UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 20192020
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 0-08814000-08814


PURE CYCLE CORPORATION
(Exact name of registrant as specified in its charter)

Colorado
84-0705083
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)




34501 E. Quincy Avenue, Bldg. 34, Watkins, CO
80137
(Address of principal executive offices)
(Zip Code)

(303) 292 – 3456
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock 1/3 of $.01 par value
PCYO
The NASDAQ Stock Market
(Title of each class)(Trading (Trading Symbol(s))(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☒No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐
Accelerated filer ☒
☐
Non-accelerated filer ☐
☒
Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of January 3,December 31, 2020:

Common stock, 1/3 of $.01 par value
23,836,59823,868,216
(Class)
(Number of Shares)

PURE CYCLE CORPORATION
INDEX TO NOVEMBER 30, 20192020 FORM 10-Q



Page


 
PART I. FINANCIAL INFORMATION
1


 

1


 

1


 

2


 

3


 

4


 

5


 

2216


 

3423


 

3423


 
PART II. OTHER INFORMATION
3524


 

3524


 
SIGNATURES
3625

PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements

PURE CYCLE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

 
November 30, 2020
(unaudited)
  August 31, 2020 
 
(In thousands, except share and per share
amounts)
 
ASSETS: November 30, 2019  August 31, 2019       
 (unaudited)    
Current assets:            
Cash and cash equivalents 
$
22,072,442
  
$
4,478,020
  
$
21,303
  
$
21,797
 
Short-term investments 
—
  
5,188,813
 
Trade accounts receivable, net 
878,302
  
1,099,631
  
713
  
1,124
 
Prepaid expenses and deposits 
1,124,013
  
1,016,751
 
Inventories 
3,861,564
  
11,613,112
 
Taxes receivable  
—
   
141,410
 
Prepaid expenses and other assets 
887
  
1,001
 
Land development inventories 
—
  
481
 
Income taxes receivable  
1,455
   
1,588
 
Total current assets 
27,936,321
  
23,537,737
  
24,358
  
25,991
 
            
Investments in water and water systems, net 
51,502,028
  
50,270,310
  
55,165
  
55,087
 
Land and mineral interests 
5,175,363
  
5,104,477
  
5,239
  
4,915
 
Other assets 
2,471
  
2,042
 
Notes receivable - related parties, including accrued interest 
999,889
  
988,381
  
1,091
  
1,079
 
Other assets 
1,911,738
  
1,945,202
 
Long-term land investment 
450,641
  
450,641
  
451
  
451
 
Operating leases - right of use assets 
247,682
  
—
 
Deferred tax asset 
564,436
  
1,283,246
 
Taxes receivable  
141,410
   
141,410
 
Operating leases - right of use assets, less current portion  
178
   
196
 
Total assets 
$
88,929,509
  
$
83,721,404
  
$
88,953
  
$
89,761
 
            
LIABILITIES:            
Current liabilities:            
Accounts payable 
$
275,354
  
$
170,822
  
$
184
  
$
180
 
Accrued liabilities 
560,894
  
1,097,922
  
989
  
1,391
 
Accrued liabilities (related parties) 
2,958,545
  
2,330,496
 
Income taxes payable 
1,026,899
  
—
 
Deferred revenues, current 
1,143,771
  
3,991,535
 
Accrued liabilities - related parties 
1,191
  
1,212
 
Deferred lot sale revenues 
1,462
  
1,635
 
Deferred oil and gas lease payment and water sales payment  
1,548,063
   
706,464
   
596
   
1,800
 
Total current liabilities 
7,513,526
  
8,297,239
  
4,422
  
6,218
 
            
Deferred oil and gas lease payment and water sales payment, less current portion 
313,433
  
360,884
  
117
  
165
 
Participating interests in export water supply 
327
  
328
 
Deferred tax liability 
1,012
  
886
 
Lease obligations - operating leases, less current portion 
177,721
  
—
   
100
   
120
 
Participating Interests in Export Water Supply  
329,762
   
332,140
 
Total liabilities  
8,334,442
   
8,990,264
   
5,978
   
7,717
 
Commitments and contingencies      
            
SHAREHOLDERS’ EQUITY:            
Preferred stock:            
Series B - par value $0.001 per share, 25 million shares authorized; 432,513 shares issued and outstanding (liquidation preference of $432,513) 
433
  
433
  
0
  
0
 
Common stock:            
Par value 1/3 of $.01 per share, 40 million shares authorized; 23,826,598 and 23,826,598 shares outstanding, respectively 
79,427
  
79,427
 
Par value 1/3 of $.01 per share, 40 million shares authorized; 23,868,216 and 23,856,098 shares outstanding, respectively 
80
  
80
 
Additional paid-in capital 
172,465,766
  
172,360,413
  
173,013
  
172,927
 
Accumulated other comprehensive income 
—
  
3,891
 
Accumulated deficit  
(91,950,558
)
  
(97,713,023
)
  
(90,118
)
  
(90,963
)
Total shareholders’ equity  
80,595,068
   
74,731,141
   
82,975
   
82,044
 
Total liabilities and shareholders’ equity 
$
88,929,509
  
$
83,721,404
  
$
88,953
  
$
89,761
 

See accompanying Notes to Condensed Consolidated Financial Statements

PURE CYCLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(unaudited)

 Three Months Ended November 30,  Three Months Ended November 30, 
 2019  2018  2020  2019 
Revenues:       (In thousands, except per share amounts) 
Metered water usage 
$
140,724
  
$
1,367,851
 
Metered water usage from:
Municipal customers
 
$
167
  
$
103
 
Oil and gas operations 
1,199
  
37
 
Wastewater treatment fees 
20,497
  
8,893
  
42
  
20
 
Water tap fees recognized 
1,672,115
  
254,826
 
Lot sales 
8,541,643
  
1,381,196
  
2,356
  
8,542
 
Water and wastewater tap fees 
1,083
  
1,672
 
Other  
86,050
   
59,783
   
21
   
86
 
Total revenues  
10,461,029
   
3,072,549
   
4,868
   
10,460
 
            
Expenses:            
Water service operations 
(253,788
)
 
(335,164
)
 
(545
)
 
(254
)
Wastewater service operations 
(26,071
)
 
(2,722
)
 
(92
)
 
(26
)
Land development construction costs 
(8,063,333
)
 
(1,298,324
)
 
(1,719
)
 
(8,063
)
Other 
(23,778
)
 
(39,133
)
 
(24
)
 
(24
)
Depletion and depreciation  
(219,302
)
  
(151,261
)
Depreciation and depletion  
(365
)
  
(219
)
Total cost of revenues  
(8,586,272
)
  
(1,826,604
)
  
(2,745
)
  
(8,586
)
Gross profit 
1,874,757
  
1,245,945
  
2,123
  
1,874
 
            
General and administrative expenses 
(801,371
)
 
(638,833
)
 
(1,086
)
 
(801
)
Depreciation  
(84,782
)
  
(88,013
)
  
(84
)
  
(85
)
Operating income 
988,604
  
519,099
  
953
  
988
 
            
Other income (expense):      
Income from reimbursement of construction costs (related party) 
6,275,500
  
—
 
Oil and gas lease income, net 
61,740
  
13,933
 
Oil and gas royalty income, net 
269,549
  
31,425
 
Other income:      
Oil and gas royalty income 
75
  
270
 
Oil and gas lease income 
52
  
62
 
Interest income 
54,191
  
71,162
  
15
  
54
 
Other  
—
   
(1,647
)
 
10
  
—
 
Net Income before taxes 
7,649,584
  
633,972
 
Income from reimbursement of construction costs - related party  
—
   
6,276
 
Net income before taxes 
1,105
  
7,650
 
Income tax expense  
1,887,119
   
—
   
(260
)
  
(1,887
)
Net income 
$
5,762,465
  
$
633,972
  
$
845
  
$
5,763
 
Unrealized holding (losses) gains  
(3,891
)
  
11,796
 
Unrealized holding losses  
—
   
(4
)
Total comprehensive income 
$
5,758,574
  
$
645,768
  
$
845
  
$
5,759
 
            
Basic and diluted net income per common share 
$
0.24
  
$
0.03
  
$
0.04
  
$
0.24
 
            
Weighted average common shares outstanding–basic  
23,826,598
   
23,772,431
   
23,867
   
23,827
 
Weighted average common shares outstanding–diluted  
24,050,695
   
23,996,393
   
24,036
   
24,051
 

See accompanying Notes to Condensed Consolidated Financial Statements

PURE CYCLE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
Three Months ended November 30, 2019 and 2018
(unaudited)

  Preferred Stock  Common Stock

Additional
Paid-in


Accumulated
Other
Comprehensive


Accumulated 
 
  
  Shares  Amount  Shares  AmountCapitalIncome (Loss)DeficitTotal
August 31, 2019 balance:  
432,513
  
$
433
   
23,826,598
  
$
79,427
  
$
172,360,413
  
$
3,891
  
$
(97,713,023
)
 
$
74,731,141
 
Share-based compensation  
—
   
—
   
—
   
—
   
105,353
   
—
   
—
   
105,353
 
Net income  
—
   
—
   
—
   
—
   
—
   
—
   
5,762,465
   
5,762,465
 
Unrealized holding loss on investments  
—
   
—
   
—
   
—
   
—
   
(3,891
)
  
—
   
(3,891
)
November 30, 2019 balance:  
432,513
  
$
433
   
23,826,598
  
$
79,427
  
$
172,465,766
  
$
—
  
$
(91,950,558
)
 
$
80,595,068
 

 Three Months Ended November 30, 2020 

 Preferred Stock  Common Stock  
Additional
Paid-in
  
Accumulated
Other
Comprehensive
  Accumulated  
 

 Shares  Amount  Shares  Amount  Capital  
Income (Loss)
  Deficit  Total 

 (In thousands) 
August 31, 2020 balance:  
433
  
$
0
   
23,856
  
$
80
  
$
172,927
  
$
—
  
$
(90,963
)
 
$
82,044
 
Stock option exercises  
—
   
—
   
12
   
—
   
—
   
—
   
—
   
—
 
Share-based compensation  
—
   
—
   
—
   
—
   
86
   
—
   
—
   
86
 
Net income  
—
   
—
   
—
   
—
   
—
   
—
   
845
   
845
 
November 30, 2020 balance:  
433
  
$
0
   
23,868
  
$
80
  
$
173,013
  
$
—
  
$
(90,118
)
 
$
82,975
 

  Preferred Stock  Common Stock

Additional
Paid-in


Accumulated
Other
Comprehensive


Accumulated

 
  
  Shares  Amount  Shares  AmountCapitalIncome (Loss)DeficitTotal
August 31, 2018 balance:  
432,513
  
$
433
   
23,764,098
  
$
79,218
  
$
171,831,293
  
$
66,446
  
$
(102,524,171
)
 
$
69,453,219
 
Stock option exercises          
25,000
  
$
84
  
$
78,167
   
—
   
—
   
78,251
 
Share-based compensation  
—
   
—
   
—
   
—
   
103,476
   
—
   
—
   
103,476
 
Net income  
—
   
—
   
—
   
—
   
—
   
—
   
633,972
   
633,972
 
Unrealized holding gain on investments  
—
   
—
   
—
   
—
   
—
   
11,796
   
—
   
11,796
 
November 30, 2018 balance:  
432,513
  
$
433
   
23,789,098
  
$
79,302
  
$
172,012,936
  
$
78,242
  
$
(101,890,199
)
 
$
70,280,714
 


 Three Months Ended November 30, 2019 

 Preferred Stock  Common Stock  
Additional
Paid-in
  
Accumulated
Other
Comprehensive
  Accumulated  
 

 Shares  Amount  Shares  Amount  Capital  
Income (Loss)
  Deficit  Total 

 (In thousands) 
August 31, 2019 balance:  
433
  
$
0
   
23,827
  
$
79
  
$
172,361
  
$
4
  
$
(97,713
)
 
$
74,731
 
Share-based compensation  
—
   
—
   
—
   
—
   
105
   
—
   
—
   
105
 
Net income  
—
   
—
   
—
   
—
   
—
   
—
   
5,763
   
5,763
 
Unrealized holding loss on investments  
—
   
—
   
—
   
—
   
—
   
(4
)
  
—
   
(4
)
November 30, 2019 balance:  
433
  
$
0
   
23,827
  
$
79
  
$
172,466
  
$
—
  
$
(91,950
)
 
$
80,595
 

See accompanying Notes to Condensed Consolidated Financial Statements

PURE CYCLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)


 Three Months Ended November 30, 
 Three Months Ended November 30,  2020  2019 
 2019  2018  (In thousands) 
Cash flows from operating activities:            
Net income 
$
5,762,465
  
$
633,972
  
$
845
  
$
5,763
 
Adjustments to reconcile net income to net cash used in operating activities:      
Adjustments to reconcile net income to net cash provided (used) by operating activities:      
Depreciation and depletion 
449
  
304
 
Share-based compensation expense 
105,353
  
103,476
  
86
  
105
 
Depreciation and depletion 
304,084
  
239,274
 
Bad debt (recovery) expense 
—
  
(31,233
)
Investment in Well Enhancement and Recovery Systems LLC 
—
  
2,615
 
Interest income and other non-cash items 
(105
)
 
(105
)
Interest added to receivable from related parties 
(10,913
)
 
(9,822
)
 
(11
)
 
(11
)
Deferred income taxes 
718,810
  
—
  
126
  
719
 
Proceeds from CAB reimbursement applied to inventories 
4,229,501
  
—
 
Proceeds from CAB reimbursement applied to land development inventories 
—
  
4,230
 
Changes in operating assets and liabilities:            
Inventories 
4,777,212
  
(3,356,718
)
Trade accounts receivable 
221,329
  
(469,800
)
 
411
  
221
 
Prepaid expenses 
(107,262
)
 
(138,395
)
 
(370
)
 
(107
)
Notes receivable - related parties 
(595
)
 
(7,100
)
Other assets 
—
  
(90,097
)
Land development inventories 
(413
)
 
4,777
 
Accounts payable and accrued liabilities 
(386,891
)
 
(1,209,985
)
 
174
  
(387
)
Income taxes 
1,168,309
  
—
 
Deferred revenues 
(2,847,764
)
 
(361,050
)
 
(1,425
)
 
(2,054
)
Deferred income - oil and gas lease and water sales payment 
794,148
  
(13,934
)
Lease obligations - operating leases  
(5,647
)
  
—
 
Net cash provided by (used in) operating activities  
14,722,034
   
(5,729,048
)
Other assets and liabilities  
134
   
1,161
 
Net cash provided by operating activities  
6
   
14,721
 
            
Cash flows from investing activities:            
Sale and maturities of short-term investments 
—
  
5,185
 
Investments in water, water systems and land 
(2,273,010
)
 
(2,488,788
)
 
(468
)
 
(2,273
)
Sale and maturities of short-term investments 
5,184,923
  
3,705,101
 
Purchase of short-term investments 
—
  
(5,968,800
)
Purchase of property and equipment  
(37,147
)
  
(42,923
)
  
(31
)
  
(37
)
Net cash provided by (used in) investing activities  
2,874,766
   
(4,795,410
)
Net cash (used) provided by investing activities  
(499
)
  
2,875
 
            
Cash flows from financing activities:            
Proceeds from exercise of options 
—
  
78,251
 
Payments to contingent liability holders  
(2,378
)
  
(3,722
)
  
(1
)
  
(2
)
Net cash provided by (used in) financing activities 
(2,378
)
 
74,529
 
      
Net cash used by financing activities 
(1
)
 
(2
)
Net change in cash and cash equivalents 
17,594,422
  
(10,449,929
)
 
(494
)
 
17,594
 
Cash and cash equivalents – beginning of period  
4,478,020
   
11,565,038
   
21,797
   
4,478
 
Cash and cash equivalents – end of period 
$
22,072,442
  
$
1,115,109
  
$
21,303
  
$
22,072
 
 

  

 


 


SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
      
Changes in Inventories included in accounts payable and accrued liabilities $
1,255,164
  $
1,399,602
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH ACTIVITIES 

  

 
Changes in Land development inventories included in accounts payable and accrued liabilities 
$
894
  
$
1,255

Changes in Investments in water, water systems and land included in accounts payable and accrued liabilities $
(737,038
)
 $
930,895
  
$
297
  
$
(737
)
Transfer of income taxes to income taxes receivable $
—  $
282,820
 

See accompanying Notes to Condensed Consolidated Financial Statements

PURE CYCLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NovemberNOVEMBER 30, 20192020

NOTE 1 – PRESENTATION OF INTERIM INFORMATION

The November 30, 20192020 condensed consolidated balance sheet, the condensed consolidated statements of operations and comprehensive income for the three months ended November 30, 2020 and 2019, and 2018, the condensed consolidated statements of shareholders’ equity for the three months ended November 30, 2020 and 2019, and 2018, and the condensed consolidated statements of cash flows for the three months ended November 30, 20192020 and 20182019 have been prepared by Pure Cycle Corporation (the “Company”) and have not been audited. The unaudited condensed consolidated financial statements include all adjustments that are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows at November 30, 2019,2020, and for all periods presented.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. It is suggested that thesethe accompanying condensed consolidated financial statements and notes be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 20192020 (the “2019“2020 Annual Report”) filed with the Securities and Exchange Commission (the “SEC”) on November 12, 2019.10, 2020. The results of operations for interim periods presented are not necessarily indicative of the operating results expected for the full fiscal year. The August 31, 20192020 balance sheet was derived from the Company’s audited consolidated financial statements.

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

On March 27, 2020, Congress enacted the CARES Act to provide certain relief because of the recent outbreak of a novel strain of the coronavirus (“COVID-19”) pandemic. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits. The Company does not believe there will be any material impact to its condensed consolidated financial statements because of the CARES Act.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”)GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used to account for certain items such as revenue recognition, reimbursable costs and expenses, costs of revenue for lot sales, share-based compensation, deferred tax asset and liability valuation, depreciation and the recoverability of long lived assets. Actual results couldand outcomes may differ from those estimates.management’s estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment due to COVID-19.

Cash and Cash EquivalentsRecently Issued Accounting Pronouncements

Cash and cash equivalents include all highly liquid debt instruments with original maturities of three months or less. The Company’s cash equivalents are comprised entirely of money market funds maintained atCompany continually assesses new accounting pronouncements to determine their applicability. When it is determined that a reputable financial institution and U.S. Treasury debt securities. At various times during the three months ended November 30, 2019,new accounting pronouncement affects the Company’s main operating account exceeded federally insured limits. To date,financial reporting, the Company has not sufferedundertakes a loss due to such excess balance.

Land Development Inventories

Inventories primarily include land held for development and sale. Inventories are stated at cost. Capitalized lot development costs at Sky Ranch are costs incurred to construct lots at Sky Ranch that meet the Company’s capitalization criteria for improvements to a lot and are capitalized as incurred. The Company capitalizes certain legal, engineering, design, permitting, land acquisition, and construction costs related to the development of lots at Sky Ranch. The Company accumulates land development costs and allocates costs to each lotstudy to determine the cost basis for each lot sale. Theconsequences of the change to its consolidated financial statements and to ensure that there are proper controls in place to ascertain that the Company’s consolidated financial statements properly reflect the change. New pronouncements assessed by the Company records all land cost of sales over time based on inputs of costs incurred to date to total estimated costs to complete.recently are discussed below:

In accordance withJune 2016, the Financial Accounting Standards CodificationBoard (“ASC”FASB”) Topic 360,issued Accounting Standards Update (“ASU”) No. 2016-13, Property, Plant and EquipmentFinancial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 360”ASU 2016-13”),. Among other things, ASU 2016-13 requires the Company values landmeasurement of all expected credit losses for financial assets held for sale at the lowerreporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Companies will now use forward-looking information to better inform their credit loss estimates. ASU 2016-13 was set to be effective for public companies on January 1, 2020; however, the FASB delayed the effective date to January 1, 2023 for smaller reporting companies. The Company continues to monitor economic implications of the carrying value or net realizable value. In determining net realizable value, the Company primarily relies upon the most recent negotiated price that is a Level 2 input (see Note 3 – Fair Value Measurements for definitions of fair value inputs). If a negotiated price is not available, the Company will consider several factors, including, but not limited to,COVID-19 pandemic; however, based on current market conditions, recent comparable sales transactions and market analysis studies. If the net realizable value is lower thanCompany does not expect the current carrying value, the land is written downadoption of ASU 2016-13 to its estimated net realizable value.

