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The following section describes the material risks and uncertainties that we believe could have a material adverse effect on our business, financial condition, results of operations, and the market price of our common stock.
−Removed: The risks discussed below include forward-looking statements, actual results may differ materially from those discussed in these forward-looking statements.
+Added: The risks discussed below include forward-looking statements.
+Added: Actual results may differ materially from those discussed in these forward-looking statements.
These risks should be read in conjunction with the other information set forth in this report, including the accompanying consolidated financial statements and notes thereto.
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Our business, operations and financial condition and results may be impacted by the ongoing effects of the COVID-19 pandemic to varying degrees.
−Removed: The ongoing COVID-19 pandemic has, and is expected to continue to have, a material adverse impact on local and global economies.
+Added: The ongoing COVID-19 pandemic continues to have a material adverse impact on local and global economies.
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.
−Removed: 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.
−Removed: For our second development phase we planned to begin delivering finished lots at Sky Ranch in fiscal 2021;
−Removed: however, because of the COVID-19 precautionary measures, delays in inspections, delays in the permitting process and other activities requiring governmental agencies due to expansive work restrictions imposed on their operations, we will not deliver finished lots in the second phase until fiscal 2022.
−Removed: Mainly, we have experienced delays in the permitting process through the county which has delayed the revenue recognition in the second phase of the Sky Ranch development.
+Added: While state and local mandates have been eased, we continue to encourage voluntary vaccinations and healthy practices such as hand washing, disinfecting, and social distancing when necessary.
+Added: We planned to begin delivering finished lots in Phase 2A at Sky Ranch in fiscal 2021;
+Added: however, because of delays in inspections, delays in the permitting process and other activities requiring governmental agencies and the expansive work restrictions imposed on their operations, we did not deliver finished lots in Phase 2A until fiscal 2022.
+Added: Mainly, we have experienced delays in the permitting process through the county which delayed the revenue recognition in Phase 2A of the Sky Ranch development.
The ongoing COVID-19 pandemic poses the risk that we or our employees, governmental agencies permitting our projects, suppliers, consumers, and other business partners, including our home builders, may be prevented from conducting business activities in the ordinary course should the United States, the state of Colorado, or local governmental authorities once again implement restrictions.
−Removed: New shutdowns or other restrictions could adversely impact the availability or cost of materials, our ability to hire and retain qualified employees, the availability of qualified subcontractors, which could limit our business operations or increase our costs.
+Added: New shutdowns or other restrictions could adversely impact the availability or cost of materials, our ability to hire and retain qualified employees, and the availability of qualified subcontractors, which could limit our business operations or increase our costs.
The duration of the COVID-19 outbreak and its ultimate impact on us and on the global economy cannot be determined with certainty.
−Removed: The COVID-19 pandemic could result in significant and continued declines in global financial markets, higher default rates, and a substantial economic downturn or recession.
−Removed: The extent to which COVID-19 will affect us will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the
−Removed: actions taken to contain COVID-19.
+Added: The COVID-19 pandemic could result in significant declines in global financial markets, higher default rates, and a substantial economic downturn or recession.
+Added: The extent to which COVID-19 will continue to affect us will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain COVID-19.
Given the significant economic and financial market disruptions associated with the COVID-19 pandemic, our results of operations could be adversely impacted.
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The development of the Lowry Range, Sky Ranch and other properties is subject to many factors that are outside our control.
−Removed: If wholesale water sales are not forthcoming or development on the Lowry Range, Sky Ranch or other properties in our targeted service areas is delayed or curtailed, we may need to use our capital resources, incur additional short or long-term debt obligations or seek to sell additional equity.
+Added: If wholesale water sales are not forthcoming or development in our targeted service areas is delayed or curtailed, we may need to use our capital resources, incur additional short or long-term debt obligations, or seek to sell additional equity.
We may not be successful in obtaining additional capital.
−Removed: Although there have been positive market gains in the Colorado housing market in recent years, if a downturn in the homebuilding or credit markets returns, or if the state or national economy weakens and economic concerns intensify, such a development could have a significant negative impact on our business and financial condition and our plans for future development of additional phases of Sky Ranch.
+Added: Although there have been positive market gains in the Colorado housing market in recent years, inflation and rising interest rates are intensifying and causing slow downs in the homebuilding industry which economic concerns could have a significant negative impact on our business and financial condition and our plans for future development of additional phases of Sky Ranch.
Although the Colorado economy has become increasingly diverse, the oil and gas industry remains an important segment of the Colorado economy.
New statutes, regulations or other initiatives that would limit oil and gas exploration or increase the cost of exploration, as well as declines in the price of oil and gas, among other things, could lead to a downturn in the Colorado economy, including increased unemployment, which would likely have a negative impact on the housing market and our business and financial condition.
−Removed: In addition, the residential homebuilding industry is cyclical and is highly sensitive to changes in general economic conditions such as levels of employment, consumer confidence and income, availability of mortgage financing for acquisitions, interest rate levels and inflation, among other factors.
−Removed: Additionally, the residential housing market is impacted by federal and state personal income tax rates and provisions, and government actions, policies, programs and regulations directed at or affecting the housing market, including the Tax Cuts and Jobs Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies.
+Added: In addition, the residential homebuilding industry is cyclical and is highly sensitive to changes in general economic conditions such as levels of employment, consumer confidence and income, availability of mortgage financing for acquisitions, interest rate levels and inflation, cost and availability of raw materials, among other factors.
+Added: The residential housing market is impacted by federal and state personal income tax rates and provisions, and government actions, policies, programs and regulations directed at or affecting the housing market, including the Tax Cuts and Jobs Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies.
In 2019, housing starts in Colorado declined compared to housing starts in 2018.
−Removed: However, in 2020 and 2021 housing starts as well as home prices in Colorado increased.
−Removed: Although the number of housing starts continues to be better than during the last economic downturn, if the recovery of the Colorado housing market reverses, we could experience declines in the market value of our inventory and demand for our lots and rental units, any of which could have a material adverse effect on our business, results of operations, cash flows and financial condition.
+Added: However, from 2020 to 2022 housing starts as well as home prices in Colorado increased.
+Added: Although the number of new home starts continues to be better than during the last economic downturn, if the recovery of the Colorado housing market reverses, we could experience declines in the market value and demand for our lots and rental units, any of which could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Significant competition from other development projects could adversely affect our results.
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If we are unable to rent the homes at rates that cover our costs or are unable to manage the properties and expenses incurred to manage the properties, the impact to our business, results of operations, cash flows and financial condition could be materially negative.
−Removed: Our operations could be adversely impacted by material and component price volatility and availability, as well as supplier concentration.
−Removed: Our operations could be adversely impacted by material and component price volatility and availability, as well as supplier concentration The market prices for certain materials and components we purchase, primarily steel and PVC piping, have been
−Removed: steel index prices alone have increased 100 percent since the beginning of 2021.
−Removed: In addition, some components are subject to long lead times.
−Removed: Disruptions to the commercial transportation network, including limited container and trucking capacity and port congestion, have increased supplier delivery times for materials and components to our facilities.
−Removed: Increases in material, labor, supplier, logistics and other operating costs, or supply chain delays and shortages, could cause lower gross margins or lost sales and adversely impact our business, financial position, results of operations and cash flows.
−Removed: Our gross margins and financial performance may be adversely affected by increases in our operating costs, such as material, labor, supplier costs, logistics and energy costs, all of which may be subject to inflationary pressures.
−Removed: Since the onset of the COVID-19 pandemic, we have seen operating costs trending upward due to COVID-19 movement control constraints, labor shortages, logistics disruptions, commodity cost increases and shortages and overall increased demand in the land development and water business industries.
−Removed: These risks are particularly prevalent in Malaysia and the Philippines.
−Removed: Both countries continue to enforce increased COVID-19 restrictions on movement and businesses and these restrictions have impacted, and are expected to continue to impact, our local suppliers and related costs and lead-times.
+Added: Our operations could be adversely impacted i ncreases in material, labor, supplier, logistics and other operating costs, or supply chain delays and shortages, which could cause lower margins or lost sales and adversely impact our business, financial position, results of operations and cash flows, and component price volatility and availability, as well as supplier concentration.
+Added: The market prices for certain materials and components we purchase, primarily steel and PVC piping, have been volatile.
+Added: steel index prices alone increased 100 percent during calendar 2021.
