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Forward-looking statements reflect our current views with respect to future events and are subject to certain risks, uncertainties, and assumptions. There are no assurances that any of our expectations will be realized and actual results could differ materially from those in such statements. Factors that could cause actual results to differ from those contemplated by such forward-looking statements include, without limitation:

PART I

Item 1 – Business

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

We are a diversified land and water resource development company. Through ourand land development segment, we develop master planned communities creating value and opportunity for investors, homeowners, water customers, and businesses along the busy I-70 corridor of the Denver metropolitan area. Our land development segment (including the newly launched rental division which will be described in detail below) was borne from our need to control the addition of water and wastewater customers to our systems as opposed to waiting for third-party entities to contract with us or for growth to come to us.company. At our core, we are an innovative and vertically integrateda wholesale water and wastewater service provider that ownsdevelops land we own into master planned communities. Our newest business is the development of single-family homes held for rental purposes. Both the land development and developssingle-family home rental lines of business generate customers and usage fees for our water and wastewater resource development business.

Over the past 30+ years, we have accumulated a valuablelarge portfolio of valuable water rights and land interests along the Front Range of Colorado. We have added an extensive network of wholesale water production, storage, treatment and distribution systems, and wastewater collection and treatment systems that we use to serve domestic, commercial, and industrial customers in a water short region. We believethe eastern Denver metropolitan region (the illustration below notes the general area of our water resources, land and infrastructure, located in southeastern Denver, are positionedwater assets). Our primary land asset, known as Sky Ranch, is in one of the most attractiveactive development areas ofin the Denver metropolitan region and will provide favorable investment returns. The easternalong the rapidly developing I-70 corridor, is experiencing continued substantial growth whichand we believe will continue over several decades.

We are developing thelots at Sky Ranch Master Planned Community located along the eastern I-70 corridor (see map below with location of Sky Ranchfor residential, commercial, retail, and other service areas).light industrial uses. Sky Ranch is plannedzoned to include up to 3,200 single family and multifamily homes, parks, open spaces, trails, recreational centers, schools, and over two million square feet of retail, commercial and light industrial space, all of which will be serviced by our water and wastewater resource development segment. Our newest line of business is our single-family rental business where we build single-family homes for rental purposes in Sky Ranch under annual lease agreements. We plan to expand this new line of business to more than 200 rental units over the next several years.

Through our land development segment, we develop master planned communities creating value and opportunity for investors, homeowners, water customers, and businesses along the busy I-70 corridor of the Denver metropolitan area. Our land development segment was borne from our desire to capitalize on the increase in the value water provides to raw land in the Colorado front range.

Our land development activities provide a strategic complement to our water and wastewater resource development business, and vice versa. A significant component of any master planned community is its ability to bring high quality domestic water, irrigation water, and wastewater services to the community. Having control over the water resources in conjunction with developing the land enables us to efficiently build and maintain infrastructure for potable water and irrigation water distribution, wastewater and storm water collection,

rights, as well as enhances the value of the land to which we provide our water. rights. In addition, we have significant in-house expertise in engineering, operations, and land development which allows us to take a hands-on approach to the water and land development process.

We mainly provide wholesale water and wastewater services to local governmental entities that in turn provide residential and commercial water and wastewater services to customers in their communities. Our largest customer is the Rangeview Metropolitan District (“Rangeview District”)(Rangeview District). We have the exclusive right to provide water and wastewater services to the Rangeview District’s customers in its exclusive 24,000-acre service area in the southeastern Denver metropolitan area pursuant to various agreements that are described in greater detail below. As of September 30, 2021,August 31, 2022, through the Rangeview District, we provide service to 855more than 1,000 single-family equivalent (“SFE”)(SFE) water connections and ­­­580more than 700 SFE wastewater connections. These connections are located mainly in the southeastern metropolitan Denver area on the Lowry Range, at our Sky Ranch development and other nearby areas where we have acquired service rights. With the water rights we own and control, we believe we can serve an estimated 60,000 SFEs. An SFE is a customer, whether residential, commercial, or industrial, that imparts a demand on our water or wastewater systems based on the demand of a family of four persons living in a single-family house on a standard sized lot. For some instances herein, as context dictates, the term “acre-feet” (which is approximately 326,000 gallons) is used to designate an annual decreed amount of water available during a typical year.

In addition to our domestic customers, we provide raw water for oil and gas operations. Multiple operators lease more than 135,000 acres in and adjacent to our service area with more than 100 wells and miles of oil and gas collection lines. Sales of water to industrial customers in the oil and gas industry are unpredictable and fluctuate dramatically. After several years of significant activityIn late 2021 and throughout our service area, beginning around March 2020, demand for water from the oil and gas industry dropped precipitously due to low oil and gas prices caused by increased world-wide production and decreased demand due to stay-at-home orders resulting from the coronavirus (“COVID-19”) pandemic. In 2021,2022, we saw somea significant recovery in the oil and gas markets, and this resulted in additional water sales to oil and gas clients in our fiscal 2022 and 2021.

Land Development Segment

In 2010 at a time when real estate prices were severely depressed due to the credit crisis the United States endured from 2007 until 2012, we purchased approximately 930 acres of land known as Sky Ranch. The illustration on the next page provides our planned overall layout of Sky Ranch. We acquired Sky Ranch with the intention of selling lots to national home builders to add value to our core water and wastewater operations by adding the ultimate purchasers of the homes as our water customers. InSky Ranch is being developed in phases over several years, which began in June 2017, when we entered into agreements with three national home builders to sell the initial 505 residential lots at Sky Ranch. Ranch (referred to as Phase 1), and has continued when in February 2021, we entered contracts with four national homebuilders for approximately 850 residential lots, in what we call Phase 2 of the Sky Ranch Development. We have divided Phase 2 into four subphases that we refer to as Phases 2A, 2B, 2C and 2D. The Phase 1 lots and the lots being developed in Phase 2A and 2B are shown in the map below.  

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We acquired our Rangeview Water Supply through the following agreements:

The Lease, the Lowry Service Agreement, the Export Agreement, and the Lowry Wastewater Agreement are collectively referred to as the “Rangeview Water Agreements.”

Additionally, in August 2019, we purchased approximately 300 acre-feet of fully consumptive surfaceWe provide wholesale water in the Lost Creek Designated Ground Water Basin (“Lost Creek Water”). The Lost Creek Water is currently adjudicated for agricultural use,service and we have filed an application with the Colorado water court to change the use of the water to augment our municipal/industrial water supplies at the Lowry Range. We have consolidated our Lost Creek Water with our Rangeview Water Supply to providewastewater service to the Rangeview District’s customers located both on and offoutside of the Lowry Range.

Range, including customers of the Rangeview District and other governmental entities, and industrial and commercial customers. Pursuant to service agreements with Rangeview (including the Lowry Service Agreement, the Lowry Wastewater Agreement and the Non-Lowry Service Agreement described below), we design, construct, operate and maintain the Rangeview District’s water and wastewater systems that are used to provide water and wastewater services to the Rangeview District’s customers located within the Rangeview District’s exclusive service area, and other approved areas. Subject to the terms and conditions of our agreements with the Rangeview District, we are the exclusive water and wastewater provider to the Rangeview District’s customers. For the Rangeview District’s customers located on the Lowry Range, we operate both the water and the wastewater systems during our contract period on behalf of the Rangeview

by an elected board of directors. Eligible voters and persons eligible to serve as directors of the Rangeview District must own an interest in property within the boundaries of the Rangeview District. We own certain rights and real property interests which encompass the current boundaries of the Rangeview District. The current directors of the Rangeview District are Mark W. Harding (our President, Chief Executive Officer, and a director), Kevin B. McNeill (our Vice President and Chief Financial Officer), Scott E. Lehman (an employee of ours), Dirk Lashnits (an employee of ours), and one independent board member. Pursuant to Colorado law, directors may receive $100 for each board meeting they attend, up to a maximum of $1,600 per year. Messrs. Harding, McNeill, Lehman, and Lashnits have all elected to forego these payments.