Contract Asset

Contract receivables are recorded at the invoiced amount and do not bear interest. Credit is extended basedhave a material impact on the evaluation of a customer’sCompany’s financial condition and collateral is not required. Contract asset is revenue which has been earned but not yet invoiced. The contract assets are transferred to the receivables when the Company has the right to bill such amounts and they are invoiced.statements.

Investments

Management determines the appropriate classification of its investments in U.S. Treasury debt securities at the time of purchase and re-evaluates such determinations each reporting period.

Securities that the Company does not have the positive intent or ability to hold to maturity, including U.S. Treasury debt securities, are reported at their fair value. Changes in value of such securities are recorded as a component of Accumulated other comprehensive income (loss). The cost of securities sold is based on the specific identification method. As of November 30, 2019, the Company’s U.S. Treasury debt securities had no maturity dates greater than 90 days and were classified as cash and cash equivalents in the Balance Sheet.

Concentration of Credit Risk and Fair Value

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and investments. From time to time, the Company places its cash in money market instruments, certificates of deposit and U.S. Treasury obligations. To date, the Company has not experienced significant losses on any of these investments.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value.

Cash and Cash Equivalents – The Company’s cash and cash equivalents are reported using the values as reported by the financial institution where the funds are held. These securities primarily include balances in the Company’s operating and savings accounts. The carrying amount of cash and cash equivalents approximate fair value.

Trade Accounts Receivable – The Company records accounts receivable net of allowances for uncollectible accounts and the carrying value approximate fair value due to the short-term nature of the receivables.

Investments – The carrying amounts of investments are recorded at fair value. Investments are described further in NoteNOTE 2 – Fair Value Measurements.

Accounts Payable – The carrying amounts of accounts payable approximate fair value due to the relatively short period to maturity for these instruments.

Long-Term Financial Liabilities – The Comprehensive Amendment Agreement No. 1 (the “CAA”) is comprised of a recorded balance sheet and an off-balance sheet or “contingent” obligation associated with the Company’s acquisition of its “Rangeview Water Supply” (as defined in Note 4 – Water and Land Assets in Part II, Item 8 of the 2019 Annual Report). The amount payable is a fixed amount but is repayable only upon the sale of “Export Water” (as defined in Note 4 – Water and Land Assets in Part II, Item 8 of the 2019 Annual Report). Because of the uncertainty of the sale of Export Water, the Company has determined that the contingent portion of the CAA does not have a determinable fair value. The CAA is described further in Note 4 – Long-Term Obligations and Operating Lease – Participating Interests in Export Water Supply.

Notes Receivable – Related Parties – The carrying amounts of the Notes receivable – related parties (including with the Rangeview Metropolitan District (the “Rangeview District”) and the Sky Ranch Community Authority Board (the “CAB”)) approximate their fair value because the interest rates on the notes approximate market rates.

Off-Balance Sheet Instruments – The Company’s off-balance sheet instruments consist entirely of the contingent portion of the CAA. Because repayment of this portion of the CAA is contingent on the sale of Export Water, which is not reasonably estimable, the Company has determined that the contingent portion of the CAA does not have a determinable fair value. See further discussion in Note 4 – Long-Term Obligations and Operating Lease – Participating Interests in Export Water Supply.

Revenue RecognitionREVENUE RECOGNITION AND REIMBURSABLE COSTS

The Company disaggregates revenue by major product line as reported on the condensed consolidated statementsstatement of operations and comprehensive income.

Wholesale Waterincome, which the Company believes best depicts the nature, timing, and Wastewater Feesuncertainty of the Company’s revenue and cash flows.

The Company primarily generates revenues through two lines of business. Revenues are derived throughbusiness, its wholesale water and wastewater resource development business and through the sale of developedfinished lots in its land primarily for residential lots,development business, both of which businesses are described below.

Water and Wastewater Resource Development Segment
6
The Company generates revenues through its wholesaleCompany’s water and wastewater business predominantly from three sources: (i) monthly wholesale water usage fees and wastewater service fees, (ii) one-timeresource development segment provides municipal water and wastewater tapservices, through the Rangeview Metropolitan District (the “Rangeview District”) and Elbert and Highway 86 Metropolitan District (the “Elbert 86 District”) to end use customers for fees, described below. The Rangeview District services Sky Ranch and construction fees/Special Facility funding,the other customers on the Lowry Range. The Elbert 86 District services Wild Pointe.

Monthly water usage and (iii) consulting fees. Becausewastewater treatment fees – The Company provides water to customers, collects wastewater from those customers and treats that wastewater which is reused for irrigation purposes. For these items are separately delivered and distinct,services, the Company accountscharges customers monthly fees. Potable and reuse water fees are comprised of a base charge and a usage charge based on actual amounts of water delivered to the customer using a tiered structure that results in higher fees for each of the items separately, as described below.


(i)
Monthly water usage and wastewater treatment fees– Monthly wholesale water usage charges are assessed to the Company’s customers based on actual metered usage each month plus a base monthly service fee assessed per single family equivalent (“SFE”) unit served. One SFE is a customer, whether residential, commercial or industrial, that imparts a demand on the Company’s water or wastewater systems similar to the demand of a family of four persons living in a single-family house on a standard-sized lot. Water usage pricing uses a tiered pricing structure. The Company recognizes wholesale water usagehigher usage. Wastewater treatment services incur flat monthly fees. The Company recognizes these revenues at a point in time upon delivering water to its customers or its governmental customers’ end-use customers, as applicable. Revenues recognized by the Company from the sale of “Export Water” and other portions of its “Rangeview Water Supply” off the Lowry Range are shown gross of royalties to the State of Colorado Board of Land Commissioners (the “Land Board”). The Company is the primary distributor of the “Export Water” and sets pricing for the sale of Export Water. Revenues recognized by the Company from the sale of water on the Lowry Range are shown net of royalties paid to the Land Board and amounts retained by the Rangeview District. For water sales on the Lowry Range, the Rangeview District is directly selling the water and deemed the primary distributor of the water. The Rangeview District sets the price for the water sales on the Lowry Range. See further description of Export Water, the Lowry Range, and the Rangeview Water Supply in Note 4 – Water and Land Assets under “Rangeview Water Supply and Water System” in Part II, Item 8 of the 2019 Annual Report.

In addition to providing domestic water, the Company provides raw water for hydraulic fracturing to industrial customers in the oil and gas industry that are located in and adjacent to its service areas. Frack water revenues are recognized at a point in time upon delivering water to a customer.the end use customers.

The Company delivered 748,000Water and 114.5 million gallons of waterwastewater tap fees – A tap constitutes a right to customers duringconnect a residential or commercial building or property to the three months ended November 30, 2019 and 2018, respectively, of which 6% and 86% was used for oil and gas exploration.

The Company recognizes wastewater treatment revenues monthly based on a flat monthly fee and actual usage charges. The monthly wastewater treatment fees are shown net of amounts retained by the Rangeview District. Costs of delivering water and providing wastewater service to customers are recognized as incurred.


(ii)
Water and wastewater tap fees/Special Facility funding – The Company recognizes water and wastewater tap fees as revenue at the time the Company grants a right for the customer to tap into the water or wastewater service line to obtain service. The Company recognized $1,401,900 and $226,900 of water tap fee revenues during the three months ended November 30, 2019 and 2018, respectively. The water tap fees recognized are based on the amounts billed by the Rangeview District and any amounts paid to third parties pursuant to the CAA as further described in Note 4 – Long-Term Obligations and Operating Lease – Participating Interests in Export Water Supply below. The Company recognized $270,200 and $28,000 of wastewater tap fee revenues during the three months ended November 30, 2019 and 2018, respectively.

The Company recognizes construction fees, including fees received to construct “Special Facilities,” over time as the construction is completed because the customer is generally able to use the property improvement to enhance the value of other assets during the construction period. Special Facilities are facilities that enable water to be delivered to a single customer and are not otherwise classified as a typical wholesale facility or retail facility. Temporary infrastructure required prior to construction of permanentCompany’s water and wastewater systems. Once granted, the customer may make a physical tap into the service line(s) to connect its property to the Company’s systems to obtain water and/or transmission pipelineswastewater service. The right stays with the property. The Company has no obligation to transferphysically connect the property to the lines. Once connected to the water and/or wastewater systems, the customer has live service to receive metered water deliveries from one locationthe Company’s system and send wastewater to anotherthe Company. Thus, the customer has full control of the connection right as it can obtain all the benefits from this right. As such, tap fees are examples of Special Facilities. Management has determined that Special Facilities aredeemed separate and distinct performance obligations because these projectsthat are contracted to constructrecognized as revenue at a specific water and wastewater system or transmission pipeline and typically do not include multiple performance obligationspoint in a contract with a customer. No Special Facilities revenue has been recognized during the three months ended November 30, 2019 or 2018.time.


(iii)
Consulting fees – Consulting fees are fees that the Company receives, typically on a monthly basis, from municipalities and area water providers along the I-70 corridor, for contract operations services over time as services are consumed. Consulting fees are recognized monthly based on a flat monthly fee plus charges for additional work performed. The Company recognized $12,700 and $47,800 of consulting fees during the three months ended November 30, 2019 and 2018, respectively. The Company is reducing its consulting services in order to focus its resources on the water systems at Sky Ranch. The Company expects consulting fees to be minimal in future periods.
Land Development Segment

7
Land Development Activities

The Company generates revenues through the saleSale of finished lots at its Sky Ranch development primarily from several sources of revenues: (i) the sale of finished lots, (ii) construction support activities, (iii) project management services, and (iv) reimbursable expenses incurred to develop certain public improvements.


(i)
Land development through the sale of finished lots – The Company acquired approximately 930 acres of land zoned as a Master Planned Community known as Sky Ranch along the I-70 corridor east of Denver, Colorado. The Company has entered into purchase and sale agreements with three separate home builders pursuant to which the Company agreed to sell, and each builder agreed to purchase, residential lots at the property. The Company began construction of lots in March 2018 and segments its reporting of the activity relating to the costs and revenues from the construction and sale of lots at Sky Ranch.
– The Company sells lots at its Master Planned Community, Sky Ranch, pursuant to distinct agreements with each home builder. These agreements follow one of two formats. One format is the sale of a finished lot, whereby the purchaserhome builder pays for a ready-to-build finished lot and paymentthe sales price is paid in a lump-sum payment upon completion of the finished lot that is permit ready. The Company will recognizerecognizes revenues at the point in time of the closing of the sale of a finished lot in which control transfers to the builder as the transaction cycle will beis complete and the Company will havehas no further obligations for the lot. During the three months ended November 30, 2019, the Company received payment and recognized revenue of $1,430,600 from one home builder in exchange for the delivery of 21 finished lots. No revenue was recognized for lot sales at a point in time for the three months ended November 30, 2018.

The Company’s second format is the sale of a finished lotslot pursuant to a lot development agreement with builders, whereby the Company receives payments in stages that includeinclude: (i) payment upon the delivery of a platted lotslot (which requires the Company to deliver deeded title to individual lots), (ii) a second payment upon the completion of certain infrastructure milestones, and (iii) final payment upon the delivery of the finished lot. Ownership and control of the platted lots passlot passes to the buildersbuilder once the Company closes the sale of the platted lots. Because the builder (i.e., the customer) takes control and legal ownership of the lot at the first closing, and subsequent improvements made by the Company improve the builder’s lot as construction progresses, the Company accounts for revenue over time with progress measured based upon costs incurred to date compared to total expected costs. Any revenue in excess of amounts entitled to be billed is reflected on the balance sheet as a contract asset, and amounts received in excess of revenue recognized are recorded as deferred revenue. As of November 30, 2019, the Company had received cumulative payments of approximately $18 million under development agreements relating to 293 lots from two home builders, of which approximately $17.0 million of revenue was recognized over time based on the costs incurred to date compared to total expected costs for full completion of the 293 lots. For the three months ended November 30, 2019 and 2018, the Company recognized $7,111,000 and $1,381,200 of lot sales over time, respectively. The Company had deferred revenue related to lot sales of $1,143,800 as of November 30, 2019. The Company had a contract asset of $1,020,100 as of November 30, 2018. The Company does not have any material significant payment terms as all payments are expected to be received within 12 months after the delivery of each platted lot.  The Company adopted the practical expedient for financing components and does not need to account for a financing component of these lot sales as the delivery of lot sales is expected to occur within one year or less.


(ii)
Construction support activities – The Company performs certain construction activities at Sky Ranch. The activities performed include construction and maintenance of the grading erosion and sediment control best management practices and other construction-related services. These activities are invoiced upon completion and are included in Inventories and subsequently expensed through Land development construction costs until bonds are issued by the Sky Ranch Districts (as defined in Note 6 – Related Party Transactions) and/or the CAB and the CAB reimburses the Company for public improvements. Refer to section (iv) Reimbursable Costs for Public Improvements for details on repayment of reimbursable costs. To date, the Company has invoiced the CAB $533,500 for construction support activities, which amount is included in Inventories.


(iii)
Project management services – The Company entered into two Service Agreements for Project Management Services with the CAB beginning on May 2, 2018. Pursuant to these agreements, the Company acts as the project manager and provides any and all services required to deliver the CAB-eligible improvements, including but not limited to CAB compliance; planning design and approvals; project administration; contractor agreements; and construction management and administration. The Company must submit to the CAB a monthly invoice, in a form acceptable to the CAB, detailing all project management activities during the period. The Company is responsible for all expenses it incurs in the performance of the agreements and is not entitled to any reimbursement or compensation except as defined in the agreements, unless otherwise approved in advance by the CAB in writing. The CAB is subject to annual budget and appropriation procedures and does not intend to create a multiple-fiscal year direct or indirect debt or other financial obligation. The Company receives a project management fee of five percent (5%) of actual construction costs of CAB-eligible improvements. The project management fee qualifies as a reimbursable cost to the Company. The project management fee is based only on the actual costs of the improvements; thus, items such as fees, permits, review fees, consultant or other soft costs, and land acquisition or any other costs that are not directly related to the cost of construction of CAB-eligible improvements are not included in the calculation of the project management fee. Soft costs and other costs that are not directly related to the construction of CAB-eligible improvements are included in Inventories and accounted for in the same manner as construction support activities as described above. The Company and the CAB have agreed that no payment is required by the CAB with respect to project management fees unless and until the CAB and/or the Sky Ranch Districts issue municipal bonds in an amount sufficient to reimburse the Company for all or a portion of advances provided or expenses incurred for reimbursables. Due to this contingency, the project management fees are being accrued to revenue with a corresponding allowance until the point in time when bonds are issued by the Sky Ranch Districts and/or the CAB and the CAB reimburses the Company for the public improvements. At that point, the portion of the project management fees repaid will be recognized as revenue. To date, the Company has accrued $869,900 in project management services to the CAB.


(iv)
Reimbursable Costs for Public Improvements – The CAB is required to construct certain public improvements, such as water distribution systems, sewer collection systems, storm water systems, drainage improvements, roads, curb,Reimbursable Public Improvement Costs – The Sky Ranch Community Authority Board (the “Sky Ranch CAB”) is obligated to construct certain public improvements at Sky Ranch. Public improvements are items that are not associated with one lot or one home, but can be used by the public, whether living in Sky Ranch or not. Public improvements include items such as roads, curbs, sidewalks, landscaping, and parks but also includes items such as water distribution systems, sewer collection systems, storm water systems, and drainage improvements. Pursuant to agreements between the costs of which may qualify as reimbursable costs. The Company is obligated to finance this infrastructure pursuant to its agreements with the CAB (see Note 6 – Related Party Transactions). These public improvements are constructed pursuant to design standards specified by the Sky Ranch Districts and/or the CAB, and, after inspection and acceptance, are turned over to the applicable governmental entity to operate and maintain. As these public improvements are owned and operated on behalf of a governmental entity, they may qualify for reimbursement.

The Company and the Sky Ranch CAB have agreed(see Note 7 – Related Party Transactions), the Company is obligated to provide funding to the Sky Ranch CAB related to the construction of these public improvements. Because public improvements are utilized by more than just a single home, the costs are typically reimbursed through property tax assessments. During the initial development filing at Sky Ranch, the Sky Ranch CAB expended $31.6 million to build these public improvements, including accrued interest, project management fees, and construction support activities, which the Company provided the funding for. In November 2019, the Sky Ranch CAB issued $13.2 million of bonds to recover a portion of the $31.6 million of public improvements constructed for the initial filing at Sky Ranch. Upon the issuance of the bonds, the Company received $10.5 million as partial reimbursement for advances the Company made to the Sky Ranch CAB to fund the construction of these public improvements. The Sky Ranch CAB fully intends to issue additional bonds at some time in the future to recover the remaining $21.1 million of total reimbursable costs not included in the initial bond offering, which pursuant to the funding agreement between the Company and the Sky Ranch CAB would be payable to the Company since the Company provided the initial funding. Even if the Sky Ranch CAB does not issue bonds to repay the remaining $21.1 million, the Sky Ranch CAB will receive property tax assessments which could be used to repay the amounts owed to the Company for the public improvements. This filing represented the Company’s and the Sky Ranch CAB’s first land development activities, as such there was no assurance the property taxes or bond issuances would occur in a timely manner or in an amount sufficient to cover the costs of the public improvements. Because the amount and timing were contingent, the Company did not estimate or record any potential reimbursements until the cash was received. Of the $10.5 million received by the Company, $6.3 million was recognized as Income from reimbursement of construction costs (related party) in other income and the remaining $4.2 million partially reduced the remaining capitalized costs in Land development inventories. The agreements between the Company and the Sky Ranch CAB allow for interest to be accrued on amounts funded by the Company to the Sky Ranch CAB. Due to the uncertainty of collecting the interest (because this was the Company’s first development, it had no basis to support estimated payments, and payment is contingent on tax receipts or the issuance of bonds), interest income is not recognized on the amounts owed by the Sky Ranch CAB related to the initial development until it is received.

These public improvements are constructed pursuant to design standards specified by local governmental jurisdictions including the Sky Ranch Districts, the Sky Ranch CAB and Arapahoe County, and, after inspection and acceptance, are turned over to the applicable governmental entity to operate and maintain.

Project management services – Pursuant to two Service Agreements for Project Management Services (the “Project Management Agreements”) with the Sky Ranch CAB, the Company acts as the project manager and provides the services required to deliver the Sky Ranch CAB-eligible public improvements (see discussion of reimbursable public improvements above), including but not limited to Sky Ranch CAB compliance; planning design and approvals; project administration; contractor agreements; and construction management and administration. The Company is responsible for all expenses it incurs in the performance of the Project Management Agreements and is not entitled to any reimbursement or compensation except as set forth in the Project Management Agreements, unless otherwise approved in advance by the Sky Ranch CAB in writing. The Company receives a project management fee of five percent (5%) of actual construction costs of Sky Ranch CAB-eligible public improvements. The project management fee to be paid to the Company qualifies as a reimbursable cost to the Company. The project management fee is based only on the actual costs of the improvements; thus, items such as fees, permits, review fees, consultant or other soft costs, and land acquisition or any other costs that are not directly related to the cost of construction of Sky Ranch CAB-eligible public improvements are not included in the calculation of the project management fee. Soft costs and other costs incurred by the Company that are not directly related to the construction of Sky Ranch CAB-eligible public improvements are included in Land development inventories and accounted for in the same manner as construction support activities as described below. Per the Project Management Agreements, no payment is required by the Sky Ranch CAB with respect to advances made by the Company or expenses incurred related to construction of public improvementsproject management fees unless and until the Sky Ranch CAB and/or the Sky Ranch Districts have funds or issue bonds in an amount sufficient to reimburse the Company for all or a portion of the advances made and expenses incurred. Due to this contingency, the reimbursable costs for the construction of public improvements, including reimbursable costs for construction support activities, are included in Inventories and subsequently expensed through Land development construction costs until the point in time when the CAB reimburses the Company for such public improvements. The Company submits specific costs for reimbursement to the CAB.  Based on the specific costs being reimbursed by the CAB, the Company records those costs that have been previously expensed in cost of sales as other income and those costs that remain capitalized as inventory costs as a reduction of the related inventory costs held in Inventories. Any reimbursable costs repaid after all capitalized expenses and lot revenues have been fully recognized will be recorded as other income.

