the Lowry Range, we have an agreement with the Rangeview District to be its exclusive water and wastewater service provider throughout its service area.

This includes the design, construction, operation and maintenance of water and wastewater systems to serve the Rangeview District’s customers located outside the Lowry Range service area (for example Wild Pointe and Sky Ranch) (the “Non-Lowry Service Agreement”).

In exchange for providing water and wastewater services to the Rangeview District’s customers that are not on the Lowry Range, we receive 100% of water and wastewater tap fees, 98% of the water usage fees, and 90% of the monthly wastewater service and usage fees received by the Rangeview District from these customers, after deduction of royalties due to the Land Board, if applicable (i.e., if we use a portion of the Rangeview Water Supply, such as the Export Water, to provide service to such customers).

We are currently not using the Rangeview Water Supply at Sky Ranch, but we may do so in the future, in which case water usage fees to be collected for such service would become subject to the Land Board royalty.

Sky Ranch Water and Wastewater Service – As described in more detail below, we are developing approximately 930 acres of land as a Master Planned Community known as Sky Ranch.

Pursuant to the Non-Lowry Service Agreement, we are the exclusive provider of water and wastewater services to future residents of the Sky Ranch development.

Wild Pointe – Elbert & Highway 86 Commercial Metropolitan District – In 2017, we entered into an agreement with the Rangeview District, which had entered

into an agreement with Elbert & Highway 86 Commercial Metropolitan District (the “Elbert 86 District”) to operate and maintain a water system for residential and commercial customers at the Wild Pointe development in Elbert County.

system includes two deep water wells, a pump station, treatment facility, storage facility, over eight miles of transmission lines, and over 450 acre-feet of water rights serving Wild Pointe.

We provided $1.6 million in funding to acquire the

exclusive rights to operate and maintain all the water facilities in exchange for payment of the remaining residential and commercial tap fees and annual water use fees.

Pursuant to the Non-Lowry Service Agreement, we are the exclusive provider of water and wastewater services to all current and future residents, businesses, and other water users at the Sky Ranch development.

Wild Pointe – Elbert & Highway 86 Commercial Metropolitan District – In 2017, we entered into an agreement with the Rangeview District, which had entered into an agreement with Elbert & Highway 86 Commercial Metropolitan District (the “Elbert 86 District”) to operate and maintain a water system for residential and commercial customers at the Wild Pointe development in Elbert County.

The water system includes two deep water wells, a pump station, treatment facility, storage facility, over eight miles of transmission lines, and over 450 acre-feet of water rights serving Wild Pointe.

We provided $1.6 million in funding to acquire the exclusive rights to operate and maintain all the water facilities in exchange for payment of the remaining residential and commercial tap fees and annual water use fees.

Service to Wild Pointe is governed by the Non-Lowry Service Agreement.

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In 2010, we purchased approximately 930 acres of undeveloped land in unincorporated Arapahoe County, which we are actively developing as the master planned community known as Sky Ranch.

property acquisition, we also acquired nearly 830 acre-feet of water beneath Sky Ranch, and approximately 640 acres of oil and gas mineral rights.

Sky Ranch is located 16 miles east of downtown Denver, four miles north of the Lowry Range, and four

miles south of Denver International Airport.

With the property acquisition, we also acquired nearly 830 acre-feet of water beneath Sky Ranch, and approximately 640 acres of oil and gas mineral rights.

Sky Ranch is located 16 miles east of downtown Denver, four miles north of the Lowry Range, and four miles south of Denver International Airport.

Sky Ranch is zoned for residential, commercial, and retail uses, including up to 3,200 homes and more than two million square feet of commercial, retail, and light industrial development.

The development of Sky Ranch

will occur in multiple filings and phases which will take several years to complete.

Our first filing of more than 150 acres is platted for a total of 506 detached single-family residential lots (see illustration below for the layout of filing

As of August 31, 2020, we had delivered 483 finished lots in our first filing and the remaining finished lots sold on November 3, 2020.

Our second filing, which is planned to have four sub-phases, is approximately 250 acres and is expected to

be platted for nearly 900 lots (see illustration below for the proposed layout of filing 2).

We plan to begin development activities for filing 2 by the end of calendar 2020.

Subsequent to August 31, 2020, we entered into contracts with four

home builders to sell 789 finished lots, on which the home builders will construct both attached and detached single-family residential units.

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 escalators, coupled with the

contracted-for lots would result in total sales for the second filing of $72.6 million.

Our preliminary total cost estimates for developing the nearly 900 lots is $65.6 million.

We estimate 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.

The development of Sky Ranch will occur in multiple filings and phases which will take several years to complete.

Our first development phase of more than 150 acres has a total of 509 detached single-family residential lots (see illustration below for the layout of this initial development phase).

Of the 509 lots, we sold 505 finished lots to homebuilders, all of which were sold as of August 31, 2021, and retained the remaining lots for use in our single-family home rental business.

In February 2021, we began construction on the second development phase, which will include 850 lots for which we have contracted to sell 804 lots to home builders for detached and attached single-family homes, and 46 lots we plan to use for our single-family home rental business.

The second development phase, totaling approximately 250 acres, will be constructed in four subphases (see illustration below for the proposed layout of the second development phase).

Development activities for the first subphase began in February 2021, and by August 31, 2021, we had received the plats for 229 lots, which includes 10 lots we will use in our single-family home rental business.

These lots are anticipated to be finished and ready for the four homebuilders to begin constructing homes by the summer of 2022.

The total sales price for the 804 lots being sold to the homebuilders is $65.0 million, which is subject to price escalations depending on development timing which are not included in that figure.

Our preliminary total cost estimates for developing all 229 lots in the first subphase is $20.4 million, with approximately $17.2 million of that estimated to be spent on public improvements which are eligible for reimbursement by the Sky Ranch CAB.

See below for a description of the conditions that may limit our ability to receive reimbursables and a definition of the Sky Ranch CAB.

Filing 1 Illustrative Layout

Filing 2 Illustrative Layout

First Development Phase Illustrative Layout

Second Development Phase Illustrative Layout

As the land developer, we are providing finished lots (i.e.

lots ready for building permits to construct homes) to each of the home builders.

We build, or contract to build, the roads, curbs, wet and dry utilities, storm drains, parks, open

spaces, and other related improvements as part of a fully master planned community.

Each builder is required to purchase water and sewer taps for each lot from the Rangeview District at the time of permitting, the cost of which depends on the size

of the lot, the size of the house, and the amount of irrigated turf.

Pursuant to the Non-Lowry Service Agreement, we receive all the water and wastewater tap fees from tap sales at Sky Ranch and 98% of the ongoing monthly water and wastewater

service revenues.

are ultimately owned by the governmental metropolitan district or other municipality that is responsible for the maintenance of the improvements.