Land Board Royalties and Fees

Water Deliveries – Pursuant to the Rangeview Water Agreements, the Land Board is entitled to royalty payments based on a percentage of revenues earned from water sales that use the Rangeview Water Supply. The calculation of royalties depends on the location of the customer and whether the customer is a public or private entity. The Land Board does not receive a royalty from wastewater services. When we develop, operate, and deliver water from our Rangeview Water Supply, the Land Board receives royalties on the gross revenues

customers and to receive the revenue from providing those services. Our current WISE subscription entitles us to approximately three million gallons per day of transmission pipeline capacity and increasing acre-feet of water per year as noted below.

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The cost of the water to the members is based on the water rates charged by Aurora Water and can be adjusted each January 1. As of January 1, 2021, WISE water was $5.98 per thousand gallons and such rate will remainremained in effect through calendar 2021. Effective, January 1, 2022, WISE water is expected to increaseincreased to $6.13 per thousand gallons.gallons, which will be in effect for all of calendar 2022. In addition, we pay certain system operational and construction costs. If a WISE member, including the Rangeview District, does not need its WISE water each year or a member needs additional water, the members can trade and/or buy and sell water amongst themselves. For the year ended August 31, 2022, we, through the Rangeview District, purchased a total of just over 360 acre-feet of WISE water for $0.7 million. For the year ended August 31, 2021, we, through the Rangeview District, purchased a total of 120just under 320 acre-feet of WISE water for $0.6 million. For the year ended August 31, 2020, we, through the Rangeview District, purchased a total of 49 acre-feet of WISE water for $0.1 million.

During the years ended August 31, 20212022 and 2020,2021, we provided $1.1 million$0.9 and $2.8$1.1 million of financing to the Rangeview District to fund the Rangeview District’s obligation to purchase WISE water rights and pay for operational and construction charges. Ongoing funding requirements are dependent on the WISE water subscription amount and the Rangeview District’s allowableallocable share of the operational and overhead costs of SMWA and construction activities related to delivery of WISE water.

Monthly Metered Water Usage and Wastewater Treatment Fees

Monthly metered water usage fees are assessed to customers based on actual deliveries each month. Water usage fees are based on a tiered pricing structure that provides for higher prices as customers use greater amounts of water. The water usage fees for customers on the Lowry Range are noted in the tabletables below:

Current Lowry Range Tiered Water Usage Pricing Structuretiered potable water usage pricing structure

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Current Lowry Range tiered non-potable water usage pricing structure

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The figures in the table above reflect the amounts charged to the Rangeview District’s end-use customers on the Lowry Range. Pursuant to the Lease, the amounts charged by the Rangeview District to its end-use customers on the Lowry Range cannot exceed the average of similar rates and charges of three surrounding municipal water and wastewater service providers. In exchange for providing water service to the Rangeview District’s Lowry Range customers, we receive 98% of the usage charges received by the Rangeview District relating to water services after deducting the required royalty to the Land Board (described above at Rangeview Water Supply – Land Board Royalties and Fees).

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

Construction and Special Facility Funding Fees

Construction and Special Facility Funding fees are fees we receive, typically in advance, from developers for us to build infrastructure that is normally the responsibility of the developer because the facilities service only the developer’s property. Those type of facilities may include retail facilities, which distribute water to and collect wastewater from an individual subdivision or a community, and special facilities, which are required to extend services to an individual development and are not otherwise classified as a typical wholesale facility or retail facilities. Temporary infrastructure required prior to construction of permanent water and wastewater systems or transmission pipelines to transfer water from one location to another are examples of special facilities. Once we certify that the special facilities have been constructed in accordance with our design criteria, the developer dedicates the special facilities to the Rangeview District, and we operate and maintain the facilities on behalf of Rangeview.

Consulting Fees

Consulting fees are fees we receive, typically monthly, from municipalities and area water providers for whom we provide contract operation services.

Our Land Development Assets – Sky Ranch

In 2010, we purchased approximately 930 acres of undeveloped land in unincorporated Arapahoe County, which we are actively developing as the master planned community known as Sky Ranch. With the property acquisition, we also acquired nearly 830 acre-feet of water beneath Sky Ranch and approximately 640 acres of oil and gas mineral rights. Sky Ranch is located 16 miles east of downtown Denver, four miles north of the Lowry Range, and four miles south of Denver International Airport.

Sky Ranch is zoned for residential, commercial, and retail uses, including up to 3,200 homes and more than two million square feet of commercial, retail, and light industrial development. See illustration above for the current layout of Sky Ranch. The development of Sky Ranch will occur in multiple filings and phases which will take several years to complete. Our first development phasePhase 1 of Sky Ranch included more than 150 acres and has a total of 509 detached single-family residential lots (see illustration below for the layout of this initial development phase).lots. Of the 509 lots, we sold 505 finished lots to homebuilders, all of which were sold as of August 31, 2021, and retained the remaining lots for use in our single-family home rental business. In February 2021, we began construction on Phase 2 of the second development, phase, which will include 850 lots forof which we have contracted to sell 804 lots to home builders for detached and attached single-family homes, and the remaining 46 lots we plan to use for our single-family home rental business. The second development phase, totalingPhase 2 is approximately 250 acres and will be constructed in four subphases (see illustration below for the proposed layout of the second development phase).which we refer to as Phase 2A, 2B, 2C and 2D. Development activities for the first subphasePhase 2A, consisting of 229 lots, began in February 2021, and by August 31, 2021,2022, we had receivedsubstantially completed construction and transferred 219 lots to the platsfour homebuilders. We retained ten lots in Phase 2A on which we are constructing units for 229 lots, which includes 10 lots we will use in our single-family home rental business. These lots are anticipated to be finished and ready for the four homebuilders to begin constructing homes by the summer of 2022. The total sales price for the 804 lots being sold to the homebuilders is $65.0 million, which is subject to price escalations depending on development timing which are not included in that figure. The total sales price for the 219 lots in Phase 2A is $18.4 million. Our preliminary total cost estimates for developing all 229 lots in the first subphasePhase 2A is $20.4 million, with

As the land developer, we are providing finished lots (i.e. lots ready for building permits to construct homes) to each of the home builders. We build, or contract to build, the roads, curbs, wet and dry utilities, storm drains, parks, open spaces, and other related improvements as part of a fully master planned community. Each builder is required to purchase water and wastewater taps for each lot from the Rangeview District at the time ofa building permit theis issued. The cost of whichthe water and wastewater tap for a lot depends on the size of the lot, the size of the house, and the amount of irrigated turf.landscaping. Pursuant to the Non-Lowry Service Agreement, we receive all the water and wastewater tap fees from tap sales at Sky Ranch and 98% of the ongoing monthly water and wastewater service revenues.

Public improvements, such as roads, parks, and water and sanitary sewer mains, storm sewer, and drainage improvements, that are shared by all homeowners in the development and not specific to any private finished lot are ultimately owned by the governmental metropolitan district or other municipality that is responsible for the maintenance of the improvements. Upon completion and acceptance of certain public improvements by the “Sky Ranch Districts” or the “SkySky Ranch CAB”CAB (both of which are defined below), we are entitled to receive reimbursement for the verified public improvement costs. Pursuant to certain agreements with the Sky Ranch Districts and the Sky Ranch CAB, on their behalf we construct public infrastructure such as roads, curbs, storm water, drainage, sidewalks, parks, open space, trails etc., which costs are reimbursed to us by the Sky Ranch CAB, through funds generated by the Sky Ranch districtsDistricts through taxes, fees, or the issuance of municipal bonds. See Note 2 and Note 5 to the accompanying consolidated financial statements regarding treatment and recognition of these public improvement costs.