All amounts owed under the 2018 FFAA (as defined in Note 6 – Related Party Transactions) bear interest at a rate of 6% per annum. No payment is required of the CAB for advances made to the CAB or expenses incurred related to construction of public improvements unless and until the CAB and/or Sky Ranch Districts issuemunicipal bonds in an amount sufficient to reimburse the Company for all or a portion of advances provided, or other expenses incurred. Due to this contingency, interest is accrued to Interest Income with a corresponding allowance until the point in time when bonds are issued. At that point, the allowance will be reversedincurred for the portion of the accrued interest repaid and the accrued interest will be recognized. To date, the Company has accrued $1,031,700 for accrued interest for advances made to the CAB.

On November 19, 2019, the CAB sold tax-exempt, fixed rate senior bonds in the aggregate principal amount of approximately $11,435,000 and tax-exempt, fixed-rate subordinate bonds in the aggregate principal amount of approximately $1,765,000 (collectively, the “Bonds”). Upon the sale of the Bonds approximately $10.5 million of the net proceeds from the Bonds were used to partially reimburse the Company for advances it made to the CAB pursuant to the 2018 FFAA to fund the construction of public improvements tothat qualify as reimbursable expenses. Because payment is contingent on receipt of tax dollars or the issuance of bonds, project management fees are deferred and not recognized until they are received.

Construction support activities – The Company performs certain construction activities at Sky Ranch property. Approximately $2.7 millionRanch. The activities performed include construction and maintenance of the bond proceeds were retained by the CABgrading erosion and sediment control best management practices and other construction-related services. These activities are invoiced upon completion and are included in cash in order to repay debt service through 2021, when the CAB expects to generate enough revenue through mill levies, to repay bond holders.


The Company applied approximately $4.2 million of the net proceeds to partially reduce the remaining capitalized expenses in Inventories Land developmentand the excess of the capitalized public improvement expenses of approximately $6.3 million was recognized as Income from reimbursement of construction costs (related party) i in other income. As a result of the reimbursed costs, the margin from land development revenues is expected to increase to approximately 27%.

The Company records all reimbursable costs to Inventoriesnventories and subsequently expenses these costsexpensed through Land development construction costs. All unpaid reimbursable costs, that the Company believes are recoverable from the CAB are accrued to a Note Receivable from the CAB unless or until reimbursement occurs.

As noted above, pursuant to the 2018 FFAA. Each period,funding agreements between the Company performs an impairment analysis onand the recoverabilitySky Ranch CAB, the Company is owed amounts it funded or that the Sky Ranch CAB was unable to pay at the time of the outstanding reimbursable costs.construction. The following table summarizes all reimbursable costs incurred to date, payments made from the amounts the Company paid, what was repaid by the Sky Ranch CAB and any outstanding reimbursable amounts.amounts still owed to the Company by the Sky Ranch CAB:

 As of November 30, 2019  As of November 30, 2020 
 
Costs incurred to date
  
Payments repaid by
CAB
  
Net costs incurred to date
  Costs incurred to date  
Payments repaid by
Sky Ranch CAB
  
Amounts payable to Pure
Cycle by the Sky Ranch
CAB
 
Construction support activities 
$
533,500
  
$
—
  
$
533,500
 
Project management services 
869,900
  
—
  
869,900
 
 (In thousands) 
Public Improvements 
22,966,400
  
10,505,000
  
12,461,400
  
$
28,008
  
$
10,505
  
$
17,503
 
Accrued interest  
1,031,700
   
—
   
1,031,700
  
1,456
  
—
  
1,456
 
Project management services 
1,496
  
—
  
1,496
 
Construction support activities  
683
   
—
   
683
 
Total reimbursable costs 
$
25,401,500
  
$
10,505,000
  
$
14,896,500
  
$
31,643
  
$
10,505
  
$
21,138
 

7
As noted above, the project management services and construction support activities amounts do not include interest since payment of that interest is deemed too contingent. The Company expects to incur approximately an additional $6.0$1.3 million through the end of the calendar year 2021 for construction costs related to public improvements to complete its initial 506 lots and expects that amount to be reimbursed approximately an additional $18.5 million.to the Company along with the amounts noted in the table above as the Sky Ranch CAB issues bonds or collects property tax assessments.

9
The Company evaluated disaggregation of revenue and has determined that no additional disaggregation of revenue is necessary.Deferred Revenue

Contract asset by segmentAs noted above, the Company recognizes some lot sales over time as construction activities progress for lots sold pursuant to lot development agreements and not when payment is received. Based on this, the Company will receive milestone payments before revenue can be recognized (i.e. prior to the Company completing the construction milestones which produced the revenue) which results in the Company recording deferred revenue. The Company will recognize this revenue into income as follows:
construction activities progress.

In fiscal 2018 and 2019, the Company received up-front payments for certain oil and gas leases which permitted an oil and gas operator priority rights to water deliveries over a specified period of time. As the Company was not required to perform on its delivery obligations when the payments were received, recognition of revenue was deferred and is being recognized on a straight-line basis over the agreement term. The Company didalso received an up-front payment from an oil and gas industrial customer to reserve priority water for their operations, which the Company is recognizing this revenue based either on actual usage each reporting period or based on amounts not have aexpected to be used by the operator. The customer may take up to one year from the invoice date to use such water. If the customer uses water, the Company recognizes the amount of water used as revenue in the period the water is delivered. If the customer does not use the water in the contract asset at November 30, 2019 or August 30, 2019.period, such water is forfeited by the customer. The Company evaluates the likelihood that the customer will use the water each reporting period and estimates and recognizes any amounts not anticipated to be used by the customer as revenue in the period the Company determines it is remote the customer will use all the remaining prepaid water volume during the remaining contract asset at November 30, 2018, related solely to the Company’s land development activities.period.

Changes in contract asset were as follows:

November 30, 2019August 31, 2019
Balance, beginning of period
$
—
$
—
Recognition of revenue contract asset
—
1,020,146
Contract asset invoiced
—
(1,020,146
)
Balance, end of period
$
—
$
—

Deferred revenue by segment is as follows:

  November 30, 2019  August 31, 2019 
Land development activities 
$
1,143,771
  
$
3,991,535
 
Oil and gas leases and water sales payment  
1,861,496
   
1,067,348
 
Balance, end of period 
$
3,005,267
  
$
5,058,883
 

The current portion of deferred revenue for oil and gas leases and water sales payment as of November 30, 2019 and August 31, 2019,  is $1,548,063 and $706,464, respectively. There were no water segment deferred revenues as of November 30, 2019 and August 31, 2019.
  November 30, 2020  August 31, 2020 
  (In thousands) 
Land development segment 
$
1,462
  
$
1,636
 
Water and wastewater resource development segment
  
713
   
1,965
 
Balance, end of period 
$
2,175
  
$
3,601
 

Changes in deferred revenue were as follows:

 November 30, 2019  August 31, 2019  November 30, 2020 
Balance, beginning of period 
$
5,058,883
  
$
1,846,630
 
 (In thousands) 
Balance, August 31, 2020 
$
3,601
 
Deferral of revenue 
8,469,154
  
12,700,065
  
2,182
 
Recognition of unearned revenue  
(10,522,770
)
  
(9,487,812
)
  
(3,608
)
Balance, end of period 
$
3,005,267
  
$
5,058,883
 
Balance, November 30, 2020 
$
2,175
 

The recognition of unearned revenue was $8,541,643For the three months ended November 30, 2020 and $5,920,319 from2019, we recognized deferred land development activitiesrevenues of $2.4 million and $1,981,127$8.5 million, and $3,567,493 fromrecognized deferred oil and gas leases and water sales payments for the three months ended November 30, 2019revenues of $1.2 million and August 31, 2019, respectively.$1.9 million.

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, (“contracted not recognized revenue”), which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. At November 30, 2019, the Company had outstanding open contracts for $13,739,100, which primarily related to the sale of 506 lots at Sky Ranch. The Company expects to recognize approximately 84% of such revenue over the next 12 months.

Inventories

Inventories primarily include land held for development and sale, which the Company has begun developing and are stated at cost. Capitalized lot development costs at Sky Ranch are costs incurred to construct finished lots at Sky Ranch that meet the Company’s capitalization criteria for improvements to a lot and are capitalized as incurred. The Company capitalizes certain legal, engineering, design, permitting, land acquisition, and construction costs related to the development of lots at Sky Ranch. The Company uses the specific identification method for purposes of accumulating land development costs and allocates costs to each lot to determine the cost basis for each lot sale. The Company records all land cost of sales when a lot is completed and sold on a lot-by-lot basis. Costs included in Inventories include common area costs that the Company funded through the CAB. The Company expects that such costs will be reimbursable by the CAB. The Company will record future reimbursements as a reduction of reimbursable capitalized costs remaining in Inventories once the CAB has the ability to reimburse the costs (i.e., once the Sky Ranch Districts and/or the CAB has issued bonds).

10
In accordance with ASC 360, the Company measures land held for sale at the lower of the carrying value or net realizable value. In determining net realizable value, the Company primarily relies upon the most recent negotiated price. If a negotiated price is not available, the Company will consider several factors, including, but not limited to, current market conditions, recent comparable sales transactions and market analysis studies. If the net realizable value is lower than the current carrying value, the land is written down to its net realizable value.

Royalty and Other Obligations

Revenues from the sale of Export Water are shown gross of royalties payable to the Land Board. Revenues from the sale of water on the Lowry Range are invoiced directly by the Rangeview District, and a percentage of such collections are then paid to the Company by the Rangeview District. Water revenue from such sales are shown net of royalties paid to the Land Board and amounts retained by the Rangeview District.

Oil and Gas Lease Payments

As described in Note 2 – Summary of Significant Accounting Policies in Part II, Item 8 of the 2019 Annual Report, the Company entered into a Paid-Up Oil and Gas Lease (the “Sky Ranch O&G Lease”) and a Surface Use and Damage Agreement that were subsequently purchased by a wholly owned subsidiary of ConocoPhillips Company. Six wells have been drilled within the Company’s mineral interest and placed into service (four new wells beginning in fiscal 2020) and are producing oil and gas and accruing royalties to the Company. During the three months ended November 30, 2019 and 2018,2020, the Company received $269,500 and $31,400 netthe final payment of taxes, respectively, in royalties attributable to these wells. The Company classifies income from oil and gas lease and royalty payments as Other income$2.2 million, including $1.6 million for outstanding open contracts in the statement of operationsfirst development filing at Sky Ranch, which represents the final lot sales in the first filing at Sky Ranch, and comprehensive income as the Company does not consider these arrangements to be a primary operating business activity.$0.6 million for neighborhood amenities.

Deferred Revenue

In July 2019, the Company received an up-front payment of $573,700 from an Agreement on Locations of Oil and Gas Operations for a pad site covering approximately 16 acres with the operator of the Sky Ranch O&G Lease (the “OGOA”), which will be recognized as income on a straight-line basis over three years. If after three years the operator has not spud at least one well on the OGOA, the operator may extend the right to the OGOA one additional year by paying $75,000 to the Company. The operator may only extend the OGOA for two additional years for a total of five years. The Company recognizes the up-front payments on a straight-line basis over the terms of the respective agreements. During the three months ended November 30, 2019, the Company recognized $47,800 of income related to the up-front payments received pursuant to the OGOA. No revenue was recognized for the three months ended November 30, 2018 related to the up-front payments received pursuant to the OGOA. As of November 30, 2019, and August 31, 2019 the Company had deferred revenue of $499,700 and $547,500, respectively, related to the OGOA.

In September 2017, the Company entered into a Paid-Up Oil and Gas Lease with Bison Oil and Gas, LLP (the “Bison Lease”). Pursuant to the Bison Lease, the Company received an up-front payment of $167,200 in October 2017, which will be recognized as income on a straight-line basis over the three year term of the lease. The Company recognized lease income of $13,900 during the three months ended November 30, 2019 and 2018 related to the up-front payment received pursuant to the Bison Lease. As of November 30, 2019, and August 31, 2019, the Company had deferred revenue of $46,500 and $60,400, respectively, related to the Bison Lease that will be recognized as income ratably through September 2020.

The Company also received a payment of $425,800 in fiscal 2019 from one of its industrial water customers and $822,500 in the quarter ended November 30, 2019, to reserve first priority water for its oil and gas fracking needs for defined periods during 2020. As the Customer uses the forecasted volumes each month, the Company will recognize revenue based on the volumes used. The Customer may take such volumes up to one year from invoice date. If the Customer does not take the forecasted volumes in the anticipated period, such volumes are forfeited by the Customer. At that time, any payments received for unused volumes will be recognized as revenue. As of November 30, 2019, the Company had deferred revenue of $1.2 million as a result of these advanced water purchase payments.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the eventual use of the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

11
Capitalized Costs of Water and Wastewater Systems and Depletion and Depreciation of Water Assets

Costs to construct water and wastewater systems that meet the Company’s capitalization criteria are capitalized as incurred, including any interest, and depreciated on a straight-line basis over their estimated useful lives of up to 30 years. The Company capitalizes design and construction costs related to construction activities, and it capitalizes certain legal, engineering and permitting costs relating to the adjudication and improvement of its water assets. The Company depletes its groundwater assets that are being utilized on the basis of units produced (i.e., thousands of gallons sold) divided by the total volume of water adjudicated in the water decrees.

Share-Based Compensation

The Company maintains a stock option plan for the benefit of its employees and non-employee directors. The Company records share-based compensation costs as expense over the applicable vesting period of the stock award using the straight-line method. The compensation costs to be expensed are measured at the grant date based on the fair value of the award. The Company has adopted the alternative transition method for calculating the tax effects of share-based compensation, which allows for a simplified method of calculating the tax effects of employee share-based compensation. The impact on the income tax provision for the granting and exercise of stock options during the three months ended November 30, 2019 was a tax expense of approximately $26,000. Because the Company had a full valuation allowance on its deferred tax assets as of November 30, 2018 there was no effect on the tax provision during the period. The Company recognized $105,400 and $103,500 of share-based compensation expense during the three months ended November 30, 2019 and 2018, respectively.

Income Taxes

The Company uses a “more-likely-than-not” threshold for the recognition and de-recognition of tax positions, including any potential interest and penalties relating to tax positions taken by the Company. The Company did not have any significant unrecognized tax benefits as of November 30, 2019.

As a result of H.R.1, commonly known as the Tax Cuts and Jobs Act (the “Tax Act”), signed into law on December 22, 2017, the Company has a $282,000 alternative minimum tax (“AMT”) deferred tax asset for which it did not have a valuation allowance as of November 30, 2019 and August 31, 2019.  The Company expects to receive the AMT as a refund in future years.  Most, if not all, of this credit will be refundable starting with the filing of the 2018 (fiscal year ending 2019) through 2021 (fiscal year ending 2022) tax returns, subject to limitations of Internal Revenue Code Section 382 (arises with ownership changes) and the sequestration limitation of the Balanced Budget Act of 1997.

The Company’s effective tax rate was 24.7% for the three months ended November 30, 2019. The effective tax rate was 0% for the three months ended November 30, 2018 due to the valuation allowance the Company maintained on its net deferred tax asset.

The Company records deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carry-forwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The Company maintained a valuation allowance on the net deferred tax asset other than AMT credits as of November 30, 2018, as the Company had determined it was more likely than not that the Company would not realize its deferred tax assets as of November 30, 2018. Such assets primarily consisted of operating loss carryforwards. The Company assessed the realizability of its deferred tax asset using all available evidence. In particular, the Company considered both historical results and projections of profitability for the reasonably foreseeable future periods. The Company is required to reassess its conclusions regarding the realization of its deferred tax assets at each financial reporting date. As a result of the evaluation, the Company concluded that all of the valuation allowance was no longer necessary as of August 31, 2019 and released the valuation allowance.

The Company files income tax returns with the Internal Revenue Service and the State of Colorado. The tax years that remain subject to examination are fiscal year 2015 through fiscal year 2018.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At November 30, 2019, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the three months ended November 30, 2019 or 2018.

12
Income per Common Share

Income per common share is computed by dividing net income by the weighted average number of shares outstanding during each period. Common stock options of 224,097 and 223,962 common share equivalents as of the three months ended November 30, 2019 and 2018, respectively, were included in the calculation of income per common share as dilutive common stock equivalents using the treasury stock method. Common stock options aggregating 50,000 common share equivalents as of the three months ended November 30, 2018, have been excluded from the calculation of income per common share as their effect is anti-dilutive.

Recently Issued Accounting Pronouncements

The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequence of the change to its consolidated financial statements and to ensure that there are proper controls in place to ascertain that the Company’s consolidated financial statements properly reflect the change. New pronouncements assessed by the Company recently are discussed below:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). ASU 2016-02 provides guidance on the recognition, measurement, presentation and disclosure of leases. The new standard supersedes the present GAAP standard on leases and requires substantially all leases to be reported on the balance sheet as right-of-use assets and lease obligations. This standard is effective for fiscal years beginning after December 15, 2018. The Company adopted the standard effective September 1, 2019, and recorded a right-of-use asset of approximately $258,900 and a lease obligation liability of approximately $252,300.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Companies will now use forward-looking information to better inform their credit loss estimates. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently assessing the provisions of the standard and the impact of the adoption on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220); Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of the standard. The Company believes the impact of this standard on its condensed consolidated financial statements is immaterial.

In June 2018, the FASB issued ASU 2018-07, Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees. This standard expands the scope of ASC Topic 718, Compensation — Stock Compensation, which currently only includes share-based payments issued to employees, to include share-based payments issued to nonemployees for goods and services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. ASU 2018-07 supersedes ASC Subtopic 505-50, Equity — Equity-Based Payments to Non-Employees. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within these fiscal years. The Company believes that the impact of this standard on its consolidated financial statements is immaterial.

NOTE 23 – FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. The Company uses a fair value hierarchy that has three levels of inputs, both observable and unobservable, with use of the lowest possible level of significant input to determine where within the fair value hierarchy the measurement falls.value.

8
Level 1 — Valuations for assets and liabilities traded in active exchange markets, such as the NASDAQ Stock Market. The Company had no Level 1 assets or liabilities as of November 30, 20192020 or August 31, 2019.2020.

Level 2 — Valuations for assets and liabilities obtained from readily available pricing sources via independent providers for market transactions involving similar assets or liabilities. The Company had zero and oneno Level 2 assets or liabilities as of November 30, 2019 and2020 or August 31, 2019, respectively, which consisted of U.S. Treasury debt securities.2020.

13
Level 3 — Valuations for assets and liabilities that are derived from other valuation methodologies, including discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. The Company had one Level 3 liability, the contingent portion of the CAA, as of November 30, 20192020 and August 31, 2019.2020. The Company has determined that the contingent portion of the CAA does not have a determinable fair value (see Note 45 – Long-Term Obligations and Operating Lease).

The Company maintains policies and procedures to value instruments using what management believes to be the best and most relevant data available.

Level 2 Asset – Investments. The Company’s debt securities are the Company’s only financial asset measured at fair value on a recurring basis. The fair value of investment securities is based on the values reported by the financial institutions where the funds are held. Investment securities include U.S. Treasury debt securities.

The Company’s non-financialThere were no assets measured at fair value on a non-recurring basis when assessing recoverability consist entirely of its investments in water and water systems and other long-lived assets. See Note 3 – Water and Land Assets below.

The following table provides information on the assets andor liabilities measured at fair value on a recurring basis as of November 30, 2019:2020 and August 31, 2020.

Fair Value Measurement Using:
Fair Value
Cost /
Other Value
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Accumulated
Unrealized
Gains and
(Losses)
U.S. Treasury debt securities
$
—
$
—
$
—
$
—
$
—
$
—
Total
$
—
$
—
$
—
$
—
$
—
$
—

The following table provides information on the assets and liabilities measured at fair value on a recurring basis as of August 31, 2019:

        Fair Value Measurement Using:    
  Fair Value  
Cost /
Other Value
  
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  
Accumulated
Unrealized
Gains and
(Losses)
 
U.S. Treasury debt securities 
$
4,996,000
  
$
4,992,100
  
$
—
  
$
4,996,000
  
$
—
  
$
3,900
 
Total 
$
4,996,000
  
$
4,992,100
  
$
—
  
$
4,996,000
  
$
—
  
$
3,900
 

The Company also held a certificate of deposit that is not carried at fair value on the consolidated balance sheets and is classified as a held-to-maturity security. As of November 30, 2019, the carrying amount of held-to-maturity securities was $0. As of August 31, 2019, the carrying amount of held-to-maturity securities was $192,800 and is recorded as short-term investments in the accompanying consolidated financial statements.