Upon completion and acceptance of certain public improvements by the “Sky Ranch Districts” or the “Sky

Ranch CAB” (both of which are defined below), we are entitled to receive reimbursement for the verified public improvement costs.

Pursuant to the agreements between us and the Sky Ranch CAB, no payment is required by the Sky Ranch CAB with respect to

reimbursable costs unless and until the Sky Ranch CAB and/or the Sky Ranch Districts issue bonds to reimburse us for all or a portion of advances provided or expenses incurred for reimbursable public improvements.

Due to this contingency,

reimbursable costs are capitalized and expensed consistent with other development costs until the Sky Ranch CAB reimburses us for the public improvement costs.

When we receive reimbursement, we reduce any remaining capitalized amounts, with any

excess proceeds over the currently remaining capitalized costs being recognized as Other income at the time of payment.

Pursuant to our service agreements, the Company must construct all required wholesale water and wastewater improvements (i.e., a wastewater reclamation facility, water supply, storage, treatment and other wholesale

facilities) for the provision of water and wastewater service to the property.

As of August 31, 2020, we have completed the required wholesale facilities and other infrastructure to provide water for the first 900 homes, and wastewater for over 2,000

homes at Sky Ranch.

We build, or contract to build, the roads, curbs, wet and dry utilities, storm drains, parks, open spaces, and other related improvements as part of a fully master planned community.

Each builder is required to purchase water and wastewater taps for each lot from the Rangeview District at the time of building permit, the cost of which depends on the size of the lot, the size of the house, and the amount of irrigated turf.

Pursuant to the Non-Lowry Service Agreement, we receive all the water and wastewater tap fees from tap sales at Sky Ranch and 98% of the ongoing monthly water and wastewater service revenues.

Public improvements, such as roads, parks, and water and sanitary sewer mains, storm sewer, and drainage improvements, that are shared by all homeowners in the development and not specific to any private finished lot are ultimately owned by the governmental metropolitan district or other municipality that is responsible for the maintenance of the improvements.

Upon completion and acceptance of certain public improvements by the “Sky Ranch Districts” or the “Sky Ranch CAB” (both of which are defined below), we are entitled to receive reimbursement for the verified public improvement costs.

Pursuant to certain agreements with the Sky Ranch Districts and the Sky Ranch CAB, on their behalf we construct public infrastructure such as roads, curbs, storm water, drainage, sidewalks, parks, open space, trails etc., which costs are reimbursed to us by the Sky Ranch CAB, through funds generated by the Sky Ranch districts through taxes, fees, or the issuance of municipal bonds.

See Note 2 to the accompanying financial statements regarding treatment and recognition of these public improvement costs.

Pursuant to our service agreements, we are required to construct all required wholesale water and wastewater improvements (i.e., a wastewater reclamation facility, water supply, storage, treatment, and other wholesale facilities) for the provision of water and wastewater service to the property.

As of August 31, 2021, we have completed the required wholesale facilities and other infrastructure to provide water for the first 900 homes, and wastewater for over 2,000 homes at Sky Ranch.

The most significant wholesale facility built was the wastewater reclamation facility, which cost $10.2 million and has a designed capacity to provide wastewater for more than 2,000 single-family homes before requiring expansion.

This allows the treatment facility to process wastewater for several development phases at Sky Ranch before additional investment is needed to increase its capacity.

We expect to have other filings developing concurrently with the second filing that will include commercial, retail, and light industrial sites.

We expect full development of the Sky Ranch Master Planned Community to

take another ten years.

PCY Holdings, LLC, agreed to construct certain facilities necessary to provide water and wastewater service to Sky Ranch.

The Rangeview District, through us as its exclusive service provider, agreed to provide water and wastewater services to the Sky

Ranch property.

We have installed over 15.5 miles of water delivery and wastewater collection infrastructure at a cost of $4.9 million, which we believe will be reimbursable by the Sky Ranch CAB as outlined above.

We have leased the oil and gas minerals underlying the property to a major independent exploration and production company.

Sky Ranch Metropolitan District Nos.

1, 3, 4, and 5

We expect to have other filings developing concurrently with the second filing that could include commercial, retail, and light industrial sites.

We expect full development of the Sky Ranch Master Planned Community to take another eight to ten years.

Pursuant to the Sky Ranch Water and Wastewater Service Agreement, dated June 19, 2017, between PCY Holdings, LLC (a wholly-owned subsidiary of ours that holds title to the Sky Ranch land), and the Rangeview District, PCY Holdings, LLC, agreed to construct certain facilities necessary to provide water and wastewater service to Sky Ranch.

The Rangeview District, through us as its exclusive service provider, agreed to provide water and wastewater services to the Sky Ranch property.

We have installed over 15.5 miles of water delivery and wastewater collection infrastructure at a cost of $4.9 million, which is reimbursable by the Sky Ranch CAB as outlined in Note 14 to the accompanying consolidated financial statements.

We have also leased the oil and gas minerals underlying the property to a major independent exploration and production company.

Sky Ranch Metropolitan Districts

The Sky Ranch Metropolitan District Nos.

1, 3, 4 and 5 are quasi-municipal corporations and political subdivisions of Colorado formed in 2004 for the purpose of providing service to the Sky Ranch property (the “Sky

Ranch Districts”).

1, 3, 4, 5, 6, 7 and 8 are quasi-municipal corporations and political subdivisions of Colorado formed in 2004 for the purpose of providing services to the Sky Ranch property (the “Sky Ranch Districts”).

The Sky Ranch Districts are governed by an elected board of directors.

Eligible voters and persons eligible to serve as directors of the Sky Ranch Districts must own an interest in property within the boundaries of the district.

own certain rights and real property interests which encompass the current boundaries of the districts and certain of our employees serve on the boards of directors of the Sky Ranch Districts.

We own certain rights and real property interests which encompass the current boundaries of the districts and certain of our employees serve on the boards of directors of the Sky Ranch Districts.

The current directors of the districts are Mark W.

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Lehman (an employee of ours), Dirk Lashnits (an employee of ours), and one independent board member.

to Colorado law, directors may receive $100 for each board meeting they attend, up to a maximum of $1,600 per year.

Pursuant to Colorado law, directors may receive $100 for each board meeting they attend, up to a maximum of $1,600 per year.

Harding, McNeill, Lehman, and Lashnits have all elected to forego these payments.

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Districts No.

for the benefit of the property within the boundaries and/or service area of the Sky Ranch Districts.