Pursuant to our service agreements, we are required to construct all required wholesale water and wastewater improvements (i.e., a wastewater reclamation facility, water supply, storage, treatment, and other wholesale facilities) for the provision of water and wastewater service to the property. As of August 31, 2021,2022, we have completed the required wholesale facilities and other infrastructure to provide water for the first 900 homes and wastewater for over 2,000 homes at Sky Ranch. The most significant wholesale facility built was the wastewater reclamation facility, which cost $10.2 million and has a designed capacity to provide wastewater for more than 2,000 single-family homes before requiring expansion. This allows the treatment facility to process wastewater for several development phases at Sky Ranch before additional investment is needed to increase its capacity.

We expect to have other filingsphases developing concurrently with the second filingphase that could include commercial, retail, and light industrial sites. We expect full development of the Sky Ranch Master Planned Community to take another eight to ten years.years depending on market conditions.

Pursuant to the Sky Ranch Water and Wastewater Service Agreement, dated June 19, 2017, between PCY Holdings, LLC (a wholly-owned subsidiary of ours that holds title to the Sky Ranch land), and the Rangeview District, PCY Holdings, LLC, agreed to construct certain facilities necessary to provide water and wastewater service to Sky Ranch. The Rangeview District, through us as its exclusive service provider, agreed to provide water and wastewater services to the Sky Ranch property. We have installed over 15.5 miles of water delivery and wastewater collection infrastructure at a cost of $4.9 million, which is reimbursable by the Sky Ranch CAB as outlined in Note 145 to the accompanying consolidated financial statements.

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

Sky Ranch Metropolitan Districts

The Sky Ranch Metropolitan District Nos. 1, 3, 4, 5, 6, 7 and 8 are quasi-municipal corporations and political subdivisions of Colorado formed in 2004 for the purpose of providing services to the Sky Ranch property (the “Sky(Sky Ranch Districts”)Districts). The Sky Ranch Districts are governed by an elected board of directors. Eligible voters and persons eligible to serve as directors of the Sky Ranch Districts must own an interest in property within the boundaries of the district. We own certain rights and real property interests which encompass the current boundaries of the districts and certain of our employees serve on the boards of directors of the Sky Ranch Districts. The current directors of the districts are Mark W. Harding (our President, Chief Executive Officer, and a director), Kevin B. McNeill (our Vice President and Chief Financial Officer), Scott E. Lehman (an employee of ours)(our employee), Dirk Lashnits (an employee of ours), and one independent board member. Pursuant to Colorado law, directors may receive $100 for each board meeting they attend, up to a maximum of $1,600 per year. Messrs. Harding, McNeill, Lehman, and Lashnits have all elected to forego these payments.

necessary for each Sky Ranch District and/or the Sky Ranch CAB to be able to fund the improvements and pay its ongoing operations and maintenance expenses related to the provision of services that benefit the property. We entered into agreements, first with Sky Ranch Metropolitan District No. 1 in 2014 and later with the Sky Ranch CAB, that require us to fund expenses related to the construction of an agreed upon list of public improvements for the Sky Ranch Master Planned Community.

We and the Sky Ranch CAB entered into a Facilities Funding and Acquisition Agreement (the “FFAA”)(FFAA) effective November 2017, obligating us to advance funding to the Sky Ranch CAB for specified public improvements constructed from 2018 to 2023. All amounts owed under the FFAA bear interest at a rate of 6% per annum. Any advances not paid or reimbursed by the Sky Ranch CAB by December 31, 2058, for first phasePhase 1 and December 31, 2060, for the second phase,Phase 2A, shall be deemed forever discharged and satisfied in full. Advances and verified costs expended by us for expenses related to the construction of the agreed upon public improvements are reimbursable to us by the Sky Ranch CAB. No repayment is required of the Sky Ranch CAB for advances made or expenses incurred related to the construction of public improvements unless and until the Sky Ranch CAB and/or Sky Ranch Districts generate sufficient funds from property taxes, fees, or the issuance of bonds in an amount sufficient to reimburse us for all or a portion of advances or other public improvement expenses incurred. The Sky Ranch CAB agrees to exercise reasonable efforts to issue bonds to reimburse us subject to certain limitations. In addition, the Sky Ranch CAB agrees to utilize any available moneys not otherwise pledged to payment of debt or used for operation and maintenance expenses to reimburse us. Since 2017, we have advanced the Sky Ranch CAB a total of $28.1$42.1 million for funding the construction of the public improvements. In November 2019, theThe Sky Ranch CAB issued bondshas remitted the following amounts to us for repayment of public improvements and repaid $10.5 million of the advances and inrelated interest.

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Prior to our fiscal 2021, the Sky Ranch CAB repaid $0.4 million from unencumbered funds resulting from a budget surplus in 2020.

Previously, the reimbursable expenditures we funded were expensed through land development construction costs, and project management revenue and interest income were not recognized as the reimbursement was deemed contingent on a sufficient tax base and and/or the issuance of municipal bonds for collectability to be reasonable assured. Additionally, the Sky Ranch CAB is contractually obligated to utilize any available funds not otherwise pledged to payment of previously issued bonds, used for operation and maintenance expenses, or otherwise encumbered, to reimburse us.considered probable. As Sky Ranch continues to grow, housing values continue to increase,increased, and as the Sky Ranch CAB has demonstrated the ability to repay the amounts owed to us, the collectability of reimbursable expenditures incurred to date has been determined to be probable, as such,probable; Therefore, during fiscal 2021 we have recognized the remaining reimbursable costs, project management fees, and interest. During the year ended August 31, 2021, we recognized $21.7 million as a Notenote receivable – related party with the offsetting entries being to Otherother income, Projectproject management revenue and Interestinterest income for costs deemed reimbursable from the first development phase at Sky Ranch.Ranch CAB. Due to continue growth and the continued belief the Sky Ranch CAB has the ability tocan repay amounts we spend on public improvements, the second phasePhase 2 reimbursable public improvements, along with the Projectproject management revenue, and interest income totaling $3.1 million as of August 31, 2021, are being recorded as a Notenote receivable from the Sky Ranch CAB as incurred. In total, as of August 31, 2021,Note 5 to the Note receivable fromaccompanying consolidated financial statements summarizes the Sky Ranch CAB totals $24.8 million, which is comprised of $20.6 million of public improvement costs, $1.7 million of project management fees and $2.5 million of interest.changes to the note receivable. The Sky Ranch CAB has an obligation to repay us but the ability of the Sky Ranch CAB to repay us before the contractual termination dates is dependent upon the establishment of a tax base or other fee generating activities sufficient to recover reimbursable costs incurred. Costs incurred will be recognized as Landland under development inventoriescosts or Notesnotes receivable – related party, dependent upondepending on whether collectability is deemed to be reasonably assured.considered probable. In addition to the note receivable balance, the Sky Ranch CAB is obligated to refundrefunded $0.5 million for the reimbursement of construction costs from the Southeast Metropolitan Storm Water Supply Authority (“SEMSWA”)(SEMSWA).  These costs will bewere distributed to the Sky Ranch CAB upon the acceptance of the stormwater infrastructure by SEMSWA anticipated to be induring our fiscal year 2022. We recorded this reimbursable cost in trade accounts receivable at August 31, 2021.