NOTE 34 – WATER AND LAND ASSETS

The Company’s water rights and current water and wastewater service agreements, including capitalized terms not defined herein, are more fully described in Note 4 – Water and Land Assets in Part II, Item 8 of the 20192020 Annual Report. There have been no significant changes to the Company’s water rights or water and wastewater service agreements during the three months ended November 30, 2019.

Investment in Water and Water Systems

The Company’s Investments in Water and Water Systems consist of the following costs and accumulated depreciation and depletion at November 30, 20192020 and August 31, 2019:2020:

14
  November 30, 2019  August 31, 2019 
  Costs  
Accumulated
Depreciation
and Depletion
  Costs  
Accumulated
Depreciation
and Depletion
 
Rangeview Water Supply 
$
14,827,000
  
$
(15,000
)
 
$
14,823,800
  
$
(14,700
)
Sky Ranch water rights and other costs  
7,452,100
   
(811,500
)
  
7,371,500
   
(757,400
)
Fairgrounds water and water system  
2,899,800
   
(1,173,000
)
  
2,899,800
   
(1,151,000
)
Rangeview water system  
5,644,200
   
(425,900
)
  
5,617,800
   
(372,300
)
Water Supply – Other  
4,761,200
   
(916,400
)
  
4,758,200
   
(860,100
)
Wild Pointe service rights  
1,631,800
   
(489,800
)
  
1,631,800
   
(489,800
)
Sky Ranch pipeline  
5,727,200
   
(459,300
)
  
5,723,700
   
(411,600
)
Lost Creek water supply  
3,342,600
   
—
   
3,324,000
   
—
 
Construction in progress  
9,507,000
   
—
   
8,176,600
   
—
 
Totals  
55,792,900
   
(4,290,900
)
  
54,327,200
   
(4,056,900
)
Net investments in water and water systems 
$
51,502,000
      
$
50,270,300
     

Capitalized terms in this section not defined herein are defined in Note 4 – Water and Land Assets in Part II, Item 8 of the 2019 Annual Report.
  November 30, 2020  August 31, 2020 
  Costs  
Accumulated
Depreciation
and Depletion
  Costs  
Accumulated
Depreciation
and Depletion
 
  (In thousands) 
Rangeview water supply 
$
14,570
  
$
(16
)
 
$
14,570
  
$
(15
)
Sky Ranch water rights and other costs  
7,538
   
(1,035
)
  
7,499
   
(981
)
Fairgrounds water and water system  
2,900
   
(1,261
)
  
2,900
   
(1,239
)
Rangeview water system  
16,049
   
(929
)
  
15,948
   
(789
)
Water supply – Other  
7,735
   
(1,196
)
  
7,550
   
(1,116
)
Wild Pointe service rights  
1,632
   
(725
)
  
1,632
   
(708
)
Sky Ranch pipeline  
5,727
   
(650
)
  
5,727
   
(602
)
Lost Creek water supply  
3,372
   
—
   
3,372
   
—
 
Construction in progress  
1,454
   
—
   
1,339
   
—
 
Totals  
60,977
   
(5,812
)
  
60,537
   
(5,450
)
Net investments in water and water systems 
$
55,165
      
$
55,087
     

Construction in progress primarily consists of theadditional water facilities at Sky Ranch water reclamation facility.Ranch. The Company anticipates the facilityadditional facilities will be placed in service during the second quarter of 2020.
Depletion and Depreciationfiscal 2021.

The Company recorded depletion charges of $300 and $600 during the three months ended November 30, 2019 and 2018, respectively. The depletion was related entirely to the Rangeview Water Supply.

The Company recorded $303,800 and $238,700 of depreciation expense during the three months ended November 30, 2019 and 2018, respectively. These figures include $84,800 and $88,000 of depreciation expense for other equipment not included in the table above in the three months ended November 30, 2019 and 2018, respectively.

NOTE 45 – LONG-TERM OBLIGATIONS AND OPERATING LEASE

The Participating Interests in Export Water Supply is an obligation of the Company that has no scheduled maturity date. Therefore, maturity of this liability is not disclosed in tabular formatform but is described below.

9
Participating Interests in Export Water Supply

The Company acquired itsacquisition of the Rangeview Water Supply through various amended agreements entered into in the early 1990s. The acquisition was finalized with the signing of the CAAComprehensive Amendment Agreement (the “CAA”) in 1996. Upon entering into theThe CAA the Company recorded an initial liability of $11.1 million, which represented the cash that the Company received from the participating interest holders that was used to purchase the Company’s Export Water (describedis explained in greater detail in Note 4 – Water5 to the 2020 Annual Report. The terms and Land Assets in Part II, Item 8conditions of the 2018 Annual Report). The Company agreed to remit a total of $31.8 million of proceeds received from the sale of Export Water to the participating interest holders in return for their initial $11.1 million investment. The obligation for the $11.1 million was recorded as debt, and the remaining $20.7 million contingent liability was not reflected on the Company’s balance sheet because the obligation to pay this is contingent on the sale of Export Water,CAA, other than whom the amounts and timing of which are payable too, have not reasonably determinable.been modified since signing.

The CAA obligation is non-interest bearing, and if the Export Water is not sold, the parties to the CAA have no recourse against the Company. IfAdditionally, if the Company does not sell the Export Water, the holders of the Series B preferred stock of the CompanyPreferred Stock are also not entitled to payment of any dividend and have no contractual recourse against the Company.

As the proceeds from the sale of Export Water are received andthey are either retained by the amounts areCompany or remitted to the external CAA holders, the Company allocates a ratable percentage of this paymentvarious parties pursuant to the principal portion (the Participating Interests in Export Water Supply liability account), with the balanceCAA. As of the payment being charged to the contingent obligation portion. Because the original recorded liability, which was $11.1 million, was 35% of the original total liability of $31.8 million, approximately 35% of each payment remitted to the CAA holders is allocated toNovember 30, 2020, the recorded liability account. The remaining portion of each payment, or approximately 65%, is allocated to the contingent obligation which is recorded on a net revenue basis.

From time to time, the Company reacquired various portions of the CAA obligations, which retained their original priority, includingis $0.3 million and the Land Board’s CAA interest which was assigned and relinquished to the Company in 2014. The Company did not make any CAA acquisitions during the three months ended November 30, 2019 and 2018.

15
The Companycontingent off-balance sheet portion is currently allocated approximately 88% of the total proceeds from the sale of Export Water after payment of the Land Board royalty. As a result of the acquisitions and consideration from cumulative sales of Export Water as detailed in the table below, the remaining potential third-party obligation at November 30, 2019, is approximately $1$0.6 million.

  
Export
Water
Proceeds
Received
  
Initial Export
Water
Proceeds to
Pure Cycle
  
Total
Potential
Third-Party
Obligation
  
Participating
Interests
Liability
  Contingency 
Original balances 
$
—
  
$
218,500
  
$
31,807,700
  
$
11,090,600
  
$
20,717,100
 
Activity from inception until August 31, 2019:                    
Acquisitions  
—
   
28,042,500
   
(28,042,500
)
  
(9,790,000
)
  
(18,252,500
)
Relinquishment  
—
   
2,386,400
   
(2,386,400
)
  
(832,100
)
  
(1,554,300
)
Option payments - Sky Ranch and The Hills at Sky Ranch  
110,400
   
(42,300
)
  
(68,100
)
  
(23,800
)
  
(44,300
)
Arapahoe County tap fees  
533,000
   
(373,100
)
  
(159,900
)
  
(55,800
)
  
(104,100
)
Export Water sale payments  
903,600
   
(740,400
)
  
(163,200
)
  
(56,700
)
  
(106,500
)
Balance at August 31, 2019  
1,547,000
   
29,491,600
   
987,600
   
332,200
   
655,400
 
Fiscal 2019 activity:                    
Export Water sale payments  
57,300
   
(50,500
)
  
(6,800
)
  
(2,400
)
  
(4,400
)
Balance at November 30, 2019 
$
1,604,300
  
$
29,441,100
  
$
980,800
  
$
329,800
  
$
651,000
 

The CAA includes contractually established priorities which call for payments to CAA holders in order of their priority. This means that the first payees receive their full payment before the next priority level receives any payment and so on until full repayment. Of the next approximately $6.4$6.3 million of Export Water payouts, which based on current payout levels would occur over several years, the Company will receive approximately $5.6 million of revenue. Thereafter, the Company will be entitled to all but approximately $220,000$0.2 million of the proceeds from the sale of Export Water after deduction of the Land Board royalty.

Sky Ranch

In November 2020, the Company entered into separate contracts with KB Home, Meritage Homes, Melody (a DR Horton Company) and Challenger Homes to sell 789 single-family attached and detached residential lots at the Sky Ranch property. This next development phase of Sky Ranch will incorporate approximately 250 acres and is planned to be completed in four sub-phases. Due to the Company’s strong performance in the first filing of the Sky Ranch project, the Company was able to realize a 30% increase in lot prices from $75,000 for a 50’ lot in phase one to $97,000 for the same 50’ lot in the first subphase of filing two. The timing of cash flows will include certain milestone deliveries, including, but not limited to, completion of governmental approvals for final plats, installation of wet utility public improvements, and final completion of lot deliveries. In January 2021, the Company expects to begin construction on the second filing at Sky Ranch, which is expected to include 895 residential lots. The 106 lots not currently under contract to home builders are being retained for future use.

WISE Partnership

The South Metro WISE Authority (“SMWA”) is a group of ten governmental or quasi-governmental water providers including the Rangeview District, that was formed to enable its members to participate in a regional water supply project known as the Water Infrastructure Supply Efficiency partnership (“WISE”) created by the “WISE Partnership Agreement,” defined below. Each member of SMWA controls a contractually defined share of WISE and the members’ rights and obligations with respect to WISE. The WISE Partnership Agreement provides for the purchase of certain infrastructure (i.e., pipelines, water storage facilities, water treatment facilities, and other appurtenant facilities) to deliver water to and among the ten members of the SMWA, and to “Denver Water” and “Aurora Water,” both defined below. Certain infrastructure has been constructed and other infrastructure will be constructed over the next several years. In December 2014, the Company, through the Rangeview District, entered intoconsented to the waiver of all contingencies set forth in the Amended and Restated WISE Partnership – Water Delivery Agreement, dated December 31, 2013 (the “WISE Partnership Agreement”), among the City and County of Denver acting through its Board of Water Commissioners (“Denver Water”), the City of Aurora acting by and through its Utility Enterpriseutility enterprise (“Aurora Water”),.

In December 2014, the Company and the South Metro WISE Authority (“SMWA”). The SMWA was formed by the Rangeview District and nine other governmental or quasi-governmental water providers pursuant to the South Metro WISE Authority Formation and Organizational Intergovernmental Agreement, dated December 31, 2013 (the “SM IGA”), to enable the members of SMWA to participate in the regional water supply project known as the Water Infrastructure Supply Efficiency partnership (“WISE”) created by the WISE Partnership Agreement. The SM IGA specifies each member’s pro rata share of WISE and the members’ rights and obligations with respect to WISE. The WISE Partnership Agreement provides for the purchase of certain infrastructure (i.e., pipelines, water storage facilities, water treatment facilities, and other appurtenant facilities) to deliver water to and among the 10 members of the SMWA, Denver Water and Aurora Water.

Pursuant to the terms ofentered the Rangeview/Pure Cycle WISE Project Financing and Service Agreement (the “WISE Financing Agreement”) between, which requires the Company and the Rangeview District, the Company has an agreement to fund the Rangeview District’s participation in WISE effective as of December 22, 2014. The Company’s cost of fundingWISE. During the three months ended November 30, 2020 and 2019, the Company through the Rangeview District’s purchaseDistrict, purchased an additional 166 and 0 acre-feet of its share of existing infrastructureWISE water for $0.3 million and future infrastructure for WISE and funding operations and water deliveries related to WISE is projected to be approximately $7 million over the next five years.$0. See further discussion in Note 67 – Related Party Transactions.

Lease Commitments

Under Topic 842, operating lease expense is generally recognized evenly over the term of the lease. Effective as ofIn February 2018, the Company entered into an operating lease for approximately 11,393 square feet of office and warehouse space.space in Watkins, Colorado. The lease has a three-year term with payments of $6,600 per month and an option to extend the primary lease term for a two-year period at a rate equal to a 12.5% increase over the primary base payments. The change in the lease costs is not material to the Company’s operations.

The Company did not enter into any new leases in theFor both three monthsmonth periods ended November 30, 2019. Rent2020 and 2019, the Company recorded less than $0.1 million of rent expense consisted of operating lease expense of $21,300 forrelated to its office lease. During both the three monthsmonth periods ended November 30, 2019. There was no sublease rental income for2020 and 2019, the three months ended November 30, 2019. WeCompany paid $19,800less than $0.1 million against the Lease obligations — operating leases in the three months ended November 30, 2019..

16
Operating lease expense is generally recognized evenly over the term of the lease. Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheet. For lease agreements entered into or reassessed afterin the adoption of Topic 842,future, the Company combineswill be required to combine the lease and non-lease components in determining the lease liabilities and right-of-use (“ROU’ROU”) assets.

The Company’s lease agreements generally do not provide an implicit borrowing rate; therefore, an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments. The Company used the incremental borrowing rate of 6% on August 31, 2019, for all leases that commenced prior to that date. We alsoThe Company elected the hindsight practical expedient to determine the lease term for existing leases. Our election of the hindsight practical expedientleases, which resulted in the lengthening of the lease term related to ourthe Company’s office lease.

ROU lease assets and lease liabilities for the Company’s operating leases were recorded in the condensed consolidated balance sheet as follows:

  As of November 30, 2019 
Operating leases - right of use assets 
$
247,682
 
     
Accounts payable and accrued liabilities 
$
64,315
 
Lease obligations - operating leases, net of current portion  
177,721
 
Total lease liability 
$
242,036
 
     
Weighted average remaining lease term (in years)  
3.2
 
Weighted average discount rate  
6.0
%
10
  As of November 30, 2020  As of August 31, 2020 
  (In thousands) 
Operating leases - right of use assets 
$
178
  
$
196
 
         
Accrued liabilities 
$
78
  
$
74
 
Lease obligations - operating leases, net of current portion  
100
   
120
 
Total lease liability 
$
178
  
$
194
 
         
Weighted average remaining lease term (in years)  
2
   
2
 
Weighted average discount rate  
6
%
  
6
%

NOTE 56 – SHAREHOLDERS’ EQUITY

The Company maintains the 2014 Equity Incentive Plan (the “2014 Equity Plan”), which was approved by shareholders in January 2014 and became effective on April 12, 2014. Executives, eligible employees, consultants and non-employee directors are eligible to receive options and stock grants pursuant to the 2014 Equity Plan. Pursuant to the 2014 Equity Plan, options to purchase shares of stock and restricted stock awards can be granted with exercise prices, vesting conditions and other performance criteria determined by the Compensation Committee of the board of directors. The Company has reserved 1.6 million shares of common stock for issuance under the 2014 Equity Plan. As of November 30, 2020 and August 30, 2020, there were 979,382 and 1,088,500 shares available for grant under the 2014 Equity PlanThe Company began awarding options and stock awards under the 2014 Equity Plan in January 2015. Prior to the effective date of the 2014 Equity Plan, the Company granted options and stock awards to eligible participants under its 2004 Incentive Plan (the “2004 Incentive Plan”), which expired on April 11, 2014. No additional awards may be granted pursuant to the 2004 Incentive Plan; however, awards outstanding as of April 11, 2014, will continue to vest and expire and may be exercised in accordance with the terms of the 2004 Incentive Plan.

The following table summarizes the combined stock option activity for the 2004 Incentive Plan and 2014 Equity Plan for the three months ended November 30, 2019:2020:

  
Number
of Options
  
Weighted Average
Exercise Price
  
Weighted Average
Remaining
Contractual Term
  
Approximate
Aggregate
Intrinsic Value
 
Outstanding at August 31, 2019  
555,500
  
$
6.33
   
6.27
  
$
2,527,590
 
Granted (1)  
130,000
  
$
10.41
         
Exercised  
—
  
$
—
         
Forfeited or expired  
—
  
$
—
         
Outstanding at November 30, 2019  
685,500
  
$
7.10
   
6.99
  
$
3,645,825
 
                 
Options exercisable at November 30, 2019  
473,000
  
$
5.73
   
5.82
  
$
3,165,212
 
  
Number
of Options
  
Weighted Average
Exercise Price
  
Weighted Average
Remaining
Contractual Term
  
Approximate
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding at August 31, 2020  
661,500
  
$
7.23
   
6.17
  
$
1,831
 
Granted  
115,000
  
$
9.00
         
Net settlement exercised  
(18,000
)
 
$
3.04
         
Outstanding at November 30, 2020  
758,500
  
$
7.59
   
6.61
  
$
1,670
 
                 
Options exercisable at November 30, 2020  
540,167
  
$
6.73
   
5.53
  
$
1,608
 

On September 23, 2020, there were 85,000 stock options granted to employees, which vest evenly over five years from the date of the grant. All 85,000 options expire no more than ten years from the date of the grant. The weighted-average grant-date fair value of stock options granted was $3.93.

Additionally, on September 23, 2020, there were 30,000 stock options granted to an executive officer which vest evenly over three years from the date of the grant. All 30,000 options expire no more than ten years from the date of the grant. The weighted-average grant-date fair value of stock options granted was $3.37.

During the three months ended November 30, 2020, the Company had net settlement exercises of stock options, whereby the optionee did not pay cash for the options but instead received the number of shares equal to the difference between the exercise price and the market price on the date of exercise. Net settlement exercises during the three months ended November 30, 2020, resulted in 12,118 shares issued and 5,882 options cancelled in settlement of shares issued.  There were no net settlement exercises during the three months ended November 30, 2019.

11
(1)
Includes 50,000 shares granted to Mr. Harding on September 27, 2019 and 80,000 total shares granted to employees on September 25, 2019.
Index

The following table summarizes the combined activity and value of non-vested options under the 2004 Equity Plan and 2014 Incentive Plan as of and for the three months ended November 30, 2019:2020:

 
Number
of Options
  
Weighted Average
Grant Date
Fair Value
  
Number
of Options
  
Weighted Average
Grant Date
Fair Value
 
Non-vested options outstanding at August 31, 2019 
152,500
  
$
4.03
 
Non-vested options outstanding at August 31, 2020 
179,999
  
$
4.31
 
Granted 
130,000
  
4.60
  
115,000
  
$
3.78
 
Vested 
(70,000
)
 
3.68
  
(76,666
)
 
$
4.27
 
Forfeited(a)  
—
  
—
   
—
  
$
—
 
Non-vested options outstanding at November 30, 2019  
212,500
  
$
4.20
 
Non-vested options outstanding at November 30, 2020  
218,333
  
$
4.04
 

17
Index
(a) All non-vested options are expected to vest.

Stock-based compensation expense was $105,400 and $103,500 forFor the three months ended November 30, 2020 and 2019, the Company recorded less than $0.1 million and 2018, respectively.$0.1 million of stock-based compensation expense.

At November 30, 2019,2020, the Company had unrecognized compensation expenses totaling $713,500$0.8 million relating to non-vested options that are expected to vest. The weighted-average period over which these options are expected to vest is approximately twothree years.

NOTE 67 – RELATED PARTY TRANSACTIONS

The Rangeview District

The Rangeview District is a quasi-municipal corporation and political subdivision of Colorado formed in 1986 for the purpose of providing water and wastewater service to the Lowry Range and other approved areas. The Rangeview District is governed by an elected board of directors. Eligible voters and persons eligible to serve as a director of the Rangeview District must own an interest in property within the boundaries of the Rangeview District. The Company owns certain rights and real property interests which encompass the current boundaries of the Rangeview District. Sky Ranch Metropolitan District Nos. 1, 3, 4 and 5 (collectively, the “Sky Ranch Districts”) and the CAB are quasi-municipal corporations and political subdivisions of Colorado formed for the purpose of providing service to the Company’s Sky Ranch property. The current members of the board of directors of each of the Rangeview District, the Sky Ranch Districts and the CAB consist of three employees of the Company and one independent board member.

The Rangeview District

On December 16, 2009, the Company entered into a Participation Agreement with the Rangeview District, whereby the Company agreed to provide funding to the Rangeview District in connection with the Rangeview District joining the South Metro Water Supply Authority (“SMWSA”). The Company provides funding pursuant to the Participation Agreement annually, with $17,400which for fiscal 2021 and $22,200 being provided during fiscal years 2020 and 2019, respectively.is an immaterial amount.