+Added: In addition, some supplies are subject to long lead times.
+Added: Disruptions to the commercial transportation network, including limited container and trucking capacity and port congestion, have increased supplier delivery times for materials to our facilities.
+Added: Our margins and overall financial performance may be adversely affected by increases in our operating costs, such as material, labor, supplier costs, logistics and energy costs, all of which may be subject to inflationary pressures.
+Added: Since the onset of COVID-19 we have seen operating costs trending upward, labor shortages, logistics disruptions, commodity cost increases and shortages, and overall increased demand in the land development and water business industries.
In addition, some of our customers have experienced raw material shortages.
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We cannot predict the extent of these current trends or other future increases in operating costs.
−Removed: To the extent such costs continue to increase, we may be prevented, in whole or in part, from passing such cost increases through to our existing and prospective customers, or our customers may seek other competitive sources due to supply chain delays, which could have a material adverse impact on our gross margins and business, financial position, results of operations and cash flows.
+Added: To the extent such costs continue to increase, we may be prevented, in whole or in part, from passing such cost increases through to our existing and prospective customers, or our customers may seek other competitive sources due to supply chain delays, which could have a material adverse impact on our margins, business, financial position, results of operations and cash flows.
Our water business is subject to seasonal fluctuations and weather conditions that could affect demand for our water service and our revenues and that could become more extreme with climate change.
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Additionally, cool, and wet weather, as well as drought restrictions and our customers’ conservation efforts, may reduce consumption demands, adversely affecting our revenue and earnings.
−Removed: Furthermore, freezing weather may contribute to water transmission interruptions caused by pipe and main breakage.
+Added: Furthermore, freezing weather may contribute to water transmission interruptions caused by pipe breakage.
If we experience an interruption in our water supply, it could have a material adverse effect on our financial condition and results of operations.
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We conduct our operations in the Colorado Front Range, which is subject to natural disasters, including droughts, tornadoes, wildland fires, and severe weather.
−Removed: The occurrence of natural disasters or severe weather conditions in Colorado or elsewhere could result in interruptions in in our water and wastewater operations, delay our construction activities, increase costs, and lead to shortages of labor and materials.
+Added: The occurrence of natural disasters or severe weather conditions in Colorado or elsewhere could result in interruptions in our water and wastewater operations, delay our construction activities, increase costs, and lead to shortages of labor and materials.
Moreover, such extreme weather conditions and natural disasters are likely to increase in frequency and intensity as a result of projected unabated climate change.
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Our continuing development of Sky Ranch requires significant cash expenditures.
−Removed: We have advanced the Sky Ranch CAB more than $39.0 million for construction of public improvements on the Sky Ranch property and expect to advance another $16.9 million for the completion of our initial filing and the first subphase of the second development phase.
+Added: We have advanced the Sky Ranch CAB $42.1 million for construction of public improvements in Phases 1 and 2 at Sky Ranch and expect to advance another $4.3 million for the completion of the Phase 2A public improvements.
The Sky Ranch CAB is not required to repay us for advances made or expenses incurred for improvements at Sky Ranch unless and until the Sky Ranch CAB and/or Sky Ranch Districts generate sufficient funds from either tax revenues, fees or by issuing bonds in an amount sufficient to reimburse us for all or a portion of advances made or expenses incurred.
We have funded and expect to continue to fund such expenditures with cash on hand and cash flows from operations.
−Removed: As of August 31, 2021, we had just over $20.1 million of cash on hand.
+Added: As of August 31, 2022, we had $34.9 million of cash on hand.
If our cash on hand and future cash flows from operations are not sufficient to fund our operations and the significant capital expenditure requirements to continue to develop Sky Ranch, we may be forced to seek to obtain additional debt or equity capital.
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We have historically depended on a limited number of employees to administer our operations, interface with governmental entities, market our services, and plan and implement the construction and development of our assets.
−Removed: The execution of contracts for lot sales and the continued development of Sky Ranch, including our new single-family home rental business, have increased the size and complexity of our business.
+Added: The execution of contracts for lot sales and the continued development of Sky Ranch, including our single-family home rental business, have increased the size and complexity of our business.
The success of our current business and future business development and our ability to capitalize on growth opportunities depends on our ability to attract and retain additional experienced and qualified persons to operate and manage our business.
−Removed: We may not be able to maximize the value of our assets if we are unable to attract and retain qualified personnel and to manage the demands of a workforce that has nearly tripled in the past few years.
+Added: We may not be able to maximize the value of our assets if we are unable to attract and retain qualified personnel and to manage the demands of our growing workforce.
State regulations set the training, experience and qualification standards required for our employees to operate specific water and wastewater facilities.
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Both the tap fees and usage rates and charges are capped at the average of the rates of three nearby water providers.
−Removed: Annually, the Rangeview District surveys the tap fees and rates of the three nearby providers, and the Rangeview District may adjust tap fees and rates and charges for water service on the Lowry Range based on the average of those charged by this group.
+Added: Annually, the Rangeview District surveys the tap fees and rates of the three nearby providers, and the Rangeview
+Added: District may adjust tap fees and rates and charges for water service on the Lowry Range based on the average of those charged by this group.
We receive 100% of tap fees and 98% of water usage fees charged by the Rangeview District to its customers after the deduction of royalties owed to the Land Board.
Our costs associated with the construction of water systems and the production, treatment and delivery of water are subject to market conditions and other factors, which may increase at a significantly higher rate than that of the fees we receive from the Rangeview District.
−Removed: Factors beyond our control and which cannot be predicted, such as government regulations, insurance and labor markets, drought, water contamination and severe weather conditions, like tornadoes and floods, may result in additional labor and material costs that may not be recoverable under the current rate structure.
+Added: Factors beyond our control and which cannot be predicted, such as government regulations, insurance and labor markets, drought, water contamination and severe weather conditions may result in additional labor and material costs that may not be recoverable under the current rate structure.
Both increased customer demand and increased water conservation may also impact the overall cost of our operations.
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Our water sales for the past several years have been highly concentrated among companies providing hydraulic fracturing services to the oil and gas industry, and such sales can fluctuate significantly.
−Removed: Our water sales have been historically concentrated directly and indirectly with a limited number of companies providing hydraulic fracturing services to the oil and gas industry on and around the Lowry Range and our Sky Ranch property.
+Added: Our water sales have been historically concentrated directly and indirectly with a limited number of companies providing hydraulic fracturing services to the oil and gas industry in our service area.
Generally, investment in oil and gas development is dependent on the price of, and demand for, oil and gas.
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The oil and gas industry has periodically gone through periods when activity has significantly declined due to low oil and gas prices, reduced world-wide demand and other impacts to the world-wide economy such as the COVID-19 pandemic, which have a negative impact on the water we sell to these operators.
−Removed: Further sales to this customer base as well as renewals of our oil and gas leases, if any, in the future are impacted by statutory ballot initiatives, regulations, rulemaking initiatives by the Colorado Oil and Gas Conservation Commission, court interpretations of the statutory mandate of the Colorado Oil and Gas Conservation Commission, fracking technologies, the success of the wells and the price of oil and gas, among other things.
−Removed: We could see increased opposition and tougher oversight of oil and gas operations, which could reduce the demand for water for fracking and reduce our associated water sales as a result of the enactment of SB181, its implementing rules recently promulgated by the Colorado Oil and Gas Conservation Commission, or other future potential laws, regulations, or ballot initiatives regulating oil and gas development.
+Added: Further sales to this customer base as well as renewals of our oil and gas leases in the future are impacted by ballot initiatives, new federal and state legislation, regulations by multiple federal and state agencies such as the U.S.
+Added: Environmental Protection Agency, the Colorado Oil and Gas Conservation Commission (COGCC), the Colorado Department of Public Health and Environment (DPHE), and the Colorado Air Quality Control Commission (AQCC), local zoning rules, court interpretations of laws and regulations at all levels of government, fracking technologies, the success of the wells, and the price of oil and gas, among other things.