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The current directors of the Sky Ranch CAB are Mark W. Harding (our President, Chief Executive Officer, and a director), Kevin B. McNeill (our Vice President and Chief Financial Officer), Scott E. Lehman (an employee of ours)(our employee), Dirk Lashnits (an employee of ours)(our employee), and one independent board member. Pursuant to Colorado law, directors may receive $100 for each board meeting they attend, up to a maximum of $1,600 per year. Messrs. Harding, McNeill, Lehman, and Lashnits have all elected to forego these payments.

from the oil and gas production from six wells drilled within our mineral interest. During the years ended August 31, 20212022 and 2020,2021, we received $0.3$0.5 million $0.7and $0.3 million in royalties attributable to these wells.

In September 2017, we entered into a three-year Paid-Up Oil and Gas Lease with Bison Oil and Gas, LLP (the “Bison Lease”)(Bison Lease) for the purpose of exploring for, developing, producing, and marketing oil and gas from 40 acres of mineral estate we own adjacent to the Lowry Range, and we received an up-front payment of $0.2 million. The up-front payment received pursuant to the Bison Lease iswas being recognized into revenue ratably over a three-year period, which expired in September 2020,2021, and was not extended.

In July 2019, we entered into an Agreement on Locations of Oil and Gas Operations covering approximately 16 acres at Sky Ranch with the operator of the Sky Ranch O&G Lease (the “OGOA”)(OGOA). The Company received an up-front payment of $0.6 million in fiscal 2019 for the OGOA, which is beingwas recognized as income on a straight-line basis over three years (the term of the OGOA). If after three years (byIn July 2022)2022, the operator hashad not spud at least one well on the oil and gas operations area,area.  To extend its rights under the OGOA for one additional year, the oil and gas operator paid us $75,000, which is being recognized into income over the term of the extension. The operator may extend the right to the OGOA for one additional year by paying us $75,000. The operator may only extend the OGOA for two additional yearsafter that for a total of five years. As of August 31, 2021,2022, no wells have been drilled.

Arkansas River Land and Minerals

We own approximately 700 acres of land in the Arkansas River Valley in southeastern Colorado. We currently lease all these acres for dry land grazing. We intend to sell the land in due course and have classified it as a long-term investment. We also own approximately 13,900 acres of mineral interests in the Arkansas River Valley, which has no carrying value on our books due to an impairment charge of $1.4 million we recorded in fiscal 2020. We currently have no plans to sell our mineral interests.

Significant Customers

We primarily provide water and wastewater services on the Rangeview District’s behalf to the Rangeview District’s customers. The Rangeview District accounts for the majority of our water and wastewater service revenue. Refer to Note 910 in the accompanying consolidated financial statements for additional information on our significant customers.

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Projected Operations

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This section should be read in conjunction with Item 1A – Risk Factors.

Along the Colorado Front Range, there are over 70 water providers with varying needs for replacement and/or new water supplies. We believe that we are well positioned to assist certain of these providers in meeting their current and future water needs.

We design, construct, and operate our water and wastewater facilities using advanced water treatment and wastewater treatment technologies, which allow us to use our water supplies in an efficient and environmentally sustainable manner. We develop our water and wastewater systems in stages to efficiently meet customer demands in our service areas by managing capital investments required for construction of facilities. We use third-party contractors to construct our facilities as needed. We employ licensed water and wastewater operators to run our water and wastewater systems. As our systems expand, we expect to hire additional personnel to operate our systems, which include water production, treatment, testing, storage, distribution, metering, billing, and operations management.

Our water and wastewater systems conjunctively use surface and groundwater supplies and storage of raw water and highly treated reclaimed water supplies to provide a balanced sustainable water supply for our customers. Integrating conservation practices and incentives, together with effective water reuse, demonstrates our commitment to providing environmentally responsible and sustainable water and wastewater services. Water supplies and water storage reservoirs are competitively sought throughout the west and along the Front Range of Colorado. We believe that regional cooperation among area water providers in developing new water supplies, water

Continued development of our Lowry Range surface water supplies will require facilities to divert surface water to storage reservoirs to be located on the Lowry Range, additional treatment facilities to treat the water prior to introduction into our distribution system(s), and additional surface water diversion facilities designed with capacities to divert the surface water when available (particularly during seasonal events such as spring run-off and summer storms) for storage in reservoirs constructed on the Lowry Range. We estimate the full build-out of water and wastewater facilities (including diversion structures, transmission pipelines, reservoirs, and water treatment facilities) to develop and deliver our portfolio of water would cost in excess of $900 million, and would accommodate water service to customers located on and outside the Lowry Range. We believe this build out would occur in phases over many decades, and we believe tap fees would be sufficient to fund the required infrastructure costs.

Our Denver-based supplies are a valuable, locally available resource located near the point of use. This enables us to incrementally develop infrastructure to produce, treat and deliver water to customers based on their growing demands.

During fiscal 20212022 and 2020,2021, combined, we invested over $6.3$9.0 million in plant and facilities that interconnect the Rangeview District, WISE, and Sky Ranch water and wastewater systems to provide water and wastewater services to our growing customers at Sky Ranch and elsewhere. We expect to continue to invest in water rights and facilities as our customer demands grow.

We continue developing our Sky Ranch property, including finishing lots for home builders, building additional water and wastewater infrastructure for residential and commercial development at the property, and having homes constructed for our single-family home rental business. During the years ended August 31, 2022 and 2021, for Phases 1 and 2020,2A we invested $7.3$11.5 million and $9.4$7.3 million in our Sky Ranch land which included $2.0 million and $2.5 million of expensed costs related to deliverthe delivery of finished lots and $9.5 million and $4.8 million of costs for public improvements which we expect to be repaid by the Sky Ranch CAB. Additionally, we spent underapproximately $0.9 million and $1.0 million so far constructing three units for use inon construction costs related to our build-to-rentsingle-family rental business. Although the first development phasePhase 1 was our first project as a land developer itand was done ahead of our original schedule and on budget. We anticipate the first subphase of the second development phase,Phase 2A, which broke ground in February 2021, to incur a total of $20.4 million of construction costs to deliver the lots (of which we estimate $17.8 million is for public improvements which we expect to be repaid by the Sky Ranch CAB).  Phase 2A is planned to occur over three yearsbe complete in the next year and behas been funded by the $17.8$18.4 million of total fees to be paid under our lot sales agreements and will be further funded by the reimbursement byreimbursements from the Sky Ranch CAB of $17.2 million of estimated public improvement costs.improvements, which we estimate to be $17.8 million. During the years ended August 31, 20212022 and 2020,2021, we sold 167154 and 201163 water and wastewater taps at Sky Ranch to homebuilders, which generated $5.2$4.5 million and $5.6$5.1 million of tap fees. As of August 31, 2021,2022, we have sold 464618 water and wastewater taps in the first development phase ofat Sky Ranch which we believe the remaining 41 waterin Phases 1 and wastewater taps will be sold before the end of our second fiscal quarter of 2022, which will produce $1.2 million in revenue and cash.2A. Based on current prices and engineering estimates, we believe the second development phasePhase 2 of Sky Ranch will produce more than $24.0 million in water and wastewater tap fee revenue and cash over severalthe next 3-5 years.

We are nearing completion of theOur first three rental units at Sky Ranch were completed and rented in conjunction withNovember 2021. We have begun construction on the second development phase,next eleven rental units and plan to build more than 4736 additional rental units over the next several years.years in Phases 2B-D. We anticipate building these units concurrent with construction of homes in the second development phase using a combination of home builders that are building homes in this phase along with other builders as needed to ensure homes are delivered in a timelyPhase 2. We design and cost-effective manner. We are working on finalizing the proposed size and layouts of theprice rental units closer to be constructedthe start of construction and currently do not have an estimate of the costs to construct or potential returns of the homes.future rental units.