Through the WISE Financing Agreement, the Company agreed to fund the Rangeview District’s cost of participating in the regional water supply project known as the WISE partnership. TheDuring the three months ended November 30, 2020 and 2019, the Company anticipates spending approximately $7 million over the next five fiscal years to fundthrough the Rangeview District’s purchaseDistrict, purchased an additional 166 and 0 acre-feet of its shareWISE water for $0.3 million and $0. The cost of the water transmission lineto the members is based on the water rates charged by Aurora Water and can be adjusted each January 1. As of January 1, 2020, WISE water was $5.77 per thousand gallons and such rate will remain in effect through calendar 2021. In addition, the Company pays 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 facilities, water, the members can trade and/or buy and related assets for WISE and to fund operations andsell water deliveries related to WISE. amongst themselves.

To date, the Company has capitalized the funding provided pursuant to the WISE Financing Agreement because the funding has been provided to purchase capacity in the WISE infrastructure. The Company’s total investment in the WISE assets as of November 30, 2019,2020, is approximately $3.5$6.1 million.

In 1995, the Company extended a loan to the Rangeview District. The loan provided for borrowings of up to $250,000, is unsecured, and bears interest based on the prevailing prime rate plus 2% (7.50%(5.25% at November 30, 2019)2020). The maturity date of the loan is December 31, 2020.2020, at which time it will automatically renew for another 12 month term. In January 2014, the Rangeview District and the Company entered into a funding agreement that allows the Company to continue to provide funding to the Rangeview District for day-to-day operations and accrue the funding into a note that bears interest at a rate of 8% per annum and remains in full force and effect for so long as the 2014 Amended and Restated Lease Agreement remains in effect. Of the November 30, 20192020 balance in Notes receivable - related parties,, $972,500$1.1 million includes borrowings by the Rangeview District of $553,400$0.7 million and accrued interest of $419,100.$0.4 million. Of the August 31, 2020 balance in Notes receivable - related parties, $1.1 million includes borrowings by the Rangeview District of $0.6 million and accrued interest of $0.5 million.

Sky Ranch Community Authority Board

Sky Ranch Metropolitan District Nos. 1, 3, 4 and 5 (collectively, the “Sky Ranch Districts”) and the Sky Ranch CAB are quasi-municipal corporations and political subdivisions of Colorado formed for the purpose of providing service to the Company’s Sky Ranch property. The current members of the board of directors of each of the Rangeview District, the Sky Ranch Districts and the Sky Ranch CAB consist of three employees of the Company and one independent board member. Pursuant to that certain Community Authority Board Establishment Agreement, as the same may be amended from time to time, Sky Ranch Metropolitan District Nos. 1 and 5 formed the Sky Ranch CAB to, among other things, design, construct, finance, operate and maintain certain public improvements for the benefit of the property within the boundaries and/or service area of the Sky Ranch Districts. In order for the public improvements to be constructed and/or acquired, it is necessary for each Sky Ranch District, directly or through 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.

On September 18, 2018,
12
Index
The Company and the partiesSky Ranch CAB entered into a series of agreements, including a Facilities Funding and Acquisition Agreement with an(the “FFAA”) effective date of November 13, 2017, (the “2018 FFAA”), which supersedes and consolidatesobligating the previouscompany to advance funding agreements betweento the Company and the CAB and the Company and Sky Ranch Metropolitan District No. 5 pursuantCAB for specified public improvements constructed from 2018 to which

18
Index

●
the CAB agreed to repay the amounts owed by Sky Ranch Metropolitan District No. 5 to the Company, and the previous Facilities Funding and Acquisition Agreement entered into between the Company and Sky Ranch Metropolitan District No. 5 in 2014 was terminated;

●
a Project Funding and Reimbursement Agreement and a June 2018 Funding Acquisition Agreement between the CAB and the Company were terminated;

●
the CAB acknowledged all amounts owed to the Company under the terminated agreements, as well as amounts the Company incurred to finance the formation of the CAB; and

●
the Company agreed to fund an agreed upon list of improvements to be constructed by the CAB with an estimated cost of $30,000,000 (including improvements already funded) on an as-needed basis for calendar years 2018–2023.

2023. All amounts owed under the 2018 FFAA bear interest at a rate of 6% per annum. NoDue to the uncertainty of collecting the interest (because payment is requiredcontingent on the issuance of bonds), interest income is not recognized on the CAB for advances made toamounts owed by the Sky Ranch CAB or expenses incurred related to construction of public improvements unless and until the CAB and/or Sky Ranch Districts issue bonds in an amount sufficient to reimburse the Company for all or a portion of advances or other expenses incurred.are issued. Due to this contingency, interest is accrued to Interest Income with a corresponding allowancedeferred until the point in time when bonds are issued. At that point, the allowance will be reversed for the portion of the accrued interest repaid and the accrued interest will be recognized. The Sky Ranch CAB agrees to exercise reasonable efforts to issue bonds to reimburse the Company subject to certain limitations. In addition, the Sky Ranch CAB agrees to utilize any available moneys not otherwise pledged to payment of debt, used for operation and maintenance expenses, or otherwise encumbered, to reimburse the Company. Any advances not paid or reimbursed by the Sky Ranch CAB by December 31, 2058, shall be deemed forever discharged and satisfied in full.

As of November 30, 2019,2020, the balance of the Company’s advances for improvements, including interest, net of costs reimbursed costs in November 2019, to the Sky Ranch CAB totaled $12.5$21.1 million, of which $2.9$0.3 million is included in InventoriesAccrued liabilities, and $9.6$19.3 million was expensed through Land development construction costs and $1.5 million of revenues.interest, which has not yet been recognized. The advances have been used by the Sky Ranch CAB to pay for construction of public improvements. The Company submits specific costs for reimbursement to the Sky Ranch CAB.  Based on the specific costs being reimbursed by the Sky Ranch CAB, the Company records those costs that have been previously expensed in cost of sales as other income and those costs that remain capitalized as land development inventory costs as a reduction of the related land development inventory costs held in Inventories.Land development inventories. Any reimbursable costs repaid after all capitalized expenses and lot revenues have been fully recognized will beare recorded as otherOther income.
The Company expects the Sky Ranch CAB to fully reimburse all amounts owed either through future bond issuances or remittance of property taxes.

Refer to Note 12 – Presentation of Interim Information - Revenue Recognition - Land Development Activities for a summary of reimbursable costs incurred to date, payments made from the Sky Ranch CAB and any outstanding reimbursable amounts.

In September 2018, effective as of November 13, 2017, the Company entered into an Operation Funding Agreement with the Sky Ranch CAB obligating the Company to advance funding to the Sky Ranch CAB for operation and maintenance expenses for the 2018 and 2019 calendar years. All payments are subject to annual appropriations by the Sky Ranch CAB in its absolute discretion.  The advances by the Company accrue interest at the rate of 6% per annum from the date of the advance. $27,400As of the balance ofNovember 30, 2020 and August 31, 2020,  the balances included in Notes receivable – related parties, at November 30, 2019, includes borrowings byrelated to the CAB of $25,500 and accrued interest of $1,900.Operation Funding Agreement are immaterial.

NOTE 78 – SIGNIFICANT CUSTOMERS

Water
The Company has significant customers in its operations. For the water and Wastewater

Pursuant towastewater resource development segment, the Rangeview Water Agreements (defined in Note 4 – Water and Land Assets in Part II, Item 8 of the 2019 Annual Report) and an Export Service Agreement entered into with the Rangeview District dated June 16, 2017, the Company primarily provides water and wastewater services on behalf of Rangeview Metropolitan District. The significant end users include all Sky Ranch homes combined and Crestone Peak Resources (oil & gas operations). For the Rangeview District’s behalf to the Rangeview District’s customers. Sales to the Rangeview District accounted for 51%land development segment and 5% of the Company’s total water and wastewater revenues fortap fees, which are reported within the three months ended November 30, 2019 and 2018, respectively. The Rangeview District has one significant customer, the Ridgeview Youth Services Center. The Rangeview District’s significant customer accounted for 38% and 3% of the Company’s total water and wastewater revenues for the three months ended November 30, 2019resource development segment, significant customers include Taylor Morrison, KB Home and 2018, respectively.Richmond Homes.

Revenues related to the provision of water for the oil and gas industry to one customer accounted for approximately 30% of the Company’s water and wastewater revenues for the three months ended November 30, 2019. Revenues related to the provision of water for the oil and gas industry to two customers represented approximately 52% and 42%, respectively, of the Company’s water and wastewater revenues for the three months ended November 30, 2018.

Land Development

Revenues from three customers represented 100% of the Company’s land development revenues for the three months ended November 30, 2019. The three customers represented 74%, 17% and 9%, respectively, of the Company’s land development revenues for the three months ended November 30, 2019. Revenues from two customers represented 100% of the Company’s land development revenues for the three months ended November 30, 2018. The two customers represented 66% and 34%, respectively, of the Company’s land development revenues for the three months ended November 30, 2018.

19
Index
Accounts Receivable

The Company had accounts receivable from the Rangeview District which accounted for 74% and 40% of the Company’s trade receivables balances at November 30, 2019 and August 31, 2019, respectively. The Company had accounts receivable from one other customer which accounted for approximately 15% and 57% of its trade receivable balances at November 30, 2019 and August 31, 2019, respectively. Accounts receivable from the Rangeview District’s largest customer accounted for 6% and 5% of the Company’s water and wastewater trade receivables as of November 30, 2019 and August 31, 2019, respectively.

NOTE 89 – ACCRUED LIABILITIES

At November 30, 2019, the Company had accrued liabilities of $3,519,400, of which $64,300 was for current operating lease obligations, $98,100 was for estimated property taxes, $33,500 was for professional fees, and $3,323,500 was for operating payables, of which $2,654,700 is payable to the CAB for the development of Sky Ranch. These costs are also included in Inventories or expensed through Land development construction costs.
  November 30, 2020  August 31, 2020 
  (In thousands) 
Due to the Sky Ranch CAB - related party 
$
823
  
$
1,169
 
Other operating payables  
329
   
353
 
WISE water  
326
   
69
 
Land development - warranty and other - related party  
321
   
—
 
Accrued compensation  
146
   
767
 
Operating lease obligations  
78
   
74
 
Property taxes  
56
   
72
 
Professional fees  
54
   
56
 
Due to the Rangeview District - related party  
47
   
43
 
Total 
$
2,180
  
$
2,603
 

At August 31, 2019, the Company had accrued liabilities of $3,428,400, of which $460,500 was for accrued compensation, $94,000 was for estimated property taxes, $70,000 was for professional fees and the remaining $2,803,900 was related to operating payables, of which $1,399,600 is payable to the CAB for the development of Sky Ranch. These costs were also included in Inventories or expensed through Land development construction costs.

NOTE 910 – COMMITMENTS AND CONTINGENCIES

The Company has historically been involved in various claims, litigation and other legal proceedings that arise in the ordinary course of its business. The Company records an accrual for a material loss contingency when its occurrence is probable and damages can be reasonably estimated based on the anticipated most likely outcome or the minimum amount within a range of possible outcomes. The Company makes such estimates based on information known about the claims and experience in contesting, litigating and settling similar claims. Disclosures are also provided for reasonably possible losses that could have a material effect on the Company’s financial position, results of operations or cash flows. The Company was not involved in litigation or other legal proceedings and had no contingencies where the risk of material loss was reasonably possible as of November 30, 2019,2020, or August 31, 2019.2020.

13
Index
NOTE 1011 – SEGMENT INFORMATION

An operating segment is defined as a component
Because of an enterprise for which discrete financial information is available and is reviewed regularlythe methods used by the Chief Operating Decision Maker (the “CODM”), or decision-making group, to evaluate performance and make operating decisions. The Company has identified its CODM as the Chief Executive Officer.

During the year 2018, the Company began construction of lots at Sky Ranch, whichallocate resources, the Company has identified as a segment. Currently,two operating segments which meet GAAP segment disclosure requirements, namely the Company operates its wholesale water and wastewater servicesresource development segment and the land development activities at Sky Ranch as its two lines of business.segment.

The wholesale water and wastewater servicesresource development business includes selling water serviceservices to customers, which water is provided by the Company using water rights owned or controlled by the Company, and developing infrastructure to divert, treat and distribute that water and collect, treat and reuse wastewater.

As part The land development segment includes all the activities necessary to develop and sell finished lots, which as of and for the three months ended November 30, 2020 and 2019, was done exclusively at the Company’s land development activities at Sky Ranch the Company entered into contracts for the sale of lots (see Note 2 – Summary of Significant Accounting Policies in Part II, Item 8 of the 2019 Annual Report). The Company identified land development and lot sales as a separate segment beginning in the fiscal year 2018.Master Planned Community.

Oil and gas royalties and licensesoperations, although material in certain years, are deemed a passive activity andas the CODM does not an operating business activity and,actively allocate resources to these projects; therefore, arethis is not classified as a reportable segment.

The following table summarizes wholesale watertables below present the measure of profit and wastewater services and land development revenue information by segment:assets the CODM uses to assess the performance of the segment for the periods presented:

  Three Months Ended November 30, 
  2019  2018 
Wholesale water and wastewater services 
$
1,919,386
  
$
1,691,353
 
Land development activities  
8,541,643
   
1,381,196
 
Total revenues 
$
10,461,029
  
$
3,072,549
 
  Three Months Ended November 30, 2020 
  
Water and
wastewater resource
development
  
Land
development
  Corporate  Total 
  (In thousands) 
Total Revenue 
$
2,512
  
$
2,356
  
$
—
  
$
4,868
 
Cost of revenue  
(661
)
  
(1,719
)
  
—
   
(2,380
)
Depreciation and depletion  
(365
)
  
—
   
—
   
(365
)
Total cost of revenue  
(1,026
)
  
(1,719
)
  
—
   
(2,745
)
Gross Margin  
1,486
   
637
   
—
   
2,123
 
Pretax operating income 
$
1,486
  
$
637
  
$
(1,170
)
 
$
953
 

20
Index
The following table summarizes wholesale water and wastewater services and land development pretax income by segment:

  Three Months Ended November 30, 
  2019  2018 
Wholesale water and wastewater services 
$
1,396,447
  
$
1,163,073
 
Land development activities  
6,753,810
   
82,872
 
Depreciation, general and administrative expenses  
(500,673
)
  
(611,973
)
Total pretax income 
$
7,649,584
  
$
633,972
 
  Three Months Ended November 30, 2019 
  
Water and
wastewater
resource
development
  
Land
development
  Corporate  Total 
  (In thousands) 
Total Revenue 
$
1,918
  
$
8,542
  
$
—
  
$
10,460
 
Cost of revenue  
(304
)
  
(8,063
)
  
—
   
(8,367
)
Depreciation and depletion  
(219
)
  
—
   
—
   
(219
)
Total cost of revenue  
(523
)
  
(8,063
)
  
—
   
(8,586
)
Gross Margin  
1,395
   
479
   
—
   
1,874
 
Reimbursement of construction costs  
—
   
6,276
   
—
   
6,276
 
Gross Margin after reimbursables 
$
1,395
  
$
6,755
  
$
—
  
$
8,150
 
Pretax operating income 
$
1,395
  
$
479
  
$
(886
)
 
$
988
 

The following table summarizes total assets for the Company’s wholesale water and wastewater servicesresource development business and land development business by segment.  The assets consist of water rights and water and wastewater systems in the Company’s wholesale water and wastewater servicesresource development segment and land, inventories and deposits in the Company’s land development segment. The Company’s other assets (“Corporate”) primarily consist of cash and cash equivalents, equipment, mineral rights, related party notes receivables and a deferredan income tax asset.receivable.

  November 30, 2019  August 31, 2019 
Wholesale water and wastewater services 
$
52,547,240
  
$
51,588,079
 
Land development activities  
9,193,174
   
16,866,542
 
Corporate  
27,189,095
   
15,266,783
 
Total assets 
$
88,929,509
  
$
83,721,404
 
14
Index
  November 30, 2020  August 31, 2020 
  (In thousands) 
Water and wastewater resource development 
$
55,376
  
$
56,267
 
Land development  
6,598
   
6,975
 
Corporate  
26,979
   
26,519
 
Total assets 
$
88,953
  
$
89,761
 

NOTE 1112 – INCOME TAXES

TheFor the three months ended November 30, 2020 and 2019, the Company recorded income tax expense of $1,887,100$0.3 million and $0 for$1.9 million. The net expense during the three months ended November 30, 20192020 consisted of current income tax expense of $0.2 million and 2018, respectively.deferred income tax expense of $0.1 million. The net expense during the three months ended November 30, 2019 consisted of current income tax expense of $1,168,300$1.2 million and deferred income tax expense of $718,800. The current tax expense consists of income tax primarily from our Gain from reimbursement of construction costs (related party). The deferred tax expense consists of the usage of the Company’s remaining $2.5 million net operating loss carryforwards and payment of deferred compensation in the current period.$0.7 million.

The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items. At November 30, 20192020 the Company is currently estimating an annual effective tax rate of approximately 25%. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to various factors.

The provision for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. TheFor the three months ended November 30, 2020 and 2019, the Company’s effective income tax rate was 24.6% and 24.7% for the three months ended November 30, 2019. The company did not record income tax expense for the three months ended November 30, 2018.

No taxes were paid during the three months ended November 30, 20192020 and 2018,2019, respectively.

Deferred income taxes reflect the tax effects of net operating loss carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assetsliability as of November 30, 20192020 and August 31, 20192020 are as follows:

 For the Periods Ended: 
 November 30, 2019  August 31, 2019  November 30, 2020  August 31, 2020 
Deferred tax assets (liabilities):       (In thousands) 
Net operating loss carryforwards 
$
—
  
$
609,439
  
$
—
  
$
23
 
Accrued compensation 
—
  
113,559
  
33
  
167
 
Deferred revenues 
134,670
  
149,895
  
76
  
89
 
Depreciation and depletion 
(52,976
)
 
(46,408
)
 
(1,672
)
 
(1,701
)
Non-qualified stock options 
436,614
  
410,633
  
505
  
491
 
Other  
46,128
   
46,128
   
46
   
45
 
Net deferred tax asset 
$
564,436
  
$
1,283,246
 
Net deferred tax liability 
$
(1,012
)
 
$
(886
)

NOTE 13 – EARNINGS PER SHARE

Certain outstanding options are excluded from the diluted earnings per share calculation because they are anti-dilutive (i.e., their assumed conversion into common stock would increase rather than decrease earnings per share). The options excluded totaled 180,000 for the three months ended November 30, 2020. There were no excluded options for the three months ended November 30, 2019.

  Three Months Ended November 30, 
  2020  2019 
  
(In thousands, except share and per share
amounts)
 
Net Income 
$
845
  
$
5,763
 
         
Basic weighted average common shares  
23,866,740
   
23,826,598
 
Effect of dilutive securities  
169,739
   
224,097
 
Weighted average shares applicable to diluted earnings per share  
24,036,479
   
24,050,695
 
         
Earnings per share - basic 
$
0.04
  
$
0.24
 
Earnings per share - diluted 
$
0.04
  
$
0.24
 

2115
Index
The Company maintained a valuation allowance on the net deferred tax asset other than AMT credit carryforwards as of August 31, 2018. For the fiscal year ended August 31, 2019, the Company has determined it is more likely than not that the Company will realize its deferred tax assets, which consist primarily of net operating loss carryforwards. The Company assessed the realizability of its deferred tax assets using all available evidence; considering both historical results and projections of profitability for the reasonably foreseeable future periods. As a result of the Company’s annual reassessment of its conclusions regarding the realization of its deferred tax assets at each financial reporting date, the Company concluded that its deferred tax assets are realizable, and therefore, the valuation allowance is no longer necessary.

At August 31, 2019, the Company had $2.5 million of net operating loss carryforwards available for income tax purposes. The net operating loss carryforwards expire at various times beginning in 2036 and ending in 2038 for federal income tax purposes and expire at various times beginning in 2035 and ending in 2036 for state income tax purposes. As of November 31, 2019, the Company used the remaining balance of its net operating loss carryforwards.

22
Index
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

The discussion and analysis below includes certain forward-looking statements that are subject to risks, uncertainties and other factors, as described in “Risk Factors” in ourthe 2020 Annual Report, on Form 10-K, that could cause our actual growth, results of operations, performance, financial position and business prospects and opportunities for this fiscal year and periods that follow to differ materially from those expressed in or implied by those forward-looking statements. Readers are cautioned that forward-looking statements contained in this Quarterly Report on Form 10-Q should be read in conjunction with our disclosure under the heading “Disclosure Regarding Forward-Looking Statements” below.