In order for the public improvements to be constructed and/or acquired, it is necessary for each Sky Ranch District and/or the Sky Ranch CAB to be

able to fund the improvements and pay its ongoing operations and maintenance expenses related to the provision of services that benefit the property.

1 and 5 of the Sky Ranch Districts, formed the Sky Ranch Community Authority Board (“Sky Ranch CAB”) to, among other things, design, construct, finance, operate and maintain certain public improvements for the benefit of the property within the boundaries and/or service area of the Sky Ranch Districts.

In order for the public improvements to be constructed and/or acquired, it is

necessary for each Sky Ranch District and/or the Sky Ranch CAB to be able to fund the improvements and pay its ongoing operations and maintenance expenses related to the provision of services that benefit the property.

We entered into agreements, first with Sky Ranch Metropolitan District No.

1 in 2014 and later with

the Sky Ranch CAB, that require us to fund expenses related to the construction of an agreed upon list of public improvements for the Sky Ranch Master Planned Community.

In September 2018 and effective as of November 13, 2017, the parties entered into a series of agreements that superseded and consolidated the previous agreements into one primary agreement, the Facilities Funding and

Acquisition Agreement (the “Sky Ranch FFAA”), pursuant to which:

the Sky Ranch CAB agreed to repay to us the amounts owed by Sky Ranch Metropolitan District No.

previous agreements between us and Sky Ranch Metropolitan District No.

5 and us and the Sky Ranch CAB were terminated;

the Sky Ranch CAB acknowledged all amounts owed to us under the terminated agreements, as well as amounts we incurred to finance the formation of the Sky Ranch CAB;

we agreed to fund expenses related to the construction of an agreed upon list of improvements to be constructed by the Sky Ranch CAB with an estimated cost of $30 million (including improvements already funded) on an as-needed basis for

calendar years 2018–2023.

1 in 2014 and later with the Sky Ranch CAB, that require us to fund expenses related to the construction of an agreed upon list of public improvements for the Sky Ranch Master Planned Community.

We and the Sky Ranch CAB entered into a Facilities Funding and Acquisition Agreement (the “FFAA”) effective November 2017, obligating us to advance funding to the Sky Ranch CAB for specified public improvements constructed from 2018 to 2023.

All amounts owed under the FFAA bear interest at a rate of 6% per annum.

Any advances not paid or reimbursed by the Sky Ranch CAB by December 31, 2058, for first phase and December 31, 2060, for the second phase, shall be deemed forever discharged and satisfied in full.

Advances and verified costs expended by us for expenses related to the construction of the agreed upon public improvements are reimbursable to us by the Sky Ranch CAB.

All reimbursable expense incurred under the

agreement accrues interest at a rate of 6% per annum from the time funds are advanced by us to the Sky Ranch CAB or costs are incurred by us for expenses related to the construction of improvements, as applicable.

No repayment is required of the Sky

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

other public improvement expenses incurred.

No repayment is required of the Sky Ranch CAB for advances made or expenses incurred related to the construction of public improvements unless and until the Sky Ranch CAB and/or Sky Ranch Districts generate sufficient funds from property taxes, fees, or the issuance of bonds in an amount sufficient to reimburse us for all or a portion of advances or other public improvement expenses incurred.

The Sky Ranch CAB agrees to exercise reasonable efforts to issue bonds to reimburse us subject to certain limitations.

In addition, the Sky Ranch CAB agrees to utilize any available moneys not otherwise

pledged to payment of debt or used for operation and maintenance expenses to reimburse us.

Any advances or expenses not paid or reimbursed by the Sky Ranch CAB by December 31, 2058, shall be deemed forever discharged and satisfied in full.

years ended August 31, 2018 through 2020, we advanced the Sky Ranch CAB $26.4 million for the construction of public improvements, including improvements with respect to earthwork, erosion control, streets, drainage, water sewer, stormwater and

In November 2019, the Sky Ranch CAB issued bonds and repaid $10.5 million of the advances to date leaving $15.9 million outstanding as of August 31, 2020.

We expect to fund $48.3 million of reimbursable public improvements for filing 2.

The timing of those expected expenditures and reimbursement from the Sky Ranch CAB will depend on absorption of homes in filing 2.

In addition, the Sky Ranch CAB agrees to utilize any available moneys not otherwise pledged to payment of debt or used for operation and maintenance expenses to reimburse us.

Since 2017, we have advanced the Sky Ranch CAB a total of $28.1 million for funding the construction of the public improvements.

In November 2019, the Sky Ranch CAB issued bonds and repaid $10.5 million of the advances and in January 2021 the Sky Ranch CAB repaid $0.4 million from unencumbered funds resulting from a budget surplus in 2020.

Previously, the reimbursable expenditures we funded were expensed through land development construction costs, and project management revenue and interest income were not recognized as the reimbursement was deemed contingent on a sufficient tax base and or the issuance of municipal bonds for collectability to be reasonable assured.

Additionally, the Sky Ranch CAB is contractually obligated to utilize any available funds not otherwise pledged to payment of previously issued bonds, used for operation and maintenance expenses, or otherwise encumbered, to reimburse us.

As Sky Ranch continues to grow, housing values continue to increase, and as the Sky Ranch CAB has demonstrated the ability to repay the amounts owed to us, the collectability of reimbursable expenditures incurred to date has been determined to be probable, as such, during fiscal 2021 we have recognized the remaining reimbursable costs, project management fees, and interest.

During the year ended August 31, 2021, we recognized $21.7 million as a Note receivable – related party with the offsetting entries being to Other income, Project management revenue and Interest income for costs deemed reimbursable from the first development phase at Sky Ranch.

Due to continue growth and the continued belief the Sky Ranch CAB has the ability to repay amounts we spend on public improvements, the second phase reimbursable public improvements, along with the Project management revenue and interest income, totaling $3.1 million as of August 31, 2021, are being recorded as a Note receivable from the Sky Ranch CAB as incurred.

In total, as of August 31, 2021, the Note receivable from the Sky Ranch CAB totals $24.8 million, which is comprised of $20.6 million of public improvement costs, $1.7 million of project management fees and $2.5 million of interest.

The Sky Ranch CAB has an obligation to repay us but the ability of the Sky Ranch CAB to repay us before the contractual termination dates is dependent upon the establishment of a tax base or other fee generating activities sufficient to recover reimbursable costs incurred.

Costs incurred will be recognized as Land development inventories or Notes receivable – related party, dependent upon whether collectability is deemed to be reasonably assured.

In addition, to the note receivable balance, the Sky Ranch CAB is obligated to refund $0.5 million for the reimbursement of construction costs from the Southeast Metropolitan Water Supply Authority (“SEMSWA”).