We plan to develop additional water assets within the Denver area and are exploring opportunities to utilize our water assets in areas adjacent to our existing water supplies. Additionally, we continue to source additional land acquisitions that could be paired with our water to provide additional growth to both our land development and water and wastewater segments.

Growth in Colorado

Calendar year 2020 and 2021 were strong years forDespite the Colorado housing market. Asimpacts of COVID-19, escalated andColorado has continued to hold-on, we tookgrow. According to the 2021 census report, Colorado added over 744,000 residents from 2010 to 2021, a growth of 14.8%, bringing the Colorado population to nearly 5.8 million, which is projected to grow to more than 8.7 million by 2050. A Statewide Water Supply Initiative report by the Colorado Water Conservation Board estimates that the South Platte River basin, which includes the Denver metropolitan region (and our Sky Ranch community), could require an additional

Despite the continued impacts of COVID-19, Colorado has continued to grow. According to the 2020 census report, Colorado added over 744,000 residents from 2010 to 2020, a growth of 14.8% bringing the Colorado population to nearly 5.8 million. A Statewide Water Supply Initiative report by the Colorado Water Conservation Board estimates that the South Platte River basin, which includes the Denver metropolitan region (and We believe our Sky Ranch community), could require an additional 400,000 acre-feet of water by the year 2030 due to continued growth. What makes this more difficult for land developers and builders is that Colorado law requires developers to demonstrate they have sufficient water supplies for their proposed projects before zoning applications will be considered. This means developers and builders must solve their own water problems prior to development rather than wait for cities and municipalities to solve the problem. This indicates that wateraffordable community will continue to be critical to growth prospects forgrow even in the region andslowing housing market we are experiencing in the state, and that competition for available sourceslater months of water will continue to intensify.calendar 2022.

Growth in the Denver area has trended east with significant activity occurring along the I-70 corridor, an area which enjoys excellent transportation infrastructure with I-70, rail access, and Denver International Airport (“DIA”)(DIA). The region has significant employment centers, including DIA, the University of Colorado Anschutz Medical Campus, an Amazon fulfillment center, the Rocky Mountain Regional VA Medical Center, Buckley AirforceSpace Force Base, and more, creating demand for residential, retail, and commercial development opportunities.

This tremendous growth, coupled with dwindlingthe low new and resale inventory, along with a shift in lifestyle choices from home ownership to renting, has pushed the single-family rental market into double-digit growth. Although this market has existed for decades, the focus has shifted from individuals owning the units to commercial institutions buying large blocks of houses for rentals. The single-family rental space is emerging as one ofnow the strongest growth sectorsfastest growing segment in commercial real estate.the U.S. housing market. Demand for rentals SFRrental has been steadily increasing due to current demographic trends related to Gen-Y and baby boomers; however, migration patterns related to Covid-19 have accelerated that demand, and thisdemand. According to the 2021 census, single-family rental growth is expectedrentals grew by 31% from 2007 to outpace2016, compared to 14% for multifamily office, retail, storage, and hospitality growth by 2022.rentals over the same period. As the demand for more single-family rental properties grows, an increasing number of larger investors are expanding their investment strategy to include the product. The single-family rental market is estimated at $3.4 trillion, compared to $3.5 trillion for the multifamily market, and institutional investors make up less than 2% of the market compared to 55% for the multifamily market. As more young families, families with children, and retirees look to rent single family homes with yards and upscale amenities on a long-term basis, more investors are looking to the single-family rental markets to expand their portfolios and grow their capital.

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In addition to actively seeking to expand our land holdings for development purposes, we also market our water supplies and services to developers and home builders that are active along the Colorado Front Range as well as other area water providers in need of additional supplies.

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Colorado’s future water needs will be met through conservation, reuse, and the development of new supplies. The Rangeview District’s rules and regulations for water and wastewater service call for adherence to strict conservation measures, including low-flow water fixtures, high efficiency appliances, and advanced irrigation control devices. Additionally, our systems are designed and constructed using a dual-pipe water distribution system to segregate the delivery of high-quality potable drinking water to customers through one system and a second system to supply raw or reclaimed water for irrigation demands in parks and open spaces. About one-half of the water used by a typical Denver-area residential water customer is used for outdoor landscape and lawn irrigation. We believe that raw or reclaimed water supplies provide the lowest cost, most environmentally sustainable water for outdoor irrigation. We expect our systems to include an extensive water reclamation process in which essentially all effluent water from wastewater treatment plants will be reused to meet non-potable outdoor irrigation water demands. Our dual-distribution systems demonstrate our commitment to environmentally responsible water management policies in our water-short region.

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Labor and Raw Materials

We competitively bid contracts for infrastructure improvements (grading, utilities, roads, water, and wastewater infrastructure) at Sky Ranch. Many of our contractors enter fixed priced contracts where the contractor is at risk for cost overruns prior to completion of improvements. Under these fixed-price contracts, the contract prices are established in part based on fixed, firm subcontractor quotes on contracts and on cost and scheduling estimates. These quotes or estimates may be based on several assumptions, including assumptions

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

As a result of the COVID-19 pandemic, continues, we have continued to enforce many safety measures enacted to protect the health and well-being of our employees, customers, business partners, and their families. While state and local mandates have been eased,for the most part removed, we continue to encourage voluntary vaccinations and healthy practices such as hand washing, disinfecting, and social distancing and face coverings when necessary. WeWhile we have been abletransitioned back to maintaina more traditional in office work environment, we continue to offer flexible work arrangements to employees and consultants while maintaining our level of efficiency with the use of video conferencing and electronic data sharing platforms. We were informed that our builder customers also took precautionary measures to ensure the safety of their employees, customers, business partners, and their families. These measures varied by builder. As a result, some of our builder customers reported material net housing order declines in 2020. However, they are also reporting material increases in orders since the stay-at-home orders have been reduced. We had been expecting to accelerate deliveries of the remaining finished lots at Sky Ranch into fiscal 2020; however, because of the COVID-19 precautionary measures and stay-at-home orders, we delivered the remaining lots during the first quarter of fiscal 2021. These deliveries were still ahead of the original delivery dates set forth in our contracts with the home builders by nearly two years. The most dramatic impact on our operations has beenwas and continues to be delays in the delay inpermitting process, inspections, the permit process and other activities requiring governmental agencies due to expansive work restrictions that continue to be imposed on their operations. Mainly, we experienced delays in the permitting process through the county which delayed the start of construction of Phase 2A of the Sky Ranch development. We expect COVID-19 to continue to play a role in potential delays related to the second filingfurther subphases in Phase 2 at Sky Ranch due to rapidlycontinued changing governmental orders, city and country shutdowns, and public health concerns. Mainly, we have experienced delays in the permitting process through the county which has delayed the construction of Phase two of the Sky Ranch development.orders.

Competition

Water and Wastewater Services

We negotiate individual service agreements with our governmental customers and with their developers and/or home builders to design, construct and operate water and wastewater systems and to provide services to end use customers of governmental entities and to commercial and industrial customers. These service agreements seek to address all aspects of the development of the water and wastewater systems, including:

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Although we have exclusive long-term water and wastewater service contracts for 24,000 acres of the Lowry Range, Wild Pointe, and Sky Ranch pursuant to our service agreements, providing water and wastewater service is subject to competition. Alternate sources of water are available, principally from other private parties such as farmers or others owning water rights that have historically been used for agriculture, and from municipalities seeking to annex new development areas in order to increase their tax base. Our principal competition in areas close to the Lowry Range is the City of Aurora. Principal factors affecting competition for water service include the availability of water for the particular purpose, the cost of delivering the water to the desired location (including the cost of required taps), and the reliability of the water supply during drought periods, and the political climate for additional annexations. We estimate that the water assets we own and have the exclusive right to use have a supply capacity of approximately 60,000 SFE units, and we believe that they provide us with a significant competitive advantage along the Front Range. Our legal rights to the Rangeview Water Supply have been confirmed for municipal use, and our water supply is close to Denver area water users. We believe that our pricing structure is competitive and that our water portfolio is well balanced among surface water rights, groundwater rights, storage capacity and reclaimed water supplies.