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand our results of operations and financial condition and should be read in conjunction with the accompanying condensed consolidated financial statements and the notes thereto and the financial statements and the notes thereto contained in ourthe 2020 Annual Report on Form 10-K for the fiscal year ended August 31, 2019 (the “2019 Annual Report”).Report. This section focuses on the key indicators reviewed by management in evaluating our financial condition and operating performance, including the following:


●
Revenue generated from providing water and wastewater services;

●
Revenue from lot sales at Sky Ranch;

●
Expenses associated with developing our water and land assets; and

●
Cash available to continue development of our land, water rights and service agreements.

Our MD&A section includes the following items:

Our Business – a general description of our business, our services and our business strategy.

Results of Operations – an analysis of our results of operations for the periods presented in our consolidated financial statements. We present our discussion in the MD&A in conjunction with the accompanying consolidated financial statements.

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

Critical Accounting Policies and Use of Estimates – a discussion of our critical accounting policies that require critical judgments, assumptions and estimates.

Our Business

Pure Cycle Corporation (“we,” “us,” or “our”) isWe are a Colorado corporation that operates in two business segments. We developdiversified land and water resource development company. At our core, we are an innovative and vertically integrated wholesale water and wastewater systemsservice provider that, in the water-short Denver metropolitan areaaddition to owning and aredeveloping water and wastewater resources, is developing a Master Planned Communitymaster planned community on approximately 930 acres of land located along the Interstate 70 corridor (“I-70”), approximately four miles south of Denver International Airport (“DIA”). The Company haswe own and to which we provide water and wastewater services. We have accumulated valuable water and land interests over the past 30 years and hashave developed an extensive network of wholesale water production, storage, treatment and distribution systems, and wastewater collection and treatment systems whichthat we use to serve domestic, commercial and industrial customers in the Denver metropolitan region. Our primary land assets areasset, Sky Ranch, is located in one of the most active development areas in the Denver metropolitan region along I-70.the quickly developing I-70 corridor, and we are developing lots at Sky Ranch for residential, commercial, retail, and light industrial uses.

OurAlthough we report our results of operations are focused in two business segments: (i) providing wholesalesegments, our water and wastewater services,resource development segment and (ii)our land development activities in whichsegment, we serveoperate these segments as the master plan developer for approximately 930 acres of land known as Sky Ranch. The master plan includes a mix of 3,200 single-familycohesive business designed to provide a cost effective, sustainable and multifamily residential units and over 2 million square feet of commercial, retail, and industrial space.value-added business enterprise.

Wholesale Water and Wastewater Utilities

Water resources throughout the western United States and more prominently in Colorado are a scarce and valuable resource.  Our Company ownsWe own or controlscontrol a portfolio of approximately 29,200 acre feet29,500 acre-feet of groundwater and surface water supplies, approximately 26,000 acre feetacre-feet of adjudicated reservoir sites, two wastewater reclamation facilities, water treatment facilities, potable and raw water storage facilities, wells and water production facilities, and nearlyroughly 50 miles of water distribution and wastewater collection lines. Our water supplies and wholesale facilities are located in southeast Denver, in Arapahoe County, an area which is limited in both water availability and infrastructure to produce, treat, store, and distribute water and wastewater, which we believe provides us with a unique competitive advantage in offering these services.

23
Index
We provide wholesale water and wastewater service to local governments, including the Rangeview Metropolitan District, (“Rangeview District”), Arapahoe County, the Sky Ranch Community Authority Board (the “CAB”),CAB, and the Elbert & Highway 86 Commercial District (“Wild Pointe”).District. Our mission is to provide sustainable, reliable, high quality water to our customers and collect and treat wastewater using advancedadvance water treatment systems, thatwhich produce high quality reclaimed water that we can reuse for outdoor irrigation and industrial demands. By using and reusing our water supplies, we seek to demonstrate good stewardship over our valuable water rights in the water-scarce Denver, Colorado region. We design, permit, construct, operate and maintain wholesale water and wastewater systems that we own or operate on behalf of governmental entities. We also design, permit, construct, operate and maintain retail distribution and collection systems that we own or operate on behalf of our governmental customers. Additionally, we handle administrative functions, including meter reading, billing and collection of monthly water and wastewater revenues, regulatory water quality monitoring, sampling, testing, and reporting requirements to the Colorado Department of Public Health and Environment.

Our utility segment generates revenues from three sources: (i) tap fees, which are a one-time charge to home builders or businesses to connect to our water and wastewater systems, (ii) usage charges, which are monthly metered water and wastewater fees, and (iii) construction or special facility fees, which are specifically contracted for when necessary. We estimate that our water portfolio can provide service to approximately 60,000 single family equivalent connections (“SFEs”). Our current water tap fee is $26,675 per SFE, and our wastewater tap fee is $4,659 per SFE. On average, we generate annual revenue of approximately $1,000 per SFE water connection and $500 per SFE wastewater connection. We provide potable water to nearly 497 SFE connections and domestic wastewater services to approximately 240 SFEs.
16
Index
Land Development

Industrial Frack Water Deliveries

In addition to our domestic customers, we provide raw water to industrial customers inOur Land Development segment is primarily focused on actively developing the oil and gas industry for hydraulic fracturing.  The region has experienced significant oil and gas activity over the past seven years with multiple operators leasing more than 135,000 acres in and adjacent to our service area with more than 100 wells and miles of oil and gas collection lines.

The Company believes that its water resources, land and infrastructure,Sky Ranch Master Planned Community located in southeastern Denver, are located in one of the most attractive areas of the Denver metropolitan region, because this region well positioned for substantial growth over the next 30 years. Growth in the Denver area has trended east with significant activity occurring along the I-70 corridor which enjoys excellent transportation infrastructure with I-70, rail access, and DIA. The region has significant employment centers, including DIA, the University of Colorado Anschutz Medical Campus, an Amazon fulfillment center, the Rocky Mountain Regional VA Medical Center, and more, creating demand forto provide residential, commercial, retail, and commercial development opportunities.

Land Development Activities

We are developing an approximately 930-acre Master Planned Community along the I-70 corridor thatlight industrial lots. Sky Ranch is plannedzoned to include up to 3,200 single familysingle-family and multifamily homes, parks, open spaces, trails, recreational centers, schools, and over 2two million square feet of retail, commercial and light industrial space just four miles south of DIA.Denver International Airport. Our land development activities include the design, permitting, and construction of all of the horizontal infrastructure, including, storm water, drainage, roads, curb,curbs, sidewalks, parks, open space, trails and other infrastructure to deliver “ready to build” finished lots to home builders and commercial customers. WeOur land development activities generate revenue from the sale of finished lots toas well as construction revenues from activities where we construct infrastructure on behalf of others. Land development revenues come from our home builder customers under specific agreements for the delivery of finished lots as well as fromreimbursements for the construction of public improvements, on behalf ofsuch as roads, curbs, storm water, drainage, sidewalks, parks, open space, trails etc., which come from the local governmental entities that reimburse us for such improvements uponentity, the Sky Ranch CAB, subject to the approval and issuance of municipal bonds to fund such reimbursements.

Our land development activities provide a strategic complement to our water utility segment asand wastewater services because a significant component of any master planned community is providing high quality domestic water, irrigation water, and wastewater service to the community. Having control over land and utility developmentthe water and wastewater services enables us to build infrastructure for potable water and irrigation distribution, wastewater distribution, collection,and storm water collection, roads, parks, open spaces and other investments efficiently, and to manage delivery of these investments to match take-down commitments from our home builder customers without significant excess capacity in any of these investments.

In June 2017, we entered into separate contracts with three separate home builders (RichmondRichmond American Homes, Taylor Morrison, and KB Home)Home, pursuant to which we agreed to sell and the builders agreed to purchase, 506 total single-family, detached residential lots at the Sky Ranch property (the “Builder Contracts”).property. We are obligated, pursuant to the Builder Contracts,these contracts, to construct infrastructure and other public improvements such as roads, curbs and gutters, park amenities, sidewalks, street and traffic signs, water and sanitary sewer mains and stubs, storm water management facilities, and lot grading improvements for delivery of finished lots to each builder. Pursuant to the Builder Contracts, we must cause the Rangeview District to install and construct off-sitewell as wholesale infrastructure improvements (i.e., a wastewater reclamation facility and wholesale water facilities).

As of November 30, 2020, we have incurred $34.5 million related to the development of the first filing of Sky Ranch out of the total estimated $35.8 million. We anticipate the remaining $1.3 million will be incurred during our fiscal 2021. These amounts include estimated reimbursable costs of $31.6 million, for which we received a partial reimbursement of $10.5 million in November 2019. We believe the provisionoutstanding $21.1 million of remaining reimbursables from the Sky Ranch CAB will be paid from future municipal bonds as the project continues to grow its assessed value and tax base. As of November 30, 2020, we have recognized $35.4 million of the sales price contracted for with the home builders and the remaining $1.4 million is expected to be recognized as revenue in our fiscal 2021. In addition, from the start of development at Sky Ranch through November 30, 2020, the Sky Ranch development produced $9.9 million of water and wastewater servicetap fees, and we expect that an additional $5.0 million of tap fees will be received during our remaining fiscal 2021.

In November 2020, we entered into separate contracts with KB Home, Meritage Homes, Melody (a DR Horton Company) and Challenger Homes to sell 789 single-family attached and detached residential lots at the Sky Ranch property. In conjunction with approvals from Arapahoe County forThis next development phase of Sky Ranch will incorporate approximately 250 acres and is planned to be completed in four sub-phases. Due to our strong performance in the first filing of the Sky Ranch project, we together with the Rangeview District and/or Sky Ranch Metropolitan District Nos. 1, 3, 4 and 5 (collectively, the “Sky Ranch Districts”) and/or the CAB are obligatedwere able to maintainrealize a deposit account with Arapahoe County30% increase in our lot price from $75,000 for a 50’ lot in phase one to ensure completion of the off-site infrastructure improvements. Approximately $1,000,000 remains on deposit. We have substantially completed all of the off-site infrastructure improvements$97,000 for the initial 506 residential lots. We have financed the obligations of the Rangeview District and the Sky Ranch Districts (through the CAB) as describedsame 50’ lot in Note 6 – Related Party Transactions to the accompanying consolidated financial statements.

24
We estimate that the development of the finished lots for the first phase (506 lots)subphase of Sky Ranch will require total capital of approximately $36 million, which includes estimated reimbursable costs of approximately $29 million that will be reimbursable to us by the CAB from the anticipated sale of the municipal bonds. Lot sales to home builders will generate approximately $37 million in revenues, providing a margin on lots of approximately $1 million prior to receipt of reimbursable costs, as discussed above.filing two. The Company and the CAB have agreed that no payment is required by the CAB with respect to reimbursable costs unless and until the CAB and/or the Sky Ranch Districts issue municipal bonds in an amount sufficient to reimburse us for all or a portion of advances provided or expenses incurred for reimbursables. Due to this contingency, reimbursable costs are currently included in Inventories and subsequently expensed through Land development construction costs until the point in time when bonds are issued and the CAB reimburses us for the public improvements. We submit specific costs for reimbursement to the CAB.  Based on the specific costs being reimbursed by the CAB, we record those costs that have been previously expensed in cost of sales as other income and those costs that remain capitalized as inventory costs as a reduction of the related inventory costs held in Inventories. Any reimbursable costs repaid after all capitalized expenses and lot revenues have been fully recognized will be recorded as other income. The costs of developing lots and revenues from the sales of finished lots are expected to be incurred over several quarters, and the timing of cash flows will include certain milestone deliveries, including, but not limited to, completion of governmental approvals for final plats, installation of wet utility public improvements, and final completion of lot deliveries. In January 2021, we expect to begin construction on the second filing at Sky Ranch, which is expected to include 895 residential lots. The 106 lots not currently under contract to home builders are being retained for future use.

Recent Developments

As the novel strain of the coronavirus (“COVID-19”) continues to escalate, we have taken measures to protect the health and well-being of our employees, customers, business partners, and their families. We have staggered the in-office work hours of various staff to ensure we can maintain proper social distancing, we require face coverings in all indoor settings as well as when employees are unable to maintain proper distance while working outside, and we have enhanced our cleaning and disinfecting activities. We have been able to maintain our level of efficiency with the use of video conferencing and electronic data sharing platforms. We were informed that our builder customers also took precautionary measures to ensure the safety of their employees, customers, business partners, and their families.  These measures varied by builder.  As a result, some of our builder customers reported material net housing order declines during the period (compared to the same period a year prior). 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, as a result of the COVID-19 precautionary measures and stay-at-home orders, we delivered the remaining lots during the three months ended November 30, 2020.  These deliveries were still ahead of the original delivery dates set forth in our contracts with the home builders by nearly two years. The most dramatic impact on our operations has been the delay in inspections, the permit process and other activities requiring governmental agencies due to expansive work restrictions imposed on their operations. We expect COVID-19 to continue to play a role in potential delays related to the second filing at Sky Ranch due to rapidly changing governmental orders, city and country shutdowns, and public health concerns. Mainly, we have experienced delays in the permitting process through the county.

17
Results of Operations

Executive Summary

The results of our operations for the three months ended November 30, 20192020 and 20182019 are as follows:

Table 1 - Summary of Results of Operations


 Three Months Ended November 30,       
 Three Months Ended November 30,        2020  2019  $ Change  % Change 
 2019  2018  $ Change  % Change  (In thousands except for water deliveries) 
Millions of gallons of water delivered 
16.0
  
114.5
  
(98.5
)
 
(86
)%
 
104
  
16
  
88
  
549
%
Oil and gas water usage revenues 
$
37,300
  
$
1,285,000
  
$
(1,247,700
)
 
(97
)%
Municipal water usage revenues 
103,400
  
82,900
  
20,500
  
25
%
 
$
167
  
$
103
  
$
64
  
62
%
Oil and gas operations water usage revenues  
1,199
   
37
   
1,162
   
3,141
%
Total metered water usage revenues 
$
140,700
  
$
1,367,900
  
$
(1,227,200
)
 
(90
)%
 
$
1,366
  
$
140
  
$
1,226
  
876
%
Operating costs to deliver water (excluding depreciation and depletion) 
$
253,800
  
$
335,200
  
$
(81,400
)
 
(24
)%
  
545
   
254
   
291
   
115
%
Water delivery gross margin 
$
821
  
$
(114
)
 
$
935
  
820
%
Water delivery gross margin % 
(80
)%
 
75
%
       
60
%
 
(81
)%
      
                        
Wastewater treatment revenues 
$
20,500
  
$
8,900
  
$
11,600
  
130
%
 
$
42
  
$
20
  
$
22
  
110
%
Operating costs to treat wastewater 
$
26,100
  
$
2,700
  
$
23,400
  
867
%
  
92
   
26
   
66
   
254
%
Wastewater treatment gross margin 
$
(50
)
 
$
(6
)
 
$
(44
)
 
733
%
Wastewater treatment gross margin % 
(27
)%
 
70
%
       
(119
)%
 
(30
)%
      
                        
Lot sales revenue 
$
8,541,600
  
$
1,381,200
  
$
7,160,400
  
518
%
 
$
2,356
  
$
8,542
  
$
(6,186
)
 
(72
)%
Land development construction costs incurred 
$
8,063,300
  
$
1,298,300
  
$
6,765,000
  
521
%
  
1,719
   
8,063
   
(6,344
)
  
(79
)%
Lot sales gross margin % 
6
%
 
6
%
      
Land development gross margin 
$
637
  
$
479
  
$
158
  
33
%
Land development gross margin % 
27
%
 
6
%
      
            
Water and wastewater tap fees 
$
1,083
  
$
1,672
  
$
(589
)
 
(35
)%
            
Other income 
$
86,000
  
$
59,800
  
$
26,200
  
44
%
 
$
152
  
$
6,662
  
$
(6,510
)
 
(98
)%
Other income costs incurred 
$
23,900
  
$
39,100
  
$
(15,200
)
 
(39
)%
 
$
24
  
$
24
  
$
—
  
—
 
Other income gross margin % 
72
%
 
35
%
      
            
Tap and Special Facility revenues 
$
1,672,100
  
$
254,800
  
$
1,417,300
  
556
%
                        
General and administrative expenses 
$
801,400
  
$
638,800
  
$
162,600
  
25
%
 
$
1,086
  
$
801
  
$
285
  
36
%
Net income 
$
5,762,500
  
$
634,000
  
$
5,128,500
  
809
%
 
$
845
  
$
5,763
  
$
(4,918
)
 
(85
)%

Discussion of Changes in RevenuesSummary Results

Metered Water Usage Revenueswater usage revenues – Our water service charges which are used to defray the costs to operate and maintain the systems, include a fixed monthly fee and a fee based on actual amounts of metered water delivered, which is based on a tiered pricing structure that provides for higher prices as customers use greater amounts of water. We typically negotiate the terms of our rates and charges with our wholesale customers as a component of our service agreements prior to commencement of service. Our rates and charges for service on the Lowry Range are based on the average rates and charges of three surrounding water providers.

25
Water deliveries decreased 86% and water revenues decreased 90%increased during the three months ended November 30, 2019,2020, as compared to the three months ended November 30, 2018. The decreases in water deliveries and revenues are the2019, primarily as a result of a decrease in demand from our industrial customers for water for hydraulic fracturing. The demand decreased in part duesales to changes to the oil and gas regulatory environment in the state of Colorado and primarily due to the decision of our largest customer of industrial water to shut down operations in the later months of calendar 2019. Asoperations. Water delivery gross margin increased from fiscal year 2020 as a result of the difference in metered rates for fracking water compared to rates for tap customers, as revenues received for fracking water have a greaterhigher margin. Increases and decreases in water deliveries charged at different rates will result in disproportionate increases and decreases in revenues and margins. The following tables detail the sources of our sales, the number of kgal (1,000 gallons) sold, and the average price per kgal for the three months ended November 30, 20192020 and 2018, respectively.2019.

18
Table 2 - Water Revenue Summary

  Three Months Ended November 30, 
  2019  2018 
Customer Type
 Sales  kgal  
Average
price per
kgal
  Sales  kgal  
Average
price per
kgal
 
On Site 
$
40,800
   
5,460.1
  
$
7.47
  
$
64,700
   
6,988.1
  
$
9.26
 
Export – Commercial  
14,200
   
1,644.2
   
8.64
   
15,500
   
1,830.7
   
8.47
 
Sky Ranch  
8,900
   
372.6
   
23.89
   
—
   
—
   
—
 
Wild Pointe  
39,400
   
7,776.0
   
5.07
   
2,600
   
7,581.8
   
0.34
 
Fracking  
37,400
   
748.4
   
49.97
   
1,285,100
   
98,129.3
   
13.10
 
  
$
140,700
   
16,001.3
  
$
8.79
  
$
1,367,900
   
114,529.9
  
$
11.94
 

The gross margin on delivering water decreased to (80%) during the three months ended November 30, 2019, compared to a gross margin of 72% during the three months ended November 30, 2018. The change in our gross margin was due to a decline in industrial water sold in the period for fracking.

 Three Months Ended November 30, 

 2020  2019 
Customer Type
 
Sales
(In thousands)
  kgal  
Average
price per
kgal
  
Sales
(In thousands)
  kgal  
Average price
per kgal
 
On Site 
$
32
   
2,642
  
$
11.92
  
$
41
   
5,460
  
$
7.47
 
Export – Commercial  
21
   
2,353
   
9.12
   
14
   
1,644
   
8.64
 
Sky Ranch  
99
   
12,298
   
8.06
   
9
   
373
   
23.89
 
Wild Pointe  
15
   
6,496
   
2.32
   
39
   
7,776
   
5.07
 
Fracking  
1,199
   
80,104
   
14.97
   
37
   
748
   
49.97
 
  
$
1,366
   
103,893
  
$
13.15
  
$
140
   
16,001
  
$
8.79
 

Wastewater Treatment Revenuestreatment revenues – Our wastewater customer iscustomers are charged based on the estimated amount of wastewater treated. Wastewater treatment revenues increased 130% during the three months ended November 30, 2019,2020, as compared to the three months ended November 30, 2018.2019. The increase for the three months ended November 30, 2019, was primarily due to increased wastewater treatment revenues from the development at Sky Ranch. The wastewater gross margin decreased to (27%) compared to 70% during the three months ended November 30, 2019, and 2018, respectively, due to an increase in staff required to maintain the water reclamation facility at Sky Ranch development.development and additional startup costs related to the new facility, which went into service in the second quarter of fiscal 2020. As we add customers to the wastewater system, the margins are expected to increase as the system was designed to provide services to more than 2,000 connections, which has the effect of overburdening the initial revenues with higher per unit costs upfront.