These costs will be distributed to the Sky Ranch CAB upon the acceptance of the stormwater infrastructure by SEMSWA, anticipated to be in fiscal year 2022.

We recorded this reimbursable cost in trade accounts receivable at August 31, 2021.

The current directors of the Sky Ranch CAB are Mark W.

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McNeill (our Vice President and Chief Financial Officer), Scott E.

Lehman (an employee of

ours), Dirk Lashnits (an employee of ours), and one independent board member.

Lehman (an employee of ours), Dirk Lashnits (an employee of ours), and one independent board member.

Pursuant to Colorado law, directors may receive $100 for each board meeting they attend, up to a maximum of $1,600 per year.

Harding, McNeill, Lehman, and Lashnits

have all elected to forego these payments.

Harding, McNeill, Lehman, and Lashnits have all elected to forego these payments.

Oil and Gas Leases

In 2011, we entered into a three-year Oil and Gas Lease (the “Sky Ranch O&G Lease”) and Surface Use and Damage Agreement and received an up-front payment and a 20% of gross proceeds royalty (less certain taxes)

from the sale of any oil and gas produced from the mineral estate we own at Sky Ranch.

In 2014, the Sky Ranch O&G Lease was extended for an additional two years.

The Sky Ranch O&G Lease is now held by production, and we have been receiving

royalties from the oil and gas production from six wells drilled within our mineral interest.

During the years ended August 31, 2020 and 2019, we received $669,000 and $148,300 in royalties attributable to these wells.

of mineral estate we own adjacent to the Lowry Range, and we received an up-front payment of $167,200.

The up-front payment received pursuant to the Bison Lease is being recognized into revenue ratably over a three-year period, which expires in

September 2020, and was not extended.

The Sky Ranch O&G Lease is now held by production, and we have been receiving royalties

from the oil and gas production from six wells drilled within our mineral interest.

During the years ended August 31, 2021 and 2020, we received $0.3 million $0.7 million in royalties attributable to these wells.

In September 2017, we entered into a three-year Paid-Up Oil and Gas Lease with Bison Oil and Gas, LLP (the “Bison Lease”) for the purpose of exploring for, developing, producing, and marketing oil and gas from 40 acres of mineral estate we own adjacent to the Lowry Range, and we received an up-front payment of $0.2 million.

The up-front payment received pursuant to the Bison Lease is being recognized into revenue ratably over a three-year period, which expired in September 2020, and was not extended.

In July 2019, we entered into an Agreement on Locations of Oil and Gas Operations covering approximately 16 acres at Sky Ranch with the operator of the Sky Ranch O&G Lease (the “OGOA”).

The Company received an

up-front payment of $573,700 in fiscal 2019 for the OGOA, which is being recognized as income on a straight-line basis over three years (the term of the OGOA).

If after three years the operator has not spud at least one well on the oil and gas

operations area, the operator may extend the right to the OGOA one additional year by paying us $75,000.

The Company received an up-front payment of $0.6 million in fiscal 2019 for the OGOA, which is being recognized as income on a straight-line basis over three years (the term of the OGOA).

If after three years (by July 2022) the operator has not spud at least one well on the oil and gas operations area, the operator may extend the right to the OGOA one additional year by paying us $75,000.

The operator may only extend the OGOA for two additional years for a total of five years.

As of August 31, 2021, no wells have been drilled.

Arkansas River Land and Minerals

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We currently lease all these acres for dry land grazing.

We intend to sell the land in due course and have classified it

as a long-term investment.

We also own approximately 13,900 acres of mineral interests in the Arkansas River Valley, which have a carrying value of $1.4 million.

In fiscal 2020, we assessed the recoverability of the

Arkansas Valley mineral rights.

We determined that the carrying value of these mineral rights is

not recoverable.

As a result , we recorded an impairment charge of $1.4 million in Non-cash mineral asset impairment charge in the consolidated

statements of operations and comprehensive income.

We intend to sell the land in due course and have classified it as a long-term investment.

We also own approximately 13,900 acres of mineral interests in the Arkansas River Valley, which has no carrying value on our books due to an impairment charge of $1.4 million we recorded in fiscal 2020.

We currently have no plans to sell our mineral interests.

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We primarily provide water and wastewater services on the Rangeview District’s behalf to the Rangeview District’s customers.

Because the Rangeview District accounts for the majority of our water and wastewater service revenue, we have included

the end-use customers of the Rangeview District who generate the most revenue for us on our list of significant customers.

Additionally, we have presented the percentages of revenue from water and wastewater services and water and wastewater tap

sales separately (versus by the water and wastewater resource development segment or total revenue), because we believe that provides a more meaningful presentation of the relevance of each customer to that service line.

Lot sales are generated

entirely through sales to three customers as noted below.

The tables below present revenue generated from our significant customers for each of the services presented.

For the year ended August 31, 2020

metered services

wastewater tap fees

Land development

(Lot sales recognized)

Ridgeview Youth Services

Conoco / Crestone Peak (oil & gas operations)

All Sky Ranch Homes (1)

All Wild Pointe Homes (2)

Taylor Morrison

Richmond Homes

Combined totals presented

(1) This represents the water and wastewater fees for all homes combined at Sky Ranch and not one individual home

(2) This represents the water and wastewater metered services and water and wastewater tap fees for all homes combined at Wild Pointe and not one individual home

For the year ended August 31, 2019

metered services

wastewater tap fees

Land development

(Lot sales recognized)

Ridgeview Youth Services

Conoco / Crestone Peak (oil & gas operations)

All Sky Ranch Homes (1)

All Wild Pointe Homes (2)

Taylor Morrison

Richmond Homes

Combined totals presented

(1) We did not begin providing significant water and wastewater services to Sky Ranch until fiscal 2020.

(2) This represents the water and wastewater metered services and water and wastewater tap fees for all homes combined at Wild Pointe and not one individual home

The Ridgeview Youth Services customer accounted for approximately the same dollar sales year over year, but due to the decline in oil and gas operations revenue, the percentage increased in fiscal 2020 over 2019.

The Rangeview District accounts for the majority of our water and wastewater service revenue.

Refer to Note 9 in the accompanying consolidated financial statements for additional information on our significant customers.

Projected Operations

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Along the Colorado Front Range, there are over 70 water providers with varying needs for replacement and/or new water supplies.

We believe that we are well positioned to assist certain of these providers in meeting

their current and future water needs.

We design, construct, and operate our water and wastewater facilities using advanced water treatment and wastewater treatment technologies, which allow us to use our water supplies in an efficient and environmentally

sustainable manner.

We believe that we are well positioned to assist certain of these providers in meeting their current and future water needs.

We develop our water and wastewater systems in stages to efficiently meet customer demands in our service areas by managing capital investments required for construction of facilities.