Land Development

Developing raw land is a highly competitive business, requires substantial upfront capital and typically requires many years to complete. There are many developers, as well as properties and development projects, in the same geographic area in which Sky Ranch is located. Competition among developers and projects is determined by the location of the real estate, the market appeal of the development plan, the cost and value of the end product, the developer’s ability to build, market and deliver projects on a timely and cost effective basis, and the availability of water to serve the project. Residential developers sell to home builders, who in turn compete based on location,

with other developers, owners, and operators of real estate for a limited number of potential buyers. We believe we have exceeded the market’s expectations with the delivery of our initial phasePhase 1 lots at Sky Ranch and have demonstrated we have the ability and expertise to continue to deliver lots in a large-scale master planned community.

Environmental, Health and Safety Regulation

Provision of water and wastewater services is subject to regulation under the federal Safe Drinking Water Act, the Clean Water Act, related state laws, and federal and state regulations issued under these laws. These laws and regulations establish criteria and standards for drinking water and for wastewater discharges. In addition, we are subject to federal and state laws and other regulations relating to solid waste disposal and certain other aspects of our operations.

Environmental compliance issues may arise in the normal course of operations or because of regulatory changes. We attempt to align capital budgeting and expenditures to address these issues in a timely manner.

Safe Drinking Water Act

The Safe Drinking Water Act establishes criteria and procedures for the U.S. Environmental Protection Agency (the “EPA”)(EPA) to develop national quality standards for drinking water. Regulations issued pursuant to the Safe Drinking Water Act and its amendments set standards on the amount of certain microbial and chemical contaminants and radionuclides allowable in drinking water. The State of Colorado has assumed primary responsibility for enforcing the standards established by the Safe Drinking Water Act and has adopted the Colorado Primary Drinking Water Standards (Code of Colorado Regulations 5 CCR 1003-1). Current requirements for drinking water are not expected to have a material impact on our financial condition or results of operations as we have made and are making investments to meet existing water quality standards. In the future, we might be required to change our method of treating drinking water and make additional capital investments if additional regulations become effective.

The federal Groundwater Rule became effective December 1, 2009. This rule requires additional testing of water from well sources and under certain circumstances requires demonstration and maintenance of effective disinfection. In 2009, Colorado adopted Article 13 to the Colorado Primary Drinking Water Standards to establish monitoring and compliance criteria for the Groundwater Rule. We have implemented measures to comply with the Groundwater Rule.

Clean Water Act

The Clean Water Act regulates wastewater discharges from drinking water and wastewater treatment facilities and storm water discharges into lakes, rivers, streams, and wetlands. The State of Colorado has assumed primary responsibility for enforcing the standards established by the federal Clean Water Act for wastewater discharges from domestic water and wastewater treatment facilities and has adopted the Colorado Water Quality Control Act and related regulations, which also regulate discharges to groundwater. It is our policy to obtain and maintain all required permits and approvals for discharges from our water and wastewater facilities and to comply with all conditions of those permits and other regulatory requirements. A program is in place to monitor facilities for compliance with permitting, monitoring, and reporting for wastewater discharges. From time to time, discharge violations might occur which might result in fines and penalties, but we have no reason to believe that any such fines or penalties are pending or will be assessed.

Solid Waste Disposal

The handling and disposal of residuals and solid waste generated from water and wastewater treatment facilities is governed by federal and state laws and regulations. We have a program in place to monitor our facilities for compliance with regulatory requirements, and we do not anticipate that costs associated with our handling and disposal of waste material from our water and wastewater operations will have a material impact on our business or financial condition.

Employees and Human Capital

We currently have 3135 employees, all of whom are full-time.

full-time, and all are located in the USA. None of our employees are represented by a union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relationship with our employees to be good.

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.

Our operations are concentrated in the Front Range area of Colorado; we are subject to general economic conditions in Colorado. Our assets and operations are located solely in the Front Range area of Colorado. Our performance could be adversely affected by economic conditions in, and other factors relating to, Colorado, including supply and demand for housing and zoning and other regulatory conditions. To the extent that the general economic conditions in the Front Range area of Colorado deteriorate, the value of our assets, our results of operations and our financial condition could be materially adversely affected.

We are dependent on the housing market and development in our targeted service areas for future revenues. The homebuilding industry is cyclical and a deterioration in industry conditions or downward changes in general economic or other business conditions could adversely affect our business, results of operations, cash flows and financial condition. Providing wholesale water service using our Colorado Front Range water supplies is one of our key sources of future revenue. The timing and amount of these revenues will depend in part on housing developments being built near our water assets. The development of the Lowry Range, Sky Ranch and other properties is subject to many factors that are outside our control. 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. We may not be successful in obtaining additional capital. Although there have been positive market gains in the Colorado housing market in recent years, if a downturninflation and rising interest rates are intensifying and causing slow downs in the homebuilding or credit markets returns, or if the state or national economy weakens andindustry which 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.

volatile. U.S. steel index prices alone have increased 100 percent since the beginning ofduring calendar 2021. In addition, some componentssupplies are subject to long lead times. 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.

Increases in material, labor, supplier, logistics Our margins 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. Our gross margins andoverall 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. 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. These risks are particularly prevalent in Malaysia and the Philippines. 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. In addition, some of our customers have experienced raw material shortages. Any such shortages can in turn impact and delay our ability to service our customers.

While we seek to mitigate any cost increases, labor impacts and supply chain delays and shortages, these efforts may not be successful, and we may experience adverse impacts due to such factors. We cannot predict the extent of these current trends or other future increases in operating costs. 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.

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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. We depend on an adequate water supply to meet the present and future demands of our customers and their end-use customers and to continue our expansion efforts. Conditions beyond our control may interfere with our water supply sources. Drought and overuse may limit the availability of water, and such droughts may become more frequent and prolonged with climate change. These factors might adversely affect our ability to supply water in sufficient quantities to our customers, and our revenues and earnings may be adversely affected. 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.

Our continuing development of Sky Ranch requires significant cash expenditures. We have advanced the Sky Ranch CAB more than $39.0$42.1 million for construction of public improvements on thein Phases 1 and 2 at Sky Ranch property and expect to advance another $16.9$4.3 million for the completion of our initial filing and the first subphase of the second development phase.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. As of August 31, 2021,2022, we had just over $20.1$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. Economic conditions and disruptions have previously caused substantial volatility in capital markets, including credit markets and the banking industry, increasing the cost, and significantly reducing the availability of financing, which may reoccur in the future. There can be no assurance that financing will be available on acceptable terms or at all.

We may not be able to manage the increasing demands of our expanded operations. We have historically depended on a limited number of employees to administer our operations, interface with governmental entities, market our services, and plan and implement the construction and development of our assets. 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. The success of our current business and future business development and our ability to capitalize on growth opportunities depends on our ability to attract and retain additional experienced and qualified persons to operate and manage our business. We may not be able to maximize the value of our assets if we are unable to attract and retain qualified personnel and to manage the demands of a workforce that has nearly tripled in the past few years.our growing workforce. State regulations set the training, experience and qualification standards required for our employees to operate specific water and wastewater facilities. Failure to find state-certified and qualified employees to support the operation of our facilities could put us at risk for, among other things, regulatory penalties (including fines and suspension of operations), operational errors at the facilities, improper billing, and collection processes, claims for personal injury and property damage, and loss of contracts and revenues. We may be unsuccessful in managing our operations and growth.