+Added: We could see increased opposition and tougher oversight of oil and gas operations, which could reduce the demand for water for fracking and reduce our associated water sales as a result of the enactment and implementation of multiple state bills over the last several years targeting the siting of, emissions from, and chemicals used in oil and gas production, such as Senate Bill 19-181 (SB 19-181) (increased local and state government oversight of oil and gas siting and environmental impacts), SB 22-198 (fees on oil and gas wells for an orphaned well fund), HB 22-1361 (audits of and reporting on oil and gas taxes and emissions), HB 22-1244 (toxic air emissions reporting, permitting, and controls from certain sources, which may be more stringent than the federal Clean Air Act), HB 22-1348 (disclosure of chemicals used in oil and gas operations and ban on use of added perfluoroalkyl or polyfluoroalkyl chemicals), and HB 22-1345 (ban on PFAS in oil and gas products).
+Added: The oil and gas industry, and associated demand for water for fracking, may also be impacted by the adoption of new state regulations, such as:
+Added: (i) new fees and financial assurance requirements for oil and gas facilities adopted by COGCC in 2022;
+Added: (ii) new GHG intensity standards for oil and gas operators adopted by the AQCC in December 2021;
+Added: (iii) new or revised reporting and emission reduction requirements for GHGs, ozone precursors, and hydrocarbons from oil and gas operations and industrial wastewater treatment, as well as regional haze limit, adopted the AQCC in 2022;
+Added: (iv) the new initial list of toxic air contaminants identified by the DPHE in 2022 as a first step in implementing HB 22-1244;
+Added: and (v) a new proposed rulemaking announced by the DPHE in October 2022 to verify that oil and gas production sites are reducing GHG emissions.
+Added: Recent federal laws and regulatory initiatives may also impact the oil and gas industry and thus associated water demand and sales.
+Added: For example, the federal Inflation Reduction Act imposes of a fee on methane emissions from oil and gas facilities, and it increases certain corporate taxes that could impact the oil and gas industry.
+Added: The Inflation Reduction Act also increases the amount of federal property available for oil and gas leasing, which could impact the desirability of developing oil and gas on private property.
+Added: In addition, the EPA has proposed a new rule “New Source Performance Standards” rule to regulate methane emissions from the oil and gas industry.
+Added: Other future potential laws, regulations, or ballot initiatives may also impact oil and gas development and, therefore, our water sales.
A significant portion of our water supplies come from non-renewable aquifers and inadequate water and wastewater supplies could have a material adverse effect on us.
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Nonetheless, we may need to seek additional water supplies to prove our supply can last for 300 years as our non-renewable supplies are depleted.
−Removed: While the acquisition of Lost Creek water, a renewable “surface” water right that is diverted from an alluvial aquifer that is hydrologically connected to the surface water system, mitigates some of the risk of owning non-renewable supplies, if we are unable to obtain sufficient replacement supplies, it would have a material adverse impact on our business and financial condition.
+Added: While the acquisition of Lost Creek water, a renewable “surface” water right that is diverted from an alluvial aquifer that is hydrologically connected to the surface water system, mitigates some of the
+Added: risk of owning non-renewable supplies, if we are unable to obtain sufficient replacement supplies, it would have a material adverse impact on our business and financial condition.
Additionally, the cost of developing and withdrawing water from the aquifers is expected to increase over time, and we may not be able to recover the increased costs through our rates and charges.
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We continuously look for new sources of water to augment our reserves in our service areas, but our ability to obtain such rights may depend on factors beyond our control.
−Removed: As a result, it is possible that, in the future, we will not be able to obtain sufficient water or water supplies to increase customer growth necessary to increase or even maintain our revenues.
−Removed: Increased costs to develop water from the aquifers could have a significant negative impact on our business, results of operations, cash flows and financial condition.
+Added: We may not be able to obtain sufficient water or water supplies to increase customer growth necessary to increase or even maintain our revenues.
+Added: Also, increased costs to develop water from aquifers could have a significant negative impact on our business, results of operations, cash flows and financial condition.
A failure of the water wells or distribution networks we own, or control could result in losses and damages that may affect our business and financial condition.
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The failure of these pipelines, tanks, or ponds may also result in the need to shut down some facilities or parts of our water distribution network to conduct repairs.
−Removed: Such failures and shutdowns may limit our ability to supply water in sufficient quantities to our customers and to meet the water delivery requirements prescribed by our contracts, which could adversely affect our business, results of operations, cash flows, and financial condition.
+Added: Such failures or shutdowns may limit our ability to supply water to our customers and to meet the water delivery requirements prescribed by our contracts, which could adversely affect our business, results of operations, cash flows, and financial condition.
Any business interruption or other losses might not be covered by insurance policies or be recoverable through rates and charges, and such losses may make it difficult for us to secure insurance in the future at acceptable rates.
Development on the Lowry Range is not within our control and is subject to obstacles.
−Removed: Development on the Lowry Range is controlled by the Land Board, which is governed by a five-person citizen board of commissioners representing education, agriculture, local government, and natural resources, plus one at-large commissioner, each appointed for a four-year term by the Colorado governor and approved by the Colorado Senate.
+Added: Development on the Lowry Range is controlled by the Land Board, which is governed by a five-person citizen board of commissioners, each appointed for a four-year term by the Colorado governor and approved by the Colorado Senate.
The Land Board’s focus with respect to issues such as development and conservation on the Lowry Range tends to change as membership on the Land Board changes.
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We have limited experience with the development of real property.
−Removed: While we have extensive experience designing and constructing water and wastewater facilities and maintaining and operating these facilities, and we have nearly completed the initial development phase at Sky Ranch, we have limited experience developing real property.
−Removed: We may underestimate the capital expenditures required to complete the development of Sky Ranch, including the costs of certain infrastructure improvements and construction costs related to our new single-family home rental business.
+Added: While we have extensive experience designing and constructing water and wastewater facilities and maintaining and operating these facilities, despite having completed Phase 1 and a substantial amount of Phase 2A at Sky Ranch, we have less experience developing real property.
+Added: We may underestimate the capital expenditures required to complete the development of Sky Ranch, including the costs of certain infrastructure improvements and construction costs related to our single-family home rental business.
We have limited experience managing property development and construction activities, including the permitting and other approvals required, which may result in delays in completing Sky Ranch.
+Added: Furthermore, construction and funding of a new interchange on I-70 may delay the issuance of permits beyond Phase 2.
The funds we are advancing to the Sky Ranch CAB for construction of public improvements might not be repaid, which would negatively impact our income, gross margin on selling lots, and cash flows.
−Removed: We have advanced the Sky Ranch CAB over $31.6 million for construction of public improvements and expect to fund an additional estimated $14.4 million to complete the buildout of the first development phase and the first subphase of the second development.
−Removed: At August 31, 2021, $24.8 million has not been collected.
−Removed: We expect these amounts will be reimbursable by the Sky Ranch CAB.
+Added: Since the start of development at Sky Ranch, we have advanced the Sky Ranch CAB $42.1 million for construction of public improvements and expect to fund an additional estimated $4.3 million to complete the buildout of public improvements in Phase 2A.
+Added: At August 31, 2022, of the amounts advanced to the Sky Ranch CAB, $13.9 million has not been repaid, excluding interest.
+Added: We expect these amounts will be repaid by the Sky Ranch CAB.
No payment is required by the Sky Ranch CAB with respect to construction of public improvements unless and until the Sky Ranch CAB and/or the Sky Ranch Districts have generated sufficient funds from property taxes, fee, or the issuance of municipal bonds in an amount sufficient to reimburse the Company for all or a portion of advances provided or expenses incurred for reimbursables.
The ability and obligation of the Sky Ranch CAB to reimburse us is dependent on sufficient home sales and commercial development occurring at Sky Ranch to create a tax base that would enable the Sky Ranch CAB to issue bonds to pay for the improvements.
−Removed: If development at Sky Ranch is delayed or curtailed for any reason, including regulatory restrictions, a downturn in the economy or default by one or more of the builders at Sky Ranch, the Sky Ranch CAB may not have sufficient revenues to issue bonds.
+Added: If development at Sky Ranch is
+Added: delayed or curtailed for any reason, including regulatory restrictions, a downturn in the economy or default by one or more of the builders at Sky Ranch, the Sky Ranch CAB may not have sufficient revenues to issue bonds.
Supply shortages and risks related to the demand for skilled labor and building materials could increase costs and delay closings.
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Labor shortages throughout the Unites States including the Colorado Front Range have become more acute in recent years as the supply chain adjusts to uneven industry growth.
−Removed: The COVID-19 pandemic has further exacerbated these shortages.