We use third-party contractors to construct

our facilities as needed.

We use third-party contractors to construct our facilities as needed.

We employ licensed water and wastewater operators to run our water and wastewater systems.

As our systems expand, we expect to hire additional personnel to operate our systems, which include water production, treatment,

testing, storage, distribution, metering, billing, and operations management.

As our systems expand, we expect to hire additional personnel to operate our systems, which include water production, treatment, testing, storage, distribution, metering, billing, and operations management.

Our water and wastewater systems conjunctively use surface and groundwater supplies and storage of raw water and highly treated reclaimed water supplies to provide a balanced sustainable water supply for our customers.

Integrating conservation practices and incentives, together with effective water reuse, demonstrates our commitment to providing environmentally responsible and sustainable water and wastewater services.

Water supplies and water storage reservoirs

are competitively sought throughout the west and along the Front Range of Colorado.

We believe that regional cooperation among area water providers in developing new water supplies, water storage, and transmission and distribution systems provides

the most cost-effective way of expanding and enhancing service capacities for area water providers.

Water supplies and water storage reservoirs are competitively sought throughout the west and along the Front Range of Colorado.

We believe that regional cooperation among area water providers in developing new water supplies, water storage, and transmission and distribution systems provides the most cost-effective way of expanding and enhancing service capacities for area water providers.

We continue to seek opportunities for developing water supplies and water storage opportunities with other area water providers.

As we continue expanding and developing our Rangeview Water Supply, we anticipate needing a significant number of high-capacity deep water wells.

These wells would be drilled into one or more of the three principal

aquifers located beneath the Lowry Range, and, as with our current wells, the water would be delivered to central water treatment facilities for treatment prior to delivery to customers.

Continued development of our Lowry Range surface water supplies

will require facilities to divert surface water to storage reservoirs to be located on the Lowry Range, additional treatment facilities to treat the water prior to introduction into our distribution system(s), and additional surface water diversion

facilities designed with capacities to divert the surface water when available (particularly during seasonal events such as spring run-off and summer storms) for storage in reservoirs constructed on the Lowry Range.

We estimate the full build-out of

water and wastewater facilities (including diversion structures, transmission pipelines, reservoirs, and water treatment facilities) to develop and deliver our portfolio of water would cost in excess of $850 million, and would accommodate water

service to customers located on and outside the Lowry Range.

These wells would be drilled into one or more of the three principal aquifers located beneath the Lowry Range, and, as with our current wells, the water would be delivered to central water treatment facilities for treatment prior to delivery to customers.

Continued development of our Lowry Range surface water supplies will require facilities to divert surface water to storage reservoirs to be located on the Lowry Range, additional treatment facilities to treat the water prior to introduction into our distribution system(s), and additional surface water diversion facilities designed with capacities to divert the surface water when available (particularly during seasonal events such as spring run-off and summer storms) for storage in reservoirs constructed on the Lowry Range.

We estimate the full build-out of water and wastewater facilities (including diversion structures, transmission pipelines, reservoirs, and water treatment facilities) to develop and deliver our portfolio of water would cost in excess of $900 million, and would accommodate water service to customers located on and outside the Lowry Range.

We believe this build out would occur in phases over many decades, and we believe tap fees would be sufficient to fund the required infrastructure costs.

Our Denver-based supplies are a valuable, locally available resource located near the point of use.

This enables us to incrementally develop infrastructure to produce, treat and deliver water to customers based on

their growing demands.

During fiscal 2020, we invested $6.3 million in plant and facilities that interconnect the Rangeview District, WISE, and Sky Ranch water and wastewater systems to provide water and wastewater services to our growing

customers at Sky Ranch and elsewhere.

This enables us to incrementally develop infrastructure to produce, treat and deliver water to customers based on their growing demands.

During fiscal 2021 and 2020, combined, we invested over $6.3 million in plant and facilities that interconnect the Rangeview District, WISE, and Sky Ranch water and wastewater systems to provide water and wastewater services to our growing customers at Sky Ranch and elsewhere.

We expect to continue to invest in water rights and facilities as our customer demands grow.

We are in the process of developing our Sky Ranch property, including finishing lots for home builders, and building additional water and wastewater infrastructure for residential and commercial development at the

During the years ended August 31, 2020 and 2019, we invested $8.5 million and $17.7 million, in our Sky Ranch land to deliver the finished lots, which was done ahead of our original schedule and on budget.

We anticipate the second filing of

Sky Ranch will require $65.6 million of construction costs to deliver the lots, which is planned to occur over three years and be funded by the $72.5 million of total fees to be paid under our lot sales agreements.

During the years ended August 31,

2020 and 2019, the initial filing of Sky Ranch produced $5.4 million and $3.4 million, respectively, of water and wastewater tap fees, and we believe we will receive the remaining $5.9 million in water and wastewater tap fees for the lots in the

initial filing of Sky Ranch during our fiscal 2021.

We believe the second filing of Sky Ranch will produce in excess of $22 million in water and wastewater tap fee revenue over several years.

We continue developing our Sky Ranch property, including finishing lots for home builders, building additional water and wastewater infrastructure for residential and commercial development at the property, and having homes constructed for our single-family home rental business.

During the years ended August 31, 2021 and 2020, we invested $7.3 million and $9.4 million in our Sky Ranch land to deliver finished lots and we spent under $1.0 million so far constructing three units for use in our build-to-rent business.

Although the first development phase was our first project as a land developer, it was done ahead of our original schedule and on budget.

We anticipate the first subphase of the second development phase, which broke ground in February 2021, to incur a total of $20.4 million of construction costs to deliver the lots, which is planned to occur over three years and be funded by the $17.8 million of total fees to be paid under our lot sales agreements and the reimbursement by the Sky Ranch CAB of $17.2 million of estimated public improvement costs.

During the years ended August 31, 2021 and 2020, we sold 167 and 201 water and wastewater taps at Sky Ranch to homebuilders, which generated $5.2 million and $5.6 million of tap fees.

As of August 31, 2021, we have sold 464 water and wastewater taps in the first development phase of Sky Ranch, which we believe the remaining 41 water and wastewater taps will be sold before the end of our second fiscal quarter of 2022, which will produce $1.2 million in revenue and cash.

Based on current prices and engineering estimates, we believe the second development phase of Sky Ranch will produce more than $24.0 million in water and wastewater tap fee revenue and cash over several years.

We are nearing completion of the first three rental units at Sky Ranch, and in conjunction with the second development phase, plan to build more than 47 additional rental units over several years.

We anticipate building these units concurrent with construction of homes in the second development phase using a combination of home builders that are building homes in this phase along with other builders as needed to ensure homes are delivered in a timely and cost-effective manner.