The rates that the Rangeview District is allowed to charge customers on the Lowry Range for water services are limited by the Lease with the Land Board and our contract with the Rangeview District and may not be sufficient to cover our costs of construction and operation. The prices charged by the Rangeview District for water service on the Lowry Range are subject to pricing regulations set forth in the Lease with the Land Board. Both the tap fees and usage rates and charges are capped at the average of the rates of three nearby water providers. Annually, the Rangeview District surveys the tap fees and rates of the three nearby providers, and the Rangeview

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, new federal and state legislation, regulations rulemaking initiatives by multiple federal and state agencies such as the U.S. 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 the statutory mandatelaws and regulations at all levels of the Colorado Oil and Gas Conservation Commission,government, fracking technologies, the success of the wells, and the price of oil and gas, among other things. 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 SB181, its implementing rules recently promulgatedmultiple 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). The oil and gas industry, and associated demand for water for fracking, may also be impacted by the Colorado Oiladoption of new state regulations, such as: (i) new fees and Gas Conservation Commission,financial assurance requirements for oil and gas facilities adopted by COGCC in 2022; (ii) new GHG intensity standards for oil and gas operators adopted by the AQCC in December 2021; (iii) new or otherrevised 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; (iv) the new initial list of toxic air contaminants identified by the DPHE in 2022 as a first step in implementing HB 22-1244; 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. Recent federal laws and regulatory initiatives may also impact the oil and gas industry and thus associated water demand and sales. 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. 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. In addition, the EPA has proposed a new rule “New Source Performance Standards” rule to regulate methane emissions from the oil and gas industry. Other future potential laws, regulations, or ballot initiatives regulatingmay also impact oil and gas development.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. A significant portion of our water supplies comes from non-renewable Denver Basin aquifers. The State of Colorado regulates development and withdrawal of water from the Denver Basin aquifers to a rate of 1 percent of the aggregate amount of water determined to be in storage each year, which means our supply should last approximately 100 years even if no efforts were made to conserve or recharge the supply. 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. 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

We have limited experience with the development of real property. While we have extensive experience designing and constructing water and wastewater facilities and maintaining and operating these facilities, despite having completed Phase 1 and we have nearly completed the initial development phasea substantial amount of Phase 2A at Sky Ranch, we have limitedless experience developing real property. 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. 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. 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. WeSince the start of development at Sky Ranch, we have advanced the Sky Ranch CAB over $31.6$42.1 million for construction of public improvements and expect to fund an additional estimated $14.4$4.3 million to complete the buildout of the first development phase and the first subphase of the second development.public improvements in Phase 2A. At August 31, 2021, $24.82022, of the amounts advanced to the Sky Ranch CAB, $13.9 million has not been collected.repaid, excluding interest. We expect these amounts will be reimbursablerepaid 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. If development at Sky Ranch is

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. If a builder elected to walk away without cause, we would be entitled to keep these deposits as liquidated damages, but the deposits would not be sufficient to cover the expenses we expect to incur to finish the lots for delivery. We would not be able to recover our costs until we were able to sell the finished lots to another builder. If the original builder did not go through with the closing due to a poor housing market, we would likely have difficulty finding another buyer for the same reason. For our single-family rental homes, we incur the costs to construct the home, for 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. The costs of construction of the single-family rentals are anticipated to be paid for overtimeover 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. The land development industry is subject to significant variability and fluctuations in real property values. 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. Any material write-downs of assets could have a material adverse effect on our business, prospects, financial condition, or results of operations. We assess our land interests when indicators of impairment exist. Indicators of impairment include a decrease in demand for housing due to soft market conditions; competitive pricing pressures that reduce the average sales price of finished lots; sales absorption rates below management expectations; a decrease in the value of homes

Increases in unemployment levels and other adverse changes in the economic conditions in our market could result in substantial tenant defaults.

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Our planned lease terms could require us to re-lease our properties frequently, which we may be unable to do on attractive terms, on a timely basis or at all. We anticipate substantially all of our leases having a duration of one year. As these leases will permit tenants to leave at the end of the lease term without penalty, we anticipate our rental revenues may be affected by declines in market rents more quickly than if our leases were for longer terms. Annual leases may result in high turnover, which involves costs such as restoring the properties, marketing costs and lower occupancy levels. 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. Moreover, we cannot assure youthere are no assurances that our leases will be renewed on equal or better terms or at all. 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.

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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. Landlords of numerous properties tend to be involved in evicting tenants who are not paying their rent or are otherwise in material violation of the terms of their lease. Eviction activities impose legal and managerial expenses that would raise our costs. 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. 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.

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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. New building code laws and regulations may also impact our costs of construction. 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. Future changesChanges in regulations governing the supply of drinking water and treatment of wastewater may have a material adverse impact on our financial results.business. For example, on October 18, 2021, the Biden Administration announced a multi-agency, three yearthree-year strategy to begin addressing per-and polyfluoroalkyl substances (“PFAS”)(PFAS), known colloquially as “forever chemicals.” The plan includes, among other things, havingAs a part of ongoing efforts to implement that initiative, the EPA set timelines for drinking water limitsEPA: (i) finalized a rule in December 2021 pertaining to monitoring of PFAS under the Safein drinking water; (ii) is developing a proposed National Drinking Water Act,Regulation for publication by the end of 2022 for PFOA and PFOS, with a final rule expected in 2023; (iii) issued a proposed rule in August 2022 to designate two of the most widely used PFAS as hazardous substances under the Comprehensive Environmental Reponses Compensation and Liability Act, and set timelines for data collection and rulemakings for nine industrial categories, and review pastCERCLA, or Superfund; (iv) announced two rulemaking efforts in October 2021 to address PFAS actions taken under the Toxic Substances Control Act.Resource Conservation and Recovery Act (RCRA); (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. 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

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. 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. 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. 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.

In addition to the direct impacts of climate and energy-related policies, there may also be indirect impacts. Energy-related initiatives affect a wide variety of companies throughout the United States and the world and, because our operations are dependent on significant amounts of raw materials, such as pipe, steel and concrete, they could have an indirect adverse impact on our operations and profitability to the extent the manufacturers and suppliers of the materials used in the development of our properties are burdened with expensive tariffs, cap and trade and similar taxes and regulations.

Our construction of water and wastewater projects and improvements at Sky Ranch may expose us to certain completion, performance, and financial risks. We rely on independent contractors to construct our water and wastewater facilities and Sky Ranch lot improvements. 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. These issues could give rise to delays, cost overruns or performance deficiencies, or otherwise

increasing required financial assurances, and minimizing emissions of hydrocarbons and other compounds. Throughout 2019 and 2020, the Colorado Oil and Gas Conservation CommissionThe COGCC and the Air Quality Control CommissionAQCC have promulgated several rules pursuant to SB 19-181 over the past several years, as detailed below.

Rulemaking activities by the Colorado Oil and Gas Conservation CommissionCOGCC 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. In November 2020, asAs a part of implementing SB 19-181, the Colorado Oil and Gas Conservation CommissionCOGCC approved rules (“Setback Rule”)a rule (Setback Rule) imposing setbacks and siting requirements for well locations. Specifically, theThe Setback Rule, which took effect in 2021, prohibits, without exception, prohibits working well pad surfaces from being located within 2,000 feet of a School Facilityschool facility or Child Care Center,childcare center, or within 500 feet from one or more residential buildings that are not subject to a surface use agreement or waiver. 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 CommissionCOGCC by satisfying certain requirements in the rule (such as consent from owners and tenants) or to seekby obtaining a ruling from the Commission,COGCC finding, 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. The Setback Rule went into effect on January 15, 2021.