+Added: The COVID-19 pandemic exacerbated these shortages.
Increased costs or shortages of skilled labor and/or concrete, steel, pipe, lumber, and other materials could cause increases in property development and home construction costs and delays, including in our single-family home rental business.
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We may purchase additional land parcels for development or other purposes, thereby exposing us to certain financial risks.
−Removed: In the future, we may purchase additional land parcels for development, construction, or other purposes.
−Removed: As noted above, land development and construction require significant cash expenditures before positive cash flows can be generated from the sale of lots, rental of homes, and water and sewer tap fees.
+Added: We may purchase additional land parcels for development, construction, or other purposes.
+Added: As noted above, land development and construction require significant cash expenditures before positive cash flows can be generated from the sale of lots, rental of homes, and water and wastewater tap fees.
If there is considerable lag time between when we acquire the land and when we begin selling finished lots or renting homes, we may generate significant operating losses.
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If the rate at which we develop residential lots slows, we may incur additional costs, and it may take longer for us to recover our costs.
−Removed: In addition, if sales of homes on the finished lots are delayed, or we can’t find renters in a timely manner, our revenue from water and wastewater resource development services will be delayed.
−Removed: A significant downturn in the housing market could cause our builders to delay building homes on their lots until market conditions improve, and could result in us not renting our single-family rentals for rates that provide a
−Removed: sufficient return.
+Added: In addition, if sales of homes on the finished lots are delayed, or we are unable to find renters in a timely manner, our revenue from water and wastewater resource development services will be delayed.
+Added: A significant downturn in the housing market could cause our builders to delay building homes on their lots until market conditions improve, and could result in us not renting our single-family rentals for rates that provide a sufficient return.
Builders with contracts that do not require purchasing the lot until we deliver a finished, ready-to-build lot, could walk away from the contract prior to closing without consequence other than the forfeiture of their upfront deposits for the lot, utilities and other improvements.
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If the original builder did not go through with the closing due to a poor housing market, we would likely have difficulty finding another buyer for the same reason.
−Removed: For our single-family rental homes, we incur the costs to construct the home, which we currently have funding in place to pay for construction, but there are no assurances that funding will remain in place for future growth.
−Removed: The costs of construction of the single-family rentals are anticipated to be paid for overtime by the rental income, but we may not be able to rent the homes for amounts sufficient to cover these costs.
+Added: For our single-family rental homes, we incur the costs to construct the home, for which we currently have funding in place, but there are no assurances that funding will remain in place for future growth.
+Added: The costs of construction of the single-family rentals are anticipated to be paid for over time by the rental income, but we may not be able to rent the homes for amounts sufficient to cover these costs.
Fluctuations in real property values may require us to write-down the book value of our land interests.
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As a result, we may be required to write-down the value of our Sky Ranch, single-family home rentals, or other land interests in accordance with accounting principles generally accepted in the United States of America, and some of those write-downs could be material.
−Removed: Any material write-downs of assets could have a material adverse effect on our business, prospects, financial condition, or results of operations.
+Added: Any material write-downs could have a material adverse effect on our business, financial condition, or results of operations.
We assess our land interests when indicators of impairment exist.
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sales absorption rates below management expectations;
−Removed: a decrease in the value of homes or the underlying land due to general market conditions, actual or perceived risks due to proximity to oil and gas drilling operations, or other reasons;
+Added: a decrease in the value of homes
+Added: or the underlying land due to general market conditions, actual or perceived risks due to proximity to oil and gas drilling operations, or other reasons;
and a decrease in projected cash flows for a project.
Our land development segment may be subject to risks related to oil and gas operations in the vicinity of our Sky Ranch development, which could have an adverse impact on the marketability and/or value of our Sky Ranch property .
−Removed: We have leased the minerals underlying Sky Ranch to a major exploration and production company.
−Removed: Oil and gas extraction is an inherently dangerous activity that can potentially lead to air and water contamination, fire, explosion, or other hazards.
+Added: We have leased the minerals underlying Sky Ranch to a major exploration and production company, which may limit the location of development on the land.
+Added: Oil and gas extraction is an inherently dangerous activity that can potentially lead to air and water contamination, fire, explosion, subsidence, and other hazards.
While the State of Colorado, local governments, and private operators have regulations and procedures in place intended to mitigate these risks, there can be no assurances that these safeguards will be effective in all cases with respect to any oil and gas activity around Sky Ranch.
−Removed: The existence of oil and gas wells and drilling activity in or near our property and public concern regarding the negative health impacts from emissions near drilling and hydraulic fracturing sites, including those detailed in a 380-page report submitted to the Colorado Department of Public Health and Environment entitled the Final Report:
−Removed: Human Health Risk Assessment for Oil & Gas Operations in Colorado dated October 17, 2019, may adversely impact the marketability and/or value of the lots at Sky Ranch and decrease demand for homes in proximity to oil and gas operations, negatively impacting our land development segment, which could also negatively impact our business and financial condition.
+Added: The existence of oil and gas wells and drilling activity in or near our property and public concern regarding the negative health impacts from emissions near drilling and hydraulic fracturing sites, may adversely impact the marketability and/or value of the lots at Sky Ranch and decrease demand for homes in proximity to oil and gas operations, negatively impacting our land development segment, which could also negatively impact our business and financial condition.
Our single-family home development activities expose us to additional operational and real estate risks, which may adversely affect our financial condition and operating results.
−Removed: We have a significant development program that involves the construction of single-family homes to be used for rental purposes.
+Added: In 2021 we launched a new division that involves the construction of single-family homes to be used for rental purposes.
We have no track record of building or maintaining homes for rent.
−Removed: Rental home construction can involve substantial up-front costs to build before a home is available for rent and generates income.
+Added: Rental home construction can involve substantial up-front costs before a home is available for rent and generates income.
In addition to the up-front costs, building rental homes involves potentially significant new risks to our business, such as delays or cost increases due to changes in or failure to meet regulatory requirements, including permitting and zoning regulations, failure of lease rentals on newly-constructed properties to achieve anticipated investment returns, inclement weather, adverse site selection, unforeseen site conditions, construction materials and labor and other risks described below.
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We will depend on our tenants for all of our rental home revenues.
−Removed: Poor tenant selection and defaults and nonrenewals by our tenants may adversely affect our reputation, and financial performance.
+Added: Poor tenant selection and defaults and nonrenewal by our tenants may adversely affect our reputation, and financial performance.
We are dependent on rental income from tenants for all of our rental home revenues.
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Our reputation and financial performance would be adversely affected if a significant number of our tenants fail to meet their lease obligations or fail to renew their leases.
−Removed: For example, tenants may default on rent payments, make unreasonable and repeated demands for service or improvements, make unsupported or unjustified complaints to regulatory or political authorities, use our properties for illegal purposes, damage or make unauthorized structural changes to our properties that are not covered by security deposits, refuse to leave the property upon termination of the lease, engage in domestic violence or similar disturbances, disturb nearby residents with noise, trash, odors or eyesores, fail to comply with the Sky Ranch CAB regulations, sublet to less desirable individuals in violation of our lease or permit unauthorized persons to live with them.
+Added: For example, tenants may default on rent payments, make unreasonable and repeated demands for service or improvements, make unsupported or unjustified complaints to regulatory or political authorities, use our properties for illegal purposes, damage or make unauthorized structural changes to our properties that are not covered by security deposits, refuse to leave the property upon termination of the lease, engage in domestic violence or similar disturbances, disturb nearby residents with noise, trash, odors or eyesores, fail to comply with local regulations, sublet to less desirable individuals in violation of our lease or permit unauthorized persons to live with them.
Damage to our properties may delay re-leasing after eviction, necessitate expensive repairs or impair the rental income or value of the property resulting in a lower than expected rate of return.
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Our tenant turnover rate and related cost estimates may be less accurate than if we had more operating data upon which to base such estimates.
−Removed: Moreover, we cannot assure you that our leases will be renewed on equal or better terms or at all.
−Removed: If our tenants do not renew their leases or the rental rates for our properties decrease, our operating results and ability to make distributions to our shareholders could be adversely affected.
+Added: Moreover, there are no assurances that our leases will be renewed on equal or better terms or at all.
+Added: If our tenants do not renew their leases or the rental rates for our properties decrease, our operating results could be adversely affected.