We are working on finalizing the proposed size and layouts of the rental units to be constructed and currently do not have an estimate of the costs to construct or potential returns of the homes.

We plan to develop additional water assets within the Denver area and are exploring opportunities to utilize our water assets in areas adjacent to our existing water supplies.

Additionally, we continue to source

additional land acquisitions that could be paired with our water to provide additional growth to both our land development and water and wastewater segments.

Additionally, we continue to source additional land acquisitions that could be paired with our water to provide additional growth to both our land development and water and wastewater segments.

Growth in Colorado

Calendar year 2020 was a strong year for the Colorado housing market.

As COVID-19 escalated, we took measures to protect the health and well-being of our employees, customers, business partners, and their families.

were informed that our builder customers also took precautionary measures to ensure the safety of their employees, customers, business partners, and their families.

Calendar year 2020 and 2021 were strong years for the Colorado housing market.

As COVID-19 escalated and has continued to hold-on, we took and continue to adapt measures to protect the health and well-being of our employees, customers, business partners, and their families.

Our home builder customers also took and continue to adapt precautionary measures to ensure the safety of their employees, customers, business partners, and their families.

These measures varied by builder.

As a result, some of our builder customers reported

material net housing order declines during the state-wide stay-at-home order period (March – May).

However, as shelter-in-place and stay-at-home orders were removed, the builders reported material increases in orders.

Due to COVID-19, we have

witnessed several changing consumer patterns, including residents leaving downtown urban areas to buy homes in the suburbs.

This put our Sky Ranch community in the enviable position of being able to respond to this demand due to its great location,

affordable home prices, available inventory, and easy access to work centers and major transportation corridors.

We believe our ability to pair our water to our land and our in-house expertise for operating our systems allowed us to provide home

builders with an affordable and sustainable master planned community that allowed our builders to quickly satisfy the increased demand from home buyers.

Despite the economic issues caused by COVID-19, the Colorado housing market has continued to grow.

This was fueled by population growth in Colorado, which is projected to continue far into the foreseeable future.

Denver Regional Council of Governments, a voluntary association of over 50 county and municipal governments in the Denver metropolitan area, estimates that the Denver metropolitan area population will increase by nearly 40% to 4.7 million people by

the year 2040.

A Statewide Water Supply Initiative report by the Colorado Water Conservation Board estimates that the South Platte River basin, which includes the Denver metropolitan region (and our Sky Ranch community), will grow from a current

population of approximately 4.0 million to 4.9 million by the year 2030, while the state’s population will increase from roughly 5.7 million to 7.2 million.

This growth furthers the need for sustainable water supplies and intensifies the competition

to obtain those supplies.

The estimated population increases are expected to result in demands for water services that exceed the current capabilities of municipal service providers, especially during drought conditions.

Growth in the Denver area has trended east with significant activity occurring along the I-70 corridor, an area which enjoys excellent transportation infrastructure with I-70, rail access, and Denver International

Airport (“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, Buckley Airforce Base, and more, creating

demand for residential, retail, and commercial development opportunities.

The Statewide Water Supply Initiative estimates that population growth in the Denver region and the South Platte River basin could require an additional 400,000 acre-feet of water by the year 2030.

What makes this more

difficult for land developers and builders is that Colorado law requires developers to demonstrate they have sufficient water supplies for their proposed projects before zoning applications will be considered.

This means developers and builders must

solve their own water problems prior to development rather than wait for cities and municipalities to solve the problem.

This indicates that water will continue to be critical to growth prospects for the region and the state, and that competition for

available sources of water will continue to intensify.

In addition to actively seeking to expand our land holdings for development purposes, we also market our water supplies and services to developers and home builders that are active along the Colorado Front Range as

well as other area water providers in need of additional supplies.

Due to COVID-19, we have witnessed several changing consumer patterns, including residents leaving downtown urban areas to buy homes in the suburbs.

This put our Sky Ranch community in the enviable position of being able to respond to this demand due to its great location, affordable home prices, available inventory, and easy access to work centers and major transportation corridors.

We believe our ability to pair our water to our land and our in-house expertise for operating our systems allowed us to provide home builders with an affordable and sustainable master planned community that allowed our builders to quickly satisfy the increased demand from home buyers.

Despite the continued impacts of COVID-19, Colorado has continued to grow.

According to the 2020 census report, Colorado added over 744,000 residents from 2010 to 2020, a growth of 14.8% bringing the Colorado population to nearly 5.8 million.

What makes this more difficult for land developers and builders is that Colorado law requires developers to demonstrate they have sufficient water supplies for their proposed projects before zoning applications will be considered.

This means developers and builders must solve their own water problems prior to development rather than wait for cities and municipalities to solve the problem.

This indicates that water will continue to be critical to growth prospects for the region and the state, and that competition for available sources of water will continue to intensify.

This tremendous growth, coupled with dwindling new and resale inventory, along with a shift in lifestyle choices from home ownership to renting, has pushed the single-family rental market into double-digit growth.

Although this market has existed for decades, the focus has shifted from individuals owning the units to commercial institutions buying large blocks of houses for rentals.

The single-family rental space is emerging as one of the strongest growth sectors in commercial real estate.

Demand for rentals SFR has been steadily increasing due to current demographic trends related to Gen-Y and baby boomers;

however, migration patterns related to Covid-19 have accelerated that demand, and this single-family rental growth is expected to outpace multifamily, office, retail, storage, and hospitality growth by 2022.

As the demand for more single-family rental properties grows, an increasing number of larger investors are expanding their investment strategy to include the product.

The single-family rental market is estimated at $3.4 trillion, compared to $3.5 trillion for the multifamily market, and institutional investors make up less than 2% of the market compared to 55% for the multifamily market.

As more young families, families with children, and retirees look to rent single family homes with yards and upscale amenities on a long-term basis, more investors are looking to the single-family rental markets to expand their portfolios and grow their capital.

Colorado’s future water needs will be met through conservation, reuse, and the development of new supplies.

The Rangeview District’s rules and regulations for water and wastewater service call for adherence to strict

conservation measures, including low-flow water fixtures, high efficiency appliances, and advanced irrigation control devices.

Additionally, our systems are designed and constructed using a dual-pipe water distribution system to segregate the

delivery of high quality potable drinking water to customers through one system and a second system to supply raw or reclaimed water for irrigation demands in parks and open spaces.

About one-half of the water used by a typical Denver-area

residential water customer is used for outdoor landscape and lawn irrigation.

The Rangeview District’s rules and regulations for water and wastewater service call for adherence to strict conservation measures, including low-flow water fixtures, high efficiency appliances, and advanced irrigation control devices.