Tap and Special Facility/Construction Revenues Lot sales revenues–We have various water and wastewater service agreements, a component of which may include tap fee and “Special Facility” (as defined under “Critical Accounting Policies – Revenue Recognition – Wholesale Water and Wastewater Fees” below) or construction fee revenues. For Lot sales revenues decreased during the three months ended November 30, 2020 compared to the three months ended November 30, 2019, primarily as a result of timing of our progress of the first filing at Sky Ranch. To date, we have recognized $35.4 million of the estimated total revenue $36.8 million related to the first filing at Sky Ranch. Revenue for KB Homes, for which we recognize revenue when finished lots have been delivered, has been fully recognized. The remaining revenues relate to Richmond Home and Taylor Morrison and will be recognized in our fiscal 2021.

Water and wastewater tap fees – Tap fees and other revenues decreased during the three months ended November 30, 2020 compared to the three months ended November 30, 2019, primarily as a result of timing of tap sales by our homebuilder customers. During the three months ended November 30, 2020, we sold 35 water and wastewater taps at Sky Ranch and 1 water tap at Wild Pointe, compared to 58 water and wastewater taps, recognizing revenues of $1,672,100. We sold eight water taps during the three months ended November 30, 2018, recognizing revenues of $254,800. The increase in2019. Tap sales are driven by home closings and are not contractually established with the sale of water and wastewater taps in the three months ended November 30, 2019, was due to the increase in sales of homes by our home builder customers at Sky Ranch. The water and wastewater taps sold in the three months ended November 30, 2019 and 2018, were sold to the builders at Sky Ranch and were exempt from royalty payments to the Land Board.

We did not recognize Special Facility fees for the three months ended November 30, 2019 and 2018.

Other Income – Other income of $86,000 and $59,800 for the three months ended November 30, 2019 and 2018, respectively, consisted principally of consulting fees. Consulting fees fluctuate from one period to the next based on our customers’ needs. The Company is reducing its consulting services in order to focus its resources on the water systems at Sky Ranch. The Company expects consulting fees to be minimal in future periods.

Land Development Revenues– We broke ground on our first phase of Sky Ranch in March of 2018 and through the three months ended November 30, 2019, we completed and sold to our home builder customers 371 finished lots, receiving total payments of $23.7 million. We sold 116 and 0 finished lots in the three months ended November 30, 2019 and 2018, respectively, and recognized revenues of $8.5 million and $1.4 million for the three months ended November 30, 2019 and 2018, respectively. Additionally, we have completed improvements (including over lot grading, water, sewer, storm water), off-site improvements (including drainage), and our entry roadway (Monahan Road), for the remaining 135 lots, and carry those investments, totaling $3.9 million in Inventories in our financial statements. We are working with each of our home builder customers to deliver the remaining finished lots in advance of their original contract delivery deadlines by the end of fiscal year 2020.

26
As we make advances to the CAB for expenses incurred related to construction of public improvements, all amounts owed under the 2018 FFAA (as defined in Note 6 – Related Party Transactions)  bear interest at a rate of 6% per annum. No payment is required of the CAB for advances made to the CAB or expenses incurred related to construction of public improvements unless and until the CAB and/or Sky Ranch Districts issue bonds in an amount sufficient to reimburse the Company for all or a portion of advances or other expenses incurred. Due to this contingency, interest is accrued to Interest Income with a corresponding allowance until the point in time when bonds are issued. At that point, the allowance will be reversed for the portion of the accrued interest repaid and the accrued interest will be recognized. We have accrued approximately $1.0 million to Interest Income as of November 30, 2019.

We act as the project manager and provide any and all services required to deliver eligible improvements for the CAB. The project management fee is five percent (5%) of actual construction costs of CAB-eligible improvements. The Company and the CAB have agreed that no payment is required by the CAB with respect to project management fees unless and until the CAB and/or the Sky Ranch Districts issue municipal bonds in an amount sufficient to reimburse us for all or a portion of advances provided or expenses incurred for reimbursables. Due to this contingency, the project management fees are being accrued to revenue, with a corresponding allowance until the point in time when bonds are issued and the CAB reimburses us for the public improvements. At that point, the portion of the project management fees repaid will be recorded as a note receivable and will be recognized as revenue. We have accrued approximately $869,900 million in project management services as of November 30, 2019.
builders.

General and Administrative Expenses

Significant general and administrative (“G&A”) expenses for the three months ended November 30, 20192020 and 2018,2019, respectively, were:

Table 3 - Significant G&A Expenses


 Three Months Ended November 30,    
 Three Months Ended November 30,     2020  2019  $ Change  % Change 
 2019  2018  $ Change  % Change  (In thousands) 
Salary and salary-related expenses:                        
Including share-based compensation 
$
411,600
  
$
335,800
  
$
75,800
  
23
%
 
$
685
  
$
412
  
$
273
  
66
%
Excluding share-based compensation 
$
306,300
  
$
232,400
  
$
73,900
  
32
%
 
$
588
  
$
306
  
$
282
  
92
%
Professional fees 
$
144,800
  
$
100,100
  
$
44,700
  
45
%
 
$
186
  
$
145
  
$
41
  
28
%
Fees paid to directors (including insurance) 
$
49,000
  
$
59,300
  
$
(10,300
)
 
(17
)%
Fees paid to directors and D&O insurance 
$
50
  
$
49
  
$
1
  
2
%
Public entity related expenses 
$
27,800
  
$
26,800
  
$
1,000
  
4
%
 
$
29
  
$
28
  
$
1
  
4
%

Salary and salary-related expenses – Salary and salary-related expenses including share-based compensation expense increased 23% for the three months ended November 30, 2019,2020, as compared to the three months ended November 30, 2018. The increase was2019, primarily due to an increase inas a result of increased headcount of 5, fiscal 2021 bonus accrual and the numberaddition of Company employees by eight. The salary and salary-related expenses noted above include $105,400 and $103,500 of share-based compensation expenses duringour 401K match policy.

Professional fees – Professional fees increased for the three months ended November 30, 2019 and 2018, respectively.

Professional fees (predominately accounting and legal) – Legal and accounting fees increased 45% during the three months ended November 30, 2019,2020, as compared to the three months ended November 30, 2018. The increase for the three months ended November 30, 2019, compared to the three months ended November 30, 2018 is due to higher legal feesprimarily as a result of approximately $39,700 related to the review of the CAB’s bond sale documentsincreased consulting services and land development agreementsincreased audit and higher accounting fees of $5,000.

Fees paid to directors (including insurance)– Directors’ fees, including D&O insurance, decreased 17% for the three months ended November 30, 2019 as compared to the three months ended November 30, 2018. The decrease is primarily due to the timing and quantity of board meetings.

Public entity expenses – Costs associated with corporate governance and costs associated with being a publicly traded entity increased 4% for the three months ended November 30, 2019 compared to the three months ended November 30, 2018. The fluctuations are due to the timing and number of filings and compliance costs for filing with the Securities and Exchange Commission (the “SEC”).tax fees.

Other Income and Expense Items

19
Table 4 - Other Items


 Three Months Ended November 30,    
 Three Months Ended November 30,     2020  2019  $ Change  % Change 
 2019  2018  $ Change  % Change  (In thousands) 
Other income items:                        
Oil and gas royalty income, net 
$
75
  
$
270
  
$
(195
)
 
(72
)%
Oil and gas lease income, net 
$
52
  
$
62
  
$
(10
)
 
(16
)%
Interest income 
$
15
  
$
54
  
$
(39
)
 
(72
)%
Other income 
$
10
  
—
  
$
10
  
—
 
Income from reimbursement of construction costs (related party) 
$
6,275,500
  
$
—
  
$
6,275,500
  
—
  
$
—
  
$
6,276
  
$
(6,276
)
 
(100
)%
Oil and gas lease income, net 
$
61,700
  
$
13,900
  
$
47,800
  
344
%
Oil and gas royalty income, net 
$
269,500
  
$
31,400
  
$
238,100
  
758
%
Interest income 
$
54,200
  
$
71,200
  
$
(17,000
)
 
(24
)%

27
Income from reimbursement of construction costs (related party)Oil and gas royalty income – OnOil and gas royalty income decreased during the three months ended November 19, 2019, the CAB sold tax-exempt, fixed rate senior bonds in the aggregate principal amount of approximately $11,435,000 and tax-exempt, fixed-rate subordinate bonds in the aggregate principal amount of approximately $1,765,000 (collectively, the “Bonds”). Upon the sale of the Bonds approximately $10.5 million of the net proceeds from the Bonds were used to partially reimburse us for advances we made30, 2020 compared to the CAB pursuant to the 2018 FFAA to fund the constructionthree months ended November 30, 2019, primarily as a result of public improvements to the Sky Ranch property. Approximately $2.7 million of the bond proceeds were retained by the CAB in cash in order to repay debt service through 2021, when the CAB expects to generate enough revenue through mill levies to repay bond holders.

We applied approximately $4.2 million of the net proceeds to partially reduce the remaining capitalized expenses in Inventories decreased oil and the excess of the capitalized public improvement expenses of approximately $6.3 million was recognized as Income from reimbursement of construction costs (related party) in other income.gas production. As a result of COVID-19 and the reimbursed costs, the margin from land development revenues is expectedresulting economic effects caused by stay-at-home orders and less travel and commuting, oil and gas prices decreased significantly and have not rebounded, making new production less attractive to increase to approximately 27%.oil and gas companies.

Oil and gas lease income – Of the $61,700 of oilOil and gas lease payments recognizedincome decreased during the three months ended November 30, 2019 $13,900 represents the deferred recognition of the up-front payment of $167,200 that we received in September 2017 in connection with entering into a Paid-Up Oil and Gas Lease with Bison Oil and Gas, LLP (the “Bison Lease”), which payment is being recognized in income over the three year term of the Bison Lease and $47,800 represents the deferred recognition of the up-front payment of $573,700 that we received in July 2019 for an Agreement on Locations of Oil and Gas Operation (the “OGOA”) giving the operator of the Sky Ranch O&G Lease (defined below) a right2020 compared to access 16 acres for an oil and gas pad site for three years through July 2022. The $13,900 of oil and gas lease income recognized during the three months ended November 30, 2018, related to the up-front payment received pursuant to the Bison Lease.

Oil and gas royalty income – In 2011, we entered into a Paid-Up Oil and Gas Lease, which was subsequently purchased by a wholly-owned subsidiary of ConocoPhillips Company, for the purpose of exploring for, developing, producing and marketing oil and gas on 634 acres of mineral estate we own at our Sky Ranch property (the “Sky Ranch O&G Lease”). The Sky Ranch O&G Lease is held by production through two wells drilled in our mineral estate. The oil and gas royalty income represents amounts received pursuant to the Sky Ranch O&G Lease as royalties from oil and gas production from wells in our mineral estate at Sky Ranch. The royalties for the three months ended November 30, 2019, were $269,500,primarily as compared to $31,400 for the same period in 2018. The increase in oil and gas royalties is a result of the additionexpiration of four wells during the current period resulting in higher production of oilour lease with Bison Oil and gas from wells in our mineral estate at Sky Ranch.Gas, LLP.

Interest Incomeincome – Interest income represents interest earned on the temporary investment of capital in cash and cash equivalents, investments, finance charges, and interest accrued on the notes receivable from the Rangeview District and the Sky Ranch Districts. The decrease in the three months ended November 30, 2020 compared to 2019 was primarily attributable to short term investments held in the first quarter of fiscal 2020. Due to the current low interest rates, on investments and timingwe are no longer holding any short-term investments.

Income from reimbursement of construction costs - related party – In November 2019, the Sky Ranch CAB issued $13.2 million of bonds related to the public improvements at Sky Ranch. This is only a portion of the maturitytotal $31.6 million which is eligible for reimbursement. We anticipate the Sky Ranch CAB will reimburse us for the remaining $21.1 million either by the issuance of bonds for that amount in the future as development continues at Sky Ranch or from property tax assessments received by the Sky Ranch CAB. Of the $13.2 million of bonds issued, we received $10.5 million, which represents the partial reimbursement of the investments.advances we made to the Sky Ranch CAB for construction of the public improvements pursuant to a funding agreement between us and the Sky Ranch CAB.

Of the $10.5 million we received, $4.2 million was recorded as a reduction to the Land Development Inventories account and $6.3 million was recognized as Income from reimbursement of construction costs - related party in other income.

Liquidity, Capital Resources and Financial Position

At November 30, 2019,2020, our working capital, defined as current assets less current liabilities, was $20.4$19.9 million, which included $22.1$21.3 million in cash and cash equivalents and short-term investments with a maturity of less than 90 days.equivalents. We believe that as of November 30, 2019,2020, and as of the date of the filing of this Quarterly Report on Form 10-Q, we have sufficient working capital to fund our operations for the next 12 months.

Sky Ranch Development

In the spring of fiscal year 2018, we began construction of off-site improvementsThe first filing at Sky Ranch including drainage improvements, access roads and other improvements. We seekis nearing completion, with approximately $1.3 million remaining obligations. Filing 2 is preparing to manage our capital investments in the construction of finished lots for our home builder customers to match purchases required by each Builder Contract, for example, by authorizing specific contracts in phases. By way of further example, we have invested approximately $29.3 million into constructing the first 371 finished lots at Sky Ranch. We have received approximately $23.7 million from the sale of the finished lots. In addition, on November 19, 2019, the CAB sold the Bonds and used approximately $10.5 million of the net proceeds to partially reimburse us for advances we made to the CAB pursuant to the 2018 FFAA to fund the construction of public improvements to the Sky Ranch property. As of November 30, 2019, we have advanced the CAB approximately $13.5 million (including interest) that has not been reimbursed but that we expect will be reimbursable by the CAB.break ground January 2021. We anticipate funding our working capital needsfuture revenues from cash receipts from the sale of lots and water and wastewater tapstap fees as well as progress payments from our homebuilder customers and our existing cash balances will fund our obligations for the bond proceeds in fiscal 2020.next 12 months.

28
ECCV Capacity Operating System

Pursuant to a 1982 contractual right, theThe Rangeview District may purchase water produced from East Cherry Creek Valley Water and Sanitation District’s (“ECCV”) Land Board system. ECCV’s Land Board system is comprised of eight wells and more than 10 miles of buried water pipeline located on the Lowry Range. In May 2012, we entered into an agreement to operate and maintain the ECCV facilities, allowing us to utilize the system to provide water to commercial and industrial customers, including customers providing water for drilling and hydraulic fracturing of oil and gas wells. Our costs associated with the use of the ECCV system are a flat fee of $8,000eight thousand dollars per month from January 1, 2013 through December 31, 2020, and will decrease to $3,000three thousand dollars per month from January 1, 2021 through April 2032. Additionally, we pay a fee per 1,000 gallons of water produced from the ECCV’s system, which is included in the water usage fees charged to customers. In addition, theThe ECCV system cost us $9,600 and $8,200 per month to maintain in 2019 and 2018, respectively, and is anticipated to continue to cost us approximately $10,000ten thousand dollars per month to maintain.
maintain going forward.

20
South Metropolitan Water Supply Authority (“SMWSA”) and the Water Infrastructure Supply Efficiency Partnership (“WISE”)

SMWSA is a municipal water authority in the State of Colorado organized to pursue the acquisition and development of new water supplies on behalf of its members, including the Rangeview District. Pursuant to certain agreements with the Rangeview District, we agreed to provide funding to the Rangeview District in connection with its membership in the SMWSA. In July 2013, the Rangeview District, together with nine other SMWSA members, formed an entity to enable its members to participle in a cooperative water project known as WISE and entered into an agreement that specifies each member’s pro rata share of WISE and the members’ rights and obligations with respect to WISE. On December 31, 2013, the South Metro WISE Authority (“SMWA”), the City and County of Denver acting through its Board of Water Commissioners (“Denver Water”) and the City of Aurora acting by and through its Utility Enterprise (“Aurora Water”) entered into the Amended and Restated WISE Partnership – Water Delivery Agreement (the “WISE Partnership Agreement”), which provides for the purchase of certain infrastructure (pipelines, water storage facilities, water treatment facilities, and other appurtenant facilities) to deliver water to and among Rangeview District and the other nine members of the SMWA, Denver Water and Aurora Water. We have entered into a financing agreement that obligates us to fund the Rangeview District’s cost of participating in WISE. We anticipate that we will be investing approximately $3.0$1.1 million in 20202021 and $4$7.5 million in total for the fiscal years 20212022 through 20242025 to fund the Rangeview District’s obligation to purchase water and infrastructure for WISE, its obligations related to SMWSA, and the construction of a connection to the WISE system. In exchange for funding the Rangeview District’s obligations in WISE, we will have the sole right to use and reuse the Rangeview District’s 7%9% share of the WISE water and infrastructure to provide water service to the Rangeview District’s customers and to receive the revenue from such service. Our current WISE subscription entitles us to approximately three million gallons per day of transmission pipeline capacity and 500 acre feet per year of water.

Summary Cash Flows Table

Table 5 - Summary Cash Flows Table

 Three Months Ended November 30,     Three Months Ended November 30,    
 2019  2018  $ Change  % Change  2020  2019  $ Change  % Change 
Cash (used in) provided by:            

 (In thousands) 
Cash provided by (used in):            
Operating activities 
$
14,722,000
  
$
(5,729,000
)
 
$
20,451,000
  
357
%
 
$
6
  
$
14,721
  
$
(14,715
)
 
(100
)%
Investing activities 
$
2,874,800
  
$
(4,795,400
)
 
$
7,670,200
  
160
%
 
$
(499
)
 
$
2,875
  
$
(3,374
)
 
(117
)%
Financing activities 
$
(2,400
)
 
$
74,500
  
$
(76,900
)
 
(103
)%
 
$
(1
)
 
$
(2
)
 
$
1
  
50
%

Changes in Operating Activities – Operating activities include revenues we receive from the sale of wholesale water, wastewater services and lot sales andproduced by our segments less costs incurred in the delivery of those services and G&A expenses, and depletion/depreciation expenses.

Cash provided by operations decreased in the three months ended November 30, 2019, increased by approximately $20.5 million2020 compared to 2019, primarily as a result of the bond payment we received as partial reimbursement of public improvement expenditures from the Sky Ranch CAB and increased lot sales revenues in the three months ended November 30, 2018, which is primarily due to the partial reimbursement of capitalized costs of $10.5 million recorded in Inventories to develop lots at Sky Ranch, the collection of trade account receivables and contract assets of $1.7 million, an increase of taxes payable and deferred taxes of $1.9 million, coupled with an increase of net income of $5.7 million offset by the recognition of deferred revenues net of advance payments for industrial water of $1.7 million and payments of accounts payable and accrued liabilities of $0.8 million.2019.

29
Changes in Investing Activities – Cash provided byDuring the three months ended November 30, 2020, investing activities of $2.9used $0.5 million primarily due to investments in our water, water systems, and land development activities. Conversely, during the three months ended November 30, 2019, consistedinvesting activities produced $2.9 million, primarily as a result of the maturitysale of debt securities andshort-term investments, of $5.2 millionpartially offset by the investmentinvestments in our water, system of $2.3 millionwater systems, and the purchase of equipment of $37,100. Cash used in investing activities of $4.8 million in the three months ended November 30, 2018 consisted of the purchase of short-term investments of $6.0 million, the investment in our water system of $2.5 million, the purchase of equipment of $42,900 offset by the cash provided from the maturity of debt securities of $3.7 million.

Changes in Financing Activities – Cash used in financing activities during the three months ended November 30, 2019 of $2,400, related to a payment to contingent liability holders. Cash provided in financing activities of $74,500 during the three months ended November 30, 2018 consisted of a receipt of $78,300 for the exercise of stock options and a payment to contingent liability holders of $3,700.land development activities.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements consist entirely of the contingent portion of the CAA as described in Note 45 – Long-Term Obligations and Operating Lease – Participating Interests in Export Water Supply to the accompanying condensed consolidated financial statements. The contingent liability is not reflected on our balance sheet because the obligation to pay the CAA is contingent on sales of Export Water, the amounts and timing of which are not reasonably determinable.