Tenant relief laws, including laws restricting evictions and other regulations could limit our ability to evict bad tenants which may negatively impact our rental income and profitability.
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The eviction process is typically subject to legal barriers, mandatory “cure” policies and other sources of expense and delay, each of which may delay our ability to gain possession and stabilize the property.
−Removed: Since the onset of the COVID-19 pandemic, there have been increases in restrictions and other regulations on evictions and rent increases and we believe these increases could continue given the ongoing effects of the pandemic, economic challenges nationally and increasing political support for these types of regulations.
It would be difficult for us to quickly generate cash from sales of our properties.
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Products supplied to us and work done by subcontractors can expose us to risks that could adversely affect our business.
−Removed: We rely on subcontractors to perform the actual property development, including the construction of our single-family rental homes, and in many cases, to select and obtain concrete, asphalt, and other materials.
+Added: We rely on subcontractors to perform the property development, including the construction of our single-family rental homes, and in many cases, to select and obtain building materials.
Subcontractors may use improper construction processes or defective materials.
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Various local, state and federal statutes, ordinances, rules and regulations concerning health and safety, site and building design, environmental, zoning, and similar matters apply to and/or affect the construction and operation of our water and wastewater systems and our land development activities.
−Removed: For example, as detailed further below, state regulations recently enacted by the Colorado Oil and Gas Conservation Commission implementing Senate Bill 19-181 (“SB 19-181”) impose minimum distances between residences and new oil and gas drilling operations.
+Added: For example, as detailed further below, the COGCC adopted regulations that took effect in 2021 which implement SB 19-181 by imposing minimum distances between new oil and gas drilling operations and residences, schools, and childcare centers.
SB 19-181 also empowers local governments to enact regulations that are stricter than state requirements pertaining to the surface impacts of oil and gas operations.
−Removed: As such, local zoning or other regulations may seek to create stricter setbacks from oil and gas drilling operations or impose other restrictions on the use of land.
−Removed: Furthermore, construction and funding of a new interchange on I-70 may delay the issuance of permits beyond the first subphase of our second development filing.
+Added: Thus, local zoning or other regulations may seek to create stricter setbacks from oil and gas drilling operations or impose other restrictions on the use of land.
+Added: For example, Arapahoe County adopted new oil and gas regulations in November 2021.
As these state setback regulations are implemented, and to the extent that these regulations are enacted, the value of the land that we already own or the availability of land that we are looking to acquire may decline, either of which may adversely impact the financial position, results of operations and cash flows of our business.
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Furthermore, we are subject to various fees and charges of government authorities designed to defray the cost of providing certain governmental services and improvements.
−Removed: For example, local and state governments have broad discretion regarding the imposition of development fees for projects under their
−Removed: jurisdictions, as well as requiring concessions or that the property developer and/or home builder construct certain improvements to public places such as parks and streets or fund schools.
+Added: For example, local and state governments have broad discretion regarding the imposition of development fees for projects under their jurisdictions, as well as requiring concessions or that the property developer and/or home builder construct certain improvements to public places such as parks and streets or fund schools.
+Added: New building code laws and regulations may also impact our costs of construction.
+Added: For example, HB 22-1362, enacted in 2022, requires the Colorado Energy Office to identify, and local governments to adopt by 2025, more energy efficient and low carbon building codes.
Municipalities or state water agencies may restrict or place moratoriums on the availability of utilities, such as water and sewer taps, which could have an adverse effect on our business by causing delays or increasing our costs.
We must provide water that meets all federal and state regulatory water quality standards and operate our water and wastewater facilities in accordance with these standards.
−Removed: Future changes in regulations governing the supply of drinking water and treatment of wastewater may have a material adverse impact on our financial results.
−Removed: For example, on October 18, 2021, the Biden Administration announced a multi-agency, three year strategy to begin addressing per-and polyfluoroalkyl substances (“PFAS”), known colloquially as “forever chemicals.” The plan includes, among other things, having the EPA set timelines for drinking water limits of PFAS under the Safe Drinking Water Act, designate two of the substances under the Comprehensive Environmental Reponses Compensation and Liability Act, and set timelines for data collection and rulemakings for nine industrial categories, and review past PFAS actions taken under the Toxic Substances Control Act.
+Added: Changes in regulations governing the supply of drinking water and treatment of wastewater may have a material adverse impact on our business.
+Added: For example, on October 18, 2021, the Biden Administration announced a multi-agency, three-year strategy to begin addressing per-and polyfluoroalkyl substances (PFAS), known as “forever chemicals.” As a part of ongoing efforts to implement that initiative, the EPA:
+Added: (i) finalized a rule in December 2021 pertaining to monitoring of PFAS in drinking water;
+Added: (ii) is developing a proposed National Drinking Water Regulation for publication by the end of 2022 for PFOA and PFOS, with a final rule expected in 2023;
+Added: (iii) issued a proposed rule in August 2022 to designate two of the most widely used PFAS as hazardous substances under CERCLA, or Superfund;
+Added: (iv) announced two rulemaking efforts in October 2021 to address PFAS under the Resource Conservation and Recovery Act (RCRA);
+Added: (v) and expects to develop additional rules restricting PFAS discharges from industrial sources.
These new regulatory initiatives addressing PFAS in drinking water could impact the water side of our business.
With respect to service of customers on the Lowry Range, the Rangeview District’s rates might not be sufficient to cover the cost of compliance with additional or more stringent requirements, or we may be required to reserve more water than necessary for use on the Lowry Range to ensure the proper level of service to Lowry Range customers.
−Removed: If the cost of compliance were to increase, we anticipate that the rates of the nearby water providers that the Rangeview District uses to establish its rates and charges would increase to reflect these cost increases, thereby allowing the Rangeview District to increase its rates and charges.
+Added: If the cost of compliance were to increase, we anticipate that the rates of the nearby water providers that the Rangeview District uses to establish its rates and charges would increase to reflect
+Added: these cost increases, thereby allowing the Rangeview District to increase its rates and charges.
However, these water providers may not raise their rates in an amount that would be sufficient to enable the Rangeview District (and us) to cover any increased compliance costs.
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and how we address contamination.
+Added: With respect to wetlands in particular, the U.S.
+Added: Supreme Court’s forthcoming interpretation in Sackett v.
+Added: Environmental Protection Agency of the Clean Water Act’s applicability to certain wetlands may impact our permitting requirements.
Government agencies may initiate audits, reviews, or investigations of our business practices to ensure compliance with applicable laws and regulations, which can cause us to incur costs or create other disruptions in our business that can be significant.
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Laws and Regulations Related to climate change, greenhouse gases, and energy may adversely affect us by directly and indirectly increasing the cost of or restricting our planned future growth activities.
−Removed: There is a variety of legislation being enacted, or considered for enactment, at the federal, state, and local level relating to energy and climate change.
−Removed: This legislation relates to items such as carbon dioxide emissions control and building codes that impose energy efficiency standards.
−Removed: 2019 was a prolific year for adopting state climate and energy legislation in Colorado, and the state has been adopting regulations, plans, and policies to implement that legislation in 2020 and 2021.
−Removed: For example, in 2019, Colorado passed HB 19-1261, setting a goal to reduce statewide greenhouse gas emissions by 26% by 2025, 50% by 2030, and 90% by 2050, and in 2021 the Colorado Governor release the Colorado Greenhouse Gas Pollution Reduction Roadmap, which identifies strategies state agencies can and should take to reduce greenhouse gas emissions from a variety of sources, including buildings, transportation, and oil and gas mining and production.
−Removed: Colorado also adopted SB 19-096 in 2019, which requires the Air Quality Control Commission collect and report on greenhouse gas emissions data from certain entities.
−Removed: The ACQQ adopted Air Regulation Number 22 pursuant to SB 19-096 in May 2020, requiring certain categories of emitters, including industrial wastewater treatment facilities, to report GHG emissions to the state.
−Removed: Colorado also adopted two energy efficiency statutes in 2019:
−Removed: HB 19-1231 updates energy and water efficiency standards for certain new appliance and plumbing fixtures;
−Removed: and HB 19-1260 requires local jurisdictions to adopt certain minimum building codes when updating their building codes.
−Removed: HB 19-1231 and future local building code changes pursuant to HB 19-1260 could affect our future housing development costs.