Additionally, our systems are designed and constructed using a dual-pipe water distribution system to segregate the delivery of high-quality potable drinking water to customers through one system and a second system to supply raw or reclaimed water for irrigation demands in parks and open spaces.

About one-half of the water used by a typical Denver-area residential water customer is used for outdoor landscape and lawn irrigation.

We believe that raw or reclaimed water supplies provide the lowest cost, most environmentally sustainable water for outdoor irrigation.

We expect our systems to include an

extensive water reclamation process in which essentially all effluent water from wastewater treatment plants will be reused to meet non-potable outdoor irrigation water demands.

Our dual-distribution systems demonstrate our commitment to

environmentally responsible water management policies in our water-short region.

We expect our systems to include an extensive water reclamation process in which essentially all effluent water from wastewater treatment plants will be reused to meet non-potable outdoor irrigation water demands.

Our dual-distribution systems demonstrate our commitment to environmentally responsible water management policies in our water-short region.

Labor and Raw Materials

We competitively bid contracts for infrastructure improvements (grading, utilities, roads, water, and wastewater infrastructure) at Sky Ranch.

Many of our contractors enter fixed priced contracts where the contractor is

at risk for cost overruns prior to completion of improvements.

Many of our contractors enter fixed priced contracts where the contractor is at risk for cost overruns prior to completion of improvements.

Under these fixed-price contracts, the contract prices are established in part based on fixed, firm subcontractor quotes on contracts and on cost and scheduling estimates.

These quotes or

estimates may be based on several assumptions, including assumptions about prices and availability of labor, equipment and materials, and other issues.

Increased costs or shortages of skilled labor, concrete, steel, pipe, and other materials could

cause increases in development costs and delays.

These shortages and delays may result in delays in the delivery of the lots under development or the completion of water or wastewater facilities, increase costs for us or other contractors on our

projects, reduce gross margins from sales, or subject us to penalties or defaults under our agreements.

While we contract with third parties for our labor and materials at a fixed price, which we believe allows us the ability to mitigate the risks

associated with shortages of and increases in the cost of labor and building materials, other unforeseen factors may arise which could increase our costs.

These quotes or estimates may be based on several assumptions, including assumptions about prices and availability of labor, equipment and materials, and other issues.

Increased costs or shortages of skilled labor, concrete, steel, pipe, and other materials could cause increases in development costs and delays.

These shortages and delays may result in delays in the delivery of the lots under development or the completion of water or wastewater facilities, increase costs for us or other contractors on our projects, reduce gross margins from sales, or subject us to penalties or defaults under our agreements.

While we contract with

third parties for our labor and materials at a fixed price, which we believe allows us the ability to mitigate the risks associated with shortages of and increases in the cost of labor and building materials, other unforeseen factors may arise which could increase our costs.

As the COVID-19 pandemic continues, we have continued to enforce many safety measures enacted to protect the health and well-being of our employees, customers, business partners, and their families.

While state and local mandates have been eased, we continue to encourage voluntary vaccinations and healthy practices such as hand washing, disinfecting, social distancing, and face coverings when necessary.

We have been able to maintain our level of efficiency with the use of video conferencing and electronic data sharing platforms.

We were informed that our builder customers also took precautionary measures to ensure the safety of their employees, customers, business partners, and their families.

These measures varied by builder.

As a result, some of our builder customers reported material net housing order declines in 2020.

However, they are also reporting material increases in orders since the stay-at-home orders have been reduced.

We had been expecting to accelerate deliveries of the remaining finished lots at Sky Ranch into fiscal 2020;

however, because of the COVID-19 precautionary measures and stay-at-home orders, we delivered the remaining lots during the first quarter of fiscal 2021.

These deliveries were still ahead of the original delivery dates set forth in our contracts with the home builders by nearly two years.

The most dramatic impact on our operations has been the delay in inspections, the permit process and other activities requiring governmental agencies due to expansive work restrictions imposed on their operations.

We expect COVID-19 to continue to play a role in potential delays related to the second filing at Sky Ranch due to rapidly changing governmental orders, city and country shutdowns, and public health concerns.

Mainly, we have experienced delays in the permitting process through the county which has delayed the construction of Phase two of the Sky Ranch development.

Water and Wastewater Services

We negotiate individual service agreements with our governmental customers and with their developers and/or home builders to design, construct and operate water and wastewater systems and to provide services to end use

customers of governmental entities and to commercial and industrial customers.

These service agreements seek to address all aspects of the development of the water and wastewater systems, including:

the purchase of water and wastewater taps in exchange for our obligation to construct certain wholesale facilities;

the establishment of payment terms, timing, capacity, and location of special facilities (if any);

specific terms related to our provision of ongoing water and wastewater services to our local governmental customers as well as the governmental entities’ end-use customers.

Although we have exclusive long-term water and wastewater service contracts for 24,000 acres of the Lowry Range, Wild Pointe, and Sky Ranch pursuant to our service agreements, providing water and wastewater service is

subject to competition.

Alternate sources of water are available, principally from other private parties such as farmers or others owning water rights that have historically been used for agriculture, and from municipalities seeking to annex new

development areas in order to increase their tax base.

(i) the purchase of water and wastewater taps in exchange for our obligation to construct certain wholesale facilities;

(ii) the establishment of payment terms, timing, capacity, and location of special facilities (if any);

(iii) specific terms related to our provision of ongoing water and wastewater services to our local governmental customers as well as the governmental entities’ end-use customers.

Our principal competition in areas close to the Lowry Range is the City of Aurora.

Principal factors affecting competition for water service include the availability of water for the particular

purpose, the cost of delivering the water to the desired location (including the cost of required taps), and the reliability of the water supply during drought periods, and the political climate for additional annexations.

We estimate that the water

assets we own and have the exclusive right to use have a supply capacity of approximately 60,000 SFE units, and we believe that they provide us with a significant competitive advantage along the Front Range.

Our legal rights to the Rangeview Water

Supply have been confirmed for municipal use, and our water supply is close to Denver area water users.

We believe that our pricing structure is competitive and that our water portfolio is well balanced among surface water rights, groundwater rights,

storage capacity and reclaimed water supplies.

Principal factors affecting competition for water service include the availability of water for the particular purpose, the cost of delivering the water to the desired location (including the cost of required taps), and the reliability of the water supply during drought periods, and the political climate for additional annexations.

We estimate that the water assets we own and have the exclusive right to use have a supply capacity of approximately 60,000 SFE units, and we believe that they provide us with a significant competitive advantage along the Front Range.

Our legal rights to the Rangeview Water Supply have been confirmed for municipal use, and our water supply is close to Denver area water users.