Depending on how the Setback RulesRule is applied and interpreted, it could have the effect of limiting property development within 2,000 feet of a well pad surface. As noted above, in order for landowners to allowdevelop oil and gas development onnear residential or near their property,high occupancy buildings, the applicant will need to showan 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 otherwise demonstrate to the Oil and Gas Conservation Commissionby demonstrating that conditions on approval will provide “substantially equivalent protections” to a 2,000 foot2,000-foot setback. This will be a roadblock for landownersApplicants 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.” Inobtain such cases, landowners couldan exception may be forced to choose between limitingusing their property for oil

We may be subject to significant potential liabilities because of warranty and liability claims made against us. Design, construction, or system failures related to our water and wastewater delivery systems could result in injury to third parties or damage to property. In addition, as a property developer, we are subject in the ordinary course of our business to warranty claims. We are also subject to claims for losses or injuries that occur during our property development activities. We plan to record warranty and other reserves for the residential lots we sell based on historical trends in our market and our judgment of the qualitative risks associated with the type of lots we sell. We have, and many of our subcontractors have, general liability, property, workers’ compensation, and other business insurance. These insurance policies are intended to protect us against a portion of our risk of loss from claims, subject to certain self-insured retentions, deductibles, and coverage limits. However, it is possible that this insurance will not be adequate to address all warranty and liability claims to which we are subject. Additionally, the coverage offered and the availability of general liability insurance for construction defects are currently limited and policies that can be obtained are costly and often include exclusions based upon past losses insurers suffered as a result of use of defective materials used by other property developers. As a result, our subcontractors may be unable to obtain insurance, and we may have to waive our customary insurance requirements, which increases our and our insurers’ exposure to claims and increases the possibility that our insurance will not be adequate to protect us for all the costs we incur. Any losses that exceed claims against our contractors, the performance bonds and our insurance limits at such facilities could result in claims against us. In addition, if there is a customer dispute regarding performance of our services, the customer may decide to delay or withhold payment to us. No warranty and liability claims have been made against us as of the date of this report.

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. We are not aware of any such proposals in the areas in which we operate, but proposals have been made to limit growth in various communities along the Front Range. Because all of the property in Sky Ranch has been platted, we do not expect future growth moratoriums to restrict Sky Ranch as currently planned; however, if growth moratoriums or restrictions are imposed in the areas in which we provide services or develop land, it could negatively impact our ability to develop our land as planned or our customers’ ability to grow their communities as anticipated, which would also reduce the number of water and wastewater service customers we expect, which would have a negative impact on our business and financial condition.

We could be hurt by efforts to impose liabilities or obligations on us regarding labor law violations by other persons whose employees perform contracted services. The infrastructure and improvements on our water and wastewater systems and on the finished lots we sell or that we must provide pursuant to service agreements and lot development agreements are done by employees of subcontractors and other contract parties. We do not have the ability to control what these contract parties pay their employees or the work rules they impose on their employees. However, there have been efforts by government agencies including the National Labor Relations Board and the Colorado Department of Labor and Employment to hold contract parties like us responsible for violations of wage and hour laws and other work-related laws by firms whose employees are performing contracted-for services. Governmental rulings that make us responsible for labor practices by our subcontractors could create substantial exposures for us in situations that are not within our control.

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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. TheIn the past the Rangeview District’s and our rights under the Lease have been challenged by third parties, including the Land Board, in the past.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. However, there are issues still subject to disagreement and negotiation, including our rights with respect to revenue from our Export Water after 2081, and it is likely that during the remaining term (through 2081) of the Lease, the parties will disagree over interpretations of provisions in the Lease again. The Rangeview District’s or our rights under the Lease could be challenged in the future, which could require potentially expensive litigation to enforce our rights.

Our Lowry Range surface water rights are “conditional decrees” and require findings of reasonable diligence. Our surface water interests and reservoir sites at the Lowry Range are conditionally decreed and are subject to a finding of reasonable diligence from the Colorado water court every six years. To arrive at a finding of reasonable diligence, the water court must determine that we continue to diligently pursue the development of said water rights. If the water court is unable to make such a finding, we could lose the water right under review. During each of fiscal 2012 and 2018, the Lowry Range conditional decrees were granted review by the water court, which determined that we and the Rangeview District met the diligence criteria. The water court entered a finding of reasonable diligence on the Lowry Range surface water decrees in January 2019. Our next review for reasonable diligence on the Lowry Range surface water decrees will be in January 2025. We believe that we will be successful in maintaining our decrees as we continue to develop these rights. If

are beyond our control. Factors that could affect our stock price and trading volume include, among others, the perceived prospects of our business; differences between anticipated and actual operating results; changes in analysts’ recommendations or projections; the commencement and/or results of litigation and other legal proceedings; and future sales of our common stock by us or by significant shareholders, officers and directors. In addition, stock markets in general have experienced price and volume volatility from time to time, which may adversely affect the market price of our common stock for reasons unrelated to our performance.

Unauthorized access to confidential information and data on our information technology systems and security and data breaches could materially adversely affect our business, financial condition, and operating results. We rely on computer and information technology systems to conduct our business and communicate with our suppliers and other third parties. Our systems require continued and unimpeded access to secure network connections. We have physical, technical and procedural safeguards in place that are designed to protect information and protect against security and data breaches as well as fraudulent transactions and other activities. Despite these safeguards and our other security processes and protections, we cannot be assured that all of our systems and processes are free from vulnerability to security breaches. Cyberattacks are evolving and becoming increasingly sophisticated. Cyberattacks may take various forms, including through hacking, Ransomwareransomware attacks, malware, viruses and phishing scams.

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. We did not experience a material loss of information and concluded that no customer or financial data was compromised. In addition, our water and wastewater operating systems were not impacted. As a result of the attack, we incurred an immaterial amount of expenses to increase our security including additional infrastructure investments, and remediation efforts.

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. As has been the case with the COVID-19, pandemic, such effects have precipitated economic instability and turmoil in financial markets. 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. 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.

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Item 1B – Unresolved Staff Comments

None.

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Item 2 – Properties

Water Related Assets

In addition to the water rights and adjudicated reservoir sites that are described in Item 1 – Our Water and Land Assets, we own or have exclusive rights to use, through the Rangeview District a 1.0 million-gallon and two 500,000-gallon treated water storage tanks, three storage reservoirs that can store 1.7 million barrels of water (71.4 million gallons), five deep water wells, three alluvial wells, three pump stations, over 50 miles of water transmission and distribution lines, and more than 20 miles of wastewater collection pipelines in Arapahoe County, Colorado. In conjunction with Wild Pointe, and the Elbert 86 District, we have exclusive rights to use, operate and maintain two water tanks with a combined capacity of 438,000 gallons, two deep water wells, a pump station, and ten miles of transmission lines serving customers at Wild Pointe in Elbert County. These assets are used to provide service to our customers.

Dividends

We have never paid any dividends on our common stock and expect for the foreseeable future to retain all of our capital and earnings from operations, if any, for use in expanding and developing our water and land development businesses. Any future decision as to the payment of dividends will be at the discretion of our board of directors and will depend upon our earnings, financial position, capital requirements, plans for expansion and such other factors as our board of directors deems relevant. The terms of our Series B Preferred Stock prohibit payment of dividends on common stock unless all dividends accrued on the Series B Preferred Stock have been paid and require dividends to be paid on the Series B Preferred Stock if proceeds from the sale of Export Water exceed $36,026,232. No dividends have been accrued to date as this threshold has not been met. For further discussion, see Note 8 – Shareholders’ Equity9 to the accompanying consolidated financial statements.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

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Item 6 – Selected Financial Data

Not Applicable

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