−Removed: Likewise, the cost of maintaining our multifamily
−Removed: housing developments may be impacted by the implementation of 2021 Colorado law HB 21-1286, which requires owners of large (50,000 square feet or more) commercial, multifamily, and public buildings to annually report energy usage starting by December 1, 2022.
+Added: A variety of state legislation, regulations, and policies have been enacted in recent years relating to energy, climate change, greenhouse gas emissions reporting and controls, land use, and energy efficient building codes.
+Added: In addition to the numerous above-discussed state and federal laws and regulations adopted in the past year regulating the siting of, emissions from, and chemicals used in oil and gas production, Colorado also enacted HB 22-1362 in 2022, which requires the adoption of energy efficient and low carbon building codes by 2025.
+Added: Our future housing development costs could be impacted by HB 22-1362, in conjunction with previously enacted energy efficiency legislation such as HB 19-1231 (energy and water efficiency standards for certain new appliance and plumbing fixtures) and HB 19-1260 (energy efficient building codes).
+Added: Likewise, the cost of operating and maintaining our multifamily housing developments may be impacted by the implementation of 2021 Colorado law HB 21-1286, which requires owners of large (50,000 square feet or more) commercial, multifamily, and public buildings to annually report energy usage starting by December 1, 2022.
+Added: There are also ongoing regulatory and legislative efforts to implement two major greenhouse gas bills enacted in 2019—HB 19-096 (requiring GHG emissions reporting by certain entities pursuant to AQCC regulations) and HB 19-1261 (setting ambitious statewide greenhouse gas emissions reduction goals), as well as the Colorado Governor’s 2021 Colorado Greenhouse Gas Pollution Reduction Roadmap identifying strategies to reduce greenhouse gas emissions from a variety of sources, including buildings, transportation, and oil and gas mining and production.
+Added: For example, pursuant to 19-096 the AQCC has adopted and updated its Air Regulation Number 22 and Regulation Number 7 requiring reporting and reduction of GHGs and ozone precursors from certain categories of emitters, such as industrial wastewater treatment facilities and oil and gas operators.
+Added: In addition, at the federal level, the SEC’s proposed climate risks disclosures and greenhouse gas reporting rule could, if finalized, impose additional compliance costs on our business, as well as for the oil and gas producers with whom we do business.
As climate change concerns continue to grow, enactment of additional climate and energy legislation and regulations at the state, local, and federal levels may continue, and compliance with legislation and regulations of this nature is expected to become more costly.
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These construction activities involve risks, including shortages of materials and labor, work stoppages, labor relations disputes, injuries to third parties, damages to property, weather interference, engineering, environmental, permitting, or geological problems and unanticipated cost increases.
−Removed: These issues could give rise to delays, cost overruns or performance deficiencies, or otherwise adversely affect the construction or operation of our water and wastewater delivery systems and the construction and delivery of residential lots.
+Added: These issues could give rise to delays, cost overruns or performance deficiencies, or otherwise
+Added: adversely affect the construction or operation of our water and wastewater delivery systems and the construction and delivery of residential lots.
In addition, we may experience quality problems in the construction of our systems and facilities, including equipment failures.
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To the extent that these events occur and are not due to circumstances for which the customer accepts responsibility or cannot be mitigated by performance bonds or the provisions of our agreements with contractors, the total costs of the project would exceed our original estimates and our financial results would be negatively impacted.
−Removed: We are required to secure, or to have our subcontractors secure, performance and completion bonds for certain contracts and projects.
−Removed: The market environment for surety companies has become increasingly risk averse.
+Added: We, or our subcontractors, are required to secure performance and completion bonds for certain contracts and projects.
+Added: The market for surety companies has become increasingly risk averse.
We and our subcontractors secure performance and completion bonds for our contracts from these surety companies.
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We may not be able to secure performance and completion bonds when required.
−Removed: The enactment and implementation of SB 19-181 is increasing state and local regulatory restrictions on oil and gas development, which could have an adverse effect on our water sales to the oil and gas industry for hydraulic fracturing (“fracking”) and demand for new homes at Sky Ranch.
−Removed: SB 19-181 was signed into law on April 16, 2019.
−Removed: Among other things, SB 19-181 authorizes local governments to approve the siting of oil and gas locations and regulate the surface impacts of oil and natural gas development, including empowering local governments to adopt requirements that are more stringent than state requirements.
−Removed: SB 19-181 also changes the mission of the Colorado Oil and Gas Conservation Commission from fostering responsible and balanced development to regulating the development and production of natural resources and oil and gas to “protect” and “minimize” “adverse impacts to public health, safety, and welfare, including protection of the environment and wildlife resources.
−Removed: SB 19-181 also requires the Colorado Oil and Gas Conservation Commission and the Air Quality Control Commission to undertake rulemaking on numerous issues, including environmental protection, facility siting, increased inspections and public disclosures, elimination of hard caps on application fees,
−Removed: increasing required financial assurances, and minimizing emissions of hydrocarbons and other compounds.
−Removed: Throughout 2019 and 2020, the Colorado Oil and Gas Conservation Commission and the Air Quality Control Commission have promulgated several rules pursuant to SB 19-181, as detailed below.
−Removed: Rulemaking activities by the Colorado Oil and Gas Conservation Commission pursuant to SB 19-181 could adversely impact on our land development activities by limiting the number of lots available for land development in Colorado, and could adversely impact our water sales for fracking by limiting the land available for oil and gas production.
−Removed: In November 2020, as a part of implementing SB 19-181, the Colorado Oil and Gas Conservation Commission approved rules (“Setback Rule”) imposing setbacks and siting requirements for well locations.
−Removed: Specifically, the Setback Rule prohibits, without exception, prohibits working well pad surfaces from being located within 2,000 feet of a School Facility or Child Care Center, or within 500 feet from one or more residential buildings that not subject to a surface use agreement or waiver.
−Removed: The Setback Rule also generally prohibits any well pad surface from being located greater than 500 feet and less than 2,000 feet from a residential or high occupancy building, but allows such locations to obtain an exemption from the Commission by satisfying certain requirements in the rule (such as consent from owners and tenants) or to seek a ruling from the Commission, after a hearing, finding that the conditions of approval will provide “substantially equivalent protections” to a 2,000 foot setback for public health, safety, welfare, the environment, wildlife resources, and disproportionately impacted communities.
−Removed: The Setback Rule went into effect on January 15, 2021.
−Removed: Depending on how the Setback Rules is applied and interpreted, it could have the effect of limiting property development within 2,000 feet of a well pad surface.
−Removed: As noted above, in order for landowners to allow oil and gas development on or near their property, the applicant will need to show explicit, informed consent from both the landowner and their tenants (as applicable) to the proposed oil and gas location, or otherwise demonstrate to the Oil and Gas Conservation Commission that conditions on approval will provide “substantially equivalent protections” to a 2,000 foot setback.
−Removed: This will be a roadblock for landowners who are unable to get the consent of their tenants and are unable to demonstrate that conditions on the location approval would provide “substantially equivalent protections.” In such cases, landowners could be forced to choose between limiting oil and gas development on their property to maximize the land available for residential and commercial development or to limit land development to maximize revenue from oil and gas development.
−Removed: Under a restrictive interpretation of such rules, we might have to limit drilling on our mineral rights at Sky Ranch in order to proceed with the occupancy densities we have planned, which would adversely affect our industrial water sales to the oil and gas industry.
−Removed: Restrictive rules could also reduce the supply of other land acquisition opportunities for development or it could make such residential land development/acquisitions/sales more attractive to people who don’t want to live near O&G development.
−Removed: Additionally, any rules that would require the Land Board to elect between oil and gas or land development with respect to the Lowry Range would likely have an adverse effect on our financial condition, because we have the exclusive right to provide water service to customers on the Lowry Range, including both lessees of the oil and gas rights on the Lowry Range and future occupants of the Lowry Range if the Land Board sells the land for development.
−Removed: In addition to the Setback Rule, state agencies have adopted other regulations implementing SB 19-181.
−Removed: The Colorado Oil and Gas Conservation Commission adopted rules for testing and ensuring the integrity of oil and gas flow lines and well bores in November 2019 and June 2020, pursuant to SB 19-181.
−Removed: In addition, the Colorado Air Quality Control Commission approved rules in December 2019 calling for more frequent inspections of oil and gas equipment.