Critical Accounting Policies and Use of Estimates

The preparationOur critical accounting policies and estimates are described in “Critical Accounting Policies and Estimates” within Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended August 31, 2020 and Note 2 of the Notes to Consolidated Financial Statements in “Financial Statements and Supplementary Data” included as Item 8 in our Annual Report on Form 10-K for the year ended August 31, 2020. With the exception of updates to significant accounting policies discussed in Note 1 of this Quarterly Report on Form 10-Q, the accounting policies and estimates used in preparing our interim condensed consolidated financial statements for the three months ended November 30, 2020 are the same as those described in conformityour Annual Report on Form 10-K for the year ended August 31, 2020. There have been no changes to our critical accounting policies during the quarter ended November 30, 2020. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with accounting principles generally acceptedGAAP have been condensed or omitted from the interim financial statements included in this Quarterly Report on Form 10-Q pursuant to the United Statesrules and regulations of America requires managementthe SEC, although we believe that the disclosures made are adequate to make estimates and assumptions about future events that affect the amounts reported in theinformation not misleading. The unaudited condensed consolidated financial statements and accompanying notes. Future events and their effects cannotother information included in this Quarterly Report on Form 10-Q should be determinedread in conjunction with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

The most significant accounting estimates inherent in the preparation of ouraudited consolidated financial statements include estimates associated with the timing of revenue recognition, the impairment of water assets and other long-lived assets, fair value estimates and share-based compensation. Below is a summary of these critical accounting policies.

Revenue Recognition

We generate revenues through two lines of business. Revenues are derived through our wholesale water and wastewater business and through the sale of developed land primarily for residential lots, both of which businesses are described below.

Wholesale Water and Wastewater Fees

We generate revenues through our wholesale water and wastewater business predominantly from three sources: (i) monthly wholesale water usage fees and wastewater service fees, (ii) one-time water and wastewater tap fees and construction fees/Special Facility funding, and (iii) consulting fees. Because these items are separately delivered and distinct, we account for each of the items separately, as described below.


(i)
Monthly water usage and wastewater treatment fees– Monthly wholesale water usage charges are assessed to our customers based on actual metered usage each month plus a base monthly service fee assessed per SFE unit served. One SFE is a customer, whether residential, commercial or industrial, that imparts a demand on the Company’s water or wastewater systems similar to the demand of a family of four persons living in a single-family house on a standard-sized lot. Water usage pricing uses a tiered pricing structure. We recognize wholesale water usage revenues upon delivering water to our customers or our governmental customers’ end-use customers, as applicable. Revenues recognized by us from the sale of Export Water and other portions of our Rangeview Water Supply off the Lowry Range are shown gross of royalties to the Land Board. Revenues recognized by us from the sale of water on the Lowry Range are shown net of royalties paid to the Land Board and amounts retained by the Rangeview District. For water sales on the Lowry Range, the Rangeview District is directly selling the water and deemed the primary distributor of the water. The Rangeview District sets the price for the water sales on the Lowry Range.

In addition to providing domestic water, we provide raw water to industrial customers in the oil and gas industry locatednotes thereto in our service areas and adjacent to our service areas for hydraulic fracturing. Frack water deliveries are recognized at a point in time upon delivering water to a customer.

We recognize wastewater treatment revenue monthly basedAnnual Report on a flat monthly fee and actual usage charges. The monthly wastewater treatment fees are shown net of amounts retained by the Rangeview District.

30

(ii)
Water and wastewater tap fees/Special Facility funding – A tap fee constitutes a right to connect to our wholesale water and wastewater systems through a service line to a residential or commercial building or property, and once granted, the customer may make a physical tap into the wholesale line(s) to connect its property for water and/or wastewater service. Once connected to the water and/or wastewater systems, the customer has live service to receive metered water deliveries from our system and send wastewater into our system. We recognize water and wastewater tap fees as revenue at the time we grant a right for the customer to tap into the water or wastewater service line to obtain service.

We recognize construction fees, including fees received to construct “Special Facilities,” over time as the construction is completed.


(iii)
Consulting fees – Consulting fees are fees we receive, typically on a monthly basis, from municipalities and area water providers, for contract operations services. Consulting fees are recognized monthly over time as the services are consumed based on a flat monthly fee plus charges for additional work performed.

Land Development Activities

We generate revenues through the sale of finished lots at our Sky Ranch development primarily from several sources of revenues (i) the sale of finished lots, (ii) construction support activities, (iii) project management services, and (iv) reimbursable expenses incurred to develop certain public improvements.


(i)
Sale of finished lots – We acquired approximately 930 acres of land zoned as a Master Planned Community known as Sky Ranch along the I-70 corridor east of Denver, Colorado. We have entered into purchase and sale agreements with three separate home builders pursuant to which we agreed to sell, and each builder agreed to purchase, residential lots at the property. We began construction of lots on March 1, 2018 and segment our reporting of the activity relating to the costs and revenues from the construction and sale of lots at Sky Ranch.

We sell lots at Sky Ranch pursuant to distinct agreements with each builder. These agreements follow one of two formats. One format is the sale of a finished lot, whereby the purchaser pays for a ready-to-build finished lot and payment is a lump-sum payment upon completion of the finished lot that is permit ready. We will recognize revenues at the point in time of the closing of the sale of a finished lot in which control transfers to the builder as the transaction cycle will be complete, and we will have no further obligationsForm 10-K for the lot.

Our second format is the sale of finished lots pursuant to a development agreement with builders, whereby we receive payments in stages that include (i) payment upon the delivery of platted lots (which requires us to deliver deeded title to individual lots), (ii) a second payment upon the completion of certain infrastructure milestones, and (iii) final payment upon the delivery of the finished lot. Ownership and control of the platted lots pass to the builders once we close the sale of the platted lots. Because the builder (i.e., the customer) takes control of the lot at the first closing and subsequent improvements made by us improve the builder’s lot as construction progresses, we account for revenue over time with progress measured based upon costs incurred to date compared to total expected costs. Any revenue in excess of amounts entitled to be billed is reflected on the balance sheet as a contract asset, and amounts received in excess of revenue recognized are recorded as deferred revenue. We do not have any material significant payment terms as all payments are expected to be received within 12 months after the delivery of the platted lot. We adopted the practical expedient for financing components and do not need to account for a financing component of these lot sales as the delivery of lot sales is expected to occur within one year.


(ii)
Construction support activities – We perform certain construction activities at Sky Ranch. The activities performed include construction and maintenance of the grading, erosion and sediment control best management practices and other construction-related services. These activities are invoiced upon completion and are included in Inventories and subsequently expensed through Land development construction costs until bonds are issued by the Sky Ranch Districts and/or the CAB and the CAB reimburses the Company for public improvements. Refer to section (iv) Reimbursable Costs for Public Improvements for details on repayment of reimbursable costs.


(iii)
Project management services – We entered into two Service Agreements for Project Management Services with the CAB on May 2, 2018. Pursuant to these agreements, we act as the project manager and provide any and all services required to deliver the CAB-eligible improvements, including but not limited to CAB compliance, planning design and approvals, project administration, contractor agreements, and construction management and administration. We submit a monthly invoice to the CAB. We are responsible for all expenses we incur in the performance of the agreements and are not entitled to any reimbursement or compensation except as defined in the agreements, unless otherwise approved in advance by the CAB in writing. The CAB is subject to annual budget and appropriation procedures and does not intend to create a multiple-fiscal year direct or indirect debt or other financial obligation. The project management fee is five percent (5%) of actual construction costs of CAB-eligible improvements. The project management fee is based only on the actual costs of the improvements; thus, items such as fees, permits, review fees, consultant or other soft costs, and land acquisition or any other costs that are not directly related to the cost of construction of CAB-eligible improvements are not included in the calculation of the project management fee. Soft costs and other costs that are not directly related to the construction of CAB-eligible improvements are included in Inventories and accounted for in the same manner as construction support activities as described above. We and the CAB have agreed that no payment is required by the CAB with respect to project management fees unless and until the CAB and/or the Sky Ranch Districts issue municipal bonds in an amount sufficient to reimburse us for all or a portion of advances provided or expenses incurred for reimbursables. Due to this contingency, the project management fees are being accrued to revenue with a corresponding allowance until the point in time when bonds are issued by the Sky Ranch Districts and/or the CAB and the CAB reimburses us for the public improvements. At that point, the portion of the project management fees repaid will be recorded as a note receivable and will be recognized as revenue.

31

(iv)
Reimbursable expenses – The CAB is required to construct certain public improvements, such as water distribution systems, sewer collection systems, storm water systems, drainage improvements, roads, curb, sidewalks, landscaping, and parks, the costs of which may qualify as reimbursable costs. We are obligated to finance this infrastructure pursuant to our agreements with the CAB (see Note 6 in Related Parties Transactions to the accompanying consolidated financial statements). We and the CAB have agreed that no payment is required with respect to advances made by us or expenses incurred related to construction of public improvements unless and until the CAB and/or the Sky Ranch Districts issue bonds in an amount sufficient to reimburse us for all or a portion of the advances made and expenses incurred. Due to this contingency, the reimbursable costs for the construction of public improvements, including reimbursable costs for construction support activities, are included in Inventories and subsequently expensed through Land development construction costs until the point in time when the CAB reimburses us for such public improvements. We submit specific costs for reimbursement to the CAB. Based on the specific costs being reimbursed by the CAB, we record those costs that have been previously expensed in cost of sales as other income and those costs that remain capitalized as inventory costs as a reduction of the related inventory costs held in Inventories. Any reimbursable costs repaid after all capitalized expenses and lot revenues have been fully recognized will be recorded as other income.

Leases

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

Impairment of Water Assets and Other Long-Lived Assets

We review our long-lived assets for impairment whenever management believes events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We measure recoverability of assets to be held and used by a comparison of the carrying amount of an asset to estimated future undiscounted net cash flows we expect to be generated by the eventual use of the asset. If such assets are considered to be impaired and, therefore, the costs of the assets deemed to be unrecoverable, the impairment to be recognized would be the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.

Our water assets will be utilized in the provision of water services that inevitably will encompass many housing and economic cycles. Our water supplies are legally decreed to us through the water court. The water court decree allocates a specific amount of water (subject to continued beneficial use), which historically has not changed. Thus, individual housing and economic cycles typically do not have an impact on the number of connections we can serve with our supplies or the amount of water legally decreed to us relating to these supplies.

Our Water Rights – We determine the undiscounted cash flows for our Denver-based assets by estimating tap sales to potential new developments in our service area and along the Front Range, using estimated future tap fees less estimated costs to provide water services, over an estimated development period. Actual new home development in our service area and the Front Range, actual future tap fees, and actual future operating costs inevitably will vary significantly from our estimates, which could have a material impact on our financial statements as well as our results of operations. We performed an impairment analysis as ofyear ended August 31, 2019, and determined that there were no material changes and that our Denver-based assets are not impaired and their costs are deemed recoverable. Our impairment analysis is based on development occurring within areas in which we have service agreements (e.g., Sky Ranch and the Lowry Range) as well as in surrounding areas, including the Front Range and the I-70 corridor. Our combined Rangeview Water Supply and Sky Ranch water assets have a carrying value of $49.2 million as of August 31, 2019 . Based on the carrying value of our water rights, the long-term and uncertain nature of any development plans, current tap fees of $26,675 and estimated gross margins, we estimate that we would need to add 1,850 new water connections (requiring 7% of our portfolio) to generate net revenues sufficient to recover the costs of our Rangeview Water Supply and Sky Ranch water assets. If tap fees increase 5%, we would need to add 1,750 new water taps (requiring 7% of our portfolio) to recover the costs of our Rangeview Water Supply and Sky Ranch water assets. If tap fees decrease 5%, we would need to add 1,940 new water taps (requiring 7% of our portfolio) to recover the costs of our Rangeview Water Supply and Sky Ranch water assets.

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

32
Our Land Development Assets – We determine the undiscounted cash flows from lot sales, defined under our Builder Contracts, using the costs incurred to date and estimated costs to build the remaining infrastructure for delivery of finished lots over an estimated development period. Our impairment analysis is based on comparing the lot sale price under our Builder Contracts, together with qualified reimbursables, with the cost to deliver the finished lots. Our Sky Ranch land assets under development, shown as Inventories on our balance sheet, have a carrying value of $11.6 million as of August 31, 2019. Based on the carrying value of our land inventories and the estimated costs to complete finished lots, compared to revenue generated from lot sales and reimbursables, we estimate that we generate net revenues sufficient to recover the costs of our land development activities. If our costs increase 5% and our lot sale revenues remain the same pursuant to our agreements, we estimate that our recoverable reimbursable costs would increase 2.5% and that we would generate net revenues sufficient to recover the costs of our land development activities.

Share-Based Compensation

We estimate the fair value of share-based payment awards made to key employees and directors on the date of grant using the Black-Scholes option pricing model. We then expense the fair value over the vesting period of the grant using a straight-line expense model. The fair value of share-based payments requires management to estimate or calculate various inputs such as the volatility of the underlying stock, the expected dividend rate, the estimated forfeiture rate and an estimated life of each option. We do not expect any forfeiture of option grants; therefore, the compensation expense has not been reduced for estimated forfeitures. These assumptions are based on historical trends and estimated future actions of option holders and may not be indicative of actual events, which may have a material impact on our financial statements. For further details on share-based compensation expense, see Note 5 – Shareholders’ Equity to the accompanying consolidated financial statements.2020.

Recently Adopted and Issued Accounting Pronouncements

See Note 1 – Presentation of Interim Information to the accompanying condensed consolidated financial statements for recently adopted and issued accounting pronouncements.

21
Disclosure Regarding Forward-Looking Statements

Statements that are not historical facts contained in or incorporated by reference into this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements involve risks and uncertainties that could cause actual results to differ from projected results. The words “anticipate,” “goal,” “seek,” “project,” “strategy,” “future,” “likely,” “may,” “should,” “will,” “believe,” “estimate,” “expect,” “plan,” “intend” and similar expressions and references to future periods, as they relate to us, are intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. We cannot assure you that any of our expectations will be realized. Forward-looking statements include, among others, statements we make regarding:assumptions.


●
the reimbursements of certain costs by the CAB and the estimated amount of such reimbursable costs;

●
material changes to unrecognized tax positions;

●
the impact of new accounting pronouncements;

●
the policies and procedures to value certain financial instruments;

●
estimated revenues under the CAA;

●
the timing and impact on our financial statements of new home construction and other development in the areas where we may sell our water;

●
utilization of our water assets;

●
growth in our targeted service area;

●
anticipated AMT refund in future years;

●
projected capital spending and projected gross proceeds and margin on lot sales for the first phase of Sky Ranch;

●
timing of delivery of finished lots at Sky Ranch;

●
expected payments to be received from builders;

●
sufficiency of our working capital to fund our operations for the next 12 months;

●
our ability to fund improvements needed to deliver finished lots to home builders at Sky Ranch by phasing construction and delivery of lots and utilizing progress payments from builders;

●
consistency of director compensation;

●
costs associated with the use of the ECCV system;

●
infrastructure to be constructed over the next several years, including the expected costs thereof;

●
timing and availability of water from, and projected costs related to, WISE;


●
estimates associated with revenue recognition, asset impairments, and cash flows from our water and land assets;

●
variance in our estimates of future tap fees and future operating costs;

●
estimated number of SFE connections that can be served by our water systems;

●
number of new water connections necessary to recover costs;

●
expected vesting and forfeitures of stock options;

●
objectives of our investment activities;

●
timing of the recognition of income related to the Bison Lease and the OGOA;

●
the effectiveness of our disclosure controls and our internal control over financial reporting; and

●
our plans to remediate material weaknesses in our internal control over financial reporting.

Factors thatThese forward-looking statements are subject to a number of risks, uncertainties and assumptions, including without limitation the risks described in “Risk Factors” in Part II Item 1A of our most recent Annual Report on Form 10- K, and in the reports we file with the Securities and Exchange Commission. These risks are not exhaustive. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contemplated by suchcontained in any forward-looking statements. Forward-looking statements should not be relied upon as predictions of future events. We can provide no assurance that the events and circumstances reflected in the forward-looking statements include, without limitation:


●
the timing of new home construction and other development in the areas where we may sell our water, which in turn may be impacted by credit availability;

●
population growth;

●
changes in employment levels, job and personal income growth and household debt-to-income levels;

●
changes in consumer confidence generally and confidence of potential homebuyers in particular;

●
the ability of existing homeowners to sell their existing homes at prices that are acceptable to them;

●
changes in the supply of available new or existing homes and other housing alternatives, such as apartments and other residential rental property;

●
timing of oil and gas development in the areas where we sell our water;

●
general economic conditions;

●
the market price of water;

●
the market price of oil and gas;

●
changes in customer consumption patterns;

●
changes in applicable statutory and regulatory requirements;

●
changes in governmental policies and procedures, including with respect to land use and environmental and tax matters;

●
changes in interest rates;

●
private and federal mortgage financing programs and lending practices;

●
uncertainties in the estimation of water available under decrees;

●
uncertainties in the estimation of costs of delivery of water and treatment of wastewater;

●
uncertainties in the estimation of the service life of our systems;

●
uncertainties in the estimation of costs of construction projects;

●
the strength and financial resources of our competitors;

●
our ability to find and retain skilled personnel;

●
climatic and weather conditions, including floods, droughts and freezing conditions;

●
labor relations;

●
turnover of elected and appointed officials and delays caused by political concerns and government procedures;

●
availability and cost of labor, material and equipment;

●
delays in anticipated permit and construction dates;

●
engineering and geological problems;

●
environmental risks and regulations;

●
our ability to raise capital;

●
our ability to negotiate contracts with new customers;

●
uncertainties in water court rulings;

●
unauthorized access to confidential information and data on our information technology systems and security and data breaches; and

●
factors described under “Risk Factors” in our 2019 Annual Report on Form 10-K.

will be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. We undertakeassume no obligation to publicly update or revise anysupplement forward-looking statements, whetherexcept as a result of new information, future events or otherwise. All forward-looking statements are expressly qualified by these cautionary statements.may be required under applicable law.

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Item 3.
Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.
Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rule 13a-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. The President and the Chief Financial Officer evaluated the effectiveness of disclosure controls and procedures as of November 30, 2019,2020, pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, the President and the Chief Financial Officer each concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective. A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control Over Financial Reporting

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (the “2013 COSO Framework”). Based on that evaluation, our management identified deficiencies related to our identification of expense accruals of costs incurred from related parties and the preparation of our income tax provision that constitute material weaknesses in our internal control over financial reporting as of August 31, 2019.

A material weakness is a deficiency, or combination of deficiencies, in our internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management is dedicated to remediating the control deficiencies that gave rise to the material weaknesses in our internal control over financial reporting. The following steps are among the measures that have been implemented or that we intend to implement in the second quarter of fiscal 2020 to address our material weaknesses as of August 31, 2019:

We have initiated compensating controls, including designating an additional person to confirm expense accruals;
We are enhancing and revising the design of existing controls and procedures to improve our identification of expense accruals of costs; and
We have initiated compensating controls, including designating an external tax consulting firm to review and confirm our quarterly income tax provisions are correct and complete.

We have begun the remediation of these material weaknesses and anticipate they will be completed prior to the end of our fiscal 2020. We cannot assure that the measures we take will remediate the identified material weaknesses or that any additional material weaknesses will not arise in the future.

Except as noted above, noNo changes were made to our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Index
PART II – OTHER INFORMATION

Item 6.
Exhibits

Exhibit
Number

Description
 

3.1

Articles of Incorporation of the Company. Incorporated by reference to Appendix B to the Proxy Statement on Schedule 14A filed on December 14, 2007.
 

3.2

Bylaws of the Company. Incorporated by reference to Appendix C to the Proxy Statement on Schedule 14A filed on December 14, 2007.
 

31.1

Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
 

31.2

Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *


32.1

Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
 

32.2

Certification of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **


101.INS
XBRL Instance Document. *
 

101.SCH
XBRL Taxonomy Extension Schema Document. *
 

101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document. *
 

101.DEF
XBRL Taxonomy Extension Definition Linkbase Document. *
 

101.LAB
XBRL Taxonomy Extension Label Linkbase Document. *
 

101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document. *

*
Filed herewith.

**
Furnished herewith.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

PURE CYCLE CORPORATION

/s/ Mark W. Harding
Kevin B. McNeill
Mark W. Harding
Kevin B. McNeill
Vice President and Chief Financial Officer

January 7, 2020
5, 2021



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