We believe that our pricing structure is competitive and that our water portfolio is well balanced among surface water rights, groundwater rights, storage capacity and reclaimed water supplies.

Land Development

Developing raw land is a highly competitive business, requires substantial upfront capital and typically requires many years to complete.

There are many developers, as well as properties and development projects, in

the same geographic area in which Sky Ranch is located.

Competition among developers and projects is determined by the location of the real estate, the market appeal of the development plan, the cost and value of the end product, the developer’s

ability to build, market and deliver projects on a timely and cost effective basis, and the availability of water to serve the project.

Residential developers sell to home builders, who in turn compete based on location, price/value, market

segmentation, product design, and reputation.

Commercial, retail, and industrial developers sell to and/or compete with other developers, owners, and operators of real estate for a limited number of potential buyers.

We believe we have exceeded the

market’s expectations with the delivery of our initial phase lots at Sky Ranch and have demonstrated we have the ability and expertise to continue to deliver lots in a large scale master planned community.

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

Competition among developers and projects is determined by the location of the real estate, the market appeal of the development plan, the cost and value of the end product, the developer’s ability to build, market and deliver projects on a timely and cost effective basis, and the availability of water to serve the project.

Residential developers sell to home builders, who in turn compete based on location, price/value, market segmentation, product design, and reputation.

Commercial, retail, and industrial developers sell to and/or compete

with other developers, owners, and operators of real estate for a limited number of potential buyers.

We believe we have exceeded the market’s expectations with the delivery of our initial phase lots at Sky Ranch and have demonstrated we have the ability and expertise to continue to deliver lots in a large-scale master planned community.

Environmental, Health and Safety Regulation

Provision of water and wastewater services is subject to regulation under the federal Safe Drinking Water Act, the Clean Water Act, related state laws, and federal and state regulations issued under these laws.

These laws and regulations

establish criteria and standards for drinking water and for wastewater discharges.

These laws and regulations establish criteria and standards for drinking water and for wastewater discharges.

In addition, we are subject to federal and state laws and other regulations relating to solid waste disposal and certain other aspects of our operations.

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The Safe Drinking Water Act establishes criteria and procedures for the U.S.

Environmental Protection Agency to develop national quality standards for drinking water.

Regulations issued pursuant to the Safe Drinking

Water Act and its amendments set standards on the amount of certain microbial and chemical contaminants and radionuclides allowable in drinking water.

The State of Colorado has assumed primary responsibility for enforcing the standards established by

the Safe Drinking Water Act and has adopted the Colorado Primary Drinking Water Standards (Code of Colorado Regulations 5 CCR 1003-1).

Current requirements for drinking water are not expected to have a material impact on our financial condition or

results of operations as we have made and are making investments to meet existing water quality standards.

In the future, we might be required to change our method of treating drinking water and make additional capital investments if additional

regulations become effective.

Environmental Protection Agency (the “EPA”) to develop national quality standards for drinking water.

Regulations issued pursuant to the Safe Drinking Water Act and its amendments set standards on the amount of certain microbial and chemical contaminants and radionuclides allowable in drinking water.

The State of Colorado has assumed primary responsibility for enforcing the standards established by the Safe Drinking Water Act and has adopted the Colorado Primary Drinking Water Standards (Code of Colorado Regulations 5 CCR 1003-1).

Current requirements for drinking water are not expected to have a material impact on our financial condition or results of operations as we have made and are making investments to meet existing water quality standards.

In the future, we might be required to change our method of treating drinking water and make additional capital investments if additional regulations become effective.

The federal Groundwater Rule became effective December 1, 2009.

This rule requires additional testing of water from well sources and under certain circumstances requires demonstration and maintenance of effective

disinfection.

This rule requires additional testing of water from well sources and under certain circumstances requires demonstration and maintenance of effective disinfection.

In 2009, Colorado adopted Article 13 to the Colorado Primary Drinking Water Standards to establish monitoring and compliance criteria for the Groundwater Rule.

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The Clean Water Act regulates wastewater discharges from drinking water and wastewater treatment facilities and storm water discharges into lakes, rivers, streams, and wetlands.

The State of Colorado has assumed

primary responsibility for enforcing the standards established by the federal Clean Water Act for wastewater discharges from domestic water and wastewater treatment facilities and has adopted the Colorado Water Quality Control Act and related

regulations, which also regulate discharges to groundwater.

It is our policy to obtain and maintain all required permits and approvals for discharges from our water and wastewater facilities and to comply with all conditions of those permits and

other regulatory requirements.

The State of Colorado has assumed primary responsibility for enforcing the standards established by the federal Clean Water Act for wastewater discharges from domestic water and wastewater treatment facilities and has adopted the Colorado Water Quality Control Act and related regulations, which also regulate discharges to groundwater.

It is our policy to obtain and maintain all required permits and approvals for discharges from our water and wastewater facilities and to comply with all conditions of those permits and other regulatory requirements.

A program is in place to monitor facilities for compliance with permitting, monitoring, and reporting for wastewater discharges.

From time to time, discharge violations might occur which might result in fines and

penalties, but we have no reason to believe that any such fines or penalties are pending or will be assessed.

From time to time, discharge violations might occur which might result in fines and penalties, but we have no reason to believe that any such fines or penalties are pending or will be assessed.

Solid Waste Disposal

The handling and disposal of residuals and solid waste generated from water and wastewater treatment facilities is governed by federal and state laws and regulations.

We have a program in place to monitor our

facilities for compliance with regulatory requirements, and we do not anticipate that costs associated with our handling and disposal of waste material from our water and wastewater operations will have a material impact on our business or financial

We have a program in place to monitor our facilities for compliance with regulatory requirements, and we do not anticipate that costs associated with our handling and disposal of waste material from our water and wastewater operations will have a material impact on our business or financial condition.

Employees and Human Capital

We currently have 31 employees, all of whom are full-time.

None of our employees are represented by a union or covered by a collective bargaining agreement.

We have not experienced any work stoppages and we consider our relationship with our employees to be good.

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants.

The principal purposes of our equity incentive plan are to attract, retain and reward personnel through the granting of stock-based compensation awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.

Pure Cycle was incorporated in Delaware in 1976 and reincorporated in Colorado in 2008.

Available Information and Website Address

Our website address is www.purecyclewater.com .

We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current

Reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after filing with the Securities and Exchange Commission (the “SEC”).

We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after filing with the Securities and Exchange Commission (the “SEC”).

These reports and all other material we file with the SEC may be obtained directly from the SEC’s website, www.sec.gov/edgar/searchedgar/companysearch.html , under CIK code 276720 .

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 1. Business