+Added: The enactment and implementation of SB 19-181 increasing state and local regulatory oversight of oil and gas development could have an adverse effect on our water sales to the oil and gas industry for hydraulic fracturing (fracking) and demand for new homes at Sky Ranch.
+Added: Enacted in 2019, SB 19-181 authorizes local governments to approve the siting of oil and gas locations and regulate the surface impacts of oil and natural gas development through local requirements that may be more stringent than state requirements.
+Added: SB 19-181 also changed the mission of the COGCC from fostering responsible and balanced development to regulating the development and production of natural resources and oil and gas to “protect” and “minimize” “adverse impacts to public health, safety, and welfare, including protection of the environment and wildlife resources.
+Added: SB 19-181 also requires the COGCC and the AQCC to undertake rulemakings on environmental protection, facility siting, increased inspections and public disclosures, elimination of hard caps on application fees, increasing required financial assurances, and minimizing emissions of hydrocarbons and other compounds.
+Added: The COGCC and the AQCC have promulgated several rules pursuant to SB 19-181 over the past several years, as detailed below.
+Added: Rulemaking activities by the COGCC pursuant to SB 19-181 could adversely impact our land development activities by limiting the number of lots available for land development in Colorado and could adversely impact our water sales for fracking by limiting the land available for oil and gas production.
+Added: As a part of implementing SB 19-181, the COGCC approved a rule (Setback Rule) imposing setbacks and siting requirements for well locations.
+Added: The Setback Rule, which took effect in 2021, prohibits, without exception, working well pad surfaces from being located within 2,000 feet of a school facility or childcare center, or within 500 feet from one or more residential buildings that are not subject to a surface use agreement or waiver.
+Added: The Setback Rule also generally prohibits any well pad surface from being located greater than 500 feet and less than 2,000 feet from a residential or high occupancy building, but allows such locations to obtain an exemption from the COGCC by satisfying certain requirements (such as consent from owners and tenants) or by obtaining a COGCC finding, after a hearing, that the conditions of approval will provide “substantially equivalent protections” to a 2,000 foot setback for public health, safety, welfare, the environment, wildlife resources, and disproportionately impacted communities.
+Added: Depending on how the Setback Rule is applied and interpreted, it could have the effect of limiting property development within 2,000 feet of a well pad surface.
+Added: As noted above, to develop oil and gas near residential or high occupancy buildings, the applicant will need an exception from the COGCC by obtaining explicit, informed consent from both the landowner and their tenants (as applicable) to the proposed oil and gas location, or by demonstrating that conditions on approval will provide “substantially equivalent protections” to a 2,000-foot setback.
+Added: Applicants who are unable to obtain such an exception may be forced to choose between using their property for oil
+Added: and gas development or for residential and commercial development.
+Added: So, under a restrictive interpretation of the Setback Rule and its exceptions, we might have to limit drilling on our mineral rights at Sky Ranch to proceed with the occupancy densities we have planned, which would adversely affect our industrial water sales to the oil and gas industry.
+Added: The Setback Rule could also reduce the supply of other land acquisition opportunities for development.
+Added: Alternatively, the Setback Rule could make such residential properties more attractive to people who prefer to live farther from oil and gas developments.
+Added: Additionally, any rules that would require the Land Board to elect between oil and gas or residential and commercial land development with respect to the Lowry Range would likely have an adverse effect on our financial condition, because we have the exclusive right to provide water service to customers on the Lowry Range, including both lessees of the oil and gas rights on the Lowry Range and future occupants of the Lowry Range if the Land Board sells the land for development.
+Added: Our business could be further impacted if local jurisdictions in which we operate, pursuant to SB 19-181, enact local setback rules or other regulations on oil and gas development that are more restrictive than the state’s.
+Added: In addition to the Setback Rule, state agencies have recently adopted other regulations on oil and gas development as a part of implementing SB 19-181 and other recently enacted legislation such as HB 22-1244, HB 19-096, and HB 19-1261.
+Added: For example, the COGCC in recent years has adopted new rules for testing and ensuring the integrity of oil and gas flow lines and well bores and has imposed new fees and financial assurance requirements for oil and gas facilities.
+Added: In addition, the AQCC has, in recent years, approved rules calling for more frequent inspections of oil and gas equipment, imposing new GHG intensity standards for oil and gas operators, and requiring reporting and reduction of GHG emissions, ozone precursors, and hydrocarbons by oil and gas operations as well as industrial wastewater treatment facilities, where applicable.
+Added: Similarly, the DPHE recently proposed a new rulemaking to verify that oil and gas production sites are reducing GHG emissions, and it has published an initial list of toxic air contaminants as a first step toward regulation under HB 22-1244.
These and related rulemaking activities by state agencies and local governments could lead to delays and additional costs for oil and gas operators, which, in turn, could result in a decline in oil and gas drilling activities.
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Further, a significant decline in oil and gas activities throughout Colorado could negatively impact the Colorado economy, which could have an adverse effect on demand for new homes at Sky Ranch.
−Removed: Ballot Initiatives at the State or Local Level Could Restrict Oil and Gas and Land Development.
−Removed: In the past few years, interest groups in Colorado opposed to oil and natural gas development generally, and hydraulic fracturing in particular, have advanced—albeit unsuccessfully— ballot initiatives that would significantly curtail oil and natural gas development in the state.
+Added: Future Ballot Initiatives at the State or Local Level Could Restrict Oil and Gas and Land Development.
+Added: In the past decade, interest groups in Colorado opposed to oil and natural gas development generally, and hydraulic fracturing in particular, have put forward ballot initiatives that, if approved, would have significantly curtailed oil and natural gas development in the state.
For example, in 2018, Proposition 112 would have imposed a 2,500-foot setback from any building or waterway in Colorado.
−Removed: Although but 57% of Colorado voters rejected that measure in 2018, the influential power of even failed ballot initiatives is demonstrated by the fact that the Colorado Legislature and Governor passed SB 19-181 the following year and, pursuant to that law, the Colorado Oil and Gas Conservation Commission has now promulgated the similar, though less restrictive Setback Rule described above.
−Removed: Interest groups opposed to oil and natural gas development have continued to seek restrictions through a variety of means.
+Added: Although Colorado voters rejected that measure, the influential power of even failed ballot initiatives is demonstrated by the fact that the Colorado Legislature and Governor passed SB 19-181 the following year and, pursuant to that law, the COGCC promulgated the similar, though less restrictive, Setback Rule.
+Added: While we are unaware of specific, current ballot measures that would materially threaten our business, in the future interest groups opposed to oil and natural gas development may seek additional restrictions on oil and gas development through ballot initiatives, as well as through legislation, regulation, or litigation.
We may be subject to significant potential liabilities because of warranty and liability claims made against us.
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A major health and safety incident relating to our business could be costly in terms of potential liabilities and reputational damage.
−Removed: Water facility and land development construction sites are inherently dangerous and pose certain inherent health and safety risks to construction workers and other persons on the site.
+Added: Water facility and construction sites are inherently dangerous and pose certain inherent health and safety risks to construction workers and other persons on the site.
Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements, and a failure that results in a major or significant health and safety incident is likely to be costly in terms of potential liabilities incurred as a result.
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As of August 31, 2022, total principal and interest owed to us by the Rangeview District was just over $1.1 million.
−Removed: Pursuant to our water and wastewater service agreements with the Rangeview District, the Rangeview District retains two percent of the revenues from the sale of water to its end-use customers and 10% of the revenues from the provision of wastewater services to its end-use customers.
+Added: Pursuant to our water and wastewater service agreements with the Rangeview District, of the net amounts retained by the Rangeview District, the Rangeview District retains two percent of the revenues from the sale of water to its end-use customers and 10% of the revenues from the provision of wastewater services to its end-use customers.
Proceeds from the fee collections will initially be used to repay the Rangeview District’s obligations to us, but after these loans are repaid, the Rangeview District is not required to use the funds to benefit Pure Cycle.
Similarly, we have made loans to and incurred expenses reimbursable by the Sky Ranch Districts and the Sky Ranch CAB.
−Removed: As of August 31, 2021, the Sky Ranch CAB owes us $24.8 million related to construction of public improvements on the Sky Ranch property, including interest on these amounts.
+Added: As of August 31, 2022, the Sky Ranch CAB owes us $17.2 million related to construction of public improvements on the Sky Ranch property, including project management fees and interest on these amounts.
The Sky Ranch CAB is not required to repay us for advances made or expenses incurred for improvements at Sky Ranch unless and until the Sky Ranch CAB and/or Sky Ranch Districts generate sufficient cash flows from either property taxes, fees or from the issuance of bonds in an amount sufficient to reimburse us for all or a portion of advances made or expenses incurred.
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We expect that the Rangeview and Sky Ranch Districts will expand when more properties are developed and become part of the respective districts, and our officers and employees acting as directors of these districts will have fiduciary obligations to those other constituents.
−Removed: Conflicts may not be resolved in the best interests of the Company and our shareholders.
+Added: Conflicts may not be resolved in our best interest.
In addition, other landowners coming into a district will be eligible to vote and to serve as directors of these districts.
Our officers and employees may not remain as directors of these districts, and the actions of subsequently elected boards could have an adverse impact on our operations.
−Removed: Growth limitations or moratoriums imposed by governmental authorities could adversely affect our land development activities or the land development activities of our customers, which could adversely impact both the land development and water and wastewater
−Removed: segments of our business.
+Added: Growth limitations or moratoriums imposed by governmental authorities could adversely affect our land development activities or the land development activities of our customers, which could adversely impact both the land development and water and wastewater segments of our business.
The State of Colorado or counties in which our service areas and properties are located may approve limitations or moratoriums on residential growth within their respective boundaries, which limitations or moratoriums could have the effect of delaying, limiting or halting development within Sky Ranch or other areas where we may provide water and wastewater services or develop land.
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If any of these events occur, we may have to interrupt the use of that water supply until we are able to substitute the supply from another source or treat the contaminated supply.
−Removed: We cannot assure you that we will successfully manage these issues, and failure to do so could have a material adverse effect on our future results of operations.
+Added: We cannot assure that we will successfully manage these issues, and failure to do so could have a material adverse effect on our future results of operations.
We may incur significant costs in order to treat the contaminated source through expansion of our current treatment facilities or development of new treatment methods.
15 unchanged sentences
In the future, existing regulations may be revised or reinterpreted, and new laws and regulations may be adopted or become applicable to us or our facilities.
−Removed: regulated as a public utility, our ability to generate profits could be limited, and we might incur significant costs associated with regulatory compliance.
+Added: If we become regulated as a public utility, our ability to generate profits could be limited, and we might incur significant costs associated with regulatory compliance.
The Rangeview District’s and our rights under the Lease have been challenged by third parties.
−Removed: The Rangeview District’s and our rights under the Lease have been challenged by third parties, including the Land Board, in the past.
+Added: In the past the Rangeview District’s and our rights under the Lease have been challenged by third parties, including the Land Board.
In 2014, in connection with settling a lawsuit filed by us and the Rangeview District against the Land Board, the Land Board, the Rangeview District and we amended and restated the Lease to clarify and update a number of provisions.
8 unchanged sentences
Our next review for reasonable diligence on the Lowry Range surface water decrees will be in January 2025.
−Removed: We believe that we will be successful in maintaining our decrees as we continue to develop these rights.
−Removed: If the water court does not make a determination of reasonable diligence, the value of our interests in the Rangeview Water Supply would be materially adversely impacted.
+Added: We believe we will be successful in maintaining our decrees as we continue to develop these rights.
+Added: the water court does not make a determination of reasonable diligence, the value of our interests in the Rangeview Water Supply would be materially adversely impacted.
Our operations are affected by local politics and governmental procedures that are beyond our control.
1 unchanged sentence
We market our water rights to municipalities and other governmental entities run by elected or politically appointed officials.
−Removed: Our principal competitors are municipalities seeking to expand their sales tax base and other water districts.
+Added: Our principal competitors are municipalities and other water districts.
Various constituencies, including our competitors, developers, environmental groups, conservation groups, and agricultural interests, have competing agendas with respect to the development of water rights in Colorado, which means that decisions affecting our business are based on many factors other than economic and business considerations.
4 unchanged sentences
The number of connections we can serve are affected by local governmental policies that are beyond our control.
−Removed: We market our water rights through service agreements to developers, municipalities and other governmental entities run by elected or politically appointed officials.
+Added: We market our water rights through service agreements to developers, municipalities and other governmental entities.
We believe that our water rights can serve approximately 60,000 single family connections based on standards applied to water providers in Arapahoe, Douglas, and Adams Counties.
10 unchanged sentences
Our stock price has been volatile in the past and may decline in the future.
−Removed: Our common stock has experienced significant price and volume fluctuations in the past and may experience significant fluctuations in the future depending upon several factors, some of which
−Removed: are beyond our control.
+Added: Our common stock has experienced significant price and volume fluctuations in the past and may experience significant fluctuations in the future depending upon several factors, some of which are beyond our control.
Factors that could affect our stock price and trading volume include, among others, the perceived prospects of our business;
11 unchanged sentences
Cyberattacks may take various forms, including through hacking, ransomware attacks, malware, viruses and phishing scams.
−Removed: In July 2021, we experienced a ransomware attack that impacted our operational and information technology systems, which resulted in our systems being down while we implemented recovery controls of our data.
+Added: In July 2021, we experienced a ransomware attack that impacted our information technology systems, which resulted in our systems being down while we implemented recovery controls of our data.
We did not experience a material loss of information and concluded that no customer or financial data was compromised.
1 unchanged sentence
As a result of the attack, we incurred an immaterial amount of expenses to increase our security including additional infrastructure investments, and remediation efforts.
−Removed: A significant data security breach, including misappropriation of customer, supplier or employee confidential information, could cause us to incur significant costs, which may include potential costs of investigations, legal, forensic and consulting fees and expenses, costs and diversion of management attention required for investigation, remediation and litigation, substantial repair or replacement costs.
+Added: A significant data security breach, including misappropriation of confidential information, could cause us to incur significant costs, which may include potential costs of investigations, legal, forensic and consulting fees, costs and diversion of management attention required for investigation, remediation and litigation, substantial repair or replacement costs.
We could also experience data losses that would impair our ability to manage our business operations, including accounting and project costs, manage our water and wastewater systems or process transactions and have a negative impact on our reputation and loss of confidence of our customers, suppliers and others, any of which could have a material adverse impact on our business, financial condition, operating results and reputation.
2 unchanged sentences
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
−Removed: As disclosed in Item 9A – Controls and Procedures, during fiscal 2021, we concluded that a material weakness existed in our internal controls resulting from ineffective procedures related to the preparation and review of spreadsheets, which compromised the integrity of the spreadsheets used to support and record transactions related to tracking the public improvement reimbursable amounts and related interest income.
+Added: As disclosed in Item 9A, during fiscal 2021, we concluded that a material weakness existed in our internal controls resulting from ineffective procedures related to the preparation and review of spreadsheets, which compromised the integrity of the spreadsheets used to support and record transactions related to tracking the public improvement reimbursable amounts and related interest income.
To address this material weakness, management has devoted, and plans to continue to devote, significant effort and resources to the remediation and improvement of its internal control over financial reporting by implementing additional steps in the review process of various complex schedules that support accounting entries on a monthly and quarterly basis or moving these manual tracking and reconciliation processes to a more automated software system.
4 unchanged sentences
In addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
−Removed: If we fail to maintain the effectiveness of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, we could fail to meet our reporting obligations, and there could be a material adverse effect on our share price.
+Added: If we fail to maintain effective internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, we could fail to meet our reporting obligations, and there could be a material adverse effect on our share price.
Conflicts, terrorist attacks, public health crises, including the occurrence of a contagious disease or illness, such as the COVID-19 coronavirus and general instability could adversely affect our business .
We are vulnerable to the effects of conflicts, terrorist attacks and public health crises.
−Removed: As has been the case with the COVID-19 pandemic, such effects have precipitated economic instability and turmoil in financial markets.
−Removed: The uncertainty and economic disruption resulting from hostilities, acts of terrorism or public health crises may impact any or all of our operations or those of our suppliers or customers.
+Added: As has been the case with COVID-19, such effects have precipitated economic instability and turmoil in financial markets.
+Added: The uncertainty and economic disruption resulting from hostilities, acts of terrorism or public health crises may impact our operations or those of our suppliers or customers.
Accordingly, any conflict, terrorist attack or public health crisis that impacts us or any of our suppliers or customers, could have a material adverse effect on our business, results of operations and financial condition.
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.